Interim Results for the six months ended 30 June 2008

Environmental Recycling Technologies plc (“ERT”, “the Company” or the “Group”) (AIM: ENRT), which has developed and is exploiting the patented rights to the Powder Impression Moulding (“PIM”) process capable of converting mixed waste plastics into commercially viable products, announces its unaudited interim results for the six months ended 30 June 2008.

Highlights

• The Company is now operating under an out-licensing business model
   - Consequent significant reduction in overhead and costs
• The Company continues to sign additional licenses
   - Expected revenues of at least £1.0m from license fees
• Increasing interest in applications for the Company’s PIM process technology
   - Major interest in Eco Sheet
• Turnover £179,000 (H1 2007: £ 25,000);
• Operating loss £1.80 million (H1 2007: loss £1.35 million);
• Loss attributable to equity shareholders £2.00 million (H1 2007: loss £1.91 million)

Chairman’s Statement

I am pleased to present to you our unaudited interim results for the six months ended 30 June 2008.

This period covers the consolidation of the Group’s operations following the resignation of our then CEO Niall MacKay on 29 February 2008. His departure lead to a review of the Company’s business and strategy leading to the Group becoming an intellectual property bank focused on PIM technology. Due to this shift in strategy the board took the decision to implement a general restructuring programme focused on cost cutting.

To that end we have incurred various costs in connection with this corporate restructuring and further costs in reorganising our commercial operations. Wherever possible we have sought to reduce and simplify the Group’s activities and have recognised or settled outstanding disputes or claims. The accounts for this period include £123,000 directly relating to staff changes, £491,000 relating to discontinued consultancies, disputes and legal costs and £206,000 relating to completed or reorganised development contracts.

I am pleased to say that our restructuring and reorganisation has meant that going forward we have a much smaller cost base (now less than £50,000 per month) and I believe a much brighter future.

Ken Brooks
Chairman

Managing Director’s review 

As you will know from the review that I made in the 2007 Annual Report, I am absolutely confident of the imminent commercialisation of the PIM Process.

Part of this strategy has involved a robust evaluation of the various commercial opportunities which the Company has been attempting to exploit. To date we have committed significant costs and resources to the projects in Kenya, Tanzania and Hungary, which were predicted to be one of the primary revenue streams for 2008 and beyond.  Of course there have been political problems in Kenya and Tanzania in particular which have not helped the cause but nonetheless the Board feels that these projects now have to stand on their own to which end the furtherance of the projects has been vested in the original project management company (strictly speaking the grant recipient) 3DM Research Ltd. It will be for that third party company to pursue matters at no further cost to ourselves – and despite the timeframe the advisers maintain we are close to closure.

However, we are pleased with the continuing interest in PIM products incorporating plastic waste primarily in the construction sector. This has principally been led by 2K Manufacturing Limited (“2K”), although a delay in full scale production has occurred as the company awaits completion of a fundraising due to complete shortly. 2K has recently signed an exclusive license for signage and display products and are in discussion with a global PLC for supply of sheet product. Further it has been reported in Construction News on 28 August 2008 that 2K is in talks with the London Olympic Delivery Authority to provide “thousands of seats“ for the 2012 games.

Contour Shower Trays have signed an exclusive license to produce their range of Eco-decs. We are currently supplying, via a third party supplier, 1,000 units after which Contour will arrange production with their preferred manufacturer.

The news from Mediwall is less positive in that the products produced for fire testing have failed to meet the necessary BS476 accreditation.  New products are currently being produced using a different flame retardant additive.  Mediwall have taken an option for an exclusive license for their modular building product in expectation of a successful outcome.

There is increasing interest in the PIM process from the plastic recycling and waste sectors.  The new generation of post-consumer plastic bottle sorting and recycling plants is expected to provide approximately 200,000 tonnes of recycling capacity by the end of 2009.  It is already apparent that there is a mixed plastic waste outflow from these plants which is in the region of 10% of input. Whilst conventional plastics processes utilise the pure polymer streams from such operations, PIM is the only moulding process capable of using these mixed plastics for commercially viable products.

A PIM laboratory device has been manufactured and is being installed at Brunel University to enable the Replas project to be completed.  This is the DTI funded project which under the management auspices of PERA, will facilitate the development of technical specifications and waste plastic formulations.

Whilst our main focus is currently in the UK, our strategy is to offer territorial and sector franchising.  It is our opinion that whilst we have enquiries from interested parties now, we should refrain from negotiating these on the basis that the value of such licenses will increase as 2K progress to full scale PIM production and the opportunities which PIM offers become more tangible.

In the USA our licensee LBO Capital Corporation Inc has signed various deals as announced on its own website and we are advised that the long awaited commercialisation of PIM in the USA is now on course. However as a company we are in the hands of our licensees and the timeframe is of course entirely their responsibility (subject only to certain minimum obligations).

The same is true for our other existing UK and international licensees and we will report on news as and when our licensees go public. However, the Board’s efforts have been and will be concentrated on the UK

Roger Baynham
Managing Director

Financial review for the six months ended 30 June 2008

Results

Revenue for the six months ended 30 June 2008 was £179,000 (H1, 2007: £25,000).  The loss on operations was £1.80 million compared to losses of £1.35 million in 2007.  Losses attributable to equity shareholders were £2.00 million (H1, 2007 loss £1.91 million).

The results for the period highlight a £491,000 charge relating to discontinued consultancies, disputes and legal costs. These costs follow proceedings brought against the Company and Ken Brooks, a director of the Company, both in the UK, USA and within Asia. Following mediation a global settlement agreement was reached in which the Company agreed to settle all outstanding claims between the parties. The Board believe this agreement was in the best interests of shareholders to prevent the Company incurring further legal costs.

Dividends and loss per share

No dividend payment is proposed.  The basic and diluted loss per share was 0.78 pence compared to 1.51 pence in 2007.

Trading

Turnover included revenue for licences, production work, grant income and the release of licence income from deferred income.

Administrative expenses for the period were £1.87 million compared to £1.36 million in the same period in 2007 and included in addition to normal running expenses, corporate finance costs, legal costs associated with the on-going intellectual property, restructuring costs and discontinued consultancies disputes. 

The second half of the year will see revenue generated from the fulfilment of the Contour contract and licence fees. Substantial savings in administrative expenses will be achieved as the Company achieves its goal of becoming a virtual operation.

Financing 

Total borrowings amounted to £3.37 million compared to £2.03 million at 31 December 2007.

During the period, YA Global Investments Limited (“Yorkville”), successor to Cornell Capital Partners L.P. and Montgomery Equity Partners (collectively “Cornell”) advanced a further £0.35 million and converted a further £0.53 million into equity reducing the loans outstanding to £1.81 million. In total Yorkville has converted loans and accrued interest totalling £5.17 million at an average price of 5.12p per share.

The Standby Equity Distribution Agreement (SEDA) with Yorkville to the value of £5 million was due to expire in September 2008.  A new SEDA with Yorkville has been signed which expires in September 2010.  No draw down has been made against this facility.

As announced on 12 August 2008, a loan of £378,000 carrying interest at 8% p.a. which was provided to settle debts in June and July 2008, was converted into new ordinary shares.

Oxford Capital plc advanced a further £1.1 million which together with the existing loan at December 2007 is due for repayment on 1 January 2009.  If the loan is not then repaid, the lender gains conversion rights and the interest rate doubles to 15% per annum.

David Shepley-Cuthbert
Finance Director

Independent review report to Environmental Recycling Technologies plc

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 which comprises the Group Income Statement, Group Balance Sheet, Group Statement of Changes in Shareholders’ Equity, Group Cash Flow Statement and the notes 1 to 6.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors’ responsibilities

The interim report, including the financial information contained therein, is the responsibility of and has been approved by the directors.  The directors are responsible for preparing the interim report in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market which require that the half-yearly report be presented and prepared in a form consistent with that which will be adopted in the company's annual accounts having regard to the accounting standards applicable to such annual accounts.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Our report has been prepared in accordance with the terms of our engagement to assist the company in meeting the requirements of the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market and for no other purpose.  No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent.  Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ‘‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’’, issued by the Auditing Practices Board for use in the United Kingdom.  A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market.

BDO Stoy Hayward LLP
Chartered Accountants and Registered Auditors
Birmingham
16 September 2008

Interim Accounts for the Six Months ended 30 June 2008 (unaudited)

The financial information contained within these accounts has been prepared by the Directors who accept responsibility for the financial information presented below and confirm that it has been properly presented in accordance with applicable law. The interim financial statements were approved by the Board of Directors on 15 September 2008 and have been prepared on the basis of the accounting policies set out on note 1. The financial information covers the six months ended 30 June 2008.   

Group Income Statement (unaudited)

Group Balance Sheet (unaudited)

Group Statement of Changes in Shareholders’ Equity (unaudited)

Group Cash Flow Statement (unaudited)
Six months ended 30 June 2008

Notes

Notes to the Financial Statements are available in the printable PDF version.

Page last updated: 17 September 2008