Final Results

Environmental Recycling Technologies plc

Preliminary Results for the year ended 31 December 2013

23 June 2014

Environmental Recycling Technologies plc which owns and is developing applications for the patented rights to the Powder Impression Moulding ("PIM") process, which converts mixed waste plastics into commercially viable products, announces its preliminary results for the year ended 31 December 2013.

Financial highlights

· Revenue for the year ended 31 December 2013 £0.12 million (2012: £0.04 million) arising from licence and royalty agreements

· Loss on operations after exceptional items £2.79 million (2012: £3.34 million)

· Exceptional provision of £1.69 million again a trade receivable loan (2012: £1.57 million for impairment of intangible assets) which has no cash impact

Operational highlights

· First significant million pound sterling plus order received by US licencee, in 2014, for barge covers

· Company in advanced discussions to licence PIM process in China

· Collaboration agreement with Axion

· Company is actively looking for new partners/licencees in the UK

Ken Brooks, Chairman, commented

"I am pleased to say that the focus, enthusiasm and determination of our management team has shown through in the progress which Environmental Recycling Technologies continues to make in the light of new legislative drivers and greater environmental consciousness and we look forward to more exciting developments in the global market in the year ahead."

For further information:

Environmental Recycling Technologies plc www.ertplc.com

Ken Brooks, Chairman Telephone: +44 (0) 1993 779 468

Roger Baynham, Deputy Chairman

W H Ireland

Mike Coe and Ed Allsopp Telephone: +44 (0) 117 945 3470

Kreab Gavin Anderson

Robert Speed Telephone: +44 (0) 20 7074 1800

The Company confirms that the Company's Annual Report and Accounts for the year ended 31 December 2013 will be sent to shareholders and will be available on the Company's website by 30 June 2014: www.ertplc.com.

Notes to editors:

Environmental Recycling Technologies plc (ERT) is a leading developer of innovative technologies specifically focussing on plastic waste recycling. The company holds the worldwide intellectual property rights to the Powder Impression Moulding (PIM) Process.

For more information about Environmental Recycling Technologies plc please visit www.ertplc.com

Chairman's Report

Principal activities

The principal activity of the company is the licensing of the intellectual property of the Powder Impression Moulding (PIM) system to third parties for specific products and geographical areas of the world in order to generate fees and on-going royalties.

Results

Revenue for the year was £0.12 million (2012: £0.04 million) arising predominantly from licence and royalty income agreements

Administrative expenses reduced to £2.91 million (2012: £3.38 million)

Losses on operations after impairments were £2.79 million (2012: £3.34 million)

The loss for the year reduced to £3.54 million (2012: £3.73 million)

Loss per share was 0.42 pence (2012: 0.62 pence)

Strategic Report

Highlights 2013

· Collaboration Agreement with Axion Polymers Limited to develop and supply mixed plastic blends to PIM licensees

· Grant of Licence to Falanx Protection Limited

· Patents granted in Japan, Mexico and Hong Kong

· Relocation of PIM laboratory facility to Axion in Manchester

· Successful trade exhibitions

o Resource Efficiency & Waste Management Solutions 2013 Exhibition at the NEC

o 2013 Plastics Recycling Conference in New Orleans

o Chinaplas 2013 in Guangzhou

Post Year End

· US PIM Licencee, Brown Water Plastics LLC, has received its first million plus pound sterling order for barge covers

· The company is in advanced stages of negotiations for a significant PIM licence in China

Our Board

In January 2014, the appointment of Jeremy Allen and Divyash Patel as Non-Executive Directors was announced.

· Mr Allen, the former Global Head of Dresdner Kleinwort's Equity Research Department, is a highly regarded equity market professional with 21 years' experience in the City.

· Mr Patel is a commercial consultant who advises on and negotiates contracts for companies with innovative environmental technologies for use in Asia.

Our licencee operations

United Kingdom

2K Manufacturing

Our UK licencee was placed into voluntary administration on 18 November 2013. This resulted in a provision of £1.61 million in 2013 against the trade receivable loan at 30 June 2013. A further provision of £0.08 million has been made against current receivables.

The voluntary administration of 2K Manufacturing was a disappointment. An offer was accepted by the administrators from a company made up of several of the former directors of 2K, which provided for a period of exclusivity to complete the sale.

On the other hand, with the administration of 2K, the UK Licence reverted back to ERT. The company can now look forward to agreeing a new UK Licence with an industry major in due course.

Contour Showers

Production at Contour continues to gather pace and ERT received its first royalties in early 2014. ERT continue to work closely with Contour Showers to improve material and production costs.

United States

Brown Water Plastics (100% subsidiary of James Marine Inc)

A record 2013 North American grain harvest and increased economic activity has led to an upturn in the barge freight industry in the USA with Brown Water Plastics ("BWP") having recently completed on the first significant million plus pound sterling order for barge covers made from the PIM process. This follows a general upturn in the barge freight industry in the USA, following a virtual failure of the 2012 grain harvest and floods on the Mississippi in the same year. Due to increased demand for new barges, barge covers and barge repairs, BWP have initiated the development of a range of new PIM products which it is currently market testing.

Additionally, BWP has further PIM products at various stages of development which are beyond the scope of the existing licence, as well as in other sectors unconnected to the barge industry, such as rail and road transport. New licences will be required from ERT to enable BWP to manufacture and sell these products. This will expand the BWP product range of PIM products and will allow BWP to enter markets beyond the barge industry.

North Brook Farms

Last year ERT reported that it expected North Brook Farms ("NBF") to be in PIM production by Q3 2013. NBF, a non-exclusive licencee for the production of PIM flat board in the USA, are trialling an improved method of production, which has delayed its production timetable by a year. ERT is currently providing material samples from Axion to help develop a suitable blend for NBF's production facility.

Middle East and North Africa

Falanx

Falanx, a security business which listed on AIM in June 1013, have been going through a recent acquisition and expansion programme in its security division. As a result, its technology division is still in the early stages of assessing the PIM technology Falanx acquired under Licence from ERT for use in blast and ballistic protection applications

Asia

China

The enquiry received at the Chinaplast exhibition in May 2013 is at an advanced stage of negotiation. This is for an exclusive flat sheet licence for the China franchise and as such marks a milestone event for ERT. Whilst terms have been agreed in principal, these are predicated on the approval of business plans and manufacturing forecasts which have been modelled with Arup as part of ERT's collaboration agreement with Arup.

It is anticipated that the PIM production model which has been constructed for our Chinese prospect will become the blueprint for further PIM roll out in conjunction with Arup.

Our Partners

Arup

The collaboration agreement with Arup continues to grow as a result of enquiries that have emerged from our recent exhibitions. Arup's project management expertise as well as its experience of delivering large scale projects globally has provided the traction necessary to take PIM to large blue chip organisations. Representatives from Arup's UK and Shanghai offices recently visited ERT's prospective Chinese licencee.

There is a major enquiry with a European waste management company, which was set back by 2K entering administration, which has become the next primary target for ERT and Arup.

Axion Polymers

It is a priority that ERT continues to streamline the process and optimisation of raw materials and to capitalise on the development of new manufacturing techniques to ensure that PIM is recognised as best in class.

The relocation of the PIM laboratory line to Axion in Salford, near Manchester, is a key milestone in the implementation of ERT's strategic commercial plans. Axion is not only one of the UK's foremost recyclers of plastic from waste electronics and end of life vehicles, but is also a leading plastic recycling design and consultancy business.

A qualified polymer laboratory technologist was recently recruited on a full time basis working on the PIM laboratory machine and on materials utilisation.

The primary objective of the collaboration with Axion is to jointly develop mixed plastics blends, which Axion can supply to ERT's licencees to ensure consistent product manufacture, enabling the licencees to concentrate on the operations of their manufacturing facilities.

Outlook

In 2014 ERT has seen the first million dollar plus order for products using the PIM process received by licencees. Year on year we are receiving more enquiries from blue chip organisations looking to either add PIM products to their existing portfolios or capitalise on their secondary raw materials that are either being traded at a discounted rate or landfilled.

Due to the increasing interest in turnkey solutions, it is ERT's on-going strategy to continue developing a project team capable of meeting our customers' needs and expectations.

We have several enquiries that will require significant project design, implementation and delivery. Your board sees converting these enquiries and further licencee prospects to be our primary goal, therefore delivering the necessary business growth.

The recycling agenda is taking on increased importance. In Europe, the EU Green Paper has completed its consultation stage and it is anticipated that challenging packaging recycling targets will be announced in June 2014 with figures of a 70% target for recycling, a 30% target for recovery and zero to landfill, these goals having recently been mentioned by the EU Commissioner.

It is anticipated that such a target would create significant new interest in PIM in Europe, and through its collaboration with Arup and other industry leading partners ERT is already seeing an increase in enquiries from large companies seeking to manage their waste and raw materials needs.

We believe that commercial interest in PIM is gathering momentum and that the strategic alliances and licence agreements either in place or in prospect will generate significant revenue growth in the near future.

KW Brooks

Chairman

Statement of Comprehensive Income

Year ended 31 December 2013

Statement of Financial Position

At 31 December 2013

Statement of Changes in Equity

Year ended 31 December 2013

Year ended 31 December 2012

Statement of Cash Flow

Notes to the financial statements

1. Accounting policies

Basis of preparation

The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated.

These financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRS) issued by the International Accounting Standards Board (IASB) as adopted by the European Union ("adopted IFRS's"). The financial statements have also been prepared in accordance with those parts of the Companies Act 2006 applicable to companies preparing financial statements in accordance with IFRS.

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2013 or 2012, but is derived from those accounts.

Statutory accounts for 2012 have been delivered to the Registrar of Companies and those for 2013 will be delivered prior to 30 June 2014. The auditors have reported on those accounts; their reports were unqualified however, the 2013 accounts did include an Emphasis of matter in relation to going concern which is detailed below:

In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosures made in Note 1 to the financial statements concerning the ability of the Company to continue as a going concern. The disclosures indicate that the Company is able to continue as a going concern for at least the twelve month period from the signing of these financial statements if the cash flow expected from licence fees is generated or, in the event that such sales are not generated, that additional funding is able to be obtained from a further share issue and further funding from the lender at an appropriate time. We consider that these conditions indicate the existence of material uncertainties which may cast significant doubt over the Company's ability to continue as a going concern.

In 2012, the report was unqualified and did not include references to any matters which the auditors drew attention by way of emphasis without qualifying their report and for both 2013 and 2012 did not contain statements under Section 498(2) or (3) of the Companies Act 2006.

Going concern

The group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Reviews on pages 2 to 7. The financial position of the company, its borrowings and borrowing facilities are described in the Financial Review on pages 6 and 7. In addition note 21 to the financial statements includes the company's objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments, and its exposures to credit risk and liquidity risk.

As described in the Financial Review on pages 6 and 7 the company has reported another operating loss for the year. Whilst there are a number of uncertainties, the directors' consider that the outlook is now more promising. The directors have continued to manage cash resources and secure appropriate levels of finance.

The directors are in discussions with Oxford Capital ("the lender") to settle the outstanding loans by the issue of shares in the company rather than settling in cash. During the year £0.35 million was converted into shares.

In addition, written assurance has been received from the lender covering £3.14 million that there is no intention to request immediate repayment and that subject to agreement the lender would accept repayment by the issue of shares in the company. Similarly the expectations arising from the terms of the remaining loan arrangement are that the one lender would accept settlement in shares if the company was unable to repay the loans.

The directors have prepared forecasts and indicate that the company have adequate resources to meet commitments as they fall due. Furthermore, the directors have obtained written confirmation from Magna Group ("Magna") ("a further lender") confirming their willingness to make available to the company, if required, a Convertible Promissory Note amounting to the value of $1.2 million on acceptable terms to cover the company's normal overheads in the foreseeable future.

The directors acknowledge that due to the reliance on new licences and on the above lender for financial support, there is a degree of uncertainty. Based on their current expectations of the progress of licence fees and negotiations the directors have a reasonable expectation that revenue will be generated in line with the forecasts during this year and will be available to underpin the cash flows of the Company. The forecasts indicate that the Company is able to continue as a going concern for at least the twelve month period from the signing of these financial statements if the cash flow expected from licence fees is generated or, in the event that such sales are not generated, that additional funding is able to be obtained from a further share issue and further funding from the lender at an appropriate time. Although the directors consider it likely that additional funding can be raised from shareholders, main loan provider or a further share placing at the appropriate time, they consider that these conditions indicate the existence of material uncertainties which may cast significant doubt over the group's ability to continue as a going concern.

Accordingly the directors continue to adopt the going concern basis in preparing the annual report and accounts.

The financial statements do not include the adjustments that would result if the company was unable to continue as a going concern.

2. Critical accounting estimates and judgements 

The company makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Judgements

(a) Impairment of intangible assets

The company monitors market conditions to assess indications of impairment. When an impairment review is performed the recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the choice of a discount rate in order to calculate the present value of the cash flows. The estimates of future cash flows assume that licencees will not cancel license and royalty agreements, if cancellations occur there would be a risk that future cash flows would be less than estimated. The estimated discount rate is to reflect current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. Actual outcomes may vary. Intangible assets are shown in note 12. An impairment charge of £nil has been made during the year (2012 £1.57 million) (see note 5).

(b) Revenue recognition

The directors exercise judgement in determining the fair value and performance requirements of licence and royalty agreements. Estimates are reviewed based on the performance obligation of each contract and the estimates affect reported revenue.

(c) Trade receivables

The directors have made a critical judgement in determining the likely recoverability of the trade receivables loan due from 2K Manufacturing Limited totalling £1.69 million. 2K Manufacturing Limited entered administration in November 2013 and the directors have considered it appropriate to provide against amounts due from 2K in full (see note 5).

3. Revenue and segment information

The revenue and loss before tax are attributable to the principal activities of the company being the licencing of the intellectual property of the plastic Powder Impression Moulding system to generate licence fees and on-going royalties.

In the opinion of the directors, the only operating segment is the exploitation of the company's intellectual property. Whilst customers may be operating in different economic environments the company operates from the United Kingdom and all business is subject to English law.

All assets are held in the UK.

Reporting of external revenue by location of customer is as follows:

Revenue arises from:

Revenues of £66,000 (2012: £nil) related to customer A, £50,000 (2012: £40,000) to customer B and £3,000 (2012: £nil) to customer C

4. Loss on operations before interest and finance

Loss on operations is stated after charging:

5. Impairments

The amounts which became due for payment from 2K Manufacturing at the beginning of July 2013 have not been paid. Due to non-payment a full provision of £1.61 million was made against the trade receivable loan at 30 June 2013. A further provision of £0.08 million has been made against current receivables. 2K Manufacturing subsequently was placed into administration in November 2013.

As part of the on-going review of the company's assets in early 2013, the Board recognised that commercial production, utilising the PIM process, had not achieved forecasted levels as at 31 December 2012. Discounted Cash Flow forecasts were prepared applying a discount rate of 15%, and intangible assets were written down to their recoverable value. The recoverable value of the assets was calculated as its value in use.

6. Finance income

7. Finance costs

8. Earnings per share

At 31 December 2013, there were 5,750,000 (2012: 38,979,185) of potentially issuable shares which are anti-dilutive; such shares may become dilutive in future periods.

9. Intangible assets

Licence fees are initially recognised at cost and are amortised over their useful economic life of 20 years. At 31 December 2013, the remaining amortisation period is 13 years.

Intellectual property is initially recognised at cost and is amortised over its estimated useful economic life of 20 years aligned to the underlying patents that have been granted. At 31 December 2012, the remaining amortisation period is 7 years.

At 31 December 2012 the company made an impairment provision totalling £1.57 million against the carrying value of its intellectual property (see note 5).

10. Plant and Machinery

11. Investments

During 2008, 500,000 shares in Longborough Capital Corp Inc. (LBOC), a company with shares traded on pink sheets in New York, were received in settlement of licence fees amounting to US$625,000 due from LBOC. In addition GTI Inc. a subsidiary of LBOC paid licence fees due amounting to US$650,000 by issuing 1,083,333 shares. These GTI Inc. shares were exchanged for 520,000 shares in LBOC on 30 March 2009.

Listed shares are normally carried at fair value based on quoted market prices (level 1). Since the market value of LBOC is a nominal US$0.02, the balance of the carrying value has been provided for in full.

Listed shares are designated as available for sale.

Unlisted shares are carried at cost.

Associated company

The following entity meets the definition of an associate:

Proportion of voting rights

Name Country of incorporation Held at 31 December 2013

Delta Waste Management Limited United Kingdom 40%

During 2012, the Company entered into an agreement to subscribe for a 20% ordinary shareholding in Delta Waste Management Limited at a cost of £20,000 together with an option to acquire a further 20% ordinary shareholding. On 15 October 2012, the option was exercised for a further consideration of £20,000 increasing the company's overall interest in Delta Waste Management to 40%.

Delta Waste Management Limited has not been accounted for as an associated undertaking on the basis that its results are not material to the company.

12. Trade and other receivables

The ageing analysis of receivables past due but not impaired is as follows:

All receivable balances are in sterling.

The company's main income is from licence and royalty fees. Accrued income and receivables relating to the UK licence holder are regularly reviewed by the board of directors to assess the recoverability of amounts due.

During 2012, accrued income of £1,708,000 was converted to a non-interest bearing trade loan repayable over five years. This debt arose from the renegotiation of the licence with 2K Manufacturing. £150,000 of this debt was treated as a current receivable and £1,558,000 as a long term receivable in the 2012 accounts. At 30 June 2013, a provision was made of £1,608,000 against this trade receivable due to non-payment of the current outstanding balance due. A further provision of £75,000 has been made against current receivables. 2K Manufacturing was placed into administration in November 2013.

13. Trade and other payables - current

Book value is a fair approximation for fair value and debts are due for repayment under normal trading terms.

All trade and other payables fall due for payment within one year.

14. Borrowings

The carrying value (which is a reasonable approximation to fair value) of borrowings analysed by lender is as follows:

Cash loans advanced during the year totalled £500,000 (2012: £1,650,000).

A further £578,722 (2012: £1,317,545) costs were incurred for finance charges for short term loans and arrangement fees. Loans totalling £nil (2012: £nil) were repaid and £350,000 (2012: £5,631,048) was converted during the year into Ordinary Shares.

On 12 October 2012, the balance of the Company's debt at that date (including all interest and fees) amounting to £1,841,369 was converted to a secured five year loan note carrying an interest rate of 2% above the Bank of England base rate. The balance of loans outstanding carries interest at 7.5%.

The company has no other borrowing facilities.

15. Related party transactions

Invoices totalling £47,099 (2012: £61,060) were received from the A H Brooks Partnership for services rendered and recoverable expenses. The partners are K W Brooks and Mrs N Brooks, wife of K W Brooks. The amount outstanding at the year-end was £6,869 (2012: £nil), which was due to the A H Brooks Partnership.

Aston Hall Limited invoiced £55,542 (2012: £50,966) to the Company in respect of Director's fees and expenses for D C Shepley-Cuthbert who is also a director and controlling party of Aston Hall Limited. The amount outstanding at the year-end was £7,123 (2012: £2,548).

Oakridge Business Services Limited invoiced £15,000 (2012: £15,000) to the Company in respect of Director's fees for R J Baynham. The amount outstanding at the year-end was £3,750 (2012: £3,750).

Delta Waste Management Limited invoiced £45,574 (2012: £72,589) to the Company in respect of consultancy fees and expenses for L A Clayton. The amounts invoiced were offset against short term-loans made to Delta Waste Management Limited during the year of £19,374 (2012: £110,000) of which £18,037 (2012: £37,411) was outstanding at the year-end.

16. Share based payments

Environmental Recycling Technologies plc operates an unapproved option scheme for Executive Directors, senior management and certain employees.

All share options outstanding at 31 December 2013 had vested and were exercisable.

The exercise price of options outstanding at the end of the year ranged between 2.5 pence and 72 pence (2012: 2.5 pence and 72 pence) and their weighted average contractual life was 1.4 years (2012: 0.9 years)

The weighted average fair value of each option granted during the year was 2.0 pence.

The following information is relevant in the determination of the fair value options granted during the year under the unapproved options scheme operated by Environmental Recycling Technologies plc:

2012

Equity-settled

Option pricing model used Black Scholes

Weighted average share price at grant date (pence) 2.0

Exercise price (pence) 2.5

Weighted average contractual life (days) 337

Equity-settled

Expected volatility 97.5%

Expected dividend growth rate -

Risk-free interest rate 1%

The volatility assumption, measured at the standard deviation of expected share price returns is based on a statistical analysis of daily share prices over the last 3 years.

Environmental Recycling Technologies plc issues warrants to third parties for the provision of services rendered and the provision of finance.