Final Results

Environmental Recycling Technologies plc

Preliminary Results for the year ended 31 December 2011

Environmental Recycling Technologies plc ("ERT" or the "Company") (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 preliminary results for the year ended 31 December 2011

Highlights

·; Revenue together with other income for the year ended 31 December 2011 £0.53 million (2010: £1.02 million) arising from licence and royalty agreements

·; Loss on operations before exceptional items £1.45 million (2010: £1.39 million)

·; Exceptional provision of £4 million for impairment of intangible assets which has no cash impact

·; ERT makes strategic investment into Delta Waste Management and secures the services of Lee Clayton who has joined the Board

·; ERT renegotiates with 2K the right to license out Flat Sheet PIM production to new licensees within the UK and worldwide

·; Increased marketing activities in the USA which has produced significant interest and new commercial enquires

·; Global demand for solutions to domestic waste plastic problems remain a favourable backdrop for ERT's PIM process.

Ken Brooks, Chairman, commented

"In spite of the difficult economic conditions, commercial opportunities are presenting themselves to ERT and its technology. We are delighted to have secured the services of Lee Clayton and the recent positive feedback from the team in the US endorses the belief of the Board that the PIM process will be commercially successful. We expect to see significant progress being achieved in the coming 12 months"

For further information:

Environmental Recycling Technologies plc

Ken Brooks, Chairman 0845 071 1394

Roger Baynham, Managing Director

W H Ireland

John Wakefield/Marc Davies 0117 945 3470

The Company confirms that the Company's Annual Report and Accounts for the year ended 31 December 2011 will be sent to shareholders and will be available on the Company's website by 30 June 2012: www.ertplc.com.Chairman's and Managing Director's Statement

Environmental Recycling Technologies plc is pleased to announce its results for the year ended 31 December 2011.

Results

Revenues together with other income for the year ended 31 December 2011 was £0.53 million (2010: £1.02 million) arising from licence and royalty income agreements.

Other administrative expenses incurred in the day to day running of the business were £1.97 million (2010: £2.41 million), a significant reduction over the year.

Total administrative expenses increased to £6.12 million in the year to 31 December 2011 compared to £3.82 million in 2010 as a result of exceptional items increasing to £4.15 million compared to £1.41 million in 2010 (see note 5) following the impairment of the intellectual property.

The loss on ordinary operations before exceptional items was £1.45 million (2010: £1.39 million).

Losses on operations after exceptional items was £5.60 million (2010: £2.80 million).

Finance income decreased to £0.04 million from £0.63 million in the prior year which reflects the gains in 2010 arising from debt which was settled by way of equity.

Finance costs increased marginally to £1.34 million compared to £1.23 million in 2010.

The year to 31 December 2011 saw a loss for the year of £6.90 million (2010: £3.32 million).

The loss per share was 1.27 pence (2010: a loss of 0.83 pence).

At 31 December 2011 as reported in the statement of financial position, the company does not have distributable reserves and are unable to declare a dividend.

Summary of Current Licensee Operations

United Kingdom - 2K Manufacturing

Over recent years our UK licensee, 2K Manufacturing (2K) , has made significant progress by building on the pioneering work originally done at the former 3DM R&D facility in South Wales. 2K has used the PIM process to produce "Ecosheet", an award winning flat sheet alternative to plywood with wide ranging applications primarily in the construction and agricultural sectors. Most critically, 2K has proved that there is strong demand for such a high quality flat sheet PIM product made from co-mingled and mixed plastic waste.

During the year forecasted production volumes of the "Ecosheet" product have not been reached and as a result, the expansion of the PIM manufacturing process through growth of 2K's operations and their sublicensing of PIM for Ecosheet production has not happened in line with the original schedule. The Board considered the delay in time frame and the reliance on 2K and has exercised its rights post year end to amend the licence agreement with 2K from a wholly exclusive licence to a non-exclusive licence. This does not impact the licence fee payments owed to ERT. This decision allows ERT to enter into flat sheet PIM production licences directly to prospective manufacturers both in the UK and the rest of the world. This is now a key feature of our strategy going forward and is endorsed by the recent successful exhibition in Atlanta, USA.

Notwithstanding the change to the 2K licence agreement, 2K will continue to be a flagship PIM manufacturing facility where we understand funding is in place for the installation of their 2nd PIM line later this year. Discussions are ongoing to form a stronger collaboration between 2K and ERT to benefit both companies.

United Kingdom - Contour Showers

Contour Showers continue to increase production of their "Ecodec" shower trays and have brought production in-house to their Stoke on Trent facility. In contrast to "Ecosheet" this is a low volume, high value product manufactured by a batch process illustrating the versatility of the PIM process. Discussions are currently taking place which mark a stronger collaboration aimed at reducing Contour's PIM manufacturing costs and facilitating new product development.

United States - Atlanta Trade Show

ERT exhibited at the 2012 Plastics Recycling Conference in Atlanta in March. This is the largest such event in the USA and the PIM technology gained significant interest from the visiting plastic recycling community. Following the conference there were a number of substantive commercial enquires from a wide range of interested parties, for new products, all of which are being actively progressed.

Arup

We are exploring opportunities with Arup, which despite having undergone a process of some reorganisation, continues to show interest in the PIM process both from a general perspective and also in relation to at least one specific project. Arup was a key participant in the Plasticity event at the Earth Summit in Rio de Janiero in June 2012, where the PIM process featured strongly in their keynote presentation.

Strategic Investment and Board Appointment

Since the year end, ERT has negotiated terms to take a strategic stake in Delta Waste Management Limited a consultancy company which specialises in providing plastics recycling solutions. In addition ERT were successful to procure the services of its Managing Director Lee Clayton, who joined the Board in January 2012. Lee Clayton brings a wealth of experience in plastics recycling and manufacturing which will not only be invaluable in licensing our technology but importantly will also be key to integrate this with conventional recycling methodology.

The PIM Process and the Environmental Policy Initiatives

We have previously indicated that proposed new recycling targets and increased plastic waste collections could be disruptive to the plastic recycling industry if it coincided with reduced demand for plastic waste in China. This prediction looks as though it is now becoming a reality, the result of which is enhanced interest in the PIM technology as a solution for recycling plastic waste streams which cannot be separated or sorted into pure polymers for conventional plastic processing.

Earlier this year the government, through its UK Green Investments team announced £80m initial funding aimed at small scale waste and recycling infrastructure projects. Foresight, one of the investors at 2K, has been selected as the lead fund manager.

The government initiatives as noted above further validates ERT's focus on promoting the use of the PIM process as a commercially viable means of processing large volumes of low quality and co-mingled, waste polymers. That is where ERT sees the future in the main and where the Company's major efforts have been concentrated.

Research and Development Programme

ERT are working towards an enhanced R&D programme to help accelerate the company's ability to meet the increasing global demands to utilise a more diverse range of raw materials. We have re-commissioned and improved our laboratory PIM machine as a test facility to demonstrate the ability of the process to utilise particular plastic waste streams and to provide greater assistance to existing and potential licencees.

Patent Portfolio and Protection

During the year ERT has had its European Patent granted. This is the core patent in Europe for the PIM process and securing this patent will enhance the ability of the company to issue licences and sub-licences internationally. Since the year end, the notice of allowance for the US patent has been received.

ERT has faced a number of possible infringers over the course of last year. As previously stated, it is the Company's intention to vigorously police such matters and we can confirm that the first proceedings brought by us are producing positive results.

Impairment review

Towards the end of the year it became apparent that 2K production volumes were unlikely to reach forecasted levels and that discussions with new prospective licensees would not be concluded until Q3 and Q4 2012. Following an in-depth review of the likely options available, it was felt prudent to reflect an impairment to the carrying value of the intangible asset to reflect the current position. These accounts include a provision for £4 million, which is disclosed as an exceptional item. The impairment does not have a cash impact on the company. The Board remain confident in the prospects for the company.

Outlook

In short, having refined our commercial strategy and strengthened our management team, the strategic proposition for the 2012 financial year is looking promising. New marketing initiatives have increased the awareness of both ERT and the PIM Process. We hope to achieve some commercial milestones in the forthcoming months.

ERT believes that in the current climate with the current recycling agenda and realignment of world markets, that it is positioned to drive forward a global marketing strategy of this unique and versatile process.

As always we are grateful to all our colleagues for their endeavours over the course of the last year and, in particular, we wish to thank our existing and new investors who supported our various fundraisings. It is now up to ERT to drive the business forward.

Ken Brooks Roger Baynham

Chairman Managing Director

Financial Review for the year ended 31 December 2011

Results

Revenue together with other income for the year ended 31 December 2011 was £0.53 million (2010: £1.02 million). The loss on operations was £5.60 million (2010: £2.80 million). Total comprehensive losses attributable to equity shareholders were £6.90 million (2010: £3.32 million).

Dividends and loss per share

At 31 December 2011 as reported in the statement of financial position, the company does not have distributable reserves and are unable to declare a dividend.

The loss per share was 1.27 pence (2010: 0.83 pence).

Trading and Outlook

The rate of progress has been slower than anticipated and the company has reported a loss for the year. Whilst there are a number of uncertainties as outlined in the Directors' Report and in Note 1 to the financial statements, the interest shown and current developments, resulting from the attendance at the Atlanta tradeshow USA, augers well for the future.

Administrative expenses for the period were £6.12 million (2010: £3.82 million). The loss on operations before exceptional items was £1.45 million (2010: £1.39 million).

Exceptional costs of £4.15 million were incurred during the year in relation to the impairment of the intellectual property and available-for-sale financial assets. Excluding the impairment for intellectual property, available-for-sale financial assets and amortisation, normal overheads incurred in running the company were £1.97 million (2010: £2.41 million).

Financing

The company meets its day to day cost base by managing its cash resources and securing appropriate levels of finance to settle liabilities as they fall due. Additional cash funds of £1.23 million were raised during the year through the issue of new shares.

Trade payables have fallen by £0.49 million to £0.14 million (2010: £0.63 million) whilst accruals and deferred income have increased to £1.13 million from £0.88 million in 2010 as a result of the principal interest accruing on the company's borrowings.

Total borrowings amounted to £4.25 million (2010: £2.48 million).

In February 2011, the loan balance and associated interest owed to YA Global investments Limited (Yorkville) was repaid in full with the conversion of part of the debt in shares and the balance in cash. A debenture secured against the assets of the company has now been removed.

In addition, a further debt for equity swap in relation to other loans amounting to £1.02 million took place during the year. As at 31 December 2011 other loan balances outstanding amounted to £4.25 million (2010: £1.67 million).

As far as other loans are concerned, the Directors have received written assurance from Oxford Capital the lenders of £4.25 million (2010: £1.02 million) that there is no intention to request immediate repayment of the liabilities and that subject to agreement, the lender would accept repayment by way of a debt for equity swap.

In April 2011, the full and final settlement terms of the finance guarantee obligation were agreed between all parties. Following crystallisation of the liability, the provision was transferred to borrowings and subsequently transferred to Oxford Capital.

Short term funding facilities have been reorganised to cover the company's normal overheads for the rest of the year. The Directors do not expect there to be a requirement to repay the loans in cash during the next 12 months.

David Shepley-Cuthbert

Finance Director

Statement of Comprehensive Income

Year ended 31 December 2011

Statement of Financial Position

At 31 December 2011

Statement of Changes in Equity

Year ended 31 December 2011

Year ended 31 December 2010

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 2011 or 2010, but is derived from those accounts.

Statutory accounts for 2010 have been delivered to the Registrar of Companies and those for 2011 will be delivered prior to 30 June 2012. The auditors have reported on those accounts; their reports were unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and did not contain statements under Section 498 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. The financial position of the company, its borrowings and borrowing facilities are described in the Financial Review. 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 the progress towards profitability is challenging and 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. At the date of approving these accounts the company has repaid the debt owed to Yorkville including accrued interest.

The directors are in discussions with other lenders to settle the outstanding loans by the issue of shares in the company rather than settling in cash. During the year other lenders converted £1.02 million into shares.

In addition, written assurance has been received from one lender covering £4.25 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 lenders would accept settlement in shares if the company was unable to repay the loans.

The directors have prepared forecasts that indicate that the company have adequate resources to meet commitments as they fall due. Furthermore, the directors have obtained written confirmation from YA Global Limited ("Yorkville") confirming their willingness to make available to the company, if required, a SEDA facility amounting to the value of £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 2K Manufacturing, and the reliance on the above lenders for financial support, there is a degree of uncertainty that this support will continue although, at the date of approval of these financial statements, they have no reason to believe that they will not do so. Therefore after making enquiries and considering the uncertainties described above the directors consider that the company will have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.

The financial statements do not include any adjustments that would result from the basis of preparation being inappropriate.

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 licensees 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 9. An impairment charge of £4 million has been made during the year (see note 5).

(b) Revenue recognition

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

3. Revenue and segment information

The revenue and loss before tax are attributable to the principal activities of the Group being the licensing of the intellectual property of the plastic Powder Impression Moulding system to generate licence fees and ongoing royalties.

In the opinion of the Directors, the only business segment is the exploitation of the group's intellectual property. Whilst customers may be operating in different economic environments the group 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:

Revenue of £500,000 (2010: £1,016,000) related to one customer.

4. Loss on operations before interest and finance

Loss on operations is stated after charging:

5. Exceptional items

The impairment of available-for-sale financial assets arises out of the revaluation of quoted shares held.

Finance guarantee obligations related to a financial guarantee dated August 2006, which guaranteed the Alpha Line finance agreement with 3DM Group Limited, which company (with 3DM Europe Limited) was subsequently sold to Enviro Polytek Limited (formerly Environmental Polymer Technologies Limited) on 30 November 2006. The prior year provision was increased to reflect the full and final settlement terms that were negotiated in April 2011.

As part of the ongoing review of the company's assets, the Board has recognised that commercial production, utilising the PIM process, has not achieved forecasted levels, and having prepared Discounted Cash Flow Forecasts applying a discount rate of 15%, intangible assets have been 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 2011, there were 33,879,185 (2010: 39,979,185) of potentially issuable shares which are anti-dilutive; such shares may become dilutive in future periods.

On 1 January 2012 a further 1,000,000 shares became potentially issuable.

9. Intangible assets

Licence fees are initially recognised at cost and are amortised over their useful economic life of 20 years. At 31 December 2011, the remaining amortisation period is 15 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 2011, the remaining amortisation period is 9 years.

At 31 December 2011 the company made an impairment provision totalling £4.0m against the carrying value of its intellectual property (see note 5).

10. Available-for-sale financial assets

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 carried at fair value based on quoted market prices (level 1).

Subsidiary companies

The Company's subsidiaries were dormant during the current and prior year before being struck off the register at companies House:

11. Trade and other receivables

All receivable balances are in sterling. As at 31 December 2011 trade receivables of £300,000 (2010: £300,000) were past due, reviewed by the directors and provided in full for non-payment.

A provision of £133,000 has been made against accrued income.

The Group's main income is from licence and royalty fees. Accrued income and receivables are regularly reviewed by the Board of Directors to assess the recoverability of amounts due.

12. 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.

Other payables cover claims for legal and settlement costs associated with a former employee in Kyrgyzstan. This financial liability was previously included within provisions and was transferred to other payables following final settlement. Amounts paid during the previous year to the former employee and legal advisors were offset against the provision.

13. Borrowings

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

The outstanding loan and accrued interest due to YA Global Investments Limited ("Yorkville") was repaid during the year.

In accordance with the Convertible Loan Agreement, and following receipt of conversion notices, the company issued two tranches of Ordinary Shares to Yorkville (the "Conversions"). The first tranche was for 8,459,492 Ordinary Shares which were issued at a price of 3.76 pence, which represents a discount of 32.8 per cent to the closing middle market price of the company on 28 January 2011. The second tranche was for 214,136 Ordinary Shares which were issued at a price of 4.38 pence, which represented a discount of 21.7 per cent to the closing middle market price of the company on 28 January 2011. The conversions satisfied £259,400 of the loans owed to Yorkville.

The remaining outstanding amounts under the Convertible Loan Agreement of £540,000 were repaid using the cash proceeds from the subscription for Ordinary Shares.

Following the Conversion and Repayment, the Convertible Loan Agreement was terminated and a debenture secured against the assets of the company has been removed.

Other cash loans advanced during the year totalled £823,000 (£280,000).

During the year the company's finance guarantee obligations of £2,202,000 were settled and the liability added to other loans.

A further £827,679 (2010: £814,399) costs were incurred for stock lending and arrangement fees. Loans totalling £263,000 (2010: £24,000) were repaid and £1,024,487 (2010: £2,094,930) was converted during the year into Ordinary Shares.

These loans carry interest at 7.5%.

The company has no other borrowing facilities.

14. Provisions

Legal claims cover legal and settlement costs associated with a former employee in Kyrgyzstan. This financial liability was previously included within provisions and was transferred to other payables in the prior year following final settlement. Amounts paid during the year to the former employee and legal advisors were offset against the provision.

Finance guarantee obligations relate to a financial guarantee dated August 2006, which guaranteed the Alpha Line finance agreement that was transferred to Enviro Polytek Limited (formerly Environmental Polymer Technologies Limited) on the sale of 3DM Europe Limited and 3DM Group Limited on 30 November 2006. On 15 January 2010, Enviro Polytek Limited went into administration. The finance guarantee obligation provision was increased in the prior year to reflect the full and final settlement terms that were negotiated in April 2011. The financial liability was transferred to borrowings upon crystallisation.

15. Related party transactions

Invoices totalling £47,923 (2010: £50,011) 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 £8,949 (2010: £23,102), which was due to the A H Brooks Partnership.

K W Brooks was owed £nil (2010; £1,188) by the company at the year end.

Aston Hall Limited invoiced £47,766 (2010: £46,973) to the Group 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 £8,170 (2010: £25,698).

Oakridge Business Services Limited, of which Mrs A Baynham wife of R J Baynham is a director, invoiced £15,000 (2010: £26,663) in the year for director's fees. The amount outstanding at the year-end was £3,750 (2010: £163).

Philip Tyler Polymers Limited, a company that K W Brooks and R Baynham are directors of, invoiced £ nil (2010: £33,333) to the Group in respect of support services. The amount outstanding at the year-end was

£ nil (2010: £14,688).

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 2011 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 (2010: 2.5 pence and 72 pence) and their weighted average contractual life was 1.2 years (2009: 1.6 years)

The weighted average share price (at the date of exercise) of options exercised during the prior year was 5 pence.

The weighted average fair value of each option granted during the prior year was 1.4 pence.

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

2010

Equity-settled

Option pricing model used Black Scholes

Weighted average share price at grant date (pence) 1.4

Exercise price (pence) 2.5

Weighted average contractual life (days) 1,096

Equity-settled

Expected volatility 90.6%

Expected dividend growth rate -

Risk-free interest rate 2.0%

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.

The share based remuneration expense comprises:

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

All warrants outstanding at 31 December 2011 had vested and were exercisable.

An expense of £203,000 has deducted from share premium in respect of 6,000,000 warrants issued to satisfy transaction costs of the shares issued on 31 January 2011.

The exercise price of warrants outstanding at the end of the year ranged between 2.5 pence and 88 pence (2010: 2.5 pence and 88 pence) and their weighted average contractual life was 1.7 years (2010: 1.8 years)

The weighted average share price (at the date of exercise) of warrants exercised during the year was 5.6 pence (2010: 5.3 pence)

The weighted average fair value of each warrant granted during the year was 4.2 pence (2010: 2.2 pence)

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

 2011 2010

Equity-settled

Option pricing model used Black Scholes Black Scholes

Weighted average share price at grant date (pence) 5.6 1.4

Exercise price (pence) 2.5 2.5

Weighted average contractual life (days) 299 1,096

Equity-settled

Expected volatility 96.2% 90.6%

Expected dividend growth rate - -

Risk-free interest rate 1.1% 2.0%

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.