Half Yearly Report

RNS Number : 5276S

Environmental Recycling Tech. PLC

13 September 2010

 

For Immediate Release:

 

Environmental Recycling Technologies plc

 

Interim Results for the six months ended 30 June 2010

 

 

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 2010.

 

Highlights

 

·; Revenue and other income £492,000 (H1 2009: £427,000);

 

·; Loss on operations £0.42 million (H1 2009: loss £0.54 million);

 

·; Loss attributable to equity shareholders £0.86 million (H1 2009: loss £0.75 million)

 

 

For further information:

 

Environmental Recycling Technologies plc
Ken Brooks (Chairman)
David Shepley-Cuthbert (Finance Director)	01993 779 468
Evolution
Tim Worlledge
Bobbie Hilliam	020 7071 4300

 

 

Chairman's Statement

 

I am pleased to report a much improved position for your Company in respect of the half-year to 30th June 2010.

 

Our major UK licensee 2K Manufacturing Limited continues to develop apace and expects to be in full production later this year. This will be an enormous milestone for your Company.

 

There is a significant amount of pent up interest in our technology which your Board intends to exploit as soon as 2K Manufacturing Limited is in full production.

 

In the meantime we receive approaches for various applications on a weekly basis.

 

My co-directors have reported to you on operational and financial matters in more detail but I believe it is worth mentioning now that the various issues which beset us in 2008 and 2009 have all been addressed and have been fully provided for.

 

At the operating level, losses were 22% lower than last year. However, increased finance costs and unrealised losses booked on available-for-sale assets turned this into an increase in the total comprehensive loss over the same period last year.

 

Given your Company's improved financial position I am pleased to say that the Board has decided not to renew the SEDA facility with Yorkville advisers. Yorkville have been very helpful to your Company in the past and indeed offered to renew the facility but upon taking advice the Board has taken the view that it is no longer necessary.

 

As always I am obliged to my fellow directors for all their hard work and we look forward to a brighter future.

 

 

Ken Brooks

Chairman

 

 

 

Managing Director's review 

 

As mass production of the award winning "Ecosheet" from the 1st PIM line at 2K Manufacturing 's Luton plant becomes ever nearer, so does the level of enquiries from prospective PIM manufacturers and licensees.

 

We are unable to elaborate on any of these discussions but the board is confident that the progress at Luton will act as a catalyst for the commercialisation of the PIM technology.

 

It is a concern that as the PIM process nears large scale commercialisation, there might be attempts to copy it. The board will monitor closely any attempts to contravene or circumvent the Company's Intellectual Property. Shareholders should know that the Company will take an extremely robust position to prosecute any action which may be deemed necessary.

 

The minimum royalties due from our licensees in 2010 will enable us to fully protect our patents.

 

We look forward to updating shareholders on commercial developments worldwide in the course of the next twelve months.

 

Roger Baynham

Managing Director

 

 

Financial review for the six months ended 30 June 2010

 

Results

 

Revenue for the six months ended 30 June 2010 was £492,000 (H1, 2009 £321,000). Other income from grants was £nil (H1, 2008 £106,000). The loss on operations was £0.42 million (H1, 2009 loss £0.54 million). Losses attributable to equity shareholders were £0.86 million (H1, 2009 loss £0.75 million).

 

 

Dividends and loss per share

 

No dividend payment is proposed. The basic and diluted loss per share was 0.24 pence compared to 0.28 pence in 2009.

 

Trading

 

Turnover included revenue for licences and minimum royalties. Other income in 2009 was made up of grants from the Technology Strategy Board (TSB).

 

Administrative expenses for the period were £0.91 million (H1, 2009 £0.97million). No exceptional costs were incurred in the six months (H1, 2009 £nil). The other administrative expenses include third party costs attributable to the TSB project of £nil (H1, 2009 £0.11 million). Excluding the TSB project costs, depreciation and amortisation, the normal overheads incurred in running the company were £0.30 million (H1, 2009 £0.35 million).

 

 

Financing

 

During the period, the legal claim provided for at December 2009 was settled partially in cash but also by issuing £0.45 million of new equity. In addition, several creditors converted £0.52 million of liabilities into equity.

 

Total borrowings amounted to £2.4 million compared to £3.1 million at 31 December 2009.

 

During the period, other lenders converted £1.07 millions of loans and accrued interest into equity reducing the loans outstanding to £0.98 million as at 30 June 2010.

 

YA Global Investments Limited ("Yorkville") converted a further £0.15 million into equity in July 2010 reducing the loan outstanding to £1.25 million. In total Yorkville has converted loans and accrued interest totalling £5.59 million at an average price of 4.51p per share.

 

Yorkville have renewed their loan and it is now due for repayment by 31 December 2011. Accrued interest of £0.57 million has been added to the loan balance and simple interest is chargeable at 14% per annum.

 

The Standby Equity Distribution Agreement (SEDA) with Yorkville to the value of £5 million was extended in 2008 and expires in September 2010. It has not been renewed as it was no longer considered necessary. Short term funding facilities have been organised to cover the company's normal overheads for the rest of the year when substantial licence and minimum royalties are due. The company has had commercial discussions with lenders to ensure that existing facilities remain available or will be settled in shares rather than cash as evidenced by conversions during the period.

 

 

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 2010 which comprises the Group Statement of Comprehensive Income, Group Statement of Financial Position, Group Statement of Changes in Shareholders' Equity, Group Statement of 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 2009 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 LLP

Chartered Accountants and Registered Auditors, Birmingham. 10 September 2010

BDO LLP is a limited liability partnership registered in England and Wales

(with registered number OC305127)

 

Interim Accounts for the Six Months ended 30 June 2010 (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 10 September 2010 and have been prepared on the basis of the accounting policies set out in note 1. The financial information covers the six months ended 30 June 2010.  

 

Group Statement of Comprehensive Income (unaudited)

			Six months ended 30 June 2010	Six months ended 30 June 2009	Year ended 31 December 2009
			£'000	£'000	£'000
Continuing operations		note	Unaudited	Unaudited	Audited
Revenue			492	321	1,101
Other income			-	106	106
Administrative expenses
Exceptional		2	-	-	(2,586)
Other			(913)	(969)	(2,167)
Total administrative expenses			(913)	(969)	(4,753)
Loss on operations			(421)	(542)	(3,546)
Finance costs		3	(349)	(271)	(948)
Loss before income tax			(770)	(813)	(4,494)
Tax on loss on ordinary activities			-	-	-
Loss for the period from continuing
operations attributable to the equity shareholders of the company			(770)	(813)	(494)
Other comprehensive income Available-for-sale financial assets - gains/(losses)   Other comprehensive income   Total comprehensive loss for the period attributable to equity shareholders of the company			(89)   (89)   (859)	67   67   (746)	(154)   (154)   (4,648)
Loss per share (pence)
Basic and diluted loss per share		4	(0.24p)	(0.28p)	(1.49p)

 

Group Statement of Financial Position (unaudited)

 

				Six months ended 30 June 2010	Six months ended 30 June 2009	Year ended 31 December 2009
				£'000	£'000	£'000
Assets		note		Unaudited	Unaudited	Audited
Non-Current Assets
Intangible assets			9,344		10,238	9,791
Plant & equipment			-		241	-
Available-for-sale financial assets			612		922	701
Total non current assets			9,956		11,401	10,492
Current assets
Trade and other receivables			1,250		239	804
Cash and cash equivalents			9		1	204
Total current assets			1.259		240	1,008
Total assets			11,215		11,641	11,500
Liabilities
Non-current liabilities
Borrowings		5	-		-	-
Total non-current liabilities			-		-	-
Current liabilities
Trade and other payables			1,747		1,341	2,247
Borrowings		5	2,377		3,109	3,050
Provisions			1,795		375	2,433
Total current liabilities			5,919		4,825	7,730
Total liabilities			5,919		4,825	7,730
Net assets			5,296		6,816	3,770
Equity attributable to the shareholders of the parent
Share capital			10,797		7,556	8,412
Share premium reserve			35,500		35,500	35,500
Warrant reserve			329		945	945
Available-for-sale reserve			(243)		67	(154)
Retained earnings			(41,087)		(37,252)	(40,933)
Total equity			5,296		6,816	3,770

 

Group Statement of Changes in Shareholders' Equity (unaudited)

 

Six months ended 30 June 2010		Share Capital	Share Premium	Warrant Reserves			Available -for-sale reserve	Retained Earnings	Total
		£'000	£'000	£'000			£'000	£'000	£'000
Comprehensive loss for period Available-for-sale reserve   Total comprehensive loss for the period		- -     -	- -     -			- -     -	- (89)     (89)	(770) -     (770)	(770) (89)     (859)
Issue of share capital		2,385	-		-		-	-	2,385
Warrants and option adjustments		-	-		(616)		-	616	-
Movement for the period		2,385	-		(616)		(89)	(154)	1,526
Balance at 1 January 2010		8,412	35,500		945		(154)	(40,933)	3,770
Balance at 30 June 2010		10,797	35,500		329		(243)	(41,087)	5,296

 

 

 

Six months ended 30 June 2009		Share Capital	Share Premium	Warrant Reserves	Available -for-sale reserve	Retained Earnings	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Comprehensive loss for period Available-for-sale reserve   Total comprehensive loss for the period		- -     -	- -     -	- -     -	- 67     67	(813) -     (813)	(813) 67     (746)
Issue of share capital		396	-	-	-	-	396
Warrants adjustments		-	-	(76)	-	76	-
Movement for the period		396	-	(76)	-	(737)	(350)
Balance at 1 January 2008		7,160	35,500	1,021	-	(36,515)	7,166
Balance at 30 June 2008		7,556	35,500	945	67	(37,252)	6,816

 

 

 

Year ended 31 December 2009		Share Capital	Share Premium	Warrant Reserves	Available -for-sale reserve	Retained Earnings	Total
		£'000	£'000	£'000	£'000	£'000	£'000
Comprehensive loss for year Available-for-sale reserve   Total comprehensive loss for the period		- -     -	- -     -	- -     -	- (154)     (154)	(4,494) -     4,494)	(4,494) (154)     (4,648)
Issue of share capital		1,252			-	-	1,252
Warrants and options lapsed		-	-	(76)	-	76	-
Movement for the year		1,252	-	(76)	(154)	(4,418)	(3,396)
Balance at 1 January 2009		7,160	35,500	1,021	-	(36,515)	7,166
Balance at 31 December 2009		8,412	35,500	945	(154)	(40,933)	3,770

Group Statement of Cash Flows (unaudited)

 

Six months ended 30 June 2010

 

		Six months ended 30 June 2010	Six months ended 30 June 2009		Year ended 31 December 2009
		£'000	£'000		£'000
		Unaudited	Unaudited		Audited
Continuing Activities
Loss before tax		(770)		(813)		(4,494)
Adjusted for:
Depreciation on plant and equipment		-		56		296
Amortisation of intangible assets Accrued interest cost Amortisation of debt issue costs		447 192 157		447 190 81		894 368 546
Fees and legal claims settled in shares		1,311		45		-
Adjusted loss from operations		1,337		6		(2,390)
Increase in trade and other receivables		(446)		(10)		(576)
(Decrease)/increase in trade and other payables		(474)		46		861
(Decrease)/increase in provisions		(638)		(189)		1,870
Cash used by operations		(221)		(147)		(235)
Net cash outflow from operations		(221)		(147)		(235)
Cash flows from financing activities
Inception of loans		50		131		543
Repayment of loans		(24)		-		(121)
Net increase in cash from financing activities		26		131		422
Net (decrease)/increase in cash		(195)		(16)		187
Cash and cash equivalents at beginning of period		204		17		17
Cash and cash equivalents at end of period		9		1		204

 

Notes to the comprehensive financial statements

 

1. Accounting policies

 

Basis of accounting

 

The principal accounting policies adopted in the preparation of the interim financial statements are set out below.

 

In the preparation of this Interim Report there have been no changes to the accounting policies applied and disclosed in the annual financial statements for the year ended 31 December 2009. Furthermore the Group does not expect there to be any changes to the accounting policies applicable at 31 December 2009.

 

The interim report has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRSs) as endorsed by the European Union using accounting policies that are expected to be applied for the financial year ended 31 December 2009.

 

The financial information in this interim report does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006.

 

The financial information for the year ended 31 December 2009 does not constitute the full statutory accounts for that period.

 

The Annual Report and Financial Statements for 2009 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statements for 2009 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under Section 498(2) or 498(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. The financial position of the group, its borrowings and borrowing facilities are described in the Financial Review.

 

The progress towards profitability is challenging and the group has reported another operating loss for the half year. Whilst there are a number of uncertainties, the directors consider that the outlook is now more promising. The directors have instituted measures to manage cash resources and secure appropriate levels of finance. At the date of approving this Interim Report the company's debt to Yorkville is £1.25 million including interest and debts to other lenders amount to £0.98 million.

 

The Yorkville convertible loan has been renewed and is due to be repaid or converted before 31 December 2011. Written assurance has been received from the lenders of £0.98 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. The directors do not expect there to be a requirement to repay the loans in cash during the next 12 months.

 

Based upon forecasts prepared, after making enquiries and the comments made above, the Directors have concluded that having extended the the company's finance facilities there is a reasonable expectation that the group and the company have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the interim report and accounts.

 

 

 

 

 

 

 

Basis of consolidation

 

The financial statements consolidate the accounts of Environmental Recycling Technologies plc and its non-trading subsidiary undertakings. Intercompany transactions and balances between companies are eliminated in full.

 

2. Exceptional items

 

		Six months ended 30 June 2010	Six months ended 30 June 2009	Year ended 31 December 2009
		£'000	£'000	£'000
		Unaudited	Unaudited	Audited
Legal and settlement costs		-	-	749
Product development work Finance guarantee obligations		- -	- -	7 1,830
Total exceptional items		-	-	2,586

 

The legal and settlement costs in 2009 related to a claim from a former employee in Kyrgyzstan and settlement costs of a legal dispute in Asia. The product development work related to fulfilling contractual obligations for product development for Mediwall and pre production work for Contour. Finance guarantee obligations relates to a financial guarantee dated August 2006, which guaranteed the Alpha line finance agreement that was transferred to Enviro Potytek Limited (formerly Environmental Polymer Technologies Limited) on the sale of 3DM Europe and 3DM Group Limited on 30 November 2006.

 

 

 

3. Finance costs

		Six months ended 30 June 2010	Six months ended 30 June 2009	Year ended 31 December 2009
		£'000	£'000	£'000
		Unaudited	Unaudited	Audited
Loan interest		192	190	367
Bank interest Stock lending costs		- 132	- 50	1 489
Amortisation of finance costs		25	31	91
Total finance costs		349	271	948

 

 

 

 

 

4. Earnings per share

 

From continuing operations

		Six months ended 30 June 2010	Six months ended 30 June 2009	Year ended 31 December 2009
		£'000	£'000	£'000
		Unaudited	Unaudited	Audited
Numerator
Loss used for calculation of basic and diluted EPS		(860)	(813)	(4,648)

 

		Six months ended 30 June 2010	Six months ended 30 June 2009	Year ended 31 December 2009
		number	number	number
		Unaudited	Unaudited	Audited
Denominator
Weighted average number of shares used in basic and diluted EPS		354,020,573	302,227,993	311,557,369

At 30 June 2010, there were 9,509,185 (31 December 2009: 12,896,785) (H1, 2009: 16,996,785) ofpotentially issuable shares which are anti-dilutive.

The company announced on 8 July 2010 that it had granted the following options over ordinary shares of 2.5p in the company to certain Directors of the company: -

Name of Director	Position	Number of old options held	Number of new options granted	Total options held following grant
Roger Baynham	Managing Director	-	9,000,000	9,000,000
Ken Brooks	Chairman	2,311,000	9,000,000	11,311,000
David Shepley-Cuthbert	Finance Director	400,000	4,500,000	4,900,000

The options granted to the Directors are exerciseable from 7 July 2010 and were granted at the nominal value of 2.5 pence representing a 55 per cent. premium to the closing mid market price on 7 July 2010 of 1.38 pence.

Following the grant of options to the Directors, the total number of shares under option by the directors which could be issued if all of the performance criteria are met is 25,211,000 ordinary shares, representing 5.84 per cent. of the current issued share capital of the Company.

 

5. Borrowings

 

			30 June 2010	30 June 2009	31 December 2009
			£'000	£'000	£'000
Non current - due after one year			Unaudited	Unaudited	Audited
Long term borrowings		-		-	-
Current - due within one year
Short term borrowings		978		1,635	1,576
Current portion of long term borrowings		1,399		1,474	1,474
		2,377		3,109	3,050
Total borrowings		2,377		3,109	3,050

 

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

 

			30 June 2010	30 June 2009	31 December 2009
			£'000	£'000	£'000
			Unaudited	Unaudited	Audited
YA Global Investment Limited - current		1,399		1,474	1,474
- non current		-		-	-
		1,399		1,474	1,474
Other loans		978		1,635	1,576
Total borrowings		2,377		3,109	3,050

The amounts due to YA Global Investments Limited ("Yorkville"), are stated net of unamortised finance costs. This convertible loan is denominated in Sterling. Pursuant to an agreement dated 27 March 2008 Yorkville borrowings are secured by a fixed and floating charge over the assets of the Group. The loan has been renewed and is now due for repayment on or before 31 December 2011. Accrued interest of £0.57 million has been added to the existing loan and simple interest is being charged at 14% per annum. Subject to certain conditions Yorkville may convert their loan to ordinary shares of the company. The company has no other formal facilities.

 

Other loans advanced during the period totalled £50,000. This loan and other existing loans carry interest at 7.5% and conversion rights into ordinary shares.

 

 

6. Provisions

			30 June 2010	30 June 2009	31 December 2009
			£'000	£'000	£'000
Legal claims			Unaudited	Unaudited	Audited
At start of period		1,016		563	545
Increase in provision		-		-	601
Utilised in period		(638)		(188)	(148)
At end of period		378		375	1,016
			30 June 2010	30 June 2009	31 December 2009
			£'000	£'000	£'000
Financial guarantee obligations			Unaudited	Unaudited	Audited
At start of period		1,417		-	-
Increase in provision		-		-	1,417
Utilised in period		-		-	-
At end of period		1,417		-	1,417

 

		30 June 2010	30 June 2009	31 December 2009
		£'000	£'000	£'000
		Unaudited	Unaudited	Audited

 

Current		720	375	1,079
Non-current		1,075	-	1,354

 

At end of period

1,795

375

2,433

 

Provisions cover claims for legal and settlement costs associated with a former employee in Kyrgyzstan. The provision was increased during 2009 to cover further legal costs incurred and interest accruing on the court judgement. Amounts paid and equity issues to the former employee and legal advisors have been offset against the provision.

 

Finance guarantee obligations relates to a financial guarantee dated August 2006, which guaranteed the Alpha line finance agreement that was transferred to Enviro Potytek Limited (formerly Environmental Polymer Technologies Limited) on the sale of 3DM Europe and 3DM Group Limited on 30 November 2006. On 15 January 2010, Enviro Potytek Limited went into administration. The finance guarantee obligation provision represents the Directors, best estimate of the outstanding financial obligation in respect of the Alpha line finance agreement.

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