25th Sep 2006 07:01
Symphony Plastic Technologies PLC25 September 2006 SYMPHONY PLASTIC TECHNOLOGIES PLC INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2006 NEW WASTE-TO-ENERGY BUSINESS LAUNCHED Symphony Plastic Technologies plc ("Symphony" or "the Group"), the degradableplastics company, announces its interim results for the six months ended 30 June2006. The Group also announces diversification into waste-to-energy with theformation of Symphony Energy Resources Limited ("SER"). HIGHLIGHTS • Sales £2.35 million (2005 H1: £4.95 million including Somerfield £2.73m)• Gross profit margins increase to 22% (2005 H1: 20%)• Loss before tax of £0.87m (2005 H1: loss £0.33m)• Exceptional cost provisions of £0.30m (2005 H1: £nil )• d2w(R) sales in export markets increase 89% to £0.53m (2005 H1: £0.28m) After period end • Matthew Turner appointed as Managing Director• New waste-to-energy business formed to focus on energy reprocessing technology systems• New Structure in Caribbean and US$1 million licence fee Commenting on the results, Nirj Deva, Chairman of Symphony, said: "Symphony is recognised for its global leadership in oxo-biodegradable plastictechnology and I am pleased to report that the Group has entered into a highnumber of agreements with customers across a broad spectrum of markets andproducts. The growth of the market for environmentally responsible solutionsfor plastic waste management, propelled by developments in legislation, providesthe Group with many significant opportunities and we are actively investing innew personnel, systems and resources to take advantage of these. We are excited to be entering a new phase for the Group with the launch of ourwaste-to-energy business which offers many opportunities to accelerate revenuesin the medium to longer term. Based on the levels of current interest, orders, agreements and projects, theBoard believes that the Group will move forward positively and we look forwardto the future with confidence." For further information, please contact: SymphonyMichael Laurier, CEO Tel: 020 8207 5900Matthew Turner, MDIan Bristow, FD Citigate Dewe RogersonFreida Moore Tel: 020 7638 9571Ged Brumby Notes to Editors Symphony develops and supplies environmentally responsible pro-degradentadditives as well as plastic packaging products. The Group's main technology,marketed under the d2w(R) registered trademark, causes plastic to degrade,leaving only water, a minimal amount of carbon dioxide and trace amounts ofnon-toxic biomass over a short time period. The d2w(R) product range includespro-degradent additives developed for an increasing variety of applications aswell as a range of finished flexible plastic products. Symphony has a diverse and growing customer base in the UK and has successfullyestablished itself as an international business after signing distributionagreements with companies in Argentina, Brazil, Canada & USA, Chile, Colombia,India, Mexico, New Zealand, Peru, Portugal, South Africa, the Caribbean, SaudiArabia, and Qatar. d2w(R) products can already be found in more than 40countries. Symphony is now marketing and developing innovative waste-to-energy technologyprocessing plants and is exploring various opportunities where there is a demandto increase recycling of waste plastics, tyres and other waste streams by costeffective processes. Further information on Symphony can be found at www.symphonyplastics.com andwww.degradable.net. CHIEF EXECUTIVE'S REVIEW The six month period under review showed the financial effects of the transitionfrom a high volume low margin commodity business to a much leaner higher marginenvironmental technology business. The process of change has led to a review ofall our direct costs with a particular emphasis of expanding the d2w(R) brandinto new product areas and a greater focus on developing the larger overseasmarkets. This new strategic direction was first announced in September 2005 andfurther reported on at the Preliminary Results of 27 April 2006. I am able to report that for the first half of this year gross margins haveimproved from 20% to 22% and export sales for our d2w(R) products and additivesincreasing by 89% to £0.53m. Some operating costs have been reduced such aswarehousing by closing fixed overhead facilities in favour of outsourced andmore flexible arrangements. A provision of £300K has been made for the Caribbean restructure program asdetailed later in this report. The Group has therefore spent the first six months of this year consolidatingits new position. During the period and because of continuing demand for a wider additive productrange the Group continued to invest in research and development, legislativesupport and the development of our international sales team. Trading Results Sales reduced by 53% to £2.35 million (2005 H1 £4.95m). Somerfield sales for thefirst half of 2005 were £2.73m. Like for like sales excluding Somerfieldincreased to £2.35m (2005 H1 £2.22m) Gross profits revenues decreased to £0.53 million (2005 H1: £1 million). Grossmargins have increased to 22% reflecting the gradual change in sales mix awayfrom commodity products to technology. Administrative expenses beforeexceptional costs decreased by 13% to £1.00 million from £1.15 million reducingin areas such as staff costs and finance charges. New Accounting Standard Included in administrative charges is a charge of £26,000 (2005 H1: £25,000)made under Financial Reporting Standard 20 (being adopted in 2006) in respect ofshare options granted by the Company. The Standard has also had an impact on the2005 results and a prior year adjustment of £50,000 has been made. The attachedprofit and loss account and balance sheet has been restated to reflect thischarge. The charge has been credited to Other Reserves. Operating losses increased to £0.87m from £0.33 million. Exceptional items of£0.30m (2005 H1: £nil) are included in this figure. The loss per share increased to 1.36 pence (2005 H1: loss per share of 0.56pence). Management Changes As part of the new strategic direction of the Company and to ensure that we keptpace with the evolution of the industry, we felt that it was important to evolveour management team to meet the developing needs of the business, customers andshareholders alike. We were pleased to announce the significant strengtheningof our Board with the appointment of Matthew Turner as Managing Director on 29August. Matthew brings Symphony extensive commercial and leadership skills andhas considerable experience operating in an environmental technology sector. In addition to this, we have strengthened the senior management team furtherwith the appointment of John James as Head of International Sales. John'sspecific role will be to develop and expand the established overseasdistribution network for the d2w(R) range of products and additives which cannow be found in more than 40 countries. As part of this management reorganisation, we announced that Allan Blacher lefthis position of Chief Operating Officer and the Company. We also announce todaythat Keith Frener, Operations Director, has stepped down from the Board to focuson the development of other areas within Symphony. Diversification of Business In line with our new business model, Symphony is pleased to announce adiversification to its core business into waste-to-energy technology. A newwholly owned subsidiary, Symphony Energy Resources Limited ("SER"), has beenformed to focus on the development of Symphony's waste-to-energy business. Robert Nash, 56, has been appointed Managing Director of SER and heads aspecialised team of experts in the field of Thermal and Microwave Pyrolysistechnology. Symphony has been investigating the development and marketing ofwaste energy for the past two years and has in the last year increased itsinvestment in this area. SER is working with two unique waste-to-energy reprocessing technology systems. Thermal Pyrolysis System Thermal Pyrolysis is a process that applies heat to plastics in the absence ofoxygen to break the chemical bonds. The thermal Pyrolysis system converts wasteplastics into Plastic Derived Oil ("PDO"). It is designed to recycle mixedplastic waste streams into valuable and easily marketable products. The processprovides an alternative route to conventional and more costly recycling systemsand can use most types of plastic/rubber waste that currently go to landfill.The system itself uses very little energy and is self-propelling with virtuallyzero waste generated from the process. PDO output per operating unit is in theregion of 18,000 tonnes per annum which represents a revenue value on today'soil prices of approximately US $9 million. In 2005 Symphony signed a Memorandum of Understanding with a US corporationwhich allows exclusive marketing rights in most territories excluding the USAand is also subject to certain performance conditions. This agreement has beenextended in part and is valid until the end of 2007 with further extensionprovisions. Symphony is currently in advance negotiations in one territory inrelation to the use of a Thermal Pyrolysis System and is also in discussionswith other interested parties. It is anticipated that revenue for Symphony willbe generated from management fees, licence fees and royalties. Microwave Pyrolysis System In July 2006 Symphony acquired the intellectual property and future patentrights to a British innovative Microwave Pyrolysis process. A 16 week designstudy to examine and prove the commerciality of the project by a reputable UKbased global engineering company has been commissioned. The Company has activelystarted developing new areas to apply this waste-to-energy technology. Inparticular operations that are looking for sustainable solutions to reduceenergy cost have shown an interest in the Technology. Main Market Review United Kingdom Sales of additives are increasing in line with the new business focus ofreplacing finished products which are now gradually reducing. An example of thiswas first referred to in the Preliminary results issued on 27 April 2006 were weannounced that Co-op had confirmed that it will be using d2w(R) additives in allits degradable plastic bags. The supply of these degradable finished productsusing d2w(R) additives has commenced through their incumbent supplier. Much of the work in the UK and indeed in other markets remains commerciallysensitive and therefore no specific information can be provided in this reviewother than in general terms. We are actively developing the market and are in discussions, negotiations andtrials with some of UK's highest profile companies and specific references tosome of these were made in our earlier update to the Market of 15 June 2006.The need for a cost effective, credible solution to plastic packaging waste isgaining momentum with recent announcements in the press and broadcast onnational television and radio. Further, some large retail groups are nowactively campaigning for biodegradable packaging creating increased levels ofinterest for products made with d2w(R) additives. Europe (France) Most of our European effort is being focused in France as a result of theimpending 2010 legislation in connection with plastic carrier bags and also thedefensive actions by the plastics industry to protect their position bysupporting a move to create a new standard for oxo-biodegradable technology. Thenew standard could become effective before the end of the year and thereafter isexpected to harmonise throughout Europe and internationally thereafter. Our focus has been to work with the French plastic producers in arguing the casefor oxo-biodegradable packaging as the alternative could result in a ban for thetraditional polymer based alternative thus causing financial harm for theindustry. The d2w(R) business in France as a result of these efforts has converted some1500 tonnes of normal finished products to d2w(R) oxo-degradable ones as againstvirtually zero sales last year. Our expectations, based on current negotiations,and trials for France alone, and in the coming year are to achieve sales ofseveral times this volume in a plastics market that is larger than the UK. Like in other markets and through our Distributor, Alternative Plastics (http://www.symphonyplastics.fr/) we are working with some of the highest profilecompanies in virtually all the main market sectors. USA In line with the earlier announcement of 27 April 2006, our US distributorDegradable Polymer Products Inc continues to make satisfactory progress towardcompleting the arrangements for payment to Symphony under the DistributionAgreement of US$550,000. A commencement fee of US$100,000 was paid to Symphonywithin the period under review. As part of the consideration for the Agreement, Degradable Polymer Products Inchas issued to Symphony five million, six hundred thousand (5,600,000) fully paidcommon shares from its treasury at a price of US0.15 per share. The value ofthese shares has not been recognised in our accounts as Degradable PolymerProducts Inc fund raising program is not due to be completed until the end ofthis financial year. We are advised that sales and marketing are progressing in a satisfactory waywith several new trial orders secured. The sales arrangement between Symphony, DePoly and Rand International, asannounced on 21 August 2006, incentivises the parties to secure some significantsales objectives and developments. Taking into account current activities we areconfident that the parties are making positive progress towards achieving theirobjectives. Caribbean Business On 27 April 2006 we announced that an investment of around £800,000 had beenmade to date in this region and that orders in the territory exceeded US$3million subject to local bank approval. On 22 May 2006 we announced that initialbanking facilities had been approved and that orders for the region wereexpected to exceed US$4 million in the full financial year. Subsequent to thatorders and payments started to flow albeit at a rate far lower than anticipated. Following a recent visit to the region by Matthew Turner, it was decided torestructure the current arrangements. We believe the new structure offers bettersecurity and sales prospects for d2w(R) than the previous arrangement Thereforewe have terminated the license agreement with our distributor (CEPI) CaribbeanEnvironmental Protection Inc., and Loramark Marketing Inc. As a result of thistermination a provision of £300K is being made while we go through a process ofrecovering our investment and ensuring improved returns. The restructure of the business albeit at an initial financial cost, opens theopportunity to expand at a much faster and more profitable rate than previous.Moreover, the restructure will strengthened cash-flows in the short to mediumterm. Symphony is very pleased to announce that it has appointed A S Bryden (aninvestment grade company) as distributor for Barbados with immediate effect. AUS$1 million license fee has been agreed for payment against future sales. Sales for the region based on current order levels, commitments and negotiationsare expected to exceed earlier projections which were announced to the Market onthe 22 May 2006. Middle East In line with our new business strategy the joint venture product manufacturingarrangement with Bin Hilal Enterprises of Abu Dhabi has been brought to an end.The remaining equipment will either be paid for by Bin Hilal or sold to anotherfacility in due course. We continue to hold our investment in the Company whichis actively trading. Through our distributor, Interplast of Dubai, a substantial amount of marketingwork for d2w(R) additives has been ongoing in the region and recent reportsindicate a substantial increase in business over the coming months. Productsmade with d2w(R) additives can be found in Dubai, Jordan and Qatar with newapplications beyond refuse and carrier bags being developed. Outlook Symphony is recognised for its global leadership of oxo-biodegradable plastictechnology and is visible by the d2w(R) droplet brand. The plastics market israpidly changing in terms of a growing demand for cost effective environmentallyresponsible solutions to the problem of plastic waste management. This momentumis further propelled by many new developments in legislation that are focused onmaking compulsory changes to packaging, waste and recycling. The group has entered into a large number of agreements for the evaluation,development and marketing of its range of d2w(R) pro-degradent additives. Theseagreements cover a broad spectrum of markets and products and if ultimatelysuccessful will deliver substantial value for the Group. To maximise these exciting opportunities and as part of the ongoing managementreview process we are investing actively in new personnel, systems and resourcesto help implement this next phase. The launch of the new waste-to-energy business offers many opportunities toaccelerate revenues in the medium to longer term. As a result of recent events that have been referred to in this review the Groupcontinues to operate in a cash-flow neutral position. The Board is consideringfurther investments as referred to in the earlier paragraphs although timing andvalues have yet to be determined. Based on the levels of current interest, orders, agreements and projects, webelieve that the Group will move forward positively over the ensuing period. We look forward to the future with confidence. Michael LaurierChief Executive CONSOLIDATED PROFIT AND LOSS ACCOUNT For the six months ended 30 June 2006 Six months to Year ended Six months to 30 June 2006 31 December 2005 30 June 2005 Restated Restated £'000 £'000 £'000 £'000 £'000 £'000 Turnover 2,347 9,109 4,946 Cost of sales (1,821) (7,342) (3,949) Gross profit 526 1,767 997 Distribution costs (68) (272) (130) Administrative expenses - other (1,002) (2,602) (1,153)Administrative expenses - exceptional items (300) (191) -Administrative expenses (1,302) (2,793) (1,153) Operating loss (844) (1,298) (286) Net interest (24) (166) (39) Loss on ordinary activities before taxation (868) (1,464) (325) Tax on loss on ordinary activities - 40 - Loss for the financial year transferred from (868) (1,424) (325)reserves Basic and diluted earnings per share in pence (1.36)p (2.36)p (0.56)p There were no recognised gains or losses other than the loss for the period. CONSOLIDATED BALANCE SHEET As at 30 June 2006 30 June 31 December 30 June 2006 2005 2005 Restated Restated £'000 £'000 £'000Fixed assets Intangible assets 17 18 20Tangible assets 227 247 258Investments 16 16 16 260 281 294Current assets Stock 169 304 616Debtors 2,061 2,773 3,886Cash at bank and in hand 91 1 453 2,321 3,078 4,955 Creditors: amounts falling due within one year (1,689) (1,607) (2,444) Net current assets 632 1,471 2,511 Total assets less current liabilities 892 1,752 2,805 Creditors: amounts falling due after more than one (71) (89) (83)year 821 1,663 2,722 Capital and reservesCalled up share capital 634 634 634Share premium account 10,824 10,824 10,809Other reserves 898 872 848Profit and loss account (11,535) (10,667) (9,569) 821 1,663 2,722 CONSOLIDATED CASH FLOW STATEMENT For the six months ended 30 June 2006 Six months Year Six months to ended to 30 June 31 December 30 June 2006 2005 2005 Restated Restated £'000 £'000 £'000 Net cash inflow/(outflow) from operating activities 9 (1,547) (1,083) Returns on investments and servicing of financeInterest received - 2 1Interest paid (20) (157) (37)Finance lease interest paid (5) (11) (3) Net cash outflow from returns on investments and (25) (166) (39)servicing of finance Taxation - 40 - Capital expenditure and financial investmentPurchase of tangible fixed assets 3 (6) (85)Purchase of intangible fixed assets - (26) (6)Receipts from sale of fixed assets - 44 11 Net cash outflow from capital expenditure and financial 3 12 (80)investment FinancingIssues of equity share capital - 121 121Share premium on issue of equity share capital - 1,718 1,718Share issue expenses - (10) (25)Capital element of finance lease rentals (17) (61) (13)Inception of finance leases 61 Net cash (outflow)/inflow from financing (17) 1,768 1,862 (Decrease)/increase in cash (30) 108 660 Net cash outflow from operating activities £'000 £'000 £'000 Operating loss (844) (1,298) (286)Non cash item - FRS20 26 50 25Depreciation and amortisation 24 50 20Loss on disposal of fixed assets - 8 (1)Decrease/(increase) in stocks 135 76 (236)Decrease/(increase) in debtors 712 624 (488)(Decrease)/increase in creditors (44) (1058) (117) Net cash outflow from operating activities 9 (1,547) (1,083) NOTES TO THE INTERIM ACCOUNTS 1. BASIS OF PREPARATION The interim financial statements have been prepared on the basis of theaccounting policies set out on pages 8 and 9 of the 2005 Annual Report, and areunaudited. The accounting policies have been amended for this interim statementto include Financial Reporting Standard 20, share based payments. This change inaccounting policy has resulted in a prior year adjustment charge to the profitand loss account of £50,000 (£25,000 H1 2005). The comparative figures for theyear ended 31 December 2005, which have been amended by the prior yearadjustment, have been extracted from the group's latest published accounts whichcontain an unqualified audit report and which have been filed with the Registrarof Companies. 2. LOSS PER SHARE The calculation of basic loss per share is based on a loss for the perioddivided by the weighted average number of shares in issue during the period of63,379,547 (2005 FY 60,327,090; 2005 H1: 57,481,867). 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