13th Jan 2009 07:00
Environmental Recycling Technologies plc
Pre-Close Trading Update
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, today announces a pre-close period trading update for the twelve months ended 31 December 2008.
As highlighted in the interim results of the Company in September 2008, the Company is now operating under an out-licensed business model. This model involves the Company providing licences to various third parties to commercialise the PIM process. In return the Company receives various upfront, milestone and royalty payments from PIM process licensees depending on the scope of the licence and the expected associated revenue from the product. The advantage of the out-licensed business model to the Company is the potential for high returns from its existing PIM technology with minimal further investment in new products and processes. Furthermore the Company can operate on a low ongoing cost base.
The Board is pleased to report that it has continued to see a high level of interest in the PIM process during the second half of the financial year. This interest has continued principally to be from a range of industries including construction, plastic recycling and the waste sector. Of those material licensees and customers previously highlighted by the Company, the Board provides the following updates:
The Board is delighted at the successful conclusion of the financing of 2k Manufacturing Ltd which was announced on 12th January 2009.
The Board is pleased to announce that all 1,000 units of Eco-decs have been produced as agreed for Contour Shower Trays. These products are currently being marketed and enjoying significant interest. Under the licence agreement Contour are now at liberty to contract production directly with the PIM manufacturer of their choice.
The Company has terminated the previous development agreement with Mediwall and has entered into a R&D licence which enables Mediwall to complete their R&D project with their preferred PIM manufacturer.
The Company has entered into a Joint Venture Agreement with Persico Srl, a leading Italian designer and manufacturer of rotational moulding and plastic processing machinery. The Joint Venture combines the PIM Process with Persico's well established range of machinery and processes in order to further develop the use of recycled plastics.
The Test Rig for the DTI project has been successfully commissioned and has now been installed at Brunel University as part of the Replas project managed by PERA and funded by BRR (DTI). The Test Rig has proved extremely useful in carrying out development work for 2k and on wider licence applications
In the light of these developments the Board has decided to conduct a review to assess the future commercial value of all its other Agreements. The Company now has no contingent production liabilities and therefore the Board expects the cash burn of the Group to be significantly reduced.
Going forward, shareholders should be aware that the Company intends to announce specific licences only when they have been signed and are material to the Group financially or, in relation to developments with existing licences, when they are required to do so for regulatory purposes.
Financially, the Company expects to report revenue for the full year ended 31 December 2008 to be no less than £1.3m and losses (subject to audit) to be no greater than £3.2 million. The revenue reflects principally minimal milestone payments from existing licensees, revenue associated with the Contour contract and various subsidies and rebates. The losses for the full year principally reflect the costs in restructuring the business during 2008, the ongoing costs of the business and where possible full recognition or settlement of outstanding disputes and claims of the Company as highlighted in the interim report.
As at the time of this announcement the Company has cash of £17,000. The anticipated annual cash burn of the Company is expected to be in the region of £0.7million. The Company expects to remain solvent during 2009 by virtue of licence fees, minimum royalties, a reduced overhead and the utilisation of the drawdown facility with YA Global Investments Ltd. If however the Company is unable to utilise the drawdown facility or any payments due to the Company are not paid as forecast, due to the low cash position of the Group the Directors believe the Company is unlikely to be able to meet liabilities as they fall due and appropriate action would be necessary.
At the year end debt owed to YA Global Investments Ltd was £1.8million and other debt amounted to £1.5million, the terms of which are presently being renegotiated.
Finally, the Group remains in a legal dispute with its former Chief Executive Officer in the Kyrgyzstan Republic in relation to a compensation claim. Under notices served to the Group this compensation claim amounts to approximately £0.5m and was fully provided for in the unaudited interim results for the six months ended 30 June 2008. The legal advice to the Board is that we have a strong case to continue the appeal.
Shareholders should be aware however that despite the best efforts of the Board the level of compensation being sought under the claim exceeds the present immediate cash resources of the Group. The Board is therefore actively endeavouring to have the claim compromised or withdrawn which the Board believes to be in the best interest of the claimant and the Company.
The Board will keep shareholders updated on any material developments.
13 January 2009
ENQUIRIES:
Environmental Recycling Technologies Plc Tel: 0845 071 1394
Roger Baynham (MD)
Ken Brooks (Chairman)
Evolution Securities Tel: 020 7071 4300
Tim Worlledge
Bobbie Hilliam
Related Shares:
ENRT.L