Nature Group Regulatory News (NGR)

Nature Group PLC

("Nature Group" or the "Company")

Final Results for the year to 31st December 2011

Nature Group, (AIM:NGR), the provider of port reception facilities and waste treatment solutions for the oil, marine and process industries, is pleased to present results for the year to Dec 31st 2011

2011 Financial Highlights

·; Revenues of £15,051,934 (2010: £6,830,223)

·; Operating profit of £6.090,833 (2010 £3,179,342)

·; Profit before tax £1.515,833 (2010: £2,318,951)

·; Profit after tax £1,121,312 (2010: £1,528,379)

·; Earnings per share ("EPS") 1.42p (2010 3.71p)

·; EPS excluding share based payments and group acquisition costs 1.46p (2010: 4.34p)

·; Year-end cash balances of £2,912,406 (2010: £5,741,644)

·; Results for the year ended 31 December 2011 impacted by disputed insurance claim relating to Gibraltar accident

·; Total dividend for the year of 0.5p per share in respect of 2011, paid as interim dividend (2010 0.7p). Our proposed dividend policy remains unchanged.

Commenting, Chairman Bernard Muller said:

"2011 was a year of contrasting experiences. We made great progress in the integration of our two companies and in furthering our expansion plans but saw our reported results severely impacted by the as yet unresolved insurance claim relating to the accident in Gibraltar."

2011 Operational Highlights

·; Several orders for Oil and Gas division for CTU technology and preparing additional CTUs (compact treatment units) to meet increased demand 

·; Acquired seagoing tanker barge (the MV Crystalwater) to service hub and spoke operations in SW Europe

·; Rotterdam PRF (port reception facility) extended to Amsterdam 

·; New appointments to strengthen management team

·; Integrated ISD into Nature Group and introduced new corporate strategy

·; Setup international business development unit to implement corporate strategy

I am proud to present to you my first Statement as Chairman of Nature Group. Last year proved a difficult year when we faced many challenges overshadowed by the tragic incident in Gibraltar.  Although we were not directly responsible for this incident we have nevertheless reviewed our operational procedures to avoid any criticism of complacency. Together with our annual report we will also publish our integrated CSR report which will reflect on our policy commitment to corporate and social responsibility which is in line with International Standards of Reporting.

Operations

Nature Port Reception Facilities (Maritime Division)

Last year we collected and treated nearly 180,000 cubic metres of maritime and offshore waste. As we previously reported the global economic slowdown has inevitably meant a decrease in overall shipping movements with a knock on effect for volumes at both our major port locations. Volumes were also affected by the industrial incident in Gibraltar although we have been able to resume waste collection services for treatment by a third party. 

Margins per collected ton of waste in our maritime division were slightly higher compared to 2010, but volumes were down 25%, in line with the general shipping market and port volumes. We see a downward trend on margins starting at the end of 2011 due to more competition and a mismatch between supply and demand in the recycled oil market.

The recovered oil from our treatment processes is recycled for use in other industries, ensuring our promise to customers that it never shows up in their original supply chain again. In our own or subcontracted treatment facilities the contaminated waters have oil and other contaminants removed by Nature's biological processes.

The synergies we anticipated for the enlarged Nature Group, at the time of the acquisition of International Slop Disposal, have been realised. NISD (Nature International Slop Disposal) have shipped cargoes of waste oil from the Netherlands to Gibraltar plus the international contracts for waste collection that NISD have negotiated with ship owners have now been extended to Gibraltar resulting in additional collections.

In 2011 NISD acquired one collection barge, the Hydrovac 6, with a capacity of 1,200 tonnes for the Rotterdam operations. Additionally, as announced at the end of 2011, we also acquired the MV Crystalwater a seagoing double-hull stainless steel chemical tanker with a capacity of 2,500 tonnes. Both additions were made to maintain and improve our logistics, which are of vital importance to our services. We are in the process of identifying additional barges to purchase, as and when appropriate, to further enhance our expansion plans.

These and other improvements enabled us to divert cargoes for third party treatment mitigating the financial and commercial impacts of the incident in Gibraltar, and maintaining our position as a major maritime waste solutions provider, a matter upon which we comment below.

The successes of 2011 have been significantly overshadowed by the incident in Gibraltar on May 31st 2011 when, as shareholders will be aware, an explosion occurred within our storage tanks in an area of the port shared with the cruise liners. The tank explosion has of course had an effect on our employees, the local community and sadly for the family of the sub contractor's employee who lost his life.  Since the incident occurred the management of NPRF Gibraltar, together with Group staff, have been working tirelessly in conjunction with the Gibraltar Government to provide the reassurance that the likelihood of a similar event happening again is extremely unlikely.

After the accident we submitted our claim to our material damage insurers who subsequently declined cover at the end of January 2012, stating they were not prepared to pay our claims for loss of business and property damage. We believe this move by insurers was totally unjustified and we are continuing to vigorously pursue what we believe is a legitimate claim. This view was taken following legal advice supported by new evidence to rebut their action. However we cannot, at this stage, offer any certainty as to the possible outcome of any forthcoming court proceedings, should we go down that route. Any third party liability claims we received have been passed on to our liability insurers in the normal way. Prudently, any expenses we have incurred as a consequence of the incident have been written off by the year end. 

The denial of our material damage claim has had a severe impact on our revenues, estimated at £2.4million, with consequently an adverse effect on our 2011 profits. Combined with a provision taken for the repairs of our facility in Gibraltar and other related costs we have calculated the total impact on our results to be circa £3.5million and for which we have filed a revised claim with the insurers of £3.1million.

The Board feels at this stage it would be premature to set a date for the resumption of treatment operations in Gibraltar. However, we are cautiously optimistic that ongoing discussions with the Gibraltar Government have been constructive and all outcomes are being reviewed to come to an acceptable long term presence to fulfil the Government's requirement. Although our waste management permit had been temporarily withdrawn we are pleased to report our other licences, covering the collection and export of waste from Gibraltar, have not been revoked. We do however feel it important to note that the carrying value of our assets in Gibraltar valued at £2.4million have been raised by our auditors as an "emphasis of matter" should for any reason there be no resumption of operations.

NATURE OIL AND GAS

Traditionally it has been common practice for offshore oil and gas installations to send their waste to shore despite this requiring expensive and time consuming transhipment by oil support vessels. Nature's CTUs can treat the waste offshore and, if required, at an onshore location, although treating waste at source is the environmentally sound way forward.

The Oil Industry acceptance of offshore treatment gained traction in 2011. With several on-going projects in Norway and more recently in Brazil, demand is increasing and the pipeline of potential projects is growing. As a result, the Board decided in 2011 to build two additional CTUs to meet the increased market potential and we expect to have the units delivered to our base in Stavanger by July 1st 2012. Servicing our CTUs will be centred on our new base in Stavanger which includes offices and a full workshop facility.

Our CTU technology has led to potential clients identifying an alternative treatment solution involving cargoes of contaminated waste oils from FPSO's (Floating Production, Storage and Offloading vessel), which may previously have been shipped to Rotterdam for treatment but now see the opportunity to position a CTU on their installations. This has the benefit of being a sustainable and cost effective solution, and has already resulted in a rental of one of our CTUs to a major oil client in Brazil. 

Nature Oil and Gas will lead a clearly segregated division within our structure to focus on the opportunities in the oil and gas industry. As part of this move we have strengthened the management team with the appointment of a Managing Director for Norway who was a former CEO of a related business, experienced and well connected within the Norwegian Oil and Gas Industry.

Nature Engineering

Nature Environmental Solutions Ltd (NESL)

During 2011 we have built and fulfilled our contract for delivery of a waste treatment facility in the Port of Duqm in Oman, located on the Indian Ocean. Despite a number of challenges the margin on this contract has remained positive. We are pleased to report that during the first quarter of 2012 the plant was commissioned and handed over to our client in mid April, with the contract officially coming to an end after the agreed training period at the end of June this year. This contract has demonstrated that Nature are able, as subcontractors, to supply and build a fully specified treatment plant on a greenfield site that will be an important facility at the new port.

Ecoscrub Solutions (Emission and Odour Control Technology)

In 2011 we had several small orders for our compact and portable scrubber unit. We have partnered with a local company to sell and market our technology to further grow this business. We see an increased demand for environmental solutions like this to cope with emission and odour problems in urban areas. We have reached the status of BAT (best available technology) by the Dutch Environmental Agency, which means that other facilities will have to use Ecoscrub or be forced to adopt equivalent technology by legislators. Recently we received very promising test results at two major facilities in the port of Rotterdam with both meeting the stringent emission criteria in recently adopted environmental legislation. We are in talks with several industrial customers to rent or sell our units and we expect this business to further develop into 2012 and 2013.

Financial Commentary 

In line with our trading update on January 31st 2012, the 2011 profit before tax is £1.52million and, after tax of £0.40million, Nature is reporting a net profit of the year of £1.12million. Revenues for the year were £15.05 million compared to 2010 of £6.83million, which included 22 days from the acquisition of ISD. As stated in our operational commentary a decline in our maritime volumes and the Gibraltar incident have had a significant effect on revenues and profits. 

Despite an increase in operating profit of £2.91 million, our pre-tax profit showed only a marginal increase as a result of a rise in administration expenses from £0.94 million to £3.65 million. This was largely due to a combination of exceptional costs in respect of the incident and business integration, as well as the enlarged Group, which were not included in 2010.

From 2012 we will be reporting in line with our divisional structure, separately highlighting the results for maritime, oil and gas and engineering activities. As a lead into that process we can report that in 2011 maritime had a turnover of £11.70 million, oil and gas £2.10 million, and engineering £1.40 million. Since ISD was only integrated fully in 2011 we cannot compare these numbers with our 2010 outcomes.

Cash balances at the close of 2011 were £2.91 million compared to £5.74 million at the end 2010. As reported earlier to improve our logistics we acquired the MV Crystalwater, Hydrovac 6 and invested in new CTUs out of cash resources. The Gibraltar incident has, of course, required unforeseen expenditure on necessary repairs and clean-up work to the plant pending full damage repair, the costs of which have been absorbed into our results for 2011. A further £0.20 million of expenditure has been written off relating to legal and professional advice arising from the incident. 

Group overhead costs have increased following the implementation of our new growth strategy, and a number of one off costs were incurred in the integration of ISD relating to marketing and business development costs which were valued £0.20 million. We can anticipate some limited one off costs continuing into 2012. 

Foreign exchange gains on trading were £85,000 for 2011; however the recent strengthening of sterling will have an effect if it continues in the translation in our euro dominated revenues into sterling on consolidation. This impact should lessen in the future as we would expect US dollar income to grow as intended new projects come on stream.

Integration of Group operations

Following the acquisition of ISD we have been engaged in the integration of the businesses, part of which is the development of a common culture across the Group. As part of this process we adopted a new corporate strategy last year, which in addition to our growth plans included a commitment to working with our customers to establish the best ethical standards in environmental management. As a further step, to highlight our openness and transparency towards the work we are undertaking for corporate and social responsibility, details will be available as an addendum to this report and as a downloadable iPad app.

Business development and executing our strategy

Since the adoption of our new strategy, much effort has been put into setting up a dedicated and focused business development plan that has already led to a number of exciting leads internationally. Building an international company and developing opportunities on this scale takes time. However, we are committed to this process and emphasise that our growth plans for Nature are a long term project, as it is indeed for any modern waste management company, providing the resources and know-how that are required of our clients and ourselves in environmental compliance.

2012 to date

·; Signed contract for a joint venture for a port reception facility in Panama, aimed to be operational end 2013

·; Contract negotiations for a joint venture in Portugal cementing our position as a sales outlet for our recycled oil are at an advanced stage 

·; We have obtained significant test results at two major tank terminals in Rotterdam with our scrubber technology

·; Official handover of Oman facility scheduled for end of June 2012

·; Submitted and passed pre tender process in the Middle East for both port reception facilities and CTU s

·; Reviewing opportunities for two agency agreements in key offshore locations

·; Volumes in South West Europe are recovering due to improved logistics, but margins are under pressure in both North West Europe and South West Europe.

·; Reviewing opportunities to establish a joint venture port reception facility in the US Gulf region.

·; Reviewing a joint venture opportunity for a shore based oil and gas related treatment facility in Nigeria

·; Signed a Memorandum Of Understanding to establish a second oil and gas related shore based joint venture treatment facility in North West Europe

The Future and our Markets

Our performance in the operations covering port reception facilities is linked to international shipping movements and primarily tankers, which we can see was impacted last year from a definite slow down in this industry, although recently we have been pleased to see that there are indications of a slight recovery in this market. For us this has had a knock on effect where the demand for recycled oil in Europe has not been met with our ability to supply due to handling lower volumes.

We see a number of changes happening with our shipping clients as they work to comply with both existing and forthcoming emission regulations with some owners moving to partial use of liquefied nitrogen gas as an auxiliary fuel. In addition to servicing the waste needs of ship owners we also anticipate that cargo related waste will continue to be a major source of waste. The trends we see underpin our strategy to offer our services in a network of key locations combined with excellent logistics intercepting all the major shipping routes. We continue to fully endorse the enforcement of regulations to prevent the pollution of our oceans that arise from reckless discharging of waste materials. 

The Oil and Gas division is looking at very promising growth expectations in the offshore oil and gas industry. The global markets are supporting us here, as more and more Governments, as well as operators, are focusing on "zero discharge" policies which will mean that more sophisticated treatment methods are needed, which Nature has demonstrated it can provide. We do not see any let up in the growth of offshore drilling and oil extraction especially in areas classified as deep sea, demonstrating that the market will remain strong for us. 

It is good to see that our strategy is being executed by motivated staff and employees disseminating the Nature message. This has recently led to the formation of a joint venture in Panama, plus we have entered into a number of memorandums of understanding, which will hopefully lead to further developments of that type. Next to this our sales strategy has been reinforced with some key new appointments on board already leading to successes and a robust sales pipeline.

The engineering division will continue as a smaller operation within Nature, but as we grow into new markets we can develop and can capitalise on the knowledge we recently gained in Oman. We anticipate our EcoScrub technology for emission control solutions to gain more market success through 2012 

Risk Management

Every aspect of the value chain within our Industry for the collection and treatment of hazardous waste is ruled by legislation, therefore compliance is at the core of all our processes. We have begun implementing new quality and safety systems used by other international class leaders in related industries. 

Concluding

The management team and their staff are working hard to take Nature forward to win new opportunities, which encourage our partners and customers to share their environmental management strategies with ours. Having highlighted the hard work that the staff in Nature do, I would like to take this opportunity to thank them for their commitment to the goals we have set for Nature. It is our ambition to become a world-class waste treatment company where we contribute to a better environment by saying; Clean Seas, Your Choice, Our Mission.

Bernard Muller

Chairman

6 June 2012

Notes to the accounts

1. The calculation of earnings per share has been based on the profit for the period and the average 78,780,655 Ordinary Shares in issue throughout the period.

2. These unaudited results have been prepared on the basis of the accounting policies adopted in the accounts to 31 December 2011.

3. The statutory accounts for the year ended 31 December 2011 will be sent to shareholders of the Company on 21 June 2012 and will be delivered to the Registrar of Companies following the Company's Annual General Meeting, which will be held on 12 July 2012. The report and accounts will also be available on the Company's web site:  www.ngrp.com

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