Nature Group Regulatory News (NGR)

14 May 2013

Nature Group PLC

("Nature Group" or the "Company")

Unaudited Results for the Year to 31st December 2012

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 2012

2012 Financial Highlights

·; Revenues of £14.30m (2011 £15.05m)

·; Underlying EBITDA £1.90m (2011 £3.33m)

·; Underlying Operating Profit £0.49m (2011 £2.3m)

·; Underlying Profit before tax £ 0.47m (2011 £ 2.27m)

·; Underlying Earnings per share ("EPS") 0.48p (2011 2.62p)

·; Free cash flow £ 0.78m (2011 £ 1.38m)

·; Year-end cash balances of £2.32m (2011 £2.91m)

2012 Operational Highlights

Maritime:

• Total waste volume in Rotterdam grew from 138,000m to 167,000m (21% increase)

• Market share Rotterdam remained at 60% despite margin competition

• Total collected and cargo waste volume in Gibraltar grew by 27% from 46,000m to 58,000m

• Established our footprint in Portugal for port reception facilities and a JV for the treatment of waste oil

Oil & Gas:

• Hired Norwegian managing director to lead Oil and Gas Division

• Set-up Oil and Gas locations in Aberdeen (JV), Middle East (agent) and Brazil (agent)

Engineering:

• Ecoscrub unit on longterm contract to Dupont and successfull test done in Sohar-Oman

Commenting Nigel Sandy, Chairman, said

"2012 was a challenging year with an ongoing squeeze on volumes and margins in the international shipping markets as well as a number of operational reorganisations but we are pleased that our volumes have held up as we continue to deliver a high level of service to our customers. However, the contracts we are now winning gives me confidence for the results this year."

For further information please contact one of the following:

Chairman's Statement

Having taken over as Chairman from Bernard Muller on 13th November 2012 I would like to take this opportunity of thanking him for his time as Chairman and his contribution in helping to create the enlarged business Nature is today. It is good to know that he still maintains a keen interest as a major shareholder.

2012 was a disappointing year, as profit was substantially below our expectations during the second half of the year. This was principally a result of slower than expected revenues from the expansion of the Oil and Gas Division, and from the investment in new offshore water treatment rental units both of which also increased the overhead required to support the Division. What we have also learnt is that the lead in time for offshore contracts can be up to 6 months or more, longer than we had planned. However we have been pleased to announce those which have so far materialised in 2013.

Since taking over as Chairman we have refocused on the key issues relating to the accident in Gibraltar in 2011in order to bring this maritime base for storage and treatment of liquid waste back into operation. We were very disappointed that our insurers initially refused to recognise our insurance claim which, given the circumstances, we felt was unjustified. Following a full review of the cause, and the costs of a plant rebuild, we have retained professional advisers to resubmit our claim and enter a dialogue with insurers. To pave the way to rebuilding the Gibraltar plant we have maintained a positive relationship with the Government of Gibraltar, who, like ourselves, wants to ensure that the new plant incorporates the latest standards in safety and engineering. On both our insurance claim and negotiations with the Gibraltar Government we will keep shareholders advised of any developments.

Nature has a dynamic executive team, led by Andreas Drenthen as Chief Executive, which is always looking for new business opportunities. As part of the Group's strategy for growth a lot of effort has gone into developing an operational base upon which to expand, and the expansion of the Oil and Gas Division is an example of this. The offshore treatment of waste water from drilling operations is progressively becoming the preferred method of operation within the industry. In conjunction with a local partner we have also established a strategic water treatment base in Setubal, Portugal as part of Nature Port Reception Facilities. This operation allows us to treat oily maritime waste, recover and recycle the oil content and market for reuse.

It is our mission to be a Company who cares about the protection of the environment, and alongside our operations we are strengthening our underlying procedures for health and safety and operating procedures. We are pleased to announce that following our qualifying work in 2012 we have been awarded the accreditation standards for ISO 9001 and 14001 in 2013.

The Maritime Division continues to be a very solid business with a strong market position in Rotterdam, alongside our continued focus on consolidating the hub and spoke operation operating in the Western Mediterranean with our vessel the Crystalwater.

Recognising that if Nature is to fulfil the potential business opportunities that we see, the build-up of our cash reserves will be essential to achieve this. As a result we have decided not to pay a dividend for 2012 which we understand will be a disappointment to shareholders. However, our stated policy of 25% of distributable net profits remains in place looking ahead.

We are very confident about the future of Nature as a business that will grow in serving the maritime and offshore industries to manage their waste disposal needs. We operate in a regulated market where events and pressure groups will continue to shape existing and future legislation for cleaner seas and oceans. Our Chief Operating Officer is currently Chairman of Euroshore, the trade association for the maritime industry, who are also pressing for the implementation of common regulatory standards in the European Union. Not only do we embrace legislation but also see it as a barrier to entry for potential competitors.

With established operations in Europe, East Africa, South America and the Middle East, we look forward to the future with confidence. We trust our shareholders will share in our growth and we thank them for their support.

Chief Executive's statement

Nature Group is a business that operates in markets which offer considerable opportunity. Our results for 2012 were disappointing primarily because we were trying to manage a range of these opportunities in a number of constantly evolving markets and consequently we saw our cost base growing faster than the resulting income streams. At the core of our operations is the need to be world leaders in technology and environmental concerns and that carries with it necessary costs to maintain the standards we promote. The lessons of 2012 are now being the subject of rigorous implementation across the Group as we continue to pursue our chosen targets whilst working to ensure that we derive the maximum income from them.

 We are a company with a wealth of talent, having outstanding waste collection and treatment capabilities, a trusted service with an expanding footprint and leading offshore technology. We have tremendous potential to achieve growth and better margins. However, as our 2012 results show, we cannot be satisfied with our current performance, and we are taking action to ensure that we focus our potential to improve our profitability.

Despite a challenging and volatile economic environment, we were able to increase our overall "treated" volumes significantly compared to 2011 and our Compact Treatment Units for offshore treatment are gaining more traction by the week as recent announcements of sales since the year end have demonstrated. As a result we ended the year with an improved balance sheet and stable cash position. At the same time, across the company, near-term operational issues are being tackled with vigour and urgency. Our commitment to improve and aim higher is shared by all our employees.

STRONG POSITION

Our market position is strong. The worldwide economic crisis and its consequences have given greater focus towards sustainability. The world is in need of economic stability and a vision for the future. Our mission "Clean Seas are made possible by Nature" reflects our vision and supports the worldwide trend to cleaner oceans. Every day our oceans continue to be unnecessarily polluted. Nature Group, through its ever growing network of Port Reception Facilities, collects and treats any ship's waste, giving ship owners no excuses for dumping waste at sea. Our unique Compact Treatment Units (CTU) can treat oily waste from drilling operations offshore, saving the environment from unnecessary ship movements. A "Corporate Social Responsible" orientated business model, not only ensures we make our contribution to a better society, but that we can also build a stable profit base.

MARITIME

Our maritime business segment remained in 2012 the source of our core income. The collected volumes of waste in Rotterdam grew by 21% compared to 2011, maintaining a market share of more than 60%. However, due to the increased competition and weak economic market for ship owners, the margins decreased. In SW Europewe were able to increase the collected volumes compared to 2011, but as our terminal remained closed during the whole year this came with an increased cost. The collected waste could not be stored ashore, for which purpose we acquired the Crystalwater in 2011, so that all collected waste from Gibraltar, Malta and Ceuta had to be shipped to Portugal for treatment. The collected waste oil is collected and shipped by the Crystalwater to Portugal, where Nature Portugal treats and recycles the oily waste. This new joint venture has helped us to maintain our market in Gibraltar and given us needed flexibility. Although the costs for storing and shipping were higher than previously, for our customers we maintained our service standards and we retained their loyalty.

The worldwide shipping market remains weak, but even when vessels sail partly loaded they still generate the same amount of ship's waste (bilge water, sludge and used engine oil). Tankers have to be flexible and switch frequently between different cargoes in the current market environment, which generates more tank washings. 

Our plan to build a worldwide network of Port reception facilities is progressing with a signed JV in Panama, and potential opportunities being investigated in Houston and the Middle East. 

OIL AND GAS

In 2012 we completed manufacturing two more Compact Treatment Units (CTU), increasing our rental stock of CTU's to four. Although we had anticipated that we would finaliserental orders for the new units in the second half of the year, they were unfortunately delayed into 2013. In the past months we have received those orders, of which two are long term contracts, one in Tanzania and the other in the Norwegian sector of the Barents Sea. After having completed the project in Brazil, we had hoped that follow-up orders would start immediately after completion in May 2012, but due to the local administrative legislation it took longer to transfer our unit from the original contract to a new client. At the beginning of 2013 we completed a trial for a new Brazilian customer successfully. Currently we have our four units almost 100% rented out, and our pipeline of projects is still growing by the week. We have taken the decision to build three more units to add to our rental stock in addition to the two units sold to IKM. Nature Oil and Gas also signed a JV agreement with a leading offshore company in Aberdeen to support the UK offshore market, where the first project has been completed in the Shetland Islands. Based on the feedback of our customers we remain confident that we have the best available technology in the market, meeting and exceeding customer expectations in operational performance and providing a cost effective solution for offshore treatment compared to shipping ashore for treatment.

ENGINEERING

During 2012 we finalised and handed over the port reception facility at the Port of Duqm in Oman, which demonstrated our strength in providing solutions for the maritime waste treatment industry. Our ability to design, build and operate Marpol (Marine Pollution) waste treatment facilities has resulted in successfully winning a contract to build a Marpol waste treatment solution for the UK Ministry of Defence at an overseas location. The facility will be completed before the end of 2013.

ECOSCRUB SOLUTIONS

Nature's unique odour and vapourtreatment solution, EcoScrub Scrubber Unit (ESU), has achieved a breakthrough in 2012. For more than 3 months the unit was rented out to one of the leading terminal operators in Rotterdam, who was facing significant odour problems. After our unit was installed no odour problems were recorded, and we transferred our unit to a bespoke project in Oman, where the terminal was faced with similar odour problems. The test project in Sohar-Oman was very successful and EcoScrub finished the construction of a new mobile scrubber system, to meet the customer's latest requirements. With a three year contract for at least 3 month campaigns per year for a large Dutch manufacturing company, we are convinced that EcoScrub's future looks very promising.

LOOKING FORWARD

In the light of global trends and challenges including the demand for affordable maritime waste collection and treatment and our clients' desire for socially responsible solutions, we are confident in our chosen strategic direction. We are focusing on building Port Reception facilities at strategic locations around the world. With Rotterdam, the biggest port in Europe, and Gibraltar with over 90.000 vessels passing the Straits of Gibraltar annually, we are well positioned in Europe. With our JV opportunity in Panama, and the potential moves into Houston and the Middle East, we aim to be adding three main hubs to our network, becoming one of the leading International maritime waste specialists.

After expanding our CTU base to other offshore locations in the world, the further potential growth could be considerable. With expansion into Aberdeen alongside partnerships in Brazil and the Middle East, our fleet of Compact Treatment Units could continue to grow considerably over the coming year. There are more than 1,000 rigs and 300 Floating Production, Storage and Offloading (FPSO) units operational in the world, which all create waste water.

Despite some uncertainty in the global economy and Europe in particular, we have made a good start to the year with a number of important contract awards and with our focus on improved operational performance we are cautiously optimistic about 2013.

On behalf of the Executive team, I would like to thank our customers for their loyalty to Nature Group over this past year. I would also like to thank all our employees for their hard work - as well as for their willingness to embrace change. And finally I would like to thank our other stakeholders, in particular our shareholders, for their continued support in these challenging times. We have set out on a demanding and exciting journey. More than ever, we are resolved to accelerate, unlock Nature's full potential, and grow the value of your investment.

Andreas Drenthen, M.Sc.

CEO

Finance Director's statement

As stated in our trading update on December 10th several of the projects in our pipeline have taken longer to finalise than had been anticipated and therefore a considerable amount of income which had initially been expected to fall into the 2012 financial year did not start to come through until 2013.

In addition we felt it necessary to invest in the business and to put in place the structure behind an increasingly international operation in order to support the contracts which we have been negotiating.

Consequently our underlying EBITDA for 2012 was £1.90m, and our underlying profit before tax was £0.47m prior to one-off costs. Total revenue for the year was £14.30m compared to £15.05m in 2011 and our free cash flow was £0.78m compared to £1.38m (2011) with bank balances at the year-end standing at £2.32m compared to £2.91m (2011).

Exceptional one-off expenses, totalling £0.24m (2011 £0.75m), include £0.16m on legal and professional fees in the aftermath of the incident in Gibraltar; merger, reorganisation and expansion costs at Norway totalling £0.05m, new project costs which came to £0.02m and a professional risk analysis of the group that amounted to £0.01m. Taking into account the above exceptionals and consolidation adjustments we arrive at a reported unaudited profit before tax of £0.23m (2011 £1.52m).

Financial Analysis

During the course of 2012 we faced a number of challenges in the organisation and operation of the business as well as an evolving range of market opportunities. This constantly changing environment meant that our priorities and budgets were subject to frequent alteration and eventually proved to be very different to the picture we had anticipated at the start of the year

Below I set out a summary of the changes that occurred.

If we look at our divisional reporting we can see that:

These numbers demonstrate the resilience of our fundamental business model and strategy such that, despite the setbacks faced in our maritime division, we have been able to maintain our sales. This was most important in our operations in Gibraltar, where despite not having a locally functioning facility, we were able to maintain a service to our customers albeit at a reduced level and with higher logistical costs. These were primarily the running costs relating to the M/V Crystalwater which was being used for both collection and storage.

Revenue in the Oil & Gas division in 2012 improved over the previous year, although this performance still falls short of what we expect from that division. Notwithstanding the delay in the sales pipeline as highlighted earlier, our efforts are being concentrated on making this division the success we know it can be.

The Engineering division showed reduced revenue than in 2011 due to the completion of the project at the Port of DUQM in Oman in June 2012, and the delay in the commencement of the contract on behalf of the MoD.

An overview by division:

Maritime

We had not fully anticipated the consequences of using the M/V Crystalwater for storage purposes in Gibraltar in order to continue to give a good service to our customers. It meant that the income it could receive from undertaking third party cargoes would be significantly reduced, thus affecting our bottom line. Another contributing factor to the lower than expected results from the maritime division were the continuing costs and limited logistics in Gibraltar despite the use of the M/V Crystalwater. This meant that in 2012 even though we collected 38,000 tonnes of waste oil, similar to 2010 volumes and 36% higher than 2011 our gross margin was adversely affected. This situation should reverse once we have our reception facility in Gibraltar back up and running.

When the agreement with Carmona in Portugal was signed to establish a new business, Nature PRF Portugal (55% owned), we expected it to contribute immediately to the Groups bottom line. We had not predicted the problems we subsequently had with the quality of a number of cargoes which reduced the profitability of the recovered waste oil, and the higher than initially expected costs of treatment, storage and transportation. However, we have established a solid footprint in Portugal upon which to build.

It is pleasing to report that Nature ISD in Rotterdam performed in line with our expectations.

Oil & Gas

Our budgets for CTU rental were subsequently impacted by longer than expected lead times to concluding contracts. This has meant that turnover was £ 2.3m in 2012, significantly lower than we had originally anticipated. We are pleased to report that these contracts are now finally coming through in 2013, and should bear fruit in the current financial year and thereafter.

Engineering

Our project at the Port of DUQM in Oman, as mentioned earlier, was finished in June 2012. As we were finalising this contract there were a number of setbacks caused by small variations in the design, at the final construction and installation phase, an overrun against the original completion date due to circumstances beyond our control, and challenging conditions at the site which weren't foreseen at the time of budgeting resulting in extra costs of approximately £ 0.28m.

Administrative Costs

As forecast in the Report and Accounts for 2011, the administrative costs continued to increase as part of the stepped change in 2012, as a result of the further roll out of our growth strategy and implementing the resources needed to build a professional, compliant and improved organisational structure as we enlarge. The main focus of this expenditure has centred around hiring the administrative and consulting staff in Nature Oil and Gas Norway, to aid in the expansion of our CTU business.

Cash & Capital Expenditure

As mentioned earlier, despite the challenges we have faced our free cash flow only declined by £0.60m. The incident in Gibraltar has required an additional spend of approximately £0.50m on basic repairs and maintenance, clean-up of the reception facility, as part of the decommissioning, and in anticipation of its reconstruction, £0.43m of which has been capitalised in 2012.

Other significant areas of capital expenditure include £0.45m spent on CTUs and ancillary equipment, and £0.05m on equipment for the new workshop in Norway, £0.70m was spent on capitalised works carried out on the M/V Crystalwater and Rotterdam barges as well as the construction of a further Ecoscrub emissions rental unit for £0.22m.

We continue to have talks with banks to review potential external asset financing for certain projects, but in today's turbulent financial markets and a shipping market still depressed, we are careful and prudent in our requests. However, we cautiously feel that we may put in place some external commitment during the second half of 2013.

Looking Ahead

Overall, our business continues to be financially sound with increasingly positive prospects as we continue to develop as an international leader with a strategic network for the reception and treatment of waste oil in the maritime industry. We expect to remain at the forefront of the drilling and production waste treatment with the rollout of our CTU's into the oil and gas industry, not forgetting our expertise in both design and construction of waste treatment facilities that are increasingly seeing use in a number of key international markets.

Kieron Becerra FCCA

Group Finance Director