TEG.L Regulatory News (TEG)

26 Apr 2006 11:09

TEG Environmental Plc26 April 2006 NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN OR INTOTHE UNITED STATES OF AMERICA, CANADA, AUSTRALIA, THE REPUBLIC OF IRELAND, THEREPUBLIC OF SOUTH AFRICA OR JAPAN. Neither this announcement nor any copy of it may be taken, transmitted ordistributed, directly or indirectly, in or into the United States, Canada,Australia, the Republic of Ireland, the Republic of South Africa or Japan. Anyfailure to comply with this restriction may constitute a violation of UnitedStates, Canadian, Australian, Republic of South Africa, Republic of Ireland orJapanese securities laws. 26 April 2006 TEG Environmental plc ("TEG" or the "Company") Proposed site acquisition and development Placing of 10,730,000 New Ordinary Shares Offer for Subscription of up to 770,000 New Ordinary Shares 1. Introduction The Company today announces that it is intending to raise up to approximately £8million before expenses by way of a Placing of 10,730,000 New Ordinary Sharesand Offer for Subscription of up to 770,000 New Ordinary Shares at a placingprice of 70 pence per New Ordinary Share. The Company also announces itsproposed acquisition of the Todmorden site near Manchester, which it intends todevelop as a Build Own and Operate project using the Company's Silo Cagecomposting system. The Company has convened an EGM at which shareholder approval will be sought forauthority to issues shares in order to enable the Placing and Offer forSubscription to take place. The completion of the proposed acquisition of theTodmorden site is conditional upon the Placing and Offer for Subscriptionbecoming unconditional in all respects. 2. Background TEG was incorporated in 1995 and its ordinary share capital was admitted totrading on AIM in July 2004. The Company's principal activity is the design andproduction of specialised plant and equipment for the composting of organicwastes for sale to third party customers and in-house projects. The TEG SiloCage composting system is the result of over ten years of design and testing andthe TEG plant has been operating successfully since first launched in 2000. Legislation governing the treatment and disposal of organic waste isincreasingly stringent and drives the market for the TEG Silo Cage system andthe services that its process provides. In 2005, new legislation becameeffective relating to the disposal of animal by-products and the use oflandfills increasing the Company's market in the organic waste recycling sectorin the UK. As announced on 15 March 2006, the Company has reported a significant increasein its turnover from £21,572 (2004) to £555,250 (2005) and has secured thefollowing: (i) the Company's first sale to the public sector with a sale to TheCity and County of Swansea, after obtaining planning permission in December2005; (ii) a contract with Schwan's Consumer Brands UK Ltd, part ofthe pizza and global food processing business, which is a part of the commercialdevelopment of the plant at Sherdley Farm, Preston; (iii) a contract with HJ Heinz Company Limited; (iv) a collaboration agreement with Glendale Managed Services Ltd. In addition, the Company has: (i) acquired Binns Skips composting business in Perth, Scotland, oneof the largest animal by-products composting businesses in the UK; and (ii) sold a plant to Banham Poultry Limited - whilst this sale remainssecure, a change in location for the plant has been proposed and is, as such,subject to planning approval. The Directors believe that the recent success of the Company has been driven bythe TEG System offering an attractive, efficient and cost-effective alternativeto landfill. It is also an attractive alternative to other forms of ABPdisposal, namely rendering, incineration and anaerobic digestion. 3. The TEG System The TEG Silo Cage system is a large-scale continuous-flow thermophiliccomposting plant that converts organic wastes into a natural organic fertiliser.The system uses selected materials which, when mixed with the target wastestreams in the correct ratio, will create conditions for rapid thermophiliccomposting activity. The design of the Silo-Cage System provides an environmentfor vigorous composting. When the mixed waste is introduced to the Silo Cage,the micro-organisms already present in the mix quickly multiply, generate hightemperatures and rapidly degrade the waste. The composting process, which is a continuous-flow and dry operation requiringno mechanical turning, takes 12 to 14 days, during which time the temperature ofthe process is continuously monitored by multiple probes. The insulated wallsmaintain the temperature within the cages, which each have a nominal capacity of600 tonnes per annum. The TEG Silo Cage consists of a bank of between 8 and 32 steel-framed cages withinsulated walls. Multiple banks of Silo Cages can be supplied for largecontracts. Each bank of Silo Cages is suspended in a rigid steel frame and issupplied via a biochopper mixer into a conveyor loading mechanism, which evenlysupplies the calculated amount of compost mix to each silo on a daily basis.Composted product is removed from the base of the Silo Cage by an unloadingmechanism. As Shareholders will be aware, a full scale waste composting plant has beendeveloped by the Company at Sherdley Farm near Preston which has beenoperational since 2000. In November last year, the plant was validated toprocess Category III ABP to the highest UK and EU standard. The ABP approvalrepresents the highest classification possible in the organic waste treatmentmarket and it allowed the Company to commercialise the Sherdley Farm facility,install new larger plants and generate revenues, whilst also creating theopportunity to open up larger markets for the Company. The Company has a pipeline of possible opportunities, including the sale ofplant, and several BOO projects. 4. Todmorden BOO TEG has conditionally acquired a freehold site in Todmorden, West Yorkshire fora total cost of £2,000,000. The site has full planning permission for a TEGIn-Vessel plant with a capacity of 50,000 tonnes per annum of waste feed. TheDirectors understand that this is the only site in development with suchplanning permission within its Local Authority area (Calderdale) andneighbouring Local Authorities (Greater Manchester, Metropolitan District ofBradford, Blackburn and Darwen) Market demand is extremely encouraging at this stage and to date: (i) Discussions have commenced with Calderdale Council in relation todiversion of waste to the site; (ii) Tenders have been submitted to Blackburn and Darwen and BradfordCouncils for a total of 25,000-50,000 tonnes per annum of waste; (iii) The majority of the bidders for the Greater Manchester PFI haveexpressed interest in sending up to 30,000-50,000 tonnes per annum if they aresuccessful in the bid. Letters of intent have already been agreed with some ofthe bidders; and (iv) approximately 180 food manufacturers are sited within a 20-mileradius. TEG has also secured a new bank facility for this project for the provision of aloan of up to £2,000,000. The Company aims to complete the project in accordance with the followingoutline timetable: (i) Agree planning pre-conditions by May 2006; (ii) Complete demolition by August 2006; (iii) Approve new building plans by August 2006; (iv) Commence construction by September 2006; (v) Completion of buildings (for TEG construction) by March 2007; and (vi) Completion of construction by May 2007. 5. Recent Developments Perth Plant, Scotland As reported last year, the Company secured an 11 year contract to acquire therights to take over and develop a composting operation at a waste managementsite in Perthshire, Scotland. The contract initially required the installationof two 28 cage lines but due to increased demand, two 32 cage lines are nowbeing constructed with a joint capacity of 38,000 tonnes per annum. The firstline came on stream in March and the Company expects the second line to be onstream this month. The site's principal customers are Sita UK Ltd (LocalAuthority service with Perth & Kinross Council), Binns Skips (collections fromfood manufacturers), Scottish Water, Anglo Beef Processors and Grampian Foods Sherdley Farm Plant, Preston Further to receiving validation to process Category III ABP to the highest UKand EU standard, the Company has upgraded the site and the first line wasinstalled and filled in February 2006 with a capacity of 6,000 tonnes per annum. The Company has also completed the new maturation building and upgraded theinfrastructure on the plant. By securing contracts with Schwan's and H.J.Heinz, the Company has confirmed demand for its waste disposal service and withthe first line effectively full, the Company is now planning to build a secondline with a capacity of 7,000 tonnes per annum and anticipates this line beingcompleted by the third quarter of 2006. Kildare Plant, Ireland As reported last year, planning permission was granted in November 2005 andconfirmed in February 2006. The Company is planning to upgrade the plant to ABPstandard to attract higher value waste with a capacity of 15,000 tonnes perannum. The Company will be installing new panels, upgrading material handlingand improving the building to meet the planning conditions for ABP waste streamsat an estimated cost of £550,000. The Irish Biowaste Strategy, issued thismonth, sets targets for increased recycling of organics and targeted support forcomposting. With this in mind, it is intended that the Company will operate theplant in partnership with an Irish waste management business. It is theCompany's intention to have the plant operational by the final quarter in 2006. Swansea As reported in December last year, the Company received planning permission forthe £925,000 plant to be constructed under its contract with the City & Countyof Swansea for the provision of the TEG silo cage in-vessel composting system.Plant installation commenced this month to be completed by September 2006 with afinal handover due in September 2007 and a final retainer (5%) being due inMarch 2008. Banham The Company reported in July last year that Banham Compost Limited had placed anorder to purchase 56 of TEG's silo cages for approximately £2 million. Sincereporting this, Banham have requested a change in location for a plant and havewithdrawn their planning application for an in-vessel composting facility at theoriginal site in order to pursue other activities at that site. Banham has,however, opted to install a 48 cage in-vessel composting plant at another of itssites in Norfolk for which it already has planning permission for in-vesselcomposting and it has already requested permission for a change of technology tothe TEG system at that site. It is anticipated that the plant will be installedby November 2006 with a final handover in May 2007. New appointment As announced yesterday, Douglas William Benjafield, has been appointed to theBoard as a non-executive director with effect from May 1st 2006. 6. The Market Total waste in the UK is estimated at 360 million tonnes per annum, of which 118million tonnes is controlled and 42 million tonnes is potentially suitable forcomposting. By the year 2020, the UK target is that 25 million tonnes per annumof waste should have been diverted from landfill. An additional 1.6 milliontonnes of ABP is forecast to be entering the organic treatment market due toimplementation of ABP legislation. The Waste Resource Action Programme estimatethe need for 450 composting plants by 2020 for Local Authorities, with theincrease in ABP providing opportunities for over 100 plants. Parallel to this increase in the requirement for facilities, it is estimatedthat the potential market for compost product is 9 million tonnes, which theDirectors believe will support the development of 640 composting plants. Furthermore, gate fees are rising sharply. Published prices for ABP disposalare up to £93 per tonne, up to £60 per tonne for catering waste, between £12 and£26 per tonne for green waste, and on average of £39 per tonne for landfilldisposal. 7. Legislative Change Landfill Directive 1999 The Landfill Directive 1999 (1999/31/EC) came into effect on 16 July 2001requiring significant reductions in the quantity of biodegradable municipalwaste disposed of by landfilling and prohibiting the disposal of hazardous andnon-hazardous wastes in the same landfill. As part of the drive to comply withthe Landfill Directive, the Government set mandatory recycling targets for localauthorities. Set against a 1995 baseline, the Landfill Directive requires areduction of 25 per cent. by 2010, 50 per cent. by 2013 and 65 per cent. by2020. Failure to meet the Landfill Directive targets within the next decade willresult in the UK facing substantial fines from the EU. A penalty system wasimposed in April 2005 and the Directors believe that such financial sanctionswill most probably be passed on to Local Authorities and then collected throughCouncil Tax, and the threat of these sanctions will provide a further catalystfor change. Furthermore, there are now limits on the amounts of biodegradable waste that canbe landfilled. These changes are in addition to the landfill tax, whichincreases at £3 per tonne per annum from April 2005, and is expected to risefrom £15 per tonne to £35 per tonne in 7 years. Waste and Emissions Trading Act 2003 The Landfill Allowance Trading Scheme ("LATS") was implemented in April 2005under the Waste and Emissions Trading Act 2003. The purpose of LATS is toencourage recycling by the trading of recycling credits whereby LocalAuthorities that fail to achieve recycling and composting targets can buy excessrecycling capacity from those that have exceeded their targets. The price forrecycling credits will be market driven and is expected to fall between the costof recycling and composting, and the cost of fines implemented under theLandfill Directive, thus stimulating investment in additional recycling andcomposting facilities. Animal By-Products Regulations 2003 The EU Regulation concerning ABP became effective from 1 May 2003, and theregulation came into force in England and Wales on 1 July 2003 introducinghigher standards of treatment and banning the use of certain traditional methodsfor disposal. Given the outbreaks of human and animal disease which have focusedattention on the safety of the food chain, the need to protect againstpathogens, such as Salmonella, E Coli. 0157, and the need to protect againstanimal diseases, such as Foot and Mouth and Swine Fever, has become imperativein the Government's policy. It has become clear that traditional methods ofdisposal are unsafe and that organic wastes should be treated to a high standardso that they may safely be recycled to land. The EU Commission was thereforecharged with implementing further measures, including the approval ofalternative disposal methods. The Regulation bans the disposal of animalby-products including most food wastes to landfill, although temporarilycatering waste continued to be landfilled during a transition period which, withthe exception of a further derogation for some supermarket-type waste, ended inDecember 2005. 8. Strategy The Directors remain committed to developing the business in two main areas: (i) Build Own and Operate projects BOOs provide sustainable, long-term revenues, and allow the Company to takeadvantage of rising waste disposal prices. Gate fees of just under £40 per tonnewill enable the Company to secure favourable returns with estimated revenues ofat least £1.3m per annum for a plant with capacity of 35,000 tonnes. The Companycurrently has five BOOs in development. (ii) Plant Sales The Company sells plant to third parties who prefer to run their own wastedisposal operations. This area of the business provides large revenues to theCompany. A single bank of cages has a typical sale value of approximately£960,000, and the typical scale of each sale is one or two banks of 28 cages.The main clients that might purchase a TEG plant are local authorities, wastemanagement companies, water companies and other utilities and a variety ofprivate sector businesses, including major food producers/processors andfarmers. The Company is committed to continuing its investment in R&D whilst developingthe compost marketing business to support plant sales and BOOs. It also intendsto strengthen its commercial skills, such as sales, operations and projectdelivery, through several key appointments. 9. Future Developments The Company has a substantial pipeline of future opportunities with a number ofBOOs in an advanced stage of development. The Company has several sales tendersin progress across the UK and Europe and a potential collaboration project inanother sector. With increased gate fees, the potential development of a thirdline in Perth and a second line in Sherdley Farm, the Directors believe bothsites have the potential to grow. Clayland's Corner, Somerset Planning permission has been granted by the Planning Inspectorate fordevelopment of a TEG facility with capacity of 8,100 tonnes per annum. Marketdemand in the UK is high for quality peat-free fertilisers such as EnVigroTMand, as such, prices have remained consistently high. This project represents anattractive business model in its own right and the Company hopes it will ensureits position in the market is maintained. The Directors believe that it willalso allow the Company to develop a full range of products under the EnVigroTMbrand. The Company has agreed a partnership with Halberton Poultry Ltd, the site owner,pursuant to which Halberton will develop the site and infrastructure whilst theCompany will install and operate the plant. Future sales will be distributedbetween the parties in proportion to their respective investment. The Company aims to complete the project in accordance with the followingoutline timetable: (i) Completion of agreement by May 2006; (ii) Approval of construction plans by June 2006; (iii) Commence construction by June 2006; (iv) Completion of buildings and infrastructure by August 2006; (v) Completion of TEG plant construction by November 2006; (vi) Completion of commissioning and testing by November 2006; (vii) Material commissioning and processing by November 2006; (viii) First batch of product available for sale by March 2007. 10. Use of Proceeds of the Placing and Offer for Subscription The proceeds will be used together with the proposed additional bank facility inorder to primarily fund the Todmorden BOO with the balance remaining allocatedto the Clayland's Corner BOO, the upgrade to the Kildare Plant and the Company'sworking capital requirements during the development phase of theseopportunities. 11. Working Capital The Directors are of the opinion that, taking into account the net proceedsreceivable under the Placing and Offer for Subscription, the working capitalavailable to the Company is sufficient for its present requirements, that is,for at least the next twelve months from the date of this announcement. 12. Principal Terms of the Placing and Offer for Subscription Canaccord have agreed to use their reasonable endeavours to procure placees for10,730,000 New Ordinary Shares at the Placing Price and the Placing Shares, whenissued, will rank pari passu, with the Existing Ordinary Shares, including theright to receive all dividends and other distributions, thereafter declared,made or paid. The Placing, which is not underwritten, will be conditional, inter alia, onAdmission taking place. The Company has also today invited certain investors to subscribe for 770,000New Ordinary Shares at the Placing Price and the Subscription Shares, whenissued, will rank pari passu, with the Existing Ordinary Shares, including theright to receive all dividends and other distributions, thereafter declared,made or paid. 13. Extraordinary General Meeting Notice of the Extraordinary General Meeting to be held at The Caledonian Club, 9Halkin Street, London SW1X 7DR at 9:30 a.m. on 19 May 2006 has been sent toShareholders at which one ordinary resolution and one special resolution will beproposed as follows: ORDINARY RESOLUTION 1. to grant the Directors a general authority pursuant tosection 80 of the Act to allot relevant securities (within the meaning ofsection 80(2) of the Act) of the Company up to an aggregate nominal amount equalto £575,000, representing 43.6 per cent. of the Existing Ordinary Shares as at25 April 2006 (being the last practicable date prior to the publication of thisannouncement) all of which will be used for the Placing and the Offer forSubscription (assuming full subscription of the Offer for Subscription). SPECIAL RESOLUTION 2. to disapply statutory pre-emption rights in relation toshares with a nominal value of £575,000 representing 43.6 per cent. of theExisting Ordinary Shares as at 25 April 2006 (being the last practicable dateprior to the publication of this announcement) and representing the allotmentscontemplated by the Placing and the Offer for Subscription (assuming fullsubscription of the Offer for Subscription). 14. Further Information For further information, please contact: TEG Environmental Plc Mick Fishwick, Chief Executive 01772 314100 Binns & Co PR Ltd Peter Binns 020 7786 9600 Tarquin Edwards 020 7786 9600 Canaccord Adams Limited Robert Finlay 020 7518 2775 Chris Bowman 020 7518 2791 Canaccord Adams Limited (which is authorised and regulated in the United Kingdomby the Financial Services Authority) is acting solely for TEG Environmental plcin connection with the Placing and is not acting for any person other than TEGEnvironmental plc and will not be responsible for any person other than TEGEnvironmental plc for providing the protections afforded to customers ofCanaccord Adams Limited or for providing advice to any person in connection withthe matters described in this announcement. This announcement does not constitute, or form any part of, an offer orsolicitation of an offer to subscribe for the New Ordinary Shares. 14. Definitions "ABP" animal by-product; "Act" the Companies Act 1985 (as amended); "Admission" admission of the New Ordinary Shares to trading on AIM and such admission becoming effective in accordance with the AIM Rules; "AIM" the market of that name operated by the London Stock Exchange; "AIM Rules" the AIM Rules for Companies published by the London Stock Exchange as in force at the date of this document or, where the content requires, as amended or modified after the date of this document; "Board" or "Directors" the board of directors of the Company; "BOO" build, own and operate; "Canaccord" Canaccord Adams Limited, the Company's nominated adviser and broker; "Circular" the circular sent to Shareholders on the date of this announcement; "Company" or "Teg" Teg Environmental Plc; "CREST" means the computer-based system established under the Uncertificated Securities Regulations 2001 which enables title to units of relevant securities (as defined in the Regulations) to be evidenced and transferred without a written instrument and in respect of which CRESTCo Limited is the Operator (as defined in the Regulations); "Existing Ordinary Shares" the 26,385,381 Ordinary Shares in issue at the date of this announcement; "Extraordinary General Meeting" or the extraordinary general meeting of the Company to be held at The "EGM" Caledonian Club, 9 Halkin Street, London SW1X 7DR at 9:30 a.m. on 19 May 2006, notice of which is set in the Circular; "New Ordinary Shares" the Ordinary Shares to be issued pursuant to the Placing and Offer for Subscription; "Offer for Subscription" the offer to certain shareholders from the Company to subscribe for up to 770,000 New Ordinary Shares at the Placing Price on the terms of, and subject to the conditions contained in the Subscription Letter; "Ordinary Shares" ordinary shares of 5p each in the capital of the Company; "Placing" the conditional placing by Canaccord Adams of the New Ordinary Shares at the Placing Price; "Placing Agreement" the agreement dated today, a summary of which is set out in section 12 of this announcement; "Placing Price" the price at which the New Ordinary Shares will be issued pursuant to the Placing and Offer for Subscription, being 70p per New Ordinary Share; "Placing Shares" the 10,730,000 New Ordinary Shares conditionally placed by Canaccord pursuant to the Placing; "Proxy Form" the form of proxy accompanying this document for use by Shareholders at the Extraordinary General Meeting; "Resolutions" the special resolution and the ordinary resolution to be proposed at the EGM, as set out in the Circular; "Shareholders" holders of Ordinary Shares; "Subscription Letter" the letter dated today sent to certain shareholders inviting them to subscribe for Subscription Shares pursuant to the Offer for Subscription; "Subscription Shares" the 770,000 New Ordinary Shares to be offered to certain Shareholders pursuant to the Offer for Subscription. 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