TEG.L Regulatory News (TEG)

5 Jun 2008 07:00

The TEG GROUP PLC (TEG)

("TEG" or "the Company")

AGM STATEMENT

At the Annual General Meeting of TEG Group Plc ("TEG" or "the Company"), the AIM-listed cutting edge green technology company, which converts organic wastes into natural organic fertiliser, which is to be held today (5 June 2008) at The Bridgewater Hall, Lower Mosley Street, Manchester M2 3WS, Non-Executive Chairman, Nigel Moore will make the following statement:

"Since we last met, I am pleased to report that your company has continued to make very significant progress. While we suffered frustrating delays in 2007 in the execution of key projects and in the development of the market in some parts of the UK, the company has strengthened its position in the composting market and developed a number of opportunities that are now coming to fruition in 2008.

You will all be well aware of the disappointing delays in completing the contracts for the Greater Manchester PFI project. These contracts were expected to be signed during 2007, but complications at the highest level of the PFI process unfortunately caused delays outside the control of all the parties involved in the project. You will appreciate that TEG had invested significantly in the project during 2007 in terms of recruitment and development fees.

While full Financial Close has still to be achieved, I am delighted that the projects moved into the construction phase at the start of this year. Advanced Works Orders have been placed with TEG for the first two projects (Rochdale and Bredbury) and revenues are now flowing. Initial design work is complete for both projects, procurement is underway and I am delighted to report that TEG will be commencing construction on site at Rochdale on the 16th June. We anticipate full Financial Close in the near future, but irrespective of this, TEG now expects construction to remain on course and its business plan expectations to be met through the Advanced Works Order process.

You will no doubt recall TEG's announcement in 2007 of its joint venture with Glendale Managed Services Ltd, forming the new joint venture company Verdia Horticulture Ltd. TEG further announced the commencement of Verdia's first development, a compost manufacturing facility at a site near Exeter in Devon. TEG concluded the sale contract to Verdia in March and expects to install its plant by October of this year. I am very pleased to report that building construction continues to schedule and we expect the first Verdia plant to be operational by October. The Board expects Verdia to develop between 6 and 8 facilities in coming years and to develop a high quality horticultural product manufactured with TEG's Silo Cage technology.

One notable success in 2007 was the sale of a further TEG plant into the Local Authority sector, a £1.45m sale to Gwynedd Council. This was the 6th TEG plant to be constructed and the Board saw this as yet another endorsement of the TEG Silo Cage plant and equipment. Yet again, the plant was constructed to schedule and actually handed over to the customer in advance of their timetable.

We must not forget that during 2007 we also completed the construction of the Todmorden plant and handed over both the Swansea Council and Banham Compost plants. In addition, we installed a second line and new waste receipt facility at Sherdley farm in Preston. All in all, it was another busy year during which we continued to build a solid foundation for the business.

Sales of waste contracts into all 3 of the company's plants, Perth, Todmorden and Sherdley Farm, have increased significantly over the last 12 months and the financial performance of all 3 has been significantly improved in 2008. We have secured a number of new contracts, notably with Greater Manchester Waste Ltd, Oldham and Calderdale Councils, and waste volumes have increased from Perth and Kinross Council as well as a number around Sherdley Farm. A contract with Veolia to supply the Sherdley Farm site was our first with this international group.

Our subsidiary company, NOFCO, the Natural Organic Fertiliser Company, has grown steadily and has had some notable successes in enhancing compost product value. The Board remains confident in the high quality of our compost product and believes this to be an important strategic and commercial strength. The ability to place product and to gain value for it will be increasingly important as the volume of composting increases in the UK. In the last 12 months, NOFCO has implemented a highly successful crop growing trial at Sherdley Farm, gained PAS100 Quality Protocol standard at Todmorden and achieved the first sales of ABP compost at Perth. I am pleased to announce that the Perth plant has also recently achieved the PAS100 standard and we expect Sherdley Farm to achieve the same in the very near future.

I would now like to turn to the growth strategy and future direction of the company, and to the trading position in 2008.

We have observed continued interest in the TEG technology and service and have observed a steady increase in waste sales. The confirmed increase in landfill tax by £8 per tonne per annum for the next 3 years has undoubtedly improved demand and the steadily increasing LATS targets continue to stimulate Local Authority interest. The Board confidently expects demand within the organic waste market to continue to increase.

The Company has also noted early signs of interest in combined IVC and energy generation. Although at an early stage of development, the Board believes this may offer a potentially exciting enhancement to the TEG offering and we are exploring these possibilities. In partnership with an energy technology provider, TEG has responded to an invitation to tender for a Local Authority facility and is exploring potential grants to install co-capacity at current TEG sites. The Board expects to reach a conclusion on the viability of this option within the next 12 months.

The Board still believes that the best strategic direction for the business is to grow by a combination of plant sales and Build Own and Operate facilities. The development of Build Own Operate facilities whereby TEG offers a processing service, gaining revenues from gate fees for waste and sales of compost products, offers the significant attraction of generating long term sustainable revenues on which we can build the business. This is supplemented by plant sales, generating significant lump sum revenues. While the interest in TEG is growing and the value of such plant sales is increasing significantly, we still believe it is important to the security of the business to continue to develop our own facilities.

Finally, I am pleased to announce that trading to date in 2008 has been in line with the Board's expectations and we have experienced significant growth. All 3 of our own facilities are trading significantly ahead of 2007, the Verdia project is underway and the Greater Manchester projects are on plan.

The Board believes it continues to make tremendous progress with the business and is now seeing the success we have been building towards over recent years. We remain confident of the prospects for the business and anticipate a strong outlook for 2008 and beyond."

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Editor's Notes: 

TEG

TEG provides an in-vessel composting technology, which is one of the few approved technologies capable of treating animal by-product (ABP) waste. Plant economics are predominantly driven by the gate fees charged, rather than the value of the end product (compost). The TEG process is an economic alternative to landfill.

The Silo Cage system, one of the few technologies in Europe capable of treating this waste, is a natural process producing compost as an end product, used as an excellent soil conditioner that fertilises, retains moisture, provides structure and reduces the incidence of plant disease. TEG's Silo-Cages are housed in self-contained buildings, are not unsightly and are environmentally friendly.

Customers include local authorities, waste management companies, food processors, farmers and landowners. The Company's expanding market is driven by increasingly stringent EU and UK legislation regulating the treatment and disposal of organic waste. Statutory targets for the diversion of waste from landfill increase annually through to 2020, increasing TEG's market opportunity year on year. The Waste Resource Action Programme estimates that 450 composting plants will be needed by 2020 to satisfy local authority requirements alone, and there is increasing demand from the private sector driven by ABP legislation.

NOFCO is a marketing company specialising in the development of end markets for compost products, an important aspect of all plant developments and key to local authority development. The company has an expertise in the development of agricultural and horticultural markets and this capability is to be provided to customers to enhance TEG's overall service offering.