TEG.L Regulatory News (TEG)

24 Sep 2007 07:01

TEG Group (The) PLC24 September 2007 For release 07.00am 24 September 2007 TEG GROUP PLC (TEG) ("TEG" or "the Company") INTERIM RESULTS The TEG Group Plc, the AIM-listed cutting edge green technology company, which converts organic wastes into natural organic fertiliser announces its interim results for the half year ended 30 June 2007. Highlights Financial •Revenue of £0.54m (2006: £1.07m) reflecting inclusion in prior period of Swansea contract revenues - TEG anticipates a large proportion of previously announced new business revenue to materialise in 2008 •Post tax loss of £1.43m (2006: £0.60m) •Oversubscribed placing in March 2007 to raise £11.0m before expenses in preparation for Greater Manchester Waste PFI contract and future 'build-own-operate' opportunities •No dividend proposed Operational •Swansea Council -Completion and handover of plant in February 2007 •Banham, Norfolk - Completion and handover of plant in May 2007 •Todmorden, West Yorkshire completed to schedule and first two of four lines successfully commissioned in May and June. Revenue encouraging and plant expected to ramp up to full production by October •Preston, Sherdley Farm - a second 12-cage line installed increasing capacity to approx. 12,000 tonnes pa. On completion of new waste receipt building, plant to reach full capacity and development •Perth, Scotland - planned capacity pleasingly achieved and plant now running well - Following recent significant progress, plant sales, which had appeared to be developing more slowly than anticipated (announced 05/06/07), are now expected to be close to plan by end of Q4 - Grant to TEG of Scotland's first composting PPC permit expected to act as a barrier to new entrants Contract Wins •Greater Manchester Waste PFI - TEG selected as exclusive compost technology provider to the Viridor-Laing consortium that was awarded preferred bidder status for the Greater Manchester Waste PFI contract. TEG is expected to build 4 large facilities with a combined capacity of 180,000 tonnes per annum. The plants will all process food and garden waste collected in the Greater Manchester region. Planning secured for first plant at Waithlands, Rochdale. Commercial close, which will allow construction activities to commence at this site, is expected shortly. •The Group also secured in April an interim £900,000 two year waste management contract with Greater Manchester Waste Ltd to process green and garden waste at Todmorden and Sherdley Farm Other Contracts •Shell R & D project - R&D work encouraging and further Laboratory work underway •United Utilities - trials completed successfully and TEG awaiting outcome of review Post Period-End Events •New joint venture company, Verdia Horticulture Limited ("Verdia") set up in collaboration with Glendale Managed Services Ltd to produce horticultural grade compost products for sale to Glendale and to regional horticultural markets. •In August, TEG secured a further plant sale to Gwynedd Council for the construction and supply of a £1.45m facility to process green and kitchen waste. Completion and handover anticipated in April 2008. Revenues are anticipated to commence this month. Commenting, Mick Fishwick, Chief Executive, TEG Group Plc, said: "The Group's pipeline of opportunities is stronger than ever and it is activelybidding for numerous significant contracts in addition to a large number ofsmaller waste sales opportunities. The operational success of the TEG facilitiesto date and the endorsement demonstrated by the Greater Manchester and Gwyneddcontracts further strengthens the Board's belief that the Group has an excitingfuture and that significant growth will be achieved" ENDS Contact: The TEG Group Plc Tel: 01772 314100Michael Fishwick, Chief Executive Adventis Financial PR Tel: 020 7034 4758 / 59Tarquin Edwards / Chris Steele 07879 458 364/ 07979 604 687 Cannacord Adams (Nominated adviser) Tel : 020 7050 6500Chris Bowman / Robert Finlay Editor's Notes: TEG provides an in-vessel composting technology, which is one of the fewapproved technologies capable of treating animal by-product (ABP) waste. Planteconomics are predominantly driven by the gate fees charged, rather than thevalue of the end product (compost). The TEG process is an economic alternativeto landfill. The Silo Cage system, one of the few technologies in Europe capable of treatingthis waste, is a natural process producing compost as an end product, used as anexcellent soil conditioner that fertilises, retains moisture, provides structureand reduces the incidence of plant disease. TEG's Silo-Cages are housed inself-contained buildings, are not unsightly and are environmentally friendly. Customers include local authorities, waste management companies, foodprocessors, farmers and landowners. The Company's expanding market is driven byincreasingly stringent EU and UK legislation regulating the treatment anddisposal of organic waste. Statutory targets for the diversion of waste fromlandfill increase annually through to 2020, increasing TEG's market opportunityyear on year. The Waste Resource Action Programme estimates that 450 compostingplants will be needed by 2020 to satisfy local authority requirements alone, andthere is increasing demand from the private sector driven by ABP legislation. Chairman's statement I am pleased to present the Group's 2007 interim report. TEG has continued tomake excellent progress and its sales pipeline has expanded impressively. Duringthe period, the Group announced it had been selected as a supplier to theViridor-Laing consortium that was selected as preferred bidder by GreaterManchester Waste Disposal Authority in its PFI process, considered to be thelargest single waste management contract to be tendered in Europe. In addition,a further contract has been recently secured with Gwynedd Council, furtherevidence of local authority confidence in the TEG system, and a joint venture,Verdia Horticulture Limited, was recently established with Glendale ManagedServices Ltd, the leading parks maintenance company. This business, togetherwith an excellent pipeline of other opportunities, is expected to yieldsignificant future revenues for the Group. Revenue of £536,045 reflects the fact that a large proportion of the newbusiness outlined above will materialise in future periods whilst the previousyear's figure (2006 interim: £1,070,750) included revenues from the Swanseaconstruction project. Losses were £1,426,417 compared to £602,348 in the sameperiod in 2006. No dividend is recommended. For the first time, these results are in accordance with the InternationalFinancial Reporting Standards ("IFRS"). The comparative figures have beenrestated on a consistent basis. Plant Construction During the first half of 2007, TEG completed the handover of the plants builtfor The City and County of Swansea and for Banham Compost Limited. The Board wasvery pleased with the execution of these contracts and particularly pleased withthe performance of the Banham facility, the first large scale plant sale by theGroup. The Todmorden facility which the Group operates was completed to schedule andthe first two lines were successfully commissioned in May and June of this year.Revenue from this plant has been encouraging and we expect the plant to haveproceeded up to full production by October. A second 12-cage line was installed at the Sherdley facility, increasingcapacity to approximately 12,000 tonnes per annum. The construction of a newwaste receipt building commenced in August and once finished, it will completethe planned development of that facility. Final modifications to the plant in Perth were completed to ensure compliancewith the Scottish Environmental Protection Agency's (SEPA) Pollution Preventionand Control (PPC) permit conditions, which were introduced by SEPA in 2006.These modifications included the installation of air extract equipment and aproduct off-take gantry. The Board believes the plant is the first to achievethe higher PPC standard of licensing introduced in Scotland. Contract Wins The most notable success for the Group was its selection as preferred supplierto the Viridor-Laing consortium that was awarded preferred bidder status for theGreater Manchester Waste PFI. TEG is the exclusive supplier of In VesselComposting ("IVC") technology to the consortium and following commercial andfinancial closure, TEG expects to receive orders to supply all the IVC capacityin the Greater Manchester region. TEG is expected to build four plants as part of the consortium, over the periodfrom 2007 to 2010 with a combined capacity of 180,000 tonnes per annum,producing 125,000 tonnes of compost product per annum. The plants will allprocess green waste and kitchen waste collected from households in the GreaterManchester region. It is intended that the first plant to be constructed by TEG will be sited atWaithlands, Rochdale. Planning permission has been secured which will allowconstruction activities to commence following commercial closure of thecontract. The detailed contractual terms for the facility are close tocompletion. The three further plants to be constructed by TEG are progressively scheduledfor construction between the second quarter of 2008 and the second quarter of2010. The planning application for the second site is due to be submitted inSeptember and the development of the two remaining sites is already underway inanticipation of gaining planning approvals in 2008. The Company also secured an interim waste management contract with GreaterManchester Waste Ltd to process green and garden waste at Todmorden and SherdleyFarm. The contract is for a period of two years with a further one yearextension option. Over the first two-year period, TEG will receive 44,000 tonnesof waste and the contract value will be approximately £900,000. Plant Operations We announced on 5 June that our plant near Perth was being affected by theslower than expected development of the waste and local authority markets inScotland and that sales of higher value waste had been below plan. Operationallyhowever, the plant at Perth has run well and has achieved its planned capacityand I am now pleased to report that significant progress has been made and weanticipate that the plant's sales will be close to plan by the end of quarterfour. The Sherdley Farm plant is expected to ramp up to full capacity followingcompletion of construction of the waste receipt building in early October 2007. Other contracts The R&D project for Shell continues. Pilot scale work at Perth was encouragingand some immediate success was noted but the need for further laboratory workhas been identified and this is underway. The United Utilities trials were completed successfully and the Company awaitsthe outcome of a review of strategy by United Utilities. Fundraising In preparation for the Greater Manchester contract and in anticipation of futurebuild own and operate opportunities, TEG successfully raised £11,000,000 beforeexpenses of £628,571 which have been charged against the share premium account.The placing was over-subscribed with significant institutional demand and withseveral new investors participating. Management The Company has continued to strengthen its business development, engineering,operational and technical teams in advance of the anticipated constructionprogramme for Greater Manchester and other projects that are close tocompletion. This has of course been balanced by the knowledge that revenues havenot yet commenced for these projects, but it is important that the Group isprepared for the increase in activity on completion. Post period-end events TEG was delighted to advance its collaboration with Glendale Managed ServicesLtd ("Glendale")and to conclude a new joint venture company (JV), VerdiaHorticulture Limited ("Verdia"). Verdia's focus will be on building andoperating medium scale facilities, typically 10-15,000 tonnes per annum toproduce horticultural grade compost products for sale to Glendale and toregional horticultural markets. It is anticipated that Verdia will build between6 and 8 facilities over the next 2 to 3 years, geographically spread throughoutthe UK. TEG will supply TEG Silo Cage plants to Verdia and will provide technicalexpertise and support, as well as marketing services for waste supply to theplants. This is another significant endorsement of TEG and its technology andoffers an opportunity for the Group to establish itself in the horticulturalproducts sector and develop a new revenue stream. In addition, TEG has secured a further plant sale to Gwynedd Council for theconstruction and supply of a £1.45m facility to process green and kitchen waste.Construction commenced on 10 September and it is anticipated that the plant willbe completed and handed over in April 2008. Revenues are anticipated to commencethis month. Future Prospects The Group's pipeline of opportunities is stronger than ever and it is activelybidding for numerous significant contracts in addition to a large number ofsmaller waste sales opportunities. The operational success of the TEG facilitiesto date and the endorsement demonstrated by the Greater Manchester and Gwyneddcontracts further strengthens the Board's belief that the Group has an excitingfuture and that significant growth will be achieved. Nigel Moore Chairman 24 September 2007 Consolidated condensed income statementFor the six months ended 30 June 2007 6 months 6 months Year ended ended ended 30 June 2007 30 June 2006 31 December 2006 Unaudited Unaudited Unaudited Note £ £ £ Revenue 3 536,045 1,070,750 3,559,330Cost of sales (708,769) (838,496) (2,951,550) Gross (loss)/profit (172,724) 232,254 607,780 Other expenses (1,321,113) (827,702) (1,964,422) Operating loss 3 (1,493,837) (595,448) (1,356,642) Finance costs (76,369) (57,409) (115,547)Finance income 143,789 50,509 154,579 Loss before tax (1,426,417) (602,348) (1,317,610) Income tax - - 60,663 Loss for the period (1,426,417) (602,348) (1,256,947) Attributable to:Equity holders of the (1,426,417) (602,348) (1,256,947)parentRetained loss (1,426,417) (602,348) (1,256,947) Loss per shareBasic loss per share (3.406) (2.082) (3.757)(pence) Consolidated condensed balance sheetAs at 30 June 2007 30 June 2007 30 June 2006 31 December 2006 Unaudited Unaudited Unaudited Note £ £ £ ASSETS Non-current assetsProperty, plant and equipment 9,647,330 4,915,181 7,594,271Goodwill 2,269,584 2,269,584 2,269,584 11,916,914 7,184,765 9,863,855 Current assetsInventories 221,820 355,833 355,638Trade and other receivables 773,011 394,549 647,648Taxation receivable 60,663 63,573 60,663Cash and cash equivalents 8,989,430 5,467,677 2,242,554 10,044,924 6,281,632 3,306,503 Total assets 21,961,838 13,466,397 13,170,358 LIABILITIES Current liabilitiesTrade and other payables 973,252 770,412 1,154,761Current portion of long-term 146,967 161,547 155,790borrowingsCurrent portion of deferred 259,442 266,999 266,999consideration 1,379,661 1,198,958 1,577,550 Non-current liabilitiesLong-term borrowings 142,000 288,976 213,000Long-term deferred 1,677,463 1,866,901 1,769,941consideration 1,819,463 2,155,877 1,982,941 Total liabilities 3,199,124 3,354,835 3,560,491 Net assets 18,762,714 10,111,562 9,609,867 EQUITY Equity attributable to equityholders of the parentShare capital 4 2,414,419 1,894,269 1,902,269Share premium 29,357,073 19,339,544 19,387,544Other reserves 424,217 229,728 326,632Profit and loss account - (13,432,995) (11,351,979) (12,006,578)deficit Total equity 18,762,714 10,111,562 9,609,867 Consolidated condensed statement of changes in equity 6 months 6 months Year ended ended ended 30 June 2007 30 June 2006 31 December 2006 Unaudited Unaudited Unaudited £ £ £ Equity at the beginning of the period 9,609,867 3,032,828 3,032,828 Loss for the period (1,426,417) (602,348) (1,256,947) Total recognised income and expense for (1,426,417) (602,348) (1,256,947)the period IFRS 2 share option charge 97,585 76,531 173,435Issue of share capital 10,481,679 7,604,551 7,660,551 Equity at the end of the period 18,762,714 10,111,562 9,609,867 Consolidated condensed cash flow statementFor the six months ended 30 June 2007 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2007 2006 2006 Unaudited Unaudited Unaudited £ £ £ Cash flows from operating activitiesLoss after taxation (1,426,417) (602,348) (1,256,947)Adjustments for:Depreciation 223,185 125,114 309,640Share based administrative expense 97,585 76,531 173,435Taxation credit recognised in profit and - - (60,663)lossInterest expense 76,369 57,409 115,547Investment income (143,789) (50,509) (154,579)Profit on sale of property, plant and - (9,559) (3,379)equipmentIncrease in trade and other receivables (125,363) (28,141) (281,240)Decrease / (increase) in inventories 133,818 (232,763) (232,568)Increase / (decrease) in trade payables 278,424 (263,018) (338,599) Cash used in operations (886,188) (927,284) (1,729,353)Interest paid (26,404) (1,375) (36,408)Income taxes received - - 63,573 Net cash used in operating activities (912,592) (928,659) (1,702,188) Cash flows from investing activitiesAcquisition of business - deferred (150,000) (150,000) (300,000)considerationPurchase of property, plant and equipment (2,736,177) (3,943,898) (6,328,991)Proceeds from sale of equipment - 6,452 11,614Interest received 143,789 50,509 154,579 Net cash used in investing activities (2,742,388) (4,036,937) (6,462,798) Cash flows from financing activitiesProceeds from issue of share capital 10,481,679 7,604,551 7,660,551New bank loans raised - 426,000 426,000Repayment of loan (71,000) - (71,000)Payment of finance lease liabilities (8,823) (11,670) (22,403) Net cash from financing activities 10,401,856 8,018,881 7,993,148 Net increase / (decrease) in cash and cash 6,746,876 3,053,285 (171,838)equivalentsCash and cash equivalents at beginning of 2,242,554 2,414,392 2,414,392period Cash and cash equivalents at end of period 8,989,430 5,467,677 2,242,554 Notes to the interim report 1. Nature of operations and general information TEG Group plc and its subsidiaries' ('the Group') principal activities continueto be the design and production of Silo-cage plants for sale to third partyclients, and the design, build and operation of TEG owned facilities. Refer to note 3 for further information about the Group's operating segments. TEG Group plc is the Group's ultimate parent company. It is incorporated anddomiciled in Great Britain. The address of TEG Group plc's registered office,which is also its principal place of business, is Houston House, 12 SceptreCourt, Sceptre Point, Preston, PR5 6AW, United Kingdom. TEG Group plc's sharesare listed on the Alternative Investment Market of the London Stock Exchange. TEG Group plc's consolidated interim financial statements are presented inPounds Sterling (£), which is also the functional currency of the parentcompany. These consolidated condensed interim financial statements have been approved forissue by the Board of Directors on 24 September 2007. The financial information set out in this interim report does not constitutestatutory accounts as defined in Section 240 of the Companies Act 1985. TheGroup's statutory financial statements for the year ended 31 December 2006,prepared under UK GAAP, have been filed with the Registrar of Companies. Theauditors' report on those financial statements was unqualified and did notcontain a statement under Section 237(2) of the Companies Act 1985. Basis of preparation These interim condensed consolidated financial statements are for the six monthsended 30 June 2007. They have been prepared in accordance with the requirementsof IFRS 1 "First-time Adoption of International Financial Reporting Standards"relevant to interim reports, because they are part of the period covered by theGroup's first IFRS financial statements for the year ended 31 December 2007.They do not include all of the information required for full annual financialstatements, and should be read in conjunction with the consolidated financialstatements of the Group for the year ended 31 December 2006. The financial statements have been prepared under the historical cost conventionexcept that they have been modified to include the revaluation of certainnon-current assets/ financial assets and liabilities. The measurement bases andprincipal accounting policies of the Group are set out below. These condensed consolidated interim financial statements (the interim financialstatements) have been prepared in accordance with the accounting policies setout below which are based on the recognition and measurement principles of IFRSin issue as adopted by the European Union (EU) and are effective at31 December 2007 or are expected to be adopted and effective at31 December 2007, our first annual reporting date at which the Group is requiredto use IFRS accounting standards adopted by the EU. TEG Group plc's consolidated financial statements were prepared in accordancewith United Kingdom Accounting Standards (United Kingdom Generally AcceptedAccounting Practice) until 31 December 2006. The date of transition to IFRS was1 January 2006. The comparative figures in respect of 2006 have been restated toreflect changes in accounting policies as a result of the adoption of IFRS. Thedisclosures required by IFRS 1 concerning the transition from UK GAAP to IFRSare given in the reconciliation schedules, presented and explained in note 6. The accounting policies have been applied consistently throughout the Group forthe purposes of preparation of these condensed consolidated interim financialstatements. 2. Summary of significant accounting policies Basis of consolidation The Group financial statements consolidate those of the company and itssubsidiary undertakings drawn up to the balance sheet date. Subsidiaries areentities over which the Group has the power to control the financial andoperating policies so as to obtain benefits from its activities. The Groupobtains and exercises control through voting rights. Unrealised gains on transactions between the Group and its subsidiaries areeliminated. Unrealised losses are also eliminated unless the transactionprovides evidence of an impairment of the asset transferred. Amounts reported inthe financial statements of subsidiaries have been adjusted where necessary toensure consistency with the accounting policies adopted by the Group. Business combinations completed prior to date of transition to IFRS The Group has elected not to apply IFRS 3 Business Combinations retrospectivelyto business combinations prior to date of transition. Accordingly, the classification of the combination (acquisition) remainsunchanged from that used under UK GAAP. Assets and liabilities are recognised atthe date of transition if they would be recognised under IFRS, and are measuredusing their UK GAAP carrying amount immediately post-acquisition as deemed costunder IFRS, unless IFRS requires fair value measurement. Deferred tax isadjusted for the impact of any consequential adjustments after taking advantageof the transitional provisions. Goodwill Goodwill representing the excess of the cost of acquisition over the fair valueof the Group's share of the identifiable net assets acquired, is capitalised andreviewed annually for impairment. Goodwill is carried at cost less accumulatedimpairment losses. Revenue Revenue is measured by reference to the fair value of consideration received orreceivable by the Group for goods supplied and services provided, excluding VATand trade discounts. Revenue is recognised upon the performance of services ortransfer of risk to the customer. Rendering of services relating to processing waste When the outcome of a transaction involving the processing of waste can beestimated reliably, revenue associated with the transaction is recognised whenthe company receives the waste, being the point at which it fulfils itscontractual obligation to the customer. The outcome of the transaction is deemedto be able to be estimated reliably when all the following conditions aresatisfied: • the amount of revenue can be measured reliably.• it is probable that the economic benefits associated with the transaction will flow to the entity.• the company receives the waste, being the point at which it fulfils its contractual obligation to the customer and• the costs incurred for the transaction and the costs to complete the transaction can be measured reliably. Interest Interest is recognised using the effective interest method which calculates theamortised cost of a financial asset and allocates the interest income over therelevant period. The effective interest rate is the rate that exactly discountsestimated future cash receipts through the expected life of the financial assetto the net carrying amount of the financial asset. Construction contracts Contract revenue reflects the contract activity during the year and is measuredat the fair value of consideration received or receivable. When the outcome canbe assessed reliably, contract revenue and associated costs are recognised asrevenue and expenses respectively by reference to the stage of completion of thecontract activity at the balance sheet date. The stage of completion of thecontract at the balance sheet date is assessed by reference to completed keymilestones, those being; • Design• Procurement• Component manufacture• Enabling works• Civil Engineering• Building fabrication• Mechanical and electrical installation of various components of the TEG Silo-cage plant• Functional testing• Commissioning Where the outcome of a long term contract cannot be estimated reliably revenueis recognised only to the extent of contract costs incurred that it is probablewill be recoverable, and contract costs are recognised as an expense in theperiod in which they are incurred. In the case of a fixed price contract, theoutcome of a construction contract is deemed to be estimated reliably when allthe following conditions are satisfied: • total contract revenue can be measured reliably• it is probable that economic benefits associated with the contract will flow to the Group• both the contract costs to complete the contract and the stage of completion at the balance sheet date can be measured reliably, and• the contract costs attributable to the contract can be clearly identified and measured reliably so that actual contract costs incurred can be compared with prior estimates. The gross amount due from customers for contract work is presented as an assetfor all contracts in progress for which costs incurred plus recognised profits(less recognised losses) exceeds progress billings. The gross amount due tocustomers for contract work is presented as a liability for all contracts inprogress for which progress billings exceed costs incurred plus recognisedprofits (less losses). Full provision is made for losses on all contracts in the year in which the lossis first foreseen. Property, plant and equipment Property, plant and equipment is stated at cost, net of depreciation and anyprovision for impairment. No depreciation is charged during the period ofconstruction. Borrowing costs on property, plant and equipment under construction arecapitalised during the period of construction based on specific funds borrowed. Disposal of assets The gain or loss arising on the disposal of an asset is determined as thedifference between the disposal proceeds and the carrying amount of the assetand is recognised in the income statement. Depreciation Depreciation is calculated to write down the cost less accumulated depreciationof all property, plant and equipment other than freehold land over theirestimated useful economic lives. The rates generally applicable are: Vehicles 3 years straight lineSilo-cage systems 15 years straight lineFixtures and fittings 25% reducing balancePlant and machinery 25% reducing balanceBuildings 4% straight line Impairment testing of goodwill and property, plant and equipment For the purposes of assessing impairment, assets are grouped at the lowestlevels for which there are separately identifiable cash flows (cash-generatingunits). As a result, some assets are tested individually for impairment and someare tested at cash-generating unit level. Goodwill is allocated to thosecash-generating units that are expected to benefit from synergies of the relatedbusiness combination and represent the lowest level within the Group at whichmanagement monitors the related cash flows. Goodwill, other individual assets or cash-generating units that include goodwillare tested for impairment at least annually. All other individual assets orcash-generating units are tested for impairment whenever events or changes incircumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's orcash-generating unit's carrying amount exceeds its recoverable amount. Therecoverable amount is the higher of fair value, reflecting market conditionsless costs to sell, and value in use based on an internal discounted cash flowevaluation. Impairment losses recognised for cash-generating units, to whichgoodwill has been allocated, are credited initially to the carrying amount ofgoodwill. Any remaining impairment loss is charged pro rata to the other assetsin the cash generating unit. With the exception of goodwill, all assets aresubsequently reassessed for indications that an impairment loss previouslyrecognised may no longer exist. Leased assets In accordance with IAS 17, the economic ownership of a leased asset istransferred to the lessee if the lessee bears substantially all the risks andrewards related to the ownership of the leased asset. The related asset isrecognised at the time of inception of the lease at the fair value of the leasedasset or, if lower, the present value of the minimum lease payments plusincidental payments, if any, to be borne by the lessee. A corresponding amountis recognised as a finance leasing liability. Leases of land and buildings aresplit into land and buildings elements according to the relative fair values ofthe leasehold interests at the date of entering into the lease agreement. The interest element of leasing payments represents a constant proportion of thecapital balance outstanding and is charged to the income statement over theperiod of the lease. All other leases are regarded as operating leases and the payments made underthem are charged to the income statement on a straight line basis over the leaseterm. Lease incentives are spread over the term of the lease. Inventories Inventories are stated at the lower of cost and net realisable value aftermaking allowance for obsolete and slow moving items. Cost includes materials, direct labour and an attributable proportion ofmanufacturing overheads based on normal levels of activity. Net realisable valueis based on estimated selling price less further costs expected to be incurredto completion. Taxation Current tax is the tax currently payable based on taxable profit for the year. Deferred income taxes are calculated using the liability method on temporarydifferences. Deferred tax is generally provided on the difference between thecarrying amounts of assets and liabilities and their tax bases. However,deferred tax is not provided on the initial recognition of goodwill, nor on theinitial recognition of an asset or liability unless the related transaction is abusiness combination or affects tax or accounting profit. Deferred tax ontemporary differences associated with shares in subsidiaries and joint venturesis not provided if reversal of these temporary differences can be controlled bythe Group and it is probable that reversal will not occur in the foreseeablefuture. In addition, tax losses available to be carried forward as well as otherincome tax credits to the Group are assessed for recognition as deferred taxassets. Deferred tax liabilities are provided in full, with no discounting. Deferred taxassets are recognised to the extent that it is probable that the underlyingdeductible temporary differences will be able to be offset against futuretaxable income. Current and deferred tax assets and liabilities are calculatedat tax rates that are expected to apply to their respective period ofrealisation, provided they are enacted or substantively enacted at the balancesheet date. Changes in deferred tax assets or liabilities are recognised as a component oftax expense in the income statement, except where they relate to items that arecharged or credited directly to equity (such as the revaluation of land) inwhich case the related deferred tax is also charged or credited directly toequity. Financial assets Financial assets are divided into the following categories: loans andreceivables; financial assets at fair value through profit or loss;available-for-sale financial assets; and held-to-maturity investments. Financialassets are assigned to the different categories by management on initialrecognition, depending on the purpose for which they were acquired. Thedesignation of financial assets is re-evaluated at every reporting date at whicha choice of classification or accounting treatment is available. All financial assets are recognised when the Group becomes a party to thecontractual provisions of the instrument. Financial assets other than thosecategorised as at fair value through profit or loss are recognised at fair valueplus transaction costs. Financial assets categorised as at fair value throughprofit or loss are recognised initially at fair value with transaction costsexpensed through the income statement. Financial assets at fair value through profit or loss include financial assetsthat are either classified as held for trading or are designated by the entityas at fair value through profit or loss upon initial recognition. Subsequent toinitial recognition, the financial assets included in this category are measuredat fair value with changes in fair value recognised in the income statement.Financial assets originally designated as financial assets at fair value throughprofit or loss may not be reclassified subsequently. Loans and receivables are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market. Loans andreceivables are measured subsequent to initial recognition at amortised costusing the effective interest method, less provision for impairment. Any changein their value through impairment or reversal of impairment is recognised in theincome statement. Provision against trade receivables is made when there is objective evidencethat the Group will not be able to collect all amounts due to it in accordancewith the original terms of those receivables. The amount of the write-down isdetermined as the difference between the asset's carrying amount and the presentvalue of estimated future cash flows. An assessment for impairment is undertaken at least at each balance sheet date. A financial asset is derecognised only where the contractual rights to the cashflows from the asset expire or the financial asset is transferred and thattransfer qualifies for de-recognition. A financial asset is transferred if thecontractual rights to receive the cash flows of the asset have been transferredor the Group retains the contractual rights to receive the cash flows of theasset but assumes a contractual obligation to pay the cash flows to one or morerecipients. A financial asset that is transferred qualifies for de-recognitionif the Group transfers substantially all the risks and rewards of ownership ofthe asset, or if the Group neither retains nor transfers substantially all therisks and rewards of ownership but does transfer control of that asset. Financial liabilities Financial liabilities are obligations to pay cash or other financial assets andare recognised when the Group becomes a party to the contractual provisions ofthe instrument. Financial liabilities categorised as at fair value throughprofit or loss are recorded initially at fair value, all transaction costs arerecognised immediately in the income statement. All other financial liabilitiesare recorded initially at fair value, net of direct issue costs. Financial liabilities categorised as at fair value through profit or loss arere-measured at each reporting date at fair value, with changes in fair valuebeing recognised in the income statement. All other financial liabilities arerecorded at amortised cost using the effective interest method, withinterest-related charges recognised as an expense in finance costs in the incomestatement. Finance charges, including premiums payable on settlement orredemption and direct issue costs, are charged to the income statement on anaccruals basis using the effective interest method and are added to the carryingamount of the instrument to the extent that they are not settled in the periodin which they arise. Financial liabilities are categorised as at fair value through profit or losswhere they are classified as held-for-trading or designated as at fair valuethrough profit or loss on initial recognition. A financial liability is derecognised only when the obligation is extinguished,that is, when the obligation is discharged or cancelled or expires. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, togetherwith other short-term, highly liquid investments that are readily convertibleinto known amounts of cash and which are subject to insignificant risk ofchanges in value. Equity Equity comprises the following: • "Share capital" represents the nominal value of equity shares.• "Share premium" represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue.• "Other reserve" represents equity-settled share-based employee remuneration until such share options are exercised.• "Profit and loss reserve" represents retained profits. Foreign currency Transactions in foreign currencies are translated at the exchange rate ruling atthe date of the transaction. Monetary assets and liabilities in foreigncurrencies are translated at the rates of exchange ruling at the balance sheetdate. Any exchange differences arising on the settlement of monetary items or ontranslating monetary items at rates different from those at which they wereinitially recorded are recognised in the profit or loss in the period in whichthey arise. Employee benefits - defined contribution pension scheme The pension costs charged against profits are the contributions payable to thescheme in respect of the accounting period. Share-based payment - equity settled All share-based payment arrangements granted after 7 November 2002 that had notvested prior to 1 January 2006 are recognised in the financial statements. All goods and services received in exchange for the grant of any share-basedpayment are measured at their fair values. Where employees are rewarded usingshare-based payments, the fair values of employees' services are determinedindirectly by reference to the fair value of the instrument granted to theemployee. This fair value is appraised at the grant date. All equity-settled share-based payments are ultimately recognised as an expensein the income statement with a corresponding credit to "other reserve". The expense is allocated over the vesting period, based on the best availableestimate of the number of share options expected to vest. Estimates aresubsequently revised if there is any indication that the number of share optionsexpected to vest differs from previous estimates. Any cumulative adjustmentprior to vesting is recognised in the current period. No adjustment is made toany expense recognised in prior periods if share options ultimately exercisedare different to that estimated on vesting. Upon exercise of share options the proceeds received net of attributabletransaction costs are credited to share capital, and where appropriate sharepremium. 3. Business segments The principal activity of the Group during the period continued to be the designand production of Silo-cage plants for sale to third party clients, and thedesign, build and operation of TEG owned facilities. For management purposes, the Group is currently organised into the followingdivisions: Build Own Operate facilities and Sale to third party clients. The revenues and net result generated by each of TEG Group plc's businesssegments are summarised as follows: Revenue Group operating loss 6 months 6 months Year 6 months 6 months Year ended ended ended ended ended ended 30 June 30 June 31 December 30 June 30 June 31 December 2007 2006 2006 2007 2006 2006 Build own operate 518,219 485,150 885,080 (140,965) (79,148) (300,713)Sale to third - 585,600 2,650,000 (90,643) 223,900 723,018partiesOther 17,826 - 24,250 8,669 - 14,529 536,045 1,070,750 3,559,330 (222,939) 144,752 436,834 * Unallocated head office (1,270,898) (740,200) (1,793,476)expensesGroup operating (1,493,837) (595,448) (1,356,642)loss * Unallocated head office expenses include £52,163 (2006:nil) in respect offuture business development costs. 4. Share capital issues On 23 April 2007, the company placed 10,000,000 new ordinary shares of £0.05 ata price of £1.10 per share, raising £11,000,000 before issue costs of £628,571.The difference between the total consideration of £11,000,000 and the totalnominal value of £500,000 and related issue cost of £628,571 has been creditedto the share premium account. In addition, on 30 April 2007 and 3 May 2007,168,000 and 75,000 shares respectively were issued pursuant to share optionsthat were exercised at a price of £0.50 and £0.35 respectively. Shares issued for the period under review may be summarised as follows: 6 months to 30 June 2007 Number £At 1 January 2007 38,045,381 1,902,269Issue of shares 10,243,000 512,150At 30 June 2007 48,288,381 2,414,419 6 months to 30 June 2006 Number £At 1 January 2006 26,385,381 1,319,269Issue of shares 11,500,000 575,000At 30 June 2006 37,885,381 1,894,269 Year to 31 December 2006 Number £At 1 January 2006 26,385,381 1,319,269Issue of shares 11,660,000 583,000At 31 December 2006 38,045,381 1,902,269 5. Loss per share The loss per share is calculated by reference to the loss attributable toordinary shareholders divided by the weighted average of 41,882,939 ordinaryshares for the 6 months to 30 June 2007, 28,926,817 ordinary shares for the 6months to 30 June 2006, and 33,451,682 for the 12 months to 31 December 2006. The share options in issue are anti-dilutive in respect of the basic loss pershare calculation and have therefore not been included. 6. Explanation of transition to IFRS As stated in the 'Basis of preparation', these are the Group's first condensedconsolidated interim financial statements for the part of the period covered bythe first IFRS annual consolidated financial statements prepared in accordancewith the measurement and recognition rules of IFRS. An explanation of how the transition from UK GAAP to IFRS has affected theGroup's financial position, financial performance and cash flows is set outbelow. IFRS 1 permits companies adopting IFRS for the first time to take certainexemptions from the full requirements of IFRS in the transition period. Theseinterim financial statements have been prepared on the basis of taking thefollowing exemptions: • business combinations prior to 1 January 2006, the Group's date of transition have not been restated to comply with IFRS 3 'Business Combinations'. Explanation of reconciliation from UK GAAP to IFRS for the balance sheet andincome statement The adoption of IFRS by the Group has resulted in some reordering of thepresentation of certain balances within both the income statement and balancesheet. Goodwill recognised by the Group on the acquisition of the composting businessin Perthshire under UK GAAP was amortised over a period of 11 years. Under IFRS,goodwill is not amortised, but tested annually for impairment. The goodwillamortisation charge recognised in accordance with UK GAAP in 2006 was writtenback. Borrowing costs incurred with regards to the development of the Todmordenfacility under UK GAAP were recognised as interest expense incurred. Under IFRS,borrowing costs which are directly attributable to the acquisition, constructionor production of a qualifying asset have been capitalised. This includesinterest on borrowings made specifically for the purpose of obtaining thequalifying assets. Application of IFRS has resulted in reclassification of certain items in thecash flow statement as follows: 1) Under UK GAAP, payments to acquire property, plant and equipment wereclassified as part of 'Capital expenditure and financial investment'. UnderIFRS, payments to acquire property, plant and equipment have been classified aspart of 'Investing activities'. 2) Income taxes received by the Group in respect of Research and Development taxcredits are now classified as an operating cash flow under IFRS, however thesewere included in a separate category of tax cash flows under UK GAAP. 3) There are no other material differences between the cash flow statementpresented under IFRS and the cash flow statement presented under UK GAAP. Reconciliation of equity at 1 January 2006 (date of transition to IFRS) UK GAAP IFRS ASSETS Non-current assetsProperty, plant and equipment 1,093,289 1,093,289Goodwill 2,269,584 2,269,584 3,362,873 3,362,873 Current assetsInventories 123,070 123,070Trade and other receivables 366,408 366,408Taxation receivable 63,573 63,573Cash and cash equivalents 2,414,392 2,414,392 2,967,443 2,967,443 Total assets 6,330,316 6,330,316 LIABILITIES Current liabilitiesTrade and other payables 1,033,429 1,033,429Current portion of long-term borrowings 22,396 22,396Current portion of deferred 283,019 283,019consideration 1,338,844 1,338,844 Non-current liabilitiesLong-term borrowings 13,797 13,797Long-term deferred consideration 1,944,847 1,944,847 1,958,644 1,958,644 Total liabilities 3,297,488 3,297,488 Net assets / liabilities 3,032,828 3,032,828 EQUITY AND LIABILITIES Equity attributable to equity holdersof the parentShare capital 1,319,269 1,319,269Share premium 12,309,993 12,309,993Other reserves 153,197 153,197Profit and loss account - deficit (10,749,631) (10,749,631) Total equity 3,032,828 3,032,828 Investment in shares of subsidiaries of £2 in the parent company financialstatements of TEG Group Plc as at 1 January 2006 has been eliminated for thepreparation of the consolidated financial statements. Reconciliation of loss for the year ended 31 December 2006 UK GAAP Goodwill Interest IFRS 2006 IFRS 3 IAS 23 2006 £ £ £ £ Revenue 3,559,330 3,559,330Cost of sales (2,951,551) (2,951,551) Gross profit 607,780 607,780 Other expenses (2,177,194) 212,772 (1,964,422) Operating result (1,569,414) 212,772 (1,356,642) Finance costs (145,481) 29,934 (115,547)Finance income 154,579 154,579 Loss before tax (1,560,316) 212,772 29,934 (1,317,610) Income tax 60,663 60,663 Loss for the year (1,499,653) 212,772 29,934 (1,256,947) Attributable to:Equity holders of the (1,499,653) 212,772 29,934 (1,256,947)parentRetained loss (1,499,653) 212,772 29,934 (1,256,947) Loss per shareBasic and diluted (4.483) 0.636 0.089 (3.757)loss per share(pence) Reconciliation of equity at 31 December 2006 UK GAAP Goodwill Interest IFRS 2006 IFRS 3 IAS 23 2006 £ £ £ £ ASSETS Non-current assetsProperty, plant and equipment 7,564,337 29,934 7,594,271Goodwill 2,056,812 212,772 2,269,584 9,621,149 212,772 29,934 9,863,855 Current assetsInventories 355,638 355,638Trade and other receivables 647,648 647,648Taxation receivable 60,663 60,663Cash and cash equivalents 2,242,554 2,242,554 3,306,503 3,306,503 Total assets 12,927,652 212,772 29,934 13,170,358 LIABILITIES Current liabilitiesTrade and other payables 1,154,761 1,154,761Current portion of long-term borrowings 155,790 155,790Current portion of deferred 266,999 266,999consideration 1,577,550 1,577,550 Non-current liabilitiesLong-term borrowings 213,000 213,000Long-term deferred consideration 1,769,941 1,769,941 1,982,941 1,982,941 Total liabilities 3,560,491 3,560,491 Net assets / liabilities 9,367,161 212,772 29,934 9,609,867 EQUITY AND LIABILITIES Equity attributable to equity holdersof the parentShare capital 1,902,269 1,902,269Share premium 19,387,544 19,387,544Other reserves 326,632 326,632 Profit and loss account - deficit (12,249,284) 212,772 29,934 (12,006,578) Total equity 9,367,161 212,772 29,934 9,609,867 Investment in shares of subsidiaries of £2 in the parent company financialstatements of TEG Group Plc as at 1 January 2006 has been eliminated for thepreparation of the consolidated financial statements. Reconciliation of loss for the six months ended 30 June 2006 UK GAAP Goodwill IFRS 2006 IFRS 3 2006 £ £ £ Revenue 1,070,750 1,070,750Cost of sales (838,496) (838,496) Gross profit 232,254 232,254 Other expenses (934,088) 106,386 (827,702) Operating result (701,834) 106,386 (595,448) Finance costs (57,409) (57,409)Finance income 50,509 50,509 Loss before tax (708,734) 106,386 (602,348) Income tax - - Loss for the period (708,734) 106,386 (602,348) Attributable to:Equity holders of the (708,734) 106,386 (602,348)parentRetained loss (708,734) 106,386 (602,348) Loss per shareBasic and diluted loss (2.450) 0.368 (2.082)per share (pence) Reconciliation of equity at 30 June 2006 UK GAAP Goodwill IFRS 2006 IFRS 3 2006 £ £ £ ASSETS Non-current assetsProperty, plant and equipment 4,915,181 4,915,181Goodwill 2,163,198 106,386 2,269,584 7,078,379 106,386 7,184,765 Current assetsInventories 355,833 355,833Trade and other receivables 394,549 394,549Taxation receivable 63,573 63,573Cash and cash equivalents 5,467,677 5,467,677 6,281,632 6,281,632 Total assets 13,360,011 106,386 13,466,397 LIABILITIES Current liabilitiesTrade and other payables 770,412 770,412Current portion of long-term borrowings 161,547 161,547Current portion of deferred 266,999 266,999consideration 1,198,958 1,198,958 Non-current liabilitiesLong-term borrowings 288,976 288,976Long-term deferred consideration 1,866,901 1,866,901 2,155,877 2,155,877 Total liabilities 3,354,835 3,354,835 Net assets / liabilities 10,005,176 106,386 10,111,562 EQUITY AND LIABILITIES Equity attributable to equity holdersof the parentShare capital 1,894,269 1,894,269Share premium 19,339,544 19,339,544Other reserves 229,728 229,728Profit and loss account - deficit (11,458,365) 106,386 (11,351,979) Total equity 10,005,176 106,386 10,111,562 Investment in shares of subsidiaries of £2 in the parent company financialstatements of TEG Group Plc as at 1 January 2006 has been eliminated for thepreparation of the consolidated financial statements. Independent Review Report to TEG GROUP PLC Introduction We have been instructed by the company to review the financial information forthe six months ended 30 June 2007 which comprises the consolidated condensedincome statement, the consolidated condensed balance sheet, consolidatedcondensed statement of changes in equity, the consolidated condensed cash flowstatement and the related notes 1 to 6. We have read the other informationcontained in the interim report which comprises only the chairman's statementand considered whether it contains any apparent misstatements or materialinconsistencies with the financial information. This report is made solely to the company in accordance with guidance containedin APB Bulletin 1999/4 "Review of Interim Financial Information". Our reviewwork has been undertaken so that we might state to the company those matters weare required to state to them in a review report and for no other purpose. Tothe fullest extent permitted by law, we do not accept or assume responsibilityto anyone other than the company, for our review work, for this report, or forthe conclusion we have formed. Directors' responsibilities The interim report including the financial information contained therein is theresponsibility of, and has been approved by, the directors. The directors areresponsible for preparing the interim report. As disclosed in note 1, the next annual financial statements of the Group willbe prepared in accordance with International Financial Reporting Standards asadopted by the European Union. The accounting policies are consistent with thosethat the directors intend to use in the next annual financial statements. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4"Review of Interim Financial Information" issued by the Auditing Practices Boardfor use in the United Kingdom. A review consists principally of making enquiriesof management and applying analytical procedures to the financial informationand underlying financial data and, based thereon, assessing whether theaccounting policies and presentation have been consistently applied unlessotherwise disclosed. A review excludes audit procedures such as tests ofcontrols and verification of assets, liabilities and transactions. It issubstantially less in scope than an audit performed in accordance withInternational Standards on Auditing (UK and Ireland) and therefore provides alower level of assurance than an audit. Accordingly, we do not express an auditopinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2007 . GRANT THORNTON UK LLPCHARTERED ACCOUNTANTSManchester24 September 2007 The maintenance and integrity of the TEG Group plc website is the responsibilityof the directors: the interim review does not involve consideration of thesematters and, accordingly, the company's reporting accountants accept noresponsibility for any changes that may have occurred to the interim reportsince it was initially presented on the website. Legislation in the UnitedKingdom governing the preparation and dissemination of the interim report differfrom legislation in other jurisdictions. This information is provided by RNS The company news service from the London Stock Exchange