TEG.L Regulatory News (TEG)

18 Aug 2005 07:30

TEG Environmental Plc18 August 2005 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. 18 August 2005 Proposed Placing and Offer for Subscription of up to 10,000,000 New OrdinaryShares at a Placing Price of 37 pence per New Ordinary Share to raise £3,700,000 The Board of TEG today announced that the Company is intending to raiseapproximately £3.4 million after expenses by way of a Placing and Offer forSubscription of up to 10,000,000 New Ordinary Shares at a placing price of 37pence per New Ordinary Share. For further information, please contact: TEG Environmental Plc Mick Fishwick, Chief Executive 01772 422220Binns & Co PR Ltd Peter Binns 020 7786 9600Tarquin Edwards 020 7153 1483 Canaccord Capital (Europe) LimitedRobert Finlay 020 7518 2775 Canaccord Capital (Europe) Limited (which is regulated in the United Kingdom bythe Financial Services Authority) is acting solely for TEG Environmental plc inconnection 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 clients of CanaccordCapital (Europe) Limited or for providing advice to any person in connectionwith the 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 Subscription Shares. 18 August 2005 TEG Environmental plc ("TEG" or the "Company")Proposed Placing and Offer for Subscription of up to 10,000,000 New OrdinaryShares at a Placing Price of 37 pence per New Ordinary Share to raise £3,700,000 1. Introduction The Board of TEG today announced that the Company is intending to raiseapproximately £3.4 million after expenses by way of a Placing and Offer forSubscription of up to 10,000,000 New Ordinary Shares at a placing price of 37pence per New Ordinary Share. 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 TEGSilo-Cage composting system is the result of over ten years of design andtesting and 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, the Directors believe that newlegislation relating to the disposal of animal by-products and the use oflandfills, will increase the Company's market in catering for the recyclingneeds of the UK. 2. The TEG System The TEG Silo-Cage system is a large-scale continuous-flow thermophiliccomposting plant that converts organic wastes into a natural organic fertilizer.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 28 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 above aconcrete base and is supplied by a mixer into a loading mechanism, which evenlysupplies the calculated amount of compost mix to each silo on a daily basis.Composted product is removed on a daily basis from the base of the Silo-Cage byan unloading mechanism. The Directors believe that this is an attractive, efficient and cost-effectivealternative to landfill and provides a solution for the legal, natural andeconomic environments. It is also an attractive alternative to other forms ofAnimal By-Product disposal, namely rendering, incineration and anaerobicdigestion. A full scale pilot plant has been developed at Sherdley Farm near Prestonconsisting of 8 steel-framed cages. The plant has the capability to be extendedto a commercial facility. Since launch in 2000, the site has operated withoutcomplaint under a Planning and Waste Management Licence secured in 1999.Planning permission has now been extended until December 2019. Furthermore,planning approval has recently been granted for new building for compost storageat this site. The established, consistent quality organic fertilizer produced atthe plant (EnVigroTM) is sold throughout the UK and plays a key part in theCompany's marketing of Silo-Cages. The Company has a pipeline of possible opportunities, including the sale ofplant, and several Build Own and Operate ("BOO") projects. 3. TEG's Competitive Advantage The Directors believe that the Company is poised to take advantage of its keyunique selling points. These include its Animal By-Products ("ABP") PositiveRelease approval, the ability of the high-capacity Silo-Cage system to operatecontinuously, and to produce a consistent quality end product. The system offersa process with competitive operating costs and low capital requirements. Itrequires a small footprint, thereby reducing land costs. The nature of theprocess itself leads to very good environmental control, with no requirement forforced aeration, good control of odour, dust and bio-aerosols, and no leachate. 4. Recent developments The Company has recently announced its first two UK sales. The first involvedthe sale of plant to the City and Country of Swansea in the sum of £925,000. Thesecond worth £2,000,000, involved the sale of plant to Banham Compost Limited,though this is subject to planning consent at a site that has existing planningpermission for rendering operations. Furthermore, the Company has today secured an option for its first BOO project,to create one of the largest composting plants in the UK. The Company has agreedan 11 year contract to acquire the rights to take over and develop thecomposting operation at a waste management site in Perthshire, Scotland (the"Perthshire Contract"). The operation is one of the largest ABP compostingoperations in the UK (approximately 35,000 tonnes per annum) and, as the onlyABP composting operation in Perthshire, is expected to grow considerably. The Directors anticipate that the Perthshire Contract will generate immediaterevenues in excess of £1 million per annum. It represents TEG's largest contractsince its share capital was admitted to trading on AIM in July 2004. Pursuant tothe terms of the Perthshire Contract, TEG will assume responsibility for theoperation on 29 August 2005 and revenues will commence from that date.The Company has also strengthened its management team over the past year withthe appointment of Michael Fishwick as Chief Executive, Tanja Willis as FinanceDirector and Mike Orr as Regional Manager, Scotland. 5. The Market Total waste in the UK is estimated at 360 million tonnes per annum, of which 42million tonnes is potentially suitable for composting. By the year 2020, 25million tonnes per annum of waste should have been diverted from landfill. Anadditional 1.6 million tonnes of ABP is forecast to be entering the organictreatment market due to implementation of ABP legislation. The Waste ResourceAction Programme estimate the need for 450 composting plants by 2020 for LocalAuthorities, with the increase in ABP providing opportunities for over 100plants. 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. The Directors also believe that gate fees are likely to rise sharply. Publishedprices for ABP disposal are up to £80 per tonne, between £12 and £14 per tonnefor green waste, and to £39 per tonne for landfill disposal. 6. 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. However, given that the UK average for recycling waste was 11.2 per cent.in 2000/01, it has been estimated that, in order to meet the 2005/6 target of 25per cent. of household waste to be composted or recycled set by the WasteStrategy 2000, the UK will have to provide new facilities at a rate of one perweek nationally. Failure to meet the Landfill Directive targets within the nextdecade will result in the UK facing substantial fines from the EU. The Directorsbelieve that such financial sanctions will most probably be passed on to LocalAuthorities and then collected through council tax and that the threat of thesesanctions will provide a catalyst for change. Failure to meet the Landfill Directive targets will result in the UK facingsubstantial fines from the EU. A penalty system was imposed in April 2005.Furthermore, there are now limits on the amounts of biodegradable waste that canbe landfilled. These changes come on top of a background of the landfill tax,which increases at £3 per tonne per annum from April 2005, and is expected torise from £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 and currentmethods of disposal are unsafe and that organic wastes should be treated to ahigh standard so that they may safely be recycled to land. The EU Commission wastherefore charged with preparing further implementing measures, including theapproval of alternative disposal methods. The Regulation bans the disposal ofanimal by-products including most food wastes to landfill, although temporarilycatering waste may continue to be landfilled. There is a transition period untilDecember 2005, after which certain former foodstuffs from retail, wholesale,distribution and manufacturing outlets will be banned from landfill and must betreated before application to land. 7. Strategy The Directors plan to develop the business in two main areas: Build Own and Operate projects BOOs provide sustainable, long-term revenues, and allow the Company to takeadvantage of rising waste disposal prices. 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 £950,000, and thetypical scale of each sale is one or two banks of cages. The main clients thatmight purchase a TEG plant are local authorities, waste management companies,water companies and other utilities and a variety of private sector businesses,including major food producers/processors and farmers. 8. Future Developments The Directors intend to retain a UK focus for the Company, and complete planneddevelopments (dependent on ABP approval). The Directors also hope to strengthenthe Company's commercial skills, such as sales, operations and project delivery,through the appointment of key personnel. The Company also intends to develop a compost marketing business (NaturalOrganic Fertiliser Company) to support sales and BOOs and to generate additionalrevenues. Product use sectors include sports grounds, golf clubs, localauthority, agriculture, landscaping, horticulture and private gardens. 9. Details of current projects Perth BOO Project The Company has today acquired rights to a well-established composting businessoperated by Binn Skips and will replace existing plant and windrow process withtwo banks of Silo-Cages to process the existing 35,000 tonnes waste stream. TheDirectors expect this to incur a capital cost of approximately £1.5 million withancillary equipment included. The principal customers of this project include a national waste managementbusiness, a local authority contract and Binn Skips, who collect waste fromlarge food manufacturers in Scotland. The project also accepts direct deliveriesfrom a further waste management business, sewage sludge from a utility, and ABPfrom a variety of local food businesses. Sherdley Farm Development The Company has a plant at Sherdley Farm which now has all the required elementsin place (being planning permission, a Waste Management Licence and ABP PositiveRelease Approval). The Directors believe local demand for the facility to bestrong from both food manufacturers and local authorities. The Directors hope to develop the site fully by early 2006, involving theobtaining of full ABP approval, the securing of waste disposal contracts and theupgrading of existing plant to a new capacity level. Once the new facilitieshave been installed, the Directors believe the potential capacity of the sitewill reach 12,000 tonnes per annum. 10. Principal Terms of the Placing and Offer for Subscription Canaccord have agreed to use their reasonable endeavours to procure placees for9,000,000 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 shareholders to subscribe for1,000,000 New Ordinary Shares at the Placing Price and the Subscription Shares,when issued, will rank pari passu, with the Existing Ordinary Shares, includingthe right to receive all dividends and other distributions, thereafter declared,made or paid. 11. Use of proceeds The proceeds will be used to fund the Perthshire Contract, the development ofSherdley Farm and working capital during the development phase of theseopportunities. 12. Admission to AIM Application will be made for the New Ordinary Shares to be admitted to AIM.. 13. Definitions "Admission" admission of the Placing Shares to trading on AIM and such admission becoming effective in accordance with the AIM Rules "AIM Rules" the rules relating to the admission of securities to trading on AIM, as published from time to time by the London Stock Exchange plc "AIM" a market operated by the London Stock Exchange plc "Canaccord" Canaccord Capital (Europe) Limited, the Company's nominated adviser and broker "Existing Ordinary Shares" the Ordinary Shares of TEG in issue at the date of this announcement "New Ordinary Shares" the 10,000,000 new 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 upto 1,000,000 New Ordinary Shares on the terms of, and subject to the conditions contained in the Subscription Letter "Ordinary Shares" ordinary shares of 5p each in the Company "Placing" the conditional placing by Canaccord of the Placing Shares "Placing Price" 37 pence per New Ordinary Share "Placing Shares" the 9,000,000 New Ordinary Shares conditionally placed by Canaccord pursuant to the Placing "Subscription Letter" the letter dated today sent to certain shareholders inviting them to subscribe for the Subscription Shares pursuant to the Offer for Subscription "Subscription Shares" the 1,000,000 New Ordinary Shares to be offered to certain shareholders pursuant to the Offer for Subscription This information is provided by RNS The company news service from the London Stock Exchange