RNS Number:2259Q
TEG Environmental Plc
18 August 2005
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Japanese securities laws.
18 August 2005
Proposed Placing and Offer for Subscription of up to 10,000,000 New Ordinary
Shares 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 raise
approximately #3.4 million after expenses by way of a Placing and Offer for
Subscription of up to 10,000,000 New Ordinary Shares at a placing price of 37
pence per New Ordinary Share.
For further information, please contact:
TEG Environmental Plc
Mick Fishwick, Chief Executive 01772 422220
Binns & Co PR Ltd
Peter Binns 020 7786 9600
Tarquin Edwards 020 7153 1483
Canaccord Capital (Europe) Limited
Robert Finlay 020 7518 2775
Canaccord Capital (Europe) Limited (which is regulated in the United Kingdom by
the Financial Services Authority) is acting solely for TEG Environmental plc in
connection with the Placing and is not acting for any person other than TEG
Environmental plc and will not be responsible for any person other than TEG
Environmental plc for providing the protections afforded to clients of Canaccord
Capital (Europe) Limited or for providing advice to any person in connection
with the matters described in this announcement.
This announcement does not constitute, or form any part of, an offer or
solicitation 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 Ordinary
Shares 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 raise
approximately #3.4 million after expenses by way of a Placing and Offer for
Subscription of up to 10,000,000 New Ordinary Shares at a placing price of 37
pence per New Ordinary Share.
TEG was incorporated in 1995 and its ordinary share capital was admitted to
trading on AIM in July 2004. The Company's principal activity is the design and
production of specialised plant and equipment for the composting of organic
wastes for sale to third party customers and in-house projects. The TEG
Silo-Cage composting system is the result of over ten years of design and
testing and has been operating successfully since first launched in 2000.
Legislation governing the treatment and disposal of organic waste is
increasingly stringent and drives the market for the TEG Silo-Cage system and
the services that its process provides. In 2005, the Directors believe that new
legislation relating to the disposal of animal by-products and the use of
landfills, will increase the Company's market in catering for the recycling
needs of the UK.
2. The TEG System
The TEG Silo-Cage system is a large-scale continuous-flow thermophilic
composting plant that converts organic wastes into a natural organic fertilizer.
The system uses selected materials which, when mixed with the target waste
streams in the correct ratio, will create conditions for rapid thermophilic
composting activity. The design of the Silo-Cage System provides an environment
for vigorous composting. When the mixed waste is introduced to the Silo-Cage,
the micro-organisms already present in the mix quickly multiply, generate high
temperatures and rapidly degrade the waste.
The composting process, which is a continuous flow and dry operation requiring
no mechanical turning, takes 12 to 14 days, during which time the temperature of
the process is continuously monitored by multiple probes. The insulated walls
maintain the temperature within the cages, which each have a nominal capacity of
600 tonnes per annum.
The TEG Silo-Cage consists of a bank of between 8 and 28 steel-framed cages with
insulated walls. Multiple banks of Silo-Cages can be supplied for large
contracts. Each bank of Silo-Cages is suspended in a rigid steel frame above a
concrete base and is supplied by a mixer into a loading mechanism, which evenly
supplies 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 by
an unloading mechanism.
The Directors believe that this is an attractive, efficient and cost-effective
alternative to landfill and provides a solution for the legal, natural and
economic environments. It is also an attractive alternative to other forms of
Animal By-Product disposal, namely rendering, incineration and anaerobic
digestion.
A full scale pilot plant has been developed at Sherdley Farm near Preston
consisting of 8 steel-framed cages. The plant has the capability to be extended
to a commercial facility. Since launch in 2000, the site has operated without
complaint 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 storage
at this site. The established, consistent quality organic fertilizer produced at
the plant (EnVigroTM) is sold throughout the UK and plays a key part in the
Company's marketing of Silo-Cages.
The Company has a pipeline of possible opportunities, including the sale of
plant, 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 key
unique selling points. These include its Animal By-Products ("ABP") Positive
Release approval, the ability of the high-capacity Silo-Cage system to operate
continuously, and to produce a consistent quality end product. The system offers
a process with competitive operating costs and low capital requirements. It
requires a small footprint, thereby reducing land costs. The nature of the
process itself leads to very good environmental control, with no requirement for
forced 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 involved
the sale of plant to the City and Country of Swansea in the sum of #925,000. The
second 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 planning
permission 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 agreed
an 11 year contract to acquire the rights to take over and develop the
composting operation at a waste management site in Perthshire, Scotland (the
"Perthshire Contract"). The operation is one of the largest ABP composting
operations in the UK (approximately 35,000 tonnes per annum) and, as the only
ABP composting operation in Perthshire, is expected to grow considerably.
The Directors anticipate that the Perthshire Contract will generate immediate
revenues in excess of #1 million per annum. It represents TEG's largest contract
since its share capital was admitted to trading on AIM in July 2004. Pursuant to
the terms of the Perthshire Contract, TEG will assume responsibility for the
operation on 29 August 2005 and revenues will commence from that date.
The Company has also strengthened its management team over the past year with
the appointment of Michael Fishwick as Chief Executive, Tanja Willis as Finance
Director 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 42
million tonnes is potentially suitable for composting. By the year 2020, 25
million tonnes per annum of waste should have been diverted from landfill. An
additional 1.6 million tonnes of ABP is forecast to be entering the organic
treatment market due to implementation of ABP legislation. The Waste Resource
Action Programme estimate the need for 450 composting plants by 2020 for Local
Authorities, with the increase in ABP providing opportunities for over 100
plants.
Parallel to this increase in the requirement for facilities, it is estimated
that the potential market for compost product is 9 million tonnes, which the
Directors believe will support the development of 640 composting plants.
The Directors also believe that gate fees are likely to rise sharply. Published
prices for ABP disposal are up to #80 per tonne, between #12 and #14 per tonne
for 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 2001
requiring significant reductions in the quantity of biodegradable municipal
waste disposed of by landfilling and prohibiting the disposal of hazardous and
non-hazardous wastes in the same landfill. As part of the drive to comply with
the Landfill Directive, the Government set mandatory recycling targets for local
authorities. Set against a 1995 baseline, the Landfill Directive requires a
reduction of 25 per cent. by 2010, 50 per cent. by 2013 and 65 per cent. by
2020. 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 25
per cent. of household waste to be composted or recycled set by the Waste
Strategy 2000, the UK will have to provide new facilities at a rate of one per
week nationally. Failure to meet the Landfill Directive targets within the next
decade will result in the UK facing substantial fines from the EU. The Directors
believe that such financial sanctions will most probably be passed on to Local
Authorities and then collected through council tax and that the threat of these
sanctions will provide a catalyst for change.
Failure to meet the Landfill Directive targets will result in the UK facing
substantial fines from the EU. A penalty system was imposed in April 2005.
Furthermore, there are now limits on the amounts of biodegradable waste that can
be 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 to
rise 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 2005
under the Waste and Emissions Trading Act 2003. The purpose of LATS is to
encourage recycling by the trading of recycling credits whereby Local
Authorities that fail to achieve recycling and composting targets can buy excess
recycling capacity from those that have exceeded their targets. The price for
recycling credits will be market driven and is expected to fall between the cost
of recycling and composting, and the cost of fines implemented under the
Landfill Directive, thus stimulating investment in additional recycling and
composting facilities.
Animal By-Products Regulations 2003
The EU Regulation concerning ABP became effective from 1 May 2003, and the
regulation came into force in England and Wales on 1 July 2003 introducing
higher standards of treatment and banning the use of certain traditional methods
for disposal. Given the outbreaks of human and animal disease which have focused
attention on the safety of the food chain, the need to protect against
pathogens, such as Salmonella, E Coli. 0157, and the need to protect against
animal diseases, such as Foot and Mouth and Swine Fever, has become imperative
in the Government's policy. It has become clear that traditional and current
methods of disposal are unsafe and that organic wastes should be treated to a
high standard so that they may safely be recycled to land. The EU Commission was
therefore charged with preparing further implementing measures, including the
approval of alternative disposal methods. The Regulation bans the disposal of
animal by-products including most food wastes to landfill, although temporarily
catering waste may continue to be landfilled. There is a transition period until
December 2005, after which certain former foodstuffs from retail, wholesale,
distribution and manufacturing outlets will be banned from landfill and must be
treated 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 take
advantage of rising waste disposal prices.
Plant Sales
The Company sells plant to third parties who prefer to run their own waste
disposal operations. This area of the business provides large revenues to the
Company. A single bank of cages has a typical sale value of #950,000, and the
typical scale of each sale is one or two banks of cages. The main clients that
might 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 planned
developments (dependent on ABP approval). The Directors also hope to strengthen
the 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 (Natural
Organic Fertiliser Company) to support sales and BOOs and to generate additional
revenues. Product use sectors include sports grounds, golf clubs, local
authority, 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 business
operated by Binn Skips and will replace existing plant and windrow process with
two banks of Silo-Cages to process the existing 35,000 tonnes waste stream. The
Directors expect this to incur a capital cost of approximately #1.5 million with
ancillary equipment included.
The principal customers of this project include a national waste management
business, a local authority contract and Binn Skips, who collect waste from
large food manufacturers in Scotland. The project also accepts direct deliveries
from a further waste management business, sewage sludge from a utility, and ABP
from a variety of local food businesses.
Sherdley Farm Development
The Company has a plant at Sherdley Farm which now has all the required elements
in place (being planning permission, a Waste Management Licence and ABP Positive
Release Approval). The Directors believe local demand for the facility to be
strong from both food manufacturers and local authorities.
The Directors hope to develop the site fully by early 2006, involving the
obtaining of full ABP approval, the securing of waste disposal contracts and the
upgrading of existing plant to a new capacity level. Once the new facilities
have been installed, the Directors believe the potential capacity of the site
will 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 for
9,000,000 New Ordinary Shares at the Placing Price and the Placing Shares, when
issued, will rank pari passu, with the Existing Ordinary Shares, including the
right to receive all dividends and other distributions, thereafter declared,
made or paid.
The Placing, which is not underwritten, will be conditional, inter alia, on
Admission taking place.
The Company has also today invited certain shareholders to subscribe for
1,000,000 New Ordinary Shares at the Placing Price and the Subscription Shares,
when issued, will rank pari passu, with the Existing Ordinary Shares, including
the 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 of
Sherdley Farm and working capital during the development phase of these
opportunities.
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
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