Up for sale green technology company TEG Group has decided to go it alone but it needs a cash injection from shareholders to tide it over while it waits for payment for completed work to feed through.
The company put itself up for sale back in January and received some indicative proposals from interested parties, but discussions dragged on, leading to uncertainty, so the company intends to continue as an independent company.
TEG is looking to raise around £1.8m (net) by means of an open offer to shareholders on the basis of 57 new shares at 3p each for every 100 shares held. Up to £1.2m of the open offer has been conditionally underwritten by Weekcorp, while separate undertaking agreements covering around £0.6m of the shares have been signed with TEG shareholders Bridges Ventures and Impax Asset Management.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The offer price represents a 59% discount to the closing price mid-market price of 7.25p per Ordinary Share on June 1st, the last trading day in London prior to this announcement of the open offer.
The open offer is subject to certain resolutions being passed at a general meeting which has been called for June 25th. Should the open offer not proceed and there be any further delays in the receipt of income from certain projects, the directors believe this will place the company in a position of significant uncertainty and the company's status as a going concern will require review.
The projects alluded to chiefly relate to a contract awarded in 2009 for the provision of four TEG in-vessel composting (IVC) silo cage facilities to the Greater Manchester Waste Authority.
The first site, in Rochdale, ran into delays but the company is expecting payment for its work later this year, along with payment for work done on the sites in Bredbury and Trafford. Following a significant delay, the company received the instruction to proceed on a fourth site, in Bolton, in June 2011 only to run into technical difficulties because of sub-ground conditions. The facility is due to be completed and commissioned in the first half of 2013.
As well as delays to the Greater Manchester project, closure on a facility in Dagenham, Essex, did not take place when it was expected back in the second half of 2011, while TEG also had to write off £100,000 in bid costs last year for a North East Wales project after its joint venture partner, NEAT Biogas, failed to raise the necessary finance.
All of the above resulted in cash flow problems for the company, as mentioned in previous stock exchange announcements. In all, the money being retained by the customer pending completion comes to around £1m. The proceeds from the open offer will alleviate TEG's working capital restraints. Once the money comes through from the delayed projects, the firm will then have money to invest in new projects.
Despite all of the tribulations it faced, the group said trading results in 2011 were ahead of market expectations.
Revenue from continuing operations slipped to £17.87m from £20.74m in 2010. Waste volumes grew by 32% with the group processing 244,000 tonnes in 2011 (2010: 185,000 tonnes) with average gate fees across plant operations continuing to rise, up 16% on the prior year.
Loss before tax and exceptional items widened to £1.74m from a loss of £0.63m the year before. Once exceptional costs of £6.26m are factored in, the 2011 loss was heavier still, at £7.85m. The £6.26m charge was a non-cash impairment adjustment relating to the group's Perth IVC and Sherdley Farm IVC facilities.
"The last year has proved to be challenging for the company and in particular the difficulties faced by the industry in securing project finance have had a significant impact, resulting in long delays and disappointments in losing key projects that the company had worked hard to secure," said Nigel Moore, non-executive Chairman of TEG.
"The board has taken all the steps it could to secure funding and its strategic review considered all the options open to the company," Moore added.
Moore believes that market demand for TEG's services remains strong, and said the company has a strong pipeline of tender opportunities. Demand for the group's own plant operations is on the rise, and the board expects this part of the business to put in a strong performance this year.
The company has not proposed a dividend payment.
With a pile of new shares about to hit the market at 3p each, the share price of TEG fell sharply to 4p from 7.25p overnight.
JH
