Interim Results
Stanelco PLC
29 June 2005
29 June 2005
Stanelco PLC
Interim Results for the six months ending 30 April 2005
Highlights
• Substantial progress towards commercialisation of GREENSEAL (TM) technology
with ASDA
• Strategic alliances signed with Premier Technology Inc and Advanced Energy
Inc. to enable rapid rollout of GREENSEAL (TM) in North America and
elsewhere
• Strategic acquisition of Biotec Holdings (Biotec) subject to shareholder
approval
• Successful launch of Frog Pack(TM) into the UK market
• Two placings of Ordinary Shares raising a total of £13.1 million (before
expenses) successfully completed with UK institutions
Financial Highlights
• Turnover of £629,000 (2004: £320,000)
• Loss before taxation of £960,000 (2004: £490,000)
• Net cash at 30 April 2005 of £2.9 million
Phillip Lovegrove, Chairman of Stanelco, commented:
'The two commercial agreements for GREENSEAL(TM) signed in the last few weeks
with ASDA suppliers and the support from ASDA itself give us enormous confidence
in our technology. We look forward to its continued rollout in both the UK and
overseas markets as we seek to establish GREENSEAL(TM) as a must have
application in the global packaging marketplace.
We also believe that the market potential for starch based films in the medium
term is substantial and the recent acquisition of Biotec places Stanelco at the
very forefront of this exciting market. With a healthy cash position following
the well-supported institutional placings, the Board looks forward to the future
with great confidence.'
For further information contact:
Stanelco
Ian Balchin, Chief Executive
Tel: 44 (0) 2380 867 100
Press: Financial Dynamics
Jonathon Brill/Billy Clegg
Tel: 44 (0) 20 7831 3113
Investors: IR focus
Neville Harris
Tel: 44 (0)20 7378 7033
CHIEF EXECUTIVE'S STATEMENT
FOR THE SIX MONTHS ENDED 30 APRIL 2005
It has been an exciting six months for Stanelco PLC. We have made considerable
progress in the adoption of our GREENSEAL(TM) technology, in particular with our
increasingly strong relationship with ASDA in the UK. In the last few months
these have progressed to the point of two ASDA suppliers placing orders for a
number of their machines to be retrofitted. We expect the momentum to continue
to accelerate over the year ahead as we look to our goal of establishing
GREENSEAL(TM) as an industry standard in the packaging sector.
However Stanelco is more than just one product and over the period we have been
further using our IP in radio frequency technology (RF), environmentally sound
material sciences and design to create a revolutionary range of packaging
technologies.
Our philosophy is simple;
New products and processes must offer solutions and applications that give
higher added value, are greener, more environmentally sustainable than those
they replace and have protectable intellectual property rights.
Stanelco will develop the products and processes to a demonstration stage and
then work with partners in order to reach the markets; and under these
circumstances Stanelco will usually seek to license its technology in order to
realise revenue.
In this way we believe we will minimise commercial risk and preserve the highest
value for shareholders.
The products offering the prospect of near term revenue generation are being
given priority over the company's resources.
Acquisition of Biotec Group
On 6th June 2005 the Company announced that it had entered into an agreement,
subject to shareholder approval, for the acquisition of the entire issued share
capital of Biotec Holding GMBH and subsidiaries (the 'Biotec Group' or 'Biotec')
from EKI (E. Khashoggi Industries LLC) for a total of US$25 million payable over
a 24 month period.
Biotec is one of the world's leading exponents of starch technology and has a
considerable intellectual property portfolio, including many patents, extending
to uses in pharmaceutical and edible applications. It also has ranges of
products that are ready for commercialisation within the food and beverage
industries. One early example of this, which we have now patented is a
biodegradable cork for wine bottles and discussions are currently underway with
new and existing partners to realise revenue from this development.
Natural starch is one of the lowest cost biodegradable, compostable, renewable
resource materials and Biotec has a unique portfolio of products including
Thermoplastic Starch ('TPS'). This portfolio enables the use of environmentally
responsible material in place of petroleum based plastics, such as
polypropylene. Stanelco will be aiming to commercialise some of this portfolio
during the remainder of 2005 with the pilot launch of a new thermoplastic
material provisionally marketed as Starpol 2000(TM). Starpol 2000(TM) is
certified biocompostable. The material can be used to produce food trays and
other products and can be processed on most conventional machines and should not
require major capital investment by convertors.
The initial focus will be on the North American market, where polypropylene is
widely used for food trays and where there is increasing demand for
biodegradable packaging. Starpol 2000(TM) additionally provides a stronger gas
barrier for modified atmosphere packaging (MAP) which helps to lengthen shelf
life. Sample product has been manufactured and discussions have commenced with
major retailers.
Furthermore, with the rise in oil prices, the cost of petroleum based packaging
materials is inevitably rising faster than our alternatives - making them
increasingly attractive. In particular APET/PE sheet for making food trays is
currently in the order of £1.70 per kilo and the target price of the Biotec
material will be in the region of £1.80 per kilo. This acquisition also creates
a further barrier to entry for potential competition in the GREENSEAL(TM)
project. We will be able to provide a turnkey, ecologically, environmentally
responsible solution to MAP food-packaging requirements, as Stanelco's RF
Sealing and Welding technology can be used to process starch polymers without
the degradation or cross-linking caused by other methods such as thermal
processing which can render the material unsuitable for food and pharmaceutical
applications.
Biotec will also be a supplier of film to the InGel capsule project. Biotec's
proprietary pharmaceutical grade film is suited for applications where it
replaces conventional polymers such as gelatine. Depending upon the
specification, the film has a cost base of between US$5 to US$8 per kilogram,
offering customers significant cost savings when compared to gelatine and other
materials, which it may replace. In addition, being a mono material, waste
generated during manufacture can often be immediately re-used.
GREENSEAL(TM)
Following successful trials, on the 24th March 2005, Stanelco announced that it
has signed a binding contract with ASDA for a 12-month exclusive agreement for
the application of the group's GREENSEAL(TM)tray lidding and thermoforming RF
technology in the UK and Ireland. ASDA anticipate that several hundred machines
will be adapted in the next 12 months to utilise the technology due to the
significant benefits it delivers.
The main benefits of Stanelco's GREENSEAL(TM)technology are:
• an up to 20% lower cost of packaging material;
• a higher integrity seal substantially reducing the possibility of
packs leaking;
• a removal of laminated plastics in favour of mono plastics, which can
be easily recycled providing significant environmental benefits and
• a saving of up to 70% on power usage in the traylidding/thermoforming
machines.
Since then the first two full commercial trials have been run successfully and
conditional orders received from Youngs Bluecrest and Hitchen Foods plc for up
to five machines in the first instance. Further trials are in progress.
In order to roll GREENSEAL(TM) Technology out in the USA and elsewhere, Stanelco
has entered into strategic alliances with Advanced Energy Corporation and
Premier Technologies. I am also delighted to report that Howard White has been
appointed as Group Managing Director of the Company and President of Stanelco's
US operations to more accurately reflect the role that Howard has been
fulfilling for Stanelco. Howard has been instrumental in directing the
GREENSEAL(TM) project. Two subsidiaries have been incorporated in the USA to
enable commercialisation in the North American Continent.
Starpol(TM)
Starpol(TM) is a range of materials that utilises a patent applied for
technology that permits the combining of starch and PVA (polyvinyl alcohol) in
any combination into a homogenous material. Adept Polymers developed these
materials to both lower the cost of water-soluble and biodegradable materials
and to produce materials with improved properties over those currently
available. We intend to incorporate these materials in several of our new
applications such as CradleWrap(TM).
Frog Pack(TM)
Frog Pack(TM) is a patent applied for box designed to replace traditional
packaging used for transporting delicate and or valuable items that are
vulnerable to damage in transit due to crushing or shock, such as electronics,
car parts, glass items, compact discs, flowers, foodstuffs. Its unique design
incorporates the unique SAAP(TM) (shock absorbing arcuate panels) technology
developed by Aquasol.
The registered design ensures that the optimum energy is adsorbed and dissipated
through the package and not the product, no matter which face of the pack
receives the impact. Stanelco has appointed its first two distributors of
FrogPack(TM). The product has been well received by the packaging industry in
the UK and orders as well as revenues have begun to flow. It is also available
for purchase via Ebay. We are currently pursuing routes into other territories,
in particular the USA.
We anticipate extending the range of protective packaging based upon SAAP(TM)
technology with several innovative packaging formats being developed, tested and
protected, such as a new format for transporting cut flowers.
CradleWrap(TM)
CradleWrap(TM) is a new range of biodegradable air cushion packaging. The first
product, CradleWrap(TM) Heavy Duty is a wrapping material containing air bubbles
designed to absorb high impact. It is now available from our pilot production
line and we expect a gradual take up.
Soluble Labels
A new range of labels, tapes and films coated with a 100% water-soluble
adhesive. Work is progressing with initial applications and we expect this to
move to volume production during 2005.
Biodegradable airbag packaging
We are currently exploiting our low cost Starpol(TM) biodegradable materials to
develop a range of air pillows used as packaging to fill voids. We are working
closely with an internationally recognised air pillow manufacturer with a view
to partnering with them to commercialise this technology.
Traditional RF business
The market for new RF furnaces for the manufacture of optical fibre is showing
little sign of recovering with customers keen to minimise capital expenditure.
Sales of consumable items for furnaces have begun to pick up.
We continue to make sales of mobile RF welding units for sealing industrial
plastic bags. These units are three times more energy efficient than the
heat-sealing units they are designed to replace and give a high integrity seal.
Applications include the sealing of waste bags for transit.
We have now outsourced all manufacture of RF furnaces and mobile welders whilst
retaining control of the intellectual property.
InGel Technologies and capsules
InGel Technologies Limited (InGel) was established to commercialise Stanelco's
soft edible capsule making technology.
Entitlement to certain patents relating to this technology are the subject of
litigation by our subsidiary Stanelco RF Technologies Ltd against BioProgress
Technology Limited.
Further evidence has come to light since the original hearing and having taken
legal advice, Stanelco is confident that it shall be able to continue to pursue
this area of technology. Both parties have been granted leave to appeal the
original decision and have filed their appeals.
InGel is important but no longer a key element in the success of the Company
and, in mitigation until matters are resolved, we have reduced the resource on
this project.
Two other capsule projects are unaffected by the outcome of the litigation and
are progressing independently of InGel:
We are working with Carclo plc to develop hard shell water soluble capsules for
drug delivery. We are concentrating on increasing the starch content of the
capsules to allow us both to reduce cost and, more importantly, to facilitate
the process of regulatory approval. This technology is in the process of being
presented to a number of drug development companies. We are anticipating that
the involvement of Biotec in this venture will significantly reduce development
timescales and increase the likelihood of success.
We have also been working with Reckitt Benckiser to help develop their
Electrasol(R) 2 in 1 Gelpacs(R)(a) automatic dishwasher detergent capsules.
These are now available and selling well in North America. Stanelco receives a
royalty for each capsule sold.
Financial Review
The Group has made a loss of £0.9m for the six month period ended 30th April
2005. The Group has made investments in research and development of £0.7m and
increased its levels of stock by £0.8m from £0.6 m to £1.4m which primarily
relates to equipment involved in the trials of GREENSEAL(TM). The Group raised
£4.8m (net of expenses) by way of an equity placing in February 2005 which has
mainly been utilised as working capital. Shareholders funds have increased from
£6.1m to £10.4m in the period. The Group continues to invest in research and
development and is increasing its cost base in a controlled manner to facilitate
the roll out phase of revenue generating products and technologies which has now
commenced. The Group has recently raised a further £9m (net of expenses) which
will be used primarily to fund the conditional purchase of Biotec.
Outlook
As I have described above, we are making good progress on a number of projects
which have the capability to change fundamentally the dynamics of their target
markets and which will build substantial value for our shareholders. This will
not happen overnight, but we expect momentum to continue to build in coming
months both in relation to GREENSEAL(TM) and to the exciting range of products
within the Biotec portfolio.
Ian Balchin
Chief Executive
29 June 2005
a) Electrasol(R) 2 in 1 Gelpacs(R) are trademarks of Reckitt Benckiser
CONSOLIDATED SUMMARISED PROFIT AND LOSS ACCOUNT
FOR THE SIX MONTHS ENDED 30 APRIL 2005
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 April 30 April 31 October
2005 2004 2004
£'000 £'000 £'000
TURNOVER 629 320 1,332
Operating results before exceptional items (992) (271) (1,188)
Exceptional item - (226) (1,669)
OPERATING (LOSS) (992) (497) (2,857)
Net interest receivable 33 7 11
(LOSS) ON ORDINARY ACTIVITIES
BEFORE TAXATION (959) (490) (2,846)
Taxation 23 - 59
(LOSS) ON ORDINARY ACTIVITIES
AFTER TAXATION (936) (490) (2,787)
Minority interest 4 - 4
(LOSS) FOR THE PERIOD (932) (490) (2,783)
Dividends - (7) (7)
RETAINED (LOSS) FOR THE PERIOD (932) (497) (2,790)
EARNINGS PER SHARE
Basic and diluted loss per share - pence (0.109) (0.067) (0.370)
NOTES TO THE CONSOLIDATED SUMMARISED PROFIT AND LOSS ACCOUNT
FOR THE SIX MONTHS ENDED 30 APRIL 2005
Notes
1. Earnings per share
The basic loss per share is based on a loss after tax of £936,000 (2004
£490,000) and on the basic weighted average ordinary shares in issue during the
period of 857,040,675 (2004: 733,889,937).
2. Research and development expenditure of £717,000 (2004: £831,000) has been
incurred in the period. Of this expenditure £717,000 (2004: £831,000) has been
capitalised as an intangible asset to be amortised against future revenues.
Expenditure of this type is only capitalised where the Board is of the opinion
that future revenues will exceed the costs incurred over the expected product
life in accordance with Statement of Standard Accounting Practice Number 13.
3. Placing
On the 9 February 2005 Stanelco placed 38,000,000 ordinary equity shares at a
price of 12.825p per share to raise approximately £4.8m (£4.7m net of expenses)
which has mainly been utilised as working capital. Shareholders funds have
increased from £6.1m to £10.4m in the period.
4. Post balance sheet
Acquisition
On 6th June 2005 the Company announced that it had entered into an agreement,
subject to shareholder approval, for the acquisition of the entire issued share
capital of Biotec Holding GMBH and subsidiaries (the 'Biotec Group' or 'Biotec')
from EKI (E. Khashoggi Industries LLC) for a total of US$25 million payable over
a 24 month period. Of the total consideration, US$1.23 million has already been
paid in cash to EKI as a non-refundable deposit. A further US$11.27 million is
due to be paid on completion of the acquisition, which will be satisfied in
cash. A further US$6.25 million in cash is due to be paid in 12 months and a
final payment of US$6.25 million in cash is due 12 months thereafter. The
deferred elements are not subject to performance criteria.
Placing
On 8th June Stanelco announced that it had placed 44,000,000 ordinary shares at
a price of 21.15p per share to raise approximately £9.3 million (approximately
£9.0 million net of expenses). The proceeds of this placing will be used
primarily to fund the acquisition, which is conditional on shareholder approval.
5. The figures for the year ended 31 October 2004 are an abridged statement of
the full Group Accounts for that year which have been delivered to the Registrar
of Companies and on which the Auditors made an unqualified report and which did
not contain a statement under Section 237 of the Companies Act 1985.
The principal accounting policies of the Group have remained unchanged from
those set out in the Group's 2004 Annual Report and Financial Statements. The
financial information set out in this Interim Report does not constitute
statutory accounts as defined in Section 240 of the Companies Act 1985.
The interim financial information in this report has been neither audited, or
reviewed by the Company's auditors.
6. Copies of this statement are being sent to all shareholders and will be
available to the public at the Company's registered office.
CONSOLIDATED RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
FOR THE SIX MONTHS ENDED 30 APRIL 2005
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 April 30 April 31 October
2005 2004 2004
£'000 £'000 £'000
(Loss) for the financial period (936) (490) (2,787)
Minority interest 4 - 4
Dividends - (7) (7)
(932) (497) (2,790)
New share capital subscribed 5,022 1568 3,742
Shares to be issued - - 2,500
New share capital subscribed in subsidiary undertaking
205 456 -
Less minority interest (4) - -
Net addition to shareholders' funds 4,291 1527 3452
Opening shareholders' funds 6,099 2,647 2,647
Closing shareholders' funds 10,390 4,174 6,099
CONSOLIDATED BALANCE SHEET
AT 30 APRIL 2005
Unaudited Audited
At 30 April 2005 At 31 October 2004
£'000 £'000 £'000 £'000
FIXED ASSETS
Intangible assets 6,031 5,567
Tangible assets 992 918
7,023 6,485
CURRENT ASSETS
Stocks 1,435 610
Debtors 676 651
Cash at bank and in hand 3,034 920
5,145 2,181
CREDITORS: amounts falling due
within one year (908) (1,292)
NET CURRENT ASSETS 4,237 889
TOTAL ASSETS LESS CURRENT
LIABILITIES 11,260 7,374
CREDITORS: amounts falling due
After more than one year (139) (159)
PROVISIONS FOR LIABILITIES
AND CHARGES (696) (1,093)
10,425 6,122
CAPITAL AND RESERVES
Called up share capital 882 832
Share premium account 10,371 5,209
Shares to be issued 2,500 2,500
Profit and loss account (3,363) (2,442)
SHAREHOLDERS' FUNDS 10,390 6,099
Minority interest 35 23
10,425 6,122
The Interim Accounts were approved by the Board on 29 June 2005
Signed on behalf of the Board of Directors
Ian H Balchin (Chief Executive)
Robert P Boardman (Finance Director)
CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 APRIL 2005
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 April 30 April 31 October
2005 2004 2004
Notes £'000 £'000 £'000
NET CASH (OUTFLOW) FROM OPERATING ACTIVITIES 1 (2,231) (282) (731)
RETURNS ON INVESTMENT AND
SERVICING OF FINANCE
Interest received 18 8 14
Interest paid (3) (1) (3)
NET CASH INFLOW FROM RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE 15 7 11
TAXATION
Corporation tax (paid) (11) - -
CAPITAL EXPENDITURE AND
FINANCIAL INVESTMENT
Investment in intangible fixed assets (717) (831) (1,466)
Purchase of tangible fixed assets (140) (12) (280)
Sale of tangible fixed assets 10 12 79
NET CASH OUTFLOW FROM
CAPITAL EXPENDITURE AND
FINANCIAL INVESTMENT (847) (831) (1,667)
ACQUISITIONS AND DISPOSALS
Cash at bank acquired with
subsidiary - - 59
EQUITY DIVIDENDS PAID
Dividend paid (1) (3) (79)
FINANCING
Issue of ordinary share capital 5,212 1,702 2,919
Capital element of finance lease
payments (9) - (3)
New bank loan - - 150
Repayment of loan capital (14) - (3)
NET CASH INFLOW FROM
FINANCING 5,189 1,702 3,063
INCREASE IN CASH 2 2,114 593 656
NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 APRIL 2005
1. RECONCILIATION OF OPERATING PROFIT TO THE NET CASH INFLOW FROM OPERATING
ACTIVITIES
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 April 30 April 31 October
2005 2004 2004
£'000 £'000 £'000
Operating (loss) for the period (992) (497) (2,857)
Amortisation and impairment of intangible fixed
Assets 187 33 348
Depreciation of tangible fixed assets 71 67 171
Amortisation of goodwill 72 - 60
Loss on disposal of tangible fixed assets - 10 68
(Increase)/decrease in stocks (825) (52) (61)
(Increase)/decrease in debtors (37) 250 (98)
(Decrease)/increase in creditors due within one year
(310) (93) 563
(Decrease)/increase in provision for liabilities
and charges (397) - 1075
Net cash (outflow) from operating
activities (2,231) (282) (731)
2. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 April 30 April 31 October
2005 2004 2004
£'000 £'000 £'000
Increase in cash in the period 2,114 593 656
Cash outflow/(inflow) from decrease/
(increase) in debt lease financing 23 - (144)
New finance leases - - (54)
Change in net debt resulting from cash flows 2,137 593 458
Net funds at beginning of period 722 264 264
Net funds at end of period 2,859 857 722
3. ANALYSIS OF CHANGES IN NET FUNDS
At At
1 November 30 April
2004 Cash flow 2005
Unaudited £'000 £'000 £'000
Cash at bank and in hand 920 2,114 3,034
2,114
Bank loan (147) 14 (133)
Finance leases (51) 9 (42)
722 2,137 2,859
At At
1 November 30 April
2003 Cash flow 2004
Unaudited £'000 £'000 £'000
Cash at bank and in hand 264 593 857
At Other non At
1 November Cash changes 31 October
2003 Cash flow 2004
Audited £'000 £'000 £'000 £'000
Cash at bank and in hand 264 656 - 920
656
Bank Loan - (147) - (147)
Finance Leases - 3 (54) (51)
264 512 (54) 722
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