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TEG Group upbeat as operational business continues momentum

Published: 23:32 09 Sep 2014 AEST

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Success already seen at TEG Group's (LON:TEG) recent Hillbarton acquisition speaks volumes about the green energy firm's current momentum and potential.

TEG has faced various challenges over the last year but the operational side of the business continues to do well, and overall, the group says it's on a solid footing for the future.

Acquired in April, this year, Hillbarton in Devon is a composting operation, which already boasts TEG technology, as the firm installed previously the 'in vessel' plant, which breaks down food waste.

The site near Exeter, which has throughput of 35,000 tonnes (but this could be lifted to 50,000) also has a traditional open air windrow, which composts green matter.

"We bought it (Hillbarton) for a pound and the assets are worth a million so potentially not a bad deal for us," said TEG chief executive Mick Fishwick, referring to the nominal figure paid to Glendale Recycling.

Already, he highlights that TEG has turned round the operation from "quite a big loss" under the previous operator to a "marginal profit"  -  in just three months, and next year it expects to make a profit.

The business also benefits, says Fishwick, from an established compost product market, offering two brands - West Country compost and Zoo Poo for domestic garden use.

"There's potentially quite an upside there," says Fishwick, who says TEG wants to push this supply side more as there has been historically high demand, which was not always met.

Such garden compost products, he explains, are higher quality than those used for agriculture and thus command a higher sale price  - though equally they are harder to produce - especially using recycled material.

Hillbarton is also exciting because the firm could add an anaerobic digestion (AD) plant on site to make green energy to supply homes in Exeter, says Fishwick - something the firm is actively looking into, and would transform an asset, which is marginally profitable into something much better.

The firm already runs two AD plants. One in  Perth and the other in Dagenham - London's first -  which was opened to much fanfare by business secretary Vince Cable at the end of April.

The site built for £16mln can process up to 50,000 tonnes a year of London's food and green waste and will put out 1.4MW of electricity to the grid. It will also produce 14,000 tonnes of compost and 36,000 tonnes per annum for agricultural use. TEG is running the service under a 15 year contract, which will give £1.3mln a year in revenues.

A second AD plant of similar scale was planned at Gaydon in the midlands (Warwickshire) but this project, as reported, has frustrated the firm and has not reached financial close through problems at the site, although early construction work has started.

As Fishwick explains, the problem with not closing Gaydon means the firm's plans to advance and grow the group through cash gained from EPC business into a bigger player is stymied.

This side of the business is slow and "lumpy" and finance dependant, he said, and TEG is currently suffering from being capital restrained.

That said, the firm is working through a strategic review at the moment, including looking at opening further AD plants on existing sites, and working with its three major shareholders to come to agreement on the way forward.

Fishwick says, however, there is no problem with private equity and project by project financing, for which the firm has received much interest, though this is a slow process.

In terms of reaching bottom line profitability across the group, Fishwick makes no promises.

"It's a very gradual process of growing the operating business and narrowing those losses year- on year. We're looking at a time where we are properly capitalised as a business and we can move to a different capital structure."

He added: "The underlying performance of the future of the company is looking very solid and is growing. It just needs to be bigger."

The company boss also mentioned the historic Greater Manchester waste contract, where the firm, along with other parties, is seeking an exit, and where he reassures, progress is being made.

Also, the green market certainly isn't going to go way any time soon, not least as Fishwick points out, due to current government policy and the need to divert way from landfill through taxes. This means there remains a significant opportunity for the company.

"There is no doubt there is big potential for TEG or a TEG -like company with the right capital structure to seize the initiative and really produce a very good profitable medium sized business  of the £50 mln to £100mln mark. That remains our aspiration."

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