TEG picks up sweet smell of success

Where there’s muck, there’s brass, runs the old adage. One entrepreneur out to prove it is as true today as ever is Michael Fishwick, chief executive of organic composting specialist TEG Group, whose technology can treat animal by-product waste and which is now providing anaerobic digestion technology to produce power from food waste.

Anaerobic digestion is a series of processes in which micro-organisms break down biodegradable material in the absence of oxygen, and it is used for industrial and domestic purposes to manage waste and/or release energy. Among a range of uses, the process can help treat waste water, reduce the emission of landfill gas into the atmosphere, produce fertiliser and make a form of biogas suitable for energy production.

Preston-based TEG is the market leader in in-vessel composting with its ‘Silo Cage’ process and is pursuing long-term contracts with local authorities and others after turning £1.6 million annual losses into £155,000 pre-tax profits, in what Fishwick describes as ‘the most successful year in its history’. He is also on the lookout for acquisitions, to build on the success of 2009’s takeover of Norfolk-based Banham Composting, which it bought for £3.1 million in a deal accompanied with a £1.9 million fundraising at 40p.

TEG, which increased turnover 21 per cent to £15.4 million in 2009, moved into the black last year with the help of £956,000 of negative goodwill arising from the Banham deal but could take the pre-tax figure to £700,000 or higher in 2010, say analysts. They point to increased levels of local authority procurement demand with a bias towards long-term contracts and the likelihood of new environmental regulations to limit open composting, which should steer further demand to TEG.

Recent TEG wins include a contract with Perth & Kinross Council to process mixed food and garden waste that is worth between £470,000 and £1 million over four years.

Fishwick says TEG, which last year signed collaboration agreements with Munich-based anaerobic digestion specialist UTS and Alkane Energy, has an encouraging 20 to 30 major projects in the pipeline. TEG wants to win more deals like last year’s agreement to supply the Greater Manchester Waste Disposal Programme. After a prolonged period of negotiation for this plum Private Finance Initiative contract, the company is building and supplying four Silo Cage composting plants to Costain, the engineering and construction group managing the construction side for the consortium handling the project.

The plants that TEG is supplying should turn 175,000 tonnes of food waste into 125,000 tonnes of compost each year between now and 2011 for a total of £38 million. Fishwick calls this ‘a very significant boost to our order book’ and is out for more, with revenue from Manchester ahead of expectations.

TEG’s turnaround has been gaining momentum. The second half of last year brought ‘significant revenue growth’, despite problems caused by ‘unusually adverse weather conditions’ towards the end of the year.

According to TEG, trading at its own facilities, including Banham’s Carleton Rode operation in Norfolk, proceeds satisfactorily, while the company has moved to relocate its Sherdley Farm composting plant in Lancashire to a larger and more modern facility.

Fishwick believes the outlook for 2010 is ‘very positive’. General market conditions for in-vessel composting and anaerobic digestion continue to look favourable, with regulatory requirements moving in favour of the former.

With £3.8 million cash, TEG is devoting its resources to expansion and proposed no dividend. Floated at 50p six years ago, the shares have had a bumpy ride as the company has striven to establish its market position, but the tide seems to be turning. They now trade at 43.5p, valuing the company at £23.14 million, which should leave room for improvement.