Symphony Environmental Technologies Plc (LON:SYM) global specialists in supplying and developing technologies that make plastic and rubber products “smarter, safer and sustainable”, has announced its preliminary results for the year ended 31st December 2020.
Financial highlights:
· Group revenues £9.77 million (2019: £8.22 million)
· Increases were seen across all main product areas:
| 2020 | 2019 | ||
| d2w Masterbatch | £7.27 million | £7.14 million | 2% increase |
| d2p Masterbatch | £0.47 million | £0.25 million | 88% increase |
| Finished Products | £1.80 million | £0.60 million | 200% increase |
| Other | £0.23 million | £0.23 million |
· Gross profit £4.11 million (2019: £3.78 million)
· Reported loss before tax £0.44 million (2019: £0.70 million)
· Basic loss per share 0.19p (2019: 0.41p)
· Cash used in operations £1.44 million (2019: £0.73 million)
· Net current assets £3.63 million (2019: £2.85 million)
Business highlights:
Products
· d2p antibacterial technology approved by US FDA for bread packaging
· d2p antimicrobial proven by an independent laboratory to kill coronavirus within one hour of contact
· d2p SYMFresh (food preservation technology) product launch with major South African retailer
Legal Action
· Commenced legal action against European Union for substantial damages
Commercial Developments
· New Head of Sales and new Head of Procurement appointed during the second half of 2020 to accelerate revenues
· Enhanced spending to improve sales in key territories in Latin America
Post period-end
· Reflecting further confidence in the Company’s products, investment has been made in the appointment of three new sales professionals at the start of 2021
· European Scientific study – Biodegradation proved beyond doubt in the marine environment and non-toxic to marine creatures
Chairman’s Statement
In what was an extremely challenging year for the global economy, I am pleased to report a 19% increase in Group revenue for the year ended 31 December 2020 to £9.77 million (2019: £8.22 million). Further revenues of £0.70 million missed the year end cut-off due to Far East shipping congestion. Otherwise, Group revenue would have exceeded £10.5 million, an increase of 28% on 2019.
As advised in February 2021, revenue growth was led by our strategic decision to grow finished products (primarily PPE gloves) with year-on-year growth of 200%, and d2p masterbatch, with year-on-year growth of 88%. d2w growth was limited to 2% as some of Symphony’s distributors experienced continued severe COVID-19 lockdowns. To accelerate this strategy, a new Head of Sales and new Head of Procurement were appointed during the second half of 2020. Three further new sales professionals have so far been employed at the start of 2021.
For d2w, the Americas, as a whole, represent the largest revenue generating area for the Group (in excess of 30% of Group revenues in 2020 – the majority currently generated in Latin America). Spending was enhanced during the year with market and regulatory specialists in a number of pivotal Latin American countries in order to articulate the environmental and health benefits of d2w and d2p that have led to an improved sales landscape in key Latin American markets. In the Middle East, which is the next largest revenue generating area for the Group, support for oxo-BIOdegradable technologies to combat the plastic problem remains strong and we are also seeing a strengthening climate in China and the Far East.
“Designed to Protect” (d2p) technologies, which lead to better product and financial outcomes for users started to gain commercial traction. Sales in 2020 included a range of d2p antimicrobial, odour adsorbing and insecticidal technologies. In addition, we continue to advance customer-led trials for our FDA-approved d2p masterbatch for use in bread packaging. This has been an 8-year R&D program which we believe will result in commercial sales this year. This FDA approved d2p technology is proven to keep the inner surface of the packaging free of bacteria that would otherwise contaminate the bread and affect its quality and shelf-life even if the bread contains preservatives. We believe the market opportunity for this value-added product will add significantly to current sales. It is important to add, that our antimicrobial products were confirmed to be effective against coronavirus within one hour of contact.
As announced on 21 December 2020, Symphony commenced a legal action against the Commission, Parliament and Council of the European Union (“EU”), having been advised by three specialists in EU law that Article 5 of the Directive 2019/904 (“Directive”) is unconstitutional. The Directive has also created confusion between oxo-degradable and oxo-BIOdegradable technologies. The Directive understandably bans oxo-degradable which is harmful to the environment as it leaves plastic residue as it breaks down. However, Symphony’s d2w is oxo-BIOdegradable, which turns into organic material that is eventually consumed by bacteria and fungi. The Oxomar study released in March 2021 (sponsored by the French Agence National de Recherche) provides further comprehensive and reliable scientific data on the performance of d2w in the oceans.
We believe that the EU’s unsubstantiated ban on what they call “oxo-degradable” plastic has caused unwarranted confusion about the proven efficacy of our d2w oxo-BIOdegradable masterbatch. More importantly this confusion has denied the opportunity for European consumers and businesses to utilise one of the most effective and economic technologies to address the problem of plastic pollution on land and at sea. The EU institutions have until 14 April 2021 to serve their defences.
I would like to thank the Board, our staff, and our distributors for all their hard work in a difficult year caused by the global uncertainty of COVID-19.
With our exciting and relevant product range, and developing commercial opportunities, the Board remains optimistic about the future performance of the Group.
Chief Executive’s Review
Introduction
The year under review saw good growth in revenues with continued investment in market development, regulatory and R&D.
It was a year of many global changes caused by the effects of COVID 19, and this created both positive and negative drivers. There have been many new opportunities that have arisen against lockdown delays experienced in some of our markets at different times throughout the year.
Operational
As advised in February 2021, a new Head of Sales and new Head of Procurement were appointed during the second half of 2020. Also, as a continuing enhancement of the commercial structure, three new sales professionals have so far been appointed in 2021 bringing in specific sales expertise in PPE, large account specialities, and experience in plastic masterbatch markets in South East Asia.
The Group is actively looking to further complement the current team with additional specialist resources.
The number of distributors increased during the year from 72 to 77 including a new UK distributor with relationships with many large retail organisations.
d2p – designed to protect
We are making good progress with our FDA-approved formulation for antibacterial bread packaging and a number of potential customers for this technology have commenced their own commercial trials. This is an exciting technology that helps to better protect the bread from packaging that can become contaminated by bacteria. We believe this will provide good commercial benefits to bread producers and further progress updates are expected to be made during the second half of 2021.
As advised in February 2021, Symphony’s commercial suite of d2p additives include antimicrobial and antiviral, odour/ethylene adsorbers and insecticidal technologies. Applications for these are set to grow in 2021 to include, water pipes/tanks, irrigation pipes, car components, electric cables, shopping bags, produce packs, containers, mats, and face masks, with some of these more advanced applications are already in our sales pipeline.
Historically, many of the Group’s product opportunities have taken 6 months to several years to progress to product launch and then to achieve commercial traction. Following receipt of antiviral laboratory results in July 2020, our potential customers started their own trials, and we anticipate that the lead-time for these to go commercial should now be relatively short. More than 70% of the Group’s current commercial opportunities (by value) are for antimicrobial and antiviral technologies.
The 88% increase in d2p revenues from 2019 to 2020 demonstrate that several of the initial projects are now live, and we anticipate a continuing commercialisation of the pipeline during this year following completion of customer trials and contract negotiations.
The Group continues to invest significantly in R&D. In 2020, R&D investment equated to 6% of revenues in order to enhance and improve the current range of products where demonstrable commercial opportunities exist.
Finished Products – PPE
As advised in February 2021, throughout 2020 the main issue with PPE was supply and as such we have improved our procurement function. The strategy is to focus on UK and European opportunities for PPE incorporating d2p in the first instance, while working with our active distributors globally where opportunities arise.
Products will initially be delivered and sold without d2p whilst customer and manufacturer structures are being developed. This may take at least the first half of 2021 due to factory constraints caused by current high global demands, with sales growth in the meantime still targeted from quarter two of 2021.
Interest in SYMFresh, our food preservation consumer product, show encouraging signs after the South African retailer commenced initial promotion.
d2w – biodegradable plastics
A number of territories faced severe COVID-19 lockdowns during the year. Despite this, we have invested strongly in our Latin American market, being our largest, and we believe that this market, together with the Middle East and parts of the Far East, including China, should strengthen in favour of our environmentally friendly technology.
Scientific evidence supports our belief that the world would make significant progress in resolving the problem of flexible plastic pollution if d2w oxo-BIOdegradable technology was integrated with all flexible plastics globally. We are pleased to see some governments are moving in this direction.
The Oxomar study released in March 2021 (sponsored by the French Agence National de Recherche) provides further comprehensive and reliable scientific data on the performance of d2w in the oceans that showed:
· Biodegradation proved beyond doubt in the marine environment
· Direct correlation of lab results to real-world conditions
· Proof of transformation into more than 3,000 non-plastic biodegradable oligomers found in nature
· Non-toxic to marine creatures
Our marketing and communication activities have focussed on many government and regulatory agencies around the world. In the UK, there has been increased engagement with The Secretary of State for the Environment and DEFRA officials, the UK Treasury, and other UK government departments. We have also communicated with all MP’s explaining the importance of our d2w oxo-biodegradable technology as part of an overall solution to the problem of plastic pollution.
EU action
As announced on 21 December 2020 and 12 March 2021, Symphony commenced a legal action against the Commission, Parliament and Council of the EU. While we have been advised by three specialists in EU law that Article 5 of the Directive 2019/904 is unconstitutional, and we think that the EU’s unsubstantiated and confusing ban is counterproductive. All the costs of preparing the case have been paid, and any substantial further costs would be incurred only if the action went to trial.
Defences to our action must be filed by 7 April 2021 for the Council and Commission and 14 April 2021 for the Parliament.
The Company will provide an update after 14 April 2021 when the Company’s legal team has evaluated the defences.
Trading results
Group revenue increased by 19% to £9.77 million from £8.22 million in 2019. Gross profit margins decreased slightly to 42.1% (2019: 45.9%). As a result, the contribution from gross profit increased to £4.11 million from £3.78 million in 2019. As shown in the table below, the growth in revenues was due to increases in d2p Masterbatch and Finished Product sales. Finished Product gross margins are lower than those for Masterbatches, and as such, with an increased mix towards Finished Products, overall, Group gross margins reduced for the year.
| 2020 | 2019 | ||
| d2w Masterbatch | £7.27 million | £7.14 million | 2% increase |
| d2p Masterbatch | £0.47 million | £0.25 million | 88% increase |
| Finished Products | £1.80 million | £0.60 million | 200% increase |
| Other | £0.23 million | £0.23 million |
Administrative expenses increased to £4.14 million (2019: £4.08 million) with £0.25 million spent on advisory costs associated with legislative and regulatory situations in the EU and Latin America as described above. These short-term discretionary costs will continue into 2021, with market advisory costs expected to fall away during the second half of the year. Staff costs increased during the period within the sales and procurements departments. Some of this extra expenditure was mitigated by a reduction in travel costs.
The Group expensed R&D costs of £0.60 million in 2020 (2019: £0.63 million). An R&D tax credit of £109,000 (2019: £37,000) was received during the year relating to the previous period. A further R&D tax credit will be receivable with respect to 2020.
The reported operating loss was £0.39 million (2019: £0.62 million) and loss after tax of £0.33 million (2019: £0.66 million) with basic loss per share of 0.19 pence (2019: loss per share 0.41 pence).
The Group’s primary selling currency is the US Dollar and therefore a strong dollar against sterling, our reporting currency, is beneficial for the Group. The Group self-hedges its foreign exchange exposure by purchasing goods where possible in US Dollars and utilises bank forward currency contract agreements to minimise exchange risk. As at 31 December 2020, the Group had a net balance of US Dollar assets (US Dollar cash balances and receivables less overdrafts and payables) totalling $1.93 million (2019: $1.90 million). To part offset this, the Group had bank forward currency contracts to sell 0.75 million US Dollars and receive a fixed amount of sterling as at 31 December 2020 (31 December 2019: 1.25 million US Dollars).
Balance sheet and cash flow
The Group had net cash of £0.47 million at 31 December 2020 (2019: £0.88 million). The Group used cash of £1.44 million from operations (2019: £0.73million) primarily as a result of the increase in receivables at the end of the period.
During the year, the Group raised net £1.18 million by way of share subscriptions via the exercise of options and warrants. The Group also has a £1.5 million invoice finance facility with HSBC Bank which was not drawn down as at 31 December 2020 (2019: £1.5 million).
As a result of the share subscription, net current assets increased to £3.63 million as at 31 December 2020 (2019: £2.85 million).
Eranova
As announced in October 2020, The Group made an investment representing 1.6% of the enlarged capital of Eranova SAS (£123,000 including costs) as part of a €6 million pre-industrial plant project. We can advise that building work of the plant is well underway, and we look forward to providing updates during 2021.
Brexit
At the current time, Brexit is not having a material impact on the operations or financial performance of the Group. The principal reasons for this are the Group’s global operations, and the fact that 78% of the Group’s revenues were generated outside the EU mainland in 2020 (2019: 88.7%). However, the Board continues to monitor the Group’s operations in the UK and Europe in light of challenges arising from Brexit. It is our belief that UK regulatory independence from the EU and the focus of all major political parties on advancing environmental technologies, we are hopeful that Brexit will create significant opportunities for Symphony.
COVID-19
COVID-19 caused effects in some markets in which Symphony operates. So far, the negative effects to Group operations and finances have been minimal, while the focus on hygiene has enhanced reception of our d2p range. There is still the possibility of potential disruption to operations (customer or supplier disruption) or finances (customer bad debt or ability of customer or suppliers to carry on trading). The Group uses multiple supply sources and continues in the main to credit insure receivables or do business on a letter of credit or proforma basis.
Current trading and outlook
January and February are traditionally low volume months. The year has started well with revenues, excluding the £0.70 million which missed the 2020 year-end cut-off due to Far East shipping congestion, up by 16% compared to the start of 2020.
Customer-led trials for our FDA-approved d2p masterbatch for use in bread packaging are expected to complete in the coming months and we believe this will result in long term material commercial sales later this year.
We are encouraged by the potential for increasingly positive regulatory environments for our d2w oxo-BIOdegradable technology and also by the commercial framework that is being created for our d2p “designed-to-protect” technologies and finished goods (PPE).
The commercial team is extremely busy and due to strong interest in our technologies, they are focusing on a number of major markets, where sales visibility, potentially high sales volumes, and short-term delivery prospects are strong.
With our strong pipeline, and targeted investment levels in commercialising all of our main product areas, we look forward with confidence to continued growth in 2021.
M Laurier
Chief Executive
30 March 2021
