Cleantech Investor

First published in Cleantech magazine, September 2008. Copyright Cleantech Investor Ltd.

by Andrew Hore

There is a lot of controversy about plastic bags and it is fashionable to knock them. Although the traditional plastic used for bags takes 400 years to break down, there are ways of making plastic bags that degrade much faster. Symphony Environmental Technologies has an alternative: the company has developed an additive which will make plastic degrade without any harmful residues.

There is a lot of controversy about plastic bags and it is fashionable to knock them. Although the traditional plastic used for bags takes 400 years to break down, there are ways of making plastic bags that degrade much faster. Symphony Environmental Technologies has an alternative: the company has developed an additive which will make plastic degrade without any harmful residues.

Symphony, which has been around for more than a decade, moved from OFEX to AIM in November 2001. At times progress has appeared slow, but the company is finally in a strong position to push its business forward. Legal wrangles over the technology are in the past and Symphony is now well placed to move into profit during the coming year.

The company has developed its own additive called d2w, which, when added to plastic, makes it degrade and disappear, leaving no residue. This process is called oxo-biodegradable. Symphony does not manufacture the additive, but licenses the d2w production process to its customers around the world, which means that capital investment is limited.

Symphony’s original business, which was founded in 1995, was the manufacture of plastic bags. The company still retains this business, although it is becoming less important as lower margin manufacturing work is jettisoned and the licence revenues increase.

The worldwide market for degradable plastics is expected to be worth between $1.5 billion and $3 billion by 2010, with the European and US markets each accounting for approximately one-third of that total. Greater consumer awareness of the drawbacks of ordinary plastic bags, not to mention legislation, is forcing supermarkets and other retailers to consider their positions. Furthermore, the market for Symphony’s d2w product is not confined to the manufacture of carrier bags only, but includes such products as magazine wrappers, bread bags, frozen food bags, bin liners, cups and bubble wrap.

Symphony, which has distributors in 58 countries around the world, launched its additive in the UAE earlier this year. The UAE Government is enthusiastic about the technology, and the company received a guaranteed order for 500 tonnes which should have been supplied by the end of August. Next year, Symphony’s Dubai licensee is expected to start producing at the rate of 500 tonnes per month.

Symphony does have private company competition in the area of oxo-biodegradables, whilst there are a number of bigger companies offering hydro-biodegradables. Although Symphony does not have the market to itself, it is in a strong position with an impressive list of existing customers including Tesco, Pizza Hut and Wal-Mart.

The company’s newest subsidiary, Symphony Energy, is developing a technology that can be used to recycle tyres. A £1.2 million grant has been received from the Government to finance the development of the technology, which converts the polymer into steel, oil and carbon black.

Symphony Energy is exploring three different technologies. The first, which is likely to be the key technology, uses ultra high pressure water technology to break down the tyres into crumb and steel. The second employs electromagnetic waves to turn the polymer into oil and carbon black, whilst the third uses heat to volatise polymer waste plastics into oil and carbon black.

Although there is nothing in any of the analyst forecasts for this business, it could start to generate revenues as early as 2009.
 
Symphony has made a strong start to 2008. The company grew its revenues by 37% in the six months to June 2008, with revenues from the d2w additive increasing by 73%. The change in mix of revenues, with d2w generating a greater proportion, resulted in a 40% improvement in gross margins. In addition a 15 year distribution agreement has been signed with Luibeg International in India, with the first d2w shipment being supplied in July.

At the end of June 2008, house broker Hoodless Brennan predicted the company would make a loss of  £400,000 in 2008 and would then swing to profits of £500,000 in 2009. HB forecast a 2010 profit of £1.5 million, but Symphony has to show that it can achieve the earlier targets before that projection is taken seriously by cautious investors in current market conditions.  

The balance sheet is not particularly strong. Net debt was £356,000 at the end of 2007 and there will be a further cash outflow this year - net debt could reach more than £1 million. Under current market conditions it is not ideal to have significant borrowings, but it is also difficult to raise cash through a share issue. The way the business is set up does mean that a large proportion of any additional revenues will convert into profits. There are also tax losses of £3.5 million to be taken into account, which means that Symphony should pay little tax for the next few years.

 

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