viewMercury Recycling Group Plc

Mercury Recycling's future pinned on government

The WEEE Directive, coming from the people who love making legislation more than anyone else (the European Union) will make it a legal requirement to recycle lamps, tubes and a wide range of electrical equipment.

No prizes for guessing what business Mercury Recycling is in. The company came to AIM via a reverse takeover of Argon Group plc in 2001, and has since embarked on a program which has made it into the leader for recycling mercury from products such as car batteries, thermometers, tilt switches, arc rectifiers, fluorescent light tubes and sodium street lights.

Mercury Group offers a range of services to producers of mercury, including the ?Flasksave? service where the company collects contaminated mercury and delivers elemental mercury to clients. Additionally, the Company also offers major producers an option of leasing all of the equipment necessary to recycle waste materials on site. Having recycled over 30 million lamps in 5 years, this company is a well established specialist in the niche market.

Along the way, several favourable changes in the regulatory environment have helped boost prospects. In July 2004 a new landfill directive enacted by the UK government reduced the number of landfills permitted to take hazardous waste materials from 240 to less than 15 ? with only 2 of these landfill sites specifically being permitted to accept mercury bearing waste. This dramatic switch in how companies could dispose of hazardous material was good news for Mercury Recycling, and the shares responded strongly, racing ahead to 40p in 2005.

This was only the beginning of the good news for MRG however. A year later England and Wales enacted even stricter regulations setting out specific guidelines of waste disposal. Some of the new guidelines including a) pre-notification of the movement of hazardous waste b) all waste leaving a producers premises must have a consignment note c) new guidelines for record keeping of all hazardous material d) receiving site will keep a separate log of what it receives from producers e) Ban on mixing different types of waste material f) requirement to separate mixed waste.

This swathe of new regulations made it economically more practical for a producer of waste material to have the material recycled ? and Mercury Recycling capitalised by expanding its operational capability. This wasn?t the end of the regulatory red tape for producers however, and Mercury Recycling could see on the horizon an even bigger opportunity ? the Waste Electrical and Electronic Equipment (WEEE) Directive.

The WEEE Directive, coming from the people who love making legislation more than anyone else (the European Union) will make it a legal requirement to recycle lamps, tubes and a wide range of electrical equipment. The UK was initially planning to enforce the legislation in 2005, but severe delays predominately blamed on the Environment Agency resulted in the enforcement date being pushed back until July 2007. This severe delay has unnerved Waste Recycling and the market somewhat, as a good deal of its ambitious growth plans for the future relies on the company benefiting from the implementation of the legislation. So what?s a company to do?

Well in the case of MRG it is doing all it can ? consulting the government bodies and major manufacturers. In the meantime, investors have to weigh up the potential impact any further delays or complications that could have on the group?s prospects going forward. Mercury Recycling also has ambitions to expand into Europe, to ensure it can capture a significant slice of any new market ? the UK market alone has an estimated 120 million lamps sold each year; it is estimated only 25% are recycled at the moment.

Despite the concerns surrounding the new legislation, Mercury Group has benefited from earlier enforcements mentioned previously. Full year results for the year ended 31 December 2006 showed total revenues up 11% to approximately £2.4 million, operating profit up 25% to £336,000 and profit before tax of £84,000. The group has cash in the bank of £668,000. However in the same breath the Company cautioned that the ongoing uncertainty surrounding the WEE directive had weakened the outlook. Additionally, CEO Simon Lebor announced that he intended to step down at the end of 2007 and within three days of the announcement sold 150,000 shares at 25 pence per share. This is a only a slither of Mr. Lebor's interest (12.87%), but nonetheless with so much uncertainty surrounding Mercury Recycling, it wasn't the best time to be selling shares in the market from a market sentiment perspective.

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