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(Sharecast News) - FireAngel announced the "next significant stage" of its agreement with Techem Energy Services on Monday, with Techem choosing the FireAngel CO sensor to be incorporated into its new alarm.
The AIM-traded firm said the move was expected to "significantly increase" its medium-term financial opportunity.
FireAngel has its own CO sensor factory in Mississauga, Canada, currently making around one million sensors per annum.
While minor investments would be made to increase capacity and efficiency at the factory to support the new opportunity, the company's board said its existing capability and factory footprint would enable a "more than doubling" of throughput, which should be sufficient to cope with the planned production of the CO sensor.
The wider FireAngel business would also benefit from the efficiency improvements.
It said the development would be fully funded by Techem, through the certain fixed pricing of more than £2m, as well as other external open-book pricing to Techem, including the contract equipment manufacturer (CEM) set-up costs.
The funding would be in addition to the funds which had already been paid by Techem to the company, which amounted to just over £1m in 2021.
FireAngel said the goal of the commercial arrangements was that they were cash-neutral to the firm, prior to the sales phase becoming materially cash positive in 2025.
Additionally, it said the original agreement with Techem provided for payments for the inclusion of existing FireAngel intellectual property within the new development.
The next of those for £0.28m would fall due in June, with the final payment for existing IP, and outside the scope of the funded development work, of £0.56m to come at the end of the new agreement, which was expected in 2024.
Once sales start in the second half of 2024, the firm said it expected to earn more than €5 per product, consisting of the agreed royalty, manufacturing fee, service support fees and the price for each sensor.
The initial forecast of nearly seven million units included a commitment from one of Techem's major end customers.
While the forecast could vary, and would depend on the precise delivery date and other factors, Techem and FireAngel would cooperate to assess the overall opportunity, and work jointly on marketing the product.
"This transformational partnership with Techem is of long-term value and great significance for FireAngel," said executive chairman John Conoley.
"This opportunity has crystallised further with the formal signing of DP2."
Conoley said the company was "pleased" that the financial opportunity from late 2024 onwards was more substantial, due to the inclusion of its own CO sensors, than had been previously anticipated.
"Techem has proved to be a committed and reliable partner and we look forward to our shared success in the future."
At 1103 BST, shares in FireAngel Safety Technology Group were up 7.89% at 11.49p.