Last checked at 5 Mar 2009 07:00
5 March 2009
CINPART PLC
("Cinpart" or the "Company")
LAUNCH OF NEW BUSINESS - PLACING - TRADING UPDATE - CHANGE OF ADVISERS
The Board of Cinpart plc ("the Company") announces that the Company has today entered into agreements to establish a new business and that the Company has, placed 36,469,613 new ordinary shares ("Placing") of 1p each in the capital of the Company ("New Ordinary Shares") at 2p per share.
New Business
Cinpart has established a subsidiary, Active Energy Limited, ("Active Energy") which has been formed to manufacture and sell a range of voltage optimising transformers to be known as VoltageMaster. This equipment reduces and stabilises the voltage of the electricity supply entering commercial premises, such as factories, hotels, schools, offices, and hospitals.
The European Union ("EU") has sought to harmonise alternating current voltages from the UK standard mains voltage of 240 volts and the European standard of 220 volts to a common voltage of 230 volts. The costs of replacing all the supply equipment within the EU to deliver 230 volts was uneconomic, so to avoid accusations of failure to harmonise, the new regulations permit a range of operating voltages. As a result, EU regulations now permit a voltage range of plus 10 per cent and minus 6 per cent from 230 volts, so allowing both the UK and European standard voltages to operate within the permitted range.
Electronic devices are designed to operate satisfactorily at the lower end of this range but some, particularly lights and heaters, will use all the power that is available. By reducing the input voltage, VoltageMaster can cut electricity consumption and thereby electricity costs by up to 20 per cent.
Cinpart will have a 65 per cent equity interest in Active Energy. Cinpart will be joined in this venture by Stephen Coomes who will have a 25 per cent interest and Alpha Prospects plc ("Alpha") which will have a 10 per cent interest.
Stephen Coomes is the proprietor of SDC Industries Limited ("SDC"). SDC is a private company established in 1985 and located in East Kilbride. It specialises in the design, manufacture, supply and maintenance of power quality equipment. It produces a range of products of which only the rights, intangible assets and intellectual property of VoltageMaster are being transferred to Active Energy. Stephen Coomes who is to hold a 25 per cent. shareholding in Active Energy will, as consideration for his interest, procure the transfer to Active Energy of SDC's rights, current sales leads and continuing support for the development of the technology. He will also become a director of Active Energy, providing his expertise and services under the terms of service contract carrying fees of £36,000 per annum.
Alpha is an investment company the shares of which are quoted on the PLUS-quoted market. It has investments that comprise options to acquire a number of independent travel companies. Steven Freudmann, the Chairman of Alpha is a director of the Association of British Travel Agents. He is also a director of Triton Travel Group Limited. Through these connections in the travel industry, Alpha is well placed to develop sales opportunities for Active Energy within the hotel industry.
The principals of Alpha also have good connections with local and national government decision makers in the UK. Through these and other connections discussions have already commenced with a number of local authorities. Alpha will receive its 10 per cent interest in Active Energy as consideration for the delivery of its current sales leads.
Structure
Cinpart will use an existing subsidiary, Active Energy Limited, as the vehicle for this new joint venture.
Active Energy has entered into agreements which permit and incentivise SDC to continue to sell VoltageMaster equipment as an agent for Active Energy. Alpha has also been appointed as a formal sales agent for Active Energy. Cinpart has the right to manufacture products for Active Energy and to sell into international markets.
Cinpart will provide funding for Active Energy, to the extent that it is not obtained from external sources, by providing a facility of up to £2 million to be invested in redeemable preference shares of Active Energy to be drawn down as required by budgets to be prepared by Active Energy and agreed by Cinpart.
Cinpart also has the right, but not the obligation, to acquire all but not part of the minority interest held by Stephen Coomes and/or Alpha in Active Energy. This right continues for a period of five years. The option is exercisable during the 30 days following the announcement of Cinpart's results for the year to 31 December 2009 and each successive financial year until 31 December 2014.
The exercise price is based on the value of Active Energy determined by reference to its profits as shown in the audited financial statements of Active Energy multiplied by 80 per cent of Cinpart's P/E ratio based on the earnings per share of Cinpart for that year and the average mid market price of Cinpart's shares on the day Cinpart's financial results for that year are announced and four trading days thereafter. The consideration for the exercise of the right will be the allotment of New Ordinary Shares ("Consideration Shares"). Stephen Coomes and/or Alpha may require that up to 50 per cent of the consideration for the exercise of the option is payable in cash which Cinpart may raise through a vendor placing of the Consideration Shares. If this cannot be achieved the option on that occasion will lapse.
If Cinpart sells any of the shares of Active Energy it has acquired under the option within 12 months for a consideration that is more than 125 per cent of the option price, Cinpart shall pay Stephen Coomes and/or Alpha the difference between 125 per cent of the option price and the amount of the cash consideration received by Cinpart on the sale.
Mr Foster and Mr Baker, two of the Directors of Cinpart and Mr Anthony Freudmann, who has been nominated by Alpha will join Mr Coomes as directors of Active Energy. A participation agreement has been entered into under which various matters are to be subject to approval by the shareholders of Active Energy or their nominated directors.
Mr Foster and Mr Baker will enter into separate service agreements with Active Energy in each case subject to 12 months notice and at a salary of £36,000 per annum.
Prospects
The Board of Cinpart considers that the prospects for Active Energy are excellent. There is well established connection between electricity consumption and green house gas emissions. The UK government has pledged to reduce the carbon footprint of government offices by 30 per cent. over the next 12 years. Installation of the VoltageMaster into Government buildings should help to provide a significant contribution towards this target.
Whilst overall energy costs have fallen as a result of the recent reduction in oil prices, electricity costs have not fallen by a commensurate amount. The VoltageMaster typically has a pay back return period of around twelve months and should therefore be attractive to most commercial organisations, particularly those that have limited control over their electricity usage such as hotels.
Placing
The Company has placed 36,469,613 New Ordinary Shares at 2p per share to raise approximately £729,000 before expenses for the Company. The Placing is conditional upon admission of the New Ordinary Shares to trading on AIM. Admission is expected to become effective and dealings are expected to commence on 10 March 2009. The funds raised will be used to provide the working capital for Active Energy and to enable Cinpart to configure its factory in Thailand to produce components for the VoltageMaster.
The directors of the Company have concluded that the Placing was the most economic means of achieving the necessary fundraising, as to make an open offer to all shareholders would have significantly increased the costs of raising the funds and delayed completion of the arrangements
Christopher Foster and Kevin Baker, directors of the Company, are subscribing in the Placing for 2,500,000 and 500,000 New Ordinary Shares respectively. Their participations constitute related party transactions under the AIM Rules. Philip Palmer, the only independent director of Cinpart, having consulted with the Company's nominated adviser, considers that the terms of these participations are fair and reasonable insofar as the Company's shareholders are concerned.
As a result of the Placing and following admission of the New Ordinary Shares the interests of the Directors will be:
| Name | Number of Ordinary Shares | % of enlarged issued share capital |
| Christopher Foster | 5,375,071 | 7.86% |
| Kevin Baker | 663,146 | 0.97% |
| Philip Palmer | 3,081,808 | 4.50% |
Trading Update
The Company advises that the current core business of Cinpart will continue. Trading conditions have been difficult during the second half of 2008 and it is now expected that the decline in revenue for the full year will not be materially different to that announced at the time of the interim results for the six month period ended 30 June 2008. There has been significant appreciation in the value of the Thai Baht against Sterling and, as a consequence, the exchange translation of Thai assets will impact on the results reported for the full year.
Advisers
The Company announces that it has appointed John East & Partners Limited as its Nominated Adviser and Rivington Street Corporate Finance Limited as its Broker, with immediate effect.
Enquiries:
Cinpart
Christopher Foster, Non-executive Director Tel: 07525 688741
Kevin Baker, Chief Executive Tel: 00 66 81 836 4750
John East & Partners Limited (Nomad)
John East/Simon Clements Tel: 020 7628 2200
Rivington Street Corporate Finance Limited (Broker)
Monisha Varadan Tel: 020 7562 3389