Transense Regulatory News (TRT)

2 Nov 2007 12:53

Transense Technologies PLC02 November 2007 Transense Technologies plc ("Transense" or the "Company") Conference Call Disclaimer: These comments were made to shareholders purely in their capacity asshareholders of the Company. None of the comments should be construed asinvestment, legal or fiscal advice and we would encourage you to consult yourprofessional advisers if you have any doubts. We have referred in this presentation to various historical data. You shouldnote that past performance is not a guide to future performance. Furthermore,this presentation includes statements that are, or may be deemed to be,"forward-looking statements" regarding the intentions, beliefs or currentexpectations of the Board. By their nature, forward-looking statements involverisks and uncertainties because they relate to events and depend oncircumstances that may or may not occur in the future. Forward-lookingstatements are not guarantees of future performance and neither the Company norany of its advisers guarantee that the assumptions underlying suchforward-looking statements are free from errors, nor do they acceptresponsibility for the future accuracy of the opinions expressed in thispresentation or the actual occurrence of forecasted developments. This presentation has been prepared solely to provide a basis for shareholdersto consider the merits of the proposals at the forthcoming General Meeting. Thispresentation does not constitute or form part of, and should not be construedas, an offer or invitation to purchase, sell or subscribe for, or anysolicitation of any such offer to purchase, sell or subscribe for, anysecurities of any kind. Script: On a shareholder conference call held at 10am on 2 November 2007, the followingstatement was read out: "<<>> Good morning to all shareholders Firstly I would like to thank you all for sparing your time this morning. Weorganised this conference call today to address shareholder questions regardingthe Board's decision to enter into a conditional contract to acquire BishopTechnology Group Limited and to secure your support at the General Meeting to beheld on 16 November 2007. The Board recognised that shareholders have questionsthat they would like addressed ahead of the General Meeting and we willendeavour to answer some of these questions to the best of our ability thismorning. I would like to introduce the parties on the call today, which includesmanagement from both Transense and Bishop: • Myself Jim Perry, CEO of Transense • Peter Woods, Chairman of Transense • Howard Pearl, Financial Director of Transense • Ray Lohr, Technical Director of Transense • Graham Eves, Commercial Director of Transense • Rodney Westhead, Non-Executive Director of Transense • Bruce Grey, CEO of Bishop and proposed CEO of Transense • Tim Renfrey, Chief Financial Officer of Bishop and proposed Finance Director of Transense On 26 October 2007, the Board invited shareholders to submit any questions theymay have on the proposed acquisition and the Board would like to thank everyonefor their participation in providing these. Unfortunately, we have been advisedthat an open question and answer debate will not be possible on this conferencecall. During the call, management will address 10 questions that best answer the vastmajority of the queries submitted by shareholders. Any shareholders that feelthat their questions have not been answered may still put these forward to theBoard at the General Meeting on 16 November 2007. Owing to regulatoryrequirements, there can be no price sensitive information disclosed during thiscall. I would like to start by providing shareholders with the background to theacquisition. The Board and some of the major shareholders of Transense considerthis transaction to be in the best interest of the Company and its Shareholders. There are numerous reasons for this transaction, but above all, we believe thatthe best thing about this deal is the management fit and our combined expertiseand vision for the automotive industry. I have been interested in bringing our two companies together since learning ofBishop's technology over 10 years ago. I have a lot of respect for the Bishopmanagement team and their proven expertise in commercialising technology intothe automotive sector. I will now begin the question and answer part of today's call. I would like toinvite our chairman, Peter Woods, to read out the questions that were asked ofthe Board and a response will follow from the most appropriate member of theTransense or Bishop Management team. <<< Peter Woods >> Thank you Jim. I will be putting ten questions to the management on behalf ofshareholders, and inviting the appropriate member of the Bishop or Transenseteam to provide an answer to these questions within the confines imposed upon usby regulatory and legal requirements. Turning to question 1. Questions: 1. If the acquisition and placing are not approved at the General Meeting,can you please outline the Board's views on, and plans for, the future? <<>> • One of the main attractions of the Bishop deal is that by securing future management, appropriate funding and commercial synergies we are confident that the prospects for our businesses will start to be reflected in a recovery in our share price in the medium to long term once investors understand the real value of putting our two companies together. Securing the new management team give us confidence in bringing our revenue stream within the time frames indicated in the presentation on our website which we used in marketing this transaction to investors, and without them it is possible that the timing of the revenues could be further delayed. It is expected that Bishop will provide immediate cash flows for the business, whereas Transense revenues continue to remain several years away even now. • In the event that the Resolution is not approved at the General Meeting, Transense will also need to secure and develop a new management team to lead the business. Transense is likely to need to conduct a new fundraising exercise to develop its business. This fund-raising would involve additional expenses on top of those significant expenses already incurred on this transaction and there can be no certainty as to whether a fund raising could be secured or if so at what price. Further, if the Resolution is not approved, given the seriousness of that situation, the Board will have to review all available options in conjunction with its shareholders. 2. Can you please provide a detailed background on the credentials andexpertise of Bruce Grey and Tim Renfrey and their ability to run a UK listedinternational automotive business? <<>> I am currently Group Managing Director of the Bishop Technology Group. I haveheld this position for the last eleven years and I have 35 years experience insenior management positions in automotive engineering, manufacturing andinternational market development. I have also been responsible for negotiating licence agreements on behalf ofBishop with a number of other corporations, including - JTEKT (formerlyKoyo Seiko) - Japan Visteon - USA and Germany and NSK Ltd - Japan. In 1998, I was responsible for initiating a Joint Venture (BMB SteeringInnovation GmbH) with Mercedes Benz to manufacture Bishop's steering racks inSchonebeck, Germany. I have been Chairman of the Board of this business sinceinitiation. Major customers are Mercedes Benz, Ford, SAAB and General Motors. As a consequence of this venture, in 2001, I negotiated with DaimlerChrysler AGof Stuttgart for them to take a 30% minority shareholding in the Bishop Group. In 2006, Bishop initiated a Joint Venture in Korea - Bishop Hando SteeringComponents Limited and I am currently the Chairman of this company. In the past years the Bishop Group, of which I have been Managing Director, wehas received a number of industry awards including: • the Engineering Excellence Award - Products, Manufacturing & ControlSystems category (Institution of Engineers, Sydney Division) • the Engineering Excellence Award - Innovations & Inventions category(Institution of Engineers, Sydney Division) • the Western Sydney Industry Award - Highly Commended in GlobalExcellence Prior to Bishop, I was Group General Manager of Clyde Industries Limited, alarge Australian public company, from 1985 until 1995. I was responsible for anumber of divisions, including Clyde Engineering, at a time when they had overAU$450 million in contracts with some of the largest automotive OEMs. This gaveme an extensive amount of experience in dealing with a large number ofshareholders. Today 24% of all motor vehicles manufactured around the world each year useBishop steering technology. I would like to pass you over to my Finance Director Tim Renfrey. <<>> Good morning Transense shareholders, I have been Chief Financial Officer ofBishop for 2 years and a Bishop employee for over 7 years. After obtainingqualifications in Australia, I worked for Chartered Accounting firm Coopers andLybrand (now PricewaterhouseCoopers), multinational companies like Amcor, BTRNylex and Australian National Industries (ANI). It was during my employmentwith ANI that I was seconded for two years to Sheffield as Financial Director ofone of the UK's largest metal tube manufacturers. As part of my role for Bishop, I am a Board representative of two overseas jointventures - one in Germany and one in Korea and am currently a Director andCompany Secretary of almost all the Bishop subsidiary companies both inAustralia and overseas. These positions require fundamental understanding ofStatutory reporting and compliance both nationally and internationally.Australia has a similar accounting and reporting structure to the UK. Bruce and I are heavily involved in the commercialisation of the Bishopportfolio of over 300 patents and travel extensively internationally developingthe Bishop Group. 3. Bishop appears to be an automotive parts business, rather than an IPled technology business as described in the Admission Document. Can you pleaseelaborate on Bishop's products, its IP, product liability (including risks tothe Enlarged Group) and how Bishop competes with other large tier one and twosteering gear suppliers? <<>> Bishop is a leading global technology licensing and know-how company serving theautomotive industry. There are no other independent global steering rack suppliers. All of the tierone global steering gear manufacturers could once have been considered to becompetitors as they were intent on developing their own steering gear componenttechnology. Most of the tier one steering gear suppliers still manufacturesteering racks using the traditional broaching method. They are all now morefocused on total system development and prefer to outsource componentmanufacture such as steering racks. A large proportion of the major tier onesteering gear suppliers are now either current licensees or customers of Bishopand/or BMB. There are three small regional independent manufacturers of steeringracks which can be classed as competitors to BMB - Peugeot-Japy, Curtis Screwand Neturen. Peugeot-Japy manufactures only in Europe at one site and uses onlythe broaching method; steering racks are not its core business. Curtis Screwcommenced manufacturing steering racks in 2006 using the broaching method.Steering racks are not its core business and it manufactures only in the US atone site. Neturen manufactures only in Japan and has developed a broached hollowrack process. Bishop only invests in R&D when it can identify a strong IP position. We own 58patent families which translates into over 300 individual patents. In 1997 wedecided to industrialise certain IP because we saw an opportunity to earngreater profits than from merely taking a licensing approach. Bishop typicallyaims to get both product and process patents to strengthen its position in themarket. We have a very strong position in the steering rack market where we ownboth product patents and patents relating to the precision warm forging process. Bishop has developed a warm forging manufacturing process. This process can beapplied to a number of automotive components and has ultimate application inother fields. Bishop originally developed this process to manufacture variableratio gear forms for steering racks. The traditional manufacturing process usedby the world's top five steering manufacturers for these components, called thebroaching method, involves the removal of large amounts of material in complex machining operations, creatingsubstantial waste material. The Bishop warm forging process enables themanufacture of net shape accurate gear forms, without the need to remove excessmaterial or 'flash' commonly found with other forging processes. This reducesthe weight of the product, the cost of materials and increases overall strength.It is a very clean, precision process and the surface finish is such that thegear teeth require no further manufacturing processes. Bishop has been operating for over 35 years and no successful product liabilityclaims have ever been made against Bishop. Bishop carries product liabilityinsurance. A number of major tier one steering gear manufacturers are customersor Licensees of Bishop - this includes ZF, TRW, JTEKT, NSK, Adwest, TKPST andFord. 4. In combining the two businesses what do you see as the benefits forTransense? <<>> Transense and Bishop are both technology licensing companies to the globalautomotive industry. Individually they are focused on innovation for safetycritical aspects of commercial and passenger motor vehicles. The Directors andProposed Directors believe that steering and tyres are two of the most safetycritical aspects of any motor vehicle. Bishop has developed a strong market position in the supply of IP for productsand processes for components which are critical to the steering performance ofpassenger motor vehicles, while Transense has developed a strong market positionin the supply of IP for products and processes for components to enable tyrepressure monitoring and torque sensing for improved vehicle controlcharacteristics. The Enlarged Group will be in a position to take a combined approach tomarketing the importance of steering, tyres and stability control systems to avehicle's performance to the major vehicle manufacturers. This can beimplemented through Bishop's regional offices in North America, Europe and Asia. Therefore, the Enlarged Group will be focused on safety critical andenvironmentally sensitive technology, which is in high demand, driven by bothcompetition and legislation. There is an opportunity for the Enlarged Group to develop a complete EPAS systemincorporating Transense's SAW sensor and Bishop's variable ratio steering rack.Bishop has good contacts among the tier one steering suppliers, both at thedevelopment level and at the commercial level that will assist in promotingTransense's SAW steering torque sensor for EPAS applications. Transense has significant electronic and software engineering expertise whileBishop has significant mechanical engineering expertise. The combination ofthese two talent pools provides a very comprehensive mechatronics capabilityfocused on the creation of IP in the field of automotive engineering. Bishopalso has a precision engineering operation in Sydney capable of providingdesign, tooling and prototyping services for the Enlarged Group. Tim and I areshowing our commitment to this transaction by relocating our families to the UKto make 'real' time decisions for the global business. However, the most significant asset of Bishop is its JVs. BMB in Germany isworking 3 shifts a day, seven days a week and at full capacity. The new plant inthe US goes on stream next year and although no racks have been produced thereyet, 75% of its total capacity is already committed. The JV in Korea commencedproduction in January 2007 and this plant will service the fast growing marketin Asia. In summary, the Transense Directors believe that Transense will benefit from theAcquisition of Bishop with: • a stronger global presence with increased marketing opportunities; • a UK based strengthened management team with management succession; • an improved financial platform; • form an integrated global automotive technology group; and which • will be poised for growth. 5. Regarding Bishop's current financial situation - it appears that in theyear to June 2006 Bishop made a NPAT of AU$2.3m while for the last financialyear to June 2007 they made a loss of AU$1.5m - is Bishop a declining business?Can you please elaborate on the circumstances surrounding the fall inprofitability? <<>> Firstly, can I please note that the Bishop financial statements have beenprepared in accordance with International Financial Reporting Standards (IFRSs)and AIM requirements. All information contained in the Admission document hasbeen reviewed by KPMG Audit plc. Currently 24% of all motor vehicles manufactured each year, globally are usingBishop Technology. Having spent over £10m in R&D, Bishop is continuouslyimproving and innovating - both for its own advancement as well as its licenseesand customers. Part of Bishop's decline in profitability between 2006 and 2007 was caused byManagement's commitment to expanding and growing the business. The JV inGermany - BMB Steering Innovation GmbH - has now expanded into North America.As serious production in this new facility will not commence until the end of2008, BMB Steering Innovation Inc is incurring start up losses - in 2007 theseamounted to AU$918,000 (representing Bishop's share only). In addition to these start up losses, Bishop has received an order for AU$3.3min Bishop special purpose machines and tooling to be built in the Australianmanufacturing facility in Sydney - this order, despite being received, has notbeen completed and the gross contribution of AU$1.2m will not be recognised inthe P&L until shipped (expected to happen in 2008). Bishop incurred two other one-off costs in the 2007 financial year. The firstwas AU$786,000 in foreign exchange fluctuations caused by a change in theaccounting standards. The second one-off cost in 2007 related to the write offof certain stock and inventory items and the write down of assets under the newInternational Accounting regulations - IFRS. These adjustments were required toensure the carrying values of assets were correctly recorded in Bishop'saccounts. Profit impact in 2007 - AU$640,000 unfavourable. Therefore adjusting the 2007 results for the above one-off items would result ina AU$1.5m loss turning into a AU$2m profit. 6. Bishop has net current borrowings of AU$6.7m for the year ended June2007 compared with AU$4.7m in June 2005. Does this highlight a deterioratingworking capital position for Bishop? <<>> Yes, Bishop has seen some deterioration in its working capital position since2005. Each year sales and associated infrastructure to achieve those sales isplanned. A considerable proportion of these costs are fixed as they representthe labour component of generating the sale revenues. If for example sales aredeferred - like the BMB Steering Innovation Inc order of AU$3.3m - then Bishopstill incurs the fixed costs despite the sales deferment. Other sales aresought to replace the deferred revenue streams but this can always bechallenging particularly for a large order replacement of AU$3.3m. Therefore thefixed cost components not offset by replacement sales represents a deteriorationto working capital. However, the main reason for the increase in current borrowings from 2005 to2007 related to the borrowings associated with our new JV in Korea. 7. Bishop appears to be dependant on 2 clients for over 40% of theirrevenues (i.e. Visteon). How sustainable are these contracts? Is Bishopconcerned about the declining business of Ford and, as a result, Visteon? <<>> In 1996 60% of Bishop's income was derived from the Ford Motor Company inconjunction with their parts supplier Visteon. Today Ford and Visteon now onlyaccount for 25% of Bishop's income. Other major customers are JTEKT in Japan(the major supplier of steering to Toyota), BMB Steering Innovation our JV withThyssenKrupp Presta Steertec, Autocam in the US and ZF Lenksysteme in Germany. Ford's market share is declining but because Bishop has strong penetration withmost major steering gear manufacturers our combined series production andtooling sales are growing. 8. Please explain the key events that the Board went through leading up tothe suspension of Transense's shares and the publication of the Admissiondocument complete with Circular. Did the Board consider a rights issue so thatall shareholders could participate in a share offering by the Company? <<>> Mon 17 September Road show commenced Thu 04 October The Board becomes aware of a number of 'blog'postings on ADVFN which refer to certain rumours in the market. The Board,discussed the situation with its advisers and the regulator on a number ofoccasions. On the basis of those discussions, it was decided that as the 'blogs'were not yet specific in nature there was no need to release an announcement,which in turn would trigger the AIM Team to automatically suspend the shares. Fri 05 October Road show ended Thu 11 October AIM Team requested the release of a holdingannouncement, and the Board confirmed that they would like to proceed to releasea holding announcement, which was immediately done. Shares were suspended at35p. Mon 22 October Announcement of proposed acquisition Shares resume trading Posting of Admission document In regard to a rights issue to involve all shareholders, the Board consideredthis option but rejected it due the regulatory and timing requirements and alsoon the basis that the rights issue would need to be underwritten in order tosatisfy the Bishop vendors that the cash would be available to fund theacquisition. 9. The placing is intended to raise up to £4.4m for the Company net ofexpenses. What are these funds to be utilised for - splitting out Bishop andTransense? And in the Board's view is this enough for the combined businesses todeliver on their business plans? <<>> In the enlarged group we will devote £3m to consolidate trading debt within BTGwith the balance used to expand its activities in SE Asia with the creation of ahigh speed forging cell for steering racks in Korea. This complements theexisting valve body manufacturing facility and associated infrastructure. <<>> The remaining net proceeds of the Placing will be used as working capital forTransense to accelerate its commercialisation process, assist in targeting majortier one and two automotive component manufacturers and fund the continuingdevelopment of SAW technology. 10. Why did the Board approve a placing price of 23 pence? <<>> • It was our initial intention to buy the Bishop group with an all cash offer of AU$20m funded by an equity issue, subject to the normal high quality due diligence, timing and warranties that are needed for such a transaction. At the end of this process, and after incurring liabilities for the high costs involved, the market had started to turn against us, exacerbated by the sub-prime collapse in America. • The Placing price of 23 pence was considered by the Board to be the best price considering the market conditions and the position of the Company at the time of the Placing. • We could have raised more funds had we agreed to a much lower price but the Board turned this down as being unacceptable. • It is also important to note that some of our existing shareholders chose not to support the placing at a price of 23 pence, given their own views on Transense's valuation. Conclusion / wrap-up <<>> Thank you Chairman and other members of the Board, both existing and proposed.I also want again to thank the shareholders for their questions and forlistening to this call. A full transcript will be posted on RNS shortly foranyone who wishes to review these questions and answers in more detail. In summary, we believe that Bishop represents a good opportunity for Transense,this acquisition brings with it management, cash and an acceleration ofTransense's commercialisation prospects. I draw shareholders' attention to thepresentation on our website and the timing of our future revenue streamspredicated on this transaction progressing and new management to drive thebusiness. Were this transaction not to be approved, the cost of new resources of cash andthe search of a future management team, and of course the time frames involvedwith both, could risk delays to the delivery of future revenue streams. In the context of all of the above, I would urge shareholders to vote in favourof the resolution being proposed at the General Meeting on 16 November as yourboard has unanimously agreed to do as being in the best interests of allshareholders, along with other Transense shareholders who have irrevocablyundertaken to do with their shareholdings , which together account for 15% ofthe voting capital." Enquiries: Transense Technologies plc 01869 238 380 Peter Woods Jim Perry Noble & Company Limited 020 7763 2200 John Llewellyn-Lloyd Graeme Bayley This information is provided by RNS The company news service from the London Stock Exchange