Trading Update and Issue of L

RNS Number : 3457E

Gas Turbine Efficiency PLC

18 December 2009

 



18 December 2009

Gas Turbine Efficiency plc

Trading Update 
and 
Proposed Issue of US$10m of Loan Notes

Gas Turbine Efficiency plc ("GTE" or the "Group"), a leading provider of proprietary cleantech systems for enhancing the performance of aviation and industrial gas turbines, confirms that trading has continued in line with management expectations and is pleased to announce that it has secured additional financing.

Highlights

• Trading in line with expectations
  

• Provision of long term facility from major shareholders to support development and provide financial stability
  

• Proposed appointment of new Chairman

Financial Overview

Group trading, in ongoing challenging market conditions, has continued to be in line with management expectations.  

As at 4 December 2009, Group revenue and orders in-hand expected to be completed in the current financial year to 31 December 2009 was up by approximately 12 per cent. on the same period in 2008 to US$36.8m (2008: US$32.9m), with the Energy Services segment being up 20 per cent. to  US$31.4m (2008: US$26.2m).  The actual outcome for the Group for the full year remains dependent on the precise timing and shipment of products relating to certain potential orders which are currently under discussion.

In May 2009, GTE raised US$10.5m in equity from a placing to institutional investors. These funds have been deployed successfully over the last six months in line with our stated strategy to accelerate product development programmes, to adapt the Group's products for new turbine customers, fund  commercial expansion in the EMEA region and add a new turbine services business unit in North America.  Some of these product development programmes have begun to produce revenue in 2009.. Consistent with the interim results announcement on 21 September 2009, reductions in Aviation business combined with a weak US summer power generation market, and the limitations of the credit lines available for drawdown by the Group, has adversely impacted the Group's operational cash flow in the final quarter of 2009.  In order to overcome this short-term cash flow issue, the Company has sought additional funding to provide the operational and commercial flexibility to properly position the Company for growth.

Issue of Loan Notes (with Warrants Attached)

The Board of GTE entered into discussions with a number of its major shareholders concerning a capital  raising in order to address this issue. 

The Board of GTE today announces that Generation IM Climate Solutions Fund, L.P. ("Generation IM"),  funds advised by Zouk Ventures Ltd. ("Zouk Funds") and certain shareholders, senior management and directors (together the "Investors") have committed to subscribe to US$10m of 9.5% Subordinated Unsecured Loan Notes 2012 of $10 each (the "Notes") in the Company.  

The proceeds from the issue of these Notes will be used to finance the Group's working capital and development funding programmes.  

The Notes, which will have Warrants attached to them as described below, are being subscribed in two tranches:

• the first tranche, of US$4.0m, has been issued to the Investors today; and
  

• the second tranche, of US$6.0m, will, subject to the satisfaction of various conditions, as set out below, be issued to the Investors early in 2010 ("Second Closing").

GTE retains the flexibility to increase the number of Notes to be issued at Second Closing by a further US$2.0m to an aggregate of US$12.0m, should there be sufficient investor interest.

Second Closing is conditional, inter alia, on the satisfaction of certain conditions including: (a) a special resolution being passed at a general meeting of GTE approving the issue of the Warrants at Second Closing (the "Resolution"); (b) no material adverse change in the business, prospects or financial condition of the Group; (c) no insolvency event having occurred in relation to any member of the Group; and (d) GTE having appointed a new chairman to the board of the Company. 

If the conditions to Second Closing are not met by 15 February 2010, the Investors will no longer be required to subscribe for the further Notes. In addition, the Notes issued today will become repayable by GTE before 30 April 2010.  If Second Closing does not happen, therefore, GTE will be required to raise additional funds, and there is no guarantee that it will be able to do so on terms acceptable to it.

The Notes, which are unsecured, will carry a fixed rate of interest of 9.5% per annum, payable quarterly in arrea rs and will be repayable on 17 December 2012. The Notes may be redeemed in whole or in part at any time by GTE without penalty, provided that, if they are rdeemed prior to 30 June 2010, interest to that date will be payable at the time of redemption. 

The Notes will become automatically redeemable by GTE upon: (i) the disposal of all or a substantial part of the business of the Group (a "Disposal"); and/or (ii) the issue of shares or other securities convertible into shares by any member of the Company's Group to a third party for cash (an "Equity Issue"), provided that the proceeds of the Disposal and/or Equity Issue are not used to pay down existing bank debt of the Group. 

Each Note has Warrants attached to it: each Note issued today has Warrants over 12 Ordinary Shares, and will receive Warrants over a further 8 Ordinary Shares, conditional on the Resolution being passed, and each Note to be issued at Second Closing will have Warrants over 15 Ordinary Shares. The number of Warrants to be issued to Investors (assuming that Second Closing occurs for the currently subscribed US$6m only) will be 17,000,000, representing approximately 14.3% of the enlarged issued share capital, following exercise of all of the Warrants.

Each Warrant will entitle the holder to subscribe for one new Ordinary Share at any time to 17 December 2014.  The exercise price of the Warrants is determined by when the Notes are redeemed: from the date that the Warrant is issued until 30 June 2010, the exercise price of the Warrants will (if no Notes are redeemed before that date) be 20p per Ordinary Share. Thereafter, the exercise price will reduce by 1.5p per Ordinary Share in every three month period, i.e. the exercise price will reduce to 18.5p on 1 July 2010; will reduce to 17p on 1 October 2010, until 1 April 2012, when the Warrant will hit a floor price of 9p per Ordinary Share.  

Upon the redemption of all or any Notes by GTE, the exercise price of all or a proportionate number of Warrants will be fixed at the Exercise Price on the date of redemption.  If all of the Notes are redeemed prior to 1 July 2010, all of the Warrants will have an exercise price of 20p. If, however, only half of the Notes are redeemed prior to 1 July 2010 then half of the Warrants will have an exercise price of 20p with the exercise price for the remainder continuing to reduce as described above, until there is a further redemption of Notes.  

Neither the Notes nor the Warrants (or any of them) will be listed on any stock exchange.

  The following parties, each being deemed a Related Party under the AIM Rules, have subscribed Notes, as follows: 

Name	Ordinary Shares held	Percentage of issued share capital	Loan Notes subscribed today	Warrants issued today	Warrants to be issued on passing of the Resolution	Loan Notes subscribed on Second Closing	Warrants to be issued on Second Closing
Generation	21,080, 000	20.7%	$3,000,000	3,600,000	2,400,000	$4,500,000	6,750,000
Zouk Funds	10,315,681	10.2%	$700,000	840,000	560,000	$800,000	1,200,000
Steven Zwolinski	442,663	0.4%	-	-	-	$14,300	21,450
Kevin Dotts	-	-	-	-	-	$14,300	21,450
Par Krossling	-	-	-	-	-	$14,280	21,420
	31,838,344	31.3%	$3,700,000	4,440,000	2,960,000	$5,3242,880	8,013,320

The directors of GTE consider, having consulted with Matrix Corporate Capital LLP (GTE's Nominated  Adviser), that the terms of the issue of the Notes (including the issue of the Warrants attached to them) are fair and reasonable insofar as the shareholders of GTE are concerned.

Board Composition

At the AGM on 9 June 2009, the board of GTE announced that it was in the early stages of a formal search process to appoint a new chairman. This process is now nearing completion and it is expected that John Grant will be appointed as Chairman of the board of the Company shortly, at which time John Bryant will step down as a director of GTE. Mr Grant, who has agreed to subscribe for $100,000 of Notes, is an experienced director who spent his executive career in a variety of senior international roles within the automotive and engineering industries. 

General Meeting

The issue of the Warrants at Second Closing is subject to shareholder approval at a general meeting as described above.  Consequently it is expected that the circular to shareholders containing notice of a general meeting at which the Resolution will be proposed will be posted to shareholders early in the New Year. 

Steve Zwolinski, Chief Executive Officer of GTE, today commented: 

"Trading has continued in line with our expectations as set out back in September.  GTE's portfolio of productivity and environmental solutions gains added importance to customers during current challenging economic times. Trading is expected to strengthen in 2010 as longer term environmental, energy demand, and customer productivity pressures intensify in the both the energy and aviation sectors.  This issue of loan notes will strengthen our financial position and enable us to continue to implement our business plans  at this important stage of the Company's development.  We are pleased that our major shareholders  have provided long term facilities to allow the continued development of GTE."

For further information, please contact:

Gas Turbine Efficiency plc	Steven Zwolinski (Chief Executive Officer) Kevin Dotts (Chief Financial Officer)	[phone]
Matrix Corporate Capital LLP	Nick Ellis Tim Graham	[phone]
Financial Dynamics	Jon Simmons  Susanne Yule	[phone]

About GTE (AIM Ticker: GTE)

GTE designs, manufactures and supplies proprietary cleantech energy saving and performance enhancing systems to the aviation, industrial and combustion industries. GTE's extensive portfolio of patented cleantech solutions save fuel, reduce emissions, increase availability, and extend turbine and parts life. 

The Group also provides solutions for burning a wider variety and quality of primary and alternative fuels. Specific products and services developed by our world-class technology team include compressor cleaning and power augmentation systems; fuels management systems; combustion design, repair, upgrade and monitoring; and fluid and control auxiliaries. The Group's systems and associated services are provided to turbine end users and OEMs including General Electric, Pratt & Whitney, Rolls Royce, Caterpillar-Solar and Siemens from operation centres in Europe and the USA. 

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