Issue of Equity

RNS Number : 4400Y

Optare PLC

03 September 2009

 



Optare plc

('Optare' or 'the Company')

Conditional Placing of up to 122,857,142 shares to raise approximately £8.6 million (before expenses) 

The Board of Optare today announces a conditional placing by Cenkos Securities plc of up to 122,857,142 ordinary shares of 1 pence each (the 'Placing Shares') with various institutional investors at a price of 7 pence per share (the 'Placing Price') to raise approximately £8.6 million before expenses (the 'Placing').   The Placing is intended for completing development of the Company's range of 'low carbon' buses and also for working capital and tooling to support further product cost reduction activity. The Placing is conditional, inter alia, upon resolutions being passed at the General Meeting of the Company to be held on 21 September 2009. The Placing Shares are expected to be admitted to trading on 22 September 2009.

Background to and reasons for the Placing

Whilst the Board recognises that the past twelve months has been a difficult period for the Company, it has also been notable for the milestones that have been achieved following the integration of Darwen and the Optare Group. The integration of the two companies has created a business which is able to offer a wide range of single and double deck products to the market and which now has a customer base that includes the majority of UK bus operators. Since the two businesses have been integrated, the Group's operations have been restructured, significantly lowering the Group's cost base, and several new 'low carbon' buses including the 'zero emission' Solo Electric Vehicle ('Solo EV') have also been launched.

Recent changes have also strengthened the management team, including the appointment of Jim Sumner as Chief Executive Officer. With a strong track record in operations management and business development, Jim's appointment has given the Company an immediate focus on leading the market in the application of 'lean manufacturing' methods. This has already had a significant impact on operations with reductions in inventories through lower factory work in progress and components, achievement of a 50 per cent. reduction in assembly lead-times for buses, an improvement in build quality and a much reduced break-even point for the business.  

Nonetheless, the Directors recognise that further investment is required to realise the full potential of the business. The Board intends to deploy the monies raised by the Placing in two key areas; product/market development and tooling.  

Further to the announcement made on 4 December 2008, and following the appointment of Jim Sumner, on completion of the Placing, it is intended that John Fickling will resume his role as non-executive Chairman.  

Current trading and prospects

Conditions in the UK market for new bus sales remain very challenging and the Board expects the market, as a whole, to be down this year by between 25 to 30 per cent. as against 2008.  Major operators who also own rail franchises are particularly suffering in the current downturn. The Board believes that Optare's broad product range is one of the Company's key strengths in the current market environment as it generates a higher proportion of retail business, which is proving more resilient than fleet customer business in the current UK market. This strength has also been re-inforced by the recent decision by the Board to create 'Optare Direct' to focus on the retail sector.  Through Optare Direct the Company now deals directly with customers rather than through a distributor and offers contract hire, rental and finance packages to meet the needs of this important retail sector. 

In light of the current market conditions the Board has taken significant cost reduction action to ensure that the Company trades profitably at EBITDA level in the current quarter (Q3, 2009) and is developing further plans to reduce break-even point in Q4 and Q1 2010, which the Board believes will be the bottom of the current recessionary cycle in the UK bus market. 

For the half year to 30 of June 2009 the Board expects to announce turnover of not less than £52 million, gross profit of not less than £3.7 million with a loss at EBITDA level of no greater than £1.8 million and a pre tax loss of no more than £ 2.5 million before exceptional items. Net debt at 30 June 2009 stood at approximately £10.1 million.  

As referred to in the Company's 2008 Annual Report and Accounts, the Company encountered a breach of certain of its covenants post the 2008 year end. Subject to the timely provision of certain financial information by the Company, the bank has agreed to waive all such breaches and therefore cannot demand repayment or put the term facilities on demand in relation to this breach before the facility renewal date, being 29 October 2009. There are no further test dates on this facility prior to the facility renewal date. The Company continues to have a supportive relationship with its bank and as a result, the Directors are confident that they will be able to renew the Group's banking facilities on or before 29 October 2009 and expect that new more appropriate covenants will be set at this time.

Operators are still under pressure to achieve the fuel efficiency savings delivered by 'low carbon' buses in order to qualify for fuel rebates. To support this, the government has announced a £30m 'Green Bus Initiative' to help stimulate the market for 'low carbon' buses over the next 2 years. The Directors believe that Optare will be well positioned to capitalise on opportunities that this government initiative will create in both the new bus and growing retrofit markets. The Board also believes that further opportunities will be created for the Company by the Disability Discrimination Act' ('DDA') which will require the industry to replace an estimated 40 per cent. of the current vehicle parque to meet the requirements of the DDA by 2015/16.

The Company is also working hard to compensate for the UK market downturn and the Directors are targeting key export markets such as the US and parts of continental Europe where recent promotion of the Solo EV has generated significant interest. The Board has also identified South Africa as a potential export market ahead of the World Cup in 2010. The Directors believe that availability of demonstrator vehicles, which will be funded from part of the proceeds of this Placing, will greatly assist in realising sales potential in these markets. 

The Placing

The Company proposes to raise up to approximately £8.06 million (net of expenses) through the issue of the Placing Shares at the Placing Price. The maximum number of Placing Shares would represent approximately 53 per cent. of the Company's issued ordinary share capital immediately following Admission.

A circular containing details of the Placing is being posted to shareholders today and will be available on the Company's website: www.optare.com.  

Commenting on today's news, Chief Executive, Jim Sumner, said;

'I am delighted by the level of institutional support which endorses our strategy of developing our product range, focusing on new low carbon technologies and reducing cost over the next 12 to 18 months.  This investment is excellent news for customers, employees and suppliers and will assist the business in positioning itself strongly for 2011 when we expect markets to recover.'

Optare plc Jim Sumner - Chief Executive

Tel: [phone]

Cenkos Securities plc Stephen Keys/Camilla Hume

Tel: [phone]

EXPECTED TIMETABLE OF PRINCIPAL EVENTS
This document posted to Shareholders (by first class post)	3 September 2009
Latest time and date for receipt of Form of Proxy	10.30 a.m. on 17 September 2009
General Meeting	10.30 a.m. on 21 September 2009
Admission and dealings in the Placing Shares expected to commence on AIM	8:00 a.m. on 22 September 2009
Where applicable, expected date for CREST accounts to be credited in respect of the Placing Shares in uncertificated form	22 September 2009
Where applicable, expected date for posting of share certificates for Placing Shares	By 29 September 2009

DEFINITIONS
'Darwen'	Darwen Holdings plc, having subsequently changed its name to Optare plc
'Group'	the Company and its subsidiaries
'Optare Group'	Optare Holdings Limited and its subsidiaries

 

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