Acquisition and Notice of General Meeting

RNS Number : 0273W

Plastics Capital PLC

03 November 2014

 



Plastics Capital plc

("Plastics Capital" or the "Company")

Acquisition and Notice of General Meeting

Conditional Placing of 5.1 million new Ordinary Shares at 98 pence per share to raise £5.0 million

Plastics Capital, the niche plastics products group, announces it has conditionally agreed to acquire Flexipol for a maximum consideration of £10.64 million.

Acquisition Highlights

·     Maximum cash consideration of £10.64 million

·     Expected to be earnings enhancing in the first full financial year

·     Oversubscribed placing to raise £5.0 million to partly satisfy the initial consideration

·     Complementary products and customers with the Company's existing packaging business

·     Expected near-term cost synergies from increased buying power for the enlarged packaging business

·     Long-term cross-selling opportunities

Transaction Highlights

The maximum consideration payable pursuant to the acquisition of Flexipol is £10.64 million based on:

·     £9.82 million payable in cash on completion; and

·     £0.82 million of earn-out payments which may be payable in cash based on certain EBITDA targets.

The consideration will be satisfied in cash through the proceeds of the Placing from the issue of 5,102,041 new Ordinary Shares to new and existing investors at a price of 98p per share and raising £5.0 million (before expenses), a £5.4 million extension of the existing debt facility with Barclays Bank plc and £0.5 million from existing cash resources.

Faisal Rahmatallah, Chairman and CEO of Plastics Capital, commented:

"We are very pleased to announce the acquisition of Flexipol Packaging Limited. Flexipol is very clearly a business that meets our acquisition criteria - specialty products, high recurring revenues with loyal customers, limited competition and healthy financial performance. This acquisition meets our criteria.  It is complementary to Palagan and this should enable us to extract significant synergies in due course through cross selling, operational efficiencies and raw material cost savings.

We are also very pleased to announce an oversubscribed £5 million placing with both new and existing institutional shareholders, at a 4.4% discount, in order to part finance the Flexipol acquisition."

Contacts:

Plastics Capital plc	Tel: [phone]
Faisal Rahmatallah, Executive Chairman
Nick Ball, Finance Director
Cenkos Securities (Nomad and Joint broker)	Tel: [phone]
Mark Connelly Stephen Keys
Allenby Capital Limited (Joint broker)	Tel: [phone]
David Hart Katrina Perez
Walbrook PR Ltd	Tel: [phone]/[e-mail]
Paul Cornelius	Mob: [phone]
Helen Cresswell	Mob: [phone]

Notes to Editors:

Plastics Capital is a plastics products manufacturer focused on proprietary products for niche markets. The Group has four factories in the UK, one in Thailand and sales offices in the USA, Japan, China and India. Approximately 60 per cent of sales are exported to over 80 countries worldwide. Production is concentrated in the UK where significant engineering know-how and automation underpins the Group's competitiveness. The Group has approximately 350 employees.

Introduction

Plastics Capital has today announced the terms of a conditional placing by Cenkos, acting as the Company's Nominated Adviser and Joint Broker and Allenby Capital, acting as the Company's Joint Broker, to raise approximately £5.0 million from the issue and allotment by the Company of 5,102,041 new Ordinary Shares at the Placing Price of 98p per share. It is intended that the net proceeds of the Placing, which are expected to amount to £4.7 million, will be principally used to partially fund the Proposed Acquisition.

The Placing is conditional (amongst other things) upon the passing of certain resolutions by Shareholders at a General Meeting in order to ensure that the Directors have the necessary authority and power to allot the Placing Shares for cash on a non-pre-emptive basis.  The General Meeting is being convened at 10.00 a.m. on 20 November 2014 at the offices of the Company, at Room 1.1, London Heliport, Bridges Court Road, London, SW11 3BE, for the purpose of considering the resolutions to be proposed at the meeting.

The purpose of this announcement is to explain the background to and reasons for the Proposed Placing and the Proposed Acquisition, why the Directors believe that it is in the best interests of the Company and its Shareholders as a whole, why the Directors are seeking authority from Shareholders to issue the Placing Shares for cash on a non-pre-emptive basis and to recommend that you vote in favour of the resolutions to be proposed at the General Meeting. The Directors intend to vote in favour of the Resolutions in respect of their legal and/or beneficial shareholdings amounting, in aggregate, to 5,544,178 Ordinary Shares representing approximately 18.3 per cent. of the Existing Ordinary Shares.

Background to and reasons for the Proposed Placing and Acquisition

Plastics Capital is a plastics products manufacturer focused on proprietary products for niche markets and has two principal divisions, the Packaging Division and the Industrial Division. The Packaging Division is comprised of two businesses, namely C&T Matrix Limited ("C&T") and Palagan Limited ("Palagan"). C&T focuses on the manufacture and sale of creasing matrix and accessories for the box making industry. The Directors consider C&T to be a leading manufacturer of plastic creasing matrix.  Palagan is a specialist manufacturer of high performance films for industrial packaging applications with end markets such as food packaging, furniture, animal bedding, building products and asbestos removal. Palagan focuses primarily on small and medium-sized UK customers with bespoke needs in terms of, for example, film strength, tear resistance, printing and surface finish.

The Directors believe that the markets served by the Packaging Division are capable of generating sustained growth and that the acquisition of an additional specialist business in this area could materially enhance Shareholder value.

Background information on Flexipol

Flexipol manufactures high strength industrial packaging, such as films and bags, for end-markets including food and animal feed packaging.

Flexipol was incorporated in October 1994 and received funding from 3i Venture Capital. Today, Flexipol is wholly owned by three of its founder shareholders, all of whom are directors of Flexipol and have an equal share in the business. Flexipol supplies its products to major food processors and manufacturers and is a Marks & Spencer accredited supplier. Flexipol is based in Rossendale, Lancashire and, as of 1 October 2014, had 100 employees.

In the financial year ended 1 November 2013, Flexipol generated revenues of £14.9 million and a profit before taxation of £1.1 million. As at 1 November 2013, Flexipol had net assets of £5.5 million.  The fixed assets on Flexipol's balance sheet include a freehold property which was last valued at approximately £1.4 million by Ryden LLP.

The Directors believe that Flexipol operates in a growing market place. For example, the UK food and grocery sector is forecast to grow in value by 21 per cent. by 2018, a CAGR of 4.9 per cent. (source: IGD Shopper Vista Research 2013 Report). In addition, the animal feed market is estimated to grow by a CAGR of 2.9 per cent. until 2020. The Directors believe that health & safety requirements and contamination risks are shifting consumer demand towards the type of value-added product manufactured by Flexipol and away from more traditional alternatives.  Further, European Union regulation regarding the materials that are allowed to come into contact with food is driving demand to polyethylene plastic.

The Directors believe that there are good potential synergy benefits in connection with the Proposed Acquisition and have identified the following specific areas where they believe these benefits may arise:

·     cross selling opportunities, where Flexipol's customers and product sets are considered complementary to the Company's existing businesses within the Packaging Division; and

·     some operational efficiencies, where non-specialist products currently sold by Flexipol may be manufactured more efficiently by Palagan.

Key terms of the Proposed Acquisition

Under the terms of the Acquisition Agreement, the Company has conditionally agreed to acquire the entire issued share capital of Flexipol from its shareholders John Joseph Dermot Griffiths, Patrick Thomas Connelly and Ian John Smith.

The completion of the Proposed Acquisition is subject to the satisfaction of various conditions, including:

·     the Company not having exercised its right to terminate the Acquisition Agreement due to the occurrence of a Material Adverse Change (as defined in the Acquisition Agreement); and

·     Admission.*

*the above list is not exhaustive.

The Acquisition Agreement provides that, subject to satisfaction of the various closing conditions and the compliance by the parties to the Acquisition Agreement with their various obligations, completion will take place on Admission. Plastics Capital expects completion of the Acquisition to take place on or around 21 November 2014.

The consideration payable for the issued share capital of Flexipol is the aggregate of:

·     £9,820,000 payable in cash on completion; and

·     earn-out payments which may be payable based on certain EBITDA targets in accordance with the terms of the Acquisition Agreement. The maximum amount of such earn-out payments is £820,000.

·     The maximum consideration payable pursuant to the Acquisition Agreement is £10,640,000.

The Acquisition Agreement is governed by English law.

Plastics Capital intends to fund the Proposed Acquisition using the net proceeds of the Placing, a £5,400,000 extension of the existing debt facility with Barclays Bank plc ("Barclays") (the "Extended Facilities") and the remaining £500,000 from existing cash resources. Drawdown of the Extended Facilities by the Company is subject to the conditions precedent to drawdown under Extended Facilities being satisfied or waived, which include Admission).

Financial position and current trading of the Company

On 30 June 2014, Plastics Capital announced its final results for the year ended 31 March 2014, which included the following summary consolidated figures:

Financial Summary:

	Year ended 31 March 2014 £'000	Year ended 31 March 2013 £'000	% Change
Revenue	32,456	31,407	3.3%
EBITDA*	4,894	4,484	9.1%
Profit before tax*	3,587	3,300	8.7%
EPS (p)*	11.1	10.0	11.1%
DPS (p)	3.0	2.0	50.0%
Net Debt	7,170	8,369	-14.3%

* excluding amortisation, exceptional costs, unrealised foreign exchange translation and derivative gains / losses.

+ applying an underlying charge of 13% and based on the weighted average number of shares currently in issue in the year.

On 15 September 2014, the Company announced an update on its trading performance for the financial year to that date, stating that the Company was trading broadly in line with market expectations.

An extract from this announcement is shown below:

"Our operations in China are progressing well. Whilst local demand for creasing matrix has been below expectations, we are very pleased with the improvements at Shengli, our recently acquired creasing matrix manufacturer based in Beijing. Post integration, there have been notable improvements in processing speeds, quality controls, financial reporting and health and safety standards. Meanwhile, our bearings sales team has successfully converted three significant plastic ball bearing projects for different Chinese CCTV camera manufacturers amounting to approximately £0.25million in annual sales when these projects move into full production. In addition, we have started to ramp up production of machined plastic ball bearings in the new factory in Shanghai. We are also pleased to report that our recently appointed senior management team in China are already making a valuable contribution.

We continue to experience steady growth in our UK based Packaging division, with strong sales in the spring and early summer being counteracted by a relatively weak holiday period during August. Of particular note has been the successful launch of our new range of highly durable creasing matrix called Pink. We anticipate that this product range will add circa £1 million to sales over the next two to three years.

In the financial year to date, our Industrial division has experienced weaker demand than the prior year. This was partly anticipated as older projects fall away before new projects come into full production in the second half of the current financial year. In addition, we now understand that certain customers overstocked last year and this has impacted sales in the current year as compared to our expectations. In the meantime, our focus has been on new business generation where we have a significant pipeline of projects which have reached prototype testing and production trials with customers worth more than £5 million in annual sales. We expect to convert a significant proportion of these in the next six months."

The above information is not a substitute for reading the full text of the full year results and trading update, which can be found on Plastics Capital's website at: www.plasticscapital.com.

Details of the Placing

The Company proposes to raise approximately £5.0 million (before expenses of the Placing which are estimated to amount to approximately £0.3 million) through the issue of the Placing Shares at the Placing Price, the net proceeds of which will be used to fund part of the consideration payable on completion of the Proposed Acquisition. On Admission, the Placing Shares will represent approximately 14.4 per cent. of the Enlarged Issued Share Capital. It is expected that Admission in respect of the Placing Shares will occur on 21 November 2014.

The Placing Agreement

Cenkos and Allenby Capital have entered into the Placing Agreement with the Company whereby they have agreed to use their reasonable endeavours, as agents for the Company, to procure placees for the Placing Shares.

The Placing is conditional upon, inter alia, the Resolutions being duly passed at the General Meeting and the Acquisition Agreement having been entered into and remaining in full force and effect.  Admission is conditional upon, inter alia, Admission of the Placing Shares to AIM becoming effective on or before 8:00 a.m. on 21 November 2014 (or such later date, not being later than 8:00 a.m. on 5 December 2014 as the Company, Cenkos and Allenby Capital may agree).

The Placing Agreement contains warranties from the Company in favour of Cenkos and Allenby Capital in relation to, among other matters, the accuracy of the information in this announcement and other matters relating to the Company and its business. In addition, the Company has agreed to indemnify Cenkos and Allenby Capital in relation to certain liabilities they may incur in respect of the Placing. Cenkos and Allenby Capital have the right to terminate the Placing Agreement in whole or in part prior to Admission in certain circumstances, in particular, in the event of a breach of the warranties given under the Placing Agreement.

Settlement and dealings

Application will be made to the London Stock Exchange for the Placing Shares to be admitted to trading on AIM. It is expected that Admission will become effective and that dealings in the Placing Shares will commence at 8.00 a.m. on 21 November 2014. 

The Placing Shares will, when issued, rank pari passu in all respects with the Existing Ordinary Shares including the right to receive dividends and other distributions made, paid or declared following the Placing.

General Meeting

An extraordinary general meeting of the Company has been convened for 10.00 a.m. on 20 November 2014 at the offices of the Company, at Room 1.1, London Heliport, Bridges Court Road, London, SW11 3BE.

The Directors currently do not have sufficient authority to allot shares under the Act to effect the Placing. Accordingly the Resolutions, briefly summarised below, are being proposed at the General Meeting to ensure that the Directors have sufficient authority to allot the Placing Shares on a non-pre-emptive basis.  The Resolutions are:

1.    an ordinary resolution to authorise the directors to allot the Placing Shares up to an aggregate nominal value of £51,020.41; and

2.    conditional upon passing resolution (a) above, a special resolution to disapply statutory pre-emption rights in respect of the allotment of up to 5,102,041 Placing Shares.

Resolution 1 is an ordinary resolution and requires a majority of more than 50 per cent. of the Shareholders voting to be passed.  Resolution 2 is a special resolution and requires the approval of not less than 75 per cent. of the Shareholders voting to be passed. Should the Resolutions not be passed, the Proposed Acquisition will not proceed.

Recommendation

The Directors consider that the Proposed Placing and the Acquisition are in the best interests of the Company and its Shareholders and unanimously recommend that Shareholders vote in favour of the Resolutions, as they intend to do in respect of their aggregate shareholding of 5,544,178 Ordinary Shares, which represents approximately 18.3 per cent. of the Existing Ordinary Shares.

DEFINITIONS

The following definitions apply throughout this announcement, unless the context otherwise requires:

"Acquisition Agreement"	the acquisition agreement entered into on 3 November 2014 between (1)the Company and (2) John Joseph Dermot Griffiths, Patrick Thomas Connelly and Ian John Smith for the acquisition of the entire issued share capital of Flexipol
"Admission"	the admission of the Placing Shares to trading on AIM becoming effective in accordance with rule 6 of the AIM Rules
"AIM"	AIM, a market operated by London Stock Exchange plc
"AIM Rules"	the AIM Rules for Companies issued by London Stock Exchange plc as amended from time to time
"Allenby Capital"	Allenby Capital Limited, a private limited company incorporated in England & Wales under registered number 6706681 and having its registered office at 3 St. Helen's Place, London EC3A 6AB, the Company's Joint Broker to the Placing
"CAGR"	compound annual growth rate
"Cenkos"	Cenkos Securities plc, a public limited company incorporated in England & Wales under registered number 5210733 and having its registered office at 6-8 Tokenhouse Yard, London EC2R 7AS, the Company's Nominated Adviser and Joint Broker to the Placing
"Company" or "Plastics"	Plastics plc, a public limited company incorporated in England & Wales under registered number 6387173 and having its registered office at Room 1.1, London Heliport, Bridges Court Road, London, SW11 3BE
"Directors" or "Board"	the directors of the Company
"Enlarged Issued Share Capital"	the number of issued Ordinary Shares immediately following Admission
"Existing Ordinary Shares"	the 30,242,532 Ordinary Shares in issue at the date of this announcement
"Flexipol"	Flexipol Packaging Limited, a private limited company incorporated in England & Wales under registered number 02963868and having its registered office at Unit 11, Brentwood Road, Carrs Industrial Estate, Haslingden Rossendale, Lancashire BB4 5HH
"General Meeting"	the general meeting of the Company to be convened for 10.00 a.m. on 20  November 2014
"Group" "Joint Brokers"	the Company and its subsidiary undertakings Cenkos and Allenby Capital
"Ordinary Shares"	ordinary shares of 1p each in the share capital of the Company
"Placees"	the subscribers for Placing Shares pursuant to the Placing
"Placing"	the conditional placing of the Placing Shares at the Placing Price pursuant to the Placing Agreement
"Placing Agreement"	the conditional agreement dated on or around 3 November 2014 between the Company and the Joint Brokers
"Placing Price"	98 pence per Placing Share
"Placing Shares"	the up to 5,102,041 new Ordinary Shares to be issued pursuant to the Placing which have been conditionally placed by Cenkos and Allenby Capital
"Proposed Acquisition"	the proposed acquisition by the Company's wholly owned subsidiary, Plastics Capital Trading Limited of Flexipol pursuant to the terms of the Acquisition Agreement
"Shareholders"	holders of Existing Ordinary Shares and the term "Shareholder" shall be construed accordingly

IMPORTANT NOTICE

The information contained in this announcement is restricted and unless an available exemption applies is not for release, publication or distribution, directly or indirectly, in whole or in part, in, into or from the United States (including its territories and possessions, any state of the United States and the District of Columbia, collectively the "United States") Australia, Canada, Japan or South Africa or any jurisdiction in which the same would be unlawful. This announcement is for information purposes only, does not constitute a recommendation regarding the Placing and does not constitute an offer or invitation to sell or issue or the solicitation of an offer to buy, acquire or subscribe for any shares in the capital of the Company.  In particular, this announcement does not constitute an offer or invitation to sell or issue or the solicitation of an offer to buy, acquire or subscribe for any shares in the capital of the Company in the United States, Australia, Canada, Japan or South Africa or any other jurisdiction where such offer or solicitation may be unlawful or require preparation of any prospectus or other offer documentation or would be unlawful prior to registration, exemption from registration or qualification under the securities laws of any such jurisdiction.  Any failure to comply with the restrictions set out in this important notice may constitute a violation of the securities laws of such jurisdictions.  

The securities referred to herein may not unless an available exemption applies be offered or sold in the United States, Canada, Japan, South Africa or Australia or to, or for the account or benefit of any national resident or citizen of the United States, Canada, Japan, South Africa or Australia.  The Placing Shares have not been and will not be registered under the United States Securities Act of 1933, as amended ("Securities Act") or the securities laws of any other jurisdiction of the United States, and may not be offered, sold or transferred, directly or indirectly, in the United States absent registration under the Securities Act except pursuant to an available exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and the securities laws of any other jurisdiction of the United States. No public offering of the shares referred to in this announcement is being made in the United States, the United Kingdom or any other jurisdiction.

The distribution of this announcement and the offering of the Placing Shares in certain jurisdictions may be restricted by law.  No action has been taken by the Company, Cenkos or Allenby Capital that would permit an offering of such shares or possession or distribution of this announcement or any other offering or publicity materials relating to such shares in any jurisdiction where action for that purpose is required. Persons into whose possession this announcement comes are required by the Company, Cenkos and Allenby Capital to inform themselves about, and to observe, such restrictions.

The Placing Shares have not been approved or disapproved by the U.S. Securities and Exchange Commission (the "SEC"), any state securities commission in the United States or any other US regulatory authority , nor have any of the foregoing authorities passed upon or endorsed the merits of the Placing or the accuracy or adequacy of this announcement. Any representation to the contrary is a criminal offence in the United States.

The relevant clearances have not been, and nor will they be, obtained from the securities commission of any province or territory of Canada, no prospectus has been lodged with, or registered by, the Australian Securities and Investments Commission, the Japanese Ministry of Finance or the South African Financial Services Board and the Placing Shares have not been, and nor will they be, registered under or offered (save to the extent an available extension applies) in compliance with the securities laws of any state, province or territory of Canada, Japan, Australia or South Africa.  Accordingly, the Placing Shares may not (unless an exemption under the relevant securities laws is applicable) be offered, sold, resold or delivered, directly or indirectly, in or into the United States, Canada, Australia, South Africa or Japan or any other jurisdiction outside the United Kingdom.

The information in this announcement may not be forwarded or distributed to any other person and may not be reproduced in any manner whatsoever. Any forwarding, distribution, reproduction, or disclosure of this information in whole or in part is unauthorised. Failure to comply with this directive may result in a violation of the Securities Act or the applicable laws of other jurisdictions. Persons (including, without limitation, nominees and trustees) who have a contractual or other legal obligation to forward a copy of this announcement should seek appropriate advice before taking any action. 

This announcement does not constitute, and the Company is not making, an offer to the public of transferable securities within the meaning of sections 85 and 102B of the Financial Services and Markets Act 2000.  This announcement is therefore not an approved prospectus for the purposes of section 85 of FSMA, and has not been prepared in accordance with the prospectus rules of the Financial Conduct Authority ("FCA") and as such neither its contents nor its issue have been approved by the FCA or by an authority which would be a competent authority for the purposes of any legislation that implements the Prospectus Directive.

This announcement contains (or may contain) certain forward-looking statements with respect to certain of the Company's current expectations and projections about future events. These statements, which sometimes use words such as "aim", "anticipate", "believe", "intend", "plan", "estimate", "expect" and words of similar meaning, reflect the directors' beliefs and expectations and involve a number of risks, uncertainties and assumptions that could cause actual results and performance to differ materially from any expected future results or performance expressed or implied by the forward-looking statement. Statements contained in this announcement regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. The information contained in this announcement is subject to change without notice and, except as required by applicable law, the Company does not assume any responsibility or obligation to update publicly or review any of the forward-looking statements contained herein. Investors should not place undue reliance on forward-looking statements, which speak only as of the date of this announcement. No statement in this announcement is or is intended to be a profit forecast or profit estimate or to imply that the earnings of the Company for the current or future financial years will necessarily match or exceed the historical or published earnings of the Company. The price of shares and the income from them may go down as well as up and investors may not get back the full amount invested on disposal of the shares.  Past performance is no guide to future performance and persons who require advice should consult an independent financial advisor.

Cenkos, which is authorised and regulated in the United Kingdom by the FCA, is the Company's Nominated Adviser. The responsibilities of Cenkos, as Nominated Adviser under the AIM Rules and the AIM Rules for Nominated Advisers, are owed solely to the London Stock Exchange and are not owed to the Company, any Shareholder or any Director of the Company or to any other person in respect of his or her decision to acquire Placing Shares.  Cenkos is acting exclusively for the Company and for no one else in relation to the Placing and Admission and will not be responsible to any person other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Placing, Admission or otherwise.  Allenby Capital, which is authorised and regulated in the United Kingdom by the FCA, is acting exclusively for the Company and for no one else in relation to the Placing and Admission and will not be responsible to any person other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Placing, Admission or otherwise.

No representation or warranty, express or implied, is or will be made by or on behalf of Cenkos and Allenby Capital, and no responsibility or liability is or will be accepted by Cenkos and Allenby Capital or any of their affiliates, as to the accuracy, completeness or verification of the information set out in this announcement, and nothing contained in this announcement is, or shall be relied upon as, a promise or representation in this respect, whether as to the past or the future.  Cenkos, Allenby Capital and their affiliates accordingly disclaim, to the fullest extent permitted by law, all and any liability whether arising in tort, contract or otherwise which they might otherwise have in respect of this announcement.

The Placing Shares will not be admitted to trading on any stock exchange other than the AIM market of the London Stock Exchange.

Neither the content of the Company's website nor any website accessible by hyperlinks on the Company's website is incorporated in, or forms part of, this announcement.

This announcement has been prepared for the purposes of complying with applicable law and regulation in the United Kingdom and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws and regulations of any jurisdiction outside the United Kingdom.

 

END

 

 

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