Confirmation of successful £10 million fundraise

RNS Number : 1521Z

Flowtech Fluidpower PLC

10 March 2017

 

10 March 2017

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, THE REPUBLIC OF SOUTH AFRICA, THE REPUBLIC OF IRELAND, NEW ZEALAND OR ANY OTHER JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL.

THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND DOES NOT CONSTITUTE OR CONTAIN ANY INVITATION, SOLICITATION, RECOMMENDATION, OFFER OR ADVICE TO ANY PERSON TO SUBSCRIBE FOR, OTHERWISE ACQUIRE OR DISPOSE OF ANY SECURITIES IN FLOWTECH FLUIDPOWER PLC OR ANY OTHER ENTITY IN ANY JURISDICTION.

This announcement contains inside information

Flowtech Fluidpower plc

("Flowtech", the "Group" or the "Company")

Confirmation of successful £10 million fundraise subject to shareholder approval

Flowtech (AIM: FLO), the specialist technical fluid power products supplier, is pleased to announce that, following the announcement of 9 March 2017 entitled "Proposed Accelerated Bookbuild to raise up to £10 million", the Company has raised a total of £10 million (before expenses) by means of an accelerated bookbuild with new and existing investors, of 8,333,333 Placing Shares at a price of 120 pence per share.

The Placing is subject to the passing of certain resolutions at the General Meeting. Shareholder approval in respect of the Placing will be sought at the General Meeting. Provided that the Resolutions are passed and the Placing has otherwise become unconditional, completion of the Placing is expected to take place on 30 March 2017.

Key Highlights

·     Oversubscribed placing to raise £10 million through the issue of 8,333,333 Placing Shares

·     Placing Price of 120 pence per Placing Share

·     The Placing is with existing and new institutional and other investors

Zeus Capital and finnCap acted as joint bookrunners in respect of the accelerated bookbuild.

Bryce Brooks, CFO, said:

"We are pleased to announce this successful placing to raise £10 million which demonstrates clear support from both new and existing shareholders.

Since listing, Flowtech has a proven track record of successfully integrating acquisitions and the proceeds of the placing will help to ensure that we have the required capital to fund our current acquisition pipeline and support future growth."

General Meeting

A Circular, extracts of which are set out below, and a notice of General Meeting will be posted to Shareholders shortly to explain the background to the Placing, to set out the reasons why the Board believes it to be in the best interests of the Company and its Shareholders and to seek Shareholder approval for the Resolutions at the General Meeting, which is being convened for 11:00 a.m. on 29 March 2017 at the offices of DLA Piper UK LLP, 1 St Peter's Square, Manchester M2 3DE.

Unless otherwise defined, all capitalised terms in this announcement are defined at the end of this announcement.

Additional information relating to the Placing is contained below in this announcement.

For further information please visit www.flowtechfluidpower.com or contact:

Flowtech Fluidpower plc Sean Fennon, CEO Bryce Brooks, CFO	[phone]
Zeus Capital (Nominated Adviser & Joint Broker) Andrew Jones / Jonathan Sharp (Corporate Finance) Dominic King (Broking)	[phone]
finnCap (Joint Broker) Ed Frisby / Kate Bannatyne (Corporate Finance) Rhys Williams / Emily Morris (Sales and Broking)	[phone]
Media enquiries: TooleyStreet Communications Fiona Tooley	[phone]

About Flowtech Fluidpower plc:

Flowtech Fluidpower plc, founded as Flowtech in 1983, is the UK's leading specialist supplier of technical fluid power products.  The Group has three divisions: Flowtechnology, Power Motion Control and Process.  All three of the Group's divisions have overlapping product sets, allowing procurement synergies to be maximised.

The Flowtechnology division focuses on supplying distributors and resellers of industrial MRO (maintenance, repair and operation) products, primarily serving urgent orders rather than bulk offerings. It is formed from Flowtechnology UK, Flowtechnology Benelux and Indequip.  It offers an unrivalled range of Original Equipment Manufacturer (OEM) and Exclusive Brand products to over 3,400 distributors and resellers and the catalogues are recognised as the definitive source for fluid power products, containing 100,000 individual product lines and are distributed to more than 80,000 industrial Maintenance, Repair and Overhaul end users (MRO).  The Power Motion Control division specialises in the design, assembly and supply of engineering components and hydraulic systems and is further enhanced by a service and repair function.  The division is formed from Primary Fluid Power, Nelson Hydraulics, TSL Fluidpower and HTL. The Process division focuses on the supply of industrial components to the process sectors. 

The Group's main distribution centre is in Skelmersdale, Lancashire with further distribution centres in the Netherlands and China.  The Power Motion Control division (PMC) has operations in Merseyside, Northern Ireland, the Republic of Ireland, Yorkshire and Shropshire; Process operates from the West Midlands. In total the business employs 349 people.

Information relating to the Placing

1.   Introduction

The Company announced today that it proposes to undertake a Placing to raise approximately

£10 million (before expenses) through the issue of Placing Shares at an issue price of 120 pence per Placing Share.

The Issue Price represents a discount of 3.2 per cent. to the Closing Price on the Latest Practicable Date. 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 occur on 30 March 2017. The Placing is conditional, inter alia, on the passing of certain resolutions at the General Meeting.

The purpose of this announcement is to set out the background to, and the reasons for, the Placing. It explains why the Directors consider the Placing to be in the best interests of the Company and its Shareholders as a whole. It also recommends that Shareholders vote in favour of the Resolutions to be proposed at the General Meeting, as the Directors intend to do themselves in respect of their own beneficial shareholdings.

Shareholder approval will be sought in respect of the Placing at the General Meeting which is convened for 11:00 a.m. on 29 March 2017 at the offices of DLA Piper UK LLP, 1 St Peter's Square, Manchester M2 3DE.

2.   Background to and reasons for the Placing and use of proceeds

The Company's long term growth model is based on both organic growth, coupled with complementary acquisitions in the UK and Europe in a fragmented market place. Since its admission to AIM on 21 May 2014, the Company has completed seven acquisitions:

·      Primary Fluid Power Limited, completed on 4 August 2014;

·      Albroco Limited, completed on 29 May 2015;

·      Nelson Hydraulics Limited, completed on 3 July 2015;

·      Indequip Limited, completed on 19 February 2016;

·      Hydravalve Limited, completed on 18 March 2016;

·      Triple Six Limited, completed on 29 July 2016; and

·      Hydraulics and Transmissions Limited, completed on 21 January 2017.

The Directors believe that these acquisitions have been integrated successfully and are all delivering benefits to the Company.

The Directors have identified over 25 acquisition targets, some of which they are in active discussions with. These targets are located in the UK and mainland Europe, across the Flowtechnology, Power Motion Control, and Process divisions.

The acquisitions to date have been funded through a combination of cash reserves and existing debt facilities. In order to keep the business appropriately leveraged the board have considered a variety of funding options, including an equity and convertible debt package, to fund the acquisition pipeline in the short to medium term. The Directors believe that it is in the best interests of the Company and the Shareholders to fund the acquisition pipeline through the Placing and may seek in future additional debt funding, whilst considering the overall level of leverage.

3.   Current trading and outlook

On 23 January 2017 the Company announced a trading update on its performance for the year ended 31 December 2016. The key highlights of the announcement are summarised as follows:

·      Group revenue was c.19.9% up on 2015 at approximately c.£53.7 million (c.19.3% in constant currency)

·      British Fluid Power Distributors Association Market Survey indicates 2016 fluid power overall distributor sales growth was negative 3.9% (hydraulics -5.9%, pneumatics +0.2%)

·      Post Brexit currency movements with resultant impact on input prices have to date been successfully passed on to customers due to our flexible pricing model, with 2016 exit margins maintained.  However, some margin contraction was experienced in H2 while prices were managed upwards on products sourced in Euro and USD and sold in GBP markets

·      Three acquisitions successfully integrated into the Group, each delivering benefits, and a third "Process" division established focused on process industries, including Pharma, Environmental, and Steam

·      Net debt at year end was c.£13.0 million

·      Investment in central and sales resources aimed at optimising cross channel opportunities, and future acquisition integration programme underpinning long term growth

·      As a result of these investments and the gross margin contraction in H2, the Board expects underlying PBT will be in the range £7.0m to £7.2m.

The Directors are pleased to report that the Company continues to trade in line with current market expectations and they remain confident in the Company's performance and future.

4.   Details of the Placing

Structure

The Directors have given careful consideration as to the structure of the proposed fundraising and have concluded that the Placing is the most suitable option available to the Company and its Shareholders at this time.

Placing Shares will be issued through the Placing at 120 pence per Placing Share to raise gross proceeds of approximately £10 million.

Principal terms of the Placing

The Company is proposing to issue Placing Shares pursuant to the Placing. In accordance with the terms of the Placing Agreement, Zeus Capital and finnCap have, as agents for the Company, conditionally placed, with institutional and other investors, the Placing Shares at the Issue Price to raise approximately £10 million.

The Placing is not being underwritten.

Under the Placing Agreement, the Company has agreed to pay to Zeus Capital and finnCap a fixed sum together with a commission based on the aggregate value of certain of the Placing Shares placed at the Issue Price and the costs and expenses of the Placing together with any applicable VAT.

Conditionality

The Placing is conditional, inter alia, upon the following:

·      the passing, without amendment, of resolutions 1 and 3 of the Resolutions at the General Meeting;

·      Admission occurring by no later than 8:00 a.m. on 30 March 2017 (or such later times and/or dates as may be agreed between the Company, Zeus Capital and finnCap, being no later than 5:00 p.m. on 28 April 2017); and

·      the Placing Agreement becoming unconditional in all respects (save for the condition relating to Admission) and not having been terminated in accordance with its terms.

If the conditions set out above are not satisfied or waived (where capable of waiver), the Placing will lapse and the Placing Shares will not be issued and all monies received from investors in respect of the Placing Shares will be returned to them (at the investors' risk and without interest) as soon as possible thereafter.

Application for Admission

Application will be made to the London Stock Exchange for the Placing Shares to be admitted to trading on AIM. Admission of the Placing Shares is expected to take place, and dealings on AIM are expected to commence, at 8:00 a.m. on 30 March 2017 (or such later time and/or dates as may be agreed between the Company, Zeus Capital and finnCap). No temporary document of title will be issued.

The Placing Shares will, following Admission, rank pari passu in all respects with the Existing Ordinary Shares in issue at the date of this document and will carry the right to receive all dividends and distributions declared, made or paid on or in respect of the Ordinary Shares after Admission.

5.   Effect of the Placing

Upon completion of the Placing the Placing Shares will represent approximately 16.2 per cent. of the Enlarged Share Capital.

6.   The Placing Agreement

Pursuant to the terms of the Placing Agreement, Zeus Capital and finnCap, as agents for the Company, have agreed to use their reasonable endeavours to procure subscribers for the Placing Shares at the Issue Price. The Placing Agreement is conditional upon, among other things, the conditions set out above and none of the warranties or undertakings given to Zeus Capital and finnCap prior to Admission being or becoming untrue, inaccurate or misleading in any material respect.

The Placing Agreement contains customary warranties given by the Company in favour of Zeus Capital and finnCap in relation to, inter alia, the accuracy of the information in this document and other matters relating to the Group and its business. In addition, the Company has agreed to indemnify Zeus Capital and finnCap (and their affiliates) in relation to certain liabilities which they may incur in respect of the Placing.

Zeus Capital and finnCap have the right to terminate the Placing Agreement in certain circumstances prior to Admission. In particular, in the event of a material breach of the warranties or a material adverse change or if the Placing Agreement does not become unconditional.

7.   General Meeting

The General Meeting of the Company, notice of which is set out at the end of this document, is to be held at 11:00 a.m. on 29 March 2017 at the offices of DLA Piper UK LLP, 1 St Peter's Square, Manchester M2 3DE. The General Meeting is being held for the purpose of considering and, if thought fit, passing the Resolutions to approve the Placing.

8.   Related party transactions

The following Related Parties (as defined in the AIM Rules for Companies) will be participating in the Placing.

Related Party	Current Holding	% of Existing Ordinary Shares	Subscription	Holding post subscription	% of Enlarged Share Capital
Miton Asset Management	6,373,172	14.8%	583,334	6,956,506	13.5%
Premier Asset Management	5,600,650	13.0%	850,000	6,450,650	12.5%

The Directors, consider, having consulted with the Company's nominated adviser, Zeus Capital, that the terms of the Related Parties' participation in the Placing are fair and reasonable insofar as the Company's Shareholders are concerned.

9.   Recommendation and voting intentions

The Directors believe that the Placing is in the best interests of the Company and its Shareholders as a whole.

Accordingly, the Directors unanimously recommend that you vote in favour of the Resolutions as they and Shareholders connected with them intend to do so in respect of their aggregate

beneficial holdings of the Existing Issued Share Capital.

DEFINITIONS

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

Admission	admission of the Placing Shares to trading on AIM and such admission becoming effective in accordance with the AIM Rules;
AIM	the AIM market operated by the London Stock Exchange;
AIM Rules	the AIM Rules for Companies and/or the AIM Rules for Nominated Advisers (as the context may require);
AIM Rules for Companies	the rules of AIM as set out in the publication entitled 'AIM Rules for Companies' published by the London Stock Exchange from time to time;
AIM Rules for Nominated Advisers	the rules of AIM as set out in the publication entitled 'AIM Rules for Nominated Advisers' published by the London Stock Exchange from time to time;
Board or Directors	the board of directors of the Company for the time being;
Brokers	finnCap and Zeus Capital or either one of them as the context may require;
Business Day	any day (excluding Saturdays and Sundays) on which banks are open in London for normal banking business and the London Stock Exchange is open for trading;
Capita Asset Services	a trading name of Capita Registrars Limited, a company incorporated in England and Wales with registered number 02605568 and having its registered office at The Registry, Beckenham, Kent BR3 4TU;
certificated or in certificated form	the description of a share or other security which is not in uncertificated form (that is not in CREST);
Circular	means the circular to be issued by the Company to the holders of Ordinary Shares containing, inter alia, details of the Placing and the Notice of General Meeting;
Closing Price	the closing middle market quotation of an Ordinary Share as derived from the AIM Appendix to the Daily Official List of the London Stock Exchange;
Company or Flowtech	Flowtech Fluidpower plc, a company incorporated in England and Wales with registered number 09010518 and having its registered office at Pimbo Road, Skelmersdale, WN8 9RB
CREST	the relevant system (as defined in the CREST Regulations) in respect of which Euroclear is the Operator (as defined in the CREST Regulations);
Enlarged Share Capital	the issued share capital of the Company immediately following Admission;
EU	the European Union;
Euroclear	Euroclear UK & Ireland Limited;
Existing Issued Share Capital	the issued share capital of the Company as at the Latest Practicable Date;
Existing Ordinary Shares	the 43,078,282 Ordinary Shares in issue as at the Record Date;
FCA	the UK Financial Conduct Authority;
finnCap or finnCap Limited	finnCap Limited, a company incorporated in England and Wales with registered company number 06198898, authorised and regulated by the FCA;
Form of Proxy	the form of proxy accompanying this document relating to the General Meeting;
FSMA	the UK Financial Services and Markets Act 2000, as amended;
General Meeting or GM	the general meeting of the Company, notice of which is set out at the end of this document, and including any adjournment(s) thereof;
Group or Flowtech	the Company and/or its subsidiary undertakings at the date of this document (as defined in sections 1159 and 1160 of the Act);
Impact Announcement	the Company's proposed regulatory announcement of the Placing;
Issue Price or Placing Price	120 pence per Placing Share;
Latest Practicable Date	means 5:00 p.m. on 8 March 2017, being the latest practicable date prior to the announcement by the Company of its intention to undertake the Placing;
London Stock Exchange	London Stock Exchange plc;
Notice of General Meeting	means the notice convening the General Meeting which will be set out at the end of the Circular;
Options	options granted by the Company over unissued Ordinary Shares pursuant to employee share option schemes and rights to subscribe for shares pursuant to employee and non executive long term incentive plans put in place by the Company;
Option Holders	the employees of the Company (including Directors) who hold Options;
Ordinary Shares	ordinary shares of 50 pence each in the capital of the Company;
Placees	the persons who have agreed to subscribe for the Placing Shares;
Placing	the placing of the Placing Shares with the Placees pursuant to the Placing Agreement;
Placing Agreement	the conditional agreement dated 9 March 2017 between the Company, Zeus Capital Limited and finnCap Limited relating to the Placing;
Placing Shares	the 8,333,333 new Ordinary Shares to be issued by the Company under the Placing;
Prospectus Rules	the Prospectus Rules published by the FCA;
Record Date	5:00 p.m. on 8 March 2017;
Registrars	Capita Asset Services, a trading name of Capita Registrars Limited;
Regulatory Information Service or       RNS	has the meaning given in the AIM Rules for Companies;
Resolutions	the resolutions to be proposed at the General Meeting which are set out in full in the Notice of General Meeting;
Shareholders	holders of Existing Ordinary Shares;
uncertificated	recorded on a register of securities maintained by Euroclear in accordance with the CREST Regulations as being in uncertificated form in CREST and title to which, by virtue of the CREST Regulations, may be transferred by means of CREST;
UK or United Kingdom	the United Kingdom of England, Scotland, Wales and Northern Ireland;
Zeus Capital or Zeus Capital Limited	Zeus Capital Limited, a company incorporated in England and Wales with registered company number 04417845, authorised and regulated by the FCA;
£ or sterling	pounds sterling, the legal currency of the United Kingdom; and

Forward-looking statements

 This announcement contains statements about Flowtech that are or may be deemed to be "forward-looking statements".

 All statements, other than statements of historical facts, included in this announcement may be forward-looking statements. Without limitation, any statements preceded or followed by, or that include, the words "targets", "plans", "believes", "expects", "aims", "intends", "will", "may", "should", "anticipates", "estimates", "projects", "would", "could", "continue" or words or terms of similar substance or the negative thereof, are forward-looking statements. Forward-looking statements include, without limitation, statements relating to the following: (i) future capital expenditures, expenses, revenues, earnings, synergies, economic performance, indebtedness, financial condition, dividend policy, losses and future prospects and (ii) business and management strategies and the expansion and growth of the operations of Flowtech.

 These forward-looking statements are not guarantees of future performance. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of any such person, or industry results, to be materially different from any results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements are based on numerous assumptions regarding the present and future business strategies of such persons and the environment in which each will operate in the future. Investors should not place undue reliance on such forward-looking statements and, save as is required by law or regulation (including to meet the requirements of the AIM Rules, the Prospectus Rules and/or the FSMA), Flowtech does not undertake any obligation to update publicly or revise any forward-looking statements (including to reflect any change in expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based). All subsequent oral or written forward-looking statements attributed to Flowtech Fluidpower plc or any persons acting on their behalf are expressly qualified in their entirety by the cautionary statement above. All forward-looking statements contained in this announcement are based on information available to the Directors of Flowtech at the date of this announcement, unless some other time is specified in relation to them, and the posting or receipt of this announcement shall not give rise to any implication that there has been no change in the facts set forth herein since such date.

 

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