Placing, Acquisition and Noti

RNS Number : 9008M

TEG Group (The) PLC

02 June 2010

 



NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES OF AMERICA, CANADA, AUSTRALIA, THE REPUBLIC OF SOUTH AFRICA OR JAPAN.

Neither this announcement nor any copy of it may be taken, transmitted or distributed, directly or indirectly, in or into the United States, Canada, Australia, the Republic of South Africa or Japan. Any failure to comply with this restriction may constitute a violation of United States, Canadian, Australian, the Republic of South Africa or Japanese securities laws.

2 June 2010

The TEG Group Plc

Placing, Acquisition and Notice of General Meeting

The Company is pleased to announce that it has entered into an agreement to acquire the entire issued share capital of Simpro Limited ("Simpro"), the independent owner of six composting sites based in the Midlands (the "Acquisition"). The Company also announces a successful placing to institutional investors of 20,598,484 new ordinary shares at a placing price of 33 pence per share ("Placing Price"), raising £6.8 million before expenses to finance the cash element of the Acquisition consideration and to provide development capital for other of the Company's projects (the "Placing").

Highlights

·     Simpro is profitable and cash generative and will bring immediate revenues and cash-flow

·     Acquisition of 6 operational composting sites in the Midlands giving the Company a total of 10 operating sites in the UK, increasing total processing capacity from 115,000 tpa to 295,000 tpa

·     No geographic overlap with TEG's existing operations

·     Very good potential to enhance revenues significantly by upgrading the sites with IVC and AD plants

·     One site already has planning permission for IVC and further sites have already been assessed as being suitable for IVC and/or AD

·     Gives TEG necessary "overflow" capacity from some of its existing North West contracts

·     Simpro has a strong contract bank and excellent relationships with local authorities

·     Consideration of £4.85m in cash on Completion, £0.40m in Ordinary Shares on Completion and a further maximum £0.75m of deferred consideration to be satisfied in Deferred Consideration Shares, subject, inter alia,  to specific performance criteria

·     Successful placing of new ordinary shares to institutional investors raising £6.8m before expenses, to be used both to satisfy the cash element of the Acquisition consideration and to fund the development of further TEG owned plants

·     Placing and Acquisition both conditional, inter alia, upon shareholder approval

Nigel Moore, Chairman of TEG, commented "We are delighted to have agreed the acquisition of Simpro, which is a leading composting business in the Midlands.  In addition to immediate revenues and cash-flow, the acquisition brings tremendous potential for further expansion using TEG's IVC and AD technology, allowing us to significantly enhance revenues by securing food waste contracts in the Midlands region.  Simpro is an ideal fit with TEG and following the very successful acquisition of TEG's Carleton Rode site in 2009, we expect this acquisition to enhance the Company significantly.  TEG is now a truly national business with sites and operations throughout the UK."

Contacts:

The TEG Group plc

Mick Fishwick, Chief Executive                                                           01772 644980

Peckwater PR

Tarquin Edwards / Chris Steele                             07879 458 364 / 020 7808 7340

Canaccord Genuity Limited

Robert Finlay                                                                                       020 7050 6500

Guy Blakeney       

Legal notice

Canaccord Genuity Limited (which is authorised and regulated in the United Kingdom by the Financial Services Authority) is acting solely for The TEG Group plc in connection with the Placing and is not acting for any person other than The TEG Group plc and will not be responsible for any person other than The TEG Group plc for providing the protections afforded to customers of Canaccord Genuity Limited or for providing advice to any person in connection with the matters described in this announcement.

This announcement does not constitute, or form any part of, an offer or solicitation of an offer to subscribe for the Placing Shares.

The release, publication or distribution of this announcement in certain jurisdictions may be restricted by law and therefore persons in such jurisdictions into which this announcement is released, published or distributed should inform themselves about and observe such restrictions.

No offer, invitation or inducement to acquire shares or other securities in TEG is being made by this announcement.

This announcement contains (or may contain) certain forward-looking statements with respect to the Company and certain of its current goals and expectations relating to its future financial condition and performance and which involve a number of risks and uncertainties. The Company cautions readers that no forward-looking statement is a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statements. These forward-looking statements sometimes use words such as "aim", "anticipate", "target", "expect", "estimate", "intend", "plan", "goal", "believe", or other words of similar meaning. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances, including, but not limited to, economic and business conditions, the effects of continued volatility in credit markets, market-related risks such as changes in the price of oil or changes in interest rates and foreign exchange rates, the policies and actions of governmental and regulatory authorities, changes in legislation, the further development of standards and interpretations under International Financial Reporting Standards ("IFRS") applicable to past, current and future periods, evolving practices with regard to the interpretation and application of standards under IFRS, the outcome of pending and future litigation or regulatory investigations, the success of future exploration, acquisitions and other strategic transactions and the impact of competition. A number of these factors are beyond the Company's control. As a result, the Company's actual future results may differ materially from the plans, goals and expectations set forth in the Company's forward-looking statements. Any forward-looking statements made in this announcement by or on behalf of the Company speak only as at the date they are made. Except as required by the Financial Services Authority, the London Stock Exchange plc or applicable law, the Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this announcement to reflect any changes in the Company's expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based.

This announcement is not an invitation nor is it intended to be an inducement to engage in investment activity for the purpose of section 21 of FSMA. The Placing Shares are in any event being placed only with (i) persons who have professional experience in matters relating to investments and who are investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 of the United Kingdom (the "Financial Promotion Order"); (ii) persons who fall within Article 49(2)(a) to (d) ("high net worth companies, unincorporated associations etc.") of the Financial Promotion Order; or (iii) other persons to whom the Placing Shares may otherwise lawfully be placed (all such persons together being referred to as "relevant persons"). Any investment or investment activity to which this announcement relates is available only to relevant persons and will be engaged in only with relevant persons. Anyone other than a relevant person must not rely on this announcement.

The Placing Shares have not been, and nor will they be, registered under the United States Securities Act of 1933 as amended (the "Securities Act") or qualified for sale under the laws of any state of the United States or under the applicable laws of any of Canada, Australia, the Republic of South Africa, the Republic of Ireland or Japan and, subject to certain exceptions, may not be offered or sold in the United States or to, or for the account or benefit of, US persons (as such term is defined in Regulation S under the Securities Act) or to any national or resident of Canada, Australia, the Republic of South Africa, the Republic of Ireland or Japan.

1.         Introduction

The Company is pleased to announce that it has conditionally agreed to acquire Simpro Limited, a leading independent regional composting business based in the Midlands. The consideration is £4.85m in cash upon Completion, £0.40m in Ordinary Shares to be issued upon Completion (Completion Consideration Shares) and £0.75m in deferred consideration, to be satisfied by the issue of Ordinary Shares upon satisfaction of certain performance criteria (Deferred Consideration Shares).

The Company is also pleased to announce that, subject inter alia to shareholder approval, it has conditionally raised £6.8 million before expenses through the Placing of 20,598,484 new Ordinary Shares at 33p per share.

The Placing is subject to approval by Shareholders at a General Meeting to be held at Westmarch House, 42 Eaton Avenue, Buckshaw Village, Chorley, PR7 7NA at 10:00 a.m. on 17 June 2010, and Admission of the Placing Shares to trading on AIM.

If the Resolutions are duly passed, it is expected that the Placing Shares will be admitted to trading on AIM on 18 June 2010.

The Circular setting out details of the Acquisition and Placing and the Notice of General Meeting has today been sent to Shareholders.

2.         Background to the Acquisition

TEG has conditionally agreed to acquire Simpro, a leading independent regional composting business based in the Midlands. The Directors believe that the acquisition of Simpro is an excellent strategic fit for the Group and that the Acquisition represents a major step forward in the expansion of TEG's waste management operations in the UK.

.

The Directors believe that there are various compelling strategic reasons for the Acquisition, including:

Strong financials and excellent platform for further growth

Simpro is currently profitable and cash generative, and will bring immediate revenues and cash flow to the Company post-acquisition.  The business benefits from planning permission for an in vessel composting ('IVC') facility at one of its sites where there is potential for expansion and AD technology.  Three further sites offer the potential for IVC and anaerobic digestion  ('AD') development. 

Simpro is also part of a consortium that is preferred bidder for a significant local authority contract.

Site development

The six sites currently process only green waste and the Directors expect that installation of IVC or AD will considerably enhance revenues and profitability as higher value food waste can be introduced and overall capacity is filled.  A number of local authorities in the region are expected to commence food waste collections in the near term.

In addition, the Environment Agency is expected to announce a policy that will restrict new open windrow developments and increase pressure for the enclosure of composting facilities. The acquisition will provide TEG with further existing capacity and TEG is ideally placed to take advantage of the policy change through the application of its IVC and AD capabilities.

No competing technology on sites

As the six sites are currently green waste windrow only, TEG will be able to install and operate its own technologies without having to incur the time and financial cost of dismantling any pre-existing unsuitable technology before installing its own plants.

Multiple sites

The Acquisition will more than double the number of sites operated by TEG, with the Company managing 10 sites following the Acquisition. The Directors believe that Simpro's six sites offer an excellent platform for further growth of the Company's own operations. TEG's total process capacity will, on completion of the Acquisition, increase from 115,000 tpa to 295,000 tpa.

No geographic overlap

The six sites operated by Simpro are ideally placed for expansion into the Midlands region of the UK. TEG does not have a presence in this region and there is no geographical overlap or competition with any of TEG's existing business. However, the sites are close enough to existing operations to be used to provide contingency capacity and "overflow" for TEG's existing North West contracts.  This is particularly helpful in the summer period when green waste volumes reach a peak.

Contracts and local authority relationships

Simpro has a solid bank of quality contracts in place with local authorities and major waste management companies, and it has very well developed customer relationships in the Midlands region.  In addition to the immediate security of revenues, the Directors believe Simpro is well placed to bid for future local authority contracts such as higher value food waste contracts, as and when they arise.

Compost product quality

All the Simpro sites have achieved PAS100 standard for the compost product but currently have no positive sales.  This offers further potential value to TEG's subsidiary, NOFCO Limited, through enhanced product sales.

3.         Information on Simpro Limited

Simpro is a regional composting business based in the Midlands, established by the Vendors in 1997. It operates six sites processing green waste in open windrows. The sites are located near to the urban centres of Wolverhampton, Stoke-on-Trent, Coventry, Nottingham, Telford and Warwick.

Simpro currently processes approximately 120-125,000 tonnes per annum of green waste, with approximately 101,000 tonnes under contract for 2010, the remainder being supplied on a spot-price basis. Total capacity of the six sites is approximately 180,000 tonnes per annum thereby offering significant upside potential.  Simpro has a number of contracts in place with local authorities and major waste management companies in the region. The sites are all held on a leasehold rather than freehold basis greatly reducing TEG's required capital outlay to acquire the business' operations at these commercially attractive near-urban sites.

Simpro is profitable, cash generative and is debt free. The trading record of Simpro for the three years ended 31 March 2008, 2009 and 2010, extracted from its unaudited financial statements, is detailed below:

	Year ended 31 March
	2008 £ Unaudited	2009 £ Unaudited	2010 £ Unaudited
Turnover	2,827,128	3,357,481	3,534,497
Gross profit	1,173,969	1,296,914	1,210,083
EBITDA (Note 1)	588,815	834,944	961,694
EBIT	332,102	506,907	589,666
Adjusted EBIT (Note 2)	883,526	1,142,076	732,049
Net assets	1,118,305	1,224,190	1,759,160

Note 1:  EBITDA is calculated as EBIT plus depreciation of £256,713, £328,037 and £372,028 in 2008, 2009 and 2010 respectively

Note 2: Adjusted EBIT is calculated as EBIT plus the add back of directors' remuneration, pension contributions and fees

4.         Principal terms of the Acquisition

Under the terms of the Acquisition, TEG will acquire the entire issued share capital of Simpro Limited on a debt-free, cash-free basis for a maximum consideration of £6.0m, to be satisfied:

·    £4.85 million in cash at Completion;

·    £0.4 million by the issue of 1,212,122 Ordinary Shares on Completion; and

·    £0.75 million in Ordinary Shares as deferred consideration upon the satisfaction of certain performance criteria and the expiry of certain indemnity periods.

The Deferred Consideration Shares will be issued at specified periods upon satisfaction of nine specific objectives and the price at which they are issued will be calculated by reference to the prevailing market price at the time the Deferred Consideration Shares are issued. The first such period commences today and will end immediately prior to Admission. As at today's date, one of these specific objectives has been satisfied and, accordingly, the Company is expected, conditional on Admission, to issue Deferred Consideration Shares to the Vendors in respect of £30,000 of the deferred consideration on Completion.

The Acquisition Agreement is conditional upon:

·   The Placing Agreement between TEG and Canaccord having been entered into, having not being terminated and having become unconditional in accordance with its terms;

·   The Resolutions having been passed at the General Meeting; and

·   Admission of the Placing Shares to trading on AIM having taken place

Assuming all conditions are satisfied and that the Placing Agreement has not been terminated in accordance with its terms, the Acquisition will complete upon Admission which is expected to take place on 18 June 2010. 

The Vendors will remain with the business for a minimum of 12 months following the Acquisition to ensure a smooth integration and to ensure operational continuity.

The Acquisition Agreement contains customary warranties and indemnities from the Vendors. In addition, during due diligence, the Company identified an outstanding property issue at one site, and, as such, (i) the Acquisition Agreement contains a specific indemnity to cover such risk and (ii) £100,000 of the initial consideration and £600,000 of deferred consideration will be withheld for minimum periods of 12 and 3 months respectively from Completion.

As the price at which any Deferred Consideration Shares issued to the Vendors will be calculated by reference to the prevailing market price at the time of issue, the Company will be seeking authority pursuant to the ordinary resolution proposed at the General Meeting over an estimated number of Ordinary Shares. The authority granted will only be in connection with the issue of the Deferred Consideration Shares and so will be limited in value to £750,000.

In order to maintain an orderly market in the Ordinary Shares, the Vendors have undertaken to the Company that they shall not (and, in the case of persons connected with them, they shall use all reasonable endeavours to procure that such persons shall not) dispose of any interest in the Completion Consideration Shares or the Deferred Consideration Shares, when issued, or enter into any derivative-type transaction in relation to Completion Consideration Shares or Deferred Consideration Shares, until (i) in the case of the Completion Consideration Shares, 3 months following the issues of the Consideration Shares and (ii) in the case of any Deferred Consideration Shares, 12 months following the issue of the relevant Deferred Consideration Shares.

When issued, the Completion Consideration Shares and Deferred Consideration Shares will rank equally in all respects with the Ordinary Shares then in issue. Application will be made for the Completion Consideration Shares and Deferred Consideration Shares to be admitted to AIM at the appropriate time.

5.         Background to and reasons for the Placing

The Company is also pleased to announce that Canaccord has on the Company's behalf conditionally placed 20,598,484 Placing Shares at a price of 33p with certain institutional investors and directors to raise approximately £6.8 million before expenses on a reasonable endeavours basis. The conditional Placing is not underwritten.

The Placing Price represents a 7.0% discount to the closing mid-market price of 35.5p per Ordinary Share on 1 June 2010 (being the latest practicable date prior to the publication of the Circular).

The Placing Shares will represent approximately 28.0% of the fully diluted share capital as enlarged by the Placing. The Placing Shares have been conditionally placed by Canaccord subject to the terms of the Placing Agreement. The Placing is conditional, inter alia, upon the passing of the Resolutions at the General Meeting.

The Directors have subscribed for 196,970 Ordinary Shares under the Placing.

The Placing Shares will be issued credited as fully paid and will rank pari passu in all respects with the Existing Ordinary Shares, including as to the right to receive and retain all dividends and other distributions declared, made or paid after Admission.

Following the introduction of the Prospectus Rules on 1 July 2005 there has been a significant increase in the costs and the time required for AIM companies to raise new equity capital on a pre-emptive basis.  The Directors believe that the considerable extra cost and delay involved in a rights issue or open offer would not be in the best interests of the Company as a whole, and that the Placing is the most cost effective and expeditious method of raising new equity capital. Accordingly, the Placing Shares have not been and will not be offered generally to Shareholders, whether on a pre-emptive basis or otherwise.

In addition, the Placing Shares are not being made available to the public and are not being offered in any jurisdiction where it would be unlawful to do so. However, Shareholders will be asked to vote on the Resolutions enabling the Placing to complete.

The Placing has been supported by a number of new and existing institutional shareholders and the Directors believe that the support of these institutions demonstrates confidence in TEG, the Acquisition and the Directors' plans for the future development of the Enlarged Group.

In particular Bridges Ventures, an investment company with a core mandate to invest in companies which deliver a positive social and environmental impact, has conditionally agreed to subscribe for 16,666,666 Placing Shares. Following the Placing, Bridges Ventures is expected to hold 22.3 % of the enlarged issued share capital of the Company and, in light of the size of their proposed shareholding, the Company has agreed to appoint a representative from Bridges Ventures to the Board following Admission.

Use of Proceeds

The proceeds of the Placing will primarily be used to

·    fund the cash consideration of £4.85 million in connection with the Acquisition; and

·    to provide funding for further BOO TEG projects.

6.         Admission, settlement and dealings

Application will be made to the London Stock Exchange for Admission of the Placing Shares and the Consideration Shares. It is expected that Admission will become effective and that dealings in the Placing Shares and those Consideration Shares which are to be issued on Admission will commence at 8:00 a.m.(London time) on 18 June 2010.

The Placing Shares will be eligible for CREST settlement. Accordingly, settlement of transactions in the Placing Shares following Admission may take place within CREST if the relevant shareholder so wishes. CREST is a voluntary system and shareholders who wish to receive and retain share certificates will be able to do so.

7.         Current market conditions

The market continues to grow strongly as local authorities increasingly implement the separation of organic wastes from the municipal waste stream.  Statutory obligations to divert waste from landfill are increasing annually and are expected to increase continuously until 2020.  Landfill Tax ("LFT") continues to rise annually and rose by £8 per tonne in April 2010 increasing the tax to a total of £48 per tonne. 

The Group has observed increased levels of local authority procurement activity and anticipates the elevated levels of activity to be maintained for the foreseeable future.  The Group has also noted a significant change in procurement policy by local authorities with more emphasis on the letting of long term contracts in return for private sector investment as opposed to direct plant procurement.

The general market conditions continue to look very favourable for both the IVC and AD prospects.  The Group has noted a significant increase in market interest in energy generation from food waste and an emergence of interest in technologies such as AD.  The recently elected Government has stated an intention to incentivise "huge" expansion of AD in the UK.

Government policy continues to support the expansion of the organic waste market.  In addition to the established LFT and the landfill diversion obligations, the Group has noted significant encouragement towards diversion of organic materials from landfill and has noted a consultation process has commenced with regard to a potential total ban of the disposal of organic materials to landfill.  TEG anticipates Government policy will continue to support the expansion of the market for the foreseeable future.

The Environment Agency is expected to announce an enhanced level of regulation for the composting sector.  This enhanced level of regulation will limit the extent of new open composting capacity and is likely to oblige operators to enhance the level of containment of some of the older existing operations, and the Board also considers it likely that the regulatory pressure will lead to future composting facilities being increasingly "in vessel" further utilising technology such as the TEG silo cages.

Business Strategy

TEG continues to target growth through:

·                Build own and operate projects - these provide sustainable, long term revenues which service the waste outsourcing market while allowing the Company to take advantage of rising prices;

·                Third party sales - these provide large revenues to the Company and services the participants in the market preferring to make capital investments (including the PFI market);

·                IVC and AD technologies - the Company believes that AD offers both defence and opportunities for growth to the Company.

In addition, the Directors believe that, as a function of the Company's scale and the current financial market, opportunities for complimentary acquisitions are growing. The success of the acquisition of Banham Compost Limited demonstrates the opportunities that exist in the market and the Company has identified a number of complimentary, regional businesses as potential targets. The Directors have also identified opportunities for expansion into the related renewable energy markets.

The Directors believe that local authority activity throughout the UK is greater than ever, with a particular focus on Wales, the Midlands and London/South East and the Company continues to target these local authorities and major waste management companies with long term supply agreements to lock in cashflows. These enhance the Company's ability to obtain debt finance.

8.         General Meeting

The Company has sent to Shareholders the Circular setting out details of the Acquisition and Placing together with a Form of Proxy and a Notice convening the General Meeting to be held at Westmarch House, 42 Eaton Avenue, Buckshaw Village, Chorley, PR7 7NA on 17 June 2010 at 10.00 a.m. at which Shareholders will be asked to vote on the Resolutions to approve the allotment and issue of the Placing Shares, the Completion Consideration Shares and the Deferred Consideration Shares, to satisfy the consideration for the Acquisition.

DEFINITIONS AND GLOSSARY

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

"Act"	the Companies Act 2006;
"AD"	anaerobic digestion;
"Admission"	admission of the Placing Shares to trading on AIM and such admission becoming effective in accordance with the AIM Rules;
"AIM"	the market of that name operated by the London Stock Exchange;
"AIM Rules"	the "AIM Rules for Companies" published by the London Stock Exchange as in force at the date of this announcement or, where the content requires, as amended or modified after the date of this announcement;
"Acquisition"	the acquisition by the Company of the entire issued share capital of Simpro;
"Acquisition Agreement"	the conditional share acquisition agreement dated 1 June 2010 between the Company and the Vendors relating to the Acquisition;
"Board" or "Directors"	the board of directors of the Company;
"BOO"	build, own and operate;
"Canaccord"	Canaccord Genuity Limited, the Company's nominated adviser and broker;
"Circular"	the circular sent to Shareholders on 1 June 2010 to include Notice of the General Meeting;
"Company" or "Teg"	The TEG Group plc;
"Completion"	completion of the Acquisition Agreement;
"Completion Consideration Shares"	the 1,212,122 Ordinary Shares to be issued to the Vendors as part of the Consideration;
"Consideration"	the consideration payable under the Acquisition Agreement;
"CREST "	the UK based electronic share settlement platform;
"Deferred Consideration Shares"	the new Ordinary Shares to be issued to the Vendors as part of the Consideration, up to a maximum of £750,000 in value;
"Enlarged Group"	the Group as enlarged by the Acquisition;
"Enlarged Share Capital"	the Existing Ordinary Shares and the Placing Shares;
"Existing Ordinary Shares"	the 53,038,381 Ordinary Shares in issue at the date of this announcement;
"Form of Proxy"	the form of proxy accompanying the Circular for use by Shareholders at the General Meeting;
"FSA"	the UK Financial Services Authority;
"FSMA"	the United Kingdom Financial Services and Markets Act 2000, as amended;
"General Meeting"	the general meeting of the Company to be held at Westmarch House, 42 Eaton Avenue, Buckshaw Village, Chorley, PR7 7NA at 10:00 a.m. on 17 June 2010, notice of which is set out at the end of the Circular;
"Group"	the Company and its subsidiary undertakings at the date of this announcement;
"IVC"	in vessel composting;
"LFT"	any tax on the disposal of material as waste made by way of landfill site charged pursuant to section 40 Finance Act 1996;
"Notice of General Meeting"	the notice convening the General Meeting, as is set out at in the Circular;
"Ordinary Shares"	ordinary shares of 5p each in the capital of the Company;
"Placing"	the conditional placing by Canaccord Genuity of the Placing Shares at the Placing Price;
"Placing Agreement"	the conditional agreement between the Company and Canaccord dated 1 June 2010 regarding the Placing;
"Placing Price"	33p per Placing Share;
"Placing Shares"	the 20,598,484 new Ordinary Shares conditionally placed by Canaccord pursuant to the Placing;
"Prospectus Rules"	the Prospectus Rules published by the FSA;
"Resolutions"	the special resolution and the ordinary resolution to be proposed at the General Meeting in connection with the Acquisition and the Placing;
"Shareholders"	holders of Ordinary Shares;
"Simpro"	Simpro Limited;
"UK"	the United Kingdom of England, Scotland, Wales and Northern Ireland; and
"Vendors"	Anthony Morton Lambert and David Albert Tipton.

 

END

 

 

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