TIDMFLOW
RNS Number : 3863K
Flowgroup plc
10 April 2018
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN
PART, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD
CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH
JURISDICTION.
10 April 2018
Flowgroup plc
("Flowgroup", the "Group" or the "Company")
Proposed sale of Flow Energy Limited
Flowgroup announces that it has entered into a conditional sale
and purchase agreement to sell its main subsidiary, Flow Energy
Limited ("Flow Energy"), to Co-operative Energy Limited ("Co-op
Energy") (the "Sale").
Key points
-- Sale of Flow Energy for a headline purchase price of GBP9.25
million, subject to adjustments to reflect the crystallisation of
payments to suppliers, working capital and other matters
-- In addition, the net cash balances on Flow Energy's third
party collateral deposit accounts as at Completion will be remitted
to the Company as soon as practicable following Completion
-- A general meeting of the Company is to be held to approve the
Sale (requiring an ordinary resolution); the General Meeting is
expected to take place in the second half of April 2018. The Sale
is also conditional on the execution of a revised supply agreement
between Co-op Energy and Shell in respect of the future terms of
energy supply by Shell to Flow Energy
-- The Board has concluded that the Sale represents the best
realistic course of action available to the Company under its
current constraints; proceeds of the Sale are expected to return a
value to ordinary shareholders of GBPnil
-- GBP2.1 million of outstanding FEL Working Capital Loan Notes
are expected to be repaid to Palm and Lombard Odier in full from
proceeds of the Sale; returns to Palm and Lombard Odier in respect
of the Company Convertible Loan Notes (current nominal value
GBP16.7 million) are expected to be significantly impaired under
all likely scenarios following Completion
-- A circular will be despatched to Shareholders as soon as
practicable, containing, inter alia, notice of the General
Meeting
-- Flowgroup has also agreed the sale of its microCHP boiler
technology and intellectual property to iGEN Technologies Inc.
("iGEN") for an upfront consideration of CAD 25,000 (circa
GBP14,000) in cash with potential royalty payments of up to CAD
1,411,000 (circa GBP789,000) in the event iGEN is able to
successfully commercialise the microCHP technology
Summary terms of the proposed sale of Flow Energy
The Board announces that it has entered into a conditional sale
and purchase agreement with Co-op Energy for the sale of the entire
share capital of Flow Energy, its domestic energy supply business,
for a headline purchase price of GBP9.25 million subject to
adjustments to reflect the crystallisation of payments to
suppliers, working capital and other matters. In relation to
working capital, the consideration is subject to an adjustment on a
pound for pound basis to the extent actual Net Working Capital at
30 April 2018 is less than or more than target Net Working Capital
at 30 April 2018 (such adjustment to be calculated through a
completion accounts process). The adjusted cash consideration will
be funded from Co-op Energy's existing resources.
In addition, the net balances on Flow Energy's third party
collateral deposit accounts as at Completion will be remitted to
the Company as soon as practicable following Completion. The gross
cash proceeds (net of transaction fees) will be: i) used to procure
the repayment to Palm and Lombard Odier of the FEL Working Capital
Loan Notes, and ii) distributed amongst the Company Convertible
Loan Note holders, Palm and Lombard Odier, and other creditors of
the Company in line with the strategy following Completion set out
below.
The Sale is conditional on Shareholder approval (requiring an
ordinary resolution) at a general meeting of the Company expected
to be held in the second half of April 2018. The Sale is also
conditional on the execution (prior to the date of the General
Meeting) of a revised supply agreement in respect of the future
terms of energy supply by Shell to Flow Energy on substantively the
same terms as have been agreed between Shell and Co-op Energy and
appended to the sale and purchase agreement governing the Sale.
Co-op Energy is a domestic energy supply business based in
Warwick and is a wholly owned subsidiary of The Midcounties
Co-operative.
The Company's total liability under all warranties and
indemnities in the sale and purchase agreement will be GBP1, as the
purchaser will take out appropriate warranty and indemnity
insurance cover.
Following Completion, unless an appropriate opportunity to
undertake a reverse takeover as set out in AIM rule 14 is pursued,
the Company intends to consider options available to it to effect
the distribution of the proceeds of the Sale to the Company
Convertible Loan Note holders and other creditors of the
Company.
The Company has Company Convertible Loan Notes in issue with a
nominal value, including accrued interest, of GBP16.7 million
(before taking account of accelerated interest amounts of GBP2.9
million arising on the conversion of the Company Convertible Loan
Notes into Preference Shares or a change of control of Flowgroup).
The Company Convertible Loan Notes (and the Preference Shares) rank
in priority to the Ordinary Shares and it is therefore expected
that the distribution to Shareholders will be GBPnil under all
likely scenarios following Completion.
The effect of the Sale will be to divest the Company of all of
its main trading business, activities and assets. In accordance
with AIM Rule 15, the Company is required to seek to cancel the
admission of the Ordinary Shares if it does not propose to complete
a reverse takeover within six months of Completion. If the Company
does not complete a reverse takeover, the Board would propose a
resolution to cancel the admission of its Ordinary Shares to
trading on AIM.
Background to and reasons for the Sale
On 30 November 2017, Flowgroup announced that it had taken a
view that the Group should maintain a total number of customer fuel
accounts of just under 250,000, a level above which regulatory
payments by Flow Energy would increase significantly. At the same
time, the Board highlighted that the Company might require
additional short term seasonal working capital funding.
On 21 February 2018, the Company announced that the Board had
concluded that such additional funding was required and that a
temporary funding facility of up to GBP5.0 million had been agreed
and provided to Flow Energy in the form of the FEL Working Capital
Loan Notes by Palm and Lombard Odier, until 31 August 2018. Drawn
amounts under this facility will total GBP2.1 million at
Completion.
The team at Flowgroup has made significant progress since the
fundraising announced on 24 May 2017, improving the operational
efficiency of the business, delivering substantially all the
anticipated cost savings and bringing forward profitability to the
year commencing July 2018. Over the same period, the team has
maintained outstanding levels of customer service (the Company was
ranked in the top 2 per Which? energy supplier rankings at January
2018) and improved the quality of Flow Energy's customer base,
improving gross margins and routes to market, while significantly
downsizing the microCHP business and minimising other non-Flow
Energy costs.
While the Group has continued to trade in line with the Board's
expectations, the headwinds facing challenger suppliers, in
particular the impact of the Government's price cap and the
significant number of new entrants to the market pursuing
aggressive pricing strategies, have continued to strengthen.
The response of the "big six" energy suppliers to Government
policy developments is considered likely by the Company's
management to be, in many instances, to lower their standard
variable tariffs. This would lead to an erosion of the differential
between the prices challenger suppliers are able to offer and the
tariffs being offered by the big six. The Board believes this would
be likely to have a significant adverse impact on consumers'
propensity to switch suppliers. In addition, the recent very cold
weather, while beneficial to earnings given the Group's hedging
strategy, also increases the peak funding requirements of the
business. This arises as the revenues from the additional energy
consumption are recovered through the direct debit cycle over the
next 12 to 18 months, while the supply costs of the additional
energy consumed are paid for by Flow Energy in the short term.
The Board has continued to work with its advisers on the
strategic positioning of the Group and its financing requirements,
but it has become clear that in order for the business to continue
to operate in the near and medium term, it would need to raise
substantial additional capital. Palm and Lombard Odier have
separately indicated to the Board that they are not in a position
to provide additional funding to the Group and so are supportive of
a sale of Flow Energy. The Board has also been advised that an
equity fundraising would not be feasible in the current
circumstances.
The Board has had discussions with Co-op Energy as well as with
a number of other potentially interested parties. In the context of
the factors set out above, and its obligation to consider the
interests of all stakeholders (including those of Shareholders and
creditors), the Board has reluctantly concluded that the sale of
the Flow Energy business to Co-op Energy and the subsequent closure
of the remainder of the Group is the only realistic course of
action open to the Company, and unanimously recommends that
Shareholders vote in favour of the resolutions to be proposed at
the General Meeting.
The Company Convertible Loan Notes are convertible into either
Preference Shares or Ordinary Shares. On conversion into either
Preference Shares or Ordinary Shares, such Preference Shares or
Ordinary Shares would carry votes exercisable at a general meeting
of the Company totalling, in aggregate, over 50 per cent. of the
Company's then issued share capital.
The holders of Preference Shares are able to vote at all general
meetings of the Company as if the Preference Shares had been fully
converted into Ordinary Shares, while also ranking in seniority and
preference to the holders of Ordinary Shares on a winding up or
liquidation of the business.
Information on Flow Energy
Flow Energy is an energy supply business providing gas and
electricity to approximately 230,000 domestic fuel accounts. The
business is based in Ipswich, UK.
For the year ended 31 December 2016, Flow Energy had audited
revenues of GBP98.4 million and made an audited net loss of GBP9.2
million. As at 31 December 2016, Flow Energy had net liabilities of
GBP21.7 million.
General Meeting
Due to its size, the Sale is deemed to be a disposal resulting
in a fundamental change in the business of the Company pursuant to
Rule 15 of the AIM Rules and therefore requires approval by
Shareholders at a general meeting. A circular will be posted to
Shareholders as soon as practicable containing the Notice of the
General Meeting to approve the Sale to be held at the offices of
Hogan Lovells LLP, Atlantic House, Holborn Viaduct, London EC1A 2FG
which is expected to be held in the second half of April 2018. A
copy of this Circular will be made available on the Company's
website once it has been posted (www.flowgroup.uk.com).
Financial effects of the Sale
The total gross cash proceeds (net of transaction fees) will be:
i) used to procure the repayment to Palm and Lombard Odier of the
FEL Working Capital Loan Notes, and ii) distributed amongst the
Company Convertible Loan Note holders, Palm and Lombard Odier, and
other creditors of the Company in line with the strategy following
Completion set out below.
Sale of microCHP technology and intellectual property
Flowgroup has also agreed the sale of its microCHP boiler
technology and intellectual property (the "mCHP Assets") to iGEN
for an upfront consideration of CAD 25,000 (circa GBP14,000) in
cash with potential royalty payments of up to a further CAD
1,411,000 (circa GBP789,000) in the event iGEN is able to
successfully commercialise the microCHP technology. To the extent
future royalty payments are received where the Company is no longer
in a position to receive such royalties, these would be distributed
to the Company Convertible Loan Note holders. The upfront
consideration is to be funded from iGEN's existing resources and
shall be allocated among the mCHP Assets as follows: Intellectual
Property: CAD 1; Patents: CAD 1; and the balance of the mCHP
Assets: CAD 24,998. For the year ended 31 December 2016, Flow
Products Limited, of which the mCHP business was the primary
activity, generated an audited net loss of GBP17.7 million and had
net liabilities of GBP51.7 million.
Strategy following Completion
Following the sale of Flow Energy and the mCHP Assets, the
remaining liabilities of the Continuing Group will be predominantly
comprised of liabilities in respect of transaction costs, closure
costs, admission cancellation costs and amounts owed to external
creditors currently estimated at circa GBP2.9 million.
Following Completion, unless an appropriate opportunity to
undertake a reverse takeover as required under AIM rule 15 is
pursued, the Company will consider options available to it to
effect the distribution of the proceeds of the Sale to
stakeholders. Under all likely scenarios following Completion, the
cash distribution to Shareholders will be GBPnil. The cash
distribution to the Group's Company Convertible Loan Note holders
(or Preference Share holders, should the Company Convertible Loan
Notes be converted into Preference Shares), after repayment of the
FEL Working Capital Loan Notes will be materially below the face
value of the Company Convertible Loan Notes and/or Preference
Shares held by them. The principal creditors and contingent
liabilities of the Company following the disposal of Flow Energy
will relate to the costs of terminating the remaining activities of
the Company and discharging the remaining liabilities relating to
the mCHP and Battery businesses.
A copy of this announcement will be available free of charge,
subject to certain restrictions relating to persons in any
jurisdiction where release, publication or distribution of this
announcement would constitute a violation of the securities law of
such jurisdiction, for inspection on Flowgroup's website
(www.flowgroup.uk.com).
MAR
The information contained within the announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). Upon the
publication of this announcement via Regulatory Information Service
("RIS"), this inside information is now considered to be in the
public domain.
Enquiries
Flowgroup plc +44 (0)20 3817
Alan Lovell, Chairman 3637
Nigel Canham, Chief Financial Officer
Smith Square Partners LLP (Financial
adviser) +44 (0)20 3696
Jonathan Coddington / Matt Alexander 7260
Cenkos Securities plc (Nominated adviser
and broker) +44 (0)20 7397
Stephen Keys / Mark Connelly / Callum 8900
Davidson (Corporate Finance)
Walbrook PR Ltd (Financial PR advisers) +44 (0)20 7933
Paul McManus / Nick Rome 8780
Notice to all investors
Smith Square Partners LLP ("Smith Square"), which is authorised
and regulated in the United Kingdom by the Financial Conduct
Authority, is acting exclusively as financial adviser to Flowgroup
and no-one else in connection with the Sale and will not be
responsible to anyone other than Flowgroup for providing the
protections afforded to clients of Smith Square nor for providing
advice in connection with the Sale or any matter referred to
herein. Neither Smith Square nor any of its subsidiaries, branches
or affiliates owes or accepts any duty, liability or responsibility
whatsoever (whether direct or indirect, whether in contract, in
tort, under statute or otherwise) to any person who is not a client
of Smith Square in connection with this announcement, any statement
contained herein, the Sale or otherwise.
Cenkos Securities plc ("Cenkos") which is authorised and
regulated in the United Kingdom by the Financial Conduct Authority,
is acting solely for Flowgroup in relation to the Sale in its
capacity as Nominated adviser and broker and no-one else and will
not be responsible to anyone other than Flowgroup for providing the
protections afforded to clients of Cenkos nor for providing advice
in relation to Flowgroup or any other matter referred to in this
announcement.
Forward-looking statements
This announcement contains "forward-looking statements". These
forward-looking statements may be identified by the use of
forward-looking terminology, including the terms "anticipates",
"expects", "may", "will", "could", "would", "shall", "should" or
similar expressions or, in each case, their negative or other
variations or comparable terminology, or by discussions of
strategy, plans, objectives, goals, future events or
intentions.
These forward-looking statements include all matters that are
not historical facts and include statements regarding the
intentions, beliefs or current expectations of the Directors
concerning, among other things, Flowgroup's results of operations,
financial condition, prospects, growth, strategies and the
industries in which Flowgroup operates.
Forward-looking statements speak only as of the date of such
statements and, except as required by applicable law, Flowgroup
undertakes no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information,
future events or otherwise. The information contained in this
announcement is subject to change without notice and Flowgroup,
Smith Square and Cenkos do not assume any responsibility or
obligation to update publicly or review any of the forward-looking
statements contained herein, save as required by law, regulation or
the AIM Rules.
Definitions
The following words and expressions shall have the following
meanings in this announcement unless the context otherwise
requires:
"AIM" the market of that name, operated
by the London Stock Exchange
"AIM Rules" the rules for AIM companies
as published by the London
Stock Exchange from time to
time
"Board" the Board of Directors of
the Company
"Cenkos Securities" Cenkos Securities plc
"Circular" the document detailing the
Sale to be posted to Shareholders
along with the Notice of General
Meeting
"Company Convertible Convertible Unsecured Loan
Loan Notes" Notes issued to Palm and Lombard
Odier as part of the Company's
May 2017 fundraising which
carry a 7.5% paid in kind
(or PIK) coupon (payable quarterly)
and are convertible into an
equivalent number of Preference
Shares of GBP1 each
"Completion" completion of the Sale
"Continuing Group" the assets and liabilities
of the Group which remain
following the sale of Flow
Energy and the mCHP Assets
"Co-op Energy" Co-operative Energy Limited
"Directors" the directors of the Company
"FEL Working Capital Funding facility loan notes
Loan Notes" provided by Palm and Lombard
Odier to Flow Energy in February
2018 to support its working
capital needs
"Flowgroup" or the Flowgroup plc
"Company"
"Flow Energy" Flow Energy Limited, the main
operating subsidiary of the
Company
"General Meeting" General Meeting of the Company
expected to take place in
the second half of April 2018
"Government" Government of the United Kingdom
"Lombard Odier" Lombard Odier Investment Managers
Group (LOIM) in respect of
funds or accounts managed
by LOIM entities
"Net Working Capital" the net working capital of
Flow Energy
"Notice of the General the notice convening the General
Meeting" Meeting which will be despatched
to Shareholders as soon as
practicable from the date
of this announcement
"Ordinary Shares" ordinary shares of 0.1 pence
each in the capital of the
Company
"Palm" Palm Global Small Cap Master
Fund LP, Palm Active Energy
LP, and Provincial House Estates
Limited (UK)
"Preference Shares" zero coupon preference shares
of GBP1 each in the capital
of the Company that shall
each have the right to convert
into approximately 83.33 new
Ordinary Shares at the date
of this announcement
"Sale" the proposed sale of Flow
Energy
"Shareholders" holders of Ordinary Shares
"Shell" Shell Energy Europe Limited,
the principle energy supplier
to Flow Energy
This information is provided by RNS
The company news service from the London Stock Exchange
END
DISEAKLEFDKPEEF
(END) Dow Jones Newswires
April 10, 2018 02:38 ET (06:38 GMT)
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