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THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED TO CONSTITUTE INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF THE MARKET ABUSE REGULATION (EU) NO. 596/2014. UPON THE PUBLICATION OF THIS ANNOUNCEMENT, THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN
4 July 2018
Ceres Power completes £20.0 million fundraising
Ceres Power (AIM: CWR, "Ceres Power", "Ceres"), developer of the SteelCell®, a world-leading, low cost Solid Oxide Fuel Cell (SOFC) technology, is pleased to announce that further to the Company's announcement yesterday, the accelerated bookbuild has now closed raising £20.0 million (before expenses) by means of a conditional placing and subscription of 132,625,994 Ordinary Shares in aggregate ("Fundraising Shares") with an Issue Price of 15.08 pence per share, representing approximately 13.0 per cent. of the Company's current issued Ordinary Share capital (the "Fundraising"). The Issue Price represents a discount of 2.7 per cent. to the mid-market closing price on 3 July 2018. The Fundraising was significantly over subscribed with several material new investors participating in the Placing.
The Fundraising is in addition to the Weichai Subscription announced on 16 May 2018 which will (following adjustment for the issue of the Fundraising Shares) raise approximately £19.3 million (before expenses) by means of a subscription for approximately 127,760,800 Ordinary Shares, representing approximately 12.6 per cent. of the Company's current issued Ordinary Share capital. The Weichai Subscription is also priced at 15.08 pence per share, an 18 per cent premium to the mid-market value at the date of the announcement of that deal. The value of the Weichai Subscription has increased compared to the Company's announcement on 16 May 2018 as the number of Initial Weichai Shares at the Issue Price has been increased to reflect the conditional issue of the Fundraising Shares.
Zeus Capital Limited and Joh. Berenberg, Gossler & Co. KG acted as the joint bookrunners in relation to the Fundraising.
The Placing was subject to the terms and satisfaction of certain conditions set out in the Appendix to the announcement of 3 July 2018. No element of the Fundraising is being underwritten. Certain investors including IP Group Plc through its subsidiary IP2IPO Portfolio LP have participated in the Fundraising by way of a subscription directly with the Company on terms substantially the same as the Placing.
The Fundraising Shares will rank pari passu with the existing Ordinary Shares.
The Fundraising is subject to the passing of certain resolutions at a general meeting of the Company. A notice is being sent to Shareholders today convening a general meeting for 11.00 a.m. on 20 July 2018 at Powerscourt, 1 Tudor Street, London EC4Y OAH. Admission of the Fundraising Shares and the Initial Weichai Shares is expected to occur on 27 July 2018.
Background to the Fundraising and the Weichai Investment
Ceres Power is a world leader in next generation fuel cell technology with its low-cost Solid Oxide Fuel Cell (SOFC), SteelCell®. Currently, the Company's technology is being applied by its partners in the development of distributed power and automotive products that seek to reduce operating costs, lower CO2, SOx and NOx emissions and improve energy security. The Company intends to license its SteelCell® technology to OEM partners, who develop power systems and products, and also to manufacturing partners to produce the SteelCell® in volume.
The Company is benefitting from the twin drivers of an increasing emphasis on distributed generation combined with the rapid acceleration towards the electrification of vehicles. Distributed generation is increasingly seen as a solution for homes, businesses and data centres as the conventional central power grid is facing the growing pressures of intermittency due to more renewables combined with the growing electricity demands of electric vehicles. The increase in the electrification of vehicles is the result of increasing emissions regulations to improve air quality in countries and major cities worldwide. The SteelCell® is one of the few technologies that can provide a highly efficient, low to near zero emission power generation alternative to conventional power generation and combustion engine technology. This has driven a high level of interest in the SteelCell® technology from leading power system and engine manufacturers.
These trends are most evident in the rapid emergence of China as one of the leading markets for fuel cell technology. Accordingly the Company is delighted to include Weichai Power, one of the leading engine manufacturing companies in China, as a strategic partner in this fundraise. Weichai Power's positioning and experience provides direct access to one of the fastest growing fuel cell markets in the world. Initial plans are for Ceres Power and Weichai Power to jointly develop and launch an SOFC fuel cell range extender system for China's fast growing electric-powered bus market with the potential to add further stationary power products. As part of this partnership the Company intends to enter into a joint venture in China from 2020 to manufacture firstly systems and ultimately SteelCells®.
Weichai Power is initially investing £19.3 million to subscribe for 10 per cent. of the Enlarged Issued Share Capital, being the current issued share capital as enlarged by the Fundraising Shares and the Initial Weichai Shares. In addition, it has agreed a further investment of £26.3 million conditional on the signing of further commercial agreements to increase its holding to 20 per cent. of the Company's issued share capital by the end of November this year. This strategic relationship is a key milestone for Ceres Power as it continues to deliver on its strategy of licensing system and manufacturing of the SteelCell® technology to companies who are leaders in the power generation and automotive sectors.
The Company continues to grow to address increasing demand for its technology, adding new partners and progressing with existing partners towards commercialisation. Today the Company has six partners at the JDA stage of which, to date, two have strong intent to go to market with products based on licensing the SteelCell®.
Two years ago the Company made the strategic decision to target higher power applications such as data centres, commercial scale applications and transportation in addition to its home applications. In order to do this it invested in the development of larger 5kW fuel cell stacks and higher efficiency power modules to address the larger-scale power markets (from 5kW to hundreds of kW).
The development has been successful and the Company has early prototypes that demonstrate the capability of the 5kW stack going into several of its larger-scale power customer programmes. The Company's next step is to develop the 5kW platform further and invest in manufacturing equipment so the stacks can be produced and assembled at the cost and quality required by its OEM partners. The development of the larger stacks is key to unlocking value in most of our markets as over 80 per cent. of our customer programmes require this platform including Cummins, Nissan and Weichai Power.
In the next 12 months the Company expects several of its OEM partners to move towards field testing of multi-kW products, including a commercial scale partner which is due to start field trials later this year, the other confidential partner looking at 10kW scale products, and most recently Weichai Power, which has already started to develop a 30kW product suitable for many of the power markets across China, with the range extender for electric bus market as the first market to address.
Reasons for the Fundraising and use of funds
The Company is raising new equity in order to enable the Company to continue to grow and commercialise the SteelCell®. The Board believes that the proceeds of the Fundraising along with the proceeds of the overall Weichai Investment, along with the Group's existing cash and cash equivalents, will provide sufficient capital to fund the Group and it intends to use the proceeds of the Fundraising and the Weichai Investment to:
· provide working capital to fund the business through to commercial launches with OEMs from 2020/2021;
· finance a new manufacturing facility in the UK to provide near term capacity for the next 3-5 years. The new facility will phase the increase in annual capacity from 1 to 3 MW initially, potentially growing to 10 MW over the next 5 years, which will provide a platform for licensing to the Company's manufacturing partnerships for higher volume. The Company is very close to committing on a new site within commuting distance to Horsham, where its current facility will remain as its Technology Centre of Excellence;
· enable the Company to industrialise the 5kW stack, which is the key technology platform for most of its current demand. This work will build on the early prototype 5kW stacks the Company has developed in 2017/18. It enables approximately 30 per cent. reduced cost/kW compared to the equivalent 1kW stacks and will ready these products for anticipated market launches;
· provide initial funding of the proposed manufacturing JV with Weichai Power, which would be required from 2020; and
· strengthen the Company's balance sheet to support the multiple ongoing customer programmes.
Alongside the above, the Company will continue to invest in the technology to continuously improve and maintain its competitive advantage and will investigate additional strategic uses of the core technology to enable additional long term value creation.
Current trading and prospects
Ceres Power has reached a new phase of its business - having secured six partners at the development stage, it is now seeing several of these relationships moving towards field trials with the intent to launch commercial products under licence.
With these higher levels of commercial activity in new countries and broadening markets, the Directors anticipate revenue and other operating income for the year ended 30 June 2018 will be approximately £7 million, up c.70 per cent. from the prior year. The Board is confident that the Company can maintain this trend of strong revenue growth as it secures more technology transfer and licence revenues in addition to its current engineering services and 2019 revenues are expected to be ahead of current market expectations. The order book is currently £5.1 million, up from £3.2 million as published last year, and the Company has a strong commercial pipeline with several opportunities at an advanced stage, including a potential substantial grant award.
The next year will be extremely exciting for Ceres Power, as it expects field trials to start across a number of applications: 5kW commercial CHP with its confidential customer starting later this year, the first 30kW system being run on a bus in China with its new partner Weichai in 2019, and it expects 10kW power only systems to start being trialled later in 2019. These initial trials will no doubt provide new challenges for the Company servicing several different OEMs in different markets. The Company's focus remains on getting to the SteelCell® products to market under licence with leading OEMs and proving out the technology and business model in several different applications.
Of primary importance, later this year the Company is working towards completing the joint venture and licensing agreement with Weichai Power which will allow it to work towards a manufacturing joint venture in China and which triggers a further equity stake in the Company to increase Weichai Power's holding in the Company to 20 per cent. The Company also continues to target an additional strategic manufacturing partner within the next 12 months and it is in discussions with a partner regarding a broad strategic collaboration, including manufacturing, however negotiations are at an early stage.
The Board intends to continue to scale and develop the business to be able to deliver these new opportunities and completion of the proposed fundraise would put the Company in a strong financial position through this key period of growth and commercial launches.
Details of the Fundraising
The Company has raised approximately £20.0 million by way of a conditional placing of 105,835,694 Placing Shares and Subscriptions of 26,790,300 Subscription Shares both at 15.08 pence per share with existing and new investors. The Fundraising Shares to be issued pursuant to the Fundraising will represent approximately 10.4 per cent. of the Enlarged Issued Share Capital. The Fundraising is conditional on (amongst other things) shareholder approval of the Fundraising Shares and approval of the shares resulting from the Weichai Investment and Admission and has not been underwritten.
Related Party Transactions
IP2IPO, a Substantial Shareholder (as defined by the AIM Rules) in the Company and a wholly owned subsidiary of IP Group Plc ("IPG"), has conditionally agreed to subscribe for 26,525,100 Subscription Shares pursuant to the Subscription. Therefore, following Admission, IP2IPO will have a shareholding of 284,063,394 Ordinary Shares, representing 22.2 per cent. of the Enlarged Issued Share Capital.
The participation of IP2IPO in the Fundraising is a related party transaction for the purposes of the AIM Rules.
IP Capital Letter of Engagement
The Company entered into a letter of engagement, dated 3 July 2018, with IP Capital in respect of the provision of certain corporate finance and advisory services relevant to the Fundraise. Under the terms of the IP Capital letter of engagement, the Company has agreed to pay IP Capital, subject to and conditional upon completion of the Placing, a fee of £20,000.
IP Capital is considered to be a related party under the AIM Rules due to it being a wholly owned subsidiary of IPG and within the same group of companies as IP2IPO, a Substantial Shareholder. As such the engagement of IP Capital pursuant to the IP Capital letter of engagement is considered to be a related party transaction.
Accordingly, by reason of their connection with IP2IPO being that (i) Alan Aubrey is an employee of IP2IPO Limited (a company in the same group of companies as IP2IPO) and director of IP2IPO and a director and Chief Executive Officer of IPG (IP2IPO's parent company), and (ii) Robert Trezona is an employee of IP2IPO Limited (a company in the same group of companies as IP2IPO), neither Alan Aubrey nor Robert Trezona is considered to be an independent director for the purpose of the related party statement below.
The Directors other than Alan Aubrey and Robert Trezona, having consulted with the Company's Nominated Adviser, Zeus Capital, consider the terms of:
· IP2IPO's participation in the Fundraising to be fair and reasonable insofar as Shareholders are concerned.
· the IP Capital letter of engagement to be fair and reasonable insofar as Shareholders are concerned.
Director's Fundraising Participation
Aidan Hughes, a Non-Executive Director, has agreed to subscribe for 265,200 Subscription Shares in the Fundraising. The participation of Mr. Hughes in the Fundraising constitutes a related party transaction under the AIM Rules. The Directors, excluding Mr. Hughes, having consulted with the Company's Nominated Adviser, Zeus Capital, consider the terms of Mr. Hughes' participation to be fair and reasonable insofar as Shareholders are concerned.
For further information please contact:
Ceres Power Holdings plc
Tel: +44 (0)1403 273 463
Zeus Capital (Nominated Adviser and Broker)
Giles Balleny / Andrew Jones / Dominic King
Tel: +44 (0) 20 3829 5000
Berenberg (Joint Broker)
Ben Wright / Mark Whitmore / Laure Fine
Tel: +44 (0) 203 207 7800
Peter Ogden/Andy Jones
Tel: +44 (0) 20 7250 1446
Zeus Capital, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority ("FCA"), and Berenberg, which is authorised by the German Federal Financial Conduct Authority and subject to limited regulation by the FCA, are acting exclusively for the Company and for no‐one else in relation to the Fundraising, and will not be responsible to any other person for providing the protections afforded to their respective clients nor for providing advice in connection with the matters contained in this announcement.
No representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by Zeus Capital, Berenberg nor by any of their respective affiliates, partners or agents (or any of their respective directors, officers, employees or advisers), as to or in relation to, the contents, accuracy or completeness of this announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, or any other statement made or purported to be made by or on behalf of either of Zeus Capital or Berenberg or any of their respective affiliates in connection with the Company or the Fundraising, and any liability therefor is expressly disclaimed.
Zeus Capital, Berenberg and each of their respective affiliates accordingly disclaim all and any liability, whether arising in tort, contract or otherwise (save as referred to above) in respect of any statements or other information contained in this announcement.
This announcement does not identify or suggest, or purport to identify or suggest, the risks (direct or indirect) that may be associated with an investment in the Placing Shares. Any investment decision to buy Placing Shares in the Placing must be made solely on the basis of publicly available information, which has not been independently verified by Zeus Capital or Berenberg.
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