Acquisition

RNS Number : 8101R

Plastics Capital PLC

31 October 2013

 

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

Plastics Capital plc

(The "Company" or the "Group")

Acquisition of Beijing Higher Shengli Printing Science and Technology Co., Ltd

Conditional Placing of 2,700,000 Ordinary Shares at 100 pence to raise £2.7million

Plastics Capital, the niche plastics products group, announces it has conditionally agreed to acquire Beijing Higher Shengli Printing Science and Technology Co., Ltd ("Shengli"), a leading Chinese manufacturer of creasing matrix.

Acquisition Rationale

The acquisition of Shengli is in-line with Plastic Capital's strategy to build shareholder value through acquisition of related niche plastics products businesses.

Established in 1998 Shengli is a profitable, privately owned manufacturer of plastic creasing matrix located in the Tongzhou District of Beijing. Shengli employs approximately 50 personnel and is estimated to have 30 per cent. share of the domestic Chinese market for creasing matrix.China is one of the world's largest markets for plastic creasing matrix and the Chinese market is estimated by the Company to be worth approximately £5 million in annual sales and growing at a rate of between 15 and 20% per annum. Accordingly, the Directors believe the Chinese market for creasing matrix represents a significant opportunity for the Group.

Shengli will fit well with Plastics Capital's existing creasing matrix business, C&T Matrix Limited ("C&T") and is complementary in terms of earnings, geographical footprint and technical capability.

The acquisition is to be satisfied in cash through the issue of 2,700,000 new Ordinary Shares to new and existing investors in the company to raise £2.7 million at a placing price of 100p representing a discount of 8.7% to the closing mid-price on 30 October 2013.

Transaction highlights

·     The acquisition will significantly increase the Company's presence in China

·     The acquisition expected to be earnings enhancing acquisition in the first full financial year

·     Oversubscribed placing to raise £2.7m at 100 pence per share.

Simon Shenton, Managing Director of C&T Matrix says: "Shengli has built up a strong distribution network and brand name in China over the last 15 years and together with C&T will have a dominant position across China. C&T continues to grow its client base organically; with over 130 distributors across 70 countries, we are the leading producer of creasing matrix worldwide and we continue to have strong ambitions for future growth, as evidenced by acquisitions such as Shengli which bring us improved market penetration in growth territories."

Faisal Rahmatallah, Chairman and CEO of Plastics Capital, comments: "China is one of the world's fastest growing markets for creasing matrix thanks to the increasing sophistication of local packaging producers and an increase in demand within the country for consumer goods. Shengli is the market leader in China and has developed a strong brand and excellent distribution network across the entire region. The years of know-how and technical expertise that C&T has developed over the past 60 years together with the established brand and customer reach of Shengli in China will combine to bring customers a world-class product offering for die cutting and creasing products."

Plastics Capital plc	Tel: [phone]
Faisal Rahmatallah, Executive Chairman
Nick Ball, Finance Director
Cenkos Securities plc	Tel: [phone]
Stephen Keys
Camilla Hume
First Columbus	Tel: [phone]
Katrina Perez
Marianne Woods
Walbrook PR Ltd	Tel: [phone]
Paul Cornelius	Mob: [phone] [e-mail]
Helen Cresswell	Mob: [phone] [e-mail]

Introduction

Plastics Capital has, today, announced the terms of two placings by Cenkos, acting as the Company's nominated adviser and broker to the Placing, to raise £2.7 million by the issue and allotment by the Company of 2.7 million Ordinary Shares at the Placing Price of 100p each in order to fund the acquisition of Shengli.

The Placing is conditional (amongst other things) upon the passing of certain shareholder resolutions in order to ensure that the Directors have the necessary authority and power to allot the Placing Shares for cash on a non-pre-emptive basis. The General Meeting is therefore being convened at 09:30 a.m. on 18 November 2013 at St Mary's House, 42 Vicarage Crescent, London, SW11 3LD for the purpose of considering the Resolutions. The Notice of General Meeting and Resolutions are set out at the end of the Circular.

The purpose of the Circular is to explain the background to and reasons for the Placing, why the Directors believe that it is in the best interests of the Company and its Shareholders as a whole, why the Directors are seeking authority from Shareholders to issue the Placing Shares for cash on a non-pre-emptive basis and to recommend that you vote in favour of the Resolutions. The Directors intend to vote in favour of the Resolutions in respect of their legal and/or beneficial shareholdings amounting, in aggregate, to 5,544,178 Ordinary Shares representing approximately 20.1 per cent. of the Ordinary Shares in issue as at the date of the  Circular.

Background to and reasons for the Placing and Proposed Acquisition

Plastics Capital has four manufacturing businesses, one of which is C&T Matrix Limited ("C&T"). C&T focuses on the manufacture and sale of creasing matrix and accessories for the box making industry and the Directors consider C&T to be the world leader in the manufacture of plastic creasing matrix. C&T exports from the UK to approximately 80 countries around the world and has a large network of distributors globally. In revenue terms, C&T is currently the third largest of Plastics Capital's four manufacturing businesses.

Over the last three years, Plastics Capital has been steadily building up its activities in China, focusing on local market sales. Plastics Capital currently has 7 staff in China and achieved sales there of approximately £0.5 million in the financial year to 31 March 2013 and has recently started production in a new facility in China for machined bearings. The current focus in China is on plastic bearings, creasing matrix and hose mandrels.

China is one of the world's largest markets for plastic creasing matrix and the Chinese market is estimated by the Company to be worth approximately £5 million in annual sales and growing at a rate of between 15 and 20 per cent. per annum. Accordingly, the Directors believe the Chinese market for creasing matrix represents a significant opportunity for the Group.

The Group's progress in China to date has been good, but it still lacks scale. Plastics Capital now has the opportunity through its subsidiary, PCTL, to acquire Shengli, a leading Chinese manufacturer of creasing matrix. The acquisition of Shengli would enable the Group to increase its presence in China and would enable C&T and Shengli to realise significant synergies and improve the profitability of Shengli once within the Group. The Directors' believe that C&T currently retains approximately 8 per cent. of the plastic creasing matrix market in China which would increase to approximately 40 per cent. following the acquisition.

The Directors believe that the Proposed Acquisition would significantly strengthen the Company's activities in China, and its creasing matrix business globally.

Background information on Shengli

Shengli is a major Chinese manufacturer of plastic creasing matrix making plastic creasing matrix primarily for the Chinese market. The business was established in 1998 and incorporated in 2001 as Beijing Shengli Weiye Printing Machinery Co. Ltd, and is controlled by its Chairman Zhixian Sun, a Chinese entrepreneur. The business operated within Beijing Shengli Weiye Printing Machinery Co. Ltd until 2013, during which time the relevant assets and liabilities were transferred to a newly formed entity called Beijing Higher Shengli Printing Science and Technology Co., Ltd.

Shengli is located in the Tongzhou District of Beijing and currently employs approximately 50 employees in its factory.

Shengli is a leading player in the Chinese plastic creasing market and has approximately a 30 per cent. share of the Chinese plastic creasing matrix market. Shengli's international sales for the financial year to 31 December 2012 represented approximately 15 per cent. of its total sales. Globally, Shengli's market share of the creasing matrix market is estimated to be 5 to 10 per cent.

Shengli has a strong distribution network throughout China consisting of over 100 distributors, in addition to approximately 150 direct customers.

The trading record of Shengli for the three years ended on 31 December 2012, as extracted from Beijing Shengli Weiye Printing Machinery Co., Ltd's audited consolidated financial statements, together with unaudited management accounts for the half year ended on 30 June 2013 is summarised below:

Year ended	Year ended	Year ended	Half year ended
31 December	31 December	31 December	30 June
2010	2011	2012	2013
£'000	£'000	£'000	£'000

Revenues	1,580	1,722	1,978	993
Operating Profit	718	748	844	343
Profit before tax	521	550	651	245
Net income	376	400	473	184

Al financial data translated at an assumed exchange rate of 9.67 RMB to the £.

Key terms of the Proposed Acquisition

Under the terms of the Acquisition Agreement, PCTL has conditionally agreed to acquire the entire issued share capital of Shengli from its shareholders Beijing Shengli Weiye Printing Machinery Co., Ltd and Mr Zhixian Sun.

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

●       the competent Chinese governmental authority having duly approved Shengli as a "Foreign Trade Operator" and having been granted a revised "Business Licence";

●       all the relevant assets and business concerned in the creasing matrix business having been transferred to Shengli to the satisfaction of PCTL;

●       Shengli having entered into a trademark license contract in a form satisfactory to PCTL in respect of a valuable business trademark owned by a third party and used by the business;

●       Shengli having entered into a new lease in a form satisfactory to PCTL in respect of the factory used by Shengli;

●       all agents, distributors, retailers, suppliers having continued to do business with Shengli in accordance with the relevant third party agreements in the period prior to completion;

●       Shengli having a level of cash as is necessary to run the business (being in any event not less than RMB 1,000,000) without the requirement for any additional working capital in the first six months following completion; and

●       there being no breach of the warranties contained in the Acquisition Agreement.

The above list is not exhaustive. However, the Placing is not a condition to the Proposed Acquisition. The Acquisition Agreement provides that subject to satisfaction of the various closing conditions, completion will take place on or prior to 31 December 2013.

The consideration payable for the issued share capital of Shengli is RMB 25,000,000 (approximately £2,600,000 million, based on a current assumed exchange rate of 9.67 RMB to the £), subject to a net asset adjustment based on the net asset value at completion of the transaction as compared to a forecast valuation.

Any excess funds raised as a result of the Placing will be applied towards the general working capital requirements of the Company or otherwise as the Directors, in their absolute discretion, may determine.

RMB 12,500,000 is payable to the sellers on completion of the Acquisition Agreement, with the balance of the consideration payable following determination of the actual net asset valuation of Shengli at completion, as determined by reference to audited completion financial statements.

In the event that Shengli's net assets value in the audited closing financial statements is less than the forecasted net asset value at closing, the consideration will be subject to a downward adjustment on a RMB 1 for RMB 1 basis. Within 30 days of completion of the Acquisition, the parties shall cause BDO LLP to audit the closing financial statements to determine Shengli's net assets value at closing in accordance with the PRC GAAP and certain assumptions agreed between the parties.

The Company expects the adjusted consideration payable to be approximately RMB 21,700,000 (approximately £2.2 million, based on a current assumed exchange rate of 9.67 RMB to the £), based on information currently available.

The Acquisition Agreement is governed by the law of the People's Republic of China.

Financial position and current trading of the Company

On 25 June 2013, Plastics Capital announced its final results for the year ended 31 March 2013, which included the following summary consolidated figures:

Financial Summary:
	Year ended	Year ended
	31 March 2013	31 March 2012
	£'000	£'000
Revenue	31,407	32,096
EBITDA*	4,484	5,024
Profit before tax*	3,300	3,765
EPS (p)*	10.0	10.1
DPS (p)	2.0	1.0
Net Debt	8,369	10,148

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

+ applying a standard tax charge of 24% and a R&D tax credit of £1million (FY2012 - 26%) and based on the average numbers of shares currently in issue this year.

On 12 September 2013, the Company issued an update on trading performance for the financial year to date. In summary, the Company continues to trade broadly in line with market expectations.

Mandrel sales have been strong during the first half of the current financial year and this part of the business is benefitting from both a general improvement in demand for the Company's existing products, introduction of new products and the positive effects of the Group's business development initiatives that have been introduced over the last three years.

Within the bearings business, the Company won its first project for integrated plastic bearings to be used in automotive instrument control knobs since the beginning of the financial year. This project is expected to contribute £200,000 sales per annum when in full production. A further six smaller projects in the bearings business have also been won since the start of the financial year amounting to a total annualised sales value of £600,000 when in full production. Instrument control knobs are expected to continue to be an exciting new application area for the Company with significant potential for further projects in the near future.

The industrial film packaging business has successfully completed the installation and commissioning of the new high speed extrusion line. New film compositions and types have been trialled and are being introduced into the market.

The creasing matrix business continues to drive forward in emerging markets where sales growth is strong due to the provision of efficient technical solutions at large cardboard packaging companies, where more than twenty new accounts have been won since the beginning of the financial year.

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

Details of the Placing

The Company proposes to raise approximately £2.1 million (net of expenses) through the issue of the Placing Shares at the Placing Price. The maximum number of Placing Shares would represent approximately 8.9 per cent. of the Company's issued ordinary share capital immediately following Second Admission.

The Placing consists of the separate admission to AIM of the VCT Placing Shares and the Non-VCT Placing Shares. The reason for splitting the Placing into two elements is to ensure that the VCT Placing Shares subscribed by certain placees comply with the VCT Conditions, and as such qualify as Venture Capital Trust investments. In order to achieve this, it is necessary to ensure that the Placing in respect of the VCT Placing Shares is completed prior to the Placing in respect of the Non-VCT Placing Shares. Accordingly, it is expected that First Admission in respect of the VCT Placing Shares will occur on 19 November 2013 and Second Admission in respect of the Non-VCT Placing Shares will occur on 20 November 2013.

The Placing Agreement

Cenkos has entered into the Placing Agreement with the Company whereby it has agreed to use its reasonable endeavours, as agent for the Company, to procure placees for 2,700,000 Placing Shares.

The Placing is conditional upon, inter alia, the Resolutions being duly passed at the General Meeting and the Acquisition Agreement having been entered into and remaining in full force and effect. First Admission is conditional, inter alia, upon admission of the VCT Placing Shares to AIM becoming effective on or before 8.00 a.m. on 4 December 2013. Second Admission is conditional, inter alia, upon First Admission having occurred and admission to AIM of the Non-VCT Placing Shares becoming effective on or before 8.00 a.m. on 5 December 2013.

The Placing Agreement contains warranties from the Company in favour of Cenkos in relation to, inter alia, the accuracy of the information in the Circular and other matters relating to the Company and its business. In addition, the Company has agreed to indemnify Cenkos in relation to certain liabilities it may incur in respect of the Placing. Cenkos has the right to terminate the Placing Agreement in whole or in part at any time prior to Second Admission in certain circumstances, in particular, in the event of a breach of the warranties given under the Placing Agreement.

Subject to the satisfaction or waiver of the relevant conditions, the Placing will be completed, and the admission to AIM of the Placing Shares will take place prior to completion of the Acquisition Agreement. In the event that the Acquisition Agreement is terminated due to failure to satisfy the completion conditions or otherwise in accordance with its terms the use of the proceeds of the Placing would be at the absolute discretion of the Directors. The Directors would consider, in consultation with Cenkos, whether or not to use the proceeds to finance other carefully selected acquisitions approved (if necessary) by Shareholders and/or for any other purpose. In addition, at their absolute discretion, the Directors may examine means by which the funds raised could be returned to the relevant Shareholders, it being recognised that such a return of funds would be difficult to achieve.

Settlement and dealings

Application will be made to the London Stock Exchange for the Placing Shares to be admitted to trading on AIM. It is expected that First Admission will become effective and that dealings in the VCT Placing Shares will commence on AIM on 19 November 2013 and that Second Admission will become effective and that dealings in the Non-VCT Placing Shares will commence on AIM on 20 November 2013.

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

General Meeting

An extraordinary general meeting of the Company has been convened for 09:30 a.m. on 18 November 2013 at the offices of the Company at St Mary's House, 42 Vicarage Crescent, London, SW11 3LD.

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

(1)    an ordinary resolution to authorise the directors to allot the Placing Shares up to an aggregate nominal value of £27,000; and

(2)    conditional upon passing resolution (1) above, a special resolution to disapply statutory pre-emption rights in respect of the allotment of the Placing Shares, with an aggregate nominal value of £27,000.

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

Recommendation

The Directors consider that the Placing is in the best interests of the Company and its Shareholders and unanimously recommend that Shareholders vote in favour of the Resolutions, as they intend to do in respect of their aggregate shareholding of 5,544,178 Ordinary Shares, which represents approximately 20.1 per cent. of the Existing Ordinary Shares.

Timetable

Publication date of the Circular	31 October 2013
Latest time for receipt of Forms of Proxy for the General Meeting	09:30 a.m on 14 November 2013
General Meeting	09:30 a.m. on 18 November 2013
Admission effective and trading in the VCT Placing Shares expected to commence on AIM	08:00 a.m. on 19 November 2013
Admission effective and trading in the Non-VCT Placing Shares expected to commence on AIM	08:00 a.m. on 20 November 2013
CREST accounts expected to be credited with VCT Placing Shares	19 November 2013
CREST accounts expected to be credited with Non-VCT Placing Shares	20 November 2013
Share certificates in respect of Placing Shares expected to be dispatched by no later than (where applicable)	By 27 November 2013

If any of the details contained in the timetable above should change, the revised time and dates will be notified to Shareholders by means of a Regulatory Information Service (as defined in the AIM Rules). All events listed in the above timetable following the General Meeting are conditional on the passing of the Resolutions at the General Meeting and assume that the General Meeting is not adjourned. In the Circular all references to times and dates are to those observed in London.

Placing Statistics

Placing Price	100 pence
Number of Existing Ordinary Shares in issue at the date of the Circular	27,542,532
Number of VCT Placing Shares being issued by the Company for subscription in the Placing	1,000,000
Number of Non-VCT Placing Shares being issued by the Company for subscription in the Placing	1,700,000
Number of Ordinary Shares in issue immediately following First Admission	28,542,532
Number of Ordinary Shares in issue immediately following Second Admission	30,242,532
Percentage of Enlarged Issued Share Capital represented by the Placing Shares	8.93 per cent.
Amount being raised under the Placing (gross)	£2.7 million

The same definitions apply throughout this announcement as are applied in the Circular.  The Circular will be sent to shareholders today and is available on the Company's website: www.plasticscapital.com

Notes to Editor

Plastics Capital is a plastics products manufacturer focused on proprietary products for niche markets.  The Group has four factories in the UK, one in Thailand and sales offices in the USA, Japan, China and India.  Approximately 60 per cent of sales are exported to over 80 countries worldwide.  Production is concentrated in the UK where significant engineering know-how and automation underpins the Group's competitiveness.  The Group has approximately 300 employees.

Further information can be found on www.plasticscapital.com.

 

END

 

 

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