TIDMLEF
RNS Number : 8230O
Ludgate Environmental Fund Limited
12 August 2014
Ludgate Environmental Fund Limited
("LEF, the "Company" or the "Fund")
Proposed extension of the Company's life, amendment of the
Articles,
Changes to the Investment Advisory Agreement, adoption of the
Revised Investing Policy and
Notice of Extraordinary General Meeting
Introduction and summary
The Company announces that it will today be publishing a
circular to Shareholders proposing an extension of the Company's
life, amendment of the Articles, changes to the Investment Advisory
Agreement, adoption of the Revised Investing Policy and Notice of
Extraordinary General Meeting. The circular will be available on
the Company's website shortly at www.ludgateenvironmental.com.
Terms defined in the circular have the same meanings in this
announcement.
The Board is proposing that the Company's life be extended by
three years to 30 June 2018. This will require the approval of
Shareholders and the amendment of the Articles. The Board is also
proposing that the Company's investing policy be amended to make it
clear that the Company is in a managed wind down phase and does not
intend to make any new investments, save to the extent required to
preserve or protect the value of existing investments. In
conjunction with the Life Extension, the Board is also proposing
certain amendments to the terms of the Investment Advisory
Agreement between the Company and the Investment Adviser. The
background to and reasons for the Proposals are set out below.
The extension of the Company's life
The Company was incorporated in 2007 with an eight year life,
which expires on 30 June 2015. The Articles provide that the
Company's life is extendable by special resolution for a further
four years. The Directors, with the Investment Adviser, have been
working toward realisation of the Fund's assets by the original
intended wind up date and will continue to do so. The Fund is fully
invested; its sole objective now is to optimise the achievable
capital value of the assets and return cash to Shareholders. The
Directors estimate that to fulfil this policy it would, as
described below, be prudent to allow more time for the development
and sale of certain portfolio assets; they expect that this might
reasonably be completed by 30 June 2018. Whilst the Articles
provide that an extension should be for a period of four years, the
Directors consider that extending for a shorter period would be in
the best interests of Shareholders and are therefore proposing a
revised wind-up date of 30 June 2018.
As a result, the Board is proposing the Life Extension, pursuant
to which the Proposed Wind-Up Date would be extended from 30 June
2015 to 30 June 2018. The Life Extension, if approved by
Shareholders, would provide the Company and the Investment Adviser
with up to an additional three years in order to realise the
Company's assets. The Board and the Investment Adviser believe that
this will enable the Company to realise the best value possible
from the existing portfolio and thereby maximise the total return
to Shareholders.
As the Proposed Wind-Up Date is contained in the Articles, which
also provide that an extension should be a period of four years,
the Life Extension requires the amendment of the Articles.
Resolution 1, which will be proposed as a special resolution, will
(if passed by the requisite 2/3rds majority) approve the Life
Extension and the amendment of the Articles required to implement
it.
Revision of the investing policy
In order to ensure that the Company's investing policy
accurately reflects the Company's activities, the Board believes
that it is appropriate for the Company to adopt a revised investing
policy. The Revised Investing Policy makes it clear that the
Company is focussed solely on the optimal realisation of its
existing investments for the benefit of Shareholders. No new
investments are permitted under the Revised Investing Policy, other
than investments that preserve, protect or enhance the value of
existing investments. The Revised Investing Policy is as
follows:
"The Company's investing policy shall be to effect the
systematic winding down of the activities of the Company and the
disposal of its assets in such a way as to seek to achieve the
maximum possible value for Shareholders. In order to effect such a
winding down, the Company's key strategy is to dispose of its
portfolio of investments and any other assets and to exercise all
legal rights of the Company over time in such a way as to maximise
shareholder value and to take any such other action so as to enable
it to realise its assets.
Following any material realisation of the Company's assets, the
Directors will take appropriate professional advice in connection
with the return to shareholders of the net proceeds of the
realisations made (taking into account relevant considerations such
as the ongoing operating costs of the Fund and its potential
liabilities).
No new investments will be made save for those made either: (i)
to preserve, protect or enhance the value of an existing
investment; or (ii) as part of a prudent cash management
programme."
The adoption of the Revised Investing Policy constitutes a
material change to the existing investing policy. In accordance
with the AIM Rules, therefore, the adoption of the Revised
Investing Policy is conditional on the approval of Shareholders.
Resolution 3 seeks this consent.
Advisory arrangements
In conjunction with the proposals regarding the Life Extension,
the Board has considered the terms of the Investment Advisory
Agreement to ensure that they are appropriate to fulfilling the
Company's objective of cost effective realisation of the Company's
assets. The Fund no longer requires advice on the discovery and
making of new investments. As a result, the Company has agreed with
the Investment Adviser that, subject to Shareholder approval, the
following amendments will be made to the Investment Advisory
Agreement:
-- with effect from 1 July 2014, the advisory fee will remain at
an annual rate of 2 per cent of the Company's Net Asset Value,
payable quarterly. However, unlike the existing advisory fee,
dividends or other distributions paid to Shareholders will not be
added back when calculating the Net Asset Value for these purposes.
The revised advisory fee is therefore expected to reduce as the
Company realises investments and returns the proceeds to
Shareholders;
-- with effect from 1 July 2014, the performance fee will be
modified and rebased. Performance will be measured against the Net
Asset Value on 30 June 2014 and, as with the current performance
fee, the hurdle rate will be at a compound annual rate of 8 per
cent. 75 per cent of any performance fees earned by the Investment
Adviser will be subject to retention provisions to ensure that
investment gains are realised and available for distribution to
Shareholders before any performance fee is paid to the Investment
Adviser and the 25 per cent is only to be released subject to
availability of cash generated and available for distribution to
Shareholders. The amount of performance fee to be paid to the
Investment Adviser will be recalculated annually and at the
termination of the Investment Advisory Agreement, and will be
capped at 20 per cent. of the amount by which the NAV at that time
exceeds the NAV at 30 June 2014, as increased by the 8 per cent
compound annual hurdle rate. Appropriate adjustments will be made
to reflect distributions made by the Fund over this period; and
-- the extension of the Investment Advisory Agreement to the new
Proposed Wind-up Date of 30 June 2018, subject to the right of
either party to terminate in advance by giving 12 months' notice.
The Investment Advisory Agreement will automatically terminate,
without the need for notice by either party, on 30 June 2018 or, if
earlier, when the Company enters into summary winding-up.
Pursuant to the AIM Rules, the Investment Adviser is a related
party of the Company and, as such, the proposed amendments to the
Investment Advisory Agreement are considered a related party
transaction. The Directors consider, having consulted with the
Company's nominated adviser, PricewaterhouseCoopers LLP, that the
terms of the transaction are fair and reasonable insofar as the
Company's Shareholders are concerned.
Portfolio review
In accordance with our investment policy of realising capital
value over the medium to long term, there are certain portfolio
companies which would benefit from further time to reach full and
sustainable operational performance, complete roll out and planned
expansion within established budgets, which the Board, following
advice from the Investment Adviser, believe have the potential to
significantly enhance the expected cash returns from the Fund. The
Board would expect to dispose of other assets within the original
expected life. We describe below five portfolio companies which we
would expect to deliver greater value for shareholders by being
given additional time to achieve specific commercial goals. The
Directors have, in making this recommendation, considered the
strategic, operational and management plans prepared and advised by
the Investment Adviser.
Rapid Action Packaging
Rapid Action Packaging Limited ("RAP") specialises in the
design, manufacture and supply of innovative, ergonomic, cost
effective and environmentally responsible packaging systems
particularly for the "food on the move" marketplace. All RAP's
products are available in recyclable materials. It has licensed
production of certain of its products to third parties in the US
and Asia.
The current valuation does not reflect the full potential of the
existing facility, nor the impact of the new, innovative products
which this company is currently launching. Additionally, RAP is
expanding its portfolio of customers, as well as continuing the
international roll out. The expectation is that these projected
developments, as well as the opportunities for further incremental
capex for new products and expansion, has the potential to lead to
materially increased profitability for RAP.
Tamar Energy
Tamar Energy Limited ("Tamar") is a renewable energy business,
focusing on anaerobic digestion ("AD") and offering a range of
composting services. It is building a network of facilities around
the UK, with the intention of generating 100MW of renewable energy
through the cost-effective, sustainable treatment of organic
waste.
Though Tamar is now the largest and fastest growing AD developer
in the UK, the current valuation does not reflect the full
advantage of establishing the first national network of organic
waste treatment plants. As has been announced to the market, Tamar
is in advanced stages of raising corporate debt, which will be the
first of its kind in the UK for AD projects. This will fund
continued expansion of Tamar, allowing it to reap the benefits of a
leadership position, including the ability to hire specialist
operational staff and enhance operational efficiency. With all of
the above potential actions, the value to the Company of its
position in Tamar can reasonably be expected to increase by giving
the newly appointed CEO time to fully execute the roll out
plan.
Micropelt
Micropelt GmbH ("Micropelt") produces patented, scalable waste
heat harvesting technology used to power industrial sensors and the
core components of the smart home. Their thermoelectric microchips
are a scalable, thin-film technology which reduces component size
while maximising power density, replacing batteries and eliminating
maintenance.
Micropelt was formed when a predecessor company, in which the
Company had invested, entered administration. Together with WIKA
Alexander Wiegand SE & Co. KG ("WIKA"), a specialist sensor
technology company from Germany, the Company funded Micropelt to
acquire the business from the administrators. Following this
process, WIKA and the Company own Micropelt as a 50/50 joint
venture company, which the Investment Adviser believes has
sufficient investment and support to provide the required base for
expansion.
Micropelt is now at the cusp of significant market growth for
its key products - both the intelligent radiator valve and the
electricity distribution monitoring device. The current valuation,
at the cost of the recent investment, does not reflect the growth
potential for this company. Given the increasing interest and
M&A activity in this area, the Company, based on the advice of
Investment Adviser, has expectations for significant growth as
Micropelt's roll out begins in earnest and it seeks to achieve
rapid sales growth.
ECO Plastics
ECO Plastics operates Europe's largest and most technically
advanced plastic recycling facility, producing 11 different streams
of plastic, including food-grade recycled PET suitable for soft
drinks packaging. The company has a joint venture with Coca-Cola
Enterprises with an established long term supply arrangement.
The current valuation reflects recent challenges in operations
and unfavourable market conditions. However it does not, in the
Investment Adviser's view, reflect the full operational performance
potential of the existing facility nor the improvements expected
from several optimisation capital projects currently being
installed and funded by further capital injections from
shareholders. The expansion of the facility, funded with the
Company's and Coca Cola Enterprises investment into ECO Plastics,
is only now nearing sustained operational capacity and, in the
opinion of the Board following advice from the Investment Adviser,
the benefit of this has not yet been seen in a full year's
financial results.
STX
STX Services, headquartered in Amsterdam is a broker that
specialises in environmental commodities. The company brokers over
35 products including energy efficiency certificates, carbon
emissions rights, green energy certificates, etc. in 25
countries.
In Q3 2013, the company set up STX Fixed Income, which
specialises in environmental and illiquid debt, including private
placements. STX Fixed income has performed well since inception,
strongly outperforming budget over the past year. STX Fixed Income
is actively building out the team to achieve a more consistent
daily flow of trades over the next 9 - 12 months. The continued
performance of STX Services and growth prospects of STX Fixed
Income is expected to lead to considerable additional value to the
position of LEF in STX as a whole.
Extraordinary General Meeting
Set out on pages 11 and 12 of the circular is a notice convening
the Extraordinary General Meeting to be held on 1 September 2014 at
10.00 a.m. at Lime Grove House, Green Street, St Helier, Jersey JE1
2ST, at which the Resolutions will be proposed.
Resolution 1, which will be proposed at the Extraordinary
General Meeting as a special resolution (requiring a majority of
not less than two-thirds of those shareholders present and voting
at the Extraordinary General Meeting to vote in favour), will, if
passed, extend the Company's life by 3 years to 30 June 2018 and
amend the Articles accordingly.
Resolution 2, which will be proposed at the Extraordinary
General Meeting as an ordinary resolution (requiring a majority of
not less than one half of those shareholders present and voting at
the Extraordinary General Meeting to vote in favour), will, if
passed, approve the amendments to the Investment Advisory Agreement
described in paragraph 4 above. Resolution 2 is conditional on the
passing of Resolution 1 by the requisite majority.
Resolution 3, which will be proposed at the Extraordinary
General Meeting as an ordinary resolution (requiring a majority of
not less than one half of those shareholders present and voting at
the Extraordinary General Meeting to vote in favour), will, if
passed, approve the adoption of the Revised Investing Policy.
If any of the Resolutions are not approved, the Board will
consult with Shareholders with a view to putting revised proposals
forward in due course.
Recommendation
The Directors consider that the Proposals are in the best
interests of the Company and its Shareholders as a whole and
accordingly unanimously recommend Shareholders to vote in favour of
the Resolutions to be proposed at the Extraordinary General Meeting
as they intend to do in respect of their beneficial holdings
amounting, in aggregate, to 125,445 Shares, representing
approximately 0.27 per cent, of the Company's issued share capital
as at the date of this announcement.
For further information contact:
Ludgate Environmental Fund Limited +44 (0) 1534 609034
John Shakeshaft, Chairman
Ludgate Investments Limited +44 (0) 20 3478 1000
Bill Weil, Chief Investment Officer
PricewaterhouseCoopers LLP (Nomad) +44 (0) 20 7212 1798
Chris Clarke
Panmure Gordon (Broker) +44 (0) 20 7866 2713
Paul Fincham
This information is provided by RNS
The company news service from the London Stock Exchange
END
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