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2006-06-23
2006-06-23Press Release - Weber Shandwick, Financial Communications:
Proposed Acquisition of Barrett Marketing Company Inc.
Placing to raise £2.54 million (net of expenses)
Introduction
Freeplay Energy plc ("Freeplay" or "the Company"), the sustainable energy company that captures, stores and delivers electric power to self-powered devices such as radios, torches and mobile phone chargers, is pleased to announce that it has agreed, subject to shareholder approval, to acquire the entire issued share capital of Barrett Marketing Company Inc. ("BMGI") and its wholly owned subsidiary, Dixie Sales Company Inc. ("Dixie")
The Company also announces the Placing of 11,397,358 shares with institutional and other investors, raising £2.54 million net of expenses. The expected market capitalisation of the Company, at the Placing Price, is £14.4 million
Highlights
Dixie is an established sales, marketing, distribution and customer service provider based in Greensboro, North Carolina, USA. Dixie provides a full range of services to its customers and suppliers, which includes customer and supplier account management, customer and supplier logistics, consumer call centre services and technical services, such as training and education to customers.
As at 21 June 2006, Freeplay's total sales book, including product shipped, orders received and placed on the factory and orders received and not yet placed on the factory, pending release of funds, was approximately US$6.1 million for the financial year to date.
On 12 May 2006, Freeplay announced it has entered into a distribution agreement with WP Phones for its FreeCharge mobile phone charger in sub-Saharan Africa. The five year agreement will provide Freeplay with minimum annual sales through WP Phones of one million units per annum. It is anticipated that the first shipment will be made in the last quarter of 2006. The agreement was extended on 12 June 2006 to cover the Caribbean for an additional 100,000 units of the FreeCharge mobile phone charger. The total agreement is now for a minimum of 1.1 million units per annum over the next five years.
The Board's strategy is to develop Freeplay into a broad based sustainable energy company, accomplished through the establishment of its own self-powered products in the market and the formation of strategic alliances or acquisitions with partners to develop, manufacture and supply sustainable energy products.
Peter Porteous, CEO of Dixie, will be appointed chief executive of the enlarged group and the Board will be further strengthened by the appointment as non executive directors of both William and Edward Barrett, Harold Reiter, Barrett Corporation President and COO of Barrett Corporation and Stuart Kinney, Barrett Corporation General Counsel. Both Rory Stear and Richard Court remain as Executive Chairman and Finance Director respectively and, with the exception of Baroness Chalker and John Hutchinson, the Freeplay directors will stay in their current positions.
The acquisition is classified as a reverse takeover for the purposes of the AIM Rules because of the size of Dixie in relation to the existing size of Freeplay. As a result of this, the Directors requested that the Ordinary Shares be suspended from trading on 18 May 2006.
The acquisition, as a result of being a reverse takeover, is conditional upon the approval of Shareholders at the EGM, which will take place on 17 July 2006.
The Company is also pleased to announce that it proposes to raise up to approximately £2.54 million (net of expenses) by the issue of up to 11,397,358 new Ordinary Shares at 29 pence each by way of a Placing.
The net proceeds of the placing will be used to fund working capital and investment needs of the enlarged group and to augment its working capital facilities
Rory Stear, Chairman and Chief Executive Officer commented:
"Freeplay already has a proven track record in the development of self-powered energy products, a portfolio of products and an expanding international distribution base. The acquisition of Dixie and the fundraising mark a step-change for Freeplay, giving us direct control in North American over our sales targets, through Dixieís strong formal relationships with many US retailers and merchants"
"Freeplay will also benefit from Dixie's marketing and operational expertise, which, allied with Dixie's focus on distribution, its customer service capability and its strong management team, will give Freeplay the added impetus we need to ensure the success of the Group, particularly in North America. The Acquisition is a milestone development for Freeplay and it brings us significant further capability in order that we can achieve our vision of developing into a broad based sustainable energy company"
-Ends-
For further information, please contact:
Freeplay Energy plc†020 7851 2630
Rory Stear, Chairman and Chief Executive Officer
Weber Shandwick Square Mile†020 7067 0700
Louise Robson or Rachel Taylor
Charles Stanley &Co†020 7739 8200
Mark Taylor or Freddy Crossley
Notes to Editors: Freeplay Energy's core technology revolves around the efficient conversion and storage of applied human energy, and the delivery of this energy on demand as electricity to create self-powered electronic devices. Initial applications include radios (both consumer and humanitarian), torches, mobile phone chargers and standalone foot chargers and the Company has a new product development plan which anticipates broadening the application of its technology into new product categories. Freeplay believes it was first to market and commercialise self-powered technology and that it is recognised as a leading brand in this market for such products.
Established in 1994, the Company today has offices in both London and Cape Town and floated on AIM, a market operated by the London Stock Exchange plc in March 2005. Further information about Freeplay Energy and its products can be found at www.freeplayenergy.com.
It was announced on 18 May 2006 that the Company has agreed, subject inter alia to Shareholder approval, to acquire the entire issued share capital of BMGI. Dixie, a wholly owned subsidiary of BMGI, is a well established brand building, marketing, sales, order management and parts and wholesale distribution company based in North Carolina, USA.
The Acquisition is classified as a reverse takeover for the purposes of the AIM Rules because of the size of Dixie in relation to the existing size of the Company. As a result of this, the Directors requested that the Ordinary Shares be suspended from trading on 18 May 2006, pending publication of the Admission Document, which contains details of the Proposals. The Acquisition, as a result of being a reverse takeover, is conditional upon the approval of Shareholders at the EGM.
The Company is also pleased to announce that, subject inter alia to Shareholder approval, it proposes to raise up to approximately £2.54 million (net of expenses) by the issue of up to 11,397,358 new Ordinary Shares at 29 pence each by way of a Placing. 11,067,358 new Ordinary Shares have been conditionally placed with institutional and other investors by Charles Stanley and 330,000 new Ordinary Shares have been placed with certain Directors by the Company at the Placing Price.
The net proceeds of the Placing will be used to fund the working capital and investment needs of the Enlarged Group and to augment its working capital.
The Acquisition, if approved by Shareholders, will result in the Barrett Corporation (through its wholly owned subsidiary Barrett Marketing Group Ltd) holding 35.26 per cent. of the Enlarged Issued Ordinary Share Capital.
An EGM has been convened for 11.00 a.m. on 17 July 2006, at which Shareholders will be asked to consider the Resolutions necessary to approve and implement the Proposals. A notice of EGM is set out at the end of this document.
REASONS FOR THE ACQUISITION
Freeplay has a proven track record in the development of self-powered energy products and has a portfolio of self-powered products and an expanding international distribution base. The Board's strategy is to develop Freeplay into a broad based sustainable energy company. This strategy will be accomplished through the establishment of its own self-powered products in the market and the formation of strategic alliances or acquisitions with partners to develop, manufacture and supply sustainable energy products.
The Board believes that distribution strength will be a key area in ensuring the success of the Group and that, in particular, North America will be a key market for the distribution of the Group's existing products and other future sustainable energy products. In addition, the Board believes that the North American market will be key to Freeplay's commercial and financial success.
In 2005, after a review of the Group's North American distribution, Freeplay entered into an agreement with Dixie to distribute Freeplay's products in North America. Dixie has been successful in securing some major listings of Freeplay's products with large North American retailers, including Target Corp who will be rolling out the Kito flashlight in 200 stores, Macys Midwest who will be rolling out 3 SKU's into 86 US stores; Sharper Image who have listed the EyeMax radio across their stores and their website and REI, a leading US sporting goods retailer.
Dixie is a North American focused distribution company, which includes a call centre, multi-location warehouses and a strong management team. The Acquisition will provide the Enlarged Group with strong formal relationships with many US retailers and merchants and furthermore, Dixie will provide the business with a strong track record in sales and marketing strategy and execution. As a result of the Acquisition, the Enlarged Group will be well placed to maximise sales and distribution opportunities for both Freeplay's existing and future products in the US.
On Admission, Peter Porteous, CEO of Dixie will be appointed chief executive of the Enlarged Group and the Board will be further strengthened by the appointment of both William and Edward Barrett, Harold Reiter, Barrett Corporation President and COO of Barrett Corporation and Stuart Kinney, Barrett Corporation General Counsel. These additions to the Board will provide valuable sales, marketing and distribution experience that is required to enable the delivery of the Enlarged Group's strategy of developing a sustainable energy development, sales, marketing and distribution company.
INFORMATION ON DIXIE
Overview
BMGI will directly own the entire issued share capital of Dixie upon completion of the Acquisition Agreement. The Dixie shares are owned by an intermediary holding company, BDS which, in accordance with the Acquisition Agreement, will be dissolved and liquidated prior to completion so that the BMGI Group will consist of BMGI, Dixie and Mower MD a joint venture in which Dixie has a 50 per cent. interest. On Admission, Dixie and Mower MD will be the only trading entities within the BMGI Group.
History
The business of Dixie was founded in 1914 and Dixie was incorporated in 1950. In 2001 the Barrett Corporation acquired 75 per cent. of Dixie and in 2005 it acquired the remaining 25 per cent. of Dixie from Jim Starmer, the president of Dixie.
Operations
Dixie is an established sales, marketing, distribution and customer service provider based in Greensboro, North Carolina, USA. Dixie provides a full range of services to its customers and suppliers, which includes customer and supplier account management, customer and supplier logistics, consumer call centre services and technical services such as training and education to customers. Dixie also has electronic ordering and e-commerce tools.
Dixie's core business includes the sales and marketing of parts to the lawn and garden industry, hand held power tools, generators and as a distributor for whole goods such as scooters, quad bikes, go-karts and hand held lawn and garden equipment on behalf of manufacturers. These parts are sourced from large manufacturers and distributed via private carrier or postal services to customers all over the USA and Canada. In addition, Dixie provides customer care and repair centre network management to a number of its clients.
Dixie's headquarters and main warehouse are based in Greensboro, North Carolina, USA. Dixie also operates a further three warehouses based in Florida, Tennessee and Ontario under a service agreement. This network of locations enables Dixie to arrange for the delivery of goods to over half of the USA in one day and over two thirds of the USA within two days (Source: UPS website).
Dixie's service offerings are as follows:
Sales and Marketing
Dixie sells a wide range of products including parts to the lawn and garden industry and handheld power tools. In addition, Dixie markets and sells a range of finished goods such as scooters, quad bikes, go-karts and hand held lawn and garden equipment. These products are sourced from both domestic and international manufacturers. Sales are completed through three main channels including an extensive dealer network (consisting of approximately 11,000 dealers in the United States and 800 dealers in Canada), national mass merchant retailers and direct to the consumer through the use of its call centre and a newly redesigned web-site.
Dixie's major suppliers include MTD Consumer Inc. (Products include: Cub Cadet, Troy-Bilt, YardMan, YardMachine, White Outdoor, McCullouch), Electrolux Home Products (Products include: Poulan, Poulan Pro, WeedEater) and Komatsu Zenoah America (Products include: RedMax).
Over the past few years Dixie has made significant investment in enhancing its IT capability, which has enabled Dixie to integrate its IT platform with that of the customer. In addition, Dixie has improved its web site ("Ordertree.com"), which has been a factor in the double-digit growth of the consumer direct channel over the past year. In the year ended 31 December 2005 electronic ordering represented approximately 20 per cent. of total sales, compared with approximately 2 per cent. four years ago. The consumer direct channel (database) now consists of approximately 400,000 customers.
Dixie uses EDI or direct system access ordering with most of its major client relationships that results in reduced cost and improved processing time.
Customer Care
Dixie operates a call centre staffed by approximately 100 highly trained customer service agents that handled approximately 1.1 million calls in 2005 from call centres located in Greensboro, North Carolina and through a service agreement with personnel in Woodstock, New Brunswick. The customer service team provides services such as:
- Responding to queries to the manufacturer's 1-800 customer care line
- Placing of orders
- Technical assistance to the customer to ensure that the correct part is ordered
- Proper routing of consumers to a certified repair centre
- General technical assistance to customers (end users)
- Warranty registration and claim processing
Dixie distributes its goods through three US distribution centres located in North Carolina (Greensboro), Tennessee, Florida and one in Ontario (Canada) through a service agreement. Dixie currently manages the distribution of approximately 450,000 SKU's and provides fulfilment ordering that results in the capability of delivering goods from orders placed up to 6.00 p.m. the previous evening to approximately one half of the US (the next day). The length of time taken to fulfil an order is particularly important for national mass merchant retailers and dealers. In addition Dixie achieved a 'fill rate' (product on hand available to ship in its entirety at time of order placement) of approximately 93 per cent. in the year ended 31 December 2005, compared to the industry norm of approximately 90 per cent. This results in improved shipping economics and more importantly enhanced customer satisfaction.
The combination of Dixie's service offerings has made it the partner for many manufacturers, dealers and national mass merchants. For example, one national mass merchant has advised its suppliers that Dixie is the partner of choice to provide the special parts order solution. In addition, several manufacturers compensate Dixie for access to its extensive dealer network and customer database.
Dixie entered into an exclusive distribution agreement with Freeplay in respect of the sale of Freeplay's products in North America commencing in May 2005. Under this agreement Freeplay reimburses Dixie in respect of certain costs in return for which Freeplay receives a share of the profit generated by the relationship.
Market Background
Overview of marketplace
Dixie's core market is the development and management of dealer/repair centres. It also handles the sales of parts and accessories through a number of different sales channels, including independent dealer/repair centres, mass retailers, branded national service centre solutions, such as AltaQuip and directly with end consumers. A significant portion of category sales are now controlled by the national mass retailers. Dixie is evolving its business to reflect and capitalise on these market changes while reducing risk in the distribution business. The mass retailer and consumer direct channels offer stronger gross margin and sales growth potential. Dixie is able to offer a one stop North American service solution for manufacturers and retailers.
Competitors
Current competition tends to specialise in targeted areas or primary product lines. The dealer channel is a very competitive market place with many different companies/sources competing for repair centres purchases. Competition can arise from alternate sources of OEM, competing OEM brands or aftermarket product. The competitive environment is less crowded with respect to providing service/parts program solutions for the mass retailers or one stop North American service execution.
Competitive factors
For all channels access to quality information and trained/certified personnel are key differentiators. The dealer channel seeks competitive pricing, high fill rate, timely shipping and receipt of product. The mass retailer is looking for a partner who can execute across a number of brands (category solution) consistently for all of their stores (national solution). The retail direct customer is searching for competitive pricing, excellent information/answers and prompt service and product delivery
Current trading and prospects
Dixie's key strategy is to focus on developing new distribution channels for its business by:
- increasing direct sales to consumers through its online sales portal www.ordertree.com
- continued skill enhancement of customer care and sales teams
- developing its relationships with national retailers and service only providers. In the year ended 31 December 2005, sales to national retailers grew by 66 per cent. as a result of a focused mass retailer customer care team, proactive store clerk education of the support/business building tools available through Dixie and the launch of a new, advertised consumer direct parts hotline for Lowes
- expanding and enhancing relationships with the core dealer/repair centre customer base. This sector represents approximately 70 per cent. of Dixie's business
Peter Porteous (age 43), Chief Executive Officer
Peter Porteous joined Barrett Corporation in 1989 where latterly he was the President of the Barrett Marketing Group Ltd. When Barrett Corporation purchased Dixie in 2001, Peter Porteous became the Chief Executive Officer of Dixie. Prior to his involvement with Barrett Corporation, he was Director of Marketing at Kraft Foods, where he gained significant experience in sales, distribution and marketing. He studied for his commerce degree at the Carleton University, graduating in 1986 and has been a member of YPO (Young Presidents Organisation) since 2002.
Jim Starmer, (age 59), President
Jim Starmer has been involved with Dixie since 1969 and has substantial experience in the distribution industry which is combined with technical expertise. He also has significant industry contacts and manages important vendor relationships.
Mike Rounsavall (age 45), General Manager
Mike Rounsavall graduated in 1983 from the North Carolina State University with a degree in economics. In 1994 he undertook an MBA at the University of North Carolina, becoming an MBA Professor at the Youngstown State University, Ohio in 2002. Mike Rounsavall joined Dixie in March 2005 having been the Vice President of Operations and Technology at the Ohio division of Alphabet Inc, a large manufacturing company. The division generated US$200 million of revenue from US, Mexican and Brazilian locations. He was responsible for 2,000 employees supplying market leaders in the heavy truck and agricultural markets.
Laura Garrett (age 44), Chief Financial Office
Laura Garrett graduated from the University of North Carolina with a degree in business and accounting. She qualified as a Certified Public Accountant in 1986 whilst working for Breslow Starling Frost Warner Boger Hiatt who are the current auditors of Dixie. Laura Garrett began working for Dixie in September 1995 and is responsible for the finance and accounting function.
Craig Stewart (age 48), Manager Dealer Sales General
Craig Stewart joined Dixie in 2001 having worked for the Barrett Corporation since 1988. He is responsible for the entire dealer sales channel, managing accounts, marketing, sales, program management and customer care.
Mark Brennan (age 36), Manager, Retail Sales and Canada
Mark Brennan joined Barrett in 1999 and has been working exclusively on the Dixie business through a service agreement since 2004. He graduated in business marketing in 1994 from the New Brunswick College and is responsible for the operation of the retail, mass retail and Canadian businesses.
Doug Holmes (age 43), Manager, Procurement and Productivity
In 1984 Doug Holmes graduated from the Eastern Carolina University with a degree in industrial technology. He previously worked for Alphabet Incorporation and was a Senior Program Manager before joining Dixie in November 2005. Whilst working for Alphabet, he was responsible for co-ordinating Mexican associates and plant management. At Dixie, he is responsible for managing stock levels and productivity. He was recruited to add experience and the necessary skills to the stock operations.
David Stephens (age 39), Manager IT &Operations
David Stephens has a degree in electrical engineering from the North Carolina State University. Before joining Dixie in March 2002, he worked for Signum, a North Carolina company as Business Unit Manager. David Stephens played a major role in upgrading Dixieís operating platform and implemented a new call centre operating system. David Stephens is also responsible for the operation of all of Dixieís warehouse branches.
Doug Azbell (age 41), Business Manager - Freeplay
Doug Azbell graduated from the Anderson University in Indiana with a management degree. He was a sales manager between 1992 and 1998. Doug Azbell is now the Project Manager of Freeplay.
Darla Fain (age 39), Manager, Human Resources
Darla Fain obtained a business degree specialising in human resources from the Indiana University. She is currently studying for a masters degree in organisational development at the Case Western University, Cleveland. She joined Dixie in 1999 and is responsible for payroll, recruitment, appraisal and staff welfare. Darla has two HR administrative assistants.
Principal terms of the Acquisition Agreement
On 17 May 2006 the Company entered into the Acquisition Agreement with BMG, a wholly owned subsidiary of Barrett Corporation, for the purchase of the entire issued share capital of BMGI, which, through a wholly owned subsidiary, BDS, owned the entire issued share capital of Dixie. Under the terms of the Acquisition Agreement, the Company agreed to a consideration which will be due to BMG consisting of the Consideration Shares and US$1.084 million by way of a promissory note secured over the shares in and assets of Dixie.
Prior to completion of the Acquisition, certain liabilities in BMGI will be assumed by BMG and BMGI will be released from these liabilities. These include amounts due to James E Starmer, Jr and Richard L Starmer pursuant to certain promissory notes in connection with BMG's acquisition of Dixie and certain intercompany loans due from BMGI to BMG.
The Acquisition Agreement contains warranties and indemnities from BMG in favour of Freeplay and certain warranties and indemnities from the Company in favour of BMG in respect of itself. The Acquisition is conditional, inter alia, on the passing of the Resolutions and Admission.
The 17,559,131 Consideration Shares to be issued pursuant to the Acquisition Agreement will represent approximately 35.26 per cent. of the Enlarged Issued Ordinary Share Capital and will, when issued, rank pari passu in all respects with existing Ordinary Shares then in issue, including all rights to all dividends and other distributions declared, made or paid following Admission.
Financial Information
| Year ended 31 December | |||
| 2005 | 2004 | 2003 | |
| US$í000 | US$í000 | US$í000 | |
| Turnover | 40,622 | 35,318 | 36,975 |
| Gross profit | 12,743 | 10,629 | 10,782 |
| Operating profit | 1,111 | 521 | 252 |
| Profit/ (loss) before taxation | |||