15th Aug 2006 08:00
Energetix Group plc15 August 2006 For Immediate Release 15 August 2006 Energetix Group plc ("Energetix" or the "Company") First Day of Dealings on AIM Energetix Group plc, (AIM:EGX), an alternative energy products company aimed atselling two products to the European boiler market and the global battery marketfor Uninterruptible Power Supplied (UPS), is pleased to announce that its sharescommence trading on AIM today. Energetix has raised £5.4m (net) through a Placing of 12.5m Ordinary Shares and2.5m EIS Placing Shares (the "Placing"). At the Placing Price of 40p per Share,Energetix will have a market capitalisation of approximately £18.0m. The funds raised will be split between the two subsidiary companies responsiblefor Genlec and Pnu Power products. These funds will be used on operations andrecruitment of key personnel, product development, field trials and obtainingcertification. The Nominated Adviser and Broker to Energetix is Zeus Capital Limited. Placing Statistics Placing Price 40pNumber of EIS Placing Shares being placed 2,500,000Number of General Placing Shares being placed 12,500,000Net proceeds of the Placing £5.4mNumber of Ordinary Shares in issue following the General 45,000,000PlacingPlacing shares as a percentage of the enlarged issue share 33.33%capitalMarket capitalisation at the Placing Price following the £18,000,000PlacingAdmission effective and dealings in the existing OrdinaryShares and EIS Placing Shares commence on AIM 15 August 2006Admission of the General Placing Shares effective and 16 August 2006dealings commence Commenting on the Placings and Admission, Adrian Hutchings Chief ExecutiveOfficer of Energetix said: "The Placings and Admission provides the capital to bring our products to marketand full commercialisation." "These products will address the needs of two very large markets without thelevel of technology risk normally associated with alternative energytechnologies. Basing our products on existing mass produced components andstrong intellectual property, enables us to reduce the time to market and hasalready taken us down the production cost curve." For further information please contact: Energetix Group plc 0151 348 2116Adrian Hutchings, Chief Executive OfficerRichard Smith, Chief Financial Officer Zeus Capital 0161 831 1512Alex ClarksonBen Thompson Buchanan Communications 020 7466 5000Ben WilleySusanna Gale Introduction Energetix has utilised simple and robust technology based on proven componentsto establish two product based businesses aimed at selling alternative energyproducts into the UK and European boiler market and the global battery marketfor UPS applications. Energetix has a strong board including individuals experienced in the formationand delivery of new technology businesses, with specific market knowledge andgovernmental influence. A team is in place with over 80 man years of experiencein alternative energy product development. History and Background The business was established by Adrian Hutchings in 1997, having spent theprevious four years at British Nuclear Fuels plc ("BNFL") developing alternativeenergy products and identifying new business ventures for energy systems. Energetix raised £1.3m of private equity funds to develop products for both theenergy storage and distributed generation markets. Energetix had identified theneed for new products for these markets and initiated a search for intellectualproperty that could be developed to produce suitable products. A number oftechnologies were considered, including the Fuel Cell and the Stirling Engine.In 2002, technology was identified at Battelle with the potential to be a lowcost product, based on mass produced components. Energetix subsequently enteredinto a joint venture with Battelle to develop the technology in 2003. Energetixstarted development of Genlec in 2003 and identified that the core technologywithin the Genlec system could also be utilised for energy storage applications. Core Technology Energetix has two key products that have been built around the same core scrolltechnology. Scroll Compressors are mass produced for the refrigeration and airconditioning marketplaces. Energetix take these Scroll Compressors and withminor modifications run them in reverse to operate as a scroll expander. When innormal operation, they are driven by a motor to compress a gas. However, oncemodified to operate in reverse, compressed gas is injected into the scroll whichthen expands, driving the scroll expander which in turn drives a generator toproduce electricity. Despite the simple nature of this core component, Energetixhas international patent protection for both products using this system. Products and Markets Energetix has developed two products, Genlec and Pnu Power which are aimed atmarkets currently valued at £8bn per annum and £1bn per annum respectively.Genlec is a new module which is incorporated into a boiler and uses a technologyknown as Micro Combined Heat and Power ("M CHP"). Energetix has received aproposal from a prominent boiler manufacturer to become a sales andmanufacturing partner for this product. Pnu Power is an alternative energystorage technology to batteries, that uses compressed air. Its primary use andmarket will be the energy storage element of the uninterruptible power supplymarket. GENLEC What is micro CHP? A micro CHP unit is a domestic appliance that produces heat and hot water;however, unlike conventional boilers, it simultaneously produces electricity.Currently, electricity is typically supplied to the home from central generatorsvia the transmission and distribution network. Around 60 per cent. of the energyis lost during the process of generation, and a further 5 per cent. is lost intransmission and distribution. This leaves only 35 per cent. of the energyavailable to the home. Micro CHP units convert the energy stored in the gas,supplied to homes in the normal way, into electricity and heat with only a 10per cent. loss, so that 90 per cent. can be used by the home. This enables microCHP to be more efficient than central electricity generation and hence uses lessgas. Other micro CHP technologies are in development but the Energetix corescroll technology differentiates its product significantly from that of thecompetition. How does Genlec work and what are its characteristics? Energetix has called its micro CHP module Genlec. It uses the Organic RankineCycle, similar to that used in refrigeration. An organic liquid is pressurisedby a pump and then evaporated using heat from the boiler. This pressurisedvapour then passes through the scroll expander, driving the scroll as itdecompresses turning a generator that produces electricity. The low-pressureorganic vapour then passes through the heat exchanger to produce useable hotwater. The organic vapour condenses to a liquid and then repeats the process. The Genlec modules are incorporated into boilers with the addition of a simpleconnection to the domestic electrical mains circuit. Whenever the boiler is on,electricity is produced. This typically coincides with times of peak electricaldemand being morning and early evening when electricity costs are at theirhighest. The final micro CHP appliance is effectively two modules within the case of asingle boiler; one is the boiler unit as produced by the boiler manufacturer,the second is Genlec, currently produced by Energetix. These two units areconnected in the boiler case but are in effect two separate units so Genlec canbe easily removed and replaced. The Genlec based micro CHP appliance has similar dimensions to current boilersand is wall hung, which is important given that circa 90 per cent. of theWestern European boiler market comprises wall hung units. The appliance willalso have very similar service and maintenance requirements to normal boilers. Energetix's module operates at low temperatures and pressures allowing it to useexisting mass produced components. This gives a good cost advantage over thecompetition, rapid start up characteristics and a low weight. UK and European Boiler Markets In 2003, the EU domestic boiler market (valued at manufacturers' selling price)was £8.1bn per annum. In May 2004, Cambridge Consultants predicted the Europeanmarket for micro CHP to be worth £1.5bn per annum by 2010; and in March 2006,the Society of British Gas Installers ("SBGI") predicted the UK market for microCHP to reach 540,000 unit sales per annum by 2015. In the UK there is already government support for micro CHP appliances, in theform of reduced VAT, down from 17.5 per cent. for normal boilers to 5 per cent.If further government support is put in place in the form of grants andlegislation then the upper level penetration projected by the SBGI rises to1,450,000 unit sales per annum by 2020 and would be equivalent to 78 per cent.of the UK domestic boiler market. At this level, the installed base by 2020would be 12.5 million units. This would be equivalent to 44 per cent. of thetotal UK households. To put this into context, if this level of marketpenetration were achieved, by 2020, the installed electrical generation capacityof micro CHP would be equivalent to the total of today's UK nuclear powerstations. The benefits of Genlec The current model of centralised production for electricity has several inherentproblems which Genlec addresses. Genlec uses less gas to produce the equivalentamount of power, this delivers the following benefits: • the impact of high (and increasing) cost of gas is reduced; • the need for emergency gas storage to meet the winter peak demand is reduced; • reduces carbon emissions to the environment; and • reduces the risks associated with security of supply. Additionally ESCOs are sometimes forced to provide electricity at a high costthat they cannot directly pass on to their customers, typically Genlec willproduce electricity at peak demand, therefore reducing the risk of thisoccurring. A homeowner could expect a 31/2 to 41/2 year payback period on theadditional installed cost of a Genlec based appliance compared to a conventionalboiler, through the reduced cost of energy bills which equates to circa £150 to£200 per annum. Energy suppliers can also see a potential package of benefitsworth up to an additional 50 per cent. of the saving to the homeowner throughincreased customer retention, improved purchase profile, service contracts andenvironmental credits. Commercialisation Strategy The strategy is for Energetix to assemble the Genlec modules and supply them toboiler manufacturer partners, who will use their existing channels to marketincluding their sales, marketing and distribution network as well as theirtraining facilities for installers. Energetix has already received a proposalfrom a prominent boiler manufacturer to become a sales and manufacturingpartner. An advantage for Energetix with respect to time to market, and inproduction ramp up, is that the production of Genlec is an assembly process anddoes not require sophisticated manufacturing equipment and processes. A key stage of the commercialisation of the micro CHP product is proving thesystem in field trials. It is planned to test two systems in non-occupiedproperties, and then to undertake larger field trials in occupied propertiesduring the 2007/8 winter. To support these plans, Energetix has alreadyrecruited staff with experience in setting up and managing such micro CHP fieldtrials for EA Technology. Energetix will operate this business in a wholly owned subsidiary. A dedicatedmanagement team will be recruited in particular a Managing Director andCommercial Director soon after Admission and an Operations Director within 18months of Admission. Energetix anticipates a product launch of the first Genlecbased appliance in the latter half of 2008. Competition There are a number of organisations at various stages of development of productsfor the micro CHP market. The technologies used by these competitors fall intotwo main categories; Fuel Cells and Stirling engines. A selection of Fuel Cell micro CHP developers is Ceres Power Plc, CMR FuelsCells Plc and European Fuel Cell GmBH. These are at various stages ofdevelopment with at least one at the field trials stage. The Directors believethat a number of these companies are at an earlier stage of development thanEnergetix as they have to develop the prime power generator (the Fuel Cellcore). As the Energetix prime power generator is the mass produced scrollexpander, Energetix has been able to focus on producing an integrated micro CHPsystem. There are two main Stirling engine developers; WhisperTech Ltd and MicrogenEnergy Ltd. WhisperTech already has a product and indicate that it has suppliedPowergen with 400 units for installation. This unit is floor mounted due to itsweight and therefore only addresses a small element of the market. Microgen hasstated that their product is due for field trials in 2006. Whilst alltechnologies offer differing benefits for the end user a significant advantageof Genlec based micro CHP appliances is that their operational routine fits withnormal boiler operation. In the Directors' opinion the other technologies willrequire some modification of end user behaviour. The Directors also believe thatthe use of mass produced components will enable Genlec based micro CHP appliances to have a lower price point than competing technologies. PNU POWER What is UPS and how does Pnu Power work? UPS systems automatically provide power in times of power sags or outages. Thisprovides time to switch over to a backup generator or the safe shut down ofcritical systems. UPS protects equipment in large markets such astelecommunications, data communications, utility applications and financialservices. The incumbent technology for energy storage for UPS is VRLA batterieswhich have a range of problems discussed below. Pnu Power is a new type of battery for UPS using compressed air, designed toovercome the problems inherent in VRLA batteries. When a power outage has beendetected, compressed air stored in air cylinders is released. The air is then injected into a scroll expander and as it decompresses drives agenerator. The generator then produces electricity and the scroll expander ventsthe cold air. UPS Energy Storage Market The energy storage element of the commercial and industrial UPS market is valuedat over £1bn per annum. This market also has good potential for growth due tothe increasing demand for power protection in particular in the IT, data, andcommunications markets. Given Pnu Power generates cold air as part of itsprocess, the product could be attractive to those sectors such as IT where theprovision of cold air is important. The benefits of Pnu Power The scroll expander has a rapid response time to provide power in times of powersags or outages. Currently, Pnu Power can produce 20kWe output from a singlescroll device, which is well suited for the low to mid range market sector.Multiple modules can be joined together to deliver higher power systems. TheDirectors believe that Pnu Power can deliver backup power reliably andrepeatedly without the problems associated with batteries. Batteries suffer from loss of run time with, for example; age, environmentaltemperature variation and depth of discharge. A single Pnu Power unit can alsoproduce up to 40kWt of cooling. The Directors believe this cold air is likely tobe important in data centre applications where upon power failure the UPS systemkeeps the computers running but not the air conditioning. New servers canoverheat and shutdown due to high temperatures before the backup generator canrestore the air conditioning. VRLA batteries have a short life span and require regular maintenance, however,Pnu Power uses mass produced components that have been tested extensively inautomotive applications. One of the main reasons for UPS systems failing tooperate on demand is the failure of the batteries. It is also very difficult tomeasure the amount of run time left in a battery until it is being used. TheDirectors believe the use of these mass produced components enables Pnu Power tohave a low cost base and supports the Pnu Power product life. Pnu Power is ableto give consistent and accurate estimates of run time allowing it to overcomeanother of the inherent problems of VRLA batteries. VRLA Batteries have high life cycle costs compared to Pnu Power, due to theirneed for maintenance and regular replacement. VRLA Batteries requireenvironmental and temperature control otherwise battery life can be very short,and thermal runaway can occur leading to hydrogen generation and ultimatelyexplosion. Pnu Power does not require any environmental and temperature control, andinstead of occupying an expensive air conditioned room, can be stored andoperated from outside of a building. Pnu Power not only generates very high lifecycle savings, up to 70 per cent. to the end user dependent of pricing strategyof Pnu Power, but it can also be cost competitive on a first cost basis whilststill delivering good margins to Energetix. Energetix staff have previously had considerable experience of the sale andinstallation of high cost flywheels for UPS applications where batteries wereunsuitable, for example in underground transit systems, mines, militaryapplications, telecommunications and load levelling. The Directors believe thatthese are likely to be high value market opportunities for Pnu Power. Commercialisation Strategy The strategy is for Energetix to assemble the Pnu Power battery modules andsupply them to UPS partners who will use their existing distribution andinstallation channels to bring them to market. The Pnu Power module will behaveas a VRLA battery replacement and so it is the intention of Energetix to becomean alternative battery supplier not a UPS supplier. System proving and field trials of Pnu Power are an important part of thecommercialisation of this product. Due to very low usage, systems may operateonly infrequently over a 20 year life, and accordingly accelerated life cycletesting is possible leading to a more rapid time to market than Genlec. Energetix will operate this business in a wholly owned subsidiary. A dedicatedmanagement team will be established including a Managing Director and aCommercial Director soon after Admission and an Operations Director within ninemonths of Admission. Energetix anticipates a product launch of the Pnu Power UPSbattery replacement product in the latter half of 2007. Competition There are currently two main technologies that will be in competition with PnuPower - VRLA batteries and flywheels. The inherent problems with VRLA batterieshave been highlighted above. Nevertheless, VRLA batteries currently represent 95per cent. of the energy storage market. Flywheels are used as a battery in UPSapplications where their high costs can be justified given the potential impactof VRLA batteries' deficiences. Flywheels can cost up to 10 times the price of VRLA batteries, however, even atthis high cost point, they have taken nearly 5 per cent. of the market. ActivePower Inc, Pentadyne Corporation, Beacon Power Corporation and Piller PowerSystems GmBH are among the key flywheel manufacturers. In particular Active Power has a compressed air energy storage product, CoolDC,that is based on a radial axial turbine which is driven by compressed air. Asthis device uses a flywheel and a second generator to provide the ride throughcapacity, it is therefore in the opinion of the Directors unlikely to be able tocompete with the Pnu Power cost point. Patent Protection Energetix has core technology patents for both Genlec and Pnu Power that aregranted or progressing to grant in key geographic regions followinginternational patent applications. Genlec's core patent has been granted in theUnited States and Norway and accepted for grant by the European Patent Office,with applications in a further six countries giving protection in a total of 32countries. Energetix has also identified further micro CHP inventions which willbe the subject of new patent applications. Pnu Power has had its core patent accepted for grant by the European PatentOffice with applications ongoing in the United States, China and Japan givingprotection in a total of 30 countries. Pnu Power has two further inventions withpatent applications pending and a further four inventive concepts under reviewfor application. Granted patents afford Energetix technology protection for 20 years from patentapplication date in the countries where protection is in force giving protectionagainst other organisations making, importing, stocking or selling infringingproducts in that country. Countries selected for protection by Energetixrepresent the major target markets for these products. Directors Alan John Aubrey (aged 45) Non Executive Chairman Alan was appointed CEO of IP Group plc in 2005 after joining the board followingthe acquisition of Techtran Group Limited which he established in 2002. He isalso the NED Chair of Proactis Group plc. Previously Alan was a partner in KPMGwhere he specialised in corporate finance advice to technology-based fast-growthbusinesses and has significant experience at helping them raise money andprepare for sale or flotation. Alan is a Chartered Accountant and holds a BA inEconomics from the University of Leeds and an MBA from the University ofBradford. Adrian Charles Hutchings (aged 45) Chief Executive Officer Adrian has a degree in Chemical Engineering. Prior to founding Energetix Groupin 1997, he was the Managing Director of International Energy Systems Ltd("IES"), a subsidiary of BNFL which developed, manufactured, and marketed a hightechnology flywheel for storing electrical energy, for the UPS and distributedgeneration markets. Before this, Adrian was a Commercial Manager with BNFL New Business Ventures.His role was identifying technologies and business opportunities based oninternal intellectual property, for non-nuclear applications, as part of adiversification program. Prior to this he was the BNFL Project Manager for a£50m capital, £500m life cycle, design and construction project for a majorfacility at the Sellafield Site. Richard Henry Smith (aged 45) Chief Financial Officer A Chartered Management Accountant with an MBA from Warwick University, he waspreviously Finance Director for Ultraframe (UK) Limited (2001 to 2004).Ultraframe are the UK's leading manufacturer of conservatory roofing systems.Before joining Ultraframe, Rick was the Finance Director for Norcros AdhesivesLimited (1997 to 2001) which comprised subsidiary, joint venture and licenseeoperations in the UK, Europe, the Middle East and India. Rick was involved in anumber of corporate transactions. From 1995 to 1997 Rick worked with Adrian Hutchings as the Finance Director forIES and prior to this was the Financial Controller for Robinson Healthcare, adivision of Robinson Limited that manufactured consumables for the healthcareindustry. Anton Cecil Elsborg (aged 55) Non Executive Director Following roles in finance and general management with Lucas Aerospace LimitedAnton joined David Brown Group plc as Finance Director after a £46m MBI inJanuary 1990. David Brown later floated at a valuation of £90m on the LondonStock Exchange in April 1997. Continued growth through new products andinternational expansion lead to the purchase by Textron Inc of the David BrownGroup in 1998 for approximately £260m. Anton remained with Textron as President of the Power Transmission Divisionuntil July 2001 and joined Energetix in 2002. Anton graduated in ChemicalEngineering, gained a Masters in Industrial Management and is a CharteredManagement Accountant. Bryan Mark Gray (aged 53) Non Executive Director Bryan is Chairman of the Northwest Regional Development Agency. Previously hewas Chairman of Baxi Technologies, now part of Baxi Group Limited. He is VicePresident of the Micropower Council, promoting new energy technologies. In June 2002 he was appointed a Deputy Lieutenant for Lancashire and was HighSheriff of Lancashire from April 2003 to March 2004. He is Non ExecutiveChairman of Westmorland Limited. Glossary of Terms The following technical terms apply throughout this document, unless the contextrequires otherwise: "Battery" a device used to store energy for conversion into electrical energy; "CHP" Combined Heat and Power: a system which provides a secure and highly efficient method of generating electricity and heat simultaneously at the point of use. By using excess heat from electricity generation and avoiding grid transmission losses, CHP achieves a large reduction in CO2 emissions compared with centralised power stations where the heat generated is not utilised; "Fuel Cells" an electrochemical device where the chemical energy of a fuel, such as hydrogen, and an oxidant such as oxygen are converted to directly produce electricity; "micro CHP" Micro Combined Heat and Power: a system that can be installed in place of a standard domestic boiler. domestic micro CHP system not only provides heat for the home, but also a proportion of the electricity in the same process. Excess electricity produced when heating the home has the potential to be fed back into the grid; "Organic Rankine a Rankine cycle (being a heat engine commonly used inCycle" power production plants where the power is generated through the expansion of a high pressure vapour which is subsequently condensed, repressurised and evaporated in a closed loop) which uses an organic working fluid. Also used in reverse for refrigeration in fridges, freezers and air conditioning; "Stirling Engine" a combustion engine where a sealed quantity of gas is repeatedly heated and cooled to drive a piston to derive mechanical work; "Scroll a device that uses two interleaved spiral shaped scrollsCompressor" to compress gas. One of the scrolls is fixed whilst the other orbits eccentrically without rotating thereby trapping and compressing pockets of gas between the scrolls; "UPS" Uninterruptible Power Supply; a device that sits between a power supply (e.g. a wall outlet) and a device (e.g. a computer) to prevent undesired features of the power source (outages, sags, surges, bad harmonics, etc.) from adversely affecting the performance of the device; and "VRLA batteries" Valve Regulated Lead Acid batteries; electro-chemical batteries which are widely used in UPS applications. Definitions References in this document to statutes or government agencies are, unlessspecifically stated otherwise, to statutes or government agencies in the UK. Thefollowing definitions apply throughout this document unless the context requiresotherwise: "Act" the Companies Act 1985, as amended; "Admission" the admission of the Ordinary Shares, issued and to be issued pursuant to the EIS Placing, to trading on AIM in accordance with the AIM Rules; "AIM" the AIM Market of the London Stock Exchange; "AIM Rules" the rules of the London Stock Exchange for AIM companies and their nominated advisers governing admission to and operation of AIM; "Articles" the articles of association of Energetix Group plc, "Battelle" Battelle Memorial Institute based in Columbus, Ohio; a global science and technology enterprise that develops and commercialises technology and manages laboratories for customers; "Board" or "Directors" the directors of Energetix Group plc, "certificated" or "in an Ordinary Share which is not incertificated form" uncertificated form; "Combined Code" the Combined Code on Corporate Governance and the code of best practice included in an Appendix to the Listing Rules of the UK Listing Authority issued by the Financial Reporting Council in July 2003; "Companies Act" the Companies Act 1985 (as amended); "CREST" the computerised settlement system to facilitate the transfer of title of shares in uncertificated form, operated by CRESTCo for UK, Irish and International Securities; "CRESTCo" CRESTCo Limited (registered in England and Wales under number 2878738); "CREST Regulations" the Uncertificated Securities Regulations 2001 (SI 2001/3755) (as amended); "EIS Placing" the placing by Zeus Capital of 2,500,000 Ordinary Shares at the Placing Price pursuant to the Placing; "EIS Placing Shares" 2,500,000 new Ordinary Shares to be issued in connection with the EIS Placing; "Energetix Group" or "the Energetix Group plc (registered in EnglandCompany" and Wales under number 5819555); "Energetix" or "the Group" Energetix Group, together with its subsidiaries; "Enlarged Share Capital" the issued ordinary share capital of Energetix Group upon Admission; "ESCOs" Energy Supply Companies; "FSA" the Financial Services Authority; "FSMA" the Financial Services and Markets Act 2000, as amended; "General Placing" the placing by Zeus Capital of 12,500,000 Ordinary Shares at the Placing Price pursuant to the Placing Agreement; "General Placing Shares" 12,500,000 new Ordinary Shares to be issued in connection with the General Placing; "London Stock Exchange" London Stock Exchange plc; "Official List" the Official List of the UKLA; "Ordinary Shares" or "Shares" ordinary shares of 5p each in capital of Energetix Group; "Placing Agreement" the conditional agreement between (1) Energetix Group, (2) the Directors, the Proposed Director and (3) Zeus Capital,; "Placing Price" 40p per Ordinary Share; "Placings" the EIS Placing and the General Placing; "Placing Shares" 15,000,000 new Ordinary Shares to be issued in connection with the Placings; "Prohibited Territories" USA, Australia, Canada, Japan, the Republic of Ireland, the Republic of South Africa and their respective territories and possessions; "Proposals" the Placing and Admission; "Proposed Director" Bryan Mark Gray; "Shareholders" holders of shares in the capital of Energetix Group; "Share Option Schemes" the Energetix Enterprise Management Incentive Scheme 2006 and the Energetix Unapproved Share Option Scheme 2006; "UK" United Kingdom of Great Britain and Northern Ireland; "United Kingdom Listing the FSA acting in its capacity as theAuthority" or "UKLA" competent authority for the purposes of FSMA; "US", "USA" or "United States" the United States of America, its territories and possessions, any state in the United States, the District of Columbia and all other areas subject to its jurisdiction; "VAT" value added tax; and "Zeus Capital" Zeus Capital Limited (registered in England and Wales under number 4417845). 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