TIDMHAL TIDMHALO
RNS Number : 5793X
HaloSource Inc
09 May 2016
9 May 2016
HaloSource, Inc.
("HaloSource" or the "Company")
PROPOSED SALE OF RECREATIONAL WATER BUSINESS
HaloSource, Inc. (HAL.LN, HALO.LN), the global clean water
technology company traded on London's AIM, today announces that it
has entered into a conditional asset sale agreement (the "ASA") to
sell its Recreational Water business to Natural Chemistry L.P.
("Natural Chemistry"), a leading specialty chemicals manufacturer
in the swimming pool industry, on a cash free and debt free basis
for an initial cash consideration of up to $7.5 million and further
deferred cash consideration of up to $0.5 million (the "Disposal").
In addition, the Company will, as soon as practicable, post a
circular setting out further details of the Disposal ("Circular")
and a notice convening a shareholder meeting of the Company, to be
held at 9:30 a.m. Pacific time on 19 May 2016, to approve the
Disposal.
In view of the size of the Recreational Water business relative
to the Company, the Disposal will result in a fundamental change of
business of the Company under Rule 15 of the AIM Rules and,
therefore, completion of the Disposal ("Completion") is conditional
upon the approval of HaloSource shareholders.
The Disposal is in line with the Company's previously announced
strategy to focus exclusively on the growth of its Drinking Water
business.
Highlights
-- Up to $7.5 million to be paid in cash within 91 days of Completion
-- Deferred cash consideration of up to $0.5 million, payable on
or before 1 March 2017, subject to the Recreational Water business
achieving certain sales targets for the 12 month period ending 31
December 2016
-- Following the Disposal (if completed), the Company will focus
exclusively on the growth of its Drinking Water business
Martin Coles, President and CEO of HaloSource, said:
"Following the sale of both the Recreational Water business and
the previously announced Environmental Water business, HaloSource
will be well positioned and capitalised for success as a Drinking
Water focused business, in line with our long term strategy of
becoming the technology solutions provider of choice for major
multi-national companies (MNCs) operating in the rapidly growing
Drinking Water sector in our key markets. HaloSource's
class-leading core technology carries the highest global
certifications, including registration with the US EPA and China's
National Health and Family Planning Commission and is being
selected and taken to market by a growing list of leading MNC
partners. We will continue to deepen our relationships with
existing business partners in new applications while adding new
partnerships. We are looking to bring new IP to market in 2017 to
address the growing consumer need for protection from lead
contamination as well as other highly toxic dissolved contaminants
such as arsenic and fluoride.
The Company will continue to focus on growing revenues and
improving operating margins whilst significantly reducing and
controlling operating expenses as we look to achieve cash flow
break even."
The Disposal Consideration
Natural Chemistry will acquire the Company's SeaKlear(R) branded
Recreational Water business. Under the terms of the ASA, the
Company will receive:
-- on Completion, an initial cash payment of $4.0 million;
-- on the 91st day following Completion, a cash payment of $3.5
million adjusted for uncollected receivables, non-saleable
inventory and with customary working capital adjustments; and
-- on or before 1 March 2017, a cash payment of up to $0.5
million subject to the Company achieving revenues of not less than
$13,073,000 for the Recreational Water business for the 12-month
period ending 31 December 2016. In the event that revenue for the
Recreational Water business for the 12-month period ending 31
December 2016 is less than $9,684,000, no deferred consideration
will be payable.
Rationale for the Disposal
As announced on 23 February 2016, the Company has chosen to
accelerate plans to focus exclusively on the growth of its Drinking
Water business, having already disposed of its Environmental Water
business in 2016. As an important part of this strategy, the
Company has made significant structural and organisational changes
to its Drinking Water business, placing key resources and
expenditure in its two major markets, India and China, whilst
significantly reducing headcount and expenditure in the United
States.
Disposal of non-core business assets of the Company with slower
category growth rates, more limited opportunity for geographical
expansion and stronger barriers to reaching operational scale will
enable the exclusive focus on Drinking Water technologies.
For the years ended 31 December 2014 and 31 December 2015, the
results of the Recreational Water business were as follows:
Audited Audited
Year Ended 31 Year Ended 31
December 2015 December 2014
($'000) ($'000)
Revenue 9,684 11,452
Gross Profit 5,104 6,199
As at 31 December 2015, the Recreational Water business had
unaudited gross assets of approximately $8,500,000 and unaudited
net assets of approximately $6,000,000, including goodwill of
$1,490,000.
The Board considers the Recreational Water business to be
non-core to the Company's future strategy. The proposed Disposal of
the Recreational Water business, along with the other initiatives
executed by the Company to date in 2016, will significantly reduce
operating expenses, strengthen the Company's balance sheet, and
enable management to focus exclusively on the Drinking Water
business and capitalise on this rapidly growing industry.
Should the proposed Disposal of the Recreational Water business
not be approved by shareholders, the Company would need to explore
additional sources of capital, such as equity financing, in order
to continue as a going concern or consider strategic alternatives
for the Company as a whole.
Use of Proceeds
The Company expects to use the net proceeds from the Disposal
for general working capital purposes and to fund the growth of its
Drinking Water business.
Following the Disposal, the Board estimates that total revenues
for 2016 will be lower than current expectations and the net loss
for 2016 will be greater than current expectations. The operating
performance of the Drinking Water business remains in line with the
Board's expectation as at the date of the Company's preliminary
results statement issued on 8 March 2016.
Future Strategy
The Company believes its current product offering for
gravity-fed, pressurised and reverse osmosis water purification
devices, its possession of the highest regulatory certifications in
the United States and China, along with a stable of strong
strategic relationships and a pipeline of new products and
performance, enables it to capitalise on the rapidly growing
opportunity in Drinking Water.
The global residential water treatment market was valued at over
$11 billion in 2014 and is expected to see a global growth rate of
over 9% over the next five to seven years. The residential water
treatment market in China was valued at over $2.5 billion in 2014
and the market is expected to grow at a double-digit rate over the
next seven years. The key drivers in the Chinese residential water
treatment market include rising customer awareness, growing health
concerns, rising disposable incomes and the increase in China's
middle class. The Indian residential water treatment market was
valued at over $600 million in 2014. Poor water quality, rising
disposable incomes and improved customer awareness are the key
drivers in the residential water treatment market in India (Source:
2015 Verify Markets Report).
The Board believes that the Company's existing Drinking Water
operation remains valuable and provides shareholders with the most
substantial opportunity for growth. In addition to its existing
technologies, the Company's sole focus on Drinking Water will allow
it to continue development of innovative new technologies,
including advanced applications to remove highly toxic dissolved
contaminants, such as lead, fluoride and arsenic, to levels well
below current EPA and NSF standards. In 2015, the Company completed
laboratory-scale product development on this new absorption
technology platform and began pilot production scale-up work in
conjunction with existing and new partners. The ability to remove
these toxic dissolved contaminants will allow the Company to target
additional and new customers in existing geographies with new
applications as well as to pursue new markets such as North America
and Europe opening up an entirely new avenue of opportunity for the
Company's future growth.
Senior management in the Company's Drinking Water division in
the Asia-Pacific region has been strengthened by the recent
appointment of two executives with extensive water sector
experience. The Company has recently appointed Tamal Chaudhuri as
General Manager of India and Wu Jian Quiang as General Manager of
China. The Board expects their appointments, together with the
previously announced structural changes, will improve the Company's
ability to expand existing partner relationships and accelerate
business development efforts to add new partners in the region.
Mr. Chaudhuri has 29 years' experience in senior roles in the
consumer durables industry and joins HaloSource from A.O. Smith
India Water Products Private Ltd, a leading water heater and
purifier company in India and part of A.O. Smith Corporation, one
of the world's leading manufacturers of residential and commercial
water heaters and boilers. Mr. Chaudhuri spent almost nine years at
the group, most recently as Managing Director, where he was central
to turning the business around and successfully implemented
innovative marketing strategies to transform a nascent brand into
the No. 3 position in India. Previously, Mr. Chaudhuri held a
management role at Merloni Termosanitari India Limited Ltd, one of
the largest manufacturers of residential water heaters globally.
Prior to this, he worked in the sales department at LML Vespa &
Shriam Honda Power Equipment Limited. Mr. Chaudhuri holds a
Bachelor of Science degree in Statistics from Presidency College in
Calcutta and completed the 'Executive Program in Leadership' at
Stanford Graduate Business School, USA.
Mr. Wu joins HaloSource from BASF, a global leader in the
chemicals business, where he spent 13 years at the company's
largest joint venture in China, most recently as the regional
business head for water solutions in Asia. Mr. Wu holds an MBA from
a joint program of China's Tong Ji University and France's ENPC in
addition to Bachelors degrees in Electrical Engineering and Science
and Technology.
Recommendation and Timetable
The Board of the Company believes that the Disposal is in the
best interests of the Company and its shareholders as a whole and
recommends that shareholders vote in favour of the Disposal at its
upcoming General Meeting, to be held as set out below, as they
intend to do in respect of their own beneficial holdings amounting,
in aggregate, to 3,299,623 shares of common stock, representing
approximately 1.50 percent of the issued and outstanding shares of
common stock of the Company.
A General Meeting of the Company will be held at the registered
office of the Company located at 1725 220th Street SE, Suite 103,
Bothell, Washington 98021 at 9:30 a.m. Pacific time on 19 May 2016
for shareholders to approve, inter alia, the Disposal.
Enquiries:
HaloSource, Inc.
Martin Coles, Chief Executive via Newgate below
Officer
James Thompson, Chief Financial
Officer
Liberum Capital (NOMAD and
Joint Broker)
Richard Bootle
Jill Li
Steve Pearce +44 20 3100 2222
Newgate (PR Adviser)
James Benjamin +44 20 7680 6550
Alex Shilov halosource@newgatecomms.com
Lydia Thompson
Allenby Capital (Joint Broker)
Chris Crawford
Kat Perez +44 20 3328 5656
About HaloSource
HaloSource, Inc. develops drinking water purification
technologies that today provide high quality, clean and safe
drinking water to more than 10 million people around the world. The
Company's class-leading HaloPure(R) Drinking Water technology has
the highest global certifications, including registration with the
US EPA. The Company works with scientists and industry experts
across the globe to develop its groundbreaking technologies and
takes them to market in partnership with some of the world's
leading multinational companies and most trusted consumer
brands.
HaloSource was founded in Seattle, Washington and has operations
in China and in India. Learn more about the Company by visiting
www.halosource.com.
HaloPure is a registered trademark of HaloSource, Inc. All other
trademarks, brand names or product names belong to their respective
holders.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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May 09, 2016 02:00 ET (06:00 GMT)
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