Pulse Utilities' Shareholders Approve Recapitalisation Deal
18 August 2011
Pulse Utilities’ Shareholders Approve Recapitalisation Deal with Buller Electricity Limited
Shareholders of Pulse Utilities New Zealand Ltd have approved a proposal to recapitalise the business in a deal that provides a significant reduction in debt and a strong capital base for the low cost energy supplier and sees long term supporter, Buller Electricity Limited become the majority shareholder.
“This deal secures the company’s position,” Pulse Acting Chairman, Joseph van Wijk told shareholders at the Annual Meeting in Auckland today. “We are the fastest growing independent electricity retailer in the country, acquiring new customers at an accelerating rate each month with our low cost, high value, fair deal. We now have a secure financial foundation to enable us to move forward with confidence and achieve a maiden profit in the medium term.”
Buller Electricity Chairman Frank Dooley said increasing the stake in Pulse aligned with the consumer energy trust’s strategy to diversify its investments and bring benefits to its owners and users.
“We share Pulse’s vision of providing genuine choice and competition as an independent supplier in the retail electricity sector. We are excited about the smart metering IP Pulse has and the strength of its retail offer, evidenced by the growth in customers in the past year,” said Mr Dooley. “Pulse ticks all the boxes for us, except profitability, and that will come. The company is well positioned to take advantage of the electricity reforms that will start rolling out later this year. Its potential has been handicapped by a lack of capital. BEL welcomes the opportunity to lead the investment to provide that capital.”
Pulse now has 28,000 customers under its Just Energy consumer brand up from 3,800 at March 31 2010 and is acquiring new customers at a rate of about 1,400 each month with its competitive offer that focuses on provincial and rural New Zealand households and SMEs. The company is on track to achieve its goal of 40,000 customers by the end of Financial Year 2012 and 61,000 by the end of Financial Year 2013 although its financial forecasts are based on a more conservative 54,200 customers by that date.
“We will have a 3 per cent share of the total electricity retail market,” said Pulse Managing Director, Dene Biddlecombe. “We are already rattling the cages of the big players who are trying to undermine us and play up our financial challenges. The landscape has now changed. We have the advantage of being nimble, brave and responsive to refresh our offer quickly and give customers real value – and we have the capital we need to fund a bright future.”
Mr Biddlecombe said Pulse’s operational efficiencies were continuously improving. Credit control and debt collecting were more effective, the wholesale market was improving and the electricity sector reforms to promote competition, supply and efficiency would benefit small independent retailers like Pulse.
“Buller Electricity is a natural fit with our ambitions, ethos and focus on the people of heartland New Zealand,” Mr Biddlecombe said.
“Buller has already helped fund the growth of our customer base and eased our financial commitments, particularly with support for out prudential requirements on the spot market. BEL has again responded to our need for more capital to take advantage of the electricity reforms and strengthen our metering and retail offer to be the retailer of choice to consumers.”
It is anticipated that the recapitalisation deal will now be completed within the next few days. As set out in the notice of meeting, a share purchase plan offer to all shareholders will then be undertaken so that all shareholders have an opportunity to acquire shares at the same price as shares were issued under the recapitalisation deal.
Benefits of the Recapitalisation Deal
Enhanced Working Capital/Cash flow:
- $6.5 million in new cash through the issue of new shares and up to $1.5 million in new cash through a Share Purchase Plan offer
- Ability to use the new banking facilities to meet industry security requirements releasing approximately $2 million in cash security deposits back to the Company and ceasing this drain on cash flow moving forward
- Access to a $1 million overdraft facility.
- Cessation of interest payments on convertible notes and BEL’s capitalised debt
- $2.5 million of debt owing to Convertible Note Holders will be capitalised
- $1.12 million of debt owing to BEL will be capitalised
- Company’s balance sheet will be improved as a consequence
- BEL holding 73.08% of all shares on issue, increasing from 8.48% at present
- BEL’s holding possibly reducing to a minimum of 65.11% following the SPP (and any SPP placements)
- BEL will have the ability to control the composition of the Company’s Board of Directors and BEL representatives will immediately be invited to join the Board of the Company
- All existing shareholders will be diluted from owning 100% of the Company to 12.63% of the Company
- Enhanced capability to enter electricity hedging contracts and mitigate price risk
- The ability to leverage off the industry knowledge and expertise of BEL
- The funding to better resource critical areas of the Company’s business such as credit control