First published in Quoted Cleantech, September 2010. Copyright Cleantech Investor Ltd. 2010    

by Andrew Hore

Transport has always been a high profile part of the cleantech sector, but it has been one of the poorer performing sub-sectors on London’s Alternative Investment Market, particularly during the past year.

Transport as a sub-sector has achieved the worst results on Sigma Capital’s Cleantech index of companies on AIM, having lost one-third of its value over the last twelve months. Four of the ten worst-performing cleantech shares in the index are transport-related – and there are only five companies in the transport sub-sector!

When the index was launched in November 2007, the transport sub-sector consisted of eleven companies and, at a market capitalisation of £841 million, it was second in size only to the carbon sub-sector. Transport’s value is now down to less than £60 million, with only two other sub-sectors, out of a total of ten, having a significantly lower value.

The majority of the clean transport companies that have left AIM were low on funds. Traction Technology and Axeon ran out of money, while diesel additives developer Oxonica and motorcycle developer Vectrix wanted to reduce their cash outflow. Meanwhile, emissions reduction technology developer CDT left AIM in order to concentrate on its NASDAQ listing.

Things are still tough for the cleantech transport companies remaining on AIM. US-based emissions control systems supplier Catalytic Solutions is trying to solve its cash problem by merging with former AIM company and index constituent Clean Diesel Technologies.

The plan is to offer Catalytic shareholders enough shares to give them 60% of the enlarged group, with the deal being conditional on each of the companies having at least $1 million in cash when the merger happens. Catalytic is trying to negotiate an additional capital injection of $4 million via an issue of convertible subordinated notes – $2 million of which needs to be issued before the merger can proceed.

The two companies are also still awaiting authorisation from the US’s SEC, which has to review the registration statement in order for the merger, announced in May, to go ahead and for the combined group to join NASDAQ. Since shareholders will vote on the merger after the SEC gives its approval, completion of the deal is still some way off.

The delays mean that Catalytic needs to extend its existing loan agreement with Fifth Third Bank and discussions are continuing in this respect. Catalytic is also talking to the holders of its loan notes. The share price has fallen by nearly three-quarters over the past year and Catalytic has had cash problems for some time, with its lenders repeatedly extending their facilities.

Commercial electric vehicles manufacturer Tanfield, a former star of the cleantech sector, has also lost its shine during the last two years. When the Sigma Capital Cleantech index was launched Tanfield accounted for 10.4% of the whole index – the second biggest weighting after Clipper Windpower – and two-thirds of the transport sub-sector. The Tanfield share price increased by 259% in the year to November 2007.

Currently Tanfield represents 1.4% of the index and two-fifths of the sub-sector. The company’s share price has declined by four-fifths since November 2007. To put this into perspective, the Sigma index has fallen by two-thirds over the same period.

According to Tanfield, it needs to raise cash through a share issue pending the consolidation of its electric vehicle businesses. There is no guarantee, however, that the company will be able to raise the cash it needs and the deal still has some way to go before completion.

Tanfield has signed non-binding heads of agreement with its US-based associate, Smiths Electric Vehicles US (SEV US), which could lead to a merger with Tanfield’s UK-based subsidiary, Smiths Electric Vehicles. SEV US is considering a NASDAQ flotation as part of the deal, but that is unlikely to happen until the first half of 2011.

No figure has been given for the amount of cash that Tanfield requires. However, it will be significant since the company’s net cash figure declined from £4.8 million to £1.8 million over the six months to June 2010. Tanfield needs sufficient cash to last at least one year in order to be comfortable, which suggests a fund raising of at least £5-£6 million.
 
Tanfield plans to retain a “significant stake” in the combined electric vehicles group and also expects to generate cash from the deal. With the uncertainty surrounding the timing of any flotation in current markets, the success of the consolidation is not guaranteed.

Cash, or lack of it, looks as though it will continue to be a major concern for clean transport companies.

 

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