KURA Kurawood

    RNS Number : 7970K
  Kurawood PLC
  24 December 2008
   
    Kurawood Plc ("Kurawood" or the "Company")

    Revised Business Strategy and proposed amended 
    Funding Arrangements with Fox Capital Limited

    Further to the announcements of 13 August 2008 and 22 September 2008, the Board of Kurawood announces that it has today implemented a
revised business strategy for the Company and proposes to enter into amended heads of terms with Fox Capital Limited ("Fox") in respect of
the provision of additional capital investment required to deliver this revised strategy.

    Revised Business Strategy

    The Company has not generated revenues from product sales since Admission and the Directors believe that, due to the likelihood of a
protracted global recession and continued unwillingness of customers to commit to purchase products, this position is unlikely to change in
the foreseeable future. Additionally, the cost of New Zealand Radiata Pine, (the raw material used in the manufacture of Vecowood�) is now
trading at approximately twice the price of similar Radiata Pine grown outside of New Zealand whilst the export prices of other timber
species to major Asian markets have collapsed, in some instances by up to 50 per cent. The Directors believe that these recent adverse
movements in global market conditions means a manufacturing facility operating from New Zealand is no longer economically viable in the
medium term.  

    The Directors have therefore resolved to move from a product manufacturing business to a technology licensing business. With Kurawood
owning a UK national patent, as announced on 25 June 2008, and with further international patent applications in process, the Directors
believe that this business model should allow Kurawood to better exploit its wood modification technology since ownership of registered
intellectual property rights ("IPR") provides a certain degree of exclusivity and, thereby, a higher market share as and when the Company's
products prove successful among consumers. As such the Directors place an increasing reliance on Kurawood's IPR assets as a source of
competitive advantage for the businesses. The Company uses Harrison Goddard Foote (www.hgfip.com) to ensure its intellectual property is
sufficiently protected.
    Under the new strategy, the Company would concentrate its limited capital on technology and brand development, while licensees and/or
manufacturing partners would provide capital for manufacturing and product penetration. The license-based business model will initially be
aimed at major timber processors with direct access to competitively priced timber resources capable of being modified with the Company's
wood modification technology, (it should be noted that approximately one third of all species of wood may be physically suitable), with
additional sales efforts being aimed at timber-based product manufacturers and coatings suppliers in order to gain market acceptance of the
Company's technology. 

    The licensing model is based on two revenue streams;

    *     A manufacturing licence fee - predicated on a licence payment per m3 of nameplate capacity, a percentage of which will be paid on
signing of the licence and the balance over the lifetime of the license. In marked contrast to our competitors, the manufacturing license
fee includes the capital expenditure and commissioning costs of the licensee's facility, which the Group will bear.

    *     An ongoing production royalty - predicated on quarterly production output from the licensee's facility.

    Both manufacturing license fees and ongoing production royalties are expected to be positioned at a significant discount to the cost of
competitive offerings. 

    The Company's licensing revenues would be driven directly by the size and timing of new licence agreements, which may lead to early
volatility in income. Once established, licence and royalty fees should provide considerable forward visibility.

    In recognition of the revised business strategy and that a manufacturing facility operating from New Zealand is no longer economically
viable in the medium term the Directors have resolved that the Company's New Zealand subsidiary, PG Industries Limited, ("PGI") ceases
trading with immediate effect and will be put into liquidation. The Directors are seeking legal advice as to the most pragmatic route to
give full force and effect to this resolution. The closure of PGI will remove approximately �195,000 annual costs from the business. 

    In light of the above, and with the objective of maximising shareholder value, the Directors will also seek opportunities to exploit its
intellectual property by entering into strategic alliances with third parties operating within the industry and discussions with one such
party are at an early stage.

    Further steps taken by the Directors to move from a product manufacturing business to a technology licensing business will be more fully
disclosed in the Company's Annual Report and Accounts for the period ending 30 September 2008, which are expected to be announced in early
January 2009.

    Proposed Revised Terms with Fox

    On 22 September 2008, the Company announced that its largest shareholder, Fox, had made available to the Company an unsecured
convertible loan facility of �100,000 to be converted at 12p per share and that Fox had conditionally agreed to subscribe for �400,000 of
new Ordinary Shares at 12p per share. Further, the Company announced it was in advanced discussions with Fox and, subject to Shareholder
approval, Fox would be granted a warrant to subscribe for such number of new Ordinary Shares at 12p per share as would give Fox an interest
of 51 per cent. of the Company's enlarged issued share capital.  

    Subsequently, the closing middle market price of the Company's ordinary shares has fallen from 14.5p per share on 19 September 2008,
being the business day immediately prior to the above announcement, to 2.5p per share, at the close of business on 23 December 2008. Fox has
confirmed to the Board that, whilst it remains committed to providing additional funds to the Company, in light of the fall in the share
price of the Company's ordinary shares from 14.5p to 2.5p, (a decline of 86.2 per cent.), it is no longer prepared to participate in an
equity funding at 12p per share. Fox has therefore renegotiated the terms of its investment in the Company. 

    Under the renegotiated terms, the unsecured convertible loan of �100,000 (which has now been fully drawn down by Kurawood) will be
convertible into new ordinary shares at a price of 2p per share, and Fox will subscribe �200,000 for new ordinary shares in the Company at a
price of 2p share, this amount being sufficient, with the cessation of trading at PGI, for the Company to undertake its revised licensing
business model for the next twelve months. Further funding for the Company will need to be sought once a viable commercial opportunity is
secured. Fox will also be granted warrants to subscribe for 4,000,000 new ordinary shares at 2p per share. The terms noted above are
inter-conditional and also conditional on Shareholder approval being given for a waiver of rule 9 of the Takeover Code insofar as the
conversion of the loan, the subscription and the exercise of the warrants increases Fox's holding and voting rights in the Company beyond 50
per cent. of the Company's enlarged issued share capital. Subject to receiving shareholder approval, Fox has undertaken to enter into a relationship agreement with the Company under which Fox shall use
its reasonable endeavours to ensure that the Company is capable at all times of carrying on its business independently. This includes, inter
alia, conducting transactions and relationships between Fox and the Company at arm's length and on a normal commercial basis, Fox agreeing
not to appoint representatives to the Board which would give it a majority of the Board composition and managing the business and affairs of
the Company for the benefit of all Shareholders. 

    On completion of the Conversion, the Subscription and exercise of the warrants Fox would hold 23,787,000 ordinary Shares, representing a
maximum of 66.08 per cent. of the enlarged issued share capital.  

    It is envisaged that shareholder approval will be sought, by way of a circular to shareholders convening a General Meeting for the
Company to consider and if thought fit, accept the terms of the investment by Fox. The drafting of the circular is advanced and it is
envisaged that this will be distributed to shareholders, alongside the Company's Report and Accounts, in early January 2009. 

    Under AIM Rule 13, the loan, the subscription and the grant of warrants set out above constitute Related Party Transactions. Fox is a
related party as defined in the AIM Rules for Companies as its sole shareholder and both its directors, Roy Tilleard and Justin Martin, are
directors of the Company. The remaining directors of the Company, Peter McArthur and Peter Hammonds, who are deemed to be independent
directors for these purposes, consider, having consulted with Zeus Capital Limited, the Company's nominated adviser, that the terms of the
loan and subscription and the warrants are fair and reasonable insofar as the Company's shareholders are concerned. In coming to this
recommendation the Independent Directors have taken into account the Company's limited cash resources, that it has not received an
alternative funding proposition and that the additional �200,000 to be raised pursuant to the subscription (and the removal of the
obligation to repay the loan) will provide the Company with sufficient working capital for its present requirements, that is for at least 12 months following admission of the new shares to be issued to Fox under the
loan converion and subscription.  

    If the resolutions approving the investment by Fox are not passed at the forthcoming General Meeting then the Company will not have
sufficient working capital for its present requirements and without an alternative funding proposition being received, the Directors would
need to take immediate action to remove ongoing costs from the business or cease trading.  

    Enquiries:

    Justin Martin,       Kurawood plc             Tel: 01624 820 040

    Ross Andrews,        Zeus Capital Limited     Tel: 0161 831 1512 
    Tom Rowley

    Ruari McGirr         St Helen's Capital plc    Tel: 020 7628 5582
    Mark Anwyl


This information is provided by RNS
The company news service from the London Stock Exchange
 
  END 
 
MSCBXBDDSDDGGIS

Kurawood (LSE:KURA)
Historical Stock Chart
From May 2024 to Jun 2024

Kurawood (LSE:KURA)
Historical Stock Chart
From Jun 2023 to Jun 2024