Environmental Clean Technologies Limited (ASX:ESI) provides the Chairman’s address to today’s General Meeting:
“There are several resolutions before us today however resolution number one is central to this General Meeting. In considering whether this deal is in the best interest of the Company, we need to understand where we have been, where we are now, and where we aim to be in the future.
ECT has had a particularly poor time on the stock exchange, and is a text book case of why companies should not be listed too early.
ECT was listed without a comprehensive business plan, an inadequate capital raising model, a board that had minimal listed company experience, and major shareholders who were naÃ¯ve in their dealings with the company.
These problems are not unique to ECT. A large number of listed companies that have failed, have done so because of these reasons.
Similarly, many other companies that have recognised these problems and taken measures to rectify their shortfalls have gone on to enjoy considerable success.
ECT has gone through the typical stages of listed Micro Cap companies that have been established by relisting an insolvent company;
- Management is usually based on the original proponents;
- Boards are expanded to bring on people who are thought to have skills in areas needed by the business;
- Eventually, professional Management is appointed;
- Finally, professional Directors are appointed
The drivers of these changes are based on the business moving out of start up stage, to growth, then on to being established.
Typically business in the startup and growth stages, whether listed or not, will have “˜rent seekers’ who will want to exploit the business for their own purposes.
This can ultimately destroy the business as scarce resources are used inappropriately and management time and effort needs to be expended on dealing with the issues arising.
The past behaviour of foundation shareholders is typical of those that use the company as a cash box. But this has already begun to change and is evident in the fact that where once 75% of the company was owned by the top 20 shareholders, most of whom were issued stock at 1c/share, these days the top 20 own less than 45% of the company.
It is this Board’s clear determination that every shareholder of this company will be treated in exactly the same way. Gone are the days where participation in fundraising was restricted. Every shareholder will have the same opportunity as any other to participate. Gone are the days when a few shareholders had special access to the Board. All shareholders are now fully and equally informed of the progress of the company.
We have now got ourselves to a stage where we do have a motivated shareholder base, which has been counter intuitive. It is the small professional investors, the mums and dads, who have held tight as they know the true value of the technology and understand they are making a long-term investment.
Another common problem facing listed micro caps is that these companies are under capitalised. This generally should not be a problem for a listed company, as the primary purpose of listing should be to raise capital for the business.
The ECT Board has been aware of these challenges and the immediate past board, under the leadership of former Chairman, Murray D’Almedia, and former Managing Director, Con Galtos, set out to reshape the company.
Subsequently, ECT has begun to mature and move away from the private company mentality and grasp the notion that it had to evolve into a more professional public company that was aware of its responsibilities to shareholders.
With this new mentality, the internal workings of the company have been reviewed and correct corporate governance practices have been implemented. Kos Galtos returned from the UK to take up the position of business development manager and a new source of equity funding was opened.
This renewal has now allowed the company to focus on establishing a professional board equipped with the skill sets to move it out of the startup stage and into the growth stage.
More recently, the appointment of Kos Galtos to the Chief Executive position has strengthened the company further as it actively and effectively pursues its growth plans under a structured market development plan.
Poor budgeting decisions have ultimately hurt this company. Work done to rectify the past under new stringent corporate governance guidelines will continue through this new administration.
Kos’ work on the 2008-09 financials has produced a much calmer budget. He has successfully taken the ego out of the cashbox, identified the excess fat and trimmed the budget to focus solely on research and development and of course commercialisation.
Kos will go through the key priority spending areas going forward.
A big part of the budget priorities lies in aligning ourselves with global players who will deliver measurable outcomes. These partners have all been announced to the market and include Arup, Deloitte and McConnell Dowell. I would like to publicly thank these three most reputable organisations for their efforts in securing the future of this company and look forward to a continued and valuable relationship with each.
The Directors have put their weight behind the concept of this zero coupon convertible note and upon your approval and the completion of documentation to your board’s satisfaction, UK managed fund Pacific Capital Investment Management will become our finance partner.
Because this type of fund raising is new to ECT, your board proposes to take independent legal advice once the documentation is in final draft. We are committed to ensuring that shareholder value is maintained and the company has the best possible financing arrangements to take it forward.
Under the proposed agreement with Pacific Capital, it will provide a facility for the company to invest in high calibre human resources and allow for working capital to take us to a stage where we can build a 150,000 t.p.a Coldry commercial plant.
The equity investment position taken by Pacific Capital is about investing in the future potential of the company.
I know a large number of shareholders have been patient, however I do believe that we are close to achieving real outcomes, and that the only thing holding us back, is lack of properly priced adequate working capital.
The board unanimously supports the new funding arrangement, and sees that this is a critical requirement for the company to go forward.
Since my appointment the board has continued the improvement process around good corporate governance. Each Director’s role has been defined, the CE role has been defined and a fulsome Corporate Governance Charter has been developed that provides written guidelines on his authority to act.
A new budget has been approved by the board that significantly reduces operation expenditures.
The board approved the alliance partnering approach, and we have now four significant global partners on board.
We have developed the R&D plan for MATMOR , with positive results coming from testing of the pilot plant.
The Preliminary Design and feasibility study has been completed, and now allows the company to negotiate for the sitting of the plant.
We now have a commercial model that demonstrates the financial viability of Coldry plants to investors, power generators and other interested parties.
It is important to remember that as a new technology company, a lot of what we are working on takes a long time, given the scale of the projects. We would like to keep you more informed, however you will understand that until we can confirm agreements ,it is inappropriate to say anything.
I was invited to accept a position on your Board as an independent Chairman. In closing, I would like to share with you my personal view that, in order to remain truly independent, the Chairman of a public listed company should not, and therefore I will not, accept offers of shares or options in a company that I chair. To do so, in my view, runs counter to the very notion of independent thinking, devoid of self-interest, when it comes to doing the right thing for all shareholders.”
For further information please contact the Company Secretary, Jan Macpherson, on 03 96840888.