A company founded by Al Gore has a 15% stake in this profitable cleantech business.
One of the cunning and devious reasons behind these AGM reports is to encourage Fools to attend AGMs. I would therefore like to report that directors always jump up and down with delight when private investors turn up at AGMs.
Of course, this is not always the case. Much depends on the chairman, he determines the format and tone of the meeting.
If the lawyers have their evil way with the chairman, the meeting commences with a short speech along the lines that virtually no one can vote, ask questions or breathe deeply unless than they hold their shares directly, they have three letters from the register confirming they do hold the shares and a valid birth certificate countersigned by their parish priest. The resolutions are then raced through, the AGM comes to an end and the directors head for the embrace of the suits who are in attendance.
Ice cold in Tower 42
The Gas Turbine Efficiency (LSE: GTE) AGM had some of these characteristics. I put this down to the following:
- The company's lawyers are American, who do have a tendency to play everything 'by the book'. Last year the AGM was held close to St Pauls, at the offices of Heller Ehrman who, to use a technical term, have since gone 'belly up'. This year's funfest was held at Tower 42 (the old NatWest Tower) in the offices of Orrick, Herrington & Sutcliffe. Tower 42 is like a airline terminal, 'could sir please put all his keys, coinage and heart pacemaker in the tray and then walk through the metal detector'. Then one has to find the lift to floor 23, and then take a lift to floor 35. General point -- always give yourself plenty of time to get to the AGM, there may be unforeseen holdups.
- GTE is an international company: one exec is American, the other is Swedish, sales are predominately to customers in the US and in Europe. It has a limited footprint in the UK so there are cultural differences.
- The non-exec chairman remains me of an old-fashioned headmaster, brusque style, wanting to do everything by the book (he wears owl-shaped glasses and had his notes on a raised platform) and then getting the hell of out the meeting.
For my sins, I did attend last year's AGM and I thought the 'ice' had been broken after the numerous suits had raised objections about questions being asked. There were three private investors in attendance in 2008, one of whom had travelled from Liverpool. This year there was only me. Having been greeted by a number of people along the lines of 'I remember you', the tone of the meeting turned chilly. How different to the recent Asterand AGM.
When I mention the phrase 'by the book' -- I mean the actual resolutions. What was very very naughty this year was that although the AGM statement was announced to the market at 7am, and it said that the statement would be read out at the AGM, it was not read out. So it pays to print out any AGM statements before you venture out, just in case the chairman has a 'senile moment'.
What GTE does
Before getting onto the Q&A, what does GTE do?
GTE designs, manufactures and supplies proprietary cleantech energy saving and performance enhancing solutions to the power generation, oil & gas and aviation industries. Its extensive portfolio of patented cleantech solutions save fuel, reduce emissions, increase emissions, increase availability, extend turbines and parts life.
Highlights for 2008 included:
- Group revenues increasing by 97% to $35m
- Order intake increasing by 166% to $47m
- Moved into profit, delivering EBITDA of $1.7m
Anyone remotely interested in GTE should look at the FY 2008 presentation which is on the GTE website. To be fair to GTE, they have improved their communications, the 2008 report and accounts contain several examples of how GTE is seeking to reduce the world's carbon footprint. The inclusion of the presentation material on the website is a welcome step forward.
Al Gore?
The largest shareholder, holding 15% of the equity, is Generation International Management. If you have a look at GIM's website, you'll see that Al Gore is one of the founding members.
Investment philosophy: "We invest in long-only, global, public equities with a concentrated portfolio of 30-50 companies. We invest in high quality businesses and management teams whose securities are attractively priced to deliver excess returns over the long term."
It is my understanding that GIM jumped on board (or increased their holding) at the time of the recent 24p placing.
Pounds shillings & pence
GTE is one sexy company -- it is saving the planet and it is making money.
Let's look at the financials:
- Impressive growth: turnover of $5m in 2006, $18m in 2007 & $35m in 2008
- Profits recorded in 2008
But a word of warning to those who sometimes get hypnotised by rapid growth, placings have been a fact of life:
- June 2007: 2.9m shares at 45p per share
- April 2008: 2.2m shares at 31.5p per share
- May 2008: 9.0m shares at 38p per share
- May 2009: 29.2m shares at 24p per share
Capitalised R&D costs is the difference between profit & loss. GTE capitalised $2.1m in 2007 and $5.6m in 2008. This leads into the Q&A...
Question time
My first question related to capitalised R&D, the directors confirmed that some salaries are capitalised, the resulting balance on the account will be written off over time. Oh the joys of accounting.
Talking of accounting, there was a discussion about the auditors -- GTE is an international company. Sales are increasing and likely to be close to $50m next year, so who are the auditors? Answer – a small Birmingham-based outfit called RSM Bentley Jennison. Caesar's wife and all that. We did have a good debate on this, Charles Cameron, ex-director at Goldman Sachs, so clearly no fool, made the very valid point that he would rather see the company audited by the top team at RSM than the fourth team at PwC.
He also pointed out that some of the overseas audit work is undertaken by PwC. But perception is all, I kid you not, when I showed the accounts to my Gooner friend Nigel afterwards (we had lunch together to discuss the wonderful Arsenal share register) when flipping through the accounts he said ' who the hell are RSM Bentley Jennison'?
Although GTE is keeping costs down by having the accounts audited by Birmingham's finest, they do employ two sets of brokers. As usual when I asked about market expectations there was initially complete silence. As an aside it never ceases to amaze me how many directors, execs and non-execs, don't know what market expectations are.
Steve Zwolinski, the CEO, did volunteer the information, all credit to him -- revenues are expected to be in the range of $46m-$48m with EBITDA in the range of $6m. In 2008, EBITDA before exceptionals was $2.5m. Note that placings will act as a drag on earnings per share. The average shares in issue in 2008 were 67m, currently there are 102m shares in issue.
With regard to the AGM RNS statement, I queried what the phrase 'the company has redoubled efforts to communicate the positive economic and environmental benefits of GTE solutions' actually means. Does this mean that overheads will increase? The CEO confirmed that GTE have taken on additional salesmen to get the message across in these cash-strapped times that some of GTE's solutions can payback their initial cost within three months.
Conclusion
I have the feeling that GTE is a company where private investors are an occupational hazard. The suits, and most of the directors, would welcome a world where the only shareholders are institutions who jump on board at the time of the annual placing.
Having said that, GTE is a green company which actually has sales and reported profits in 2008. GTE can warm the heart of those investors who are environmentally concerned, it is a share to consider for your grandchildren and your great grandchildren.
For those miserable individuals who churn their portfolios on a daily basis, GTE has a market cap of circa £33m, is expected to achieve an EBITDA of circa £4m in 2009. This makes the ratio of enterprise value to EBITDA around 8. That's not incredibly low for an AIM-listed company in today's market but it's reasonably low for a green company.
More of Alice's AGMs:
