Voller needs funds to keep going

By David Blackwell
Published: October 2 2008 23:21

Voller Energy is a classic example of a company that should be looking at Aim as venture capital with a quote.
It has developed a 1kW auxiliary power unit that uses a fuel cell stack, and claims to be the only company in Europe selling such equipment. But it must find additional funding to secure its future.
That is, to put it mildly, not going to be easy in current market conditions. The facts are that it raised a net £9m on arriving on Aim in 2005 at 74p a share. At the close yesterday the shares were 1.6p, valuing the equity at less than £500,000.
Given the nature of the business, it is not surprising that Voller has been slower to get to market than expected. On the other hand, it is in the right market at what should be the right time, supplying energy in an environmentally friendly and efficient way.
It has sold five units for use in workmen’s cabins on construction sites, and one to the Highways Agency for a remote traffic-control camera. Another is on trial with the Dutch ministry of works, while yet another provided back-up power for a yacht in a transatlantic race.
Yet each unit is being sold at a loss, and the company admits there is “a material uncertainty” regarding its ability to continue in operation for the foreseeable future without further funding.
Voller, however, is not suffering alone as the credit crunch bites. Aim companies now have to comply with international financial reporting standards, and are obliged to let investors know if there are doubts about their status as “a going concern.”
A search of reported accounts for the telling phrase “significant doubt” (related to ability to continue as a going concern) threw up no fewer than a dozen matches on Tuesday alone, mainly in the resources sector. In all cases the shares were heading inexorably south-east. But some were not quite so upfront about their plight as Voller. In these times, investors should read the notes to accounts carefully.
Through a magic window
Energy XXI was one of the pioneering Spacs (special purpose acquisition corporations) that joined Aim in 2005, raising $300m.
After three acquisitions in the Gulf of Mexico, the oil producer has an enterprise value of more than $1bn (£562m), and up to 1m shares a day are traded. Its growth highlights differences between markets on either side of the Atlantic, which the company has exploited skilfully.
Spacs – cash shells by another name – have been around for a long time in the US, usually raising small sums from retail investors. Three years ago they developed into vehicles for raising large sums of money from US institutions. Collins Stewart brought the idea to the UK and to Aim.
John Schiller, Energy XXI’s chief executive, is one of the all too rare Americans who strongly endorse Aim. The company decided to join the junior market because it would be able to make acquisitions much faster under Aim rules than in the US.
The questions asked by lawyers and advisers in London were, he says, more gruelling than they would have been in the US. After “a six-hour grilling session, we ended up with a very good document”. Shareholders, he maintains, got much more data than they would have in the US.
However, liquidity was not helped by the US rule that prevents the electronic trading of UK-listed shares in a US-based company. Any shares had to be traded through an old-fashioned paper trail.
But part of the plan was always to seek a secondary listing on Nasdaq, which happened in August last year. Even then liquidity did not improve until one of the original investing institutions decided to sell its stake in March.
Then the volume of shares traded on Nasdaq rose rapidly, from 30,000 to more than 1m a day. The share price initially rose to more than $7, but has since tumbled, trading as low as $2.75.
Part of the reason for the share price decline was news of the impact of hurricanes on production. City analysts have set a target price of $9, with perhaps greater upside if any one of three exploration wells is successful.
Aim has proved itself to be a great incubator. The management timed its arrival well, and was able to run with the rising oil price, building the company through acquisitions. Its first was completed within weeks of arriving on the market, in sharp contrast to the experience of some Spacs in the US, which have proposed deals that have simply not been consummated.
But the problem of liquidity on Aim looks almost intractable, in spite of some relaxation of US rules on electronic trading. It looks as though Energy XXI found a magic window when it came to Aim, but don’t count on another Spac being able to repeat the process.
Copyright The Financial Times Limited 2008