Acquisition of Injecta Fire Barrier trade & assets

Earnings enhancing acquisition of a cash-generative, high-margin and scalable trade; underpinning wider investment opportunities for the Group

Light Science Technologies Holdings plc (AIM: LST), the controlled environment agriculture ("CEA") technology and contract electronics manufacturing ("CEM") group, is pleased to announce that it has entered into an asset purchase agreement ("APA") with Fire Barrier International Ltd ("FBIL"), to acquire its Injecta Fire Barrier trade and assets ("IFB") (the "Acquisition"). The APA is structured with the consideration being a deferred profit share agreement, with no initial or fixed outlays and the Acquisition is expected to be near term cash generative for the Group.

Highlights

• Earnings enhancing acquisition
• Synergies with existing Group's maintenance and installation operations
• Strong sales pipeline and initial order book
• High demand sector with significant levels of committed government funding

IFB, which has a proven track record in the passive fire protection market and a strong sales pipeline in place, has an agreement with Injectaclad Ltd to retrofit its industry disrupting fire resistant graphite barrier system ("Injectaclad"), targeting a UK market that is potentially worth up to £50 billion*.

As a high-margin, cash-generative trade, it is expected to strengthen the wider Group's balance sheet and investment opportunities.

There are a number of synergies with the Group's existing operations - especially within the CEM division, which has long standing relationships within the fire protection market, providing technology and equipment for the fire safety sector for over 10 years. IFB will also advantage from the additional governance required under the Group's plc umbrella, which is expected to be a strong selling point for potential clients. It will further benefit from the Group's knowledge and knowhow within maintenance and installation operations.

Rationale

The Acquisition is part of the Group's managed expansion to create a self-funded cash-backed group that is positioned to take advantage of the clear opportunities across all of its target sectors as and when the time is right.

IFB, which will be integrated into the Company's newly incorporated subsidiary LSTH IFB Limited, has signed a new contract with Injectaclad Ltd to install Injectaclad, which expands when heated and is used to contain the spread of fire and smoke within building compartments, in accordance with UK fire regulations.

• Growth opportunities driven by UK Government legislation and the Fire Safety Act 2021
• £5.1 billion allocated Government spend on cladding remedial works
• IFB's management believes that the Injectaclad solution is c. 60% cheaper than alternatives
• Avoids costs of removing external facades/cladding - also resulting in reduced waste materials and environmental impact
• Minimal disruption for building occupants
• IFB's management believes that installation time is accordingly reduced by up to 75%
• First independent installer of Injectaclad
• Over £7 million quoted pipeline of potential sales opportunities and forward order book of c.£600,000

Injectaclad offers a functional, cost and time effective solution to the retrofit fire safety requirements for both public and private residential, commercial and industrial buildings; an issue for which the UK government has already allocated £5.1 billion and secured commitments with the top 50 UK builders for them to take responsibility for these issues. It is fitted into wall and floor cavities and prevents fire and smoke from spreading rapidly through building compartments.

IFB installs the system by strategically removing bricks from the exterior of a building and using pumps to fill mesh socks inserted into the cavities with the fire resistant graphite material, eliminating the requirement to remove external facades, which is currently common practice. Please click here to view a short video of the system.

Injectaclad has been independently tested and approved by Warringtonfire with UL - EU certification for multiple building cavity applications and the approved and patented system is extremely cost effective - offering cost savings as high as 60% when compared with other methods of remediating defective cavity fire barriers within existing buildings. It is able to be installed non-invasively and quicker than alternative options, which cause significantly higher levels of disruption and waste than Injectaclad.

Proven track record and strong pipeline

IFB commenced trading in 2022 and currently owns two pumps, which are capable of generating significant annual revenues. It has completed two projects to date, generating c.£790,000 in sales. It currently has a quoted pipeline of potential sales opportunities worth c.£7 million and a forward order book worth c.£600,000.

IFB receives deposits before work is commenced, with all work commitments signed off and approved using an integrated software system that provides drawings and photos of the completed works.

Looking forward, there is significant potential for IFB to add to its pump fleet and take advantage of the growing fire safety retrofit market in the UK.

Operating in a Growth Market

There is strong backing for reliable and cost-effective passive fire protection solutions given the increasing economic costs of fire. In the year ending March 2020, the estimated total economic and social cost of fire in England was £12 billion - with £2 billion coming from property damage**.

The Fire Safety Act 2021 and current Building Safety Bill will lead, in the Board's view, to Government pressuring developers, building owners, housing associations etc. to undertake remediation works, and this is now being seen by Injectaclad quotations becoming live projects for approved installers.

Given the significant scalability and growth opportunities, the Group believes that IFB will be a strong addition to its portfolio and that the cash-generative nature of the business will provide a solid foundation for further growth and investment across the Group. As an existing business, it has a proven track record with accreditations from the Association for Specialist Fire Protection ("ASFP"), The Contractors Health and Safety Scheme ("CHAS") and is a certified member of IFC and ConstructionLine.

Terms of the Acquisition and Related Party Transaction

FBIL is currently wholly owned by LSTH's CEO, Simon Deacon. LSTH will acquire IFB from FBIL on a contingent deferred consideration basis as described below, with no initial or guaranteed deferred consideration payments. Total maximum consideration payable is £1.75 million over a five year payout time limit (subject to suspension in the event of certain force majeure events).

Contingent consideration is calculated monthly as 50% of net profit after tax, excluding intra-group charges and non-cash acquisition accounting adjustments. Consideration is payable 30 days after the end of the month to which it relates, subject to a retention for a proportion of unpaid trade debtor amounts.

The Acquisition constitutes a related party transaction for the purposes of the AIM Rules for Companies, as Simon Deacon is a Director and Substantial Shareholder of the Company and is the sole owner of FBIL. The directors independent*** of the Acquisition, being Andrew Hempsall, Rob Naylor and Myles Halley, having consulted with the Company's nominated adviser, Strand Hanson Limited, consider that the terms of the Acquisition to be fair and reasonable insofar as shareholders are concerned.

Schedule Four Disclosure

Separate accounts do not exist for IFB, which is being bought out of FBIL, as FBIL provided other services alongside that offered by IFB. IFB has completed two projects since September 2022, generating c.£790,000 in revenue and a gross profit margin of c.60 per cent. On the Group's balance sheet, it is anticipated that tangible assets for IFB will be recorded at c.£75,000. The value of intangible assets related to the Acquisition is subject to verification with the Group's auditors for the accounts relating to 30 November 2023.

Simon Deacon, Chief Executive Officer of LSTH, commented: "The Government has called for urgent action to make buildings safe across the UK, and there are over 40,000 buildings in UK* which need urgent attention. These include hotels, students' accommodation, apartments, hospitals, government buildings. Fire safety is paramount - the Government has already allocated over £5 billion to replace dangerous cladding - a figure that is expected to increase significantly, with some contractors suggesting that a figure closer to £50 billion would be appropriate.

"We believe that with our knowledge in the industry and our installation teams across the Group, this new division, in a growing market with high demand, resolves a significant problem quickly and cost effectively - and more importantly keeps people safe.

"The cash-generative nature of the business will be valuable as we grow, and the synergies with existing operations make it a strong fit as part of our managed expansion. We are excited by the continued opportunities across the CEM and CEA divisions and, given wider government legislation and need for protective solutions, believe that IFB will be a strong addition that will be self-funding from day one."

*Estimators price cladding replacement at 10 times government budget (theconstructionindex.co.uk)

**Economic and social cost of fire - GOV.UK (www.gov.uk)

*** Jim Snooks' spouse is engaged to provide services to FBIL and therefore abstained from providing the opinion

Nick Rome / Paul McManus

About Light Science Technologies Holdings plc (www.lightsciencetechnologiesholdings.com)

Controlled Environment Agriculture

sensorGROW

nurturGROW

Tomtech

Contract Electronics Manufacturing