Disposal of Telecoms Business

RNS Number : 7465K

Spice PLC

26 April 2010

 



26 April 2010

Spice plc ("Spice" or the "Company")

DISPOSAL OF THE TELECOMS BUSINESS FOR £32.8 MILLION

Spice, the provider of Outsourced Utility Support Services, is pleased to announce that it has entered into a conditional agreement to dispose of its Telecoms Business (and a related freehold property) for a gross consideration of £32.8 million. The Buyer of the Telecoms Business is SIATEL Holdings Limited, a vehicle backed by funds managed by Gresham.

Highlights:

·      Gross consideration of £32.8 million which represents a multiple of approximately six times EBITA;

·      Gross consideration includes £7.3 million of debt and other liabilities being assumed by the Buyer;

·      Gross cash proceeds of £25.5 million will be used to repay bank debt. These proceeds, plus the estimated bank overdraft (£4.9 million) of the Telecoms Business which is being assumed by the Buyer, will reduce the Group's net debt by approximately £30.4 million before transaction expenses;

·      The Disposal delivers on the Group's strategic objectives of reducing its indebtedness and enhancing its  strategic focus on its Supply and Utilities facing Distribution business;

·      Spice has traded in line with the Board's expectations since its Interim Management Statement on 23 February 2010;

·      The Disposal is conditional upon Shareholder approval at a General Meeting. The Company will shortly publish and post a circular to Shareholders; and

·      Spice was advised by Jamieson Corporate Finance.

Martin Towers, Interim Chief Executive of Spice, said:

"The proposed transaction is the first major step forward following the strategic review of our Public facing Distribution business. Borrowings will be significantly reduced and the Group will have greater focus on its on-going activities and exposure to markets which have strong underlying regulatory and environmental drivers.

"I am pleased that the Telecoms Business and its management team are moving to a committed new owner in Gresham."

There will be a conference call for analysts at 08.00 this morning, the details of which can be obtained from Financial Dynamics (020 7831 3113).

Enquiries:

Spice plc Martin Towers, Interim Chief Executive Oliver Lightowlers, Group Finance Director	Tel:  [phone]
Financial Dynamics Billy Clegg Caroline Stewart	Tel: [phone]
KBC Peel Hunt Sponsor & Broker Julian Blunt David Anderson Simon Brown	Tel: [phone]
Hawkpoint Financial Adviser Christopher Kemball Chris Robinson Serge Rissi	Tel: [phone]

KBC Peel Hunt Ltd, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting for the Company and for no-one else in connection with the Disposal and will not be responsible to any person other than the Company for providing the protections afforded to clients of KBC Peel Hunt Ltd or for providing advice in relation to the matters described in this announcement.

Introduction

Spice has entered into a conditional agreement with SIATEL Holdings Limited, a vehicle backed by funds managed by Gresham, to dispose of its Telecoms Business and to procure the sale of the related freehold property at Field House. The gross consideration for the Disposal (including debt and other liabilities amounting to £7.3 million being assumed by the Buyer) is £32.8 million.  The amount payable in cash to the Continuing Group on Completion is £25.5 million, subject to adjustment (up or down) depending on the actual level of working capital and the actual level of debt and other liabilities in the Telecoms Business at Completion.

In view of the size of the Disposal, which constitutes a Class I transaction under the Listing Rules, the Disposal is conditional on Shareholder approval at a General Meeting.  The Company will shortly publish a circular to Shareholders to set out further details of the Disposal and to convene the General Meeting.

Details of the Telecoms Business

The Telecoms Business designs, installs, supports, maintains and operates telecoms infrastructure assets around the world. The business is organised under three brands, being "AirRadio", "Indigo", and "Simoco", and encompasses both the wire line and wireless sectors and works in worldwide mission critical environments, such as utilities, aviation, defence and the emergency services. Services include:

·      operation of wireless radio and data communications networks and systems within the UK airline and airports industry with operations networks at 21 UK airports and also at Dublin airport;

·      supply of consultancy and support services and communications equipment;

·      installation, commissioning, maintenance and support services to wire line and wireless network operators;

·      design, manufacture, installation and maintenance of analogue and digital private mobile radio systems; and

·      expertise across technologies including fibre optical IP network, microwave, cellular and data radio.

The activities of the Telecoms Business were complemented in July 2009 by the acquisition of ComGroup which has now been integrated into the Group's existing telecoms operations.  Spice had initially established its Telecoms Business with the purchase of the Simoco business in 2002 at around the same time as which Simoco's then sister business was purchased by TMC Radio Pty Limited (a subsidiary of ComGroup).  Following that, Simoco and ComGroup worked jointly on major projects and operated an R&D joint venture.  Accordingly, the acquisition by Spice of ComGroup re-united two businesses that were well known to each other, shared common technology platforms and a global product brand. As such, the ComGroup acquisition by Spice in July 2009 represented an important step in developing the Telecoms Business into an attractive asset which, in the Directors' view, was a contributory factor to the price now being offered in connection with the Disposal.

Background to and reasons for the Disposal

Martin Towers was appointed as Interim Chief Executive on 9 February 2010. Upon appointment he commenced a strategic review of the Public facing Distribution business. Following on from that review process the Board gave an explicit indication of its ongoing strategy in the Company's Interim Management Statement, which was announced on 23 February 2010. The central themes of that strategy were:

·      Restoration of shareholder value;

·      Identification of the Supply Division and the Utilities facing Distribution business as core, with a view to focusing the Group on those markets with strong underlying regulatory and environmental drivers;

·      Emphasis upon organic growth, with a renewed internal focus upon aggressively competing for new business whilst paying close attention to the Group's cost base; and

·      Managing down net debt levels towards a target level of no more than twice EBITDA. 

The Disposal represents an important first step in the realisation of that strategy.

Terms of the Disposal

Under the terms of the Disposal Agreement, Spice has conditionally agreed with the Buyer to sell the Telecoms Business and to procure the sale of the related freehold property at Field House, Derby, from which the Simoco business operates, for a gross consideration of £32.8 million, including debt and other liabilities amounting to £7.3 million being assumed by the Buyer. The amount payable in cash to the Continuing Group on Completion is £25.5 million (£24.0 million net of transaction costs of approximately £1.5 million payable by the Company) and this assumes a normalised level of working capital on the date of Completion, though is subject to adjustment (up or down) depending on the actual level of working capital and debt and other liabilities within the Telecoms Business at Completion. The net cash amount receivable by the Continuing Group (£24.0million) is split as to £22.9 million in respect of the Telecoms Business and £1.1 million in respect of Field House.

The Disposal is conditional only on the passing of the Resolution in relation to which a General Meeting of Spice will shortly be convened.  In addition, the Buyer has certain rights to elect not to complete the Disposal, including in the event a key customer gives notice to terminate its contract or significantly reduces its trading with the Telecoms Business.

Spice has agreed to indemnify the Buyer for its costs, up to a limit of £0.28 million plus VAT in the event that Shareholders do not approve the Resolution.

Financial effects of the Disposal and use of proceeds

For the financial year ended 1 May 2009 the Telecoms Business contributed £3.9 million to the Group's profit before tax and consequently, had the Disposal occurred on 1 May 2008, the Group would have reported a reduced profit before tax for that year. For the six months ended 31 October 2009 the Telecoms Business (consolidating ComGroup's results from 13 July 2009) reported revenue of £16.4 million and a profit before tax of £1.7 million.

The gross cash proceeds due at Completion will be £25.5 million (subject to adjustment in accordance with the terms of the Disposal Agreement), or £24.0 million net of transaction costs of approximately £1.5 million. The net proceeds (including debt being assumed by the Buyer) will be applied in reducing the Group's overall indebtedness to approximately £87.6 million on a pro forma basis (assuming the net indebtedness of Spice as at 31 October 2009 of £116.5 million).

The Disposal will have the overall effect of increasing the Group's net assets by £8.3 million to £165.3 million on a pro forma basis, based on the unaudited balance sheets of Spice and the Telecoms Business as at 31 October 2009. The value of the gross assets the subject of the Disposal is £33.9 million, which is the sum of the gross assets of the Telecoms Business as extracted from the Telecoms Business unaudited balance sheet as at 31 October 2009 and the carrying value of Field House on Spice's unaudited consolidated balance sheet as at 31 October 2009.

The freehold property at Field House was carried in Spice's unaudited consolidated balance sheet as at 31 October 2009 with a net book value of £1.5 million. As a result, the sale of the freehold property at Field House will realise a loss of £0.4 million.

The Disposal of the Telecoms Business requires the Group to obtain various consents from its banks under its sterling revolving facilities agreement dated 28 July 2007 with a facility amount of up to £170 million.  Assuming that the Disposal is completed, then the facility will reduce to £145 million to reflect the smaller size of the Continuing Group.

Current trading and prospects of the Continuing Group

As the Board has already noted in the Company's Interim Management Statement of 23 February 2010, Spice is now moving forward into a new era in which the Board's clear focus will be on the Group's core activities being its Supply and Utility facing Distribution businesses. Since that Interim Management Statement the Group has traded in line with the Board's expectations.

General Meeting

In view of the size of the Disposal, Shareholders' approval is required in order for Spice to proceed with it.  The Company will shortly publish a circular to Shareholders to set out further details of the Disposal and to convene the General Meeting.

Risk factors and further information

Shareholders should consider fully and carefully the risk factors associated with the Disposal and the Continuing Group to be set out in the circular to Shareholders to be published shortly in connection with the Disposal.  Shareholders are advised to read all the information contained in the circular before deciding what action to take in respect of the General Meeting.

Definitions

The following definitions apply in this announcement unless the context requires otherwise:

"Board"	the board of directors of the Company;
"Buyer"	SIATEL Holdings Limited (a company registered in England and Wales with company number 07038450);
"ComGroup"	ComGroup Australia Pty Limited
"Company" or "Spice"	Spice plc a public limited company incorporated in England and Wales;
"Completion"	completion of the sale of the shares of Spice Telecoms Limited in accordance with the terms of the Disposal Agreement and completion of the sale of Field House immediately thereafter;
"Continuing Group"	the Group following the Disposal;
"Disposal"	together, the proposed disposal by Spice of the Telecoms Business and the proposed disposal of Field House by Bespoke Real Estate Limited (a member of the Continuing Group) in accordance with the terms of the Disposal Agreement;
"Disposal Agreement"	the conditional sale and purchase agreement dated 24 April 2010 between Spice and the Buyer relating to the Disposal;
"Field House"	the freehold property at Field House and 104-106 Uttoxeter Old Road, Derby DE1 1NH and land on the south side of Stepping Lane, Derby;
"General Meeting"	the general meeting of the Company to be held in relation to the Disposal, further details of which will be set out in a circular to Shareholders to be published shortly;
"Gresham"	Gresham LLP;
"Group"	the Company and its subsidiary undertakings as at the date hereof;
"Listing Rules"	the Listing Rules published by the Financial Services Authority in accordance with 73A(2) of the FSMA;
"Ordinary Shares"	ordinary shares in the capital of the Company which have a nominal value of 2p each;
"Resolution"	the resolution to be proposed at the General Meeting;
"Shareholders"	holders of Ordinary Shares in the Company;
"Spice Telecoms" or "Target"	Spice Telecoms Limited (a company registered in England and Wales with company number 07138077);
"Telecoms Business"	together, the companies (and where applicable, their wholly owned subsidiaries) in the Group involved in specialist telecommunications, comprising Spice Telecoms, Team Simoco Limited, Indigo Telecom Group Limited, AirRadio Limited, Team Telecommunications Group Limited, and ComGroup;
"UK" or "United Kingdom"	the United Kingdom of Great Britain and Northern Ireland.

 

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