22nd Apr 2005 07:02
Birse Group PLC22 April 2005 For Immediate Release 22 April 2005 Birse Group plc Proposed disposal of the business and certain assets of The Cabin Company for£6.25m Birse Group plc ("Birse") announces that Birse and The Cabin Company Limited ("The Cabin Company"), a wholly owned subsidiary of Birse, have entered into aconditional agreement for the disposal of the business and certain assets of TheCabin Company to Speedy Space Limited ("Speedy Space"), a subsidiary of SpeedyHire Plc ("Speedy") for a total consideration of £6.25 million payable in cashon Completion. Key points: • Disposal of the business and certain assets of The Cabin Company, which provides temporary site accommodation hire services, to Speedy Space • Total consideration of £6.25 million payable in cash on Completion • Net proceeds of £5.3 million to be used primarily to repay Group debt • Disposal of this non-core activity will allow Birse to focus on its growth operations in civil and process engineering and heavy plant hire • Net assets the subject of the Disposal estimated at completion of £4.6 million, with Birse to retain all cash and debtor and creditor balances • Birse and Speedy to enter into a five year services agreement for the supply of temporary site accommodation and storage services to the sites of Birse and its subsidiaries • Disposal is conditional upon Shareholder approval which will be sought at an extraordinary general meeting to be convened Commenting on the Disposal, Peter Watson, Executive Chairman said: "As part of the Group's strategy, the Board has decided that The Cabin Companyis no longer core to the Group. The successful expansion of The Cabin Companyinto third party contracts, which now accounts for approximately 45% of TheCabin Company's turnover, leaves the business well placed for further expansionunder the ownership of a dedicated supplier of temporary site accommodation hireservices. The Disposal will realise value for and reduce the net indebtednessof the Group and allow management to concentrate its resources on the continueddevelopment of the Group's civil and process engineering operations and heavyplant hire. The Board believes that the Disposal is in the best interests ofthe Group and unanimously recommends that Shareholders vote in favour of theDisposal." Enquiries: Birse Group plc Telephone: 01302 768 078 Peter Watson, Executive ChairmanMartin Budden, Group Managing Director N M Rothschild & Sons Limited Telephone: 0113 200 1900 David WiltonStephen Griffiths Financial Dynamics Telephone: 020 7831 3113 Sally Lewis N M Rothschild & Sons Limited, which is authorised and regulated in the UnitedKingdom by the Financial Services Authority, is acting exclusively for Birse andno one else in connection with the Disposal and will not be responsible toanyone other than Birse for providing the protections afforded to its customersor for giving advice in relation to the Disposal. Proposed disposal of the business and certain assets of The Cabin Company for£6.25m Introduction Birse Group plc ("Birse") announces that Birse and The Cabin Company haveentered into a conditional agreement for the disposal of the business andcertain assets of The Cabin Company to Speedy Space for a consideration of £6.25million payable in cash on Completion. In addition, on Completion, Birse willenter into the Services Agreement. Further details of the Disposal, the SaleAgreement and the Services Agreement will be set out in the Circular which willbe posted to Shareholders shortly. In view of its size, the Disposal is conditional upon the approval ofShareholders. This approval will be sought at the Extraordinary General Meeting,notice of which will be set out in the Circular. Background to and reasons for the Disposal The Group's strategy is to focus on its core civil and process engineeringactivities, including its rail infrastructure and heavy crane hire operations,whilst reducing the scale of Birse Build to specialise in the local educationauthority sector in the North of England. Accordingly, The Cabin Company is nolonger viewed as a core operation. The strong growth in third party contractswithin The Cabin Company highlights an opportunity for the Business to befurther developed under the ownership of a specialist provider of temporary siteaccommodation hire services. In this context, the Board believes that theDisposal will enable the Group to realise value for the Business from its saleto a buyer that is focused on developing its future potential, whilst alsoallowing Birse to reduce the indebtedness of the Continuing Group. Information on The Cabin Company The Cabin Company is a wholly owned subsidiary of Birse. The business wasestablished in 2001 for the purpose of acquiring the temporary siteaccommodation hire services operations previously provided from within BirseConstruction. This created a clearer operational structure and also allowed andencouraged the development of increased sales to external customers. Thisdevelopment has proved to be successful and The Cabin Company now operates ahire fleet of approximately 950 temporary site accommodation units and providesrelated services, including installation and security, both to Birse andexternal customers. The turnover attributable to The Cabin Company for the year ended 30 April 2004was £4.8 million (of which approximately 44 per cent. was attributable to thirdparty customers) (2003: £4.7 million, 23 per cent.). The profit before taxattributable to The Cabin Company for the year ended 30 April 2004 was £0.6million (2003: £1.5 million). The turnover and profit before tax attributable toThe Cabin Company for the six months ended 31 October 2004 was £2.6 million and£0.4 million respectively. Financial effects of the Disposal As at 31 October 2004, the Business had net assets with a book value ofapproximately £4.6 million that will be disposed of under the terms of theDisposal. The gross consideration to be received by Birse, before the payment oftax and transaction expenses and the repayment of asset backed financing, willbe £6.25 million. In addition, the Group will retain approximately £0.3 millionof working capital that is not part of the Disposal. As a result of theDisposal, the net assets of the Continuing Group are expected to increase byapproximately £0.5 million on Completion. Principal terms of the Disposal Under the terms of the Sale Agreement, The Cabin Company has conditionallyagreed to dispose of the Business, which is comprised of all fixed assets andstock, for a consideration of £6.25 million payable in cash, on Completion. Oncompletion, £0.3 million is to be placed into a retention account and will bereleased following verification of the existence and condition of the fixedassets. The Continuing Group will retain all cash and debt and creditorbalances. The debtor and creditor balances to be retained by Birse are notrequired for the ongoing operation of the Continuing Group. The Directorsestimate that as this working capital is collected over the coming months, anadditional net cash inflow to Birse of approximately £0.3 million will result. Pursuant to the Sale Agreement, Birse will enter into the Services Agreement forthe continued supply of temporary site accommodation hire services to certainsubsidiaries of Birse by Speedy Space. Further details of the Sale Agreementand the Services Agreement will be set out in the Circular. Completion of the Sale Agreement is conditional upon the Disposal being approvedby Shareholders at the EGM. Use of proceeds Gross proceeds from the Disposal will be £6.25 million before the payment of taxand transaction expenses. Net proceeds, after charging these costs, are expectedto be in the region of £5.3 million. The net proceeds of the Disposal will be used to reduce bank loans, overdraftsand asset finance leases by £4.3 million and increase current asset investmentsby £1.0 million, being bank deposits with a maturity exceeding seven days. Current trading and prospects It is important that any commentary on the Continuing Group's current tradingand prospects is considered against the background of the Citibank Litigationand the reorganisation of Birse Build. The Group announced its interim results for the six months ended 31 October 2004on 17 December 2004. The interim results included the following commentary onthe Citibank Litigation: "In the Group's 2003/2004 Annual Report we provided the background to thislitigation which has evolved from an adjudication process which the adjudicatordetermined on 24 February 2004. The details of that adjudicator's decision werepublished by way of a Stock Exchange announcement at start of business on 25February 2004. That announcement also stated that the adjudicator's decision wasopen to challenge but only by reference to arbitration or litigation. In last year's Annual Report we disclosed that such a challenge had been lodgedwith The Technology and Construction Court. Since that time the litigationprocess has continued to be managed by that Court. A final hearing is stillexpected in the 2005/2006 financial year with a decision thereafter". Since 17 December 2004, the Group has been informed that a final hearing willcommence in October 2005 with a decision thereafter. The Directors have beenadvised that the Group has realistic prospects in the litigation of reducing theaward of £2.1 million made by the adjudicator in the adjudication. The high cost associated with the extremely complex Citibank Litigation is oneof the reasons for the Directors' preferred option to secure a negotiated fulland final settlement. Whilst a professional dialogue continues between Citibankand the Group, attempts to reach a solution have so far failed. It is importanttherefore that the Directors continue to take action that they consider bestprotects the position of the Group. Further details of the Citibank Litigationwill be set out in the Circular. Birse Build, which is now focused on the local education authority sector in theNorth of England, continues to progress in line with the Directors'expectations. However, as described in the Group's interim results referred toabove, because of the costs associated with the reorganisation of Birse Buildcombined with the work out to completion of low margin and other legacycontracts in the Midlands and the South, Birse Build would continue to incurmaterial losses in 2004 / 2005. With regard to the wind down of certaincontracts in the Midlands and the South, of the three live contracts remainingonly one is expected to continue to any material extent beyond the currentfinancial year. Thereafter, the focus on these and other contracts completedover the recent years, will switch from operational closure to commercialclosure. Until these legacy issues are resolved there is uncertainty for theGroup in relation to the performance of Birse Build. With regard to the Civil Division and the Process Engineering Division, theexpected increase in opportunities for the second half and thereafter, havematerialised. However, given the concentration of contract start-ups in thisperiod, the result for the current year is particularly sensitive to the volumeof production output that can be achieved in this last quarter. The CivilDivision order book was further enhanced by two framework awards confirmed byNetwork Rail on 22 February 2005. Network Rail announced that Birse Rail hadbeen awarded two five year Framework Contracts, one in relation to its existingarrangements in the Midlands, the other, a new appointment in the North West.Both contracts commenced on 1 April 2005 and Network Rail has projected acombined turnover of £45 million in the first year of operation. BPH Equipment has accelerated the concentration of its crane fleet on hydraulicequipment and has, in effect, traded with a reduced operational and capital basecompared with prior periods. Having a smaller fleet focusing on fewer marketsectors can make the business susceptible to short term downward fluctuations inits customers' activity levels. Turnover in the third quarter was thereforebelow expectations although there are some signs of a recovery by the end of thecurrent financial year. In line with established seasonal patterns and the concentration of contractstart ups in the Civil Division and the Process Engineering Division, theGroup's net indebtedness has increased from the £8.8 million at 31 October 2004as reported in the Group's interim results for the six months ended 31 October2004. At 31 March 2005 (being the latest practicable date prior to the releaseof this announcement) the Group's net indebtedness was £18.4 million, asextracted from the Group's underlying accounting records without materialadjustment, which represents an increase of £9.6 million. In the correspondingperiod of the preceding financial year, the Group's net indebtedness, asextracted from the Group's underlying accounting records, increased by £23.1million from a net cash position of £11.9 million as at 31 October 2003, to netindebtedness of £11.2 million as at 31 March 2004. As referred to above, prospects for the current financial year are sensitive tothe volumes of production achieved by the Civil Division and the ProcessEngineering Division in the last quarter and will be affected by the shortfallin BPH Equipment's turnover in the second half. However, with record order bookand enquiry levels in its core operations, the quality of recent contract winsand taking into account the Disposal, the Directors believe that the ContinuingGroup can maintain its forward momentum, whilst the Directors continue to pursuea satisfactory conclusion to the Citibank Litigation. DEFINITIONS The following definitions apply throughout this announcement unless the contextotherwise requires: "Birse" or "Company" Birse Group plc; "Birse Build" Birse Build Limited, a subsidiary of Birse Construction; "Birse Civils" Birse Civils Limited, a subsidiary of Birse Construction; "Birse Construction" Birse Construction Limited, a subsidiary of Birse; "Birse Group" or " the Company and its subsidiaries;Group" "Birse Process Birse Process Engineering Limited, a subsidiary of Birse Construction;Engineering" "Birse Metro" Birse Metro Limited, a subsidiary of Birse Construction; "Birse Rail" Birse Rail Limited, a subsidiary of Birse Construction; "Birse Water" Birse Water Limited, a subsidiary of Birse Construction; "Board" or "Directors" the board of directors of the Company and "Director" shall mean any one of them; "BPH Equipment" BPH Equipment Limited, a subsidiary of Birse; "Business" the business and certain assets of The Cabin Company; "Circular" the circular to Shareholders describing the Disposal which is expected to be sent to Shareholders shortly; "Citibank Litigation" the process of litigation with CIB Properties Limited (a Citibank group company) arising from the adjudication relating to the termination of the contract for construction services for a new data centre facility at Riverdale, Lewisham; "Civil Division" Birse Rail, Birse Civils and Birse Metro; "Completion" completion of the Disposal pursuant to the Sale Agreement; "Continuing Group" the Birse Group following Completion; "Disposal" the proposed disposal of the business and certain assets of The Cabin Company pursuant to the Sale Agreement; "Extraordinary the extraordinary general meeting of the Company, notice of which will be set out in the Circular;General Meeting" or "EGM" "Framework Contracts" 5 year contracts awarded by Network Rail for certain civil engineering works relating to its rail infrastructure assets; "FSA" or "Financial the Financial Services Authority;Services Authority" "Network Rail" a publicly funded body responsible for the UK's rail infrastructure; "Ordinary Shares" ordinary shares of 10 pence each in the capital of the Company; "Process Engineering Birse Water and Birse Process Engineering;Division" "Rothschild" N M Rothschild & Sons Limited, which is authorised and regulated by the FSA; "Sale Agreement" the conditional agreement dated 21 April 2005 between The Cabin Company, Birse, Speedy Space and Speedy relating to the Disposal; "Services Agreement" the letter of agreement to be entered into on Completion between Birse, certain subsidiaries of Birse and Speedy Space relating to the supply of services by Speedy Space to Birse and certain subsidiaries of Birse; "Shareholders" holders of Ordinary Shares; "Speedy" Speedy Hire Plc; "Speedy Space" Speedy Space Limited, a subsidiary of Speedy; "The Cabin Company" The Cabin Company Limited, a subsidiary of Birse; "The Technology and The Technology and Construction Court of the High Court of Justice.Construction Court" This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Speedy Hire