20th May 2011 07:00
20 May 2011 Umeco plc ("Umeco" or the "Company")
Creation of focused advanced composites business through the sale of Pattonair
for an enterprise value of approximately £145.8 million
Highlights
* Strategic disposal to create a business focused on the advanced composites market which the Board considers has attractive long-term growth prospects. * Proposed sale of Pattonair, Umeco's Supply Chain business, to a company established by funds advised by Exponent Private Equity LLP for an unadjusted cash and debt free value of approximately £145.8 million. * Net cash proceeds expected to be approximately £109.3 million (before transaction costs), of which £8.0 million will be deferred and paid in four equal quarterly instalments between 29 June 2012 and 29 March 2013. * Andrew Moss (formerly Chief Operating Officer) appointed Chief Executive and Steven Bowers (formerly Group Financial Controller) appointed Finance Director of Umeco, in each case with immediate effect. * Clive Snowdon, formerly Chief Executive, and Douglas Robertson, formerly Finance Director, have resigned from the Board of Umeco with immediate effect. * The Board of Umeco considers the transaction to be attractive: * The disposal allows Umeco Composites to capitalise on its market positions within the composites sector. Customers are increasingly using composite materials due to factors such as rising energy costs and increasing environmental and safety concerns. * Umeco Composites has higher margin characteristics and a broader customer base than Pattonair and the Board is confident it has greater long-term growth prospects. * The net cash proceeds from the disposal will be used primarily to reduce the net indebtedness of the Umeco Group and so provide a stronger financial base to support the group's growth strategy for Umeco Composites. * The disposal is subject to, inter alia, the approval of the Company's shareholders. A general meeting is expected to be held in mid June 2011. * Preliminary results for the year ended 31 March 2011 to be announced on 16 June 2011. * Completion of the disposal is expected to take place during July 2011.
Neil Johnson, Chairman of Umeco, said: "This is a turning point in Umeco's long history as a specialist engineering group. The Board has concluded that it is in the best interests of the Company and its shareholders to focus the Umeco Group's resources on its composites business, which it considers has attractive long-term growth prospects in its core markets of aerospace and defence, wind energy, automotive and marine.
The Board would like to thank Clive and Doug for the valuable contribution that they have made to the Umeco Group and we wish them well for the future. The Board would also like to thank the management and employees of Pattonair. We look forward to this new chapter with confidence."
Andrew Moss, Chief Executive of Umeco, said: "The proceeds from the disposal will be used to strengthen our balance sheet which will enable us to build further scale, both organically and through potential acquisition. We relish the opportunity to bring additional focus and resources to bear to enhance what we believe are attractive market positions in advanced composites with a view to generating additional shareholder value over time."
Enquiries
Umeco plc Tel: +44 (0) 1926 331 800Andrew Moss, Chief ExecutiveSteven Bowers, Finance Directorwww.umeco.comRothschild Tel: +44 (0) 121 600 5252Paul SimpsonJohn ByrneTulchan Communications Tel: +44 (0) 207 353 4200John SunnucksChristian CowleyLucy LeghInvestor presentation
There will be a meeting for analysts and investors at 9.30am today at UBS, 1 Finsbury Avenue, London, EC2M 2PP. Neil Johnson, Chairman, Andrew Moss, Chief Executive, and Steve Bowers, Finance Director will be presenting. Conference call details for those who cannot attend in person:
Dial in: +44 (0)20 3140 0668
Passcode: 591926#
A copy of this announcement and the investor presentation will be available on the Company website later today.
1. Introduction
The Board of Umeco announces today the proposed sale of the Umeco Supply Chain business ("Pattonair") to create a focused advanced composites business.
The Company has entered into a binding sale agreement with Quicksilver Holdco Limited (the "Purchaser"), a company established by funds advised by Exponent Private Equity LLP, to sell Pattonair for an unadjusted cash and debt free value of approximately £145.8 million (the "Disposal").
Umeco's net debt position throughout the year is impacted by cash flow seasonality, a significant part of which is linked to the fluctuating working capital requirements of Pattonair. After accounting for this and other debt-like items being sold with Pattonair, the net consideration in respect of the Disposal is expected to be approximately £109.3 million. £8.0 million of the net consideration will be deferred, payable to Umeco in cash in four equal instalments of £2.0 million each on 29 June 2012, 29 September 2012, 31 December 2012 and 29 March 2013. There are no conditions attached to these deferred payments. The balance is payable in cash immediately on completion of the Disposal.
After the deduction of costs incurred by Umeco in relation to the Disposal, the total net proceeds of the Disposal, including amounts payable on completion and deferred amounts, are expected to be approximately £101.9 million (the "Cash Proceeds").
Owing to the size of the Disposal relative to the size of the Company, the Disposal constitutes a Class 1 transaction under the Listing Rules and is therefore conditional upon, inter alia, the approval of the Company's shareholders. A circular convening a general meeting will be dispatched shortly to shareholders and an ordinary resolution to approve the Disposal will be proposed at the general meeting.
If the resolution is passed at the general meeting, and all other conditions are satisfied, completion of the Disposal is expected to take place during July 2011.
2. Changes to the Board
The Board of Umeco also announces that Andrew Moss (formerly Chief Operating Officer) has been appointed as Chief Executive and Steven Bowers (formerly Group Financial Controller) has been appointed as Finance Director, in each case with immediate effect. Steven also remains as Company Secretary. Clive Snowdon, formerly Chief Executive, and Douglas Robertson, formerly Finance Director, have resigned from the Board with immediate effect, though they will both remain as employees of Umeco until June 2011 to assist with the transition of the Umeco Group as part of the disposal of Pattonair.
The departure of Clive Snowdon and Douglas Robertson follows their involvement, as part of a proposed management buy-out team supported by another bidder, in the auction process to sell Pattonair.
The Board expresses its sincere thanks to Clive, who has been Chief Executive of Umeco for 14 years, and Doug, Finance Director for nearly 4 years, for their significant contributions to Umeco's development.
Andrew Moss joined Umeco in 1999. He joined the Board in June 2008 on his appointment as Chief Operating Officer, prior to which he was Chief Executive - Umeco Composites. He has a broad industrial and aerospace background, and was previously Chief Executive of the Automotive and Building Products Group of Invensys plc.
Steven Bowers joined Umeco in 1998 having qualified as a chartered accountant with KPMG. He has been Company Secretary since 1999 and was appointed Group Financial Controller in 2004.
All other directors of Umeco will remain unchanged.
The Board is committed to ensuring an appropriate level of management resource and experience is available within the Company and at Board level to meet the requirements of the business, both now and as these evolve over time.
3. Release of preliminary results
In view of the extensive management involvement in the divestment process, it is now anticipated that the preliminary results for the year ended 31 March 2011 will be announced on 16 June 2011.
The financial performance for the year is anticipated to be in line with the Board's expectations.
4. Dividend policy
The Board's policy on dividends is to provide returns to shareholders that reflect both the underlying profitability and cash flow of the Umeco Group. This policy will not change as a result of the Disposal. However, the lower absolute level of profitability of the Umeco Group post-Disposal (the "Retained Group") will mean that dividends are rebased for the year ending 31 March 2012 in order that dividend cover remains comparable to current levels.
5. Background to and reasons for the Disposal
Umeco is currently structured around three business streams. Umeco Composites comprises two of these business streams: Structural Materials and Process Materials, both of which service a number of global end markets through the manufacture and sale of a complementary portfolio of high performance composite materials and ancillary products. The third business stream, comprising Pattonair, operates primarily within the aerospace industry and provides value-added supply chain services covering a wide range of small and low to medium value components to a number of large OEMs.
The Board believes that the Disposal, and the subsequent focus of resources on the Umeco Composites activities, is in the best interest of shareholders as a whole for the following reasons:
* there are no material synergies between Umeco Composites and Pattonair.
Moreover, the Board considers that Umeco Composites and Pattonair would
each benefit from increased management focus, which would be achieved
through a separation of the businesses;
* both Umeco Composites and Pattonair are now at a stage in their development
whereby the Board considers they would benefit from access to additional
funds to invest in expanding their respective businesses over and above
what the current Umeco Group structure can support;
* the Board considers Umeco Composites to have very attractive long-term
growth prospects. The demand for Umeco Composites' products is enhanced by
the underlying growth in its key end markets. Customers are using composite
materials as an alternative to conventional materials due to factors such
as rising energy costs and increasing environmental and safety concerns.
According to independent forecasts, the demand for carbon fibre, which is a
key indicator in relation to the wider market for composite materials, is
expected to see compound annual growth over the next ten years in excess of
10%;
* Umeco Composites has higher margin characteristics and a broader customer
base than Pattonair. Moreover, Pattonair needs a significant level of
working capital to support growth in its activities, which is exacerbated
by the seasonality associated with them; and
* the Disposal is expected to provide the Retained Group with a strong,
debt-free balance sheet which can be used to provide focused investment in
support of the growth strategy for Umeco Composites, both organically and,
potentially, by way of acquisitions.
6. Information on Pattonair
Pattonair is a leading international provider of value-added distribution and supply chain outsourcing services to customers in the aerospace and defence market. Its customers include Rolls-Royce plc, BAE Systems, Safran Group, Parker Aerospace, Goodrich, Thales Aerospace, Turbomeca and Eaton.
Pattonair's revenue for the year ended 31 March 2010 was £234.6 million, operating profit was £14.4 million and adjusted operating profit was £15.0 million. Operating profit and adjusted operating profit are stated after deduction of allocated group costs of £1.8 million. During the year ended 31 March 2010, Pattonair had an average of 686 employees. At 31 March 2010, Pattonair had net assets of £43.2 million and gross assets of £282.6 million.
7. The Retained Group
Following the Disposal, the Retained Group will consist exclusively of Umeco Composites. Through both capital expenditure and, potentially, future acquisitions, the Retained Group will focus on developing, manufacturing and supplying its current range of high performance composite materials and ancillary products to both current and new global end markets. Its current portfolio of products includes a range of composite materials used by its customers to manufacture parts of aircraft, automotive and wind turbine structures. These materials also have applications in defence products including ballistics protection and unmanned aerial vehicles. Umeco's strategic plans include leveraging combined distribution channels and exploiting potential sales opportunities across the Retained Group's business streams.
The Retained Group also plans to strengthen its business by extending its capabilities in product design, development and manufacture with a view to extending its portfolio of products. This strategic focus will, for example, include the development of capabilities in composite materials for use in the tooling and automotive industries.
The Cash Proceeds will be used primarily to reduce the net indebtedness of the Retained Group, providing a stronger financial base in support of the Retained Group's growth strategies outlined above.
The adjusted revenue (before discontinued operations) of Umeco Composites for the year ended 31 March 2010 was £174.8 million and adjusted operating profit was £16.6 million. Adjusted operating profit is stated after deduction of allocated group costs of £1.4 million. During the year ended 31 March 2010, Umeco Composites had an average of 851 employees. At 31 March 2010, Umeco Composites had net assets of £135.2 million and gross assets of £220.3 million.
8. Retained Group bank facilities
The Cash Proceeds payable on completion of the Disposal will be used primarily towards the settlement of all outstanding indebtedness under the Company's multicurrency term loan, comprising US$65.0 million and £15.0 million facilities, and US$150.0 million revolving credit facility with Lloyds Banking Group, following which these facilities will be cancelled.
Umeco has entered into an agreement for a new five-year committed multi-currency revolving credit facility with HSBC Bank plc and Santander UK plc, comprising £15.0 million, US$15.0 million and US$10.0 million facilities. Utilisation of the facility is conditional on, inter alia, completion of the Disposal and notices of prepayment being delivered in respect of the existing term loan and revolving credit facilities.
9. Use of the Cash Proceeds and effects of the Disposal on the Retained
Group
The Cash Proceeds will be used by the Retained Group as follows:
* Payment into the Umeco plc Pension and Life Assurance Plan £0.7 million of the Cash Proceeds payable on completion of the Disposal will be paid into the defined benefit section of the Umeco plc Pension and Life Assurance Plan as a special lump sum contribution within 60 days of completion of the Disposal. * Repayment of debt The remainder of the Cash Proceeds payable on completion of the Disposal (approximately £93.2 million) will be used towards the settlement of all outstanding indebtedness under the existing term loan and revolving credit facilities, following which the Company is expected to be debt-free. The deferred Cash Proceeds, totalling £8.0 million, will be used to further reduce net indebtedness, if any, of the Retained Group at the time when the deferred amounts are received. * Investment in future projects The Board believes that the repayment of existing debt and the receipt of the deferred Cash Proceeds will provide the Retained Group with a stronger financial base, which should allow it to continue to develop Umeco Composites and to achieve its strategic objectives through both organic growth and, potentially, future acquisitions.
Notes
1. Further information on proposed changes to the Board
Steven Bowers has a new service contract with the Company to reflect his new role as Finance Director and Company Secretary. Under the terms of the new service contract the Company is able to, in its absolute discretion, make phased payments in lieu of notice equal to basic salary and pensions contributions. The new service contract is capable of termination on: (i) 12 months notice given by the Company to Steven Bowers; or (ii) six months notice given by Steven Bowers to the Company. Steven Bowers does not hold any directorships in any other publicly quoted company and has not done so at any time in the past five years. There are no further details that are required to be disclosed in respect of his appointment under LR 9.6.13R of the Listing Rules of the UK Listing Authority.
2. Key individuals of Pattonair
The names and principal functions of the key individuals of Pattonair who will leave Umeco on completion of the Disposal are set out below: Name Position Wayne Hollinshead Group Managing Director Jonathan Moritz Group Finance Director Nick Robins Managing Director, France and Wolverhampton Kevin Sargent Managing Director, Woking and Italy Brian Long General Manager, Americas John Farrow General Manager, Derby Celeste Vitte Managing Director, Italy Alan Arnett Managing Director, Asia Ian Tumanow Supply Chain Development Director
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