27th Sep 2005 07:03
Belgravium Technologies PLC27 September 2005 NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN OR INTO THEUNITED STATES OF AMERICA, CANADA, AUSTRALIA, JAPAN, THE REPUBLIC OF IRELAND ORTHE REPUBLIC OF SOUTH AFRICA This announcement does not constitute, or form part of, an offer or anyinvitation to sell, allot or issue or any solicitation of any offer to purchaseor subscribe for any securities, nor shall it (or any part of it) or the fact ofits publication form the basis of, or be relied upon in connection with, or actas an inducement to enter into, any contract or commitment for securities. Belgravium Technologies plc ("Belgravium" or the "Company") Proposed acquisition (the "Acquisition") of Touchstar Technologies Limited ("Touchstar") and Placing of up to 33,600,000 new ordinary shares in the capitalof the Company at 14 pence per share (the "Placing Shares") Introduction The board of directors of the Company (the "Board") today announces that theCompany has conditionally agreed, subject, inter alia, to shareholder approval,to acquire the entire issued share capital of Touchstar for a totalconsideration of £10.75 million of which £8.17 million will be paid in cash and£2.58 million will be paid as bank guaranteed loan notes. At completion,Touchstar is expected to have cash of at least £2.55 million. This cash will beretained by the Enlarged Group (comprising the Company, its subsidiary,Belgravium Limited (together the "Group") and Touchstar). The consideration, netof cash within Touchstar, is therefore approximately £8.2 million (beforeexpenses). The Acquisition is subject to a completion accounts mechanism whichwill adjust the consideration if defined levels of working capital are notdelivered. The Acquisition is to be funded by the issue of the Placing Shares at 14 penceper share raising £4.7 million (before expenses), the Company's existing cashreserves, which at 30 June 2005 were £2.5 million, and new banking facilities. Touchstar is a manufacturer and distributor of hand-held mobile computingdevices to the niche markets of fuel distribution, van sales and the airlineindustry. The directors of the Company (the "Directors") believe the Acquisitionoffers the Company opportunities for revenue growth and that it will benefitfrom synergies and adoption of best practice across the Enlarged Group. The Acquisition constitutes a reverse takeover under the AIM Rules by virtue ofits size and, as such, requires the approval of the Company's shareholders("Shareholders") which will be sought at the EGM of the Company to be held on 21October 2005. The notice convening the EGM is set out at the end of thecircular which will be posted to Shareholders today (the "Circular"). As a result of the Acquisition and Placing, the Board will be strengthened bythe appointment of Mark Hardy, currently non-statutory Managing Director ofBelgravium Limited. Background to and reasons for the Acquisition The Company has previously stated its intention to augment its organic growththrough acquisition. As Shareholders are aware, the Directors have sought toidentify and target companies which will add both depth and breadth toBelgravium's offering, allowing it to reap the benefits associated with greatermarket presence. The Directors believe that the acquisition of Touchstar represents just such anopportunity. The increased critical mass of the Enlarged Group will create aplatform for the Belgravium business from which to exploit existing and targetnew vertical markets (such as defence, transportation and retail) by offeringits existing product range (in particular the newly developed Atlanta product)through Touchstar's distribution network. The strength of Touchstar's brand inoverseas territories such as the US and Australia is also expected to providethe Enlarged Group with far greater international sales reach and therebyreduced reliance on the domestic market. In addition, greater critical mass is expected to provide potential economies ofscale through increased buying power with suppliers and in helping securecontinuity of component supply. The market for mobile computing devices now demands a greater breadth of productand service offering. Inevitably this means investment in technologicaladvancement for the companies operating in the market. At the same time, theconvergence of different modes of technology, from PC and wireless to RFID,across different industries, means the solutions provided by manufacturers mustbe increasingly integrated. Both these factors place the emphasis on forwardtechnical planning and point to higher research and development spend. Both Belgravium and Touchstar are dedicated to solving the problems associatedwith mobile data capture in industrial and commercial environments which requirea rugged yet functionally rich solution. The Acquisition will mean that the costof product development can be spread over a stronger earnings stream and offersthe potential to realise a number of cost synergies, for example from thecombination of product development resources. The combination of the twobusinesses also has the potential for development of a stronger next generationproduct offering incorporating the latest functionality (such as RFID) fromboth, which can be implemented across each business' respective product ranges. The Directors believe that the Acquisition will be earnings enhancing in thefirst year, however this should not be interpreted to mean that the EnlargedGroup's future earnings per share following the Acquisition will be necessarilygreater than its historic earnings per share. Information on Touchstar Touchstar is one of the UK's leading providers of hand-held battery poweredmobile computing solutions to a variety of blue chip industrial and commercialend users. Its products incorporate both proprietary hardware and software inWindows CE and DOS formats. It also offers a bespoke software developmentcapability with comprehensive support and maintenance services. Its core marketsare fuel distribution and the airline industry; the nature of these globalmarkets means that sales growth is increasingly driven through its network ofinternational distributor partners. Touchstar's recent product development hasfocussed on updating its existing hardware devices, such as Eagle, to operate ona Windows CE based system, rather than a DOS based system. This has led to thelaunch of a succession of improved products including the CEagle, the Falcon andthe Voyager II with further new products in the pipeline. The Touchstar business was originally established in the UK in 1986 as WingcrossLimited, which later changed its name to ACS Data Limited. In 1997 ACS DataLimited was acquired by Mapco Inc, a company which was based in Tulsa, Oklahoma,from its shareholders, including its founder and the current Managing Directorof Touchstar, Richard Smith. As a result of its expansion and growth, brancheswere also established in mainland Europe and South Africa, forming the originalTouchstar group. In 1998 Mapco Inc was acquired by the Williams Companies Inc. The originalTouchstar group was identified as a non-core activity following a strategicreview in 2001, and was acquired by the then UK management team in a managementbuy out financed by Lloyds TSB Development Capital Limited ("LDC"). In 2002, the original Touchstar group experienced poor trading, and subsequentlysuffered cash flow difficulties brought about in the aftermath of 9/11. As aresult, Richard Smith returned to the business in April 2002. In May 2003 the UKoperations and global intellectual property rights only were acquired fromadministrators by an off-the-shelf company, Inhoco 2836 Limited, which wasrenamed Touchstar Technologies Limited on 23 May 2003, the shareholders of whichwere LDC, the original founder, Richard Smith and one other director, PaulSanders. Paul Sanders' shares were repurchased by Touchstar in November 2003. Since the acquisition, Touchstar has achieved strong revenue and earningsgrowth. Much of this growth reflects the fact that it is no longer encumbered bythe high cost base and operational gearing associated with being aninternational company with sales teams located around the world. In the yearended 31 May 2005, just under 50 per cent. of Touchstar's sales were outside theUK, and a large proportion of its sales were made via third party distributorsand resellers. The following information has been extracted without material adjustment fromthe financial information on Touchstar set out in the Circular: Year ended 53 week period 31 May 31 May 2005 2004 £000 £000 Sales 7,393 6,309Operating profit 2,103 1,132Operating profit margin 28.4% 17.9%Profit before tax 2,135 1,116 As at 31 May 2005, Touchstar had net assets of £2,467,000. During the year ended 31 May 2005, Touchstar employed an average of 31 full timeemployees. Information on Belgravium Belgravium is a computer design and manufacturing company, specialising in themobile computing and radio frequency data communications (RF/DC) market areaswith a focus on real time data capture and rugged hand-held mobile computingdevices. From its UK headquarters, the Company manufactures a comprehensiverange of batch and radio data terminals together with the necessary software tocater for specific requirements. To complement the radio terminal range,Belgravium also provides host connectivity solutions which include mainframe andmid-range emulation software and host resident handlers. Key products, whichoperate on the CE.NET operating system, include the Atlanta series and Viennaseries of hand-held mobile computing devices. Belgravium also provides a fullmaintenance contract service. Belgravium's trading subsidiary, Belgravium Limited, was formed in 1982 andrapidly established itself as an innovative designer of rugged mobile computerequipment. Since then, it has grown to become widely acknowledged as one of theleading suppliers of industrial mobile computing equipment for use in a widevariety of application sectors including warehousing, logistics, field serviceand proof of delivery, across Europe. In 1995, Belgravium Limited was acquired by Eadie Holdings plc. On 2 April 2001,Eadie Holdings plc, following the disposal of Eadie Industries Limited, changedits name to Belgravium Technologies plc, in order to reflect the change in focusof the Group's operations, and moved from a full listing on the London StockExchange to be admitted to trading on AIM. The following information has been extracted without material adjustment fromthe financial information on Belgravium set out in the Circular: 6 months ended 30 June Year ended 31 December 2005 2004 2004 2003 2002 £000 £000 £000 £000 £000Sales 2,359 1,935 3,859 3,895 4,188Operating profit 430 350 659 682 1,353Operating profit margin 18.2% 18.1% 17.1% 17.5% 32.3%Profit before tax 484 393 751 795 1,405Basic earnings per share 0.51p 0.41p 0.90p 0.85p 1.54p At 30 June 2005, Belgravium had 41 employees in total. Principal terms of the Acquisition Under the terms of the Acquisition, the Company has conditionally agreed,subject, inter alia, to Shareholder approval, to acquire the entire issued sharecapital of Touchstar for a total consideration of £10.75 million of which £8.17million will be paid in cash and £2.58 million will be paid as bank guaranteedloan notes. At completion, Touchstar is expected to have cash of at least £2.55million. This cash will be retained by the Enlarged Group. The consideration,net of cash within Touchstar, is therefore approximately £8.2 million (beforeexpenses). The Acquisition is subject to a completion accounts mechanism whichwill adjust the consideration if defined levels of working capital are notdelivered. The Acquisition is to be funded by the issue of 33,600,000 Placing Shares at 14pence per Ordinary Share, raising £4.7 million (before expenses), the Company'sexisting cash reserves, which at 30 June 2005 were £2.5 million, and new bankingfacilities. The Acquisition is conditional, inter alia, on the passing of the resolutionsset out in the paragraph headed "Extraordinary General Meeting" below (the"Resolutions") and admission of the Company's shares to trading on AIM("Admission"). The anticipated date for completion is 24 October 2005. Business strategy of the Enlarged Group The Enlarged Group will, from Admission, offer a range of hand-held mobilecomputing devices aimed at its core markets of warehousing, logistics anddistribution, fuel distribution and the airline industry. The Belgravium andTouchstar brands will be maintained in order to capitalise on their existingbrand strength, however, the administrative and support functions of thebusinesses will be combined. The Enlarged Group will continue to invest in product development, whereappropriate, combining the best features of the Company's and Touchstar'sproducts into new offerings. The entire staff of Touchstar will be retained post completion with theexception of the existing Managing Director, Richard Smith, and the FinanceManager, Stephen Dunbar (who is an external consultant). Richard Smith will beretained as an employee until 31 December 2005 on the same terms as his currentservice contract, save that he will not receive any pension contributions. Mark Hardy will assume Richard Smith's role of Managing Director of Touchstar.His primary focus will be on the strategy and sales operations of the EnlargedGroup, including responsibility for customer relationships and delivery of thestrategic benefits from the combination of the two businesses. The Directors have confirmed that the existing employment rights, includingpension rights, of all employees of the Enlarged Group will be fullysafeguarded. Current trading and prospects The interim results for Belgravium for the six months ended 30 June 2005 are setout in the Circular. The Directors believe that there is greater visibility offorward orders than in previous years and are confident that the Group'sproducts are right for market developments. The Directors would therefore expecttrading in the second half of 2005 to be as strong as the first. Touchstar has continued to trade in line with expectations since the year ended31 May 2005. The Directors are therefore confident of current trading prospects. Proposed Board and Company Secretary of the Enlarged Group The proposed Board at completion following the appointment of Mark Hardy willconsist of two executive directors and two non-executive directors. Briefbiographies of the Directors, Mark Hardy (the "Proposed Director") and theCompany Secretary are set out below: John Kembery: Executive Chairman (aged 65) John has been Executive Chairman of Belgravium, and previously Eadie Holdingsplc, since 1997. He is a Chairman and Director with over 30 years experience inexecutive and non-executive roles in both public and private companies in a widevariety of industries, including McKechnie plc, Europower plc and Sunleigh plc.Amongst other things, he brings to the Board extensive experience ofacquisitions and their integration. In addition, he is the single largest holderof existing ordinary shares in the capital of the Company (the "ExistingOrdinary Shares"). Mark Hardy: Group Managing Director (aged 41) Mark has been involved in the commercial aspects of business within the IT andcommunications sector for the past 20 years. He was involved in the sales andmarketing functions for both Harris Systems and Lex Industrial Systems, prior tojoining Belgravium Limited in 1992 as Business Development Manager. He wasappointed Sales Director in 1996 and Managing Director in 1998 (both roles as anon-statutory director) and has had full operational responsibility since thatdate. Mark Hardy will retain the remuneration and benefits under his existing serviceagreement with Belgravium, entered into on 25 February 2005. The agreement isterminable by the Company, by giving not less than 12 months' written notice,and by Mark Hardy, by giving not less than 6 months' written notice. Stephen Day: Non-executive Director (aged 60) Stephen joined the Board of Belgravium on 25 January 2001. Between 1989 and1999, he was Chief Executive of Kode International plc, the electronics andcomputer group. He is also a director of Radstone Technology plc. Roderick (Roddy) McDougall: Non-executive Director (aged 63) Roddy joined the Board of Belgravium on 26 March 1997. He is a director of anumber of private companies in the industrial and commercial sectors. He hasalso served on the board of three listed public companies in the last 15 years.Roddy is the senior independent non-executive director of Belgravium, bringingan ethos of strong corporate governance to the Board. He chairs the AuditCommittee and Remuneration Committee. Mike Unwin: Group Financial Controller and Company Secretary (aged 51) Mike Unwin undertook his training with an accountancy firm in Sheffield. In 1978he joined Stainless Steel Wire Company Limited, which was later acquired byEadie Holdings plc. Upon the subsequent sale of Stainless Steel Wire CompanyLimited in 1988, Mike was retained as assistant to the then Group FinancialDirector. Following the various changes within the Group he became GroupFinancial Controller and later Company Secretary. He is the longest servingemployee of the Group. Admission, settlement and dealing arrangements Application will be made to the London Stock Exchange for all the ExistingOrdinary Shares to be re-admitted, and for the Placing Shares to be admitted, totrading on AIM. It is expected that Admission will become effective and thatdealings will commence in the ordinary shares of the Company ("Ordinary Shares")on 24 October 2005. No temporary documents of title will be issued. All documents sent by or to theShareholder, or at his direction, will be sent through the post at theShareholder's risk. Pending the dispatch of definitive share certificates,instruments of transfer will be certified against the register of members of theCompany. The Ordinary Shares are eligible for settlement in CREST, the computerised sharetransfer and settlement system. CREST allows shares and other securities to beheld in electronic form rather than paper form. Accordingly, settlement of thetransactions in Existing Ordinary Shares and the Placing Shares followingAdmission may take place within the CREST system if the relevant Shareholderwishes. For more information concerning CREST, Shareholders should contact their brokeror, alternatively, CRESTCo at 33 Cannon Street, London, EC4M 5SB. Dividend policy Dividends paid and proposed in the last three years were 0.45 pence per share in2004, 0.42 pence per share in 2003 and 0.36 pence per share in 2002. The Boardintends to pursue a progressive dividend policy with dividend cover set at alevel to enable the Enlarged Group to fund its medium-term growth anddevelopment requirements over the longer term. Details of the Placing The Placing Shares are being placed by Teather & Greenwood with institutionalinvestors, John Kembery, Roddy McDougall, Mark Hardy and one of the Company'skey employees and will represent approximately 33.46 per cent. of the enlargedshare capital of the Company after the Placing (the "Enlarged Share Capital").In the Placing, the Company will issue 33,600,000 new ordinary shares at 14pence per share, payable in full, to raise approximately £4.7 million (beforeexpenses). The Placing Shares will rank pari passu in all respects with theExisting Ordinary Shares. As a demonstration of their commitment to the Company, John Kembery, RoddyMcDougall and Mark Hardy who currently own 7.49 per cent, 2.51 per cent. and0.09 per cent. respectively of the Existing Ordinary Shares, intend to subscribefor 522,285, 100,000 and 42,000 Placing Shares, at a cost of £73,120, £14,000and £5,880 respectively as part of the Placing. Following Admission, the Directors and the Proposed Director will be interestedin 7,506,481 ordinary shares in the Company, representing approximately 7.47 percent. of the Enlarged Share Capital. The Placing is conditional, inter alia, on the passing of the Resolutions andthe Acquisition having become unconditional (save only for Admission). It isexpected that Admission will become effective and that dealings in the PlacingShares and Existing Ordinary Shares will commence at 8.00 a.m. on 24 October2005 (or such later date, being not later than 7 November 2005, as Teather &Greenwood and the Company may agree). Re-admission The size of the Acquisition and consequent fundamental change in the Company'sbusiness give rise, inter alia, to the requirement that the Company applies forre-admission to AIM. Extraordinary General Meeting An extraordinary general meeting of the Company has been convened for 11 am on21 October 2005, to be held at New Broad Street House, 35 New Broad Street,London, EC2M 1NH. At the EGM, Shareholders will be asked to consider theResolutions, which will be proposed as follows: (a) to increase the authorised share capital of the Company to £7,500,000 by thecreation of 50,000,000 new ordinary shares; (b) to approve the Acquisition for the purposes of Rule 14 of the AIM Rules; (c) to grant authority to allot the Placing Shares; (d) to disapply statutory pre-emption rights; (e) to adopt new articles of association. Resolutions (d) and (e) are special resolutions, are conditional on Admission,and to be passed require a majority of not less than 75 per cent. of theShareholders of the Company voting in person or on a poll by proxy in favour. Ifthe Resolutions are not passed none of the Proposals can be implemented. General The Circular, which sets out the principal terms of the Acquisition and thePlacing and contains the notice of the EGM will be sent to Shareholders latertoday. Copies of the Circular are available free of charge during normal business hourson any weekday (Saturdays, Sundays and public holidays excepted) from theoffices of KPMG Corporate Finance, 1 The Embankment, Neville Street, Leeds, LS14DW from today until the date falling one month from the admission date. Expected Timetable of Principal Events Latest time and date for receipt of completed Forms of Proxy 11am on 19 October 2005 Extraordinary General Meeting 11am on 21 October 2005 Completion of the Acquisition 24 October 2005 Admission and dealings to commence in the Existing Ordinary 8:00am on 24 October 2005Shares and Placing Shares on AIM Delivery in CREST of Placing Shares to be held in uncertificated 24 October 2005form Despatch of definitive share certificates in respect of Placing 31 October 2005Shares to be held in certificated form by Commenting on today's announcement, John Kembery, Executive Chairman ofBelgravium Technologies said: "Belgravium has been consistent in its search for a high quality acquisitionover the past few years and is delighted to have found what the Board believesto be a business which demonstrates real synergy with both Belgravium and itsmarkets. In its own right, Touchstar has an excellent reputation in the global airlineand fuel distribution markets where its strong product portfolio has seen itsecure a number of high profile client relationships. However, the acquisitionof Touchstar will also enable Belgravium to market its products to a newdistribution network and into a number of new vertical markets. In addition, itis hoped that the Acquisition will strengthen the Company's presence abroad,offering Belgravium new opportunities in the USA, Europe and Australia. We have always believed that Belgravium would benefit from an earnings enhancingacquisition, offering greater market presence and increased critical mass. Wewelcome the new employees from Touchstar and look forward to our future as anEnlarged Group with huge potential." Mark Hardy, Group Managing Director of the Enlarged Group said: "We believe that Touchstar's international network of distributor partners willprovide new sales avenues for Belgravium's product range, in particular theAtlanta, which continues to gain international customer approval. The acquisition will also allow us greater potential in developing a nextgeneration data capture product, through combined technologies and productranges. Costs relating to research and development can be met by a strongerearnings stream, which will assist the Enlarged Group as technology continues toadvance within our markets. We are looking forward to the future as a combined force in the industry, and weare delighted to announce this important development in the growth of our group.I would like to welcome our new members of staff and thank everyone atBelgravium in advance for their co-operation and support." Definitions used in this announcement have the same meaning as in the Circular. For further information, please contact: Belgravium Technologies plc 01274 718800John Kembery, Executive ChairmanMark Hardy, Managing Director KPMG Corporate Finance 0161 838 4000Christian Mayo Teather & Greenwood 0207 426 9000Mark DickensonTom Hulme Buchanan Communications Ltd 01943 883990Eric Burns KPMG Corporate Finance, a division of KPMG LLP which is authorised and regulatedby the Financial Services Authority for investment business activities, isacting for the Company as nominated adviser and financial adviser in relation tothe Acquisition and the Placing and is not acting for any other person inrelation to the Acquisition and the Placing. KPMG Corporate Finance will not beresponsible to anyone other than the Company for providing the protectionsafforded to its clients or providing advice in relation to the contents of thisdocument or any matter or arrangement referred to herein. Teather & Greenwood Limited, which is authorised and regulated by the FinancialServices Authority for investment business activities, is acting exclusively forthe Company in relation to the proposed Placing. Teather & Greenwood Limited isnot acting for any other person (including the recipient of this document) andwill not be responsible to anyone other than the Company for providing advice inrelation to the Placing or in relation to the contents of this document or anytransactions or arrangements referred to herein. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Touchstar Plc