Proposed Disposal of Shims Businesses

26 August 2011 

Hampson Industries PLC ("Hampson", "the Group" or "the Company")

Proposed Disposal of Shims Businesses for US$84 million

Highlights

·; Proposed disposal of the Shims Businesses to a newly incorporated group formed at the direction of Bridgepoint Development Capital for an unadjusted cash and debt free value of US$84.0 million (£51.5 million).

·; Net cash proceeds expected to be approximately £46.3 million after transaction costs (prior to any adjustment following the preparation of completion accounts).

·; The cash proceeds from the disposal will be used to reduce the Group's net borrowings and to provide a strengthened capital base as well as additional financing flexibility for the Group.

·; Following the disposal, the Group will continue its strategic focus on high precision tooling systems and advanced composite technologies which the Board considers to have attractive long-term growth prospects.

·; The disposal is subject to, inter alia, the approval of the Company's shareholders. A general meeting is expected to be held in September 2011.

·; Completion of the disposal is expected to take place during September 2011.

Chris Geoghegan, Chairman of Hampson, said:

"The proceeds from the disposal will strengthen our balance sheet. With this stronger financial platform, Hampson will be better positioned to take advantage of the growth opportunities created by the long-term trend of increasing composites usage in the aerospace industry. The Board is confident that the strategic path taken by the Group to focus on advanced composite technologies and to create a global leader in the market for large, high precision tooling systems, in combination with the on-going operational improvement initiatives across the Group, is laying the foundations for improved results over the medium to longer term.

The Board would like to thank the management and employees of the Shims Businesses for all of their efforts, and to wish them continued success in the future."

There will be a conference call for analysts at 11.00am today. Please dial in to +44 (0)20 3364 5381; the passcode is 5205864.

A copy of this announcement will be available on the Company website later today.

1. Introduction

The Board of Hampson announces today that the Company has entered into a conditional agreement with the purchaser, being a newly incorporated group formed at the direction of Bridgepoint Development Capital, for the sale of the Shims Businesses for an unadjusted cash and debt free value of US$84.0 million (£51.5 million) (the "Disposal").

The net consideration payable in respect of the Disposal is subject to adjustments by reference to accounts to be prepared following completion of the Disposal ("Completion Accounts"). The consideration will be adjusted (up or down) by reference to the amount of working capital and net cash of the Shims Businesses at completion of the Disposal. After deduction of costs incurred by the Company in connection with the Disposal, estimated to be approximately £5.2 million (comprising approximately £3.0 million of professional fees and other costs and £2.2 million of taxation), the total net cash proceeds of the Disposal (prior to any adjustment following the preparation of Completion Accounts) are expected to be approximately £46.3 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 of the UK Listing Authority 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 September 2011.

2. Background to and Reasons for the Disposal

Following the appointment of Norman Jordan as the new Chief Executive of the Company in September of last year, it was announced in the Company's consolidated half year 2010 report, published on 24 November 2010, that Norman had been undertaking a detailed assessment of operational and strategic priorities for the Group and implementing change where necessary. In this context, it was reported that the Board was intending to seek to reduce the absolute level of the Group's indebtedness and was considering a range of initiatives to achieve this, which may include selective asset disposals.

Following this, it was reported in the Company's trading update published on 21 April 2011, the preliminary announcement of the Company's results for the year ended 31 March 2011 published on 30 June 2011, and subsequently in the Company's Interim Management Statement published on 8 August 2011, that reducing net borrowings remained a key strategic priority and that the Board was progressing discussions aimed at the divestment of certain non-core assets.

Central to the Group's growth strategy in aerospace, and to the successful repositioning of the Group's business in recent years, has been the building of a clear, global leadership position in the market for large, high precision tooling systems which are required to enable the manufacture of complex composite aerostructures. In addition, the Group has pursued expansion into niche, difficult-to-replicate technologies in high temperature carbon composites. Although the Shims Businesses are leaders in their addressable market segments and are profitable, the nature of their products and manufacturing capabilities is clearly distinct from the Group's strategically core tooling and composites businesses. Furthermore, the Shims Businesses are effectively self-standing within the Group organisation and have limited strategic connection or synergy with the rest of the Group.

In light of the above, the Board concluded as part of its strategic assessment that the Shims Businesses were non-core and represented an attractive disposal candidate in order both to maximise value for shareholders and to generate sufficient proceeds to achieve a material reduction in the Group's net borrowings.

The Group's net indebtedness as at 31 March 2011 was £92.9 million, resulting in a net debt to EBITDA ratio on a trailing twelve month basis of 3.95 times, compared with the maximum covenanted level at such date of 4.57 times set by its existing committed borrowing facilities. The EBITA to net interest cover as at 31 March 2011 was 3.04 times compared with a minimum covenanted level of 2.50 times.

The Cash Proceeds from the Disposal will be used to reduce the Group's net borrowings with the intention of providing a strengthened capital base and additional financing flexibility for the Group.

On 30 June 2011, the Company reported in the preliminary announcement of the Group's results for the year ended 31 March 2011, that it had agreed with its lenders amendments to the covenants contained within its existing committed borrowing facilities to provide increased covenant headroom and give the Company greater flexibility as it seeks to improve performance.

As part of the terms agreed with its lenders, the Company has agreed that in the event that the Disposal completes, the Company's net debt to EBITDA and EBITA to net interest covenants will be adjusted since they will no longer be appropriate in light of the Group's reduced level of net indebtedness following the Disposal.

The current net debt to EBITDA and EBITA to net interest covenants and those which will apply following the Disposal are set out below:

If the Disposal does not complete, the current net debt to EBITDA and EBITA to net interest covenants which are in existence as at the date of this announcement (as set out above) will continue to apply.

Following the Disposal, the Group intends to continue its strategic focus on high precision tooling systems and advanced composite technologies, as well as delivering improved operational performance across the Group. Considerable focus continues to be placed on operational improvement initiatives to improve cash generation and margins. A number of initiatives are underway and an on-going focus on cost reduction has been implemented throughout the Group to drive toward improved results. The Board is confident that the strategic path taken by the Group, including the Disposal, is laying the foundations for improved results over the medium to longer term and believes the Group remains well positioned to take advantage of the longer term trend of increasing composites usage in the aerospace industry.

3. Financial Effects of the Disposal and Use of Proceeds

The Cash Proceeds from the Disposal will be used to reduce the Group's net borrowings with the intention of providing a strengthened capital base and additional financing flexibility for the Group. The Disposal is expected to be earnings dilutive for the retained group.

4. Information on the Shims Businesses

The Shims Businesses comprise Lamsco West, Inc. (based in California, United States), Bolsan Company, Inc. (based in Pennsylvania, United States), Attewell Limited (based in Middlesex, United Kingdom) and the business of Pillar Seals and Gaskets (carried on by Attewell Limited). The principal activity of the Shims Businesses is the manufacture and supply of shim components to the global commercial and military aerospace markets. A shim is a component manufactured in either solid or laminated peelable form out of a variety of materials, including metal, plastic or composite material, which is used to achieve precisely specified or closely toleranced dimensions during the assembly of aerostructures.

In addition to manufacturing shims, the Shims Businesses also manufacture a range of standard and high performance non-metallic seals and gaskets for high technology industrial applications, as well as providing value-added integrated supply chain and logistics solutions.

In the year to 31 March 2011, the Shims Businesses generated total revenues of £27.7 million, operating profit of £5.6 million and profit before tax of £6.2 million. As at 31 March 2011, the Shims Businesses had total net assets of £14.4 million and gross assets of £24.2 million.

5. Information on the Group

The Group currently comprises two divisions, the Aerospace Composites & Transparencies division and the Aerospace Components & Structures division. The Shims Businesses account for the vast majority of the Aerospace Components & Structures division. Following the Disposal, the Group will therefore comprise predominantly the Aerospace Composites & Transparencies division, which is entirely US-based and comprises five businesses which have all been acquired by the Group since December 2004 (Texstars, Inc., Composites Horizons, Inc., Coast Composites, Inc., Odyssey Industries, Incorporated, and Global Tooling Systems, Inc.).

Texstars, Inc., based in Texas, United States, is a supplier of highly engineered polymer-based technologies, consisting of polycarbonate and acrylic transparency applications, together with a wide range of thermoset and thermoplastic composite components, primarily for the aerospace and defence industries. Products manufactured cover a broad range of market applications particularly in the commercial aerospace and rapid transit markets.

Composites Horizons, Inc., based in Southern California, United States, provides the Group with technology in high temperature composites as well as access to important customer relationships and strategic aerospace programmes. Of these, one of the most important is the F-35 Joint Strike Fighter. Composites Horizons, Inc.'s capabilities also extend to the manufacture of composite assemblies for the medical sector with applications supporting MRI, PET and CAT scanning equipment.

The three other businesses within the Aerospace Composites & Transparencies division, comprising Coast Composites, Inc., based in Southern California, United States and Odyssey Industries, Incorporated and Global Tooling Systems, Inc., based near Detroit, Michigan, United States, are specialists in the design and manufacture of large, tight-tolerance tooling systems used in the construction of airframe and spacecraft structures manufactured out of carbon composite materials and in airframe assembly processes. These tooling systems support major aerospace programmes including the Airbus A350, Boeing 787, Boeing 747-8, F-35 Joint Strike Fighter, as well as unmanned aerial vehicles.

Following the Disposal, the remaining businesses within the current Aerospace Components & Structures division will be BHW (Components) Limited, based in Wigan, United Kingdom, and Hampson Industries Private Limited, based in India. These businesses are involved in the engineering and manufacture of aerostructure products, including complex stretch-formed aluminium components for aircraft leading edge, fuselage, empennage and flight control surfaces.

6. Dividend Policy

In light of the Board's strategy to reduce the level of indebtedness of the Group, the Board did not recommend that a final dividend be paid in respect of the year ended 31 March 2011. Following the Disposal, it is the Board's intention to consider resuming the payment of dividends at the appropriate time in the future, reflecting both the underlying profitability and cash flow of the Group.

Notes

1. Key individuals of the Shims Businesses

The names and principal functions of the key individuals of the Shims Businesses who will leave Hampson on completion of the Disposal are set out below:

2. Other

The US$/£ exchange rate of 1.6307 has been used to translate the unadjusted cash and debt free value of the Shims Businesses, and to calculate the estimated net cash proceeds of the Disposal. Historical financial information has been translated at the appropriate prevailing rate.