TIDMCSSG
RNS Number : 7188B
Croma Security Solutions Group PLC
06 June 2023
Croma Security Solutions Group Plc
("CSSG", "Croma", "the "Company" or the "Group")
Proposed Disposal of Vigilant for GBP6.5 million
Croma Security Solutions Group plc (AIM:CSSG) is pleased to
announce it has entered into a conditional agreement to sell the
entire issued share capital of its subsidiary Vigilant Security
(Scotland) Limited ("Vigilant") to M&W Security Limited for a
total consideration of GBP6.5 million plus inter-company balances
of GBP1.07 million repayable to the Company.
Highlights
-- Sale of Vigilant follows the Company's strategy to focus on
its higher margin Croma Locksmiths and Croma Security Systems
businesses.
-- Proceeds from the sale will be used to support the successful
nationwide roll-out of the Company's retail chain of modern
security centres.
-- Vigilant is being acquired by two previous Directors of the
Company, Sebastian Morley and Paul Williamson who stepped down from
the Board in December 2022 to prepare a bid.
-- The Consideration to be received for the Disposal of GBP6.5
million represents approximately 91.8 per cent. of the Company's
market capitalisation of GBP7.1 million as at the close of business
on 2 June 2023. For the year ended 30 June 2022 Vigilant generated
approximately 42 per cent. of the Croma Group's EBITDA and for the
six months ended 31 December 2022 Vigilant generated approximately
29 per cent. of the Croma Group's EBITDA.
-- The Disposal is subject to shareholder approval and is
expected to be completed on 30 June 2023.
Roberto Fiorentino, CEO of CSSG, said : 'We are delighted to be
announcing the proposed sale of Vigilant which is a good business
but no longer fits with the future of our Group. The funds from the
sale will accelerate our ability to drive our Locks and Systems
business through the roll out of our modern Security Centres.
Separately, the Group has continued to trade well and we have had a
strong second half to the year which ends in June 2023 and we
expect to report overall trading comfortably ahead of last year. We
look forward to completing the sale and demonstrating to existing
and new shareholders the true value of our core businesses."
Background
On 6 December 2022, the Company announced its decision to sell
Vigilant in order to re-focus the Group's future strategy around
the development of Croma Locksmiths Limited and Croma Security
Systems Limited to take advantage of higher margins, good cash
generation and opportunities for future growth. Vigilant's
management team, led by its Operations Director Paul Williamson and
supported by its Managing Director, Sebastian Morley, indicated
their desire to acquire Vigilant from the Group and stepped down
from their respective Board roles in order to prepare a bid.
Overview
The Consideration will be satisfied as to (i) GBP1,073,314
payable in cash on Completion; (ii) GBP4,126,686 by the issue of
the Loan Notes; and (iii) either (at the Buyer's sole discretion)
the payment of an additional GBP1,300,000 in cash on Completion or
the issue of the Redeemable Share on Completion. In addition,
inter-company balances of GBP1,067,913 owed by Vigilant to the
Company will be settled on Completion. Therefore on Completion the
Company will receive in aggregate cash of either GBP2,141,227 if
the Redeemable Share is issued or GBP3,441,227 if the Redeemable
Share is not issued.
M&W Security Limited, is owned and controlled by Sebastian
Morley and Paul Williamson, both former directors of the Company
who stepped down from the Board at the annual general meeting held
on 6 December 2022 to pursue a buy-out of Vigilant from the
Company. In order to part fund the cash consideration, Messrs
Morley and Williamson wish to sell all of the shares they hold in
the Company, being in aggregate 798,422 Ordinary Shares. The
Company has agreed to buy-back these shares at a price of 47.5
pence pursuant to the Buy-Back Agreement.
In view of the size of Vigilant relative to the existing size of
the Croma Group, it is a requirement of the AIM Rules that the
Disposal be approved by Shareholders at a general meeting of the
Company. The Disposal is therefore conditional on, inter alia,
shareholder approval at the General Meeting.
The Buy-Back represents a purchase of own shares by the Company
in an off-market transaction pursuant to Section 694 of the Act. As
a result, the Act requires that such a transaction be authorised by
a special resolution and the Act also provides that the parties
from which the shares are proposed to be purchased must not
exercise the voting rights attached to those shares on that
resolution. The Buy-Back is therefore conditional on shareholder
approval at the General Meeting.
As the Disposal and Buy-Back are transactions with former
directors of the Company, they represent related party transactions
in accordance with AIM Rule 13. The Directors, all of whom are
independent, consider that, having consulted the Company's
nominated adviser, that the terms of the Disposal and the Buy-Back
are fair and reasonable in so far as Shareholders are
concerned.
The Board is also taking this opportunity to ask Shareholders to
approve the adoption by the Company of new articles of association
primarily for the purposes of updating the Company's existing
articles of association primarily to take account of changes in
English company law brought about by the Act . The New Articles
will be made available to view on the Company's website at
www.cssgplc.com/investors.
Notice of General Meeting and posting of Circular
A circular, which contains the notice of General Meeting, in
respect of the Disposal is expected to be posted to Shareholders
later today and will also be available on the Company's website
www.cssgplc.com/investors/ .
The General Meeting will take place at the offices of the
Company, Unit 7 & 8 Fulcrum 4, Solent Way, Whiteley, Fareham,
Hampshire PO15 7FT at 9.00 a.m. on 30 June 2023.
Capitalised terms have the meaning set out in Appendix I to this
Announcement.
For further information visit www.cssgroupplc.com or
contact:
Croma Security Solutions Group Plc Tel: +44 (0)1489 566 166
Roberto Fiorentino, CEO
Teo Andreeva, CFO
WH Ireland Limited Tel: +44 (0)207 220 1666
(Nominated Adviser and Broker)
Mike Coe
Sarah Mather
Novella Tel: +44 (0)203 151 7008
Tim Robertson
Claire de Groot
Safia Colebrook
This announcement contains inside information for the purposes
of Article 7 of the UK version of Regulation (EU) No 596/2014 which
is part of UK law by virtue of the European Union (Withdrawal) Act
2018, as amended ("MAR"). Upon the publication of this announcement
via a Regulatory Information Service, this inside information is
now considered to be in the public domain.
1. Information on Vigilant
Vigilant provides manned guarding and reception services for
property assets and individuals and employs over 900 security
personnel throughout the UK.
For the year ended 30 June 2022, Vigilant generated sales of
GBP29.3 million (2021: GBP27.4 million), and operating profit of
GBP0.7 million (2021: GBP1.1 million), EBITDA 0.8 million (2021:
1.3 million). As at 30 June 2022 Vigilant had net assets of
approximately GBP4 million, including Goodwill.
For the six months ended 31 December 2022 ("H1 2022") Vigilant
recorded revenues up 7 per cent. to GBP15.92 million (H1 2021:
GBP14.86 million). However, profit before tax reduced to GBP0.13
million (H1 2021: GBP0.36 million) as it was held back by a number
of factors including non-recurring exceptional costs, up-front
investment in staff costs ahead of the start of a substantial
contract (that commenced successfully, as planned, in January 2023)
as well as general wage inflation which has impacted staff
retention and the ability to recruit. The increased wage costs are
beginning to be passed on in adjusted contract rates and will be
reflected in all new contracts. EBITDA for H1 2022 was GBP0.28
million.
2. Background and reasons for recommending the Disposal
On 6 December 2022, the Company announced that it had decided to
divest the Croma Group's manned guarding business, Vigilant.
The Directors believe that the sale of Vigilant is in the best
interests of Shareholders for the following reasons:
-- the strategy of combining Locks and Systems with Vigilant has
not generated the opportunities for cross marketing and cross sales
that had been expected;
-- it will enable the Continuing Group to focus its future
strategy around the development of Locks and Systems where margins
are high and cash generation remains strong and where the Board
believes there are good opportunities for profitable growth;
and
-- the cash to be received pursuant to the Disposal will enable
the Company to pursue acquisition opportunities for both Croma
Locks and Croma Systems.
The Directors consider that the Consideration to be received for
the Disposal from M&W Security Limited, fairly reflects the
value of Vigilant. In reaching this view, the Directors have taken
into account, factors including:
-- their expectations of Vigilant's trading performance for 30
June 2023 and for 30 June 2024; and
-- the fact that the market has been aware of the Company's
intention to dispose of Vigilant since 6 December 2022 and no other
offers of equivalent value have been received from third
parties.
The Consideration to be received for the Disposal of GBP6.5
million represents approximately 91.8 per cent. of the Company's
market capitalisation of GBP7.1 million as at the close of business
on 2 June 2023, being the latest practical date prior to this
announcement. For the year ended 30 June 2022 Vigilant generated
approximately 42 per cent. of the Croma Group's EBITDA and for the
six months ended 31 December 2022 Vigilant generated approximately
29 per cent. of the Croma Group's EBITDA.
3. Principal terms of the Disposal
Under the terms of the Disposal Agreement, the Company has
agreed to sell the entire issued share capital of Vigilant to
M&W Security Limited for an aggregate consideration of GBP6.5
million. In addition, M&W Security Limited has agreed to
procure that Vigilant repays the debt of GBP1,067,913 which
Vigilant owes to the Company.
The Consideration will be satisfied as to (i) GBP1,073,314
payable in cash on Completion; (ii) GBP4,126,686 by the issue of
the Loan Notes; and (iii) either (at the Buyer's sole discretion)
the payment of an additional GBP1,300,000 in cash on Completion or
the issue of the Redeemable Share on Completion.
Warranties have only been given by the Company to the Buyer in
respect of good title to the shares of Vigilant, subject to certain
limitations on liability.
Completion of the Disposal is conditional upon of Resolutions to
be proposed at the General Meeting, and the Buy-Back being
completed in accordance with its terms.
4. Terms of the Loan Notes
On Completion of the Disposal, and as part of the Consideration,
the Company shall receive the Loan Notes pursuant to a loan note
instrument executed by the Buyer, the principal terms of which are
as follows:
-- the Loan Notes shall attract annual interest at a rate of 4.5 per cent. per annum;
-- the Loan Notes (being both capital amounts and accrued
interest), shall be repaid as follows:
a) the first payment shall be nine months following Completion;
b) thereafter payments shall be made on each quarter date for a further nine payments;
-- the Loan Notes shall be secured over the assets of the Buyer,
Vigilant and Vigilant's wholly-owned subsidiary, Croma Proception
Limited (registered number: SC695543);
-- if the Buyer defaults on the payment of any principal or
interest payable under the Loan Notes default interest will accrue
at a rate of 4 per cent. above the base interest rate of 4.5
percent. Such interest would accrue from day to day and be
compounded quarterly;
-- in the event that the Buyer defaults on any one payment due
to the Company under the Loan Notes the Company shall have step-in
rights to enable the Company to assume control of Vigilant at board
and shareholder level.
5. Terms of the Redeemable Share
On Completion of the Disposal, and as part of the Consideration,
at the Buyer's sole discretion, the Company will either receive an
additional payment of GBP1,300,000 in cash or the issue of the
Redeemable Share on Completion. If the Redeemable Share is issued
by the Buyer, then principal share rights will be as follows:
-- the date for the redemption of the Redeemable Share shall be
the earlier of: (i) 1 July 2024; and (ii) any debt or equity raise
by the Buyer. Upon such an event, the Redeemable Share shall
immediately become due for redemption and the Buyer shall pay the
Company GBP1,300,000 in cash;
-- after 1 July 2024, if the Redeemable Share has not yet been
redeemed in full, a fixed preferential dividend shall accrue at a
rate of 4.5 per cent.;
-- for so long as the Company holds the Redeemable Share and/or
any sums remain outstanding under the Loan Notes, the Company shall
have the right to appoint a director to the board of the Buyer (the
"A Director") and its group companies, such A Director cannot be
removed by the Buyer until such date as both the redemption of the
Redeemable Share has occurred and the Loan Note has been repaid in
full;
-- In the event that the Redeemable Share is not redeemed in
full on the redemption date or any of the default events set out in
condition 4.2 of the Loan Note have occurred the A Director may
serve notice on the Buyer which will cause the Company to be able
to take control at the board and shareholder level.
6. Terms of the Buy-Back Agreement
Prior to Completion, the Company shall enter into a Buy-Back
Agreement with Sebastian Morley and Paul Williamson to acquire in
aggregate 798,422 Ordinary Shares held by Sebastian Morley and Paul
Williamson at a price of 47.5 pence per Buy-Back Share, being the
five day average mid-market price, to 2 June 2023, being the latest
practical date prior to this announcement. The consideration
payable under the Buy-Back Agreement will be paid in cash out of
the Company's distributable reserves at Completion.
The Buy-Back Agreement will be made available on the Company's
website at www.cssgplc.com/investors.
7. Effect of the Disposal and use of proceeds
Once the Buy-Back Shares have been purchased pursuant to the
Buy-Back Agreement, the Company intends to hold the Buy-Back Shares
in treasury.
Immediately following Completion, the Company will have
15,898,656 Ordinary Shares in issue of which 1,794,936 Ordinary
Shares will be held in treasury. Therefore the number of voting
shares will be 14,103,720 immediately following Completion.
If the Disposal and the Buy-Back are approved by Shareholders
and completes in accordance with their terms, on Completion the
Company will receive cash pursuant to the Disposal Agreement of
either GBP2,141,227 if the Redeemable Share is issued or
GBP3,441,227 if the Redeemable Share is not issued. The Directors
estimate that following receipt of the cash pursuant to the
Disposal Agreement and following the Buy-Back of GBP0.38 million,
the Company will have cash balances of approximately GBP2.06
million or GBP3.36 million if the Redeemable Share is not issued,
after paying certain expenses excluding any taxes relating to the
Disposal (stamp duty taxes in respect of the Disposal shall be
payable by the Buyer).
The Company intends to deploy these funds to advance the
Company's strategy, as set out in paragraph 9 below.
8. Current trading and prospects
On 14 March 2023, the Company announced its interim results to
31 December 2022. In those results, Locks and Systems were reported
as the continuing group and Vigilant as an asset held for
resale.
Trading across the Croma Group has been stronger so far in the
second half of the year ending 30 June 2023 than it was in the
first half of the year, being the six months ending 31 December
2022, and the Croma Group's overall trading performance is expected
to be comfortably ahead of last year. Reported results will however
be impacted by a number of one-off exceptional costs incurred in
relation to Vigilant and the Disposal.
9. Strategy and prospects
Following the Disposal the Continuing Group's business will
comprise Croma Locks and Croma Systems where margins are high
(relative to Vigilant) and cash generation remains strong and where
the Board believes there are good opportunities for profitable
growth.
The Board remains focused on creating a national chain of modern
security centres and believes there are opportunities to expand
further. The strategy is to be a leading British security brand and
to that end for the Continuing Group will carefully extend its
footprint of security centres across the country. The Continuing
Group currently operates through 14 security centres and the
objective is to acquire between three and five centres each year.
The market can be very generally split into locksmith and security
systems providers. Croma's strategy is to combine the traditional
offerings of each under one roof, providing comprehensive security
solutions in a broader security centre. To date these centres have
started as locksmiths but could also be systems providers and have
been relatively small acquisitions. The acquisition of large
systems and solution providers will also be considered where they
can complement and extend the Continuing Group's existing
offerings.
To complement and improve its range of services, the Continuing
Group will also consider engaging in strategic partnerships with
providers of innovative security solutions, such as the partnership
it currently has with its Scandinavian partner, iLOQ .
The cash proceeds of the Disposal will provide the Continuing
Group with additional financial stability and cash resources to
accelerate our development in line with the strategy for the
benefit of our shareholders.
10. New Articles
The Company's Current Articles were adopted in May 2000 and
primarily to take into account the changes in English company law
brought about by the Act, the Board are proposing the adoption of
New Articles . The proposed New Articles will be made available on
the Company's website at www.cssgplc.com/investors .
11. Recommendation
The Directors, having consulted with the Company's nominated
adviser, WH Ireland Limited, consider the terms of the Disposal and
Buy-Back are fair and reasonable insofar as Shareholders are
concerned and that the Disposal and Buy-Back are in the best
interests of Shareholders as a whole. Accordingly, the Directors
unanimously recommend Shareholders to vote in favour of the
Resolutions to be proposed at the General Meeting, as they intend
so to do in respect of their shareholdings amounting to 3,902,175
Ordinary shares representing 26.19 per cent. of the Company's total
voting rights..
Appendix I
DEFINITIONS
The following definitions apply throughout this announcement,
unless the context requires otherwise or unless it is otherwise
specifically provided:
"Act" the Companies Act 2006 (as amended)
"AIM" the market of that name operated by the London
Stock Exchange
"AIM Rules" the AIM Rules for Companies published by the
London Stock Exchange from time to time
"Announcement" the announcement of the Disposal made by the
Company on 6 June 2023
"Buy-Back" the buy-back of the Buy-Back Shares from Sebastian
Morley and Paul Williamson at a price of 47.5
pence which represents an off-market transaction
pursuant to Section 694 of the Act.
"Buy-Back Agreement" the agreement to be entered into on or around
the date of the General meeting between the
Company, Sebastian Morley and Paul Williamson
"Buy-Back Shares" 798,422 Ordinary Shares to be purchased by the
Company pursuant to the Buy-Back
"Buyer" M&W Security Limited a limited company number
incorporated in Scotland with registered number
SC753198 and with its registered office at 1st
Floor Left, 161 Brooms Road, Dumfries, United
Kingdom, DG1 2SH with Sebastian Jake Finch Morley
and Paul Williamson as directors
"Company" or Croma" Croma Security Solutions Group plc a public
limited company incorporated in England and
Wales with registered number 03184978 and with
its registered office at Unit 7 & 8, Fulcrum
4 Solent Way, Whiteley, Fareham, England, PO15
7FT
"Completion" completion of the Disposal on the terms set
out in the Disposal Agreement
"Consideration" the consideration payable by the Buyer to the
Company for the Disposal amounting in total
to GBP6.5 million comprised of the Initial Consideration
and the Loan Note Consideration
"Continuing Group" the Company together with its subsidiaries after
completion of the proposed Buyback and Disposal,
being Croma Locks and Croma Systems
"Croma Group" the Company together with its subsidiaries
which at the date of this announcement are Vigilant
and Croma Locks and Croma Systems
"Croma Locks" Croma Locksmiths and Security Solutions Limited,
a limited company incorporated in England and
Wales with registered number 03909669 and with
its registered office at Unit 7 & 8, Fulcrum
4 Solent Way, Whiteley, Fareham, England, PO15
7FT
"Croma Systems" CSS Total Security Limited, a limited company
incorporated in England and Wales with registered
number 02432869 and with its registered office
at Unit 7 & 8, Fulcrum 4 Solent Way, Whiteley,
Fareham, England, PO15 7FT
"Current Articles" the articles of association of the Company at
the date of this announcement
"Directors" or "Board" the directors of the Company or any duly authorised
committee thereof
"Disposal" the proposed sale of the entire issued share
capital of Vigilant (including Vigilant's wholly-owned
subsidiary, Croma Proception Limited (registered
number: SC695543) in accordance with the terms
of the Disposal Agreement
"Disposal Agreement" the agreement dated 5 June 2023 made between
the Company and M&W Security Limited
"EBITDA" Earnings Before Interest Tax and Depreciation
"Existing Share Capital" 15,898,656 Ordinary Shares, of which 996,514
Ordinary Shares are held in treasury
"Form of Proxy" the form of proxy for use in connection with
the General Meeting
"General Meeting" the general meeting of the Company convened
for 9.00 a.m. on 30 June 2023
"Initial Consideration" GBP1,073,314 in cash on Completion and (at the
sole discretion of the Buyer) the payment of
a further GBP1,300,000 in cash on Completion
or the issue of the Redeemable Share
"Loan Note Consideration" the balance of the Consideration, being the
Loan Notes
"Loan Notes" consideration loan notes of GBP4,126,686 issued
in the Buyer
"Locks and Systems" Croma Locks and Croma Systems
"M&W Security Limited" M&W Security Limited, a limited company registered
in Scotland (No. SC753198) with its registered
office at 1st Floor Left, 161 Brooms Road, Dumfries,
United Kingdom, DG1 2SH
"New Articles" the proposed new articles of association of
the Company, which will be proposed for adoption
by the Company at the General Meeting, in replacement
of the Current Articles
"Notice" the notice of the General Meeting of Shareholders
"Ordinary Shares" ordinary shares of 5 pence each in the capital
of the Company
"Redeemable Share" GBP0.01 redeemable consideration A ordinary
share issued in the capital of the Buyer, as
further described in paragraph 6
"Resolutions" the resolutions to be proposed to the Company's
members at the General Meeting
"Shareholders" the holders of Ordinary Shares
"Vigilant" Vigilant Security (Scotland) Limited, a limited
company number incorporated in Scotland with
registered number SC212151 and with its registered
office at 1st Floor Left, 161 Brooms Road, Dumfries,
Scotland, DG1 2SH
"WH Ireland" WH Ireland Limited, nominated adviser and sole
broker to the Company
"GBP", "pounds sterling", are references to the lawful currency of the
"pence" or "p" United Kingdom
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END
DISVELFBXQLBBBB
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