TIDMRTS
RNS Number : 7477U
Robotic Technology Systems PLC
21 October 2010
Immediate release
21 October 2010
Robotic Technology Systems PLC
("RTS", "Company" or "Group")
Proposed disposal of Life Science,
Adoption of Investing Policy,
Change of name to Hephaestus Holdings PLC
and
Notice of General Meeting
HIGHLIGHTS
-- RTS has conditionally agreed the proposed disposal of RTS
Life Science Limited which now incorporates the trade and assets of
both RTS Flexible Systems Limited and RTS Thurnall (Holdings) Plc
and the investment by the Group in RTS Life Science LLC to Entologi
Limited.
-- General Meeting has been convened for 5 November 2010 to seek
shareholders' approval as the Disposal would result in a
fundamental change of business by the Group according to Rule 15 of
the AIM Rules.
-- On Completion it is proposed that the Company's name be
changed to Hephaestus Holdings PLC.
-- Shareholders who are interested in 18,141,687 Ordinary
Shares, representing 29.1 percent of the Company's Issued Share
Capital, have irrevocably undertaken to vote in favour of the
Resolutions.
-- The Company is despatching a circular to Shareholders setting
out the reasons for, and principal terms of the Disposal, and also
details of the Company's proposed investing policy following
Completion, and to seek Shareholders' approval in accordance with
Rule 15 of the AIM Rules and for the proposed change of name.
Christopher Brown, Chairman of RTS commented:
"The Board has considered the options available to it to
maximise shareholder value. With the trading record of the
operating businesses over the last four years, together with the
operational and financial risks to which the Group is exposed, the
Board believes the operating businesses would be better served by
the greater financial, managerial and other resources available to
it as part of Entologi."
"Following completion of the disposal the Board will be pursuing
an investing policy to acquire industrial businesses with
defensible technologies and sustainable competitive advantage. The
Company will draw on the Directors' deep expertise in engineering
and technology to differentiate itself from pure financial
investors."
-Ends-
For further information please contact:
Robotic Technology Systems PLC
Chris Brown, Chairman
Jon Sharrock, Finance Director 0161 777 2000
www.rts-group.com
Collins Stewart Europe Limited - Nominated
Adviser
Stewart Wallace 020 7523 8350
Cattaneo LLP - Financial Adviser
Charles Cattaneo 0121 616 0395
Jonathan Hall
www.cattaneo.co.uk
Proposed disposal of Life Science,
Adoption of Investing Policy,
Change of name to Hephaestus Holdings PLC
and
Notice of General Meeting
1. Introduction
The Company announces the conditional disposal of Life Science.
Life Science (which incorporates the trade of Flexible Systems,
Thurnall and the Group's investment in Hatch) comprises all of
RTS's trading activities. Completion of the Disposal is, under the
AIM Rules, conditional on Shareholders' approval and the Disposal
will result in RTS becoming an Investing Company as defined by the
AIM Rules which also require Shareholders to approve an investing
policy for the Company going forward. The Board is taking this
opportunity to propose a change in the name of the Company to
Hephaestus Holdings PLC which also requires Shareholder
approval.
A General Meeting has been convened at the offices of Cobbetts
LLP, 58 Mosley Street, Manchester M2 3HZ at 10.00 am on 5 November
2010 for the purpose of proposing the necessary resolutions to
approve the Disposal, the Investing Policy and the change of name
of the Company. The notice of general meeting setting out the
Resolutions in full is set out at the end of the circular which is
being sent to Shareholders. Irrevocable undertakings to vote in
favour of the Resolutions have been received in respect of
18,141,687 Ordinary Shares representing 29.1 percent of the current
Issued Share Capital.
2. Background to and reasons for the Proposals
RTS's Ordinary Shares were admitted to trading on the Official
List in July 2002 and transferred to AIM in June 2005. In May 2006,
the Company announced the demerger of its Nuclear Services Division
from the Group.
Since that time, the Group's continuing activities, largely
consisting of Life Science and Flexible Systems, have experienced
declining revenues and uneven trading results. The Group has
undertaken several re-organisations in order to reduce overheads,
the latest of which was to reduce Group headcount and transfer the
Flexible Systems Business and Thurnall Business into Life Science,
such transfers took effect as of close of business on 30 September
2010.
During the period from May 2006, the Group's net assets have
declined from GBP14.6m in the year ended 31 December 2006 to
GBP2.7m in the Group's unaudited interim results as at 30 June
2010, largely as a consequence of operating losses, exceptional
costs and dividends paid, the most significant of which has been
the write down of the Doerfer Loan Notes in the year ended 31
December 2008 referred to below.
Unaudited group operating losses before exceptional items in the
six months to 30 June 2010 were GBP380,000, on turnover of GBP4.9m
with further exceptional costs amounting to GBP240,000.
In the period since the Demerger, as a result of the Group's
losses and the general difficult market conditions, the Company's
share price has declined from 28.5p to a share price at close of
business on 20 October 2010 of 3.5p, equating to a market
capitalisation of approximately GBP2.2m.
In common with many AIM traded companies with small market
capitalisations, the Company receives little institutional investor
support and there have been low levels of trading in the Ordinary
Shares. This makes it difficult for Shareholders to realise value
for their holdings. More recently Life Science has found it
increasingly difficult to obtain substantial deposits when
accepting new orders for its products and as a result of this there
will be greater demand on the Group's remaining cash resources to
fund working capital. The Directors believe that given Life
Science's historic trading record it would be difficult to use the
Company's AIM trading facility to raise further funds from the
market in order to develop further its Life Science business.
In addition to Life Science, the Group has cash balances at 30
September 2010 (excluding Hatch) of GBP1.6 million, and a number of
potentially valuable assets from which the future cash receipts are
uncertain (and therefore not recognised on its balance sheet).
These assets are further described below.
The Board has been considering the options available to the
Company to maximise Shareholder value. Taking into account the
factors noted above and the operational and financial risks to
which the Group is exposed, the Board believes that the greater
financial, managerial and other resources available to the
Purchaser will be beneficial to the Group's operating businesses.
The Board has therefore now agreed conditionally to the sale of
Life Science to Entologi.
Entologi is a private group which was created in 2010 and is led
by Carl Krajewski and Neville Buckley. Its mission is to provide
world-class engineering technology solutions. Its businesses serve
a diverse range of market segments from industry, life science,
pharmaceuticals and aerospace to entertainment. Entologi believes
that engineering has long been treated as an unimportant market
with innovation often being surrendered cheaply for short-term
gain. Entologi was established to harness this innovation and
inspiration and to develop long-term businesses and strategies
based on cutting edge technologies. Entologi believes that the
acquisition of Life Science will allow it to expand its offering
and leverage synergies between its group companies to provide
economies of scale, greater innovation, accelerated development and
help secure group business growth internationally.
The Directors consider that the Disposal will provide the
Company with the opportunity to pursue other investments but with a
very much lower overhead base.
3. Summary and effects of the Disposal
The Company and Thurnall have entered into an agreement to sell
the entire issued share capital of Life Science conditional on
Shareholder approval which is to be sought at the General Meeting.
Life Science, as the result of recent re-organisations, includes
the Flexible Systems Business, the Thurnall Business and also
certain employees of the Company. The Group's investment in Hatch
has also been transferred into a new subsidiary of Life Science
which has been formed for this purpose. Flexible Systems, as a
legal entity, is being retained by the Group and will continue to
pursue the Former Customer Litigation, which does not form part of
the Disposal.
The consideration payable by Entologi for Life Science is
GBP600,000 in cash on Completion. The Disposal comprises all of the
assets and liabilities of Life Science save for Life Science's net
cash balance (excluding Hatch) of GBP419,245 as of 30 September
2010. Additionally, to the extent Life Science receives R&D tax
credits in respect of any financial periods up to 31 December 2009,
the Group is entitled to any cash receipts relating to those tax
credits if and when they are received up to a maximum of
GBP250,000. In addition the Group will retain all tax losses
relating to Flexible Systems, including any R&D tax credits,
and has been advised that it can use such losses to offset any
income resulting from the Former Customer Litigation.
The Life Science net assets after the re-organisations which are
being sold as part of the Disposal are estimated by the Group in
the relevant management accounts of the Group to amount to
approximately GBP105,000 as at 30 September 2010. Provided that
Completion occurs any change in the financial position of Life
Science, including the benefit of any trading profits or the cost
of any trading losses from 1 October 2010 until Completion, will be
for the account of Entologi.
The lease of the Company's premises in Irlam, which are occupied
by Life Science, will be assigned to Entologi, conditional upon
passing the Resolutions. The lease, which expires on 22 December
2019 has no breaks and a current annual rental cost of GBP231,800
with associated annual rates and utilities costs of approximately
GBP203,000 per annum. The premises are not fully utilised by the
Group even after taking into consideration the parts of the site
which have been sublet on a short-term lease for total annual
income of GBP167,800. Upon Completion RTS will be released from all
further liabilities, as guarantor or otherwise, relating to the
lease.
The interim results of the Group to 30 June 2010 represent the
trading results of Life Science, save for payments received
relating to the Doerfer Loan Notes, amounting to GBP159,000 in the
six months to 30 June 2010, the costs of RTS' head office function
and the costs of the Former Customer Litigation and which will not
be transferred with Life Science.
The effect of the Disposal will be that the Company will have
disposed of all of its trading businesses and will become an
Investing Company for the purposes of the AIM Rules and the Note on
Investing Companies. The Ordinary Shares will continue to be traded
on AIM, but the Company will have to make an acquisition or
acquisitions which constitute a reverse takeover under Rule 14 of
the AIM Rules or otherwise implement its Investing Policy within
twelve months of Completion. If it does not do so, then its
Ordinary Shares may be suspended from trading on AIM or its
quotation may be cancelled.
4. Current trading and prospects
Following Completion, the Company will have the following
sources of income:
-- Any amounts received in settlement of the Former Customer
Litigation, net of costs
-- Interest and fees relating to and repayment of the Doerfer
Loan Notes (which would give rise to a reversal of the provision
equivalent to the amount of capital so received)
-- Repayment of R & D tax credits
-- Investment income
The Board does not propose to distribute the proceeds of the
Disposal to Shareholders but the net proceeds of the Disposal will
be used to carry out the Investing Policy, to pursue the Former
Customer Litigation and to pay the reduced overhead costs of the
Company.
Trading
There has been no change to the expectations of the Board in
relation to the operations of the Group since the announcement of
the Interim Report on 14 September 2010 save that, after 30
September 2010 and assuming Completion occurs, there will be no
further benefit from trading.
Former Customer Litigation
Flexible Systems has been pursuing a claim for unpaid fees
following a dispute with a former customer which arose in November
2005. Legal proceedings were issued by Flexible Systems in June
2007 and the case has been to the Supreme Court on a preliminary
issue. In July 2010, a costs award was granted to Flexible Systems
in relation to the preliminary issue, but the former customer
continues to defend the claim. A final determination in the case is
not likely to be made before Autumn 2011.
Doerfer Loan Note
In 2004 the Company sold the trade and certain assets and
liabilities of RTS Wright Industries LLC to Doerfer. Part of the
consideration for the sale was the issue of the Doerfer Loan Notes.
In May 2010, the Group entered into a revised four year agreement
with Doerfer, which reduced the face value from $7.6m to $3.8m,
provided that Doerfer complied with a new repayment schedule. The
Company has received GBP159,000 in repayments in the first six
months of 2010. The Company fully provided in its accounts against
the Doerfer Loan Notes in 2008.
R&D tax credits
The Group is entitled, under the Sale Agreement, to up to
GBP250,000 in respect of cash receipts relating to R&D tax
credits for financial periods of Life Science up to 31 December
2009. Life Science has R&D tax credit claims worth GBP374,528
in respect of the year ended 31 December 2006. This claim (and a
claim worth GBP27,632 for Flexible Systems for the same period)
have been disallowed by HMRC on the basis that they relate to a
financial period during which both companies first became SMEs.
HMRC's treatment of the 2006 claims is currently being considered
by the arbitrators office and it is not certain if this will lead
to HMRC's position being reversed. In addition Flexible Systems
currently intends to submit claims worth approximately GBP180,000
in respect of the financial periods commencing after 31 December
2006.
5. Future intentions and Investing Policy
On Completion the Group will have disposed of all of its trading
businesses. AIM Rule 15 states that where the effect of a proposed
disposal is to divest an AIM company of all, or substantially all,
of its trading business activities or assets that company will,
upon completion of the disposal, be treated as an Investing Company
and it must provide its shareholders with details of its future
investing policy and seek the approval of the investing policy at a
general meeting.
Under the Sale Agreement the Company is required to change its
name following Completion. The Board therefore proposes to rename
the Company Hephaestus Holdings PLC. This change in name also will
require Shareholders' approval at the General Meeting. Hephaestus
was the Greek God of technology and the Board therefore considers
this an appropriate name to reflect the Company's proposed future
activities.
The Company intends henceforth to pursue a dual strategy
consisting of (a) maximising the value and realising the various
legacy financial assets (the "Financial Strategy") and (b)
executing a focused investment strategy in the engineering and
industrial technology sectors in which the Board has a deep-rooted
experience (the "Investing Policy").
The Board will regularly assess the success of the Financial
Strategy in order to allocate the Company's net cash between the
requirements of its Investing Policy and its availability for
distribution to Shareholders.
For so long as the Company remains an Investing Company it will
do so on the basis of the Investing Policy.
Financial Strategy
The Directors estimate that, on the basis that the Disposal had
been completed on 30 September 2010, the Group's pro forma net cash
balance at that date (after provision for costs but ignoring
receipts from any R&D tax credits) was approximately GBP2.0m
which equates to approximately 3.2p per share.
It was noted in the Company's 2010 Interim Report, that the
Company has successfully restructured the Doerfer Loan Notes. The
Doerfer Loan Notes with a face value currently of $3.6m (GBP2.3m or
3.65p per share), are now performing and being repaid according to
an agreed repayment schedule running until 2014, but the Board
believes that it remains prudent to continue to carry them at nil
value in the Company's balance sheet. The Company is in close
contact with Doerfer and continues to discuss other forms and
methods of co-operation.
The Company will continue to seek to maximise the recovery of
contingent financial assets and to minimise and progressively
eliminate its contingent liabilities.
Investing Policy
The Board believes that the engineering and industrial
technology sector is held in low regard, particularly in the UK,
which the Board believes affords potential for value creation
through a clearly defined, focused investment strategy in the
sector.
The Company will therefore seek to acquire industrial businesses
with defensible technologies and sustainable competitive advantage.
Where possible, it will harness operational and strategic synergies
between separate companies.
The Company intends to follow an active portfolio strategy with
regard to its eventual investments. The Company will draw on the
deep expertise of the Directors in engineering and industrial
technology in order to differentiate it from pure financial
investors, but will benefit from the application of the same
financial disciplines.
The Group possesses significant unrelieved capital losses in the
UK of approximately GBP42.6m which it is anticipated will be
available to offset against future capital gains in the UK. The
Group also has other tax losses in the US and Finland which could
over time be made available to offset taxes in those jurisdictions.
The Investing Policy will not, however, be directed by the
Company's tax losses.
Certain Directors have begun a process of evaluating various
sub-segments of the market and preliminary discussions are at
various stages with a number of possible targets.
The Company will provide an update on its investing activities
at the same time as it publishes its annual results for the year
ending 31 December 2010 and as otherwise required by the AIM Rules.
The Company has no current plans to publish any regular estimates
of net asset value or updates on its investments.
6. Board changes
The Board currently comprises four directors, Chris Brown
(Chairman), Chris Heminway (non executive), Gary Walsh (Chief
Executive) and Jon Sharrock (Finance Director). On Completion, Gary
Walsh, who will continue to be the managing director of Life
Science, will join Entologi as a director and will resign as a
Director of RTS and as an employee of the Company.
On Completion the Company will become an Investing Company and
the Board does not consider that the Company will require the
services of a full time finance director. Jon Sharrock has stated
that he intends to resign from the Company to pursue other
professional opportunities. However, to facilitate the transition
Jon will remain with the Company on a part-time basis for a period
until the Board has confirmed its financial management
requirements, but will leave not later than 31 December 2010.
7. Irrevocable undertakings
All of the Directors who hold Shares and Industrial Technology
Investments Limited, whose interests are represented by Chris
Heminway, have irrevocably undertaken to vote (or to procure that
the relevant votes are cast) in respect of their holdings and those
of their immediate families and connected persons in favour of the
Resolutions being proposed at the General Meeting amounting to
18,141,687 Ordinary Shares representing 29.1 percent of the current
issued ordinary share capital of the Company.
8. General Meeting
Completion of the Proposals is conditional upon Shareholders'
approval of the Resolutions being obtained at the General Meeting.
Accordingly, the General Meeting has been convened to be held at
the offices of Cobbetts LLP, 58 Mosley Street, Manchester M2 3HZ,
at 10.00 am on 5 November 2010, at which three resolutions will be
proposed to Shareholders: (1) to approve the disposal of Life
Science pursuant to the terms and subject to the conditions of the
Sale Agreement; (2) to approve the Investing Policy for the
purposes of Rule 15 of the AIM Rules; and (3) to approve the change
of the Company's name to Hephaestus Holdings PLC. Resolutions (1)
and (2) will be proposed as ordinary resolutions and resolution (3)
will be proposed as a special resolution.
Definitions
The following definitions apply throughout this document unless
the context otherwise requires:
"AIM" the AIM market operated by the London
Stock Exchange
"AIM Rules" the AIM rules for Companies and the AIM
rules for Nominated Advisers published
by the London Stock Exchange from time
to time
"Company" or "RTS" Robotic Technology Systems PLC
"Completion" the completion of the Disposal
"Demerger" the demerger of the Nuclear Services
Division from the Company in May 2006
"Doerfer" Doerfer Industries Inc.
"Doerfer Loan Notes" the $3.8m 10 percent loan notes issued
by Doerfer which are repayable on or
before 10 May 2014 and are owned by the
Group as at the date of this document
"Directors" or "Board" the directors of the Company or any
duly authorised committee thereof from
time to time
"Disposal" the conditional sale of Life Science
(which now incorporates the Flexible
Systems Business and the Thurnall
Business and the investment by the Group
in Hatch) and the assignment of the
lease of the Company's premises in Irlam
to Entologi.
"Entologi" or "Purchaser" Entologi Limited being the purchaser
of Life Science
"Flexible Systems" RTS Flexible Systems Limited, a
subsidiary of RTS
"Flexible Systems the trade and certain assets of Flexible
Business" Systems which were transferred to Life
Science with effect from 30 September
2010.
"Former Customer Litigation" a claim being pursued by the Company
following a dispute with a former
customer of Flexible Systems
"General Meeting" the general meeting of the Company
convened at 10.00 am on 5 November
2010, and any adjournment thereof,
notice of which is set out at the end
of this document, which is being held
to approve the Resolutions
"Group" the Company, its existing subsidiaries
and subsidiary undertakings
"Hatch" RTS Life Science LLC formerly Hatch
Science LLC, a subsidiary of the
Company.
"HMRC" H.M. Revenue & Customs
"Investing Company" has the meaning given in the glossary
to the AIM Rules for Companies
"Investing Policy" the proposed investing strategy of
the Company to be undertaken following
Completion, further details of which
are set out in Part I of this document
"Irrevocable Undertakings" the irrevocable undertakings entered
into by Industrial Technology
Investments Limited and certain of the
Directors in respect of 18,141,687
Ordinary Shares representing 29.1
percent of the current issued ordinary
share capital of the Company to vote in
favour of the Resolutions to be proposed
at the General Meeting
"Issued Share Capital" the total issued share capital of the
Company comprising 62,335,374 Ordinary
Shares
"Life Science" RTS Life Science Limited, a subsidiary
of the Company
"London Stock Exchange" London Stock Exchange plc
"Official List" the Official List of the United Kingdom
Listing Authority
"Ordinary Shares" any or all of the 62,335,374 Ordinary
Shares of 1 pence each in the capital
of the Company in issue at the date
of this document
"Proposals" the proposals set out in this document
relating to the Disposal, Investing
Policy and change of name of the
Company
"Resolutions" the resolutions to be proposed at the
General Meeting to approve the
Proposals
"Shareholders" holders of Ordinary Shares
"Sale Agreement" the conditional sale and purchase
agreement dated 20 October 2010 made by
(1) Entologi, (2) Thurnall and (3) the
Company relating to the disposal by the
Group of Life Science
"Thurnall" RTS Thurnall (Holdings) Plc, a
subsidiary of the Company and the
intermediate holding company of Life
Science and Flexible Systems
"Thurnall Business" the trade and certain assets of Thurnall
which were transferred to Life Science
with effect from 30 September 2010
"United Kingdom" the United Kingdom of Great Britain
or "UK" and Northern Ireland
"United Kingdom Listing the Financial Services Authority, acting
Authority" in its capacity as the competent
authority for the purposes of Part VI of
the Financial Services and Markets Act
2000 as amended
"United States" the United States of America, each State
or "US" thereof, its territories and possessions
(including the District of Columbia) and
all other areas subject to its
jurisdiction
-Ends-
For further information please contact:
Robotic Technology Supply PLC
Chris Brown, Chairman
Jon Sharrock, Finance Director 0161 777 2000
www.rts-group.com
Collins Stewart Europe Limited - Nominated
Adviser
Stewart Wallace 020 7523 8350
Cattaneo LLP - Financial Adviser
Charles Cattaneo 0121 616 0395
Jonathan Hall
www.cattaneo.co.uk
This information is provided by RNS
The company news service from the London Stock Exchange
END
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