Disposal of Promotional Marketing Division

RNS Number : 9526I

Altitude Group PLC

23 June 2011

 



23 June 2011

Altitude Group plc

("Altitude" or the "Company" or the "Group")

Disposal of Promotional Marketing Division (the "Disposal")

and

Notice of General Meeting

Altitude (AIM: ALT), the promotional merchandise and marketing solutions group, announces that it has entered into a conditional sale and purchase agreement (the "Sale and Purchase Agreement") to dispose of the Promotional Products Division (the "PPD") to Stridage Holdings Limited ("Stridage"), which is a new company established to effect the purchase and which is partly owned by certain members of the management teams of these businesses. The Consideration for the PPD is £6.27m (subject to a net asset adjustment at completion). 

Further details of the Disposal and the terms of the Sale and Purchase Agreement, including details of the Consideration, are set out below under the heading "Principal Terms of the Disposal".

As, inter alia, the Promotional Products Division accounted for approximately 84 per cent. of the Group's revenues in the year ended 31 December 2010, the Disposal constitutes a fundamental change of business under Rule 15 of the AIM Rules and is therefore conditional on the approval of shareholders. 

Accordingly, a circular is being sent to shareholders later today giving details of the Disposal and convening a general meeting at which the necessary resolution will be put to shareholders. The general meeting has been convened for 10:00 a.m on 12 July 2011.

In addition, as the Disposal is to a company part owned by Stuart Ross, who is a director of a subsidiary of the Group, it also constitutes a related party transaction under the AIM Rules.

Principal Terms of the Disposal

Pursuant to the Sale and Purchase Agreement between the Company and Stridage, Stridage has conditionally, inter alia, on shareholder approval of the Disposal, agreed to acquire Dowlis and AdProducts (which constitute the PPD). The shareholders of Stridage are Stuart Ross, David Lynn and George Goodfellow, who are members of the senior management of these companies, and Richard Sowerby.

The Consideration payable under the Sale and Purchase Agreement is £6.27 million, payable as follows:

·     Cash consideration of £721,043 (subject to a net asset value adjustment at completion);

·     Repayment of amounts due to the Company from Dowlis and AdProducts which are estimated in to be in aggregate £1,547,352; and

·     The issue of secured 2016 Loan Notes, of £4,000,000 (annual interest of the higher of 8 per cent. and two per cent. above base rate, payable monthly).

Reasons for the Disposal

Altitude has two related divisions: the Promotional Products Division ("PPD") and the Information and Technology Division ("ITD").

The PPD (which consists principally of AdProducts.com, Ross Promotional, Dowlis Corporate Solutions and Non Stop Promotions) is one of the UK's leading collectives of suppliers and distributors of promotional merchandise to corporate and trade customers. The PPD reflects the Group's origins and has historically accounted for the bulk of its revenues and profits.  

The PPD has grown both organically and by acquisition. Lower revenues in the period between 2007 and 2009 were as a result of a reduction in spending by key customers particularly in the automotive and banking sectors. The management team in the PPD have since returned the division to growth and have significantly improved profitability.

The ITD began some years ago when the Company saw an opportunity to develop a fully integrated eCommerce, CRM and ERP technology solution which would provide innovative software to suppliers and distributors operating in the promotional merchandise industry and, in particular, deliver a complete front end package enabling distributors to start and run their own promotional products business. 

The promotional products industry operates in a highly structured way. It is unusual for providers of services, such as technology, to distributors or suppliers to, in effect, be in competition with their customers through operating themselves as distributors or suppliers. The Board believes that by focussing on the ITD it will maximise the opportunities for ITD on a global basis, and that a structure free of potential conflict with customers will be more likely to deliver long term growth.

It has taken a number of years for the ITD to fully develop the software and customer interface; originally server-based, the software is now also offered as a SaaS Model (Software as a Service). It provides a single integrated software solution, which enables promotional products distributors to provide quotations and virtual samples to potential customers, process and track orders from start to finish, provides instant reporting ability and helps with account management. The integrated product data suite provides users with immediate access to the best promotional products merchandise suppliers in the industry. In addition, the software offers accounting and ancillary support functions.

The Information and Technology Division

The product, which is well established in the UK, trades under the brand names of Trade Only and PromoServe. The Group began exploring the opportunity for expansion into the US market in 2008, a market which currently contains over 21,000 distributors and 3,500 suppliers. In November 2010 the Group agreed to terms with Boston-based iPROMOTEu, whereby iPROMOTEu would implement Trade Only's software with its affiliates of which there are almost 600. The Trade Only VISION software, as it is now known in the USA, was officially launched in January 2011 at the PPAI (Promotional Products Association International) Expo in Las Vegas with an encouraging response.

For the standard end-to-end solution, independent distributors pay a monthly fee of between $99 and $199 per month, dependent on the number of users and functionality. This gives good revenue visibility and customer "stickiness" as customers for integrated order management solutions will tend to be loyal over a long period of time, a trend that has been recognised in the Group's UK business. Since entering the US market, the Trade Only team has attended various Trade Shows around the USA including PPAI and Promotions East.

In view of the size of the market opportunity and the positive feedback already received from potential customers in the US, the Board and senior management have increasingly focused their efforts on the ITD.  Furthermore, given the management and financial resources available to the Group, the much higher growth potential and returns available from this Division, and the possibility of a perceived conflict between the PPD and the ITD, the Board took the view earlier this year that a split of the business should be considered. Accordingly, the Company informally solicited offers for the PPD. Certain members of the management teams of these businesses indicated an interest in acquiring them at a price which, in the view of the Board, is attractive from the perspective of the Group and its shareholders.

In the year ended 31 December 2010, the PPD had sales of £15.6m, pre-exceptionals operating profit of £0.9m, and post-exceptionals operating profit of £0.6m. The average number of PPD employees in the year ended 31 December 2010 was 103.  As at 31 December 2010 the value of the net assets being sold was £4.7m.

In the same period, the ITD had sales of £2.9m, on which it made an operating profit (before exceptionals) of £0.7m.  The average number of ITD employees in the same period was 24. 

The Disposal will realise approximately £2.2m of cash for the Group and, in due course, £4m from the repayment of the Loan Notes. The proceeds of the Disposal will enable the Group to invest in, and thus accelerate, the development of the ITD, particularly in the USA.

Recommendation

The Directors unanimously recommend Shareholders to vote in favour of the Resolution as they intend to do in respect of their aggregate holdings of 11,645,559 Ordinary Shares, representing 27.7 per cent. of the issued share capital of the Company. In addition, the Company has received an irrevocable undertaking from Keith Willis, a former director of the Company, to vote in favour of the Resolution in respect of his holding of 9,940,275 Ordinary Shares, representing 23.7 per cent. of the issued share capital of the Company.

Under the AIM Rules, as the Disposal is to a company part-owned by Stuart Ross, who is a director of a Group subsidiary, it constitutes a related party transaction for the purposes of Rule 13 of the AIM Rules. The Directors, having consulted with Merchant Securities, consider the terms of the Disposal to be fair and reasonable insofar as the Company's shareholders are concerned. 

A copy of the Company's Report and Accounts for the year ended 31 December 2010 is available on the Company's website at www.altitudeplc.com. A copy of the circular will also be on the Company's website in due course.

Contact:

Altitude Group plc

Colin Cooke (Chairman)                               Tel: + 44 (0) 870 224 6677

Martin Varley (Chief Executive)                UK Tel: + 44 (0) 7912 599 012

                                                                                US Tel: [phone]

 Merchant Securities

 Lindsay Mair/Simon Clements                  Tel: [phone]

Walbrook

Bob Huxford (Media Enquiries)                 Tel: [phone]

Paul Cornelius (Investor Enquiries)         Tel: [phone]

 

END

 

 

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