Carclo Regulatory News (CAR)

25 Apr 2006 07:03

Carclo plc25 April 2006 For immediate release 25th April 2006 Carclo plc ("Carclo") Proposed disposal of the business and operating assets of CTP Gills CablesLimited and 50 per cent. shareholding in CTP Suprajit Automotive Private Limited Carclo is pleased to announce that it has today reached conditional agreementsto sell the business and operating assets of CTP Gills Cables Limited ("Gills")and to sell its 50 per cent shareholding in CTP Suprajit Automotive Ltd ("CTPSuprajit") to Suprajit Engineering Ltd ("SEL"). SEL is the 50/50 joint venture partner of Carclo in respect of CTP Suprajit and,accordingly, the disposal is a related party transaction for Carclo under theListing Rules. Completion is, therefore, subject to approval by shareholders. Acircular convening the relevant shareholder meeting and providing furtherdetails of the disposal will be despatched to shareholders shortly. The aggregate consideration from the sale of the Gills business and the 50%shareholding in Suprajit is expected to be £2.2 million. Of this £2.2 million,£1.4 million is payable on completion (£1.3 million as initial consideration forthe Gills business and £0.1 million as consideration for the sale of shares inCTP Suprajit) which is expected to occur on or around 12 May 2006 and £0.4million is the repayment of a term loan from Carclo to CTP Suprajit. Anadditional deferred payment in the region of £0.4m, due in May 2008, is alsoanticipated based on the performance of the Gills business going forward. In addition, Gills will also retain its freehold property, Packington Hall (lastrevalued in 1999), with a net book value of £0.8 million and its trade debtswhich are estimated to be £1.4 million, which will be realised for cash. Thedisposal is expected to generate a profit net of transaction costs of £1.1million as the combined operating assets of Gills and Carclo's 50 per cent.shareholding in CTP Suprajit are being sold at a premium to the combined netbook value at completion. Furthermore, the continuing restructuring of the Gillscost base will now take place outside the group. Carclo intends to use the proceeds initially to reduce the group's bank debt. Indue course, it is also intended that Carclo will make a payment of up to £1.2million to the Carclo Group pension schemes to accelerate the reduction in theschemes' deficit. Completion of the disposal will be conditional on the satisfactory conclusion ofthe UK employee consultation process as well as being conditional on shareholderapproval. Commenting on the disposal Ian Williamson, Carclo Chief Executive, said: "The agreements announced today are not only in the best interests of the Gillsbusiness, CTP Suprajit and Carclo but they also enable us to focus our attentionmore closely on our quality Technical Plastics operations and on the increasingpace of development of Conductive Inkjet Technology (CIT)." Strategy and background to and reasons for the Disposal Since 1997 Carclo has followed a strategy of focusing on its high qualityTechnical Plastics operations, which have expanded through acquisitions in theUK and USA and the development of operations in low cost regions. More recently,Carclo's primary focus has been on growing its specialist medical moulding andoptical component businesses as well as expanding its general mouldingbusinesses in the Czech Republic and China. Carclo has also prioritised thecommercialisation of Conductive Inkjet Technology and the development of othertechnologies and proprietary know how. In conjunction with this strategy, Carclohas sought to dispose of non-core businesses. In 2004, in response to increased pricing pressure in the automotive industry,Carclo entered into discussions with SEL to develop an Indian control cablemanufacturing operation, which would provide a low cost manufacturing base tosupport Carclo's UK automotive cables operation, Gills. On 1 December 2004Carclo entered into a joint venture agreement with SEL and the joint venture wasestablished through the creation of a new Indian company, CTP Suprajit. CTPSuprajit commenced the production of control cables at its Bangalore facility inApril 2006. The outsourcing of control cable manufacture to India should enable Gills tobecome a more competitive supplier to the major car manufacturers across Europe.However, the success of this strategy will depend on CTP Suprajit winningsignificant new contracts and on the effective restructuring of Gills in the UKto become a sales & marketing and design & technology operation. The Board has believed for some time that it is in the best interest of theGills business, CTP Suprajit and Carclo if the restructuring of the businessestakes place outside the Carclo Group allowing Carclo to focus on its coreactivities. SEL is a world-class supplier of automotive cables and both Gills and CTPSuprajit fit well with its existing business and its strategy to gain marketshare globally using a competitive cost base. Having received an offer for Gillsand its 50 per cent. shareholding in CTP Suprajit from SEL, which appropriatelyreflects the value of the businesses, the Board has concluded that it shouldpursue the disposal. Information on Gills and CTP Suprajit GillsGills manufactures control cables at its Packington Hall facility near Tamworth,but in recent years has been actively pursuing a strategy of outsourcingmanufacture to lower cost regions, including to SEL. For the year ended 31 March 2005, Gills reported sales of £11.0 million and aloss before tax of £101,400. For the six months ended 30 September 2005, Gillsreported sales of £4.1 million and a loss before tax of £114,351. As at 30September 2005, the net asset value and the gross asset value of the assets ofGills, which are subject to the disposal, amounted to approximately £584,000 and£1,818,000 respectively. CTP SuprajitCTP Suprajit was incorporated on 21 December 2004 and is located in Bangalore inKarnataka State in India. The company is not yet fully operational. No income orcosts were recognised in the profit and loss account for the period fromincorporation to 30 September 2005. As at 30 September 2005, the net assets ofCTP Suprajit were approximately £257,000 (Rupees 20 million) and the grossassets were approximately £514,000 (Rupees 40 million). To date, Carclo has invested a total of £523,000 in CTP Suprajit. Of this,£125,000 was invested in the share capital of CTP Suprajit with the remainderinvested through a term loan. Principal terms and conditions of the Disposal Under the Sale and Purchase Agreements, Carclo will sell (or procure the saleof) the business and operating assets of Gills and, conditional on thecompletion of the Business Sale and Purchase Agreement, its 50 per cent.shareholding in CTP Suprajit to SEL for a maximum total cash consideration of£2.4 million (£2.3 million in respect of Gills and £0.1 million in respect ofCTP Suprajit). A further £0.4 million will be received as repayment of a loanfrom Carclo to CTP Suprajit. The maximum aggregate amount payable under the Saleand Purchase Agreements is therefore £2.8 million. Immediately following thecompletion of the Business Sale and Purchase Agreement, Carclo and SEL shallenter into the Share Sale and Purchase Agreement. These transactions have beenaggregated in accordance with the requirements under the Listing Rules as thetransactions will occur simultaneously and are with the same related party,being SEL. Of the £2.8 million, £1.4 million is payable on completion (£1.3 million asinitial consideration for the Gills business and £0.1 million as considerationfor the sale of shares in CTP Suprajit), which is expected to occur on or around12 May 2006. The remaining £1.4 million is payable as follows: £0.4 millionbeing the repayment of a term loan from Carclo to CTP Suprajit which isrepayable on the approval of the Reserve Bank of India. A further payment (up toa maximum of £1.0 million) will be made on 30 May 2008, being the deferredvariable element to the consideration for the sale of the Gills business,calculated as 50 per cent. of the sum of the earnings before interest, tax anddepreciation of the Gills business less the costs of redundancy of thetransferring employees for the period from completion up to 31 March 2008. Thedirectors expect that, based upon their understanding of the Gills business andthe current business plan for Gills, the actual deferred variable elementreceived will be in the region of £0.4 million. Excluded from the transaction are the following items on the Gills balance sheetat completion; freehold land and buildings, trade debts, bank balances, deferredtax and inter group balances. The freehold property will be retained by Carcloand leased to SEL's new UK subsidiary company with effect from completion for aperiod of 12 months for a peppercorn rent. The trade debts of Gills stated inthe completion balance sheet will be collected on behalf of Gills by SEL's newUK subsidiary company and remitted to Gills subsequent to completion. It isestimated that the trade debts stated in the completion balance sheet willamount to approximately £1.4 million. Upon completion Gills will remain withinthe Carclo group. The unaudited net assets of Gills are estimated to be £2.5 million at 31 March2006. Of this, £0.4 million (in aggregate) of these assets will be transferredto SEL at completion, being the plant and equipment, stock, prepayments andother debtors, and trade and other creditors. The balance of the net assets,which are not subject to the disposal, will be retained by Gills at their netbook value. These unaudited figures have been sourced, without materialadjustment, from the latest management accounts dated 4 March 2006. - Ends- Enquiries:Carclo plc 01924 268040Ian Williamson, Chief ExecutiveRobert Brooksbank, Finance Director Dresdner Kleinwort Wasserstein Limited 020 7623 8000Michael CovingtonRobert Dawson Weber Shandwick Square Mile 020 7067 0700Richard HewsJames White Notes to Editors • Carclo plc is a global supplier of technical plastic components. It is a public company whose shares are quoted on the London Stock Exchange. • 65% of sales are derived from the supply of fine tolerance, injection moulded plastic components, which are used in medical, automotive, telecom and electronics products. This business, Carclo Technical Plastics, operates internationally in a fast growing and dynamic market underpinned by rapid technological development. • 35% of sales are derived from the supply of manufactured systems to the automotive and aerospace industries. • Carclo's strategy is to grow rapidly in low cost manufacturing regions and to develop new technologies and products to underpin future growth. This information is provided by RNS The company news service from the London Stock Exchange