FST.L Regulatory News (FST)

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5 July 2019

Frontier Smart Technologies Group Ltd ("Frontier" or the "Company")

Further Response to Science Group Offer and update on third party discussions

The Board of Frontier notes recent announcements by Science Group plc ("Science Group"), relating to its firm intention to make a cash offer (the "Firm Offer Announcement") for the issued and to be issued share capital of Frontier at a price of 35p per share (the "Science Group Offer") and subsequent posting of the offer document (the "Offer Document"), and provides the following update to the Company's shareholders (the "Shareholders").

As confirmed in its announcement of 14 June 2019, the Company has received an approach from a credible industry player regarding a potential corporate transaction. Discussions are ongoing with a view to agreeing a transaction framework and there is clear evidence of buy-in to the concept at a commercial level on both sides. However, it is also now clear that there is no meaningful prospect of agreeing Heads of Terms, less still entering into a definitive legal agreement, prior to the closing date of the Science Group Offer of 16 July 2019.

The proposed transaction structure now under discussion with the industry player is a strategic investment by way of a joint venture into which Frontier would roll certain of its smart software assets. Accordingly, the Board of Frontier now considers it unlikely that the discussions will result in an offer for the Company.

The exact structure and ownership of the joint venture, including the assets to be transferred into it, remains subject to negotiation; as does the implied valuation and capitalisation of the joint venture. The establishment of a joint venture arrangement as contemplated may or may not require Shareholder approval.

The Frontier Board is fully cognisant that Science Group has publicly stated that it will not support any proposals made in respect of Frontier by any alternative bidder. However, Science Group's stated opposition does not absolutely preclude delivery of an alternative transaction for so long as Science Group does not control more than 50% of the voting rights in Frontier. Furthermore, the transaction now under discussion is not directly comparable with the Offer and, in the opinion of the Frontier Board, if negotiations were to be successfully concluded, presents the prospect of material incremental potential value for Frontier, its Shareholders (including Science Group) and other stakeholders.

The potential, but uncertain, prospect of material incremental value arising from the ongoing joint venture discussions means that the Board of Frontier is unable at this time to express any opinion on the merits of the Science Group Offer. The Frontier Board's intention is to seek to open collaborative discussions with Science Group and its advisers with a view to agreeing a route forward which preserves the potential value upside for all current Frontier Shareholders. Accordingly, the Frontier Board strongly recommends that Shareholders neither accept the Science Group offer nor sell any Frontier shares via the Panmure Gordon dealing facility until such time as the board of Frontier has had an opportunity to consult with Science Group in relation to these latest developments.

A further announcement will be made as and when appropriate and in any event prior to the Closing Date of the Science Group Offer of 16 July 2019.

In the meantime, in light of certain comments made by Science Group in the Firm Offer Announcement and the Offer Document, the Company makes the following statements in respect of Frontier's performance and financial position.

Frontier's business has historically been seasonal, with the financial year traditionally showing a weaker first half and a much stronger H2. On 20 March 2019 Frontier announced its annual results for FY18, reporting $41.8 million of total revenues; $24.8 million, or c.60% of which were recorded in the second half of the financial year. At the FY18 trading EBITDA level this seasonal swing was more pronounced; the Company having reported a $2.9 million EBITDA profit in H2 compared with an H1 loss of $(2.1) million. The Board of Frontier draws shareholders' attention to the trading update of 9 May 2019 where guidance was provided to the market on trading for the first half and full year (trading EBITDA loss of $(2.2)m and not worse than $(1.5)m respectively). The Board sees no need to change that guidance at the current time and expects to be in a position to release a trading update statement in respect of the first half of the financial year during the week commencing 22 July 2019. In the meantime, the Frontier Directors are pleased to report that the Company's cash position has improved since the most recent trading update statement of 9 May 2019. At 30 June 2019, the gross cash balance is expected to exceed $3.5m (representing net debt of $2.8m).

Furthermore, for the avoidance of doubt, the Frontier Board provides the following confirmations in respect of its banking facilities.

- Frontier expects to be fully compliant with the covenants under the RCF arranged with Clydesdale Bank at the most recent test date of 30 June 2019; and

- On the basis of current and near term forecast trading activity, the Board of Frontier anticipates remaining fully compliant with those covenants at the next test date of 30 September.

Finally, by way of further clarification, the Frontier Board confirms that there have been no increases in Executive Directors' emoluments since the Frontier announcement of 20 May 2019 and no deal-related bonuses will become payable to any Director of Frontier in the event of a change of control of the Company. The Executive Directors of Frontier are however contractually entitled to annual bonuses under the terms of their employment contracts with Frontier, both individual entitlements and the quantum of any payments to be determined by the Remuneration Committee.

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About Frontier Smart Technologies Group Limited

Frontier Smart Technologies is a pioneer in technologies for Digital Radio and Smart IoT devices. The Group's customers include many leading consumer audio brands: Bose, Denon, harman/kardon, JBL, Onkyo, Panasonic, Sony, Yamaha, Altec Lansing, Blaupunkt, Grundig, Hama, Klipsch, Marshall, Pioneer, Pure, Roberts, TechniSat, Teufel and many more. Established in 2001, the Group is headquartered in London, with engineering, sales and operations teams in Cambridge, Timisoara (Romania), Hong Kong and Shenzhen. For more information, see frontiersmart.com.