Progility Regulatory News (PGY)

23 Nov 2005 12:45

ILX Group PLC23 November 2005 ILX Group PLC £2.2million Acquisition and Placing of 825,000 New Ordinary Shares at 100 pence per share ILX Group plc ('ILX'), the AIM quoted vocational education and training company,announces that it has agreed to acquire the entire issued share capital of MountLane Training and Implementation Solutions Ltd ("Mount Lane") for an initialconsideration of £2.2 million plus up to £1.8 million, by way of an earn-out ("the Acquisition"). Mount Lane is a specialist provider of customised training and implementationsolutions and services to the mid and large corporate sectors. It focuses on theprovision of intranet based training and orientation packages. Mount Lane's target market is listed companies and large organisations,typically with an IT infrastructure in excess of 3,000 desktops. It has a bluechip customer base that includes Norwich Union, ABN Amro, Barclays Bank, LloydsTSB, Network Rail and BskyB. Key Points: • Initial consideration of £2.2 million - £0.5 million in cash and£1.7million to be satisfied by the issue of 1.7 million new ordinary shares • Initial consideration represents a multiple of 6.3 times post taxearnings for year end 31 March 2005 • Acquisition expected to be earnings enhancing in the first full year • Up to £1.8 million earn out depending on the achievement of profittargets, payable in July 2006 and July 2007 • Placing of 825,000 New Ordinary Shares at 100 pence per share ("Placing Price") by Charles Stanley & Co Ltd • Placing to raise approximately £600,000 net of expenses - proceedswill be used to fund the acquisition • For the year to 31 March 2005 Mount Lane recorded a profit before taxof £495,000 from turnover of £1.5 million Ken Scott, CEO of ILX Group, said: "We believe that Mount Lane is an excellent acquisition prospect which willcomplement our current activities whilst providing opportunities to offer theGroup's existing services to Mount Lane's clients. "Our strategy has been to build a market leading presence specialising invocational education and training and developed around a basket of high valuebusiness models. Our Interim results show the success of this strategy anddemonstrate that ILX has now gained considerable momentum, both in terms oforganic growth in the expanding PRINCE2 and ITIL markets and through theacquisition and successful integration of Computa-Friendly and Mindscope. Against this background, and with profits and cash being generated, we haveidentified Mount Lane as an excellent acquisition opportunity that will bring anumber of benefits and opportunities to the enlarged Group." For further information, please contact: ILX Group plc Binns & Co PR Ltd Charles Stanley & Co. LimitedKen Scott, Chief Executive Paul McManus Philip DaviesTel: 020 7371 4444 Tel: 020 7153 1485 Tel: 020 7953 2457 Mob: 07980 541 893http://www.ilxgroup.com Description of Mount Lane Mount Lane is a specialist provider of customised training and implementationsolutions and services to the mid and large corporate sectors. It focuses on theprovision of intranet based training and orientation packages. Mount Lane'starget market is listed companies and large organisations, typically with an ITinfrastructure in excess of 3,000 desktops. It services the market eitherdirectly, or through major outsourcing consultancies such as EDS, CSC and ATOSOrigin. It has a blue chip customer base that includes the likes of Norwich Union, ABNAmro, Barclays Bank, Lloyds TSB, Network Rail and BSkyB. Performance Support Tool The Performance Support Tool ("PST") was developed by Mount Lane, which has fullintellectual property rights over the product. The PST is an intranet deliveredend-user orientation and performance support suite aimed at staff migrating fromone existing desktop platform to another. Currently, but not exclusively, theprevailing migration exercise is to Microsoft Windows XP, Microsoft Office XP or2003. The PST is accessed via Internet Explorer and has been designed todeliver end-user orientation, productivity benefits and improved corporatecommunications. Supplementary services offered along with PST include: • Maintenance agreements; • Managed Training Services of the full end-user familiarisation element of the migration project; • Supplemental desk side support for top of the office and key employees; • Extranet hosting of the tool; • Training Consultancy. Mount Lane has a small technical support team that is responsible for developingadditional functionality for PST, writing bespoke content for specific customersand managing internet conformity. The team is also responsible for sourcing andoverseeing project management and training which is undertaken and deliveredthrough established relationships with freelance specialists. Management Andrew White, aged 55, is Managing Director and is responsible for the designand ongoing development of the PST, development of other training solutions andassistance with pre-sale client meetings. Danny Coleman, aged 35, is Commercial Director and is responsible for sales andmarketing, business prospecting and development, pre-sale client meetings andcontractual negotiations. Andrew White and Danny Coleman have entered into new service contracts with theCompany on usual commercial terms. In addition to its employees, the Company uses the services of a range ofspecialist freelance trainers and project managers to assist with the deliveryof its managed training and implementation solutions. Financial Information on Mount Lane Mount Lane's year end is 31 March and set out below is a summary of performancein the two years since its incorporation. Profit & Loss Account 2005 2004 (year to 31 March) £000 £000 Turnover 1,539 702Cost of Sales (843) (313) Gross Profit 696 389Operating Costs (201) (112) Profit before Tax 495 277Taxation (146) (65)Profit after Tax 349 212 Turnover and profits have grown significantly since Mount Lane commencedtrading. Unlike the Company's existing businesses, turnover is not seasonal andit is expected that this will help to reduce the Company's traditional biastowards the second half of the year. Gross profit margin has fluctuated due in part to the mix of services provided,with sales of Mount Lane's PST products carrying a very high margin, and salesof managed training services and training consultancy carrying a much lowermargin. In addition, sales staff have been paid as consultants and their costsincluded in cost of sales; after the acquisition, they will be fully employedand base salaries included in operating costs. Adjusting for directors' remuneration on the basis of the new service contractsto be entered into with ILX following the Acquisition, the profits before taxare reduced to approximately £200,000 for the 12 months ended 31 March 2004 andto £400,000 for the 12 months ended 31 March 2005. Terms of the Acquisition The Initial Consideration of £2.2 million, to be paid at Completion, will besatisfied as to £0.5 million in cash and as to £1.7 million by the issue of 1.7new Ordinary Shares at a value equivalent to the Placing Price (the "Consideration Shares"). The cash element of the Initial Consideration will besettled out of the net proceeds from the Placing. Any Additional Consideration which may become payable will be contingent uponoperating profits of Mount Lane in the years ended 31 March 2006 and 2007reaching certain levels. This Additional Consideration, which is subject to amaximum of £1.8 million, will be paid in two instalments: on or by 31 July 2006,and on or by 31 July 2007. Any Additional Consideration will be satisfied as toat least 15 per cent. in cash and at least 15 per cent. in shares in ILX withthe proportion of the balance at the Company's discretion. The first instalment of the Additional Consideration (capped at a maximum of £1million) will be payable on the basis of five times the excess of Mount Lane'spre tax profits for the year ended 31 March 2006 over £400,000. The second instalment of the Additional Consideration (capped at a maximum of£1.8 million less any amounts that are paid out under the first instalment ofthe Additional Consideration) will be payable on the basis of four times theexcess of Mount Lane's pre tax profits for the year ended 31 March 2007 over£500,000. The Initial Consideration is being paid on the assumption that Mount Lane's netassets at Completion will be £200,000. In the event that the net assets ofMount Lane are either greater or less than £200,000, then there will be anadjustment to the first instalment of the Additional Consideration on a £ for £basis, up to a maximum adjustment of £400,000 which is to be satisfied at theend of July 2006. Background to and Reasons for the Acquisition The Board's strategy for ILX is to build a market leading presence specialisingin vocational education and training and developed around a basket of high valuebusiness models. The Directors expect that this will be achieved through acombination of organic growth and by careful acquisition. In the opinion of the Directors, the results of the Company for the year ended31 March 2005 demonstrated that ILX has now gained considerable momentum, interms of both organic growth in the expanding PRINCE2 and ITIL markets andthrough the acquisition and successful integration of Computa-Friendly andMindscope. Against this background, and with profits and cash being generated, the Boardhas identified Mount Lane as an excellent acquisition opportunity that willbring a number of benefits and opportunities to the Enlarged Group. As explained above, the Company currently targets the Best Practicemethodologies in the sector of vocational business training and the Acquisitionwill enable ILX to offer complementary services in the arena of desktopmigration projects. The Board believes that there will be opportunities toutilise ILX's project management training and IT classroom training capabilitiesas a supplemental service to Mount Lane's desktop orientation tool. In additionthe Board expects there will be further opportunities to exploit the Mount Lanedesktop orientation approach within the Group's existing CBT and e-learningservices. The Directors also intend that Mount Lane will form the foundation of a newdivision within ILX, focusing on Solutions sales. Mount Lane's trading for the 6 months ended 30 September 2005 has deliveredturnover of £581,644 and an operating profit of £120,873. Performance SupportTool orders delivered during the first six months include LLoydsTSB andWincanton Logistics. Currently, the company is in advanced stages of negotiationwith a number of blue chip companies. Additionally, interest is being shown inthe Performance Support Tool within the Public Sector. The Terms of the Placing and Use of Proceeds Charles Stanley has placed 825,000 Ordinary Shares on behalf of the Company,representing a total of 6.96 per cent. of the issued share capital of theCompany, (following the Placing and the issue of the Consideration Shares). ThePlacing is conditional, inter alia, upon Admission. There will be 11,861,940ordinary shares in issue following the Placing and the issue of theConsideration Shares. The Placing has raised £825,000 gross for the Company or approximately £600,000net of the expenses of the Placing and the Acquisition. The proceeds from the Placing will be used to fund the cash element of theInitial Consideration, costs of the Acquisition and Placing and for generalworking capital. Application has been made for the Placing Shares and theConsideration Shares to be admitted to trading on AIM and it is anticipated thatAdmission will become effective and that dealings will commence on 24 November2005. The Placing is not a rights issue or open offer and New Ordinary Shares will notbe offered generally to Shareholders, whether on a pre-emptive basis orotherwise. The Directors believe that the considerable extra cost and delayinvolved in a rights issue or open offer would not be in the best interests ofthe Company in the circumstances. Lock - In Arrangements The Vendors have agreed that for a period of 24 months from Completion, theyshall not dispose of any interest in the Consideration Shares issued to them aspart of the Initial Consideration without the consent of the Company and that,in order to maintain an orderly market, any sales of Ordinary Shares during thisperiod will be carried out only via Charles Stanley, as the Company's Broker.In addition they have undertaken that in respect of any further Ordinary Sharesissued to them as Additional Consideration they will not dispose of any interesttherein for a period of 9 months from their issue and thereafter for a period of3 months any sales will be carried out via Charles Stanley as the Company'sbroker. This information is provided by RNS The company news service from the London Stock Exchange