ROL.L Regulatory News (ROL)

RNS

15 June 2023

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT JURISDICTION

Rotala Plc

("Rotala", the "Company" or the "Group")

Posting of Circular in connection with the Proposed Disposals

and

Notice of General Meeting

Rotala (AIM: ROL.L), an operator of bus routes in the UK for businesses, local authorities and the general public, announces that a Circular setting out details of the Proposed Disposals and a Notice of General Meeting will be posted later today to Shareholders.

Highlights

· The Company has agreed conditionally to sell its Bolton Depot to the GMCA, with all its associated fixtures, fittings, plant and machinery. The proposed disposal of the Bolton Depot will also require consents to be obtained from the superior landlord in certain of the property titles before completion can be effected

· The Company has agreed to place 134 vehicles, being the majority of its bus fleet currently based at the Bolton Depot, into a notional asset pool ('RVM') created by TfGM as part of the franchising arrangements

· Subject to Completion, Rotala will receive aggregate cash consideration of approximately £30.4 million for the assets that are subject to the Proposed Disposals. The total unaudited net book value of these assets at their respective dates of sale is estimated to be approximately £23.0 million

A copy of the Circular will be published on the Company's website later today at http://www.rotalaplc.com/our-investors/key-shareholder-documents.html.

This summary should be read in conjunction with the full text of this announcement. Capitalised terms used but not defined in this announcement will have the same meaning given to them in the Circular.

The information communicated in this announcement contains inside information for the purposes of Article 7 of the UK version of the EU Market Abuse Regulation (2014/596) which is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as amended and supplemented from time to time.

About the business

Rotala provides a range of transport solutions, ranging from local bus services under contract to local authorities, through to commercial bus routes. It has operations at Heathrow Airport, in the West Midlands and in the North West. Operating companies are Diamond Bus Ltd, Diamond Bus (North West) Ltd, Diamond Bus (East Midlands) Ltd, Hallmark Connections Ltd and Preston Bus Ltd.

Background to and reasons for the Proposed Disposals

On 23 December 2022, the Company made an announcement that, amongst other matters, addressed business developments in Greater Manchester and the West Midlands, and disclosed that it was in negotiations with the GMCA and TfGM. After 23 December 2022, the Company continued to conduct negotiations with the GMCA and TfGM on various aspects of the impact of the franchising scheme on the business of the Company. These negotiations have been concluded and the final position is presented below.

In March 2021, the Mayor of Greater Manchester exercised his power to suspend the deregulated commercial bus market in the Greater Manchester area through the introduction of a franchising scheme. The first tranche of the scheme is expected to begin operation in late September 2023. In the tender process for this first tranche of the franchising scheme, the Company was not successful in either of its bids for the large franchise areas covering Bolton and Wigan. However, the Company was successful in winning seven out of the nine available small franchise contracts in these areas. These small franchises are for periods of between three and five years.

As a consequence of the award of the franchise contracts for the Bolton and Wigan areas, the Company has agreed conditionally to dispose of the Bolton Depot and the majority of the bus fleet based there in two separate stages, subject to Shareholders' approval. First, the Company has agreed conditionally to sell its Bolton Depot to the GMCA, with all its associated fixtures, fittings, plant and machinery. Secondly, the Company has agreed to place 134 vehicles, being the majority of its bus fleet currently based at the Bolton Depot, into the RVM created by TfGM as part of the franchising arrangements. Under this scheme, TfGM allocates buses in the asset pool to the incoming franchise operators and the successful franchise bidder is obliged to acquire the vehicles allocated to it from the notional asset pool at the value determined by TfGM under the RVM.

The mortgage and HP associated with these assets will be repaid out of the net proceeds of their sale. However, the award of the seven small franchise contracts by TfGM in Bolton, Bury, Farnworth, Leigh and Salford will require the Company to purchase 60 new diesel buses, as specified by the relevant contracts, at a total cost of approximately £11.9 million, which will be financed by new HP debt. Approximately 60 vehicles remaining in the Bolton fleet will be retained within the Group for on-going work.

In the period from Completion to the commencement of the Bolton franchise by the successful franchise operator, the Group will continue to operate from the Bolton Depot and carry out all the bus services which it currently runs from that depot. To facilitate this, the Company has agreed to lease back from the GMCA, at a nominal rent, the Bolton Depot, and all other assets necessary to support the continued operation of bus services from the Bolton Depot until the formal commencement of the Bolton franchise which is expected to be in late September 2023. At that point, the short-term lease with the GMCA will be terminated.

Subject to satisfaction of the Bolton Depot Conditions, the Vehicle Purchase Condition and Completion occurring, the Company will receive aggregate cash consideration of approximately £30.4 million for the assets included within the two disposal stages outlined above. As set out above, the unaudited total net book value of these assets at their respective dates of sale is estimated to be approximately £23.0 million.

As the total consideration receivable for the Proposed Disposals is material compared to the Company's market capitalisation, the Proposed Disposals will be deemed to result in a fundamental change of business pursuant to Rule 15 of the AIM Rules, which requires Shareholders' approval at the General Meeting. This approval needs to be obtained prior to Completion as does the Landlord's Consents.

The Proposed Disposals have been documented by way of two separate agreements: first, the Bolton Depot Purchase Agreement in respect of the disposal of the Bolton Depot; and, secondly, the Vehicle Purchase Agreement in respect of the disposal of the related vehicles. Brief summaries of both agreements are set out below.

The proposed disposal of the Bolton Depot will also require Landlord's Consents to be obtained, before Completion can be effected. Further details are provided in the summary of the Bolton Depot Purchase Agreement set out below.

Summary of the Bolton Depot Purchase Agreement 

On 31 May 2023, Hallbridge Way Property Limited, a subsidiary of the Company, entered into a conditional sale and purchase agreement with the GMCA for the sale of the Bolton Depot for a total consideration of £12.1 million payable in cash on completion of the agreement.

The Company's wholly owned subsidiary, Diamond Bus, is also a party to the contract because Diamond Bus owns the chattels at the Bolton Depot which are being sold at the same time to the GMCA for £0.6 million, payable in cash. The aggregate cash consideration being paid by the GMCA for the Bolton Depot and the chattels is therefore £12.7 million. The GMCA has also agreed to pay the Group's professional costs.

The Bolton Depot Purchase Agreement is conditional on: (1) obtaining Shareholders' approval in respect of the Resolutions to be proposed at the General Meeting; and (2) obtaining the Landlord's Consents (together the "Bolton Depot Conditions").

The Landlord's Consents as required by the second Bolton Depot Condition have been agreed in principle between the parties, and documents are in circulation for signature. The long stop date for satisfaction of the Bolton Depot Conditions is 1 December 2023; if the Bolton Depot Conditions have not been satisfied by that date, either party is entitled to terminate the Bolton Depot Purchase Agreement.

Completion is expected to take place no later than five business days after the date on which the Bolton Depot Conditions are satisfied.

Immediately following completion of the sale of the Bolton Depot, the GMCA has agreed to grant Hallbridge Way Property Limited a lease back of the Bolton Depot, at a nominal rent, together with all other assets necessary to support the continued operation of the Company's bus service from the Bolton Depot. The lease shall be for a term of seven years with a mutual rolling break after 16 September 2023. Hallbridge Way Property Limited expects the lease to run until the formal commencement of the Bolton franchise, which is expected to occur at the end of September 2023, following which the lease with the GMCA will be terminated in accordance with its terms.

At the end of the lease back period, Hallbridge Way Property Limited and the GMCA must agree (acting reasonably and without delay) an inventory of the non-utilised stock (i.e. the fuel and spare parts) at the Bolton Depot and the value of such stock. The GMCA is to pay to Hallbridge Way Property Limited the agreed cost of the stock within ten business days of the agreement of its cost.

Summary of the Vehicle Purchase Agreement

On 31 May 2023, Diamond Bus entered into a sale and purchase agreement with Go North West Limited (as a purchaser) and TfGM, for the sale of certain assets comprising the Vehicles (being 134 of the buses used in connection with the Bolton Depot), the Tyres, the Associated Assets (being such spares, consumables and other assets associated with the Vehicles) (each as defined therein), for a total consideration being, and calculated, as follows:

1. for the Vehicles, a total sum of £17.7 million;

2. for the Tyres, the amount owed to Diamond Bus' tyre supplier, on 24 September 2023, as notified by it; and

3. for the Associated Assets, the price notified by Diamond Bus to Go North West Limited for those assets, once a stock list has been produced in a period closer to Completion.

The agreement is conditional on obtaining Shareholders' approval by no later than 24 September 2023 (the "Vehicle Purchase Condition"), with completion occurring on 24 September 2023 or in respect of each vehicle such other date prior to 24 September 2023 as may be agreed in writing between the parties, provided in each case that the Vehicle Purchase Condition has been satisfied.

Pursuant to the agreement, Diamond Bus is also to provide some customary warranties to TfGM, including in respect of the ownership and condition of the assets being transferred.

The effect of the Proposed Disposals on the debt finance of the Company

The Company's announcement of 23 December 2022 included a table, drawn up on a pro forma basis, of the illustrative effect of the Proposed Disposals on the Company's net debt. This table which is set out below has been updated to reflect the final outcome of the negotiations with TfGM and other recent developments.

In the following table, the audited total net debt of the Company at 30 November 2022 is then adjusted on a pro forma basis to reflect the:

· anticipated receipt of the cash proceeds from the Proposed Disposals;

· application of those proceeds to repay HP debt related to the assets being disposed of;

· entering into of the HP finance arrangements needed to purchase the required bus fleet for the new work in the GMCA area;

· effect of the outcome of the Tender Offer;

· acquisition for £1.9 million of the new Eccles depot as announced on 31 March 2023; and

· remaining balance of the cash receipts taken to the cash line on the balance sheet.

Current trading and prospects

The Board's key assumption for FY2023, as stated in the Company's FY 2022 report and accounts, is that, as passenger numbers continue to recover slowly and steadily, UK Government grants and subsidies will taper off, but that the overall outcome will be a return to normal commercial conditions and sustainable profits at the normalised pre-tax line. In response to inflation in many of the Company's key cost inputs, such as salaries, fuel prices and parts, throughout FY 2022, the Board took active steps to re-align service levels, bus operations and fares onto a footing which would enable the Group to trade successfully for the foreseeable future. This internal work was accompanied externally by close co-operation with all the local authorities in the Group's operating areas, particularly those which have received funding for Bus Service Improvement Plans, to redefine and reshape bus networks in order to take account of the changes, at a detailed route level, in bus usage and travel patterns. To date, in FY 2023, the Company has traded in line with this budget.

General Meeting

Under Rule 15 of the AIM Rules, the Proposed Disposals are conditional on Shareholders' approval. A notice convening the General Meeting (setting out details of the Resolutions which are inter-conditional) which is to be held at the Company's registered office at Cross Quays Business Park, Hallbridge Way, Tividale, Oldbury, West Midlands B69 3HW at 10.00 a.m. on 3 July 2023, is set out at the end in the Circular.

Irrevocable undertakings

As set out above, the Directors have irrevocably undertaken to vote in favour of the Resolutions in respect of their beneficial shareholdings of, in aggregate, 14,840,025 Shares, representing approximately 47.84 per cent. of the Company's issued share capital as follows:

Action to be taken

You will find enclosed with the Circular a Form of Proxy for use at the General Meeting. Regardless of whether you intend to attend the General Meeting, you are requested to complete, sign and return the Form of Proxy, in accordance with the instructions printed thereon, so as to be received by the Company's registrars, Neville Registrars, at Neville House, Steelpark Road, Halesowen, B62 8HD, as soon as possible, and in any event by no later than 10.00 a.m. on 29 June 2023. Completion and return of the Form of Proxy will not preclude you from attending the General Meeting and voting in person should you so wish.

Recommendation

The Board unanimously recommends Shareholders to vote in favour of the Resolutions to be proposed at the General Meeting, as each of the Directors has irrevocably undertaken to do in respect of their own aggregate beneficial holdings of 14,840,025 Shares, representing approximately 47.84 per cent. of the Company's total voting rights.