Armour Group PLC Disposal and Notice of General Meeting (8709B)

TIDMAMR

RNS Number : 8709B

Armour Group PLC

10 March 2014

Armour Group plc ("Armour" or the "Group")

Disposal and Notice of General Meeting

Armour Group plc announces the proposed disposal on a cash free debt free basis of Armour's automotive division, including the Nordic subsidiaries, to AAMP of America for a consideration of GBP10.9 million payable in cash at completion. The sale is conditional upon shareholder approval, for which a Notice of General Meeting, to be held at 12.00 am on 27 March 2014 at the offices of Arnold & Porter (UK) LLP, Tower 42, 25 Old Broad Street, London, EC2N 1HQ, has today been posted to shareholders setting out the details of the transaction.

The consideration of GBP10.9 million represents a multiple of 7.3 times the earnings before interest and tax for the year ended 31 August 2013 for the automotive division and will generate a profit on sale of approximately GBP3.0 million. After costs and repaying the Group's outstanding net debt, the Group will have a net cash position of approximately GBP3.0 million.

The Board believes that the disposal represents a good opportunity for the Group to realise value and create a stronger financial platform from which the Group can move forward and develop. The Board is unanimously recommending to shareholders the approval of the resolution in the circular to proceed with the disposal.

Following the disposal, the Group will continue with its strategy developing organically the operations of Armour Home and Armour Asia, focusing on the core brands, developing their product portfolios and expanding their geographical reach, with the necessary investment where appropriate. In addition to organic development, the Group will seek suitable acquisitions to further grow the Group.

George Dexter, CEO, commented:

"We are pleased to announce the proposed disposal of Armour Automotive to AAMP of America on terms that we believe represents good value to our shareholders. The Group's balance sheet will be substantially strengthened with a net debt position of over GBP7 million becoming a net cash position of approximately GBP3 million as a result of the disposal. Looking forward, the management focus will be on progressing the recovery in Armour Home, continuing to build our business in Asia and looking for new opportunities to further expand the Group. The Board recommends that all shareholders vote in favour of the disposal."

The shareholder circular will be posted on the Group's website, www.armourgroup.uk.com.

Further Details:

 
 Armour Group plc              Tel: [phone] 
  George Dexter, Chief 
  Executive 
  John Harris, Finance 
  Director 
----------------------------  ------------------- 
 finnCap Limited               Tel: [phone] 
  Geoff Nash 
  Ben Thompson 
  Stephen Norcross (Broking) 
----------------------------  ------------------- 
 Newgate Threadneedle          Tel: [phone] 
  Graham Herring 
  Robyn McConnachie 
----------------------------  ------------------- 
 

Letter from the Chairman of Armour Group Plc

Proposed Disposal of the Armour Automotive Division

Notice of General Meeting

Introduction

The Company on 10 March 2014 announced the proposed disposal of the Armour Automotive Division. AAGL has entered into a conditional sale and purchase agreement in respect of the disposal of the Armour Automotive Division to AAMP for a total consideration comprising a payment by AAMP to AAGL of GBP10.9m in cash with an adjustment so that the Armour Automotive Division is transferred on a cash-free debt-free basis and a normal level of working capital. Further details of the Sale and Purchase Agreement are set out in paragraph 3 below.

Completion of the Disposal constitutes a fundamental change of business of the Company under Rule 15 of the AIM Rules. Accordingly, the Disposal is conditional on Shareholder approval and the circular sets out the reasons for and the principal terms of the Disposal.

Background to and reasons for the Disposal

The Group has made significant progress over the past three years as highlighted in the recent annual report. However, despite the progress made and the improving economic outlook, the Group continues to carry a substantial level of debt, which has been holding back the development of the Group. The net debt at 31 August 2013 was GBP7.649m.

The Directors believe that the consideration payable by AAMP for the sale and purchase of the Armour Automotive Division represents a full price generating a profit on Disposal of approximately GBP3m and is a good opportunity for the Group to pay down all of its debt. The inflow of funds will leave the Group with a net cash balance of approximately GBP3m, which in turn will significantly enhance the Group's ability to develop and grow.

Following the Disposal, the Company will retain ownership of Armour Home and Armour Asia, both of which are focused on developing, marketing and selling consumer products for the home entertainment and home office markets in the United Kingdom and overseas.

Terms of the Disposal

AAGL, a wholly owned subsidiary of the Company, is the direct and/or indirect owner (as appropriate) of the entire issued share capital of AAL, Armour Nordic AS, Armour Nordic AB, Cactus Aerials Limited and Continental Technologies & Investments Limited, ownership of which will transfer to AAMP on successful completion of the Disposal. The Directors believe that it will be beneficial for the Company and its shareholders to proceed with the Disposal and, accordingly, AAGL has entered into the Sale and Purchase Agreement.

Given that the Armour Automotive Division in the year ending 31 August 2013 accounted for 45% of the Group's sales and 112% of the Group's EBITDA, the sale of the Armour Automotive Division represents a fundamental change of business for the purposes of Rule 15 of the AIM Rules. Accordingly, the Disposal is conditional on Shareholder approval being obtained at the General Meeting.

The key terms of the Sale and Purchase Agreement are as follows:

-- the consideration comprises a payment on completion of the Disposal by AAMP of GBP10.9m in cash with an adjustment so that the Armour Automotive Division is transferred on a cash-free debt-free basis and subject to normalised working capital, intra-group trading and actual net debt adjustments following agreement of the completion statement;

-- the agreement is conditional on approval of the Disposal by the Shareholders and, if that approval is not obtained by 18 April 2014, the Sale Purchase Agreement will terminate;

-- warranties and indemnities being given by AAGL to AAMP as to the operations of the Armour Automotive Division (which will be limited by disclosures) and covenants from the Ongoing Group to AAMP not to, inter alia, compete with the Armour Automotive Division for a period up to 3 years following Completion shall be included in the Sale and Purchase Agreement;

-- the obligations of AAGL under the Sale and Purchase Agreement are guaranteed by the Company and the obligations of AAMP under the Sale and Purchase Agreement are guaranteed by Audax AAMP Holdings, Inc.; and

-- AAMP has certain rights to terminate the Sale and Purchase Agreement if: (i) there is a material breach of the warranties given by AAGL at the date of the Sale and Purchase Agreement or when given at Completion or a material breach of certain covenants given by AAGL relating to the conduct of the business of the Armour Automotive Division prior to Completion; and (ii) if the Directors change their recommendation.

In addition to the Sale and Purchase Agreement, the parties will, prior to Completion, need to prepare, agree and enter into a number of ancillary agreements and other ancillary documents which are to be delivered on Completion pursuant to the Sale and Purchase Agreement.

Current Trading and Prospects

After five months trading of the new financial year, the Group is profitable on an operating level and sales are up 4% year on year. The core UK retail markets for both the automotive and home divisions have been patchy in terms of demand, with sales of our key brands to our major retail customers performing well. However, as expected sales into the independent retail channel within the UK have been more challenging. In export markets, the Group's sales in both divisions have delivered good year on year growth, with existing customers expanding their business and new markets being opened up. This export sales growth reflects our strategy of broadening the Group's international reach. In Asia, the Group's operation has had a slower start to the new financial year, although it is anticipated that this will be recovered in the second six months.

Looking forward, the Ongoing Group's UK markets are expected to improve, although this improvement will be slow and potentially challenging at times. Internationally, sales are expected to continue to grow at an above average rate.

The Directors acknowledge that for the period immediately following the Disposal to 31 August 2014 the Ongoing Group is unlikely to be profitable at an underlying trading level. The core trading component within the Ongoing Group is Armour Home, which whilst profitable, is still in recovery and is unlikely to be in a position to fully offset the costs of the corporate head office in the period to 31 August 2014. In due course, the Board believes that Armour Home's recovery will be of a sufficient scale to more than cover all the corporate head office costs. However, the Directors recognise that following the Disposal, a review of the cost base will be necessary in order to accelerate the return to profit of the Ongoing Group's underlying trading.

Proposed Strategy Post Disposal

Following the Disposal, the Directors will continue with their strategy to develop the Ongoing Group organically, focusing on the core brands, developing its product portfolios and expanding its geographical reach, with necessary investment where appropriate.

Investment in new product development will continue to be a key part of the growth strategy for the Ongoing Group and over the coming twelve months there are a number of important new product launches scheduled that are expected to deliver incremental growth in both sales and profits.

Alongside new product development, the other fundamental element of the growth strategy for the Ongoing Group is the further expansion of international sales. This will be delivered through the development of new markets and implementing changes in existing markets that accelerate sales growth.

In addition to organic development, the Directors will seek suitable acquisitions that they believe will create shareholder value.

Financial Position of the Company following the Disposal

Following the Disposal the Company will have cash of approximately GBP3m, net of transaction costs in relation to the Disposal of approximately GBP0.35m.

Irrevocable Undertaking

Irrevocable undertakings to vote in favour of the Resolution have been received in respect of 46,532,144 Ordinary Shares representing approximately 47.95 per cent. of the Company's existing ordinary share capital.

Remaining Business of the Company

If the Resolution is passed and the Disposal approved then, following settlement of all costs associated with the Disposal, the Directors estimate that the Company will have total cash available to it of approximately GBP3m. The Ongoing Group will consist of the Armour Home and the Armour Asia which together accounted for GBP17.6m of sales and GBP122,000 of profit from operations (before central costs) in the year to 31 August 2013.

Recommendation

The Directors believe that the Disposal is in the best interests of the Company and would promote the success of the Company for the benefit of its Shareholders as a whole. Accordingly, the Directors unanimously recommend that Shareholders vote in favour of the Resolution to be proposed at the General Meeting as they intend to do so in respect of their own beneficial shareholdings, representing approximately 33.56 per cent. of the Company's existing ordinary share capital.

Yours sincerely,

Bob Morton

Chairman

This information is provided by RNS

The company news service from the London Stock Exchange

END

DISLIFVAVTIAIIS