REG - Croma Sec. Sol. Grp - Proposed Disposal of Vigilant for £6.5 million

Croma Security SolutionsAnnouncement

06/06/2023 07:00

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RNS Number : 7188B  Croma Security Solutions Group PLC  06 June 2023

Croma Security Solutions Group Plc

("CSSG", "Croma", "the "Company" or the "Group")

Proposed Disposal of Vigilant for £6.5 million

 

Croma Security Solutions Group plc (AIM:CSSG) is pleased to announce it has
entered into a conditional agreement to sell the entire issued share capital
of its subsidiary Vigilant Security (Scotland) Limited ("Vigilant") to M&W
Security Limited for a total consideration of £6.5 million plus inter-company
balances of £1.07 million repayable to the Company.

Highlights

·      Sale of Vigilant follows the Company's strategy to focus on its
higher margin Croma Locksmiths and Croma Security Systems businesses.

·      Proceeds from the sale will be used to support the successful
nationwide roll-out of the Company's retail chain of modern security centres.

·      Vigilant is being acquired by two previous Directors of the
Company, Sebastian Morley and Paul Williamson who stepped down from the Board
in December 2022 to prepare a bid.

·      The Consideration to be received for the Disposal of £6.5 million
represents approximately 91.8 per cent. of the Company's market capitalisation
of £7.1 million as at the close of business on 2 June 2023. For the year
ended 30 June 2022 Vigilant generated approximately 42 per cent. of the Croma
Group's EBITDA and for the six months ended 31 December 2022 Vigilant
generated approximately 29 per cent. of the Croma Group's EBITDA.

·      The Disposal is subject to shareholder approval and is expected to
be completed on 30 June 2023.

 

Roberto Fiorentino, CEO of CSSG, said: 'We are delighted to be announcing the
proposed sale of Vigilant which is a good business but no longer fits with the
future of our Group. The funds from the sale will accelerate our ability to
drive our Locks and Systems business through the roll out of our modern
Security Centres. Separately, the Group has continued to trade well and we
have had a strong second half to the year which ends in June 2023 and we
expect to report overall trading comfortably ahead of last year. We look
forward to completing the sale and demonstrating to existing and new
shareholders the true value of our core businesses."

 

Background

On 6 December 2022, the Company announced its decision to sell Vigilant in
order to re-focus the Group's future strategy around the development of Croma
Locksmiths Limited and Croma Security Systems Limited to take advantage of
higher margins, good cash generation and opportunities for future growth.
Vigilant's management team, led by its Operations Director Paul Williamson and
supported by its Managing Director, Sebastian Morley, indicated their desire
to acquire Vigilant from the Group and stepped down from their respective
Board roles in order to prepare a bid.

Overview

The Consideration will be satisfied as to (i) £1,073,314 payable in cash on
Completion; (ii) £4,126,686  by the issue of the Loan Notes; and (iii)
either (at the Buyer's sole discretion) the payment of an additional
£1,300,000 in cash on Completion or the issue of the Redeemable Share on
Completion. In addition, inter-company balances of £1,067,913 owed by
Vigilant to the Company will be settled on Completion. Therefore on Completion
the Company will receive in aggregate cash of either £2,141,227 if the
Redeemable Share is issued or £3,441,227 if the Redeemable Share is not
issued.

M&W Security Limited, is owned and controlled by Sebastian Morley and Paul
Williamson, both former directors of the Company who stepped down from the
Board at the annual general meeting held on 6 December 2022 to pursue a
buy-out of Vigilant from the Company. In order to part fund the cash
consideration, Messrs Morley and Williamson wish to sell all of the shares
they hold in the Company, being in aggregate 798,422 Ordinary Shares. The
Company has agreed to buy-back these shares at a price of 47.5 pence pursuant
to the Buy-Back Agreement.

In view of the size of Vigilant relative to the existing size of the Croma
Group, it is a requirement of the AIM Rules that the Disposal be approved by
Shareholders at a general meeting of the Company. The Disposal is therefore
conditional on, inter alia, shareholder approval at the General Meeting.

The Buy-Back represents a purchase of own shares by the Company in an
off-market transaction pursuant to Section 694 of the Act. As a result, the
Act requires that such a transaction be authorised by a special resolution and
the Act also provides that the parties from which the shares are proposed to
be purchased must not exercise the voting rights attached to those shares on
that resolution. The Buy-Back is therefore conditional on shareholder approval
at the General Meeting.

 

As the Disposal and Buy-Back are transactions with former directors of the
Company, they represent related party transactions in accordance with AIM Rule
13. The Directors, all of whom are independent, consider that, having
consulted the Company's nominated adviser, that the terms of the Disposal and
the Buy-Back are fair and reasonable in so far as Shareholders are concerned.

 

The Board is also taking this opportunity to ask Shareholders to approve the
adoption by the Company of new articles of association primarily for the
purposes of updating the Company's existing articles of association primarily
to take account of changes in English company law brought about by the Act .
The New Articles will be made available to view on the Company's website at
www.cssgplc.com/investors.

Notice of General Meeting and posting of Circular

A circular, which contains the notice of General Meeting, in respect of the
Disposal is expected to be posted to Shareholders later today and will also be
available on the Company's website www.cssgplc.com/investors/.

 

The General Meeting will take place at the offices of the Company, Unit 7
& 8 Fulcrum 4, Solent Way, Whiteley, Fareham, Hampshire PO15 7FT at 9.00
a.m. on 30 June 2023.

 

Capitalised terms have the meaning set out in Appendix I to this Announcement.

 

 

For further information visit www.cssgroupplc.com or contact:

 

Croma Security Solutions Group Plc
                  Tel: +44 (0)1489 566 166

Roberto Fiorentino, CEO

Teo Andreeva, CFO

 

WH Ireland Limited
                                      Tel: +44 (0)207 220
1666

(Nominated Adviser and Broker)

Mike Coe

Sarah Mather

 

Novella
 
Tel: +44 (0)203 151 7008

Tim Robertson

Claire de Groot

Safia Colebrook

 

This announcement contains inside information for the purposes of Article 7 of
the UK version of Regulation (EU) No 596/2014 which is part of UK law by
virtue of the European Union (Withdrawal) Act 2018, as amended ("MAR"). Upon
the publication of this announcement via a Regulatory Information Service,
this inside information is now considered to be in the public domain.

1.         Information on Vigilant

 

Vigilant provides manned guarding and reception services for property assets
and individuals and employs over 900 security personnel throughout the UK.

 

For the year ended 30 June 2022, Vigilant generated sales of £29.3 million
(2021: £27.4 million), and operating profit of £0.7 million (2021: £1.1
million), EBITDA 0.8 million (2021: 1.3 million). As at 30 June 2022 Vigilant
had net assets of approximately £4 million, including Goodwill.

 

For the six months ended 31 December 2022 ("H1 2022") Vigilant recorded
revenues up 7 per cent. to £15.92 million (H1 2021: £14.86 million).
However, profit before tax reduced to £0.13 million (H1 2021: £0.36 million)
as it was held back by a number of factors including non-recurring exceptional
costs, up-front investment in staff costs ahead of the start of a substantial
contract (that commenced successfully, as planned, in January 2023) as well as
general wage inflation which has impacted staff retention and the ability to
recruit.  The increased wage costs are beginning to be passed on in adjusted
contract rates and will be reflected in all new contracts. EBITDA for H1 2022
was £0.28 million.

 

2.         Background and reasons for recommending the Disposal

 

On 6 December 2022, the Company announced that it had decided to divest the
Croma Group's manned guarding business, Vigilant.

 

The Directors believe that the sale of Vigilant is in the best interests of
Shareholders for the following reasons:

·       the strategy of combining Locks and Systems with Vigilant has not
generated the opportunities for cross marketing and cross sales that had been
expected;

·       it will enable the Continuing Group to focus its future strategy
around the development of Locks and Systems where margins are high and cash
generation remains strong and where the Board believes there are good
opportunities for profitable growth; and

·       the cash to be received pursuant to the Disposal will enable the
Company to pursue acquisition opportunities for both Croma Locks and Croma
Systems.

 

The Directors consider that the Consideration to be received for the Disposal
from M&W Security Limited, fairly reflects the value of Vigilant. In
reaching this view, the Directors have taken into account, factors including:

·      their expectations of Vigilant's trading performance for 30 June
2023 and for 30 June 2024; and

·      the fact that the market has been aware of the Company's intention
to dispose of Vigilant since 6 December 2022 and no other offers of equivalent
value have been received from third parties.

 

The Consideration to be received for the Disposal of £6.5 million represents
approximately 91.8 per cent. of the Company's market capitalisation of £7.1
million as at the close of business on 2 June 2023, being the latest practical
date prior to this announcement. For the year ended 30 June 2022 Vigilant
generated approximately 42 per cent. of the Croma Group's EBITDA and for the
six months ended 31 December 2022 Vigilant generated approximately 29 per
cent. of the Croma Group's EBITDA.

 

3.         Principal terms of the Disposal

 

Under the terms of the Disposal Agreement, the Company has agreed to sell the
entire issued share capital of Vigilant to M&W Security Limited for an
aggregate consideration of £6.5 million. In addition, M&W Security
Limited has agreed to procure that Vigilant repays the debt of £1,067,913
which Vigilant owes to the Company.

 

The Consideration will be satisfied as to (i) £1,073,314 payable in cash on
Completion; (ii)  £4,126,686 by the issue of the Loan Notes; and (iii)
either (at the Buyer's sole discretion) the payment of an additional
£1,300,000 in cash on Completion or the issue of the Redeemable Share on
Completion.

 

Warranties have only been given by the Company to the Buyer in respect of good
title to the shares of Vigilant, subject to certain limitations on liability.

 

Completion of the Disposal is conditional upon of Resolutions to be proposed
at the General Meeting, and the Buy-Back being completed in accordance with
its terms.

 

4.         Terms of the Loan Notes

 

On Completion of the Disposal, and as part of the Consideration, the Company
shall receive the Loan Notes pursuant to a loan note instrument executed by
the Buyer, the principal terms of which are as follows:

 

·      the Loan Notes shall attract annual interest at a rate of 4.5 per
cent. per annum;

·      the Loan Notes (being both capital amounts and accrued interest),
shall be repaid as follows:

a)         the first payment shall be nine months following Completion;

b)         thereafter payments shall be made on each quarter date for a
further nine payments;

·      the Loan Notes shall be secured over the assets of the Buyer,
Vigilant and Vigilant's wholly-owned subsidiary, Croma Proception Limited
(registered number: SC695543);

·      if the Buyer defaults on the payment of any principal or interest
payable under the Loan Notes default interest will accrue at a rate of 4 per
cent. above the base interest rate of 4.5 percent. Such interest would accrue
from day to day and be compounded quarterly;

·      in the event that the Buyer defaults on any one payment due to the
Company under the Loan Notes the Company shall have step-in rights to enable
the Company to assume control of Vigilant at board and shareholder level.

 

 

5.         Terms of the Redeemable Share

 

On Completion of the Disposal, and as part of the Consideration, at the
Buyer's sole discretion, the Company will either receive an additional payment
of £1,300,000 in cash or the issue of the Redeemable Share on Completion. If
the Redeemable Share is issued by the Buyer, then principal share rights will
be as follows:

 

·      the date for the redemption of the Redeemable Share shall be the
earlier of: (i) 1 July 2024; and (ii) any debt or equity raise by the Buyer.
Upon such an event, the Redeemable Share shall immediately become due for
redemption and the Buyer shall pay the Company £1,300,000 in cash;

·      after 1 July 2024, if the Redeemable Share has not yet been
redeemed in full, a fixed preferential dividend shall accrue at a rate of 4.5
per cent.;

·      for so long as the Company holds the Redeemable Share and/or any
sums remain outstanding under the Loan Notes, the Company shall have the right
to appoint a director to the board of the Buyer (the "A Director") and its
group companies, such A Director cannot be removed by the Buyer until such
date as both the redemption of the Redeemable Share has occurred and the Loan
Note has been repaid in full;

·      In the event that the Redeemable Share is not redeemed in full on
the redemption date or any of the default events set out in condition 4.2 of
the Loan Note have occurred the A Director may serve notice on the Buyer which
will cause the Company to be able to take control at the board and shareholder
level.

 

6.         Terms of the Buy-Back Agreement

 

Prior to Completion, the Company shall enter into a Buy-Back Agreement with
Sebastian Morley and Paul Williamson to acquire in aggregate 798,422 Ordinary
Shares held by Sebastian Morley and Paul Williamson at a price of 47.5 pence
per Buy-Back Share, being the five day average mid-market price, to 2 June
2023, being the latest practical date prior to this announcement. The
consideration payable under the Buy-Back Agreement will be paid in cash out of
the Company's distributable reserves at Completion.

 

The Buy-Back Agreement will be made available on the Company's website at
www.cssgplc.com/investors.

 

7.         Effect of the Disposal and use of proceeds

 

Once the Buy-Back Shares have been purchased pursuant to the Buy-Back
Agreement, the Company intends to hold the Buy-Back Shares in treasury.

 

Immediately following Completion, the Company will have 15,898,656 Ordinary
Shares in issue of which 1,794,936 Ordinary Shares will be held in treasury.
Therefore the number of voting shares will be 14,103,720 immediately following
Completion.

 

If the Disposal and the Buy-Back are approved by Shareholders and completes in
accordance with their terms, on Completion the Company will receive cash
pursuant to the Disposal Agreement of either £2,141,227 if the Redeemable
Share is issued or £3,441,227 if the Redeemable Share is not issued. The
Directors estimate that following receipt of the cash pursuant to the Disposal
Agreement and following the Buy-Back of £0.38 million, the Company will have
cash balances of approximately £2.06 million or £3.36 million if the
Redeemable Share is not issued, after paying certain expenses excluding any
taxes relating to the Disposal (stamp duty taxes in respect of the Disposal
shall be payable by the Buyer).

 

The Company intends to deploy these funds to advance the Company's strategy,
as set out in paragraph 9 below.

 

8.         Current trading and prospects

 

On 14 March 2023, the Company announced its interim results to 31 December
2022. In those results, Locks and Systems were reported as the continuing
group and Vigilant as an asset held for resale.

 

Trading across the Croma Group has been stronger so far in the second half of
the year ending 30 June 2023 than it was in the first half of the year, being
the six months ending 31 December 2022, and the Croma Group's overall trading
performance is expected to be comfortably ahead of last year. Reported results
will however be impacted by a number of one-off exceptional costs incurred in
relation to Vigilant and the Disposal.

 

 

9.   Strategy and prospects

 

Following the Disposal the Continuing Group's business will comprise Croma
Locks and Croma Systems where margins are high (relative to Vigilant) and cash
generation remains strong and where the Board believes there are good
opportunities for profitable growth.

 

The Board remains focused on creating a national chain of modern security
centres and believes there are opportunities to expand further. The strategy
is to be a leading British security brand and to that end for the Continuing
Group will carefully extend its  footprint of security centres across the
country.  The Continuing Group currently operates through 14 security centres
and the objective is to acquire between three and five centres each year. The
market can be very generally split into locksmith and security systems
providers. Croma's strategy is to combine the traditional offerings of each
under one roof, providing comprehensive security solutions in a broader
security centre. To date these centres have started as locksmiths but could
also be systems providers and have been relatively small acquisitions. The
acquisition of large systems and solution providers will also be considered
where they can complement and extend the Continuing Group's existing
offerings.

 

To complement and improve its range of services, the Continuing Group will
also consider engaging in strategic partnerships with providers of innovative
security solutions, such as the partnership it currently has with its
Scandinavian partner, iLOQ.

 

The cash proceeds of the Disposal will provide the Continuing Group with
additional financial stability and cash resources to accelerate our
development in line with the strategy for the benefit of our shareholders.

 

 

10.        New Articles

 

The Company's Current Articles were adopted in May 2000 and primarily to take
into account the changes in English company law brought about by the Act, the
Board are proposing the adoption of New Articles . The proposed New Articles
will be made available on the Company's website at www.cssgplc.com/investors
(http://www.cssgplc.com/investors) .

11.        Recommendation

 

The Directors, having consulted with the Company's nominated adviser, WH
Ireland Limited, consider the terms of the Disposal and Buy-Back are fair and
reasonable insofar as Shareholders are concerned and that the Disposal and
Buy-Back are in the best interests of Shareholders as a whole. Accordingly,
the Directors unanimously recommend Shareholders to vote in favour of the
Resolutions to be proposed at the General Meeting, as they intend so to do in
respect of their shareholdings amounting to 3,902,175 Ordinary shares
representing 26.19 per cent. of the Company's total voting rights..

 

 

 

Appendix I

 

DEFINITIONS

The following definitions apply throughout this announcement, unless the
context requires otherwise or unless it is otherwise specifically provided:

 

 

 "Act"                                    the Companies Act 2006 (as amended)

 "AIM''                                   the market of that name operated by the London Stock Exchange

 "AIM Rules"                              the AIM Rules for Companies published by the London Stock Exchange from time
                                          to time

 "Announcement"                           the announcement of the Disposal made by the Company on 6 June 2023

 "Buy-Back"                               the buy-back of the Buy-Back Shares from Sebastian Morley and Paul Williamson
                                          at a price of 47.5 pence which represents an off-market transaction pursuant
                                          to Section 694 of the Act.

 "Buy-Back Agreement"                     the agreement to be entered into on or around the date of the General meeting
                                           between the Company, Sebastian Morley and Paul Williamson

 "Buy-Back Shares"                        798,422 Ordinary Shares  to be purchased by the Company pursuant to the
                                          Buy-Back

 "Buyer"                                  M&W Security Limited a limited company number incorporated in Scotland
                                          with registered number SC753198 and with its registered office at 1st Floor
                                          Left, 161 Brooms Road, Dumfries, United Kingdom, DG1 2SH with  Sebastian Jake
                                          Finch Morley and  Paul Williamson as directors

 "Company" or Croma"                      Croma Security Solutions Group plc a public limited company incorporated in
                                          England and Wales with registered number 03184978 and with its registered
                                          office at Unit 7 & 8, Fulcrum 4 Solent Way, Whiteley, Fareham, England,
                                          PO15 7FT

 "Completion"                             completion of the Disposal on the terms set out in the Disposal Agreement

 "Consideration"                          the consideration payable by the Buyer to the Company for the Disposal
                                          amounting in total to £6.5 million comprised of the Initial Consideration and
                                          the Loan Note Consideration

 "Continuing Group"                       the Company together with its subsidiaries after completion of the proposed
                                          Buyback and Disposal, being Croma Locks and Croma Systems

 "Croma Group"                             the Company together with its subsidiaries which at the date of this
                                          announcement are Vigilant and Croma Locks and Croma Systems

 "Croma Locks"                            Croma Locksmiths and Security Solutions Limited, a limited company

                                        incorporated in England and Wales with registered number 03909669 and with its
                                          registered office at Unit 7 & 8, Fulcrum 4 Solent Way, Whiteley, Fareham,
                                          England, PO15 7FT

 "Croma Systems"                          CSS Total Security Limited, a limited company incorporated in England and

                                        Wales with registered number 02432869 and with its registered office at Unit 7
                                          & 8, Fulcrum 4 Solent Way, Whiteley, Fareham, England, PO15 7FT

 "Current Articles"                       the articles of association of the Company at the date of this announcement

 "Directors" or "Board"                   the directors of the Company or any duly authorised committee thereof

 "Disposal"                               the proposed sale of the entire issued share capital of Vigilant (including
                                          Vigilant's wholly-owned subsidiary, Croma Proception Limited (registered
                                          number: SC695543) in accordance with the terms of the Disposal Agreement

 "Disposal Agreement"                     the agreement dated 5 June 2023 made between the Company and M&W Security
                                          Limited

 "EBITDA"                                 Earnings Before Interest Tax and Depreciation

 "Existing Share Capital"                 15,898,656 Ordinary Shares, of which 996,514 Ordinary Shares are held in
                                          treasury

 "Form of Proxy"                          the form of proxy for use in connection with the General Meeting

 "General Meeting"                        the general meeting of the Company convened for 9.00 a.m. on 30 June 2023

 "Initial Consideration"                  £1,073,314 in cash on Completion and (at the sole discretion of the Buyer)
                                          the payment of a further £1,300,000 in cash on Completion or the issue of the
                                          Redeemable Share

 "Loan Note Consideration"                the balance of the Consideration, being the Loan Notes

 "Loan Notes"                             consideration loan notes of £4,126,686 issued in the Buyer

 "Locks and Systems"                      Croma Locks and Croma Systems

 "M&W Security Limited"                   M&W Security Limited, a limited company registered in Scotland (No.

                                        SC753198) with its registered office at 1st Floor Left, 161 Brooms Road,
                                          Dumfries, United Kingdom, DG1 2SH

 "New Articles"                           the proposed new articles of association of the Company, which will be

                                        proposed for adoption by the Company at the General Meeting, in replacement of
                                          the Current Articles

 "Notice"                                 the notice of the General Meeting of Shareholders

 "Ordinary Shares"                        ordinary shares of 5 pence each in the capital of the Company

 "Redeemable Share"                       £0.01 redeemable consideration A ordinary share issued in the capital of the
                                          Buyer, as further described in paragraph 6

 "Resolutions"                            the resolutions to be proposed to the Company's members at the General Meeting

 "Shareholders"                           the holders of Ordinary Shares

 "Vigilant"                               Vigilant Security (Scotland) Limited, a limited company number incorporated in
                                          Scotland with registered number SC212151 and with its registered office at 1st
                                          Floor Left, 161 Brooms Road, Dumfries, Scotland, DG1 2SH

 "WH Ireland"                             WH Ireland Limited, nominated adviser and sole broker to the Company

 "£", "pounds sterling", "pence" or "p"   are references to the lawful currency of the United Kingdom

 

 

 

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