REG - HSS Hire Group PLC - Proposed Capital Raise of up to £54 million

HSS HireAnnouncement

26/10/2020 07:00

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RNS Number : 1732D  HSS Hire Group PLC  26 October 2020

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF
EU REGULATION 596/2014.

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PLEASE SEE THE IMPORTANT NOTICE AT THE END OF THIS ANNOUNCEMENT.

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CONTAINED HEREIN SHALL FORM THE BASIS OF, OR BE RELIED UPON IN CONNECTION
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OF THE INFORMATION THAT IS CONTAINED IN AND INCORPORATED BY REFERENCE INTO THE
COMBINED PROSPECTUS AND CIRCULAR TO BE PUBLISHED BY THE COMPANY IN DUE COURSE.

 

HSS Hire Group plc

("HSS Hire" or the "Company",

together with its consolidated subsidiaries, the "Group")

 

Proposed Capital Raise of up to £54 million

 

HSS Hire today announces that it proposes to raise gross proceeds of up to
c.£54.0 million by way of a Firm Placing and Open Offer (the "Capital Raise")
in the coming weeks and has secured commitments from three of its major
shareholders to subscribe c.£43.5 million for Company shares as part of the
Capital Raise.

As set out in the Company's 2020 interim results on 8 October 2020, the Board
has been encouraged by the resilience that HSS Hire has shown during this
period of unprecedented disruption brought about by the COVID-19 pandemic.
Revenues have now returned to above 90% of 2019 levels and the Group has also
seen a notable acceleration of its digital strategy with a significant
increase in online penetration.

However, the COVID-19 pandemic and the significant disruption that it has
caused has inevitably had a significant impact on the Group's revenue in 2020.
In response, the Group implemented a number of measures to reduce costs and
preserve liquidity which has enabled HSS Hire to meet the debt covenants under
its borrowing facilities to date. However, given that the challenging economic
environment may last for a prolonged period, it is possible that without the
Capital Raise these covenants may be breached when tested at the end of 2020.
Having fully reviewed the options available to the Group, the Board has
concluded it is prudent to raise capital before the year end.

The Directors believe that the Capital Raise will ensure a strong cash
position and reduce net leverage, enabling the Group to continue to its strong
progress and successfully execute its strategy.

Transaction Summary

·    Intention to raise gross proceeds of up to c.£54.0 million by way of
a Firm Placing and Open Offer at a price of 10p per share

 

o  Three of the Company's major shareholders, representing approximately 78%
of its issued share capital, have provided commitments to invest c.£43.5
million in the Capital Raise

 

o  Firm Placing of c.£18.6 million with Toscafund Asset Management LLP
("Toscafund") and Ravenscroft (CI) Limited ("Ravenscroft")

 

o  Open Offer of up to c.£35.5 million

§ Exponent Private Equity LLP ("Exponent") has committed to subscribe for
£15 million of shares under the Open Offer

§ Toscafund has committed to subscribe for their pro-rata entitlement under
the Open Offer

§ Ravenscroft has committed to subscribe for their pro-rata entitlement under
the Open Offer

§ The commitments to subscribe for shares in the Open Offer are subject to
certain conditions, as described below

§ The Open Offer will not be underwritten, save as described above

 

·    The Company intends to use the net proceeds from the Capital Raise
to:

o  Continue investment in the technology platform to strengthen the Group's
commercial proposition

o  Continue investment in the hire fleet to support the Group's tool hire
business

o  Repay £15 million of debt that falls due in January 2021 to enable the
Group to continue to de-lever

 

·    Given the current free float and size of HSS Hire, the Board is
exploring alternative listing venues for the Company, while ensuring an active
market in its ordinary shares

 

·    A combined prospectus and circular (the "Prospectus") setting out
full details of the Capital Raise is expected to be published during the
coming weeks

 

·    The Capital Raise is conditional on certain resolutions being passed
by the Shareholders. A Notice of the General Meeting of the Company for the
Shareholders to consider and approve the resolutions in connection with the
Capital Raise will be included in the Prospectus.  Each of Exponent,
Toscafund and Ravenscroft has agreed to vote in favour of such resolutions.

 

 

Alan Peterson OBE, Chairman, commented today:

"This transaction is a major vote of confidence from three shareholders
representing over 75% of the Company's shares. It is testament to the
significant strategic and operational progress HSS Hire has made since the
start of 2018 as well as its resilience in challenging economic conditions.
This capital injection will enable the Group to further reduce its leverage -
one of our foremost objectives - and gives us a strong platform from which to
continue to implement change and drive growth.  I am delighted that the Open
Offer gives all current owners of the business the opportunity to participate
on the same terms, and on behalf of the Board, I would like to thank all our
shareholders as well as HPS and our other lenders for their continued positive
support."

Background to the Capital Raise

The current executive Directors joined HSS Hire between August 2016 and June
2017, and in August 2017 launched a detailed strategic review, the conclusion
of which was announced in December 2017. The Group engaged an independent
third party to work with management to undertake an extensive strategic review
of the business. The review was wide ranging in scope and involved analysis of
20 million contract lines, more than 35,000 customers, 1,600 products and more
than 240 locations. The Group focused on a number of areas including
profitability, the cost of its operations, processes it has in place and the
market opportunity.

Following this strategic review, the Group set out its new strategy in
December 2017. This set out three key strategic priorities: de-lever the
Group, repair the tool hire business and strengthen the Group's commercial
proposition. These priorities remain unchanged following the COVID-19
pandemic, albeit with a nuance from repair the tool hire business, to
transform the tool hire business, following a successful transformation
programme in 2018.

HSS Hire has made considerable progress against these three core elements of
its strategy. Since the 2017 strategic review, the Group has reduced its total
leverage from 4.8x as at the end of FY17 to 2.8x as at the end of FY19 through
improved Adjusted EBITDA, a continued focus on working capital management and
the use of proceeds from the sale of UK Platforms Limited.

The Group returned its tool hire business to profitability in FY18 and in FY19
grew revenue ahead of the market, recording revenue growth of 3.9% and EBITA
of £26.5 million. Furthermore, it significantly improved EBITA margins
(growing from 0.5% in FY17 to 8.1% in FY19), delivered a marked improvement in
return on capital employed (growing from 1.0% in FY17 to 20.8% in FY19) and
achieved a second record year of adjusted EBITDA on a comparable basis.

Lastly, the Group has significantly strengthened its commercial proposition
and prioritised the investment in technology to transform the Group's digital
offering and OneCall rehire proposition into a more scalable technology-led
business with seamless customer experience. One of several successful digital
initiatives was the launch of the new OneCall rehire platform, 'Brenda'.
Brenda is a new, modern automated platform which has the ability to source
hire equipment from the Group's extensive network of suppliers but
significantly shortens the customer journey and provides superior visibility
of the rehire process for customers, suppliers and colleagues alike. Combined
with the launch of HSS Hire's customer and driver apps this investment is now
enabling the Group to transform its operating model and remove significant
fixed costs associated with its branch network whilst maintaining a national
presence.

As part of the Group's new strategy, in June 2018 it put in place a Senior
Financing Facility and a new Revolving Credit Facility. These facilities
replaced the Group's existing revolving credit facility and listed bonds, each
of which were due to mature in 2019. The Senior Financing Facility and the
Revolving Credit Facility provided the liquidity and flexibility to continue
the delivery of the Group's strategic priorities.

Reasons for the Capital Raise

The HSS Hire management team has made considerable progress in de-levering the
Group. As at 27 June 2020, the Group's net debt (excluding the IFRS16 impact
of £80.1 million of additional lease liabilities) stood at £156.7 million, a
reduction of £22.8 million from 28 December 2019. This included a Senior
Financing Facility fully drawn down at £182m, and £17.2 million of drawings
from the Group's Revolving Credit Facility. Both the Senior Financing Facility
and Revolving Credit Facility are subject to a net debt leverage financial
covenant test every quarter.

The COVID-19 pandemic has significantly impacted the Group's revenue in 2020.
As a result, the Group implemented the following measures to manage costs and
preserve liquidity:

·    The Group has reduced capital expenditure and continues to adopt a
disciplined approach to investment driven by demand and returns.

·    The Group has engaged in overhead reduction and utilised the UK
Government's Job Retention Scheme placing, at the highest point, 62% of the
Group's workforce on furlough in March 2020. Since then it has engaged in a
significant restructuring and moved to a digital approach, including the
following steps:

o  The Group plans to permanently shut 134 branches; and

o  The Group has made 12% of its approximately 2,400 employees redundant as
of October 2020.

·    The Group has also negotiated rental holidays with landlords,
utilised rates relief, deferred certain HMRC payments and reduced the salaries
of certain members of management.

·    The Group has also utilised a number of additional measures made
available by the UK Government to help conserve cash.

 

The Group's strategy and the actions taken by management to improve liquidity
have enabled the Group to meet its debt covenants under its borrowing
facilities to date. However, the current disruption caused by COVID-19 and
consequential economic backdrop may last for a prolonged period. Without the
Capital Raise, it is possible that the covenants may be breached when tested
at the end of 2020. Consequently, if the Capital Raise does not successfully
complete, the Group's lenders may be in a position to declare a default of the
Group's debt, which could cause Shareholders to lose all or a substantial part
of their investment in the Company.

The Directors believe that the Capital Raise will ensure a strong cash
position and reduce net leverage, enabling the Group to continue with its
strong progress and successfully execute its strategy.  In particular, the
Directors believe that HSS Hire is well placed to capitalise on its investment
in technology. Since March 2020, the Group has seen a 33% increase in online
users and a significant shift in orders being placed through digital channels,
from less than 10% to over 30% penetration. During the COVID-19 pandemic, the
Group has operated with just 20% of its branch network open and yet has
returned the business to over 90% of prior year revenues as at 30 September
2020. This has been enabled by the Group's technology (e.g. click-and-collect,
digital channels), the strength of the Group's distribution network (40
Customer Distribution Centres) and successful trials of alternative sales
models (such as virtual sales colleagues and concessions within builders
merchant partners). The Board believes that these changes have the capacity to
allow the Group to generate a similar level of revenues as in previous years
while operating with a significant lower cost base, driving both profitability
and returns on capital.

Alongside the benefits from its investment in technology, the Directors
believe that the COVID-19 pandemic could accelerate an ongoing trend among
customers to outsource their equipment needs and equipment management as many
companies look to rationalise their head-office functions and focus on core
activities. Furthermore, the Directors believe that within this outsourcing
trend there is an increasing demand to rationalise the number of suppliers of
rental equipment, which the Directors expect to inevitably benefit the larger
players such as the Group. The Directors believe that the Group is
particularly well positioned to take advantage of this, given the strength of
its Services division offering, the "one-stop-shop" proposition of OneCall and
the opportunities created by the Brenda technology platform to add bolt-on
product verticals to this online marketplace. The Directors believe the
Capital Raise will provide a sustainable capital structure alongside strong
liquidity to allow HSS Hire to capitalise on the evolving industry dynamics
and continue to grow the business. As part of the Capital Raise the Board is
also reviewing the current management incentive plans.

Irrevocable voting undertakings

Exponent, which holds in aggregate 85,681,708 of the Company's shares which
represents 50.3% of the Company's issued share capital, Toscafund, which holds
in aggregate 45,812,070 of the Company's shares which represents 26.9% of the
issued share capital and Ravenscroft, which holds in aggregate 1,990,000 of
the Company's shares which represents 1.2% of the issued share capital, in
each case as at 22 October 2020  (being the last practicable date prior to
the publication of this announcement), has each provided irrevocable
undertakings including in respect of exercising all of the voting rights
attaching to the shares in the Company to which they are the legal or
beneficial owner (or over which they act on behalf of clients who are the
beneficial owner) to vote in favour of each of the resolutions to approve the
Capital Raise and other matters which will be proposed at the General Meeting
and at any adjournment thereof.

Conditionality

The commitment of one of the major shareholders to participate in the Capital
Raise is conditional on the outcome of the Group's property restructuring. The
Group has certain leasehold properties within its portfolio which it no longer
utilises (being 'dark stores' and certain other operational and office
locations). As announced on 8 October 2020, the Group has taken the decision
to close permanently a significant proportion of its branch network, as a
result of which the Group's dark store liabilities may increase. The Group is
working with property restructuring advisors as regards these site closures.
The major shareholder's participation in the Capital Raise is conditional on
the Group achieving a reduction of at least 75% in its dark store liabilities.

The aggregate commitment of c.£43.5 million from the major shareholders to
participate in the Capital Raise is conditional on the participation of each
of the other major shareholders.

Board observer

Following completion of the Capital Raise, Ravensworth International Limited
(on whose behalf Ravenscroft is participating in the Capital Raise) will have
the right to appoint an observer to the Board, who will be able to attend
Board meetings but not vote. This right will continue for so long as
Ravensworth International Limited owns or controls 20% or more of the issued
share capital of the Company.

Related party transaction

As Toscafund holds 26.9% of the Company's issued share capital (as at 22
October 2020 (being the last practicable date prior to the publication of this
announcement)), it is a related party for the purposes of the Listing Rules.
The Firm Placing to Toscafund will constitute a related party transaction and
will need to be approved at the General Meeting by the independent
Shareholders (being Shareholders other than Toscafund or any of its
associates). Further details will be included in the Prospectus which is
expected to be published during the coming weeks.

HPS warrant instruments

Under the terms of the warrant instrument issued to various affiliates of HPS
Investment Partners ("HPS") on 20 June 2018 (the "Warrant Instrument"), HPS
has the right to subscribe for a number of shares in the Company representing
5% of the shares that will be issued under the Capital Raise, on the same
terms as shares are issued under the Capital Raise.

Proposed transfer of listing

The Board believes that an alternative listing venue may be more suitable than
the Company's existing listing on the premium segment of the Official List of
the FCA.

HSS Hire's current free float stands at 13.8% and has been broadly unchanged
for several years. Following the Capital Raise, the Company's free float is
likely to be reduced further. As previously disclosed, the Company has been in
dialogue with the FCA for some time and agreed a modification of Listing Rule
9.2.15R, which would otherwise require a free float of at least 25%. The
current modification expires on 20 August 2021. Whilst a company's
appropriateness for an alternative listing venue is, in part, dependent on it
having sufficient free float in order that there is a properly functioning
market in the shares, the Board notes that certain other listing venues have a
lower minimum requirement for a number of shares to be held in public hands.

The Board believes an alternative venue may provide lower annual costs and
simpler administration and regulatory requirements more appropriate to a
company of HSS Hire's size and also more flexibility in relation to corporate
transactions should such opportunities or initiatives arise or become relevant
to the Group in the future. The Board is exploring alternative options and
will update Shareholders in due course.

For further information, please contact:

 HSS Hire Group plc                      Tel: 020 3757 9248
 Steve Ashmore, Chief Executive Officer  Please email: Investors@HSS.com
 Paul Quested, Chief Financial Officer
 Greig Thomas, Head of Group Finance

 Numis Securities                        Tel: 020 7260 1000

 Stuart Skinner

 George Price

 George Shiel

 Teneo                                   Tel: 07785 528363 / 07557 491860
 Matt Thomlinson
 Tom Davies

The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the Market Abuse Regulation
("MAR") EU no.596/2014. Upon the publication of this announcement via
Regulatory Information Service ("RIS"), this inside information is now
considered to be in the public domain.

The person responsible for releasing this announcement is Daniel Joll, Company
Secretary.

HSS Hire Group plc LEI: 2138004DGL1J6VQO6S92

 

Important notices

This announcement has been issued by and is the sole responsibility of the
Company. The information contained in this announcement is for background
purposes only and does not purport to be full or complete. The information in
this announcement is subject to change.

This announcement is not a prospectus but an advertisement. Neither this
announcement nor anything contained in it shall form the basis of, or be
relied upon in conjunction with, any offer or commitment whatsoever in any
jurisdiction. Investors should not acquire any shares referred to in this
announcement except on the basis of the information contained in the
Prospectus to be published by the Company in connection with the Capital
Raise.

Copies of the Prospectus when published will be available on the Company's
website at www.HSShiregroup.com. Neither the content of the Company's website
nor any website accessible by hyperlinks on the Company's website is
incorporated in, or forms part of, this announcement. The Prospectus will
provide further details of the new shares being offered pursuant to the
Capital Raise.

This announcement does not contain or constitute an offer for sale or the
solicitation of an offer to purchase securities in the United States. The new
shares have not been and will not be registered under the US Securities Act of
1933 (the "Securities Act") or under any securities laws of any state or other
jurisdiction of the United States and may not be offered, sold, taken up,
exercised, resold, renounced, transferred or delivered, directly or
indirectly, within the United States except pursuant to an applicable
exemption from or in a transaction not subject to the registration
requirements of the Securities Act and in compliance with any applicable
securities laws of any state or other jurisdiction of the United States. There
will be no public offer of the new shares in the United States.

This announcement contains "forward-looking statements", which include
statements other than statements of historical facts, including, without
limitation, those regarding the Company's intentions, beliefs or current
expectations concerning, among other things, its future financial condition
and performance and results of operations; its strategy, plans, objectives,
prospects, growth, goals and targets; future developments in the industry and
markets in which the Company participates or is seeking to participate; and
anticipated regulatory changes in the industry and markets in which the
Company operates. In some cases, these forward-looking statements can be
identified by the use of forward-looking terminology, including the terms
"believe", "continue", "could", "expect", "intend", "may", "plan", "should" or
"will" or, in each case, their negative, or other variations or comparable
terminology. By their nature, forward-looking statements are subject to known
and unknown risks, uncertainties and other factors because they relate to
events and depend on circumstances that may or may not occur in the future.
Such forward-looking statements are based on numerous assumptions, some of
which are outside of the Company's influence and/or control, regarding the
Company's present and future business strategies and the environment in which
the Company will operate in the future. Shareholders and potential investors
are cautioned that forward-looking statements are not guarantees of future
performance and that the Company's actual financial condition, results of
operations, cash flows and distributions to Shareholders and the development
of its financing strategies, and the development of the industry in which it
operates, may differ materially from the impression created by the
forward-looking statements contained in this announcement. In addition, even
if the Company's financial condition, results of operations, cash flows and
distributions to Shareholders and the development of their financing
strategies, and the development of the industry in which they operate, are
consistent with the forward-looking statements contained in this announcement,
those results or developments may not be indicative of results or developments
in subsequent periods. No statement in this announcement is intended to be a
profit forecast.

Numis Securities Limited ("Numis") is authorised and regulated in the United
Kingdom by the FCA. Numis is acting exclusively for the Company and no one
else in connection with the Capital Raising and the matters referred to herein
and will not regard any other person (whether or not a recipient of this
announcement) as a client in relation to the Capital Raising and will not be
responsible to anyone other than the Company for providing the protections
afforded to their clients or for providing advice in relation to the Capital
Raising and the matters referred to herein.

Neither Numis, nor any of its affiliates (or their directors, officers,
employees or advisers), accepts any responsibility or liability whatsoever for
or makes any representation or warranty, express or implied, as to this
announcement, including the truth, accuracy, fairness, sufficiency or
completeness of the information or the opinions or beliefs contained in this
announcement (or any part hereof). None of the information in this
announcement has been independently verified or approved by Numis, or any of
its affiliates. Numis and each of its affiliates (and their directors,
officers, employees or advisers) accordingly disclaim all and any liability,
whether arising in tort, contract or in respect of any statements or other
information contained in this announcement and no representation or warranty,
express or implied, is made by either Numis or any of its affiliates (or any
of their respective directors, officers, employees or advisers) as to the
accuracy, completeness or sufficiency of the information contained in this
announcement. Save in the case of fraud, no responsibility or liability is
accepted by Numis or any of its affiliates (or any of their directors,
officers, employees or advisers) for any errors, omissions or inaccuracies in
such information or opinions or for any loss, cost or damage suffered or
incurred howsoever arising, directly or indirectly, from any use of this
announcement or its contents or otherwise in connection with this
announcement. No person has been authorised to give any information or to make
any representations other than those contained in this announcement and, if
given or made, such announcements must not be relied on as having been
authorised by the Company, Numis or any of its affiliates. Subject to the
listing rules made by the Financial Conduct Authority ("FCA") pursuant to Part
6 of the Financial Services and Markets Act 2000, as amended ("FSMA"), the
Prospectus Regulation (EU) 2017/1129 rules made by the FCA under Part 6 of the
FSMA, the disclosure guidance and transparency rules made by the FCA under
Part 6 of the FSMA and MAR, the issue of this announcement and any subsequent
announcement shall not, in any circumstances, create any implication that
there has been no change in the affairs of the Group since the date of this
announcement or that the information contained in it is correct as at any
subsequent date.

 

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