Posting of Circular and Notice of General Meeting
15/06/2023 07:00
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RNS Number : 7689C Rotala PLC 15 June 2023
RNS
15 June 2023
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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
(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.
Rotala Plc 0121 322 2222
John Gunn, Chairman
Simon Dunn, Chief Executive
Kim Taylor, Group Finance Director
Shore Capital 020 7408 4090
Tom Griffiths / James Thomas / Lucy Bowden (Corporate Advisory)
Henry Willcocks (Corporate Broking)
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.
Audited Total Net Debt at 30 November 2022 Application of proceeds of the Proposed Disposals Tender Offer and Eccles depot acquisition RCF repayments, plus forecast mortgage and lease liability amortisation in FY HP finance for new work in GMCA area Unaudited Pro forma Total Net Debt after Completion and financing of new
2023 vehicles required
£'000 £'000 £'000 £'000 £'000 £'000
Mortgage liabilities 5,439 (1,931) 0 (355) 0 3,153
HP debt 33,361 (12,846) 0 (7,974) 11,945 24,486
Other lease liabilities 566 0 0 (372) 0 194
Revolving commercial facility 0 (10,400) (1,500) 0 0
11,900
Net cash asset (1,214) (5,262) 0 0 0 (6,476)
Total 38,152 (30,439) 11,900 (10,201) 11,945 21,357
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:
Name of Director Number of Shares held Percentage of the Company's issued share capital
John Gunn (including concert party interest) 7,326,340 23.62
Simon Dunn 1,827,196 5.89
Kim Taylor 408,738 1.32
Robert Dunn 2,470,676 7.96
Graham Spooner 532,000 1.71
Graham Peacock 2,275,075 7.33
Total 14,840,025 47.84
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.
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