REG - Spectra Systems Spectra Systems-SPSC - Acquisition of Cartor Holdings Limited

Spectra SystemsAnnouncement

04/12/2023 07:00

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RNS Number : 4835V  Spectra Systems Corporation  04 December 2023

THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND IS NOT AN OFFER OF
SECURITIES IN ANY JURISDICTION. THIS ANNOUNCEMENT CONTAINS INSIDE
INFORMATION.

 

For immediate release

4 December 2023

 

Spectra Systems Corporation

("Spectra" or the "Group")

 

Acquisition of Cartor Holdings Limited

To accelerate the Group's penetration of the polymer banknote substrate market
and open new sales channels for its security products

Spectra Systems Corporation (AIM: SPSY.L), a leader in machine-readable high
speed banknote authentication, brand protection technologies and gaming
security software is pleased to announce that it has entered into a
conditional agreement to acquire Cartor Holdings Limited ("Cartor"), a leader
in the security printing industry, for a maximum consideration of £10.5
million (the "Acquisition").  Completion of the Acquisition ("Completion") is
subject to certain customary conditions.

Highlights

Once completed and Cartor has been integrated into the Group, the Acquisition
is expected to:

·    Consolidate the supply of Spectra's Fusion(TM) polymer substrate
within the enlarged Group

·    Increase margins on polymer substrates by bringing profit margin
within the enlarged Group

·    Open new sales opportunities for Spectra security products in:

o  postage stamps,

o  tax and revenue stamps,

o  brand protection and security labels,

o  other security documents

·    Increase combined earnings through replacing current supplies to
Cartor with Spectra's optical materials

·    Increase product development capabilities with direct access to
Cartor's state-of-the-art printing capabilities

·    Increase visibility for Spectra through two facilities in
Wolverhampton, UK, and Meauce, France, giving the enlarged Group presence in
four G7 countries

Background on Cartor

Cartor, through its three wholly-owned subsidiary companies, operates from two
manufacturing sites in the UK and France, supplying postage stamps to over 180
administrations globally. In addition to conventional and hybrid postage
stamps, it prints and produces tax stamps, vouchers, coupons, certificates,
and security documents, and provides a safe and secure environment for hand
assembly and fulfilment. Cartor differentiates itself from its competitors by
using state-of-the-art technology to make it difficult for counterfeiters to
operate in industries with high monetary or intellectual value products and
services.

In addition to its core security printing business, Cartor has worked with
Spectra for the past two years to develop the necessary expertise to produce
Fusion(TM) substrates for qualification by central banks and leading polymer
banknote printers.

In its year ended 30 September 2022, based on audited financial statements
prepared  in accordance with UK GAAP (FRS102), Cartor  generated an EBITDA
of £3,022,088 and profit before taxation of £1,010,026 on turnover of
£16,022,532. Its net assets at that date were £4,441,120. In its year ended
30 September 2023, based on unaudited management accounts, Cartor generated an
EBITDA of £2,525,100 and profit before taxation of £435,600 on turnover of
£16,188,200. Its net assets at that date were £4,909,800. No tax was paid in
either year due to offset against capital expenditure and  tax losses, of
which c. £1.9 million remain available.

Summary of the Acquisition

Spectra will acquire 100% of the outstanding shares of Cartor on Completion.
The consideration for Cartor comprises:

·    £5.5 million to be satisfied in cash on Completion;

·    up to £3.0 million, subject to customary net asset, net cash and
third-party debt adjustments to be made prior to Completion, which will be
satisfied through the issue of new shares of common stock of Spectra
("Shares") on Completion at the thirty-day volume weighted average stock price
of Spectra's shares prior to the date on which the conditions to Completion
(except the admission of the Shares to trading on AIM) are satisfied. A total
of £1 million of the Shares will be subject to 12-month lock-up agreements
(subject to customary exceptions); and

·    a potential further sum of £2.0 million, which may become payable by
Spectra by no later than 18 months after Completion, through the issue of
further Shares, in the event that Spectra has qualified its Fusion(TM) polymer
substrate for tender submissions with a central bank customer. If this
consideration becomes payable, this tranche of Shares would be issued at the
higher of (i) the thirty-day volume weighted average stock price of Spectra's
shares prior to Completion; and (ii) the five-day volume weighted average
stock price of Spectra's shares at the time of a successful qualification by a
central bank.

In addition, Spectra will assume up to £4.5 million of Cartor's current
external debt, at an average interest rate of 0.3%, as part of the
Acquisition.

Completion is conditional on the satisfaction of customary conditions,
including obtaining consents from certain customers of Cartor. Spectra
currently expects Completion to occur during December 2023.

On Completion, each member of Cartor's senior management team will enter into
a new employment agreement with Cartor. Cartor will also enter a new 20-year
lease on Completion in respect of Cartor's purpose-built manufacturing
facility in Wolverhampton, UK.

Rationale for the Acquisition and Increased Opportunity

The international polymer substrate market currently has only two suppliers,
CCL Industries in Canada and De La Rue International in the UK. Spectra's
research and dialogues with central banks has clearly shown the desire of the
banks to have another supplier of ready to print bespoke polymer substrate.

Spectra has been working with Cartor for two years to achieve high quality
conventional and machine-readable, ready for printing polymer substrates which
include conductive layers, opacity layers and bespoke window designs as
required by central banks. Spectra has enhanced its competitive position in
the market by further integrating the production supply chain of Fusion(TM).

In addition to driving Spectra's growth in the polymer substrate market, the
Acquisition will, in the opinion of Spectra's Board of Directors, enable
Spectra to introduce its advanced security technologies into Cartor products
which include postage stamps, tax and revenue stamps, brand authentication
labels and ID documents.  Cartor has established an international presence in
these products, which currently utilize various public features, and is
expected to be able to both develop the necessary processes to integrate
Spectra's technologies, as well as work with its customers to upsell Spectra
products.

Dr. Nabil Lawandy, Chief Executive Officer of Spectra, commented: "The Spectra
Board of Directors and I are delighted to announce the acquisition of Cartor
to solidify our position in the polymer substrate market and expand our
business through new sales channels.  Our experience in working with the
Cartor team for two years has been exceptional and I have great confidence in
the leadership of the group led by Andrew Brigham (Managing Director), Ian
Brigham (Chairman) and Martin French (Finance Director).  Andrew, Ian and
Martin are experienced, innovative, resourceful and energetic individuals,
with whom I am excited to work to increase our revenues and earnings over the
coming years.

"Given Spectra's strong cash position as well as cash generation, the Board is
confident that we will continue to issue our dividends and meet our customers'
financial obligations following Completion."

Andrew Brigham, Managing Director of Cartor, commented: "The acquisition comes
at a time when Cartor is poised for growth and under Nabil's leadership we
hope to accelerate this and unlock new opportunities. The Cartor group expects
to leverage Spectra's deep technical expertise and Cartor's operational
'know-how' to deliver game changing solutions to its current and future
customers."

Ian Brigham, Chairman of the Board of Cartor, commented: "I have spent most of
my career in the security printing industry and I am very much looking forward
to this next chapter working with Nabil and the high performing Spectra team
to grow revenues and earnings through new opportunities."

 

Enquiries:

 Spectra Systems Corporation                                            Tel: +1 (0)401 274 4700

 Dr. Nabil Lawandy, Chief Executive Officer

 WH Ireland Limited (Nominated Adviser and Joint Broker)                Tel: +44 (0)20 7220 1650

 Chris Fielding/ James Bavister (Corporate Finance)

 Fraser Marshall (Corporate Broking)

                                                                        Tel: +44 (0)20 3328 5665

 Allenby Capital Limited (Joint Broker)

 Nick Naylor/James Reeve (Corporate Finance)

 Amrit Nahal (Sales and Corporate Broking)

Important Notices:

The person responsible for arranging the release of this announcement on
behalf of the Company is            Dr. Nabil Lawandy, Chief
Executive Officer of Spectra.

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.

This announcement contains certain forward-looking statements. No
forward-looking statement is a guarantee of future performance and actual
results or performance or other financial condition could differ materially
from those contained in the forward-looking statements. These forward-looking
statements can be identified by the fact they do not relate only to historical
or current facts. They may contain words such as "may", "will", "seek",
"continue", "aim", "anticipate", "target", "projected", "expect", "estimate",
"intend", "plan", "goal", "believe", "achieve" or other words with similar
meaning. By their nature forward looking statements involve risk and
uncertainty because they relate to future events and circumstances. A number
of these influences and factors are outside of the Group's control. As a
result, actual results may differ materially from the plans, goals and
expectations contained in this announcement. No statement in this announcement
is intended to be, nor may it be construed as, a profit forecast or be relied
upon as a guide to future performance. Any forward-looking statements made in
this announcement speak only as of the date they are made. Except as required
by applicable law or regulation, Spectra expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any
forward-looking statements contained in this announcement.

 

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