TIDMHSS
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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IMPORTANT NOTICE AT THE OF THIS ANNOUNCEMENT.
THIS ANNOUNCEMENT IS AN ADVERTISEMENT AND DOES NOT CONSTITUTE A
PROSPECTUS OR PROSPECTUS EQUIVALENT DOCUMENT. NEITHER THIS
ANNOUNCEMENT NOR ANYTHING CONTAINED HEREIN SHALL FORM THE BASIS OF,
OR BE RELIED UPON IN CONNECTION WITH, ANY OFFER OR COMMITMENT
WHATSOEVER IN ANY JURISDICTION. ANY DECISION TO PURCHASE, SUBSCRIBE
FOR, OTHERWISE ACQUIRE, SELL OR OTHERWISE DISPOSE OF ANY SECURITIES
REFERRED TO IN THIS ANNOUNCEMENT MUST BE MADE SOLELY ON THE BASIS
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 GBP54 million
HSS Hire today announces that it proposes to raise gross
proceeds of up to c.GBP54.0 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.GBP43.5 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.GBP54.0 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.GBP43.5 million in the Capital Raise
o Firm Placing of c.GBP18.6 million with Toscafund Asset
Management LLP ("Toscafund") and Ravenscroft (CI) Limited
("Ravenscroft")
o Open Offer of up to c.GBP35.5 million
-- Exponent Private Equity LLP ("Exponent") has committed to
subscribe for GBP15 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 GBP15 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 GBP26.5 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 GBP80.1 million of additional lease
liabilities) stood at GBP156.7 million, a reduction of GBP22.8
million from 28 December 2019. This included a Senior Financing
Facility fully drawn down at GBP182m, and GBP17.2 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.GBP43.5 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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END
IOEUNUNRRWURURA
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