TIDMDGB
RNS Number : 9993S
Digital Barriers plc
09 October 2017
9 October 2017
Digital Barriers plc
Proposed disposal of the Video Business
Digital Barriers plc (AIM: DGB) ("Digital Barriers", the
"Company" or, together with its subsidiary undertakings, the
"Group"), the specialist provider of visually intelligent
technologies to the global surveillance, security and safety
markets, announces that it has conditionally agreed to sell the
entire issued share capital of the Existing Group's Video Business
to Volpi for a maximum aggregate consideration of up to GBP27.5
million in cash (the "Disposal").
Defined terms used in this announcement are set out in the
appendix to this announcement.
The Disposal is of sufficient size relative to that of the
Existing Group to constitute a disposal resulting in a fundamental
change of business, pursuant to Rule 15 of the AIM Rules and
Completion is, therefore, conditional upon the approval of
Shareholders.
The Board believes that the terms of the Disposal represent good
value for Shareholders and appropriately values the future growth
of the Video Business against the uncertain nature and timing of
that growth, which could require additional funding.
As such, the Independent Directors intend to unanimously
recommend that Shareholders vote in favour of the Resolutions to be
proposed at the General Meeting as they have irrevocably undertaken
to do so in respect of their beneficial holdings amounting, in
aggregate, to 11,222,677 Ordinary Shares, representing
approximately 6.8 per cent. of the existing ordinary share capital
of the Company.
Schroders Investment Management Limited has also given a letter
of intent to vote in favour of the Resolution to approve the
Disposal at the General Meeting in respect of 33,115,609 Ordinary
Shares held or managed by it, representing 20.05 per cent of the
existing issued share capital of the Company
A circular (the "Circular") containing, amongst other things,
further details of the Disposal and the notice of the General
Meeting to be held at the offices of Osborne Clarke LLP, One London
Wall, London EC2Y 5EB at 10.00 a.m. on 26 October 2017 will be
posted to Shareholders shortly.
Background to and reasons for the Disposal
The Company conducted a far-reaching, internal review following
the disappointing financial performance of the Existing Group in
the financial year ended 31 March 2017.
The headline conclusion of the review was that the Existing
Group was operating as two distinct businesses: the Video Business
and the Thruvision, people-screening business, details of which are
set out below. Whilst they shared some geographical overlaps it was
clear that, in practice, they shared very few end customers and
have different business and financial characteristics.
The review confirmed that the unpredictable nature of the sales
cycles the Existing Group faced was unlikely to change in the near
to medium term, and, just as importantly, that larger sales would
likely exacerbate the lumpy nature of the Existing Group's revenue
streams. The Existing Group has class-leading technologies which
are now being acquired by flagship customers around the world, but
these procurements are often part of larger programmes with complex
budgets and delivery schedules. The Company's conclusion was that
to continue as it is would stretch the resources available to the
Existing Group within its current structure and that it would be
doing so against this backdrop of forecast uncertainty and its
consequent risk to period end reporting.
The review further concluded that the foregoing challenges were
especially relevant to the Video Business but less relevant to the
Thruvision Business. Although Thruvision is still modest in revenue
terms, it benefits from protected technology that is unique in its
field, and an emerging customer base that includes the US
Transportation Security Administration. Since the Thruvision
Business and the Video Business are different in nature, the
Existing Group naturally divides into two business units with
different operating models.
The Video Business, which is based around EdgeVis live video
streaming technology, SmartVis video analytics and incorporates
Brimtek in the US, has the following characteristics:
-- Operationally proven technology: a proven set of product
offerings, strong penetration into a number of regional markets
(notably the US) and an exciting roadmap, including facial
recognition and body-worn video technology;
-- Complex solutions: solutions that generally form part of
broader, more complex systems which has adverse consequences for
the level of control the Existing Group can exert over procurements
and sales cycle durations; and
-- Two distinct markets: core revenues are generated from direct
sales into high barrier-to-entry government agencies, with
penetration into the more competitive network-video market through
global technology partners.
This conclusion resulted in a Video Business sale process,
managed by Investec, which involved approaching a range of
potential trade and financial buyers. Following a multi-staged and
competitive process, the Board has reached agreement with the
Purchaser for the sale of the Video Business for a cash
consideration of up to GBP27.5 million. Zak Doffman, the Company's
Chief Executive Officer, and 127 other employees of the Video
Business will leave the Existing Group and work with its new owners
to develop and implement a new, standalone strategy for the Video
Business.
Principal terms of the Disposal
Pursuant to the terms of the Share Purchase Agreement, the
Company has conditionally agreed to sell the entire issued share
capital of each of the Target Companies, which comprise the Video
Business, to the Purchaser. Prior to the Disposal, the business,
assets and liabilities of the Thruvision Business will be
transferred from Digital Barriers Services Limited to a newly
incorporated subsidiary, Thruvision Limited, owned by the Company,
pursuant to the terms of the Asset Transfer Agreement. Thruvision
Limited will remain within the Continuing Group.
The maximum consideration payable for Disposal is an aggregate
of GBP27.5 million in cash of which GBP25.5 million is payable on
Completion (on a cash free/debt free basis) and the remaining
GBP2.0 million is payable subject to the Video Business securing a
specific trading contract within 12 months following
Completion.
Completion is conditional upon the approval of the Disposal by
Shareholders.
The Company and the Purchaser have also agreed to provide each
other with certain transitional and administration services
following Completion pursuant to the terms of the Transitional
Services Agreement.
Further details of the Transaction Documents will be set out in
the Circular.
Financial effects of Disposal and use of proceeds
On 29 September 2017, the Company announced its audited
financial results for the year ended 31 March 2017 (the "Final
Results").
For the year ended 31 March 2017, the Video Business generated
revenue of GBP24.5 million and an operating loss of GBP15.2
million. The operating loss included an impairment charge of GBP7.5
million and a re-allocation of certain costs which will either
transfer to the Video Business on Completion or be retained by the
Continuing Group.
At 31 March 2017, the Video Business had gross assets of GBP43.6
million and net assets of GBP36.0 million. These amounts include
goodwill attributable to the Video Business of GBP17.1 million.
The value of the Video Business' unaudited net assets, including
goodwill, at 31 July 2017, which is the date being used as the
reference point to agree with the Purchaser the value of net assets
that will be transferred on Completion, was GBP31.4 million.
The net proceeds of the Disposal, after payment of transaction
costs and the repayment of approximately GBP6.2 million of existing
indebtedness, will provide a robust balance sheet for the on-going
Thruvision business. Subject to appropriate legal and regulatory
authorisations, the Company also expects to return excess funds to
Shareholders in due course.
Current trading and prospects of the Continuing Group
In the Final Results, the Company made the following statement
on the Existing Group's current trading:
"Trading in the first half of the current financial year has
been good with unaudited revenues to the end of August 13 per cent.
ahead of the same period last year. Backlog has grown even more
strongly with Brimtek performing particularly well in the first
half although the lower margin nature of these sales will reduce
the profit impact in H2. Asia, with sales at 50 per cent. ahead of
last year, has also recovered well although EMEA is slightly behind
its comparable sales on last year. Despite this healthy momentum,
sales cycles remain unpredictable and some slippage of expected
opportunities into H2 has occurred. The business has continued to
incur losses albeit these are reduced from last year."
Thruvision is a proven, people-screening technology for
"stand-off" detection of weapons, explosives and contraband under
clothing. It is a specialist thermal camera, operating in the far
infrared range of the electromagnetic spectrum, which sees
concealed objects as relatively cold against warm bodies.
The Existing Group acquired Thruvision in 2012, and since then,
significant effort has been invested in taking what was a very
early stage, pioneering technology to the point where today it has
the following characteristics:
-- Operationally proven technology: a solution to current
counter-terrorism challenges which has been successfully used
operationally by both the Transportation Security Administration
and G4S;
-- Limited competition and simplicity of deployment: although
there are many people-screening systems deployed globally,
Thruvision has the great advantage of stand-off operation (i.e.
with a detection range over 5 metres) and simple, standalone
deployment, avoiding the need for complex integration into existing
infrastructure; and
-- Multiple potential markets at an early stage of development:
Thruvision was originally developed for the counter-terrorism
market but has now also demonstrated applicability in other
markets, namely customs applications (cash and narcotics smuggling)
and loss-prevention (theft from warehouses).
In summary, the Directors believe that a substantial new
international market, measured in tens of thousands of units over
the next five years, is becoming available and that, with the
Thruvision Business's key differentiators now in place, there is an
opportunity and focus to drive rapid, organic and profitable growth
of Thruvision as a standalone business.
Proposed change of name and management changes
The Company proposes to change its name to "Thruvision Group
plc" on Completion to reflect better the business of the Continuing
Group. As a result of the change of name, with effect from
Completion the Ordinary Shares will trade under the new TIDM
"THRU".
As stated in the Final Results, following Completion, the
following Board changes will become effective:
-- Zak Doffman, the Company's Chief Executive Officer, will join
the Video Business on Completion;
-- Tom Black, Non-executive Chairman, will become Executive Chairman on Completion;
-- Colin Evans, Chief Operating Officer, will become Managing Director on Completion; and
-- Sharon Cooper, Chief Financial Officer, will leave the
Company following a short transition period.
Bernie Waldron will also be stepping down from his position as a
Non-executive Director with effect from the Company's forthcoming
annual general meeting.
Commenting on the Disposal, Tom Black, Executive Chairman of
Digital Barriers, said:
"We are pleased to have reached a conditional agreement to sell
the Group's Video Business. I am confident that Volpi in
partnership with Zak Doffman and his talented team will secure a
strong future for the Video Business and I wish them well. The
disposal will leave Thruvision on a stronger footing with a clear
focus and a strong balance sheet. It is on that basis that my Board
colleagues and I recommend that Shareholders vote in favour of the
proposals to be put to them."
For further information please contact:
Digital Barriers plc
Tom Black, Non-Executive Chairman
Colin Evans, Chief Operating
Officer +44 (0)20 3553 5888
Investec Bank plc (Financial
Adviser, NOMAD & Broker)
Andrew Pinder / Sebastian Lawrence
/ Patrick Robb +44 (0)20 7597 5970
FTI Consulting LLP
Edward Bridges / Matt Dixon
/ Harry Staight +44 (0)20 3727 1000
About Digital Barriers:
Digital Barriers provides visually intelligent solutions to the
global surveillance, security and safety markets. We deliver
zero-latency streaming and analysis of secure video and related
intelligence over wireless networks, including cellular, satellite,
IP mesh and cloud, utilising significantly less bandwidth than
standard technologies.
Our rapidly-installed fixed and mobile solutions for covert,
remote and wide-area deployments, as well as vehicle and body-worn
applications, have been sold into more than fifty countries, and
have been proven in some of the world's most demanding operational
environments. We also provide advanced video content analysis and
body scanning to identify safety concerns and threats in real-time.
www.digitalbarriers.com
ENDS
Appendix
Definitions
The following definitions apply throughout this announcement
unless the context provides otherwise:
"AIM" the AIM Market operated by the
London Stock Exchange
"AIM Rules" the AIM Rules for Companies published
by the London Stock Exchange from
time to time
"Asset Transfer the asset transfer agreement to
Agreement" be entered into between (1) Digital
Barriers Services Limited (2) Thruvision
Limited and (3) the Company
in connection with the transfer
of the Thruvision Business to Thruvision
Limited
"Company" or Digital Barriers plc, a company
"Digital Barriers" incorporated and registered in
England and Wales under the Act
with registered number 07149547
"Completion" completion of the sale and purchase
of the whole of the issued share
capital of each of the Target Companies
in accordance with the Share Purchase
Agreement
"Continuing the Company and its subsidiary
Group" undertakings following Completion
and "Continuing Group Company"
shall mean any one of them
"Directors" the directors of the Company or
or "Board" any duly authorised committee thereof
"Disposal" the proposed disposal by the Company
of the Video Business pursuant
to the Share Purchase Agreement
"Existing Group" the Company and its subsidiary
undertakings as at the date of
this announcement (including, without
limitation, the Target Companies)
"General Meeting" the General Meeting of the Company
to be held at 10.00 a.m. on 26
October 2017, notice of which will
be set out at the end of the Circular
"Independent the Directors other than Zak Doffman
Directors"
"Investec" Investec Bank plc, the Company's
nominated adviser and broker
"London Stock London Stock Exchange plc
Exchange"
"Ordinary Shares" ordinary shares of one penny each
in the capital of the Company
"Purchaser" Project Gateway Bidco Limited,
or "Volpi" a subsidiary of Volpi Capital LLP
"Resolutions" the resolutions to be set out in
the notice of General Meeting
"Share Purchase the conditional share purchase
Agreement" agreement dated 7 October 2017
and made between the Company and
the Purchaser
"Shareholders" holders of Ordinary Shares
and each a "Shareholder"
"Target Companies" each of:
(a) Digital Barriers Services Limited;
(b) Digital Barriers ME FZ-LLC;
(c) Digital Barriers PTE Ltd;
(d) Digital Barriers SAS;
(e) Digital Barriers Inc.; and
(f) Digital Barriers SDN BHD
"Transaction together, the Share Purchase Agreement,
Documents" Transitional Services Agreement
and the Asset Transfer Agreement
"Transitional the transitional services agreement
Services Agreement" to be entered into between the
Purchaser and the Company in connection
with the provision of certain services
between the parties following Completion
"Thruvision all of the business carried on
Business" or by the Existing Group in relation
"Thruvision" to the development, manufacture,
supply and support of passive,
TeraHertz people-screening technology
and accessories for the global
security technology market, comprising
government and commercial customers,
both directly and via selected
commercial partners
"US" or "United the United States of America, each
States" State thereof, its territories
and possessions (including the
District of Columbia) and all other
areas subject to its jurisdiction
"Video Business" all of the business of the Existing
Group other than the Thruvision
Business
This information is provided by RNS
The company news service from the London Stock Exchange
END
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