18 March 2020
Altitude Group plc
(the "Company" or "Altitude")
Proposed disposal of the trade and certain assets of AdProducts
Notice of General Meeting
and
Directorate Change
Altitude Group Plc (AIM: ALT), the operator of the leading marketplace for personalised products, today announces the Company's wholly owned subsidiary Customer Focus Interactive Imaging Limited ("CFIIL") has entered into a conditional agreement with Product Source Group Limited ("PSG") for the disposal of the trade and certain assets of AdProducts ("ADP"), the trading name of CFIIL and a UK based trade supplier and printer of promotional products (the "Disposal").
As the Disposal will require shareholder approval a shareholder circular together with a Notice of General Meeting (the "Notice") and associated form of proxy will be sent to shareholders today and will be made available on the Company's website at www.altitudeplc.com. The General Meeting will be convened at finnCap Ltd, 60 New Broad Street, London EC2M 1JJ at 11.00 a.m. on 3 April 2020.
Highlights
· Total maximum consideration of £0.8 million made up as follows:
o £0.35 million in cash on completion;
o £0.3 million receivable in 4 tranches over the 12-month period following completion, subject to a personal guarantee of Martin Varley; and
o £0.15 million conditional deferred consideration with performance criteria based on ADP revenue generation in the 12-month period following completion.
· In addition, the Company expects to realise further cash of circa £0.4m from the unwind of retained ADP working capital not included in the disposal.
· The Company will use the proceeds from the Disposal to continue to invest in the AIM Smarter business in the United States where the Company continues to focus on engagement with, and service provision to, both sides of the AIM Smarter marketplace.
· PSG was created to acquire the assets of ADP and other similar supplier businesses and is led by trade supplier veteran Diane Anderton (previously of 4imprint/Brand Addition and SPS EU) and certain others industry experts that combined will be interested in 45% of PSG.
· PSG is currently owned and controlled by Joanne Varley, wife of Martin Varley who is a Non-Executive Director of and a 14.8 percent. shareholder in Altitude. The Disposal, therefore, is considered a related party transaction for the purposes of the AIM Rules and a substantial property transaction under the Companies Act.
· Under the Companies Act the Disposal is therefore conditional, amongst other things, on the approval of Shareholders at a General Meeting.
Background to and reasons for the disposal
The Company completed the acquisition of the trade and certain assets of ADP for cash consideration of £0.75 million on 2 June 2017. The acquisition of ADP was completed in order to support the UK launch of Channl.com which was an early iteration of what has subsequently been developed and refined to become what is now known as AIM Smarter. Following the acquisition of Aim Smarter in January 2019 the strategic focus of the Company has moved into this new membership model mainly focussed in North America as that market, and the Company's access to it through the Aim Smarter platform, represents the best opportunity to generate value and shareholder returns.
The Company is in the process of rebranding all its operations as AIM Smarter to reflect a singular and cohesive approach to the markets in the North America and the UK.
On 15 August 2019 the Company announced that it had received an unsolicited approach from a third party interested in potentially acquiring ADP.
The Company engaged Sentio Partners, a third-party corporate finance consultancy to manage and oversee the engagement of all interested parties, including PSG, a company controlled by Mrs Joanne Varley, the wife of Martin Varley. The Independent Directors (being all those save for Martin Varley) carefully considered all the offers made for the business together with the advice provided by Sentio Partners and are of the view that the offer is the best offer available and that the value potential and market opportunity available to the Company via the AIM Smarter platform in the US, means that it is in the best interests of the Company to focus all possible resources on AIM Smarter.
Financial information in relation to the disposal
In the year ended 31 December 2018 Altitude generated revenues of £6.6 million, an adjusted EBITDA* loss of £0.8 million and an operating loss before taxation of £2.7 million of which ADP contributed revenues of £3.7 million, an adjusted EBITDA* of £0.1 million and a break even at an operating level. The net assets of ADP subject to disposal as at 31 December 2018 amounted to £2.1 million.
* Operating profit before share-based payment charges, amortisation of intangible assets, depreciation of tangible assets and exceptional charges
Related party transaction
PSG is owned and controlled by Joanne Varley, the wife of Martin Varley, a Non-Executive Director of and 14.8 per cent. shareholder in Altitude, and therefore the Disposal constitutes a related party transaction for the purposes of Rule 13 of the AIM Rules for Companies and as a substantial property transaction under the Companies Act.
For the purposes of the AIM Rules, the Independent Directors, having consulted with the Company's Nominated Adviser, finnCap Ltd, consider the terms of the Related Party Transaction to be fair and reasonable insofar as the Company's Shareholders are concerned.
Proposed directorate change
Martin Varley, Non-Executive Director, has informed the board of his decision to stand down from the board and the Company at the same time as the completion of the Disposal. Martin has made this decision in recognition of the Company's shift of operational focus to the USA. Martin has been instrumental in the formation of the Group and the execution of the strategic expansion in the US. Whilst Martin will continue to be permanently available to the Board for consultation, he believes it is the right time to step down. The board thank him for his immense contribution over the years.
Trading and market update
The Company will release a detailed trading update for the 12-month period to 31 December 2019 on 23 March 2020. The Directors considered that the financial performance up to 31 December 2019 demonstrated that the Company was on target to achieve market expectations for the 15-month period to 31 March 2020.
Early indications also show that trading during January and February 2020 was strong although this has inevitably changed in recent weeks as the impact of the Covid-19 outbreak has started to take hold. At this time, it is too early to establish the impact of COVID-19 for February and March 2020 on the orders to our preferred supply partners and therefore the Directors cannot be certain of the full effect that this has had on trading and its implications for the period as a whole. Similarly, given the high level of uncertainty arising from the global pandemic and its unprecedented effect on the markets that we serve, we are unable to give any guidance for the 12 months trading period to the end of March 2021. We will provide further market updates as appropriate.
Nikki Stella, CEO of Altitude PLC said:
"The process for this disposal was well advanced when the full impact of the Covid-19 virus on this business started to be understood just a few days ago. We are therefore very appreciative that this disposal has been able to be agreed with Diane Anderton and her team at PSG despite substantially changed market conditions. We wish them every success for the future and look forward to welcoming them as a supplier partner to Aim Smarter UK.
During this unprecedented time the entire AIM Smarter team remains focused and is assisting both our members and suppliers to navigate COVID-19. We will update the market as appropriate"
Enquiries:
Altitude Group plc Nichole Stella, Chief Executive Officer Graeme Couturier, Chief Financial Officer Peter Hallett, Non-Executive Chairman |
Via Instinctif - 020 7457 2020 |
finnCap ltd Scott Mathieson (Corporate Finance) Charlie Beeson (Corporate Finance) Richard Chambers (ECM) |
020 7220 0500 |
Instinctif Partners (Financial PR) Matthew Smallwood Chantal Woolcock |
020 7457 2020 |
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Shareholders should read the whole Circular and not just rely on the information contained in this announcement. The following text is an extract from the Circular.
information on Altitude group
The B2B market for promotional products in the United States is estimated to be worth approximately $24.7 billion per annum, with an estimated c.23,000 distributors selling to end buyer companies. Approximately 76 per cent. of transactions are carried out offline (defined as an order placed by a consumer thorough traditional means and not via an online store or website). However, this percentage increases to approximately 90 per cent. for smaller distributors who comprise approximately 42 per cent. of the market. Altitude has developed a marketplace that enable distributors to trade both offline and online.
In January 2019, Altitude acquired the trade and certain assets of AI Mastermind LLC, its key distributor partner. AI Mastermind, now AIM Smarter LLC (AIM Smarter), represents the largest distributor network in the United States. AIM Smarter has a rapidly growing membership base with 2,246 members today, representing approximately 10 per cent. of US distributors by number. The Group now provides services across a significant section of the marketplace, driving adoption of its technology tools and building revenue growth opportunities.
In the UK, Altitude services the UK promotional products market by providing industry tailored design, marketing, product search, website and company store technology services, including Promoserve, a cloud-based ERP and order management system to distributors and suppliers predominately on a "software as a service" basis. The company's software maintenance and development is also located in the UK. In addition, the business has operated the ADP business in the UK.
Information on AdProducts Limited
ADP was acquired by Altitude for cash consideration of £0.75 million in June 2017. ADP is a UK based trade supplier and printer of promotional products.
The product range that ADP supplies is tailored towards current market interests along with a number of best-selling product lines, all sourced with competitive value in mind. From office supplies, drinkware, writing instruments to travel and leisure, ADP has a selection of items to suit a variety of interests and tastes.
BACKGROUND TO AND REASONS FOR THE DISPOSAL
The Company completed the acquisition of the trade and certain assets of ADP for cash consideration of £0.75 million on 2 June 2017. The acquisition of ADP was completed in order to support the UK launch of Channl.com which was an early iteration of what has subsequently been developed and refined to become what is now known as AIM Smarter. Following the acquisition of AIM Smarter in January 2019 the strategic focus of the Company has moved into this new membership model mainly focused in North America as that market, and the Company's access to it through the Aim Smarter platform, represents the best opportunity to generate value and shareholder returns.
The Company is in the process of rebranding all its operations as AIM to reflect a singular and cohesive approach to the markets in the North America and the UK.
On 15 August 2019 the Company announced that it had received an unsolicited approach from a third party interested in potentially acquiring ADP.
The Company engaged Sentio Partners, a third-party corporate finance consultancy to manage and oversee the engagement of all interested parties, including PSG, a company controlled by Mrs Joanne Varley, the wife of Martin Varley. The Independent Directors (being all those save for Martin Varley) carefully considered all the offers made for the business together with the advice provided by Sentio Partners and are of the view that the offer is the best offer available and that the value potential and market opportunity available to the Company via the AIM Smarter platform in the US, means that it is in the best interests of the Company to focus all possible resources on AIM Smarter.
On completion of the disposal, Martin Varley has indicated his intention to step down from the Board with immediate effect, recognising the shift of operational focus to the US. Martin has been instrumental in the formation of the Group and the execution of the strategic expansion in the US. Whilst he will continue to be permanently available to the Board for consultation, he believes it is the right time to step down. The board thank him for his immense contribution over the years.
FINANCIAL INFORMATION IN RELATION TO THE DISPOSAL
In the year ended 31 December 2018 Altitude generated revenues of £6.6 million, an adjusted EBITDA* loss of £0.8 million and an operating loss before taxation of £2.7 million of which ADP contributed revenues of £3.7 million, an adjusted EBITDA* of £0.1 million and a break even at an operating level. The net assets of ADP subject to disposal as at 31 December 2018 amounted to £2.1 million.
* Operating profit before share-based payment charges, amortisation of intangible assets, depreciation of tangible assets and exceptional charges
PRINCIPAL TERMS OF THE DISPOSAL
Under the terms of the Disposal Agreement, which was entered into on 17 March 2020, Altitude has conditionally agreed to sell the trade and certain of the assets of ADP to PSG.
The purchase price for the trade and assets of ADP is up to £800,000 in cash, payable as follows:
· £350,000 cash payable on Completion;
· A further £300,000 cash payable in instalments over the 12 month period following Completion;
· A further £150,000 dependent on the revenues of the Disposed business in the 12 months following Completion being at least 95% of the comparable revenues in the 12 months prior to Completion.
The Disposal is conditional, amongst other things, upon the approval of Shareholders at the General Meeting. The parties may terminate the Disposal Agreement by mutual consent, and it will automatically lapse if Completion has not occurred before 31 May 2020.
The Disposal Agreement is entered into between CIFL, a subsidiary of the Company, and PSG. CIFL has given customary warranties as to the state of the ADP business unit, with customary limitations of liability, including a requirement that any claim for breach of warranty is made within 18 months of Completion.
Generally speaking, CFIL has retained liabilities of the business up to the date that the ADP business is sold, and PSG is responsible for all liabilities arising thereafter. CFIL has also agreed that neither it, nor the rest of the Company's group, will compete with the ADP business for a period of five years from Completion.
USE OF PROCEEDS
The Company will use the proceeds from the Disposal to continue to invest in the development and implementation of the AIM Smarter business in the United States. The Company continues to focus on engagement with, and service provision to, both sides of the AIM Smarter marketplace.
The Continuing Group following the Disposal
Strategy
Our business model has changed significantly following the acquisition of AIM with three major routes to revenue growth:
· Continued growth in the AIM membership of high-quality promotional product distributors
· Delivering added value services, leveraging existing applications, technology, resources and expertise, to help selected preferred supplier partners grow their share of the total AIM purchase pipeline. The pricing model is based on a percentage fee across all orders received by the preferred supplier regardless of how the order is placed, whether online, by phone, email, fax, etc.
· Develop and sell additional added value services, leveraging its existing applications, resources and expertise, to help AIM distributor members grow their businesses
Following the acquisition of AIM, revenue derived from suppliers is no longer solely reliant on orders being placed on our AIMPro platform. Suppliers signing to the new post-acquisition Preferred Supplier Program agree to pay for the marketing services, technology tools and access to the membership that we provide in exchange for a percentage of all orders received from the total AIM membership, not just from the limited subset of members placing orders on AIMPro. They also agree to offer lowest pricing to AIM members irrespective of order size ("EQP" - end quantity pricing).
With the integration of the business now complete, we are very focused on working collaboratively with our network of Preferred Suppliers and our AIM membership. Utilizing our technology platforms and websites, marketing packages, and streamlined order processing capabilities, AIM drives awareness and grows sales for both our Preferred Supplier partners to our AIM members and grows sales for our AIM members to their clients. Through providing marketing and technology services to our members and Preferred Supplier partners, we are creating a virtuous growth cycle for the AIM marketplace.
Following the disposal of ADP, the Company intends to rebrand its UK operations as AIM UK and move to a similar model as AIM Smarter. The systems development and maintenance team will continue to reside in the UK.
CURRENT TRADING AND FUTURE PROSPECTS
The Company will release a detailed trading update for the 12-month period to 31 December 2019 on 23 March 2020. The Directors considered that the financial performance up to 31 December 2019 demonstrated that the Company was on target to achieve market expectations for the 15-month period to 31 March 2020.
Early indications also show that trading during January and February 2020 was strong although this has inevitably changed in recent weeks as the impact of the Covid-19 outbreak has started to take hold. At this time, it is too early to establish the impact of COVID-19 for February and March 2020 on the orders to our preferred supply partners and therefore the Directors cannot be certain of the full effect that this has had on trading and its implications for the period as a whole. Similarly, given the high level of uncertainty arising from the global pandemic and its unprecedented effect on the markets that we serve, we are unable to give any guidance for the 12 months trading period to the end of March 2021. We will provide further market updates as appropriate.
RELATED PARTY TRANSACTION
PSG is owned and controlled by Joanne Varley, the wife of Martin Varley, a Non-Executive Director of and 14.8 per cent. shareholder in Altitude, and therefore the Disposal constitutes a related party transaction for the purposes of Rule 13 of the AIM Rules for Companies (the "Related Party Transaction") and as a substantial property transaction under the Companies Act.
The Independent Directors, having consulted with the Company's Nominated Adviser, finnCap Ltd, consider the terms of the Related Party Transaction to be fair and reasonable insofar as the Company's Shareholders are concerned.
General Meeting
The Disposal is conditional, among other things, upon Shareholder approval.
A notice is set out at the end of the Circular convening the General Meeting to be held at the offices of finnCap Ltd, 60 New Broad Street, London EC2M 1JJ at 11:00 a.m. on 03 April 2020. Resolutions will be proposed at the General Meeting to seek the approval of the Shareholders to the Disposal and authorise the Directors, or any committee of Directors, to take all steps to implement the Disposal.
Further information
The expected timetable of principal events for the Disposal can be found in the Circular. Further information regarding the Disposal and the principal terms and conditions of the Disposal Agreement is set out above.
Your attention is drawn to the further information contained in the Notice of General Meeting which forms part of the Circular, as well as to the Form of Proxy which accompanies the Notice of General Meeting.
RECOMMENDATION AND IRREVOCABLE UNDERTAKINGS
The Independent Directors consider the Disposal to be in the best interests of the Company and its Shareholders as a whole and accordingly unanimously recommend that Shareholders vote in favour of the Resolution to be proposed at the General Meeting as they intend to do so in respect of their own beneficial holdings amounting, in aggregate, to 1,761,185 Ordinary Shares, representing approximately 2.54 per cent. of the Ordinary Shares.
