RNS No 9090v
INSPEC GROUP PLC
14th April 1998
Inspec Group plc
Disposal of the business of Inspec Belgium
* The Board of Inspec Group plc ("Inspec") announces that it has today
entered into conditional agreements with Ineos plc ("Ineos") for the
disposal of the Antwerp Business for approximately #84 million of which
some #2 million represents cash retained by the Company.
* The Antwerp Business produces commodity chemicals (ethylene oxide and
glycol) and speciality chemicals (primarily ethylidenenorbornene). In
addition, it provides a wide range of operations and services to third
parties based at its Antwerp site.
* Ineos is a newly formed company led by James Ratcliffe (who is
currently Group Managing Director of Inspec).
* Following the disposal, Inspec will be a focused speciality and fine
chemicals group. The Board believes the disposal will enhance
shareholder value by:
* consolidating the Group's position as a focused speciality and fine
chemicals producer;
* enabling the Group to significantly reduce its debt;
* allowing the Group to develop its speciality and fine chemicals
businesses; and
* addressing certain investor concerns about the Group's exposure to
the cyclical nature of EO/Glycol whilst retaining a secure long
term supply of EO at competitive rates.
* In view of the significance of the Disposal and because of the
involvement of James Ratcliffe, it is conditional on the approval of
Inspec Shareholders.
* Commenting on the Disposal, Dr. John Hollowood, Chairman of Inspec
said:
"This disposal represents an important step in the Group's development.
Against the background of changing market dynamics, the agreement with
Ineos represents an attractive opportunity to eliminate our exposure to
the cyclical nature of commodity chemicals and in particular, EO/Glycol.
Following the disposal the Group will be a strongly capitalised focused
speciality and fine chemicals producer with an excellent product
portfolio."
There will be a meeting for analysts today at 2.30 p.m. at Financial Dynamics,
30 Furnival Street, London EC4.
Enquiries
Dr. John Hollowood Inspec Group plc 01703 894666
Jeremy Lucas Deutsche Morgan Grenfell 0171 545 8000
Adrian Fisk
Charles Watson Financial Dynamics 0171 831 3113
Deutsche Morgan Grenfell, which is regulated by the Securities and Futures
Authority Limited, is acting exclusively for Inspec Group plc and for no one
else and will not be responsible to any other person for providing protections
afforded to customers of Deutsche Morgan Grenfell or advising any other
person.
Inspec Group plc
Disposal of the business of Inspec Belgium
Introduction
The Board of Inspec Group plc ("Inspec") announces that it has today entered
into conditional agreements to sell the Antwerp Business to Ineos plc
("Ineos"), a newly formed company led by James Ratcliffe (who is currently
Group Managing Director of Inspec), for approximately #84 million of which
some #2 million represents cash retained by the Company.
In view of the significance of the Disposal and because of the involvement of
James Ratcliffe and certain directors of Inspec Belgium, it is conditional on
the approval of Inspec Shareholders. A circular will shortly be sent to
Inspec Shareholders setting out details of the Disposal and containing a
notice of an Extraordinary General Meeting at which a resolution to approve
the Disposal will be proposed. The Disposal is also conditional, inter alia,
on Ineos securing a proportion of its finance for the acquisition from the
high yield bond market.
Information on the Antwerp Business
Inspec Belgium is a wholly owned subsidiary of Inspec based in Antwerp,
Belgium. It produces both commodity chemicals and speciality chemicals which
are principally sold to other chemical companies. These products are marketed
through Inspec's international sales network.
Inspec Belgium's commodity business produces EO (ethylene oxide), which is
used as a raw material for a wide range of chemical products. EO is a key raw
material used in the continuing Inspec Group's coatings and synthetic
lubricants businesses. Inspec Belgium also converts EO into Glycol, a
commodity chemical which is used in the manufacture of polyester fibres,
resins and antifreeze. For the year ended 31st December, 1997 the Antwerp
Business generated turnover of #92.4 million and operating profit of #13.1
million from EO/Glycol.
Inspec Belgium's speciality chemicals business principally produces ENB
(ethylidenenorbornene) used mainly in the production of a synthetic rubber.
In addition, Inspec Belgium provides a wide range of operating services to
third parties which own or operate plants on its site. For the year ended
31st December, 1997 the speciality chemicals and third party businesses
generated, in aggregate, turnover of #48.1 million and operating profit of
#6.4 million.
The net assets of the Antwerp Business as at 31st December, 1997 were #82.6
million. Further financial information on the Antwerp Business is set out in
Appendix I.
Background to and reasons for the Disposal
The acquisition of Inspec Belgium from BP in May, 1995 was an important step
in Inspec's development, providing Inspec with an assured supply of EO and a
high quality European manufacturing base. The acquisition was immediately
earnings enhancing and has been highly cash generative. The acquisition was
also of strategic importance as it gave the Group critical mass which enabled
it to acquire the Shell fine chemicals business in July, 1996.
After a strong performance in 1995, the Antwerp Business experienced a
downturn in 1996, despite the significant achievements of management in
growing the speciality chemicals portfolio to offset the cyclical nature of
the EO/Glycol business. Glycol prices and margins fell significantly and
competition from a new ENB producer led to reduced sales volumes. These
changing market dynamics and the Group's increasing focus on speciality and
fine chemicals following the acquisition of the Shell fine chemicals business
prompted the Board to review the Group's exposure to EO/Glycol. The Board
considered a number of options to reduce this exposure and, notwithstanding
the upturn in the Antwerp Business in 1997, concluded that a sale of that
business was the best option for the Group. The Directors are satisfied that
the agreements entered into with Ineos represent a timely opportunity to exit
this business.
Following the Disposal, Inspec will be a focused speciality and fine chemicals
group with a much stronger balance sheet. Whilst the Disposal will be earnings
dilutive in the short term, the Board believes the benefits of exiting the
commodity chemicals market will enhance shareholder value by:
* consolidating the Group's position as a focused speciality and fine
chemicals producer;
* enabling the Group to significantly reduce its debt;
* allowing the Group to develop its speciality and fine chemicals
businesses; and
* addressing certain investor concerns about the Group's exposure to the
cyclical nature of EO/Glycol whilst retaining a secure long term supply
of EO at competitive rates.
Financial effects of the Disposal and use of proceeds
Ineos has agreed to purchase the Antwerp Business for approximately #84
million of which some #2 million represents cash retained by the
Company. The consideration will be satisfied in cash and the net proceeds of
the Disposal will be used to reduce Group debt. Pro forma gearing as set out
in the pro forma statement of net assets in Appendix II of this document will
be 77 per cent. following the Disposal.
Terms and conditions of the Disposal
The Sale Agreement is conditional, inter alia, on the approval of Inspec
Shareholders and on Ineos' financing becoming unconditional in all respects.
A condition of Ineos' financing is that it raises a substantial proportion of
the consideration for the acquisition of the Antwerp Business from the high
yield bond market. Ineos' bond issue is being led by BT Alex. Brown which has
confirmed in writing that it is highly confident that it will be able to raise
sufficient funds. It is anticipated that the bond issue will close on or
about the date of the Extraordinary General Meeting.
Under the Sale Agreement, Ineos will enter into a long term contract to
provide Inspec with all its EO requirements at competitive market rates.
The Sale Agreement also contains provisions which allow Inspec to participate
in (i) any profit on the sale of all or certain parts of the Antwerp Business
by Ineos within two years of completion; (ii) profits in excess of a specified
return in the third year after completion; and (iii) any "super profits" up to
a total of #5 million generated from EO/Glycol.
Current trading and prospects
In the report and accounts for the year ended 31st December, 1997, published
on 3rd March, 1998, Dr. John Hollowood, Chairman of Inspec, reported as
follows:
"The strength of sterling remains the largest threat to our UK based
businesses offset by opportunities for our continental European
businesses as a result of their more competitive currencies. The impact
of the Far East crisis on the Group is expected to be limited, except
for Glycol where prices have suffered due to lower demand and the
anticipated effect of additional new production capacity due on stream
in 1998.
Overall, Inspec enters 1998 with a positive outlook. Demand for most of
our speciality and fine chemicals products remains firm and growth is
anticipated from the capital investments in capacity enlargement made in
1997."
Since that date, sterling has continued to strengthen and it is clear that
1998 will be a challenging year for the continuing Inspec Group if sterling
remains at its current levels.
The Antwerp Business has performed well in the first quarter. However, the
Board anticipates that Glycol margins will fall due to a combination of
increased competition and the Asian crisis. Therefore, prospects for the
EO/Glycol business for the rest of the year remain uncertain. The outlook for
the speciality business remains positive.
Board changes and eligibility to vote at the Extraordinary General Meeting
James Ratcliffe, who is currently Group Managing Director of Inspec, is
leading the management team in its offer and will be a shareholder in Ineos
Group Limited which owns Ineos. A group of investors including James
Ratcliffe and his affiliates, Murray Johnstone (an institutional equity
provider) and certain members of the Antwerp Business' management, will own
all of the shares of Ineos Group Limited and accordingly will exercise
effective control over Ineos. On completion of the Disposal, James Ratcliffe
will resign from the Inspec Board. A successor to James Ratcliffe will be
appointed in due course and until then, Dr. John Hollowood and the Divisional
Managing Directors will share the duties currently performed by the Group
Managing Director.
In view of James Ratcliffe's association with Ineos, the Board appointed an
independent committee of the Board, chaired by Peter Savage, to oversee the
Disposal. At the Company's 1998 annual general meeting, Peter Savage will
become Non-Executive Deputy Chairman of Inspec.
As James Ratcliffe has an interest in the Disposal, he has taken no part in
the Board's discussions on the Disposal. Furthermore, neither he, nor any
associate of his, nor any other member of the board of directors of Inspec
Belgium, (other than Andrew Currie who is not part of the management team
investing in Ineos and who will resign as a director of Inspec Belgium on
completion of the Disposal) or any of their associates, will be eligible to
vote at the Extraordinary General Meeting.
Inspec 1996 Employee Share Scheme
At the time of the Company's rights issue in 1995 to finance the acquisition
of Inspec Belgium, the Company established the 1995 Scheme. Under the terms
of the 1995 Scheme, a trust company, Musley Limited, was established to
acquire the shares to which eligible employees who elected to participate in
the 1995 Scheme would otherwise have been entitled under the rights issue.
The cost of acquiring those shares was financed by a loan from the Company to
Musley Limited. Eligible employees who elected to participate in the 1995
Scheme were granted options over these shares. A similar scheme, the 1996
Scheme, was established at the time of the Company's rights issue in 1996 to
finance the acquisition of the Shell fine chemicals business.
In the event, inter alia, that any options granted under the schemes are not
exercised by 31st December, 1998 (in the case of the 1995 Scheme) or 31st
December, 2000 ( in the case of the 1996 Scheme) those options will lapse. In
those circumstances, depending on the price at which the lapsed shares may be
sold by Musley Limited, the Company may not recover the whole of the amount
advanced by it together with interest.
Pursuant to the terms of the 1996 Scheme, on completion of the Disposal,
options held by employees of Inspec Belgium (including James Ratcliffe) under
the 1996 Scheme will fully vest. The remaining options under the 1996 Scheme
will vest over a period of two years, subject to the fulfilment of the
performance criteria set out in the rules of that scheme. In the case of the
continuing Directors of Inspec and their wives, exercise of these options is
subject to certain additional performance criteria. The Sale Agreement
provides that employees of Inspec Belgium who hold options under the 1996
Scheme will undertake to Inspec to exercise those options, together with all
options held under the 1995 Scheme, prior to 31st December, 1998. In relation
to options held by employees of Inspec Belgium under the 1996 Scheme, Ineos
has undertaken to bear the risk of any non-recovery of the loan funding the
1996 Scheme which may occur as a result of circumstances outlined in the
previous paragraph.
Convertible Inspec Belgium loan stock
The Convertible Inspec Belgium loan stock scheme was established to enable
eligible employees to participate in any increase in the value of the Antwerp
Business. In normal circumstances, the Convertible Loan Stock ("Loan Stock")
is convertible into ordinary shares during the fifth, sixth and seventh years,
in three equal instalments. On completion of the Disposal, in accordance with
the deed establishing the Loan Stock, that stock will fully convert into
ordinary shares at a specified conversion rate.
Other schemes
On completion of the Disposal certain employees of Inspec Belgium (including
James Ratcliffe) will also be entitled to exercise options previously granted
to them under Inspec's Savings Related Share Option Scheme, Approved Executive
Share Option Scheme and 1996 Share Option Scheme.
Enquiries
Dr. John Hollowood Inspec Group plc 01703 894666
Jeremy Lucas Deutsche Morgan Grenfell 0171 545 8000
Adrian Fisk
Charles Watson Financial Dynamics 0171 831 3113
Deutsche Morgan Grenfell, which is regulated by the Securities and Futures
Authority Limited, is acting exclusively for Inspec Group plc and for no one
else and will not be responsible to any other person for providing protections
afforded to customers of Deutsche Morgan Grenfell or advising any other
person.
Appendix I
Financial information on the Antwerp Business
1. Basis of preparation
The Antwerp Business comprises a manufacturing operation based in Antwerp and
a UK based sales division. The unaudited financial information set out below
has been extracted, without material adjustment, from the consolidated returns
relating to those entities. The amounts on the consolidation returns were
included within the consolidated financial statements of the Inspec Group for
each of the three years ended 31st December, 1997, all of which have been or
will be delivered to the Registrar of Companies in compliance with the Act.
The auditors' reports under Section 235 of the Act on each of these financial
statements were unqualified and did not contain statements under Sections
237(2) or (3) of the Act.
The financial information comprises combined profit and loss accounts for the
nine months and two years ended 31st December, 1997 and a combined statement
of net assets at 31st December, 1997. The financial information has been
prepared in accordance with UK generally accepted accounting principles and
Inspec Group accounting policies other than as disclosed in note (1) below.
2. Profit and loss account
9 months Year Year
ended 31st ended 31st ended 31st
December, December, December,
1995 1996 1997
#'000 #'000 #'000
Turnover
- EO/Glycol 59,524 68,640 92,386
- Speciality 40,738 39,976 48,105
- Total 100,262 108,616 140,491
Gross profit 28,562 17,412 30,438
Net operating expenses
- Before group central (8,943) (6,576) (6,067)
(charges)/credits
- Group central (2,500) 1,390) (4,921)
(charges)/credits
(11,443) (5,186) (10,988)
Operating profit
- EO/Glycol 12,447 6,390 13,051
- Speciality 7,754 5,836 6,399
- Exceptional costs
(3,082) - -
Total 17,119 12,226 19,450
Notes
(1) It is not possible to apportion a funding cost or tax charge to the
Antwerp Business, as these reflect the overall corporate structure of
the Inspec Group. Accordingly, the combined profit and loss accounts
have been drawn up to profit on ordinary activities before interest and
tax.
(2) The financial information commences on 1st April, 1995, the date of
acquisition of the Antwerp Business by the Inspec Group. Audited
financial information is not available for the period from 1st January,
1995 to 31st March, 1995.
(3) Exceptional costs relate to redundancy payments made during the period
ended 31st December, 1995 and were not allocated to the above business
segments.
(4) Intra-group sales which are not included in turnover above amount to
#3.4 million, #2.4 million and #3.6 million for the periods ended 31st
December, 1995, 1996 and 1997, respectively. These numbers are not
included in the consolidated accounts of Inspec Group for any of these
periods.
3. Statement of net assets
As at 31st
December,
1997
#'000
Fixed assets
Tangible assets 72,427
Investments
480
72,907
Current assets
Stocks 8,994
Debtors 30,604
Cash at bank and in hand -
39,598
Creditors: amounts falling due within one year
Borrowings -
Creditors (25,747)
(25,747)
Net current assets
13,851
Total assets less current liabilities 86,758
Creditors: amounts falling due after more than one year -
Provisions for liabilities and charges
(4,205)
Net assets
82,553
Intra-group funding 82,553
Appendix II
Pro forma statement of net assets
Set out below is an unaudited consolidated pro forma statement of the net
assets of Inspec Group following the sale of the Antwerp Business, extracted
without material adjustment from the audited consolidated balance sheet of
Inspec Group as at 31st December, 1997, adjusted for the matters set out in
the notes below. This statement has been prepared for illustrative purposes to
show the effect of the proposed sale of the Antwerp Business and, because of
its nature, may not give a true picture of the consolidated financial position
of Inspec Group.
Adjustments
Inspec Antwerp
Group Business
as at 31st as at 31st
December, December, Pro forma
1997 1997 Proceeds net
#'m #'m #'m assets
#'m
Fixed assets
Tangible assets 192 (72) - 120
Investments 29 (1) - 28
221 (73) - 148
Current assets
Stocks 49 (9) - 40
Debtors 72 (31) - 41
Cash 24 - - 24
145 (40) - 105
Creditors: amounts
falling due within one
year
Borrowings 26 - (26) -
Other creditors 87 (26) - 61
113 (26) (26) 61
Net current assets 32 (14) 26 44
Total assets less 253 (87) 26 192
current liabilities
Creditors: amounts
falling due after more
than one year
Borrowings 146 - (56) 90
Other creditors 5 - - 5
151 - (56) 95
Provisions for
liabilities and charges 15 (4) - 11
Net assets 87 (83) 82 86
Notes
(1) The combined net assets of the Antwerp Business have been compiled as
set out in Appendix I of this document
(2) Proceeds represent the estimated payment of cash of approximately #82
million plus cash of approximately #2 million retained in the Company,
less estimated expenses of #2 million.
(3) The pro forma statement of net assets does not take into account the
trading activities of Inspec or the Antwerp Business since 31st
December, 1997.
(4) Pro forma gearing of the continuing Inspec Group at 31st December, 1997,
based on net borrowings (borrowings less cash) of #66 million and net
assets of #86 million, amounts to 77 per cent.
Appendix III
Definitions
The following definitions apply throughout this document unless the context
requires otherwise:
"Act" the Companies Act 1985 (as amended)
"the Antwerp Business" Inspec Belgium, together with the business of the sale
of the products produced by that company
"BT Alex. Brown" BT Alex. Brown International, a division of Bankers
Trust International PLC
"Board" or "Directors" the board of directors of the Company
"BP" the British Petroleum Company plc
"continuing Inspec Group" the Inspec Group immediately following
completion of the Disposal
"Deutsche Morgan Grenfell" Deutsche Bank AG London
"Disposal" the proposed disposal of the Antwerp Business
"Extraordinary General an extraordinary general meeting of the Company to
be convened for
Meeting" the purpose of approving the Disposal
"Ineos" Ineos plc
"Inspec Belgium" Inspec Belgium N.V., a wholly owned subsidiary of
Inspec
"Inspec" or "Company" Inspec Group plc
"Inspec Group" Inspec and its subsidiary undertakings
"Inspec Shareholders" or holders of ordinary shares in Inspec
"Shareholders"
"ordinary shares" ordinary shares of 2p each in Inspec
"Sale Agreement" together the conditional agreements entered into
between, (i) Inspec Group B.V., the Company and Ineos
and (ii) Inspec UK Limited, the Company and Ineos,
each dated 14th April, 1998 to effect the Disposal
"1995 Scheme" Inspec 1995 Employee Share Scheme
"1996 Scheme" Inspec 1996 Employee Share Scheme
END
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