TIDMVELO
RNS Number : 8677G
Velosi Limited
09 February 2010
Velosi Limited ("Velosi" or the "Group") announces that it has acquired
the Velosi trading name in Malaysia and entered into a
licensing agreement with Velosi Malaysia
and
trading update
Highlights
· Velosi has acquired the Velosi trading name in Malaysia for GBP4.34
million, to be satisfied by the issue of up to 4.76 million ordinary shares.
· Simultaneously, Velosi has also signed a licensing agreement with Velosi
Malaysia under which it will receive an annual license fee
· Under the License Agreement Velosi Malaysia will continue to operate
under the 'Velosi' name and will henceforward be able to draw upon Velosi's more
extensive expertise, services and accreditations
· The two businesses will now be able to work closely together, offering
clients in Malaysia a significantly broader range of services under the one
brand
· The License Agreement will be immediately earnings enhancing for the
Group and is expected to be mutually beneficial to both the Group and Velosi
Malaysia
· Trading in line with expectations for 2009; anticipate continued growth
in 2010
Introduction
Velosi Limited , the AIM listed provider of asset integrity, quality assurance,
quality control, engineering and HSE services to major national and
multinational oil and gas companies, is pleased to announce that it has today
entered into an agreement to acquire the Velosi trading name in Malaysia (the
"Trade Name") from Mohamed Ashari Bin Abas ("Mohd Ashari") and Dato Mohd Jai Bin
Suboh ("Mohd Jai") (together the "Vendors") for a consideration of up to RM23.3m
(GBP4.34m) (the "Consideration") (the "Trade Agreement"), to be satisfied by the
issue of up to 4.76m new ordinary shares of US0.02 each (the "Consideration
Shares") based on the weighted average closing middle market price of 91.25
pence per share for the three business days prior to date of the Trade Agreement
dated today.
In addition, the Group has also entered into a separate agreement with Velosi
(M) Sdn. Bhd. ("Velosi Malaysia") under which the Group will license, on an
ongoing basis, the Trade Name and intellectual property of the Group to Velosi
Malaysia, in return for Velosi Malaysia paying an annual licensing fee to the
Group (the "License Agreement"). As a result, Velosi Malaysia will continue to
use the 'Velosi' name. The annual licensing fee payable to Velosi is based on a
percentage of Velosi Malaysia's audited annual profit before tax from operating
activities ("PBT"), which the directors of Velosi (the "Directors") estimate
will be in the range of approximately 5.0 to 7.0 per cent. of Velosi Malaysia's
annual revenue.
Background to and reasons for the agreements
Velosi Malaysia was incorporated in April 1982 and was historically the parent
company of the wider Velosi group. Whilst Velosi Malaysia concentrated on
building strong client relationships and further securing its place as a leading
provider of quality assurance and quality control services to its clients within
the Malaysian oil and gas sector, the Group expanded globally and went on to
acquire majority stakes in several specialised industry players, thereby
increasing its existing market share and expanding its service offering. In
their pursuit to fulfil their respective agendas, the Group and Velosi Malaysia
have nevertheless continued to maintain a close working relationship on a number
of client projects.
The Group and Velosi Malaysia are now in a position to further strengthen their
relationship by eradicating the restrictions that once limited the geographical
boundaries to which Velosi and Velosi Malaysia operated. The License Agreement
will provide Velosi Malaysia with access to the Group's global market network
and, in turn, will enable the Group to extend its network to the Malaysian oil
and gas sector.
The relationship will open up new markets for both parties within Malaysia and
the Group will be able to utilise Velosi Malaysia's experience and insight on
the Malaysian market, as well as to expand via Velosi Malaysia's extensive list
of well known clients. Velosi Malaysia will also be able to expand its
geographical reach and further be in a position to offer a range of services
over and above its present capability. As a consequence, we believe the License
Agreement will benefit both parties.
Velosi will, amongst other things bring specific expertise such as: technical
information; business and operating systems; and, engineering and specialist
software systems (e.g. specialized NDT, Asset Integrity Management Tools, and
Assignment Management Information System). In addition, Velosi Malaysia will be
able to take advantage of international licenses and worldwide accreditations
registered to Velosi. These will all be immediately available to Velosi
Malaysia.
Information on Velosi Malaysia
Velosi Malaysia, which is controlled and owned by the Vendors, is the recognised
market leader in third party inspection and non-destructive testing services in
the oil and gas sector in Malaysia.
As detailed in Velosi Malaysia's audited accounts, for its financial year ended
31 December 2008, it generated revenues of RM100.20m (GBP18.65m), an operating
profit of RM3.71m (GBP0.69m) and a profit before tax of RM3.53m (GBP0.66m). As
at 31 December 2008, Velosi Malaysia also had net assets of RM26.94m (GBP5.02m).
Commenting on the announcement Dr. Nabil Abdul Jalil, CEO of Velosi said: "Over
the last 18 months, the two companies have increasingly been working jointly on
new projects. We therefore felt that this is the right time to combine the
expertise of both companies. The licensing agreement ensures we will have the
opportunity to work with the market leader in Malaysia and Velosi Malaysia will
gain access to the Group's wider skill base and technical capabilities. As a
result we believe this is a highly beneficial deal for all parties."
Trading update
Results for the 12 months to 31 December 2009 are expected to be in line with
market expectations, and we expect the business to continue to grow in 2010.
While investment in some regions is slowing as expected, there remain a number
of key regions which continue to attract high levels of investment, such as
Australia, Brazil and Kazakhstan. We are confident of benefiting from these
areas of activity and our current order book is well placed for 2010.
During the year ended 31 December 2009, Velosi continued to experience a good
level of demand across the 36 countries we now operate in. New contract wins in
South Africa, the middle east and elsewhere, in addition to signing contract
extensions, ensured we have been able to continue to expand the business. As
anticipated, customers have sought to trim expdenditure where practical whilst
still looking to achieve their origninal plans on new projects; we have looked
to assist them in this and have streamlined our own cost base, to help mitigate
any impact on us.
Our cash generation and level of cash reserves remain strong, placing us in a
secure financial position.
Velosi will report its results for the 12 months to 31 December 2009 on 14 April
2010.
For further information, please contact:
+-----------------------+-----------------------+-----------------------+
| Velosi Limited | Dr Nabil Abdul Jalil | 020 7930 0777 |
| | Dan Ooi | |
+-----------------------+-----------------------+-----------------------+
| | | |
+-----------------------+-----------------------+-----------------------+
| Strand Hanson Limited | James Harris | 020 7409 3494 |
| | Richard Tulloch | |
+-----------------------+-----------------------+-----------------------+
| | | |
+-----------------------+-----------------------+-----------------------+
| Charles Stanley | Mark Taylor | 020 7149 6000 |
| Securities | Freddy Crossley | |
+-----------------------+-----------------------+-----------------------+
| | | |
+-----------------------+-----------------------+-----------------------+
| Cardew Group | Tim Robertson | 020 7930 0777 |
| | Catherine Maitland | |
+-----------------------+-----------------------+-----------------------+
Velosi Limited ('Velosi' or the 'Group') announces that it has acquired
the Velosi trading name in Malaysia and entered into a
licensing agreement with Velosi Malaysia
Summary of the key terms of the agreements
Under the terms of the Trade Agreement, the Group has undertaken to pay the
Vendors the Consideration, of up to RM23,333,333 to be satisfied by the issue of
up to 4,760,814 Consideration Shares based on the weighted average closing
middle market price of 91.25 pence per share for the three business days prior
to date of the Trade Agreement dated today. The Consideration is subject to
Velosi Malaysia achieving a cumulative PBT of at least RM25.0m (GBP4.65m)
("Guaranteed Income") in the three year period from 1 July 2009 to 30 June 2012
(the "Guaranteed Period"). The Consideration will be paid in three instalments,
with the Group paying the Vendors an initial consideration of RM7,933,333, to be
settled by the issue of 1,618,677 Consideration Shares on completion of the
Trade Agreement (the "Initial Consideration") scheduled to be on 15 February
2010. Subject to the achievement of certain performance criteria, the Group
will pay the Vendors a further RM7,933,333 to be settled by the issue of
1,618,677 Consideration Shares (the "Deferred Consideration"), which the
Directors anticipate being towards the end of the third quarter of 2011. If
Velosi Malaysia achieves the Guaranteed Income of RM25.0m at the end of the
Guaranteed Period, the Group will pay the Vendors the full Consideration of
RM23.33m by the issue of up to 4.76m Consideration Shares less any consideration
already paid to the Vendors as Initial or Deferred Consideration. In the event
that Velosi (M) has not achieved the Guaranteed Income at the end of the
Guaranteed Period, the Consideration due will be reduced on a pro-rata basis.
In addition, in the event that Velosi Malaysia reports a loss in the final year
of the Guaranteed Period, such that the cumulative PBT for the Guaranteed Period
is less than the cumulative PBT achieved in the two year period from 1 July 2009
to 30 June 2011, the Vendors shall be liable to pay compensation to the Group of
an amount equivalent to the shortfall in cash, subject to a maximum amount being
the value of the Initial and Deferred Consideration received by the Vendors.
On the basis that Velosi Malaysia achieves the Guaranteed Income at the end of
the Guaranteed Period, the full Consideration will be due to the Vendors, which
will be satisfied by the issue of 4,760,814 Consideration Shares representing
approximately 10.18 per cent. of the Company's current issued share capital and
9.24 per cent. of the Company's then enlarged share capital.
Under the terms of the License Agreement, Velosi will license, on an ongoing
basis, the Trade Name and the intellectual property of the Group to Velosi
Malaysia in return for an annual licensing fee. The annual licensing fee
payable to Velosi is based on a percentage of Velosi Malaysia's audited annual
PBT, which the Directors estimate will be in the range of approximately 5.0 to
7.0 per cent. of Velosi Malaysia's annual revenue.
In addition, Dr Nabil Abdul Jalil will be joining the board of Velosi Malaysia.
Vendors' shareholdings and number of shares in issue
Prior to the issue and allotment of the Consideration Shares in relation to the
Initial Consideration, the Vendors were interested in, in aggregate, 9,701,460
ordinary shares of US0.02 each ("Ordinary Shares"), being 6,736,955 Ordinary
Shares held by Velosi Malaysia, 2,235,030 Ordinary Shares held by Mohd Ashari
and 729,475 Ordinary Shares held by Mohd Jai, representing in aggregate
approximately 20.74 per cent. of Velosi's current issued share capital.
Following the issue and allotment of the Consideration Shares in relation to the
Initial Consideration, the Vendors will be interested in, in aggregate,
11,320,137 Ordinary Shares, being 6,736,955 Ordinary Shares held by Velosi
Malaysia (representing 13.92 per cent. of Velosi's enlarged issued share
capital), 3,331,923 Ordinary Share held by Mohd Ashari (representing 6.89 per
cent. of Velosi's enlarged issued share capital) and 1,251,259 Ordinary Share
held by Mohd Jai (representing 2.59 per cent. of Velosi's enlarged issued share
capital), representing in aggregate approximately 23.40 per cent. of Velosi's
enlarged issued share capital.
The Consideration Shares will rank pari passu in all respects with the existing
Ordinary Shares and application will be made for the Consideration Shares to be
admitted to trading on AIM. Admission is expected to become effective and
dealings in the Consideration Shares is expected to commence at 8.00 a.m. on 11
March 2010 following which Velosi's issued share capital will consist of
48,384,548 Ordinary Shares, with each Ordinary Share carrying the right to one
vote. Velosi does not hold any shares in treasury.
Accordingly, following admission of the initial Consideration Shares the figure
of 48,384,548 Ordinary Shares may therefore be used by shareholders in Velosi as
the denominator for the calculations by which they will determine if they are
required to notify their interest in, or a change to their interest in, Velosi
under the FSA's Disclosure and Transparency Rules.
On the basis that the full Consideration is payable under the terms of the Trade
Agreement, the Company would have 51,526,685 Ordinary Shares in issue based on
46,765,871 Ordinary Shares currently in issue and the Vendors would be
interested in, in aggregate, 14,462,274 Ordinary Shares, being 6,736,955
Ordinary Shares held by Velosi Malaysia (representing 13.07 per cent. of
Velosi's enlarged issued share capital), 5,461,186 Ordinary Share held by Mohd
Ashari (representing 10.60 per cent. of Velosi's enlarged issued share
capital)and 2,264,133 Ordinary Share held by Mohd Jai (representing 4.39 per
cent. of Velosi's enlarged issued share capital), representing in aggregate
approximately 28.07 per cent. of Velosi's enlarged issued share capital.
The Vendors confirm that they currently have no intention to dispose of any
Ordinary Shares currently held by them or to be issued to them in accordance
with the Trade Agreement and that any future transfer or disposal of Ordinary
Shares by them, will be subject to standard orderly market arrangements.
Options in Velosi Malaysia
As previously disclosed, Dr Nabil Abdul Jalil holds an option to acquire 26.02
per cent. of Velosi Malaysia ("Option"), but as of 31 December 2009, he agreed
to cancel this Option and will acordingly no longer have an option to acquire an
interest in Velosi Malaysia.
Related party transactions
In accordance with AIM Rule 13, the Trade Agreement and License Agreement are
deemed to be related party transactions due to the Vendors (due to their
aggregated shareholdings in Velosi) and Velosi Malaysia respectively, being
substantial shareholders in the Group. Accordingly, the Directors consider,
having consulted with the Company's Nominated Adviser, Strand Hanson Limited,
that the terms of Trade Agreement and License Agreement are fair and reasonable
insofar as Velosi's shareholders are concerned.
- End -
This information is provided by RNS
The company news service from the London Stock Exchange
END
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