Sagentia Group plc (AIM:SAG), the international technology consulting company which provides outsourced R&D consultancy services, reports the following trading and business update.
The Group’s interim results were released on 21 July 2010 when a strong turnaround in the Group’s operating performance was reported. Consultant utilisation has remained high over the summer contrary to the anticipated seasonal slowdown due to project extensions, additional projects being received from existing customers and new customer wins. As a result, the Board is now anticipating operating profit for the current financial year to be significantly ahead of the previously upgraded market expectations.
At 1 October 2010, prior to receipt of the incremental cash related to the new bank loan (see below), the Group’s cash balance was £13.8 million with bank debt of £5.5 million.
New Five Year Bank Loan
The Group has successfully negotiated a new £8.0 million five year amortising bank loan. This loan is secured solely on the freehold property at Harston and, subject to maintaining cash balances in excess of £2.0 million, the loan is not subject to operating covenants on the consultancy business. This loan replaces the previous facility due to expire in March 2011 which was secured on all assets of the Group and subject to trading operating covenants. The Board have determined to enter into an interest rate swap on the new loan, the effect of which is to fix the interest rate on the full loan at approximately 4.8 per cent. The Board have also determined to cancel a pre-existing 7.1 per cent interest swap which was scheduled to expire in September 2012 at a cash cost of approximately £320,000, although this action should have no material effect on the income statement.
As part of the bank loan process, the freehold asset is being transferred to Sagentia Limited and the long leasehold between Sagentia Limited and Sagentia Holdings Limited will be cancelled, the effect of which is to consolidate the title in the property in a single legal entity. Furthermore, a formal independent valuation of the Group’s freehold property at Harston has been undertaken, which indicates a market value (on a sale-and-leaseback model) in line with the balance sheet value.
Rationalisation of Corporate Structure
Good progress has also been made on simplifying the Group’s corporate structure to reduce the future administration of legacy corporate entities, including:
- The Switzerland-based holding company Sagentia AG has been placed into liquidation. Sagentia owned 99.9 per cent. of Sagentia AG following its redomiciliation in 2008 and the action will incur costs, including settlement of the 0.1 per cent. minority shareholdings, not anticipated to exceed £100,000.
- A number of other legacy corporate entities have been, or are in the process of being, placed into liquidation or struck off. While the actions required by Sagentia have been taken, or are well advanced, the administrative processes may take some months to take effect. The accounting treatment of some of these actions may result in a reduction in “non-current borrowings” reported in the consolidated Group balance sheet, but it is not anticipated that there will be a cash inflow or outflow arising from this adjustment.
- All of the legacy investments have been transferred to Sagentia Holdings Limited and the trading companies, including Manage5Nines Limited, are now all direct subsidiaries of Sagentia Limited. The consultancy operations and the legacy investment activities are now established in separate corporate entities both of which are direct subsidiaries of Sagentia Group plc.
The continued strong performance of the core business and the actions being taken to address the legacy corporate matters position the Group well for the remainder of the year and provide a platform for the future. The Group’s strong balance sheet and cash resources enable the Board to continue to evaluate potential merger and acquisition opportunities, although the Board will remain prudent in this process.