Southern Bear: Disposal of Engineering Subsidiaries and Directorate Change
23-02-2010

New Strategic Focus on Support Services and Fire Protection/Prevention Markets

The Board of Southern Bear plc has today agreed to dispose of all of the Group's engineering subsidiaries, comprising Phoenix Dynamics Limited ("Phoenix"), Tarvail Limited ("Tarvail"), Tarvail Design Limited ("Tarvail Design"), Towerinput Limited ("Towerinput"), Towerinput Distribution Limited ("Towerinput Distribution”). This will enable the Group to focus on the support services and fire protection/prevention markets, which the Directors consider hold greater opportunity for the Group. At the same time this will enable central overheads to be reduced.

The engineering division of the Group has been faced with many challenges and trading results have been disappointing. It is the Group's intention to build an innovative and robust business with solid foundations and the Board firmly believes that the remaining businesses within the support services sector will provide this opportunity.

Southern Bear’s Chairman, Mr Nigel Wray, commented:

"I have been the Chairman of Southern Bear for just over one month; the Group also has a new Finance Director, Michael Clough, and a new CEO, Steve Hancock who join Mark Sims and Paul Richardson on the Board. This new Board has made the strategic decision to dispose of all of our engineering subsidiaries. This will enable the group to be highly focused on the UK’s legislation led support services and fire protection/prevention markets for which we have great hopes for the future.

“The markets in which the support services businesses operate have been relatively insulated from the challenges in the wider economy. The disposal of the engineering operations will enable the Group to continue its positive progress and to ensure it remains well placed to fully capitalise on the opportunities that may arise in our core markets.

In addition, the Group today announces that following the extensive reorganisation of Southern Bear’s activities to focus entirely on the provision of support services, the previous Chairman of the Group, Jon Pither, has submitted his resignation to the Board so that he is free to establish a direct interest in two of the Group’s former engineering subsidiaries. His knowledge and experience will, however, remain available to the refocused group under terms of a consultancy agreement.  The Board would like to take this opportunity to thank Jon for his services and wish him all success with the engineering businesses.

Details of the disposals are as follows:

Phoenix

Towerinput Trading Limited (a wholly owned subsidiary of Southern Bear) has disposed of the entire issued share capital of Phoenix to Phoenix Dynamics Investments Limited (“Phoenix Investments”), a company wholly owned by Mr Graeme Boull.

Mr Nigel Wray, has provided debt finance to Phoenix Investments for the purposes of the acquisition. Mr Boull  resigned as a Director of Southern Bear (and of all Group companies of which he was a Director) immediately before the sale .

The aggregate consideration payable to the Group is £1.5 million in cash. Of this consideration £1.3 million is payable on completion and a further £200,000 is payable on 31 March 2010. Of the consideration, £700,000  will be used to reduce Southern Bear’s current bank debt and the balance will be used for general working capital purposes.

The principal activity of Phoenix is the manufacture of specialist wiring systems. In the year to 31 March 2009 Phoenix earned profits before tax of £558,000 and had net assets of £1.3 million.

As Mr Boull was a Director of Southern Bear within 12 months prior to the completion of the disposal, the transaction is classed as related party for the purposes of the AIM Rules for Companies. The members of the Board, excluding Mr Boull and Mr Wray who have taken no part in board deliberations on this disposal, have consulted with the Group's Nominated Adviser and consider the terms of the transaction to be fair and reasonable insofar as the shareholders are concerned.

Tarvail & Tarvail Design

The Group has disposed of the entire issued share capital of Tarvail and Tarvail Design to an MBO team led by Mr Christopher Dalton. 

The agreed consideration is £50,002 payable as £2 on completion of the disposal and a deferred payment of £50,000 due six months post completion. The consideration will be used for general working capital purposes.

Mr Dalton has resigned as a Director of Southern Bear with immediate effect.

The principal activity of Tarvail is pipeline design, installation and general engineering. In the year to 31 March 2009 Tarvail earned profits before tax of £91,000 and had net assets of £1.2 million.

The principal activity of Tarvail Design is the provision of technical design and support services. In the year to 31 March 2009 Tarvail Design made a loss of £36,000 and had net liabilities of £47,000.

As Mr Dalton was a Director of Southern Bear within 12 months prior to the completion of the disposal, the transaction is classed as related party for the purposes of the AIM Rules for Companies. The members of the Board, excluding Mr Dalton, have consulted with the Group's Nominated Adviser and consider the terms of the transaction to be fair and reasonable insofar as the shareholders are concerned.

Towerinput and Towerinput Distribution

The Group has disposed of the entire issued share capital of Towerinput to Mr Marc  Rickards. The consideration is £1 payable on completion with an additional deferred consideration of up to £200,000 payable over a two year period immediately following completion. The consideration will be used for general working capital purposes.

The principal activity of Towerinput is to find and implement engineering solutions for its clients. In the year to 31 March 2009 Towerinput made a loss of £51,000 and had net assets of £244,000.

The Group has also agreed to dispose of the entire share capital of Towerinput Distribution to Mr Rickards. The agreed consideration is £2 payable on completion.

The principal activity of Towerinput Distribution is that of the import and distribution of welding products. In the year 31 March 2009 Towerinput made a profit before tax of £112,000 and had net assets of £65,000.

As Mr Rickards was a Director of some Southern Bear subsidiaries within 12 months prior to the completion of the disposal, the transaction is classed as related party for the purposes of the AIM Rules for Companies. The members of the Board have consulted with the Group's Nominated Adviser and consider the terms of the transaction to be fair and reasonable insofar as the shareholders are concerned.

CFC 0084 Limited – Trading as Ronald Thompson

The Group has disposed of the entire share capital of CFC 0084 Limited to Mr Gavin Thompson. 

The agreed consideration is £1 payable on exchange of the sale and purchase agreement with an additional deferred consideration of £50,000 payable over 10 equal monthly instalments following completion.

The sales of Tarvail, Towerinput, Towerinput Distribution and Ronald Thompson will involve non cash write downs in goodwill and assets. This as an unfortunate but necessary consequence that will allow the Group to focus  on its continuing and profitable businesses. 

Continuing Operations

The disposals will enable the Group to realign its business strategy and focus its attention on support services and fire protection/prevention. The Group will comprise the three mainstream businesses of BGC Limited, Fenhams Limited and Intumescent Protective Coatings Limited. The Directors expect the reorganised Group to grow both organically and by acquisition. As part of this development, the Group is planning to introduce strong entrepreneurial incentives at each of the subsidiaries to motivate the leadership team.

The markets serviced by the Group’s support services businesses have proven to be relatively resilient to the economic downturn which has challenged the wider economy. The Board has made the strategic decision to position Southern Bear so that it is able to capitalise on the opportunities arising in the support services and fire protection/prevention markets. Looking forward, the Group plans to raise further equity to clear all the remaining bank borrowing. Subject to any regulatory and necessary shareholder approvals, Mr Wray will underwrite any such fund raising.

Enquiries

Robyn Samuelson/Siobhra Murphy

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