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For immediate release |
3 May 2012 |
Asia Digital Holdings Plc
("ADH" or the "Company")
Publication and Posting of Circular relating to Disposals and other Proposals
Further to the Company's announcements on 4 and 17 April 2012 relating, inter alia, to the disposal of DGM India Internet Marketing Limited ("DGM India") and the proposed disposal of selected assets of DGM Asia Pacific Pte Ltd, ("DGM Singapore Assets") (together the "Disposals") the Board of ADH announces that a circular (the "Circular") has been published and posted to Shareholders.
The Circular contains, inter alia, the background to, and the reasons for, the disposal of DGM India, the proposed disposal of the DGM Singapore Assets, the proposed closure of ADH China, further information on the terms of each of the Disposals and the proposed closure arrangements of ADH China, the proposed Capital Reorganisation, the proposed Investing Policy of the Company and the Resolutions which will be proposed at the General Meeting. The General Meeting, at which the Resolutions will be proposed, will be held on 28 May 2012.
As the effect of the proposed disposal of the DGM Singapore Assets and the proposed closure of ADH China, following the previously announced disposal of DGM India, will be to divest the Company of its trading businesses and activities, the proposed disposal of the DGM Singapore Assets and the proposed closure of ADH China will constitute a fundamental change of business under Rule 15 of the AIM Rules. Upon the completion of the disposal of the DGM Singapore Assets and the closure of ADH China, the Company will be treated as an Investing Company.
In view of the fundamental change of business, the proposed disposal of the DGM Singapore Assets and the proposed closure of ADH China require the approval of Shareholders in a general meeting at which Shareholders will also be asked to approve the Investing Policy for the Company going forward.
For further information, please contact:
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Asia Digital Holdings plc |
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Adrian Moss, Chief Executive |
Adrian.moss@adhplc.asia |
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Northland Capital Partners Limited |
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Gavin Burnell / Rod Venables |
Tel: +44 (0) 20 7796 8800 |
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Katie Shelton (Corporate Broking) |
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Abchurch Communications |
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Joanne Shears/ Oliver Baxendale |
Tel: +44 (0) 20 7398 7720 |
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The following information has been extracted without material adjustment from the Circular which has been posted to Shareholders and a copy of which is now available on the Company's website www.adhplc.com
Background to and reasons for the Disposals
As indicated in the Company's trading update announcement made in December last year, the Board of ADH expects that results for the period ended 31 March 2012 will show a reduced loss from continuing operations against 2010. This has been driven by improvements in business unit performance and a material reduction in central costs. The sales mix and the geographical source of sales in the Company's continuing operations have changed and will result in an overall reduction in sales for the full year compared to 2010 along with an increase in gross profit for the same period.
The ADH Board expects to report in its results for the period ended 31March 2012, which are expected to be released by 31 August 2012, a material reduction in the negative contribution from continuing operations. Furthermore, as a result of significant cuts in Group costs and a successful conclusion to discussions with the VAT authorities in the UK which has led to a provision release of £131,233 during October 2011, the ADH Board expects that results for the period ending 31 March 2012 will show a material reduction in EBITDA loss.
Whilst it has continued to manage ADH Group costs due to the on-going constraints of limited working capital, the Board undertook a strategic review of each of the Company's business units in December 2011 and January this year and at the same time considered alternative financing options for the Group.
The overall assessment by the Board was that the Group's trading operations, generally, are materially constrained by an inability to grow the businesses by investing in technology, the operating teams and the marketing of ADH's business offerings. Whilst DGM Asia Pacific Pte Ltd("DGM Singapore") has achieved an improved market positioning, it has continued to be loss making. With the lack of funding for this operation, the ADH Board believes there is little prospect of material growth and sustainable profitability.
Similarly, though DGM India has delivered consistently positive contributions through recent reporting periods, the absence of incremental investment was unlikely to deliver material improvement and without growth was insufficient to carry the overheads of the Company.
In the absence of the required funding to finance the growth of the ADH Group's operations, the ADH Board considered the options available and concluded that the sale of its more established operations in India and Singapore along with the closure of ADH's Chinese operation, ADH China, would enable ADH to become an Investing Company and as a result ADH would be able to identify and, subject to additional funding, pursue acquisitions with the potential to generate a return for shareholders that would not otherwise be the case. Accordingly, the ADH Board considers that, in addition to the disposal of DGM India, announced on 4 April 2012, the proposed disposal of the DGM Singapore Assets and the proposed closure of ADH China are in the best interests of shareholders.
The Disposals
On 4 April 2012, the Company entered into a sale and purchase agreement (the "DGM Disposal Agreement") for the sale of DGM India to Tyroo Media Private Limited ("Tyroo"), and Inflection Digital Holdings Private Limited ("Inflection Digital") for Rupees 23,625,000 (approximately £290,840).
As a condition precedent to the DGM India Agreement, ADH also entered into an intellectual property (IP) transfer agreement (the "DGM India IP Agreement") with DGM India to transfer all IP rights relating to the DGM business in India to DGM India. ADH will have up to 30 days following the execution of the DGM India IP Agreement to satisfy DGM India that all relevant IP, including source codes, servers, databases and documentation, has been transferred. Within 60 days following the execution of the DGM India IP Agreement, ADH shall confirm to DGM India the successful transfer of the IP, and, within 7 days following receipt of such confirmation, DGM India will pay ADH in cash Rupees 7,875,000 (approximately £96,947).
Under a related arrangement, DGM India also agreed to pay ADH a fee in cash of Rupees 2,000,000 (approximately £24,621) for the provision of technical support to DGM India for a period of 60 days following the transfer by ADH of the IP to DGM India or 30 June 2012 whichever is the sooner.
The total consideration payable to the Company under the agreements and arrangements described above is Rupees 33,500,000 (approximately £412,409). After expenses and withholding tax, the net proceeds are expected to be Rupees 28,921,095 (approximately £356,040)., and are expected to be paid on 4 May 2012 or on the tenth day following completion of all conditions precedent to the DGM India Agreement, whichever date is earlier.
On 16 April 2012, the Company entered into a conditional asset purchase agreement (the "DGM Singapore Agreement") for the sale of the DGM Singapore Assets to Flow Digital Pte Ltd ("Flow Digital"), a subsidiary of Omnicom Media Group, for a total cash consideration of US$250,000 (approximately £158,228) which is to be paid on the DGM Singapore Closing Date being 16 May 2012 (or such other date as may be agreed in writing by ADH and Flow Digital)
Proposed closure of ADH China
Following the disposal of DGM India and the proposed disposal of the DGM Singapore Assets, the Company will have only one operating subsidiary, ADH China, which was only established in the summer of 2010 to service the requirements of Dell, a regional client of long standing. The Dell business did not evolve as expected and, in the absence of investment capital, progress in China has been constrained with limited revenue delivery.
As part of ADH's business closure process, it is also proposed that ADH's corporate vehicle in China, ADH China, a 'wholly owned foreign entity' or 'WOFE', would enter into a formal closure process and the ADH Board will work with local consultants in this respect. The process is expected to take approximately three months and the costs are expected to be less than RMB 400,000 (approximately £40,000).
Trading Records of DGM Singapore, DGM India and ADH China
DGM's operational bases include India, Singapore and China, with DGM India dominating delivery. DGM India has been operating for 5 years, DGM Singapore has been operating for 5 years and ADH China has been operating for just under 2 years. DGM Singapore and, particularly, DGM India generate substantially all the revenues of the Group.
During the year to 31 December 2011, DGM India's unaudited results show that the operation generated turnover of £1,977,000, a gross profit of £660,000 and delivered a positive EBITDA of £221,000 (2010: £21,000). As at 31 December 2011, the unaudited results for DGM India show that this operation had a net asset value of £224,000.
Also, during the year to 31 December 2011, DGM Singapore's unaudited results show that the operation generated turnover of £959,000, a gross profit of £436,000 and delivered an EBITDA loss of £56,000 (2010: £74,000 loss).
As at 31 December 2011, the unaudited results for DGM Singapore show that this operation had net liabilities of £169,000.
The assets of DGM Singapore, other than the DGM Singapore Assets, are not considered to have any value as at 31 December 2011 and no part of the EBITDA (loss) for the year ended 31 December 2011 is attributable to such assets.
ADH China was only established in the summer of 2010 to service the requirements of Dell, a regional client of long standing. The Board expected that this client would provide initial revenues and fund a small team, providing a base for further client acquisition and profitable growth. The growth of the Dell business has been disappointing relative to initial expectations, and, in the absence of funds for investment, the operation has not been able to leverage the market opportunity.
During the year to 31 December 2011, ADH China's unaudited results show that the operation generated turnover of £518,000, a gross profit of £91,000 and delivered an EBITDA loss of £202,000.
Liquidations of certain insolvent ADH subsidiaries
Aside from ADH's principal subsidiaries, DGM India, DGM Singapore and ADH China, the ADH Group has a number of Singaporean, Hong Kong and Philippines based subsidiaries which have negative net assets and which are insolvent. ADH intends to liquidate these subsidiaries, listed below, and DGM Singapore, following the disposal of the DGM Singapore Assets.
• Aktiv Digital Asia Pacific Pte Ltd ("Aktiv SG")
• Aktiv Digital Hong Kong Pte Ltd ("Aktiv HK")
• Asia Digital Holdings Pte Ltd ("ADH SG")
• Deploy Digital Pte Ltd ("Deploy SG")
• Deploy Philippines - Rep Office ("Deploy PH")
• DGM Asia Pacific Pte Ltd ("DGM Singapore")
ADH has appointed Don Ho & Associates (on the recommendation of the Group's Singaporean auditors) to act as liquidators for these entities.
All preliminary information required by the liquidators has been provided and work has begun on the liquidation of 4 of the 6 companies. The liquidation process is expected to take 3-6 months.
All creditors will be formally notified, including by way of an advert placed in all major newspapers in Singapore in all 4 official languages (English, Mandarin, Malay and Tamil). Following this notification process a meeting of the creditors will be held.
Once finalised, the liquidation process is expected to result in an improvement in the Group's balance sheet of about £512,000. The following amounts represent the negative net assets of the relevant subsidiaries:
• Aktiv SG - £232,000
• Aktiv HK - £5,000
• ADH SG - £66,000
• Deploy SG - £48,000
• Deploy PH - £1,000
• DGM Singapore - £160,000
Impact on ADH of the Disposals, the closure of ADH China and the liquidation of certain ADH subsidiaries
In view of the fundamental change of business, the proposed disposal of the DGM Singapore Assets and the proposed closure of ADH China require the approval of Shareholders at the General Meeting at which Shareholders will also be asked to approve the Investing Policy for the Company going forward.
Upon the completion of the disposal of the DGM Singapore Assets and the closure of ADH China, the Company will be treated as an Investing Company.
Use of Proceeds
On completion of the Disposal Agreements, the aggregate gross consideration payable to ADH will be approximately £570,510. After payment of expenses and withholding taxes, ADH expects to receive net proceeds of approximately £497,122 which will be used to settle all creditors and inter-company debts between the Company and its subsidiaries outstanding at the date of Completion. Once finalised, the liquidation of certain ADH subsidiaries, referred to above, coupled with the net proceeds of the disposal of DGM India and the disposal of the DGM Singapore Assets, is expected to result in an improvement in the Group's balance sheet of about £512,000 (after liquidation of subsidiaries) leaving the Company with a negative net assets position on a pro forma basis, as at 31 March 2012, of approximately £70,000.
The annual operating costs of the Company following Completion will be limited to approximately £100,000 being the costs of the Continuing Directors and the expenses of being a company whose shares are traded on AIM.
Proposed Fundraising
The Company has limited cash resources and will require additional funding to ensure that it has sufficient working capital to operate once it becomes an Investing Company. The Directors intend to approach potential investors to secure such funding. However, there can be no certainty that discussions with potential investors will lead to a successful outcome.
Capital Reorganisation
The mid-market price for the Company's Ordinary Shares, at the close of business on 30 April 2012, being the latest practicable date prior to the publication of the Circular, was 0.05p being substantially below the nominal value of the existing issued ordinary shares of 0.1p. Should the Company seek to effect an equity fundraising, the 2006 Act prohibits the Company from issuing ordinary shares at a price below their nominal value. Accordingly, the Company will be unable to raise additional capital at this time and it will be necessary to undertake the Capital Reorganisation to enable a share placing to proceed.
The existing issued ordinary share capital comprises 767,930,884 Ordinary Shares of 0.1p.
Resolution 5, to be proposed at the General Meeting, proposes that each existing issued ordinary share be subdivided into 1 New Share with a nominal value of 0.001p each and 99 New Deferred Shares with a nominal value of 0.001p each and that each authorised but unissued ordinary share be subdivided into 100 New Shares with a nominal value of 0.001 p each.
Resolution 6, to be proposed at the General Meeting, proposes that, following the Subdivision referred to above, the New Shares of the Company be consolidated into New Ordinary Shares with a nominal value of 0.1p each on the basis of 1 New Ordinary Share for every 100 New Shares.
Fractions of a New Ordinary Share arising from individual holdings upon consolidation will not be credited to shareholders, but will be aggregated and sold in the market for the benefit of the Company.
The New Ordinary Shares will continue to carry the same rights as attached to the existing issued ordinary shares.
The New Deferred Shares shall have the same rights and shall be subject to the same restrictions as the Deferred Shares as set out in Article 5 of the Company's Articles of Association and will not entitle the holder thereof to receive notice of or attend and vote at any general meeting of the Company or to receive a dividend or other distribution or to participate in any return on capital on a winding up other than the nominal amount paid on such shares following a substantial distribution to holders of ordinary shares in the Company.
Subject to the passing of the Resolutions, the Company will have the right to purchase all the issued Deferred Shares and the New Deferred Shares from all Shareholders for an aggregate consideration of one penny. As such, the New Deferred Shares effectively have no value.
It is intended that £0.01 of the proceeds of any future fundraising by the Company will be applied to redeeming all of the existing issued deferred shares of 0.1p each and the New Deferred Shares. The New Ordinary Shares will reflect the same proportion of the Company's value as the existing issued ordinary shares and therefore their intrinsic value is the same.
Change of Accounting Reference Date
Immediately following Completion, the Company intends to change its accounting reference date by extending the current financial year by 3 months from 31 December 2011 to 31 March 2012. This will align the start of the next accounting period with the start of the Company's life as an Investing Company.
Despite this change in the accounting reference date, there will be no immediate change to the Company's reporting timetable and the Continuing Directors expect to issue the final results for the period to 31 March 2012 by 31 August 2012.
Board Changes
No additional Directors are expected to be appointed to the Board following the Disposals.
It is the intention, conditional upon the Disposals being approved, that David Lees, a Director and the Non-Executive Chairman of the Company, will step down from the Board immediately upon Completion.
Adrian Moss, CEO, and Keith Lassman, a Non-Executive Director, will continue as Directors and will have the responsibility of implementing the Investing Policy to be adopted by the Company on Completion.
Investing Policy
Rule 15 of the AIM Rules states that where the effect of a proposed disposal is to divest the AIM company of all, or substantially all, of its trading business activities, the company will be treated as an Investing Company. The Investing Policy to be implemented by the Company following the Disposals will require the approval of Shareholders at the General Meeting. The Company will then have to implement the Investing Policy, or otherwise make an acquisition or acquisitions which constitute a reverse takeover under Rule 14 of the AIM Rules, within twelve months of having received such consent from Shareholders, failing which the Company's shares will be suspended from trading on AIM.
The Investing Policy to be implemented by the Company is as follows:
The Continuing Directors intend to focus on investing in businesses which, in the opinion of the Continuing Directors, possess the opportunity for high growth. The main focus for identifying such businesses will be in the communications, energy, resources, precious metals, commodity trading and infrastructure sectors in diverse geographic locations including Europe and North America. The Continuing Directors anticipate that each such business will have the management necessary to operate and develop that business.
The Company is likely to raise further capital, either by way of debt or equity issues, once it has invested a significant proportion of its initial asset base. Investments will be structured using both debt and/or equity instruments, and derivatives thereof. The Company may act as either a passive or an active investor. In the latter case, the Continuing Directors anticipate being able to charge management and other advisory fees.
The Continuing Directors believe that their broad collective experience together with their extensive network of contacts will assist them in the identification, evaluation and funding of investment opportunities. When necessary, other external professionals will be engaged to assist in the due diligence of prospective targets. The Continuing Directors would also consider appointing additional directors with relevant experience if required.
The Continuing Directors recognise the Investing Policy outlined above carries a high degree of risk, however they believe that the successful prosecution of such an Investing Policy will result in strong capital growth for Shareholders.
Shareholders are asked to approve the Investing Policy at the General Meeting.
Pursuant to the AIM Rules, the Company will be required to make an acquisition or acquisitions which constitute a reverse takeover in accordance with Rule 14 of the AIM Rules or otherwise implement the Investing Strategy approved at the General Meeting to the satisfaction of the London Stock Exchange within 12 months of having received the consent of Shareholders, failing which, the Company's trading facility on AIM will be suspended followed by cancellation of its AIM listing.
Share Certificates
New share certificates representing the New Ordinary Shares 0f 0.1 p each following the Capital Reorganisation will be issued to certificated shareholders by 11 June 2012. CREST accounts will be credited with the New Ordinary Shares on 29 May 2012. No certificates will be issued in respect of the New Deferred Shares.
The New Ordinary Shares will have the same rights (including as to voting, dividends and return of capital) as the existing issued ordinary shares (following the completion of the Capital Reorganisation).
General Meeting
The General Meeting of the Company will be held at 11.00 a.m. on 28 May 2012 for the purpose of considering, and if thought fit, passing the following resolutions:
1. to approve the disposal of the DGM Singapore Assets for the purpose of Rule 15 of the AIM Rules;
2. to approve the closure of ADH China for the purpose of Rule 15 of the AIM Rules;
3. to adopt the Investing Policy as set out in the paragraph, "Investing Policy", above;
4. to grant the Directors the authority to allot shares up to an aggregate nominal amount of £90,000 under section 551of the 2006 Act;
5. to approve the Subdivision, referred to above, as part of the proposed Capital Reorganisation;
6. to approve the Share Consolidation, as referred to above, as part of the proposed Capital Reorganisation; and
7. to grant the Directors the authority pursuant to sections 570 and 573 of the 2006 Act to allot equity securities for cash without the application of section 561of the 2006 Act requiring the Company to offer shares to existing shareholders on a pre-emptive basis in respect of:
a) offers of relevant securities to existing Shareholders where such offer is made in proportion to existing holdings; and
b) the issue of equity securities up to an aggregate nominal amount of £90,000 other than in
accordance with paragraph (a) above.
The Resolutions are inter-conditional, meaning all of the Resolutions must be passed for any of them to be effected. If the Resolutions are not passed then the Disposals will not proceed and the Company will continue in its current form for the time being.
However, in the light of the working capital constraints which the Company and its trading subsidiaries are suffering at this time, Shareholders should be aware that if the Resolutions are not passed there can be no guarantee that the Company and its trading subsidiaries will continue to trade and there is the likelihood that in the near future the appointment of administrators to the Company and its trading subsidiaries will have to be considered.