| The Board of Directors is pleased to announce that the Group has signed a letter of intent to acquire 100% of Control Concepts & Technology Corporation ("CCT") for an aggregate purchase consideration of US$11,500,000 from Carl Comeaux and Jennifer Lynn Nelson Comeaux (collectively known as "the Sellers"). The transaction is subject to the execution of a definitive sales and purchase agreement and the completion of the legal, financial and operations due diligence.
The purchase consideration
The aggregate purchase consideration of US$11,500,000 was arrived at following negotiations between the Group and the Sellers on a willing-buyer and willing-seller basis, and having taken into account the following factors:-
i. The price to the annualized unaudited profit after tax for the six months ending 30 June 2002 of CCT ratio of approximately 9.2 times;
ii. The fit between CCT and the Group's US operations;
iii. The track record and customer base of CCT;
iv. The net tangible asset of CCT as at 30 June 2002 was approximately US$2.50 million. The price to book ratio is approximately 4.6 times; and
v. The future prospectus of CCT.
The Group proposes to finance the acquisition from the net proceeds raised from the share placement in February 2002. The net proceeds is currently used to repay the Group's bank borrowings.
Information on CCT
CCT, incorporated in Louisiana in 1998 as a "S" corporation under U.S. federal tax laws, is an engineering systems integrator which designs, engineers, assembles, programs and installs control and instrumentation systems for specific applications in the offshore oil and gas and process industries. Its major source of revenue is derived form the upstream offshore oil and gas production facilities.
CCT has over the years established numerous customers such as CAD, Spinnaker Exploration, Westport Resources Corporation, Kellogg Brown and Roots, Energy Partners, Ltd., ELP, New Field Exploration, W&T Offshore Production, Remington Oil & Gas and Devon Energy.
Financial information
The financial information on CCT, which is prepared in accordance with the US Generally Accepted Accounting Principles, is set out below.
i. Profit and loss accounts
The unaudited operating results of CCT for the financial year ended 31 December 2001 and six months ended 30 June 2002 are set out below:-
| US$�000 |
12 months ended 31 December |
6 months ended 30 June |
| |
1998 |
1999 |
2000 |
2001 |
2002 |
| Turnover |
612 |
1,939 |
5,925 |
9,646 |
4,769 |
| Gross margins |
124 |
504 |
1,729 |
2,944 |
1,964 |
| Operating expenses |
74 |
402 |
807 |
1,354 |
933 |
| Profit before tax |
50 |
102 |
921 |
1,591 |
1,054 |
| Taxation (39.5%) |
20 |
40 |
364 |
628 |
416 |
| Profit after tax |
30 |
62 |
557 |
963 |
638 |
ii. Balance sheets
The unaudited balance sheets of CCT as at end of the financial year ended 31 December 2001 and six months ended 30 June 2002 are set out below:-
| US$'000 |
12 months ended 31 December |
6 months ended 30 June |
| |
1998 |
1999 |
2000 |
2001 |
2002 |
| Fixed Assets |
57 |
32 |
43 |
28 |
1,278 |
| Current Assets |
420 |
463 |
1,039 |
1,762 |
2,021 |
| Current Liabilities |
304 |
281 |
599 |
1,000 |
772 |
| Net Current Assets |
116 |
182 |
440 |
762 |
1,249 |
| Shareholders Funds |
173 |
214 |
483 |
790 |
2,527 |
Rationale for the acquisition
The proposed acquisition is in line with the long-term business plan of the Group of expansion through acquisition of companies with specialized skills and technologies complementary to the Group.
The Group is of the view that the acquisition is in the interest of the Group for the following reasons:
i. Effective and Committed Management
The management team of CCT has demonstrated their effective management and capabilities in establishing and growing the business over the last 4 years.
ii. Consolidating the Group's Market Position in USA.
The two main centres serving the offshore oil and gas customers in the Gulf of Mexico are Houston, Texas and Lafayette, Louisiana. The Group's US operations is headquartered in Houston, Texas. Currently, its subsidiary in Lafayette, Louisiana, provides integration services to its customers. With the acquisition, the Group is now able to provide turnkey solutions in Lafayette. The enhanced presence in Lafayette will allow the Group to offer a full range of services to its customers in both centres.
Financial effects of the acquisition
For illustrative purposes, the pro forma financial effects of the acquisitions set out below are prepared using the Group's unaudited consolidated financial statements ended 30 June 2002 and based on, inter alia, the following key assumptions:-
a. the completion of the acquisition on 1 January 2002;
b. exchange rates of S$1.76 to US$1.00;
c. the Group amortize the goodwill of US$9.0 million over 15 years; and
d. the Group borrows the US$11.5 million at 4% interest per annum.
i. Pro-forma financials for CCT for the six months ending 30 June 2002 taking into accounts goodwill amortisation and interest expenses.
|
US$'000 |
| Profit before tax |
1,054 |
| Goodwill amortization |
300 |
| Interest expenses |
170 |
| Adjusted profit before tax |
584 |
| Taxation (39.5%) |
231 |
| Profit after tax |
353 |
ii. Net tangible assets as at 30 June 2002
|
Before Acquisition |
After Acquisition |
| Net tangible assets (S$'000) |
27,821 |
11,981 |
| No of shares outstanding |
307,860,407 |
307,860,407 |
| Net tangible assets per share (cents) |
0.090 |
0.038 |
iii. Earnings per share for the six months ending 30 June 2002
|
Before Acquisition |
After Acquisition |
| Profit after tax (S$'000) |
5,440 |
6,061 |
| No of shares outstanding |
307,860,407 |
307,860,407 |
| Earnings per share (cents) |
1.77 |
1.96 |
iv. Gearing
|
Before Acquisition |
After Acquisition |
| Bank Borrowings (S$'000) |
25,205 |
45,445 |
| Shareholders Fund (S$'000) |
32,297 |
32,297 |
| Gross Bank Gearing |
0.78 times |
1.41 times |
Directors' and substantial shareholders' interest
None of the substantial shareholders of the Group or Directors has any interest, direct or indirect, in the acquisition.
Submitted by Tan San-Ju, Company Secretary on 05/08/2002 to the SGX
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