19 December 2003
NSB Retail Systems PLC BT Group plc
Sale of NSB's UK Operations to BT and exclusive Distribution Agreement
The Boards of NSB Retail Systems PLC and BT Group plc announce that they have
reached agreement for BT to acquire NSB's principal UK operations for cash
consideration of �17.0 million and to become NSB's exclusive distributor in the
UK and Ireland.
The principal terms of the Transaction are:
* BT will acquire most of the UK business assets of NSB in a cash deal worth
�17.0 million.
* BT will become NSB's exclusive distributor in the UK and Ireland.
* BT will become NSB's non-exclusive distributor in other territories in
Europe, the Middle East and Africa.
* BT will take responsibility for NSB's rights and obligations under its
existing customer agreements.
* 148 NSB employees will transfer to BT.
* NSB and BT will work together in the future to develop new products and
services for retailers of all sizes.
* NSB will retain all the rights in its existing and future software.
* NSB will receive licence and support fees from BT based on BT's sales of
NSB software.
* 10% of the consideration (�1.7 million) will be retained to be paid
contingent on achieving specified transition milestones, and the total
consideration amount may be adjusted to reflect working capital movements
prior to closing. An adjustment will be made if the working capital deficit
is greater than �1.0 million or if there is any working capital surplus.
* The Transaction is subject to the approval of NSB shareholders at an
extraordinary general meeting to be held on 5 January 2004. Shareholders
owning 54.4 per cent. of NSB's shares have irrevocably undertaken to vote
in favour of the Resolution.
NSB's UK Business provides professional software and systems integration
services to many of the UK's most significant retailers. It supports and
implements an end-to-end product set for its customers, including:
* Store products - point of sales systems for the processing and
reconciliation of transactions for both front of store and back office.
* Enterprise products - business analysis, planning and optimisation tools
used in retailers' merchandising, planning, sourcing and customer
relationship management processes.
NSB's UK Business has a strong and long-standing customer base in the UK and
Ireland, including Arcadia, Lloyds Pharmacy, BhS, Oasis, WH Smith, Woolworths,
Brown Thomas, Roches Stores, Monsoon and Austin Reed.
The Board of NSB believes that this new distribution agreement in the UK and
Europe, with a partner as strong and well positioned as BT, provides the
opportunity to expand and better service its retail customers without
increasing its cost base.
The expertise acquired from NSB will be centred in a new BT business unit to be
called BTExpedite. This business will offer dedicated retail capabilities to
support BT's extensive sales teams, ensuring customers benefit from a fully
integrated product and service portfolio.
Building on its strengths in information and communications technology (ICT),
BT in partnership with NSB will be able to offer retail companies an enhanced
portfolio of solutions. As a one-stop-shop for retailers, BT aims to combine
its network, hosting and "Syntegra" systems integration services with NSB's
professional support skills, to meet its customers' strategic system
development demands.
Now one supplier will be able to meet retailers' full ICT needs. BT has a
strong track record in the retail sector and already includes the vast majority
of retail businesses amongst its customers; NSB's unmatched position at the
heart of those retailers' information systems will enable BT to drive this
business forward.
The Transaction will allow NSB to focus its resources on its software
development business and on the continued growth of its North American markets
whilst reviewing the opportunities to appoint other suitably qualified
distributors in support of its global vision. The majority of the cash proceeds
of the Transaction will be used to pay down debt.
The UK Business generated revenues of �11.0 million and earnings before
interest and tax of �3.3 million for the six months to 30 June 2003. Under the
terms of the Distribution Agreement, a material proportion of these earnings
would have been receivable by NSB in respect of royalty payments from software
licences, had the Distribution Agreement been effective during this period. The
book value of the net assets of the UK Business was �1.7 million at 30 June
2003. BT will enter into a sub-lease with NSB for the principal UK property.
Nikki Beckett, CEO of NSB, said: "We are delighted to be able to strengthen our
position in the important UK market and gain enhanced access to the European
market through this strategic relationship with BT. BT is committed to the
retail sector and to our customers and employees. The consideration from this
transaction will also strengthen our balance sheet, providing NSB with a sound
base from which to grow."
Pierre Danon, Chief Executive of BT Retail, said: "This acquisition
demonstrates BT's commitment to the retail market and to ICT. BTExpedite will
enable us to deliver a broad range of integrated professional and
communications services, tailored specifically for retail customers. BT will
now be able to help retailers transform their business operations, enabling an
improved customer experience and reduced operating costs."
A circular setting out further details of the Transaction, including a notice
convening the Extraordinary General Meeting, will be sent to NSB Shareholders
today.
Appendix I contains definitions of the terms used in this announcement.
Contacts:
NSB Retail Systems PLC 0118 930 1522
Nikki Beckett, Chief Executive
Stuart Mitchell, Finance Director
BT Group plc
John Carter 020 7356 4523
Mike Jarvis 020 7356 6045
or via the BT Newsroom on its 24 hour number, 020 7356 5369
Close Brothers Corporate Finance Limited (Financial Advisor to NSB)
Richard Grainger, Chief Executive 020 7655 3100
Andrew Cunningham, Director
Close Brothers Corporate Finance Limited, which is regulated in the United
Kingdom by the Financial Services Authority, is acting exclusively for NSB
Retail Systems PLC and for no one else in relation to the Transaction and will
not be responsible to anyone other than NSB Retail Systems PLC for providing
the protections afforded to clients of Close Brothers Corporate Finance Limited
or for providing advice in relation to the Transaction or on any matter
referred to herein.
Notes to Editors:
About NSB
NSB is a dedicated supplier of software products and services to the retail
market. NSB helps retailers gain a sustainable competitive advantage in today's
highly competitive markets with the Connected Retailer�. This comprehensive
portfolio includes innovative solutions, products, and services for every area
of retailing: Planning, Sourcing and Product Development, Merchandising, Store,
Sales Analytics, and CRM, plus Hardware, Professional Services, and Client
Care. They are used by more than 350 of the world's leading retailers to
streamline processes, optimize information, and meet the evolving merchandise
and service expectations of multi-channel shoppers.
About BT
BT is one of Europe's leading providers of telecommunications services. Its
principal activities include local, national and international
telecommunications services, higher-value broadband and internet products and
services, and IT solutions. In the UK, BT serves over 20 million business and
residential customers with more than 29 million exchange lines, as well as
providing network services to other licensed operators.
In the year ended 31 March 2003, BT's turnover was �18,727 million with profit
before taxation of �1,829 million. For more information, visit www.BT.com.
19 December 2003
NSB Retail Systems PLC
Sale of the UK Operations to BT and exclusive Distribution Agreement
Introduction
The Board of NSB Retail Systems PLC, a leading supplier of software solutions
to the global retail industry, announces that it has today reached agreement
with BT for BT to acquire NSB's principal UK operations for consideration of �
17.0 million payable in cash and to become NSB's exclusive distributor in the
UK and Ireland. BT will also become NSB's non-exclusive distributor in the rest
of Europe, the Middle East and Africa. NSB will retain full ownership of the
intellectual property in its existing and future software products, and BT will
make future payments to NSB on the basis of licence sales made. 148 of NSB's
employees in the UK will transfer to BT.
Due to its size, the Transaction is conditional upon the approval of NSB
Shareholders which is being sought at an Extraordinary General Meeting that has
been convened for 12 noon on 5 January 2004.
A circular setting out further details on the Transaction will be sent to NSB
Shareholders today.
Background to and reasons for the Transaction
The Board continuously reviews the development and prospects of its main
businesses with a view to maximising value for Shareholders. The Board believes
that it is vital that NSB maintains a competitive advantage in a continuously
advancing retail software market in which its customers have increasing demands
of their information systems. The cost of software development is increasing
due to the complexities of providing real time, integrated open solutions and
profitability is ultimately determined by the scale of the distribution
channel. Therefore NSB is seeking to offer comprehensive common solutions in
both North America and Europe, with a skilled and comprehensive delivery
capability.
The Board believes that retailers will be attracted by flexible delivery
options and innovative payment plans. At present, NSB is dependent on licence
fees to fund development which limits its ability to offer different pricing
methodologies and the Board is not inclined to take on an increased fixed cost
base to expand existing distribution channels in Europe. In light of this, the
Board has concluded that, in the European market, a distribution agreement with
a well positioned partner provides the Group with the opportunity to expand and
better serve its retail customers without increasing its cost base, and
represents the preferred strategy for the Group and its customers.
NSB has therefore decided to team up with a strong partner, BT. The partnership
with BT will focus initially on the UK where BT will be able to offer enhanced
and additional products to existing NSB customers and offer NSB products to BT
Group's existing customer base, which comprises the vast majority of UK
retailers. NSB and BT will work together in the future to develop new products
and services for retailers of all sizes.
BT will take over the existing customer contracts of the UK Operations. The
employees of the UK Operations will transfer to BT, where the Board believes
that enhanced career opportunities will be available for them.
The expertise acquired from NSB will be centred in a new BT business unit to be
called BTExpedite. This business will offer dedicated retail capabilities to
support BT Group's extensive sales teams, ensuring customers benefit from a
fully integrated product and service portfolio. Building on its strengths in
information and communications technology (ICT), BT in partnership with NSB
will be able to offer retail companies an enhanced portfolio of solutions. As a
one-stop-shop for retailers, BT Group aims to combine its network, hosting and
"Syntegra" systems integration services with NSB's professional support skills,
to meet its customers' strategic system development demands.
Reflecting the strength of this combined offering, the Board believes that the
Distribution Agreement with BT will be beneficial to NSB. The proceeds from the
Transaction will also strengthen the NSB Group's balance sheet and provide it
with increased flexibility and financial resources to the benefit of all NSB
Shareholders.
Information on the UK Business
The UK Business provides professional software and systems integration services
to many of the UK's most significant retailers. It supports and implements an
end-to-end product set for its customers, including:
* Store products - point of sales systems for the processing and
reconciliation of transactions for both front of store and back office.
* Enterprise products - business analysis, planning and optimisation tools
used in retailers' merchandising, planning, sourcing and customer
relationship management processes.
The UK Business has a strong and long-standing customer base in the UK and
Ireland, including Arcadia, Lloyds Pharmacy, BhS, Oasis, WH Smith, Woolworths,
Brown Thomas, Roches Stores, Monsoon and Austin Reed.
A summary of the financial performance of the UK Business is provided in the
following table.
Year ended 31 December Six months
ended 30 June
2003
2000 (�m) 2001 (�m) 2002 (�m) (�m)
Turnover 22.9 28.2 15.9 11.0
Profit/(loss) before 4.2 2.6 (2.3) 3.3
interest and tax
As at 30 June 2003, the UK Business had net assets of �1.7 million.
The performance of the UK Business was impacted by weak order flow in 2001 and
2002 and as a consequence costs were out of line with revenues. In late 2002
the Company commenced a restructuring programme to reduce costs and this,
combined with the benefit of increased activity including two major contracts
with WH Smith, has resulted in an improved trading performance in 2003.
The UK Business generated an operating profit of �3.3 million in the six months
ended 30 June 2003. During this period, the UK Business benefited from licence
revenue in respect of the WH Smith contract win that is not expected to recur
fully in the second half of the year. Furthermore, under the terms of the
Distribution Agreement, a material proportion of the operating profit would
have been receivable by NSB in respect of royalty payments from software
licences had the Distribution Agreement been effective during this period.
Principal terms and conditions of the Transaction
Under the Sale and Purchase Agreement, BT has agreed to acquire the UK
Operations for consideration of �17.0 million, of which �15.3 million will be
receivable in cash on Completion and the remaining �1.7 million will be payable
as and when BT receives the economic benefits of certain significant customer
contracts. The UK Operations comprises, inter alia, 148 employees based at the
Theale, Watford and Birmingham sites, customer contracts and the net assets
relating to the UK Operations. The Consideration is subject to a working
capital adjustment mechanism; any deficit in Working Capital in excess of �1.0
million will be deducted from the Consideration and any surplus in Working
Capital will be added to the Consideration receivable.
Under the Distribution Agreement, the NSB Licensors will appoint BT as their
exclusive distributor for the purpose of, inter alia, marketing, distributing
and supporting the Software within the UK and Ireland and as their
non-exclusive distributor for the rest of Europe, the Middle East and Africa.
The Software and the intellectual property rights in the Software will remain
the property of the NSB Group or the NSB Licensors. The licence in respect of
the Legacy Software will also include the right for BT to have access to the
source code of such Software for the purposes detailed in the Circular.
BT will pay a percentage of the Software licence fees in respect of Software
sales and a percentage of support and maintenance revenues in respect of
principally high-level support for the Software to the NSB Licensors under the
Distribution Agreement.
There is a general obligation on the NSB Licensors to continue developing
market leading Software that is commercially attractive to its retail markets,
which must include BT and its customers. Products released in North America
must be released for the UK within 9 months. The NSB Licensors are required to
spend no less than 50 per cent. of the royalties receivable from BT in
fulfilling these general development and certain other BT specific development
obligations.
BT may ask that the NSB Licensors undertake specific developments requested of
BT by UK customers. BT will be entitled to licence fees based upon their
pro-rata contribution to the funding of such development although the
intellectual property rights in the new product will belong to NSB. BT also has
the right to modify or develop the Software itself, or have a third party do
so. In this case, the intellectual property rights in the NSB Software element
of the new product will remain with NSB and NSB will be paid licence fees on
the Software element.
The Distribution Agreement continues in perpetuity, although BT has the right
to terminate if the NSB Licensors are in material breach or become subject to
an insolvency or similar event. NSB has no such right to terminate unless the
Distribution Agreement has been assigned by BT outside of the BT Group.
NSB will retain the AS400 Business and the POSPartner Business.
The Sale and Purchase Agreement and the Distribution Agreement are conditional
upon Shareholder approval at the Extraordinary General Meeting.
Financial effects of the Transaction and use of Proceeds
The gross proceeds of the Transaction before expenses are expected to be �17.0
million. The net proceeds of the Transaction are expected to be �16.5 million
after expenses of �0.5 million. The Continuing Group intends to use the cash
proceeds to repay Cdn $26 million (approximately �11.3 million) of the
outstanding amount due to the holders of the Exchangeco Convertible Preference
Shares, which represents early repayment of the amounts due on 31 March 2004,
31 January 2005 and 31 January 2007 as it is entitled to under the terms of the
Postponement Agreement. The balance of the proceeds will be used by the
Continuing Group as part of its continued working capital requirement,
providing the Continuing Group with increased flexibility and financial
resources to the benefit of all NSB Shareholders.
Current trading and prospects
In the Group's Interim Results, the Board noted that the Group was seeing an
increased level of activity despite the still challenging economic environment.
The increase in activity has continued and the Group has a strong pipeline of
opportunities on both sides of the Atlantic. However there are still high
levels of customer scrutiny of the returns on any investment and sales cycles
are still longer than traditional historic levels.
The strength of the Canadian dollar against the US and UK currencies continues
to have an impact on the cost base but so far this has been mitigated by
improved sales performance and lower costs.
Looking forward, the Board believes that the Continuing Group is well
positioned to take advantage of the increased business activity in its markets.
Whilst the time to convert sales opportunities to revenue generating contracts
remains higher than historic levels, the trend is improving. The Board is
confident that the fundamentals of the business remain strong and the
Continuing Group will benefit from its current pipeline, market leading
positions and excellent customer base. As a result, the Board has confidence in
the Continuing Group's financial and trading prospects for the current
financial year and has confidence in the Continuing Group's prospects in the
future.
Extraordinary General Meeting
The Transaction requires the approval of Shareholders and is therefore
conditional upon the passing of the Resolution to be proposed at the
Extraordinary General Meeting to be held at the offices of CMS Cameron McKenna
at Mitre House, 160 Aldersgate Street, London EC1A 4DD at 12 noon on 5 January
2004.
Irrevocable undertakings
The Company has received irrevocable undertakings from the Major Shareholder,
the Directors and certain institutional shareholders representing approximately
54.4 per cent. of the current issued NSB Shares to vote in favour of the
Resolution, and the Company has undertaken to BT to enforce and not to waive
the irrevocable undertakings received.
Documentation
A circular summarising the Transaction, including a notice convening the
Extraordinary General Meeting, will be sent to NSB Shareholders today.
A copy of the above document has been submitted to the UKLA, and will shortly
be available for inspection at the UKLA's Document Viewing Facility, which is
situated at Financial Services Authority, 25 The North Colonnade, Canary Wharf,
London E14 5HS, tel. 020 7676 1000.
Appendix I contains definitions of the terms used in this announcement.
Contacts:
NSB Retail Systems PLC 0118 930 1522
Nikki Beckett, Chief Executive
Stuart Mitchell, Finance Director
Close Brothers Corporate Finance Limited 020 7655 3100
Richard Grainger, Chief Executive
Andrew Cunningham, Director
Close Brothers Corporate Finance Limited, which is regulated in the United
Kingdom by the Financial Services Authority, is acting exclusively for NSB
Retail Systems PLC and for no one else in relation to the Transaction and will
not be responsible to anyone other than NSB Retail Systems PLC for providing
the protections afforded to clients of Close Brothers Corporate Finance Limited
or for providing advice in relation to the Transaction or on any matter
referred to herein.
APPENDIX I - DEFINITIONS
The following definitions apply throughout this announcement unless the context
requires otherwise:
"2003 Agreement" the 2003 agreement summarised in the Circular;
"Agreements" the Sale and Purchase Agreement and the
Distribution Agreement;
"AS400 Business" the dedicated services and support team for
various customers relating to the iSeries
platform;
"Board" or "Directors" the directors of the Company;
"BT" British Telecommunications plc;
"BT Group" BT Group plc and all its subsidiaries;
"Callco" 513164 N. B. Inc., a company incorporated under
the laws of New Brunswick in Canada, being an
indirect subsidiary of NSB;
"Circular" the circular to Shareholders dated 19 December
2003 setting out further details of the
Transaction, including a notice convening the
Extraordinary General Meeting;
"Completion" completion of the Transaction in accordance
with the terms of the Agreements;
"Consideration" the consideration payable pursuant to the terms
of the Sale and Purchase Agreement;
"Continuing Group" NSB and its subsidiary undertakings, excluding
the UK Business;
"Distribution Agreement" the distribution agreement between, inter alia,
the NSB Licensors and BT;
"Exchangeco" 513165 N. B. Inc., a company incorporated under
the laws of New Brunswick in Canada, being an
indirect subsidiary of NSB;
"Exchangeco Convertible redeemable preferred shares in the capital of
Preference Shares" Exchangeco, convertible into NSB Exchangeable
Shares issued pursuant to the STS acquisition;
"Extraordinary General the extraordinary general meeting of the
Meeting"or "EGM" Company to be held at the offices of CMS
Cameron McKenna at Mitre House, 160 Aldersgate
Street, London EC1A 4DD at 12 noon on 5 January
2004;
"First Postponement Agreement" the agreement of postponement of obligations
dated 26 November 2001 among the NSB Parties
and the Major Shareholder, as amended;
"Group" or "NSB Group" the Company and its subsidiary undertakings;
"Interim Results" the interim results for the NSB Group for the
six months ended 30 June 2003, announced by the
Group on 29 August 2003;
"Licensed Material" the material to be licensed to BT by the NSB
Licensors under the Distribution Agreement and
which comprises the Software, together with the
documentation, specifications, source material,
support material, marketing materials, training
documentation and product documentation,
website content and design, and certain of the
NSB Group trade marks;
"Major Shareholder" 3068358 Canada Inc.;
"NSB Consent Parties" the NSB Parties, the NSB Vendors and NSB Retail
Systems Inc;
"NSB Exchangeable Shares" shares in the capital of Exchangeco
exchangeable into Ordinary Shares pursuant to
the articles of association of Exchangeco and
the VES Agreement;
"NSB Licensors" NSB Retail Systems Inc. and NSB Retail UK;
"NSB Parties" NSB, Callco, Exchangeco, NSB Retail Solutions
Inc., and NSB U.S. Sales Inc. as parties to the
Postponement Agreement;
"NSB Shares" Ordinary Shares and Special Voting Shares;
"NSB Vendors" NSB Retail UK and USI Europe PLC, a company
incorporated under the laws of England and
Wales, being an indirect subsidiary of NSB;
"NSB" or the "Company" NSB Retail Systems PLC;
"Ordinary Shares" ordinary shares of 2p each in the capital of
the Company;
"Partial Release and Consent the agreement of consent, partial repayment and
Agreement" partial release of security dated 19 December
2003 between the NSB Consent Parties and the
Major Shareholders;
"Postponement Agreement" the First Postponement Agreement as amended by
the Second Postponement, by the 2003 Agreement
and by the Partial Release and Consent
Agreement;
"POSPartner Business" the business the subject of the agreement
between POSPartner GmbH and NSB commencing on 1
May 2003, pursuant to which NSB has granted
POSPartner GmbH the exclusive right to market
certain software products to German based
retailers;
"Resolution" the ordinary resolution to be proposed at the
EGM to approve the Transaction;
"Sale and Purchase Agreement" the conditional sale and purchase agreement
between the NSB Vendors, NSB and BT relating to
the disposal of the UK Operations;
"Second Postponement Agreement" the second postponement agreement summarised in
the Circular;
"Shareholders" holders of NSB Shares;
"Software" i. the Go Forward Software (Sales Analytics,
CRM, Planning, Merchandising, Store),
including all additions thereto;
ii. the Legacy Software (ObjectPos, Mercatus,
CafePOS), including all additions thereto;
iii. the new Software or new releases of the go
forward software developed by or on behalf
of a member of the NSB Group for launch in
the United States (and subsequently the
United Kingdom) market including all
additions thereto;
"Special Voting Shares" special voting shares of 0.01p each in the
capital of the Company issued pursuant to the
STS acquisition;
"Transaction" the disposal of the UK Operations to BT under
the terms of the Sale and Purchase Agreement
and the distribution arrangement between the
NSB Licensors and BT under the terms of the
Distribution Agreement;
"UK" or "United Kingdom" the United Kingdom of Great Britain and
Northern Ireland;
"UK Business" the UK Operations and the Licensed Material;
"UK Operations" the business and assets of the NSB Group's UK
operations excluding the business and assets
relating to the AS400 Business and the
POSPartner Business and the Licensed Material;
"US" or "United States" the United States of America, its territories
and possessions, any state of the United States
and the District of Colombia;
"VES Agreement" the voting, exchange and support agreement
entered into pursuant to the STS acquisition
agreement between NSB, Callco, Exchangeco, the
Major Shareholder and the corporation formerly
known as STS Systems Ltd. (until 29 December
2000); and
"Working Capital" the total of the stock, debtors, prepayments
and accrued income less the total liabilities
of creditors, deferred income and VAT
recoverable by the NSB Vendors of the UK
Operations as at Completion.
Unless otherwise stated, a conversion rate of Cdn $2.3: �1 has been applied in
this document, being the exchange rate at the close of business on 17 December
2003 (the latest practicable dated prior to publication of the circular.
END