The Medical House PLC Announces Disposal of Loss-Making Sub-contract Machining DivisionSHEFFIELD, England, Dec. 27, 2007--The Medical House PLC (“TMH”or the “Group“), (AIM:MLH) the drug delivery specialist, is pleased to announce that it has agreed to sell its loss-making sub-contract engineering subsidiary, Eurocut Limited (“Eurocut”), to Semes Limited (“Semes”) a company controlled by Eurocut’s Managing Director, Stephen Shaw, in a deal (the “Disposal”) which enables TMH to concentrate all of its resources on growing its profitable Drug Delivery Division.
For the year ended 30 June 2007, Eurocut reported operating losses of £856,000; Eurocut’s losses have continued since then. At 30 June 2007, Eurocut had net assets of £1.6m.
Under the terms of the sale agreement (the “Agreement”), debts associated with Eurocut of around £1.4m will immediately leave the Group.
This deal completes a dramatic turn around in TMH’s bank financing. In the past four months, cash received by TMH and debts leaving the Group have totalled £4.5m. The result is that TMH now has a modest bank overdraft and no long-term debt. Semes has agreed to pay up to £3.7m (in aggregate) for the whole of the issued share capital of Eurocut and the repayment of existing inter-company loans. Payments to TMH are due to commence on 1 January 2009, with TMH taking charges over all of Eurocut’s unencumbered assets. However, the value of the assets secured under these charges will mean the majority of the amount which is due to be paid will not be backed by available security, so that an element of the amount due to the Company will be dependent on Eurocut’s future performance. Consequently, TMH will be accounting for the financial shortfall in the security available on a receipts basis. Appropriate provisions will be made in the TMH accounts to 31 December 2007, which will be announced in April 2008.A parent guarantee relating to certain machinery finance agreements remains in place against an undertaking from the bankers of Eurocut to either procure the release of such guarantee or to reduce the bank’s security over the assets of Eurocut by an amount equivalent to the guarantee.
Most of the consideration relates to an inter-company loan which has built up over several years and now stands at £2.9m. The monthly instalments which are due to commence in January 2009 will first be applied to the repayment of this loan. Such repayments will be limited to 50% of Eurocut’s profits, thereby allowing Eurocut to rebuild its position in the market and consequently giving TMH the best opportunity to be repaid in full.
The Agreement incorporates provisions to cover the possibility of a subsequent sale of Eurocut by Semes. This could result in earlier settlement of the consideration and a possible increase in the Disposal price obtainable. Should the sale to a third party be for a sum which, together with the repayments already received, exceeds £3.7m then TMH will receive a further payment equivalent to 25% of such excess.
TMH has retained ownership of the appropriate design and development facilities in addition to an exclusive licence to finalise and exploit the intellectual property which Eurocut has recently been developing in respect of disposable surgical instruments. The costs of maintaining these facilities are relatively modest, but will enable TMH to exploit its creativity in two medical markets, drug delivery and orthopaedics. This is in keeping with TMH’s successful track record in designing and licensing medical devices, enabling the Company to continue to benefit from its expertise and experience in commercialising medical device intellectual property.
Under the Agreement, Stephen Shaw will resign as a Director of TMH and as an employee of the TMH group, and will receive the sum of £25,000 in respect of compensation for loss of office.
Due to the involvement of Stephen Shaw, the Disposal constitutes a related party transaction under the AIM Rules of the London Stock Exchange. The directors of TMH consider, having consulted the Company’s nominated adviser, Nomura Code Securities Limited, that the terms of the Disposal are fair and reasonable insofar as the shareholders of TMH are concerned.
Ian Townsend, Chairman, The Medical House PLC, said:
“Although we are sorry to see Eurocut leave the Group, we are delighted that this transaction puts TMH on a much sounder financial footing. It effectively draws a line under a difficult situation which has persisted for the past 18 months. This deal eliminates the risk of TMH incurring further losses which might result from Eurocut’s somewhat unpredictable order profile, whilst still allowing TMH shareholders to benefit from Eurocut’s future success The deal also allows us to concentrate all our efforts on designing, developing and licensing medical device technologies, where we already have a considerable record of success.
We will be starting 2008 in our best ever financial position and are very excited about our future prospects.
We would like to wish the management of Eurocut every success in the future and would like to place on record our thanks to Stephen Shaw for his contribution to TMH.”
The Medical House PLC, 199 Newhall Road, Sheffield, S9 2QJ, United Kingdom
Tel: +44 (0)114 261 9011 (UK) Fax: +44 (0)114 243 1597 (UK)
Posted: December 2007