Freesteel Blog » Vero calls a meeting to explain precisely nothing

Vero calls a meeting to explain precisely nothing

Thursday, October 29th, 2009 at 12:43 pm Written by:

More entertaining financial farting going on at Vero which, in my opinion, is socially and productively useless — as is practically everything that is currently part of our godforsaken corporate financial structure.

Let’s start with some tedious biased history gleaned from 5 years of company annual reports…

From VI Group annual report 2006:

Cash inflow from operations was £0.8m compared to an inflow of £0.7m in 2005. Cash balances at the year end were £1.0m (2005: £1.1m), with £0.6m of short-term borrowings (2005: £0.4m), giving a net funds figure of £0.3m (2005: £0.7m). Net debt increased to £2.3m from £0.1m largely because of the financing of the Camtek acquisition.

From Interim Report 2007:

Cash generated by operations for the six months was £0.88 million (2006: £1.1m). Net cash balances were £0.9 million at 30 June 2007 (31 December 2006: £0.3m). Net debt has reduced since the year end to £1.7m (31 December 2006: £2.3m).

From Annual report 2007:

Net debt increased to £2.7m from £2.3m. £2.6m of this relates to term loans from UK and Italian Banks repayable over 5 years. The Company has total short term borrowing facilities of £1.4m in Italy and the UK to cover its working capital requirements. Interest payments during the year were £211,000 (2006: £81,000) and were covered 6 times (2006: 13 times) by profits.

From 2008 Annual report:

Cash generated from operations in 2008 was £1.9 million compared to an inflow of £1.7 million in 2007. The cash balances at the year end were £1.6 million (2007: £0.81m), with £1.5 million of short-term borrowings (2007: £0.83m), resulting in net funds of £0.09 million (2007: net short term borrowings £0.02m). 2008 also marked the end of deferred payments made to vendors of our last three acquisitions that have affected cash balances in recent years.

Net debt increased to £2.9 million from £2.7 million, £1.4 million of this relates to advantageous Italian term loans achieved through technology grants and banks repayable over 3 to 5 years.

The Company has reclassified £0.86million of UK term loans made by Fortis Bank as current liabilities as a result of its covenant position and as required by International Financial Reporting Standards.

Vero has received a letter of comfort from Fortis Bank stating that it is not their intention to demand repayment of the facilities. The Board is actively seeking refinancing of these loans.

From Interim Report 2009:

Cash generated by operations for the six months was £1.3 million (2008: £1.6 million). As noted in the 2008 annual report the Company debt to Fortis bank was reclassified as being current rather than long term following a covenant breach. The Company has made an early repayment of £250,000 to Fortis Bank in addition to its regular loan repayments in the first half of the year and as a result net short term borrowings at 30 June 2009 were £55,000 (31 December 2008: net cash £92,000). Net debt has reduced since the year end to £2.1 million (31 December 2008: £2.9 million)….

The current economic environment remains a significant challenge. We have taken steps to reduce our cost base and with hopeful signs in refinancing the Fortis bank debt we are confident that we will continue to weather the current economic downturn. In the longer term we remain confident in a positive outlook for the Group….

At the balance sheet date Vero Software Plc had outstanding loans from Fortis Bank of £846,000 (December 2008: £1,359,000). As a result of a breach of a loan covenant relating to debt service cover, advance repayments of £250,000 have been made in the period and the interest charged on the loans increased to 7% over LIBOR. The Group has a revised facility letter and a “letter of comfort” from Fortis Bank stating that it does not intend to withdraw the facilities available to the Group. Alternative sources of finance are being actively pursued.

Interim Announcement, September 09:

Cash generated by operations for the six months was £1.3m (2008: £1.6m). As noted in the 2008 annual report the Company debt to Fortis bank was re-classified as being current rather than long term following a covenant breach. The company has made an early repayment of £250k to Fortis Bank in addition to its regular loan repayments in the first half of the year and as a result net short term borrowings at 30 June 2009 were £55,000 (31 December 2008: net cash £92,000). Net debt has reduced since the year end to £2.1million (31 December 2008: £2.9m).

Fortis, in case you don’t know, is just another of those screwed-up banks which, in its case, was bailed out by Belgian taxpayers and shareholders in return for nothing. Its rump was sold to the French bank BNP Paribas which — apparently — evaded the recent financial crisis, unlike all the others. And I use the word “apparently” in the way that top competitive athletes are apparently drug free. No one responsible for large parts of the economy actually believes in all this so-called free-market brainwash, just as athletes who believe in keeping drug-free — even when they can cheat without getting caught — generally don’t win.

Or, to put it another way, the national economies which have suffered the most in this financial crisis happen to be those which promoted blind and ignorant ideologues to positions of power and influence where they could disregard reality and do the most damage.

All of which brings us up to today, following my earlier notes about Vero on a “provisional approach from a financial institution that may or may not lead to an offer being made for the Company”, during which it was also stated in the 2009-09-17 press release:

In accordance with Rule 2.10 of the City Code on Takeovers and Mergers, the Company confirms that it has 37,261,166 Ordinary Shares of 0.5p each in issue and admitted to trading on the London Stock Exchange under UK ISIN code GB0002678273

What the heck is this Takeover Code?

I didn’t notice it when I wrote that blog post — too busy was I pasting in images of share price performances and so forth that I missed this crucial snippet. So compelling are these realtime movements in numbers that it’s easy to lose track of everything else.

I’ve now looked at it and discovered that there is such a thing as a Takeover Panel which refers itself to its 282 page Take-over code for regulating company take-overs and requiring shareholders to have a say in the sorts of operational matters that could potentially relate to activities of poison pillism that would result in the outrageous ripping off shareholders. No one has a problem with ripping off shareholders, except if it happens too overtly and often, then people will lose the confidence they have for gambling in this casino, and it’ll be harder to make money out of them in the future.

There is a real temptation for a director to commit blackmail when another company is trying to buy out their company — the one they have operational control over — because they can threaten to sign a contract on behalf of their company that is so bad that it causes damage to the company that is doing the take-over. This isn’t in the interest of the shareholders, but it is in the interest of the director, because they can say: “well what are you going to pay me to not do this?”

By bringing in the necessity for shareholders to be involved in otherwise operational decisions during a take-over period supposedly limits room for this kind of corruption.

But it’s good to see that the Vero management are only satisfying the minimum requirements according to the rule.

Here’s what Rule 2.10 says:

When an offer period begins, the offeree company must announce, as soon as possible and in any case by 9.00 am on the next business day, details of all classes of relevant securities issued by the company, together with the numbers of such securities in issue. An offeror or potential named offeror must also announce the same details relating to its relevant securities by 9.00 am on the business day following any announcement identifying it as an offeror or potential offeror, unless it has stated that its offer is likely to be solely in cash.

Any such announcement should include, where relevant, the International Securities Identification Number (“ʻISIN”) for each relevant security.

Well, they haven’t identified the potential offerer. I missed the part bit where they stated that the offer is “likely to be solely in cash”.

I can’t imagine what legitimate excuse there is for keeping the offerer secret, because if they told everyone, there’s a chance that another company could step in and offer a higher price, and that would be good for the shareholders — although probably not so good according to some undisclosed agreement by the management to enrich themselves through some kind of a back-hander or unwarrented job-security in return for conspiring to keep the price low. Or maybe they just want to cash out at any cost and don’t want to risk the deal. Running a CADCAM company when you’re not actually interested in the products can get kind of boring.

You’ve got to think of these things. The rules were made because stuff like this happens.

So, I now exhibit the Circular and Notice of General Meeting, published 15 October 2009, to be held on 2 November 2009:

The Directors are pleased to announce that the Company has entered into Heads of Agreement (“Heads of Agreement”) with a respectable third party institution (“Lender”) to raise £2 million before expenses by the issue of a secured mezzanine term loan (“Loan”). As the Company is in an offer period for the purposes of the Takeover Code (“Offer Period”), certain features of the Loan are required, under the Takeover Code, to be approved in advance by Shareholders….

Rule 21.1 of the Takeover Code (“Rule 21.1”) provides that during the course of an offer, or even before the date of the offer, if the Board has reason to believe that a bona fide offer might be imminent, the Board must not take any action without shareholder approval which may result in any offer or bona fide possible offer being frustrated or in shareholders being denied the opportunity to decide on its merits (“frustrating action”). The Company is seeking approval from Shareholders only in respect of those terms of the Loan Agreement (as defined below) which might constitute frustrating action and accordingly is not asking Shareholders to approve the commercial terms of the Loan, which are being negotiated by the Board. The Company is therefore seeking Shareholder approval for the purposes of Rule 21.1 at the General Meeting before signing and completing the Loan Agreement and granting the Warrant….

Vero had used term loans from the UK subsidiary of Fortis Bank (now part of the French bank BNP Paribas) to finance acquisitions in 2005 and 2006. The Company has come under pressure from Fortis to repay its loans, a substantial amount of which has already been repaid. The outstanding balance is repayable on demand and the proceeds of the Loan are intended to be used to repay the Fortis indebtedness and provide working capital for the Company.

For reasons of expediency the Company is seeking Shareholder approval for the Loan in advance of entering into a binding agreement. Should Shareholders approve the Loan a further announcement will be made at the date of Completion.

I supposed everyone is supposed to troop over to Hadley House, Bayshill Road, Cheltenham, Gloucestershire GL50 3AW at 10:00 a.m. on 2 November 2009, raise their hands on some resolution about borrowing £2million on some shoddy terms from an unnamed “respectable” lender, and not find out who the potential buyer is.

It’s a joke. So much for participation in the decision.

Wouldn’t it be fun if it was possible for all the shareholders to show up and for some guy to take the floor and say:

“I propose that pass a motion that obliges the directors of the company — our employees — to disclose to us who the potential buyer is and what they have been negotiating to sell the company — our property — for. All those in favour, please say the number of shares you own and we’ll add them up to see if we have a majority.”

Unfortunately, if they did, the directors would explain, “Ah, no, it doesn’t work like that. You have to refer to rule 44 of our articles of incorporation, which say”:

The Board may convene an extraordinary general meeting whenever it thinks fit. An extraordinary general meeting shall also be convened on such requisition, or in default may be convened by such requisitionists, as provided by the Act and no business shall be transacted at such meeting except that stated by the requisition or proposed by the Board.

In other words, it’s like our public democracy, where the politicians decide what matters we get to vote on, and the people have no right to petition for a vote on questions of their choice.

So, who could this mysterious offerer be? The options are: (a) a customer of Vero’s, (b) a competitor in the market, (c) a customer of one of their competitor’s, (d) one of the know-nothing speculative investors in the company who have glossy brochures and tax breaks, or (e) an imaginary entity.

I can’t find anything searching the interwebs beyond this vacuous money report in the Daily Mail:

Increased market activity and hopes for a good final quarter lifted giant derivatives and money broker ICAP 25.1p to 434.3. Infrastructure software group Autonomy jumped 72p to 1510p after launching its Structured Probabilistic Engine software, which enables organisations to unlock the ‘meaning’ in databases….

PR consultancy City of London Group soared 14.5p to 55p and Vero Software 6p to 20.5p after receiving takeover approaches. Central African Mining & Exploration eased 0.75p to 18.75p on disappointment with the proposed 20p-a-share bid terms from k.

Then there’s this really cool Takeover panel disclosure table just asking to be webscraped:

OFFEREE: Vero Software Plc
0.5p ordinary ISIN: GB0002678273 NSI: 37,261,166
OFFEROR: No named offeror

But my favourite — and this really is cool — is my discovery of this comment log on the LSE website that comes straight out of the you-won’t-believe-I-didn’t-make-this-up department Read it and weep:

9 September – HI mate yes just come across it while looking up coming interim dates cant really find fault very few shares good customer base.New products, worldwide markets,increasing turnover. Do believe as the world economy picks up this is a very good company to be in. As you say MikeF seems to be well on the case.

14 September – Vero Software has a licensing system similar to microsoft rather than patents.The product needs constant updating etc thus the maintenance agreements.

15 September – Ticked up a little more.

Doesn’t move for months and now there is no stopping it! We all know whats happening on the 29th with Vero and now is the time to top-up.

15 September – When I purchased through my broker yesterday, he said it was a clear path to 19p. So I’m guessing that if there are several buys it should rise all the way?

15 September – My target price is 19p, but I see some brokers have 23p.

16 September – blown it to bits,picked a winner here

16 September – someone just bought 31k at 24p

16 September – just bought a little over 2000 shares in here.

Im hoping for the best; although It’s a blind punt, I trust you fater PXS childsplay. Any more tips please let me know!!

16 September – Was looking this morning at 16.37 and decided no …… Doh

16 September – The easy way to value Vero Software

Flomerics is in a similar line of business: [Computational Fluid Dynamics]…

Recently purchased for 122p per share, which valued the company at approximately £30.1m.

FLO’s FY 2007: Turnover – £14.6m, Gross profit margin – 95%,
Comment – valued at over twice times turnover.

VERO’s FY 2007: Turnover – £12.7m, Gross profit margin – 94%

If valued at twice turnover, VERO would be worth circa £25m, current enterprise value is £8.2m.

16 September – first time in about 10 minutes the sell price has gone up, only from 19 to 19.1p, is it turning? HOws level 2 looking now?

16 September – as I brought certificated, and have to wait up to 25 business days for the certificate to come through. I would have loved to have sold at 23p today, but can’t do nothing about it!

16 September – can I ask why you bought certificated ? Do you normally buy certificated ? Sometimes you need a quick turn around, again, I really wasnt expecting quick turnaround here in 3 days, but it might be something to think over for future purchases, unless ofcourse your holding longterm.

16 September – I brought on Monday at 12.5p for a long-term investment, with the hope of 19p one day. This offer has really spooked me, as seeing 24p today I felt helpless! In financial terms this is my second largest after IOG.

17 September – I have just purchased 5976 @ 20.85. I have to go out for a short while back soon. GL all

17 September – thanks for your thoughts mate, would be happy with steady rises to 70p by Christmas/new year, my uncle asked me for a few tips so want them to be the best possible tips. Already showed him PXS and all that they are doing, also C21, PMK, MONI, BSST, NPH, UGY, SYNC, STF, and a few others, so will wait and see what he decides! Think the NAV will prevent IERE from having too much of a retrace on the way to 70p, and VERO should be taken over for between 24p and 45p! And who knows where PXS could go

18 September – interesting, as Foresight 3 VCT plc weren’t on my list of major shareholders, but they have only sold approximately 70,000 shares, so nothing to worry about! Suprised there isn’t more interest here this morning, but buying pressure could pick up for the weekend, or there could be another bit of profit-taking, either way I’m holding to see if there is an offer of 24p or more! GL

18 September – Showing great stability for the last 2 days, interims due on the 29th, wonder if there will be any further developments on the take over talks by then

20 September – what is happening on the 29th ? please

20 September – Interims are out,delayed from the 6th but in between an offer has been made for Vero at an early stage at the mo.

21 September – I missed out on these at 13p, decided now to leave them, bought STF instead. I believe good interim results due on thursday 24th, so when this comes good might change into this as results are a week apart.DYOR

23 September – yes still very in vero,at 18p i see this still has potential,its a matter of the fast rise,which was daytraders jumping in that made it jump up and down,i invested for the results and remains so,of course im obliged to say dyor,also we see stf results on thursday

27 September – We are in the right place for Interims tomorrrow. We know they are going to be a good en so maybe a quick 10% increase. !

28 September – I expected more buys this afternoon in time for the 7am release tomorrow.

29 September – Will certainly assist with a higher price on any potential offer!

The 19% increase in earnings before interest, tax, depreciation and amortisation (“EBITDA”) to GBP603,000 (2008: GBP505,000), should actually put her in a new bracket, particularly with the challenges conditions, cash down a little but the rest, looking like it would be a shame to sell her cheap as she seems to be improving/developing!

29 September – not overly excited by the results but solid as expected, and I’m sure any prospective buyer would not be put off by the results, as profit is profit in these times, and the potential for expansion is still there. Do I remember your target price correctly at 23p? What is the longest you think it could take for us to hear further details? Im hoping for 24p minimum, dont know when to expect news though! cheers

2 October – Hard to believe how much money I have lost this week in Vero. I know I brought at 12p, but couldn’t sell until I received my certificate (which I got today). £14,500 profit gone in 10 days 🙁

Fingers crossed for the offer.

5 October – I’ve been trying to sell some of these all morning, but just keeps asking for a negotiated trade?

5 October – Anyone know why it’s impossible to sell any of these at the moment?

16 October – thanks for that mate, seems like a positive development to me, £2m will allow them to pay off their debt to Fortis Bank and have access to increased working capital, with only a possible 3million shares so dilution would be minimal. Also the remaining cash should help to strengthen VERO’s position in negotiating a possible offer, so as long as shareholders approve it, this is good news. We will see 🙂

21 October – No movement nothing, whats accuring.

25 October – Not a lot at the moment – this one will just spurt on news and so hang in there

26 October – anyone got any more news on potential takeover of this?

27 October – Not heard anything and got a rather stern reply from the company when I asked.

Did you get a letter/pack last week? Mentions they need a £2m loan and possible dilution 😮

28 October – No not yet, havent received anything yet. Looks like we are in for the long haul. One of those shares that we all needed to do some more indepth research on before jumping in

Exactly. Like knowing a little bit more about the CADCAM business, the way it doesn’t go anywhere, and the history of this particular company to absorb large government grants with which they could buy someone else’s software. At some point people need to have a discussion about wealth creation vs. worthless financial algebra.

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