Acquisitions and disposals
8.16.1 Discontinued operations
On 18 December 2018 Accell Group announced new steps to create a more performance focused, consumer centric bike and parts company. The most important decisions were to focus on the European core business and to run the North America business as a separate (non-core) business enabling focus on elimination of profit dilution. It meant the start of a strategic review of the North America business, in which various scenarios were considered varying between continuation of business via a heavily restructured organization to full liquidation of the companies.
On 7 August 2019 Accell Group announced the completion of the strategic review of its North American operations, which resulted in the sale and transfer of the loss making US business including the worldwide registrations of the Diamondback, Redline and IZIP brands (excluding Canada) to the Alta Cycling Group LLC, a portfolio company of Regent LP. Taking in consideration the earlier announced sale and transfer of the Canadian brand registrations to the Canadian Tire Corporation Limited ('CTC') it meant the North American operations were substantially liquidated per that date. As a consequence the closely related Beeline operations were sold as well on 11 October 2019 to a group of investors led by the StrataFusion Group.
All together the net loss from discontinued operations adds up to € 56.5 million in 2019 (2018: € 18.8 million), which excludes net finance cost which are accounted for in full in continuing operations. The result from continuing operations in 2019 is impacted by the outcome of the strategic review as well. The table below provides a breakdown of the impact for both discontinued operations and continuing operations in 2019 (see note 6.15.2 for the tax impact), as well as the re-presented disclosure for 2018:
|Discontinued operations||Continuing operations||Discontinued operations|
|€ x 1,000||€ x 1,000||€ x 1,000|
|Earnings per share (in euro)|
|Basic earnings per share from discontinued operations||-2.11||-0.71|
|Diluted earnings per share from discontinued operations||-2.11||-0.71|
Operational result from discontinued operations
The operational loss from discontinued operations of € 12.1 million (2018: € 18.5 million loss) include a net turnover of € 37.5 million (2018: € 61.0 million) and exclude as 'normalization' the closing and restructuring costs as well as the gain from the sale of the Canadian brand registrations. As required the corporate general overhead expenses previously allocated to the discontinued operations are reported in the result of continuing operations, which contributes € 2.3 million positively to the operational result of the discontinued business (2018: € 2.5 million).
Sale of Canadian brand registrations
On 12 July 2019 Accell Group reached agreement on the sale of its Canadian brand registrations of Raleigh, Diamondback, Redline and IZIP to Canadian Tire Corporation ('CTC') for US$ 16.0 million (€ 14.3 million) after Canadian sales tax of 13%. The gain was allocated to discontinued operations for € 3.0 million and for € 11.4 million to continuing operations (see note 6.7.2) based on the revenue distribution of the companies involved. At 31 December 2019 an amount of US$ 1.5 million (€ 1.3 million) is in escrow, which is excepted to be released at the end of July 2020.
Sale of US businesses
On 6 August 2019 Accell Group sold, net of debt and including ongoing commitments, the US business of Accell North America Inc. ‘as is’ in a single transaction to the Alta Cycling Group LLC ('Alta') including the worldwide registrations (excl. Canada) of the Diamondback, Redline and IZIP brands (see note 6.10.3). As part of the agreement Accell Group financed US$ 9.0 million of the trade payables transferred, of which US$ 5.0 million was repaid in December and the final tranche of US$ 4.0 million (€ 3.6 million) is due early March 2020. The purchase price for the business transferred was US$1, but Alta will pay to Accell 15% of the operating profits for each calendar year in the period beginning 1 January 2022 and ending on 31 December 2026, with a maximum amount of US$ 15.0 million. The net assets transferred were € 26.6 million. At 31 December 2019 Accell Group considers a future cash inflow from the earn-out possible, but does not recognize the contingent asset as the (accounting) criteria are not met. The transaction related expenses were € 1.4 million.
As part of the agreement Accell Group and Alta Cycling Group agreed upon a continuing relationship, in which Accell Group provides supply chain services (as an agent) and financing services (as a payment agent) and Alta Cycling Group is granted a license and exclusive distribution rights for the brands Raleigh, Ghost and Haibike for the 24 months following the business transfer. For the financing commitment given an expected credit loss of € 2.3 million is considered in the net transaction result. At 31 December 2019 the related (gross) receivable from Alta Cycling Group is US$ 11.8 million (€ 10.6 million), which is mainly due to ongoing commitments transferred per 6 August 2019.
On 11 October 2019 Accell Group transferred 100% of its shares in Beeline Bikes Inc. to Beeline Bikes Acquisition Company LLC, an investment vehicle of a group of investors led by Ken Stratford, CEO of StrataFusion Group. The purchase price for the business transferred was US$ 1 thousand, but the purchaser will pay to Accell Group 15% of the operating profits for each calendar year in the period beginning 1 January 2021 and ending on 31 December 2024. At 31 December 2019 Accell Group considers a future cash inflow from this earn-out possible, but does not recognize the contingent asset as the (accounting) criteria are not met. The net assets transferred were € 1.5 million.
Due to the substantial liquidation of its US business Accell Group was required (IFRS) to reclassify its cumulative translation loss of € 7.9 million on its net US$ investment from the translation reserve to the other reserves via the income statement.
Closing and restructuring costs
In the period August - December 2019 the restructuring and closing cost amounted to € 7.8 million, which include the cost of the conditional retention plan announced in December 2018, severance costs and severance benefits for employees that did not transfer and cost of discontinuation of business (insurance product liability).
Specification of the net transaction result on the sale of discontinued operations
The remaining balance sheet line items at 31 December 2019 in the US are run-off line items and are therefore not held for sale.
Discontinued operations comprise those activities that were disposed of during the period (or that were classified as held for sale at the end of the period), and represent a separate major line of business or geographical area that can be clearly distinguished for operational and financial reporting purposes. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. The income and expenses from discontinued operations are presented in the income statement as profit or loss from discontinued operations below the profit or loss from continuing operations. Corresponding disposal gains or losses are contained in the profit or loss from discontinued operations. The prior-year figures in the income statement are adjusted accordingly and net cash flows attributable to the operating, investing and financing activities of discontinued operations are disclosed separately in the cash flow statement.
In January 2019, an agreement was reached on the sale of Delta Metal Technology Ltd. This China-based company manufactures around 123 thousand frames for the benefit of Accell Group and also reported third-party revenue of € 0.8 million in 2018 (segment Bikes Core). Component production does not belong to the strategic activities of Accell Group and in combination with the perspective of sustained cost increases, the divestment process has accelerated. The transfer of shares took place on 1 December 2019 at net book value and had no adverse effect on net turnover and had minor negative impact of € 60 thousand on the result; presented as result on the sale of subsidiaries in the consolidated income statement.