Resource Development Group

Resource Development Group Limited provides diversified services to the resource, infrastructure and energy sectors within Australia and internationally.


RDG's main operating subsidiary, Centrals provides a 'whole of project' contracting service offering.


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Acquisition of Central Systems Pty Ltd

Resource Development Group Limited (RDG) is pleased to announce it has entered into a conditional Share Sale Agreement (SSA) to acquire Perth based Central Systems Pty Ltd (Centrals), a multi-disciplined, self-performing construction contractor and provider of remedial and maintenance services to the mining, energy and infrastructure sectors in Australia. Contracting services include civil, SMP (structural, mechanical & piping), E&I (electrical & instrumentation) and maintenance, remedial and protective coatings services. Centrals' primary markets are the mining, oil & gas, defense and utilities sectors in Australia.

Centrals has a blue chip client base including Samsung, Fortescue Metals Group, BHP Billiton, Rio Tinto, Xstrata, Newcrest, CBH and BP for whom they complete both greenfields and brownfields projects. Major contracts currently being delivered by Centrals include a circa $100 million contract with Samsung for the Roy Hill Bridges Project, underground concrete contracts for Newcrest’s Cadia minesite, defense related protective coatings contracts for both NSM Australia and BAE plus multiple brownfields projects under a multi-year panel contract with BHP Billiton Iron Ore.

Centrals’ business generated unaudited revenue of $195 million in the financial year ending 30 June 2014 (unaudited $101m pcp) making an unaudited $22.2 million Net Profit Before Tax (unaudited $14.8m pcp). Centrals' order book for FY15 stands at approximately $136m.

Under the terms of the SSA, RDG will issue Centrals' 5 shareholders a total of 497,175,172 RDG shares for 100% of the issued capital of Centrals. On Completion of the transaction, RDG will have a total of 631,404,067 shares and 6,000,000 options on issue. Centrals’ shareholders will (after the issuing of the shares) own in aggregate 78% of the fully diluted issued capital of RDG, with 4 shareholders each holding 16.58% and the other shareholder holding 11.7%.

The parties have agreed that 4 founding shareholders of Centrals will receive a dividend from Centrals before Completion. The amount of the dividend will be calculated based on the unaudited net tangible assets (NTA) of Centrals and RDG as at 31 August 2014, and it will be funded by way of loans from the Centrals founding shareholders to Centrals. The net effect will be that no cash will be paid out of Centrals to the founding shareholders before Completion, however Centrals will have a liability post-Completion to repay loans to each relevant Centrals shareholder reflecting their respective proportion of the dividend. Formal loan agreements and a security deed in respect of these loans will be entered into between Centrals and the Centrals shareholders at Completion. These loan agreements will be on commercial terms and will be secured over the assets of Centrals on a subordinated basis behind Centrals' existing financiers. Interest will accrue at 7% p.a. on these loans and will be paid quarterly, however, the principal will only be repaid where the independent members of the RDG board are satisfied that RDG has sufficient working capital and cashflow.

The amount of the dividend will not be determined until 31 August 2014 when accounts for RDG and Centrals have been prepared in accordance with the SSA. However, for illustrative purposes, an amount of $22.9m has been estimated based on a consolidated pro forma balance sheet reflecting how the merged RDG Group would look had the transaction completed on 30 June 2014 as shown in Annexure A.

The transaction under the SSA is subject to various conditions precedent, including all approvals required at law or under the ASX Listing Rules, consents from Centrals' financiers, release of encumbrances other than those permitted with Centrals' existing financiers, consents from counterparties to Centrals' key contracts, senior executives entering into employment contracts, and RDG shareholder approval of the transaction for the purposes of the ASX Listing Rules including Listing Rule 11.1.2. If the conditions are not satisfied on or before 29 September 2014, the SSA will automatically terminate (unless otherwise agreed between the parties).

In addition, the SSA can be terminated by either party before Completion if (amongst other things) a material adverse effect occurs in respect of the other party, the other party breaches its warranties or material obligations under the SSA or the other party breaches a material term of one of its key contracts. The SSA contains standard warranties and indemnities for transactions of this nature with a cap on the maximum liability being set at $2m.

RDG proposes that, at Completion of the transaction, it will invite Centrals Directors, being Mr. Richard Eden and Mr. Andrew Ellison, to join the RDG board. In addition, up to 2 directors of RDG may resign from the Board of RDG. Both Mr. Eden and Mr. Ellison have distinguished careers in construction, having both previously been Directors of Cimeco Pty Ltd, a subsidiary construction company of Forge Group Ltd (Forge), before joining Centrals in 2010 and 2012 respectively.

Mr. Eden has an extensive track record in managing business growth with a strong focus on solid contract and financial management. As the Director of Centrals responsible for corporate and commercial functions, his responsibilities include leading Centrals' HSEQ, financial, administration, commercial, tendering and estimating functions. Mr. Eden has over 24 years' experience in maintenance and construction contracting throughout Australia.

Throughout his career he has held both senior management roles and directorships in private companies. Mr. Ellison is a very experienced contractor with a successful track record in delivering business growth. He is currently the Director of Centrals responsible for strategic business development, development of new capabilities and services, identification of new territories and markets and key client relationship management. Mr. Ellison has over 30 years’ experience in maintenance and construction contracting across Australia and West Africa, including civil & concrete, commercial building, structural mechanical and piping, tanks and electrical services. His working career has been defined by the building of businesses in the maintenance and construction sectors, including a combination of organic and acquisitive growth and the integration of these businesses.

“We are delighted to be able to announce the acquisition of such a capable construction company who is performing strongly in these difficult market conditions. RDG and Centrals share many common clients and the combined entity will be able to provide a credible design & construct offering to the market which we are confident will be of great interest to both our existing and new clients alike. With the addition of Centrals, the RDG Group will be able to offer whole of project lifecycle services spanning environmental, studies, engineering design, construction, maintenance and remedial services” said Jeff Brill, RDG’s Managing Director.

“In addition, we intend to welcome two experienced Directors to the RDG board. Senior management of RDG will be further supplemented by other Centrals Directors and shareholders including founding shareholder Ivan Ruefli and senior construction directors Gary Reid and Steve Batchelor. The RDG directors believe that with this increase in scale and capability, the enlarged Group should now be capable of targeting revenues in excess of $200 million annually subject to prevailing market conditions, and will provide RDG with a great base from which to continue its growth. It’s no secret that the market is tough and we expect these conditions to persist for some time, but the value in the increase in scale and breadth of RDG's operations that Centrals brings is immense and gives us a greatly expanded future”, he added.

To read the full announcement please Click for PDF

Central Systems