Comms Group has $24.3 million in cash after selling its onPlatinum IT managed services division, but the size and tax structure of any shareholder distribution remain unresolved. The company is seeking an ATO ruling before its board decides how much surplus capital to return.
- $29.3 million received at completion, with a further $1.5 million held in escrow
- $5.4 million of Westpac debt and equipment loans repaid
- ATO ruling sought on dividend and return-of-capital treatment
- Continuing business focused on cloud communications and secure cloud services
$24.3 Million Cash Remains After Divestment
Comms Group Limited (ASX:CCG) has $24.3 million in cash after completing the sale of its onPlatinum IT managed services division, giving shareholders a clearer view of the proceeds available before tax and the final distribution decision. The transaction generated gross proceeds of $30.8 million, including $29.3 million received at completion and $1.5 million held in escrow for 12 months.
The company used $5.4 million to repay debt at completion, comprising $5.0 million of its Westpac term loan and $0.4 million of business equipment loans. The remaining Westpac term loan stood at $5.2 million on 30 September, while transaction costs had reduced proceeds by a further $1.0 million. Capital gains tax on the sale is still being finalised and remains payable.
Distribution Depends on ATO Ruling
Comms Group intends to return surplus capital to shareholders, but it has not yet disclosed the amount, payment date or final structure. The board expects the distribution will likely include a dividend franked to the maximum extent possible and may also include a return of capital.
That mix is now being worked through with advisers as the company seeks an Australian Taxation Office ruling. The ruling is intended to give shareholders greater certainty over the tax treatment, but it also means the distribution remains a proposal rather than a declared payment. The eventual amount will need to reflect the pending capital gains tax bill, the escrow balance and the cash required by the continuing business.
Cloud Communications Becomes the Core Business
With onPlatinum sold, Comms Group is narrowing its focus to cloud communications, collaboration, business telecommunications and secure cloud services. The company said year-to-date trading had maintained a positive trajectory, with solid new sales contract wins and a strong pipeline among corporate and government customers in Australia and international markets.
That operating update provides the counterweight to the capital-return story. Comms Group is not presenting the sale proceeds as the end of its investment case, but as surplus capital alongside a continuing services business whose sales momentum will need to support the next phase. The next material markers are the ATO ruling, the final tax calculation and the board's decision on the distribution's size and composition.
Bottom Line?
The balance sheet is substantially clearer, but shareholders still need the tax ruling and final capital gains tax figure before the cash return can be measured properly.
Questions in the middle?
- How much of the $24.3 million cash balance will remain after capital gains tax and other final adjustments?
- When will the ATO ruling allow the board to confirm the distribution amount and dividend versus capital-return mix?
- Can the continuing cloud communications business sustain its reported sales momentum after the divestment?