12th Jul 2006 10:49
Park Group PLC12 July 2006 12 July 2006 PARK GROUP PLC ("Park" or "the Group" or "the Company") Proposed disposal of the home collected loan portfolio Park today announces that it has decided to exit the home collected creditindustry and has agreed to sell its home collected credit loan portfolio. As aresult Park will also transfer certain contracts with home collected creditcustomers for the supply of products available in its catalogue. Cashconsideration payable at completion is expected to be £8.0 million. Completionof the transaction is subject to shareholder approval. Christopher Houghton, Group Managing Director of Park, said: "The disposal follows the Group's decision to exit from its loss-making homecollected credit business and will allow management to focus on the growthopportunities in the Group's remaining businesses" Enquiries:Park Tel: 0151 653 1700Peter Johnson, Executive ChairmanChris Houghton, Group Managing Director Tavistock Communications Tel: 020 7920 3150Jeremy CareyChristian Taylor-Wilkinson Introduction The board of directors (the "Board") of Park Group plc ("Park", the "Company" orthe "Group") today announces that its subsidiary, Park Direct Credit Limited("Park Direct Credit"), has decided to exit from its home collected creditbusiness and has entered into a conditional agreement to sell its unsecured homecollected loan portfolio ("HCC Loan Book") and transfer certain contracts withhome collected credit customers for the supply of products available in itscatalogue ("Catalogue Business Contracts") to CL Finance Limited ("Disposal").The total consideration expected to be received by Park in respect of theproposed disposal is approximately £8.0 million. The principal terms of theDisposal will be described in more detail in the circular which will be postedto Park's shareholders ("Ordinary Shareholders" or "Shareholders") shortly (the"Circular"). In view of its size, the Disposal is conditional upon the approval of Park'sOrdinary Shareholders, which is to be sought at an EGM of Park. A noticeconvening the EGM, at which the Resolution will be proposed, will be sent outwith the Circular. The Disposal follows the Group's decision to exit from its loss-making homecollected credit business and will release funds and management time to beinvested in the Group's other businesses. Your Board believes that there will bestrategic and operational benefits from the Group being able to focus on itsprofitable businesses. Following the Disposal, the directors of Park (the"Directors") intend to discontinue the infrastructure supporting the Group'shome collected credit operations. Background to and reasons for the Disposal The Group operates through two divisions, a cash lending division and a cashsavings division. Within the Group's cash lending division, the Group operates adirect credit business, offering home collected credit services via agentsoperating from its network of branches. The branches are typically in secondaryhigh street locations, providing office facilities for agents, as well as givingthe Group a high street presence to attract new customers. The home collectedcredit business represents the largest operation in the Group's cash lendingdivision, forming 88.2 per cent. of the division's unaudited turnover for theyear to 31 March 2006. The other operations within the cash lending division(which are being retained) include mortgage and secured loan broking, generalinsurance broking, cheque cashing (which will be discontinued once the branchnetwork has been closed) and unsecured loans (paid monthly by direct debitrather than collected by agents). The Group operates its home collected creditbusiness, cheque cashing and monthly unsecured loans through its wholly ownedsubsidiary, Park Direct Credit. The mortgage and secured loan broking and thegeneral insurance broking is operated though another wholly owned subsidiary,Park Financial Services Limited. The Group's other division, cash savings, is well recognised as the marketleader in the provision of Christmas hampers, vouchers and gifts which aredistributed via the Group's nationwide agency network. The division also offersa high street multi-retailer gift voucher which is accepted by approximately 75top retailers at nearly 17,000 stores nationwide, an incentive solution forcorporate customers and a full service travel agency. The cash savings divisionrepresented 89.5 per cent. of unaudited Group turnover for the year ended 31March 2006. Park entered the home collected credit market in 1998, following which the Groupundertook a rapid programme of branch openings and now operates from 34 brancheslocated in the North of England, Scotland and North Wales. The home collectedcredit business offers small sum short-term loans to customers with moderateincomes at the sub-prime end of the financial services market. The average newloan issue is approximately £310 with standard repayment periods of between 13and 52 weeks. Whilst the home collected credit business grew steadily from 1998 to early 2005,market conditions then became tougher during 2005. A contributory factor was thereduction in consumers' disposable income caused by escalating household costs,which has affected much of the sector and has been widely commented on by manyof the Group's competitors. Additionally, the rapid growth of the loan bookduring the year to 31 March 2005 gave rise to a deterioration in the quality ofthe book and resulted in an increasing level of arrears. In addition, theCompetition Commission launched a market investigation into the home collectedcredit market in December 2004 which has significantly drawn on management time.The Competition Commission's proposed changes, if imposed, could have an adverseeffect on the Group's home collected credit business, financial condition andresults of operations. Whilst a number of actions have been taken to improve performance, such as theintroduction of stricter credit controls, your Board does not believe that theprospects for the business associated with the HCC Loan Book are likely toimprove in the short or medium term. The market remains highly competitive andthe potential impact of new regulation, if imposed by the CompetitionCommission, reduces its attractiveness over the medium term. As a consequence of the above factors, the Directors reached the decision thatit would be in the interests of Shareholders for Park to exit, substantially,from the home collected credit marketplace, and that the most satisfactory wayof achieving this was through the sale of the HCC Loan Book. Following the saleof the HCC Loan Book, the Directors expect to discontinue the infrastructuresupporting the Group's home collected credit operations. The Group intends tocontinue to collect the monthly "Cash Reserve" loan book in the ordinary courseof business. The loan book collected monthly by direct debit does not requirethe branch and agent network and therefore collections will not be affected bythe implementation of the closure programme. The Disposal will release funds and management time to be invested in theGroup's other businesses. Your Board believes that there will be strategic andoperational benefits from the Group being able to focus on its profitablebusinesses. Furthermore, the Group has entered into Catalogue Business Contracts withcertain home collected credit customers. Agents who make weekly collections onthe HCC Loan Book also make collections from these customers for the supply ofitems from its catalogue such as shopping vouchers and Christmas hampers.However, closure of the infrastructure supporting the home collected creditbusiness will result in the Group being unable to make further collections fromthese customers for these catalogue products. As a consequence, CatalogueBusiness Contracts will be transferred under the conditional sale agreementdated 12 July 2006 (the "Disposal Agreement"). Under a separate agreement, ParkRetail Limited (a wholly owned subsidiary of Park) will agree to supplycatalogue products under the transferring Catalogue Business Contracts. Principal terms of the Disposal Park, through its subsidiary, Park Direct Credit, has agreed to dispose of itsHCC Loan Book and transfer Catalogue Business Contracts to CL Finance Limited onthe terms and conditions set out in the Disposal Agreement as summarised in theCircular. No assets other than the HCC Loan Book and the benefit of theCatalogue Business Contracts will be transferred to CL Finance Limited as partof the Disposal. In particular, no premises or equipment will be transferring.Those employees involved in Park's home collected credit business will also notbe transferring to CL Finance Limited. CL Finance Limited has agreed to pay 16.5 pence for every £1 for all outstandingamounts on the HCC Loan Book at the date of the Disposal Agreement and hasagreed to assume all liabilities of Park Direct Credit under certain CatalogueBusiness Contracts. Amounts already collected from home collected creditcustomers for catalogue products (under the Catalogue Business Contracts) at thedate of the Disposal Agreement totalling £0.7 million will be retained by Parkand deducted from the consideration on a £1 for £1 basis. Park expects to receive cash consideration of £8.0 million on completion of thedisposal ("Completion"), before deduction of costs associated with the Disposal. Park Retail Limited will agree to supply catalogue products to fulfil thetransferring Catalogue Business Contracts. The Circular will set out the principal terms of the Disposal in more detail. Use of proceeds The Group will retain the entire infrastructure, including the employees and thebranch network, that supports the home collected credit business. Some of theclosure costs associated with the employees and infrastructure which do not formpart of the Disposal may be incurred before receipt of the Disposal proceeds butthe intention is that these will be ultimately funded from the Disposalproceeds. The majority of these costs are expected to be incurred shortlyfollowing Completion and are estimated to be a total of £4.0 million (includingtransaction costs of £0.5 million). The remaining proceeds of £4.0 million willbe retained by the Group and used to provide funds to pursue growthopportunities in the Group's other businesses. Information on Park Direct Credit, the HCC Loan Book and the transferringCatalogue Business Contracts Park Direct Credit has entered into a conditional agreement to sell its HCC LoanBook and transfer certain Catalogue Business Contracts. Other assets andliabilities within Park Direct Credit will not be transferring under theDisposal Agreement. Park Direct Credit For the year ended 31 March 2006, on a UK GAAP basis, Park Direct Creditreported audited turnover of £19.9 million (2005: turnover £10.4 million) and anaudited loss before tax of £24.9 million (2005: loss before tax £0.1 million).On a UK GAAP basis, the audited gross assets of Park Direct Credit at 31 March2006 were £23.1 million. On an IFRS basis, Park Direct Credit reported unaudited turnover for the yearended 31 March 2006 of £24.6 million and an unaudited loss before tax of £15.9million. Unaudited gross assets, on an IFRS basis at 31 March 2006 were £11.5million. HCC Loan Book On a UK GAAP basis for the year ended 31 March 2006 the HCC Loan Book hadaudited turnover of £19.3 million and an audited loss before tax of £24.7million. On a UK GAAP basis, the audited book value of the HCC Loan Book was£16.7 million at 31 March 2006. On an IFRS basis, the HCC Loan Book had an unaudited book value of £5.3 millionat 31 March 2006 (net of a £4.0 million provision for the costs for closure ofthe infrastructure supporting the home collected credit operations. Theprovision will be retained by the Group following the Disposal) and hadunaudited turnover for the year to 31 March 2006 of £23.8 million and anunaudited loss before tax of £15.4 million. The HCC Loan Book has continued toperform poorly in what has been an increasingly challenging market and hascontributed significantly to the underperformance of the Group's cash lendingdivision. Catalogue Business Contracts Catalogue Business Contracts transferring to CL Finance Limited had a totalorder value of £1.5 million at the date of the Disposal Agreement. At 31 March2006, the Group had collected £0.4 million (credit balances) in respect of theseCatalogue Business Contracts and at the date of the Disposal Agreement hadcollected £0.7 million. On an IFRS basis, the unaudited net book value of assets at 31 March 2006transferring as part of the Disposal are £4.9 million, comprising the book valueof the HCC Loan Book at 31 March 2006 of £5.3 million less credit balances of£0.4 million in respect of Catalogue Business Contracts. Current trading and prospects The Company today announced its preliminary results for the year ended 31 March2006. The Board believes that the financial and trading prospects of Park followingCompletion for the current financial year are encouraging and that the Group'score activities will benefit from investment as a result of capital realisedfrom the Disposal. The Group's preliminary results for the year ended 31 March2006 included the following statement in respect of the prospects for theContinuing Group: "The Christmas 2006 recruitment campaign was one of our most successful ever andwe have recruited 32,000 new agents. Our current order book for the Park andCountry Christmas business is currently 9.1 per cent. higher than at the samedate last year. In addition, the acquisition of the Family Hamper agents inFebruary will increase volume and improve capacity utilisation. Total orders arenow 26.0 per cent. above last year and customer numbers are approaching 630,000.Our corporate voucher business has also made considerable progress and orderscontinue to exceed that achieved last year." Extraordinary General Meeting and irrevocable undertakings The Disposal is subject to the prior approval of Ordinary Shareholders at an EGMto be held at the offices of Park, Valley Road, Birkenhead, CH41 7ED, notice ofwhich will be sent out with the Circular. A Form of Proxy for use in connectionwith the EGM will be enclosed with the Circular. The Resolution will be proposedas an ordinary resolution to approve the Disposal and any non-materialvariations to the Disposal Agreement. The Resolution will be passed if more than50 per cent. of the votes cast at the EGM, in person or by proxy are in favour. Irrevocable undertakings to vote in favour of the Resolution have been obtainedfrom Shareholders holding 121,433,218 shares, in aggregate 73.75 per cent. ofthe issued ordinary share capital of the Company. This includes irrevocableundertakings from Directors in respect of their entire holdings in the issuedordinary share capital of the Company. -ends- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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