1st May 2007 07:01
Watermark Group PLC01 May 2007 Watermark Group Plc Preliminary Results for the year ended 31 December 2006 £8m Placing and Offer of Convertible Bonds 30 April 2007 Watermark Group plc ("Watermark", or the "Group"), a leading provider ofin-flight products, catering and cabin management services to the airline andtravel industry, today announces its Preliminary Results for the year ended 31December 2006, a proposed new executive management team and a comprehensiverefinancing, involving the issue of new convertible bonds and the agreement ofrevised bank facilities. Financial Highlights * Turnover up 17.3% to £93.96 million (2005: £80.09 million) * Services division's revenue increases to £60.09 million (2005: £43.83 million) * Improvement in gross margin to 38.68%, despite negative impact of weaker US Dollar * Significant exceptional restructuring costs incurred and bad debt provisions * Pre-exceptional profits before tax are £1.99 million in line with expectations (2005: £6.34 million) Refinancing * Underwritten placing and offer of £8 million secured fixed rate convertible bonds to reduce and restructure debt and support growth, subject to EGM approval * New banking facilities, comprising £6.5m two year term loan and £1.5m overdraft Operational Highlights * Acquisition of ICL from Japan Airlines Corporation in April 2006 * ICL successfully relocated to the Encompass Centre, Heathrow * Air New Zealand catering contract commenced in August 2006 * Supply chain management contract secured with Air Canada, confirmed in February 2007 Proposed Executive Board Changes Subject to the approval of the Resolutions at the EGM: * Maurice Ostro, Chief Executive Officer to step down from the Board; and * Stephen Yapp to become Executive Chairman Effective 8 May 2007: * Nick Scott to become Managing Director, Services; and * Peter Fitzwilliam to be appointed Chief Financial Officer Ongoing recruitment: * Candidates for Managing Director, Products are currently being interviewed Commenting on the results, Danny Bernstein, Interim Chairman of Watermark, said:"For the medium term and beyond, the Board believes that the outlook for thebusiness is positive, with significant opportunities to expand both in the UKand overseas, particularly through our Encompass total cabin managementprogramme supported by long term contracts for group services. The Boardrecognises that the past year has been a period of reorganisation, but stronglybelieves that the actions it has undertaken, and which will be completed in2007, combined with the refinancing and proposed board changes, will place theGroup in a more robust position for the future." For further information please contact: Maurice Ostro / Crispin Quail Jeremy Carey / Matt Ridsdale Watermark Group plc Tavistock Communications Tel: 020 8606 1300 Tel: 020 7920 3150 [email protected] [email protected] 1. Chairman's and Chief Executive's review Overview 2006 has been a year of significant change for the business, both operationallyand strategically. The two key events in the development of the Group's business in the last twelvemonths were: * The acquisition of the airline caterer, International Catering Limited ("ICL"), from Japan Airlines Corporation in April 2006; and * The securing of a supply chain management contract with Air Canada, which was confirmed in February 2007. In addition, in March 2006, the Group announced that, given the envisagedfunding requirements associated with a range of significant overseas expansionopportunities for the Group, the board had initiated discussions with providersof private equity finance in relation to a variety of funding structures whichcould potentially have led to an offer being made for the company. Suchdiscussions were subsequently terminated in July 2006 as the board was unable toreach agreement with the potential providers of private equity finance on astructure that would be in the best interests of shareholders. However, as a result of these discussions and the subsequent deterioration ofunderlying trading, the company has been obliged to explore alternative fundingoptions in order to reduce the outstanding overdraft owed to the Group'sprincipal banker. As a consequence, the Group has agreed a proposed refinancing of £8 million, viaa placing and offer of convertible bonds (the "Placing and Offer"), led andunderwritten by funds managed by SVG Investment Managers Limited, North AtlanticValue LLP and Dawnay, Day Properties Limited. Further summary details of theproposal, which will require approval by shareholders at an ExtraordinaryGeneral Meeting ("EGM"), are set out in the section "Proposed refinancing"below. Acquisition of ICL The acquisition of ICL, a 'legacy' in-house catering business, gave the Groupthe opportunity to relocate and transition this business to its own 'outsource'catering model, operated within its Heathrow premises, at the Encompass Centre.This has been a major undertaking and has involved a significant restructuringcost. However, the result has been the transformation of a formerly loss makingbusiness into a profitable one, backed by short, medium and long term cateringcontracts. The board strongly believes that this experience will stand the Group in goodstead to take on and integrate similar catering operations elsewhere in theworld and transition them into the Group's outsource model. Encompass asset management programme As part of the corporate strategy to develop an asset management programme forairlines' in-flight products and cabin equipment, the Encompass Asset ManagementProgramme ('AMP'), the Group's IT system was enhanced during the course of 2006to include the required scalability and functionality. The subsequent success in confirming the securing of the contract with AirCanada early in 2007 (to manage the global supply chain from forecasting,sourcing and procurement to delivery of Air Canada's in-flight products andcabin equipment to all its stations in North and South America, the Far East andAustralasia) is a significant endorsement of this strategy. The securing of thisfirst AMP contract provides the Group with a platform to create furtherstrategic arrangements with key clients seeking to exploit the benefits of ouroutsourcing competence. More importantly, the board believes that AMP repositions the Group as a valuedstrategic partner to a number of its key clients, and the board consequentlybelieves that this initiative will deliver long-term value for its shareholders. The table below summarises the divisional performance at the top line, gross andoperating margin level, with and without the acquisition of ICL in the year. Total before Products Services acquisitions Acquisition Total Products Services Total 2006 2006 2006 2006 2006 2005 2005 2005 £m £m £m £m £m £m £m £m Sales Revenue 33.87 45.84 79.71 14.25 93.96 36.26 43.83 80.09 Gross margin 6.69 22.11 28.80 7.55 36.35 10.37 19.85 30.22 Gross margin % 19.75% 48.23% 36.13% 52.98% 38.68% 28.59% 45.28% 37.73% Operating Profit gross of unallocated corporate expenses 0.01 2.41 2.42 0.88 3.30 3.35 4.72 8.07 Operating margin % gross of unallocated corporateexpenses 0.04% 5.26% 3.04% 6.18% 3.51% 9.23% 10.76% 10.07% Products Ancillary revenues, which totalled approximately £2.20 million in 2005 and whichearned a gross margin of almost 100 per cent, were not repeated in 2006.Consequently sales revenues, gross and operating margins were reduced.Operational issues and the currency effect of a weaker US Dollar have alsodepressed gross margins. The higher overheads, which the board believes will beaddressed by the restructuring and rationalisation undertaken in 2006 and duefor completion in 2007, resulted in a break even position at an operating profitlevel by the end of 2006. Services The services division achieved organic sales growth despite the lower salesrevenues from the bmi contract, following its change to 'buy on board' from afully catered offering. The Air New Zealand contract, which commenced in August2006, was a significant new win during the year. Gross margins in the divisionas a whole slightly improved despite some price discounting on certaincontracts, as new business was brought in to compensate. However, operatingmargins have seen a decrease primarily as a result of higher labour costs,although this is being addressed by management through cost cutting programmeswhich commenced in early 2007. Summary The board recognises that both the reported loss before tax for the year of£1.83 million and the pre-exceptional profit before tax of £1.99 million aredisappointing considering the level of Group sales and gross margins achieved.However, the board believes that the actions taken during 2006, and early 2007,have created a sustainable platform for the company's future growth andprofitability. The board remains positive for the future of this business, given that the Groupoperates with a high level of contracted business with relatively consistentunderlying gross margin percentages. It is the control of overheads which theboard believes holds the key to improving the Group's performance. Accordingly,the board continues to address the structure and overheads of the business toensure that better returns are achieved from this contracted business. Financial highlights Comparing consolidated operations in 2006 with 2005: 2006 2005 Sales Turnover £93.96m £80.09m Margins Gross profit margin % 38.68% 37.73% Operating (loss) / profit margin % (1.21%) 7.70% Profits / (losses) Gross profit £36.35m £30.22m EBITDA* £0.44m £7.16m Adjusted EBITDA** £4.26m £8.52m Operating (loss) / profit (£1.14m) £6.17m Pre-exceptional profit before tax £1.99m £6.34m (Loss) / profit before tax (£1.83m) £4.99m (Loss) / earnings per share Basic (loss) / earnings per share (6.29) pence 9.09 pence Diluted (loss) / earnings per share*** (6.29) pence 8.21 pence Total assets £78.45m £74.34m * EBITDA (earnings before interest, taxation, depreciation and amortisation) is calculated in note 5. ** Adjusted EBITDA (earnings before interest, taxation, depreciation, amortisation and exceptional items) is calculated in note 5. *** Diluted (loss) / earnings per share are adjusted to include the dilution effect of contingent deferred shares to be issued. The calculation of (loss) / earnings per share figures is shown in note 8. Dividends There is no proposed final dividend for the year. There was also no interimdividend proposed or paid for 2006. There was an interim dividend for 2005 of0.56 pence per share paid in January 2006 and a final dividend for 2005 of 1.69pence per share paid in July 2006. The summary financial information is set out in Appendix 1 below. Proposed refinancing The Company has undertaken the Placing and Offer in order to raise new capitalto repay existing indebtedness owed to Barclays Bank PLC ("Barclays" or the"Bank"), to fund the payment of the final deferred cash consideration duepursuant to the Air Fayre sale and purchase agreement and to provide workingcapital for the Group, including for the new Air Canada contract. The boardbelieves this refinancing to be particularly critical in a year which the boardexpects to be a transitional period for the Company, as the restructuring andrationalisation process, which commenced in 2006, is completed. As stated in the Group's last substantive announcements, dated 28 September 2006and 6 February 2007 respectively, the board has continued to review the Group'sfinancing arrangements. As part of that review, the board agreed with Barclays,in mid February 2007, to convert all of its previous facilities outstanding withBarclays into an overdraft facility of £11 million, repayable on demand. The board took this decision, having commenced discussions with Barclays inOctober 2006, with regard to Watermark's performance versus budget and generalfinancial position, as the board believed that the company was likely to breach,in the short term, the covenants of its then outstanding £5 million, 1 year termloan. In late February 2007, the board decided there was a need to reduce the overalllevel of indebtedness, in order to ensure the Group was not in a situation whereBarclays could request repayment of some, or all, of the overdraft, such thatthe Group would then be unable to meet its repayment obligations. As a result ofthis refinancing review, and the ongoing discussions with Barclays, the boardentered into a dialogue concerning a variety of debt/equity and quasi-equityfunding sources, in order to ascertain the most appropriate quantum and form offinancing to replace some, or all, of the Barclays overdraft and to convert theremaining element of the overdraft into a more appropriate and longer term formof debt financing. As a result of these discussions, the board announces today the proposedrestructuring of the Group's balance sheet by entering into a proposed Placingand Offer of £8 million of secured fixed rate convertible bonds and theconversion of the remaining Barclays overdraft into a £6.50 million, two yearterm loan and a £1.5 million working capital facility. The Placing and Offer will raise £8.0m gross (£6.8m net of expenses) by theallotment and issue of £8,000,000 Secured Fixed Rate Convertible Bonds due 2010at 100 per cent. of face value, pursuant to the terms of the Placing and Offer. The Issue Price and the Conversion Price represent a 17.5 per cent. discount, ifthe Convertible Bonds were converted today, compared to the closing middlemarket price of 24.25 pence per Ordinary Share on 30 April 2007, the lastdealing day before this announcement. In order for the fundraising to achieve the level of certainty required by boththe Group and Barclays, the board has secured full underwriting of the Placingand Offer by Strategic Equity Capital plc, Strategic Recovery Fund II, SVGCapital plc, North Atlantic Value Fund LLP and Dawnay Day Properties Limited(the "Underwriters"), subject to qualifying shareholders having the right totake up entitlements to the convertible bonds on a basis proportionate to theirexisting shareholdings and any shares which the Company has contracted to issue,on the record date of 30 April 2007. The fundraising has been structured so as to enable the Company to raise thelevel of capital it requires to repay a significant element of the Barclaysindebtedness as swiftly as possible, whilst matching the Convertible Bondinvestors' requirements for security of capital and an appropriate return ontheir investment. The proposed structure of the Placing and Offering should enable the majority ofShareholders by value to take part in the Placing and Offer. The structure ofthe fundraising allows qualifying shareholders to participate, should they sodesire, pro rata to their existing shareholdings, but the board would emphasisethat this structure is not a pre-emptive offer and therefore not allshareholders will be able to participate. The Board believes that this proposed Placing and Offer of the Convertible Bondsis the most efficient way to obtain certain funding in a quantum and structuresuitable for the Company's current position and on the most expedited timetable,as well as providing the required comfort to Barclays, the Group's existingprovider of debt finance. Under the Offer, qualifying shareholders' minimum subscription for ConvertibleBonds must be at least €50,000 (or an equivalent sterling amount, taken as£35,000) pursuant to their holding of Ordinary Shares. The Convertible Bondswill not be tradable on the London Stock Exchange. The Board has chosen to usethis method to make the Offer as it provides the best practical opportunity foras many Shareholders as possible to participate in the Offer given theconstraints of timing and the level of funding certainty required and to addressthe requirement of Barclays, the Company's debt provider. The board also strongly believes that the revised funding structure created bythe proposed refinancing will be more appropriate for the Company over the longterm, whilst allowing the Group to maintain an element of flexibility, via theworking capital facility. In addition, the Board believes that this refinancingwill result in the Company having the appropriate level of gearing in relationto its expected short-term revenue and cash flow streams, whilst allowingmanagement to focus on continuing both to improve returns and to grow thebusiness, particularly through the Encompass offering. Having spoken to a number of major shareholders, the board is confident that theproposed Placing and Offer will receive shareholder approval at the EGM, and inview of their confidence in the proposed refinancing, the revised facilities andcontinued support of Barclays and the detailed forecasts and cash flowprojections which have been prepared and approved by the board, the directorsbelieve that the Group has adequate resources to continue to meet itsobligations as they fall due for the foreseeable future and therefore considerit is appropriate to sign off the accounts on a going concern basis. Full details of the proposed Placing and Offer, including the convening of anExtraordinary General Meeting ("EGM") to approve the required resolutions toundertake the Placing and Offer, will be set out in a circular which will beposted to shareholders shortly. A detailed summary of the principal terms and conditions of the ConvertibleBonds appears in Appendix 2 below. Board changes As the company enters a new phase in its history, it is in a position to sayfarewell to certain members of the board and welcome in new appointees, as wellas making other board changes. The company today announces that Maurice Ostro, chief executive officer, will bestepping down from the board on 4 June 2007, conditional upon the successfulpassing of the resolutions to be proposed at the EGM of the company on that day.The board would note that Mr Ostro has been instrumental in this restructuringand that he will provide his full support to a comprehensive business and clienthandover plan, which the board expects to be complete by the date of the EGM.The board would like to take this opportunity to thank Mr Ostro for his hardwork, expertise and leadership both as chief executive officer and as managingdirector of the company's major subsidiary, Air Fayre Limited, of which he isthe founder. The company is also pleased to announce, conditional upon the successful passingof the resolutions to be proposed at the EGM, the appointment of Stephen Yapp asexecutive chairman effective from 4 June 2007, to take the helm of the companyfrom Maurice Ostro. Mr Yapp was chief executive officer at DCS Group plc, an AIMlisted company, from 2001 to 2006, when the Group was sold to Reynolds & ReynoldInc, a USA listed company. He is also a non-executive director of the AIM listedcompany, Imagesound plc. On 4 June 2007, Danny Bernstein will, conditional upon the successful passing ofthe resolutions to be proposed at the EGM, return to his role as seniorindependent non-executive director, having completed his role as interimnon-executive chairman. Mr Nicholas Scott, currently group commercial director and an existing boarddirector, will be promoted to managing director of the services division. Inaddition, a new managing director of products division is to be recruited. As previously announced on 23 March 2007, Crispin Quail, Watermark's financedirector and company secretary, had agreed to remain with the company until 30April 2007 in order to complete the year ended 31 December 2006 audit,preliminary results announcement, and the Annual Report and Accounts. Mr Quailwill now step down on 8 May 2007, which will give sufficient time to completethe Annual Report and Accounts, be available for normal course investor callsand meetings, as well as seeing through the finalisation of the proposedrefinancing of the company. The board would like to take this opportunity tothank Mr Quail for his expertise, service and dedication, as both financedirector and company secretary, over his many years with the company, and wisheshim the best for the future. We are pleased to announce that Peter Fitzwilliam will be appointed to the boardin the roles of chief financial officer and company secretary on 8 May 2007. MrFitzwilliam was group finance director and company secretary of Business PostGroup plc, a fully listed business services company, for seven years, and beforethat was at The Rank Group plc. A further announcement will be made in duecourse. William Skerrett, who has served as a non-executive director on the board foralmost nine years, will retire from the board on 8 May 2007. The board thanks MrSkerrett for his valued contribution over his term and wishes him well for thefuture. The company intends to appoint a further non-executive director in duecourse. Personnel Once again we offer our sincere thanks to all staff across the Group, who haveshown tremendous dedication and loyalty to our company through a challengingyear. Outlook In 2007, the board expects 2007 to complete the restructuring andrationalisation initiated in 2006, in order to ensure not only that the Group'smanagement and operational structure is appropriate for its business model butalso that its client base is one that delivers positive net operating returns.The overhead structure will continue to be addressed by the board, withparticular emphasis on labour costs, in order to improve operating margins. Newbusiness will continue to be sought across the Group, but with a greater focuson winning business with controllable overheads, which will be profitable overthe duration of the contracts. The board strongly believes that the proposed refinancing of the business willprovide it with the appropriate capital structure and gearing levels to managethe business effectively going forward, so that management's attentions can befocussed on improving operating returns and continuing to grow the corebusiness. Accordingly, in the medium term and beyond, the board believes that the outlookfor the business is positive, with significant opportunities both in the UK andoverseas to expand, particularly through our Encompass total cabin managementprogramme by setting up operations similar to that of our Heathrow EncompassCentre, which would be supported by long term contracts for group services. Theboard recognises that the past year has been a period of reorganisation, butstrongly believes that the actions it has undertaken and which will be completedin 2007, combined with the refinancing and actual and proposed board changes,will place the Group in a robust position for the future. Danny Bernstein Maurice OstroChairman Chief executive Appendix 1 Consolidated income statementfor the 12 months to 31 December 2006 Total Before Exceptional 12 months to exceptional items items 31 December 2006 £'000 £'000 £'000 Revenue 93,958 - 93,958 Cost of sales (57,610) - (57,610) ------------------------------------------------Gross profit 36,348 - 36,348 Operating and administrative costs (excluding exceptional items) (34,759) - (34,759)Movement in fair value of derivative financial instruments 465 - 465Write back of provision for contract losses 619 1,447 2,066Exceptional re-organisation costs - (3,304) (3,304)Exceptional bad debt write off - (1,261) (1,261)Exceptional other costs - (697) (697) ------------------------------------------------Total operating and administrative expenses (33,675) (3,815) (37,490) Operating profit/(loss) 2,673 (3,815) (1,142) Finance costs (673) - (673)Finance income 4 - 4Movement in fair value of financial assets (19) - (19) ------------------------------------------------ (688) - (688)Profit/(loss) before tax attributable to equity shareholders 1,985 (3,815) (1,830) Tax expense (506) (434) (940) ------------------------------------------------Profit/(loss) after tax attributable to equity shareholders 1,479 (4,249) (2,770) ================================================ Loss per share (pence) Basic (6.29p) Diluted (6.29p) Consolidated income statementfor the 12 months to 31 December 2005 Total Before Exceptional 12 months to exceptional items items 31 December 2005 £'000 £'000 £'000 Revenue 80,087 - 80,087 Cost of sales (49,865) - (49,865) ------------------------------------------------Gross profit 30,222 - 30,222 Operating and administrative costs (excluding exceptional items) (21,820) - (21,820)Movement in fair value of derivative financial instruments (872) - (872)Exceptional re-organisation costs - (1,358) (1,358) ------------------------------------------------Total operating and administrative expenses (22,692) (1,358) (24,050) Operating profit 7,530 (1,358) 6,172 Finance costs (1,058) - (1,058)Finance income 91 - 91Movement in fair value of financial assets (179) - (179)Share of post tax loss of associate (40) - (40) ------------------------------------------------ (1,186) - (1,186)Profit before tax attributable to equity shareholders 6,344 (1,358) 4,986 Tax expense (1,493) 327 (1,166) ------------------------------------------------Profit after tax attributable to equity shareholders 4,851 (1,031) 3,820 ================================================ Earnings per share (pence) Basic 9.09p Diluted 8.21p Consolidated balance sheetas at 31 December 2006 31 December 2006 31 December 2005 £'000 £'000 Assets Non-current assets Property, plant and equipment 9,924 10,411Goodwill 30,819 30,075Intangible assets 2,583 1,308Financial assets held at fair value through profit or loss - 19Trade and other receivables - 1,092 ---------------------------- 43,326 42,905Current assets Inventories 4,943 3,378Trade and other receivables 18,941 18,828Prepayments 1,147 2,858Cash and short-term deposits 9,766 6,373Fair value of derivative financial instruments 324 - ---------------------------- 35,121 31,437 ----------------------------Total assets 78,447 74,342 ============================ Equity and liabilities Equity attributable to equity shareholders of the parentIssued share capital 446 430Share premium account 21,582 21,518Shares to be issued 2,125 3,813Capital redemption reserve 24 24Merger reserve 5,321 3,506Unrealised gains and losses reserve - (79)Foreign currency translation reserve (542) 282Retained earnings 9,898 13,502 ----------------------------Total equity 38,854 42,996 Non-current liabilities Trade and other payables - 50Interest bearing loans and borrowings 272 729Deferred consideration due after more than one year - 2,125Deferred income tax liabilities 196 842 ---------------------------- 468 3,746 Current liabilities Trade and other payables 20,056 12,720Interest bearing loans and borrowings 16,017 12,994Deferred consideration due within one year 2,518 1,063Current income tax 534 603Fair value of derivative financial instruments - 220 ---------------------------- 39,125 27,600 ----------------------------Total liabilities 39,593 31,346 ----------------------------Total equity and liabilities 78,447 74,342 ============================ Consolidated cash flow statementfor the 12 months to 31 December 2006 12 months to 12 months to 31 December 2006 31 December 2005 £'000 £'000 Net cash flows from operating activities (Loss)/profit after tax (2,770) 3,820Tax expense 940 1,166Depreciation and amortisation 1,584 989Exceptional bad debt write-off 1,261 -Share based payment expense 198 184Finance income (4) (91)Finance cost 673 1,058Movement in fair value of financial assets 19 179Share of loss of associate - 40Movement in fair value of forward exchange rate contracts (465) 872(Increase)/decrease in inventories (1,509) 695Decrease/(increase) in trade and other receivables 3,090 (2,953)Increase/(decrease) in trade and other payables 4,233 (1,607) ----------------------------Cash inflows generated from operations 7,250 4,352Interest received 4 91Interest paid (673) (1,058)Income taxes paid (336) (1,294) ----------------------------Net cash inflows from operating activities 6,245 2,091 ----------------------------Cash flows from investing activities Proceeds from sale of property, plant and equipment 7,618 -Purchase of property, plant and equipment (744) (1,198)Purchase of intangible assets (1,672) (1,088)Acquisition of subsidiaries, net of cash acquired (2,678) (1,062) ----------------------------Net cash flows used in investing activities 2,524 (3,348) ----------------------------Cash flows from financing activities Proceeds from issue of shares 65 91Repayment of borrowings owed to acquisition vendors (7,230) -Payment of hire purchase and finance lease obligations (558) (552)Dividends paid to equity shareholders (994) (842) ----------------------------Net cash flows used in financing activities (8,717) (1,303) ----------------------------Net increase/(decrease) in cash and cash equivalents 52 (2,560)Net foreign exchange difference 284 432Cash and cash equivalents at 1 January 2006 (6,035) (3,907) ----------------------------Cash and cash equivalents at 31 December 2006 (5,699) (6,035) ============================ Consolidated statement of changes in equityfor the 12 months to 31 December 2006 Consolidated statement of changes in equity for the 12 months to 31 December 2006 Unrealised Foreign Issued Share Shares Capital gains and currency share premium to be redemption Merger losses translation Retained Total capital account issued reserve reserve reserve reserve earnings equity £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 1 January 2006 430 21,518 3,813 24 3,506 (79) 282 13,502 42,996Currency translationdifferences - - - - - - (824) - (824)Loss for the year - - - - - - - (2,770) (2,770)Derivative forwardexchange contracts - - - - - 79 - - 79Cost of share basedpayments - - - - - - - 198 198Deferred taxation - - - - - - - (38) (38) ------------------------------------------------------------------------------------Total expense forthe year - - - - - 79 (824) (2,610) (3,355)Issue of sharecapital 15 - (1,688) - 1,815 - - - 142Exercise of shareoptions 1 64 - - - - - - 65Equity dividends - - - - - - - (994) (994) ------------------------------------------------------------------------------------At 31 December 2006 446 21,582 2,125 24 5,321 - (542) 9,898 38,854 ==================================================================================== Consolidated statement of changes in equity for the 12 months to 31 December 2005 Unrealised Foreign Issued Share Shares Capital gains and currency share premium to be redemption Merger losses translation Retained Total capital account issued reserve reserve reserve reserve earnings equity £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 31 December 2004 404 21,428 6,496 24 848 - (273) 9,607 38,534Effects of adoptingIAS 32 & IAS 39 - - - - - - - 731 731 ------------------------------------------------------------------------------------At 1 January 2005 404 21,428 6,496 24 848 - (273) 10,338 39,265Currency translationdifferences - - - - - - 555 - 555Profit for the year - - - - - - - 3,820 3,820Derivative forwardexchange contracts - - - - - (79) - - (79)Cost of share basedpayments - - - - - - - 184 184Deferred taxation - - - - - - - 2 2 ------------------------------------------------------------------------------------Total income for theyear - - - - - (79) 555 4,006 4,482Issue of sharecapital 25 - (2,683) - 2,658 - - - -Exercise of shareoptions 1 90 - - - - - - 91Equity dividends - - - - - - - (842) (842) ------------------------------------------------------------------------------------At 31 December 2005 430 21,518 3,813 24 3,506 (79) 282 13,502 42,996 ==================================================================================== Notes to the preliminary announcement for the year ended 31 December 2006 1. Publication of non-statutory accounts The financial information set out in this preliminary announcement does not constitute statutory accounts as defined in section 240 of the Companies Act1985. The balance sheet as at 31 December 2006 and the income statement, cash flow statement, statement of changes in equity and associated notes for the year then ended have been extracted from the group's audited 2006 financial statements. Those financial statements have not yet been delivered to the Registrar of Companies. The financial information for the year ended 31 December 2005 is derived from the statutory accounts for that year which have been delivered to the Registrarof Companies. The auditors reported on those accounts; their report was unqualified and did not contain a statement under s.237(2) or (3) Companies Act 1985. 2. Basis of preparation and statement of compliance Watermark Group plc has prepared its consolidated financial statements inaccordance with International Financial Reporting Standards as adopted by theEuropean Union ("IFRS"). For the purposes of this document the term IFRS isdeemed to encompass IAS. As described fully in the Chairman's and Chief Executive's statement, thedirectors are in advanced stages of finalising a proposed refinancing of thegroup, subject only to EGM approval. In view of their confidence that theproposed refinancing will receive shareholder approval, the revised facilitiesand continued support agreed with Barclays Bank and the detailed forecasts andcash flow projections which they have prepared and approved, the directorsconsider that the group has adequate resources to continue to meet itsobligations as they fall due for the foreseeable future and therefore that it isappropriate to continue to adopt the going concern basis. The financialstatements do not include any adjustments that would result if the group wereunable to continue as a going concern. This announcement has been prepared on the basis of the accounting policies thatwill be applied in the consolidated statutory accounts for the year ended 31December 2006. The accounting policies remain unchanged from those applied anddisclosed on pages 35 to 43 of the group's consolidated annual report andaccounts for the year ended 31 December 2005. 3. Segmental reporting The Watermark group is organised on a worldwide basis into two primary businesssegments, namely the Products and Services divisions. These reportable segmentsare the two strategic divisions for which monthly financial information isprovided to the board. The Products division provides a broad range of travel supplies predominately tothe international travel industry on a global basis. The Services division isone of the major suppliers of catering and media services to the internationaltravel industry within the United Kingdom. Whilst the group's two divisions are managed on a worldwide basis, they operatein three principal geographical areas of the world. The main region wheresignificant group revenues are earned is the UK, Europe & Middle East region andthis business is conducted from the United Kingdom. Operations in Asia areconducted through the Hong Kong subsidiary and in the Americas through the USAsubsidiary, whose offices are in Miami. Information on primary reporting by business segment and secondary reporting bygeographical region is shown below. Segment revenue, expenses and results include transfers and transactions betweenbusiness segments and between geographical segments. Such transactions areaccounted for at competitive market prices which would be charged tounaffiliated clients for similar goods. All inter-segment transactions areeliminated on consolidation. Segment assets include all operating assets used by a segment and consistprincipally of operating cash, receivables, inventories, goodwill and property,plant and equipment, net of allowances and provisions. Whilst most assets can bedirectly attributable to individual segments, the carrying value of certainassets used jointly by two or more segments is allocated to the segments on areasonable basis. Where assets cannot be apportioned, they are classified asunallocated corporate assets. Segment liabilities include all operating liabilities and consist principally ofaccount payables, wages, and accrued liabilities. Where allocation is notpossible across more than one segment, such liabilities are classified asunallocated corporate liabilities. Segment assets and liabilities do not include deferred income taxes. Exceptional items relate to significant non-recurring expenditure of an unusualnature. Segmental information by business segment for 12 months to 31 December 2006 Products Services division division Eliminations Total 12 months to 12 months to 12 months to 12 months to 31 December 31 December 31 December 31 December 2006 2006 2006 2006 £'000 £'000 £'000 £'000 Revenue Travel supplies, catering and media services 33,872 59,836 - 93,708Marketing, design, consultancyand commission - 250 - 250Net sales to other segments 130 152 (282) - -------------------------------------------------------------Total revenue 34,002 60,238 (282) 93,958 =============================================================Result Segment result before exceptional items 12 3,290 - 3,302Write back of provision forcontract losses - 1,447 - 1,447Exceptional re-organisation costs (872) (2,432) - (3,304)Exceptional bad debt write off (1,178) (83) - (1,261)Exceptional other costs (430) (267) - (697) -------------------------------------------------------------Segment result (2,468) 1,955 - (513) ==============================================Unallocated corporate expenses (629) ---------------Operating loss (1,142)Interest expense (673)Interest income 4Movement in fair value of financial assets (19)Income tax (940) ---------------Profit after tax (2,770) ===============Other information Segment assets 22,610 53,296 - 75,906Unallocated corporate assets 2,541 ---------------Consolidated assets 78,447 ===============Segment liabilities (17,378) (14,462) - (31,840)Unallocated corporate liabilities (7,753) ---------------Consolidated liabilities (39,593) ===============Capital expenditure includingintangible assets 1,026 1,390 - 2,416 =============================================================Depreciation, impairment andamortisation 407 1,177 - 1,584 =============================================================Other non-cash expenses includedwithin segment results 138 60 - 198 ============================================================= Segmental information by geographical region for 12 months to 31 December 2006 Turnover 12 months to Segment assets as at Capital expenditure 31 December 2006 31 December 2006 12 months to £'000 £'000 31 December 2006 £'000 UK, Europe & Middle East 78,188 69,708 2,409Asia 9,210 4,574 7Americas 6,560 4,165 - ------------------------------------------------------------- 93,958 78,447 2,416 ============================================================= Segmental information by business segment for 12 months to 31 December 2005 Products Services division division Eliminations Total 12 months to 12 months to 12 months to 12 months to 31 December 31 December 31 December 31 December 2005 2005 2005 2005 £'000 £'000 £'000 £'000Revenue Travel supplies, catering andmedia services 34,072 43,826 - 77,898Marketing, design, consultancyand commission 2,189 - - 2,189Net sales to other segments - 83 (83) - -------------------------------------------------------------Total revenue 36,261 43,909 (83) 80,087 =============================================================Result Segment result before exceptional items 3,355 4,751 (33) 8,073Exceptional re-organisation costs (617) (741) - (1,358) -------------------------------------------------------------Segment result 2,738 4,010 (33) 6,715 ==============================================Unallocated corporate expenses (543) ---------------Operating profit 6,172Interest expense (1,058)Interest income 91Profit on sale of financial (179)assets Share of loss of associate (40)Income tax (1,166) ---------------Profit after tax 3,820 ===============Other information Segment assets 26,475 47,278 - 73,753Unallocated corporate assets 589 ---------------Consolidated assets 74,342 ===============Segment liabilities (13,634) (8,464) - (22,098)Unallocated corporate liabilities (9,248) ---------------Consolidated liabilities (31,346) ===============Capital expenditure includingintangible assets 1,470 816 - 2,286 =============================================================Depreciation, impairment andamortisation 189 800 - 989 =============================================================Other non-cash expenses includedwithin segment results 137 47 - 184 ============================================================= Segmental information by geographical region for 12 months to 31 December 2005 Capital expenditure Turnover 12 months to Segment assets as at 12 months to 31 December 2005 31 December 2005 31 December 2005 £'000 £'000 £'000 UK, Europe & Middle East 65,659 65,573 2,272Asia 7,049 5,497 14Americas 7,379 3,272 - ------------------------------------------------------------- 80,087 74,342 2,286 ============================================================= 4. Exceptional items 12 months to 12 months to 31 December 2006 31 December 2005 £'000 £'000Exceptional re-organisation costs - Property closures 521 24- Asset write-off 102 -- Redundancy and salary costs 2,506 1,296- Legal and professional 175 38 ------------------------------------------------------------Total exceptional re-organisation costs 3,304 1,358Write back of provision for contract losses (1,447) -Exceptional bad debts 1,261 -Exceptional other costs 697 - ------------------------------------------------------------Total exceptional items 3,815 1,358 ============================================================ Exceptional re-organisation costs amounting to £617,000 during 2005 relate tothe costs associated with the full closure of the group's Hampshire location andthe move of the UK based products operation to the Heathrow head office. Afurther £741,000 of exceptional items relate to initial upfront costs incurredwith outsourcing part of the Services divisions operational costs to a thirdparty. Exceptional re-organisation costs During 2006, the Products division incurred exceptional re-organisation costsamounting to £804,000 which related to additional costs incurred to fully closethe Hampshire office. Included within this figure were redundancies aboveinitial estimates amounting to £589,000 and further property closure and legalcosts amounting to £215,000. The Products division has also commenced a re-organisation of its worldwideoperations and as at 31 December 2006 had incurred redundancy costs amounting to£68,000 which has been recognised in these accounts. The Services division purchased International Catering Limited in April 2006 andcommenced a programme of restructuring this company. International CateringLimited continues to provide catering to the international airline industries,but has transitioned its operations to an outsource model from a fully in-housecaterer although the company does retain a small in-house kitchen. The cost ofclosing International Catering Limited's old facility and transitioning thecompany's clients and contracts to an outsource model has resulted in redundancycosts of £1,643,000, property closure costs of £346,000, legal costs of £135,000and asset write offs of £102,000. During the year, Air Fayre Limited has incurred redundancies amounting to£206,000 relating predominately to the closure of its airside unit at Heathrow. Other exceptional items The group provided for anticipated contract losses when conducting its fairvaluation exercise upon the purchase of International Catering Limited. Thegroup fair valued the losses at £2,066,000 at the date of acquisition. Theprovision was to be written back over the remaining life of the loss makingcontracts. The main loss making contract was terminated early by the clientduring the year to 31 December 2006. The remaining provision was written back asan exceptional credit to the income statement on the termination date. Theexceptional credit amounted to £1,447,000. The group has provided for doubtful debts amounting to £1,261,000 during theyear. The majority of the provision amounting to £1,070,000 relates to theProduct division's Russian & Middle Eastern clients. Additionally, the group hasprovided £191,000 for the outstanding debts relating to its associate, AeroTVLimited, which ceased trading after the year end. Included in exceptional other costs of £697,000 are project write off costsamounting to £507,000. These relate to various projects the group has enteredinto as part of its global expansion strategy. Whilst the group will continue tolook for new overseas and domestic opportunities, and therefore may incurfurther project costs in the future, the value of the costs recognised during2006 is so significant that it warrants separate disclosure as an exceptionalitem. Also included in exceptional other costs of £697,000 is the write off of stockamounting to £190,000 following the failure of a freezer during the year. Thegroup has been unable to claim under its insurance policy for the stock loss,but has introduced new prevention and detection controls to ensure the risk ofstock losses following any future freezer failure is minimised. 5. EBITDA (Earnings before interest, tax, depreciation and amortisation) Reconciliation of operating profit to EBITDA 12 months to 12 months to 31 December 2006 31 December 2005 £'000 £'000Operating (loss)/profit (1,142) 6,172Depreciation 1,187 960Amortisation 397 29 ------------------------------------------EBITDA 442 7,161 ========================================== Reconciliation of operating profit to adjusted EBITDA (Earnings before interest,tax, depreciation, amortisation and exceptional items) 12 months to 12 months to 31 December 2006 31 December 2005 £'000 £'000Operating (loss)/profit (1,142) 6,172Depreciation 1,187 960Amortisation 397 29Exceptional items (note 4) 3,815 1,358 ------------------------------------------Adjusted EBITDA 4,257 8,519 ========================================== 6. (Loss)/profit before tax Reconciliation of (loss)/profit before tax to adjusted profit before tax 12 months to 12 months to 31 December 2006 31 December 2005 £'000 £'000(Loss)/profit before tax (1,830) 4,986Exceptional items (note 4) 3,815 1,358Movement in fair value of assets held at fairvalue through profit or loss 19 179 ------------------------------------------Adjusted profit before tax and exceptional items 2,004 6,523 ========================================== 7. Income tax Major components of income tax expense for the 12 months to 31 December 2006 and2005 are: Consolidated income statement 12 months to 12 months to 31 December 2006 31 December 2005 £'000 £'000Current income tax - Current UK income tax charge - 589- Overseas taxation 228 267- Under/(over) accrual in previous year 39 (54)Deferred income tax - Origination and reversal of temporary differences 53 403- Deferred tax on revaluation of cash flow hedges 139 (42)- Deferred income tax on share option expense 4 3- Reversal of deferred tax asset on release of contract losses 477 - ------------------------------------------Total income tax expense 940 1,166 ========================================== Consolidated statement of changes in equity 12 months to 12 months to 31 December 2006 31 December 2005 £'000 £'000Deferred income tax - Deferred income tax on share option expense 14 22- Revaluation of cash flow hedges 24 (24) ------------------------------------------Total income tax expense 38 (2) ========================================== A reconciliation of income tax expense applicable to accounting (loss)/profit beforeincome tax at the statutory income tax rate to income tax expense at the group'seffective income tax rate for the 12 months to 31 December 2006 and 31 December2005 is as follows: 12 months to 12 months to 31 December 2006 31 December 2005 £'000 £'000(Loss)/profit before tax (1,830) 4,986 ==========================================At Watermark Group plc statutory income tax rateof 30% (2005: 30%) (549) 1,496Under/(over) accrual in previous year 39 (54)Expenses not deductible for taxation purposes 36 79Utilisation of brought forward tax losses - (65)Un-utilised current year losses carried forward 1,089 -Lower taxation rates on overseas earnings - (178)Tax charge on overseas earnings 228 -Other 97 (112) ------------------------------------------Total income tax expense 940 1,166 ========================================== Deferred income tax at 31 December 2006 relates to the following: Deferred income tax Consolidated income statement Consolidated balance sheet 12 months to 12 months to 31 December 31 December 31 December 31 December 2006 2005 2006 2005 £'000 £'000 £'000 £'000 Deferred income tax liabilities Accelerated capital allowances (979) (926) 53 403Revaluations of foreign exchangecontracts to fair value (97) - 97 - ----------------------------- (1,076) (926) =============================Deferred income tax assets Share option expense - 18 4 3Revaluations of foreign exchangecontracts to fair value - 66 42 (42)Tax losses relating to theacquisition of subsidiary 880 - 477 - ----------------------------- 880 84 ============================= --------------------------Deferred income tax charge 673 364 ========================== Net deferred income tax liability (196) (842) ============================= The group has not recognised any deferred tax liability that would becomepayable on unremitted overseas earnings. The group has no plans to remitoverseas earnings to the UK as at the balance sheet date. Should the groupchange its policy regarding unremitted overseas earnings there would be adeferred tax liability of £796,000 at 31 December 2006 (2005: £673,000). The group also has tax losses amounting to £3,630,000 (2005: £859,000) which areavailable indefinitely for offset against future taxable profits of thecompanies in which the losses arose at the underlying statutory tax rate.Deferred tax assets have not been recognised in respect of these losses as theymay not be used to offset taxable profits elsewhere in the group and they arosein a subsidiary which continues to be loss making. The deferred tax liability provided for accelerated capital allowances willreverse over the useful economic lives of the assets to which they relate. Thisis expected to be over the next 3 to 4 years. It is also anticipated that anelement of this balance will be replaced by new assets. There are no income tax consequences attaching to the payment of dividends byWatermark Group plc to its equity shareholders. 8. (Loss)/earnings per share Basic (loss)/earnings per share amounts are calculated by dividing net profitfor the year attributable to equity shareholders (numerator) of the parent bythe weighted number of ordinary shares in issue during the year (denominator). Diluted (loss)/earnings per share amounts are calculated using the samenumerator with the denominator adjusted for the dilutive effects of shareoptions and shares to be issued with regards to past acquisitions. As the grouphas made a loss for the year, no adjustment is made to the denominator for theimpact of share options and shares to be issued so as to prevent the loss beingdiluted. Adjusted earnings per share, both basic and dilutive, use the denominatordescribed in the appropriate paragraphs above. For both adjusted basic earningsper share and adjusted diluted earnings per share the numerator is adjusted toremove the post tax impact of exceptional items from the calculations. The following represents earnings and share data used to calculate basic,diluted and adjusted earnings per share: Earnings table Ref 12 months to 12 months to 31 December 2006 31 December 2005 £'000 £'000Net (loss)/profit attributable to equityshareholders A (2,770) 3,820- Exceptional items (post tax) 4,249 1,031- Movement in the fair value of assets held at fair value through profit or loss 19 179 ------------------------------------Adjusted net profit attributable to equityshareholders B 1,498 5,030 ==================================== Share table Ref Weighted average Weighted average shares 12 months to shares 12 months to 31 December 2006 31 December 2005 Number NumberWeighted average shares for basic earningsper share C 44,023,354 42,035,227- Share options 811,245 1,962,907- Contingent shares to be issued 2,669,704 2,537,376 ------------------------------------Weighted average shares for diluted earningsper share D 47,504,303 46,535,510 ==================================== Earnings per share table Calculation Total earnings per Total earnings per formula share 12 months to share 12 months to 31 December 2006 31 December 2005 Pence PenceBasic (loss)/earnings per share A/C (6.29) 9.09Diluted (loss)/earnings per share A/D 1. (6.29) 8.21Adjusted basic earnings per share B/C 3.40 11.97Adjusted diluted earnings per share B/D 3.15 10.81 Note 1: Where the group makes a loss for the year, no amendment is made to the denominator whencalculating diluted earnings per share. 9. Dividends paid and proposed 12 months to 12 months to 31 December 2006 31 December 2005 £'000 £'000Paid during the year - Interim dividend for 2005 at 0.56 pence per share (2004: £nil). 241 -- Final dividend for 2005 at 1.69 pence per share (2004: 1.78 pence per share) 753 842 ------------------------------------Total dividend paid during the year 994 842 ==================================== Interim dividend declared for payment and final dividend proposed for approval at AGM, not recognised as a liability at the year end - Interim dividend for 2006 at nil pence per share (2005: 0.56 pence per share) - 258- Final dividend for 2006 at nil pence per share (2005: 1.69 pence per share) - 727 ------------------------------------Total unrecognised dividend for 2006 - 985 ==================================== 10. Additional cash flow information 1 January Cash Exchange 31 December 2006 flow differences Acquisitions 2006 £'000 £'000 £'000 £'000 £'000 Cash and cash equivalents 6,373 3,490 (97) - 9,766Bank loans maturing within 3 months andoverdrafts (12,408) (3,438) 381 - (15,465) ------------------------------------------------------Increase/(decrease) in cash for the year (6,035) 52 284 - (5,699)Finance lease and hire purchase contracts (1,315) 558 - (67) (824) ------------------------------------------------------Net debt (7,350) 610 284 (67) (6,523) ====================================================== 1 January Cash Exchange Non-cash 31 December 2005 flow differences movements 2005 £'000 £'000 £'000 £'000 £'000 Cash and cash equivalents 12,041 (6,136) 468 - 6,373Bank overdrafts (15,948) 3,576 (36) - (12,408) ------------------------------------------------------Increase/(decrease) in cash for the year (3,907) (2,560) 432 - (6,035)Finance lease and hire purchase contracts (1,867) 552 - - (1,315) ------------------------------------------------------Net debt (5,774) (2,008) 432 - (7,350) ====================================================== 11. Annual accounts The annual report and accounts will be posted to all shareholders in May 2007and will be available at the company's registered office: The Encompass CentreInternational AvenueHestonMiddlesexTW5 9NJ Appendix 2 Summary of Bond Terms The following overview refers to certain provisions of the terms and conditionsof the Convertible Bonds and the connected Trust Deed. Full details will be setout in the Circular which will be posted to shareholders shortly. Issuer Watermark Group Plc. Bonds £8,000,000 Secured Fixed Rate Convertible Bonds due 2010 convertible into Ordinary Shares of the Issuer. The Offering The Bonds are being offered outside the United States in accordance with Regulation S under the United States Securities Act of 1933. Closing Date 4 June 2007. Issue Price 100 per cent. of the face amount. Conversion Price The initial Conversion Price will be £0.20 per Ordinary Share. The Conversion Price will be subject to adjustment in certain circumstances. Maturity Unless previously redeemed, converted or purchased and cancelled, the Bonds will be redeemed on 4 June 2010 at their principal amount outstanding. Form and Denomination The Bonds will be in registered form and in denominations of £1. Each holder's holding of Bonds will be represented by a Certificate. No Bonds may be held in uncertificated form. Interest The Bonds bear interest from the Closing Date payable semi-annually in arrear on 4 June and 4 December each year at the rate of 15.5 per cent. per annum, which interest is payable by delivery of Further Bonds, provided that, subject to the consent of the Bank under the Intercreditor Deed while amounts are outstanding under the Term Loan Facility Agreement: (a) the Issuer may, provided that no Holder's Cash Payment Election has been made in respect of the relevant Bonds, on not less than 10 Business Days' notice delivered in accordance with Condition 15 to those Bondholders which have not made the Holder's Cash Payment Election and to the Trustee and the Registrar, prior to any Interest Payment Date falling on or after 4 December 2008, irrevocably elect to pay such interest in cash on such Bonds as from the Interest Period commencing on that Interest Payment Date; and (b) at any time following the declaration by the Issuer of a Dividend which is to be paid in cash (in whatever currency), any Bondholder may, on not less than 10 Business Days' notice given prior to any Interest Payment Date, elect to require the Issuer to pay interest in cash on its holding of Bonds as from the Interest Period commencing on that Interest Payment Date (such election, the "Holder's Cash Payment Election"), in which case as from the Interest Payment Date on which such election becomes effective the Bonds will bear interest at the rate of 10 per cent. per annum. A Bond which is converted into Ordinary Shares will cease to bear interest as of the Interest Payment Date preceding conversion save in limited circumstances. A Bondholder requesting conversion no earlier than 30 days prior to the end of the scheduled Conversion Period will not receive interest in respect of the final Interest Period but instead an additional number of Ordinary Shares equal to such interest amount divided by the Conversion Price. Status of the Bonds The Bonds constitute direct, unconditional, subordinated and secured obligations of the Issuer and rank pari passu without preference among themselves. Subordination The rights of the Bondholders under the Bonds are contractually subordinated to the claims of the Bank under the Facility Agreement pursuant to the Intercreditor Deed. Security The Bonds will be secured by the Guarantee and Debenture over all of the assets of the Issuer and of the Group, subject to the subordination described above. Guarantee The payment of all amounts payable in respect of the Bonds and all other monies payable under or pursuant to the Trust Deed has been unconditionally and irrevocably guaranteed by the Guarantors under the Guarantee and Debenture. The obligations of the Guarantors under the Guarantee and Debenture constitute direct, subordinated, unconditional and secured obligations of the Guarantors. Redemption at the The Bonds may be redeemed at the option of the Issuer in option of the Issuer whole (but not in part only) at their principal amount together with accrued interest (i) at any time on or after 4 June 2008, (a) if on any period of 30 consecutive dealing days ending not earlier than 14 days prior to the giving of the relevant Optional Redemption Notice the mid market closing price for an Ordinary Share as published by or derived from the Relevant Stock Exchange on such dealing day exceeds 200 per cent. of the Conversion Price in effect (or deemed to be in effect) on such dealing day or (b) if EBITDA exceeds the EBITDA Target, initially set at £6.00 million or (ii) if Conversion Rights shall have been exercised and/or purchases (and corresponding cancellations) and/or redemptions effected in respect of 90 per cent. or more in principal amount of the Bonds that have at any time been issued (including, for the avoidance of doubt, Further Bonds issued as Interest), in any of which cases Bondholders will have a final opportunity to convert such Bonds into Ordinary Shares before redemption. Redemption at the Following the occurrence of a Change of Control the holder option of Bondholders of each Bond has the right to require the Issuer to redeem that Bond on the Change of Control Put Date at its Change of Control Redemption Amount together with accrued interest. Taxation All payments made by or on behalf of the Issuer or the Guarantors in respect of the Bonds will be made without deduction or withholding for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature imposed or levied by or on behalf of the United Kingdom or any political subdivision or any authority thereof or therein having power to tax unless such withholding or deduction is required to be made by law. In the event that any such deduction or withholding is required, the Issuer, or as the case may be, the Guarantors shall pay additional amounts in respect thereof, subject to certain exceptions. Conversion Right Unless previously redeemed or purchased and cancelled, Bondholders will have the right to convert Bonds for Ordinary Shares at the then applicable Conversion Price at any time from 4 December 2007 or, if earlier, a firm offer being made pursuant to the City Code on Takeovers and Mergers, to the close of business (at the place where the relevant certificate is delivered for conversion) on the date falling six days prior to the Maturity Date (both days inclusive) or if such Bond is to be redeemed at the option of the Issuer prior to the Maturity Date, then up to the close of business (at the place where the relevant certificate is delivered for conversion) on the sixth day before the date fixed for redemption thereof. Ordinary Shares Ordinary Shares delivered on conversion of the Bonds will be fully paid Ordinary Shares of the Issuer and will rank pari passu in all respects with all fully paid Ordinary Shares of the Issuer in issue. Governing Law The Bonds and the Trust Deed and all matters arising from or connected with the Bonds and the Trust Deed are governed by, and shall be construed in accordance with, English law. Listing and Trading Application will be made for the Bonds to be admitted to the official list of the CISX. The issue of the Bonds is not conditional upon obtaining such listing and the Bonds will not be traded pursuant to such listing. Selling Restrictions The Bonds may not, directly or indirectly, be offered, sold, renounced, transferred, re-sold, taken up or delivered, directly or indirectly, in or into the United States, Canada, Australia, Japan, the Republic of Ireland or South Africa or offered to, sold to, renounced, transferred, re-sold, taken up or delivered in favour of, or to, a person within the United States or a resident of Canada, Australia, Japan, the Republic of Ireland or South Africa. On conversion, the principal element of the Bonds will convert into 40,000,000Ordinary Shares and the additional Bonds issued to the Bondholders if theinterest is paid by delivery of Further Bonds for the full term of the Bondshall convert into 22,598,450 Ordinary Shares. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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