6th Jun 2005 07:01
Volex Group PLC06 June 2005 Embargoed until 07.01, 6 June 2005 Volex Group plc ("the Company" or " Volex") Proposed Firm Placing of 18,076,474 New Ordinary Shares and Placing and OpenOffer of 7,773,866 New Ordinary Shares at 73.5p per New Ordinary Share byEvolution Securities Volex, a leading independent producer of electronic and fibre optic cableassemblies and electrical power cords services group, today announces that itproposes to raise £15.8 million, net of expenses, by way of a Firm Placing andPlacing and Open Offer of, in aggregate, 25,850,340 New Ordinary Shares at 73.5pence per share. The Company also announces that it has today entered into newlonger term bank facilities (the "New Bank Facilities") Summary of the fundraising: • Raising £15.8 million, net of expenses, through the issue of 25,850,340 New Ordinary Shares at 73.5 pence per share, through a proposed Firm Placing and Placing and Open Offer with new and existing investors. • The Issue is fully underwritten by Evolution Securities, the Company's broker and financial adviser. • The Company has entered into New Bank Facilities on more favorable terms until March 2008. • An EGM will be held on 29 June 2005 and, assuming all Resolutions are passed, the New Ordinary Shares are expected to commence trading on 30 June 2005 Commenting on the Issue, John Corcoran, Group Chief Executive, said: "The proceeds of the Issue and the provision of the New Bank Facilities, willenable the Directors to implement a strategy focused on restructuring andinvesting in growth opportunities available to the Group. With a strong clientbase, a global network and strengthened balance sheet, I believe that the scopefor delivering shareholder return is significant." Volex will host an analysts meeting today at 12 noon at the offices of: Allen &Overy, One New Change, London, EC4M 9QQ Enquiries:Volex Group Plc 01925 830101Dom Molloy, ChairmanJohn Corcoran, Group Chief ExecutiveDerek Walter, Group Finance Director Evolution Securities 020 7071 4300Tim Worlledge, Matthew Wood Weber Shandwick Square Mile 020 7067 0700Chris Lynch/Nick Dibden Evolution Securities Limited, which is authorised and regulated in the UK by theFinancial Services Authority and is a member of the London Stock Exchange plc,is acting for Volex and no one else in connection with the Issue. EvolutionSecurities Limited will not regard any other person as its customer in relationto the Issue and will not be responsible to anyone other than Volex forproviding the protections afforded to its customers nor for giving advice inrelation to the matters described in this announcement. Neither the Existing Ordinary Shares nor the New Ordinary Shares have been, orwill be, registered under the United States of America Securities Act of 1933(as amended) (the "Securities Act") or under the securities laws of any state ofthe United States of America or qualify for distribution under any of therelevant securities laws of Canada, Australia, Ireland or Japan. Accordingly,subject to certain exceptions, the New Ordinary Shares may not be, directly orindirectly, offered, sold, taken up, delivered or transferred in or intoAustralia, Canada, Ireland, Japan or the United States, except, to the extentsuch offer or sale is made into the United States, where such offer or sale ismade as part of an offshore transaction meeting the requirements of Regulation Sunder the Securities Act or pursuant to another exemption from, or in atransaction not subject to, the registration requirements of the Securities Act. Certain statements in this announcement relating to the Issue are forwardlooking statements. By their nature, forward looking statements involve a numberof risks, uncertainties and assumptions because they relate to events and/ordepend on circumstances that may or may not occur in the future and could causeactual results to differ materially from those expressed in or implied by theforward looking statements. These include, among other factors: conditions inthe markets and market position, financial position, tax rates, cash flows,return on capital and operating margins; anticipated investments and capitalexpenditures; changing business or other market conditions; and general economicconditions. These and other factors could adversely affect the outcome andfinancial effects of the plans and events described herein. Forward lookingstatements contained in this prospectus based on past trends or activitiesshould not be taken as a representation that such trends or activities willcontinue in the future. Subject to any requirement under the Listing Rules,neither the Company nor Evolution Securities Limited undertakes any obligationto update or revise any forward looking statements, whether as a result of newinformation, future events or otherwise. You should not place undue reliance onforward looking statements, which speak only as of the date of thisannouncement. Volex Group plc ("the Company", "the Group" or " Volex") Proposed Firm Placing of 18,076,474 New Ordinary Shares and Placing and Open Offer of 7,773,866 New Ordinary Shares at 73.5p per New Ordinary Share by Evolution Securities 1. IntroductionThe Board announces today that the Company proposes to raise £15.8 million, netof expenses, by way of a Firm Placing and Placing and Open Offer of, inaggregate, 25,850,340 New Ordinary Shares at 73.5 pence per Ordinary Share. TheIssue comprises 18,076,474 Firm Placing Shares, which have been placed firmprimarily with new and existing institutional investors and 7,773,866 Open OfferShares have been placed with new and existing investors subject to a right ofrecall to satisfy valid applications from Qualifying Shareholders under the OpenOffer. Qualifying Shareholders are being given the opportunity to participate inthis fundraising by way of the Open Offer, which is being made by EvolutionSecurities on the Company's behalf. Under the Open Offer, 7,773,866 New OrdinaryShares are being offered to Qualifying Shareholders on the basis of: 5 Open Offer Shares for every 19 Existing Ordinary Shares held at the Record Date and so in proportion to any number of Existing Ordinary Shares then held. The Issue Price represents a discount of 9.3 per cent. to the prevailingmid-market price of 81 pence per Existing Ordinary Share immediately prior tothe announcement of the Issue at the close of business on 3 June 2005, thelatest practicable time prior to the announcement of the Issue. The Issue has been fully underwritten by Evolution Securities and is subject toShareholder approval. A prospectus containing a notice of EGM is expected to bedispatched to Shareholders today. As stated in the Company's trading update in February 2005, the Company has beenin discussions with the Banks to replace the Company's Existing Bank Facilitieswith a new facility or facilities. The Company today announces that it has todayentered into new longer term bank facilities on more favourable terms to theCompany (the "New Bank Facilities"), conditional on completion of the Issue. Shareholders should be aware that if the Resolutions relating to the Issue arenot approved at the EGM and Admission does not take place on 30 June 2005, thenet proceeds of the Issue will not be received by the Company and the Companywill not be able to draw on the New Bank Facilities. The Existing BankFacilities expire on 30 June 2005 and the Company would no longer have bankingfacilities and would not have adequate working capital to continue trading fromthat date. The Directors consider that in the scenario outlined above, the withdrawal ofthe Existing Bank Facilities would not be in the best interests of either theBanks or the Company and believe that the Existing Bank Facilities would beextended for a short period beyond 30 June 2005 whilst they were renegotiatedfor a longer period to enable the Company to continue trading. The Directorsbelieve, however, that such renegotiated facilities would be on substantiallyworse terms than both the Existing Bank Facilities and the New Bank Facilities,in particular in regard to interest rate, use of free cash and repaymentscheduling. Accordingly, the Directors unanimously recommend that Shareholdersvote in favour of the Resolutions to approve the Issue. 2. Information on Volex Group The BusinessVolex Group is a leading independent producer of electronic and fibre opticcable assemblies and electrical power cords. The Group currently operates fromforty facilities located strategically in Asia, Europe and North and SouthAmerica, providing global support to leading producers of computers,telecommunications systems and networking devices. In addition, the Groupassembles wiring assemblies and harnesses for consumer electronics andappliances, medical and industrial applications and for the transportation,defence and aerospace industries. ProductsThe Company manufactures a wide range of cable assembly solutions that can becategorised into three broad product groupings - power products, signal cableassemblies and multifunction cable harnesses. Power Products Volex produces and supplies a wide range of power cords and cable assemblies finished to OEM specification. Volex has safety approval certification for over 20 countries. Volex's power products are used in computer products, medical products, electrical and electronic consumer products and industrial tools and equipment. Power products accounted for 45 per cent. of the Group's turnover in the 52 week period ended 3 April 2005 (2004: 41 per cent.) Signal Cable Assemblies These products carry signals within and/or between equipment for applications such as communications, networking and computing products and medical/ industrial equipment. The majority of these cable assemblies are custom designed. Overall, signal cable assemblies represented approximately 43 per cent. of turnover in the 52 week period ended 3 April 2005 (2004: 46 per cent.). They are subdivided into the following: Industry Standard Volex offers an extensive range of "industry standard" cable assemblies for the communications and computer market, by which is meant, products which operate in accordance with standardised industry parameters. The cable assembly is also customised in its design, for example by reference to length, angle of connector, moulding and colour. Volex cable assemblies are used in, inter alia, networking products, servers and storage systems, internal switching and industrial products. High Speed Volex offers a range of standard and custom high speed cable assemblies, including Fibre Channel and InfiniBand, to a number of OEM customers. Cable assemblies are engineered to meet the stringent electrical and mechanical requirements of industry standard specifications and are increasingly being used in system area networks, parallel processing applications and server storage systems. Radio Frequency Volex offers a range of radio frequency cable assemblies including flexible, conformable, semi- rigid, corrugated and phase matched assemblies. These products are used within switching devices, industrial automation, telecoms networks, testing and measurement and antenna products. Fibre Optic Volex offers custom designed fibre optic cable assemblies. These products are used within Sonet/SDH Devices, networking cables, switching devices and base stations. Multifunction Cable Harnesses These hybrid products have both power and signal transmission capabilities within the cable harness. Overall, multifunction cable assemblies represented approximately 12 per cent. of turnover in the 52 week period ended 3 April 2005 (2004: 13 per cent.). Multifunction cable harnesses include specialist wiring harnesses, which Volex designs, manufactures and supplies for use in commercial and off-road vehicles and aerospace and defence applications, and multifunction cable assemblies for a variety of other applications including medical and industrial markets. In the 52 weeks ended 3 April 2005, the Group's turnover was spread across fivedifferent business sectors: Data/Telecommunications 39 per cent. (43 per cent.:2004); Consumer Appliances 20 per cent. (18 per cent.: 2004); ConsumerElectronics 19 per cent. (17 per cent.: 2004) Vehicles and Aerospace 12 percent. (13 per cent.: 2004); and Medical/Industrial 10 per cent. (9 per cent.:2004). The Directors believe that the breadth of Volex's product portfolio provides asignificant competitive advantage to the Group. This broad range of productsenables Volex to service a wide range of customer product supply requirementsand offer the customer an opportunity to utilise Volex as its consolidatedsupplier of products across the cable assembly spectrum. Geographical LocationsThe Group is headquartered in Warrington, United Kingdom. It operates regionalcentres in Castlebar, Ireland to service the European signal cable assemblymarket, in Quincy, USA to service the North American market, and in Singapore toservice the Asian and South American power product and signal cable assemblymarkets. The Singapore regional centre also manages the European power productbusiness. Each regional centre manages its multi-site regional operations. Inaddition, the Group's specialist wiring harness businesses are based in theUnited Kingdom and service predominantly a UK/European customer base. The Groupcurrently operates from some 42 locations across the World. Of these, 25 aremanufacturing centres and the majority of these centres also house salesoffices; 8 are engineering/sales/logistics support units; and 9 are purely salesoffices. Turnover by geographic location for the 52 weeks ended 3 April 2005 was26 per cent. for Europe (excluding the UK) (24 per cent.: 2004), 16 per cent.for the UK (17 per cent.: 2004), 31 per cent. for the Americas (31 per cent.:2004) and 27 per cent. for Asia (28 per cent.: 2004). The average number of employees employed by the Group in the 52 week periodended 3 April 2005 was 10,059 (2004: 9,297). CustomersVolex has a worldwide base of multinational customers, including Ericsson,Nortel Networks, Alcatel, Lucent Technologies Qualcomm, Cisco Systems, HP, IBM,Dell, StorageTek, Solectron, Flextronics, Celestica, Jabil, Canon, Philips,Apple, Epson, Lexmark, Black & Decker, LG Electronics, Panasonic, Electrolux,Invensys, Johnson and Johnson, GE Medical Systems, Case New Holland, Komatsu,JCB, Rolls Royce Aero Engines and BAE systems. This customer base spans a widerange of sectors, each of which utilises the broad range of cable assemblysolutions offered by the Group. This broad spread is reflected in the fact thatthe Group's top ten customers account for only 42 per cent. of the Group'sturnover. 3. Background to and reasons for the Issue Following several years of achieving sustained revenue growth, the Groupexperienced a significant downturn in demand for its product ranges between 2001and 2003. During this time the Group's revenue fell 45 per cent. to £230.1million in 2003 with operating profit (before exceptional items and impairments)falling 98 per cent. to £0.6 million. In the 52 weeks ended 4 April 2004 revenueincreased to £238.4 million and operating profits to £2.5 million. This downturn was principally caused by difficulties within thetelecommunications and server market, to which the Group had significantexposure. As demand for wire line and wireless infrastructure was depressed, anumber of operators and carriers experienced financial difficulties which led tolimited investment in networks by both carriers and enterprises. Furthermoredemand for information technology server and networking products remained low,as a result of depressed prices and low-cost entrants and developments in theserver segment of high-speed copper technologies. The Group has also experienced a number of exceptional circumstances whichaffected the financial performance of the Company. These included the rise incommodity prices, in particular copper which rose approximately 65 per cent.between 1 November 2003 and 31 March 2005. This rise in price was at a ratewhich the Group has been unable to pass onto its customer base in full. Inaddition, a fire in the Group's Tijuana, Mexico factory in September 2004severely impacted the North American division's operational efficiency. The downturn in the Group's trading has meant that the level of debt within theGroup has restricted the financial flexibility of the Group. Although £4.0million of debt has been repaid over the past 2 years, the Group has not beenable to generate sufficient cash flow to invest in the future growth of theGroup's business or to complete the restructuring of the Group and to meet allof its previously agreed debt repayments which had been rescheduled by agreementwith the Banks. The Directors believe the Issue will provide the Group with the financialsecurity to enable it to invest in the restructuring of the operational costbase and in the future growth of the business. Further, the Company has enteredinto the New Bank Facilities which, if they become unconditional, provide anelement of stability and certainty on the funding structure of the Group for thenext 3 years, to June 2008. These new facilities are conditional on the Issuebecoming unconditional and will allow the Group greater financial flexibilityduring this period. 4. Strategy of the Group The Directors have in recent years pursued a strategy of realigning costscommensurate with actual and projected levels of turnover and restructuring theoperations of the Group to meet the changing market challenges andopportunities. This strategy has, however, been limited by the financialresources available to the Group as set out above. Following receipt of the netproceeds of the Issue and the provision of the New Bank Facilities, theDirectors intend to implement a three-year growth plan focused on restructuringand investing in the growth opportunities available to the Group. These keystrategies within this growth plan are set out below: • Reduce the number of manufacturing locations. The Group currently operates 25 manufacturing locations worldwide, which the Directors believe can be reduced by shifting to larger factories in low cost areas in order to maximise economies of scale. Furthermore, where manufacturing does not provide any level of differentiation, the Group plans to outsource production utilising the Group's sourcing and supply chain strengths. By reducing the Group's manufacturing footprint and concentrating capacity in low cost regional locations, the Directors believe the Group can reduce its cost base without adversely affecting service levels for its customers as a whole. • Improving the operational performance of the Group by reorganising under-performing divisions and geographical areas within the Group, principally by realigning reporting lines and streamlining the organisation. The approach will be to leverage the specific strengths of key management teams across the wider Group whether on a product or market basis, with a particular focus on improvement on the Asian signal cable assembly and North American power product businesses. • Further develop sourcing competence at the component layer and establish sourcing competence at the assembly level. The Directors intend to develop the functional capabilities of the Group principally by investing in its engineering teams to reconfigure, standardize and/or substitute existing supplies to effect cost reduction. This will also allow the Group to increase its outsourcing capabilities. In addition, the Group will invest in its supply chain management resources to improve the performance of its supply base and to reduce inventory, for example through further development of its vendor managed inventory ("VMI") programme. • Develop new markets to increase revenue. The Directors intend to supplement the existing global customer account management team with additional resources to increase the Group's marketing and technological expertise. New markets to be targeted include the medical market, the low frequency radio base station market and the industrial market. The medical and industrial markets today account for 10 per cent. of Group turnover and the Directors believe they provide significant opportunities for the Group. Progress has already been made in the development of key medical accounts and the industrial customer base is growing strongly. In the case of the low frequency element of the telecommunication base station market, as an example one of our largest customers has an annual cable assembly spend of some £15 million, which the Directors believe again represents an area of opportunity for the Group. • The Group has demonstrated competence in product design, especially where the functionality and design of the assembly is not dependent on customer specified componentry, and has already secured a number of specific programmes in this way. The Group will increasingly focus on product development opportunities, particularly within the Powercord arena where a number of new product opportunities exist requiring investment. The Directors believe investment in new products will help the Group to increase its product margins and to develop a differentiating strength for the Group. • Build alliances to expand the product set and technology offering. This will allow the Group to access low cost manufacturing and technical competence to facilitate new product development and/or fill product portfolio gaps. The Group will thereby be able to access new customers, new markets and/or increase its service to global customers with reduced costs or risk. The Group is already in discussion with a major Asian cable manufacturer in this regard. 5. Current Trading and Prospects The Company has today released its unaudited preliminary results for the 52 weekperiod ended 3 April 2005, extracts from this statement are set out below: "After the downturn experienced through late 2001, Volex Group has takensignificant actions to reduce debt and return to profitability. Having achieveda revenue peak of £418 million in FY2001, the Group experienced a dramaticdecline to £230 million in FY2003 and has improved from that low point to closethe last financial year (2005) at a revenue level of £245 million. Despite thelimited access to funds, a number of key actions have been undertaken over thisperiod: • Gross borrowings have been reduced from £72 million to £45 million;• Gross margins have recovered from a low of 11.6 per cent. to 2005 levels of 14.5 per cent. through reductions in material costs and labour cost reductions by moving to lower cost areas;• Facilities have been closed and manufacturing transferred to low cost locations and under- utilised assets have been disposed of;• A strong global purchasing function has been established;• The global account team was enhanced and has delivered momentum to the emerging medical and industrial business which has grown to 10 per cent. of Group revenue; and• New management and systems have been introduced to the harness businesses (Wiring Systems and Ionix). The financial year 2005 had been expected to improve further on theseachievements. The Group delivered revenues in 2005 at a level of £245 millionwhich, when the effects of currency translation are removed was a growth year onyear of 8 per cent. The Group has benefited from the general improvement in thedemand across most of the markets that we service but has also made significantstrides in developing new business opportunities in targeted markets such as themedical sector. The broadening of the customer base in existing and new marketsremains a key focus for the Group and reduces the impact of cyclical demandpatterns in any one sector. However, while the market demand profile supported the revenue ambitions of theGroup the translation of those revenues to operating profit was disappointingand was impacted by unanticipated events, some of which were one-off in nature. • The escalation of commodity prices, particularly copper and petroleum, impacted the Group by circa £6 million in profit. While the sales teams have been successful in passing some of these effects through to the customer base, there was a lag between the supply base increases and the successful conclusion of negotiations with those same customers. • The turnaround of North America division was adversely impacted by an unsuccessful change in management, resulting in a failure to achieve the product transfer and margin improvement targets for the business, and by a fire in one of two buildings in Tijuana, Mexico that created loss of sales in the period. On a positive note, the Group has already addressed many of these areas and, thebetter performing divisions achieved operating margins of 6 per cent. plus inthe year. Operationally the Group recovered the Tijuana fire impact successfullyand the speed and effectiveness of that recovery bears testament to the abilityof the Group to manage significant events without impacting the supply line tothe customer base. The Group has changed the leadership of North America(October 2004) and positioned one of the non-executive directors back into theregional leadership position. The Group has built a new team and strengthenedsales, engineering and operations. The Group has developed a strong globalpurchasing function that has mitigated the full effect of rising commodityprices by materials savings secured elsewhere in the supply chain. Despite the limited access to funds the Group continued to focus on costreduction, re-profiling the manufacturing footprint and the level of debt withinwhich the Company had to operate. In the year three further facilities wereannounced for closure: Conover (US), Malaysia and Philippines. The Groupstrengthened its focus and resource allocation in global account management topenetrate new markets, new accounts and the existing accounts for incrementalrevenues, some of which were already realized in the reported year." With a strong client base, a global network and strengthened balance sheetfollowing the Issue, the Directors believe that the scope for deliveringimproved shareholder returns is significant and remain positive on the prospectsand outlook for the Group during 2005. 6. Board Changes The Group also announces today that, conditional upon Admission, it will beimmediately appointing two new directors, Craig Mullett and Heejae Chae ("theProposed Directors"). Both Craig and Heejae have extensive knowledge of the cable and interconnectormarkets, having both been for five years, senior executives with the AmphenolCorporation, a NYSE listed company and the world's third largest producer ofelectronics connectors, cables and interconnect systems. Craig, aged 36, who was the director of business development at Amphenol, willbe joining the Group as a non-executive Director. He will assume responsibilityfor a number of special projects and will work with the executive team inimplementing and developing, as necessary, the strategy described in thisannouncement for returning the Group to profitability. Craig is currentlyPresident of Branison Group, a corporate finance firm located in Connecticut,USA. Heejae, aged 36, was worldwide general manager of the Radio Frequency Group ofAmphenol. He will become Chief Operating Officer and will work with the ChiefExecutive in the implementation of the strategy, taking responsibility for theimprovement of the manufacturing operations. With the changes that are now taking place within the Group and having been withthe Group for over 15 years, Dom Molloy will be resigning as Chairman andretiring from the Board following the EGM. The Group has already commenced asearch for a new non-executive Chairman, who needs to have experience of runninga multinational business and, in particular, has been involved in corporaterestructurings in the past. The Company hopes to have identified and be able toappoint a new non-executive Chairman before the AGM in September 2005. For theinterim period until that appointment, David Beever, who has been anon-executive Director since 2002, will assume the role of Chairman. 7. Principal Terms of the Issue The Issue Under the Issue, the Company intends to raise £19.0 million, comprisingapproximately £13.3 million by way of the Firm Placing and approximately £5.7million under the Placing and Open Offer (in each case before expenses).Qualifying Shareholders are being given the opportunity to participate in thefundraising by way of the Open Offer, which is being made by EvolutionSecurities as agent for and on behalf of the Company. Due to the size of the fundraising relative to the current market capitalisationof the Company, the Directors believe it is necessary to broaden the shareholderbase of the Company through a non pre-emptive issue by way of the Firm Placingin order to raise the necessary funds. Under the Issue, 30 per cent. of the New Ordinary Shares are being offered toQualifying Shareholders pursuant to the Placing and Open Offer and 70 per cent.are being placed firm (subject, inter alia, to the conditions set out below)with certain new and existing investors pursuant to the Firm Placing in order toprovide such investors with certainty as to the minimum number of New OrdinaryShares they will receive. The Directors believe that this has been an importantfactor in attracting these investors to support the Issue. The Directors alsoconsider that all Ordinary Shareholders should have the opportunity toparticipate in the Issue to mitigate and reduce the dilutive effect of the FirmPlacing on Ordinary Shareholders and consequently, the Issue also comprises theOpen Offer. The Issue Price represents a discount of 9.3 per cent. to the prevailingmid-market price of 81 pence of an Existing Ordinary Share on 3 June 2005immediately prior to the announcement of the Issue. The Issue has been fully underwritten by Evolution Securities. The Issue isconditional upon the Placing Agreement having become unconditional in allrespects and not having been terminated in accordance with its terms. ThePlacing Agreement is conditional, inter alia, upon the satisfaction of thefollowing conditions: (i) the passing of the Resolutions at the Extraordinary General Meeting; and (ii) Admission becoming effective by not later than 8.00 a.m. on 30 June 2005(or such later time and/or date as the Company and Evolution Securities mayagree being not later than 3.00 p.m. on 30 September 2005). Application has been made to the UK Listing Authority for the New OrdinaryShares to be admitted to the Official List and application has been made to theLondon Stock Exchange for the New Ordinary Shares to be admitted to trading onits market for listed securities. It is expected that Admission will becomeeffective and that dealings will commence in the New Ordinary Shares at 8.00a.m. on 30 June 2005. The Existing Ordinary Shares are listed on the OfficialList and traded on the London Stock Exchange. None of the New Ordinary Shares have been marketed or been made available inwhole or in part to the public in conjunction with the application for Admissionother than pursuant to the Open Offer. The New Ordinary Shares will, whenissued, rank pari passu in all respects with the Existing Ordinary Shares,including the right to vote and receive dividends and other distributionsdeclared following Admission. The Firm Placing The Company proposes to raise approximately £13.3 million (before expenses)through the issue of the Firm Placing Shares at the Issue Price, whichrepresents a discount of 9.3 per cent. to the closing mid-market price of 81pence of an Existing Ordinary Share on 3 June 2005, being the last dealing dayprior to the announcement of the Issue. The Firm Placing Shares represent 70 percent. of the Issue and will represent 32.6 per cent. of the Company's issuedshare capital immediately following Admission. The Placing and Open Offer As stated above, the Board wishes to allow existing Ordinary Shareholders toparticipate in the Issue. Accordingly, Qualifying Shareholders are being giventhe opportunity to participate in the Issue by way of an Open Offer. The Companyintends to raise approximately £5.7 million (before expenses) from the issue ofthe Open Offer Shares which represents approximately 30 per cent. of the fundsthe Company intends to raise pursuant to the Issue. Pursuant to the Placing,Evolution Securities has conditionally placed the Open Offer Shares (other thanthe Committed Shares) subject to a right of recall in order to satisfy validapplications for Open Offer Shares received from Qualifying Shareholders. Evolution Securities, on behalf of the Company, is inviting QualifyingShareholders to apply for Open Offer Shares under the Open Offer at the IssuePrice payable in full on application, on the basis of: 5 Open Offer Shares for every 19 Existing Ordinary Shares held by such Qualifying Shareholders and registered in their names on the RecordDate and so in proportion for any other number of Existing Ordinary Shares thenheld. Fractional entitlements to Open Offer Shares will not be allotted to QualifyingShareholders and no cash payment will be made in lieu of fractionalentitlements, which will be aggregated and allotted to placees under the Placingfor the benefit of the Company. Accordingly, the entitlement of QualifyingShareholders will be rounded down to the nearest whole number of Open OfferShares. To the extent that Evolution Securities is unable to procure placees for theOpen Offer Shares at the Issue Price, Evolution Securities has agreed tosubscribe itself, as principal, at the Issue Price for any Open Offer Shares forwhich valid applications are not received from Qualifying Shareholders under theOpen Offer. To be valid, completed Application Forms and payment in full must be received by3.00 p.m. on 27 June 2005. Application Forms are personal to QualifyingShareholders and may not be transferred except to satisfy bona fide marketclaims. Qualifying Shareholders should be aware that the Open Offer is not arights issue and, therefore, any Open Offer Shares not applied for under theOpen Offer will not be sold in the market for their benefit Any person who is inany doubt as to his/her tax position or who is subject to tax in a jurisdictionother than the United Kingdom should consult an appropriate professional adviserimmediately. 8. Related Party Transaction Owing to the size of its shareholding in the Company, Cycladic CapitalManagement who holds approximately 12.6 per cent. of the Existing OrdinaryShares, is deemed to be a related party of the Company for the purposes of theListing Rules. The issue of 5,645,510 Placing Shares to Cycladic CapitalManagement under the Firm Placing will be a transaction with a related party forthe purposes of the Listing Rules, and will require separate approval by theShareholders at the EGM by way of the Ordinary Resolution. Cycladic CapitalManagement has undertaken that it will not, and will take all reasonable stepsto ensure that its associates (as defined in the Listing Rules) will not, voteon the Ordinary Resolution. 9. Irrevocable undertakings and Directors' intentions Placing and Open OfferAll of the Directors who currently hold Ordinary Shares have irrevocablyundertaken to take up in full their Open Offer Entitlement under the Open Offerand, in addition, certain of the Directors also intend to participate in theFirm Placing. Accordingly, the Directors intend to subscribe for, in aggregate,445,596 New Ordinary Shares, representing 1.7 per cent. of the Issue.Furthermore, the Proposed Directors, Heejae Chae and Craig Mullett, intend toparticipate in the Firm Placing in respect of, in aggregate, 1,158,000 NewOrdinary Shares, which, together with the Directors participations, willrepresent a total of 6.2 per cent. of the Issue. VotingThose Directors who have an interest in Existing Ordinary Shares have eachirrevocably undertaken to the Company and Evolution Securities that they, havinga beneficial and non beneficial interest between them in aggregate ofapproximately 0.83 per cent. of the Existing Ordinary Shares, will vote infavour of the Resolutions. Cycladic Capital Management, which holds 3,710,000 Ordinary Shares, hasirrevocably undertaken to the Company and Evolution Securities that it willabstain, and will take all reasonable steps to ensure that its associates (asdefined in the Listing Rules) abstain from voting in respect of the OrdinaryResolution relating to the related party transaction. 10. Share Option Schemes Holders of options under the Share Option Schemes are not entitled toparticipate in the Open Offer. Under the rules of the Share Option Schemes, theDirectors may make such adjustments to the number of Ordinary Shares underoption and to the exercise prices to take account of certain variations in thecapital of the Company as they see fit. Any such adjustments may, in accordancewith the rules of the relevant Share Option Scheme, be subject to writtenconfirmation from the auditors of the Company that such adjustments are, intheir opinion, fair and reasonable and also, where applicable, subject to HMRevenue & Customs approval. If any such adjustments are made, holders of optionsunder the Share Option Schemes would be notified of any such adjustment in duecourse. The Remuneration Committee has begun a review of the Company's managementincentive arrangements. It intends to discontinue the practice of granting shareoptions to senior executives (including Directors). In its place it willintroduce a long term share incentive plan under which it will conditionallyaward shares in the Company which will only vest three years later ifpredetermined corporate performance targets have been achieved. In due course,detailed proposals will be put before Shareholders in General Meeting forapproval. 11. Extraordinary General Meeting The Prospectus (containing Listing Particulars) to be sent to Shareholders todayin connection with the Issue, accompanied by a Form of Proxy fur use at the EGMand an Application Form for use in connection with the Open Offer, contains anotice convening the EGM to be held at 11.00 a.m. on 29 June 2005 at the officesof Allen & Overy LLP, One New Change, London EC4M 9QQ, at which the Resolutionswill be proposed for the purposes of approving the Issue. At the EGM, Resolutions will be proposed to: • increase the authorised share capital of the Company; • authorise the directors to allot and issue, inter alia, the New Ordinary Shares; • disapply the statutory pre-emption rights in respect of the allotment and issue of, inter alia, the New Ordinary Shares pursuant to the Firm Placing; and • approve the issue of 5,645,510 Firm Placing Shares to Cycladic Capital Management pursuant to the Firm Placing as a related party transaction for the purposes of the Listing Rules. 12. Necessity for Shareholder approval In making an assessment of their voting intentions, Shareholders should be awarethat if the Resolutions relating to the Issue are not approved at the EGM andAdmission does not take place on 30 June 2005, the net proceeds of the Issuewill not be received by the Company and the Company will not be able to draw onthe New Bank Facilities. The Existing Bank Facilities expire on 30 June 2005 andthe Company would no longer have banking facilities and would not have adequateworking capital to continue trading from that date. The Directors consider that in the scenario outlined above, the withdrawal ofthe Existing Bank Facilities would not be in the best interests of either theBanks or the Company and believe that the Existing Bank Facilities would beextended for a short period beyond 30 June 2005 whilst they were renegotiatedfor a longer period to enable the Company to continue trading. The Directorsbelieve, however, that such renegotiated facilities would be on substantiallyworse terms than both the Existing Bank Facilities and the New Bank Facilities,in particular in regard to interest rate, use of free cash and repaymentscheduling. In these circumstances, the Company would not be in a position toimplement the strategy described in this announcement. Indeed, in order tosecure ongoing facilities, the Company may have to sell some or all of itstrading subsidiaries to realise funds to repay some or all of the outstandingloans within the Existing Bank Facilities, albeit, that such funds realised maybe insufficient to repay all of the outstanding loans. This would greatlydiminish the value of the Group and accordingly, the Directors unanimouslyrecommend that Shareholders vote in favour of the Resolutions to approve theIssue. 13. Recommendation The Board, which has been so advised by Evolution Securities, considers theResolutions, including the transaction with the related party, to be fair andreasonable so far as Shareholders are concerned and in the best interests of theCompany and its Shareholders as a whole. In providing advice to the Board,Evolution Securities has taken into consideration the Directors' commercialassessment of the Issue. Accordingly, the Directors unanimously recommend that Shareholders vote infavour of the Resolutions (save for Cycladic Capital Management and itsassociates (as defined in the Listing Rules) in respect of the OrdinaryResolution) to be proposed at the Extraordinary General Meeting, as they haveirrevocably undertaken to do in respect of their own beneficial andnon-beneficial shareholdings, which amount to 245,740 Ordinary Shares(representing approximately 0.83 per cent. of the Company's current issued sharecapital). EXPECTED TIMETABLE OF PRINCIPAL EVENTS Record Date for entitlement under the Open Offer close of business on 3 June 2005 Posting date of the prospectus and the Application Form 6 June 2005 Latest time and date for splitting Application Forms (to satisfy bona fide market claims only) 3.00 p.m. on 25 June 2005 Latest time and date for receipt of completed Application Forms and payment in full in respect of the Open Offer 3.00 p.m. on 27 June 2005 Latest time and date for receipt of Forms of Proxy for the Extraordinary General Meeting 11.00 a.m. on 27 June 2005 Extraordinary General Meeting 11.00 a.m. on 29 June 2005 Dealings expected to commence in the New Ordinary Shares 30 June 2005 Delivery in CREST of New Ordinary Shares to be held in uncertificated form 30 June 2005 Despatch of definitive share certificates in respect of New Ordinary Shares to be held in certificated form By 7 July 2005 ISSUE STATISTICS Number of Existing Ordinary Shares 29,540,692 Number of New Ordinary Shares being issued pursuant to the Firm Placing 18,076,474 Number of New Ordinary Shares being issued pursuant to the Placing and Open Offer 7,773,866 Issue Price 73.5 pence Net proceeds of the Issue £15.8 million Number of Ordinary Shares in issue following Admission 55,391,032 New Ordinary Shares expressed as a percentage of the Existing Ordinary Shares 87.5% Market capitalisation of the Company at the Issue Price following Admission £40.7 million Words and expressions where defined in the Prospectus to be issued by theCompany and dated 6 June 2005 shall, unless the context requires otherwise, havethe same meaning in this document. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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