3rd May 2007 17:47
Clarity Commerce Solutions PLC03 May 2007 03 May 2007 Clarity Commerce Solutions plc Notice of Extraordinary General Meeting Why shareholders should vote against the EGM Resolutions Clarity Commerce Solutions plc ("Clarity" or the "Company") announces that anotice of an Extraordinary General Meeting ("EGM") has today been sent toshareholders. The EGM is scheduled to take place at 2.00 p.m. on Thursday 31 May2007, at Cyntergy Services Limited, 33 Hanworth Road, Sunbury upon Thames,Middlesex TW16 5DA. On 12 April 2007 the Board of Clarity received a notice from Arthur LeonardRobert Morton, Stephen Gerard Bellamy, George Boy Matthews and GroundlinksLimited requisitioning an EGM. The EGM is to consider resolutions for GrahamYork to be removed as a Director of the Company, for Mr Morton, Mr Bellamy andMr Matthews to be appointed as Directors of the Company and for any personappointed by the Directors as an additional Director between the date of therequisition and the conclusion of the EGM to be removed from office as aDirector of the Company. The Board unanimously recommends that shareholders vote AGAINST the proposedresolutions, which it believes are not in the best interests of the Company orits shareholders. The reasons for such recommendation are set out in theabridged Circular to shareholders below. A full copy has been sent toshareholders and will shortly be available on the companies websitewww.claritycommerce.com For further information, please contact: Clarity Commerce Solutions Tim Bittleston, Chairman 01932 778001 College Hill Sara Musgrave/Adrian Duffield/Ben Way 020 7457 2020 Letter from the Chairman of Clarity Dear Shareholder Extraordinary General MeetingLetter from Tim Bittleston, Chairman I was appointed as Chairman of Clarity in November 2006 to lead the companythrough the next phase in its growth. I decided to join as Chairman because I was impressed by the portfolio ofsoftware Clarity has developed, the opportunities for the business, the qualityof the management and senior employees, and what the company had achieved todate. Contrary to the statements made by the Action Group, the Company has madetremendous progress towards the integration of its businesses and products, andis now poised to take advantage of that. Direct Retail Software Experience I have developed an excellent track record for taking businesses to the nextstage of growth and returning value to shareholders. In addition, I have devoted most of my career to managing businesses in the UKand overseas that have provided IT solutions to retailers; commencing with myrole as manager for several GEC businesses including Avery Scales and Gilbarco(the supplier of petrol pumps, EPOS and pump control to the petrol forecourtindustry), through to the management buyout of Pennine Retail Systems Group thatwas successfully sold to Alphameric for £60m (having been acquired for £17m) inJune 2000. I have been Chairman of Galleria Retail Technology Solutions sincestart-up in 2001 which is now a multi national serving a wide range of customersincluding Tesco, Food Lion, Safeway and ToysRus and I am currently CEO ofPanacea, which provides accounting and back office IT to the retail and generalbusiness sectors. I have also worked at Crown Hospitality Systems and was GroupCEO of Pc-Pos, Vista and Digipos from 2003 to 2006. I understand the Retail market and am well resourced to find support andcontacts to bring business and ideas to any company in the sector. I havealready been able to bring business to Clarity with a strong prospect of beingable to create further business opportunities. Representations made by Action Group As you will see from our review in the Appendix to this document, the ActionGroup have shown by the arguments advanced that they have little understandingof the Company's business. Had they approached the Board through the properchannels, we could have enlightened them. The approach that the Action Group have adopted has not allowed shareholders toconsider a fair view of the facts. The allegations made in respect of air charter are simply unfounded. I have usedthis service privately myself, and it is a cost effective means of allowingteams of executives to increase the number of visits and meetings they can makein one day. Not least, the air charter service was properly disclosed and signedoff by the audit committee and board during the tenure of Mr Morton. The requisitions have been accompanied by misleading and inaccurate statements,and I therefore draw your attention to our response in the attached Appendixwhich addresses these matters. Progress Following my appointment as Chairman I commenced a detailed assessment of theCompany in the first quarter of this year, which I completed in March 2007. Thishas required visits with key personnel and engagement on some projects. We arenow commencing the implementation of my recommendations. Now my attentions are directed at strengthening the board and improving thecommunications with investors. The Company has a significant sales pipeline. My assessment is that there areseveral exciting developments happening within Clarity, not least of which arerecent proof of concept installations to test the new packages into ticketingand leisure as well as combining Clarity's back office technology into MATRA,which resolves a significant gap in the MATRA suite. New Board Appointments In addition to my appointment, the Company has recently appointed Sir ColinChandler as Non-Executive Director. I am proposing to appoint a furtherNon-Executive Director as soon as practicable. Sir Colin joined easyJet plc in April 2002 and was appointed Chairman in 2002.Until November 2004, he was Non-Executive Deputy Chairman of Smiths Group plc,having been a Non-Executive Director of TI Group since 1992. Sir Colin has beenvariously Managing Director, Chief Executive and then Chairman of Vickers plc. Earlier in his career Sir Colin was seconded from British Aerospace to the roleof Head of Defence Export Services, Ministry of Defence. He was Chairman ofRacal Electronics plc. He is Chairman of TI Automotive Limited, Chairman ofAutomotive Technik Limited and Pro-Chancellor of Cranfield University. Sir Colin has a wealth of industry and public company experience which furtherstrengthens Clarity's Board. Sir Colin greatly enhances the credibility of theCompany and will be key to reviewing its corporate governance. We are currently working to strengthen the Board further and Sir Colin Chandlerhas agreed to oversee the recruitment process for a new Finance Director whowill be reporting directly to me as Chairman. Requisition of the EGM I am concerned at the manner in which the EGM has been requisitioned; inparticular the Action Group's failure to engage with myself as Chairman in thefirst instance. Whatever criticism that has been levelled at management I can assure you thatthey have gathered a group of highly motivated, able and very committedemployees who genuinely appear to enjoy working together. This process will beunsettling for them when we really need to focus their energies on driving thebusiness forward. Success can only be achieved from a deep understanding of the requirements ofthe industry and sound customer relationships. I have nothing personally againstthe proposed management team, but based on the track record gleaned from themarket place I simply do not believe they have the specialist skills that arenecessary. For this reason I will not be prepared to act as non executivedirector as proposed by the Action Group. I firmly believe that the manner of change proposed will not be in the bestinterests of shareholders. Outlook The Company is at a crossroads of its development and growth. During thisperiod, it will need different processes and skills as well as furtherstrengthening of the management team to take it to the next phase of its growth.We will find the right people to do this from a proper selection process. Ultimately the success of this business will be the direct result of the qualityof the management team that runs the Company. I strongly believe that asChairman of this Company I can substantially transform the business and tocreate a management team that can lead the Company forward. I therefore urge you not to vote in favour of the resolutions but to allow meand the current management team to deliver the exciting prospects for yourcompany. I have serious misgivings regarding the intentions of the Action Group andbelieves that it would be wholly inappropriate to hand Board control to theAction Group. Accordingly, I strongly recommend to Shareholders that they voteagainst all of the Resolutions proposed by the Action Group. Recommendation Your Board considers that the Resolutions are NOT in the best interests ofShareholders as a whole. The Board currently have expressions of support representing 39% of theCompany's issued share capital. The Board are continuing conversations withother shareholders. Your Board recommends Shareholders to vote AGAINST all of the Resolutions to beproposed at the EGM, as the Directors of Clarity intend to do in respect oftheir own beneficial holdings which amount to 3,859,522 Ordinary Sharesrepresenting in aggregate approximately 18.3 per cent of the issued ordinaryshare capital of the Company. If you would like to contact me to discuss any aspects of this letter, pleasecall me on 01932 778001. Yours sincerely TIM BITTLESTONChairman Definitions The following definitions apply throughout this document, unless the contextrequires otherwise: "Action Group" The proposers of the EGM resolutions - Stephen Gerard Bellamy, George Boy Matthews and Arthur Leonard Robert Morton and Groundlinks Limited "Board" The board of Directors of Clarity "Company" or "Clarity" Clarity Commerce Solutions plc "Directors" The directors of Clarity at the date of this document "EGM" the Extraordinary General Meeting convened for 2.00 p.m. on Thursday 31 May 2007, the notice of which is set out at the end of this document "Group" Clarity and its subsidiaries "Resolutions" the resolutions set out in the Notice of EGM at the end of this document "Shareholders" The shareholders of Clarity APPENDIX Review of points raised by Action Group Share price performance When compared to the "Software Computer and Service Sector", Clarity isperforming well above average with the FASOFT Index dropping some 80% since July2000 with Clarity shares dropping approximately 60% across the same period. In addition, the most significant fall in price was during Mr Morton's tenure asChairman. Since his departure the share price has been fluctuating between 50pence and 80 pence. We expect shareholders to benefit as communication toinvestors improves and the impact of the new management begins to take effect. Financial performance and controls Revenue The Company issued a trading update on 2 April 2007, which stated that resultswould be less than the Company's original expectations as a result of materialcontracts being delayed and delivered after the year end. It also stated thatthe shortfall was a result of slippage, and not as a result of any of thesecontracts being lost. Clarity is increasingly transacting business with larger internationalcustomers. The timing and delivery of these types of material capital projectscan often be outside the control of the Company, with project roll out takingplace over a number of months. Profits and Earnings Clarity has moved from losses before tax in 2001 of £1.1m to profit before taxin 2006 of £0.95m (£1.2m before impairment of goodwill). Basic earnings per share have risen from a loss per share of 15.35p in 2001 to5.81p in 2006. Dividends Additionally, the Board confirmed in the 2006 annual report and financialstatements a dividend policy as follows: "We have reviewed our policy on dividends, and will initiate the recommendationof a progressive dividend policy starting in respect of Clarity's fiscal year2006/07, the amount of which will be determined in light of that year's result." Gross margin Gross margin rose from 47% in 2001 to approximately 62% in 2004. This level hasbeen maintained in later years. This gross margin percentage was at the same level in 2006, despite there beinga significant element of hardware relating to the Group's largest singlecontract. Operating margin The Board believes that the Company is on track towards a rapid increase in itsoperating margin based on: • The reduction in development costs as our new software product nears completion; • The additional software licence sales resulting from the availability of new product; and • The integration savings that have been achieved. Revenue per employee Revenue per employee has increased by 86% across the last six reported years. Clarity has two distinct divisions - a software division and a servicesdivision, with revenue per employee for the year ended 31 March 2006 of £107,000and £54,000 respectively. Debtor days By December 2006, debtor days had been reduced to 68, evidence thatcentralisation of the finance function is taking effect. Organic versus acquisitive growth Clarity has a strategy to build strong intellectual property rights (IPR) aroundits Central software solutions, and export it into companies that it hasacquired. Each acquisition of a software company is made on the basis of its ability tosell an integrated Central solution. The Company has built strong IPR aroundits Central software solutions, and when they are acquired companies immediatelybegin to include in their sales discussions Clarity Central and other Clarityportfolio products into their respective markets. Sales of existing softwaretherefore contribute to the acquired companies' results, with all businessesbenefiting from being part of a larger Group, both in terms of economy of scaleand from cross selling opportunities. Strategy and Focus The Action Group demonstrates a clear lack of knowledge of Clarity's software.Clarity's new core software product works across many sectors; cinemas, leisure,retail, theme parks and catering, with only configuration differencesdistinguishing them. Clarity has a clear focus to grow its software presence in transactional andonline systems, using one shared software platform and a central shared team todeliver that software. As Clarity's sales to each market sector expand, itexpects to deliver greater efficiency and margin improvement across the Group. Office locations Clarity currently operates out of nine locations, three of them overseas,servicing Europe and the US. Of the six in the UK, one is the Edinburgh-based Business Intelligence centre,handling all of the sales, training and consultancy for Scotland. Another is theBasingstoke head office and R&D centre. Our helpdesk and training centre inSunbury is separate due to its specialised function. When the time is right we will close two of the three remaining UK locations. As a direct result of office closures and reorganisations that have alreadytaken place, savings will be made on premises across the next two yearstotalling £200,000. Closure of any other offices would put at risk revenue attached to localoffices. Integration of acquired companies Significant progress has been made with the integration of acquired companies.The strategy the Board has pursued is to centralise key functions, while leavingin place the sales channels to each market, but at a much lower cost. In respect of all companies acquired by Clarity to date, the Group hasprogressed with the centralising of the following functions in a single locationin Basingstoke: • Product design • Software development • QA • Marketing • Finance And the following into our service centre in Sunbury • Helpdesk • Training Prior to the centralisation of these functions, each individual company operatedon a stand-alone basis. The inefficiencies and fragmentation that were evidenthave now been removed. As a result of this programme of integrations, savings have been achieved andthe full year benefit of those will impact upon the financial year ending 31March 2008. Those savings will be in the areas of people, premises andassociated costs. Steps have already been taken which will achieve annualised savings of over£1.6m. The full benefit of these savings will become apparent over the next twofinancial years. The integration of functions by the Group has allowed it to pursue a programmeof rationalisation of office locations. As the consolidation and integration of the Group continues, the Board willstrive to identify further efficiencies while at the same time maintaining thehigh quality of the Group's product and service offering. R&D phase The initial R&D phase, largely carried out by the centralised and dedicatedsoftware and QA function, is now nearing conclusion, resulting in the successfuldevelopment of Clarity's portfolio of software on a .NET platform, allowingdevelopment costs to reduce. The investment cost of the new product impacts directly on the P&L. In the next24 months alone, the Board expects annualised development spend to fall by£200,000. New Sales focus A market-ready product now enables the Company to move into a focused sales-ledperiod of its growth. There have been key senior appointments in the Group's sales department. A salessupport team has also been established to facilitate the marketing and sale ofthe new products into Clarity's active markets. Annuity revenues As sales activity and the revenues generated as a result increase, Clarity willalso experience growth in its annuity revenues, namely support and maintenance.These currently run at approximately 47% of turnover and the Board believe thatthese will increase across time. Corporate governance The Board has been significantly strengthened with two recent appointments. Chairman The Action Group state that the Company has had three Chairmen in two years. Itis more representative to state that it has had three Chairmen in seven years. For the first five years, the Company was under the stewardship of Mr Morton,who retired on the basis of an impending change of residence and the need thatthe Board had identified for the services of a Chairman with more relevantexperience in Clarity's marketplaces. John O'Connell filled the role for a short period of time before Tim Bittlestonwas appointed in November 2006. Tim comes with excellent credentials and has been successful in the retailsector; he is equipped with all the requisite skills to navigate Clarity throughits next phase of growth. Finance Director The Company has had a Group Financial Controller since prior to its flotation onAIM, who was involved with the flotation, subsequent acquisitions and over theseven years that Clarity has been a public company. Recognising that the Finance Director role is a key part of the composition ofthe Board, Sir Colin Chandler will lead the appointment of a suitableindividual. A centralised finance function was created in September 2006. Non ExecutiveDirectors In addition to the appointment of the Chairman, Clarity has just appointed SirColin Chandler. He has a wealth of industry and public company experience whichwill further strengthen the Board. He joined easyJet plc in April 2002 and wasappointed Chairman in 2002. Until November 2004, he was Non-Executive DeputyChairman of Smiths Group plc, having been a Non-Executive Director of TI Groupsince 1992. Sir Colin was variously Managing Director, Chief Executive and thenChairman of Vickers plc. Growth in seniormanagement With the Group nearing the conclusion of its major R&D phase, the Boardrecognised the need to strengthen the management team in readiness for aconcentrated sales focused phase. Key roles that have been established to complement the Board include: • Sales Director • Operations Director • Marketing Director Expenditure on air charter services Graham York does have interests in an air charter business. Across a number ofyears, Clarity's executives have benefited from access to these services. TheCompany opts for air charter as opposed to scheduled commercial flights on theoccasions where the locations involved do not have a commercial airport, orwhere a number of locations are visited in one day. This often provides bettervalue and is more efficient a use of executives' time. 78% of the expenditure of £274,000 across five years was during Mr Morton'sChairmanship; £80,000 of the expenditure was directly attributable toacquisitions that were successfully completed, thus facilitating the growth ofthe Company. The relationship between Clarity and Direct Air is of a trading nature, andstatements that suggest that Clarity have provided capital to the business areinaccurate and unfounded. These related party transactions have always been considered during thepreparation for audit, at the audit clearance meeting, and appropriatelydisclosed in the Company's published annual results. Experience and suitability of the proposed Directors The Action Group, in their release, set out what they consider to be therelevant business experience of each of the three proposed new Board members: MrBellamy, Mr Matthews and Mr Morton. The Board is of the view that Mr Bellamy and Mr Matthews have a notable lack ofexperience in the retail software sector compared to the current managementteam. In the case of Mr Morton, Chairman of Clarity from 2000 to 2005, he isequally answerable for the allegations of weak share price performance and poorcorporate governance during that time. The Board questions whether shareholderswish to return to a company run by Mr Morton. The Board also questions Mr Matthews' claim that he led a turnaround at SherwoodInternational Plc ("Sherwood"). On 5 July 2001 a trading statement of Sherwoodstated that the interim results would not meet market expectations and themanagement expected to lead to a small profit in e2-one. The interim results, 13August 2001, reported losses of £1.45m (2001) compared to profit of £2.55m(2000). £1.4m had been spent on investment in e2-one which was subsequently rundown and £0.9m spent on a potential acquisition was not completed. Mr Matthewsannounced he would step down from Sherwood at the interim results shortly afterMr Bellamy, COO, resigned on 1 August 2001. On the day of the interim resultsSherwood's share price closed at a three year low. Mr Matthews was Chairman of K3 Business Technology Group from May 2002 until May2006. During his time there was some uncertain trading. On 6 September 2002 itwas announced that interim results for the first half were below managementexpectations and on 5 March 2004 it was announced trading for 2003 showed nomajor improvements. No reason was given for Mr Matthews' departure. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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