20th Apr 2007 08:38
Apollo Management L.P.20 April 2007 Not for release, publication or distribution, in whole or in part, in or into orfrom any jurisdiction (including the United States) where to do so wouldconstitute a violation of the laws of such jurisdiction 20 April 2007 CASTLE HOLDCO 4, LTD. ("Castle BidCo") RECOMMENDED OFFER FOR THE ACQUISITION OF COUNTRYWIDE PLC Introduction • On 13 April 2007, Countrywide Shareholders approved the proposedacquisition of Countrywide by Castle BidCo on the terms, and subject to theconditions, set out in the scheme circular sent to Countrywide Shareholders on21 March 2007 (as supplemented and amended by the supplementary scheme circularsent by Countrywide to Countrywide Shareholders on 31 March 2007 (takentogether, the "Scheme Documents")), and as amended and supplemented pursuant toan announcement released by Castle BidCo on 12 April 2007 (the "Revised OfferAnnouncement"). • Following the successful conclusion of the Meetings of CountrywideShareholders on 13 April 2007, Countrywide intends, with the consent of CastleBidco, to seek the Court's permission to modify the Scheme in accordance withthe terms of the Revised Offer (as described in the Revised Offer Announcement)and has presented a petition to the Court asking the Court to sanction theScheme of Arrangement (as modified) and confirm the Reduction of Capital. • Certain information is set out in the Appendix to this Announcementpursuant to Rule 20.1 of the City Code, required as a result of Castle Bidco'sprovision of additional information to potential lenders in connection with itsacquisition financing. The terms of the Proposals are un-amended by thisAnnouncement and remain subject to the Conditions and will otherwise beimplemented on the terms set out in the Scheme Documents and the Revised OfferAnnouncement. 1. Forms of election • Any election made prior to the date of this Announcement in relationto the Rightmove Sale Election and/or the Unlisted Securities Alternative willremain valid unless the Countrywide Shareholder who has submitted such electioncompletes and returns a new Form of Election in accordance with the instructionsset out therein and in the Scheme Documents. Any new or modified Form ofElection received after the release of this Announcement will supersede anyprevious Form of Election submitted by the relevant Countrywide Shareholder(and, for these purposes, any election made prior to the date of thisAnnouncement will not be deemed to have been made irrevocably notwithstandingany term to the contrary contained in the Form of Election). • Final elections for either the Rightmove Sale Election and/or theUnlisted Securities Alternative must be received in accordance with theinstructions set out therein and in the Scheme Document by not later than 1.00p.m. on 30 April 2007. • Any questions relating to any election made prior to the date of thisAnnouncement, and any request for additional Forms of Election, should bedirected to Capita Registrars on 0870 161 3121 or, if telephoning from outsidethe United Kingdom, on +44 20 8639 2157, Monday to Friday from 9.00 a.m. to 5.00p.m. Please note that calls to these numbers will be monitored or recorded andno advice on the merits of the Revised Offer or legal, tax or financial advicewill be given. 2. General • Unless otherwise defined, terms defined in the Scheme Documents andthe Revised Offer Announcement shall have the same meanings in thisAnnouncement. 3. Disclosure of interests • Neither Castle BidCo (nor any of its directors) nor, so far as CastleBidCo is aware, any person acting in concert with Castle BidCo, owns or controlsany Countrywide Shares or Rightmove Shares or any securities convertible orexchangeable into Countrywide Shares or Rightmove Shares or any rights tosubscribe for or purchase the same, or holds any options (including tradedoptions) in respect of, or has any option to acquire, any Countrywide Shares orhas entered into any derivatives referenced to Countrywide Shares or RightmoveShares ("Relevant Securities") which remain outstanding, nor does any suchperson hold any short positions in relation to Relevant Securities (whetherconditional or absolute and whether in the money or otherwise) including anyshort position under a derivative, any agreement to sell or any deliveryobligation or right to require another person to purchase or take delivery, nordoes any such person have any arrangement in relation to Relevant Securities.For these purposes, "arrangement" includes any indemnity or option arrangement,any agreement or understanding, formal or informal, of whatever nature, relatingto Relevant Securities which may be an inducement to deal or refrain fromdealing in such securities. Enquiries: Credit Suisse (lead financial adviser and corporate broker to Telephone: +44 (0) 20 7888 8888Apollo) Zachary Brech Gleeson Van Riet John Hannaford (Corporate Broking) Deutsche Bank AG (joint financial adviser to Apollo) Telephone: +44 (0) 20 7545 8000 Sekhar Bahadur Nigel Meek Omar Faruqui Goldman Sachs International (joint financial adviser to Apollo) Telephone: +44 (0) 20 7774 1000 Simon Dingemans Lorenzo Grabau Jonathan Sorrell Hawkpoint (financial adviser to Countrywide) Telephone: +44 (0) 20 7665 4500 David Reid Scott David Renton Jonathan Coddington Brunswick Group (Countrywide PR enquiries) Telephone: +44 (0) 20 7404 5959 John Sunnucks Kate Holgate Credit Suisse, which is authorised and regulated in the United Kingdom by theFinancial Services Authority, is acting exclusively as lead financial adviserand corporate broker to Apollo and Castle BidCo and no one else in connectionwith the Proposals and will not be responsible to anyone other than Apollo andCastle BidCo for providing the protections afforded to clients of Credit Suissenor for providing advice in relation to the Proposals, the content of thisAnnouncement or any matter referred to herein. Deutsche Bank AG is authorised under German Banking Law (competent authority:BaFin - Federal Financial Supervising Authority) and with respect to UKcommodity derivatives business by the Financial Services Authority; and isregulated by the Financial Services Authority for the conduct of UK business.Deutsche Bank AG is acting exclusively as joint financial adviser to Apollo andCastle BidCo and no one else in connection with the Proposals and will not beresponsible to anyone other than Apollo and Castle BidCo for providing theprotections afforded to clients of Deutsche Bank AG nor for providing advice inrelation to the Proposals, the content of this Announcement or any matterreferred to herein. Goldman Sachs International, which is authorised and regulated in the UnitedKingdom by the Financial Services Authority, is acting exclusively as jointfinancial adviser to Apollo and Castle BidCo and no one else in connection withthe Proposals and will not be responsible to anyone other than Apollo and CastleBidCo for providing the protections afforded to clients of Goldman SachsInternational nor for providing advice in relation to the Proposals, the contentof this Announcement or any matter referred to herein. Hawkpoint, which is authorised and regulated in the United Kingdom by theFinancial Services Authority, is acting exclusively for Countrywide and itsDirectors and no one else in connection with the Proposals and will not beresponsible to anyone other than Countrywide and its Directors for providing theprotections afforded to clients of Hawkpoint nor for providing advice inrelation to the Proposals, the content of this Announcement or any matterreferred to herein. The availability of the Revised Offer, the Unlisted Securities Alternative andthe Rightmove Sale Election and the release, publication or distribution of thisAnnouncement to persons who are not resident in the United Kingdom may beaffected by the laws of the relevant jurisdictions in which they are located.Persons who are not resident in the United Kingdom should inform themselves of,and observe, any applicable requirements. Any failure to comply with suchapplicable requirements may constitute a violation of the securities laws of anysuch jurisdictions. This Announcement has been prepared for the purpose ofcomplying with English law and the City Code and the information disclosed maynot be the same as that which would have been disclosed if this Announcement hadbeen prepared in accordance with the laws of jurisdictions outside England. The Rightmove Shares have not been and will not be registered under the USSecurities Act or under the securities laws of any state in the United States.Accordingly, US Persons will not be eligible to receive the Rightmove ShareConsideration and will be deemed to have made an election for the Rightmove SaleElection in respect of all Rightmove Shares to which they are entitled under theScheme. The Unlisted Securities have not been and will not be registered under the USSecurities Act or under the securities laws of any state in the United States.Accordingly, notwithstanding the Unlisted Securities Alternative, all SchemeShareholders shall receive cash, and there shall be no issuance of UnlistedSecurities to Scheme Shareholders, unless Castle TopCo considers that they maybe so issued pursuant to an exemption from the registration requirements of theUS Securities Act provided by Section 3(a)(10) of that Act. Any such issue, andthe availability of the Unlisted Securities Alternative, will be subject to theadditional restrictions noted in the Scheme Document. No steps have been taken, nor will any be taken, to enable the UnlistedSecurities to be offered in compliance with the applicable securities laws ofCanada or Japan and no prospectus in relation to the Unlisted Securities hasbeen, or will be, lodged with or registered by the Australian Securities andInvestments Commission. Accordingly, the Unlisted Securities may not be offered,sold, resold, taken up, delivered or transferred, directly or indirectly, in orinto Canada, Japan or Australia (except in transactions exempt from or notsubject to the registration requirements of the relevant securities laws ofCanada, Japan or Australia). In accordance with normal United Kingdom market practice and subject toapplicable regulatory requirements, Castle BidCo or its nominees or its brokers(acting as agents) may from time to time make certain purchases of, orarrangements to purchase, Countrywide Shares outside the United States, otherthan pursuant to the Revised Offer. These purchases may occur either in the openmarket at prevailing prices or in private transactions at negotiated prices. Anyinformation about such purchases will be disclosed as required in the UnitedKingdom and under applicable regulatory requirements (including applicable USsecurities laws). CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Announcement contains certain forward-looking statements with respect tothe financial condition, results of operations and business of Countrywide andcertain plans and objectives of the boards of Countrywide and Castle BidCo withrespect thereto. These forward-looking statements can be identified by the factthat they do not relate only to historical or current facts. Forward-lookingstatements often use words such as "anticipate", "target", "expect", "estimate","intend", "plan", "goal", "believe", "will", "may", "should", "would", "could"or other words of similar meaning. These statements are based on assumptionsand assessments made by the boards of Countrywide and Castle BidCo in light oftheir experience and their perception of historical trends, current conditions,expected future developments and other factors they believe appropriate. Bytheir nature, forward-looking statements involve risk and uncertainty, becausethey relate to events and depend on circumstances that will occur in the futureand the factors described in the context of such forward-looking statements inthis Announcement could cause actual results and developments to differmaterially from those expressed in or implied by such forward-lookingstatements. Although Countrywide and Castle BidCo believe that the expectationsreflected in such forward-looking statements are reasonable, Countrywide andCastle BidCo can give no assurance that such expectations will prove to havebeen correct and Countrywide and Castle BidCo therefore caution you not to placeundue reliance on these forward-looking statements which speak only as at thedate of this Announcement. DEALING DISCLOSURE REQUIREMENTS Under the provisions of Rule 8.3 of the City Code, if any person is, or becomes,"interested" (directly or indirectly) in one per cent. or more of any class of"relevant securities" of Countrywide all "dealings" in any "relevant securities"of Countrywide (including by means of an option in respect of, or a derivativereferenced to, any such "relevant securities") must be publicly disclosed by nolater than 3.30 p.m. (London time) on the business day following the date of therelevant transaction. This requirement will continue until the Proposals lapse,are withdrawn, or upon the "offer period" otherwise ending. If two or morepersons act together pursuant to an agreement or understanding, whether formalor informal, to acquire an "interest" in "relevant securities" of Countrywide,they will be deemed to be a single person for the purpose of Rule 8.3. Under the provisions of Rule 8.1 of the City Code, all "dealings" in "relevantsecurities" of Countrywide, by Castle BidCo or Countrywide, or any of theirrespective "associates", must also be disclosed by no later than 12.00 noon(London time) on the business day following the date of the relevanttransaction. In addition, as a consequence of the Rightmove Shares being included in theOffer, the Panel has imposed a further requirement that all dealings insecurities of Rightmove by Castle BidCo or Countrywide, or any of theirrespective "associates", must also be disclosed by no later than 12.00 noon(London time) on the business day following the date of the relevant transactionon the same basis as if Rightmove securities were "relevant securities" for thepurpose of Rule 8.1 of the City Code. A disclosure table, giving details of the companies whose "relevant securities"and "dealings" should be disclosed, and the number of securities in issue, canbe found on the Panel's website at www.thetakeoverpanel.org.uk. "Interests in securities" arise, in summary, when a person has long economicexposure, whether conditional or absolute, to changes in the price ofsecurities. In particular, a person will be treated as having an "interest" byvirtue of the ownership or control of securities, or by virtue of any option inrespect of or derivative referenced to, securities. Terms in quotation marks are defined in the City Code, which can also be foundon the Panel's website. If you are in any doubt as to whether or not you arerequired to disclose a dealing under Rule 8, you should consult the Panel. If you are in any doubt as to the application of Rule 8 to you, please contactan independent financial adviser authorised under the Financial Services andMarkets Act 2000, consult the Panel's website at www.thetakeoverpanel.org.uk orcontact the Panel on telephone number +44 (0) 20 7638 0129; fax number +44 (0)20 7236 7013. The Offer will be subject to the requirements of the City Code and will be onthe terms and subject to the Conditions. The Scheme Documents and the RevisedOffer Announcement together include full details of the Scheme. APPENDIX DEFINITIONS In this Appendix: "Acquisition" refers to the acquisition by Castle HoldCo 4 of the entire issuedand to be issued share capital of Countrywide by means of a scheme ofarrangement between Countrywide and its shareholders under Section 425 of theCompanies Act; "Apollo" refers to Apollo Management VI, L.P. and its affiliates; "$" or "dollars" refers to the lawful currency of the United States of America; "•" or "euro" refers to the single currency of the participating Member Statesin the Third Stage of European Economic and Monetary Union of the TreatyEstablishing the European Community, as amended from time to time; "£" or "sterling" refers to the lawful currency of the United Kingdom; "CAGR" means compound annual growth rate; "Countrywide" refers to Countrywide plc (which will be reregistered as a limitedcompany following the effective date of the Acquisition), a company incorporatedin England and Wales with registered number 04947152, and, as the contextrequires, its subsidiaries on a consolidated basis; "Castle HoldCo 1" means Castle HoldCo 1, Ltd., a company organized in the CaymanIslands with registered number WK-182042, and the ultimate parent company ofCastle HoldCo 4; "Castle HoldCo 2" means Castle HoldCo 2, Ltd., a company organized in the CaymanIslands with registered number WK-182041, and an intermediate parent company ofCastle HoldCo 4; "Castle HoldCo 4" refers to Castle HoldCo 4, Ltd., a company organized in theCayman Islands with registered number WK-182043; "DCLG" refers to the UK Department for Communities and Local Government; "EU" refers to the European Union; "guarantors" refers to the entities guaranteeing the obligations of CastleHoldCo 4; "Holdings" means Castle HoldCo 3, Ltd., a company organized in the CaymanIslands with registered number WK-182044, and the immediate parent company ofCastle HoldCo 4; "house sales exchanged" means residential property sales transactions which havereached the point at which the parties thereto exchanged contracts; "HMRC" means HM Revenue & Customs; "IFRS" refers to International Financial Reporting Standards as adopted by theEuropean Union; "panel" means a pre-selected group of mortgage and insurance lenders,respectively, which typically offers the panel arranger special considerationfor inclusion therein; "Rightmove" means Rightmove plc; "Scheme" refers to the scheme of arrangement entered between Countrywide and itsshareholders pursuant to which Castle HoldCo 4 will acquire the entire issuedand to be issued share capital of Countrywide; "Scheme Payment Date" means the date on which the first payment is made byCastle HoldCo 4 for the benefit of the shareholders of Countrywide pursuant tothe Scheme; "senior secured revolving credit facility" means the senior credit facility tobe dated on or about the closing date of the Acquisition among, among others,Castle HoldCo 4, Holdings, Countrywide, Credit Suisse, London Branch, DeutscheBank AG and Goldman Sachs International as mandated lead arrangers, thefinancial institutions listed therein and Deutsche Bank AG, as agent andsecurity agent; "Transactions" means the Acquisition, the divestiture of Rightmove toCountrywide shareholders in connection with the Acquisition, the incurrence ofnew indebtedness in connection with the Acquisition and the use of proceedstherefrom, the borrowing under the senior secured revolving credit facility onthe closing date of the Acquisition and the use of proceeds therefrom, theequity contribution of £30.2 million by Apollo and the use of proceeds therefromand the completion of the financial assistance "whitewash" procedures; "US GAAP" refers to generally accepted accounting principles in the UnitedStates; "United States" and the "US" refer to the United States of America; "Unlisted Securities Alternative" refers to the Class B Shares and Class B NotesCountrywide shareholders may elect to receive in lieu of all or part of theircash consideration pursuant to the Acquisition. "we," "us," "our" and other similar terms refer to Castle HoldCo 4 and itsconsolidated subsidiaries after giving effect to the Transactions, unlessexpressly stated otherwise or the context otherwise requires. With respect tohistorical financial and operating information of Countrywide as of and for theperiod prior to the effectiveness of the Scheme, the terms "we," "us" and "our"refer to Countrywide. MARKET AND INDUSTRY DATA We operate in an industry in which it is difficult to obtain precise industryand market information. We have generally obtained the market and competitiveposition data in this announcement from industry publications and from surveys,studies conducted or data collected by third-party sources, including: • the Bank of England; • HM Revenue & Customs; • the Department for Communities and Local Government; • the Office for National Statistics; • the Council of Mortgage Lenders; and • the Land Registry of England and Wales. We believe that these industry publications, surveys, studies and data arereliable. However, we cannot assure you of the accuracy and completeness of suchinformation and we have not independently verified such industry and marketdata. Furthermore, market data contained in this announcement may be based onsources which do not use the same or comparable methods of gatheringinformation. In addition, the different sources used in this announcement may bebased on information relating to different periods. As a result, comparabilitymay be limited. In particular, historical data on transaction volumes in the UK residentialproperty market do not have a universally recognized authoritative source. Inlate 2003, HMRC changed the type of transactions subject to the particular stampduty filing which has formed the basis of its data collection for transactionvolumes since the late 1970s. As a result, HMRC transaction volumes datacollected since 2003 is not comparable to data collected prior to that year. Webelieve that the post-2003 methodology captures approximately 300,000 to 400,000transactions per year that would not have been recorded under the previousmethodology. Other sources arrive at transaction volumes differently. As aresult, the 2004 data reported by HMRC show a 448,000 increase in transactionvolumes as compared to 2003, which we do not believe, based on our experienceand other measures of transaction volumes, is a fair reflection of the trends inthe UK residential property market between 2003 and 2004. The Land Registry ofEngland and Wales provides transaction volume and pricing data for propertytransactions recorded at the Land Registry and has only collected this data overa relatively short period of time. Conversely, the Council of Mortgage Lendershas collected data over a relatively long period of time but only fortransactions that required mortgage financing. While we believe the trends, ifnot the volumes, recorded by each of these sources are broadly consistent,absolute figures on the number of transactions collected over a sustained periodof time on a consistent basis are not available. We have not independently verified any of the data from third-party sources norhave we ascertained the underlying economic assumptions relied upon therein.Unless otherwise stated, market and demographic data are presented as ofDecember 31, 2006. Some of the surveys or sources were compiled by our advisors and are notpublicly available and accordingly may not be considered to be as independent asother third-party sources. In addition, in many cases we have made statements in this announcementregarding our industry and our position in the industry based on our experienceand our own investigation of market conditions. We cannot assure you that any ofthese assumptions are accurate or correctly reflects our position in theindustry and none of our internal surveys or information has been verified byany independent sources. Any reference to a website contained in this announcement is for informationalpurposes only and does not incorporate by reference the contents of suchwebsite. PRESENTATION OF FINANCIAL INFORMATION Unless otherwise indicated, financial information in this announcement has beenprepared on the basis of IFRS as adopted by the European Union. The financial information included in this announcement is not intended tocomply with SEC reporting requirements. Compliance with such requirements wouldrequire the modification, reformulation or exclusion of certain financialmeasures, including EBITDA, Adjusted EBITDA and our pro forma and adjusted data.In addition, changes would be required in the presentation of certain otherinformation, including providing financial information for the guarantors. In this announcement, we utilize certain non-GAAP financial measures and ratios,including EBITDA, EBITDA before exceptionals, Adjusted EBITDA and leverage andcoverage ratios. These measures are presented as we believe that they andsimilar measures are widely used in the industry in which we operate as a meansof evaluating a company's operating performance and financing structure. Theymay not be comparable to other similarly titled measures of other companies andare not measurements under IFRS or other generally accepted accountingprinciples, nor should they be considered as substitutes for the informationcontained in our consolidated financial information. Some financial information in this announcement has been rounded and, as aresult, the figures shown as totals in this announcement may vary slightly fromthe exact arithmetic aggregation of the figures that precede them. SUMMARY Our Company We are the leading estate agency-based residential property service provider inthe United Kingdom, measured by both revenue and transaction volumes. We operatein five complementary businesses: (i) residential property sales, (ii)residential property lettings and property management, (iii) arrangingmortgages, insurance and related financial products for participants inresidential property transactions, (iv) surveying and valuation services formortgage lenders and prospective homebuyers and (v) residential propertyconveyancing services. Our business operates in approximately 670 townsthroughout the United Kingdom, including almost every major UK populationcenter. More than 90% of the revenue and more than 85% of the operating profitof our Estate Agency Division was generated outside of the London market, ineach case in the year ended December 31, 2006. We are also well integrated alongthe value chain and in the year ended December 31, 2006, we sold 103,252 housesat an average sale price of £193,545, arranged mortgages in respect of 59.4% ofour house sales exchanged in such year and sold life insurance and mortgagepayment protection policies in respect of 48.2% of our house sales exchanged insuch year and general insurance policies in respect of 54.9% of our house salesexchanged in such year. During the same period, we also completed 697,305surveys and valuations for both lenders and prospective homebuyers and 66,751conveyances. In addition, as of December 31, 2006, we had 55,324 rentalproperties under management. We believe that the strength of our broad productoffering allows our company to capture revenue streams across every stage of atypical residential property transaction from listing to completion. For the year ended December 31, 2006, we had total revenue, Adjusted EBITDA (asdefined) and operating profit of £671.6 million, £113.3 million and £92.2million, respectively. Division Overview • Our Estate Agency Division sells homes on behalf of home sellersthroughout the United Kingdom through a network of estate agencies operatingunder a variety of well-known local brands, such as Bairstow Eves, John D Wood &Co., Mann & Co., Dixons, Bridgfords, Taylors, Slater Hogg & Howison andGascoigne-Pees. As of December 31, 2006, our network consisted of 1,059 branchesand 120 franchisees. The Estate Agency Division generated £361.8 million inrevenue and £53.5 million in operating profit in the year ended December 31,2006. • Our Lettings Division encompasses our 134-branch retail lettingsoperations and our corporate property management business. The Lettings Divisiongenerated £43.9 million in revenue and £8.0 million in operating profit in theyear ended December 31, 2006. • Our Financial Services Division sells third-party financial servicesproducts through a dedicated sales force primarily to customers of our EstateAgency Division. Our primary financial services products are mortgages, general(property) insurance policies and life insurance and mortgage payment protectionpolicies. The Financial Services Division generated £91.6 million in revenue and£21.0 million in operating profit in the year ended December 31, 2006. • Our Surveying and Valuation Division performs residential mortgagevaluations and surveys for customers of our Estate Agency Division and thirdparties, including major mortgage lenders. This division employed an average ofapproximately 767 chartered surveyors during 2006. The Surveying and ValuationDivision generated £136.8 million in revenue and £26.7 million in operatingprofit before exceptions, other non-recurring items and unallocated expenses inthe year ended December 31, 2006. • Our Conveyancing Division provides legal documentation and conveyancingservices for customers of our Estate Agency Division and third parties andprovides conveyancing panel management services to our Estate Agency Divisionand third parties. The Conveyancing Division generated £22.7 million in revenueand £250,000 in operating losses before exceptionals, other non-recurring itemsand unallocated expenses in the year ended December 31, 2006. Industry Industry Definition We operate in the UK residential property market and derive the majority of ourrevenue from servicing the needs of buyers and sellers of existing homes andmortgage lenders. Participants in the UK residential property market provide arange of services to individuals and companies engaged in residential propertytransactions, including: (i) property sales (typically through an estateagency), (ii) lettings (including both agency services and property management),(iii) mortgage and insurance broking, (iv) surveying and valuation, (v)conveyancing and (vi) relocation. While some of the major integrated marketparticipants provide limited relocation and moving services, this area of themarket is generally left to specialist operators. The economics of the UK residential property market, aside from lettings, aredriven primarily by transaction volumes and house prices, which havehistorically been cyclical in nature. Estate agencies typically realize revenuesas a percentage commission on the price of each home sold while most ancillarybusinesses, such as mortgage brokering, surveying and valuation andconveyancing, charge fees or commissions for products purchased and servicesprovided in connection with a residential property transaction. Because therevenue streams of market participants are linked to individual home sales, theresidential property industry generally benefits from increased transactionvolumes, rising home prices and increased commission rates. Conversely, theindustry is negatively impacted by decreases in transaction volumes, home pricesand commission rates. By contrast, in a typical lettings transaction, landlords and property managersrealize revenues on a monthly basis over the term of the lease. Generally,revenues in the lettings business are more stable than revenues in the estateagency business, though fluctuations in the wider residential property markethave an influence on rental property supply, prevailing rents and landlords'yields. Industry Size and Trends Consistent long-term data on the number of UK residential property transactionsare generally not available. See "Market and Industry Data" for a discussion ofthe data and the sources used in this announcement. In 2006, the Land Registryof England and Wales registered approximately 1.25 million residential propertytransactions worth approximately £253.5 billion. According to the Council ofMortgage Lenders, approximately 1.14 million loans were advanced for housepurchases in 2006 in the United Kingdom. Transaction volumes measured by boththe Land Registry and the Council of Mortgage Lenders are, in each case,slightly above the average for the period from 1995 through 2006. Based on datafrom the Land Registry, the Council of Mortgage Lenders and HMRC, we believethat transaction volumes have increased at an average rate of approximately 3.5% per year from 1995 through 2006. While rising in absolute terms, transactionvolumes have been highly volatile since 1980. The post-1992 peak in transactionvolumes, which occurred in 2002, was approximately 75% higher than the low pointexperienced in 1995 on the basis of loans advanced for house purchases accordingto the Council of Mortgage Lenders. In 2006, the average house price in the United Kingdom was £204,813 according tothe DCLG, having increased at a CAGR of approximately 8.6% from 1980 through2006. On the basis of DCLG figures, national average house prices have exhibitedpositive growth on a nominal basis every year since 1980 except for 1982 and1992 when house prices declined by approximately 2.2% and 1.8%, respectively,from the prior year in each case. If inflation is taken into account, thesedeclines were somewhat larger and lasted somewhat longer, and in 1995, theslight nominal increase in house prices would have been a decline. Historical Perspective Between 1980 and 2006, growth in the total value of houses sold in the UKresidential property market outpaced nominal GDP growth. This increase waslargely driven by price appreciation. During this period, the market experiencedone significant reversal from 1988 to 1992. That reversal was driven primarilyby a decrease in transaction volumes, which declined by approximately 47% from1988 to 1992 based on HMRC data. During this period, nominal prices fell byapproximately 1.8% from 1991 to 1992 on the basis of DCLG figures. Thesedeclines were the result of a combination of adverse changes in tax policy (inparticular, the abolition of double mortgage interest deductions in 1988), theend of the initial wave of council housing purchases under the Right-to-Buyprogram, an economic recession and a series of rapid and significant increasesin interest rates, which remained above 10% from July 21, 1988 to September 4,1991. Beginning in the late 1990s, when buy-to-let mortgages became more widelyavailable, an increased number of speculative and buy-to-let investors enteredthe UK residential property market, increasing overall demand and contributingto sustained house price appreciation and volatility in transaction volumes. Recent Industry Indicators The following discussion outlines several recent indicators in the UKresidential property market. Transaction Volumes and Prices The UK residential property market experienced a downturn based on transactionvolumes that lasted from mid-2004 to mid-2005 as a result of a series of rapidinterest rate increases and public warnings by senior Bank of England officialsabout the potential for house price declines. According to the Council ofMortgage Lenders, that period saw the fewest transactions since 1996 and anunusually rapid decline in activity levels. Transaction volumes began to recoverin late 2005, and in 2006 returned to historically average levels of activity asrecorded by the Land Registry and the Council of Mortgage Lenders, drivenprimarily by positive market sentiment and improving economic fundamentals,including GDP growth, low unemployment and improving consumer confidence. For adiscussion of the limitations of historical transaction volume figures, see "Market and Industry Data." According to the DCLG, house prices continued to increase through the mid-2004to mid-2005 market downturn, although the growth rate of house prices fell fromapproximately 15.8% in 2004 to approximately 5.8% in 2005. Price growthaccelerated in 2006 to approximately 7.4% according to the DCLG, drivenprimarily by an imbalance of demand and supply in the sector, increasingdisposable income, continued GDP growth, a low interest rate environment andcontinued future capital gains expectations by purchasers. Interest Rates Historically, residential property transaction volumes have been closelycorrelated to interest rates. Bank of England base rates decreased from 17.0% atthe beginning of 1980 to 5.0% at the end of 2006, although a rate increase inJanuary 2007 increased the base rate to 5.25%. Between 1995 and 2006, eachperiod of increasing interest rates led to a short-term downturn in residentialproperty transaction volumes which, according to Land Registry data, were attheir lowest point at or near the peak interest rate at that time. Housing Stock Housing stock in England, which includes owner occupied and rented dwellings,has historically experienced very low growth (approximately 0.8% per annum from1980 through 2005 according to the DCLG), primarily due to significant barriersto new construction, including high land prices and cumbersome planningregulations. As a result of these supply constraints, the UK residentialproperty market is primarily driven by resales of existing housing stock. Thisrelative lack of supply has tended to put upward pressure on house prices overthe long term. Affordability and Mortgage Repossessions Housing affordability is commonly expressed either as a ratio of house prices toincome or as the percentage of income spent on mortgage interest payments.According to the Council of Mortgage Lenders, in 2006, the medianprice-to-income ratio, at 3.05 to 1.0, was significantly above the average of2.28 to 1.0 for the period from 1980 through 2006. In 2006, according to theCouncil of Mortgage Lenders, the median percentage of income spent on mortgageinterest payments, at 15.6%, was at its highest level since 1992, though onlyslightly below the 16.0% average for the period from 1980 through 2006. Thepercentage of income spent on mortgage interest payments is widely considered tobe a better metric of affordability because it takes into account the cost offinancing a home, which is generally the largest cost of home ownership. The number of mortgage repossessions by lenders is related to affordability andmeasures the ability of homeowners to meet debt service obligations. Althoughthe number of mortgage repossessions has risen sharply since 2005, according tothe Council of Mortgage Lenders, the number of mortgage repossessions as apercentage of total loans remains low compared to the early 1990s, when mortgagerepossessions were at historically high levels, triggered by rapid interest rateincreases and a general economic downturn. Mortgage Approvals Historically, mortgage approval data has been an indicator of underlyingshort-term trends in the volume of residential property transactions. From 1995through 2006, according to the Council of Mortgage Lenders, there was an averageof approximately 1.14 million loans advanced for house purchases per annum,ranging from a low of approximately 799,000 in 1995 to a high of approximately1.40 million in 2002. In 2006, lenders advanced approximately 1.14 million loansfor house purchases according to the Council of Mortgage Lenders. Data from theCouncil of Mortgage Lenders shows that the number of loans advanced for housepurchases has been flat since November 2006. Home Ownership Rates and Aspirations While the UK population has not grown significantly since 1980, the percentageof all households in England that are owner-occupied increased from 57% in 1981to 70% in 2006 according to the DCLG. This has the effect of supportingunderlying demand as home owners tend not to move into rented accommodation, butinstead buy another house. Additionally, according to surveys conducted by theBritish Market Research Bureau, in 2007, 84% of adults in Great Britainexpressed a desire to live in owner-occupied housing in ten years' time, ascompared to 78% of adults in Great Britain in 1983. The following table sets out certain historical information with respect to theUK residential property market from 1980 to 2006. Year Sales Recordings Mortgages Price(4) Interest (1) (2) (3) rate(5) ('000s) ('000s) ('000s) £ 1980....................................................................... 1,267 720 23,596 14.00 %1981....................................................................... 1,351 730 24,188 14.38 %1982....................................................................... 1,542 839 23,644 10.00 %1983....................................................................... 1,669 953 26,471 9.06 %1984....................................................................... 1,760 1,071 29,106 9.50 %1985....................................................................... 1,743 1,073 31,103 11.38 %1986....................................................................... 1,801 1,248 36,276 10.88 %1987....................................................................... 1,937 1,108 40,391 8.38 %1988....................................................................... 2,148 1,250 49,355 12.88 %1989....................................................................... 1,580 886 54,846 14.88 %1990....................................................................... 1,398 784 59,785 13.88 %1991....................................................................... 1,306 723 62,455 10.38 %1992....................................................................... 1,136 873 61,336 6.88 %1993....................................................................... 1,196 951 62,333 5.38 %1994....................................................................... 1,274 959 64,787 6.13 %1995....................................................................... 1,135 800 799 65,644 6.38 %1996....................................................................... 1,242 967 957 70,626 5.94 %1997....................................................................... 1,440 1,095 1,104 76,103 7.25 %1998....................................................................... 1,347 1,039 1,088 81,774 6.25 %1999....................................................................... 1,469 1,190 1,254 92,521 5.50 %2000....................................................................... 1,433 1,142 1,123 101,550 6.00 %2001....................................................................... 1,458 1,261 1,314 112,835 4.00 %2002....................................................................... 1,588 1,362 1,397 128,265 4.00 %2003....................................................................... 1,345 1,277 1,252 155,627 3.75 %2004....................................................................... 1,793 1,294 1,245 180,248 4.75 % (6)2005....................................................................... 1,531 1,067 1,014 190,760 4.50 %2006....................................................................... 1,774 1,246 1,142 204,813 5.00 % Note: See "Market and Industry Data" for a discussion of the data and thesources used in this announcement. (1) As noted in "Market and Industry Data," historical data on transactionvolumes in the UK residential property market do not have a universallyrecognized authoritative source. Here, "sales" refers to transactions recordedby HMRC on the basis of stamp duty filings. As noted in note 6, below, thetransactions subject to this filing changed in late 2003, resulting in adiscontinuity in the data. (2) "Recordings" refers to property transactions recorded by the LandRegistry of England and Wales. The Land Registry began recording suchtransactions in 1995. (3) "Mortgages" refers to the number of loans advanced for house purchases asdetermined by the Council of Mortgage Lenders on the basis of surveys of itsmembership. (4) Average price of houses sold in the United Kingdom in the year indicated,not adjusted for inflation, according to DCLG relying on HMRC stamp dutyreturns. (5) Bank of England published base rate as of December 31 of the yearindicated. In most years, the base rate changed multiple times during the year.Mortgages rates are generally tied to the base rate with either a discount or apremium, and fixed rate mortgages for periods exceeding seven years arerelatively rare. (6) In late 2003, HMRC changed the type of transactions subject to theparticular stamp duty filing which forms the basis of the data collection fortransaction volumes since the late 1970s. As a result, HMRC transaction volumesdata collected since 2003 are not comparable to data collected prior to thatyear, as we believe that the post-2003 methodology captures approximately300,000 to 400,000 transactions per year that would not have been recorded underthe previous methodology. As a result, the 2004 numbers reported by HMRC show a448,000 increase in transaction volumes as compared to 2003, which we do notbelieve, based on our experience and other measures of transaction volumes, is afair reflection of the trends in the UK residential property market between 2003and 2004. Other data collections arrive at transaction volumes differently. Our Strengths Our key competitive strengths include: The Largest UK Estate Agency. We are the largest estate agency in the UnitedKingdom, with a network of 1,179 branches, including our franchisees, as ofDecember 31, 2006. As of January 1, 2007, we had more than twice as manybranches as our next largest competitor. We operate through 35 establishedestate agency brands, including Bairstow Eves, John D Wood & Co., Mann & Co.,Dixons, Bridgfords, Taylors, Slater Hogg & Howison and Gascoigne-Pees. The scaleof our estate agency operations gives our management the ability to negotiatefavorable terms with our insurance providers, mortgage lenders and other thirdparties and to readily ascertain market changes in supply, demand, transactionvolumes and prices and react accordingly. Geographic Diversification. We are the only participant in the UK residentialestate agency industry with an extensive UK-wide footprint, with brancheslocated in approximately 670 towns, including almost every major UK populationcenter. In the year ended December 31, 2006, our Estate Agency Divisiongenerated more than 90% of its revenues and more than 85% of its operatingprofit outside of London, which has historically been the most volatile area inthe UK residential property market. This geographic diversity allows us tobetter withstand regional residential property market downturns and tocapitalize on growth opportunities in different regions. Large Customer Base. In the year ended December 31, 2006, our estate agencieshad 103,252 house sales exchanged. This level of transaction volumes gives usaccess to a significant number of potential customers, including buyers, sellersand mortgage lenders, for our financial services, surveying and valuation andconveyancing services. Synergistic Provision of Residential Property Services. In addition totraditional estate agency and lettings services, we offer ancillary services tobuyers, sellers, landlords, mortgage lenders and other third parties. Theinterplay between the services that we offer leads to significant synergies asit allows us to capture revenue on all aspects of a typical residential propertysale or rental. We believe that our ability to provide service at every stage ofa typical UK residential property sale or rental provides a significantcompetitive advantage over our competitors that do not offer such acomprehensive set of services. High Cash Flow Conversion due to Limited Capital Expenditure. Our businessrequires limited capital expenditure, comprising principally informationtechnology expenditures and branch expansion and refurbishment expenditures, andwe maintain a rigorous cash flow management strategy. In addition, our capitalexpenditure is scaleable and allows us to accelerate or delay our spending basedon market conditions. As such, we have historically been able to convert asignificant percentage of our revenue into available cash. In the year endedDecember 31, 2006, our operating cash flow conversion rate (calculated asAdjusted EBITDA plus changes in working capital (excluding effects ofacquisitions and disposals of group undertakings) minus capital expenditure as apercentage of Adjusted EBITDA) was 96.2%. Flexible Cost Base. We believe that our cost structure provides the financialflexibility that the cyclical residential property market demands. We estimatethat our fixed costs, excluding staff costs, which we believe we have theability to manage during a market downturn, accounted for approximately 23% ofour total costs in the year ended December 31, 2006. Our variable costs includemarketing expenses and estate agents' commissions, both of which fluctuate withrevenue. In addition, due to the high turnover of our estate agents, when weforecast that a downturn in the UK residential property market is impending, weare able to reduce the number of our employees (by not replacing departingestate agents) in order to counter the reduced revenue that results from amarket downturn. We believe that our variable cost structure, coupled with ourability to manage our headcount, allows us to better respond to fluctuations inthe residential property market. Highly Experienced Management Team Backed by a Strong Sponsor. We have a highlyexperienced management team. Our senior management team has an average of 30years of experience in the UK residential property industry and relatedindustries, including experience managing through at least three residentialproperty downturns. This experience has provided our management team with a deepunderstanding of the dynamics of the UK housing market and we believe thisexperience also puts us in a position to capitalize on upturns and minimize theeffect of downturns in the market. Our team also has a track record ofsuccessfully managing the integration of large acquisitions, including ourrecent acquisition of 307 estate agency branches from Bradford & Bingley Groupplc in 2004 and 104 branches from Friends Provident Estate Agents in 2002.Apollo is one of the leading private equity investors in the world and recentlycompleted the acquisition of Realogy Corporation, a leading US-based estateagency business. Apollo also has a strong European track record, includinginvestments in Cablecom, CEVA Logistics, Primacom and Unity Media. Our Strategy Our business strategy is focused on the following initiatives: Capitalize on our Position as the United Kingdom's Largest Estate Agency Groupto Grow our Estate Agency Business. We believe that scale is a key successfactor in the UK residential property market. We therefore intend to focus onfurther consolidating our leading market position by building on our extensiveUK-wide footprint and increasing market share through organic growth andopportunistic acquisitions. We intend to open up to 100 new estate agencybranches over the next three years in attractive local markets, both in the 670towns in the United Kingdom where we currently have operations and in newlocations. We have historically grown our estate agency business throughacquisitions, most recently through our acquisition of 307 estate agencybranches from Bradford & Bingley Group plc in 2004. We will continue to makeacquisitions in areas where there is potential for growth or that otherwiseserve our overall long-term strategy and goals. Because there are few remainingestate agency operations as large as Bradford & Bingley, we intend to makeopportunistic acquisitions, where possible and at a reasonable cost, of smallerregional and local estate agency businesses. Exploit Consolidation and Growth Opportunities in the UK Lettings Market with aDedicated Lettings Division. We believe we have set the stage for further growthin our lettings business by establishing a separate Lettings Division andinstalling a management team focused on developing the potential of thebusiness. In the UK lettings market, which has yet to experience substantialconsolidation, we intend to implement a targeted acquisition program to increasethe scale of our operations. In February 2007, we completed the acquisition of aNottingham-based lettings business with 1,100 units under management, and areactively exploring other opportunities. We also plan to convert up to 40 of ourexisting co-located estate agency and lettings branches into stand-alonelettings operations and to explore opportunities to open additional lettingsbranches. We believe that given the highly fragmented nature of the lettingsmarket and the intensity of our focus on this sector, our Lettings Division willbe able to increase its leading market share and achieve the same level ofmarket penetration in the lettings market as our Estate Agency Division has inthe residential property sales market. Expand the Products Offered by our Financial Services Division to our ExistingCustomer Base. We intend to grow our Financial Services Division by expandingthe range of products we offer to our existing financial services customer baseand purchasers who buy their home through one of our estate agency branches. Forexample, we intend to expand our remortgage business by establishing a callcenter to offer remortgaging advice, in partnership with our panel of mortgagelenders, to our past mortgage clients whose initial preferential mortgagearrangements are expiring. Drawing on our understanding of recent homebuyers'typical credit needs, we also intend to offer new third-party financial servicesproducts, in particular secured and unsecured personal loans and home equitylines of credit to mortgage clients. Improve Surveyor Productivity by Leveraging our Technology and the CountrywideAssociates Program. In our Surveying and Valuation Division, we plan to completethe ongoing roll-out of our proprietary tablet-based technology, which webelieve will enable our surveyors to complete surveys and valuations morequickly and accurately. We believe that this technology will also allow all ofour surveyors to work remotely, allowing us to close a significant number of ourlocal surveying and valuation offices over the next two to three years. We alsoplan to complete the establishment of our Countrywide Associates Program forindependent surveyors, who, in exchange for a percentage of their fee, acceptinstructions from us. We believe this program has the potential to optimize thedivision's capacity and decrease its operational leverage without incurring theoverhead cost of hiring additional surveyors. Increase the Capacity of our Conveyancing Division to Fully Capitalize on theLeads Generated by our Estate Agencies. We believe our Conveyancing Division ispoised for renewed growth. We aim to increase the division's capacity byleveraging our upgraded information technology systems, improving communicationschannels between our conveyancers and our customers and outsourcing parts of theconveyancing process to India, which we believe will also decrease our per-unitcosts. With increased capacity, we believe we can capture a larger percentage ofthe potential leads generated by our Estate Agency Division, which, in thelonger term will free up capacity for our conveyancing panel management businessto seek out third-party clients. We believe these measures, combined with theclosure of our loss-making remortgage conveyancing business, will drive growthin this area. Exploit the Opportunities Presented by Home Information Packs. While thecontemplated introduction of Home Information Packs has introduced substantialuncertainty into the UK residential property market, we believe that this newrequirement also presents a significant market opportunity. We believe that as aresult of the scale of our operations, our provision of integrated residentialproperty services and the strength of our brands, we are well-placed to exploitthis opportunity. For example, we are currently training our surveyors andestablishing a panel of third-party providers to perform energy performancereviews of homes in anticipation of becoming a leading provider of EnergyPerformance Certificates for Home Information Packs. Improve our Estate Agents' Performance. We plan to further enhance theperformance and efficiency of our estate agents by increasing their access toinformation technology and communications tools, such as PDAs and email. We alsoplan to improve the use by estate agents across our network of best practices,including, for example, utilizing more focused residential property advertisingand marketing. Finally, we plan to develop our estate agent training program inorder to promote effective cross-selling and will consider the use of additionaltargeted incentive programs to encourage our top performing employees. Improve Operational Performance and Capture the Benefits of Synergies. As aresult of our significant and growing market share and geographical presence webelieve we will be able to successfully develop and implement group-wide bestpractices resulting in improved operational performance. For example, we believethat we have further opportunities to realize benefits from increasing thecommission levels, financial services conversion rates and operationalperformance of the Bradford & Bingley branches we acquired to the levelsachieved in the rest of our group. Summary Corporate and Financing Structure The following sets forth a summary of our corporate and financing structurefollowing the Transactions. Equity Ownership. Affiliates of Apollo will make an equitycontribution of up to £305.2 million consisting of approximately £30.2 millioncontributed by means of a subscription for Class A Shares issued by CastleHoldCo 1 and up to £275.0 million contributed by means of a subscription forClass A Notes issued by Castle HoldCo 2 to affiliates of Apollo. The grossproceeds of the issue of the Class A Notes will be lent by Castle HoldCo 2 on asubordinated basis to Castle HoldCo 4 via Holdings. The gross proceeds of theissue of the Class A Shares will be contributed to Castle HoldCo 4 via CastleHoldCo 2 and Holdings. The amount of the equity contribution by affiliates ofApollo will be reduced by the amount of funds (if any) contributed pursuant tothe Unlisted Securities Alternative. Subject to certain restrictions,Countrywide shareholders may elect to receive a combination of Castle HoldCo 1Class B Shares and Castle HoldCo 2 Class B Notes in lieu of all or part of thecash consideration to which they are entitled in connection with theAcquisition, up to an aggregate of £137.52 million. Security on the Closing Date of the Acquisition. On the closingdate of the Acquisition, our obligations under the new senior securedindebtedness incurred in connection with the Acquisition and the senior securedrevolving credit facility will be secured by first-priority pledges of all ofthe equity interests of Castle HoldCo 4 held by Holdings and of substantiallyall of the assets owned by Castle HoldCo 4, including with effect from the dateon which the capital stock of Countrywide is registered in the name of CastleHoldCo 4, all of the equity interests in Countrywide. On the closing date ofthe Acquisition, our obligations under the new senior indebtedness incurred inconnection with the Acquisition will be secured by second-priority pledges ofall of the equity interests of Castle HoldCo 4 held by Holdings and of all ofthe equity interests in Countrywide from the date on which the capital stock ofCountrywide is registered in the name of Castle HoldCo 4. Guarantors and Security after the Closing Date of the Acquisition.After the completion of all necessary financial assistance "whitewash"procedures, and, in any event, not later than 90 days after the closing date ofthe Acquisition, Countrywide and certain of its subsidiaries will (i) guaranteeour obligations under the new indebtedness incurred in connection with theAcquisition and the senior secured revolving credit facility and (ii) providefirst-priority pledges of substantially all of the assets owned by them tosecure our obligations under the new senior secured indebtedness incurred inconnection with the Acquisition and the senior secured revolving creditfacility. In the event of enforcement of security, the obligations under thesenior secured revolving credit facility and certain hedging obligations will besatisfied in full before repayment of the new senior secured indebtednessincurred in connection with the Acquisition from the proceeds of suchcollateral. For the year ended December 31, 2006, the guarantors accounted for94.4% of our revenue, 94.7% of our EBITDA and 93.5% of our total assetsexcluding intercompany balances, internally generated goodwill and investmentsin subsidiaries. The non-guarantor subsidiaries include dormant subsidiaries, anFSA-regulated subsidiary and TitleAbsolute. Our FSA regulated entity accountedfor approximately 4.4% of our revenue, 12.6% of our EBITDA and 4.1% of our totalassets excluding intercompany balances and investments in subsidiaries. TheEBITDA contribution of this subsidiary was offset by losses in othernon-guarantor subsidiaries, resulting in net EBITDA of our non-guarantors ofapproximately 5.3%. For the same period, our non-guarantors accounted for 11.5%of our total net assets. SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL AND OTHER INFORMATION Set forth below is summary historical consolidated financial data of ourbusiness as of and for the years ended December 31, 2006, 2005 and 2004, whichhas been derived from our consolidated financial information and the notesthereto, which have been prepared in accordance with IFRS. Also presented below is summary unaudited condensed consolidated pro formafinancial data which has been prepared to give pro forma effect to theTransactions as if they had occurred on January 1, 2006 for income statementpurposes and on December 31, 2006 for balance sheet purposes. The pro formafinancial data is provided for informational purposes only and should not beconsidered indicative of the results of operations or financial position that wemight have achieved for the year ended December 31, 2006 or as of December 31,2006 had the Transactions occurred as of the dates assumed, and should not betaken as representative of our future results of operations or financialcondition for any future period. While the pro forma financial data has beenderived from historical financial information prepared in accordance with IFRS,such financial data contains financial measures other than those in accordancewith IFRS and should not be considered in isolation from or as a substitute forour historical financial information. The Acquisition will be accounted for using purchase accounting. The pro formafinancial data presented, including allocations of purchase price, is based uponpreliminary estimates of the fair values of assets acquired and liabilitiesassumed, available information and assumptions and will be revised as additionalinformation becomes available. The actual adjustments to our consolidatedfinancial information upon the closing of the Transactions will depend on anumber of factors, including additional information available and our net assetson the closing date of the Acquisition. Therefore, the actual adjustments willdiffer from the pro forma adjustments, and the differences may be material. The tables below also include certain unaudited operational data which have beenderived from our operating systems and other non-financial sources. You shouldnot place undue reliance on this operating data, which may not be indicative ofour historical or future results of operations. Some financial information in this announcement has been rounded and, as aresult, the figures shown as totals in this announcement may vary slightly fromthe exact arithmetic aggregation of the figures that precede them. Condensed Consolidated Income Statement Data For the year ended December31, --------------------------------------- 2004 2005 2006 --------------------------------------- (audited) (€000s) Continuing Operations Revenue.............................................................. 474,186 528,164 654,204 Other income......................................................... 9,614 14,264 17,399 Exceptional income................................................... ? 4,982 ? ------------ Total Revenue........................................................ 483,800 547,410 671,603 Employee benefit costs............................................... (269,115) (317,007) (361,172) Depreciation, amortization and impairment............................ (9,782) (10,872) (12,089) Regular expenses..................................................... (152,262) (182,608) (202,828) ------------ Group operating profit before exceptional items...................... 52,641 31,941 95,514 Exceptional items (net).............................................. (11,333) (558) (3,270) Group operating profit............................................... 41,308 31,383 92,244 Finance expense...................................................... (3,736) (5,603) (1,595) Finance income....................................................... 2,219 2,252 2,346 Share of profit post tax from joint ventures and associates.......... 235 1,014 1,411 Profit on part disposal of joint venture and associated undertakings. ? 2,621 19,357 ------------ Profit before taxation............................................... 40,026 31,667 113,763 Taxation............................................................. (13,989) (4,468) (31,907) ------------ Profit from continuing operations.................................... 26,037 27,199 81,856 Post tax profit from discontinued activities(1)...................... 1,419 ? ? ------------ Profit for the year.................................................. 27,456 27,199 81,856 ============ (1) Discontinued activities in 2004 relates to the life insurance business,which was demerged as part of the group restructuring in May 2004. Segmental Financial Data For the year ended December31, ------------------------------------- 2004 2005 2006 ------------------------------------- (audited) (€000s)Revenue Estate Agency........................................................... 252,109 278,817 361,822 Lettings................................................................ 30,055 39,086 43,913 Financial Services...................................................... 63,966 74,473 91,577 Surveying and Valuation................................................. 106,769 118,075 136,844 Conveyancing............................................................ 22,303 19,127 22,731 Eliminations(1)......................................................... (1,016) (1,414) (2,683) ------------ Total revenue before other and exceptional income....................... 474,186 528,164 654,204 ============ Operating profit (2) Estate Agency........................................................... 22,629 8,500 53,470 Lettings................................................................ 4,048 5,589 7,963 Financial Services...................................................... 8,311 11,713 20,973 Surveying and Valuation................................................. 27,005 18,722 26,733 Conveyancing............................................................ (4,114) (7,657) (250) Segment results before exceptionals and other non-recurring items....... 57.879 36,867 108,889 Unallocated expenses(3)................................................. (5,238) (4,926) (10,931) Non-recurring items(4).................................................. ? ? (2,444) ------------ Group operating profit before exceptional items......................... 52,641 31,941 95,514 ============ ------------------------------------------------------------------------------------------------------------------------ As of December31, --------------------------------------- 2004 2005 2006 --------------------------------------- (audited) (€000s) Total assets Estate Agency......................................................... 217,470 120,428 204,107 Lettings.............................................................. 11,191 16,790 17,486 Financial Services.................................................... 50,706 67,893 73,774 Surveying and Valuation............................................... 68,620 51,750 77,002 Conveyancing.......................................................... 11,521 7,344 4,830 Unallocated assets(5)................................................. 158,545 33,702 29,385 Eliminations(6)....................................................... (330,908) (128,773) (178,156) ------------ Total assets.......................................................... 187,145 169,134 228,428 ============ (1) Eliminations represent intercompany sales from the Estate Agency Division to the Conveyancing Division. (2) Exceptional items are in relation to aborted transaction costs, group restructurings and profits on disposal of properties. (3) Unallocated items relate primarily to certain head office costs. (4) Non-recurring items include other non-material one-off transactions, including impairment and business closure costs offset by profit on disposal of business. (5) Unallocated assets are in relation to investments held in joint ventures and associates and deferred tax unallocated assets. (6) Eliminations are in relation to investments in wholly owned subsidiaries. Condensed Consolidated Balance Sheet Data As of December31, --------------------------------------- 2004 2005 2006 --------------------------------------- (audited) (€000s) Property, plant and equipment........................................ 30,742 22,397 22,780 Goodwill............................................................. 35,377 37,737 30,685 Other intangible assets.............................................. 11,224 6,164 6,143 Other financial assets............................................... 1,217 1,225 1,233 Investment in joint ventures and associated undertakings............. 4,561 3,738 6,462 Deferred tax assets.................................................. 7,512 11,479 10,192 Other debtors over one year.......................................... 2,294 1,401 123 ------------- Total non-current assets............................................. 92,927 84,141 77,618 Trade and other receivables.......................................... 72,820 78,006 86,440 Cash and cash equivalents............................................ 21,398 6,987 64,370 ------------- Total assets......................................................... 187,145 169,134 228,428 Short term borrowings................................................ (2,297) ? ? Other current liabilities............................................ (81,234) (97,483) (123,107) ------------- Total current liabilities............................................ (83,531) (97,483) (123,107) Non-current borrowings............................................... (75,000) (5,000) ? Other non-current liabilities........................................ (45,123) (43,228) (44,764) ------------- Total non-current liabilities........................................ (120,123) (48,228) (44,764) ------------- Net assets/(liabilities)............................................. (16,509) 23,423 60,557 ============= Condensed Consolidated Cash Flow Statement FortheyearendedDecember31, ------------------------------------ 2004 2005 2006 ------------------------------------ (audited) (€000s) Cash flow from operating activities................................ 49,516 34,152 93,116 Cash flow from investing activities................................ (58,095) 10,228 16,035 Cash flow from financing activities................................ (34,641) (56,494) (51,768) Other Financial Data As of and for the year ended December31, Proformaas adjusted,as ---------------------------------- ofand for theyearended December31, 2004 2005 2006 2006 ---------- ----------- --------- ----------------- (unaudited) (€000s) EBITDA(1)................................................. 51,090 42,255 104,333 104,333 EBITDA before exceptionals(2)............................. 62,423 42,813 107,603 107,603 Adjusted EBITDA(3)........................................ 63,451 45,696 113,297 113,297 Pro forma as adjusted cash and cash equivalents(4)........ ? ? ? 58,400 Pro forma gross cash pay debt(5).......................... ? ? ? 667,200 Pro forma gross first lien secured cash pay debt(6)....... ? ? ? 497,200 Pro forma net cash pay debt(7)............................ ? ? ? 608,800 Pro forma net first lien secured cash pay debt (8)........ ? ? ? 438,800 Pro forma cash interest expense(9)........................ ? ? ? 58,959 Ratio of pro forma net first lien secured cash pay debt to Adjusted EBITDA..................................... ? ? ? 3.87 Ratio of pro forma net cash pay debt to Adjusted EBITDA... ? ? ? 5.37 Ratio of Adjusted EBITDA to pro forma cash interest expense................................................ ? ? ? 1.92 (1) EBITDA is defined as profit for the period from continuing operationsbefore results from joint ventures and associates, profit on disposal ofinterests in joint ventures and associated undertakings, finance expense andincome, taxation and depreciation, amortization and impairment. EBITDA is not ameasurement of our financial performance or liquidity under IFRS and should notbe considered as a substitute for profit for the year, operating profit or anyother performance measures derived in accordance with IFRS or as a substitutefor cash flow from operating activities as a measure of our liquidity. Becausenot all companies calculate EBITDA identically, this presentation of EBITDA maynot be comparable to other similarly titled measures of other companies. Thecalculation of EBITDA in this announcement may be different than the calculationof EBITDA under the documents governing our indebtedness. The following tablereconciles EBITDA presented herein to our net profit from continuing operations: For the year ended Pro forma December 31, for the year ended December 31, 2004 2005 2006 2006 (unaudited) (£'000s)Net profit from continuing operations............... 26,037 27,199 81,856 (1,831) Finance income.................................................. (2,219) (2,252) (2,346) (2,346)Share of profit post tax from joint ventures andassociates..................................................................... (235 ) (1,014) (1,411) (477)Profit on part disposal of joint venture and associatedundertakings.................................................. - (2,621)(19,357) (2,620)Depreciation, amortization and impairment........... 9,782 10,872 12,089 12,089Finance expense................................................ 3,736 5,603 1,595 96,304Taxation............................................................. 13,989 4,468 31,907 3,214EBITDA............................................................. 51,090 42,255 104,333 104,333 (2) EBITDA before exceptionals is calculated by adding or subtracting fromEBITDA items which we have identified as exceptional. EBITDA before exceptionalsis not a measurement of our financial performance or liquidity and should not beconsidered as a substitute for profit for the year, operating profit or anyother performance measures derived in accordance with IFRS or as a substitutefor cash flow from operating activities as a measure of our liquidity. Thefollowing table reconciles EBITDA presented herein to EBITDA beforeexceptionals: For the year ended Pro forma December 31, for the year ended December 31, 2004 2005 2006 2006 (unaudited) (£'000s)EBITDA............................................................. 51,090 42,255 104,333 104,333 Exceptional ItemsCost of group restructuring(a)............................... 9,424 - - -Loss on disposal of investment property(b)........... 1,909 - - -Write-off of computer costs(c).............................. - 5,540 - -Profit on disposal of freehold property(d).............. - (4,982 ) - -Aborted transaction costs(e)................................. - - 3,270 3,270 Total.................................................................. 11,333 558 3,270 3,270 EBITDA before exceptionals.............................. 62,423 42,813 107,603 107,603 (a) Our historical consolidated financial information for the year endedDecember 31, 2004 includes costs in relation to the demerger of the LifeBusiness in May 2004, which obtained a separate listing on the London StockExchange as Chesnara plc. Shareholders received shares in the new company,Chesnara, and in the newly listed Countrywide plc in exchange for CountrywideAssured Group plc shares previously held. (b) Our historical consolidated financial information for the year endedDecember 31, 2004 includes a loss on disposal of a property held by the group toStandard Life Investments Limited. (c) Our historical consolidated financial information for the year endedDecember 31, 2005 contains costs in relation to the write off of a bespokesoftware developed for Countrywide Property Lawyers' conveyancing division whichwas replaced with an alternative system. Therefore the carrying value of thesoftware (£3.6 million at December 31, 2005) together with associated contractcosts was fully written off during the year ended December 31, 2005. (d) Our historical consolidated financial information for the year endedDecember 31, 2005 contains profit on disposal of freehold property. This was aone- off program of disposals to generate cash. (e) Our historical consolidated financial information for the year endedDecember 31, 2006 contains charges in relation to the failed take-over bid by asubsidiary of 3i Investments plc. (3) Adjusted EBITDA is calculated by adding or subtracting from EBITDA beforeexceptionals certain additional items that were not classified as exceptionalsbut which we believe to be non-recurring within the operating results of theperiods presented. Adjusted EBITDA is not a measurement of our financialperformance or liquidity and should not be considered as a substitute for profitfor the year, operating profit or any other performance measures derived inaccordance with IFRS or as a substitute for cash flow from operating activitiesas a measure of our liquidity. The following table reconciles Adjusted EBITDApresented herein to EBITDA before exceptionals: For the year ended Pro forma December 31, for the year ended December 31, 2004 2005 2006 2006 (unaudited) (£'000s)EBITDA before exceptionals.............................. 62,423 42,813 107,603 107,603 Other "non-recurring items" Termination of remortgage conveyancing business(a) 1,028 1,583 3,693 3,693Profit on sale of commercial surveying business(b) - - (1,999 ) (1,999 )Pension mis-selling provision(c)............................ - 1,300 4,000 4,000 AdjustedEBITDA.............................................. 63,451 45,696 113,297 113,297 (a) Our historical consolidated financial information includes results inrelation to the remortgage business, which accounted for an EBITDA loss of £1.6million in 2006, £1.6 million in 2005 and £1.1 million in 2004. In 2006 weannounced our intention to close this business once existing instructions hadbeen completed. The provision for closure costs is £2.1 million at December 31,2006. (b) Our historical consolidated financial information for 2006 includesprofits on the sale of the commercial surveying business (£2.0 million). We havedetermined that the profit on such sale is non-recurring in nature and we havetherefore removed the historical profit on disposal from our calculation ofAdjusted EBITDA. (c) We are involved in certain disputes with former life insurance andfinancial advisory subsidiaries regarding the extent of indemnities we (or apredecessor firm) provided at the time of the disposal of such subsidiaries inrespect of mis-selling claims in the 1990s. However, we remain liable for theseprevious activities and accordingly we have recorded provisions as of December31, 2006 and 2005 in respect of claims which have not yet been settled. We arecurrently in negotiation to settle one of the pension mis-selling disputes towhich we are a party. (4) Pro forma as adjusted cash and cash equivalents reflects the pro formacash and cash equivalents balance as of December 31, 2006 adjusted for theassumed movements in cash up to the date of the Acquisition, which for thepurposes of the Acquisition consideration is £58.4 million as of March 31, 2007. (5) Pro forma gross cash pay debt represents the gross repayable balance ofpro forma debt (excluding subordinated shareholder PIK loans and the impact ofany amortization of debt issuance costs or issue discounts or premiums). (6) Pro forma gross first lien secured cash pay debt represents pro formagross cash pay debt less the senior indebtedness. (7) Pro forma net cash pay debt represents pro forma gross cash pay debt lesspro forma, as adjusted for the March 31, 2007 balance of cash and cashequivalents. (8) Pro forma net first lien secured cash pay debt represents pro forma grossfirst lien secured cash pay debt less pro forma, as adjusted for the March 31,2007 balance of cash and cash equivalents. (9) Pro forma cash interest expense represents cash interest expense adjustedafter giving effect to the incurrence of new indebtedness in connection with theAcquisition and the pro forma borrowing of £27.2 million anticipated under thesenior secured revolving credit facility as if the borrowing and the incurrencehad occurred with effect from January 1, 2006. Cash interest expense includesinterest accruing on the pro forma balance of £470.0 million senior securedindebtedness and £170.0 million senior indebtedness and the balance of seniorsecured revolving credit facility assumed to be drawn on acquisition andoutstanding for 90 days, as well as commitment fees or undrawn facilities. Proforma cash interest expense does not include interest accruing on our £275.0million shareholder PIK Loan. Operational Data As of and for the year ended December 31, 2004 2005 2006 (unaudited)Estate Agency House sales exchanged(1).......................................................... 80,650 85,106 103,252 Average house price(2)............................................................... £173,162 £179,294 £193,545 Average commission rate(3)....................................................... 1.69% 1.66% 1.67% Number of branches(4)............................................................... 884 1,064 1,059 Franchises............................................................................... 107 113 120 LettingsProperties under management (retail)........................................ 10,760(5) 18,026 18,943 Properties under management (corporate)................................. 31,982(5) 34,975 36,381 Number of retail branches......................................................... 123 129 134 Financial ServicesTotal mortgages arranged(6)....................................................... 48,769 48,432 61,354 Value............................................................................... £4.6 £5.1 £7.1 billion billion billionPanel mortgages arranged(7)...................................................... 45,482 41,151 56,097Value............................................................................... £4.4 £4.3 £6.5 billion billion billion Life insurance and mortgage payment protection policies sold... 32,229 33,814 49,811 General insurance policies sold................................................. 42,260 42,027 56,711 Conversion rates Mortgages....................................................................... 60.5% 56.9% 59.4% Life insurance and mortgage payment protection policies.. 40.0% 39.7% 48.2% General insurance............................................................. 52.4% 49.4% 54.9% Surveying and Valuation Valuations and survey instructions completed........................... 572,371 639,028 697,305 Conveyancing Total completions.................................................................... 42,600 53,367 66,751 In-house.......................................................................... 33,530 24,089 27,676 Panelled(8)........................................................................ 9,165 22,231 30,251 Remortgages................................................................... - 7,047 8,824 (1) House sales exchanged is the number of residential property salestransactions which have reached the point at which the parties exchangedcontracts, which is the point at which our commission on the listing and sale ofthe property at issue becomes payable. (2) Average house price is the total sales value of properties sold dividedby the number of house sales exchanged. (3) Average commission rate is the total commission income divided by thenumber of house sales exchanged, expressed as a percentage of the average houseprice. (4) Number of branches is as of December 31 of the applicable year andexcludes franchises. (5) Excludes properties managed by the Bradford & Bingley lettings business,which was acquired in October 2004. (6) Total number of mortgages arranged is the number of mortgages exchangedwithin the year. (7) Number of panel mortgages arranged is the number of mortgages exchangedwithin the year which were arranged through our lending panel. (8) Number of completions instructed to our panel of conveyancers,principally through TitleAbsolute. CAPITALIZATION The following table sets forth our consolidated cash and cash equivalents andcapitalization as of December 31, 2006: • on a historical basis; and • on a pro forma basis to give effect to the Transactions, as if these transactions had been completed as of December 31, 2006. As of December31, 2006 --------------------------- Historical Proformaas adjusted --------------------------- (£ millions) Cash and cash equivalents(1)................................................... 64.4 58.4 ============ ============ Senior secured revolving credit facility(2).................................... ? 27.2 Senior secured indebtedness.................................................... ? 470.0 Senior indebtedness............................................................ ? 170.0 ------------ ------------ Total cash pay debt............................................................ ? 667.2 Shareholder loan notes(3)...................................................... ? 275.0 Equity(4)...................................................................... 60.6 30.2 ------------ ------------ Total shareholder funding...................................................... 60.6 305.2 ------------ ------------ Total capitalization........................................................... 60.6 972.4 ============ ============ (1) Pro forma as adjusted cash and cash equivalents reflects the pro formacash and cash equivalents balance as of December 31, 2006, adjusted for theassumed movements in cash up to the date of the Acquisition, which for thepurposes of the purchase acquisition consideration and related borrowings is£58.4 million, the balance as of March 31, 2007. See "Unaudited Pro FormaCondensed Consolidated Financial Information." (2) The senior secured revolving credit facility will provide for up to£100.0 million of senior secured revolving credit borrowings and letters ofcredit. We expect that £27.2 million will be drawn under the senior securedrevolving credit facility on the closing date of the Acquisition, assuming thatcash and cash equivalents is £58.4 million at the closing date. (3) Represents £275.0 million of shareholder PIK loan notes issued by CastleHoldCo 2 to affiliates of Apollo. The proceeds of the issuance of theshareholder PIK loans have been lent on a subordinated basis to Castle HoldCo 4. (4) Represents £30.2 million in cash contributed by affiliates of Apollo toCastle HoldCo 1 in exchange for ordinary shares in Castle HoldCo 1. This £30.2million was invested by Castle HoldCo 1 through a subsidiary in Holdings andresulted in Holdings holding the entire share capital of Castle HoldCo 4. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION The following unaudited pro forma condensed consolidated financial informationis based on the historical consolidated financial information of Countrywide, asadjusted to illustrate the estimated pro forma effects of the Transactions,including: • the Acquisition, including the divesture of Rightmove, • the incurrence of new indebtedness in connection with the Acquisition and the application of the proceeds thereof, • the borrowing under the senior secured revolving credit facility on the closing date of the Acquisition and the application of the proceeds thereof, • the equity contribution and shareholder loans, and • the payment of certain fees and expenses associated with the Transactions. The unaudited pro forma condensed consolidated balance sheet gives effect to theTransactions as if they had occurred on December 31, 2006 and the unaudited proforma condensed consolidated statement of income gives effect to theTransactions as if they had occurred on January 1, 2006. The unaudited pro formacondensed consolidated financial information is for informational purposes onlyand is not intended to represent or to be indicative of the consolidated resultsof operations or financial position that Countrywide would have reported had theTransactions been completed as of the dates described, and should not be takenas representative of Countrywide's future consolidated results of operations orfinancial position. The unaudited pro forma adjustments are based upon available information andcertain assumptions that we believe to be reasonable. However, as of the date ofthe announcement, we have not performed the valuation studies necessary toestimate the fair values of the assets which have been acquired and theliabilities that have been assumed and the related allocation of the purchaseprice. Please refer to note (2) to the unaudited pro forma balance sheet for afurther discussion of the purchase price allocation. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET As of December31, 2006 --------------------------------------------- Historical(1) Adjustments Pro Forma --------------------------------------------- Unaudited (€000s) Non-current assets Goodwill......................................................... 30,685 888,520(2) 919,205 Other intangible assets.......................................... 6,143 ? 6,143 Total intangible assets.......................................... 36,828 888,520 925,348 Property, plant and equipment.................................... 22,780 ? 22,780 Investments in joint ventures and associated undertakings........ 6,462 (3,702)(2) 2,760 Other financial assets........................................... 11,548 ? 11,548 Total non-current assets......................................... 77,618 884,818 962,436 Current assets Cash and cash equivalents........................................ 64,370 ?(3) 64,370 Other current assets............................................. 86,440 ? 86,440 Total current assets............................................. 150,810 ? 150,810 Total assets..................................................... 228,428 884,818 1,113,246 Capital and revenues attributable to the equity shareholders Shareholders? equity............................................. 60,557 (30,357)(4) 30,200 Non-current liabilities Shareholder loans................................................ ? 275,000(5) 275,000 Senior secured indebtedness...................................... ? 470,000 470,000 Senior indebtedness.............................................. ? 170,000 170,000 Debt issuance costs.............................................. ? (19,525)(6) (19,525) Defined benefit scheme liabilities............................... 15,867 (10,289)(2) 5,578 Provisions....................................................... 10,674 ? 10,674 Deferred income.................................................. 18,223 ? 18,223 Total non-current liabilities 44,764 885,186 929,950 Current liabilities Senior secured revolving credit facility......................... ? 27,200(7) 27,200 Trade and other payables......................................... 95,354 ? 95,354 Defined benefit scheme liabilities............................... ? 2,789(2) 2,789 Provisions....................................................... 11,231 ? 11,231 Other current liabilities........................................ 16,522 ? 16,522 Total current liabilities........................................ 123,107 29,989 153,096 Total liabilities................................................ 167,871 915,175 1,083,046 Total equity and liabilities..................................... 228,428 884,818 1,113,246 See Notes to the Unaudited Pro Forma Condensed Consolidated Balance Sheet NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (1) Represents the historical consolidated balance sheet of Countrywide,including the results of its equity investment in Rightmove plc. The opening netassets of Castle HoldCo 4 comprising of $1 of share capital are not separatelyreflected as they are not material. (2) For the purpose of the pro forma presentation, the excess of our coststo acquire Countrywide over the historical book value of Countrywide's netassets acquired has been assumed to be goodwill. This analysis assumes thedivesture by Countrywide of its investment in Rightmove at the date of theAcquisition and therefore the investment value of this investment will not formpart of the net assets being acquired. As of the date of this announcement, wehave not performed the valuation studies necessary to accurately estimate thefair values of the assets acquired and liabilities assumed. Accordingly, theexcess of the purchase price over the historical equity has been reflected inits entirety as goodwill in the pro forma balance sheet. Ultimately, a portionof the purchase price may be allocated to other intangible assets with finitelives, which will result in an increase in amortization expense. We do notanticipate that allocating the purchase price to other assets or liabilitieswould materially impact recurring expenses other than non-cash amortisingbalances. We do not expect the final purchase price allocation to have a significantimpact on our future cash flows, EBITDA, EBITDA before exceptionals or AdjustedEBITDA. The following table reflects the adjustment to goodwill as a result ofthe initial allocation of purchase price to assets acquired and liabilitiesassumed: €000s Purchase price(a)............................................................ 858,300 Assumed cash on balance sheet at closing(b)................................... 58,400 ------------Acquisition consideration..................................................... 916,700 Other post-completion adjustments(c) ......................................... 15,867 Estimated direct acquisition costs(d) ........................................ 28,675 ------------ Aggregate Cost££££££££££...................................... 961,242 Less: historical cost of assets acquired and liabilities assumed: Historical consolidated net assets £££££££....................... 60,557 Adjustment for payment of pension deficit balance at closing............ 15,867 Adjustment to exclude historical goodwill............................... (30,685) Adjustment to exclude historical investment in Rightmove plc(e)......... (3,702) ------------ Total adjusted historical fair value of assets acquired and liabilities assumed.................................................................... 42,037 ------------ Goodwill arising on Acquisition............................................... 919,205 Adjustment to eliminate historic goodwill............................... (30,685) ------------ Net adjustment to goodwill.............................................. 888,520 ============ (a) Represents the purchase price of 530 pence per share offered and acceptedby the shareholders at the EGM on April 13, 2007 excluding the assumed cashacquired on the balance sheet at March 31, 2007. (b) Represents an assumed cash balance on closing of the Acquisition. For thepurposes of these pro forma condensed consolidated financial statements we haveassumed a cash and cash equivalents balance at March 31, 2007 of £58.4 million. (c) Represents the settlement of the pension deficit at December 31, 2006 of£15.9 million. It is expected that approximately £7.5 million of the unfundedpension deficit will be paid on completion of the Acquisition and the remainingamount will be paid in three equal annual instalments of £2.8 million. (d) Represents estimated direct acquisition costs, including financialadvisory, legal, accounting and other costs. (e) Represents the investment in Rightmove which is held on the historicalbalance sheet at December 31, 2006, contained within Investments in jointventures and associated undertakings. (3) Represents the adjustment to cash, calculated as follows: €000s Proceeds from new indebtedness............................................................. 640,000 Fundsfromtheseniorsecuredrevolvingcreditfacility(a)................................. 27,200 Shareholder funding including loans(b) .................................................... 305,200 Acquisition consideration(c)............................................................... (916,700) Payment of fees and expenses(d)............................................................ (48,200) Initial payment of pension deficit(e) ..................................................... (7,500) Net adjustment to cash............................................................... ? (a) Represents funds drawn to finance the Acquisition, including the paymentof fees and other transaction costs. (b) Represents £30.2 million in equity contributions and £275.0 million inshareholder loans. (c) Represents the purchase price of £858.3 million and assumed cash acquiredon the balance sheet at March 31, 2007 of £58.4 million. (d) Represents estimated fees and expenses associated with the Transactions,such as underwriting and placement fees in relation to the financing of £19.5million and direct acquisition costs of £28.7 million. (e) Represents the initial settlement of the unfunded pension deficit atDecember 31, 2006 payable on completion of the Acquisition. (4) Represents the adjustment to eliminate historical shareholders' funds ofCountrywide and to record equity contributions in Castle HoldCo 1 by affiliatesof Apollo, the amounts of which are subsequently contributed by Castle HoldCo 1to Castle HoldCo 4. (5) Represents the Shareholder PIK loans with interest accruing at 12%,issued by Castle HoldCo 2 to affiliates of Apollo. The proceeds of this issuancehave been lent on a subordinated basis to Castle HoldCo 4 and used to finance aportion of the Acquisition. (6) Represents capitalization of estimated direct issuance costs in relationto the senior secured revolving credit facility, the incurrence of newindebtedness in connection with the Acquisition and arrangement of otherfinancing facilities. (7) Represents the estimated amounts drawn under the senior securedrevolving credit facility of £27.2 million used to finance the Acquisition,including the payment of fees and other transaction costs. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT For the year ended December31, 2006 -------------------------------------------- Historical(1) Adjustments ProForma -------------------------------------------- Unaudited (€000s)Revenue........................................................... 654,204 ? 654,204Other Income...................................................... 17,399 ? 17,399 ------------- ------------- Total Revenue..................................................... 671,603 ? 671,603 Employee benefit costs............................................ (361,172) ? (361,172) Depreciation, amortization and impairment......................... (12,089) ?(2) (12,089) Regular expenses.................................................. (202,828) ?(5) (202,828) ------------- Group operating profit before exceptional items................... 95,514 ? 95,514 Exceptional items (net)........................................... (3,270) ? (3,270) ------------- Group operating profit............................................ 92,244 ? 92,244 Net finance income/(expense)...................................... 751 (94,709)(4) (93,958) Share of profit post tax from joint ventures and associates....... 1,411 (934)(3) 477 Profit on part disposal of joint venture and associated undertakings................................................... 19,357 (16,737)(3) 2,620 ------------- Profit before taxation from continuing operations................. 113,763 (112,380) 1,383 Taxation.......................................................... (31,907) 28,693(6) ( 3,214) ------------- Profit from continuing operations................................. 81,856 (83,687) (1,831) ============= See Notes to the Unaudited Pro Forma Condensed Consolidated Income Statement NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT (1) Represents the historical consolidated income statement of Countrywide,including the results of its equity investment in Rightmove plc. (2) As of the date of this announcement, we have not performed the valuationstudies necessary to accurately estimate the fair values of the assets acquiredand liabilities assumed. Accordingly, the excess of the purchase price over thehistorical equity has been reflected in total as goodwill in the pro formacondensed consolidated balance sheet. Ultimately, a portion of the purchaseprice may be allocated to other intangible assets with finite lives, which willresult in an increase in amortization expense. We do not expect the finalpurchase price allocation to have a significant impact on our future cash flows,EBITDA, EBITDA before exceptionals or Adjusted EBITDA. (3) At the date of the Acquisition, we have assumed that Rightmove plc willbe divested. (a) Therefore, for the year ended December 31, 2006, the share of post taxprofits of this investment of £0.9 million have been adjusted. (b) Therefore, the profit of £16.6 million on part disposal of a 8.5% holdingin Rightmove has been adjusted. There is no tax effect of this profit. (4) To reflect the interest expense of our new debt structure uponcompletion of the Transactions using an applicable LIBOR of 2.25%. (5) Pro forma profit from continuing operations has not been adjusted formanagement's estimates in respect of future annual cost savings or estimatedstand-alone cost savings. (6) No adjustment to tax expense is reflected on the amortization of debtissuance costs or gain on sale of part disposal of investments due to thenon-tax deductible nature of the amortization. The tax benefit from additionalinterest payable has been calculated assuming a corporation tax rate of 30%. INDUSTRY For an explanation of the sources used for some of the data in this sectionplease see "Market and Industry Data." UK Residential Property Market We operate in the UK residential property market and derive the majority of ourrevenue from servicing the needs of buyers and sellers of existing homes andmortgage lenders. Participants in the UK residential property market provide arange of services to individuals and companies engaged in residential propertytransactions, including: (i) property sales (typically through an estateagency), (ii) lettings (including both agency services and property management),(iii) mortgage and insurance broking, (iv) surveying and valuation, (v)conveyancing and (vi) relocation. While some of the major integrated marketparticipants provide limited relocation and moving services, this area of themarket is generally left to specialist operators. The economics of the UK residential property market, aside from lettings, aredriven primarily by transaction volumes and house prices, which havehistorically been cyclical in nature. Estate agencies typically realize revenuesas a percentage commission on the price of each home sold while most ancillarybusinesses, such as mortgage brokering, surveying and valuation andconveyancing, charge fees or commissions for products purchased and servicesprovided in connection with a residential property transaction. Because therevenue streams of market participants are linked to individual home sales, theresidential property industry generally benefits from increased transactionvolumes, rising home prices and increased commission rates. Conversely, theindustry is negatively impacted by decreases in transaction volumes, home pricesand commission rates. By contrast, in a typical lettings transaction, landlords and property managersrealize revenues on a monthly basis over the term of the lease. Generally,revenues in the lettings business are more stable than revenues in the estateagency business, though fluctuations in the wider residential property markethave an influence on rental property supply, prevailing rents and landlords'yields. Industry Size and Trends Consistent long-term data on the number of UK residential property transactionsare generally not available. See "Market and Industry Data" for a discussion ofthe data and the sources used in this announcement. In 2006, the Land Registryof England and Wales registered approximately 1.25 million residential propertytransactions worth approximately £253.5 billion. According to the Council ofMortgage Lenders, approximately 1.14 million loans were advanced for housepurchases in 2006 in the United Kingdom. Transaction volumes measured by boththe Land Registry and the Council of Mortgage Lenders are, in each case,slightly above the average for the period from 1995 through 2006. Based on datafrom the Land Registry, the Council of Mortgage Lenders and HMRC, we believethat transaction volumes have increased at an average rate of approximately 3.5% per year from 1995 through 2006. While rising in absolute terms, transactionvolumes have been highly volatile since 1980. The post-1992 peak in transactionvolumes, which occurred in 2002, was approximately 75% higher than the low pointexperienced in 1995 on the basis of loans advanced for house purchases accordingto the Council of Mortgage Lenders. In 2006, the average house price in the United Kingdom was £204,813 according tothe DCLG, having increased at a CAGR of approximately 8.6% from 1980 through2006. On the basis of DCLG figures, national average house prices have exhibitedpositive growth on a nominal basis every year since 1980 except for 1982 and1992 when house prices declined by approximately 2.2% and 1.8%, respectively,from the prior year in each case. If inflation is taken into account, thesedeclines were somewhat larger and lasted somewhat longer, and in 1995, theslight nominal increase in house prices would have been a decline. Historical Perspective Between 1980 and 2006, growth in the total value of houses sold in the UKresidential property market outpaced nominal GDP growth. This increase waslargely driven by price appreciation. During this period, the market experiencedone significant reversal from 1988 to 1992. That reversal was driven primarilyby a decrease in transaction volumes, which declined by approximately 47% from1988 to 1992 based on HMRC data. During this period, nominal prices fell byapproximately 1.8% from 1991 to 1992 on the basis of DCLG figures. Thesedeclines were the result of a combination of adverse changes in tax policy (inparticular, the abolition of double mortgage interest deductions in 1988), theend of the initial wave of council housing purchases under the Right-to-Buyprogram, an economic recession and a series of rapid and significant increasesin interest rates, which remained above 10% from July 21, 1988 to September 4,1991. Beginning in the late 1990s, when buy-to-let mortgages became more widelyavailable, an increased number of speculative and buy-to-let investors enteredthe UK residential property market, increasing overall demand and contributingto sustained house price appreciation and volatility in transaction volumes. Recent Industry Indicators The following discussion outlines several recent indicators in the UKresidential property market. Transaction Volumes and Prices The UK residential property market experienced a downturn based on transactionvolumes that lasted from mid-2004 to mid-2005 as a result of a series of rapidinterest rate increases and public warnings by senior Bank of England officialsabout the potential for house price declines. According to the Council ofMortgage Lenders, that period saw the fewest transactions since 1996 and anunusually rapid decline in activity levels. Transaction volumes began to recoverin late 2005, and in 2006 returned to historically average levels of activity asrecorded by the Land Registry and the Council of Mortgage Lenders, drivenprimarily by positive market sentiment and improving economic fundamentals,including GDP growth, low unemployment and improving consumer confidence. For adiscussion of the limitations of historical transaction volume figures, see "Market and Industry Data." According to the DCLG, house prices continued to increase through the mid-2004to mid-2005 market downturn, although the growth rate of house prices fell fromapproximately 15.8% in 2004 to approximately 5.8% in 2005. Price growthaccelerated in 2006 to approximately 7.4% according to the DCLG, drivenprimarily by an imbalance of demand and supply in the sector, increasingdisposable income, continued GDP growth, a low interest rate environment andcontinued future capital gains expectations by purchasers. Interest Rates Historically, residential property transaction volumes have been closelycorrelated to interest rates. Bank of England base rates decreased from 17.0% atthe beginning of 1980 to 5.0% at the end of 2006, although a rate increase inJanuary 2007 increased the base rate to 5.25%. Between 1995 and 2006, eachperiod of increasing interest rates led to a short-term downturn in residentialproperty transaction volumes which, according to Land Registry data, were attheir lowest point at or near the peak interest rate at that time. Housing Stock Housing stock in England, which includes owner occupied and rented dwellings,has historically experienced very low growth (approximately 0.8% per annum from1980 through 2005 according to the DCLG), primarily due to significant barriersto new construction, including high land prices and cumbersome planningregulations. As a result of these supply constraints, the UK residentialproperty market is primarily driven by resales of existing housing stock. Thisrelative lack of supply has tended to put upward pressure on house prices overthe long term. Affordability and Mortgage Repossessions Housing affordability is commonly expressed either as a ratio of house prices toincome or as the percentage of income spent on mortgage interest payments.According to the Council of Mortgage Lenders, in 2006, the medianprice-to-income ratio, at 3.05 to 1.0, was significantly above the average of2.28 to 1.0 for the period from 1980 through 2006. In 2006, according to theCouncil of Mortgage Lenders, the median percentage of income spent on mortgageinterest payments, at 15.6%, was at its highest level since 1992, though onlyslightly below the 16.0% average for the period from 1980 through 2006. Thepercentage of income spent on mortgage interest payments is widely considered tobe a better metric of affordability because it takes into account the cost offinancing a home, which is generally the largest cost of home ownership. The number of mortgage repossessions by lenders is related to affordability andmeasures the ability of homeowners to meet debt service obligations. Althoughthe number of mortgage repossessions has risen sharply since 2005, according tothe Council of Mortgage Lenders, the number of mortgage repossessions as apercentage of total loans remains low compared to the early 1990s, when mortgagerepossessions were at historically high levels, triggered by rapid interest rateincreases and a general economic downturn. Mortgage Approvals Historically, mortgage approval data has been an indicator of underlyingshort-term trends in the volume of residential property transactions. From 1995through 2006, according to the Council of Mortgage Lenders, there was an averageof approximately 1.14 million loans advanced for house purchases per annum,ranging from a low of approximately 799,000 in 1995 to a high of approximately1.40 million in 2002. In 2006, lenders advanced approximately 1.14 million loansfor house purchases according to the Council of Mortgage Lenders. Data from theCouncil of Mortgage Lenders shows that the number of loans advanced for housepurchases has been flat since November 2006. Home Ownership Rates and Aspirations While the UK population has not grown significantly since 1980, the percentageof all households in England that are owner occupied increased from 57% in 1981to 70% in 2006 according to the DCLG. This has the effect of supportingunderlying demand as homeowners tend not move into rented accommodation, butinstead buy another house. Additionally, according to surveys conducted by theBritish Market Research Bureau, in 2007, 84% of adults in Great Britainexpressed a desire to live in owner-occupied housing in ten years' time, ascompared to 78% of adults in Great Britain in 1983. The following table sets out certain historical information with respect to theUK residential property market from 1980 to 2006. Year Sales Recordings Mortgages Price(4) Interest (1) (2) (3) rate(5) ('000s) ('000s) ('000s) £ 1980................................................. 1,267 720 23,596 14.00% 1981................................................. 1,351 730 24,188 14.38% 1982................................................. 1,542 839 23,644 10.00% 1983................................................. 1,669 953 26,471 9.06% 1984................................................. 1,760 1,071 29,106 9.50% 1985................................................. 1,743 1,073 31,103 11.38% 1986................................................. 1,801 1,248 36,276 10.88% 1987................................................. 1,937 1,108 40,391 8.38% 1988................................................. 2,148 1,250 49,355 12.88% 1989................................................. 1,580 886 54,846 14.88% 1990................................................. 1,398 784 59,785 13.88% 1991................................................. 1,306 723 62,455 10.38% 1992................................................. 1,136 873 61,336 6.88% 1993................................................. 1,196 951 62,333 5.38% 1994................................................. 1,274 959 64,787 6.13% 1995................................................. 1,135 800 799 65,644 6.38% 1996................................................. 1,242 967 957 70,626 5.94% 1997................................................. 1,440 1,095 1,104 76,103 7.25% 1998................................................. 1,347 1,039 1,088 81,774 6.25% 1999................................................. 1,469 1,190 1,254 92,521 5.50% 2000................................................. 1,433 1,142 1,123 101,550 6.00% 2001................................................. 1,458 1,261 1,314 112,835 4.00% 2002................................................. 1,588 1,362 1,397 128,265 4.00% 2003................................................. 1,345 1,277 1,252 155,627 3.75% 1,294 2004................................................. 1,793(6) 1,245 180,248 4.75% 2005................................................. 1,531 1,067 1,014 190,760 4.50% 2006................................................. 1,774 1,246 1,142 204,813 5.00% Note: See "Market and Industry Data" for a discussion of the data and thesources used in this announcement. (1) As noted in "Market and Industry Data," historical data on transactionvolumes in the UK residential property market do not have a universallyrecognized authoritative source. Here, "sales" refers to transactions recordedby HMRC on the basis of stamp duty filings. As noted in note 6, below, thetransactions subject to this filing changed in late 2003, resulting in adiscontinuity in the data. (2) "Recordings" refers to property transactions recorded by the LandRegistry of England and Wales. The Land Registry began recording suchtransactions in 1995. (3) "Mortgages" refers to the number of loans advanced for house purchases asdetermined by the Council of Mortgage Lenders on the basis of surveys of itsmembership. (4) Average price of houses sold in the United Kingdom in the year indicated,not adjusted for inflation, according to DCLG relying on HMRC stamp dutyreturns. (5) Bank of England published base rate as of December 31 of the yearindicated. In most years, the base rate changed multiple times during the year.Mortgages rates are generally tied to the base rate with either a discount or apremium, and fixed rate mortgages for periods exceeding seven years arerelatively rare. (6) In late 2003, HMRC changed the type of transactions subject to theparticular stamp duty filing which forms the basis of the data collection fortransaction volumes since the late 1970s. As a result, HMRC transaction volumesdata collected since 2003 are not comparable to data collected prior to thatyear, as we believe that the post-2003 methodology captures approximately300,000 to 400,000 transactions per year that would not have been recorded underthe previous methodology. As a result, the 2004 numbers reported by HMRC show a448,000 increase in transaction volumes as compared to 2003, which we do notbelieve, based on our experience and other measures of transaction volumes, is afair reflection of the trends in the UK residential property market between 2003and 2004. Other data collections arrive at transaction volumes differently. Industry Segments The following provides a discussion of the various segments that comprise the UKresidential property market. Estate Agencies Home sellers engage estate agents to market and sell their homes for acommission. UK estate agency commission rates have traditionally varied between1.5% to 2.0% since 1980, but have experienced a slight downward movement duringthat time, and have demonstrated some evidence of countercyclical movement withoverall house prices and transaction volumes. During periods of reducedtransaction volumes, commission levels generally increase as estate agentsdemand compensation for adding a listing (and its attendant marketing costs) toan already large inventory, while in more active markets, commissions decline asestate agencies compete for listings. Commission levels tend to vary regionally,and certain agents are able to command higher, and in some cases premium,commissions as a result of their perceived selling clout. The level ofcommission also (i) varies inversely with the size of the transaction and (ii)is dependent upon whether the estate agent is engaged on an exclusive ormultiple basis. In London, however, some higher-value transactions attracthigher commission levels on the basis that the commission is likely to be splitbetween a seller's agent and a buyer's agent (which are otherwise rare in the UKresidential property market). Estate agencies can generally be grouped into four categories: • high-end national agencies offering expensive properties to aninternational clientele; for example, Savills, Knight Frank and Sotheby's; • mass-market national agents headed by the three largest: Countrywide,Connells and LSL Property Services, all of which operate under multiple localbrands; • mass-market regional agents, such as Arun Estate Agencies (South East);and • smaller independent agents with local or regional presence. Currently, estate agents in the United Kingdom do not have to be registered orcertified to operate, leading to a very fragmented market with many small localagencies. Only a few firms with nationwide operations exist, includingCountrywide, Connells and LSL Property Services. Each of the national estateagency chains trade under multiple brands and operate, to varying degrees,through a franchising system. No estate agency has yet developed a truenationwide mass-market brand, although at the very high end of the market a fewstrong brands have been established (such as Jackson-Stops & Staff, Harrods andCluttons). Some stronger regional brands have also emerged (such as Foxtons inLondon). In Scotland, solicitor estate agents, combining the listing, marketingand conveyancing roles are increasingly common. There has been some consolidation among the larger estate agents in recentyears, driven in part by some financial institutions (typically ex-buildingsocieties and insurance companies) shedding their estate agency businesses. Thistrend allowed Countrywide to acquire Friends Provident's estate agency businessin September 2002 and Bradford & Bingley Group plc's chain of estate agencies inOctober 2004. See "Business-History." Similarly, in 2003, Royal & SunAllianceInsurance Group plc sold its Sequence (UK) Limited estate agency branches toConnells Limited (itself a subsidiary of the Skipton Building Society Group) andin 2005, LSL Property Services acquired Reeds Rains. As of yet, there has been little evidence that the internet has seriouslydisrupted or disintermediated the role of estate agencies in the typical UKresidential property transaction, except insofar as it has provided a newadvertising platform for listings. Lettings Generally, revenues in the lettings business are more stable than revenues inthe estate agency business, though fluctuations in the wider residentialproperty market have an influence on rental property supply, prevailing rentsand landlords' yields. A recent trend has been the rise of "buy-to-let"investors, who have increased the supply of rental properties on the market(both by letting properties that would have once been sold for owner-occupationand by attracting new construction, typically two-bedroom flats in largecities). At the same time, however, this increased supply has begun to putdownward pressure on rents, which combined with rising interest rates, has putpressure on such investors' yields. That pressure may reduce supply in thefuture as buy-to-let investors exit the market. The lettings business resembles the estate agency business in the United Kingdomin that lettings agencies typically market properties owned by third parties toprospective renters out of retail shop fronts. In many cases, estate agencies(including many London-based estate agencies) themselves will maintain books ofrental properties in addition to their core list of properties for sale.Lettings agents are typically paid a percentage of the rent payable fromtenants, the amount of which is dependent upon the services the lettings agentprovides to the landlord. When a lettings agent merely finds the tenant (a "let-only" arrangement), that fee is generally 10% of the total rent payable overthe duration of the lease, and is paid at the beginning of the tenancy. When thelettings agent also manages the property (for example, by collecting rent,serving as the primary point of contact for the tenant, arranging repairs andotherwise managing the property), the typical fee is 15% of the total rentpayable over the duration of the lease, which the property manager receives asthe tenant pays the rent. This management arrangement can cover a singleproperty or an entire apartment building. In addition, the lettings agent willgenerally receive various fees from the tenant and landlord directly at thestart of the lease. The competitive landscape for the lettings business is different than that ofthe estate agency business. It consists of Countrywide, which by some margin hasthe largest non-franchised network of lettings offices, several large franchisenetworks, a smaller number of regional and local firms and a very large numberof single-branch or single-market businesses. Mortgage and Insurance Broking Most UK residential property transactions are financed with some form ofmortgage lending. There are three types of mortgage and insurance brokers andproviders in the UK residential property market: • directly regulated independent financial advisers (such as Alexander Hall)and appointed representatives of FSA-authorized entities (such as the members ofthe Sesame and Bankhall networks) which arrange mortgages with the whole marketof mortgage lenders or a selected panel in exchange for a flat fee payable bythe applicant or a commission from the mortgage lender or both; • estate agents with an in-house financial advisory business (includingCountrywide, Connells and LSL Property Services), that typically arrangemortgages from a panel of lenders and • mortgage lenders, such as ING Direct, that market their products directlyto the public. Internet price aggregators and newspaper league tables, which provide details ofthe full range of lenders' mortgage offerings, allow users to contact lendersdirectly and provide a form of indirect competition to mortgage brokers. From 1995 through 2006, according to the Council of Mortgage Lenders, there wasan average of 1.14 million loans per annum advanced for house purchases, rangingfrom a low of approximately 799,000 in 1995 to a high of approximately 1.40million in 2002. In 2006, lenders advanced approximately 1.14 million loans forhouse purchases according to the Council of Mortgage Lenders. Most mortgagelenders will require that the purchaser take out some kind of insurance on theproperty securing the mortgage and may also have ties with providers of lifeinsurance and mortgage payment protection policies, and, as a result, mostmortgage brokers also sell some form of insurance products. The economics of the mortgage and insurance brokering business are driven bymany of the same factors that drive the UK residential property market as awhole. Brokers are generally paid a procurement fee, as well as a commission(typically either a fixed administration fee or a fee based on the percentage ofthe loan). In addition to such fees, mortgage lenders also compensate estateagencies indirectly via referred surveying and valuation business for a place onthe panel of in-house mortgage offerings. We believe that larger brokerages,such as Countrywide, are generally able to extract better compensation termsfrom the lenders on their panels than smaller agencies. Surveying and Valuation There are two main types of surveys in the typical residential propertytransaction. The first is a basic survey commissioned by lenders as a conditionfor lending designed to elicit a valuation for the property being mortgaged. Thesecond is a more comprehensive evaluation commissioned by the borrower to assessthe quality of the property. In both cases, typically the cost is borne directly or indirectly by theborrower (some valuations are offered "free" to the borrower by the lender).Since lenders commission the first type of survey to support their lendingdecision, they tend to prefer larger and more reputable providers of valuationservices that can deliver consistent assessments. As mentioned above, lendersalso direct survey work to integrated estate agencies as compensation for aplace on their mortgage panels. Because these types of surveys and valuationsare undertaken in the context of a residential property transaction, revenues inthe business are driven by overall transaction volumes in the industry. Valuations are also typically required in the remortgage market. Remortgagevaluations are generally less detailed than purchase mortgage valuations. Forparticularly low-risk transactions (where the loan to value is less than 70%)some lenders have been relying on Automated Valuation Models, which value aproperty on the basis of recent sales data for similar properties in similarlocations and certain other metrics without a site visit. The increased use ofthese models could threaten the low-margin remortgage valuation business of somesurveying and valuation firms and, if more widely adopted, could pose acompetitive threat to traditional surveying and valuation businesses. The surveying and valuation market is relatively consolidated; with Countrywide,e-Surv (part of LSL Property Services), Connells, Colleys (part of the HBOSGroup) and Allied comprising the bulk of the residential property surveying andvaluation market. Conveyancing Conveyancing is the act of transferring the legal title in a property from oneperson to another. In England and Wales, specialized firms have arisen toperform this function, which typically involves preparing and negotiating theproperty sale agreement and performing the relevant searches to ensure thattitle is validly transferred to the purchaser and that there are no undisclosedencumbrances, nonconforming building works or other impediments to the intendeduse of the property. In England and Wales, these services are usually performed by a solicitor or alicensed conveyancer. The UK conveyancing market is price competitive and highlyfragmented, with a large number of firms of solicitors and specialistconveyancing companies. Most estate agencies have referral panels ofconveyancing providers and some, including Countrywide, have in-house operationsto service their own transactions. Electronic conveyancing is intended to simplify the house buying process in theUnited Kingdom by allowing conveyancers to electronically track the status of aconveyance and permitting the electronic completion of documents and payment offees in connection with a house purchase. To the extent electronic conveyancingbecomes widely used, new entrants, such as supermarkets, could pose acompetitive threat to existing providers. Relocation Relocation is a broad term encompassing activities from corporate relocationservices for expatriates to informal moving services. While most domestic movingservices are provided by specialist operators, some of the larger estate andlettings agencies, including Countrywide and Connells, offer their corporateclients specialized employee relocation services. Such services includeassisting employees with selling their homes, finding employees temporary orpermanent accommodations in their new location and managing the property ofemployees who were unable to sell their homes before relocating. Recent Developments The Housing Act 2004 imposed a number of new requirements on participants in theUK residential property market. Beginning on June 1, 2007, a Home Information Pack, which is a set of documentsproviding information about the property for sale, such as a summary of theproposed terms of the sale, evidence of title and information regarding theenergy efficiency of the home, will have to be prepared prior to a property'sbeing put on the open market for sale with vacant possession in England andWales. A similar requirement is planned for Scotland in 2008. The effects of thenew requirement on the UK residential property market are uncertain as producinga Home Information Pack will impose new costs on sellers at the beginning of theprocess of selling a house, which may discourage prospective sellers fromlisting properties for sale. In addition, the capacity of the UK residentialproperty services industry to provide the Home Information Packs in a timelyfashion is untested. Further, the Housing Act 2004 effectively requires estate agencies to join theOmbudsman for Estate Agencies (or a similar program), which imposes on estateagencies certain duties of fair dealing to home buyers, who have traditionallybeen unrepresented in the UK residential property market. As the specificrequirements of this duty are developed, certain business practices may change. Finally, the Housing Act 2004 continued the recent trend of regulation of thelettings business, imposing new requirements on deposit taking and multipleoccupancy houses. This increasing regulation may serve to encourage smallerlandlords to use property management services. BUSINESS Our Company We are the leading estate-agency based residential property service provider inthe United Kingdom, measured by both revenue and transaction volumes. We operatein five complementary businesses: (i) residential property sales, (ii)residential property lettings and property management, (iii) arrangingmortgages, insurance and related financial products for participants inresidential property transactions, (iv) surveying and valuation services formortgage lenders and prospective homebuyers and (v) residential propertyconveyancing services. Our business operates in approximately 670 townsthroughout the United Kingdom, including almost every major UK populationcenter. More than 90% of the revenue and more than 85% of the operating profitof our Estate Agency Division was generated outside of the London market, ineach case in the year ended December 31, 2006. We are also well integrated alongthe value chain and in the year ended December 31, 2006, we sold 103,252 housesat an average sale price of £193,545, arranged mortgages in respect of 59.4% ofour house sales exchanged in such year and sold life insurance and mortgagepayment protection policies in respect of 48.2% of our house sales exchanged insuch year and general insurance policies in respect of 54.9% of our house salesexchanged in such year. During the same period, we also completed 697,305surveys and valuations for both lenders and prospective homebuyers and 66,751conveyances. In addition, as of December 31, 2006, we had 55,324 rentalproperties under management. We believe that the strength of our broad productoffering allows our company to capture revenue streams across every stage of atypical residential property transaction from listing to completion. Our Estate Agency Division is the United Kingdom's largest estate agencynetwork, with 1,179 branches (including franchisees) throughout the country asof December 31, 2006, and operates under such well-known local brands asBairstow Eves, John D Wood & Co., Mann & Co., Dixons, Bridgfords, Taylors,Slater Hogg & Howison and Gascoigne-Pees. History Our predecessor came into existence in 1986 when the first two estate agencygroups in the United Kingdom to be listed on the London Stock Exchange, BairstowEves and Mann & Co., were acquired by Hambros plc and merged to form HambroCountrywide. Other acquisitions and new ventures followed, including, in 1988,the establishment of Hambro Assured (a life insurance provider). In October 1994 we acquired 301 estate agency branches and the NationwideSurveyors business from the Nationwide Building Society. The NationwideSurveyors business was combined with our existing Countrywide Surveyors businessto create what was at the time, and remains, the largest residential surveyingand valuation business in the United Kingdom, measured by number of surveyors.Many of the estate agency branches acquired provided residential letting andmanagement services and in 1995, those lettings operations were merged with ourexisting letting and property management business under the CountrywideResidential Lettings brand. Between 1995 and 1998, we acquired additional estate agency businesses,including Spencers, based in and around Leicester, and three major Londonbusinesses: Faron Sutaria (estate agency and lettings), John D Wood & Co.(estate agency and lettings) and PKL (residential lettings) to complement ourextensive branch network outside of central London. In 1997, we establishedHambro Countrywide Conveyancing which formed the basis of our residentialconveyancing business. In mid-1998, we acquired more than 100 surveyors from Royal & SunAllianceProperty Services to further consolidate our leading position in the UnitedKingdom's residential surveying and valuation market. In that same year, ourpredecessor was demerged from our controlling shareholder, Hambros plc.Thereafter, the name of our business was changed to Countrywide Assured Groupplc, with the life insurance subsidiary renamed Countrywide Assured plc. In February 2000, we launched Rightmove, an internet property portal andestablished Rightmove as a joint venture with Halifax Estate Agencies, Royal &SunAlliance Property Services and Connells later that year. In 2002, we acquired 104 branches from Friends Provident Estate Agents. Also in2002, we entered into a long term distribution agreement with Friends Providentfor the distribution of mortgage-related insurance protection products,equivalent to those then being offered by our life insurance business. Our lifeinsurance business was thereafter substantially closed to new business andeventually demerged as Chesnara plc in 2004. In 2004, we became Countrywide, andlisted our shares on the London Stock Exchange. In October 2004, we acquired the estate agency, lettings and estate-agency-basedfinancial services operations of the Bradford & Bingley Group and the relatedSecuremove surveying and valuation business, comprising 307 branches and 270surveyors. In March 2006, Rightmove plc was successfully floated on the London StockExchange; we retained a 21.5% stake in the business. On March 2, 2007, Castle HoldCo 4, Ltd., a special purpose vehicle beneficiallyowned by funds advised by Apollo Management L.P. announced an offer amended onApril 11, 2007, recommended by the Countrywide Board of Directors, for theentire issued and to be issued share capital of Countrywide of 530 pence in cashand 0.16487 Rightmove shares per Countrywide share. The Acquisition was approvedby Countrywide shareholders at an extraordinary general meeting held on April13, 2007, but remains subject to the sanction of the High Court of Justice inEngland and Wales (the "Court"), regulatory approval and other customary closingconditions. The sanction from the Court is expected on or about May 4, 2007 and,until then, Countrywide will operate independently. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
CWD.LRightmove