7th Mar 2006 17:15
Telecom Plus PLC07 March 2006 7 March 2006 Telecom plus plc (the "Company") Posting of Circular and Notice of EGM Telecom plus plc has today posted a Class 1 circular to its shareholders inconnection with its proposed arrangements with Npower Limited (the"Transaction") as detailed in the announcement dated 16 February 2006. The circular contains notice of an extraordinary general meeting of shareholders(the "EGM") to approve the Transaction. The Directors and certain othershareholders have irrevocably undertaken to vote in favour of the ordinary resolution in respect of 37,570,536 ordinary shares, representing approximately55 per cent. of the share capital of the Company. The EGM will be held at theCompany's offices at Dryden House, The Edge Business Centre, Humber Road, London, NW2 6EW at 11.00 am on 23 March 2006. Extracts from the letter to shareholders from the Chairman of the Board ofDirectors are set out below. A copy of the above document has been submitted to the UK Listing Authority andwill shortly be available for inspection at the UK Listing Authority's DocumentViewing Facility which is situated at: Financial Services Authority25 The North ColonnadeCanary WharfLondonE14 5HS Enquiries Telecom plus plcCharles Wigoder/Stephen Davis 020 8955 5000 KBC Peel HuntSimon Hayes/Capel Irwin 020 7418 8900 Gresham PR Ltd 020 7404 9000Neil Boom Introduction On 16 February 2006, the Company announced it had agreed to sell the EnergyCompanies to npower for a nominal cash consideration of £4 and simultaneously toenter into the Management Services Agreement with npower and the EnergyCompanies. This transaction, if approved, will take effect retrospectively from1 January 2006. The Company is also entering into the Put Option Agreement which, together withthe sale of the Energy Companies, is deemed to be a Class 1 transaction for the purposes of the Listing Rules and as such requires Shareholders' approval. Details of the Transaction The Transaction involves npower assuming the obligation to supply gas andelectricity to the customers of the Group. It comprises the following principal elements: sale of the Energy Companies to npower for nominal consideration, which willmean that npower will thereby become responsible for the supply of gas andelectricity (as applicable) to the customers of those companies. provision of management services by the Company to the energy customers onbehalf of npower and the Energy Companies. The Company will remain responsiblefor managing all aspects of the customer relationship with the energy customerson behalf of npower and the Energy Companies, including billing (as part of itsmulti-utility proposition), customer service, metering, debt collection andadministration, in return for a commission on energy used by the customers. grant of the put option by the Company - in the event of a change of majoritycontrol of the Company prior to six months after the call options set out belowlapsing, the Company can be required to repurchase the Energy Companies or totake an assignment of the contracts with the customers of the Energy Companies.The amount payable to npower in the event that the Put Option is exercised is£50 per energy service supplied together with a commission of 10 per cent. ofthe revenues generated from such customers over the succeeding five years. In addition, certain Directors, senior employees and connected persons havegranted or intend, prior to Completion, to grant npower an option to acquirepart or all of their shareholdings in the Company amounting in aggregate to19,817,711 Ordinary Shares, representing approximately 29 per cent. of theexisting issued share capital of the Company. This option is exercisable in thesix months following publication of the Company's results for the year ending 31March 2009. The price per Ordinary Share payable by npower on exercise of theCall Option is equal to four times EBITDA for the year ending 31 March 2008 pluseight times the EBITDA for the year ending 31 March 2009 (net of cash and debt)divided by the number of Ordinary Shares in issue at the time of exercise of theCall Option, or market value if higher (based on the average closing price forthe preceding 20 dealing days). Background to and reasons for the Transaction On 23 November 2005, the Company issued a trading statement informingshareholders that the record prices and increasing volatility in the wholesaleenergy markets were resulting in substantial losses being incurred on its gasbusiness. On 13 December 2005, the Company updated shareholders further when itpublished interim results for the period to 30 September 2005, which stated thatthe Directors were actively exploring strategic options with a view to findingways of controlling these losses. Since that date, the wholesale cost of gas hasremained substantially higher than the price the Company has been able to chargeits customers in a competitive market. If these losses had been allowed tocontinue, the future viability of the Group would have been placed at risk. In practice, the Company had two options: The first option was the immediate sale or closure of the energy businesses.Although this would have achieved the short term objective of capping theselosses, enabling the Company to survive and avoid an insolvent liquidation, theDirectors considered such closure would have been extremely damaging to theremaining business in the longer term: it would have destroyed the Company'scurrent unique market position as the UK's only fully integrated multi-utilitysupplier; it would have led to an immediate and significant loss of customers;it could have been expected to put pressure on future telephony margins as theCompany competed with other alternative telephony suppliers primarily on price;it would have seriously damaged morale within the Distribution Network, many ofwhom would have lost a substantial proportion of their income. Overall, theDirectors' assessment was that by pursuing this option, although the businesswould have survived the current crisis, the prospects for future growth andprofitability would have been seriously impaired. The second option was to try and identify a partner who would take overresponsibility for the physical supply of gas and electricity to the energycustomers, whilst leaving responsibility for managing all other aspects of thecustomer relationship with the Company. Under the proposed transaction, theCompany will enter into a management contract with npower under which theCompany will continue to promote an integrated multi-utility proposition to thecustomers. All responsibility for purchasing and hedging energy will reside withnpower, whilst the Company will receive an ongoing commission (share of revenue)on energy used by the customers in the future. This preserves the currentbusiness model and should boost morale within the Distribution Network asDistributors will continue to receive a share of the revenues generated by theenergy customers and be able to continue offering prospective new customers awide range of competitively priced utility services, including gas andelectricity. In the event that the Resolution is not approved by Shareholders, and in theabsence of additional bank facilities which are not currently in place, theBoard would have to consider appointing an administrator immediately as theCompany would be responsible for paying the full cost incurred by npower since 1January 2006 in supplying energy (which would amount to an additional cost ofapproximately £9.8 million) and up to £500,000 of their legal costs.Shareholders should note, however, that the Directors and certain othershareholders have irrevocably undertaken to vote in favour of the Resolution, inrespect of 37,570,536 Ordinary Shares, equivalent to approximately 55 per centof the share capital of the Company. The Directors believe that investors' perception of the Company has beenadversely affected over the last two years by the risks associated with theincreasingly volatile wholesale energy markets. This transaction eliminatesthose risks and should enable the company to earn a small positive contributionfrom its energy business in future. Information on the Energy Companies The Energy Companies were acquired by the Company during December 2005 fromOxford Power Holdings Limited for an aggregate cash consideration of £575,000.The rationale for the acquisition was to ensure that the contracts with theenergy customers were held in separate licensed subsidiaries so that a purchaserof the energy business did not need to transfer the customer contracts to theirown licences. Gas Plus was incorporated on 6 August 2004. It had contracts to supply gas to83,403 customers as at 1 January 2006. Until then, it was dormant and it had nottraded, carried on any business or incurred any liabilities. Accordingly, thefinancial information available in relation to it is of minor importance onlyand there is no financial information available which would influence anyassessment of the assets and liabilities, financial position, profits and lossesand prospects of the Company. Electricity Plus was incorporated on 6 August 2004. It had contracts to supplyelectricity to 97,989 customers as at 1 January 2006. Until then, it was dormantand, save for the holding of such contracts, it had not traded, carried on anybusiness or incurred any liabilities. Accordingly, the financial informationavailable in relation to it is of minor importance only and there is nofinancial information available which would influence any assessment of theassets and liabilities, financial position, profits and losses and prospects ofthe Company. Plus Shipping operates as the licensed gas shipper for Gas Plus. All costsincurred by Plus Shipping are passed directly through to Gas Plus (previously tothe Company) on a no profit/no loss basis, and consequently the turnover of PlusShipping is included in the results for Gas Plus (previously the results of theCompany) as cost of sales. Financial information in relation to Plus Shipping isset out in the Circular. Financial effects of the Transaction The principal financial effect of the Transaction will be to remove the Group'sexposure to volatile wholesale energy prices and enable the Company to earn apositive contribution towards its earnings from managing all aspects of thecustomer relationship in respect of supplying gas and electricity. The Continuing Group Notwithstanding the disposal of these subsidiaries, the Company will continue tooffer customers a substantially identical marketing proposition for theirutilities as currently. Customers will continue to receive a single integratedmonthly bill from the Company covering all their services, and the Company willremain responsible for managing all aspects of the customer relationshipincluding billing, administration, account management, customer service and debtcollection. Current trading and prospects As anticipated in the interim statement, gas prices have remained high and theCompany has incurred significant losses so far this winter. In addition, therehave been substantial exceptional costs incurred in restructuring the Group inorder to enter into the proposed Transaction, and further, in relation to theproposed Transaction itself. The Directors previously stated that profits beforetax were expected to be significantly lower than last year and also subject toconsiderable uncertainty. Overall, it is therefore expected that the outcome forthe full year to 31 March 2006 will be a loss before tax of approximately £1.6million. This loss forecast is based upon the following facts and assumptions under thecontrol of the Board: there being no material change to the margins within the Group's telephonybusinesses or the Group's overhead structure; the effect of the exceptional restructuring costs referred to above; and the retail energy tariffs charged by the Company during the period. In addition, this loss forecast is based on the actual energy costs incurred bythe Company priorto 31 December 2005, together with the contractual energy costs which will bepayable should the Transaction proceed in respect of energy supplied after thatdate under the terms of the Transaction. This loss forecast has been properly compiled on the basis of facts andassumptions stated above and the basis of accounting is consistent with theaccounting policies of the Company. It has been prepared from the managementaccounts of the Company for the 10 months ended 31 January 2006 and theDirectors' forecasts for the two months ending 31 March 2006. The Directors believe that the Transaction will leave the Group stronglypositioned as the UK's only integrated multi-utility supplier, clearly focusedon marketing and promoting our services, with no exposure to either futurevolatility in the wholesale energy markets or working capital issues relating toan energy hedge book which would have needed to expand rapidly in line withrising wholesale energy prices and the steady growth of our customer base. The Company will not be in a position to pay a dividend for the currentfinancial year. However, the Directors anticipate being in a position to resumedividend payments in respect of the forthcoming financial year, although thesewill of course be dependant on growth, working capital and the level ofprofitability achieved. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Telecom Plus