TIDMCPP
RNS Number : 6596A
CPPGroup Plc
23 December 2014
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN
PART, IN, INTO THE UNITED STATES, AUSTRALIA, CANADA OR THE REPUBLIC
OF SOUTH AFRICA OR ANY OTHER JURISDICTION WHERE TO DO SO WOULD
CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF THAT
JURISDICTION
CPPGROUP PLC
23 December 2014
Close of Formal Sale Process and End of Offer Period, Proposed
Placing of Shares, Proposed Refinancing and Creditor Restructuring,
Proposed Cancellation of Admission to the Official List and Trading
on the Main Market, Proposed Application for Admission to Trading
on AIM, Proposed Capital Reorganisation and Waiver of Rule 9
Mandatory Offer
CPPGroup Plc (CPP or the Group) makes the following update
announcement to Shareholders. As indicated in the Group's
announcement on 14 November 2014, the Board stated that it was
progressing plans to secure new equity funding for the business and
restructure the Group's balance sheet, while at the same time
pursuing the option of selling the Group through the commencement
of a formal sale process.
Following extensive discussions with a number of parties, the
Board is pleased to announce that it has secured new equity funding
of GBP20.0 million, which combined with a restructuring of the
Group's liabilities and refinancing of the Group's debts, provides,
in its view, the best value for all stakeholders.
The significant progress made to stabilise the Group's platform
and improve liquidity will strengthen and provide a more
appropriate capital structure to support the future development of
CPP. As a consequence, the Board has closed the formal sale
process, led by KPMG,with immediate effect and CPP is no longer
deemed to be in an Offer Period in accordance with the rules of the
City Code.
Accordingly, subject to Shareholder approval in General Meeting,
the Board proposes (the 'Proposals') as follows:
-- an equity placing to raise in aggregate GBP20.0 million
(approximately GBP17.9 million net of expenses) by way of a
non-preemptive placing of 666,666,667 Placing Shares at a price of
3 pence per Placing Share (the 'Placing');
-- the inter-conditional cancellation of the Group's shares from
the Main Market and admission to trading on AIM;
-- prepayment in part of the Group's current Bank facility and
related costs of GBP8.5 million, together with the refinancing of
the remaining GBP5.0 million though an Amended and Restated
Facility; and
-- settlement of all liabilities of the Commission Deferral
Agreement (approximately GBP21 million) with certain of its
Business Partners for a compromise payment of approximately GBP1.3
million and further deferral of commission up to approximately
GBP1.3 million.
Upon completion of the Placing, funds managed by Phoenix Asset
Management Partners Limited will hold approximately 40 per cent. of
the Enlarged Share Capital following AIM Admission. The Takeover
Panel has agreed, subject to the requisite resolution being passed
by Independent Shareholders on a poll at the General Meeting, to
waive the requirement under Rule 9 of the City Code (Rule 9 Waiver)
that would otherwise arise as a result of the Placing to make a
general offer to Shareholders as a result of the allotment and
issue by the Company of Ordinary Shares to Phoenix pursuant to the
Placing.
In order to effect the Proposals and the Rule 9 Waiver, the
Company will require Shareholder approval and will today post a
Circular to Shareholders convening a General Meeting at which it
will ask Shareholders to vote on a number of Resolutions including,
amongst others, the Placing, the de-listing and the admission to
AIM. Full details of the Resolutions included in the Circular are
set out below.
The Board strongly believes that the Proposals are in the best
interests of the Company and Shareholders as a whole. If the Group
is unable to proceed with the Proposals, it is likely that the
Board would conclude that the Company and certain other members of
the Group would need to cease trading in order to maximise returns
to creditors and Shareholders. Accordingly, the Board stresses that
it is very important that Shareholders vote in favour of the
Resolutions at the General Meeting on 13 January 2015 in order to
enable the Proposals to proceed.
The Group is also pleased to announce the appointment of Mr Eric
Anstee to the Board as a Non-Executive Director with immediate
effect. Following the conclusion of the General Meeting, Mr Anstee
will take over as Non-Executive Chairman from Duncan McIntyre, who
announced his intention to step down on 29 August 2014. Mr Anstee
is a well known Chartered Accountant with over 40 years of business
experience, particularly in the financial services sector.
Duncan McIntyre, Non-Executive Chairman, commented:
"The Proposals that we have set out today are vital to
strengthen and improve the financial position of the business. They
will create a stronger platform from which the Company can look
forward with renewed confidence. The Board strongly recommends that
Shareholders vote in favour of the Resolutions."
Brent Escott, Chief Executive Officer, commented:
"Our intention to raise GBP20.0 million of new equity, refinance
and restructure our balance sheet represents a pivotal step as we
strengthen the Group and invest in our future. There are a number
of stages on our journey to rebuild the Group and we are realistic
about our challenges and those which remain. Significant progress
has been made in the last year to stabilise and add value to the
Group and with the support of new and existing Shareholders, we are
moving forward on our journey to create sustainable long-term value
for stakeholders."
Enquiries
Investor Relations
CPPGroup Plc
Brent Escott, Chief Executive Officer
Craig Parsons, Chief Financial Officer
Tel: +44 (0)1904 544702
Helen Spivey, Head of Corporate and Investor Communications
Tel: +44 (0)1904 544387
Media
Tulchan Communications: Martin Robinson; David Allchurch
Tel: +44 (0)20 7353 4200
Sponsor and Broker
Numis Securities Limited: Robert Bruce; Stuart Skinner; Charles
Farquhar
Tel: +44 (0)20 7260 1000
Financial Adviser
Kinmont Limited
Tel: +44(0) 20 7087 9100
Notes to Editors
CPPGroup Plc (CPP or the Group) is an international assistance
business operating in the UK and overseas within the financial
services, telecommunications and travel sectors. CPP primarily
operates a business-to-business-to-consumer (B2B2C) business model
providing services and retail, wholesale and packaged products to
customers through Business Partners and direct to consumer. The
Group's core assistance and travel service products help to provide
security and enhance the experience of travel for customers
worldwide, designed to make everyday life easier to manage.
For more information on CPP visit www.cppgroupplc.com
REGISTERED OFFICE
CPPGroup Plc
Holgate Park
York
YO26 4GA
Registered number: 07151159
Further Information
Neither the content of the Company's website (or any other
website) nor any website accessible by hyperlinks on the Company's
website (or any other website) is incorporated in, or forms part
of, this announcement.
Any person receiving this announcement is advised to exercise
caution in relation to the Placing. If in any doubt about any of
the contents of this announcement, independent professional advice
should be obtained.
Numis Securities Limited ("Numis Securities"), which is
authorised and regulated in the United Kingdom by the Financial
Conduct Authority, is acting exclusively for the Company and no one
else in connection with the Proposals and will not be offering
advice and, without limiting the statutory rights of any person to
whom this announcement is issued, will not be responsible for
providing customer protections to any other person (whether or not
recipients of this announcement) in respect of the Proposals and/or
any acquisition of Ordinary Shares. The responsibilities of Numis
Securities as the Company's nominated adviser and broker, under the
AIM Rules for Nominated Advisers, in respect of AIM Admission will
be owed solely to the London Stock Exchange. Apart from the
responsibilities and liabilities, if any, which may be imposed on
Numis Securities by FSMA or the regulatory regime established
thereunder, no responsibilities or liability (whether arising in
tort, contract or otherwise) are or will be owed to the Company or
to any Director, Shareholder or any other person, in respect of his
decision to acquire shares in the Company in reliance on any part
of this announcement, or otherwise. Numis Securities is not making
any representation or warranty, express or implied, as to the
contents or completeness of this announcement. Numis Securities has
not authorised the contents of this announcement for any
purpose.
Kinmont Limited ("Kinmont"), which is authorised and regulated
in the United Kingdom by the Financial Conduct Authority, is acting
exclusively for the Company and no one else in connection with the
Proposals and will not be offering advice and, without limiting the
statutory rights of any person to whom this announcement is issued,
will not be responsible for providing customer protections to any
other person (whether or not recipients of this announcement) in
respect of the Proposals and/or any acquisition of Ordinary Shares.
No responsibilities or liability (whether arising in tort, contract
or otherwise) are or will be owed by Kinmont to the Company or to
any Director, Shareholder or any other person, in respect of his
decision to acquire shares in the Company in reliance on any part
of this announcement, or otherwise. Kinmont is not making any
representation or warranty, express or implied, as to the contents
or completeness of this announcement. Kinmont has not authorised
the contents of this announcement for any purpose.
This announcement is not an offer to sell or a solicitation of
any offer to buy the securities of CPPGroup Plc (the "Company") in
the United States, Australia, Canada, Japan, the Republic of South
Africa or in any other jurisdiction where such offer or sale would
be unlawful.
This announcement may not be published, distributed or
transmitted by any means or media, directly or indirectly, in whole
or in part, in or into the United States. The Placing Shares have
not been, and will not be, registered under the Securities Act or
under the securities laws of any state of the United States. The
Placing Shares have been offered outside of the United States
pursuant to Regulation S of the Securities Act and may not be
offered, sold, resold, transferred or delivered, directly or
indirectly, within the United States or to or for the account of
U.S. persons except pursuant to an applicable exemption from, or in
a transaction not subject to, the registration requirements of the
Securities Act. There has not been and there will be no public
offer of the Placing Shares in the United States. The Placing
Shares have not been approved or disapproved by the US Securities
and Exchange Commission, any state securities commission in the
United States or any US regulatory authority, nor have any of the
foregoing authorities passed upon or endorsed the merits of the
offering of the Placing Shares or the accuracy or adequacy of this
announcement. Any representation to the contrary is a criminal
offence in the United States.
In addition, offers, sales or transfers of the Placing Shares in
or into the United States for a period of time following completion
of the Placing by a person (whether or not participating in the
Placing) may violate the registration requirement of the Securities
Act.
This announcement is an advertisement and not a prospectus. No
prospectus is required to be published in connection with the
Placing in accordance with the Prospectus Directive, and
accordingly no prospectus will be published in connection with the
Placing. This announcement cannot be relied on for any investment
contract or decision. No person has been authorised to give any
information or make any representation and, if given or made, such
information or representation must not be relied upon as having
been so authorised by the Company, the Directors, Numis Securities
or Kinmont.
Note regarding forward-looking statements:
This announcement includes statements that are, or may be deemed
to be, "forward-looking statements" including, without limitation,
those regarding the Company's financial position, business
strategy, plans and objectives of management for future operations
or statements relating to expectations in relation to dividends.
These statements can be identified by the use of forward-looking
terminology, including statements preceded by, followed by or that
include the words "targets", "believes", "expects", "aims",
"estimates", "intends", "plans", "projects", "will", "may",
"anticipates", "would", "could" or similar expressions or the
negative thereof. These forward-looking statements include all
statements that are not matters of historical fact. They appear in
a number of places throughout this announcement and include, but
are not limited to, statements regarding the Directors' and/or the
Group's intentions, beliefs or current expectations concerning,
among other things, the Group's results of operations, financial
position, prospects, growth, strategies and the industry in which
it operates.
By their nature, forward-looking statements involve known and
unknown risks, uncertainties and other important factors beyond the
Company's control that could cause the actual results, performance,
achievements of or dividends paid by the Company to be materially
different from the results, performance or achievements, or
dividend payments expressed or implied by such forward-looking
statements. Such forward-looking statements are not guarantees of
future performance and are based on numerous assumptions regarding
the Company's net asset value, present and future business
strategies and income flows and the environment in which the
Company will operate in the future. In addition, even if the
results of operations, financial position and the development of
the markets and industry in which the Group operates in any given
period are consistent with the forward-looking statements contained
in this announcement, those results or developments may not be
indicative of results or developments in subsequent periods. A
number of factors could cause results and developments to differ
materially from those expressed or implied by forward-looking
statements contained in this announcement, including, without
limitation, general economic and business conditions, industry
trends, competition, changes in regulation, regulatory activity,
currency fluctuations, changes in business strategy, political and
economic uncertainty and other factors. Statements contained in
this announcement regarding past trends or activities should not be
taken as a representation that such trends or activities will
continue or are likely to continue.
Any forward-looking statements speak only as of the date of this
announcement. Subject to the requirements of the FCA, the London
Stock Exchange, the Listing Rules and the Disclosure and
Transparency Rules (and/or any other applicable regulatory
requirements) or applicable law, each of the Company, the
Directors, Numis Securities and Kinmont expressly disclaims any
obligation or undertaking to disseminate any updates or revisions
to any forward-looking statements contained herein to reflect any
change in the Company's expectations with regard thereto, any new
information or any change in events, conditions or circumstances
after the date of this announcement on which any such statements
are based, unless required to do so by law or any appropriate
regulatory authority.
This summary should be read in conjunction with the full text of
the announcement which follows.
CPPGROUP PLC
Proposed Placing of 666,666,667 Placing Shares at 3 pence per
Placing Share
Proposed cancellation of admission to the premium segment of the
Official List and to trading on the Main Market for listed
securities of the London Stock Exchange
Proposed admission to trading on AIM
Proposed Capital Reorganisation
Waiver of Rule 9 Mandatory Offer
Proposed disapplication of Remuneration Policy
Notice of General Meeting
Introduction
Further to its announcement on 14 November 2014 that the Board
had received indications of interest from certain investors in
subscribing for new equity capital, the Company announces today
that the Board is proposing to raise in aggregate GBP20.0 million
(approximately GBP17.9 million net of expenses) by way of a
non-preemptive placing of 666,666,667 Placing Shares at a price of
3 pence per Placing Share. Immediately following AIM Admission, the
Existing Ordinary Shares will represent approximately 20.5 per
cent. of the Enlarged Share Capital.
The Board has concluded that, having regard to the Group's
financial and trading position and the need for certainty of
funding within a limited timeframe, the method of issue is
appropriate to secure the investment necessary in the Company
(including in particular in its IT infrastructure) in order to
stabilise the Group's platform and to protect existing value for
Shareholders by raising the funds needed to prepay in part the Bank
Facility (the remainder of which will be amended and restated as
described in paragraph 2 under "The need for additional capital -
Proposed Prepayment in part of the Bank Facility") and to pay
approximately GBP1.3 million in respect of Deferred Commission and
interest thereon to certain of the Group's Business Partners in
order to settle the Group's obligations under the Commission
Deferral Agreement.
The Placing is conditional, inter alia, on the passing of the
Resolutions by the Shareholders at the General Meeting, including a
special resolution which will give the Directors the required
authority to disapply statutory pre-emption rights in respect of
the allotment of the Placing Shares, and on AIM Admission.
The Placing Price of 3 pence per Placing Share represents a
discount of approximately 45.4 per cent. to the closing middle
market price of 5.50 pence per Existing Ordinary Share on 22
December 2014, being the last Business Day before announcement of
the Placing. As the Placing Price represents a discount of
approximately 70 per cent. to the nominal value of the Existing
Ordinary Shares (which is currently 10 pence per Existing Ordinary
Share), the Board is proposing the Capital Reorganisation in order
to permit the Placing to proceed (for further information please
see "Reasons for and Details of the Capital Reorganisation",
below).
In order to effect the Delisting, Admission and Placing, the
Company will require, inter alia, Shareholder approval of the
Resolutions at the General Meeting. The Resolutions, which are set
out in the Notice of the General Meeting contained in the Circular,
will authorise the Board to: (i) effect the Capital Reorganisation
(such that each Existing Ordinary Share is subdivided and
redesignated into one Ordinary Share of 1 penny and 1 Deferred
Share of 9 pence and the articles of association of the Company are
amended to include the rights attaching to the class of Deferred
Shares); (ii) allot the Placing Shares (as required by section 551
of the 2006 Act) and disapply statutory pre-emption rights in
respect of that allotment (in accordance with section 570 of the
2006 Act); (iii) cancel the listing of the Ordinary Shares on the
Official List (in accordance with LR 5.2.5R), remove such Ordinary
Shares from trading on the Main Market and apply for admission of
the Ordinary Shares to trading on AIM; and (iv) (in accordance with
Listing Rule 9.5.10) issue the Placing Shares at a price of 3 pence
per new Ordinary Share, being a discount of more than 10 per cent.
to the closing price of 5.50 pence on 22 December 2014 (being the
latest practicable date prior to the
announcement of the Placing).
Conditional on the Resolutions (other than the resolution to be
proposed to disapply the Company's Remuneration Policy, as
described below) being approved at the General Meeting and the
Placing Agreement not having been terminated in accordance with its
terms, the Company will apply to cancel the listing of Ordinary
Shares on the Official List and to trading on the Main Market and
give 20 Business Days' notice of its intention to seek admission to
trading on AIM under AIM's streamlined process for companies that
have had their securities traded on an AIM Designated Market (which
includes companies whose securities are admitted to the Official
List and to the London Stock Exchange). Conditional on the
Resolutions being approved at the General Meeting, and Phoenix
having obtained the approval (which may be subject to conditions)
of the FCA to the indirect acquisition by funds managed by Phoenix
of "control" (for the purposes of section 178 of FSMA) of the
regulated entities, CPPL and HIL, and Admission taking place, the
Company will issue the Placing Shares.
In addition, due to the proposed participation in the Placing of
Mr Hamish Ogston and Schroder Investment Management Limited, each
of whom is a substantial shareholder in the Company and therefore a
related party (in each case, as defined in the Listing Rules), the
participation by each of Mr Hamish Ogston and Schroder Investment
Management Limited in the Placing will constitute a related party
transaction pursuant to the Listing Rules and therefore ordinary
resolutions of Shareholders other than the relevant related party
in each case are being proposed at the General Meeting to approve
the related party transaction with each of Mr Hamish Ogston and
Schroder Investment Management Limited in accordance with Listing
Rule 11. In connection with the Proposals, Mr Hamish Ogston has
entered into a revised relationship agreement with the Company on
materially the same terms as the existing relationship agreement
(subject to certain consequential amendments appropriate to the
context of an AIM company), the effectiveness of which is
conditional on AIM Admission Further information on the revised
relationship agreement is set out in the Circular to be published
and distributed to Shareholders today.
In conjunction with the Placing, the Board is proposing to
cancel the listing of the Ordinary Shares on the Official List and
to remove the Ordinary Shares from trading on the Main Market and
to apply for admission of the Ordinary Shares, including the
Placing Shares, to trading on AIM. Subject to resolutions being
passed in general meeting (including by a majority of independent
shareholders) as required by Listing Rule 5.2.5(2)(a) and (b) and
to all relevant conditions being satisfied (or, if applicable,
waived), it is expected that the Ordinary Shares (including the
Placing Shares) will be admitted to trading on AIM on or around 11
February 2015. The Board believes that AIM is a more appropriate
market for a company of CPPGroup Plc's current size and will enable
the Company to effect the Placing without the publication of a
prospectus (since AIM is not a regulated market and the Placing is
an exempt offer to the public under sections 86(1)(a) and (b) of
FSMA), which would be a disproportionately costly and time
consuming process.
Further, in order for the Placing to proceed, Independent
Shareholders (being all of the Shareholders other than Mr Hamish
Ogston and Schroder Investment Management Limited) will be
required, by a vote on a poll, to waive a mandatory offer
obligation arising on the participation of funds managed by Phoenix
in the Placing under Rule 9 of the City Code.
Finally, the current Remuneration Policy adopted under section
439A of the 2006 Act does not permit the Company to introduce new
incentive arrangements of the form which the Board expects to need
to put in place for Eric Anstee as the new Non-Executive Chairman
(to replace Duncan McIntyre with effect from the end of the General
Meeting - for further information please see "Board Appointments
and Disapplication of the Remuneration Policy", below) and for
management. The requirement to submit a remuneration policy for a
binding vote by shareholders does not apply to companies whose
shares are traded on AIM. Accordingly, in anticipation of the
approval of the De-listing and AIM Admission, and in preparation
for the introduction of a new incentive arrangement for the new
Chairman and management and employees, an ordinary resolution of
Shareholders is being proposed at the General Meeting to approve
the disapplication of the Remuneration Policy, which is conditional
on the Company's Admission to AIM.
The purpose of this announcement is to outline the reasons for,
and provide further information on, the Proposals and to explain
why the Board believes them to be in the best interests of the
Company and its Shareholders as a whole and unanimously recommends
that Shareholders vote in favour of the Resolutions.
The Circular includes notice of the General Meeting at which the
Resolutions will be proposed to approve the Proposals. The General
Meeting has been convened for 10:30 a.m. on 13 January 2015 at the
offices of Eversheds LLP at One Wood Street, London, EC2V 7WS.
Background to and reasons for the Proposals
Scheme, other redress obligations and regulatory liabilities
In recognition of past failings at its UK business in the period
from January 2005 to March 2011, CPPL agreed in November 2012 to
carry out a customer redress exercise in relation to direct sales
(and subsequent renewals) made by CPPL of Card Protection and
Identity Protection products from 14 January 2005 to March 2011 and
to pay redress to customers where appropriate.
The Scheme, through which redress was provided, was formalised
in August 2013 and approved in early 2014 as the vehicle for
providing redress to customers. It has been a key priority for CPPL
to ensure that the Scheme became effective in order for it to
achieve the best outcome for customers affected by historical
issues in the UK. Through the Scheme, CPPL and certain of its
Business Partners reviewed claims and, where appropriate, redress
was paid.
The Scheme closed on 30 August 2014. The value of Scheme redress
claims in respect of direct sales made by CPPL at the close date of
30 August 2014 was GBP32.0 million.
Following discussions with the FCA in respect of historical Card
Protection sales made directly by HIL in the ROI, a past business
review commenced in early September 2014. A provision for redress
was disclosed in the Group's 2013 Annual Report and Accounts and
Half Year financial statements in 2014 in respect of this
liability.
Discussions have progressed with the Central Bank of Ireland
(CBI) and certain of the Group's Business Partners in the ROI in
respect of historical indirect and introduced sales of Card
Protection made by Irish banks to customers in the ROI. However,
the full extent of any redress exercise has not yet been
determined.
The Group is also engaging with the FCA in relation to a
customer contact exercise in respect of historic Card Protection
sales in the UK between March 2011 and July 2012. The full extent
of any redress exercise relating to these discussions has not yet
been determined, albeit that it represents a small customer
population. Under the Business Partner Agreement, CPPL has agreed
with certain of its Business Partners that, without any admission
of liability whatsoever by the Business Partners, CPPL may
appropriate and apply a portion of the future commission that would
be due to each such Business Partner to the extent required to
discharge redress due to a customer of CPPL that purchased a
relevant product between March 2011 and July 2012 in respect of any
actual or potential claims, provided that CPPL shall be responsible
for the operational costs of any such redress exercise.
Consequently, particularly given the relatively small customer
population involved, it is not expected that any material liability
will be faced by CPPL in connection with this exercise.
There can be no guarantee that other claims or matters may not
arise against the Group from these discussions or from the on-going
discussions with the CBI and the Group's Business Partners in the
ROI. However, at this time, it is unclear that present obligations
exist in respect of these claims or matters.
Additionally, there can be no guarantee that other claims will
not arise against the Group from Business Partners or customers.
The Board is also aware that regulators in some overseas
territories have historically reviewed and, in some cases, are
still reviewing certain aspects of the business, and this is being
discussed with local management.
The total cost provided by the Group, to date, for customer
redress and associated costs at 22 December 2014 (being the latest
practicable date prior to publication of this announcement) is
GBP72.8 million, of which the amount remaining available to meet
further redress payments and other redress and associated costs is
GBP14.9 million. CPPL remains liable to pay the outstanding element
of the regulatory fine imposed by the FCA in November 2012, which
stands at GBP8.5 million; it is expected that all remaining
instalments of the fine will fall due to be paid in 2016 and these
instalments are included in the remaining amount of GBP14.9 million
above.
Financial information on CPP
Certain financial information on the Group and the Company is
referred to in paragraphs (g) and (h) of section 10 of Part 4 of
the Circular. This information is incorporated by reference into
the Circular for the purposes of Rule 24.15 of the City Code.
For financial information in relation to the Group and the
Company, please refer to the information set out on pages 54 to 110
(inclusive) of the Annual Report and Accounts of the Company for
the year ended 31 December 2013, pages 36 to 85 (inclusive) of the
Annual Report and Accounts of the Company for the year ended 31
December 2012 and pages 14 to 34 (inclusive) of the Half-Yearly
report of the Company for the six months ended 30 June 2014. A hard
copy of this information may also be obtained by Shareholders,
persons with information rights or other persons to whom this
document is being sent, only by writing with such a request to the
Company Secretary at the above-mentioned address or by telephoning
the Company Secretary on +44 (0)1904 544 500. Requested information
will be sent to the relevant person in hard copy form as soon as
possible and in any event within two business days of the request
being received.
Financial and operating performance in the first half of
2014
The on-going challenges of the Group's operating environment
continued to affect trading performance in the first half of this
year. In the six months ended 30 June 2014, the Group generated
revenue of GBP58.7 million from continuing operations (30 June
2013: GBP99.7 million) and broke even on underlying operating
performance (compared to a GBP3.3 million loss for the six months
ended 30 June 2013). This resulted in a loss for the six months
ended 30 June 2014 of GBP2.7 million (compared to a GBP2.6 million
loss for the six months ended 30 June 2013).
As at 30 June 2014, the renewal rate for the Group's products
stood at 69.5 per cent. on a rolling twelve months basis (69.4 per
cent at 31 December 2013) and the Group's live policy base stood at
6.1 million (7.1 million at 31 December 2013).
The Group's net funds position at 30 June 2014 was GBP21.6
million (down from GBP38.8 million at 30 June 2013), primarily as a
result of funding the Scheme.
Current trading and prospects
The Group's performance during the period since 30 June 2014 to
the date of publication of this announcement continues to reflect
the trends outlined in the Group's Half Year Report published on 29
August 2014. As expected, Group revenue from continuing operations
has declined approximately 36 per cent. on a constant currency
basis compared to the same period in 2013, reflecting the on-going
challenges of the operating environment, primarily affecting
trading performance in the UK business. Outside of the UK,
performance is broadly consistent with the trends reported in the
Half Year Report.
The Annual Renewal Rate as at 30 November 2014 had increased
from the half year to 70.8 per cent. As noted in the Group's
announcements during 2014, cancellations through the Scheme are not
included in the reported renewal rate. If Scheme cancellations were
included, the annual renewal rate would be 4.9 percentage points
lower at approximately 65.9 per cent. This impact is higher than
the half year position and will continue to increase as further
Scheme cancellations that were live policies before the Scheme
commenced reach their scheduled renewal date. Live policies as at
30 November 2014 totalled 5.2 million, 0.9 million lower than
reported at 30 June 2014, mainly reflecting the expected reduction
in Packaged and Wholesale policies in the UK. Outside of the UK,
the live policy base has increased marginally.
As at the date of publication of this announcement, the retail
assistance live policy base totalled approximately 2.8 million. It
is this in-force retail assistance book that the Group believes
represents the core embedded value of the Group and will support
the performance of the business. The Group estimates that the
historical average revenue per policy for this portfolio is
approximately GBP31 per policy per annum. Furthermore, the Group
estimates that it has historically paid out 35 per cent. of this
revenue in commission rebates to Business Partners, while in
addition it has incurred costs amounting to 12 per cent. of revenue
servicing each policy.
As announced on 5 December 2014, the provision for customer
redress and associated costs in the Group's consolidated financial
statements has been increased by GBP3.0 million, reflecting the
latest estimate with respect to residual customer redress activity.
This is expected to be funded from existing VVOP-restricted capital
held within the Group's regulated entities in the UK and relates to
certain redress obligations specific to the relevant regulated
entities (which the relevant entities may meet out of their own
capital without seeking the consent of either the PRA or the FCA).
The total cost provided for customer redress and associated costs
at the date of this announcement is GBP72.8 million, of which
GBP14.9 million remains available, representing GBP6.4 million in
remaining customer redress and associated costs and GBP8.5 million
in respect of the outstanding regulatory fine levied by the FCA in
November 2012 (the remaining instalments are expected to fall due
to be paid in 2016).
The Group's net funds position at the date of this announcement
is GBP7.7 million. This position represents a decrease of GBP13.9
million from the half year position, principally as a result of the
continued settlement of the customer redress provision. There is
currently limited free cash at Group level. As a result, liquidity
in the short term relies on working capital solutions which may
include the release of restricted cash from one of the UK regulated
entities. Such solutions generally require third party agreement
and the Group is engaged in on-going dialogue with its
stakeholders.
The Group is focused on its immediate priorities to reshape the
business and strengthen its capital position and restructure the
balance sheet. Significant uncertainty remains around issues
relating to liquidity, the execution and delivery of the Group's
longer term plans and trading performance. As a result, the outlook
continues to reflect the significant challenges and risks ahead and
performance for 2014 will remain constrained.
The Directors believe that the adoption of the Proposals will
mark an important milestone in the return of the business to more
stable trading conditions. Although ultimately, exceptional items
and taxation will continue to play a highly significant part in the
translation of the Group's performance into pre-tax and post-tax
profitability for the foreseeable future.
The Group has no plans to alter any Group pension
arrangements.
Current initiatives
During 2014, the Group has continued its journey to stabilise
the business and has progressed its Business Transformation
programme, which includes implementing the following measures:
-- management action to reduce the Group's cost base has
generated annualised cost savings of approximately GBP15.0 million
in 2014, due, in part, to a 48 per cent. reduction in headcount
since 2012;
-- operations in France and Singapore were closed earlier this
year and plans are well advanced to implement the exit of Hong Kong
and Brazil and to close two of the Group's three office sites in
the UK in keeping with the reduced scale of the business;
-- the Board has evaluated and is progressing essential plans to
restructure the balance sheet and strengthen the Group's capital
position and liquidity to support the future development of the
business, as described in this announcement;
-- plans to implement a new cost-effective IT system have
progressed (including through engagement with a new service
provider) and the new system is expected to increase operational
efficiency and meet the needs of customers more effectively,
supporting the Group's operational environment and governance and,
in turn, assisting in the Group's efforts to secure the FCA's
agreement to remove the restrictions under the VVOPs in early
2016;
-- management and the Board continue to focus on identifying
opportunities and reviewing the Group's existing geographic
presence to determine the regions in which the Group can produce
sustainable, attractive returns; and
-- management is continuing the process of further strengthening
the Group's governance risk and compliance framework alongside
improving business processes across the Group.
Formal sale process
Being mindful of its obligations to all stakeholders, including
Shareholders and creditors, and in view of the Group's current
financial circumstances, on 14 November 2014 the Board announced
the potential sale of the Group under a formal sale process when it
provided a general update on its consideration of strategic
options, including an equity raise as envisaged by the
Proposals.
At that time, the Board reserved the right to alter any aspect
of the formal sale process, to terminate it at any time, or to
reject any approach or terminate discussions with any interested
party or participant at any time.
Following this formal sale process, which has involved a number
of parties, the Board of the Company has concluded that at this
time, the combination of new equity funding and restructuring of
the Group's liabilities comprising the Proposals represents both
the best value for all stakeholders and the option that is the most
capable of being executed in the time reasonably available.
Accordingly, the Board determined on 22 December 2014 that the
formal sale process should terminate and the Company has ceased to
engage with any parties in relation to an offer or potential offer
for the Company.
The need for additional capital
Although the Group has historically been a cash-generative
business, redress payments under the Scheme have principally been
settled from the Group's cash resources, supported by the Deferred
Commission and also the sale of the North American business in
2013.
As a result, in spite of the significant progress made to reduce
the Group's cost base and rationalise its operations during 2014,
the Group's cash resources are currently limited and these
constraints are exacerbated by the fact that a significant
proportion of the cash and cash equivalents held on the Group's
balance sheet are currently restricted by regulatory requirements
(including the VVOPs) and charges held by creditors, such that the
Group requires consents from the FCA, the PRA and from the Lenders
to release capital from CPPL and HIL.
Taking into account the secured debt of GBP13.0 million
(excluding prepayment fees) owed to the Lenders under the Bank
Facility which is due to fall due in July 2016, the Deferred
Commission and accrued interest thereon (representing approximately
GBP22.8 million in total) owed to certain Business Partners which
is due to fall due in July 2017, the outstanding instalments to be
paid under the FCA fine totalling GBP8.5 million and amounts owing
to certain trade and other creditors, the Board considers that the
total liabilities (including non-current liabilities as at the date
of this announcement) falling due between the date of this
announcement and July 2017 amount to approximately GBP93.2 million
(compared with existing cash and cash equivalents of approximately
GBP40.3 million).
Further, the Group has recently identified a service provider to
assist in the implementation of its new IT system as plans progress
to implement a modern, cost-effective IT infrastructure for the
Group. This proposed improvement to the Group's IT infrastructure
is a key milestone in the Group's Business Transformation programme
as the Group continues to work towards obtaining agreement to the
removal of the restrictions under the VVOPs in early 2016. The
anticipated external capital cost of implementation of the new IT
infrastructure is approximately GBP4.9 million.
The Board believes that the Group will require additional
capital to fund certain necessary projects to continue the Group's
transformation including the on-going investment in IT
infrastructure described above, country restructuring, re-branding
across the Group, investment in senior and central talent and
investment in the Group's future product proposition.
The Board has taken the following steps to mitigate against the
current limited availability of cash at Group level and against
expected capital requirements arising in the short to medium
term:
-- Proposed Prepayment in part of the Bank Facility
The Group has today, conditional on AIM Admission and completion
of the Placing, agreed to prepay in part the Bank Facility and
entered into the Amended and Restated Facility to refinance that
part of the Bank Facility that will not be prepaid. As a result of
these arrangements, subject to such conditions being met, GBP8.5
million will be prepaid under the Bank Facility (including certain
prepayment fees) out of the proceeds of the Placing and the
remaining balance of the Bank Facility will be refinanced via the
Amended and Restated Facility in the amount of GBP5.0 million. The
term of the Amended and Restated Facility has been extended to 28
February 2018 and the Continuing Lender will continue to benefit
from the existing security package granted in connection with the
Bank Facility.
Under the Amended and Restated Facility, any events of default
or potential events of default arising on entry into the Business
Partner Agreement or otherwise as a result of the Proposals have
been waived.
-- Proposed Settlement of Deferred Commission
CPPL has today entered into the Business Partner Agreement with
nine of the Group's Business Partners pursuant to which it has
agreed to settle all liabilities under the Commission Deferral
Agreement entered into with those Business Partners on 31 July 2013
and to further defer up to approximately GBP1.3 million of
commission earned from 1 December 2014 to 31 March 2015. In
consideration of the payment by CPPL of approximately GBP1.3
million (representing approximately 11p in the pound in respect of
Deferred Commission and settlement in full of accrued interest),
certain of the Group's Business Partners have agreed to a
settlement of all their entitlements under the Commission Deferral
Agreement. This is on the basis that these Business Partners will
defer approximately GBP1.3 million of the commissions earned from 1
December 2014 to 31 March 2015. The remainder of the Business
Partners party to the Commission Deferral Agreement have elected to
settle the Deferred Commission in return for commission arising
between 1 December 2014 and 31 March 2015 being paid as and when it
falls due.
After taking into account the Group's anticipated revenue
streams in the short to medium term, the Board considers that the
Group requires additional capital to prepay in part the Bank
Facility and to settle the Deferred Commission and interest thereon
as proposed above, as well as to finance the required investment in
the Group's IT infrastructure and to invest in other projects
necessary to drive the Group's continuing transformation.
Under the VVOPs, the consent of the FCA is required, inter alia,
for material changes to the capital structure of CPPL and for
grants of security over CPPL. CPPL applied for this consent in
connection with the entry into the Amended and Restated Facility
and proposed prepayment in part of the Bank Facility and the entry
into the Business Partner Agreement and proposed settlement of the
Deferred Commission on 15 December 2014 and this consent was
granted on 18 December 2014.
The Proposals
It is against this background that the Board is presenting the
Proposals, including the Placing, the De-listing and AIM Admission,
to Shareholders.
The approval and implementation of the Proposals, in addition to
reducing the Group's liabilities and restructuring the balance
sheet, will result in improved liquidity. As a result, the
Directors believe that CPPGroup Plc will have a strengthened and
more appropriate capital structure to support the future
development of the Company.
Admission to AIM will provide Shareholders with a market on
which to trade their Ordinary Shares whilst providing the Company
with continued access to equity capital, including the potential
ability to raise further funds, if required. The Board believes
that a transfer to AIM will provide the Company with a market more
suited to its current size and market capitalisation. The
simplification of administrative and regulatory requirements, with
a consequent reduction in on-going costs associated with a premium
listing on the Main Market and the Company's associated one-off
professional costs when issuing new equity, is expected to enable
the Company to implement its cost savings objectives more
effectively. Further details on the regulatory and other
consequences of moving to AIM are set out in the Circular to be
published and distributed to Shareholders today.
The De-listing and AIM Admission in themselves are not expected
to have any impact on the Company's strategy or business.
Illustrative Projections and Profit Targets
Illustrative Projections
Given the nature of the operating environment experienced by the
Group over the last three years, including the matters arising from
the FCA Investigation and the Scheme and their impact on the
business, and the relative absence of public comment and analysis
resulting (in part) from the material uncertainty faced by the
Group as a result of its redress obligations and the Scheme during
the period, the Board are conscious that Shareholders and market
participants may be experiencing difficulties in forming a clear
view as to reasonable expectations for the Group's future financial
performance. Accordingly, in order to give Shareholders an
indication as to how the Group's business may perform assuming that
the Resolutions are approved and the Proposals implemented, the
Directors have prepared the Illustrative Projections, comprising
their expectations of the Group's revenue for the years to 31
December 2014, 2015 and 2016 (the "Illustrative Projections"). The
Illustrative Projections are based on the Directors' projections
for a reasonably achievable performance of the Group, taking into
account the Group's existing structure, historical trading and
likely future developments and assuming that the Group is able to
deliver on the Directors' expectations without any over or
under-performance.
These Illustrative Projections cover the 12 month periods ending
31 December 2014, 31 December 2015 and 31 December 2016. The
Illustrative Projections in relation to the period ending 31
December 2014 are based on the 6 months' actual performance of the
Group to 30 June 2014, as reported in the interim financial
statements for that period announced on 29 August 2014, the four
months' actual performance of the Group to 31 October 2014, as
reported in the Group's management accounts and an estimated
outturn for the two month period from 1 November 2014 to 31
December 2014.
The Illustrative Projections, together with further detail in
relation to the assumptions underlying the projections, are set out
in Part 3 of the Circular.
The Illustrative Projections have been prepared on a basis
consistent with the Group's current accounting policies and have
been prepared after due and careful enquiry by the Directors. The
estimates and assumptions underlying the Illustrative Projections
are inherently uncertain, being based upon events that have not
taken place, and are subject to significant economic, competitive
and other uncertainties and contingencies beyond the Company's
control. Consequently, the Illustrative Projections may not be
achieved and the Group's actual revenue may be materially higher or
lower than that in the Illustrative Projections. Accordingly,
Shareholders are cautioned not to place undue reliance on the
Illustrative Projections and your attention is drawn to the Risk
Factors in Part 2 of the Circular.
The estimates and assumptions underlying the Illustrative
Projections are based on matters as they exist at the date of this
announcement and not as at any future date. Accordingly, the
Company and the Directors accept no obligation and give no
undertaking to disseminate any updates or revisions to the
Illustrative Projections to reflect any change in the Company's or
the Directors' expectations with regard thereto, any new
information or any change in events, conditions or circumstances
after the date of this announcement on which any such statements
are based, unless required to do so by the Listing Rules, the
Disclosure and Transparency Rules or the AIM Rules or otherwise by
law or any appropriate regulatory authority.
Profit Targets
The Board has set out target operating profit before exceptional
items and target cash generated by operations before exceptional
items which it believes to be achievable for the year ending 31
December 2016 (the "Profit Targets") and these Profit Targets are
also set out in Part 3 of the Circular.
The Profit Targets do not show the effect of exceptional items
on the Group's consolidated income statement. Shareholders should
note that significant exceptional items have arisen in relation to
each of the last three financial years and, because the extent to
which the Group may recognise exceptional items in its consolidated
financial statements depends, among other things, on what steps are
taken in connection with the Group's on-going change programmes,
which are not yet fully developed, it is very difficult to foresee
with reasonable certainty what exceptional items will arise
throughout the period covered by the Profit Targets.
The Profit Targets do not show the impact of taxation on the
income that may be generated by the Group during the period covered
by the Profit Targets (including, without limitation, on any gains
or losses arising from the settlement of the Deferred Commission
and steps taken in connection with the Group's on-going change
programmes), since without being able to reliably forecast
exceptional items which may arise, it is impossible to identify
with reasonable certainty the effect of taxation on any gains (or
losses) arising after the impact of exceptional items is taken into
account.
For these reasons, the Board is not able to set a forecast of
profit or loss after taxation and cautions thatit is not possible
for Shareholders to ascertain any figure, or any minimum or maximum
figure, for the level of operating profit or loss after exceptional
items or profit or loss after taxation that the Group may
generate.
Nothing in the Profit Targets constitutes a "profit forecast",
whether for the purposes of Rule 28 of the City Code or otherwise,
nor has the information been reported on under Rule 28 of the City
Code. It is emphasized that the Profit Targets represent a
financial target and not a profit forecast.
Illustrative Projections for the 12 month periods ending 31
December 2014, 31 December 2015 and 31 December 2016
Year ending Year ending Year ending
31 December 31 December 31 December
2014 2015 2016
------------- ------------- --------------
GBP million GBP million GBP million
Revenue 108.1 87.1 102.7
Target operating profit
before exceptional items 2.4
Target cash generated
by operations before exceptional
items 5.1
Profit Targets for the 12 month period ending on 31 December
2016
Year ending 31
December 2016
----------------
GBP million
Target operating profit before exceptional
items 2.4
Target cash generated by operations before
exceptional items 5.1
Details of the Placing
The Company is proposing to raise GBP20 million (before
commission and expenses) by way of a placing of 666,666,667 Placing
Shares at the Placing Price. The Placing Shares will represent
approximately 79.5 per cent. of the Enlarged Share Capital of the
Company.
The Placing Price of 3 pence per Placing Share represents a
discount of approximately 45.4 per cent. to the closing middle
market price of 5.50 pence per Existing Ordinary Share on 22
December 2014, being the last Business Day before announcement of
the Placing.
The Placing Price has been set by the Directors following their
assessment of market conditions. The Directors believe that the
discount to the closing middle market price of 5.50 pence per
Ordinary Share on 22 December 2014 is necessary to enable the
Company to successfully complete the Placing at a level which will
enable it to continue to pursue its strategy as described in this
announcement and, accordingly, believe that such discount is in the
best interests of Shareholders.
The table below sets out details of the new and existing
investors committing to subscribe (subject to the conditions
described below) for the Placing Shares:
No. of Placing Percentage of
No. of Existing Percentage Shares to Enlarged Share
Ordinary Shares of issued be subscribed Capital held
Investor held share capital for on AIM Admission
New Shareholders
Phoenix - - 335,326,643 40.00%
Existing Shareholders
Mr Hamish
Ogston 96,331,789 56.1% 264,144,352 43.00%
Schroder Investment
Management
Limited 22,310,554 13.0% 61,437,285 9.99%
On completion of the Placing, funds managed by Phoenix Asset
Management Partners Limited are expected to own approximately 40.0
per cent. of the Enlarged Share Capital. Accordingly, on 19
December 2014, Phoenix notified the FCA of its intention to acquire
indirectly "control" of the Company's UK regulated subsidiaries,
CPPL and HIL for the purposes of section 178 of FSMA through its
participation in the Placing. The FCA has up to 60 working days to
grant its approval for such acquisition of control for the purposes
of section 185 of FSMA (which may be subject to conditions).
The Placing is conditional, inter alia, on:
-- the passing of the Resolutions;
-- the Business Partner Agreement, the prepayment in part of the
Group's Bank Facility and the Amended and Restated Facility each
becoming unconditional save for any conditions relating to AIM
Admission;
-- Phoenix having obtained the approval (which may be subject to
conditions) of the FCA to the indirect acquisition by funds managed
by Phoenix of "control" of the regulated entities, CPPL and
HIL;
-- the conditions in the Placing Agreement being satisfied or
(if applicable) waived and the Placing Agreement not having been
terminated in accordance with its terms prior to AIM Admission;
and
-- AIM Admission becoming effective by no later than 8.30 a.m.
on 11 February 2015 (or such later time and/or date, being no later
than 8.30 a.m. on 27 February 2015, as the Company and Numis
Securities may agree).
In connection with the Placing, the Company has entered into the
Placing Agreement pursuant to which Numis Securities has agreed, in
accordance with its terms, to use reasonable endeavours to place
the Placing Shares. Each of Phoenix and Schroder Investment
Management Limited have entered into a placing letter with Numis
Securities Limited in respect of their respective commitments to
subscribe for Placing Shares. Mr Hamish Ogston has entered into a
subscription letter directly with the Company in substantially
identical terms and subject to substantially identical conditions
as the placing letters entered into by Phoenix and Schroder
Investment Management Limited, pursuant to which he will subscribe,
or procure the subscription by his family investment vehicle,
Milton Magna Limited, for the Placing Shares set out opposite his
name above.
The Placing Agreement contains customary warranties given by the
Company to Numis Securities as to matters relating to the Group and
its business and a customary indemnity given by the Company to
Numis Securities in respect of liabilities arising out of or in
connection with the Placing. Numis Securities is entitled to
terminate the Placing Agreement in certain circumstances prior to
AIM Admission including circumstances where any of the warranties
are found not to be true or accurate or are misleading in any
material respect.
The Placing Shares will be issued credited as fully paid and
will rank in full for all dividends and other distributions
declared, made or paid after the admission of the Placing Shares in
respect of the Ordinary Shares and will otherwise rank on AIM
Admission pari passu in all respects with the Ordinary Shares. The
Placing Shares have not been made available to the public and are
not being offered or sold in any jurisdiction where it would be
unlawful to do so.
Application will be made to the London Stock Exchange for the
Ordinary Shares (including the Placing Shares) to be admitted to
trading on AIM. On the assumption that, inter alia, the Resolutions
are passed, it is expected that AIM Admission will become effective
on or around 11 February 2015.
The Placing Shares have not been and will not be registered
under the Securities Act. Subject to certain exceptions, the
Placing Shares may not be offered or sold within the United
States.
The Placing will result in a significant dilution of the
proportionate holdings of existing Shareholders who do not
participate in the Placing; approximately 79.5 per cent. of the
Enlarged Share Capital will be represented by the Placing Shares
upon completion of the Placing.
Reasons for and details of the Capital Reorganisation
The Company's existing issued share capital consists of
171,649,941 Existing Ordinary Shares which are currently in
issue.
The Placing Shares are proposed to be issued at the Placing
Price, which represents a discount of approximately 70 per cent. to
the nominal value of the Existing Ordinary Shares.
Under section 580 of the 2006 Act, the Company may not allot
shares at a price which is less than the nominal value of those
shares. To enable the Company to proceed with the Placing, the
Existing Ordinary Shares will therefore need to be sub-divided and
re-designated as described below and in the Notice of General
Meeting.
The Capital Reorganisation is conditional on the approval of the
Shareholders at the General Meeting but is not conditional on the
passing of any of the other Resolutions.
Details of the Capital Reorganisation
Pursuant to the Capital Reorganisation, it is proposed that each
Existing Ordinary Share with a nominal value of 10 pence will be
sub-divided and re-designated into one Ordinary Share of 1 penny
and one Deferred Share of 9 pence. Immediately following the
Capital Reorganisation, every Shareholder will hold one Ordinary
Share and one Deferred Share for every Existing Ordinary Share held
by them. The Capital Reorganisation should not affect the market
value of a Shareholder's aggregate holding of the Existing Ordinary
Shares in the Company.
It is proposed that, following completion of the Capital
Reorganisation, each Ordinary Share will carry the same rights in
all respects as each Existing Ordinary Share does at present,
including the rights in respect of voting and the entitlement to
receive dividends.
The Company does not propose to issue new share certificates to
the existing Shareholders as a result of the Capital
Reorganisation. The existing share certificates which have been
issued to the Shareholders in respect of their holdings of Existing
Ordinary Shares will remain valid in respect of the Ordinary Shares
following completion of the Capital Reorganisation. The Company
will make arrangements for the ISIN of the Existing Ordinary Shares
to apply to the Ordinary Shares.
CREST accounts of Shareholders will not be credited in respect
of any entitlement to Deferred Shares.
Amendments to the Existing Articles
As part of the Capital Reorganisation, the Company proposes to
make consequential amendments to its Existing Articles to include
provisions in respect of the rights attaching the Deferred Shares.
Each Deferred Share will have very limited rights and will
effectively be valueless. Such shares will have no voting rights,
no rights to receive dividends and will have only very limited
rights on a return of capital. The Deferred Shares will not be
admitted to trading on AIM or listed on any other stock exchange
and will not be freely transferable.
Please refer to Resolution 2 set out in the Notice of the
General Meeting at the end of the Circular for further details of
the rights which are proposed to be attached to the Deferred
Shares.
Use of Proceeds
The estimated net proceeds of the Placing of approximately
GBP17.9 million will be used for the prepayment in part of the Bank
Facility (including certain prepayment fees), refinancing of the
Bank Facility via the Amended and Restated Facility, satisfaction
of the Group's obligations in relation to the settlement of the
Deferred Commission and interest thereon, to make an investment in
the Group's IT systems to implement a modern, cost-effective IT
infrastructure and to provide additional capital to fund in part
elements of the Group's Business Transformation programme and
related costs of change, as set out below:
Use of proceeds GBP million
Prepayment in part of the Bank Facility and
related costs 8.5
Refinance the Bank Facility via the Amended
and Restated Facility 0.5
Settlement of Deferred Commission and interest
thereon 1.3
Investment in new IT infrastructure and IT
systems 4.5
Group transformation and costs of change 3.1
Total 17.9
Details of the De-listing and AIM Admission
Listing Rule 5.2.5R(2) requires that a company wishing to cancel
its listing on the Official List may only do so if at least 75 per
cent. of the votes cast at a general meeting on a resolution to
delist are in favour. Additionally, where a premium-listed company
has a controlling shareholder (that is, a shareholder who exercises
or controls on their own or together with any person with whom they
are acting in concert, 30 per cent. or more of the votes able to be
cast on all or substantially all matters at general meetings of the
company), it must also obtain the prior approval of a majority of
independent shareholders who vote in person or by proxy at the
general meeting. For these purposes Mr Hamish Ogston is a
controlling shareholder of the Company.
The continued listing of the Company on the Official List would
prevent the implementation of the Proposals (including the receipt
of the proceeds of Placing), as these are conditional inter alia on
AIM Admission and completion of the Placing, which can only occur
once the De-listing has taken place.
In order to effect the AIM Admission and Placing as well as the
other Proposals, the Company will require, inter alia, Shareholder
approval of the Resolutions at the General Meeting.
Conditional on the Resolutions being approved at the General
Meeting and the Placing Agreement not having been terminated in
accordance with its terms, the Company will apply to cancel the
listing of the Ordinary Shares on the Official List and to trading
on the Main Market and will give 20 Business Days' notice of its
intention to seek their admission to trading on AIM under AIM's
streamlined process for companies that have had their securities
traded on an AIM Designated Market (which includes the Official
List).
It is anticipated that the last day of dealings in the Ordinary
Shares on the Main Market will be 10 February 2015. Cancellation of
the listing of the Ordinary Shares on the Official List will take
effect at 8.00 a.m. on 11 February 2015. AIM Admission is expected
to take place, and dealings in the Ordinary Shares (including the
Placing Shares) are expected to commence on AIM, at 8.00 a.m. on 11
February 2015.
As the Existing Ordinary Shares are currently listed on the
premium segment of the Official List, the AIM Rules do not require
an admission document to be published by the Company in connection
with the Company's admission to trading on AIM. However, in order
to achieve AIM Admission, the Company will be required to publish
an announcement which complies with the requirements of Schedule
One to the AIM Rules comprising information required to be
disclosed by companies transferring their securities from the
Official List, as an AIM Designated Market, to AIM following the
General Meeting if the Resolutions are passed.
Although it is their intention, there is no guarantee that the
Directors will be successful in achieving admission of the Ordinary
Shares to trading on AIM or that the conditions in the Placing
Agreement will be satisfied (or, if applicable, waived).
Risk Factors
For a discussion of the risks and uncertainties which you should
take into account when considering whether to vote in favour of the
Resolutions, Shareholders should refer to Part 2 of the
Circular.
Consequences of the move to AIM
Following AIM Admission, the Company will be subject to the AIM
Rules. Shareholders should note that AIM is self-regulated and that
the protections afforded to investors in AIM companies are less
rigorous than those afforded to investors in companies listed on
the premium segment of the Official List.
While, for the most part, the obligations of a company whose
shares are traded on AIM are similar to those of companies whose
shares are listed on the premium segment of the Official List,
there are certain exceptions.
Following AIM Admission, Ordinary Shares that are held in
uncertificated form will continue to be held and dealt through
CREST. Share certificates representing those Ordinary Shares held
in certificated form will continue to be valid and no new
certificates will be issued in respect of such Ordinary Shares.
The City Code will continue to apply to the Company following
AIM Admission as the Company's registered office is located in the
United Kingdom.
The Board does not currently envisage that the implementation of
the Proposals will result in significant alteration to the
standards of reporting and governance that the Company currently
maintains; however, the Board will keep this under review. The
Board intends to maintain its Audit, Remuneration, Nomination &
Governance and Risk & Compliance Committees which will be
subject to substantially similar terms of reference.
Mr Hamish Ogston and the Company have entered, conditional on
AIM Admission, into a revised version of the existing relationship
agreement between them in order to ensure that the relationship
agreement will continue in force following AIM Admission and to
make certain conforming changes appropriate in the context of an
AIM company. A summary of the revised relationship agreement is
included in section 2 of Part 4 of the Circular.
For a detailed discussion of the consequences of the move to
AIM, Shareholders should refer to Part 1 of the Circular.
Related party transactions
Mr Hamish Ogston and Schroder Investment Management Limited are
related parties of the Company for the purposes of the Listing
Rules as they each have existing shareholdings in the Company that
are greater than ten per cent., being approximately 56.1 per cent.
and 13.0 per cent., respectively. Therefore the proposed
participation by each of Mr Hamish Ogston and Schroder Investment
Management Limited in the Placing will require approval by
independent Shareholders (that is to say, Shareholders other than
the relevant related party).
It is proposed that Mr Hamish Ogston and Schroder Investment
Management Limited will participate in the Placing in respect of
264,144,352 and 61,437,285 Placing Shares, respectively.
Mr Hamish Ogston has irrevocably undertaken to abstain, and to
take all reasonable steps to ensure that his associates (as defined
in the Listing Rules) will abstain, from voting at the General
Meeting in relation to the resolution for the approval of the
related party transaction arising from his participation in the
Placing. It should be noted for these purposes that Schroder
Investment Management Limited is not an associate of Mr Hamish
Ogston and accordingly Schroder Investment Management Limited may
vote at the General Meeting in relation to the resolution for the
approval of the related party transaction arising from Mr Hamish
Ogston's participation in the Placing.
Schroder Investment Management Limited has undertaken to
abstain, and to take all reasonable steps to ensure that its
associates (as defined in the Listing Rules) will abstain, from
voting at the General Meeting in relation to the resolution for the
approval of the related party transaction arising from its
participation in the Placing. It should be noted for these purposes
that Mr Hamish Ogston is not an associate of Schroder Investment
Management Limited and accordingly he may vote at the General
Meeting in relation to the resolution for the approval of the
related party transaction arising from Schroder Investment
Management Limited's participation in the Placing.
Revised relationship agreement
In connection with the Proposals, Mr Hamish Ogston has entered
into a revised relationship agreement with the Company on
materially the same terms as the existing relationship agreement
(subject to certain consequential amendments appropriate to the
context of an AIM company), the effectiveness of which is
conditional on AIM Admission. For further information, please see
paragraph 2(b) of Part 4 of the Circular. Under the revised
relationship agreement, Mr Hamish Ogston will continue to have a
right to appoint a Non-Executive Director to the Board of the
Company.
Information on Phoenix
Phoenix Asset Management Partners is a long-only investment
manager that specialises in making long-term value-based
investments in businesses on the basis of its own detailed primary
research and extensive fieldwork.
The firm began managing assets in May 1998 with the launch of
the Phoenix UK Fund. Phoenix is approximately 90 per cent. owned by
Channon Holdings Limited and just under approximately 10 per cent.
owned by Sir Peter Thompson, the firm's retired non-executive
chairman. Gary Channon has been Chief Investment Officer of the
business since inception. The same core investment team has been in
place for over 13 years.
Phoenix seeks to identify businesses which they regard as
undervalued, having faced short-term challenges, but which remain
fundamentally good businesses. Phoenix does not make investments
based on fixed hold periods and considers itself to be a long term
investor. Phoenix often considers significant investments in
companies which meet its investment criteria at the time of a
significant capital raise. It is currently a 13.5 per cent.
shareholder in the AIM-quoted insurance business Randall &
Quilter Investment Holdings Ltd and was previously a significant
shareholder in Goshawk Insurance Holdings Plc.
Phoenix operates one strategy across all of its funds and is the
investment manager to five clients: the Phoenix UK Fund (a Bahamian
domiciled mutual fund) and four segregated/managed accounts.
Investors in the Phoenix UK Fund consist of a UK university
endowment, family offices, a foundation, a multi-manager scheme,
wealth managers and high net worth individuals. The segregated
accounts manage funds on behalf of a UK pension scheme, a Guernsey
domiciled multi-manager scheme for UK Pension schemes, a UK
university endowment and a family office.
As at 15 December 2014, Phoenix had firm-wide assets under
management of GBP352 million. The Phoenix UK Fund is the largest
client accounting for assets under management of GBP202.0 million.
The four additional segregated mandates range from GBP66.0 million
to GBP10.0 million in size.
The Directors of Phoenix are Mr Gary Channon, Mr Steve Tatters,
Mrs Charlotte Maby and Mr Roger Canham. Phoenix's registered office
and principal place of business is at 64-66 Glentham Road, Barnes,
London SW13 9JJ.
There are no arrangements in place to transfer any Shares to be
acquired by Phoenix under the Placing to any third party.
Phoenix is authorized and regulated by the Financial Conduct
Authority.
Phoenix is aware of the Group's on-going change and Business
Transformation programmes, is investing in support of those
programmes and has no independent plans as regards the Company's
employees and management, assets, pension arrangements, fixed
assets and places of business or strategic direction. Following
completion of the Placing and AIM Admission, Phoenix will have the
right to appoint a Non-Executive Director to the Board.
Certain financial and other information on Phoenix will be
included in the display documents listed in Part 4 of the
Circular.
Waiver of Rule 9 of the City Code
The City Code governs, inter alia, transactions which may result
in a change of control of a public company to which the City Code
applies. Under Rule 9 of the City Code, any person who acquires,
whether by a series of transactions over a period of time or not,
an interest (as such term is defined in the City Code) in shares
which, taken together with the shares in which he and persons
acting in concert with him are interested, carry 30 per cent. or
more of the voting rights in a company which is subject to the City
Code, is normally required to make a general offer to all of the
remaining shareholders to acquire their shares.
Similarly, Rule 9 of the City Code also provides that when any
person, together with persons acting in concert with him, is
interested in shares which, in aggregate, carry more than 30 per
cent. of the voting rights of such company, but does not hold
shares carrying more than 50 per cent. of such voting rights, a
general offer will normally be required if any further interest in
any other shares carrying voting rights is acquired by any such
person, together with persons acting in concert with him.
Such an offer must be in cash and must be at a price not less
than the highest price paid by the person required to make the
offer, or any member of the group of persons acting in concert with
him, for any interest in shares in the company in question during
the 12 months prior to the announcement of the offer (which in this
case is taken to mean announcement of the Placing on 23 December
2014).
None of Phoenix nor any of its directors nor any person acting
in concert with Phoenix currently holds, and has not at any point
in the last 12 months acquired or held, any interest in shares in
the Company nor has either Phoenix or any of its directors or any
person acting in concert with Phoenix engaged in any stock
borrowing or stock lending activity nor taken any short positions
in the Company. None of the Company nor any of its Directors nor
any person acting in concert with the Company currently holds, and
has not at any point in the last 12 months acquired or held, any
interest in shares in Phoenix nor has either Company or any of its
Directors or any person acting in concert with the Company engaged
in any stock borrowing or stock lending activity nor taken any
short positions in Phoenix.
Following completion of the Placing, funds managed by Phoenix
are expected to hold Ordinary Shares carrying approximately 40.0
per cent. of the voting rights of the Company. As such, funds
managed by Phoenix will have an interest in Ordinary Shares
representing more than 30 per cent. of the voting rights of the
Company.
The Takeover Panel has agreed, subject to Resolution 10 being
passed by Independent Shareholders on a poll at the General
Meeting, to waive the requirement under Rule 9 of the City Code
that would otherwise arise as a result of the Placing to make a
general offer to Shareholders as a result of the allotment and
issue by the Company of Ordinary Shares to Phoenix pursuant to the
Placing. The Board is therefore seeking the approval of the
Independent Shareholders to the waiver of Rule 9 pursuant to
Resolution 10.
The Board believes that it is in the best interests of the
Company that Resolution 10 be passed. Schroder Investment
Management Limited and Mr Hamish Ogston are not considered to be
Independent Shareholders for the purposes of Resolution 10 and may
not vote on that Resolution.
As a consequence of Mr Hamish Ogston's holding exceeding 30 per
cent., but falling below 50 per cent., of the Shares carrying
voting rights in the Company, following completion of the Placing,
Mr Hamish Ogston will be unable to increase his interest in
Ordinary Shares without making a general offer to all remaining
Shareholders to acquire their Ordinary Shares.
As a consequence of Phoenix's holding exceeding 30 per cent.,
but remaining below 50 per cent., of the Shares carrying voting
rights in the Company, following completion of the Placing, Phoenix
will be unable to increase its interest in Ordinary Shares without
making a general offer to all remaining Shareholders to acquire
their Ordinary Shares.
Board appointments and disapplication of the Remuneration
Policy
As previously announced in the Group's Half-Yearly Report as of
and for the six months ended 30 June 2014, it has been the
intention of Duncan McIntyre to step down as Non-Executive Chairman
once the Board had a positive way forward on the restructuring of
the Group.
It has today been confirmed that Mr Eric Anstee has agreed to
join the Board and, following his approval by the FCA and the PRA,
has now been appointed to the Board as Chairman-elect with a view
to taking over from Duncan McIntyre as Non-Executive Chairman with
effect from conclusion of the General Meeting. Mr Anstee is
currently a non-executive director on the boards of PayPoint PLC,
Sun Life Financial of Canada, Insight Investment and is a former
chairman of Mansell plc and former CEO of the City of London Group
plc, of the Institute of Chartered Accountants of England and Wales
and of Old Mutual Financial Services. Further details of Mr
Anstee's terms of service and of his other directorships are set
out in Part 4 of the Circular.
Following Duncan McIntyre's departure at the conclusion of the
General Meeting, Mr Anstee will take over as Chairman of the Board
and of the Nomination Committee and will sit on the Audit Committee
and the Remuneration Committee.
Additionally, Mr Les Owen intends to step down as an Independent
Non-Executive Director in the near future and a process to identify
a suitable successor is currently on-going.
New management incentive arrangements
The Company's existing management incentive arrangements were
put in place before the current period of restructuring and
stabilisation of the business. As those arrangements were
implemented on the basis of historic business targets for the
Company, they are no longer applicable to the current business
strategy and are no longer delivering the desired incentive effect.
New incentive arrangements are required to retain and incentivise
the management team.
It is therefore anticipated that, as soon as is practicable
following AIM Admission, new incentive arrangements will be
introduced by the Company to provide suitable motivation to
management whose retention and motivation is central to successful
delivery of the business plan.
No firm plans have been put in place yet with regard to the
nature and design of these new incentive arrangements but they are
expected to comprise a combination of some or both of Ordinary
Shares and cash and take the form of annual bonus arrangements
combined with short-term, mid-term and long-term equity/cash
incentive arrangements. It is anticipated that a combined approach
will be most effective as a retention and incentive tool.
The new cash and equity incentive arrangements will be designed
to seek to align management with the interest of shareholders and
to reward management in a manner which supports successful delivery
of the business plan and reflects the creation of value for
Shareholders.
To the extent that such incentive arrangements may require the
issue of Ordinary Shares, at the date of grant of an award, a
dilution limit will be applied (by reference to the issued share
capital at the date of grant of an award). This dilution limit will
be determined by the Remuneration Committee in its discretion,
after taking advice as appropriate and applied taking into account
any Ordinary Shares which have been or may be issued pursuant to
awards granted under any employee share plan of the Company in the
ten years prior to the date of the proposed grant. The new
Chairman's award described above will not form part of this
dilution limit and nor will any Ordinary Shares which are subject
to awards or options which have been granted prior to AIM
Admission.
Subject to obtaining such approvals as are required from the FCA
under the VVOPs, it is expected that the new equity incentive
arrangements will be put in place as soon as is practicable
following AIM Admission.
General Meeting
Set out in the Circular is a notice convening the General
Meeting of the Company to be held at 10:30 a.m. on 13 January 2015
at the offices of Eversheds LLP at One Wood Street, London, EC2V
7WS at which the Resolutions summarised below will be proposed:
Resolution 1 - Capital Reorganisation
Resolution 1 will be proposed as an ordinary resolution of the
Company. Pursuant to the Capital Reorganisation, it is proposed
that each Existing Ordinary Share with a nominal value of 10 pence
is subdivided and re-designated into one Ordinary Share of 1 penny
and one Deferred Share of 9 pence.
Resolution 2 - Amendments to the Existing Articles
Resolution 2 will be proposed as a special resolution to enable
the Directors to make consequential amendments to the Existing
Articles in order to include provisions in respect of the Deferred
Shares. As explained in section 5 above, the Deferred Shares will
have no voting rights, no rights as to dividends and only very
limited rights on a return of capital.
Resolution 3 - authority to allot
An ordinary resolution to authorise the Directors to allot up to
666,666,667 new Ordinary Shares in the Company in connection with
the Placing, representing approximately 388.3 per cent. of the
total issued ordinary share capital of the Company (as at 22
December 2014, being the last Business Day prior to the publication
of this announcement), excluding treasury shares, and otherwise, up
to an aggregate nominal value of GBP2,791,594.30 (representing
approximately 33.3 per cent. of the Enlarged Share Capital). This
authority will expire at the conclusion of the next annual general
meeting of the Company. As at the date of this announcement, the
Company holds no Ordinary Shares in treasury.
Resolution 4 - disapplication of pre-emption rights
A special resolution to disapply statutory shareholder
pre-emption rights in relation to the issue of the 666,666,667
Placing Shares pursuant to the Placing (representing approximately
388.3 per cent. of the total issued ordinary share capital of the
Company (as at 22 December 2014, being the last Business Day prior
to the publication of this announcement) and in relation to the
issue of up to 41,915,830 new Ordinary Shares (representing
approximately five per cent. of the Enlarged Share Capital) for
cash on a non-preemptive basis following AIM Admission.
Resolution 5 - approval of the related party transaction with Mr
Hamish Ogston
An ordinary resolution to authorise the related party
transaction arising from the participation of Mr Hamish Ogston in
the Placing.
Resolution 6 - approval of the related party transaction with
Schroder Investment Management Limited
An ordinary resolution to authorise the related party
transaction arising from the participation of Schroder Investment
Management Limited in the Placing.
Resolution 7 - approval of the De-listing and AIM Admission
A special resolution to approve the De-listing and AIM
Admission.
Resolution 8 - independent approval of the De-listing
An ordinary resolution of independent Shareholders (i.e.
Shareholders other than Mr Hamish Ogston, who is a controlling
shareholder as defined in the Listing Rules) to approve the
De-listing of the Company from the Official List and AIM
Admission.
Resolution 9 - approval of the Placing being effected at the
Placing Price
An ordinary resolution of Shareholders to approve the Placing
being effected at the Placing Price, which represents a greater
than 10 per cent. discount to the middle market price, in
accordance with Listing Rule 9.5.10R(3).
Resolution 10 - waiver of Rule 9 Mandatory Offer
An ordinary resolution of Independent Shareholders to approve
the waiver of Rule 9 of the City Code following the acquisition by
funds managed by Phoenix of an interest in Ordinary Shares carrying
more than 30 per cent. of the voting rights in the Company as a
result of the Placing, as required by the Takeover Panel. In
accordance with the requirements of the City Code, this resolution
will be subject to a vote on a poll.
Resolution 11 - disapplication of Remuneration Policy
In accordance with section 439A of the Companies Act 2006,
shareholders approved the Company's remuneration policy section of
the Directors' remuneration report for the year ending 31 December
2013, at the Company's Annual General Meeting on 16 June 2014. The
Remuneration Policy is set out on pages 43 to 47 of the 2013 Annual
Report.
The Company's Remuneration Policy currently does not permit the
Company to introduce new incentive arrangements of the form which
are expected to be put in place for the new Chairman or for
management.
Therefore, in anticipation of and conditional upon the approval
of the De-listing and AIM Admission, and in preparation for the
introduction of a new incentive arrangement for the Chairman and
management/employees, an ordinary resolution of Shareholders is
being proposed at the General Meeting to approve the disapplication
of the Remuneration Policy.
Irrevocable undertakings
Mr Hamish Ogston has given an irrevocable undertaking to vote in
favour of the Resolutions, excluding Resolutions 5 (to approve his
own participation in the Placing, which constitutes a related party
transaction under the Listing Rules), 8 (to approve De-listing as
he is a controlling shareholder), 10 (to approve the Rule 9 Waiver)
and 11 (to disapply the Remuneration Policy) in respect of his
entire beneficial holding of Existing Ordinary Shares, totalling
96,331,789 Existing Ordinary Shares, representing approximately
56.1 per cent. of the Existing Ordinary Shares. This undertaking
expires on the earlier of the conclusion of the General Meeting and
31 January 2015 and does not provide for any termination
rights.
Schroder Investment Management Limited has also given an
irrevocable undertaking to vote in favour of the Resolutions,
excluding Resolutions 6 (to approve its own participation in the
Placing, which constitutes a related party transaction under the
Listing Rules) and 10 (to approve the Rule 9 Waiver) in respect of
its entire beneficial holding of Existing Ordinary Shares,
totalling 22,310,544 Existing Ordinary Shares, representing
approximately 13.0 per cent. of the Existing Ordinary Shares. This
undertaking has no expiry date and does not provide for any
termination rights.
Importance of vote
As part of its on-going evaluation of options to strengthen the
Group's capital position to support the future development of the
Company, the Board has been actively engaged in the preparation of
plans to restructure the Group's balance sheet and to determine the
appropriate UK listing venue for the Company going forward.
As explained above, the Group requires capital in order to
settle the Deferred Commission and interest thereon, prepay in part
the Bank Facility, invest in new IT infrastructure and IT systems
to implement a modern, cost-effective IT infrastructure and to fund
in part elements of the Group's Business Transformation programme
and related costs of change.
Accordingly, the Board has, following its evaluation of the
options available, determined to proceed with the Proposals, which
require the approval of all (and not some only) of the Resolutions
(other than the resolution to be proposed to disapply the Company's
Remuneration Policy) as set out in the Notice of General
Meeting.
If the Resolutions (other than the resolution to be proposed to
disapply the Company's Remuneration Policy) are not all passed, or
if the Resolutions are passed but the Proposals do not proceed (for
example, because the conditions precedent under the Placing
Agreement are not satisfied or the Placing Agreement is
terminated), the prepayment in part of the Bank Facility and the
Amended and Restated Bank Facility (including the waiver of any
event of default under the Group's Bank Facility arising from the
Group's entry into the Business Partner Agreement to settle the
Deferred Commission incorporated therein) may not become
unconditionally effective.
In such circumstances, the steps that the Group has taken to
settle the Deferred Commission and to prepay in part the Bank
Facility may constitute an event of default under the Bank Facility
and the Commission Deferral Agreement, entitling the Lenders and
the parties to the Commission Deferral Agreement to declare the
amounts outstanding under the Bank Facility and the Commission
Deferral Agreement immediately due and payable.
If the Lenders were to declare an event of default under the
Bank Facility and/or the relevant Business Partners were to declare
an event of default under the Commission Deferral Agreement, the
Bank Facility and the Deferred Commission may potentially become
immediately repayable on demand. Currently, the Group's existing
cash resources alone would not be sufficient to repay the Bank
Facility and the Deferred Commission in full and the Board believes
that there is a significant risk that the Group would not be able
to put alternative financing arrangements in place prior to an
event of default being declared and the Bank Facility and the
Deferred Commission becoming repayable. In such circumstances, the
Company and certain other members of the Group would likely need to
cease trading.
Additionally, if the Resolutions (other than the resolution to
be proposed to disapply the Company's Remuneration Policy) are not
all passed, or if the Resolutions are passed but the Proposals do
not proceed, even if the Group were to agree a waiver with its
lenders in respect of any event of default under the Bank Facility
and the Commission Deferral Agreement, the Group will not receive
the proceeds from the Placing and the proposed settlement of the
Deferred Commission will not become unconditional.
To the extent that the Deferred Commission is not settled as a
result of the Proposals failing to proceed, and the Group is unable
to arrange alternative financing prior to the Bank Facility and the
Deferred Commission becoming repayable in full (whether as a result
of an event of default or on reaching their respective maturity
dates) or other matters arise such that it can be anticipated that
there will be a working capital shortfall, there are a number of
options which the Board has considered and which the Group could
seek to take (but none of which give the Board confidence that, on
the facts currently known to the Board, any such working capital
shortfall will be capable of being addressed in the time available,
or at all).
These include, in the Directors' view of the order of
practicability:
-- seeking to obtain additional equity financing or new debt
financing - however, given the on-going risks the Group faces and
the restrictions on grants of security under the terms of the
VVOPs, it is likely to prove difficult to obtain any such financing
on commercially acceptable terms or at all;
-- seeking to release additional capital from CPPL and/or HIL -
however, given the restrictions on grants of security under the
terms of the VVOPs, the requirement for FCA and lender consent to
access this capital, the statutory requirement on CPPL and HIL to
maintain minimum levels of regulatory capital and the potential
impact on CPPL and HIL of any further redress obligations in
relation to UK customers who were outside the scope of the Scheme
or to non-UK customers, the Board is not confident that it will be
able to access further capital from CPPL or HIL in a sufficient
amount to meet the working capital shortfall, or at all;
-- extending the current management action to reduce the Group's
cost base - the Group is already implementing an extensive cash
conservation and cost management plan (which has included measures
to reduce headcount, the closure of the Group's operations in
France and Singapore in 2014, implementing the exit of Hong Kong
and Brazil and closure of two of the Group's three offices in the
UK). In the event that the Group needs access to increased working
capital, additional, wider-reaching measures could be introduced in
order to reduce costs further, albeit that these are likely to
result in a further reduction in the Group's operations, both
nationally and internationally, and to have an adverse effect on
the Group's future revenues and growth prospects and may in any
event be insufficient to address any working capital shortfall
within the time available, or at all; and
-- disposing of other assets - over the last two years, the
Group has disposed of its North American business and its interest
in other non-core UK businesses and could consider a number of
further asset disposals, including of certain smaller assets that
may be available for disposal. However, there can be no assurance
that the Group will be able to dispose of such assets on
advantageous terms, or at all, as given the Company's reduced size
and market capitalisation, it is more likely that such disposals
may be significant transactions for the purposes of Listing Rule
10, requiring publication of circulars and approval in General
Meeting, which may become increasingly onerous in terms of time and
expense. Additionally, as many of the Group's operations are
dependent on centrally provided IT systems and infrastructure,
asset disposals may be less attractive to potential purchasers
given the resulting need for transitional service arrangements to
support the disposed assets.
Given the significant uncertainties faced by the Group as a
result of its operating environment and potential residual redress
obligations in the UK and other jurisdictions, particularly those
which are not yet sufficiently certain for the Board to determine
the quantum of any such obligations and to make suitable provision
for them, it is very difficult for the Board to determine with
reasonable certainty the amount and timing of any working capital
shortfall that may arise, and unless the Proposals proceed, there
will continue to be material uncertainty that casts significant
doubt as to the Group's ability to continue as a going concern and
to realise its assets and discharge its liabilities in the normal
course of business.
In the event that a working capital shortfall arises, whether as
a result of any inability to settle the Deferred Commission as a
result of the failure of the Proposals to proceed or otherwise, and
the measures described above are not sufficient to address it, the
Company and certain other members of the Group would likely need to
cease trading.
Currently, in circumstances where the Group was unable to
proceed with the Proposals, the Board is not confident that the
Group would have a reasonable prospect of being able to refinance
the Deferred Commission or the Bank Facility prior to their
respective maturity dates. Consequently, it is likely that in such
circumstances the Board would conclude that the Company and certain
other members of the Group would need to cease trading in order to
maximise returns to creditors and Shareholders.
The date on which the Directors may conclude that the Company
and other members of the Group should cease to trade will depend
on, among other things, the Company's and its subsidiaries' trading
positions at any time and the Company's and its subsidiaries'
prospects of discharging their respective liabilities, including
repayment of the Bank Facility and the Deferred Commission.
The consequences of a cessation of trading, whether as a result
of any of the circumstances described above or otherwise, would be
likely to include administration or other insolvency process.
Accordingly, the Board stresses that it is very important that
Shareholders vote in favour of the Resolutions at the General
Meeting in order to enable the Proposals to proceed.
Recommendations
The Proposals
The Board believes that the Proposals, including the Capital
Reorganisation, the Placing, the De-listing, AIM Admission and
disapplication of the Remuneration Policy, and therefore the
Resolutions to be voted on, are in the best interests of the
Company and Shareholders as a whole.
The Board, considers, having been so advised by the Company's
sponsor, Numis Securities, the terms of the Placing, including the
participation therein by Mr Hamish Ogston and Schroder Investment
Management Limited, to be fair and reasonable as far as the
Shareholders are concerned. In providing advice to the Directors,
Numis Securities has taken into account the commercial assessment
of the Directors.
Proposals and Rule 9 Waiver
In addition, the Directors, having been so advised by Kinmont,
the Company's independent financial adviser for the purposes of the
City Code, consider the Proposals and the waiver of Rule 9 of the
City Code proposed as Resolution 10 to be fair and reasonable and
in the best interests of Shareholders and the Company as a
whole.
Accordingly your Board unanimously recommends that Shareholders
vote in favour (and in the case of Resolution 10 that the
Independent Shareholders vote in favour) of the Resolutions set out
in the Notice of General Meeting, as they intend to do in respect
of their own beneficial holdings which amount to 36,324 Ordinary
Shares (representing approximately 0.02 per cent. of the existing
issued ordinary share capital of the Company as at 22 December
2014, the last practicable day prior to publication of this
announcement).
EXPECTED TIMETABLE
The expected timetable for the principal events is set out
below:
2014
Date of this announcement 23 December
2015
Latest time and date for receipt of Forms of 10:30 a.m. on 9
Proxy January
General Meeting 10:30 a.m. on 13
January
Capital Reorganisation Record Date 6 p.m. on 13 January
Last day of dealings in the Ordinary Shares 10 February
on the Main Market
Cancellation of listing of the Ordinary Shares 8.00 a.m. on 11
on the Official List February
AIM Admission and commencement of dealings 8.00 a.m. on 11
in the Ordinary Shares (including the Placing February
Shares) on AIM
CREST accounts credited with Placing Shares 8.00 a.m. or as
in uncertificated form soon as possible
thereafter on 11
February
Dispatch of definitive share certificates in by 18 February
respect of the Placing Shares to be issued
in certificated form
Notes:
(1) Each of the times and dates above are indicative only and
are subject to change. If any of the above times and/or dates
change, the revised times and/or dates will be notified by the
Company to Shareholders by announcement through a regulatory
information service.
(2) All of the above times refer to London time, unless otherwise stated.
(3) The Placing, De-listing and AIM Admission are conditional
on, inter alia, the passing of the Resolutions at the General
Meeting.
DEFINITIONS
The following definitions apply throughout this announcement,
unless the context otherwise requires:
"2006 Act" the Companies Act 2006, as amended
"AIM" AIM, a market operated by the London
Stock Exchange
"AIM Admission" the admission of the Ordinary Shares
(including the Placing Shares) to
trading on AIM
"AIM Designated Market" a market whose name appears in the
latest publication by the London
Stock Exchange of the document entitled
"The AIM Designated Market Route"
"AIM Rules" the AIM Rules for Companies published
by the London Stock Exchange from
time to time
"Amended Articles" the articles of association of the
Company as amended following the
passing of Resolution 2 at the General
Meeting, further details of which
are set out in Resolution 2 in the
Notice of General Meeting
"Amended and Restated the Group's GBP5.0 million multicurrency
Facility" revolving credit facility entered
into with the Continuing Lender
on the date of this announcement,
which is conditional on AIM Admission
and completion of the Placing
"Annual Renewal Rate" the net amount of annual retail
policies remaining on the book after
the scheduled renewal date, as a
proportion of those available to
renew
"Bank Facility" the Group's GBP13.0 million multicurrency
revolving credit facility advanced
by the Lenders
"Board" or "Directors" the board of directors of the Company
"Business Day" any day on which the banks are generally
open for business in England and
Wales for the transaction of business,
other than a Saturday, Sunday or
public holiday
"Business Partner Agreement" the conditional agreement entered
into among CPPL and certain of the
Group's Business Partners on 22
December 2014 settling the Group's
obligation to repay the Deferred
Commission and interest thereon
"Business Partners" those organisations and companies
which provide access for the Group
to their customer base for the sale
of the Group's products and services,
in return for commissions payable
by the Group and/or other benefits
"Capital Reorganisation" the proposed sub-division and re-designation
of the Ordinary Shares, details
of which are set out in this announcement,
to be effected by the passing of
Resolutions 1 and 2
"Capital Reorganisation 6.00 p.m. on 13 January 2015
Record Date"
"Card Protection" those products and services sold
by the Group under the "Card Protection"
name
"certificated" or "in a share or other security not held
certificated form" in uncertificated form (i.e. not
in CREST)
"Circular" the circular to Shareholders to
be published on or about the date
hereof in connection with the Proposals
and the Waiver of Rule 9 under the
City Code
"City Code" the City Code on Takeovers and Mergers,
"Company" CPPGroup Plc
"Commission Deferral the agreement entered into among
Agreement" CPPL and certain of the Group's
Business Partners on 31 July 2013
deferring the Group's obligation
to pay commission and providing
for the payment of interest thereon
until 31 July 2017
"Continuing Lender" the lender under the Amended and
Restated Facility, being Barclays
Bank PLC
"Corporate Governance the UK Corporate Governance Code
Code" issued by the Financial Reporting
Council, as amended from time to
time
"CPPL" Card Protection Plan Limited, a
regulated, wholly owned indirect
subsidiary of the Company
"CREST" the relevant system (as defined
in the CREST Regulations)
"CREST Manual" the manual, as amended from time
to time, produced by Euroclear describing
the CREST system, and supplied by
Euroclear to users and participants
thereof
"CREST Regulations" the Uncertificated Securities Regulations
2001, as amended from time to time
"De-listing" the cancellation of the listing
of the Ordinary Shares on the Official
List and from trading on the Main
Market
"Deferred Commission" the commission in the amount of
approximately GBP20.8 million (with
accrued interest) owing by the Group
to certain of its Business Partners
pursuant to the Commission Deferral
Agreement as at the date of this
announcement
"Deferred Shares" the new deferred shares of 9 pence
each in the capital of the Company
arising from the Capital Reorganisation
and having the rights set out in
the Amended Articles
"Disclosure and Transparency the disclosure rules and transparency
Rules" or "DTRs" rules made by the FCA under Part
VI of FSMA, as amended from time
to time
"Enlarged Share Capital" the expected issued ordinary share
capital of the Company outstanding
immediately following completion
of the Placing
"Euroclear" Euroclear UK & Ireland Limited
"Existing Articles" the articles of association of the
Company as at the date of this announcement
"Existing Ordinary Shares" the Ordinary Shares issued and outstanding
as at the last Business Day prior
to the date of this announcement
"FCA" the Financial Conduct Authority
of the UK in its capacity as the
competent authority for the purposes
of Part VI of FSMA and in the exercise
of its functions in respect of admission
to the premium listing segment of
the Official List
"FCA Investigation" the investigation by the FCA of
CPPL in relation to UK sales of
its Card Protection and Identity
Protection products, which was resolved
by agreement between CPPL and the
FCA and publication of a Final Notice
by the FCA on 15 November 2012,
and the agreement by CPPL to make
a phased payment of a financial
penalty of GBP10.5 million
"Form of Proxy" the enclosed form of proxy for use
by Shareholders in connection with
the General Meeting
"FSMA" the Financial Services and Markets
Act 2000, as amended
"General Meeting" the general meeting of the Company
convened for 10:30 a.m. on 13 January
2015, notice of which is set out
at the end of the Circular
"Group" the Company and its subsidiary undertakings
as defined in section 1162 of the
2006 Act
"Hamish Ogston Undertaking" the irrevocable undertaking given
by Hamish Ogston to vote in favour
of the Resolutions, excluding Resolutions
5 (to approve his own participation
in the Placing), 8 (to approve De-listing)
and 12 in respect of his beneficial
holding of Existing Ordinary Shares
"HIL" Homecare Insurance Ltd, a regulated,
wholly owned indirect subsidiary
of the Company
"Kinmont" Kinmont Limited, which is authorised
and regulated in the United Kingdom
by the FCA
"Identity Protection" those products and services sold
by the Group under the "Identity
Protection" name
"Illustrative Projections" the summary illustrative financial
projections of the Group's revenue
for the twelve month periods ending
31 December 2014, 31 December 2015
and 31 December 2016, prepared by
the Directors and set out in summary
form in Part 3 of the Circular
"Independent Shareholders" (for the purposes of Resolution
10 in connection with the Rule 9
Waiver) all Shareholders other than
Mr Hamish Ogston and Schroder Investment
Management Limited
"Lenders" the current lenders under the Bank
Facility, being each of Endless
LLP and Barclays Bank PLC
"Listing Rules" the listing rules made by the FCA
under Part VI of FSMA, as amended
from time to time
"London Stock Exchange" London Stock Exchange plc
"Main Market" the regulated market of the London
Stock Exchange
"Notice" or "Notice of the notice of the General Meeting
General Meeting" set out at the end of the Circular
"Numis Securities" Numis Securities Limited, which
is authorised and regulated in the
United Kingdom by the FCA
"Official List" the daily official list of listed
securities maintained by the FCA
"Ordinary Shares" the issued ordinary shares of 10
pence each in the capital of the
Company, each such ordinary share
to be sub-divided and re-designated
into one new ordinary share of 1
penny and one new deferred share
of 9 pence following completion
of the Capital Reorganisation
"Original Lenders" the original lenders under the Bank
Facility, being each of Barclays
Bank PLC, the Royal Bank of Scotland
PLC and Santander UK Plc
"Phoenix" Phoenix Asset Management Partners
Limited
"Placing" the proposed placing by Numis Securities
on behalf of the Company of the
Placing Shares
"Placing Agreement" the conditional agreement between
the Company and Numis Securities
dated 23 December 2014 relating
to the Placing
"Placing Price" the price of 3 pence per Placing
Share
"Placing Shares" the 666,666,667 new Ordinary Shares
conditionally placed pursuant to
the Placing with investors that
will be allotted subject to (inter
alia) the passing of the Resolutions,
De-listing and AIM Admission
"PRA" the Prudential Regulatory Authority
of the UK in its capacity as the
competent authority set up under
Part 1A of FSMA
"Profit Targets" the target operating profit before
exceptional items and target cash
generated by operations before exceptional
items for the year ending 31 December
2016 prepared by the Directors and
set out in summary form in Part
3 of the Circular
"Proposals" the Capital Reorganisation, the
Placing, the De-listing and AIM
Admission and the additional authorities
set out in the Resolutions, together
with settlement of the Deferred
Commission and prepayment in part
of the Bank Facility
"Regulation S" Regulation S under the Securities
Act
"Remuneration Policy" the Company's remuneration policy
approved by Shareholders at the
Company's annual general meeting
on 16 June 2014, as set out on pages
43 to 47 of the 2013 Annual Report
"Resolutions" the resolutions to be proposed at
the General Meeting, as set out
in the Notice of General Meeting
"ROI" Republic of Ireland
"Scheme" the UK solvent creditor scheme of
arrangement under Part 26 of the
Companies Act 2006 entered into
in connection with certain of CPPL's
customer redress obligations which
became effective on 31 January 2014
and for which the bar date for submitting
a claim was 30 August 2014
"Securities Act" the United States Securities Act
of 1933, as amended
"Shareholders" holders of Ordinary Shares
"Schroder Investment the undertaking given by Schroder
Management Undertaking Investment Management Limited to
vote in favour of the Resolutions,
excluding Resolution 6 (to approve
its own participation in the Placing)
in respect of its beneficial holding
of Existing Ordinary Shares
"Takeover Panel" the UK Panel on Takeovers and Mergers
"uncertificated" or "in recorded on the register of members
uncertificated form" of the Company as being held in
uncertificated form in CREST and
title to which, by virtue of the
CREST Regulations, may be transferred
by means of CREST
"Undertakings" the Hamish Ogston Undertaking and
the Schroder Investment Management
Undertaking.
"U.S. person" as defined in Regulation S under
the Securities Act
"VVOPs" the voluntary variations of permission
agreed with the FCA in relation
to CPPL and HIL on 15 November 2012
This information is provided by RNS
The company news service from the London Stock Exchange
END
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