TIDMGHE
RNS Number : 4658E
Gresham House PLC
04 November 2015
4 November 2015
THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS
RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN
WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM THE
UNITED STATES OF AMERICA, CANADA, JAPAN, THE REPUBLIC OF SOUTH
AFRICA, AUSTRALIA OR ANY OTHER JURISDICTION IN WHICH SUCH RELEASE,
PUBLICATION OR DISTRIBUTION MAY CONTRAVENE LOCAL SECURITIES LAWS OR
REGULATIONS.
Gresham House plc (AIM: GHE)
Proposed Acquisition of Aitchesse Limited, Admission of the
Enlarged Share Capital and Shareholder Warrants to trading on AIM,
approval of Incentive Arrangements and Notice of General
Meeting
Gresham House plc ("Gresham House" or "the Company"), the
specialist asset manager focused on alternative investment
strategies and illiquid asset classes, today announces that its
wholly owned subsidiary, Gresham House Holdings Limited ("GHHL"),
has agreed to acquire 100% of Aitchesse Limited ("Aitchesse"), one
of the leading managers of UK commercial forestry, for a maximum
consideration of GBP7.7m. The acquisition is a significant
milestone for Gresham House and marks the launch of the Gresham
House Real Assets division.
Highlights:
-- Proposed acquisition of one of the leading asset managers of
UK commercial forestry for a maximum consideration of GBP7.7m
funded from a combination of cash, loan notes and Gresham House
shares.
- Aitchesse has assets under management of circa GBP193m across
a mix of managed accounts on behalf of endowments, family offices
and private individuals.
-- Transaction
- GHHL will acquire 100% of Aitchesse for a maximum
consideration of GBP7.7m. On completion, the Company will pay
approximately GBP4.0m made up of GBP1.8m of cash, GBP0.7m of short
term loan notes and GBP1.5m in Gresham House shares at 298.5p,
based on last reported NAV at 30 June 2015.
- The remaining GBP3.7m, made up of up to GBP1.5m of cash and
GBP2.2m of shares, will be paid based on Aitchesse successfully
delivering against performance targets for the period 1 July 2015
to 28 February 2018.
-- The Acquisition constitutes a reverse takeover under the AIM
Rules for Companies and is conditional on Gresham House
Shareholders' approval which will be sought at a General Meeting to
be held at 2:30 p.m. on 20 November 2015.
-- On completion of the Acquisition, Gresham House will become a
trading company and consequently it will cease to be subject to
those AIM Rules that relate to Investing Companies.
-- Gresham House also is seeking Shareholder approval to
implement a long term incentive plan to align the interests of
Shareholders and management in the long-term success of the
Company.
Other developments:
-- The Company has received notification from the FCA that it is
minded to authorise Gresham House Asset Management, subject to
completion of certain administrative steps that are within the
control of the Company and that are expected to be completed by the
end of November 2015.
-- The Company is currently in negotiation with two banks
regarding a new bank facility and has received a credit committee
approved letter of offer from both. The proposal offers are for
bank facilities of approximately GBP7m with an interest rate of
approximately 5.25 per cent. per annum. Whilst there is no
guarantee that a facility will be entered into, the Company intends
to use the loan facility to (i) repay the loan notes to be issued
to the sellers of Aitchesse; (ii) replace the Co-operative Bank
facility; and (iii) deploy the balance of the loan to fund future
investment opportunities.
Anthony Dalwood, CEO of Gresham House said:
"Following the recent award of our first advisory mandate in our
Strategic Equity Division for Gresham House Strategic plc, the
acquisition of Aitchesse will generate the first business platform
in our Real Assets Division.
"This deal represents another significant achievement for
Gresham House as we continue to develop organically and through
acquisitions. This value enhancing acquisition supports our
objective of increasing shareholder value through building AUM to
create long term sustainable profits."
Rupert Robinson, Managing Director of Gresham House Asset
Management said:
"I am excited about working with Aitchesse to establish new
funds and co-investment opportunities. We will also invest in
Aitchesse's infrastructure and asset management resources. Our aim
is to deliver attractive returns for our investors and make this
asset class more accessible to institutional, family office and
high-net-worth investors.
"The attraction of investing in trees is that they grow
irrespective of whether financial markets are rising or falling.
They grow not only in volume but also become more valuable as they
mature. The IPD UK Annual Forestry index has outperformed both
equities and bonds over the last 20 years.
"Forestry offers investors a unique combination of long term
superior risk adjusted returns and the opportunity for individuals
to pass on wealth from one generation to another free of
inheritance tax."
Digby Guy, Founder and Chairman of Aitchesse said:
"When I founded Aitchesse in 2002 one of my objectives was to
develop a client proposition that would be attractive to long term
investors because I felt strongly that forestry was such a good fit
for institutions and families. Now with an experienced team and
proven track record we are ready to take the next step. We believe
strongly in the long term investment opportunity in UK forestry and
in Gresham House we have a partner who will enable us to capitalise
on the team's expertise in forestry management while increasing
awareness and accessibility to this attractive asset class."
The Gresham House Real Assets Division aims to offer investors
access to investment strategies that have distinct return drivers
and are backed by physical assets. Strategies are typically
characterised by a low correlation with traditional asset classes
and a positive link to inflation.
Forestry's superior investment returns are generated from
biological growth, long term increases in land and timber prices,
and through exploiting other development opportunities such as wind
farms, hydroelectric power and telecoms infrastructure. The asset
class also benefits from significant tax advantages:
-- All income from UK timber sales is free of income and
corporation tax
-- Growing timber is exempt from capital gains tax
-- After two years of ownership commercial forestry qualifies
for 100% business property relief making it IHT exempt
The Acquisition constitutes a reverse takeover under Rule 14 of
the AIM Rules for Companies and is therefore conditional, inter
alia, on approval by Shareholders which will be sought at a general
meeting of the Company to be held on 20 November 2015 at 2.30 p.m.
at the offices of Travers Smith LLP, 10 Snow Hill, London EC1A 2AL,
notice of which will be set out at the end of the Admission
Document which will be posted to Shareholders and Warrantholders
today and will be available on the Company's website:
www.greshamhouse.com.
Enquiries:
Gresham House plc 0203 837 6278
Tony Dalwood, Chief Executive
Officer
Rupert Robinson, MD Gresham
House Asset Management
Montfort Communications, PR greshamhouse@montfort.london
Adviser
Gay Collins 07798 626282
Rory King 07917 086227
Liberum Capital Limited, Nomad
and Broker 020 3100 2000
Neil Elliot
Jill Li
This announcement is for information purposes only and is not
intended to and does not constitute or form part of an offer to
sell or subscribe for or any invitation to purchase or subscribe
for any securities or the solicitation of an offer to buy any
securities, pursuant to the Proposals or otherwise. The Proposals
will be implemented solely by means of the Admission Document which
will contain the full terms and conditions of the Proposals,
including details of how to vote in respect of the Resolutions.
The distribution of this announcement in or into jurisdictions
other than the United Kingdom may be restricted by law and
therefore any persons who are subject to the laws of any
jurisdiction other than the United Kingdom should inform themselves
about, and observe, such restrictions. Any failure to comply with
the applicable restrictions may constitute a violation of the
securities laws of any such jurisdiction. Subject to certain
exceptions, this announcement is not for release, publication or
distribution, directly or indirectly, in or into the United States,
Australia, Canada, the Republic of South Africa, Japan or any
jurisdiction where to do so might constitute a violation of local
securities laws or regulations.
Liberum Capital Limited, which is authorised and regulated in
the United Kingdom by the Financial Conduct Authority, is acting as
nominated adviser and broker to Gresham House plc and is acting for
no-one else in connection with the contents of this announcement,
and will not be responsible to anyone other than Gresham House plc
for providing the protections afforded to clients of Liberum
Capital Limited nor for providing advice in connection with the
contents of this announcement or any other matter referred to
herein. Liberum Capital Limited is not responsible for the contents
of this announcement. This does not exclude or limit the
responsibilities, if any, which Liberum Capital Limited may have
under the Financial Services and Markets Act 2000 or the regulatory
regime established thereunder.
Forward-looking Statements
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This announcement includes statements that are, or may be deemed
to be, "forward-looking statements". These forward-looking
statements can be identified by the use of forward-looking
terminology, including the terms "believes", "estimates", "plans",
"anticipates", "targets", "aims", "continues", "expects",
"intends", "hopes", "may", "will", "would", "could" or "should" or,
in each case, their negative or other variations or comparable
terminology.
These forward-looking statements include matters that are not
facts. They appear in a number of places throughout this
announcement and include statements regarding the Directors'
intentions, beliefs or current expectations concerning, amongst
other things, the Enlarged Group's results of operations, financial
condition, liquidity, prospects, growth, strategies and the
industries in which the Enlarged Group operates. By their nature,
forward-looking statements involve risk and uncertainty because
they relate to future events and circumstances. A number of factors
could cause actual results and developments to differ materially
from those expressed or implied by the forward-looking statements,
including, without limitation: ability to find appropriate
investments in which to invest and to realise investments held by
the Enlarged Group; conditions in the public markets; the market
position of the Enlarged Group; the earnings, financial position,
cash flows, return on capital and operating margins of the Enlarged
Group; the anticipated investments and capital expenditures of the
Enlarged Group; changing business or other market conditions; and
general economic conditions. These and other factors could
adversely affect the outcome and financial effects of the plans and
events described herein. Forward-looking statements contained in
this announcement based on past trends or activities should not be
taken as a representation that such trends or activities will
continue in the future. Subject to any requirement under the
Prospectus Rules, the Disclosure and Transparency Rules, the AIM
Rules for Companies or other applicable legislation or regulation,
neither the Company nor Liberum undertake any obligation to update
or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. Investors should not
place undue reliance on forward-looking statements, which speak
only as of the date of this announcement.
Proposed Acquisition of Aitchesse Limited, Admission of the
Enlarged Share Capital and Shareholder Warrants to trading on AIM,
approval of Incentive Arrangements and Notice of General
Meeting
1. Introduction
The Company is pleased to announce that Gresham House Holdings
Limited (a wholly owned subsidiary of the Company) had agreed to
acquire the entire issued and to be issued share capital of
Aitchesse, an asset management company based in Scotland that
focuses on managing forestry and timber assets.
The consideration for the acquisition comprises initial
consideration of GBP4.02 million and, subject to achieving an
EBITDA target, up to GBP3.47 million of additional consideration.
The initial consideration is to be satisfied by the payment of
GBP1.84 million in cash (of which GBP0.37 million shall be used to
repay to Aitchesse amounts owing by certain of the Sellers),
GBP0.67 million by the issue of the Short Term Loan Notes to the
Sellers and GBP1.5 million by the issue of 507,522 Ordinary Shares
(based on a price of 298.5p per Ordinary Share (being the NAV at 30
June 2015)). The initial cash consideration will be satisfied out
of the Group's existing cash resources. Subject to achieving an
EBITDA target during the period to 28 February 2018, the additional
consideration is to be satisfied by the payment of up to GBP1.50
million in cash and up to GBP2.20 million by the issue of up to
736,074 Ordinary Shares to the Sellers (based on a price of 298.5p
per Ordinary Share).
The Acquisition constitutes a reverse takeover under the AIM
Rules for Companies and is therefore conditional, inter alia, upon
the approval of Gresham House Shareholders at the General Meeting
of the Company to be held at Travers Smith LLP, 10 Snow Hill,
London EC1A 2AL at 2.30 p.m. on 20 November 2015 and Admission
taking place.
The Acquisition, if completed, will result in Gresham House
becoming a trading company instead of an investing company and
consequently it will cease to be subject to those AIM Rules that
relate to Investing Companies.
As initially highlighted in the admission document issued by the
Company on 8 October 2014, the Company is now also seeking the
approval of Gresham House Shareholders at the General Meeting to
implement a long term incentive plan and a bonus share matching
plan for its directors and employees. The purpose of these plans is
to align the interests of Shareholders and management in the
long-term success of the Company and to attract and retain key
talent for execution of the Company's strategy. Further details of
the Incentive Arrangements are set out in section 6 below.
2. Background on Gresham House
Gresham House was incorporated in 1857 and from 1950 to 2014 its
Ordinary Shares were listed on the Official List. From 1966 until
2014, Gresham House operated as an Authorised Investment Trust.
On 8 October 2014, the Company announced the final terms of a
new strategic direction including the appointment of certain new
directors namely, Anthony Townsend, Tony Dalwood, Michael Phillips,
Peter Moon and Duncan Abbot and the retirement of Antony Ebel,
Brian Hallett and John Lorimer as directors of the Company, a
placing to raise gross proceeds of GBP11.46 million, the issue of
the Warrants and the adoption of a new investing policy. In order
to facilitate the placing and having regard to the likely future
size of the Company, the prospective investor base and the proposed
new investing policy, the Company cancelled its listing of Ordinary
Shares on the premium segment of the Official List, removed such
Ordinary Shares from trading on the Main Market, and successfully
applied for the admission of the Ordinary Shares and the
Shareholder Warrants to trading on AIM as an investing company on 1
December 2014.
Since 1 December 2014, the Directors have been pursuing a
strategy to:
-- develop the Company as a quoted platform principally for
investment in, and the investment management of, relatively
differentiated, specialist or illiquid assets in order to generate
superior risk adjusted returns for Shareholders of the Company over
the longer term;
-- develop an asset management business organically or through one or more acquisitions; and
-- manage and develop an appropriate strategy for each of the
Company's legacy assets (including its property assets) so as to
maximise the value of the assets over the medium term, in order to
recycle the capital into areas the Directors believe will generate
superior returns.
In continuance of the strategy described above, the Company has
begun to focus on investment management of relatively
differentiated, specialist or illiquid assets, through the asset
management mandate with Gresham House Strategic (described below),
and also is seeking out new investment fund opportunities.
In line with the Directors' strategy to develop the Company as a
quoted platform for investment in, and the investment management
of, relatively differentiated, specialist or illiquid assets, the
Company established its strategic equity investment team. The team
is led by Graham Bird and Tony Dalwood, and has a mandate to target
superior long-term investment returns through applying private
equity techniques to investing in public markets. On 21 July 2015,
GHAM (a subsidiary of Gresham House) entered into its first asset
management mandate with SPARK Ventures plc (now called Gresham
House Strategic plc) to be led by the strategic equity investment
team and, at the same time, Gresham House agreed to invest GBP5
million in SPARK and swapped its entire 10.6 per cent. shareholding
in SpaceandPeople plc for new shares in SPARK. The appointment and
associated fundraising by SPARK was approved by its shareholders on
6 August 2015. On 28 October 2015, SPARK's name was changed from
SPARK Ventures plc to Gresham House Strategic plc.
The Company is currently in the process of applying for GHAM, to
be authorised by the Financial Conduct Authority so that in the
future, GHAM can act as the investment management vehicle for the
Group's operations. The Company has received notification from the
FCA that it is minded to authorise GHAM subject to completion of
certain administrative steps that are within the control of the
Company and that are expected to be completed by the end of
November 2015.
Since 1 December 2014, the Directors have developed a strategy
for each of the Group's material legacy assets. In particular:
-- on 21 July 2015, the Company swapped its entire 10.6 per
cent. shareholding in SpaceandPeople plc for 151,250 new shares in
Gresham House Strategic;
-- on 22 September 2015, the sale of 25.8 acres gross of the
site at Newton-le-Willows to Persimmon was completed in accordance
with the sale and purchase contract that was exchanged in April
2014, for a total consideration of GBP7.25 million (excluding
overage payments). The Directors are now considering the sale of
the remaining five acres of the site; and
-- the property at Speke (as described in further detail below)
is now virtually fully let and the Directors are now working with
James Lang LaSalle to sell the property at Speke.
In line with its strategy to develop an asset management
business, the Company announces that GHHL had agreed to acquire the
entire issued share capital of Aitchesse, an asset management
business based in Scotland that focuses on managing forestry and
timber assets.
3. Strategy of the Enlarged Group
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November 04, 2015 02:00 ET (07:00 GMT)
The Acquisition, if completed, will result in Gresham House
being an operating company instead of an investing company. The
Company will cease to be subject to the AIM Rules that relate to
Investing Companies and therefore will no longer be required to
have an investing policy. Instead, the Directors intend to pursue a
strategy to develop an asset management business focusing on the
management of relatively differentiated, specialist or illiquid
assets. It is expected that the strategy of the Enlarged Group will
initially focus on strategic equity, real asset management and the
continued realisation of the Group's legacy assets:
Strategic equity
The strategic public equity investment strategy includes
applying a private equity approach to making influential "block"
stake investments in smaller quoted companies. Central to this
strategy is constructive engagement with management and
shareholders of investee companies in support of a clear equity
value creation plan, which combined with the adoption of private
equity techniques, including an investment committee and advisory
group, aims for a significant de-risking of an investment.
The Directors believe the private equity approach described
above can lead to superior investment returns as it targets
inefficiencies in certain segments of the public markets. There are
over 1,200 companies in the FTSE Small Cap index and on AIM: the
Directors believe that these companies typically have limited
research coverage and may often have limited access to growth
capital often leading to valuation opportunities being overlooked
by the wider market.
The Company has created an investment team, led by Graham Bird
and Tony Dalwood, to focus on these opportunities. In line with its
plans for this core element of the business, on 21 July 2015 GHAM
was awarded its first investment advisory mandate to manage Gresham
House Strategic using the strategic equity investment strategy. As
at 2 November 2015 (being the latest available weekly net asset
value update released by Gresham House Strategic prior to the
publication of this announcement), Gresham House Strategic had
assets under management of approximately GBP36.6 million. As at 2
November 2015, Gresham House Strategic held four investments which
together represent 53.7 per cent. of AUM. The largest investment is
its holding in AIM-listed IMImobile plc, which was valued at
approximately GBP15.6 million as at 2 November 2015.
Gresham House Strategic will focus mainly on cash generative
companies where there is scope through management engagement to
identify opportunities to implement either strategic, management or
operational changes to create shareholder value in the business and
to generate improved equity returns.
Under the Gresham House Strategic Investment Management
Agreement, GHAM has been appointed as investment adviser to Gresham
House Strategic, for which GHAM receives a fee of 0.125 per cent.
per month of the net asset value of the Gresham House Strategic
portfolio. In addition, GHAM is entitled to a performance fee of 15
per cent. of the increase in net asset value per share of Gresham
House Strategic over a 7 per cent. hurdle. Sapia Partners LLP has
agreed to act as investment manager of Gresham House Strategic
until GHAM has received its FCA authorisation (which is expected to
happen by the end of November 2015), at which point GHAM will
become the investment manager of Gresham House Strategic.
As part of the transaction, the Company made an investment of
GBP5 million in Gresham House Strategic and swapped its entire 10.6
per cent. shareholding in SpaceandPeople plc for new shares in
Gresham House Strategic. The Company now holds 19.2 per cent. of
Gresham House Strategic's issued share capital.
The Company also plans to launch a limited partnership for those
investors who prefer to invest alongside Gresham House Strategic in
a limited partnership vehicle. The Directors believe there to be a
demand for this from ultra-highnet- worth individuals, family
offices and smaller institutional investors. The Company intends to
grow its strategic equity division and will continue to seek out
new mandates to achieve this goal.
Real asset management business
The Directors believe that there is an increasing demand for
long-term superior returns from illiquid and alternative asset
management strategies. Institutions, family offices and
ultra-high-net-worth individuals are increasing allocation to
alternative strategies and private equity. Real assets can offer
attractive benefits to investors, including superior investment
returns which are typically uncorrelated to equities, funds and UK
commercial property. The increase in asset allocation towards this
area has been significant over the last 20 years and is ongoing,
reflected by the fact that pension funds, who had a zero per cent.
allocation on average to "alternatives" (ex-property) in 1995, are
now allocating approximately 9 per cent. of their assets under
management to this asset class (Source: UBS Pension Fund Indicative
2015. "Alternatives" are defined as non-real estate including hedge
funds, private equity, real assets and infrastructure).
The Company intends to build on its specialist asset management
group which will incorporate various illiquid or differentiated
asset strategies. The Acquisition forms part of this plan.
Aitchesse (described more fully below) is a specialist asset
manager of forests and timber. It has a strong financial record and
the Directors believe the business to be a successful model on
which it can build. The specialist knowledge of the management team
at Aitchesse and the experience of the Company will be a successful
combination: Aitchesse will be able to provide the expert forest
management skills required to manage the commercial forest element
of the assets. The Company's experience will assist in the growth
and institutionalisation of Aitchesse's business and the Enlarged
Group will use its network of contacts to introduce potential
investors in forestry assets to Aitchesse.
The Company will also seek to grow this business unit
organically and, should further opportunities arise, through the
acquisition of differentiated specialist asset managers.
Specialisms may include infrastructure, renewables, forestry and
real estate, amongst others. The common theme tying the specialisms
together is that they involve the acquisition of tangible assets
and should create long-term, intrinsic value growth. The team is
focused on creating shareholder value through assets under
management and resultant earnings growth, including carried
interest and performance fees from third party assets under
management.
Legacy assets
The Company has been pursuing an orderly realisation of the
Group's assets and property to redeploy the sale proceeds in
pursuit of its plans for the real asset division and strategic
equity division (as described above):
On 29 April 2014, contracts were exchanged with Persimmon for
the sale of 25.8 acres gross of the site at Newton-le-Willows to
Persimmon. On 22 September 2015, the sale was completed. The
Company is currently considering its options for the sale of the
remaining 5 acres of the site.
On 7 August 2015, the Company swapped its entire 10.6 per cent.
shareholding in SpaceandPeople plc (a public company whose shares
are traded on AIM) for new shares in Gresham House Strategic.
The property at Speke (as described in further detail below) is
now virtually fully let. The Company is currently considering the
sale of the property and has instructed Jones Lang La Salle to
advise.
The Company will continue to appraise its assets and any
opportunities for sale or realisation in furtherance of its
development (as was the case with the share swap of its
SpaceandPeople holding). Specific strategies for each of the
Company's existing property and assets is discussed further in
section 5 below.
The proceeds from the sale of legacy assets will be utilised by
the Enlarged Group to implement its strategy of building a
specialist asset management business, through additional
acquisitions of asset management businesses, through the seeding of
new funds which the Company may wish to promote or the recruitment
of talented individuals with asset management experience.
In the longer term, the strategy of the Enlarged Group will also
include:
Niche strategies
The Company is considering developing an investment strategy
which focuses on areas that are likely to be less scaleable than
those in Gresham House's other divisions. Despite their lack of
scalability, these investments are capable of attractive returns
because they come with other advantages such as tax benefits.
Examples of niche investments which the Company may consider
include venture capital or tax efficient strategies. In addition,
the Company may look at engaging with emerging brands or at
investing alongside private equity firms, pooling its assets with
theirs so as to make investments collectively.
Distribution and marketing platform
The Company is aiming to develop its relationships with
distribution specialists. The Company intends to work with
specialist distribution teams who will introduce potential
investors to the Group's funds and asset management services. The
Directors would like to develop these connections and work with the
specialists to effectively assess what investors are looking for
and develop appropriate products.
Co-Investment
The Company is developing a platform for structured
discretionary co-investment and intends to launch various vehicle
structures to suit investment client requirements. The Company
believes there to be significant demand from family offices for
managed, structured co-investment with opportunities presented on a
"deal by deal" basis. This would mean such investors would gain
exposure to investment opportunities that a fund identifies and can
invest alongside the fund.
(MORE TO FOLLOW) Dow Jones Newswires
November 04, 2015 02:00 ET (07:00 GMT)
In order to fund the strategy described above, the Company may
issue further Ordinary Shares to investors in the future for the
purpose of raising money or as consideration for the acquisition of
an asset management business. Save in relation to the Acquisition
and the Incentive Arrangements, at present there are no firm
intentions to issue any Ordinary Shares. The Company is actively
considering other acquisition opportunities.
4. Aitchesse
Background on Aitchesse
Aitchesse was founded in Scotland in 2002 by its current
chairman, Digby Guy. Its primary activity is that of an asset
manager focusing on forestry and timber assets based predominantly
in Scotland. Aitchesse's experience in forestry operations and
marketing has enabled it to build up assets under management worth
GBP192.7 million as at 30 June 2015 (based on the latest available
(or agreed) valuations for its clients' portfolios). As well as
managing forestry assets, Aitchesse also advises clients (including
clients with assets under management) on the sale and purchase of
forest assets. Aitchesse currently employs 11 people.
The forestry industry
The total area of all types of woodland in the UK is estimated
to be 3.15 million hectares as at 31 March 2015. Of the total
woodland area 72 per cent. is owned by the private sector and 28
per cent. by the state. (Source: Forestry Commission Report:
Forestry Statistics and Forestry Facts and Figures 2015 (published
24 September 2015).)
Of the total 3.15 million hectares, 1.6 million hectares may be
deemed to be "commercial" forest (with 870,000 hectares being
privately owned and 740,000 hectares owned by the state).
Commercial forests are predominately coniferous plantation forests.
(Source: Forestry Commission Report: Forestry Statistics and
Forestry Facts and Figures 2015 (published 24 September 2015).)
The private sector is fragmented, with a large number of small
investors and only a relatively small number of larger investors.
Investors can be broken down into four distinct types: private
individuals, family offices, endowments and pension funds.
The annual traded market of commercial forests in the UK is
estimated to be GBP100 million, predominantly in the private
sector. It is estimated that 5 per cent. of the total monetary
value of the private sector is traded annually. (Source:
Information provided by Aitchesse.)
Investing in commercial UK forestry
Real assets in the form of timberland, can offer many attractive
benefits to investors, including superior investment returns
compared to equities, funds and UK commercial property, portfolio
diversification from traditional asset classes, an attractive
risk/return profile, substantial cash flow contribution and tax
benefits. Given its renewable nature and carbon sequestration, the
opportunity to provide ecological services (water and landscape
improvements) and to improve habitats and biodiversity, woodland
investment is attractive to those investors who place socially
responsible investment and climate change mitigation high on their
agenda. Investors may also benefit from the generation of income
from additional ground rent opportunities.
UK commercial forestry has a long term track record of producing
strong performance both in absolute terms and relative to more
mainstream asset classes such as equities, bonds and UK commercial
real estate.
Over the past 10 years to 31 December 2014, UK forestry has
shown an annualised return of +18.8 per cent., with no years of
negative returns. This return compares favourably with annualised
returns from UK equities of +6.8 per cent., UK bonds +6.3 per
cent., and Commercial UK Property +6.2 per cent.
Over the longer term, UK forestry has produced an annualised
return over the 22 years to 31 December 2014 of +8.9 per cent.
versus UK equities +7.4 per cent., UK bonds +7.3 per cent. and
Commercial UK Property +9.3 per cent. (Source: IPD UK Annual
Forestry Index.)
Multiple drivers of forestry returns
Biological growth: Commercial forests in the UK are managed so
as to achieve a sustainable production of timber over time, with
harvested areas being replanted (this being a legal requirement)
rather than trees mined as a finite resource. The rate of
sustainable timber production is dependent on a number of factors
such as site attributes (altitude and exposure, soil types,
moisture and nutrient regimes), species choice and management
regimes, but the rate can be modelled and is measurable.
The organic growth of a forestry crop is normally expressed as a
figure in metres cubed (m3) per hectare planted. This represents
the number of cubic metres of added timber per hectare per year on
average through the lifecycle of the crop. Once this figure (called
the 'Yield Class') is established, it can be used to forecast when
and how much timber can be harvested from any area of a forest, and
it can also be used to estimate the contribution of organic growth
to forecast returns.
There is long term research and data produced on Sitka (the type
of timber which Aitchesse manages) spruce growth rates in the UK.
In summary, the higher the Yield Class the greater the volume of
timber produced over time. As trees grow in size, they not only
grow in volume, they also turn into higher value products such as
sawn wood. Biological growth of timber provides investors with a
unique source of return, as growth occurs regardless of
macro-economic conditions or financial market performance.
UK supply and demand for timber: The key factor underpinning any
commercial forestry investment (and therefore capital value of the
forest assets) is the standing timber value. This is because timber
is the main (but not only) forest output. Over the medium term, the
Directors believe that there will be a strengthening demand from
the housing sector and other end users (e.g. panel products,
biomass) and in the long term (15-30 years) the market share
occupied by home grown timber is set to fall because of reducing
supply-side availability. The Directors believe that both factors
should be supportive of timber prices in real terms.
UK demand for forest ownership: Forest ownership demand is
driven by a number of factors, including economic returns from
timber as described above but also from the tax advantages of
forest ownership, by the need for capital protection and by, in
some cases, lifestyle choice. On the supply-side, forestry is not a
finite resource in the UK, but creating new forests is a slow and
complex process and land for planting is difficult to source.
Therefore, demand for established forests currently outstrips
availability, driving strong property prices. The ability to
increase the supply of timberland can only happen over long
investment cycles, typically 40 years.
Higher and better use (HBU): As well as the management of tree
crops, forest asset management includes managing the landholding
holistically, including pursuing opportunities for HBU. These
include the development of renewable energy projects (for example,
wind and small scale hydro) which in many cases are ideally suited
to forested land, and the development of residential development
opportunities. Other HBU activities contributing to returns may
include mobile phone communications masts, wayleave compensation
payments, coal mines, and activity outdoor centres.
Global trade: Timber is an internationally traded commodity both
in its raw form and as an end product. The UK is a net importer of
wood and wood products. Recent years have seen strong demand from
North America (for end products) and developing economies like
China and India for both end products and raw material. Whilst the
UK is a net importer, export sales can yield significant returns.
Biomass, especially wood pellets, is an increasingly important
globally traded commodity and the rapidly expanding biomass market
continues to underpin prices of the lower value small round wood.
Whilst there are fluctuations in supply and demand, the UK
currently imports 50 per cent. of its processed timber
requirements.
Exchange rates: Exchange rates can influence levels of imports
and the price of domestic timber. Owing to the internally traded
nature of forest products outlined above, fluctuations in exchange
rates have a direct impact on trade and therefore short term
returns. Forestry activity, however, can be influenced, depending
on cash flow requirements, to capitalise on movements in prices
driven by exchange rates by slowing or stopping harvesting when
market conditions are poor and accelerating them when they are
advantageous.
Active management: Forestry management is key to maximising the
returns from all the areas listed above. Site selection and careful
appraisal is key to a good acquisition process. Correct management
delivers well established crops that in turn deliver the desired
end products, and the returns on these products are maximised
through mechanisms negotiated with end users designed to
consistently deliver prices in the upper quartile.
Timber prices
Timber prices (distinct from property value) have increased by
10.9 per cent. annualised over the past ten years to 31 December
2014, as measured by the Coniferous Standing Sales Price Index.
Timber prices are forecast to rise further, but at a more modest
pace in response to growth in the developed world and in the longer
term as emerging markets, particularly China and India, increase
consumption. As a population's wealth increases, so their
consumption of timber related products increases.
The Food and Agriculture Organisation of the United Nations
(FAO) forecast production and consumption of key wood products and
wood energy are expected to rise from the present to 2030, largely
following historical trends of 1-2 per cent. increases per annum.
(Source: Share of World Forestry (2009) Global Demand for Wood
Products.)
The main factors affecting long-term demand for wood products
include:
-- Demographic changes: the world's population is projected to
increase from 7 billion today to 7.5 billion in 2020 and 8.2
billion in 2030.
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-- Continued economic growth: global GDP increased from about
US$16 trillion in 1970 to US$58 trillion in 2009 and is projected
to grow to almost US$100 trillion by 2030.
-- Environmental policies and regulations: more forests will be excluded from wood production.
-- Energy policies: the increase in biomass and biofuel
legislation in Europe is forecast to put huge demand on wood
resources.
-- The World Wildlife Fund (WWF) report (published in 2010)
stated that wood removals amounted to 3.4 billion cubic metres. Of
the reported harvest, 1.5 billion cubic metres was used as
industrial roundwood, and the rest for fuelwood. WWF projects
annual wood removals in 2050 will be three to four times the volume
reported for 2010, which represents an increase of over 3 per cent.
per annum. (Source: Forests and Wood Products - Living Forest
Report, Chapter 3.)
-- Material substitution: increasingly legislation dictates a
preference for low carbon building materials, criteria which timber
satisfies. Further to this, the inclusion of carbon sequestration
in harvested wood products within the Kyoto Protocol will allow
governments to reduce national carbon amounts through the use of
timber as a preferred building or manufacturing material.
Aitchesse's business
At present, Aitchesse manages the portfolios of four clients
which together own over 30,000 hectares of forest, of which by
value 89 per cent. is in Scotland with the remaining 11 per cent.
in England and Wales. It receives two main types of revenue:
management fees and transaction fees.
Aitchesse typically charges a management fee based on the value
of the forestry assets held by the client. In the 12 month period
ended 30 June 2015, Aitchesse received management fees of GBP1.475
million, representing 65 per cent. of its revenue during that
financial year.
The forestry management agreements require Aitchesse to manage
the forest land to generate capital returns from the forests in the
longer term as well as to generate income.
Aitchesse's role in the longer term maintenance of its clients'
land includes:
-- Overall forest management, including entering into contracts
for felling and forest maintenance;
-- Arranging timber sales;
-- Preparing annual budgets;
-- Inspecting and managing the properties;
-- Cost-effectively and efficiently managing haulage and restocking; and
-- Monitoring crop performance.
Aitchesse's role in the generation of income on its clients'
land also includes:
-- Identifying grant aid schemes and making grant submissions; and
-- Identifying, appraising and implementing additional ground rent opportunities.
Aitchesse outsources all of its land management (such as felling
and haulage) to suppliers rather than undertaking the work itself.
The clients contract directly with these suppliers with Aitchesse
managing the relationship on behalf of their clients. Aitchesse
thus avoids conflicts of interest when managing client assets as
these services are typically provided on a per unit basis.
Since 2007 until 30 June 2015, Aitchesse's assets under
management have increased from GBP38.2 million to GBP192.7 million
by using its expertise to increase its clients' portfolios (and
therefore the value of those portfolios) by sourcing, appraising,
acquiring and selling, developing and managing forestry assets on
behalf of clients.
As well as managing forestry assets, Aitchesse takes advantage
of its expertise and also advises its clients (including clients
with assets under management) on the sale and purchase of forestry
assets to which it typically receives a purchase/sale arrangement
fee of between 2 per cent. and 2.5 per cent. of the transaction
value. In the 12 month period ended 30 June 2015, Aitchesse
received transaction fees of GBP0.75m, representing 33 per cent. of
its revenue during that financial year. Aitchesse expect this type
of income to reduce as a proportion of overall income as the team
intends to focus on the development of management fees.
Historically, Aitchesse has sourced its clients by word of mouth
recommendation and direct approaches to potential forest
investors.
Aitchesse team
Aitchesse's success is due to the expertise and knowledge of the
senior members of its team. Aitchesse's team of 11 employees has a
wide variety of experience, with in-depth knowledge of both the
forestry business and investment management. Digby Guy, the founder
of Aitchesse, still takes an active role in the company and the
managing director and the operations director have been with the
company for eight years. The key employees and their roles are set
out below:
Digby Coulson Guy (Chairman) (age 68)
Digby Guy is an experienced professional forester and founding
shareholder of Aitchesse. He began his career in forestry, working
for the Economic Forestry Group and Bidwells LLP, for whom he
established their first Scottish office in 1986. He founded
Aitchesse in 2002. He is responsible for business development and
strategic direction. It is envisaged that Rupert Robinson will take
on the role of Chairman on completion of the Acquisition but that
Mr Guy will remain an employee of Aitchesse.
Jon Hilton Strickland (Managing Director) (age 64)
Jon Strickland is a Chartered Accountant. Post-graduation, he
trained as a Chartered Accountant with KPMG after which he joined
Scott-Moncrieff Chartered Accountants, a member of Moore Stephens
International, becoming a partner in 1979. Mr. Strickland became a
non-executive director of Aitchesse in 2007 and was subsequently
appointed Managing Director in 2010, a position he has held since
that date. His role involves compliance and governance, managing
client funds and overseeing the financial accounting and
reporting.
Graham John Carter (Operations Director) (age 53)
Graham Carter is an experienced professional forester, who
specialises in land and forest diversification, power generation,
land development and alternative land use. After graduating from
Aberdeen University with a degree in forestry, he joined U A
Forestry Ltd, becoming the company's managing director in 1997. In
2001 he founded his own forestry management company, Aspen Forestry
Ltd, which was subsequently sold in 2007. Mr Carter is responsible
for the investment management operations for all client funds.
Trevor Matthew Blackburn (Director) (age 47)
Trevor Blackburn is an asset manager and is responsible for
three of Aitchesse's client funds. After graduating from the
University of Central Lancashire with a degree in forestry, he
worked as a forest manager focusing on bare land planting. In 2004,
he began working for the Forestry Commission, becoming project
manager on an IT project and representing the Forestry Commission
on the SEARS (Scotland's Environmental & Rural Services)
programme of organisational change. He joined Aitchesse in 2012 as
an investment manager, becoming a director in 2014. Mr Blackburn
manages the professional forestry staff, the supervision and
control of in-forest activities including health and safety
compliance.
Rob Lindsay Carlow (Investment Analyst) (age 37)
Mr Carlow is a postgraduate in environmental economics from the
University of Glasgow. Working closely with Mr Guy, he focuses on
business development and land acquisitions.
On completion of the Acquisition Agreement, Digby Guy, Graham
Carter, Jon Strickland, Rob Carlow and Trevor Blackburn will enter
new service agreements. These service agreements will contain
wording which prohibits these employees from competing with the
business of Aitchesse for a period of six months following the
termination of their employment.
Strategy of Aitchesse
There is an increasing demand for long-term superior returns
from illiquid and alternative assets such as forestry assets.
Research published in 2015 by Towers Watson showed alternative
assets under management reached $6.3 trillion in 2014, up 10.5 per
cent. on the prior year. There has also been an increase in UK
pension funds' appetite for alternatives.
As discussed above, Aitchesse anticipates a move away from the
transactional element of the business and more towards asset
management so as to align Aitchesse's strategy with the Group's. As
part of the strategy and to help grow assets under management, the
Company is considering a proposal to part-fund an option to acquire
forestry land together with the Sellers with a view to selling that
land to future clients.
The Company envisages that Aitchesse will continue to focus on
forestry in the UK going forward, so as to serve UK-resident
investors who would like the comfort of working with assets located
in the UK.
Selected financial information of Aitchesse
Selected financial information on the trading record of the
Aitchesse business for the three financial years ended 30 June 2015
is set out below:
Financial Financial Financial
year ended year ended year ended
30 June 30 June 30 June
2013 2014 2015
(Audited) (Audited) (Audited)
GBP GBP GBP
Continuing Operations
Revenue 1,496,165 1,687,014 2,277,179
Administrative expenses (1,542,496) (1,657,337) (1,358,557)
Other income 7,328 13,182 24,176
-------- -------- --------
(Loss)/profit from operations (39,003) 42,859 942,798
Finance income 10,745 7,695 5,973
Finance costs (4,530) (2,837) (1,965)
-------- -------- --------
(Loss)/profit before income
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tax expense (32,788) 47,717 946,806
Income tax charge (17,767) (17,721) (204,205)
-------- -------- --------
(Loss)/profit for the year (50,555) 29,996 742,601
-------- -------- --------
Net (loss)/profit for the year (50,555) 29,996 742,601
-------- -------- --------
5. Existing assets/liabilities and strategies for the existing
assets/liabilities
The Group's existing significant assets and liabilities, and
strategies for those assets and liabilities are as follows:
Principal publicly quoted securities
Gresham House Strategic
The Group currently holds 706,806 ordinary shares in Gresham
House Strategic, representing approximately 19.2 per cent. of the
issued share capital. As at 3 November 2015, being the latest
practicable date prior to the publication of this announcement, the
Group's interest in ordinary shares in Gresham House Strategic had
a market value at bid price (as of close of business on that date)
of GBP5.866 million.
Further details of the Company's strategy and investment in
Gresham House Strategic are set out in section 3 above.
Property
Newton-le-Willows
A "brownfield" five acre site situated close to the town centre
of Newton-le-Willows in the borough of St Helen's which is a 30
minute drive from Manchester. This was previously part of an
industrial estate of approximately 31 acres that had come to the
end of its useful life and on which outline planning consent for
food retail (on approximately five acres) and residential (on
approximately 25.8 acres) had been granted. Given its previous use
as an industrial site some remedial activity will be required to
realise such redevelopment and detailed planning permission would
be required for development.
On 22 September 2015, the sale of 25.8 acres gross of the site
at Newton-le-Willows to Persimmon was completed. In accordance with
the sale agreement with Persimmon, the aggregate consideration for
the sale of the 25.8 acre site is GBP7,280,000 (less reallocated
Section 106 payments, together with associated transport
contributions and monitoring fees totalling GBP30,000). The net
proceeds of GBP7.25 million is being paid in instalments of which a
deposit and initial payment of GBP944,610 has been received and the
balance will be receivable in three tranches over the next 41
months.
The Company will explore sale options for this site now the sale
of the main residential site has been completed.
A valuation report on the five acre site at Newton-le-Willows,
prepared by Jones Lang LaSalle and showing the value of the
property to be GBP2,250,000 as at 30 September 2015 will be
contained in the Admission Document.
Southern Gateway, Speke
The property was previously a pharmaceutical manufacturing
facility for GlaxoSmithKline and is situated approximately 600
metres from the Jaguar Land Rover Halewood car manufacturing plant
in south Liverpool. It comprises approximately 375,000 sq.ft. of
mixed industrial and office uses, together with a significant
number of car spaces on a total of 17 acres. Its previous use has
resulted in some soil and groundwater issues. Although remedial
activity may be required on any future redevelopment, these issues
have not restricted current use or lettings or given rise to
liabilities.
As at 30 June 2015, the Group had let 295,671 square feet of the
property at Speke, representing approximately 81.2 per cent. of the
total available. As at 30 June 2015 there were 14 tenants
generating an aggregate of GBP783,679 per annum in rent. All the
significant remaining space has been agreed to being let, subject
to completion of final documentation.
A sale process is being considered for the site and Jones Lang
LaSalle has been appointed to advise.
A valuation report on the property at Speke, prepared by Jones
Lang LaSalle and showing the value of the property to be
GBP7,600,000 as at 30 September 2015 will be contained in the
Admission Document.
Principal unquoted securities
Attila (BR) Limited
Attila is a private company registered in England & Wales
which owned a four acre development site (formerly a Royal Mail
sorting office) in Edinburgh city centre. This site was sold to
CALA Management Limited subject to detailed planning consent for
residential development being obtained. On 15 June 2015 the sale
completed and the Group received a payment of accrued interest on
its unsecured loan notes of GBP275,000. Deferred consideration is
also due to be paid to Attila in 2016 and the Directors expect the
Group to receive approximately GBP1.228 million through a
combination of repayment of principal and interest on its unsecured
loan notes.
Kemnal Investments Limited
Kemnal is a private company registered in England & Wales
and is a vehicle that provided a mezzanine loan to Memorial
Holdings Limited (see below) which is due for repayment in
2017.
The Group currently holds GBP465,788 10 per cent. Unsecured Loan
Notes 2017, representing approximately 15.1 per cent. of the total
loan notes in issue, and 16 ordinary shares representing
approximately 14.4 per cent. Of the issued share capital of Kemnal
Investments Limited. The estimated value based on a directors'
valuation is par, being GBP465,804.
Memorial Holdings Limited
Memorial Holdings is a private company registered in Jersey
which owns and operates, through its two wholly owned subsidiaries,
a 55 acre cemetery at Chislehurst in the London Borough of Bromley
known as Kemnal Park Cemetery. The cemetery is to be developed in
phases to meet market demand with the first phase already
completed. This initial phase consisted of a non-denominational
chapel, including offices, and a car park.
The Group currently holds 155,600 ordinary shares, representing
approximately 3.2 per cent. of the issued share capital of Memorial
Holdings Limited and had an economic interest in a further 1.2 per
cent. of the issued share capital in Memorial Holdings Limited
through the Company's investment in Kemnal Investments Limited
(certain shares in Memorial Holdings Limited are held in trust for
Kemnal Investments Limited in connection with its mezzanine
financing activities), which together have an estimated market
value based on a directors' valuation of GBP441,350.
Co-operative loan
On 23 September 2015 the Company announced that its facility
with the Co-operative Bank had been reset at GBP2.85 million after
GBP428,000 of the initial proceeds from the sale of the 25.8 acres
gross site at Newton-le-Willows to Persimmon had been applied in
reducing the amount outstanding.
The Company is currently in negotiations with two banks
regarding a new bank facility and has received a credit committee
approved letter of offer from both. The proposed offers are for
loan facilities of approximately GBP7 million with an interest rate
of approximately 5.25 per cent. per annum. Whilst there is no
guarantee that a facility will be entered into, the Company intends
to use the loan facility to (i) repay the Short Term Loan Notes and
(ii) replace the Co-operative Bank facility and (iii) deploy the
balance of the loan to fund future investment opportunities.
6. Incentive Arrangements
The Company believes that its success depends, in part, on the
future performance of the management team. The Company also
recognises the importance of ensuring that employees are
incentivised and identify closely with the success of the
Company.
On 1 December 2014 the Directors subscribed for Supporter
Warrants over the Company's Ordinary Shares. In the admission
document issued in October 2014, the Company set out its intention
to establish suitable long-term retention share schemes linked to
the Company's performance. In addition, it set out its intention
that the Group's employees (including the executive directors) be
appropriately incentivised which may include a discretionary bonus
scheme. The incentivisation for employees (excluding the executive
directors) was also to include receiving carried interests and
performance fees.
The Company proposes to introduce the Incentive Arrangements
comprising a long term incentive plan and a bonus share matching
plan, further details of which are set out below. The purpose of
these plans is to align the interests of Shareholders and
management in the long-term success of the Company and to attract
and retain key talent for execution of the Company's strategy.
Long Term Incentive Plan
As soon as reasonably practicable, the Company proposes to
implement a long term incentive plan for the benefit of the
management team (from time to time), to incentivise them as well as
align their interests with those of Shareholders.
These arrangements will only reward the participants if
shareholder value is created. For the purposes of the plan,
"shareholder value" shall broadly mean the difference between the
market capitalisation of the Company at the point in time that any
assessment is made and the sum of:
(i) the market capitalisation of the Company a) at 1 December
2014 for first awards made to management who joined the Company
before 30 September 2015 and b) at the date of award in all other
cases; and
(ii) the aggregate value (at the subscription price) of all
Ordinary Shares issued thereafter and up to the point in time that
any assessment is made, in each case adjusted for dividends and
capital returns to Shareholders and/or issue of new shares.
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Whilst the precise structure of the plan remains to be
determined, the beneficiaries of the plan will in aggregate be
entitled to an amount of up to 20 per cent. of shareholder value
(as defined above) created, subject to performance criteria set out
below. In the calculation of the 20 per cent. share of value, the
benefit of the Supporter Warrants shall be recognised. Individual
participation in the shareholder value created will be determined
by the Remuneration Committee in respect of the executive
Directors.
There will be certain hurdles the Company's share price has to
achieve before an award vests.
In the event that the Company achieves an average mid-market
closing price equal to compound growth at 7 per cent. per annum for
a period of 10 consecutive dealing days in the period after 1
December 2016 for first awards to management who joined the Company
before 30 September 2015 and from the second anniversary of the
date of award in all other cases, 50 per cent. of the award will
vest.
In the event that the share price of the Company outperforms the
FTSE All Share Index in the period after 1 December 2016, and from
the second anniversary of the date of the award in all other cases,
50 per cent. of the award shall vest.
Each award will require a minimum term of employment of three
years and awards will be made to current management and new joiners
at the Company's discretion. The long-term incentive plan will be
delivered either in awards of shares or options. Where possible the
Company will deliver the plan tax-efficiently.
Bonus Share Matching Plan
The Company proposes to introduce a share matching plan linked
to the discretionary annual bonus scheme to encourage management to
invest in the long-term growth of the Company as soon as reasonably
practicable.
Management entitled to a bonus greater than GBP50,000 will be
permitted (but not required) to defer and reinvest up to 100 per
cent. of their annual bonus into Ordinary Shares which will be
released to them after three years together with any additional
matching shares subject to performance criteria set out below.
In the event that the Company achieves a mid-market closing
price equal to 7 per cent. per annum compound growth from the date
of deferral, the participants will receive 50 per cent. of the
matching shares benefit. In the event that the Company's share
price out-performs the FTSE All Share Index from the date of
deferral, the participant will receive 50 per cent. of the matching
shares.
Shares will be awarded in the ratio one share for each share
invested. In the event that this performance condition is not met,
the participants will receive only the Ordinary Shares acquired
with the deferred bonus.
In total the Company proposes that the total Ordinary Shares
issued and issuable in satisfaction of the Incentive Arrangements
and pursuant to the exercise of Supporter Warrants will not exceed
20 per cent. of the Company's total issued Ordinary Share Capital
from time to time.
Whilst the Incentive Arrangements have not yet been finalised,
shareholder approval is being sought to allow the Directors to
implement a long term incentive plan and bonus share matching plan
within the parameters described above.
The Company operates in a highly competitive market place where
it will have to attract talent and retain talented individuals to
achieve its objectives. The Directors believe the proposed
incentive arrangements are key to the implementation of its
strategy.
7. Directors, Senior Management, Investment Committee and
Advisory Group
The Company's Directors, Senior Management, Investment Committee
and Advisory Group are as follows:
Directors
The Board comprises three non-executive directors: Richard
Chadwick, Anthony Townsend, and Peter Moon, and three executive
directors: Duncan Abbot, Tony Dalwood and Michael Phillips.
Brief biographies of the Directors are set out below:
Anthony (Tony) Dalwood (aged 45) (Chief Executive)
Tony is an experienced investor and adviser to public and
private equity businesses. Tony established SVG Investment Managers
(a subsidiary of SVG Capital plc), acted as CEO and chairman of
this entity, and launched Strategic Equity Capital plc. His
previous appointments include CEO of SVG Advisers (formerly
Schroder Ventures (London) Limited), membership of the UK
Investment Committee of UBS Phillips & Drew Fund Management
(PDFM), and the board of Schroders Private Equity Funds.
He is currently the chairman of the investment committee and
board member of the London Pensions Fund Authority, an independent
director of J.P. Morgan Private Equity Limited and a director of
Branton Capital Limited.
Anthony Townsend (aged 67) (Non-Executive Chairman)
Anthony has spent over 40 years working in the City of London
and was chairman of the Association of Investment Companies from
2001 to 2003. He is chairman of Baronsmead VCT 3 plc, British &
American Investment Trust plc, F&C Global Smaller Companies
plc, Finsbury Growth & Income Trust plc and Miton Worldwide
Growth Investment Trust plc.
He was a director of Brit Insurance Holdings plc from 1999 to
2008 and represented it on the Council of Lloyd's of London from
2006 to 2008. He was managing director of Finsbury Asset Management
Ltd from 1988 to 1998. He was a non-executive director of Worldwide
Healthcare Trust plc from 1995 to 2013.
Duncan Abbot (aged 59) (Finance Director)
Duncan oversees the finance function and looks after compliance
and operational matters. Duncan is an experienced manager and
investor in smaller companies. He has sat on many boards of both
quoted and unquoted companies. He has worked with Michael Phillips
for twenty years. He was chairman of Christows Group Limited and
co-founded iimia Investments with Michael. He is a Chartered
Accountant and Fellow of the Chartered Institute for Securities and
Investments.
Richard Chadwick (aged 64) (Non-Executive Director)
Richard is a chartered accountant, who was appointed to the
board of the Company on 17 June 2008 as a non-executive director.
Richard spent 27 years within the J Sainsbury plc group of
companies where he had considerable experience of property
development and financing, having been director of corporate
finance and of business development, and a non-executive director
of the group's property development company. He is also a
non-executive director of SpaceandPeople plc, a company in which
Gresham House Strategic has an interest.
Peter Moon (aged 65) (Senior Non-Executive Director)
Peter started working in the City of London in 1972 and worked
as an investment analyst and fund manager in a number of roles in
unit and investment trusts, insurance and finally pension schemes.
The last 25 years of his career were spent as the Investment
Manager of the British Airways Pensions scheme and chief investment
officer of the Universities Superannuation Scheme.
He is currently a director of Scottish American Investment
Company and First Property Group and chairman of Arden Partners
plc, a UK stockbroker and Bell Potter Securities UK Limited, the UK
branch of an Australian stockbroker.
Michael Phillips (aged 53) (Strategic Development Director)
Michael is an experienced business manager with a history of
founding and building businesses in fund management. Michael served
as a director of Strategic Equity Capital plc for seven years,
founded iimia Investment Group plc (now Miton Group plc), Christows
Limited (now part of Investec's retail operations), and more
recently REDS Investments Limited.
Michael is a Fellow of the Chartered Institute for Securities
and Investments and is a non-executive director of Miton Worldwide
Growth Investment Trust.
Senior Management
Senior management comprises the following:
Rupert Robinson, Managing Director of GHAM
Rupert was previously CEO of Investment of Schroders (UK)
Private Bank. He has over 25 years, experience in private wealth
and asset management advising families on asset allocation as well
as focusing on product innovation, investment management and
business development. Prior to Schroders he was head of private
clients at Rothschild Asset Management Limited and a member of the
Group Executive Committee.
Graham Bird (Head of Gresham House Strategic)
Former Strategic Planning and Corporate Development Director at
Paypoint plc, Graham was previously Director of Strategic
Investments at SVG Investment Managers and a director within the
Corporate Finance department at JP Morgan Cazenove.
Jonathan Dighe (Commercial Director)
Jonathan has over five years of UK small company equities
experience, working both as research analyst and as Director on the
equity sales desk at Charles Stanley Securities. He is a former
management consultant at Accenture, working on business
transformation projects with BP and HSBC.
Investment Committee
The Investment Committee has been established to promote and
maintain a prudent and effective allocation of capital across the
Company's entire investment portfolio.
The Investment Committee is chaired by Tony Dalwood with the
other members being Michael Phillips (Strategic Development
Director), Rupert Robinson (Managing Director of GHAM) and two
experienced investment management professionals - Bruce
Carnegie-Brown and Matthew Peacock.
Bruce Carnegie-Brown
Bruce is chairman of Aon UK Ltd and of Moneysupermarket.com
Group plc and a non-executive director of Santander UK plc. He was
previously a managing partner of 3i QPE plc, a managing director of
JP Morgan and CEO of Marsh Ltd.
Matthew Peacock
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Matthew is Executive Chairman of Regenersis Plc and the founding
partner of Hanover Investors. He has sat on numerous public company
boards, including Elementis Plc, Renold Plc, 4imprint Plc, STV
Group Plc and Fairpoint Plc and has previously been Chairman of
Singer Capital Markets and a founding director of TDX Group. Prior
to Hanover, Matthew held senior positions with Barclays De Zoete
Wedd and Credit Suisse First Boston. Hanover Investors have pursued
an illiquid investment strategy in small and mid-cap United Kingdom
public equities and private equity transactions for over 12 years
with a philosophy similar to that proposed at the Company. Hanover
has worked alongside Tony Dalwood on a number of its investments
over this period.
Advisory Group
The Advisory Group has been established to act as a general
sounding board for the executive team and to provide a source of
knowledge, experience, potential investment deal flow and contacts
upon which they can draw. In addition, members of the Advisory
Group may co-invest alongside the Company in either direct
investments or specialist funds.
Sir Roy Gardner
Sir Roy is an adviser to Credit Suisse and the former Chairman
of Compass Group, Chief Executive of Centrica plc and Chairman of
Manchester United plc. He has also acted as CEO of Centrica.
Alan Mackay
Alan is a former Senior Partner and Head of Healthcare at 3i
Group plc, appointed to the board in 1993. He is currently the
Managing Partner at GHO Capital and former CEO of Hermes GPE.
Gareth Davis
Gareth is the current Chairman of Wolseley, William Hill and DS
Smith. He is the former CEO of Imperial Tobacco and a former
non-executive director of Hanson.
8. Selected financial information of the Group
Selected financial information on the trading record of the
Group's business for the three financial years ended 31 December
2014 and the six-month period ended 30 June 2015 is set out
below:
Financial Financial Financial
year ended year ended year ended Six months
31 December 31 December 31 December ended 30 June
2012 2013 2014 2015
(Audited) (Audited) (Audited) (Unaudited)
GBP'000 GBP'000 GBP'000 GBP'000
Turnover
Dividend & interest income.................. 690 268 155 143
Rental
Income....................................... 1,038 999 475 329
Other operating income........................ 102 76 39 10
1,830 1,343 669 482
Gains & losses on investments...............
Gains and losses on investments held at fair
value.......................................... (280) (504) (1,715) 655
Movement in fair value of property
investments....................................
.. 2,086 (1,439) (593) (193)
1,806 (1,943) (2,308) 462
Group operating (loss)/profit before finance
costs & taxation.................... 1,806 (2,689) (2,407) 52
(Loss)/profit and total comprehensive income
after taxation........................ 996 (3,446) (2,512) 52
The unaudited NAV Per Ordinary Share as at 30 June 2015 amounted
to 298.5 pence per Ordinary Share.
9. Consequences of becoming a trading company
If the Proposals are approved, the Company will move from being
an investing company (as defined in the AIM Rules for Companies)
and, instead, become a trading company (i.e. it will become a
company which operates an asset management business with some
direct and indirect investments).
The key expected consequences of such a development are as
follows:
-- NAV per share will cease to be an appropriate performance
indicator. This is because the Directors intend to develop the
asset management business where earnings and assets under
management are more appropriate measures of performance;
-- the Company may acquire businesses where the acquisition
involves recognising purchased goodwill and other intangible
assets, which may have to be amortised. Such amortisation would
have a negative impact on the Company's balance sheet, despite such
acquisitions being made in anticipation of contributing in time to
the Company's earnings;
-- the Company's Standard Industrial Classification might
change. This would in turn alter the way it is categorised for
various statistical and analytical purposes and may limit the
ability of some investors to hold the Company's shares where the
investors' investment mandates are specific as to the type of share
they are able to hold; and
-- the AIM Rules for Investing Companies will cease to apply.
10. Current trading and prospects
Tony Dalwood made a statement in the Interim Report published on
23 September 2015. During the period since the publication of that
statement, the Company has continued its development as
follows:
-- On 28 October 2015, SPARK Ventures plc changed its name to
Gresham House Strategic plc. Despite the volatility in the broader
stock market, the net asset value of Gresham House Strategic has
held steady. Gresham House Strategic is working to close the
discount to net asset value at which its shares trade.
-- There has been mixed news on the valuation of the Group's
remaining property assets. Jones Lang LaSalle did not consider the
valuation of the overage arising from the sale of the residential
site to Persimmon. Overall, the valuation of property assets as at
30 September 2015 has increased. It is pleasing to see an uplift in
the value of the property at Speke reflecting the activity there,
but disappointing to see a reduction in the valuation of the
residual retail site at Newton Le Willows: this reflects the
well-publicised difficulties in the food retail sector. The Board
continues to explore options for the property assets.
-- Having sold the majority of the Newton-Le-Willows site, the
balance of the consideration proceeds are deferred. The management
team has been exploring ways of creating liquidity from these
proceeds and the Speke asset through a new banking facility.
Negotiations are in the final stages to secure a new GBP7million
facility to replace the existing Co-operative Bank borrowings and
provide further liquidity. In the coming weeks, the intention is
that the facility will be documented and that the bank will take
security over the Company's property assets and the proceeds of the
sale to Persimmon of the Newton-Le-Willows site.
-- The Company has received notification from the FCA that it is
minded to authorise GHAM subject to completion of certain
administrative steps that are within the control of the Company and
that are expected to be completed by the end of November 2015.
Thus, alongside the proposed Acquisition, the Board is pleased
with the Company's continuing development.
11. Summary of the principal terms of the Acquisition
On 4 November 2015, the Company, GHHL and the Sellers entered
into the Acquisition Agreement pursuant to which GHHL has agreed to
acquire the issued and to be issued share capital of Aitchesse.
The consideration for the acquisition comprises initial
consideration of GBP4.02 million and, subject to Aitchesse
achieving certain EBITDA targets, additional consideration of up to
GBP3.7 million (depending on the actual EBITDA achieved).
The initial consideration shall be satisfied by:
-- the payment of GBP1,840,746 in cash to the Sellers of which
GBP374,610 shall be used to repay to Aitchesse amounts owing by
certain of the Sellers;
-- the issue of 507,522 new Ordinary Shares to the Sellers
(based on a price of 298.5p per Ordinary Share); and
-- the issue of GBP666,842 of Short Term Loan Notes to the Sellers.
The amount of additional consideration payable shall increase on
a sliding scale depending on the EBITDA achieved by Aitchesse
between a range of GBP1,733,333 and GBP3,466,666 with the full
GBP3,697,237 additional consideration being payable if EBITDA of
GBP3,466,666 or more is achieved and no additional consideration
being payable if EBITDA of less than GBP1,733,333 is achieved. The
additional consideration shall be satisfied by:
-- the payment of up to GBP1,500,055 in cash to the Sellers; and
-- the issue of up to 736,074 new Ordinary Shares (based on a
price of 298.5p per Ordinary Share) to the Sellers.
The Short Term Loan Notes have an interest rate of 5 per cent.
and are repayable on the earlier of (i) 30 April 2016, or (ii) on
the securing of a new bank facility of no less than GBP7 million by
the Company. The Short Term Loan Notes are not transferable.
The Acquisition Agreement is conditional upon, amongst other
things, Admission.
The Sellers are giving customary warranties about Aitchesse.
They relate to, inter alia, information supplied, accounts,
financial position, business since 30 June 2015, trading and
contracts, employees, pensions, compliance, intellectual property.
Completion is conditional upon, amongst other things, Admission and
there having been no material adverse change to the prospects and
business of Aitchesse since the date of the Acquisition Agreement
and the warranties remaining true.
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The Sellers will be restricted for a period of three years from
Completion from soliciting, approaching or dealing with Aitchesse's
customers, soliciting Aitchesse's employees and engaging in a
business similar to that of Aitchesse.
The Company may terminate the Acquisition Agreement prior to
Completion if, prior to completion of the Acquisition there is a
material adverse change affecting Aitchesse or if there is a
material breach of the Sellers' warranties. Material for this
purpose is a liability to Aitchesse of GBP50,000 or greater.
Each of the Sellers have also agreed to enter into "lock-in
agreement" with the Company, whereby they agree that, subject to
certain exceptions, they will not dispose of any Initial
Consideration Shares that they receive for a period of one year
from the date of Admission.
12. General Meeting
The Notice of General Meeting will be set out in the Admission
Document. Entitlement to attend and vote at the General Meeting and
the number of votes which may be cast at the General Meeting will
be determined by reference to holdings in Ordinary Shares at 6.00
p.m. on 18 November 2015.
The General Meeting has been convened for 2.30 p.m. on 20
November 2015 at the offices of Travers Smith LLP, 10 Snow Hill,
London EC1A 2AL to enable Shareholders to consider and, if thought
fit, pass the Resolutions set out in the Notice of General Meeting.
The Resolutions will be proposed as ordinary resolutions.
Resolutions 1 and 2 are inter-conditional. The Acquisition and
Admission are conditional on Resolutions 1 and 2 being passed. The
implementation of the Incentive Arrangements is conditional on
Resolution 3 being passed.
Resolution 1 - Approving the Acquisition
Resolution 1 will be proposed as an ordinary resolution to
approve the Acquisition and the entering into by the Company and
GHHL of the Acquisition Agreement.
Resolution 2 - Approving the issue of Consideration Shares
Resolution 2 will be proposed as an ordinary resolution to
authorise the directors of the Company to issue the Consideration
Shares pursuant to the Acquisition Agreement.
Resolution 3 - Approving the Incentive Arrangements
Resolution 3 will be proposed as an ordinary resolution to
authorise the directors to consider the Incentive Arrangements and
implement a long-term incentive plan and bonus share matching
scheme substantially in accordance with the terms outlined in
section 6 of this announcement.
13. Admission, settlement and CREST
As the Acquisition constitutes a reverse takeover under the AIM
Rules for Companies and due to the Company's status changing from
that of an investing company to an operating business Shareholder
consent to the Acquisition is required at the General Meeting.
Subject to the passing of Resolutions 1 and 2 and the satisfaction
of the other conditions under the Acquisition Agreement and the
Introduction Agreement and Admission, the admission of the Ordinary
Shares and Shareholder Warrants to trading on AIM will be cancelled
and application will be made to the London Stock Exchange for the
Enlarged Share Capital and the Shareholder Warrants to be admitted
to trading on AIM. Admission of the Enlarged Share Capital and the
Shareholder Warrants to trading on AIM is, subject to the passing
of Resolutions 1 and 2 and the satisfaction of all other
conditions, expected to take place on or around 23 November
2015.
The Ordinary Shares and the Shareholder Warrants are eligible
for CREST settlement. Accordingly, settlement of transactions in
Ordinary Shares (including the Consideration Shares) and the
Shareholder Warrants following Admission may take place within the
CREST system if the relevant Shareholder or Warrantholders so
wishes.
CREST is a voluntary system and Shareholders and Warrantholders
who wish to receive and retain certificates will be able to do
so.
The current arrangements of the Shareholders and Warrantholders
of the Company will remain in force.
14 Warrants
14.1 Shareholder Warrants
Terms of issue of the Shareholder Warrants
On 1 December 2014, the Company issued 1,073,904 Shareholder
Warrants to its existing Shareholders as at the close of business
on 28 November 2014 on a 1:5 basis, such warrants having been
admitted to trading on AIM.
Each such Shareholder Warrant entitles the Shareholder to
subscribe for one Ordinary Share, exercisable from 1 January 2015
to 31 December 2019 (inclusive) at an exercise price of 323.27
pence.
As part of the Proposals, trading in the Shareholder Warrants
will be cancelled and application for them to be readmitted to
trading on AIM. Notwithstanding the re-admission, the Shareholder
Warrants shall remain in force.
The Company hereby notifies the Shareholder Warrantholders that
on 4 November 2015, the Company modified the Shareholder Warrant
Instrument (in accordance with clause 10 of the Instrument) by a
supplemental instrument in writing to correct a manifest error in
the terms of the Shareholder Warrant Instrument. The modification
amends the provisions relating to the adjustment of subscription
rights in clause 6.1(a) of the Shareholder Warrant Instrument so
that the drafting in the clause is the same as the drafting in the
summary of the Shareholder Warrants contained in the Company's
admission document dated 8 October 2014 and in the Admission
Document.
14.2 Supporter Warrants
On 1 December 2014, the Company issued 850,000 Supporter
Warrants to certain directors and members of the Investment
Committee and Advisory Group at a price of 7.5p per warrant. The
Supporter Warrants have the same entitlements as the Shareholder
Warrants issued to Shareholders save that they are not freely
transferable (such Supporter Warrants are only transferable to
certain family members, trusts or companies connected with the
relevant Warrantholder) and accordingly are not admitted to trading
on AIM nor will they become exercisable until 1 December 2015.
Each such Supporter Warrant entitles the holder to subscribe for
one Ordinary Share at an exercise price of 323.27 pence.
The Company hereby notifies the Supporter Warrantholders that on
4 November 2015, the Company modified the Supporter Warrant
Instrument (in accordance with clause 10 of that Instrument) by a
supplemental instrument in writing to correct a manifest error in
the terms of the Supporter Warrant Instrument. The modification
amends the provisions relating to the adjustment of subscription
rights in clauses 6.1(a) of the Supporter Warrant Instrument so
that the drafting in that clause is the same as the drafting in the
summary of the Supporter Warrants set out in the admission document
dated 8 October 2014 and in the Admission Document.
15. Dividend policy and share buybacks
The Company's principal objective is to provide Shareholders
with superior risk adjusted returns over the longer term, primarily
through capital appreciation. The Directors' intention therefore is
to re-invest funds into the Company rather than paying dividends
but at the appropriate time they intend to review this dividend
policy. In addition to considering such a dividend policy in the
future, the board of the Company will, from time to time, consider
the desirability of implementing a share buyback. The authority
will only be exercised if the directors of the Company consider
that it is in the best interests of the Shareholders at that
time.
16. Recommendation
The Board considers the Proposals and the passing of the
Resolutions to be in the best interests of the Shareholders as a
whole and, accordingly, unanimously recommends that Shareholders
vote in favour of all of the Resolutions at the General Meeting.
The Company's Directors intend to vote their own shareholdings,
totalling 453,119 Ordinary Shares, representing approximately 4.8
per cent. of the Company's existing issued ordinary share capital,
in favour of each of the Resolutions.
Appendix 1 - Expected Timetable of Principal Events
Publication of the Admission Document.......................... 4 November 2015
Latest time and date for receipt of Forms of Proxy........... 2:30 p.m. 18 November 2015
General Meeting............................................................. 2:30 p.m. 20 November 2015
Completion of the Acquisition, Admission and expected commencement of dealings in
Ordinary
Shares and Shareholder Warrants..................................................... 8.00 a.m. on 23 November 2015
Each of the times and dates in the above timetable is subject to
change, and if the above times and/or dates change, the revised
time and/or date will be notified by an announcement through a
Regulatory Information Service.
All times are London times unless otherwise stated.
APPENDIX 2 - DEFINITIONS
The following definitions apply throughout this announcement,
unless the context requires otherwise:
"Aitchesse" Aitchesse Limited, a company registered in Scotland with
registered number SC232893 and with
its registered office at Suite G, Riverview House, Friarton
Road, Perth PH2 8DF
"Acquisition" the acquisition by the Company of the entire issued share
capital of Aitchesse
"Acquisition Agreement" the conditional agreement between GHHL and the Sellers
relating to the Acquisition
"Admission" the readmission of the Ordinary Shares and Shareholder
Warrants to trading on AIM becoming
effective in accordance with the AIM Rules for Companies
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"Admission Document" the admission document to be published pursuant to Rule 14
of the AIM Rules on 4 November
2015 relating to, inter alia, the Acquisition
"Advisory Group" the advisory group of the Company, described in section 7
of this announcement
"AIM" AIM, a market operated by the London Stock Exchange
"AIM Rules for Companies" the rules for AIM companies published by the London Stock
Exchange
"AIM Rules for Nominated Advisers" the rules for nominated advisers to AIM companies published
by the London Stock Exchange
"AUM" assets under management
"Authorised Investment Trust" a company which has been approved as an investment trust by
HMRC under section 1158 of the
Corporation Tax Act 2010
"Board" or "Directors" the directors of the Company
"CEO" chief executive officer
"Company" or "Gresham House" Gresham House plc, a company registered in England with
registered number 871 and with its
registered office at 5 New Square, London EC4A 3TW
"Completion" completion of the Acquisition in accordance with the terms
of the Acquisition Agreement
"Consideration Shares" up to 1,243,596 Ordinary Shares which may be issued
pursuant to the Acquisition Agreement
"Co-operative Bank" The Co-operative Bank plc
"CREST" the relevant system (as defined in the Uncertificated
Securities Regulations 2001) in respect
of which Euroclear UK & Ireland is the operator (as defined
in the Uncertificated Securities
Regulations 2001)
"Disclosure and Transparency Rules" the disclosure and transparency rules made by the FCA in
exercise of its function as competent
authority pursuant to Part VI of the FSMA, as amended from
time to time
"Enlarged Group" the Company and its subsidiaries on Admission following
completion of the Acquisition
"FCA" or "Financial Conduct Authority" the Financial Conduct Authority of the United Kingdom
"FSMA" the Financial Services and Markets Act 2000 (as amended,
modified, consolidated, re-enacted
or replaced from time to time)
"General Meeting" the general meeting of the Company to be convened to
approve the Proposals at 2:30 p.m. on
20 November 2015 at the offices of Travers Smith LLP, 10
Snow Hill, London EC1A 2AL
"Gresham House Strategic Investment Management Agreement" the agreement between Gresham House Strategic and the
Company dated 21 July 2015 relating
to the management of Gresham House Strategic
"Gresham House Strategic Share Swap Agreement" the agreement between the Company and Gresham House
Strategic for the sale and purchase of
shares of SpaceandPeople plc.
"Group" the Company and its subsidiaries prior to Admission
"GHAM" Gresham House Asset Management Limited, a company
registered in England and Wales with registered
number 9447087 and with its registered office at 5 New
Square, London EC4A 3TW
"GHHL" Gresham House Holdings Limited
"HMRC" HM Revenue & Customs
"Incentive Arrangements" the proposed long term incentive plan and a bonus share
matching plan to be put in place by
the Directors
"Introduction Agreement" the agreement between the Company and Liberum dated 4
November 2015 relating to Admission
"Investment Committee" the investment committee of the Company, described in
section 4 of this announcement
"Issued Share Capital" the total share capital of the Company issued to
Shareholders
"Jones Lang LaSalle" Jones Lang LaSalle Limited, a company registered in England
& Wales with registered number
1188567 and with its registered office at 30 Warwick
Street, London W1B 5NH
"Liberum" Liberum Capital Limited, the Company's financial adviser,
nominated adviser and broker
"Listing Rules" the listing rules made by the FCA in the exercise of its
function as competent authority pursuant
to Part VI of the FSMA, as amended from time to time
"London Stock Exchange" the London Stock Exchange plc
"Main Market" the London Stock Exchange's main market for listed
securities
"NAV" the basic net asset value of the Company
"NAV Per Ordinary Share" the NAV per Ordinary Share shown in the Company's interim
accounts as at 30 June 2015 (being
298.5 pence per Ordinary Share)
"Notice" or "Notice of General Meeting" the notice of General Meeting to be set out at the end of
the Admission Document
"Official List" the Official List of the UK Listing Authority
"Ordinary Shares" ordinary shares of 25 pence each in the share capital of
the Company
"Persimmon" Persimmon Homes Limited
"Proposals" collectively, the Acquisition, Admission and the Incentive
Arrangements
"Prospectus Rules" the prospectus rules made by the FCA in the exercise of its
function as competent authority
pursuant to Part VI of the FSMA, as amended from time to
time
"Resolutions" the resolutions to be proposed at the General Meeting, to
be set out in the Notice of General
Meeting
"Sellers" together, Digby Guy, Caroline Guy, Graham Carter and John
Strickland
"Shareholder Warrantholders" holders of the Shareholder Warrants
"Shareholder Warrant Instrument" the warrant instrument dated 7 October 2014
"Shareholder Warrants" the warrants to subscribe for Ordinary Shares (further
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