TIDMECV
RNS Number : 7159C
Eco City Vehicles PLC
01 July 2016
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Eco City Vehicles PLC
("ECV" or the "Company")
Proposed GBP73m Acquisition of Tax Computer Systems Limited,
GBP45m Placing and re-admission to AIM as Tax Systems plc
Eco City Vehicles PLC (AIM: ECV) is pleased to announce that it
has agreed to acquire Tax Computer Systems Limited ("TCS"), a
leading supplier of corporation tax software to the large corporate
sector and the accounting profession in the UK and Ireland, for an
enterprise value of GBP73 million. The Company has also
conditionally raised GBP45 million by way of an oversubscribed
placing of New Ordinary Shares.
Highlights
-- Acquisition of a leading corporation tax software business with a blue chip customer base
-- 43 of FTSE 100 customers
-- 19 of top 20 UK accountancy firms
-- Established for over 25 years with GBP12.8 million revenue
(90% are recurring) and 52% EBITDA margin in 2015
-- GBP73 million enterprise value, payable in cash, representing an EV/ EBITDA multiple of 11x
-- Gavin Lyons, partner in MXC Capital, to become Executive Chairman
-- Opportunity to invest further in the platform and team,
accelerate organic growth and seek complementary acquisitions
-- MXC Capital is subscribing for GBP8.7 million of equity and
will own 20% of issued share capital post Admission
-- Oversubscribed Placing to raise GBP45 million at a price of
67 pence per share (post Share Consolidation)
-- New debt facilities of GBP30 million comprising GBP9 million
term loan and GBP11 million revolving credit facility with HSBC
Bank plc in addition to GBP10 million unsecured loan notes issued
to the Business Growth Fund plc
-- Proposed change of name to Tax Systems plc
-- Proposed consolidation of every 50 Existing Ordinary Shares into one New Ordinary Share
The Acquisition will be funded by a combination of the Company's
existing cash resources, the proceeds of the Placing and the Debt
Facilities.
Clive Carver, Non-Executive Director of ECV, said:
"It has been our stated strategy to seek an investment in the
technology sector where we believe there are opportunities for
growth. TCS is a business that meets these criteria and represents
a strong and stable platform from which to build a UK tax
automation and compliance software business of scale. We look
forward to the future with confidence."
Gavin Lyons, proposed Executive Chairman of ECV, said:
"TCS has a market leading corporation tax software platform
established over the past 25 years which is used by a large number
of the UK's leading companies and accountancy practices. We will
invest in the excellent product portfolio, making it even more
relevant to our valued customer base. As we expand our service, we
will also grow the TCS team. We aim to accelerate the organic
growth of the business whilst seeking opportunities to acquire
companies with complementary products and services."
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 25 July 2016 at 10 a.m. at the
offices of K&L Gates LLP, One New Change, London EC4M 9AF,
notice of which is set out at the end of the Admission Document,
which will be posted to Shareholders today and is available on the
Company's website: www.ecocityvehicles.co.uk
Further to the announcement of 21 January 2016, trading in the
Company's shares will remain suspended pending Shareholder approval
at the General Meeting.
Eco City Vehicles PLC
Clive Carver, Non-Executive Director +44 20 3845 3552
MXC Capital Markets LLP (Financial Adviser)
Marc Young/ Charlotte Stranner +44 20 7965 8149
finnCap Limited (Nomad and Broker)
Jonny Franklin-Adams/James Thompson (Corporate Finance) +44 20 7220 0500
Tim Redfern (Corporate Broking)
The following text has been extracted from the Admission
Document which has been published today.
Capitalised terms shall have the same meaning as in the
Admission Document unless the context requires otherwise.
1. INTRODUCTION
On 1 July 2016, the Company announced that it had conditionally
agreed to purchase the entire issued share capital of Tax Computer
Systems. The consideration for the Acquisition is GBP73 million,
payable wholly in cash, in addition to a cash for cash payment
estimated to be GBP34.5 million. In order to part fund the
consideration payable pursuant to the Acquisition, as well as
Transaction costs, the Company has also today announced the
conditional placing of 67,164,180 New Ordinary Shares at 67 pence
per share to raise GBP45 million (GBP41 million net of costs). The
Acquisition constitutes a reverse takeover of the Company for the
purposes of the AIM Rules for Companies and accordingly requires
Shareholder approval.
At the same time as the Acquisition and the Placing, the
Directors are making other consequential proposals comprising the
Capital Reorganisation, the adoption of the New Articles and the
change of the Company's name to Tax Systems plc.
The Proposals and the Consequential Proposals are conditional,
inter alia, upon the passing of the Resolutions at a General
Meeting to be held at the offices of the Company's solicitors,
K&L Gates LLP at One New Change, London EC4M 9AF, at 10 a.m. on
25 July 2016, and Admission taking place. It is expected that
Admission will become effective, and that dealings in the Enlarged
Issued Share Capital will commence on AIM, on 26 July 2016.
This document contains detailed information about TCS, the
Acquisition and the Placing and explains why the Board considers
the Proposals to be in the best interests of the Company and its
Shareholders as a whole, and recommends that you vote in favour of
the Resolutions to be proposed at the General Meeting, notice of
which is set out at the end of this document.
2. BACKGROUND ON THE COMPANY
The Company was admitted to AIM on 11 October 2007 as a
specialist vehicle distributor and one of London's two authorised
main dealers for LTI London Taxis selling new and used vehicles and
offering a range of after sales services. As a result of
challenging trading conditions and being unable to secure
additional funding for the Company, administrators were appointed
in October 2014 and the Company subsequently exited administration
in December 2014 by way of a company voluntary arrangement
following approval by both creditors and shareholders. In March
2015, the Company raised GBP250,000 by way of a private placing of
convertible loan notes and the Existing Ordinary Shares were
re-admitted to trading on AIM and the Company became an investing
company under the AIM Rules with a policy to invest in and/or
acquire companies and/or assets in the telecommunications, media
and technology sectors. In December 2015, a further GBP5 million
was raised by the issue of Existing Ordinary Shares and the Company
appointed MXC Capital, through its FCA regulated subsidiary MXC
Capital Markets LLP, to assist with identifying suitable
acquisitions.
3. SUMMARY INFORMATION ON TCS
TCS is a leading supplier of corporation tax software to the
large corporate sector and the accounting profession in the UK and
Ireland. TCS' portfolio of products manage and automate the end to
end corporation tax compliance processes, including year-end tax
reporting and HMRC tax computations.
TCS' lead product is Alphatax, which deals with virtually all of
a company's corporation tax needs and covers practically every
aspect of corporation tax. TCS also offers a range of complementary
specialist applications and a range of professional services.
Detailed information on TCS and its products and services is set
out in Part II of this document and historical financial
information on TCS can be found in Part V of this document.
4. REASONS FOR THE ACQUISITION
In line with its investing policy, the Company's stated strategy
is to invest in and/or acquire companies and/or assets in the
telecommunications, media and technology sectors where the Board
believes there are opportunities for growth which, if achieved,
will enhance earnings for Shareholders. The Directors believe that
in TCS they have identified a business that meets these criteria
and which represents a strong and stable platform from which to
expand both organically and via acquisition, and on a national and
international level.
The Directors and Proposed Directors consider that the
opportunity represented by the Acquisition is in the best interests
of the Company and Shareholders for the following reasons:
-- TCS is a leading brand in its field in the UK and Ireland,
offering a comprehensive set of corporation tax reporting solutions
and additional professional services
-- TCS is an established business with a very high proportion of
recurring revenue (c. 90% of total revenues in the last financial
year to 31 December 2015) with strong cash generation and low
customer churn
-- TCS' market share among large corporates and accountancy
firms is ahead of its competitors, with TCS being able to name 43
of the FTSE 100 companies and 19 out of the top 20 accountancy
firms among its customers; however there remains a significant
opportunity to further penetrate these markets, as well as others,
further details of which are given in paragraph 5 below
-- Members of the TCS team have built up a substantial amount of
sector expertise which would be very difficult to duplicate,
providing a high barrier to entry to the market
-- Managing tax risk and compliance is an increasingly
significant challenge for companies. Initiatives such as the
European Union's Common Consolidated Tax Base and the OECD's
Country by Country reporting are likely to increase the consistency
of the requirements of corporate tax authorities in many countries
as well as increase the level of work, regulation and complexity
associated with corporation tax representing a significant
opportunity for TCS as a leading incumbent player in the UK and
Ireland
5. MARKET OPPORTUNITY AND GROWTH STRATEGY FOR THE ENLARGED GROUP
The Directors and Proposed Directors believe that TCS, as a
leading supplier of corporation tax software in the UK and Ireland,
has a solid platform with an impressive customer base from which to
accelerate growth. This growth could come from the existing tax
compliance market within which TCS already operates and from the
wider accounting and enterprise software sector as a whole. The
strategic objectives are to grow both organically and via
acquisition through:
(a) Further penetration of existing markets
TCS' client base currently comprises circa 900 corporate
customers and over 120 accountancy practices including 56 of the
top 100 accountancy practices in the UK. The total population in
the UK and Ireland of large corporate entities is estimated at
around 7,500 and there are over 3,000 accountancy practices with
more than 2 partners, providing significant opportunity to increase
market share.
Furthermore, sales of TCS' other products are modest, presenting
substantial cross-selling opportunities for the Enlarged Group with
respect to existing products and new products.
(b) SaaS offering to medium sized companies
The UK Government's Department for Business, Innovation and
Skills ("BIS") estimates the number of medium sized companies in
the UK and Ireland at 33,000, a market which TCS currently does not
address. The Directors and Proposed Directors believe that a SaaS
version of Alphatax with appropriate functionality would be
well-placed to penetrate those companies within this market sector
which manage their own tax in-house.
(c) International expansion
International growth involving solutions for other countries
outside of the UK and Ireland represents a substantial opportunity
for the Enlarged Group. TCS' Irish business has demonstrated that
the product portfolio can be localized and sold successfully.
Expansion internationally could involve the acquisition of local
players which could then benefit from TCS' product portfolio to
become more established in their regions. The products can easily
be adapted to function in any language using the Roman
alphabet.
(d) International Governmental Initiatives
New international governmental regulations on the exchange of
tax information across borders impose significant additional
compliance burden on corporates. For example, under the US Foreign
Account Tax Compliance Act ("FATCA"), all US tax payers investing
in UK financial institutions have to report the relevant
information to HMRC. TCS has developed Alphacat which enables
companies to prepare and manage FATCA reportable accounts filings
to HMRC for onward transmission to the Internal Revenue Service
("IRS") in the US. Alphacat is in the process of being introduced
to the market and the Directors and Proposed Directors consider
that this presents a major opportunity for the Enlarged Group.
Furthermore, the Organisation for Economic Cooperation and
Development ("OECD") has introduced a Common Reporting Standard
which will require the exchange of information similar to that
required under FATCA between all member countries from 2017.
Additionally, the UK is mandating all UK Crown Colonies and
Overseas Territories to report similar data relating to UK tax
payers to HMRC with respect to 2014 onwards by September 2016. The
Directors and Proposed Directors believe that TCS is ideally placed
to provide the necessary processes within its software to enable
companies to comply with the new requirements.
The OECD has also introduced country by country reporting which
requires multinational corporations to report their business
activities on a country by country basis with effect for accounting
periods commencing on or after 1 January 2016. TCS has developed an
intelligent web based application, Alphatrac CbyC, which has been
specifically designed to manage a corporation's country by country
reporting requirements and can be accessed at anytime from anywhere
in the world.
The Directors and Proposed Directors see these recently
introduced or incoming governmental initiatives which aim to
increase the consistency of the requirements of the corporate tax
authorities in many countries as being a significant growth
opportunity for the Enlarged Group.
(e) New product offerings
The Directors and Proposed Directors believe that there is an
opportunity to build a software business with a comprehensive set
of products covering tax compliance and the wider accounting and
financial reporting market by adding new products either by
developing them in house or via the acquisition of companies
operating in relevant areas.
The addition of synergistic products could be accelerated by the
acquisition of companies operating in relevant areas, such as VAT
automation or payroll.
6. CURRENT TRADING AND PROSPECTS
Eco City Vehicles
Eco City Vehicles is currently an investing company and does not
trade. Its results for the year ended 2015 were announced on 16 May
2016 and showed net assets of GBP4.9 million at the year end. Since
the year end, the Company has incurred expenditure in line with the
Directors' and Proposed Directors' expectations.
TCS
Since the date to which the latest financial information
included in this document has been prepared, TCS has continued to
trade in line with the Directors' and Proposed Directors'
expectations.
Prospects for the Enlarged Group
The Directors and Proposed Directors believe that the Enlarged
Group has considerable growth opportunities in the tax compliance
market and the wider accounting and financial reporting market,
both organically and via selected acquisitions and views the future
with confidence.
7. DIRECTORS AND PROPOSED DIRECTORS
Directors
The Board currently comprises the following Directors:
Clive Carver, Non-Executive Director
Clive, aged 55, is a Fellow of the Association of Corporate
Treasurers and specialized in corporate tax while qualifying as a
chartered accountant at Coopers & Lybrand and has spent 17
years in the corporate broking arena becoming, successively, head
of corporate finance at Seymour Pierce, Williams de Broë and
finnCap. Since 2006, Clive has been chairman of Roxi Petroleum PLC,
becoming executive chairman in June 2012. Clive is also
non-executive chairman of Ascent Resources PLC and 365 Agile Group
plc and a non-executive director of Darwin Strategic Limited.
Charles Vivian, Non-Executive Director
Charles, aged 42, is a Partner at MXC Capital Markets LLP and
member of the Advisory Board of MXC Capital Limited, the Company's
advisor and institutional investor respectively. Previously he has
worked as an Investment Executive at EPIC Private Equity and Marwyn
Capital. Charles specialises in listed, buy-and-build investment
strategies and has led numerous acquisitions and disposals as well
as managing the investments in portfolio companies. In addition,
Charles worked for over six years at international law firm
Freshfields Bruckhaus Deringer, where he specialised in public and
private M&A. Charles will resign from his office as a Director
on Admission.
Proposed Directors
On Completion, it is proposed that the following will be
appointed as directors of the Company:
Gavin Lyons, Proposed Executive Chairman
Gavin, aged 38, has had a distinguished career in the TMT
sector, most recently as CEO of Accumuli PLC, a successful buy and
build in the IT security sector sold to NCC Group plc for GBP55m.
Prior to Accumuli PLC, Gavin was Head of Telecoms & Utilities
UK&I at SAP and held a senior position at Trend Micro Inc.
having also worked at Xerox, Compuware and The Caudwell Group.
Gavin is currently executive chairman at adept4 plc and is a
partner at MXC Capital, the AIM quoted technology focused merchant
bank appointed by Eco City Vehicles to advise on the Company's
strategy and identify acquisition opportunities.
Grahame Benson, Proposed Finance Director and Chief Operating
Officer
Grahame, aged 48, is a chartered management accountant who has
held senior positions in finance from a relatively early stage in
his career. Grahame was previously Chief Financial Offer of Arrow
ECS, a subsidiary of Arrow Electronics, the NYSE listed global IT
distributor of electronics, where he was part of a small team
growing the UK business from c.GBP200m in revenue to c.GBP1 billion
via a mixture of organic and acquisitive growth. Prior to Arrow
ECS, Grahame was Finance Director of Clarity Technology, a
subsidiary of Horizon Technology Group.
Linda Beal, Proposed Non-Executive Director
Linda, aged 54, is a chartered accountant and up until 30 June
2016 was a tax partner at Grant Thornton UK, specializing in tax
structuring and global tax compliance and outsourcing for
international groups. Prior to Grant Thornton UK, Linda was at
PricewaterhouseCoopers LLP and one of its legacy firms from 1982
until 2013, becoming a tax partner in 1997. Linda has significant
experience of using Alphatax and competing products and supporting
in house teams on tax compliance. She has a strong network of
contacts across large and medium sized companies operating in the
UK and internationally as well as across a number of accountancy
firms.
8. PRINCIPAL TERMS AND CONDITIONS OF THE ACQUISITION
On 30 June 2016, the Company entered into the Acquisition
Agreement with the Vendors and the Minority SPAs with the Minority
Shareholders pursuant to which the Company has conditionally agreed
to acquire the entire issued share capital of TCS. The
consideration for the Acquisition is GBP73 million, to be satisfied
wholly in cash on Completion, in addition to a cash for cash
payment estimated to be GBP34.5 million. Completion of the
Acquisition Agreement is conditional, amongst other things,
upon:
-- the Placing Agreement being in full force and effect and the
Loan Facilities and Loan Notes being available for drawdown;
-- Shareholder approval of the Resolutions; and
-- Admission.
Additional information relating to the Acquisition Agreement and
the Minority SPAs is set out in paragraph 13.2 of Part VII of this
document.
9. FINANCING OF THE ACQUISITION
The Company will use its existing cash resources along with the
proceeds of the Placing, the Loan Notes and the Loan Facilities to
satisfy the consideration for the Acquisition. Further details of
the Loan Notes and Loan Facilities are set out in paragraphs 13.3
and 13.4 of Part VII of this document respectively.
The pro-forma statement of net assets of the Enlarged Group set
out in Part VI of this document shows proforma net liabilities of
GBP25.3 million as at 31 December 2015 after adjusting for the
Acquisition.
10. DEBT FACILITIES
Conditional upon Completion, the Company has entered into the
Loan Facilities with HSBC Bank plc, comprising a term loan of GBP9
million and a revolving credit facility of GBP11 million. Further
details of the Loan Facilities are set out in paragraph 13.3 of
Part VII of this document.
In addition, and conditional upon Completion, the Company has
issued GBP10 million unsecured loan notes to the BGF. The Loan
Notes have a 6 year term, with redemption permissible from the
third anniversary and required from the fifth anniversary, and
carry interest at a rate of 6% per annum. In addition, the Company
has, subject to Completion, agreed to grant the BGF an option to
subscribe for 5,970,149 New Ordinary Shares at the Issue Price.
Further details of the Loan Notes and the option to be granted to
the BGF are set out in paragraphs 13.4 and 13.5 of Part VII of this
document.
11. THE PLACING
In order to part fund the consideration for the Acquisition and
related costs of the Proposals, the Company is seeking to raise
GBP45 million (gross) (GBP41 million net of expenses) pursuant to
the Placing through the issue of the Placing Shares at the Issue
Price. The Placing Shares will represent approximately 88 per cent.
of the Enlarged Issued Share Capital immediately following
Admission. Further details of the Placing Agreement which contains
the terms upon which the Placing is being undertaken are described
in paragraph 13.6 of Part VII to this document.
The Placing is not being underwritten. Following Admission the
Placing Shares will rank pari passu with the Existing Ordinary
Shares. Application will be made for the admission of the Enlarged
Issued Share Capital to trading on AIM which is expected to take
place on 26 July 2016.
12. WARRANTS
The Company and MXC Guernsey Limited have entered into a warrant
instrument whereby, conditional upon Admission, MXC Guernsey
Limited will be issued with Warrants to subscribe for 4,409,299 New
Ordinary Shares at the Issue Price which are exercisable from the
third anniversary of the date of grant dependent on share price
performance. Combined with its holding of Warrants as at the date
of this document, MXC Guernsey Limited will hold in aggregate
4,851,184 Warrants on Admission. Additional information relating to
the Warrants in issue at the date of this document, the additional
Warrants to be issued by the Company on Admission and the Warrants
to be issued on further share issuances are set out in paragraph
13.11 of Part VII of this document.
13. INCENTIVISATION ARRANGEMENTS
The Directors and Proposed Directors believe that the success of
the Enlarged Group will depend, to a high degree, on management and
other members of staff being appropriately motivated and rewarded.
The Enlarged Group has therefore established the New Employee Share
Scheme, designed to assist in the recruitment, motivation and
retention of staff and which, for executive directors and senior
managers, carries performance conditions which align the interests
of the management team with those of Shareholders.
Participants in the New Employee Share Scheme will be entitled
in aggregate to 6 per cent. of future Shareholder value generated,
which will be calculated by reference to the growth in the market
capitalisation of the Company following Admission over a period of
between 3 to 7 years, as adjusted for the issue of New Ordinary
Shares after Admission (but excluding any New Ordinary Shares
issued pursuant to the New Employee Share Scheme) and taking into
account dividends and capital returns, if any. Allocations to
participants in the New Employee Share Scheme will be made post
Admission. Further details of the New Employee Share Scheme are set
out in paragraph 12 of Part VII of this document.
14. LOCK-INS AND ORDERLY MARKET PROVISIONS
Gavin Lyons and Grahame Benson have given undertakings in
lock-in deeds not to sell, charge or grant any interests over any
New Ordinary Shares held by them on Admission (subject to certain
exemptions) during the 12 month period commencing on Admission.
Summaries of the lock-in deeds are set out in paragraph 13.7 of
Part VII of this document.
15. RELATED PARTY TRANSACTIONS
The participation of Henderson and Euroblue Investments Limited,
substantial shareholders in the Company, in the Placing constitute
related party transactions for the purposes of Rule 13 of the AIM
Rules for Companies.
The fee received by MXC Capital as part of the Transaction (as
set out in paragraph 13.10 of Part VII of this document) and the
participation of MXC Capital, as a substantial shareholder in the
Company, in the Placing and the issue of the Warrants (as set out
in paragraph 13.11 of Part VII of this document) constitute related
party transactions for the purposes of Rule 13 of the AIM Rules for
Companies.
The independent director, Clive Carver, having consulted with
the Company's nominated adviser, finnCap, considers that the terms
of the Related Party Transactions are fair and reasonable insofar
as independent Shareholders are concerned.
16. DIVID POLICY
Any future dividends will naturally be proposed or declared
taking account of the Enlarged Group's profitability, cash position
and prospects, whilst also having regard to the future cash demands
of the business. The Directors and Proposed Directors do not
anticipate the proposal or any payment of any dividends during the
next full financial year to 31 December 2016.
17. CORPORATE GOVERNANCE
The Directors and Proposed Directors support high standards of
corporate governance. Accordingly, the New Board will meet
regularly throughout the year and all necessary information will be
supplied to the New Board on a timely basis to enable it to
discharge its duties effectively. Additionally, special meetings
will take place or other arrangements will be made when Board
decisions are required in advance of regular meetings.
The New Board has established financial controls and reporting
procedures which are considered appropriate given the size and
structure of the Enlarged Group. It is the intention of the New
Board that these controls will be reviewed regularly in light of
the future growth and development of the Enlarged Group and
adjusted accordingly.
Share dealing code
The Directors comply with Rule 21 of the AIM Rules for Companies
relating to directors' and applicable employees' dealings in the
Company's securities and will comply with MAR, which comes into
force on 3 July 2016 and which will provide a legal prohibition on
trading by "persons discharging managerial responsibilities" during
closed periods. Existing Rule 21 of the AIM Rules for Companies
will be replaced with a new rule requiring an AIM company to have a
reasonable and effective dealing policy. Accordingly, the Company
has adopted a share dealing code for directors and applicable
employees and the Company will take all reasonable steps to ensure
compliance by its directors and applicable employees with the
provisions of MAR and of the AIM Rules for Companies relating to
dealing in securities.
Compliance with the Corporate Governance Code
The New Board intends, following Admission, so far as is
practicable and appropriate for a company of its size, stage of
development and nature as a company whose securities are traded on
AIM to follow the provisions of the Corporate Governance Code.
On Admission, the New Board is expected to comprise four
directors, of whom two are executive and two are non-executive. The
Corporate Governance Code states that the board should determine
whether a director is independent in character and judgment and
whether there are relationships or circumstances which are likely
to affect, or could appear to affect, the director's judgment.
The New Board considers Clive Carver (non-executive director)
and Linda Beal (non-executive director) to be independent for the
purposes of the UK Corporate Governance Code.
The New Board will have an audit committee and remuneration and
nomination committee with formally delegated duties and
responsibilities, as described below.
Audit committee
The Audit Committee will be responsible for monitoring the
integrity of the Company's financial statements, reviewing
significant financial reporting issues, reviewing the effectiveness
of the Company's internal control and risk management systems,
monitoring the need for or the effectiveness of the internal audit
function and overseeing the relationship with the external auditors
(including advising on their appointment, agreeing the scope of the
audit and reviewing the audit findings).
The Audit Committee will comprise Clive Carver and Linda Beal
and is chaired by Linda Beal. The Audit Committee will meet at
least twice a year at appropriate times in the reporting and audit
cycle and otherwise as required. The Audit Committee will also meet
regularly with the Company's external auditors.
Remuneration and nomination committee
The Remuneration and Nomination Committee will be responsible
for determining and agreeing with the New Board the framework for
the remuneration of executive directors and other designated senior
executives and, within the terms of the agreed framework,
determining the total individual remuneration packages of such
persons including, where appropriate, bonuses, incentive payments
and share options or other share awards. The remuneration of
non-executive directors will be a matter for the chairman and the
executive members of the New Board. No director will be involved in
any decision as to his or her own remuneration.
The Remuneration and Nomination Committee will comprise Clive
Carver, Gavin Lyons and Linda Beal and is chaired by Clive Carver.
The Remuneration and Nomination Committee will meet at least twice
a year and otherwise as required.
18. IRREVOCABLE UNDERTAKINGS AND NOTIFICATIONS OF INTENT
MXC Capital and Euroblue Investments Limited have given
irrevocable undertakings to the Company to vote in favour of the
Resolutions to be proposed at the General Meeting (and, where
relevant, to procure that such action is taken by the relevant
registered holders if that is not one of them) and Henderson Global
Investors Limited have given a notification of intent to vote in
favour of the Resolutions to be proposed at the General Meeting, in
respect of certain of their holdings totalling, in aggregate,
333,468,852 Existing Ordinary Shares, representing approximately
75.5 per cent. of the Existing Issued Share Capital.
19. CHANGE OF NAME
It is proposed to change the name of the Company to Tax Systems
plc immediately prior to Admission by resolution of the Board in
accordance with the power conferred by the New Articles.
Upon the change of name being registered at Companies House, the
Company's AIM ticker symbol will be changed to TAX. The Company's
website address will be changed to www.taxsystemsplc.co.uk.
20. NEW ARTICLES OF ASSOCIATION
The New Board proposes the adoption of the New Articles by
special resolution at the General Meeting. A copy of the proposed
New Articles is available for inspection at the offices of the
Company's solicitors, K&L Gates LLP at One New Change, London,
EC4M 9AF, during usual business hours on any business day up to and
including the day of the General Meeting and will also be available
for inspection at the General Meeting for at least 15 minutes prior
to and during the meeting. Additionally the proposed New Articles
are available for inspection on the Company's website at the
following address: www.ecocityvehicles.co.uk
(www.taxsystemsplc.co.uk with effect from Admission). The principal
changes proposed to be made to the Articles are described at
paragraph 5 of Part VII of this document.
21. CAPITAL REORGANISATION
Under the Share Consolidation it is proposed that every 50
Existing Ordinary Shares be consolidated, subdivided and
reclassified as one New Ordinary Share and one Deferred Share.
Accordingly, the proportion of Existing Ordinary Shares held by
each Shareholder immediately before the Share Consolidation will,
save for fractional entitlements (which are discussed further
below), be the same as the proportion of New Ordinary Shares held
by each Shareholder immediately after the Share Consolidation. In
the event that the number of Existing Ordinary Shares held by a
Shareholder is not exactly divisible by 50, the Share Consolidation
will generate an entitlement to a fraction of a New Ordinary Share
and a fraction of a Deferred Share. Any New Ordinary Shares in
respect of which there are such fractional entitlements will be
aggregated and sold in the market for the best price reasonably
obtainable and the net proceeds of such sale distributed in due
proportion among those members entitled to fractions of a New
Ordinary Share except that any amount otherwise due to a member of
less than GBP5 will be retained for the benefit of the Company. Any
Shareholder holding fewer than 50 Existing Ordinary Shares at the
Record Date will cease to be a Shareholder. The Directors and
Proposed Directors believe that the Share Consolidation will result
in a more appropriate number of shares in issue given the Company's
size.
The Deferred Shares will be created pursuant to the New Articles
to be adopted at the General Meeting. The Deferred Shares will be
created with rights that give them no economic value. The New Board
can see no reason for the Deferred Shares to remain on the balance
sheet and recommends that the Deferred Shares are purchased by the
Company. Under the provisions of the Act, a public limited company
may not fund the purchase of its shares except out of its
distributable reserves or the proceeds of a fresh issue of shares
made solely for the purpose of such buy-back. The Company has no
distributable reserves with which to fund the Buy-Back and
therefore it is proposed that the Buy-Back is funded out of a fresh
issue of shares issued solely for the purpose of the Buy-Back as
permitted by the Act. Accordingly, the Company has issued Existing
Ordinary Shares to the Company secretary to raise sufficient funds
to acquire the Deferred Shares. Under the provisions of the New
Articles, the Company will have the power to buy back the Deferred
Shares for GBP0.01 in aggregate per each holder of Deferred Shares.
To simplify the Buy-Back, the Company will use its irrevocable
authority under the provisions of the New Articles to appoint any
person to execute on behalf of the holders of the Deferred Shares a
transfer of the Deferred Shares to a custodian pending completion
of the Buy-Back. In accordance with this authority, prior to the
acquisition of the Deferred Shares by the Company pursuant to the
Buy-Back Agreement, the Deferred Shares will be transferred to
Gravitas Nominees Limited, a nominee of the Company's solicitors,
K&L Gates LLP. Accordingly, the total cost of the Buy-Back will
be GBP0.01. Once the Buy-Back has been completed the Deferred
Shares will be cancelled. A copy of the Buy-Back Agreement is
available for inspection at the Registered Office. A copy of the
Buy-Back Agreement will also be available for inspection at the
General Meeting. The Buy-Back is conditional upon Shareholder
approval, and, at the General Meeting, Shareholders will be asked
to approve, if thought fit, the terms of the Buy-Back
Agreement.
22. GENERAL MEETING
Set out at the end of this document is a notice convening the
General Meeting to be held on 25 July 2016 at 10 a.m. at the
offices of K&L Gates LLP at One New Change, London EC4M 9AF at
which the following Resolutions will be proposed, of which
Resolutions 1 to 8 (inclusive) will be proposed as ordinary
resolutions and Resolutions 9 and 10 will be proposed as special
resolutions:
1. the approval of the Acquisition for the purposes of Rule 14 of the AIM Rules for Companies;
2. the appointment of Gavin Lyons as a director of the Company;
3. the appointment of Grahame Benson as a director of the Company;
4. the appointment of Linda Beal as a director of the Company;
5. the approval of the Share Consolidation;
6. the approval of the Buy-Back Agreement;
7. the authorisation of the Directors to allot New Ordinary
Shares in connection with the Placing, the Warrant Instrument, the
Option and the New Employee Share Scheme as well as a general
authorisation to allot or grant rights to subscribe for New
Ordinary Shares with an aggregate nominal value equal to one third
of the aggregate nominal value of the Enlarged Share Capital at
Admission;
8. the approval of loans to be made by TCS to directors of the
Company to cover tax liabilities in relation to the Employee Share
Scheme
9. the adoption of the New Articles; and
10. the disapplication of statutory pre-emption rights in
respect of the allotment of New Ordinary Shares in connection with
the Placing, the Option, Warrant Instrument and the New Employee
Share Scheme and otherwise up to an aggregate nominal value equal
to 15 per cent. of the aggregate nominal value of the Enlarged
Share Capital at Admission.
23. ADMISSION AND CREST SETTLEMENT
As the Acquisition constitutes a reverse takeover of the Company
under the AIM Rules for Companies, Shareholder consent to the
Acquisition is required at the General Meeting. If the Resolutions
are duly passed at the General Meeting, the admission of the
Company's Existing Ordinary Shares to trading on AIM will be
cancelled (immediately prior to Admission) and the Enlarged Issued
Share Capital will be admitted to trading on AIM.
Application will be made to London Stock Exchange for the
Enlarged Issued Share Capital to be admitted to trading on AIM.
Admission is expected to take place at 8 a.m. on 26 July 2016.
The New Ordinary Shares are eligible for CREST settlement. CREST
is a paperless settlement procedure enabling securities to be
evidenced otherwise than by a certificate and transferred otherwise
than by a written instrument in accordance with the requirements of
CREST. The New Articles permit the holding and transfer of Ordinary
Shares to be evidenced in uncertificated form in accordance with
the requirement of CREST. Accordingly, following Admission,
settlement of transactions in Ordinary Shares may take place within
the CREST system if the relevant Shareholder so wishes. CREST is a
voluntary system and Shareholders who wish to receive and retain
share certificates will be able to do so.
INFORMATION ON TAX COMPUTER SYSTEMS LIMITED
1. INFORMATION ON TCS
TCS has a 25 year track record and is a leading supplier of
corporation tax and associated software and services to large
corporates and the accountancy profession in the UK and Ireland.
TCS' portfolio of products automates and simplifies the complexity
of corporation tax compliance. The products attract an annual fee
which covers provision of an all-inclusive service, where the
customer can expect regular product enhancements complemented by a
spectrum of professional services. The products may be installed
in-house, or as a hosted solution.
TCS portfolio of products include:
Alphatax
Alphatax is TCS' lead product. It provides an end-to-end tax
compliance process. It supports virtually all phases of the
compliance cycle, from streamlining data collection, simplifying
tax analyses, producing computations and tax accruals, and managing
the overall process. It is fully enabled for Inline Extensible
Business Reporting Language ("iXBRL") online filing and is
recognised by HMRC. It provides solutions for all sizes of company
and accountancy firm.
The Alphatax software incorporates a comprehensive range of
corporation tax rules and logic. The integrated tax logic brings
high levels of automation when preparing tax computations and
reports. These rules are updated regularly in line with tax law and
legislative changes. Furthermore, Alphatax has an interactive help
system with legislative references and up-to-date tax content
providing users with the technical support they need when preparing
computations.
There are four available versions of Alphatax for corporate
customers, as well as a version for corporate partnerships and a
version of Alphatax specifically designed for life assurance
companies called Alphalife. In addition to the core computation and
filing software, Alphatax has a range of fully integrated software
functions which add value and functionality to the end-to-end tax
compliance process.
-- Alphatag
Alphatag converts a Word or Excel document prepared for the
statutory accounts to an iXBRL file in a format suitable for HMRC.
iXBRL allows organisations to automate the submission of financial
statements. Alphatag incorporates the tools and functions required
to manage the process of tagging statutory accounts documents so
that they can be filed automatically with HMRC. The submission of
tagged accounts is a requirement from HMRC.
-- Alphatrac
Alphatrac is workflow software providing a dashboard for status
reporting concerning the entire tax compliance process, including
across multiple countries. It uses web-based technology to manage
risk and improve efficiencies. It assigns tasks to individuals;
tracks deadlines and issues alerts; and uploads documents for file
sharing.
-- Alphacat
Under FATCA, non-US financial institutions are required to
report US client account management to the IRS. The UK is one of
over 100 participating tax authorities. Financial organisations in
the UK affected by FATCA are required to report key information to
HMRC on an annual basis. In addition, under the Common Reporting
Standards ("CRS"), the US FATCA model has been extended to other
OECD countries.
Alphacat enables companies to prepare and manage FATCA
reportable accounts filings to HMRC for onward transmission to the
IRS in the US. Alphacat also effectively manages a company's
end-to-end CRS compliance processes.
TCS has also formed TCSL Consultancy as a branded offering
focusing directly on providing corporate tax technology consulting
services. Professional services provided include:
-- Strategic Consulting
TCS offers strategic consulting on every aspect of the
corporation tax compliance cycle.
-- Hosted Service
The hosted service for Alphatax provides anytime, anywhere
remote access to Alphatax. TCS uses Rackspace Ltd to provide high
levels of security and availability. This eliminates the need for
the client to install any software on its network and permits
entirely flexible working from office, home and elsewhere.
-- Outsourced Corporation Tax Service
TCS provides a fully outsourced service providing data
collection, preparation of the tax computation, client approval,
testing of eFiling with attachments, and the final client
sign-off.
-- iXBRL Tagging Service
For companies that prefer to outsource the process of tagging,
TCS takes statutory accounts from the client; carries out the
requisite tagging; ensures sign off by the client; and delivers the
files on the web.
-- Tax Reporting Solutions
It is necessary for companies to have a standardised process to
complete their interim and year-end tax provision calculations. TCS
offers a service which automates this process and provides a
comprehensive suite of tax reports for both company and group
accounting.
-- Training
For companies that want to manage their tax computations and
returns in-house, TCS provides The Corporation Tax Technical
Training Course. This is an intensive, two day course which enables
finance professionals to control their tax compliance process.
-- Support Services
TCS provides first level support on all its licence sales.
2. OPERATING STRUCTURE
TCS has 60 employees, 56 in the UK located in
Staines-upon-Thames and 4 in Ireland located in Dublin.
There are three senior managers covering Sales (Corporate),
Development & IT and Ireland. There are a further three
managers heading up Sales (Professional Firms), Alphatax Tax
Development and Finance.
TCS has a team of 11 tax consultants who continually update the
software to ensure it is aligned with any tax legislation changes
and provide consultancy and support services.
Sales are direct to the customer, with many new sales coming
through referrals. The sales team consists of 4 people who manage
web demonstrations and orders, and occasionally visit prospects
on-site.
The account management team consists of 5 people who communicate
mainly by phone with the client base, identifying areas of further
client requirements. The development and IT team consists of 29
people.
TCS arranges occasional conferences and runs four user groups,
in Edinburgh, Leeds, Birmingham, and London, who meet annually.
Included in the user group meetings are tutorials on software
changes over the previous 12 months, presentations of the roadmap
of future developments, and discussions of problems which are
commonly experienced.
3. MARKETS AND CUSTOMER BASE
TCS currently serves the needs of circa 900 corporations in the
UK, as well as almost all of the large accounting firms including
19 of the top 20 UK practices.
Recurring revenues represented more than 90% of total revenues
in the year to 31 December 2015, and client retention levels are
high at 95%.
TCS has strong relationships across its customer base, including
significant historical length of tenure with many of its key
customers with the average length of relationship with the top 10
customers being 11 years.
The top 20 customers generated c.23% of total revenues in the
year to 31 December 2015 of which the largest generated c.5%,
showing a good customer spread with no significant reliance on any
one customer.
The levels of penetration of Alphatag, Alphatrac and Alphacat
are still modest with Alphatax representing
c.89% of total revenues.
Corporates
The tax market for large corporates was until recently primarily
served by large accountancy firms, whose business model places a
significant preference for providing advice rather than compliance.
Accordingly many large corporates now do their own tax
compliance.
According to BIS, in 2015 there was a population of around 7,000
large businesses in the UK with at least 250 employees. The Irish
economy is of the order of 10% of the size of the UK economy, so
for these purposes it is assumed that there is a population of
around 7,500 large businesses with at least 250 employees in the UK
and Ireland. TCS has c.900 of these as customers, so it can be
assumed that TCS' market share of large corporates in the UK and
Ireland is around 12% and will target those other large corporates
which manage their own corporation tax in-house.
Although TCS' products are appropriate for all company sizes,
TCS has a very small penetration of the market for medium sized
companies. For the purpose of estimating TCS' total accessible
market, the market for medium sized companies has not been taken
into account, although this is clearly very conservative. According
to BIS, there are some 33,000 medium sized companies (50 to 250
employees) in the UK. The New Board believes that the market
potential for sales to those medium sized companies which manage
their own corporation tax in-house is considerable.
Accountancy Practices
Of the top 100 accountancy firms (by revenue) in the UK, TCS has
56 as customers. The Financial Reporting Council identified 3,201
accountancy firms with 2 to 50 partners, representing a significant
number of potential new customers for TCS to target.
4. FINANCIAL INFORMATION ON TCS
The following audited information relating to TCS has been
extracted from the historical financial information set out in
Section B of Part V of this document:
GBP'000s December December December
2013 2014 2015
------------------- --------- --------- ---------
Revenue 12,664 12,656 12,779
EBITDA 6,762 6,305 6,603
EBITDA margin (%) 53 50 52
Operating cash
flow conversion
(%)* 106 101 95
* Calculated as net cash inflows from operating activities,
adjusted for tax then divided by EBITDA.
Revenue from licence sales is recognized as follows: 90% of the
value of the annual licence sale is recognized as revenue on its
due date. The remaining 10% is regarded as support revenue and is
recognized over the relevant 12 months on a time basis.
Corporates are priced on a per user basis and accountancy firms
are priced on the number of tax computations performed using TCS'
software.
TCS' recurring revenue is in excess of 90% and has low level of
cancellations. For example, the average customer churn for the past
3 years for the lead product, Alphatax, is only 6% illustrating the
'stickiness' of TCS' products and customers' dependence
thereon.
TCS experienced impressive growth from 2005 - 2011, going from
revenues of GBP3.370 million to GBP12.575 million. Since 2011
revenue growth has remained consistent at around GBP12 million.
However, EBITDA margin has remained strong at c. 50%. Going
forward, revenue growth is expected to come from building the sales
team to better penetrate existing markets, cross-selling of TCS'
portfolio of products as well as expansion into new territories and
potential acquisitions.
Historically, TCS has not capitalized any research and
development costs. The New Board intends to capitalize certain
research and development costs going forward.
5. COMPETITORS
TCS has a number of competitors, with the main ones being
Thomson Reuters (ONESOURCE), Sage and Wolters Kluwer (CCH). Thomson
Reuters ONESOURCE is TCS' main competitor and the software covers
multiple tax jurisdictions. Sage's product is designed for users of
Sage products and CCH's software has limitations for very complex
tax computations and companies with multiple subsidiaries.
In addition, there are several companies that have appended
simple tax products to their portfolio, targeted at small companies
and hence TCS very rarely competes with them.
TCS excels in complex environments; the more convoluted the tax
system in a given jurisdiction and the higher the compliance
barrier, the better TCS does and the harder it is for the
competition. The main reason behind this is the strength of TCS'
core processing engine and its ability to encode complex
calculation rules and mask them from the user between data entry
and report production. This acts as a plus for TCS' products and a
barrier for other systems.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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