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RNS Number : 2681E
MWB Group Holdings PLC
16 December 2009
MWB Group Holdings Plc ("MWB")
17 December 2009
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION DIRECTLY OR INDIRECTLY IN OR INTO THE UNITED STATES, CANADA, AUSTRALIA,
JAPAN
OR SOUTH AFRICA.
This announcement is not an offer of securities for sale in the United States. The securities discussed herein have not
been and will not be registered under the US Securities Act of 1933, as amended (the "US Securities Act") and may not be
offered or sold in the United States absent registration or an exemption from registration under the US Securities Act.
No
public offering of the securities discussed herein is being made in the United States and the information contained
herein
does not constitute an offering of securities for sale in the United States, Canada, Australia, Japan or South Africa.
MWB Group Holdings Plc
PROPOSED PLACING TO RAISE P27.5 MILLION
The Board of Directors of MWB Group Holdings Plc ("MWB" or the "Company") today announces an issue of equity by way of a
Placing to raise P27.5 million (approximately P24.9 million net of expenses) through the issue of 91,666,667 New Units
at
an Issue Price of 30 pence per New Unit.
Overview
*
Placing to raise P27.5 million in gross proceeds
*
Variation and extension to certain banking facilities agreed
*
No debt maturity before December 2011
*
Company to purchase for cancellation P7.5 million of Loan Stock
*
Amendment of Loan Stock gearing covenant subject to approval at Loan Stock Meeting
Summary of the Placing
*
91,666,667 New Units at 30 pence per Unit to raise P27.5 million in gross proceeds
*
Issue price of 30 pence per New Unit represents a discount of 32.6 per cent. to the closing price of 44.5 pence per Unit
on
16 December 2009
*
The Directors believe that increasing Shareholders' funds in this manner will enable the Company to emerge from the
economic downturn in a significantly strengthened position
Panmure Gordon is acting as sponsor, financial adviser and broker to the Company with respect to the Placing. The
Placing
is fully underwritten by Panmure Gordon and is subject to the approval of MWB's shareholders.
A prospectus containing details of the Placing is expected to be posted to shareholders today and will be available on
the
Company's website, www.mwb.co.uk. A General Meeting to approve the Placing is expected to be held at 11.00 a.m. on 11
January 2010.
Richard Balfour-Lynn, Chief Executive of MWB, commented:
"The raising of equity will provide the Group with a more appropriate capital structure and provide financial
flexibility
in the current environment. In the longer term, it will enable the Group to capitalise on the long-term growth drivers
in
its markets."
For further information, please contact:
MWB Group Holdings PlcRichard Balfour-Lynn, Chief ExecutiveAndrew Blurton, Joint Finance DirectorJag Singh, Joint
Finance Director +44 (0) 20 7706 2121
Panmure Gordon (Sponsor, Financial Adviser and Broker) Hugh MorganAdam Pollock
+44 (0) 20 7459 3600
Baron Phillips Associates (Financial PR Adviser)Baron Phillips
+44 (0) 20 7920 3161
This announcement has been issued by, and is the sole responsibility of, MWB Group Holdings Plc (the "Company"). No
representation or warranty, express or implied, is made or given by, or on behalf of, the Company or Panmure Gordon (UK)
Limited ("Panmure Gordon") or any of their affiliates, parent undertakings, subsidiary undertakings or subsidiaries of
their parent undertakings or any of their respective directors, officers, employees or advisers or any other person as
to
the accuracy or completeness or fairness of the information or opinions contained in this announcement and no
responsibility or liability is accepted by any of them for any such information or opinions or for any errors or
omissions.
Panmure Gordon, which is authorised and regulated in the UK by the FSA, is acting exclusively for MWB and no one else in
connection with the Placing and will not regard any other person (whether or not a recipient of this announcement) as
their
respective client in relation to the Placing and will not be responsible to anyone other than MWB for providing the
protections afforded to their respective clients or for providing advice in connection with the Placing or any other
matter
referred to in this announcement.
IMPORTANT NOTICE:
This announcement does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of
any
offer to purchase or subscribe for, any New Units, nor shall it (or any part of it), or the fact of its distribution,
form
the basis of, or be relied on in connection with or act as any inducement to enter into, any contract or commitment
whatsoever with respect to the proposed Placing or otherwise. This announcement is not a prospectus and investors should
not subscribe for or purchase any New Units referred to in this announcement except on the basis of information in the
prospectus expected to be published today. Copies of the prospectus will, following publication, be available from the
offices of Dechert LLP, 160 Queen Victoria Street, London, EC4V 4QQ.
The distribution of this announcement in certain jurisdictions may be restricted by law and such distribution could
result
in violation of the laws of such jurisdictions. In particular, this announcement is not for distribution in the United
States, Australia, Canada, Japan or South Africa.
The information in this press release may not be forwarded or distributed to any other person and may not be reproduced
in
any manner whatsoever. Any forwarding, distribution, reproduction, or disclosure of this information in whole or in part
is
unauthorized. Failure to comply with this directive may result in a violation of the Securities Act or the applicable
laws
of other jurisdictions.
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS:
This announcement contains certain forward-looking statements which may include reference to one or more of the
following:
the Group's financial condition, results of operations, cash flows, dividends, financing plans, business strategies,
operating efficiencies or synergies, budgets, capital and other expenditures, competitive positions, growth
opportunities
for existing products, plans and objectives of management and other matters. Statements in this announcement that are
not
historical facts are hereby identified as "forward-looking statements". Such forward-looking statements, including,
without
limitation, those relating to future business prospects, revenue, liquidity, capital needs, interest costs and income,
in
each case relating to MWB, wherever they occur in this announcement, are necessarily based on assumptions reflecting the
views of MWB and involve a number of known and unknown risks, uncertainties and other factors that could cause actual
results, performance or achievements to differ materially from those expressed or implied by the forward-looking
statements. Such forward-looking statements should, therefore, be considered in light of various important factors.
Important factors that could cause actual results to differ materially from estimates or projections contained in the
forward-looking statements include, without limitation: economic and business cycles, the terms and conditions of MWB's
financing arrangements, foreign currency rate fluctuations, competition in MWB's principal markets, acquisitions or
disposals of businesses or assets and trends in MWB's principal industries.
These forward-looking statements speak only as at the date of this announcement. Except as required by the Listing
Rules,
the Disclosure and Transparency Rules, the Prospectus Rules and any law, MWB does not have any obligation to update or
revise publicly any forward-looking statement, whether as a result of new information, further events or otherwise.
Except
as required by the Listing Rules, the Disclosure and Transparency Rules, the Prospectus Rules and any law, MWB expressly
disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement
contained herein to reflect any change in MWB's expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this announcement might not occur.
Appendix I contains an expected timetable of principal events.
Appendix II contains the definitions of certain terms used in this announcement.
This summary should be read in conjunction with the full text of the following announcement.
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION DIRECTLY OR INDIRECTLY IN OR INTO THE UNITED STATES, CANADA, AUSTRALIA,
JAPAN OR SOUTH AFRICA.
MWB Group Holdings Plc
PROPOSED PLACING TO RAISE P27.5 MILLION
1. Introduction
The Board of Directors of MWB announced today that MWB proposes to raise P27.5 million (before expenses) through the
issue
of 91,666,667 New Units at an Issue Price of 30 pence per New Unit by means of the Placing. Each New Unit consists of an
Ordinary Share and 20 B Shares and is identical to each Existing Unit.
Placing and Loan Stock Proposals
The Directors believe that all three of the Group's businesses, namely Malmaison & Hotel du Vin, Business Exchange
and
Liberty, have the foundations in place to deliver increased value to Shareholders going forward. However, the businesses
have not been immune to the impact of the severe economic recession in the UK which has led to a more challenging
trading
environment for the Group's businesses. In spite of management action to save costs, generate cash and reduce net debt,
the
impact of the credit crunch on trading and property values during the resulting severe economic recession in the UK has
meant that the funds available to be drawn by the Group under its financing facilities, the Group's available resources
and
the level of headroom under certain of the financial covenants within the Group's debt sources, have all fallen during
the
last 18 months. Accordingly, in the absence of the Placing, the Directors believe that there is a material risk that the
Group will breach one of the gearing covenants in the Loan Stock Trust Deed at the testing date of 30 June 2010.
Furthermore, there is a risk, albeit more remote, that, if the Placing does not proceed, the Group may also have a
funding
shortfall by May 2010. Therefore, the Board is proposing to raise P27.5 million (before expenses) through the Placing.
The Executive Directors and persons connected with them (including the Trustee of the 2009 EBT) have each undertaken to
subscribe as Placees for a total of 18,066,666 New Units under the Placing at the Issue Price, making a total
subscription
of P5.42 million under the Placing. The Board considers this demonstrates their strong commitment to the financial
security
of the Group.
In advance of the Placing, BoS has agreed to extend the maturity date of the Liberty banking facility from its previous
term date of 30 September 2010 to 31 December 2011, in exchange for an increased margin and arrangement fee. As a
result,
the earliest maturity date of the Group's financing facilities is now 31 December 2011. Despite the increased cost, the
Board strongly believes it is in the Group's long term interest to implement this improvement and given the current
level
of illiquidity in the financial markets, it is pleased to have achieved this for the benefit of Shareholders.
The Board also proposes to make amendments to the Loan Stock Trust Deed and for the Company to purchase for cancellation
P7.5 million of Loan Stock. Conditional on approval by Shareholders of the Placing Resolutions and successful completion
of
the Placing:
*
over 75 per cent. of Loan Stock holders (and therefore a sufficient majority to bind all Loan Stock holders) have
irrevocably agreed to vote in favour at the Loan Stock Meeting of amending one of the gearing covenants in the Loan
Stock
Trust Deed, by increasing the permitted level of Group borrowings from four times Shareholders' funds (excluding the
consolidated balance sheet value attributable to intangible assets and goodwill) to five times Shareholders' funds
(including the consolidated balance sheet value attributable to intangible assets and goodwill); and
*
the Company has entered into the Loan Stock Purchase Agreements with the Audley Investors, pursuant to which the Audley
Investors have agreed to subscribe, as part of the Placing, in aggregate P7.5 million for a total of 25 million New
Units
at the Issue Price. The Company has agreed to purchase for cancellation a total of P7.5 million of Loan Stock currently
held by the Audley Investors.
The Placing Proposals and the Loan Stock Proposals are conditional upon, amongst other things, the passing of the
Placing
Resolutions at the General Meeting, the Loan Stock Amendments being approved by Loan Stock holders at the Loan Stock
Meeting, the Placing Agreement becoming unconditional in all respects, and Admission.
The amendment to the Group's banking facility described above has been made and the Loan Stock Proposals are being made
with a view to increasing the financial flexibility of the Group.
Strategic Proposals
In addition, the Board is proposing the following Strategic Proposals, each of which is discussed in further detail
below:
a revision to the Cash Distribution Programme with effect from 1 January 2010 by the extension of the target date by
which
realisation of the Group's assets should be completed to 31 December 2016, although the Board still expects to realise
value for Shareholders when economic conditions permit such realisations to occur;
*
termination of the arrangements pursuant to which the Group's central head office functions are outsourced to ServCo;
*
revisions to the 2002 Incentive Scheme to align the interests of the executive management team with Shareholders in
accordance with the revised strategy; and
*
termination of the 2002 Bonus Plan without payment of compensation to any parties.
The revisions to the 2002 Incentive Scheme are conditional on Shareholder approval which is being sought at the General
Meeting. None of the Strategic Proposals are conditional on each other or on implementation of the Placing or on the
Loan
Stock Proposals.
2. Overview of operating businesses
Malmaison and Hotel du Vin is an award winning hotel business which is 82.5 per cent. owned by MWB. The business has
expanded in recent years, growing from 17 branded hotels at the end of 2006 to 26 branded hotels at the date of this
announcement. Revenues grew from P79.1 million for the year ended 31 December 2006 to P107.6 million for the year ended
31
December 2008, whilst Operating EBITDA increased from P23.4 million to P26.5 million over the same period. Whilst the
business, in common with the rest of the sector, has been impacted by the recent economic downturn, the Board considers
that overall the performance has been one of resilience, which underpins its confidence in the prospects for this
business.
During this time, management has continued to focus on managing occupancy levels. Occupancy for the six months ended 30
June 2009 was 77 per cent., down only three per cent. from the level for the six months ended 30 June 2008. Revenue for
the
six months ended 30 June 2009 of P52.5 million was broadly similar to the revenue in the equivalent period in 2008,
although Operating EBITDA was lower at P10.4 million (2008: P12.2 million). In light of this performance and, given the
quality of the asset portfolio as well as the experience of Malmaison and Hotel du Vin's well respected management team,
the Directors believe the business is well placed to prosper further from any upturn in the economy and to drive value
for
the Group going forward.
Business Exchange, a 71.5 per cent. owned subsidiary of MWB, has grown into one of the UK industry leaders in the
serviced
office market, with a particularly strong position in the London market. The business has increased centre numbers from
55
at the end of 2006 to 73 centres at the date of this announcement. Between the years ended 31 December 2006 and 31
December
2008, annual revenues grew by 44 per cent. from P82.3 million to P118.5 million and EBITDA increased by 94 per cent. to
P18.1 million. Like Malmaison and Hotel duVin, trading conditions have been more difficult since mid-2008 but against
this
challenging backdrop, Business Exchange has performed with resilience. Revenues for the six months ended 30 June 2009
fell
by only 4 per cent. to P57.4 million against the equivalent period in 2008 and EBITDA was P8.6 million (six months ended
30
June 2008: P11.3 million). Occupancy levels remained robust at 85 per cent. at 30 June 2009 (30 June 2008: 92 per
cent.).
The Directors believe that this resilience is due to a combination of a number of factors, including Business Exchange's
high customer service levels, a valued product and service mix, and a management team and ethos which focuses on driving
return on capital. Given its position in London, a market which the board of Business Exchange believes will be one of
the
first in the UK to benefit in an economic upturn, the Directors believe Business Exchange has significant potential to
drive Shareholder value going forward.
Liberty is a 68.3 per cent. owned subsidiary of MWB. The Liberty business, which operates the Liberty flagship store in
London, has had a new management team in place since 2007. With the new look Liberty flagship store having opened in
February 2009, Operating Revenues increased in the first half of 2009 to P25.6 million, an increase of 17 per cent. on
the
first half of 2008, and Liberty recorded positive EBITDA during this period. Given the economic backdrop, the board of
Liberty considers this to be a strong performance and a good barometer with which to measure the prospects going
forward.
The board of Liberty is also currently undertaking a strategic review of the Liberty business with a view to identifying
ways in which it can be further developed and expanded and increasing the value of that business to its shareholders.
3. Background to and reasons for the Placing
The period from 2004 to the start of 2008 was generally a strong trading period for the Group as a whole. Significant
progress was made in enhancing and maturing the Group's hotel and serviced office businesses, whilst at Liberty the
Renaissance plan to transform the loss making subsidiary and its on-line business were both initiated. During this
period,
the Group also made many successful disposals of property assets and trading businesses, generating proceeds in excess
of
P635 million and contributing to a cash return of over P80 million to Shareholders. The Directors believe that all three
of
the Group's current businesses have the foundations in place to deliver increased value to Shareholders going forward.
These foundations are underpinned by attractive long term growth drivers, sound products and service, competitive
positioning, brand goodwill and management experience and quality.
However, with the worsening economic climate in the UK, the trading environment started to become more challenging for
the
Group during the second half of 2008, although the Group still increased revenues from P252 million for the year ended
31
December 2007 to P278 million for the year ended 31 December 2008. Whilst the Directors consider that the operating
businesses have performed with resilience in spite of the recent turmoil in the economy and financial markets, the
recession has had a negative impact on MWB and its three operating businesses. The impact has been mitigated to a
certain
degree by prompt actions taken by management across the Group to realign the operating cost base of the Group's
businesses.
Total cost savings by MWB and its three operating businesses net of associated costs, arising from initiatives
implemented
in 2008 and 2009, are expected to total P7.5 million for the year ending 31 December 2009. A series of further measures
have recently been implemented, which are expected to deliver annualised cost savings, net of associated costs, of P9.8
million during the year ending 31 December 2010. In particular, the number of Executive Directors is to be reduced from
four to three with effect from the date of Admission and each of the remaining Executive Directors has reduced his
salary
by 60 per cent., and each of the Non-Executive Directors has agreed to reduce his fees, with effect from 1 January 2010,
with a resultant saving of P0.8 million per annum to the Group.
The Board has always sought to make efficient use of the Group's balance sheet, making appropriate use of leverage to
drive
returns for Shareholders. Group net debt at 30 June 2009 was P366.5 million and, in common with financing facilities
generally available in the market, the Group's financing agreements contain financial covenants. In spite of management
actions to save costs, generate cash and reduce net debt, the impact of the credit crunch on trading and property values
during the resulting severe economic recession in the UK has meant that the funds available to be drawn by the Group
under
its financing facilities, the Group's available resources and the level of headroom under certain of the financial
covenants within the Group's debt sources, have all fallen during the last 18 months.
Accordingly, in the absence of a successful Placing, the Directors believe that there is a material risk that the Group
will breach one of the gearing covenants in the Loan Stock Trust Deed at the testing date of 30 June 2010. Also, there
is a
risk, albeit more remote, that if the Placing does not proceed, the Group may have a funding shortfall by May 2010. In
the
event that any covenant in the Loan Stock Trust Deed or in any of the Group's banking facilities is breached, the Group
would also be in breach of its other banking and borrowing facilities as a result of cross-default provisions in those
facilities.
The gearing covenant referred to above stipulates that the Group's borrowings must not exceed four times Shareholders'
funds (excluding the consolidated balance sheet value attributable to intangible assets and goodwill). At the most
recent
testing date of 30 June 2009, Group borrowings were 3.2 times Shareholders' funds (excluding the consolidated balance
sheet
value attributable to intangible assets and goodwill), giving headroom of P18.4 million (or 1 7 per cent.) in
Shareholders'
funds. The gearing covenants contained in the Loan Stock Trust Deed and the Group's banking facilities have been
impacted
by reductions in value of the Group's properties over the course of the 18 months ended 30 June 2009, with gross
reductions
totalling P89.6 million. KPMG Audit Plc are the auditors of the Company and audited the 2008 Financial Statements. Their
report in respect of the 2008 Financial Statements was unqualified but contained an emphasis of matter reference to this
gearing covenant in the Loan Stock Trust Deed, which was fully complied with at the date of KPMG Audit Plc's report.
Accordingly the Board has taken firm action to provide the Group with a sounder financial base. In advance of the
Placing,
BoS has agreed to extend the maturity date of the Liberty banking facility from its previous term date of 30 September
2010
to 31 December 2011, in exchange for an increased margin and arrangement fee. As a result, the earliest maturity date of
the Group's financing facilities is now December 2011. Despite the increased cost, the Board strongly believes it is in
the
Group's long term interest to implement this improvement and given the current level of illiquidity in the financial
markets, it is pleased to have achieved this for the benefit of Shareholders.
The Board also proposes to make amendments to the Loan Stock Trust Deed and purchase for cancellation P7.5 million of
Loan
Stock. Conditional on the successful completion of the Placing:
*
over 75 per cent. of Loan Stock holders (and therefore a sufficient majority to bind all Loan Stock holders) have
irrevocably agreed to vote in favour at the Loan Stock Meeting of amending the gearing covenant in the Loan Stock Trust
Deed referred to above by increasing the permitted level of Group borrowings from four times Shareholders' funds
(excluding
the consolidated balance sheet value attributable to intangible assets and goodwill) to five times Shareholders' funds
(including the consolidated balance sheet value attributable to intangible assets and goodwill); and
*
the Company has entered into the Loan Stock Purchase Agreements with the Audley Investors, pursuant to which the Audley
Investors have agreed to subscribe as part of the Placing, in aggregate P7.5 million for a total of 25 million New Units
at
the Issue Price. The Company has agreed to purchase for cancellation a total of P7.5 million of Loan Stock currently
held
by the Audley Investors.
The amendment to the Group's banking facility described above has been made and the Loan Stock Proposals are being made
with a view to increasing the financial flexibility of the Group, easing the operational constraints placed on the
Group's
businesses by the current financial structure and allowing the operating businesses to pursue opportunities for value
enhancement.
Accordingly, the Board has concluded that it is in the best interests of the Group and its Shareholders as a whole at
this
time to raise P27.5 million (before expenses) of new equity capital to create a stronger capital structure and to
provide
greater resilience and a measure of flexibility for the Group in the current environment.
In setting the Issue Price, the Directors have considered the price at which the New Units need to be offered to ensure
the
success of the Placing and to raise significant equity compared to the current market capitalisation of the Company. The
Directors consider that the Issue Price and the discount to the current market price of the Existing Units are
appropriate.
4. Use of proceeds
The primary purpose of the Placing is to provide the Group with a more stable financial structure by increasing the
level
of equity in the Company. P7.5 million of the total net proceeds will be used by the Company to purchase for
cancellation
P7.5 million of the Loan Stock currently held by the Audley Investors together with accrued interest from 1 January 2010
to
Admission, with the Audley Investors subscribing for 25 million New Units in the Placing at the Issue Price. The balance
of
P17.4 million of the net proceeds will be used to reduce amounts drawn on the Group's banking facilities and to repay
the
P4.0 million intra-group loan from Business Exchange Centres referred to in paragraph 8 of this announcement.. The
amount
repaid under the Group's banking facilities will be available for redraw prior to expiry of their term in December 2011.
Looking forward, this amount will be used to facilitate implementation of the Group's business plan without restricting
the
ability of the Group's businesses to expand as a result of the Group's current financial structure.
In addition, this reduction in net indebtedness of the Group will enable the Loan Stock Amendments to be implemented,
assist the Group to remain within its financial covenants contained in its debt facilities, and improve its ability to
renew debt facilities on more favourable terms in the future than would otherwise be the case.
The Directors believe that increasing Shareholders' funds in this manner will also enable the Group to emerge from the
economic downturn in a significantly strengthened position.
5. Cash Distribution Programme
Since implementation of the Cash Distribution Programme in May 2002, the Board's strategy has been to mature and enhance
the value of the Group's businesses. Upon the businesses reaching maturity, the strategy has been to realise their value
through sales and, after repayment of related debt, to return realised cash or cash equivalents to Shareholders. Since
May
2002, over P635 million of property and business sales proceeds have been generated, related bank debt has been repaid
and
P80.4 million in cash has been returned to Shareholders. These broad strategic aims remain in place today in relation to
the Group's three businesses of Malmaison and Hotel du Vin, Business Exchange and Liberty.
When the term of the Board's business plan was updated in April 2008 the Board envisaged that, subject to favourable
market
conditions, the Group's remaining assets could be sold or otherwise realised by 31 December 2010.
The Board has concluded that the Company should still pursue a policy of maturing and enhancing the values of the
Group's
three underlying businesses with a view to realising their value through disposal when commercially advantageous to the
Group and in the best interests of Shareholders. This policy will still involve the Group, consequent upon sale of the
operational businesses, repaying debt and returning surplus proceeds to Shareholders. However, the Board considers that
in
the current adverse economic environment it is not in Shareholders' best interests to retain a short term target date of
31
December 2010 by which such realisations are to be completed. The Board considers that Shareholders' best interests
would
therefore be served by maintaining the realisation strategy as an ongoing programme, with the Directors continuing to
exercise their informed judgment as to the optimal timing for future asset or business disposals, but with the firm
intention of a maximum long stop date of 31 December 2016. Accordingly, the Cash Distribution Programme will be revised
with effect from 1 January 2010 to remove from the programme the date of 31 December 2010 and to replace it with 31
December 2016 by which date the Company is to realise the value of the Group's assets through sales and, after repayment
of
debt, to return realised cash or cash equivalents to Shareholders. The Board does, however, still envisage realising the
value of the Group's businesses within the period ending 31 December 2016 when economic conditions in the UK favour such
realisations and, after repayment of Group debt, returning net proceeds to Shareholders.
6. MWB head office arrangements
The Board has conducted a thorough review of all central overhead costs. As a result, head office costs have been
reduced
by terminating certain existing head office arrangements and restructuring certain departments within the Group. This is
planned to save the Group a total of P3.0 million for the year ending 31 December 2010.
As part of its review of central overheads, the Board considers that, in light of the increasing maturity of the Group's
three underlying businesses, which are all separately managed on a day to day basis, the number of Executive Directors
should be reduced from four to three. In particular, the Board considers that it is no longer necessary for the Company
to
have Joint Finance Directors. Accordingly, Andrew Blurton has agreed to leave the Company with effect from the date of
Admission, although he has agreed to make his services available as a consultant to the Group for a fee of approximately
P100,000 from the date of Admission until 30 April 2010. This will enable a full handover of his responsibilities to
Jagtar
Singh the remaining Finance Director.
Mr Blurton has been Finance Director of the Company and its predecessor listed holding companies for over 19 years and,
amongst many other responsibilities, he has been responsible for the production and delivery of all the Company's
financial
statements and circulars issued to its Shareholders, for the financial and tax management across the entire Group and
for
its liaison with its institutional and other Shareholders. He has served the Group with a high level of commitment
throughout this time and as a result has produced significant value for Shareholders. The Company has agreed to pay an
aggregate amount of P0.35 million as compensation for Mr Blurton's loss of office, including actual and prospective
rights
Mr Blurton has under his incentive arrangements, and in settlement and discharge of all claims or rights of action Mr
Blurton may have arising from the termination of his employment. Further, the Company will submit a letter of wishes to
the
Trustee of the 2009 EBT requesting that P1.3 million of the assets to be held by the Trustee of the 2009 EBT are held
for
the benefit of, inter alia, Andrew Blurton and certain of his relatives and dependents.The payments to be made by the
Company referred to in this paragraph 6 are considered by the Board to be fair and reasonable by reference to the
contractual arrangements that have existed for many years between the Company and Mr Blurton.
The three remaining Executive Directors of the Company have each agreed to reduce their salaries and salary related
payments by 60 per cent. from P300,000 per annum to P125,000 per annum with effect from 1 January 2010. This will also
reflect that, although they continue to spend significant time on the affairs of the Company in keeping with its needs,
their involvement in the day to day management of the underlying businesses has reduced. The Executive Directors, as
evidenced by their existing large shareholdings in the Company and by their substantial new investment into the Company
as
part of the Placing, remain committed to maximising Shareholder value through the Cash Distribution Programme. Each of
the
Non-Executive Directors has also agreed to reduce their fees. Together, these reductions will make a total saving to the
Group of P0.8 million per annum. All of these reductions will take place with effect from 1 January 2010. The Board will
continue to keep the central overhead costs being incurred under review, with a view to achieving further cost
reductions.
The head office arrangements of the Group currently reflect the structure put in place in May 2002 when the Group's
central
head office functions were outsourced to ServCo Limited Partnership (and, since April 2009, to ServCo) for an annual and
reducing fee payable by MWB, which currently amounts to P2.4 million per annum. The Services Agreement, entered into in
May
2002, governs the services provided by ServCo to the Group and the fees payable by MWB. This structure was put in place
to
facilitate realisation of the Group's assets within a relatively short timeframe whilst still retaining the management
team
to undertake such realisations. ServCo employs and pays all the central head office staff of the Company (excluding the
Directors who are contracted directly to the Group) and incurs certain agreed operating costs.
As the original reasoning for the Services Agreement has now changed, the Board has concluded that it is now no longer
desirable for MWB to outsource its central head office functions. In turn, this will ensure that the Group has the
central
resource in terms of management to complete the Cash Distribution Programme in the manner considered appropriate by the
Directors.
Accordingly, on 17 December 2009, the Company entered into the Services Termination Agreement with ServCo, pursuant to
which MWB and ServCo agreed, for no consideration, to terminate the Services Agreement with effect from 1 January 2010,
save for continuation of the existing undertakings in the Services Agreement for MWB to fund ServCo for the costs (if
any)
that may arise from the previous operation of the 2002 Bonus Plan (which will be terminated on termination of the
Services
Agreement); and ServCo to provide to MWB the existing head office premises for no consideration other than MWB
discharging
the rent and property related costs that arise from the lease of such head office held by ServCo in the same manner as
at
present. The employees of ServCo will by operation of law transfer their employment to the Group. The Group will
therefore
become liable directly for any payments to such employees on any future termination of their contracts of employment in
respect of statutory redundancy payments or otherwise (none of which are anticipated by the Directors at the date of
this
announcement). MWB will also become liable for the head office operational costs, rather than MWB being liable for such
costs via the annual fee payable to ServCo which will cease to be payable. Accordingly there should be neither
additional
income or expense incurred, nor increased assets or liabilities of the Group, as a result of implementation of the
Services
Termination Agreement, other than possible contingent liabilities of the Group for the payment of any future employment
termination costs, none of which are anticipated by the Directors at the date of this announcement, and noting that the
cost savings resulting from the review of central overhead costs, which will be for the benefit of the Group, would have
resulted in a reduced fee payable by the Group of a similar amount under the Services Agreement had it not been
terminated.
7. Incentive arrangements
2002 Incentive Scheme
The Board proposes to amend the rules of the 2002 Incentive Scheme, subject to the approval of Shareholders at the
General
Meeting. Given the existence of the 2002 Incentive Scheme and the Board's wish to continue to incentivise management to
complete the Cash Distribution Programme, the Board through its Remuneration Committee considers that the proposed
arrangements embodied in the Revised Incentive Scheme and summarised below are reasonable. In reaching this conclusion,
the
Remuneration Committee has received advice from Hewitt New Bridge Street, who are specialist advisers on executive
compensation.
Pursuant to a deed of appointment between the Company, the Trustee of the LTIP and the Trustee of the 2009 EBT, the 2009
EBT has been constituted. In addition, subject to the passing of the Revised Incentive Scheme Resolution a sub-fund of
the
2009 EBT will be established to be known as the MWB Group Employee Share Scheme for the purpose of encouraging or
facilitating the holding of shares in the Company by or for the benefit of, inter alia, employees or former employees of
the Group and their spouses and minor children. The establishment of the MWB Group Employee Share Scheme is proposed to
be
approved by Shareholders at the General Meeting and is included as part of the Revised Incentive Scheme Resolution.
Awards under the Revised Incentive Scheme may be made in respect of a fixed number of notional Units which will, at the
discretion of the Trustee of the 2009 EBT, potentially entitle each participant to receive assets with a value per
notional
Unit equal to the Gross Cash Returns to Shareholders made in respect of that number of Units, but only to the extent
that
Gross Cash Returns to Shareholders following Admission exceed 30 pence per Unit (being equal to the Issue Price). As
value
will only be available for distribution to participants once this threshold has been exceeded, participants will have an
award which in economic terms is similar to a shadow share option with an exercise price of 30 pence per share (being
the
Issue Price).
To the extent that any amount is made available to participants in the Revised Incentive Scheme, such amount will, at
the
discretion of the Trustee of the 2009 EBT, be available for distribution as soon as reasonably practicable after
relevant
Gross Cash Returns to Shareholders are made.
Assets will be distributed under the Revised Incentive Scheme in the form of cash other than:
*
in the event of a demerger of any of the Company's businesses, in which case shares in that business may be distributed;
or
*
if any of the following three events occur, in which case Units may, subject to Shareholder approval being obtained at
the
relevant time, be distributed;
*
if Shareholder approval to terminate the Cash Distribution Programme was received at any time on or before the target
date
(which is to be revised to 31 December 2016); or
*
if by the target date the realisation of the Group's assets and businesses has not been achieved under the Cash
Distribution Programme; or
*
on a takeover of the Company by a third party.
Save as otherwise described in the Prospectus, awards may not be made over more than 16.4 million notional Units
(representing the equivalent of 10 per cent. of the Enlarged Issued Share Capital) without the prior approval of
Shareholders. Effectively therefore participants can, subject to the discretion of the Trustee of the 2009 EBT, receive
assets with a value of 10 per cent. of any Gross Cash Returns to Shareholders following Admission in excess of 30 pence
per
share (being the Issue Price).
The objectives behind the amendments to the 2002 Incentive Scheme are:
*
to reduce the amount payable to participants as compared to the 2002 Incentive Scheme in its current form;
*
to maintain the alignment of the Company's incentive arrangements with its business strategy of carrying out the Cash
Distribution Programme; and
*
to provide greater certainty to participants as to the value which might be made available to them.
The Revised Incentive Scheme will also operate beyond the current expiry date of 31 December 2010 to reflect the change
to
the target date by which the realisation of the Group's assets and businesses should be achieved under the Cash
Distribution Programme. The Revised Incentive Scheme will, therefore, operate until 31 December 2016 (or such other
later
date by which such realisation must be achieved).
As noted above, the total amount that may be receivable by participants under the Revised Incentive Scheme will be less
than the maximum aggregate amount that could have been receivable under the 2002 Incentive Scheme. In addition, the
amount
per Unit that must be returned to Shareholders before the participants can receive any benefit has increased from 18
pence
per Unit (the original hurdle of 80 pence per Unit in the 2002 Incentive Scheme, adjusted for Gross Cash Returns to
Shareholders to the date of this announcement and the increased capital raised) to 30 pence per Unit (being equal to the
Issue Price).
The following table illustrates the potential returns under the existing terms of the 2002 Incentive Scheme, compared to
the reduced potential returns under the Revised Incentive Scheme:
Future Gross Cash Returns to Shareholders Aggregate maximum payments underthe 2002Incentive Scheme Aggregate
maximumpayments under theRevised Incentive Scheme
P25.0m P0.0m P0.0m
P50.0m P1.3m P0.0m
P75.0m P3.7m P2.1m
P100.0m P6.3m P4.6m
P150.0m P12.7m P9.6m
P200.0m P20.2m P14.6m
The Remuneration Committee proposes to grant awards under the Revised Incentive Scheme to the Executive Directors
immediately following the Placing as follows:
Executive Director Percentage of notional Units that may be awarded Number of notional Units to be awarded
Richard Balfour-Lynn 35.8% 5,872,565
Jagtar Singh 25.8% 4,232,184
Michael Bibring 18.4% 3,018,301
80.0% 13,123,050
Following implementation of the Services Termination Agreement, the Remuneration Committee, in consultation with the
Executive Directors, may make awards to other employees.
The Board proposes, subject to prior Shareholder approval, that the revised terms of the 2002 Incentive Scheme be
adopted.
2002 Bonus Plan
The Board also proposes that the 2002 Bonus Plan is terminated with effect from 1 January 2010. Employees transferring
to
the Group under the Services Termination Agreement may instead participate in the Revised Incentive Scheme as proposed
to
be adopted by the Company.
Bonus Agreement
At the time of the restructuring of the Group's incentive arrangements in May 2002, MWB Property entered into a bonus
agreement with Andrew Blurton replacing Mr Blurton's previous option entitlement over 1,104,396 ordinary shares in MWB
Property. The bonus agreement provided for a cash bonus to be payable to Mr Blurton when distributions are made under
the
Cash Distribution Programme to Shareholders, as if he were the holder of 1,104,396 Units, but only to the extent that
such
distributions are in excess of the various exercise prices of the shares under option whose average price was 88p per
share. To date, distributions by MWB Property and the Company to Shareholders have amounted to the equivalent of 73p per
Unit, and no payments have yet been made to Mr Blurton under his bonus agreement although payments have accrued. As
referred to above, Mr Blurton has agreed that, as the Company no longer requires two Finance Directors, he will resign
his
position as Joint Finance Director with effect from the date of Admission. The termination of employment of Mr Blurton
does
not, however, terminate his rights, including accrued rights, to receive bonuses under the bonus agreement. The Company
and
Mr Blurton have agreed that, as part of the arrangements for the termination of his employment, Mr Blurton will
surrender
his rights under his bonus agreement with effect from the date of Admission, as well as his rights under the 2002
Incentive
Scheme. The Company and Mr Blurton have agreed that, as compensation for loss of office, including actual and
prospective
rights Mr Blurton has under his incentive arrangements, and in settlement and discharge of all claims or rights of
action
Mr Blurton may have arising from the termination of his employment the Company will pay P0.35 million and the Company
will
submit a letter of wishes to the Trustee of the 2009 EBT requesting that P1.3 million of the assets to be held by the
Trustee of the 2009 EBT are held for the benefit of, inter alia, Andrew Blurton and certain of his relatives and
dependents. These take into account, inter alia, the distributions made by the Company to date, the effect of the
Placing
and the current value of the Group's operating businesses. This consideration is the same as that referred to in
paragraph
6 and the Bonus Agreement will be cancelled on satisfaction of this consideration by the Company.
Subsidiary incentive arrangements
Separate incentive arrangements are in place in order to incentivise the executive directors and senior executives in
each
of the Group's three businesses, namely Malmaison and Hotel du Vin, Business Exchange and Liberty. None of these
incentives
are available to the Executive Directors or to proposed participants under the Revised Incentive Scheme. These
incentives
are based on gross cash returns receivable by shareholders of the relevant subsidiaries. The Board has reviewed these
arrangements and concluded that they remain a suitable and important incentive to the management teams concerned.
Details
of these were included in the Group remuneration policies section of the 2008 Financial Statements. However, certain
amendments are proposed to be made to these arrangements by those subsidiaries by the adoption of new incentive schemes
on
broadly similar terms but which introduce a measured reduction to target levels of gross cash returns, amend the timing
of
potential payments and broaden the number of participants. These proposals are expected to be considered by shareholders
of
the subsidiaries concerned during the first quarter of 2010 and to be summarised in the Group's financial statements for
the year ending 31 December 2009 that are expected to be announced in March 2010.
8. 2009 Half-Yearly Financial Report and current trading and prospects
On 27 August 2009, the Company announced its results for the six months ended 30 June 2009. Group revenue for the period
had been maintained at P135.7 million compared with P134.1 million for the six months ended 30 June 2008, and EBITDA was
P16.6 million compared to P15.1 million for the six months ended 30 June 2008. Pre-tax losses were at a similar level to
2008 at P5.1 million compared with P5.4 million in the six months ended June 2008, while the loss per share improved 8
per
cent. to 9.0p from 9.8p due to the share buy-backs during 2008.
The Group's freehold, long leasehold and short leasehold property portfolio, inclusive of fixtures and fittings,
included
in the Group's balance sheet on the basis of Adopted IFRS at 30 June 2009 and reflecting a valuation by DTZ at that
date,
was P552.3 million. This represented a gross deficit of P10.3 million, confirming a significant slowdown in rate of the
Group's property value diminution, in part reflecting the strong performance of the Malmaison and Hotel du Vin hotels.
As a
result, and after net debt of P366.5 million, Equity Attributable to Shareholders at 30 June 2009 was P108.8 million or
150p per share, compared with P125.9 million or 174p per share at 31 December 2008.
On 6 November 2009, the Company issued its interim management statement covering the period from 1 July 2009 to 5
November
2009, certain extracts from which are summarised below. During July and August 2009, demand at Malmaison and Hotel du
Vin
has been broadly consistent with the first half of 2009. Since the start of September there has been a strengthening of
the
business across the two brands with an improvement in room rates and customer spend on food and beverage against the
same
period last year. Occupancy remains strong throughout the business at 79 per cent. for the first nine months of 2009, in
comparison to 80 per cent. for the same period last year. The average room rate for Hotel du Vin during September 2009
was
P112 compared to P109 for the six months ended 30 June 2009, while the Malmaison average room rate was P102 in September
2009, up from P100 for the six months ended 30 June 2009. Prospects for the remainder of the year are encouraging as
demand
continues to improve and forward bookings are stronger in comparison to the first half of the year. Trading in Malmaison
and Hotel du Vin is also benefiting from last year's four new hotel openings as they further establish themselves in
their
respective markets. Business Exchange has continued to consolidate its position in London. It has also recently signed a
new OMA on a 20,200 sq ft centre in Victoria, London. Its newest centre, operating under the City Executive Centre
brand,
will provide a further 234 workstations when it opens later this month. Enquiry levels at Business Exchange in the third
quarter remain encouraging despite the tough economic climate. Management continues to maintain a grip on costs and
focus
attention on its client acquisition and retention strategies. Occupancy at 30 September 2009 was above 80 per cent.
compared to 85 per cent. at 30 June 2009, REVPAW was P7,295 (30 June 2009: P8,055) and REVPOW was P8,965 (30 June 2009:
P9,490). At Liberty, sales in July 2009 were strong. Trading at the flagship store during the second half of August was
weaker than in the same period last year. However, revenue has been stronger in September this year in comparison to
last
year following the launch of the Hermès pop-up store in the scarf hall. Overall, Liberty continues to perform ahead of
last
year following the strong trading recorded in the six months ended 30 June 2009.
For the period between 6 November 2009 and the date of this announcement, the Board considers that the Group's operating
businesses have performed well and in line with the management's expectations. In summary, the Group's loss before tax
for
the period since 30 June 2009, whilst below the level produced during the equivalent prior year period, is consistent
with
that achieved for the equivalent period during the first half of this year.
On 17 December 2009, Business Exchange Centres, a wholly owned subsidiary of Business Exchange which is a 71 .5 per
cent.
owned subsidiary of the Company, and the Company entered into an agreement pursuant to which Business Exchange Centres
made
a loan to the Company of P4.0 million in consideration, inter alia, for the Company procuring the benefit of group
relief
from the Group for the reduction of tax liabilities of the Business Exchange group of companies over the next three
years.
Under the terms of the agreement, Business Exchange Centres may require the Company to repay the loan together with an
additional sum of P0.1 million, or the Company may elect to repay the loan together with an additional sum of P0.1 25
million, in each case at any time during the financial year ending 31 December 2010. In addition, Business Exchange
Centres
may require the Company to repay the loan together with an additional sum of P1.0 million in the event that there is an
unremedied default by the Company under the agreement or the Company is the subject of certain insolvency events.
Notwithstanding such repayment provisions, it is the intention of the Company to repay the loan of P4.0 million together
with the additional sum of P0.125 million to Business Exchange Centres as soon as practicable following Admission.
9. Dividend policy
The Board is continuing to implement the Cash Distribution Programme which envisages realising the value of the Group's
assets, and after repayment of Group debt, returning surplus proceeds to Shareholders. The Board anticipates that such
returns would be in the form of special dividends, tender offers, share buy-backs, demergers or other value distribution
programmes. In the interim, the Board does not consider it appropriate to adopt an annual dividend policy as it believes
it
is in the best interests of Shareholders to maintain a position whereby it can review and consider the general business
needs of the Group and therefore whether dividend payments should be made on a year by year basis.
10. Principal terms and conditions of the Placing
MWB is proposing to raise P27.5 million (before expenses) through the issue of 91,666,667 New Units pursuant to the
Placing.
The Issue Price of 30 pence per New Unit represents a discount of 14.5 pence (32.6 per cent.) to the closing price of
44.5
pence per Unit on 16 December 2009 (being the last trading day prior to announcement of the Placing). The Directors
believe
that this price is in the best interests of the Company and Shareholders as a whole to achieve the purposes of the
Placing.
The Executive Directors and persons connected with them (including the Trustee of the 2009 EBT) have undertaken to
subscribe P5.42 million as Placees for a total of 18,066,666 Units under the Placing at the Issue Price.
The Trustee of the 2009 EBT (which is connected to the Executive Directors) has undertaken, subject to the passing of
the
Revised Incentive Scheme Resolution, to subscribe as a placee for a total of 3,333,333 New Units. In the event that the
Revised Incentive Scheme Resolution is passed, the Company will contribute P1 million to the Trustee of the 2009 EBT to
enable it to purchase 3,333,333 New Units in the Placing at the Issue Price. The Trustee of the 2009 EBT will hold such
New
Units in the sub-fund of the 2009 EBT to be known as the MWB Group Employee Share Scheme of which Andrew Blurton and his
wife and minor children are intended to become discretionary beneficiaries. In the event that the Revised Incentive
Scheme
Resolution is not passed, the Trustee of the 2009 EBT will not subscribe for such New Units and Andrew Blurton, who has
undertaken to the Company and Panmure Gordon to subscribe as a placee himself for 3,333,333 New Units in such event,
will
do so instead.
Pyrrho, which currently owns 10,407,862 Units (14.38 per cent. of the Existing Units) has undertaken to subscribe P5.75
million as a Placee for 19,166,666 Units at the Issue Price.
The Audley Investors have undertaken to subscribe P7.5 million in aggregate as Placee for 25,000,000 Units at the Issue
Price. The Company has agreed to use P7.5 million from the proceeds of the Placing to purchase for cancellation P7.5
million of Loan Stock currently held by the Audley Investors, together with accrued interest from 1 January 2010 to
Admission.
The Placing is fully underwritten by Panmure Gordon pursuant to the Placing Agreement.
The Placing is conditional, inter alia, upon:
(a) the passing, without amendment, of the Placing Resolutions;
(b) the Loan Stock Amendments being approved by Loan Stock holders at the Loan Stock Meeting;
(c) the Placing Agreement having become unconditional in all respects (save for the condition relating to Admission)
and
not having been terminated in accordance with its terms; and
(d) Admission taking place by no later than 8.00 a.m. on 31 January 2010 (or such later time and date as the Company
and
Panmure Gordon may agree).
Application will be made to the UKLA for the New Units to be admitted to the Official List and to the London Stock
Exchange
for the New Units to be admitted to trading on the London Stock Exchange's main market for listed securities. It is
expected that Admission will become effective on 12 January 2010 and that dealings for normal settlement in the New
Units
will commence at 8.00 a.m. on the same day.
The New Units, when issued and fully paid, will be identical to, and rank in full with, the Existing Units for all
dividends or other distributions declared, made or paid after Admission, and will rank pari passu in all other respects
with the Existing Units at the date of issue of the New Units.
11. Loan Stock
At the annual general meeting of the Company held on 18 June 2009, the Group's borrowing powers under the Articles were
increased from four to five times Shareholders' funds. It is proposed that one of the gearing covenants contained in the
Loan Stock Trust Deed be amended in a corresponding manner by increasing the permitted level of Group borrowings from
four
times Shareholders' funds (excluding the consolidated balance sheet value attributable to intangible assets and
goodwill)
to five times Shareholders' funds (including the consolidated balance sheet
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