REG - Serco Group PLC - Proposed Rights Issue <Origin Href="QuoteRef">SRP.L</Origin> - Part 2
12/03/2015 07:02
- Part 2: For the preceding part double click ID:nRSL2489Ha
contract ending in 2016, and in particular due to
the time required to rebuild the pipeline and implement the various
initiatives to further stabilise and then transform the Group's performance.
Future performance will also depend on the outcome of the programme of planned
disposals.
The Directors estimate that, in the long term, the core sectors on which Serco
will focus are likely to grow at an aggregate of 5 to 7 per cent. per annum
and that industry margins across Serco's mix of business are likely to be in
the range of 5 to 6 per cent. If this turns out to be correct, and markets
develop as expected, the Directors believe that after the initial years of
restructuring and transformation, progress will be made towards bringing
performance in line with the average of the Group's peers.
The statements in bold above represent a Profit Forecast for the 2015
Financial Year. The Directors have considered and reconfirm the Profit
Forecast. Further information in relation to this Profit Forecast (including
the basis and principal assumptions upon which the Profit Forecast has been
prepared) is provided in Annex I (Profit Forecast of the Serco Group) to the
Rights Issue Prospectus.
Dividend policy
Serco paid a total dividend of 10.10 pence per share for the 2012 Financial
Year and 10.55 pence per share for the 2013 Financial Year. Serco paid an
interim dividend of 3.10 pence per share for the 2014 Financial Year.
As announced on 10 November 2014, the Board has recommended that no final
dividend for the 2014 Financial Year be paid. The Board recognises that
dividends are seen as an important component of equity returns by many
Shareholders. The Board is committed to resuming dividend payments and a
progressive dividend policy when it is prudent to do so. The Directors'
decision as to when to declare a dividend and the amount to be paid will take
into account the Group's underlying earnings, cash flows and balance sheet
leverage, the requirement to maintain an appropriate level of dividend cover
and the market outlook at the time. It is not anticipated that the Board will
recommend any dividend in respect of the 2015 Financial Year.
Amendments to financing facilities and US private placement notes
On 18 December 2014, Serco announced that it had reached agreement with the
Lenders and the Noteholders to amend its financial covenants under the
Existing Finance Agreements, including deferral of the next covenant testing
date to 31 May 2015.
On 12 March 2015, Serco entered into further agreements with the Lenders and
the Noteholders to amend and restate the Existing Finance Agreements on
revised terms.
The main changes to the terms of Revolving Credit Facility include: (i)
amendments to the terms of the financial covenants to avoid an anticipated
future breach of the covenants by the Group; (ii) an extension of the term of
the Revolving Credit Facility from March 2017 to the fourth anniversary of the
completion of the Rights Issue with an option for the parties to further
extend to the fifth anniversary of the completion of the Rights Issue; and
(iii) the reduction of the size of the Revolving Credit Facility from £730
million to £480 million, of which up to £200 million can be drawn by way of
bonds.
The main changes to the terms of the Receivables Financing Agreement include:
(i) reducing the size of the facility from £60 million to £30 million; and
(ii) extending the term to December 2016.
The main changes to the terms of the US Note Purchase Agreements are
amendments to the terms of the covenants to avoid an anticipated future breach
of the covenants by the Group under each of the US Note Purchase Agreements.
The amendments to the covenants under the US Note Purchase Agreements will be
broadly identical to the amendments to the covenants under the Revolving
Credit Facility.
The amendments to the Existing Finance Agreements will only become effective
upon the receipt by the Serco Group of the net proceeds of the Rights Issue
and the commitment by the Company to pay down £225 million under the US Note
Purchase Agreements and £225 million (or, if less, the amount then drawn)
under the Facility Agreement from such proceeds. Further details on the
Existing Financings and the amendments to each of the foregoing are set out in
paragraphs 9.5, 9.6 and 9.7 of Part X (Additional Information) of the Rights
Issue Prospectus.
Proposed disposals
As announced on 10 November 2014, the Group intends to dispose of a number of
businesses that are not core to its future strategy, with the resulting
proceeds contributing to reducing the Group's net debt. These businesses
include the Environmental Services and Leisure businesses in the UK, the Great
Southern Rail business in Australia, and the majority of Serco's private
sector BPO operations. In aggregate, these businesses have contributed
approximately £562 million of the Group's revenue in the 2014 Financial Year.
The Directors expect these businesses to contribute a material amount of the
Group's revenue and profits (as set out in the Profit Forecast) for the 2015
Financial Year, assuming in each case that these businesses remain within the
Group for the full 2015 Financial Year.
If any of the Proposed Disposals complete during the 2015 Financial Year, it
is expected that this would result in a reduction in the Group's revenue and
profits (as compared with the Profit Forecast) for the 2015 Financial Year. If
the sale of Serco's private sector BPO operations is completed during the 2015
Financial Year, it is expected that this will materially reduce the Group's
profits (as compared with the Profit Forecast) for the 2015 Financial Year,
with it being expected that the later in the 2015 Financial Year that such
disposal is completed, the less the reduction will be. If any of the other
Proposed Disposals complete during the 2015 Financial Year, whether such
reduction in the Group's profits (as compared with the Profit Forecast) will
be material will depend on the business being disposed of and the timing of
the disposal, with it being expected that the later in the 2015 Financial Year
that any particular disposal is completed, the less the reduction will be.
Further, the effect of any Proposed Disposal on the Group's profits for the
2015 Financial Year will be dependent on agreement around what cost structures
transfer to the purchaser, as will the resulting proceeds from any
transaction. Serco has agreed with the Noteholders that two thirds of the full
amount of net proceeds from its Proposed Disposals must be offered to the
Noteholders in prepayment of the US Private Placement Notes at par (i.e.
without a make-whole amount). The remaining one third of the net proceeds from
its Proposed Disposals must be applied in repayment of any cash drawings under
the Amended and Restated Facility Agreement (amounts repaid in this way may be
re-drawn).
Private sector BPO
The sale of the private sector BPO portfolio has a proposed structure as two
distinct disposal transactions with a view to maximising the enterprise
valuation.
The first transaction is in respect of the majority of Serco's private sector
BPO operations including the businesses acquired through the acquisition by
Serco of Intelenet in 2011 and Infovision in 2008, and selected additional
delivery locations in the UK, Poland and the Middle East. This business
provides BPO services predominantly in India to clients globally, providing a
range of integrated BPO services predominantly in India through both offshore
and near shore/onshore delivery centres. The ongoing sale process in respect
of this business commenced in January 2015 and the Directors have been
encouraged by the progress made to date. As at the date of this announcement,
it is expected that any transaction, if agreed with a purchaser, would be a
class 1 transaction under the Listing Rules and therefore require shareholder
approval in order for it to complete. If a transaction is agreed with a
purchaser and shareholder approval (if required) is obtained, it is expected
that completion of the transaction would take place later this year.
The second transaction comprises the sale of Serco's FCA regulated business
activities of Serco Listening Company Ltd, formerly The Listening Company Ltd
which was acquired by Serco in 2011. This business principally delivers
onshore BPO support services to customers based in the UK. Serco is currently
evaluating its options in relation to the potential disposal of this business
and, as at the date of this announcement, it is expected that completion of
any transaction, if agreed with a purchaser, would take place later this
year.
The revenue from Serco's private sector BPO operations was £359 million in the
2014 Financial Year.
Environmental Services
Serco's non-core Environmental Services business provides waste collection and
related support services within the UK. The Group is currently in advanced
discussions relating to the disposal of the business following a period of due
diligence which is substantially complete. The sale process in respect of this
business is currently ongoing and, as at the date of this announcement, it is
expected that completion of any transaction, if agreed with a purchaser, would
take place later this year.
The revenue from this business was £120 million in the 2014 Financial Year.
Leisure
The Leisure business comprises a portfolio of contracts providing operation
and management services for leisure centres located across the UK. The Group
is in discussions with a preferred buyer, with the due diligence process
materially complete. The sale process in respect of this business is currently
ongoing and, as at the date of this announcement, it is expected that
completion of any transaction, if agreed with a purchaser, would take place
later this year.
The revenue from this business was £25 million in the 2014 Financial Year.
Great Southern Rail
Great Southern Rail is an Australian based rail transportation operation,
largely focused on tourism. The Group is in advanced discussions relating to
the disposal of the business. The sale process is currently ongoing and, as at
the date of this announcement, it is expected that completion of any
transaction, if agreed with a purchaser, would take place later this year.
The revenue from this business was £58 million in the 2014 Financial Year.
Structure of the Rights Issue
The Rights Issue has been structured in a way that is expected to have the
effect of providing the Company with the ability to realise distributable
reserves approximately equal to the proceeds of the Rights Issue less the
nominal value of the New Ordinary Shares issued by the Company.
The Company and J.P. Morgan Cazenove have agreed to subscribe for ordinary
shares in Newco. J.P. Morgan Cazenove will apply the proceeds of issue
received from Qualifying Shareholders and renouncees and from subscribers of
New Ordinary Shares not taken up by Qualifying Shareholders and renouncees
under the Rights Issue (less any premium above the Issue Price) to subscribe
for redeemable preference shares in Newco.
The Company will allot and issue the New Ordinary Shares to those persons
entitled thereto in consideration for J.P. Morgan Cazenove transferring its
holdings of ordinary shares and redeemable preference shares in Newco to the
Company. Accordingly, instead of receiving cash consideration for the issue of
the New Ordinary Shares, the Company will (following completion of the Rights
Issue) own the entire issued share capital of Newco, whose only asset will be
the cash reserves representing an amount equal to the proceeds of the Rights
Issue. The Company should be able to access those funds by redeeming the
redeemable preference shares it holds in Newco or, alternatively, during any
interim period prior to redemption, by procuring that Newco lends the amount
to the Company. The ability to realise distributable reserves in the Company
will facilitate any potential distribution to Shareholders made by the Company
in the future.
Accordingly, by taking up New Ordinary Shares under the Rights Issue and
submitting a valid payment in respect thereof, a Qualifying Shareholder or
other person taking up the Rights under the Rights Issue instructs the
Receiving Agent to hold such payment on behalf of J.P. Morgan Cazenove and (i)
to the extent of a successful application under the Rights Issue (which has
not been subsequently validly withdrawn), to apply such payment (after
deduction of certain agreed fees, costs and expenses) on behalf of J.P. Morgan
Cazenove solely for J.P. Morgan Cazenove to subscribe (as principal) for
redeemable preference shares in Newco and (ii) to the extent of an
unsuccessful or validly withdrawn application under the Rights Issue, to
return the relevant payment without interest to the applicant.
The Company may elect to implement the Rights Issue without using the
structure described above if it deems it to be in the Company's interest to do
so.
Further details of the documents relating to this structure are set out in
paragraph 9.2 of Part X (Additional Information) of the Rights Issue
Prospectus.
Shareholders resident in any jurisdiction other than the United Kingdom should
refer to paragraph 12 of Part I (Letter from the Chairman), question 4.8 of
Part II (Questions and Answers on the Rights Issue) and paragraph 2.6 of Part
III (Terms and Conditions of the Rights Issue) of the Rights Issue
Prospectus..
Overseas shareholders
Qualifying Shareholders resident in any jurisdiction other than the United
Kingdom, and persons who hold Ordinary Shares for the benefit of such persons
or who have a contractual or other legal obligation to forward the Rights
Issue Prospectus, a Provisional Allotment Letter and any other document in
relation to the Rights Issue into a jurisdiction other than the United
Kingdom, should refer to question 4.8 of Part II (Questions and Answers on the
Rights Issue) and paragraph 2.6 of Part III (Terms and Conditions of the
Rights Issue) of the Rights Issue Prospectus.
New Ordinary Shares will be provisionally allotted (nil paid) to all
Qualifying Shareholders, including Overseas Shareholders. However, subject to
certain exceptions, Provisional Allotment Letters will not be sent to
Qualifying non-CREST Shareholders with registered addresses, or who are
resident or located, in the United States or the Excluded Territories, nor
will the CREST stock account of Qualifying CREST Shareholders with registered
addresses, or who are resident or located, in the United States or the
Excluded Territories be credited with Nil Paid Rights. The notice in the
London Gazette referred to in paragraph 2.6.6 of Part III (Terms and
Conditions of the Rights Issue) of the Rights Issue Prospectus will state
where a Provisional Allotment Letter may be inspected or obtained. Any person
with a registered address, or who is resident or located, in the United States
or any Excluded Territory who obtains a copy of the Rights Issue Prospectus or
a Provisional Allotment Letter is required to disregard them, except with the
consent of the Company.
Notwithstanding any other provision of the Rights Issue Prospectus or the
Provisional Allotment Letter, the Company reserves the right to permit any
Qualifying Shareholder to take up his rights if the Company in its sole and
absolute discretion is satisfied that the transaction in question will not
violate applicable laws.
The Company has made arrangements under which the Underwriters will try to
find subscribers for the New Ordinary Shares provisionally allotted to such
Shareholders by 4.30 p.m. on the second dealing day after the last date for
acceptance of the Rights Issue. If the Underwriters find subscribers and are
able to achieve a premium over the Issue Price and the related expenses of
procuring those subscribers (including any applicable brokerage and
commissions and amounts in respect of VAT which are not recoverable), such
Shareholders will be sent a cheque for the amount of that aggregate premium
above the Issue Price less related expenses (including any applicable
brokerage and commissions and amounts in respect of VAT which are not
recoverable), so long as the amount in question is at least £5. If any person
in the United States or an Excluded Territory receives a Provisional Allotment
Letter, that person should not seek to, and will not be able to, take up his
rights thereunder, except as described in paragraph 2.6 of Part III (Terms and
Conditions of the Rights Issue) of the Rights Issue Prospectus. The provisions
of paragraph 2.3 of Part III (Terms and Conditions of the Rights Issue) of the
Rights Issue Prospectus will apply to Overseas Shareholders who cannot or do
not take up the New Shares provisionally allotted to them.
Serco employee share schemes
The options and awards granted under the Serco Employee Share Schemes may be
adjusted in such a way as the Remuneration Committee considers appropriate to
compensate option and award holders for any effect the Rights Issue will have
on those option and awards (as permitted by the rules of the relevant Serco
Employee Share Schemes). Any adjustments will not be made until after the
ex-rights date and will be subject to the approval of HMRC and the Company's
auditors where required. Participants in the Serco Employee Share Schemes will
be contacted separately with further information on how their options and
awards may be affected by the Rights Issue.
Directors' intention regarding the Rights Issue
The Directors are fully supportive of the Rights Issue. Each of the Directors
who holds Ordinary Shares intends to take up in full his or her rights to
subscribe for New Ordinary Shares under the Rights Issue.
Recommendation
The Board, which has received financial advice from Rothschild, considers the
Rights Issue and the Resolution to be in the best interests of the Company and
Shareholders as a whole. In providing advice to the Board, Rothschild has
relied on the Directors' commercial assessment of the Rights Issue.
Accordingly, the Board unanimously recommends that Shareholders vote in favour
of the Resolution to be put to the General Meeting as the Directors intend to
do (or procure to be done) in respect of their own beneficial holdings and
holdings of their immediate families and connected persons of 490,374 Serco
Ordinary Shares in aggregate, representing approximately 0.1 per cent. of the
existing issued ordinary share capital of Serco.
For further information please contact
Serco:
Stuart Ford, Head of Investor Relations
+44 (0) 1256 386 227
Marcus De Ville, Head of Media Relations
+44 (0) 1256 386 226
Rothschild:
Financial Adviser
+44 (0) 207 280 5000
John Deans
Paul Duffy
Peter Nicklin
Bank of America Merrill Lynch:
Joint Sponsor, Joint Global Coordinator, Joint Bookrunner and Joint Corporate
Broker
+44 (0) 207 996 9777
Andrew Tusa
Tony White
J.P. Morgan Cazenove
Joint Sponsor, Joint Global Coordinator, Joint Bookrunner and Joint Corporate
Broker
+44 (0) 207 742 4000
Jonathan Wilcox
James Taylor
Steve Smith
Appendix 1
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
Each of the times and dates in the table below is indicative only and may be
subject to change(1).
Publication and posting of this document, the Notice of General Meeting and the Form of Proxy………………………… 12 March 2015
Rights Issue Record Date…………………………………………. close of business on 26 March 2015
Latest time and date for receipt of Forms of Proxy…………….. 10.00 a.m. on 26 March 2015
General Meeting…………………………………………………… 10.00 a.m. on 30 March 2015
Despatch of Provisional Allotment Letters (to Qualifying non-CREST Shareholders only)(2)..................................................... 30 March 2015
Publication of notice in the London Gazette…………………… 30 March 2015
Existing Ordinary Shares marked "ex" by the London Stock Exchange……………………………………………………………. 8.00 a.m. on 31 March 2015
Dealings in New Ordinary Shares, nil paid, commence on the London Stock Exchange……………………………………. 8.00 a.m. on 31 March 2015
Nil Paid Rights credited to stock accounts in CREST (Qualifying CREST Shareholders only)(2)……………………….. as soon as practicable after 8.00 a.m. on 31 March 2015
Nil Paid Rights and Fully Paid Rights enabled in CREST……... as soon as practicable after 8.00 a.m. on 31 March 2015
Recommended latest time for requesting withdrawal of Nil Paid Rights and Fully Paid Rights from CREST (i.e. if your Nil Paid Rights and Fully Paid Rights are in CREST and you wish to convert them to certificated form)……………………………… 4.30 p.m. on 10 April 2015
Latest time for depositing renounced Provisional Allotment Letters, nil or fully paid, into CREST or for dematerialising Nil Paid Rights or Fully Paid Rights into a CREST stock account (i.e. if your Nil Paid Rights and Fully Paid Rights are represented by a Provisional Allotment Letter and you wish to convert them to uncertificated form)……………………………… 3.00 p.m. on 13 April 2015
Latest time and date for splitting Provisional Allotment Letters, nil or fully paid………………………………………………………. 3.00 p.m. on 14 April 2015
Latest time and date for acceptance, payment in full and registration of renunciation of Provisional Allotment Letters………………………………………………………………. 11.00 a.m. on 16 April 2015
Results of Rights Issue to be announced through a Regulatory Information Service………………………………………………… by 8.00 a.m. on 17 April 2015
Dealings in New Ordinary Shares, fully paid, commence on the London Stock Exchange……………………………….. 8.00 a.m. on 17 April 2015
New Ordinary Shares credited to CREST accounts…………… as soon as practicable after 8.00 a.m. on 17 April 2015
Despatch of definitive share certificates for the New Ordinary Shares in certificated form………………………………………… by no later than 24 April 2015
Notes:
(1) The times and dates set out in the expected timetable of principal
events above and mentioned throughout this document may be adjusted by Serco
with the agreement of J.P. Morgan Cazenove in which event details of the new
times and dates will be notified to the UKLA, the London Stock Exchange and,
where appropriate, Qualifying Shareholders.
(2) Subject to certain restrictions relating to Qualifying Shareholders
with registered addresses outside the United Kingdom, details of which are set
out in paragraph 2.6 of Part III (Terms and Conditions of the Rights Issue) of
the Rights Issue Propsectus.
Appendix 2
DEFINITIONS AND GLOSSARY OF TECHNICAL TERMS
DEFINITIONS
The following definitions apply throughout this document unless the context
requires otherwise:
"2013 Financial Year" the financial year of the Company ended 31 December 2013;
"2014 Financial Statements" the audited consolidated financial statements for the Serco Group for the 2014
Financial Year;
"2014 Financial Year" the financial year of the Company ended 31 December 2014;
"2015 Financial Year" the financial year of the Company ending 31 December 2015;
"Adjusted Operating Profit" operating profit as defined under IFRS, adjusted to exclude (i) amortisation and
impairment of intangibles arising on acquisition, (ii) transaction-related costs,
(iii) management estimation of material costs that were considered to have been
impacted by the UK Government reviews that followed the issues in relation to the
Electronic Monitoring Contract and PECS Contract, (iv) exceptional items and (v)
joint venture interest and tax;
"Adjusted Revenue" revenue as defined under IFRS adjusted to include Serco's share of joint venture
revenue;
"Admission" the proposed admission of the New Ordinary Shares by the UKLA to listing on the
premium segment of the Official List and by the London Stock Exchange to trading nil
paid on the main market of the London Stock Exchange;
"Amended and Restated Facility Agreement" the Facility Agreement as amended and restated by the Facility Amendment and
Restatement Agreement, as described in paragraph 9.5 of Part X (Additional
Information) of the Rights Issue Prospectus;
"B2G" business to government;
"BofA Merrill Lynch" Merrill Lynch International;
"Board" the board of Directors of the Company;
"BPO" business process outsourcing;
"Business Day" a day (excluding Saturdays, Sundays and public holidays in England and Wales) on
which banks are generally open for business in London;
"certificated" in relation to a share or other security, a share or other security, title to which
is recorded in the relevant register of the share or other security concerned as
being held in certificated form (i.e. not in CREST);
"Closing Price" the closing middle market price of a relevant share as derived from SEDOL on any
particular day;
"Consolidated EBITDA" has the meaning ascribed to it in paragraph 9.5 of Part X (Additional Information) of
the Rights Issue Prospectus;
"Contract & Balance Sheet Reviews" the reviews undertaken by Serco of certain contracts held by the Group and of the
Group's balance sheet, as described in paragraph 2.3 of Part I (Letter from the
Chairman) of the Rights Issue Prospectus;
"Crédit Agricole CIB" Crédit Agricole Corporate and Investment Bank;
"CREST" or "CREST system" the paperless settlement procedure operated by Euroclear enabling system securities
to be evidenced otherwise than by certificates and transferred otherwise than by
written instrument;
"Directors" the directors of the Company, whose names appear in paragraph 1.1 of Part IX
(Directors, Senior Managers and Corporate Governance) of the Rights Issue Prospectus,
or, as the context requires, the directors from time to time of the Company, and
"Director" shall be construed accordingly;
"Disclosure and Transparency Rules" the disclosure and transparency rules made by the FCA under section 73A of FSMA;
"EBITDA" earnings before interest, taxation, depreciation and amortisation;
"Electronic Monitoring Contract" Serco Group's previous contract with UK Central Government to provide electronic
monitoring services to persons subject to bail or other court orders;
"EM/PECS Investigations" the investigations into the Electronic Monitoring Contract and the PECS Contract as
described in paragraph 2.1 of Part I (Letter from the Chairman) of the Rights Issue
Prospectus;
"Euroclear" Euroclear UK & Ireland Limited;
"Excluded Territories" Canada, Hong Kong, Japan, the PRC, South Africa and any other jurisdictions where the
extension and availability of the Rights Issue would breach any applicable law;
"Existing Financings" the financings available to the Group under the Facility Agreement, the Receivables
Financing Agreement and the US Private Placement Notes;
"Existing Finance Agreements" the Facility Agreement, the Receivables Financing Agreement and the US Note Purchase
Agreements;
"Existing Ordinary Shares" the Ordinary Shares of two pence each in the capital of Serco in issue immediately
prior to the Rights Issue;
"Equiniti" Equiniti Limited;
"EU" the European Union;
"Facility Agreement" the term and multicurrency revolving credit facility agreement originally dated 28
March 2012 between, inter alia, the Company and various lenders, as amended and
restated from time to time (other than pursuant to the Facility Amendment and
Restatement Agreement), as described in paragraph 9.5 of Part X (Additional
Information) of the Rights Issue Prospectus;
"FacilityAmendment and Restatement Agreement" the amendment and restatement agreement dated 12 March 2015 between, inter alia, theRecent news on Serco
See all newsREG - Serco Group PLC - Director/PDMR Shareholding
AnnouncementREG - Serco Group PLC - Result of AGM and Director Declaration
AnnouncementREG - Serco Group PLC - Director/PDMR Shareholding
AnnouncementREG - Serco Group PLC - Director/PDMR Shareholding
AnnouncementREG - Serco Group PLC - Director/PDMR Shareholding
Announcement