REG - Connect Group Plc - Proposed Acquisition of Tuffnells Parcels Express <Origin Href="QuoteRef">CNCTC.L</Origin> - Part 2

Smiths NewsAnnouncement

12/11/2014 08:02

- Part 2: For the preceding part double click  ID:nRSL7783Wa 

grow the Tuffnells business offering greater development opportunities. 
 
Following Completion, the Enlarged Group's headquarters and registered office
will remain the current registered offices of the Company. 
 
10.          DIVIDEND POLICY OF THE ENLARGED GROUP 
 
Connect paid dividends per Ordinary Share of 9.3 pence and 8.6 pence for the
years ended 31 August 2013 and 31 August 2012, respectively. The proposed
final dividend of 6.6 pence per Ordinary Share for the year ended 31 August
2014 announced on 15 October 2014 in Connect's Preliminary Results
Announcement will be adjusted to reflect the impact of the Rights Issue in
connection with the Acquisition. The proposed final dividend will be adjusted
to 6.0 pence per Ordinary Share to reflect the bonus element associated with
the Rights Issue and both Existing Ordinary Shares and New Ordinary Shares
will be entitled to receive this dividend. 4  The proposed final adjusted
dividend of 6.0 pence per Ordinary Share is subject to approval by
Shareholders at the Annual General Meeting on 4 February 2015 and, if
approved, will be paid on 6 February 2015 to Shareholders on the register of
members of at close of business on 9 January 2015. 
 
Following the Acquisition, Connect intends to maintain its existing
progressive dividend policy, having regard to the availability of
distributable reserves and cash, and taking into account the Enlarged Group's
working capital and investment requirements. 
 
11.          CURRENT TRADING, TRENDS AND PROSPECTS 
 
11.1       Connect 
 
On 15 October 2014, the Connect Group announced its audited preliminary
results for the year ended 31 August 2014. 
 
In the year ending 31 August 2014 the Connect Group delivered a steady
financial performance whilst continuing to enhance shareholder returns. Total
underlying revenue of £1.8 billion, was marginally ahead of the prior year,
underlying profit before tax of £50.0 million was up 0.2 per cent versus the
prior year reflecting a good performance in both the News & Media Division and
the Education & Care Division, offset by under-performance in the Books
Division. Statutory profit before tax for the year was £43.1 million, up from
£38.9 million from the previous year. 
 
Underlying earnings per Ordinary Share at 21.7 pence was up 2.8 per cent with
a lower effective tax rate, predominantly due to prior year releases,
enhancing earnings growth. 
 
Free cash flow was a strong result at £37.2 million, up 14.1 per cent on last
year. 
 
The News & Media Division, our largest division, delivered an 8.1 per cent
increase in underlying operating profit, with better than forecast sales
coupled with continued delivery of its efficiency plans. News distribution
underlying operating profit was up 7.3 per cent to £42.9 million supported by
strong supermarket promotions and World Cup sales. The Connect Group made a
number of investments that leverage the core skills and infrastructure of the
business, the highlight being the launch of 'Pass my Parcel', an innovative
parcel delivery service with potential for significant growth. DMD, the media
distribution business, delivered underlying operating profit of £2.3 million,
up 22.8 per cent; the business now has over 50 per cent of revenues secured on
long-term contracts. 
 
The Books Division had a disappointing year, suffering from market weakness as
well as changes to sales mix impacting margin and cost pressures. Underlying
operating profit decreased from £7.2 million to £2.5 million. The Connect
Group's recovery actions are now taking effect and have stabilised the
business. A new Managing Director has recently been appointed and will be
supported by a strengthened management team. The Board remains confident there
are opportunities for growth in this market, highlighted by the trading of
Wordery. 
 
Education & Care Division delivered a 5.0 per cent increase in underlying
operating profit, with good growth in the division's core education categories
which was maintained across the vital peak trading period. The Education &
Care Division made significant development to its service proposition and saw
strong levels of growth in core categories, performing well in the key peak
trading period. 
 
We maintain our ambition of achieving 50 per cent of profits from activities
outside of newspaper and magazine wholesaling through a combination of both
organic and acquisitive growth. 'Pass my Parcel' highlights the opportunity of
future organic revenue streams with scalable growth, and the Connect Group
continues to evaluate potential future acquisitions from a pipeline of
opportunities across a range of markets. 
 
In the year ended 31 August 2014 the Connect Group's strong cash flow
generation reduced net debt and strengthened our financial position; making
more of our committed bank facility available for future acquisitions. 
 
The Connect Group is committed to generating strong shareholder returns and in
the year ended 31 August 2014 delivered EPS and DPS growth. Recent trading is
in line with current management expectations and we remain in a good position
to build on the progress made in the last financial year. 
 
11.2       Tuffnells 
 
In the six month period ended 30 June 2014 Tuffnells continued to grow sales
and EBITDA in line with trends seen over the last few years. Total revenue of
£69.2 million was £7.6 million or 12.3 per cent ahead of the six month period
ended 30 June 2013, resulting in an Adjusted EBITDA of £7.4 million which was
£1.0 million or 15.6 per cent ahead of the same period last year. This growth
was driven by increased consignment volumes compared to the same period in the
prior year, which has been further enhanced by an increase in the revenue per
consignment. During this period the business has continued to increase
capacity by opening new depots. In the six month period ended 30 June 2014
profit before tax was £4.9 million which was £1.1 million or 25.6 per cent
ahead of the prior year. 
 
Since the 30 June 2014 the business has continued to trade strongly. 
 
Recent trading remains in line with management expectations and trends from
the first six months. 
 
12.          GENERAL MEETING 
 
A notice convening a General Meeting to be held at the offices of Herbert
Smith Freehills LLP, Exchange House, Primrose Street, London, EC2A 2EG at
10:00 a.m. on Monday 1 December 2014 at which the Resolution will be proposed
will be published in due course. The purpose of the General Meeting is to
consider and, if thought fit, pass the Resolution as set out in full in the
Notice of General Meeting. 
 
Because of the size of Tuffnells when compared with Connect, the Acquisition
is classified under the Listing Rules as a Class 1 transaction and therefore
requires the approval of Shareholders. The Resolution will be proposed as an
ordinary resolution requiring a simple majority of votes in favour. The
Resolution proposes that the Acquisition be approved and the Directors be
authorised to take all steps and enter into all agreements and arrangements
necessary or desirable to implement the Acquisition. 
 
Your attention is again drawn to the fact that the Acquisition is conditional
and dependent upon the Resolution being passed (there are also additional
conditions which must be satisfied before the Acquisition and the Rights Issue
can be completed). 
 
Shareholders should be aware that it is possible that, subsequent to the
Admission becoming effective, the Acquisition could fail to complete. 
 
For further information in relation to the Resolution to be proposed at the
General Meeting, see the Notice of General Meeting at the end of this
document. 
 
13.          ACTION TO BE TAKEN 
 
13.1       General Meeting 
 
If you are a Shareholder, you will receive a Form of Proxy for use at the
General Meeting. Whether or not you intend to be present at the General
Meeting, you are asked to complete the Form of Proxy in accordance with the
instructions printed on it and to return it to the Company's registrar,
Equiniti, at Equiniti Limited, Aspect House, Spencer Road, Lancing, West
Sussex, BN99 6DA as soon as possible and, in any event, so as to arrive not
later than 10.00am on 27 November 2014. 
 
You may also submit your proxies electronically at www.sharevote.co.uk and
logging into your share portal account or registering for the share portal if
you have not already done so. To register for the share portal you will need
your investor code set out on the form of proxy. Once registered, you will be
able to vote immediately. 
 
If you hold shares in CREST, you may appoint a proxy by completing and
transmitting a CREST Proxy Instruction to the issuer's agent, ID RA19, so that
it is received no later than 10.00am 27 November 2014. 
 
The completion and return of the Form of Proxy, or completion of a proxy
electronically, will not preclude you from attending the General Meeting and
voting in person if you wish to do so. 
 
13.2       Rights Issue 
 
The latest time for acceptance by Qualifying Shareholders under the Rights
Issue is 11.00a.m. 16 December 2014. The procedure for acceptance and payment
will be set out in the Prospectus. Further details also appear in the
Provisional Allotment Letter which will be sent to all Qualifying Non-CREST
Shareholders (other than, subject to certain exceptions, those Qualifying
Non-CREST Shareholders with a registered address in the United States or
Excluded Territories). 
 
If you are in any doubt as to the action you should take, you are recommended
to seek your own personal financial advice immediately from your stockbroker,
bank manager, solicitor, accountant, fund manager or other independent
financial adviser authorised under FSMA if you are in the United Kingdom or,
if you are not, from another appropriately authorised independent financial
adviser. 
 
14.          RECOMMENDATION 
 
The Board believes the Acquisition and the Rights Issue to be in the best
interests of the Company and its Shareholders as a whole. Accordingly, the
Board unanimously recommends that Shareholders vote in favour of the
Resolution to be put to the General Meeting as they intend to do (or seek to
procure to be done) in respect of their own beneficial holdings of 822,040
Connect Ordinary Shares in aggregate, representing approximately 0.43 per cent
of the existing issued ordinary share capital of Connect. 
 
The Directors are fully supportive of the Rights Issue. Each of the Directors
who hold Ordinary Shares either intends, to the extent that he is able, to
take up in full his or her rights to subscribe for New Ordinary Shares under
the Rights Issue or to sell a sufficient number of their Nil Paid Rights
during the nil paid dealing period to meet the costs of taking up the balance
of their entitlements to New Ordinary Shares. 
 
 1  This statement is not intended as a profit forecast. 
 
2 Calculated on the basis of (i) Tuffnells' 12 month Adjusted EBITDA for the
12 months to 31 August 2014 (unaudited) of £16.0, million, and (ii) Initial
Consideration of £113.4 million, maximum consideration of £128.7 million and
anticipated synergies of £2.0 million, each as described in more detail in
this document." 
 
3 This statement is not intended as a profit forecast. 
 
4 DPS adjusted for Rights Issue Bonus Factor Adjustment of 91.2 per cent,
calculated as TERP and
              closing price as of 11 November 2014 
 
IMPORTANT NOTICES 
 
The capitalised terms not otherwise defined in this announcement have the
meanings given to them set out in Part XXII of the Prospectus. This
announcement has been issued by and is the sole responsibility of the
Company. 
 
This announcement is not a prospectus but an advertisement and investors
should not acquire any Nil Paid Rights, Fully Paid Rights or New Ordinary
Shares referred to in this announcement except on the basis of the information
contained in the Prospectus. The information contained in this announcement is
for background purposes only and does not purport to be full or complete. No
reliance may be placed for any purpose on the information contained in this
announcement or its accuracy or completeness. This announcement cannot be
relied upon for any investment contract or decision. The information in this
announcement is subject to change. 
 
A copy of the Prospectus when published will be available from the registered
office of the Company and on the Company's website at www.connectgroupplc.com
provided that the Prospectus will not, subject to certain exceptions, be
available (whether through the website or otherwise) to Shareholders in the
Excluded Territories. Neither the content of the Company's or Tuffnell's
websites nor any website accessible by hyperlinks on the Company's or
Tuffnell's websites is incorporated in, or forms part of, this announcement
and no reliance should be placed on them. The Prospectus will give further
details of the New Ordinary Shares, the Nil Paid Rights and the Fully Paid
Rights being offered pursuant to the Rights Issue. 
 
The Nil Paid Rights, the Fully Paid Rights, the Provisional Allotment Letters
and the New Ordinary Shares have not been and will not be registered under the
US Securities Act of 1933 (the "Securities Act"), or with any securities
regulatory authority or under the relevant laws of any state or other
jurisdiction of the United States, and may not be offered, sold, taken up,
exercised, resold, pledged, renounced, transferred or delivered, directly or
indirectly, into or within the United States except pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of the
Securities Act and in compliance with any applicable securities laws of any
state or other  jurisdiction of the United States. The New Ordinary Shares are
being offered and sold (i) outside the United States in reliance on Regulation
S under the Securities Act; and (ii) in the United States to persons
reasonably believed to be "qualified institutional buyers" as defined in Rule
144A under the Securities Act ("Rule 144A") in reliance on Rule 144A or
another exemption from the registration requirements of the Securities Act.
Prospective investors are hereby notified that the sellers of Ordinary Shares
may be relying upon the exemption from the provisions of section 5 of the
Securities Act provided by Rule 144A. 
 
Neither the US Securities and Exchange Commission ("SEC"), nor any securities
regulatory authority of any State of the United States, has approved the Nil
Paid Rights, Fully Paid Rights, Provisional Allotment Letters, New Ordinary
Shares or passed upon the adequacy or accuracy of this announcement. Any
representation to the contrary is a criminal offence in the United States. 
 
The distribution of this announcement into jurisdictions other than the United
Kingdom may be restricted by law, and, therefore, persons into whose
possession this announcement comes should inform themselves about and observe
any such restrictions and take legal advice, as necessary. Any failure to
comply with any such restrictions may constitute a violation of the securities
laws of such jurisdiction. 
 
This announcement does not constitute an offer to sell or the solicitation of
an offer to purchase any securities in any jurisdiction in which such offer or
sale would be unlawful prior to registration, exemption from registration or
qualification under the securities laws of any jurisdiction. In particular,
the information contained herein is not for release, publication or
distribution, directly or indirectly, in or into Australia, Canada, New
Zealand, Japan, South Africa, the United States or any other Excluded
Territory and should not be distributed, forwarded to or transmitted in or
into any jurisdiction where to do so might constitute a violation of the
securities laws or regulations of such jurisdiction. No public offering of the
Provisional Allotment Letters, the Nil Paid Rights, the Fully Paid Rights or
the New Ordinary Shares is being made in any such jurisdiction. 
 
No statement in this announcement is intended to be a profit forecast for any
period, or a profit estimate, and no statement in this announcement should be
interpreted to mean that the earnings or earnings per share of the Company for
the current or future financial years would necessarily match or exceed the
historical published earnings or earnings per share of the Company. 
 
This announcement does not constitute a recommendation concerning the Rights
Issue. The price and value of securities can go down as well as up. Past
performance is not a guide to future performance. The contents of this
announcement are not to be construed as legal, business, financial or tax
advice. Each Shareholder or prospective investor should consult his, her or
its own legal adviser, business adviser, financial adviser or tax adviser for
legal, financial, business or tax advice. 
 
J.P. Morgan Securities plc, which is authorised in the United Kingdom by the
Prudential Regulatory Authority ("PRA") and regulated by the PRA and the FCA
in the United Kingdom, and J.P. Morgan Limited, Lazard and Liberum, which are
each authorised and regulated in the United Kingdom by the FCA, are each
acting exclusively for the Company and no-one else in connection with the
Acquisition, Rights Issue and Admission, will not regard any other person
(whether or not a recipient of this announcement) as a client in relation to
the Acquisition, the Rights Issue or Admission and will not be responsible to
anyone other than the Company for providing the protections afforded to their
respective clients, or for providing advice, in relation to the Acquisition,
the Rights Issue, Admission or any other transaction or arrangement referred
to herein. 
 
Apart from the responsibilities and liabilities, if any, which may be imposed
on J.P. Morgan Securities plc, J.P. Morgan Limited, Lazard or Liberum by FSMA
or the regulatory regime established thereunder, none of J.P. Morgan
Securities plc, J.P. Morgan Limited, Lazard or Liberum (and none of their
respective Directors, officers, employees or advisors) accepts any
responsibility whatsoever, or makes any representation or warranty, express or
implied, in relation to the contents of this announcement, including its
accuracy, completeness or for any other statement made or purported to be made
by it or on behalf of it, the Company, the Directors or any other person, in
connection with the Company, the Ordinary Shares, the Acquisition, the Rights
Issue or Admission and nothing in this announcement shall be relied upon as a
promise or representation in this respect, whether as to the past or the
future. Each of J.P. Morgan Securities plc, J.P. Morgan Limited, Lazard and
Liberum (and each of their respective Directors, officers, employees or
advisors) accordingly disclaims to the fullest extent permitted by law all and
any responsibility or liability whatsoever, whether arising in tort, contract
or otherwise (save as referred to above), which it might otherwise have in
respect of this document or any such statement. 
 
INFORMATION REGARDING FORWARD LOOKING STATEMENTS 
 
This announcement contains forward looking statements regarding the financial
condition, results of operations, cash flows, dividends, financing plans,
business strategies, operating efficiencies, budgets, capital and other
expenditures, competitive positions, growth opportunities, plans and
objectives of management and other matters relating to the Connect Group and
Tuffnells. Statements in this announcement that are not historical facts are
hereby identified as "forward looking statements". In some instances, these
forward looking statements can be identified by the use of forward looking
terminology, including the terms "projects", "forecasts", "anticipates",
"expects", "believes", "intends", "may", "will" or "should" or, in each case,
their negative or other variations or comparable terminology. Such forward
looking statements, including, without limitation, those relating to the
future strategy business prospects, revenue, and/or capital needs, in each
case relating to the Connect Group and Tuffnells wherever they occur in this
announcement, are necessarily based on assumptions reflecting the views of the
Company, involve a number of risks and uncertainties that could cause actual
results to differ materially from those suggested by the forward looking
statements and speak only as at the respective dates on which they are made.
The Company and the Directors expressly disclaim any obligations or
undertaking to update or revise publicly any forward-looking statements,
whether as a result of new information, future events or otherwise, unless
required to do so by applicable law, the Prospectus Rules, the Listing Rules,
the London Stock Exchange Rules or the Disclosure and Transparency Rules. 
 
 1         This statement is not intended as a profit forecast. 
 
 2         Calculated on the basis of (i) Tuffnells' 12 month Adjusted EBITDA
for the 12 months to 31 August 2014 (unaudited) of £16.0, million, and (ii)
Initial 
 
Consideration of £113.4 million, maximum consideration of £128.7 million and
anticipated synergies of £2.0 million, each as described in more detail in
this document." 
 
This information is provided by RNS
The company news service from the London Stock Exchange