TIDMPEG
RNS Number : 2638D
Petards Group PLC
23 October 2015
23 October 2015
PETARDS GROUP PLC
AIM: PEG
("Petards" or the "Group")
Proposed capital reduction and notice of General Meeting
Petards, the AIM quoted developer of advanced security and
surveillance systems is pleased to announce a proposed capital
reduction to create distributable reserves of the Company in order
to support the Company's ability to pay dividends in the future.
The Capital Reduction is conditional upon, inter alia, the Company
obtaining appropriate Shareholder approval at the General
Meeting.
In light of the Group's recent and anticipated further
operational progress described below, the Board believes it is an
appropriate time to create distributable reserves which would allow
the Company the flexibility to pay dividends and make other returns
of capital to the Shareholders, should it be considered desirable
to do so in the future.
All capitalised terms in this announcement are as defined in the
Circular dated 23 October 2015 which will be available on the
Company's website: www.petards.com
1. Background to and reasons for the Capital Reduction
The Company currently has negative distributable reserves, and
is therefore prohibited under the Act from making distributions to
its Shareholders, including the payment of dividends.
Over the past two years the Group has made good progress.
Revenues for the year ended 31 December 2014 more than doubled to
GBP13.5 million on which the Group made a profit after tax of
GBP620,000. The Group's interim results for the six months ended 30
June 2015 showed a similarly strong performance generating profits
after tax of GBP356,000, up 30 per cent. on those achieved in the
same period in 2014. Operational cash generation over such six
month period was GBP558,000 and resulted in cash at bank at 30 June
2015 of GBP2.0 million. Consolidated net assets as at 30 June 2015
grew to GBP2.8 million.
The Board believes that the Company operates in growth areas and
that it has the products and services plus available technical and
technological skills to develop new products as well as the sales
and marketing abilities to become a larger and more successful
operator in each of the sectors in which it operates. The Group's
relationships with its predominantly international 'blue chip' and
government agency customer base and their strength, often global,
in the sectors which the Company serves gives rise to the
opportunity to develop the Company's business through the provision
of good quality professional service in support of its existing and
future product ranges.
Investment in new rail transport rolling stock has continued to
benefit from government initiatives around the world and a number
of independent studies suggest that this is unlikely to change in
the foreseeable future. The Directors are confident that UK rail
operating franchise renewals over the coming years will result in
new opportunities for the Company's products and services. The
Company's position as a long established 'value added' re-seller
within the UK defence industry is expected to continue to provide a
platform to develop this area of the Group's business. Further, the
Board believes that with additional management attention and
resources being devoted to it, the Emergency Services has the
potential to make a larger contribution to Group revenues and
profits.
It is these business strengths and confidence for the future
which have led the Board to recommend that the building blocks to
create distributable reserves be put in place. With the creation of
distributable reserves, the Board will have the flexibility to
distribute future profits to its Shareholders by way of dividends,
should it be considered desirable to do so in light of
circumstances at the time. The creation of distributable reserves
would also enable the Board to buy back shares, subject to
obtaining the prior approval of its Shareholders, although the
Board has no present intention of seeking such approval.
As at 31 December 2014, the Company had a profit and loss
account deficit of GBP26,540,161 and the balance standing to the
credit of the Company's share premium account was GBP25,191,807. In
addition, a sum of GBP1,074,959 was standing to the credit of the
Company's merger reserve. The Company is therefore seeking the
approval of the Shareholders to cancel its Deferred Shares and its
share premium account, and through the issue of the Capital
Reduction Shares and their subsequent cancellation, an amount equal
to the Company's merger reserve, which will create realised profits
of GBP32,570,195 (representing the aggregate nominal amount of the
cancelled Deferred Shares (GBP6,303,429), the amount of the
cancelled share premium account (GBP25,191,807) and the aggregate
nominal amount of the cancelled Capital Reduction Shares
(GBP1,074,959)), which will, subject to the discharge of any
undertakings required by the Court as explained below, be
sufficient to eliminate the accrued deficit. If approved by the
Shareholders, the cancellations will require subsequent approval by
the Court.
As a result of the Capital Reduction, the future profits of the
Company earned after the date on which the Capital Reduction takes
effect would then be available for the Directors to use for the
purposes of paying dividends (should circumstances in the future
make it desirable to do so).
Following the implementation of the Capital Reduction, there
will be no change in the number of Ordinary Shares in issue.
2. The Capital Reduction
In order to eliminate the deficit as at 31 December 2014 of
GBP26,540,161 on the Company's profit and loss account, it is
proposed that:
-- the 630,342,900 issued Deferred Shares are cancelled;
-- the amount standing to the credit of the Company's share
premium account (such amount being, as at 31 December 2014,
GBP25,191,807) is cancelled;
-- the amount standing to the credit of the Company's merger
reserve in the sum of GBP1,074,959 is capitalised by way of a bonus
issue of newly created Capital Reduction Shares; and
-- the newly created Capital Reduction Shares are cancelled.
The cancellations, if approved by the Court, will create
realised profits sufficient to eliminate the accrued deficit on the
Company's profit and loss account.
In seeking this approval, the Company will be required to give
such undertakings or other form of creditor protection as the Court
may require for the benefit of the Company's creditors at the date
on which the Capital Reduction becomes effective. These may include
seeking the consent of the Company's creditors to the Capital
Reduction or the provision by the Company to the Court of an
undertaking to deposit a sum of money into a blocked account
created for the purpose of discharging the non-consenting creditors
of the Company. The Company currently owes approximately
GBP9,997,000 to its main creditors of which approximately
GBP8,263,000 is owed to its subsidiary companies with the balance
of approximately GBP1,734,000 being a combination of the holders of
convertible loan notes issued by the Company, trade creditors,
amounts due to employees and the Directors, amounts due to its
bankers and any holders of parent company guarantees or other
security. As at the date of this document, consent to the Capital
Reduction has been obtained from approximately 83 per cent. of such
creditors by value, representing approximately GBP8,309,000 of the
Company's outstanding debt. At the same time as issuing this
document, the Company is also writing to the holders of the Loan
Notes to convene a meeting of the holders of the Noteholders to
seek their consent to the Capital Reduction. That Noteholder
meeting will be held immediately after the General Meeting. If
consent is given at such Noteholder Meeting, it shall be binding on
all the Noteholders whether or not they are present at the
Noteholder Meeting.
It is anticipated that the initial directions hearing in
relation to the Capital Reduction will take place on 3 December
2015, with the final hearing taking place on 16 December 2015 and
the Capital Reduction becoming effective on that day, following the
necessary registration of the Court order at Companies House.
The Capital Reduction itself will not involve any distribution
or repayment of capital or share premium by the Company and will
not reduce the underlying net assets of the Company. The
distributable reserves arising on the Capital Reduction will,
subject to the discharge of any undertakings required by the Court
as explained below, support the Company's ability to pay dividends,
should circumstances in the future make it desirable to do so.
3. The Capital Reduction Bonus Issue and the rights of the Capital Reduction Shares
It is proposed to capitalise the sum of GBP1,074,959 standing to
the credit of the Company's merger reserve by applying that sum in
paying up in full new Capital Reduction Shares prior to the Court
Hearing (such capitalisation to take effect at the Capital
Reduction Record Time), and allotting and issuing such shares by
way of a bonus issue to the persons at that point holding Ordinary
Shares on the basis of one Capital Reduction Share for every one
Ordinary Share held at the Capital Reduction Record Time.
The Capital Reduction Shares will not be admitted to trading on
the Main Market of the London Stock Exchange, AIM or any other
market. No share certificates will be issued in respect of the
Capital Reduction Shares. The Capital Reduction Shares will have
extremely limited rights. In particular, the Capital Reduction
Shares will carry no rights to participate in the profits of the
Company and no rights to participate in the Company's assets, save
on a winding-up. The Capital Reduction Shares will be transferable,
but no market will exist in them and it is anticipated that the
Court will confirm their cancellation at the Court Hearing on the
day immediately after they have been issued.
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