1 Nov 2013 11:28
City of London Group plc ("COLG", "Company" or "Group")
Update and Review of Strategic Options
1 November 2013
The Company announces that a number of the recent initiatives referred to in the Chairman's statement to the AGM on 24 September 2013 are now gaining momentum and require further investment.
The Board has concluded that for the commercial potential of its operating platforms to be realised and to meet its capital requirements, the Group needs to raise approximately £17 million of capital in the coming months and should therefore pursue one or more of the following strategic options:
· A significant equity issue with institutional, corporate or strategic investors (and then deploy the proceeds directly in its operating platforms)
· Third party investment directly into the Group's operating platforms.
· The Board recognises other proposals may be forthcoming that should also be actively explored.
The Board is currently in advanced discussions with Paul Iliescu, a high net worth German citizen and Bruce Mee, founder and CEO of LibraAM AG, a Zug based financial investor (together, the "New Investors"), with respect to a potential placing of approximately £10m at 49p per new City of London Group plc ordinary share, which if completed, would result in the New Investors controlling approximately 50.1% of the Company. These discussions are subject to due diligence by the respective parties. Any such proposal if made, would require the support of the Group's shareholders in General Meeting including seeking a waiver from the Takeover Code requirements under Rule 9. The New Investors have made clear to the Board that it is their firm intention to retain the Group's listing. Importantly, the New Investors anticipate being able to offer material support to the Group's platforms, reduce the overall Group equity investment requirement, bring significant platform financing advantages, new business and, over time, promote the development of additional new platforms.
In evaluating which course of action to pursue, the Board's objective will be to ensure that the Company's shareholders' interests are preserved and maximised.
At this stage there can be no certainty that any satisfactory proposal(s) will be forthcoming nor as to the terms on which any proposal(s) might be made or pursued.
Trading Update
The delays in the operating platforms achieving scale and the continuing delay in obtaining positive results from litigation cases in Therium means that the Group is likely to make an underlying loss before tax (excluding exceptional provisions against investment assets held by the Group of circa £650,000) of the same order as that recorded in the first half of last year. The loss before tax for the first half of last year of £452,000 benefited from profits on the disposal of the Group's FX platform and other investments of £950,000. This means that the Group is unlikely to achieve the level of profits currently expected by the market for the financial year.
Key New Opportunities and Impact on the Group
A summary of the recent initiatives and their possible consequences for the Company are set out below:
· Credit Asset Management Limited ("CAML"), which has already been selected as the only leasing provider to date to support the Government's Business Finance Partnership Initiative to SMEs, is now in advanced discussions with a major UK Clearing Bank relating to the terms of a £22.5m senior debt facility. The resulting funds would be primarily deployed into the leasing market for SMEs. In order to progress these discussions there is a requirement for the Group to confirm the availability of up to £7.5m of mezzanine debt to be injected into CAML. This, coupled with access to other debt facilities currently under discussion would provide CAML with a significant opportunity of up to £60m of funding to deploy from its own balance sheet. If successful, the company anticipates that once fully deployed, these new funds could result in significant profitability for the business over the next 3-5 years.
· Therium Capital Management Limited("Therium"), the Company's litigation funding business is in advanced discussions with a US partner to form a new International Joint Venture Fund, which contemplates the largest Fund formation to date for Therium by an order of magnitude. This would require further equity capital from the Group in the order of £4m in support of the new Joint Venture of which Therium would be a 50% owner. The new fund would be managed by a joint venture management group to include Therium and its US partners. Under the terms being discussed, Therium's share of the joint venture profits would be expected to bring it to immediate profitability, earning it significant returns over the life of the fund.
· Trade Finance Partners Limited("TFPL") is experiencing strong growth in demand for trade finance facilities from new and existing clients. TFPL is now looking to expand its existing facility with Macquarie Bank Limited to satisfy this increased demand. In order to do this additional capital will be required; the amount and timing of deployment will vary depending on the speed of growth but is estimated to be in the range of £3-5m prior to the year end. TFPL is profitable and has recently moved through a key level of drawing resulting in the cost of incremental drawings being lower and further enhancing the business's profitability.
Further Group capital requirements
Over the last twelve months the Group has utilised the sale proceeds from FX Capital, funds raised from a small equity issue and the continued sale of its listed equity investment portfolio, to support its businesses. Whilst the Group has sufficient resources for its present requirements and is able to take further measures to improve its available resources, the Board considers that it should now seek to raise up to an additional £2 million to ensure it has sufficient financing flexibility to meet its other current and potential needs for the medium term.
Other
The Board has decided to postpone the proposed cancellation of the Company's share premium account until the Company's financing requirements are resolved.
The results for the six months to 30 September 2013 are expected to be announced in the week commencing 25 November 2013.
Eric Anstee, Group Chief Executive, commented:
"Whilst it has taken us longer to get the businesses to profitability than originally planned, we are pleased that after three years we have got the underlying platforms to a position where they are ready and have the opportunities to be scaled significantly to address the very attractive potential market opportunities ahead of them."
Enquiries:
City of London Group plc +44 (0)20 7628 5518
Eric Anstee (CEO)
N+1 Singer +44 (0)20 7496 3000
Jonny Franklin-Adams
FTI Consulting +44 (0)20 7269 7103
Hazel Stevenson
Notes to Editors
A copy of this announcement will be available at www.cityoflondongroup.com. The content of the website referred to in this announcement is not incorporated into and does not form part of this announcement.
Note on forward looking statements
This statement may contain certain statements about the future outlook for COLG and its subsidiaries. Although the directors believe their expectations are based on reasonable assumptions, any statements about the future outlook may be influenced by factors that could cause actual outcomes to be materially different. This statement has been drawn up and presented with the purposes of complying with English law. Any liability arising out of or in connection with it will be determined in accordance with English law.
Notes to Editors
City of London Group plc is fully listed on the London Stock Exchange plc (LSE symbol CIN).
COLG is a financial services group focused on providing merchant banking services to finance the
SME and professional services sectors. It does this by financing trade and securing specialist
funding throughout the supply chain to help fuel growth in these sectors, as major national and
foreign banks limit new lending to these borrowers. COLG seeks to identify and exploit product
niches and business models in these sectors where they are supported by strong day to day
management teams, providing initial equity, working capital and seed funding for those teams.
Since 2009, COLG has focused on Specialist Financing and Alternative Fund Management. As part
of its strategy to build a quality Financial Services Group, COLG has developed four specialist
financing funds, pledging significant seed funds to Therium Capital Management Limited, a third
party Litigation Funder, Credit Asset Management Limited and Professions Funding Limited, which
respectively provide asset backed finance to SMEs and working capital loans to professional
practice firms and finally Trade Finance Partners Limited, a trade finance provider to the SME market.