NAK.L Regulatory News (NAK)

This announcement contains inside information as stipulated under the Market Abuse Regulations (EU) no. 596/2014 ("MAR")

 9 December 2020

 Nakama Group plc

("Nakama" or the "Company")

 Proposed disposal of operating businesses

Nakama (AIM:NAK), the AIM quoted recruitment consultancy working across the UK and Asia providing recruitment and related services for the web, interactive, digital media, IT and business change sectors, announces that it has agreed terms to dispose of its four operating businesses, being Highams, the Nakama UK Business, Nakama HK and Nakama Singapore, to Sanderson, a privately owned recruitment business.

The Disposal is conditional, inter alia, upon Shareholders passing Resolution 1 at the General Meeting, details of which are set out below.

It is anticipated that, subject to the passing of Resolution 1, the Disposal will complete on 4 January 2021. Following Completion, the Company will become an AIM Rule 15 cash shell and as such, will either be required to make an acquisition or acquisitions constituting a reverse takeover under AIM Rule 14 on or before the date falling six months from Completion or be re-admitted to trading on AIM as an investing company under the AIM Rules (which requires the raising of at least £6 million) failing which, the Ordinary Shares would then be suspended from trading on AIM pursuant to AIM Rule 40. Admission to trading on AIM would be cancelled six months from the date of any suspension should the suspension not have been lifted beforehand.

Pursuant to the Disposal, the Company is required to change its name and the Board is proposing to change the Company's name to Ridgecrest plc.

Extracts from the Circular are set out below.

A copy of the Circular will be posted to shareholders by 11 December 2020 and a copy made available on the Company's website https://www.nakamagroupplc.com/.

Enquiries:

The following information is extracted without material adjustment from the Circular to be sent to Shareholders. The information below should be read in conjunction with the Circular. Capitalised terms used in the summary below are defined at the end of this announcement.

Background to and reasons for the Disposal

The Group is an AIM-quoted recruitment consultancy working across the UK and Asia providing recruitment and related services for the web, interactive, digital media, IT and business change sectors.

As Shareholders will be aware, the Group was formed by the acquisition of Nakama UK and its subsidiaries in 2011 by Highams Systems Services Group plc, which was subsequently renamed Nakama. The merger was intended to provide the Group with increased scale and a broadening of its sector and geographical reach and was also expected to deliver cost savings, risk diversity and cross-selling opportunities across the two client bases.

The Group has faced a number of challenges in recent years and, despite efforts made by the Directors to achieve an internal restructuring and the reduction of costs, the Company's cash position has remained constrained.

The ongoing COVID-19 pandemic, along with the proposed but later revised changes to the IR35 regime, have had a significant impact on the Group's trading activities during 2020. Whilst the Trading Businesses have continued to trade and take on assignments, business volumes have reduced, and market conditions have continued to be difficult.

The Board has made every reasonable effort to secure the future of the Company and has utilised a number of Government initiatives in the UK (including the Coronavirus Job Retention Scheme), Hong Kong and Singapore to preserve the Group's cash resources. However, a second wave of the COVID-19 pandemic and new national lockdowns in the UK and other geographies has, the Directors believe, exacerbated the uncertainty felt by many businesses when making decisions about recruitment assignments and this has led to increased working capital pressures on the Group. In recent weeks, the Group's cash position has continued to deteriorate and, as stated in previous announcements, the Board does not believe the Group can continue to trade satisfactorily without an injection of new capital.

In order to address the Group's cash constraints, the Board made a number of applications for UK Government backed loans, each of which was unfortunately rejected owing to the Company's historic losses which meant it was not eligible to receive such finance. The Board also explored options for an equity fundraise but positive discussions held initially with a number of parties had to be terminated when the Company's largest shareholder made clear to the Board they would not support a fundraise and would vote against the Shareholder resolutions needed to allow the Company to issue any new shares.

In light of the Company's inability to raise debt or equity finance, the Board decided to seek a buyer for the Trading Businesses and held discussions with a number of potential buyers. Following these discussions, the Board has conditionally agreed to sell the Trading Businesses to Sanderson on the terms set out below. 

The Board believes that, without additional funding and a material improvement in market conditions, it will not be possible to grow the Trading Businesses further or to maintain the Group as a going concern. Should the sale of the Trading Businesses not proceed, the Directors believe they will be forced to take steps to protect the interests of the Group's creditors.

As previously announced by the Company, the directors at the time took the decision in 2018 to cease trading in Australia entirely. The Group previously had a number of significant intercompany balances with the Australian Subsidiaries (both debits and credits) but these were written off in the Company's accounts for the year ended 31 March 2019. Whilst both Nakama Sydney and Nakama Melbourne are in liquidation, neither process has yet been concluded. The liquidator of the Australian Subsidiaries is in periodic correspondence with the Company about settling the intercompany balances and has also previously indicated to creditors the availability of a potential insolvent trading claim against the Company itself. The Board believes that any amounts due from the Group to the Australian Subsidiaries should be netted off against amounts previously owed by them to the Group. To date, the liquidator has (through correspondence to the creditors of the Australian Subsidiaries) indicated his intention to resolve the matter in the first half of 2021. The Board believes that, whilst the amount that could be claimed by the liquidator of the Australian Subsidiaries is significant, the Group's potential liability is likely to be relatively immaterial. 

Further details of the Disposal

The Company intends to dispose of its four operating businesses (including their respective management and employees), being Highams, the Nakama UK Business, Nakama HK and Nakama Singapore, to Sanderson. Further details of each business are set out below.

Highams

Established in 1983, Highams specialises in delivering niche recruitment services across business and technology transformation programmes within the insurance, wealth management and life & pensions industries.

For the year ended 31 March 2020, Highams recorded an unaudited profit before tax of £273,785 on revenues of £6,355,566. The unaudited total assets of Highams as at 30 September 2020 were £760,193, with net liabilities being £1,055,776.

The Nakama UK Business

Nakama UK provides permanent, temporary and contract recruitment services to large multinational corporations, creative agencies, start-ups and SMEs in need of digital talent. Nakama UK is co-located with the Highams office in order to maintain cost efficiencies and promote cross-selling opportunities.

For the year ended 31 March 2020, Nakama UK recorded an unaudited loss before tax of £131,878 on revenues of £1,737,325. The unaudited total assets of Nakama UK as at 30 September 2020 were £206,342, with net liabilities being £1,019,068.

Nakama HK

Nakama HK is the Group's principal presence in the Asia-Pacific region and serves the digital technology markets across a broad range of clients from corporates to digital marketing agencies.

For the year ended 31 March 2020, Nakama HK recorded an unaudited loss before tax of £20,449 on revenues of £1,351,254. The unaudited total assets of Nakama HK as at 30 September 2020 were £572,083, with net assets being £4,770.

Nakama Singapore

The Singapore branch of Nakama, alongside the Hong Kong business, serves the Asia-Pacific digital technology markets. 

For the year ended 31 March 2020, Nakama Singapore recorded an unaudited loss before tax of £181,618 on revenues of £275,184. The unaudited total assets of Nakama Singapore as at 30 September 2020 were £23,289, with net liabilities being £519,925.

Information on Sanderson

Founded in 1982, Sanderson is an established recruitment group and has its headquarters in Bristol, England, as well as offices in other parts of the UK and in the Asia-Pacific region. Its business comprises recruitment, solutions, executive search and projects divisions. These divisions operate across a number of sectors including financial services, government and defence, information technology, professional advisory, retail and consumer, utilities and energy and not for profit organisations.

Terms of the Disposal

Pursuant to the SPA, completion of which is conditional, inter alia, on the passing by Shareholders of Resolution 1 and there not having occurred any material adverse change in the business, operations, assets, liabilities, financial or trading condition or operating results of the Trading Subsidiaries (being any event or circumstance which gives rise to an additional cost or potential additional cost to them of more than £75,000), the Company and Nakama UK will sell, and Sanderson Group and Sanderson Solutions will buy, the entire issued share capital of each of Highams, Nakama HK and Nakama Singapore for a cash consideration of £440,000, of which £390,000 will be payable on Completion and the remaining £50,000 of which will be paid following the preparation (on or before the date falling 25 business days after Completion) and subsequent agreement or determination of completion accounts in respect of the Trading Subsidiaries.

The consideration payable under the SPA may be increased or decreased to the extent that, and by the amount (if any) by which, the net assets or liabilities of the Trading Subsidiaries as at Completion (after the write-down to zero of all intercompany balances with the Company and Nakama UK) are less or greater than their net liabilities as at 31 July 2020.

On Completion, Sanderson Recruitment and Nakama UK will also complete the APA which provides for the sale and purchase of the Nakama UK Business for a total cash consideration of £75,465. 

It is anticipated that, subject to the passing of Resolution 1, the Disposal will complete on 4 January 2021. Should that Resolution not be passed on or before 31 December 2020, the Disposal Agreements will terminate unless a further longstop date can be agreed between the parties and, without prejudice to any accrued rights or obligations, be of no further effect. The Company and Nakama UK have undertaken to ensure that, pending Completion, the Trading Businesses will be carried on in the normal course. The terms of the Disposal Agreements also provide for the giving by the Company and Nakama UK, subject to various customary limitations, of certain specific and time-limited warranties in respect of the Trading Businesses.

The Company and Nakama UK have also undertaken that they will not at any time during the period of 12 months following Completion, inter alia, carry on or be concerned, engaged or interested in, or in any way assist, a business which competes with any business carried on by the Trading Businesses as at Completion.

Proposed Board changes

It has been agreed that Robert Thesiger, Chief Executive of Nakama, will join Sanderson, initially on a consultancy basis, pursuant to the Disposal. Robert will however remain as a Non-Executive Director of Nakama following Completion. Michael Clelland will resign as a Non-Executive Director of Nakama upon Completion but Tim Sheffield will remain as Chairman of the Company.

Use of proceeds

The gross proceeds of the Disposal will be used, in part, to satisfy: (i) the Company's professional advisory costs incurred in connection with the Disposal, expected to total approximately £80,000 (plus VAT); (ii) the outstanding VAT liabilities of the Company and Nakama UK; (iii) all amounts owed by Nakama UK to HSBC Invoice Finance (UK) Ltd as at Completion; and (iv) certain amounts owed to Directors in respect of unpaid directors' fees and a bonus which will crystallise on Completion.

The Board anticipates that, following completion of the Disposal and the payment of all associated costs and after taking into account all known outstanding liabilities of the Group, Nakama will have cash resources of approximately £200,000.

Shareholders should note however that the level of these cash resources could potentially be affected by other matters such as the ongoing liquidation of the Australian Subsidiaries, further details of which are set out above.

Principal effects of the Disposal and AIM Rule 15

The Trading Businesses constitute all of the Group's operating businesses and the Disposal will accordingly represent a disposal resulting in a fundamental change of business of the Company in accordance with Rule 15 of the AIM Rules. On Completion, the Company will cease to own, control or conduct all or substantially all of its existing trading business, activities or assets.

In accordance with the AIM Rules, completion of the Disposal is conditional on Shareholders passing Resolution 1 to be proposed at the General Meeting.

Following Completion, the Company will become an AIM Rule 15 cash shell and as such, will either be required to make an acquisition or acquisitions constituting a reverse takeover under AIM Rule 14 on or before the date falling six months from Completion or be re-admitted to trading on AIM as an investing company under the AIM Rules (which requires the raising of at least £6 million) failing which, the Ordinary Shares would then be suspended from trading on AIM pursuant to AIM Rule 40. Admission to trading on AIM would be cancelled six months from the date of any suspension should the suspension not have been lifted beforehand.

As a cash shell, the Company would have no operating cash flow and would be dependent on the net proceeds of the Disposal and any further funds which could be raised for its working capital requirements.

The Directors will seek to work with external parties as appropriate in order to identify and pursue potential acquisition opportunities. There can be no certainty however that a suitable acquisition opportunity will be identified or even proceed to completion. Any acquisition which involved the issue by the Company of new Ordinary Shares would be dilutive for Shareholders.

Audited results for the year ended 31 March 2020 and interim results for the 6 months ended 30 September 2020

As previously announced, the Company has received an extension to the deadline by which it must announce and publish its annual report and audited results for the year ended 31 March 2020. If the Company fails to meet this deadline of 31 December 2020 then trading in the Ordinary Shares will be suspended. The Board anticipates announcing and distributing the audited results for the year ended 31 March 2020 shortly. Shareholders should note however that the auditor's opinion on the results for the year ended 31 March 2020 is likely to include a "Material uncertainty related to going concern" paragraph as: (i) the Company's cash position is currently constrained; and (ii) the Disposal will not have completed prior to the auditors signing their audit opinion.

The Company is also required by 31 December 2020 to publish its unaudited results for the six months ended 30 September 2020, unless it decides to avail itself of the one-month extension currently granted to AIM companies due to the COVID-19 pandemic. The Board presently anticipates that it will announce the unaudited results of the Company for the six months ended 30 September 2020 shortly after announcing the audited results for the year ended 31 March 2020.

Change of name

In light of the proposed Disposal and the sale of all of the Group's operating businesses, the Company intends to change its name. The Board is proposing that the Company's name be changed to Ridgecrest plc. The change of name will, subject to approval by Shareholders, be effective upon the issuance by the Registrar of Companies of a Certificate of Change of Name. An appropriate announcement will be made when trading in the Ordinary Shares on AIM under the name Ridgecrest plc is to become effective. The Company's TIDM (ticker code) will change to RDGC. Shareholders should note that their shareholdings will be unaffected by the change of name. Existing share certificates should be retained by Shareholders holding Ordinary Shares in certificated form as they will remain valid for all purposes and no new share certificates will be issued.  

General Meeting

Set out at the end of the Circular will be the Notice convening the General Meeting to be held at 10.00 a.m. on 29 December 2020 at which an ordinary resolution (which cannot be passed unless it receives the support of more than 50% of the total number of votes cast for and against it) will be proposed to approve the sale of the Trading Businesses to Sanderson in accordance with the Disposal Agreements and a special resolution (which cannot be passed unless it receives the support of a majority of at least 75% of the total number of votes cast for and against it) will be proposed to approve the change of name of the Company described above.

If the Resolutions are each passed by the requisite majorities, they will be binding on all Shareholders, irrespective of how (or whether) they voted.

If Shareholders do not pass Resolution 1, the Company will continue to operate the Trading Businesses. However, the Directors believe there are limited opportunities to reduce the Company's cost base any further. In light of continued uncertainty in the global trading environment arising out of the COVID-19 pandemic, the Company would need to raise additional funds from investors. There can be no certainty that such investment could be raised, the terms of any investment or that Shareholders would provide the approvals required to permit the Company to issue new Ordinary Shares. If this investment was not raised, the Board would be obliged to take steps to protect the interests of creditors and the Company may eventually be placed into an insolvent liquidation process out of which Shareholders would be unlikely to see any return on their investment.

The above considerations are not exhaustive, and Shareholders should seek their own independent advice when assessing the likely impact of the Disposal (or any decision by Shareholders not to approve it) on themselves.

Action to be taken

Shareholders will find enclosed with the Circular a reply-paid Form of Proxy which will enable them to vote at the General Meeting.

Whilst, in normal circumstances, the Board values very highly the opportunity to meet Shareholders in person, due to the ongoing COVID-19 pandemic and the related legal and other requirements, the General Meeting will be held as a closed meeting with a minimum number of Directors and/or employee Shareholders present, such that the legal requirement to hold a quorate meeting will be satisfied, and no other Shareholders will be permitted to access, attend or participate in person.

Shareholders are accordingly strongly urged to appoint the Chairman of the General Meeting (rather than their own choice of person) as their proxy as this is the only way to ensure their vote is counted.

The Company is taking these precautionary measures to safeguard Shareholders' and its employees' health and to enable the General Meeting to comply with current law. The Board will review these arrangements and any additional and/or alternative measures in advance of the General Meeting and will update Shareholders, as necessary, via a regulatory information service.

Shareholders may submit questions relating to the business to be dealt with at the General Meeting by emailing rthesiger@nakamaglobal.com at least 48 hours prior to the meeting. The Company will endeavour to publish these questions and the Company's responses on its website (www.nakamagroupplc.com) as soon as practicable after the meeting.

Shareholders who hold their Ordinary Shares in certificated form are requested to complete and sign the Form of Proxy and return it to the Company's registrars, Link Group, PSX 1, 34 Beckenham Road, Beckenham, Kent BR3 4ZF as soon as possible and, in any event, so as to arrive no later than 10.00 a.m. on 27 December 2020. Unless your Form of Proxy is received by this date and time, it will be invalid.

Shareholders are reminded that, if their Ordinary Shares are held in the name of a nominee, only that nominee may submit a Form of Proxy.

Shareholders who hold their Ordinary Shares in CREST and wish to appoint the Chairman of the General Meeting as their proxy through the CREST electronic proxy appointment service may do so by completing and transmitting a CREST Proxy Instruction to Link Group as soon as possible and so that it is received by no later than 10.00 a.m. on 27 December 2020.

If you are in any doubt about the Disposal or the contents of this announcement or the action you should take, you are recommended to seek your own independent financial, tax and legal advice immediately from your stockbroker, bank manager, solicitor, accountant or other independent financial adviser duly authorised under the Financial Services and Markets Act 2000 (as amended) if you are resident in the United Kingdom or, if not, from another appropriately authorised independent financial adviser in the relevant jurisdiction.

Recommendation

The Board considers that the Disposal and the proposed change of name of the Company are each in the best interests of the Company and Shareholders as a whole. Accordingly, the Directors unanimously recommend that you vote in favour of the Resolutions to be proposed at the General Meeting.

EXPECTED TIMETABLE OF PRINCIPAL EVENTS 

Notes:

(1) References to times in this announcement are to London time (unless otherwise stated).

(2) The dates set out in the timetable above are based on current expectations and may be subject to change.

(3) If any of the above times and/or dates should change, the revised times and/or dates will be notified to Shareholders by an announcement to a regulatory information service.

DEFINITIONS

The following definitions apply throughout this announcement, unless the context requires otherwise: