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Aberdeen Dev Cap PLC (AVC)

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Friday 15 June, 2007

Aberdeen Dev Cap PLC

Trading Update & Proposals

Aberdeen Development Capital PLC
15 June 2007

                              
                              15 June 2007

                    ABERDEEN DEVELOPMENT CAPITAL PLC


            TRADING UPDATE, CONCLUSION OF STRATEGIC REVIEW AND 
                 PROPOSALS FOR THE FUTURE OF THE ADC GROUP


Introduction

On 5 January 2007, the Board announced that it was commencing a comprehensive
review of options regarding ADC's future in consultation with its advisers and
Shareholders.  The Board has now concluded that review and, following
consultation with the largest Shareholders, is now announcing proposals for the
future of the ADC Group.  In summary, the Proposals comprise:

•   changing ADC's investment objective and policy with a view to realising 
    ADC's assets in a manner which maximises value for Ordinary Shareholders;

•   reducing the Companies' capital by cancelling the share premium accounts 
    created from premiums paid on their respective Shares to create special
    capital reserves out of which returns of capital can be paid to their 
    respective Shareholders and buy backs of their respective Shares can be 
    funded;

•   returning surplus cash to Shareholders over time through a combination of 
    ad hoc returns of capital and buying back Shares though the market; and

•   substantially reducing the Group's running costs, principally by revising 
    ADC's fee arrangements with its Manager.

The Board believes the principal benefits of the Proposals to be as follows:

•   they will enable an orderly realisation of ADC's private equity investments 
    with the objective of maximising the exit values from those investments;

•   the Shares will continue to be traded on the London Stock Exchange, and 
    ADC will continue to conduct its affairs so as to qualify as an investment 
    trust, during the realisation process;

•   returning surplus cash to Shareholders should mitigate any drag effect 
    from ADC's Liquid Assets;

•   the proposed scheme for ad hoc returns of capital to Shareholders is more 
    flexible and cost effective than other methods of returning capital;

•   the new management fee arrangements will align AAM's interests more 
    closely with those of Ordinary Shareholders; and

•   all Shareholders will benefit from the substantial reduction in the 
    Group's running costs.

Following a number of realisations, ADC currently has Liquid Assets of
approximately £12.6 million.  It is intended that at least £9.5 million will be
returned to Shareholders through a combination of a return of capital and buying
back Shares though the market as soon as practicable after the Capital Reduction
has become effective (which is expected to occur in October or November 2007).
Thereafter, returns of capital will be paid and Shares may be bought back
through the market whenever ADC has sufficient Liquid Assets for the purpose.

The Proposals are subject to the approval of Shareholders, which will be sought
at an extraordinary general meeting of ADC and separate class meetings of 2010
ZDP Shareholders and 2012 ZDP Shareholders.  Those meetings are expected to be
convened as soon as practicable.  In addition, the Capital Return Scheme and the
Buy Back Programme are conditional on the Capital Reduction being sanctioned by
the Court.

ADC has received letters of intent to vote in favour of the resolutions relating
to the Proposals to be proposed at the Shareholder meetings referred to above
from Shareholders holding, in aggregate, 62.0% of the issued Ordinary Shares,
46.2% of the issued 2010 ZDPs and 47.4% of the issued 2012 ZDPs.

Recent Portfolio Activity

Since the Board announced that it was commencing a comprehensive review of
options regarding ADC's future, ADC has made a number of profitable
realisations.

First, in March 2007, investee company Norson Group completed the sale of its
PPU division to US company BJ Services in a deal which valued ADC's holding at
approximately £3.78 million, which compared with the previous carrying value of
£2.36 million at the date of the last published net asset value prior to the
sale.  Under the terms of that sale, £2.66 million in cash has been received,
£79,000 of value has been retained in the continuing business for a 23% stake
and the remaining deferred proceeds of up to £1.04 million will be held in
escrow, payable in instalments over the next 15 months subject to any warranty
claims by the purchaser.  Although it is anticipated that a full recovery of the
deferred consideration proceeds will occur, for the sake of prudence it will not
be recognised as an asset until it is received by ADC.  Proceeds including
income over the 10 year lifetime of the investment are expected to total £5.21
million against a cost of £1.10 million, representing a cash multiple of 4.7x
and an IRR of 21.3%.

During April 2007, ADC disposed of its interest in ABZ Group, an Aberdeen-based
business concerned with the design, manufacture and sale of specialised cabins
for the energy sector.  ADC received cash proceeds of £1.48 million compared
with a cost of £550,000 and a carrying value of £955,000 at the date of the last
published net asset value prior to the sale.  In addition, income proceeds over
the period of investment since May 2005 totalled £100,000, giving a cash exit
multiple of 2.87x and an IRR of 74.8%.

Finally, in May 2007, ADC sold its stake in Plaxton, the Yorkshire-based coach
manufacturer.  ADC received cash proceeds of £1.02 million compared with a cost
of £21,000 and a carrying value of £689,000 at the date of the last published
net asset value prior to the sale.  In addition, income proceeds over the period
of investment since May 2004 totalled £159,000 and a redemption of loan stock
and equity in July 2006 realised a further £775,000.  As a result, the
investment generated a cash multiple of 2.6x on the original cost of £750,000
and an IRR of 46.3%.

No new private equity investments have been made since the Board announced that
it was reviewing options regarding ADC's future.

Background to, and Reasons for, the Proposals

The Board announced on 5 January 2007 that it had made a full provision against
the carrying value of ADC's then largest investment, trailer rental business
Transrent Holdings, after that business had experienced a downturn in its
marketplace and attempts for the financial restructuring of Transrent Holdings
had been unsuccessful.  That provision resulted in a 14.3p reduction in the net
asset value per Ordinary Share.  In light of that loss in Ordinary Shareholder
value, the Board decided that it was in Shareholders' interests to conduct a
comprehensive review of options regarding the Group's future.  In conducting
that review, the Board and its advisers had regard to a broad range of factors,
including:

•   ADC's small size and the low trading volume of the Ordinary Shares;

•   the Group's commitment to repay the final capital entitlement of the 
    2010 ZDPs in 2010 and of the 2012 ZDPs in 2012;

•   the illiquid nature of private equity investments;

•   the current prospects for refinancing the Group at the time of the 
    repayment of the ZDPs;

•   ADC's substantial, and growing, liquid assets (that is, cash and near 
    cash) following a number of realisations;

•   the respective interests of Ordinary Shareholders and ZDP Shareholders; and

•   the views of the largest Shareholders, who were consulted by ADC's 
    advisers as part of the review process.

The Board has concluded that it is in the best interests of Shareholders as a
whole to convert ADC into a realisation fund.  Furthermore, the Board believes
that the realisation of optimum value for ADC's private equity investments will
be achieved through an orderly process of realisation made by ADC's investment
manager.

ADC currently has Liquid Assets of approximately £12.6 million and, on the
assumption that ADC is converted into a realisation fund, that amount is
expected to increase as further realisations occur in the future.  Liquid Assets
have limited capital growth potential and are expected to yield, in current
market conditions, less than the accruing capital entitlement, at the rate of
6.5% per annum, of the ZDPs.  That being the case, ADC's growing Liquid Assets
may become a significant drag on the potential overall returns from ADC's assets
(being its private equity investments and its Liquid Assets), thereby reducing
the assets available to meet the final capital entitlements of the ZDPs and
adversely affecting the total returns to Ordinary Shareholders.  To address this
potential drag effect, the Directors believe that it is important that the Group
is able to return capital to Shareholders as and when the Board considers it
appropriate, taking into account the Group's running costs and the potential
requirement for follow-on capital for existing investments.

The Board has reviewed the Group's running costs in light of the proposals to
convert ADC into a realisation fund and return capital to Shareholders over
time.  The Directors have concluded that, if Shareholders approve those
proposals, substantial savings in the Group's running costs can be achieved, in
particular through revised fee arrangements with the Manager.

As a result of its strategic review, the Board has formulated the Proposals
described in this announcement.

Details of the Proposals

The Proposals envisage:

•   Changing ADC's investment objective and policy

ADC's current investment objective is to optimise total returns for its Ordinary
Shareholders principally by investing development capital in private companies
throughout the UK.  The Board is proposing that the investment objective should
be restated as follows:

"To conduct an orderly realisation of the assets of the Company, to be effected
in a manner which maximises value for Ordinary Shareholders."

The Board believes that ADC's portfolio will require careful investment
management in order to achieve ADC's proposed new investment objective.  This
will involve a continuing evaluation of the portfolio in order to assess the
most appropriate realisation strategy to be pursued in relation to each
investment.  The Manager expects that, while some investments may be realised in
the shorter term, other investments may be held for a longer period to enable
their inherent value to be successfully realised.

ADC will not make any new private equity investments.  However, ADC may add to
existing private equity investments where the Manager considers this to be
appropriate with the objective of protecting or enhancing the value of those
existing investments.

•   Cancelling the share premium accounts created from premiums paid on 
    the Shares

None of the Companies currently has profits or reserves out of which returns of
capital can be paid to their respective Shareholders and buy backs of their
respective Shares can be funded.  Accordingly, it is proposed to cancel the
share premium accounts created from premiums paid on their respective Shares to
create special capital reserves out of which such returns of capital can be paid
and repurchases can be funded.  Such cancellations are expected to create
special capital reserves of:

-   in the case of ADC, approximately £14.0 million;

-   in the case of ADC Zeros 2010, approximately £8.8 million, representing 
    around 71% of the aggregate final capital entitlement of the 2010 ZDPs 
    currently in issue; and

-   in the case of ADC Zeros 2012, approximately £8.8 million, representing 
    around 63% of the aggregate final capital entitlement of the 2012 ZDPs 
    currently in issue.

It should be noted that, as buy backs of shares may only be made out of profits
available for that purpose, the amount of the special capital reserve (which,
subject to the Capital Reduction being sanctioned by the Court, will be treated
as profits available for that purpose) out of which buy backs can be made will
be reduced by the relevant Company's realised losses (if any).

•   Returning capital to Shareholders through a combination of a capital 
    return scheme and a Share buy back programme

In order to address the growing liquidity in ADC's assets resulting from
realisations of its private equity investments, it is proposed that surplus cash
should be returned to Shareholders through a combination of a capital return
scheme and a Share buy back programme.

•   Capital Return Scheme

Under the Capital Return Scheme, returns of capital are expected to be made on
an ad hoc basis whenever ADC has sufficient Liquid Assets for the purpose.  On
each occasion on which returns of capital are made under the Capital Return
Scheme:

-   ZDP Shareholders will be entitled to receive a return of capital per 
    ZDP calculated in accordance with the following formula (rounded down to the
    nearest whole pence):

                                 A x (B x 125%)

                                       C

-   save in the circumstances described below, Ordinary Shareholders will be 
    entitled to receive a return of capital per Ordinary Share calculated in
    accordance with the following formula (rounded down to the nearest whole 
    pence):

                                     A - D

                                       E

where:

"A"   is the maximum cash proposed to be distributed under the Capital Return
      Scheme on the relevant occasion;

"B"   is the percentage of the Group's net assets attributable to the ZDP
      Shareholders as at the date of the last published net asset value per 
      Ordinary Share prior to the announcement of the proposed return of 
      capital;

"C"   is the aggregate number of ZDPs in issue at the latest practicable date
      prior to the announcement of the proposed return of capital;

"D"   is the aggregate value of the cash distributions to be paid to ZDP
      Shareholders (calculated in accordance with the above formula) on the 
      relevant occasion; and

"E"   is the aggregate number of Ordinary Shares in issue at the latest
      practicable date prior to the announcement of the proposed return of 
      capital

Following each return of capital under the Capital Return Scheme, the capital
entitlements of the ZDPs will be adjusted.  This will be achieved by deducting
from the accrued capital entitlement of the ZDPs at the date on which the
relevant return of capital is made the amount of such return of capital per ZDP;
thereafter, the capital entitlement per ZDP will continue to accrue at the rate
of 6.5% per annum, based on the adjusted capital entitlement.

The Directors believe that there will come a time when the costs of maintaining
the Group's split capital structure are no longer in the interests of
Shareholders as a whole.  Accordingly, no returns of capital will be made to
Ordinary Shareholders if, immediately following such return of capital, the
adjusted capital entitlement on the ZDPs would be less than 25p per ZDP (and,
for the avoidance of doubt, in that event, returns of capital will continue to
be made to ZDP Shareholders under the Capital Return Scheme whenever ADC has
sufficient Liquid Assets for the purpose).

Shareholders, other than dealers in securities, will be taxed under the Capital
Return Scheme in accordance with the rules relating to the taxation of capital
gains.

•   Buy Back Programme

At present, none of the Companies has authority to repurchase any of their
respective Shares through the market.  Each of the Companies intends to seek
authority from their respective Shareholders to repurchase up to 14.99% of their
respective Shares and to renew those authorities annually (or more frequently,
if required).

Although there may be occasions when the Companies are precluded from making
purchases of their respective Shares because they are in possession of
unpublished price sensitive information relating to ADC or the Companies are in
a close period (as defined in the Financial Services Authority's listing rules),
it is intended that the Companies will repurchase their respective Shares,
through the market, whenever the Shares are trading at a sufficient discount to
their underlying net asset value and ADC has sufficient Liquid Assets available
for the purpose.  The maximum price (excluding expenses) that may be paid by any
of the Companies when repurchasing their respective Shares though the market
will be the higher of:

-   105% of the average market value of the relevant Share for the five 
    business days prior to the day the purchase is made; and

-   the value of the relevant Share calculated on the basis of the higher 
    of (i) the last independent trade of any number of the relevant Shares on
    the trading venue where the purchase is carried out or (ii) the highest 
    current independent bid for any number of the relevant Shares on such 
    trading venue.

The aim will be to buy back 2010 ZDPs and 2012 ZDPs in equal proportions.
Ordinary Shares will only be bought back if the resulting ratio of the aggregate
number of issued Ordinary Shares to issued ZDPs is greater than 2:1.

All Shares bought back will be cancelled.

The rate at which returns of capital are paid under the Capital Return Scheme
and any Shares are repurchased under the Buy Back Programme will depend on, in
particular, the rate at which ADC's investments are realised.  The decision to
pay any such returns of capital or make any such repurchases will be at the sole
discretion of the Board.

Each of the Companies will pay returns of capital to its Shareholders under the
Capital Return Scheme and fund any repurchases of its Shares under the Buy Back
Programme out of its special capital reserve to be created upon the Capital
Reduction becoming effective.  Each of the Companies will only be able to pay
such returns of capital to the extent of the amount standing to the credit of
its special capital reserve from time to time and will only be able to make
Share buy backs to the extent of the amount standing to the credit of its
special capital reserve less any accumulated realised losses (if any) from time
to time.  or if less, in the case of Share buy backs, the amount of the relevant
Company's distributable profits.

•   Changing ADC's fee arrangements with AAM

ADC currently pays AAM a basic management fee of 1.25% per annum of ADC's gross
assets.  In addition, AAM is currently entitled to an incentive management fee
of 0.1% of ADC's gross assets for each 1.0% by which the total return on ADC's
net assets, on an annual basis, exceeds a hurdle rate of 8.0%, subject to a
maximum total management fee of 2.0 per cent. of ADC's gross assets.  The basic
management fee is payable monthly in arrears and the incentive fee is payable
annually in arrears.

The Board and AAM have agreed that the management fee arrangements should be
amended so as to align AAM's interests more closely with those of Ordinary
Shareholders in the event of the proposals to convert ADC into a realisation
fund and return capital to Shareholders over time being implemented.
Accordingly, if Shareholders approve those proposals, the current basic
management fee will be replaced with a fixed basic management fee of £100,000
per annum, which will reduce to £60,000 per annum with effect from 1 July 2010.
Similarly, the existing incentive management fee will be replaced with a new
incentive management fee whereby AAM will be entitled to:

-   20% of the amount by which the aggregate returns of capital per
Ordinary Share, whether under the Capital Return Scheme, on ADC's liquidation or
otherwise, paid on or before 31 December 2012 exceed 35p multiplied by the
number of Ordinary Shares in issue at the time of the relevant return of
capital; and

-   20% of the amount by which the repurchase price of an Ordinary
Share under the Buy Back Programme exceeds the targeted return, being 35p less
any returns of capital paid in respect of that Ordinary Share under the Capital
Return Scheme up to a maximum of 35p, multiplied by the number of Ordinary
Shares bought back on the relevant occasion.

The prices at which Ordinary Shares are bought back will take into account any
incentive management fee that may be payable to AAM as a result of that buy
back, thereby ensuring that continuing Shareholders are not disadvantaged.

In addition, and subject to Shareholders approving the Proposals, AAM has agreed
to waive the fees payable by ADC to AAM in connection with its participation in
the Manager's savings schemes (these fees amounted to £16,000 in the year ended
31 May 2007).  In addition, the director's fee payable to Martin Gilbert, AAM's
representative on the Board, has been waived.

•   Reducing the size of the Companies' boards

As ADC will not make any new investments if it converts into a realisation fund,
the Directors believe that it is appropriate to reduce the size of the Board.
Accordingly, if the Proposals are approved by Shareholders, Willie Phillips
intends to retire as a Director at ADC's next annual general meeting (which is
expected to be held in September 2007) and will not offer himself for
re-election.

Benefits of the Proposals

The Board considers the principal benefits of the Proposals to be as follows:

•   converting ADC into a realisation fund, rather than placing it in 
    liquidation immediately, should enable the Manager to maximise the exit
    values from ADC's private equity investments;

•   the Shares will continue to be traded on the London Stock Exchange, and 
    ADC will continue to conduct its affairs so as to qualify as an
    investment trust under section 842 of the Income and Corporation Taxes Act 
    1988, whilst ADC's private equity investments are realised;

•   the Capital Return Scheme and Buy Back Programme should mitigate any drag 
    effect from ADC's Liquid Assets resulting from realisations;

•   the Capital Return Scheme is more flexible and cost effective than 
    other methods of returning capital (for example, a tender offer);

•   the new management fee arrangements will align AAM's interests more 
    closely with those of Ordinary Shareholders; and

•   all Shareholders will benefit from the substantial reduction in
    the Group's running costs.

Conditions of the Proposals

The proposed changes to ADC's investment objective and policy, Capital
Reduction, return of capital to Shareholders through a combination of the
Capital Return Scheme and the Buy Back Programme and changes to ADC's management
fee arrangements with AAM are conditional on Shareholders approving them at an
extraordinary general meeting of ADC and at separate class meetings of the 2010
ZDP Shareholders and the 2012 ZDP Shareholders.

In addition, the Capital Return Scheme and the Buy Back Programme are
conditional on the Court sanctioning the Capital Reduction.

Once the Capital Return Scheme has been approved by Shareholders and the Capital
Reduction has been sanctioned by the Court, the Companies should be in a
position to make returns of capital to Shareholders in accordance with the
Capital Return Scheme without convening any further Shareholder meetings and
incurring any associated costs.

Costs of Implementing the Proposals

The costs of implementing the Proposals payable by the Group have been capped at
an amount equal to 2% of Ordinary Shareholders' funds as the Manager has agreed
to pay any costs in excess of that cap.  As a consequence of the respective
income and capital rights of the Ordinary Shares and the ZDPs, the costs payable
by the Group will be funded out of the income and capital attributable to the
Ordinary Shareholders.

Expected Timetable

The Directors expect to post a circular to Shareholders in early July 2007
setting out further details of the Proposals and including notices convening an
extraordinary general meeting of ADC and separate class meetings of the 2010 ZDP
Shareholders and the 2012 ZDP Shareholders at which the resolutions required to
implement the Proposals will be proposed  It is expected that the extraordinary
general meeting of ADC and separate class meetings of the 2010 ZDP Shareholders
and the 2012 ZDP Shareholders will be held in late July 2007.  ADC has received
letters of intent to vote in favour of the resolutions relating to the Proposals
to be proposed at the Shareholder meetings referred to above from Shareholders
holding, in aggregate, 62.0% of the issued Ordinary Shares, 46.2% of the issued
2010 ZDPs and 47.4% of the issued 2012 ZDPs.

The Capital Reduction is expected to be sanctioned by the Court and to become
effective in October or November 2007.  It is intended that at least £9.5
million will be returned to Shareholders through a combination of a return of
capital under the Capital Return Scheme and buying back Shares though the market
in accordance with the Buy Back Programme as soon as practicable after the
Capital Reduction becomes effective.  Thereafter, further returns of capital
under the Capital Return Scheme will be paid and Share buy backs in accordance
with the Buy Back Programme may be made whenever ADC has sufficient Liquid
Assets for the purpose.

Enquiries
Gordon Neilly/Chris Whittingslow/Darren Willis/ Intelli Corporate Finance Limited         Tel: 020 7653 6300
Andrew Worne

Notes

Intelli, which is authorised and regulated in the United Kingdom by the
Financial Services Authority, is acting solely for the Companies and for no one
else in connection with the Proposals and will not regard any other person as
its client or be responsible to anyone other than the Companies for providing
the protections afforded to clients of Intelli or for providing advice in
relation to the Proposals or the contents of this announcement.

Definitions

The following definitions apply throughout this announcement unless the context
otherwise requires:
"2010 ZDPs"                           zero dividend preference shares of 0.001p each in the capital of ADC Zeros 2010
"2010 ZDP Shareholders"               holders of 2010 ZDPs
"2012 ZDPs"                           zero dividend preference shares of 0.001p each in the capital of ADC Zeros 2012
"2012 ZDP Shareholders"               holders of 2012 ZDPs
"ADC"                                 Aberdeen Development Capital PLC
"ADC Zeros 2010"                      ADC Zeros 2010 PLC, a subsidiary of ADC
"ADC Zeros 2012"                      ADC Zeros 2012 PLC, a subsidiary of ADC
"Board" or "Directors"                the directors of ADC
"Buy Back Programme"                  buy backs of Shares through the market on the basis described under the under the
                                      sub-heading "Returning capital to Shareholders through a combination of a capital
                                      return scheme and a Share buy back programme" in this announcement
"Capital Reduction"                   the cancellation of the share premium accounts created from premiums paid on the
                                      Shares and the creation of special capital reserves out of which returns of
                                      capital to Shareholders under the Capital Return Scheme can be paid and
                                      repurchases of Shares under the Buy Back Programme can be funded
"Capital Return Scheme"               the proposed ad hoc returns of capital to be paid to Shareholders on the basis
                                      described under the under the sub-heading "Returning capital to Shareholders
                                      through a combination of a capital return scheme and a Share buy back programme"
                                      in this announcement
"Companies"                           ADC, ADC Zeros 2010 and/or ADC Zeros 2012 (as the context may require)
"Court"                               the Court of Session in Scotland
"Group" or "ADC Group"                ADC and its subsidiary undertakings from time to time, including ADC Zeros 2010
                                      and ADC Zeros 2012
"Intelli"                             Intelli Corporate Finance Limited
"IRR"                                 the internal rate of return
"Liquid Assets"                       cash and near cash investments (being investments which can be converted into
                                      cash quickly and with very low cost)
"London Stock Exchange"               London Stock Exchange plc's market for larger and established companies
"Manager" or "AAM"                    Aberdeen Asset Managers Limited
"Ordinary Shareholders"               holders of Ordinary Shares
"Ordinary Shares"                     ordinary shares of 10p each in the capital of ADC
"Proposals"                           the proposals for the future of the ADC Group described under the heading
                                      "Details of the Proposals" in this announcement
"Shareholders"                        Ordinary Shareholders, 2010 ZDP Shareholders and/or 2012 ZDP Shareholders (as the
                                      context may require)
"Shares"                              Ordinary Shares, 2010 ZDPs and/or 2012 ZDPs (as the context may require)
"ZDPs"                                2010 ZDPs and/or 2012 ZDPs (as the context may require)
"ZDP Shareholders"                    2010 ZDP Shareholders and/or 2012 ZDP Shareholders (as the context may require)




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