Proposed Rights Issue

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, THE REPUBLIC OF SOUTH AFRICA OR JAPAN or any other jurisdiction in which the release, publication or distribution would be unlawful.

THIS ANNOUNCEMENT IS AN ADVERTISEMENT AND NOT A PROSPECTUS AND INVESTORS SHOULD NOT SUBSCRIBE FOR OR PURCHASE ANY SHARES OR SECURITIES REFERRED TO IN THIS ANNOUNCEMENT EXCEPT ON THE BASIS OF INFORMATION IN THE APPLICABLE PROSPECTUS WHICH, SUBJECT TO APPROVAL FROM THE FINANCIAL SERVICES AUTHORITY, IS EXPECTED TO BE PUBLISHED BY SEVERFIELD-ROWEN PLC IN CONNECTION WITH THE RIGHTS ISSUE.

28 February 2013

Severfield-Rowen PLC

Proposed Rights Issue

The Board of Severfield-Rowen PLC ("Severfield-Rowen", the "Company" or the "Group") today announces a proposed fully underwritten Rights Issue (the "Rights Issue") to raise gross proceeds of approximately £47.9 million (approximately £44.8 million net of expenses).

Highlights

·      Fully underwritten Rights Issue to raise gross proceeds of approximately £47.9 million (approximately £44.8 million net of expenses), to be used to reduce the Group's outstanding borrowings under the Existing Facilities and for general corporate purposes.

·      The Group has also negotiated revised facilities with its existing lenders, subject to receipt of the funds from the Rights Issue.

·      Separately, the Group has announced today its second Interim Results for the 12 months to 31 December 2012 which record an underlying operating loss before results of Associates of £18.2 million (2011: £14.2 million profit), on Revenues of £256.6 million (2011: £267.8 million).

·      The Group's financial performance for the 12 months to 31 December 2012 reflects the impact of the contract execution issues, particularly the 122 Leadenhall Street contract, along with the other factors highlighted in the contract review process carried out following the Company's 23 January 2013 announcement, as well as the impact of adverse contract final account settlements announced earlier in the year.

Rights Issue

·      7 for 3 underwritten Rights Issue of up to 208,252,511 New Ordinary Shares at an issue price of 23 pence per share:

·      Represents a 38.7 per cent discount to the theoretical ex-rights price and a discount of 67.8 per cent. to the Closing Price of an Existing Ordinary Share of 71.5 pence on 27 February 2013 (being the latest practicable date prior to the date of this announcement).

·      The New Ordinary Shares to be issued will represent approximately 70 per cent. of the Enlarged Share Capital following the Rights Issue.

·      The proceeds of the Rights Issue will be used to reduce the Group's outstanding borrowings under the Existing Facilities with any balance being used for general corporate purposes.

·      The Rights Issue is unanimously supported by the Directors, and the Directors believe that the Rights Issue will have both immediate and longer-term benefits for the Group.

·      The Rights Issue is subject to approval by the Company's Shareholders at the General Meeting.

Revised Facilities

·      The total revolving credit facility available under the Revised Facilities Agreement will be £35 million (however, only £20 million of the total commitments will be available for utilisation until 31 December 2013).

·      This will result in the Group operating with a structurally lower level of indebtedness.

·      The Revised Facilities are conditional upon completion of the Rights Issue and the application of the net proceeds of the Rights Issue to reduce the borrowings under the Existing Facilities.

Chairman's quote:

 

"Today's rights issue puts Severfield-Rowen on to a sound financial footing. The events that led to the rights issue related to an unacceptable level of performance on a small number of contracts. Positive action is in hand to address these issues and improve performance. It is extremely encouraging that our shareholders, our lenders and our clients have shown strong support for the business, endorsing the Group's market leadership, longevity and underlying potential.  With the balance sheet strengthened, we are confident that the Group will move forward from here to achieve its long term growth objectives, both in the UK and India." 

 

John Dodds

Executive Chairman

 

Jefferies International Limited is acting as sole financial adviser, sponsor, bookrunner, underwriter and corporate broker with respect to the Rights Issue. 

A combined prospectus and circular to Shareholders relating to the Rights Issue will be available on Severfield-Rowen's website, www.sfrplc.com, in due course following approval by the UK Listing Authority and will contain further details and the full terms and conditions of the Rights Issue.

Indicative timetable and key dates

Each of the times and dates in the table below are indicative only and may be subject to change:

 

Announcement of the Rights Issue	28 February 2013
Anticipated date of the General Meeting	18 March 2013
Dealings in Nil Paid Rights commence on the London Stock Exchange	19 March 2013
Anticipated admission and commencement of dealings in the (fully paid) New Ordinary Shares	5 April 2013

 

This summary should be read in conjunction with the full text of this Announcement.

For further information, please contact:

 

Severfield-Rowen Plc John Dodds Executive Chairman   Alan Dunsmore Finance Director	01845 577896
Jefferies International Limited Simon Hardy Lee Morton Harry Nicholas	020 7029 8000
Pelham Bell Pottinger Archie Berens Guy Scarborough	020 7861 3112 020 7861 3870

 

 

This announcement does not constitute, or form part of any offer or invitation to purchase, otherwise acquire, subscribe for, sell, otherwise dispose of or issue, or any solicitation of any offer to sell, otherwise dispose of, issue, purchase, otherwise acquire or subscribe for, any security in the capital of the Company in any jurisdiction. Any decision to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of any Provisional Allotment Letter, Nil Paid Rights, Fully Paid Rights and/or New Ordinary Shares should only be made on the basis of information contained in and incorporated by reference into the Prospectus which contains further details relating to the Company in general as well as a summary of the risk factors to which an investment in the New Ordinary Shares is subject. Nothing in this announcement should be interpreted as a term or condition of the Rights Issue.

Copies of the Prospectus will, following publication and distribution, be available from the Company's registered office and on the Company's website at www.sfrplc.com provided that the Prospectus will not be available (whether though the website or otherwise)  to Restricted Shareholders, subject to certain exceptions.

Subject to certain exceptions, the Prospectus will not be available to shareholders located in the United States or any of Australia, Canada, Japan or the Republic of South Africa (the "Excluded Territories"). This announcement is not directed to, or intended for distribution or use by, any person or entity that is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, availability, or use would be contrary to law or regulation which would require any registration or licensing within such jurisdiction. The release, publication or distribution of this announcement in certain jurisdictions may be restricted by law and therefore persons in such jurisdictions into which this announcement is released, published or distributed should inform themselves about and observe such restrictions.

This announcement does not constitute an offer of securities for sale in the United States.  The securities referred to herein may not be offered or sold in the United States absent registration under the US Securities Act of 1933, as amended (the "US Securities Act"), or an exemption therefrom.  The offer and sale of the securities referred to herein has not been and will not be registered under the US Securities Act or under the applicable securities laws of any Excluded Territory.  There will be no public offer of the securities in the United States or any Excluded Territory.  Subject to certain exceptions, the securities referred to herein may not be offered or sold in any Excluded Territory or to, or for the account or benefit of, any national, resident or citizen of an Excluded Territory.

Jefferies International Limited ("Jefferies"), which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as sole sponsor and financial adviser for the Company and no one else in connection with the Rights Issue and will not regard any other person (whether or not a recipient of this announcement) as a client in relation to the Rights Issue and will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for giving advice in connection with the Rights Issue, the contents of this announcement and the accompanying documents or any other transaction, arrangement or matter referred to herein or therein.

This announcement should not be considered a recommendation by Jefferies or any of its directors, officers, employees, advisers or any of their respective affiliates in relation to any purchase of or subscription for securities. No representation or warranty, express or implied, is given by or on behalf of Jefferies or any of its directors, officers, employees, advisers or any of their respective affiliates or any other person as to the accuracy, fairness, sufficiency or completeness of the information or the opinions or the beliefs contained in this announcement (or any part hereof). None of the information contained in this announcement has been independently verified or approved by Jefferies or any of its directors, officers, employees, advisers or any of their respective affiliates. Save in the case of fraud, no liability is accepted by Jefferies or any of its directors, officers, employees, advisers or any of their respective affiliates for any errors, omissions or inaccuracies in such information or opinions or for any loss, cost or damage suffered or incurred howsoever arising, directly or indirectly, from any use of this announcement or its contents or otherwise in connection with this announcement. No person has been authorised to give any information or to make any representations other than those contained in this announcement and, if given or made, such information or representations must not be relied on as having been authorised by the Company, Jefferies or any other person. Subject to the Listing Rules, the Prospectus Rules and the Disclosure and Transparency Rules, the issue of this announcement shall not, in any circumstances, create any implication that there has been no change in the affairs of the Company and its group since the date of this announcement or that the information in it is correct as at any subsequent date.

Jefferies may, in accordance with applicable legal and regulatory provisions, engage in transactions in relation to Nil Paid Rights, Fully Paid Rights, Existing Ordinary Shares and/or New Ordinary Shares and/or related instruments for its own account for the purpose of hedging its underwriting exposure (if any) or otherwise. Moreover, subject to the terms of the Underwriting Agreement, Jefferies, or any of its affiliates acting as an investor for its or their own account(s) may subscribe for, retain, purchase or sell Nil Paid Rights, Fully Paid Rights, Provisional Allotment Letters and/or New Ordinary Shares and/or related investments for its or their own account(s) and in that capacity may offer or sell such securities and/or other investments otherwise than in connection with the Rights Issue. Accordingly, references in this document to New Ordinary Shares being offered or placed should be read as including any offering or placement of New Ordinary Shares to Jefferies or any of its affiliates acting in such capacity. The aforementioned entities do not intend to disclose the extent of any such investments or transactions otherwise than in accordance with any applicable legal or regulatory requirements. 

This announcement includes forward-looking statements within the meaning of the securities laws of certain jurisdictions. These forward-looking statements include, but are not limited to, statements other than statements of historical fact including without limitation, those regarding the Company's intentions, beliefs or current expectations concerning, among other things, the Company's results of operations, financial condition, prospects, growth, strategies and the industry in which the Company operates. Forward-looking statements are typically identified by the use of forward-looking terminology such as "believes", "expects", "may", "will", "could", "should", "shall", "risk", "intends", "estimates", "plans", "predicts", "continues", "assumes", "positioned" or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. By their nature, forward-looking statements involve risks and uncertainties, including, without limitation, the risks and uncertainties to be set forth in the Prospectus, because they relate to events and depend on circumstances that may or may not occur in the future; actual events or results may differ materially from those expressed in or implied by these statements as a result of risks and uncertainties facing the Company and its subsidiaries. Many of these risks and uncertainties relate to factors that are beyond the Company's ability to control or estimate precisely, such as changes in future market conditions, currency fluctuations, the behaviour of other market participants, the actions of governmental regulators and other risk factors such as changes in the political, social and regulatory framework in which the Company operates or in economic or technological trends or conditions, including inflation and consumer confidence, on a global, regional or national basis. Such risks and uncertainties could cause actual results to vary materially from the future results indicated, expressed or implied in such forward-looking statements. The forward-looking statements contained in this announcement speak only as of the date of this announcement and the Company disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this announcement to reflect any changes in its expectations or any changes in events, conditions or circumstances on which such statements are based unless required to do so by applicable law, the Prospectus Rules, the Listing Rules or the Disclosure Rules and Transparency Rules of the Financial Services Authority.

No statement in this announcement is intended as a profit forecast or a profit estimate and no statement in this announcement should be interpreted to mean that earnings per Ordinary Share for the current or future financial years would necessarily match or exceed the historical published earnings per Ordinary Share. Prices and values of, and income from, shares may go down as well as up and an investor may not get back the amount invested. It should be noted that past performance is no guide to future performance. Persons needing advice should consult an independent financial adviser.

Neither the content of the Company's website (or any other website) nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

This announcement has been prepared for the purposes of complying with applicable law and regulation in the United Kingdom and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws and regulations of any jurisdiction outside of the United Kingdom.

PROPOSED RIGHTS ISSUE

1.          Introduction

Severfield-Rowen has today announced its intention to raise approximately £44.8 million (net of expenses) by way of a rights issue.  Pursuant to the Rights Issue, the Directors propose to offer New Ordinary Shares at 23 pence per share to Qualifying Shareholders, on the basis of 7 New Ordinary Shares for every 3 Existing Ordinary Shares that each Qualifying Shareholder holds at the close of business on the Record Date.

The Issue Price represents a 38.7 per cent. discount to the theoretical ex-rights price of 37.55 pence based on the closing middle-market price of 71.5 pence per Existing Ordinary Share on 27 February 2013 (being the latest practicable date prior to the publication of this document).  The Rights Issue has been fully underwritten by Jefferies on, and subject to, the terms of the Underwriting Agreement.

The Rights Issue is conditional, inter alia, on the passing, without material amendment, of the Resolution at the General Meeting being convened for 11.00 a.m. on 18 March 2013 and on the Underwriting Agreement becoming unconditional and not being terminated.

In order to take up their entitlement to the New Ordinary Shares, Qualifying Shareholders need to make payment in full on acceptance by no later than 11.00 a.m. on 4 April 2013 (or such later date as may be notified by Severfield-Rowen).

The Board also announced today:

·      that the Group has agreed with its lenders revised terms for its revolving credit facility.  The Revised Facilities Agreement will come into effect, among other conditions, upon the application of the net proceeds of the Rights Issue to reduce the outstanding borrowings under the Existing Facilities Agreement.  The total revolving credit facility available under the Revised Facilities Agreement will be £35 million, although under the terms of the Revised Facilities Agreement only £20 million of the total commitments will be available for utilisation until 31 December 2013. 

·      the Group's Interim Period Results for the 12 month period ended 31 December 2012.  The Group has previously announced its intention to change its financial year end to 31 March, with effect from 31 March 2013. This is primarily to align the Group's reporting period with that of its Indian Joint Venture, which is expected to become an increasingly important element of the Group's financial performance in future years. Having previously published unaudited interim results for the six months to 30 June 2012, the Group has now also published unaudited interim results for the 12 month period ended 31 December 2012, which have been subject to an interim review by Deloitte LLP.

2.          Summary Information on the Company

Since becoming a public company in 1988, Severfield-Rowen has grown to become the market leader in the design, fabrication and erection of structural steel and the largest fabricator of structural steel for the construction market in the UK. The Group provides an extensive in-house service to its customers, offering streamlined design, fabrication and erection capability across multiple industry sectors. Severfield-Rowen currently operates through three main business units, Severfield-Watson Structures Limited, Atlas Ward Structures Limited and Fisher Engineering Limited. In the 12 month financial period ended 31 December 2012, over 95 per cent. of Severfield-Rowen's turnover was derived from UK construction contracts.

Severfield-Rowen also has a joint venture in India with JSW Steel through a 50 per cent. shareholding in JSW Severfield Structures Limited. The Indian Joint Venture is a relatively new business, having been established in 2008 with operations commencing in 2010. In the 12 months ended 31 December 2012, the joint venture contributed positively to the Group for the first time. The Directors believe that the Indian construction market offers Severfield-Rowen a significant opportunity for growth over the medium term and the Group remains focused on investing in the business with its joint venture partner.

The Group's strategy is to maintain and develop its strong market position in the UK, focussing on operational improvements to increase its competitive position in the short term, so that it is well-positioned to benefit from a future recovery in the wider UK construction market in due course. In parallel, it will continue to develop the Indian Joint Venture, where the Directors believe there is a substantial growth opportunity through market growth and market penetration as a result of the value it is able to offer to its clients, namely:

·      a design and build service promoting and utilising the best advantages of steel for clients through enhanced steel design across a wide range of construction sectors;

·      precision manufacturing providing accuracy, consistency and reliability to clients for their construction projects; and

·      comprehensive design, fabrication and erection methodology to deliver design concepts to project reality thus providing maximum revenues and lower overall project costs to clients through short programme times and lower overall financing costs.

 

3.          Background to the Rights Issue

United Kingdom

Since the Group reported record revenue and underlying profits in the year ended 31 December 2008 of £394.3 million and £52.5 million, respectively, the UK steel construction market in which the Group operates has deteriorated, reflecting the wider malaise in the UK economy and specifically the construction market. While this resulted in a relatively small decrease in revenue and underlying profits in 2009 to £349.4 million and £49.8 million, respectively, the effect of subdued trading conditions on the Group was more marked in 2010, with revenues and underlying profits decreasing to £267 million and £15.3 million, respectively. Revenue remained relatively constant in 2011 at £267.8 million, however, underlying profits decreased further to £10.1 million. The UK order book at the end of 2011 of £221 million showed consistency with the previous year's order book of £226 million. However, the Group's profit decreased as it experienced pressure on margins with pricing tightening as competitors sought to maintain their share of a smaller market. Throughout this period, the Group maintained its market leading position in the UK, as the duration of the economic downturn began to have a significant impact on the Group's industry competitors, several of whom exited the sector in 2011.

Trading in the UK was especially difficult during 2012, due to a combination of market conditions and operational factors. The market conditions resulted in pressure up and down the supply chain and the Directors believe these pressures are likely to continue for the foreseeable future.  In particular, weak demand continues to result in increased competition, tighter margins and the transfer of commercial, technical and financial risk down the supply chain, through more demanding contract terms and longer payment cycles. Notwithstanding these difficult trading conditions and despite negligible growth and pressure on margins, the Group's market position has strengthened in relation to its competition. However, while the order book remained stable at £218 million, margins in the first half of 2012 reflected the lower demand levels, the increased intensity of the competitive environment and the need to improve some aspects of the Group's operational performance.

In response to these market conditions and operational factors, in August 2012 the Board decided to integrate three of its UK businesses, which operate with shared clients and generally in the same sub-sectors of the market.  The proposed reorganisation of the UK businesses principally targets improvements in efficiencies and performance, but the integration also seeks to realise associated cost savings.  The integration became effective on 1 January 2013, but implementation will continue throughout 2013.  When completed, the Directors believe that the resulting company, Severfield-Watson Structures Limited, will be the largest structural steelwork company in the UK, providing a fully integrated design through fabrication and site erection service to clients.  As announced on 5 November 2012, the Directors believe the resultant changes will deliver overhead savings of greater than £2 million per annum which, combined with improved performance in contract engagement and execution, are expected by the Directors to return operating margins to between 5 per cent. and 6 per cent. over time. 

 

Contract review and management changes

On 23 January 2013, the Company announced that the Group's UK performance had been further and materially adversely affected by cost overruns on its contract for the development at 122 Leadenhall Street and that the Board intended to review its current contract base.

 

In light of the trading difficulties announced on 23 January 2013, the Company also announced that the Board had concluded that a change to the Group's leadership was required to re-establish confidence with the Group's stakeholders and that Tom Haughey, formerly Chief Executive Officer, was standing down from the role and leaving the Board with immediate effect.  John Dodds assumed the role of Executive Chairman with immediate effect on 23 January 2013 pending the appointment of a new chief executive. The Board is actively engaged in a search process for a new chief executive.

 

Peter Emerson, the Group's Chief Operating Officer, has also previously announced his intention to retire from the Board in June 2013 upon reaching his 60^th birthday.

 

The Review addressed 70 of the Group's contracts representing approximately 90 per cent. of the Group's contracts by value, with a particular focus on the larger and more complex projects. The Review involved all key management responsible for the execution and performance of each contract. Detailed financial information on each contract was analysed, including revenue and cost position to date, forecasts to completion and the underlying progress of that contract. The inherent complexity and risk of each contract was also considered in determining the final financial outcome. Recently won contracts, at the initial stages of execution, were subject to additional scrutiny, involving cross Group peer reviews.

 

The Review established that the technical challenges of the site works on the contract for 122 Leadenhall Street are significantly greater than originally estimated and will require longer timescales and greater resources to complete. In response to this finding, a comprehensive reassessment of the works required to complete was undertaken, along with a detailed review of all other forecast costs still to be incurred. The result has been to change an expected profit on the overall life of the contract into a loss, with the Group incurring an incremental charge to the profit and loss account of £9.9 million in the 12 month period ended 31 December 2012.

 

In relation to a further three contracts, actual and potential cost overruns were identified totalling £2.9 million. These cost overruns have been charged to the profit and loss account in the 12 month period ended 31 December 2012.

 

On a further five contracts the value that the Board expects to be realisable under the contracts has been reassessed and reduced. These contracts, three of which remain ongoing, have all been subject to significant variations from the terms agreed at the commencement of the contracts. While much of the value of these variations has already been recovered by the Group (and this recovery process is continuing), the Board has taken a prudent approach in reducing the final account expectations, resulting in a reduction in the value realisable from these five contracts of £7.3 million. There is no cash impact on the Group as a result of this reduction in the balance sheet carrying value.

 

The remaining 61 contracts subject to the Review were found to be performing in accordance with the Board's expectations and the Board is satisfied that the likely financial outcome of these contracts has been appropriately estimated.

 

The financial outcome of the Review has resulted in a charge to the profit and loss account of £20.1 million in the 12 months ended 31 December 2012. A proportion of the related cashflows occurred within the 12 month period ended 31 December 2012, with a further £8 million of cash outflow anticipated in 2013, arising from the cost overruns identified as a result of the Review.

 

Actions arising from the Review

 

The Group's core strengths remain the design, fabrication and erection of steel structures. Since August 2012, the Board has been taking steps to improve its contracting estimating procedures, the efficacy of which was borne out in the Review. The Review, however, identified a requirement for stronger contracting processes and discipline notably in execution and risk assessment, particularly in relation to its more complex contracts. The implementation of these improvements will be undertaken as expeditiously as possible. The Review confirmed the rationale for the reorganisation and integration of the Group's two largest businesses, Severfield-Rowen Structures and Watson Steel Structures, along with its erection business, Steelcraft Erection Services.

 

The Group's leading market position in the UK provides competitive advantage through production capacity, product range, procurement scale, quality, delivery, the ability to take on complex assignments and project management. The Directors believe that the integration of the UK businesses should further enhance its competitive position. As one of the largest structural steelwork companies in the UK, the Directors believe Severfield-Watson Structures Limited will be well-placed to deliver stronger returns when market conditions improve. 

 

India

Against a challenging backdrop in its UK market, the Group has continued to invest in and expand its Indian Joint Venture. In November 2008 the Company entered into a joint venture agreement with JSW Building (a subsidiary of JSW Steel), to jointly create a structural steelwork business, called JSW Severfield Structures Ltd, based in Bellary and Mumbai, India. JSW Steel, one of the largest steel companies in India, is part of the OP Jindal group.  The core operations of JSW Structures were established adjacent to JSW Steel's Vijayanagar works in Bellary, 220 miles south of Bangalore and some 390 miles south-east of Mumbai. The business is involved in the design, fabrication and erection of structural steelwork principally to service the Indian markets, where the Group sees a potential for significant growth in a region with large and growing infrastructure and construction markets. The total investment cost of the 50/50 joint venture was approximately £30 million of which approximately £5.3 million was funded in equity by Severfield-Rowen and JSW Steel with the balance of the funding being raised in debt by the joint venture company from banks based in India.

JSW Structures commenced commercial production in August 2010 within the planned timescale and budget. The plant in Bellary, consisting of two main fabrication lines, a plated beam line, a fittings factory and a metal deck flooring production line, via a second joint venture company, JSW Structural Metal Decking Ltd (owned as to 66 per cent. by JSW Structures and 34 per cent. by SMD Asia LLP), opened with an order book of just over £10 million of fabricated steelwork and associated ancillary products. By March 2011, the order book for the Indian Joint Venture stood at £33 million underpinning the Company's confidence in the growth prospects in India. Having exited 2011 with an order book of £43 million, the Group's Indian business continued to see progress, with 2012 marking the first 12 months of positive financial contribution to the Group.  As at 31 December 2012, the order book for the Indian Joint Venture stood at £29 million. 

Production levels in India are now running at close to full capacity at approximately 3,000 tonnes per month and the quality of the order book is improving with projects now involving both local and international customers, covering a range of sectors including power and energy, and other commercial buildings. The market potential is reinforced with a strong pipeline of opportunities from local and international customers. The first phase of expansion of the existing plant, which will raise capacity from 35,000 tonnes per annum to 55,000 tonnes per annum, has already been approved and is expected to be operational by the middle of 2013. This will require £2-3 million of additional equity investment by Severfield-Rowen. In addition, a new, second site is under consideration with JSW Steel, which could, if implemented, require a further £5-10 million of equity investment over the next two years by Severfield-Rowen to match JSW Steel's investment.

The Group's Indian Joint Venture has established a strong foundation since its plant opened in 2010.  The Directors believe the market for Severfield-Rowen's services and products in India offers significant scope for medium to long term growth and development.  The Group plans to continue investing with JSW Steel, its joint venture partner, to expand the Indian Joint Venture's steel fabrication capacity, as well as the skills and capabilities of its workforce.

4.          Reasons for the Rights Issue

The severity of the downturn in the UK market in which the Group operates has had an adverse impact on the profitability of the Group. As a result, while taking into account the level of the Group's indebtedness, the Directors believe it is now appropriate for the Group to recapitalise its business through a capital raising via the Rights Issue in conjunction with the Revised Facilities.

The Board believes that the Rights Issue should enable Severfield-Rowen to protect and enhance shareholder value. The Board also believes that a more robust capital structure will be achieved through the reduction of outstanding debt under the Existing Facilities and the Revised Facilities becoming effective. The Rights Issue and the Revised Facilities are expected by the Board to provide greater operational and financial flexibility in the future while demonstrating financial strength to customers, relative to the Group's principal competitors, in a continuing difficult market environment. In addition, the Board believes the Rights Issue will enable the Group to commit to continued investment in the growth of the Indian Joint Venture over the next two to three years.

In order for the Revised Facilities to come into effect, the Rights Issue, which will raise approximately £44.8 million (net of expenses), needs to complete. If the Rights Issue proceeds are not received, the Revised Facilities will not become effective, resulting in Severfield-Rowen remaining subject to the Existing Facilities. Should this occur, Severfield-Rowen will be in breach of one or more of its financial covenants under the Existing Facilities on 11 April 2013, being the date until which the covenant tests have been deferred. The implications of the Rights Issue not proceeding are set out in more detail in paragraph 14 below.

5.          Use of proceeds

As at 14 February 2013 (being the latest practicable date prior to the publication of this document for these purposes), the Group had net financial indebtedness of £44.0 million, of which £44.2 million was outstanding under the Existing Facilities. The Directors intend to use the net proceeds of the Rights Issue (being approximately £44.8 million) to reduce the Group's drawings under the Existing Facilities, which is a condition for the Revised Facilities Agreement to come into effect. Any balance of the net proceeds of the Rights Issue will be used for general corporate purposes.  This will result in the Group operating with a structurally lower level of indebtedness. Accordingly, the Directors believe that the Rights Issue will have both immediate and longer-term benefits for the Group.

6.          Amended bank financing arrangements

In conjunction with the Rights Issue, Severfield-Rowen has agreed amended financing arrangements under its revolving credit facility which are conditional upon completion of the Rights Issue. The Revised Facilities Agreement will come into effect, among other conditions, upon the application of the net proceeds of the Rights Issue to reduce the outstanding borrowings under the Existing Facilities Agreement. Under the Revised Facilities Agreement, the lenders agree, subject to customary conditions precedent to utilisation, to make available to the Company and certain of its subsidiaries for utilisation up to and including 11 October 2016 a revolving credit facility up to an original aggregate sum of £35 million, of which £10 million is made available to the Company by way of an overdraft although under the terms of the Revised Facilities Agreement only £20 million of the total commitments will be available for utilisation until 31 December 2013.  The borrowings under the Revised Facilities Agreement may be used for the general corporate purposes of the Company and its subsidiaries.

 

If the Revised Facilities Agreement does not come into effect, Severfield-Rowen will remain subject to its Existing Facilities Agreement. Should this occur, Severfield-Rowen will be in breach of one or more of its financial covenants under the Existing Facilities on 11 April 2013, being the date until which the covenant tests have been deferred. The implications for the Group of the Rights Issue not proceeding and the Group being in breach of covenants under the Existing Facilities are set out in more detail in paragraph 14 below.

The principal terms of the Revised Facilities Agreement are set out at Annex 1 to this announcement.

7.          2012 financial performance, current trading and prospects

The Group's financial performance for the 12 months ended 31 December 2012 reflects the impact of the contract execution issues, particularly on 122 Leadenhall Street, along with the other factors highlighted in the Review, as well as the impact of adverse contract final account settlements announced earlier in the year.

Revenue for the 12 month period of £256.6 million (2011: £267.8 million) was at a similar level to the previous year. This reflects a fairly constant level of production output and contracting activity throughout the year in what remained a relatively subdued market. There was also continued relative stability in steel pricing.

The underlying operating loss before results of Associates was £18.2 million (2011: £14.2 million profit). This reflects the difficult trading conditions during the year, the £9.9 million charge to the profit and loss account in respect of the 122 Leadenhall Street contract and the other adjustments relating to additional costs and reductions in contract value expectations totalling £10.2 million arising from the Review. In respect of the reduced expectations around certain contract values, the Board continues to pursue value on these contracts, but a prudent view has been taken reflecting progress made to date and the difficult prevailing trading environment.

The share of results of Associates of a profit of £0.2 million (2011: £2.5 million loss) represents a step change in the performance of the Indian Joint Venture in recording its first positive contribution to Group profit, as production was running at good operating levels for most of the year.

The Group underlying operating loss after share of results of Associates is £18.0 million (2011: £11.7 million profit). The underlying loss before tax for the period is £19.6 million (2011: £10.1 million profit).

Trading conditions are difficult as previously stated. However, the order book as at 31 December 2012 remained strong at £209 million, and the re-organisation of the Group's largest businesses into Severfield-Watson Structures Ltd is continuing in line with plan. More than half of the anticipated overhead savings of £2 million, previously announced on 5 November 2012, have now been realised and the programme will be largely complete by 30 June 2013.

The performance of the Indian Joint Venture for the 12 months ended 31 December 2012 was in line with the Board's expectations. The first phase of expansion of the Bellary site to lift output from 35,000 tonnes to 55,000 tonnes by the end of summer 2013 is continuing and the order book at 31 December 2012 stood at £29 million.

While the Group's performance was extremely disappointing in 2012, the Directors believe that Severfield-Rowen is a good business which remains well supported by its customers. With the reorganisation changes already underway and the further improvements identified as part of the Review, the Board believes that the Group can return operating margins to between 5 per cent. and 6 per cent. over time and is confident that the longer term fundamentals of the Group remain strong.

8.          Financial effects of the Rights Issue

Upon completion of the Rights Issue, the New Ordinary Shares will represent 70 per cent. of the Enlarged Share Capital. The New Ordinary Shares will be issued pursuant to an authority to be sought at the General Meeting. Following the issue of the New Ordinary Shares, Qualifying Shareholders who do not take up any of their Rights will suffer a dilution of 70 per cent. to their economic interests in the Company. A Qualifying Shareholder taking up their Rights in full will not suffer any dilution of their economic interests in the Company.

The Directors expect that the proceeds of the Rights Issue will make a positive contribution to total earnings in the financial year ending 31 March 2014 as a result of lower interest payments arising from reduced levels of net financial indebtedness. However, even after this saving on interest expense, the Directors expect the Rights Issue to have a negative effect on reported earnings per share for the year ending 31 March 2014 due to the increased number of Ordinary Shares in issue following the Rights Issue. These statements do not constitute a profit forecast and should not be interpreted to mean that the earnings per share in any financial period will necessarily be less than or greater than those for the relevant preceding period.

9.          Dividend policy

In the Group's Interim Period Results announcement released today the Board stated that there will be no second interim dividend for the 12 months ended 31 December 2012.

The Board remains focused on strengthening the balance sheet and conserving cash. In light of this and against the backdrop of a continuing challenging UK market, while there are no restrictions in the Revised Facilities, the Board will not be recommending the payment of a final dividend for the 15 month period ending 31 March 2013.

However, the Board is committed to reinstating the payment of dividends. Depending, among other things, on improved financial performance in 2013, it intends to introduce a progressive dividend policy, having regard to the Group's underlying earnings, cash flows and capital investment plans, the requirement to maintain an appropriate level of dividend cover and the then prevailing market outlook.

10.         Principal terms of the Rights Issue

Subject to the Resolution being passed, the Directors propose to offer New Ordinary Shares by way of Rights to Qualifying Shareholders, payable in full on acceptance, on the following basis:

7 New Ordinary Shares for every 3 Existing Ordinary Shares
at 23 pence per New Ordinary Share

held and registered in their name on the Record Date.  Holdings of Existing Ordinary Shares in certificated and uncertificated form will be treated as separate holdings for the purposes of calculating entitlements under the Rights Issue.  Fractional entitlements to New Ordinary Shares will not be allotted and, where necessary, entitlements will be rounded down to the nearest whole number of New Ordinary Shares.

The Issue Price of 23 pence per New Ordinary Share represents:

·      a 67.8 per cent. discount to the Closing Price of an Existing Ordinary Share on 27 February 2013; and

·      a 38.7 per cent. discount to the theoretical ex-rights price of 37.55 pence per Existing Ordinary Share,

based on such Closing Price.

However, if a Qualifying Shareholder takes up their Rights in full, they will, following the Rights Issue being completed and ignoring any fraction of an Ordinary Share, have the same proportional voting rights and entitlements to distributions as they had on the Record Date.

The New Ordinary Shares will, when issued and fully paid, rank pari passu in all respects with the Existing Ordinary Shares, including the right to all future dividends and other distributions declared, made or paid.

In determining the Issue Price the Directors have considered the price at which the New Ordinary Shares need to be offered to investors with a view to ensuring the success of the Rights Issue, which involves raising a significant amount of equity compared with the current market capitalisation of the Company. The Directors believe that both the Issue Price and the discount are appropriate.

The Company has arranged for the Rights Issue to be fully underwritten by Jefferies in order to provide certainty as to the amount of capital to be raised.

The Rights Issue is conditional, amongst other things, on:

(a)         the passing without material amendment of the Resolution at the General Meeting;

(b)         Admission becoming effective by not later than 8.00 a.m. on 19 March 2013 (or such later time and/or date as Jefferies and the Company may agree (being not later than 30 April 2013)); and

(c)         the Underwriting Agreement having become unconditional in all respects (save for the condition relating to Admission) and not having been terminated in accordance with its terms prior to Admission.

Some questions and answers, together with details of further terms and conditions of the Rights Issue, including the procedure for acceptance and payment and the procedure in respect of Rights not taken up, will be set out in the Prospectus and where relevant, will also be set out in the Provisional Allotment Letter.

11.         Share Schemes

Participants in the Share Schemes will be advised separately of adjustments (if any) to their rights or as to any entitlement to participate in the Rights Issue.

12.         General Meeting

The Rights Issue is subject to a number of conditions, including Shareholders' approval of the Resolution at the General Meeting. A notice convening the General Meeting to be held at the offices of Ashurst LLP, Broadwalk House, 5 Appold Street, London EC2A 2HA at 11.00 a.m. on 18 March 2013.

The General Meeting is being convened for the purposes of considering and, if thought fit, passing the Resolution. Shareholders are being asked to vote on the Resolution in order to provide the Directors with the necessary authority under the Companies Act to proceed with the Rights Issue. The Resolution will be proposed as an ordinary resolution, which to be passed, requires a simple majority of those voting (whether in person or by proxy) on the Resolution at the General Meeting.  The Resolution will grant the Directors the necessary authority to allot up to 208,252,511 New Ordinary Shares pursuant to the Rights Issue representing 233 per cent. of the existing issued share capital of the Company.  The authority sought pursuant to the Resolution will be in addition to and not in substitution for all existing authorities previously obtained.

If the Resolution is not approved at the General Meeting, the Company will be unable to complete the Rights Issue.

13.         Directors' intentions regarding the Rights Issue

The Directors are fully supportive of the Rights Issue. Each of the Directors who holds Ordinary Shares intends either to acquire New Ordinary Shares in full or to sell sufficient Nil Paid Rights during the nil paid dealing period to meet the costs of taking up the balance of their entitlement to New Ordinary Shares under the Rights Issue.

14.         Importance of the vote

As described above, Severfield-Rowen is pursuing the Rights Issue to reduce the Group's financial indebtedness.  This will result in the Group operating with a structurally lower level of indebtedness and will provide greater operational and financial flexibility to build on the Group's strong market position in the UK and to enable the Group to commit to continued investment in India.

The Board firmly believes that proceeding with the Rights Issue, together with the Revised Facilities, are in the best interests of Shareholders as a whole.  The Board is therefore seeking Shareholder approval for the Resolution at the General Meeting which must be passed in order to allow the Rights Issue to be implemented.

If the Resolution is not approved by Shareholders and the Rights Issue does not proceed, the amended financing arrangements under the Revised Facilities will not come into effect.  In that event, Severfield-Rowen will remain subject to the Existing Facilities and the financial covenants therein.  The Board has held constructive discussions with the Group's existing lenders, which have resulted in the weekly deferral of the requirement to test the covenants under the Existing Facilities as at 31 December 2012.

In the event that Shareholders do not vote in favour of the Resolution, Severfield-Rowen will be in breach of one or more covenants under the Existing Facilities on 18 March 2013, being the date of the General Meeting.  A breach of any one of such covenants would be an event of default under the Existing Facilities entitling the Group's lenders to demand immediate repayment of all outstanding amounts and cancel the facilities. As at 14 February 2013 (being the latest practicable date prior to the publication of this document for these purposes), the Group had net financial indebtedness of £44.0 million.

In the event that Shareholders do not vote in favour of the Resolution and the Group's lenders demanded repayment of all outstanding amounts and cancelled the Existing Facilities on 18 March 2013, the Group would have insufficient funds to repay the amounts outstanding.  The Group would then immediately need to find alternative sources of funds to replace the funds that would have been made available pursuant to the Rights Issue and the Revised Facilities.  The actions that the Group would then seek to take to make up the shortfall in its funding requirements (which the Directors believe would need to be pursued simultaneously and immediately), are as follows:

·      seek to negotiate a new facility agreement with its lenders;

·      seek to obtain a sufficient amount of alternative funding from other sources;

·      seek to dispose of some or all of its assets or businesses; and/or

·      seek to find a purchaser of the entire Group. 

However, the Directors are not confident that any of the above actions will be achievable.

In the event that the alternative courses of action set out above fail, the Group ultimately may have to cease trading at that time.  As a result, Shareholders could lose their investment in the Company.

In order to address the risks set out above:

·      the Company has entered into the Revised Facilities Agreement with the Group's existing lenders; and

·      the Company is undertaking the Rights Issue.

The Revised Facilities Agreement was entered into on 27 February 2013 but remains conditional on the completion of the Rights Issue and the application of the net proceeds of the Rights Issue to reduce the outstanding borrowings under the Existing Facilities Agreement.

In connection with the Rights Issue, the Company has entered into the Underwriting Agreement with Jefferies dated 28 February 2013, pursuant to which Jefferies has undertaken, subject to certain conditions, to underwrite the Rights Issue.  Subject to Shareholder approval of the Resolution, the Underwriting Agreement gives the Directors a high degree of confidence that the Company will be able to raise the necessary funds from the Rights Issue to enable the Revised Facilities Agreement to come into effect.

The Directors therefore believe it is very important that Shareholders vote in favour of the Resolution at the General Meeting.

 

ANNEX 1

TERMS OF THE REVISED FACILITIES

On 27 February 2013, the Company entered into the Revised Facilities Agreement between, among others, the Company as original borrower and original guarantor, certain subsidiaries of the Company as original borrowers and original guarantors, The Royal Bank of Scotland PLC as original lender and agent and Clydesdale Bank PLC trading as Yorkshire Bank as original lender.  The Revised Facilities Agreement is an amendment and restatement of the Existing Facilities Agreement which becomes effective on the satisfaction of certain customary conditions precedent including the prepayment of the borrowings under the Existing Facilities Agreement from the net proceeds of the Rights Issue (the date when it becomes effective being the "Effective Date").

Upon the Effective Date, under the Revised Facilities Agreement, the lenders agree, subject to customary conditions precedent to utilisation, to make available to the Company and certain of its subsidiaries for utilisation up to and including 11 October 2016 a revolving credit facility up to an original aggregate sum of £35 million (of which £10 million is made available to the Company by way of an overdraft) although under the terms of the Revised Facilities Agreement, only £20 million of the total commitments will be available for utilisation until 31 December 2013.  The borrowings under the Revised Facilities Agreement may be used for the general corporate purposes of the Company and its subsidiaries.

Under the Revised Facilities Agreement, the Company undertakes to ensure compliance with certain revised financial covenants outlined below:

Net debt to EBITDA	First test date 31 March 2014 2.50x at 31 March 2014 and at each test date on the last day of each financial quarter On a "last twelve months" basis
Net interest cover	First test date 31 March 2014   3.00x at 31 March 2014   5.00x at each test date on the last day of each financial quarter thereafter   On a "last twelve months" basis
Capital expenditure	Subject to certain carry forward rights, capital expenditure of the Group in any financial year not to exceed £7.5 million
Operating cash outflow	Subject to certain provisos, (i)  Net operating cash outflow shall not exceed £12.5 million on a quarterly look back test at the end of each quarter; and (ii)   Net operating cash outflow shall not exceed £15 million in any month.

 

The Revised Facilities Agreement contains customary representations and warranties, affirmative and negative covenants (including but not limited to covenants on disposals, acquisitions, security and financial indebtedness), indemnities and events of default, with certain qualifications, carve-outs and materiality thresholds. 

The interest rate under the Revised Facilities Agreement is a rate of 4 per cent. per annum initially over LIBOR with a downward ratchet applicable upon delivery of the audited accounts for the financial year ending March 2014 and for each financial quarter thereafter depending on the ratio of gross debt to EBITDA as follows:

Ratio of debt: EBITDA	Margin % per annum
Greater than 2.25:1	4.00
Greater than 2.0:1 but less than or equal to 2.25:1	3.75
Greater than 1.5:1 but less than or equal to 2.0:1	3.00
Less than or equal to 1.5:1	2.5

 

A consent fee of 1 per cent. of the total commitments under the Revised Facilities Agreement on the Effective Date is payable under the Revised Facilities Agreement.

A commitment fee of 50 per cent. of the applicable margin per annum is payable on each lender's available commitment for the availability period.

Under the Revised Facilities Agreement mandatory prepayment of debt and cancellation of commitments is required where certain disposals by the Company occur, subject to a £5 million per annum basket.

The Revised Facilities Agreement is unsecured, though security may be required to be granted in the future in certain limited circumstances.

 

 

ANNEX 2

 

DEFINITIONS AND GLOSSARY

The following expressions have the following meaning throughout this announcement, unless the context otherwise requires:

"Act" or "Companies Act"	the Companies Act 2006 as amended from time to time;
"Admission"	the admission of the New Ordinary Shares (nil paid) to the premium segment of the Official List becoming effective in accordance with the Listing Rules and the admission of such shares (nil paid) to trading on the London Stock Exchange's main market for listed securities becoming effective in accordance with the Admission and Disclosure Standards;
"Admission and Disclosure Standards"	the Admission and Disclosure Standards of the London Stock Exchange containing, among other things, the admission requirements to be observed by companies seeking admission to trading on the London Stock Exchange's main market for listed securities;
"Associates"	an entity over which the Group is in a position to exercise significant influence, but not control, through participation in the financial and operating policy decisions of the investee;
"Board"	the board of directors of the Company;
"certificated" or "in certificated form"	where a share or other security is not in uncertificated form;
"Closing Price"	the closing, middle market quotation of an Existing Ordinary Share, as published in the Daily Official List;
"Company" or " Severfield-Rowen "	Severfield-Rowen Plc;
"Daily Official List"	the daily record setting out the prices of all trades in shares and other securities conducted on the London Stock Exchange;
"Directors"	the current Executive Directors and Non-executive Directors;
"Effective Date"	The date upon which the Revised Facilities Agreement becomes effective being the date upon which the Company reduces the borrowings under the Existing Facilities from the net proceeds of the Rights Issue;
"Enlarged Share Capital"	the issued share capital of the Company following completion of the Rights Issue;
"Euroclear UK & Ireland" or "Euroclear UK"	Euroclear UK and Ireland Limited, the operator of CREST;
"Excluded Territories" and each an "Excluded Territory"	Canada, Japan, Australia and the Republic of South Africa and any other jurisdiction where the extension or availability of the Rights Issue (and any other transaction contemplated thereby) would breach any applicable law or regulation;
"Executive Directors"	the executive directors of Severfield-Rowen;
"Existing Facilities"	the facilities of up to £50,000,000 made available under and in accordance with the Existing Facilities Agreement;
"Existing Facilities Agreement"	the facilities agreement dated 11 November 2011 between Severfield-Rowen Plc, certain subsidiaries of Severfield-Rowen, Royal Bank of Scotland PLC and Clydesdale Bank PLC trading as Yorkshire Bank comprising a revolving credit facility of up to £50,000,000;
"Existing Ordinary Shares"	the fully paid Ordinary Shares of 2.5 pence each in the capital of the Company in issue at the Record Date;
"Financial Services Authority" or "FSA"	the Financial Services Authority of the UK in its capacity as the competent authority for the purposes of Part VI of FSMA and in the exercise of its functions in respect of admission to the premium segment of the Official List otherwise than in accordance with Part VI of FSMA;
"FSMA"	the Financial Services and Markets Act 2000;
"Fully Paid Rights"	right to acquire the New Ordinary Shares, fully paid;
"General Meeting"	the general meeting of Severfield-Rowen to be held at the offices of Ashurst LLP, Broadwalk House, 5 Appold Street, London EC2A 2HA on 18 March 2013 at 11.00 a.m.;
"Group" or "Severfield-Rowen Group"	the Company and each of its subsidiaries and subsidiary undertakings from time to time;
"Indian Joint Venture"	the Group's joint venture in India with JSW Steel;
"Interim Period Results"	the Group's results for the 12 month financial period ended on 31 December 2012;
"Issue Price"	23 pence per New Ordinary Share;
"Jefferies"	Jefferies International Limited;
"JSW Building"	JSW Building Systems Limited;
"JSW Steel"	JSW Steel Limited, part of the OP Jindal group of companies;
"JSW Structures"	JSW Severfield Structures Ltd, the Company's Indian joint venture company, owned as to 50 per cent. jointly with JSW Steel;
"Listing Rules"	the listing rules made by the FSA under Part VI of FSMA (as amended from time to time);
"London Stock Exchange"	London Stock Exchange PLC;
"New Ordinary Shares"	the new Ordinary Shares of 2.5 pence proposed to be issued by the Company pursuant to the Rights Issue;
"Nil Paid Rights"	rights to acquire New Ordinary Shares, nil paid, provisionally allotted to Qualifying Shareholders pursuant to the Rights Issue;
"Non-executive Directors"	the non-executive directors of the Company;
"Official List"	the Official List of the UK Listing Authority;
"Ordinary Shares"	ordinary shares of 2.5 pence each in the capital of the Company;
"Prospectus"	a combined circular and a prospectus relating to the Company for the purpose of the Rights Issue (together with any supplements or amendments thereto);
"Provisional Allotment Letter" or "PAL"	the renounceable provisional allotment letter expected to be sent to Qualifying Non-CREST Shareholders by the Company in respect of the New Ordinary Shares (nil paid) provisionally allotted to them pursuant to the Rights Issue;
"Qualifying Shareholders"	holders of Ordinary Shares on the register of members of the Company at the Record Date;
"Record Date"	close of business on 14 March 2013;
"Resolution"	the ordinary resolution to be proposed at the General Meeting as set out in the Notice of the General Meeting;
"Restricted Shareholders"	Qualifying Shareholders having registered addresses in, or resident or located in, the United States or any of the Excluded Territories;
"Review"	the Board's review of certain of the Group's contracts, the results of which were announced on 19 February 2013;
"Revised Facilities"	the facility of up to £35 million to be made available under and in accordance with the Revised Facilities Agreement, subject to the completion of the Rights Issue ;
"Revised Facilities Agreement"	the facility agreement dated 11 November 2011 as amended and restated pursuant to an amendment and restatement agreement dated 27 February 2013 between Severfield-Rowen Plc, certain subsidiaries of the Severfield-Rowen Plc, Royal Bank of Scotland PLC and Clydesdale Bank PLC trading as Yorkshire Bank comprising a revolving credit facility of up to £35 million, which remains conditional upon completion of the Rights Issue;
"Rights"	the Nil Paid Rights and/or the Fully Paid Rights;
"Rights Issue"	the proposed issue of the New Ordinary Shares to Qualifying Shareholders by way of Rights on the terms and subject to the conditions set out in the Prospectus, and in the case of Qualifying Non-CREST Shareholders only, the Provisional Allotment Letters;
"Shareholders"	holders of Ordinary Shares;
"Shares"	Ordinary Shares, or the New Ordinary Shares to be issued pursuant to the Rights Issue, as the context may require;
"SMD"	SMD Asia LLP;
"Sterling" or "£" or "pence"	the lawful currency of the UK;
"subsidiary"	a subsidiary, as that term is defined in section 1159 of the Companies Act;
"UK Listing Authority" or "UKLA"	the FSA in its capacity as the competent authority for the purposes of Part VI of FSMA and in the exercise of its functions in respect of the admission to the premium segment of the Official List otherwise than in accordance with Part VI of FSMA;
"uncertificated" or "in uncertificated form"	recorded on the relevant register of the share or security concerned as being held in uncertificated form in CREST and title to which, by virtue of the CREST Regulations, may be transferred by means of CREST;
"Underwriting Agreement"	the agreement between the Company and Jefferies dated 28 February 2013;
"United Kingdom" or "UK"	the United Kingdom of Great Britain and Northern Ireland;
"United States" or "US"	the United States of America, its territories and possessions, any state of the United States and the District of Columbia;
"US Securities Act"	the US Securities Act of 1933, as amended.