Stanley Gibbons : Fundraising and Notice of EGM – 14 March 2016

9cb41268-d02f-4044-bfdd-b2f3532d0ffe.pdf

THE STANLEY GIBBONS GROUP PLC (the "Group")

Proposed Firm Placing and Placing and Open Offer to raise £13m Notice of General Meeting

Following the Group's announcement on 23 February 2016 that it was in the process of raising approximately £10.0 million of new equity (the "Fundraising"), the Group is pleased to announce that it now proposes to raise £13.0 million (£12.3 million net of expenses) by way of a Firm Placing and Placing and Open Offer. The structure of the Fundraising is such that it will satisfy the Group's intention to recognise the pre-emption rights of existing shareholders insofar as is possible. The Fundraising has been fully underwritten by finnCap, subject to certain conditions.

Highlights

Proposed Fundraising of £13.0 million by the issue of New Ordinary Shares at 10 pence per Ordinary Share

Fundraising to be by way of a Firm Placing of 92,300,000 New Ordinary Shares and an Open Offer of 37,996,286 New Ordinary Shares

Open Offer on basis of 8 Open Offer Shares for every 10 Existing Ordinary Shares held

Proceeds of the Fundraising to be used to repay debt, support a rationalisation exercise, complete the integration of previous acquisitions and to provide additional working capital

Clive Whiley, Managing Director of Evolution Securities China, will join the Board as a director following completion of the Fundraising

The Fundraising is subject to approval at an Extraordinary General Meeting

A circular (the "Circular") setting out details of the proposed Fundraising and giving notice of an Extraordinary General Meeting to approve these proposals will be sent to Shareholders later today and will be available on the Company's website www.stanleygibbonsplc.com

Capitalised terms shall have the same meaning as in the Circular unless the context requires otherwise.

For further information, contact:

The Stanley Gibbons Group plc Michael Hall, Chief Executive Donal Duff, Chief Finance Officer	[phone]
finnCap Ltd (Nomad & Broker) Stuart Andrews / Christopher Raggett (corporate finance) Tim Redfern / Simon Johnson (corporate broking)	[phone]
Tavistock (Financial PR)	[phone]
Lulu Bridges / Niall Walsh

The Company proposes to raise £13 million (£12.3 million net of expenses) by way of the Firm Placing and the Placing and Open Offer. The Directors have decided, in consultation with its major Shareholders, to increase the Fundraising from £10 million to £13 million in order to provide further headroom to complete the rationalisation exercise.

The Fundraising has been conditionally underwritten by finnCap. The Firm Placing is not subject to clawback. Certain major Shareholders have given undertakings to finnCap and the Company to subscribe, where permitted in accordance with the terms of the Open Offer, for 13,432,681 Open Offer Shares which represents these Shareholders' Basic Entitlements. The 13,432,681 Open Offer Shares taken up by those Shareholders will set off their subscriptions for the corresponding number of Placing Shares. The remaining 24,263,605 Placing Shares are subject to clawback to satisfy valid applications from Qualifying Shareholders under the Open Offer.

The purpose of the Circular is to provide information on the Company's current financial and trading position, to explain why the Board considers that the Fundraising is in the best interests of Shareholders and to provide you with details of and to seek your approval to implement the Fundraising. The Directors and the Proposed Director have subscribed for 3,100,000 Firm Placing Shares.

The details of the Firm Placing and the Placing and Open Offer are set out below, and the steps required for Qualifying Shareholders to participate in the Open Offer are set out in Part 2 of the Circular.

The Directors, who have also explored other funding options, believe that the Fundraising is essential to the Company as it will enable it to repay the short-term loans that have been made available to it by its bank since 30 September 2015, when the Company experienced some unexpected and difficult trading conditions and circumstances, and will provide it with the additional funding, which, together with the Company's core borrowings, will ensure that it has adequate financial resources to execute its development plan. The Directors have concluded that none of the other funding options considered would enable the Company to achieve these key objectives. Shareholders' attention is drawn to paragraph 3 of this Part 1 of the Circular which provides details of the Company's current banking arrangements and of funding and facilities that will be available to the Group following the Fundraising.

Background to and Reasons for the Fundraising

The Company reported in its interim statement issued in November 2015 that like-for-like turnover in the first half of the year was 21 per cent. down on the same period in the previous year and that trading profits were £0.5 million compared with £6.1 million in respect of the same period in the previous year largely owing to both lower sales volumes and lower margins in the philatelic businesses, which, in turn, was partly as a consequence of the management changes and distractions caused by the efforts to integrate the acquisitions made during the previous two years. At the time of writing the interim statement, the Board had expected that the second half of the year would see improved trading levels as the impact of the acquisitions took effect. In fact, as announced on 23 February 2016, the sale of rare collectibles to high net worth clients has been at a lower level than expected. Of more concern is the performance of the Group's interiors division, in which sales and profitability have declined markedly through the course of 2015/16 particularly in the last four months. Following its acquisition of Mallett plc in October 2014, the Company learned that government regulators in the United States were investigating transactions that had occurred since 1 January 2010 involving a former client of Mallett Inc., Mallett's New York-based subsidiary. The former client is not a related person or affiliate of the Group. Further details of this matter are disclosed in Part 3 of the Circular. Additionally, the integration of recent acquisitions has not achieved the level of cost savings that is required and the Group has continued to invest in its new online collectibles marketplace. As a result of these factors, the Directors now believe that for the year to 31 March 2016, the Group will report an adjusted loss before tax of between £1.0 million and £2.0 million. This puts the Group's financial resources under severe pressure.

Since 30 September 2015, our bank has made available an overdraft facility of £6.0 million to the Group. This facility is repayable by 31 March 2016 and is expected to be substantially drawn before completion of the Fundraising. As explained below, the Company will need to repay this overdraft and invest additional funds in rationalising the business and in completing the integration of the acquired businesses.

The Board has also decided that the management team will benefit from the assistance of specialist expertise in doing this and, with this in mind, conditional on the passing of the Resolutions, intends to appoint Clive Whiley as a director. The Company has secured the services of Evolution of which he is managing director, on a 12 month contract from December 2015 to advise and assist the Board and executive management with a root and branch review of every facet of the Group's business, an assessment of the banking and fundraising options and completion of the rationalisation and integration of the Noble and Mallet acquisitions. Mr Whiley has significant experience in both corporate restructurings and in managing integration programmes following corporate acquisitions. Currently, in addition to being managing director of Evolution, he is Chief Executive of Camper & Nicholsons Marinas Limited, and a non-executive director of its holding company, Camper & Nicholsons Marina Investments Limited. Mr Whiley was appointed as Chief Executive of Camper & Nicholsons Marinas Limited in December 2012 at the request of its major shareholders in order to oversee a repositioning of that company's businesses, which process was successfully concluded last year.

In late December 2015, Evolution commenced a full review of the Stanley Gibbons business, which it will complete over the next 90 days and will agree a comprehensive strategy with the Board for:

• transforming the Group into a business which is capable of trading profitably on a continuing and reasonably predictable basis, i.e. not relying on one-off or very material sales or other trading events to achieve profitability;

• ensuring that the Group is able to operate within its available funding resources, i.e. developing coherent and reliable plans for all the activities within the Group, including the ability to access a wider customer base on a capital-light foundation;

• identifying areas of activity which are not being operated efficiently or, due to capital constraints, are not being exploited at all and making such changes to those activities as are necessary to enable them to contribute to the profits of the Group or formulate disposal or winding-up strategies for such activities; and

• identifying and executing a series of short-term actions which will reduce the current cash burn as soon as possible and allow the short-term bank loans to be repaid and for a more appropriate long-term funding arrangement to be put in place than currently exists ("30 Day Action Plan").

  
  

  Evolution has already undertaken a preliminary review of the businesses and of the funding of the Group and is confident that significant efficiencies can be introduced very quickly and that, with adequate funding, most of the original aspirations on which the Noble and Mallett acquisitions were founded can be achieved.

  
  

  As a consequence of Evolution's initial findings, the Board believes that, having repaid the temporary borrowings of

  £6.0 million, thereby reducing the Group's debt to a level more commensurate with the trading profits and cash generation that can be achieved over the course of the next 12 months, and with the continued support of the management and employees:

  
  

• the Group will be able to complete the rationalisation and integration of the Group's various activities;

• the benefits of the business improvements referred to above can be harvested;

• the Group should be able to achieve annualised cost savings of not less than £5.0 million and that from this normalised position the Board believes it will be both profitable and cash generative and therefore be able to pursue other improvements and growth opportunities that will enhance shareholder value;

• the Group will also consider whether there are opportunities to exploit the geographical and product gaps within the core stamp and coin divisions, which have become apparent in recent years, partly benefiting from an increased interest in rare collectibles by high net worth individuals as an alternative investment;

• a return to more disciplined buying and selling strategies which should help to improve the stock profile, restore the stock turnover to more normalised levels and thereby reduce the holding costs; and

• the Board believes that there is increasing interest in the collectibles markets in parts of the world outside of the Group's existing areas of operation, which are principally the United Kingdom and the United States of America, although it has a small sales presence in Hong Kong and in Singapore. There is, in particular, fast growing interest from the Asian markets, in all types of high quality collectibles as has been evidenced by the considerable interest and high prices being generated at collectibles auctions held in Hong Kong on 15-17 January 2016 which grossed over HK$100 million. World records were broken for both a stamp essay and a die proof of any country and one of China's most famous philatelic rarities realised a record price of HK$6.24 million. The Company will work to identify a cost-effective method to enter these markets and is in discussions with a potential partner in this respect.

  
  

  The Board is of the opinion that the Fundraising is not only in the best interests of the Company but essential to the business as it will also allow a clear focus on a corporate development plan, which is designed to optimise the value of the Company's principal assets as the Board seeks to restore Shareholder value. As announced on 13 January 2016, the Board has considered a number of fundraising alternatives to reinforce the Company's working capital position and, at that time, believed that an equity raise might be comparatively unattractive if done at a discount to the Group's net asset value. However, the continuing difficult trading conditions and the increasing urgency for the Company to secure additional funding has left little choice but to proceed with the Fundraising, notwithstanding the significant discount to the prevailing market price. The Fundraising has been conditionally underwritten and therefore the Board believes that it provides the Company with a certainty of funds that could not be assured from the other funding alternatives considered. Furthermore, the Board believes that the proposed structure of the Fundraising, namely the Firm Placing and the Placing and Open Offer, provides the Company with its best chance of raising the funding that it needs in a manner that enables all existing Shareholders, should they so wish, to participate. The Open Offer and Excess Application Facility means that, to the extent that a Qualifying Shareholder has taken up its Basic Entitlement in full and applies for and is allocated the maximum Excess Entitlement, it will suffer no dilution as a result of the Fundraising.

  
  

  Funding

  
  

  The Company currently has outstanding core loans and overdraft facilities, which are fully drawn, amounting to £19.5 million. Owing to the adverse trading experienced since 30 September 2015, as explained above, the Company has received additional facilities from its bank in order to meet its short term obligations and to fund the unforeseen losses that it has been incurring. These facilities were in the form of an overdraft which is repayable on 31 March 2016 and which the Company anticipates will be substantially drawn as to £6.0 million by completion of the Fundraising.

  
  

  Accordingly, following completion of the Fundraising, approximately £6.0 million will be used to repay the temporary funding. As a result of the sharp decline in the trading performance, the Company has agreed with its bank a revision in the ongoing banking covenants relating to the borrowings and facilities that will remain in place until 31 May 2018. The facilities will, for the first 15 months, be subject only to certain asset cover covenants and from 30 June 2017 will also be subject to certain earnings covenants formulated by reference to the budgets for 2017/18. The management, taking into account the change in trading circumstances and having regard to the revised profit and cashflow expectations believes that the current structure of the lending package may not be appropriate for the longer term. The management therefore intends, and the bank has agreed in principle, to explore a more appropriate borrowing structure once the changes explained above have been implemented and the effect of the changes has begun to be visible in the profit and cash generation.

  
  

  The existing borrowings and facilities, all of which are secured and guaranteed by various members of the Group comprise:

  
  

• a £9.5 million fully drawn loan facility, amortising at £500,000 per quarter from 31 March 2017 but subject to earlier part-repayment in the event of a major asset disposal;

• a £10.0 million fully drawn revolving credit/overdraft facility available until 31 May 2018; and