MWB Business Exchange Plc

Transcription

1 THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about the contents of this document you should consult a person authorised under the Financial Services and Markets Act 2000 who specialises in advising on the acquisition of shares and other securities. This document does not constitute a prospectus (as defined in the Prospectus Rules) but is an admission document drawn up in accordance with the rules for AIM published by London Stock Exchange plc. This document has been issued in connection with the application for admission to trading on AIM of MWB Business Exchange s issued Ordinary Shares. Application has been made for all of the issued Ordinary Shares to be admitted to trading on AIM. The Ordinary Shares are not dealt on any other recognised investment exchange and no other such applications have been made. AIM is a market designed primarily for emerging or smaller companies to which a higher investment risk tends to be attached than to larger or more established companies. AIM securities are not admitted to the Official List of the UK Listing Authority. A prospective investor should be aware of the risks of investing in such companies and should make the decision to invest only after careful consideration and, if appropriate, consultation with an independent financial adviser. London Stock Exchange plc has not examined or approved the contents of this document. Prospective investors should read the whole text and contents of this document and should assume that an investment in the Company is speculative and involves a degree of risk. In particular prospective investors should carefully consider the section entitled Risk Factors in this document before taking any action. MWB Business Exchange and each of the Directors, whose names appear on page 3, declare that, having taken all reasonable care to ensure that such is the case, the information contained in this document is, to the best of their knowledge, in accordance with the facts and contains no omission likely to affect its import. MWB Business Exchange Plc Admission to trading on AIM and Placing of 18,750,000 Ordinary Shares at 80p per Ordinary Share by KBC Peel Hunt Ltd Nominated Adviser and Broker KBC Peel Hunt, which is regulated by the Financial Services Authority, is acting as the Company s Nominated Adviser in connection with the proposed admission of the Company s Ordinary Shares to trading on AIM. Its responsibilities as the Company s Nominated Adviser under the AIM Rules are owed solely to London Stock Exchange plc and are not owed to the Company or to any Director or to any other person in respect of his decision to acquire Ordinary Shares in reliance on any part of this document. No representation or warranty, express or implied, is made by KBC Peel Hunt as to any of the contents of this document (without limiting the statutory rights of any person to whom this document is issued). KBC Peel Hunt will not be offering advice and will not otherwise be responsible for providing customer protections to recipients of this document in respect of the Placing or any acquisition of Ordinary Shares. The distribution of this document outside the UK may be restricted by law and therefore persons outside the UK into whose possession this document comes should inform themselves about and observe any restrictions as to the Placing, the Ordinary Shares or the distribution of this document. The Ordinary Shares have not been, nor will be, registered in the United States under the United States Securities Act of 1933, as amended, or under the securities laws of Canada, Australia or Japan or any other law and they may not be offered or sold directly or indirectly within the United States, Canada, Australia, or Japan or any other jurisdiction where its distribution may be restricted by law or to, or for the account or benefit of, any national, citizen or resident of the United States, Canada, Australia or Japan. This document does not constitute an offer to sell or issue or the solicitation of an offer to buy or subscribe for Ordinary Shares in any jurisdiction in which such offer or solicitation is unlawful.

2 CONTENTS Placing Statistics 2 Expected Timetable 2 Directors and Principal Advisers 3 Definitions 4 Glossary of Terms 6 Key Information 8 Risk Factors 10 Forward Looking Statements 12 Part I Information on the BX Group 13 Part II Financial Information on the Company 24 Financial Information on MWB Business Exchange UK Limited 27 Part III Unaudited Pro-forma Statement of Net Assets of the BX Group 42 Part IV Additional Information 44 PLACING STATISTICS Placing Price 80 pence Number of Placing Shares to be placed on behalf of the Company 18,750,000 Placing Shares as a percentage of the Ordinary Shares in issue on Admission 27.1 % Number of Ordinary Shares in issue on Admission following the Placing 69,100,000 Gross proceeds of the Placing 15.0 million Net proceeds of the Placing receivable by the Company 13.0 million Market capitalisation of the Company at the Placing Price 55.3 million Page EXPECTED TIMETABLE Publication of this document Admission and dealings in Ordinary Shares to commence on AIM Uncertificated Placing Shares credited to CREST accounts Definitive share certificates despatched by December 21 December 21 December January 2

3 DIRECTORS AND PRINCIPAL ADVISERS Directors Richard Gary Balfour-Lynn (Non-Executive Chairman) John Robert Spencer (Chief Executive ) Guy Richard Aspland-Robinson (Executive Director) Keval Pankhania (Finance Director) Jagtar Singh (Non-Executive Director) all of: Principal Place of Business 1 West Garden Place Kendal Street London W2 2AQ Tel: Registered Office Secretary Nominated Adviser and Broker Auditors and Reporting Accountants Solicitors to the Company Solicitors to the Placing Bankers Registrars ISIN number 179 Great Portland Street London W1W 5LS Filex Services Limited KBC Peel Hunt Ltd 111 Old Broad Street London EC2N 1PH KPMG Audit Plc 8 Salisbury Square London EC4Y 8BB Dechert LLP 160 Queen Victoria Street London EC4V 4QQ Nabarro Nathanson Lacon House Theobald s Road London WC1X 8RW Deutsche Postbank AG, London Branch 61 Queen Street London EC4R 1AF Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU GB00B0S53N07 3

4 DEFINITIONS The following definitions apply throughout this document, unless the context otherwise requires: Act Admission AIM AIM Rules Board BX Centres BX Group BXUK Company or MWB Business Exchange CREST CRESTCo CREST Regulations Directors Executive Directors KBC Peel Hunt London Stock Exchange MWB Group Ordinary Shares Placing Placing Agreement the Companies Act 1985 (as amended) the admission of the Ordinary Shares (currently issued and to be issued pursuant to the Placing) to trading on AIM becoming effective in accordance with the AIM Rules a market operated by London Stock Exchange the rules published from time to time by London Stock Exchange relating to AIM the board of directors of the Company from time to time Business Exchange Centres Limited, the principal operating subsidiary of the Company upon Admission prior to Admission, BXUK and, where the context requires, its subsidiary undertakings, and on and from Admission, the Company and, where the context requires, its subsidiary undertakings MWB Business Exchange UK Limited, the principal operating subsidiary of the Company prior to Admission and, where the context requires, its subsidiary undertakings MWB Business Exchange Plc the computerised system operated by CrestCo for trading shares in uncertificated form in the UK CRESTCo Limited, the operator (as defined in the CREST Regulations) of the system for trading shares in uncertificated form known as CREST the Uncertificated Securities Regulations 1995 (as amended) the directors of the Company, whose names are set out on page 3 John Spencer, Keval Pankhania and Rick Aspland-Robinson KBC Peel Hunt Ltd London Stock Exchange plc Marylebone Warwick Balfour Group Plc and, where the context requires, its subsidiary undertakings ordinary shares of 0.1p each in the share capital of the Company the conditional placing by KBC Peel Hunt, on behalf and as agent for the Company, of the Placing Shares, pursuant to the Placing Agreement the conditional agreement dated 16 December 2005 between the Company, the Directors, MWB Group and KBC Peel Hunt relating to the Placing, further details of which are set out in paragraph 10 of Part IV 4

5 Placing Price Placing Shares Prospectus Rules Share Option Scheme Shareholders UK 80p per Ordinary Share 18,750,000 Ordinary Shares to be placed pursuant to the Placing the prospectus rules published from time to time by the Financial Services Authority the MWB Business Exchange Plc Executive Share Option Scheme 2005 holders of Ordinary Shares the United Kingdom of Great Britain and Northern Ireland 5

6 GLOSSARY OF TERMS The following terms apply throughout this document, unless the context otherwise requires: back-to-back leases business centres or serviced offices Business Exchange Centres City Executive Centres Corporate Real Estate Partnerships dedicated office or dedicated meeting and conference room leases of business centres which are co-terminous with licence agreements granted by the BX Group to occupiers of such business centres commercial premises used by occupiers on flexible terms, for periods of one month to five years and typically charging occupiers for full service accommodation including IT and telecoms infrastructure, heating, air conditioning, electricity, facilities management and security systems a business operated by the BX Group in the 4/5 star segment of the serviced offices, specialising in short to medium term serviced office solutions for Start-Ups, SMEs and corporates in the UK a business operated by the BX Group in the 3 star segment of the serviced office market specialising in medium and long term serviced offices for the Start-Ups and SME market place in the UK a business operated by the BX Group delivering flexible property solutions that are designed to address the needs of corporates, landlords, building owners and commercial property agents an office or a meeting or conference room where a single client is the sole occupant EBITDA earnings before interest, taxation, depreciation and amortisation IT licence fee management agreement Meeting and Conference Rooms OMA REVPAW or revenue per available workstation information technology, typically computer based the fee payable for occupation of serviced office space which is usually inclusive of rates, service charges, building management, building insurance (but excluding client contents), lighting, heating, cleaning, security and the use of reception and kitchen facilities a management agreement with a landlord or tenant of a property under which the BX Group operates or manages a serviced office for a fixed fee and in some cases for a share of profits, but where the operating and financial risk of running the property is borne by the landlord or tenant a business operated by the BX Group providing meeting and conference rooms to both the clients using the BX Groups serviced offices and others an operating and management agreement with a landlord or tenant of a property under which the BX Group operates or manages a serviced office, bears some of the initial setup costs and shares the operating risk of running a serviced office with the landlord or tenant of the property concerned license fees and services income receivable, divided by the number of available workstations 6

7 REVPOW or revenue per occupied workstation shared office SMEs Start Ups sq ft virtual office space workstation license fees and services income receivable, divided by the number of occupied workstations an office shared with other clients as the occupants small and medium sized enterprises newly formed businesses area per square foot mail receiving and telephone answering services provided by the BX Group to certain of its clients an area occupied by one individual, and which typically includes a desk, chair, pedestal and IT and telecoms equipment 7

8 KEY INFORMATION This is an introduction to this document and any decision to invest in Ordinary Shares should be based on consideration of the whole of this admission document and not solely on the key information. This information is derived from, and should be read in conjunction with, the full text of this document. The BX Group Š The BX Group operates business centres which represent an alternative to conventional office space. These business centres offer advantages of convenience, flexibility and immediate availability for SMEs, corporate and other clients (including government bodies). The BX Group s business centres can prove economical to clients, depending upon the term of occupancy and the number of workstations required for employees in each office. Š The BX Group delivers a high quality 3 to 5 star serviced office product and operates a portfolio of over 880,000 sq ft of prime office, meeting and conference room space across 51 UK locations. With over 12,500 workstations and in excess of 190 available meeting and conference rooms, MWB Business Exchange is the second largest provider of serviced office space in the UK, and is one of the seven operators managing one-third of the UK s serviced office market. Š The BX Group s primary business is the provision of dedicated office space for use by clients. 88 per cent. of the BX Group s revenue is generated from licence fees and service income receivable from office space. The BX Group also provides shared office space suitable for Start-Up and SMEs (which do not always require dedicated office space), virtual office services and meeting and conference rooms. Š The BX Group currently operates 51 business centres across the UK in its four operating divisions of which 34 are leaseholds and 17 are operated under either a management agreement or an OMA. All of the business centres have been developed to reflect one or more of the BX Group s four business divisions: 4/5 star Business Exchange Centres; 3 star City Executive Centres; Corporate Real Estate Partnerships; and Meeting and Conference Rooms. Š Currently serviced offices in the UK account for only 1.7 per cent. of UK properties available for business use, compared to 15 per cent. in the United States. The UK serviced office market is expected to experience a sustained rise in occupancy levels over the next three years, with an additional 30,000 workstations to come to market by December This is as a result of operator expansions and to satisfy the anticipated increase in demand for flexible office space. Š The growing UK meeting and conference room market is currently estimated at approximately 12.9 billion per annum, over 2.1 billion of which is made up of nonresidential business meetings. The major operators in the market are the large hotel groups who are able to charge high rates with little flexibility for clients due to high levels of demand. In many cases service delivery has not been to a high standard, the facilities are very similar and they may not be business focused. The Directors believe there is strong, untapped demand in this sector particularly for the provision of professional and dedicated business meeting and training rooms for organisations of all sizes. As such, there is the opportunity to create a stand-alone branded meeting solution that the Directors believe will help the BX Group to clearly target this developing area for the provision of dedicated meeting and conference rooms for hourly or daily bookings. Occupation levels continue to grow as a result of focused activity to centre and non-centre users in addition to conference agents. Š The Directors expect office rentals between 2006 and 2008 in London s West End to increase by 7.7 per cent. per annum, London s Mid Town to increase by 6.0 per cent. per annum and London City to increase by 6.3 per cent. per annum. The BX Group is already experiencing an increase in licence fee rates as a result of these expected rises in office rentals. 8

9 Š Š Š The Directors plan that Business Exchange Centres will grow organically by improving yield. The two key drivers in the division are occupancy and price. The strategy is to maintain occupancy at approximately 80 per cent. and to increase revenues from both existing and new clients. Because of the strong operational gearing of Business Exchange Centres, emanating from the fact that this is a predominantly fixed cost division, the increased revenue produces a similar increase in EBITDA and pre-tax profit, thus substantially enhancing the rate of return of the division. Business Exchange Centres will continue to reduce operational risk, by reducing its reliance on clients that occupy more than 15 per cent. of any business centre and continually reviewing its sector reliance. The organic growth strategy for City Executive Centres is to improve the performance of each business centre it manages, to maximise profit share to the BX Group. The Board is confident that it will add further management agreements to its City Executive Centre division and management agreements for regional business centres. The Corporate Real Estate Partnerships division will look to acquire OMAs, freeholds, and selective leasehold assets so that it can increase the number of business centres for the BX Group. This growth strategy should increase revenues and profitability, and is also designed to reduce the operational risk to the BX Group by balancing its property portfolio with the addition of OMAs, management agreements, freeholds and further back-to-back leases. Trading record Š Since July 2005, occupancy has increased by 3 per cent. to 84 per cent. and the average rate per workstation at Business Exchange Centres leasehold interests has increased by 3.5 per cent., following the implementation of further sales and occupancy initiatives. In addition, service income over this five month period has increased due to additional focus on new initiatives, the results of which are demonstrated by the increased REVPAW and REVPOW figures. These initiatives will continue into the future. Reasons for Admission and use of proceeds of the Placing Š The Directors believe that the greater capital base of the Company following the Placing will improve the Company s flexibility in funding, and that its status as a company admitted to trading on AIM will also be beneficial in realising some of the larger and varied, freehold, leasehold and OMA opportunities that are now being offered to the BX Group. Š The Company is proposing to raise approximately 15.0 million before expenses through the Placing which will be used to finance the proposed expansion of the BX Group. Dividend policy Š The Directors intend to commence payment of dividends for the financial year ending 31 December 2006 and propose to follow a progressive and sustainable dividend policy thereafter. Financial information Š Your attention is drawn to the sections entitled Trading record and Key performance indicators on pages 18 and 19 in this document. Š Part II of this document sets out an accountant s report on the Company and an accountant s report on BXUK, both reported on by KPMG Audit Plc, Chartered Accountants regulated by the Institute of Chartered Accountants in England and Wales. Risk factors Š Your attention is drawn to the section entitled Risk Factors on pages 10 to 12 in this document. Additional information Š Detailed information about the BX Group including a summary of the articles of association of the Company, interests of Directors and material contracts is set out in Part IV. 9

10 RISK FACTORS An investment in the Company involves a degree of risk. Investors should consider carefully the following risks, before deciding to buy any Ordinary Shares. Additional risks and uncertainties not currently known to the Directors or that the Directors currently deem to be immaterial may also impair the business operations of the BX Group. Investors may lose all or part of their investment as a result of such risks or other factors. If any of the following risks actually occur the BX Group s business, financial condition, capital resources, results and/or future operations could be materially affected. In such case the price of the Ordinary Shares may fall and investors may lose some or all of the investment. Reliance on key business centres and the London market Approximately 47 per cent. of the BX Group s turnover is generated by 10 of its business centres. The BX Group s portfolio is London based; the 21 London centres (4 of which are operated under management agreements or OMAs) account for 49 per cent. of the BX Group s total workstations and 62 per cent. of total turnover. 59 per cent. of London turnover is attributable to West End and Mid Town centres. Reliance on key clients Although over the last two years, the BX Group has significantly reduced its dependence on large clients for revenue and occupancy, certain of its key revenue generating business centres are reliant on one client for over 20 per cent. of their revenue. Loss of Executive Directors The loss of any of the Executive Directors could harm the BX Group or cause delay in the implementation of the BX Group s strategy due to the loss of input from those individuals. The future success of the BX Group is, in part, dependent upon the ability of its existing management team and on the BX Group s ability to motivate and retain staff with the requisite experience. Changes in property market If the conventional property market changes significantly, and landlords begin to offer shorter leases or more flexible lease terms, to give significant rent reductions or to provide significant rent free periods, the BX Group s business centres may become less attractive to both existing and potential clients. Changes in long term growth drivers There can be no assurance that the factors the Directors expect to drive the long-term growth in the serviced office market in the future will in fact do so. For example, the trends towards flexible working styles and increased outsourcing of office and related services may not develop as expected by the Directors. Changes in working practices could occur which would be detrimental to the BX Group, such as more employees working from home. Changes in competitive landscape There are few barriers to entry into the serviced office market at the local and national level because there are no significant legislative or regulatory barriers. Although it is harder to establish a national network this may not deter new entrants or existing competitors. In addition, there is the potential for local operators to establish wider networks, for example, by forming alliances amongst operators to provide a scale similar to that operated by the BX Group. There is also the potential for other companies in related sectors such as property companies and hotel operators, to enter the serviced office market, either alone or in collaboration with other service providers, thereby increasing competition to the BX Group. If the BX Group is unable to respond adequately to the competitive challenges it faces, or to establish a sustainable competitive advantage, it may be unable to maintain its position and it may lose market share. In addition, in competitive markets there is often downward pressure on prices that the BX Group can charge for its business centres, which may cause an adverse impact on the BX Group s revenue and profitability. 10

11 Long-term cost base does not match short-term revenue profile The BX Group currently leases the majority of its properties. The length of the leases and the time at which the BX Group may exercise any break option in such leases is nearly always longer, and usually significantly longer, than the duration of the period of the occupation of its clients. If revenues decline, the BX Group will not be able to reduce significantly its property related cost base throughout the period of the lease. Some of the BX Group s leases contain restrictions that prevent the BX Group from transferring the lease without prior consent from the relevant landlord. Consequently, significant costs could be incurred if the BX Group wishes to close down or dispose of unprofitable business centres. Refurbishment and reinstatement costs The terms of most of the property leases held by the BX Group require it to ensure that the property concerned is kept in good repair throughout the lease term and that the property is reinstated at the end of the lease to the condition prior to any alterations carried out to the premises. Reinstatement costs and, if the BX Group has failed to comply with its repairing obligations during the lease term, full repair costs may be incurred on termination of such leases, causing an adverse impact on the BX Group s operations and financial condition. Further investment in IT The BX Group provides its clients with access to IT and telecommunications equipment. Significant developments in the technology which businesses use would require the BX Group to make further investments in that new technology. Historic financial performance The BX Group does not have an established profitable trading record over the three financial years ended The BX Group s prospects should be considered in the light of the risks associated with companies in their growth stage. Influence of the principal shareholder MWB Group will own 67.9 per cent. of the Company s enlarged issued share capital on Admission. In addition, Richard Balfour-Lynn, the BX Group s Chairman and Jag Singh, a Non- Executive Director of the Company, are directors of MWB Group and hold shares in MWB Group. Both of these directors are considered by the Panel on Takeovers and Mergers to be acting in concert with certain other MWB Group directors and shareholders with regard to the share capital of MWB Group. As a consequence of these shareholdings and directorships, MWB Group will be able to exercise a significant amount of control over the business of the BX Group and voting in the Company. For example, where the consent of 50 per cent. or more of the Shareholders of the Company is required in general meeting it will not be possible to obtain that majority unless MWB Group votes in favour of or abstains from voting on the resolution. It is MWB Group s stated intention to realise all of its assets in order to return cash or cash equivalents to its shareholders by the end of This cash distribution programme is likely therefore to involve a sale, disposal or demerger of the MWB Group shareholding in the Company and this may have an adverse impact on the Company s share price. Lack of independent non-executive directors The Directors are currently considering a number of potential individuals to become independent non-executive directors of the Company. It is intended that at least one independent non-executive director will be appointed to the Board by Both of the current non-executive directors of the company, including the chairman, are executive directors of, and shareholders in, MWB Group and therefore are not regarded as independent for the purposes of the Combined Code on Corporate Governance. 11

12 Reliance on MWB Group guarantees A number of the BX Group s leases and its existing bank facilities were guaranteed by MWB Group when they were entered into. MWB Group has stated to the Company that it is not willing to provide lease guarantees on new leasehold properties or guarantees of any new banking facilities entered into by the BX Group after Admission. This might adversely affect the BX Group s ability to expand. Volatility in share price and liquidity Admission to trading on AIM does not guarantee that there will be a liquid market in Ordinary Shares. An active public market in the Ordinary Shares may not develop or be sustained after Admission and the market price may fall below the price of which Ordinary Shares are placed under the Placing. AIM The AIM Rules are less demanding than those of the Listing Rules of the UK Financial Services Authority. An investment in shares that are admitted to trading on AIM is likely to carry a higher risk than an investment in shares listed on the Official List. The investment offered hereby may not be suitable for all recipients of this document. Investors are, accordingly, advised to consult a person authorised under the Financial Services and Markets Act 2000 who specialises in advising on the acquisition of shares and other securities before making their decision. FORWARD LOOKING STATEMENTS This document contains certain statements that are not historical facts and may be forwardlooking statements that are subject to a variety of risks and uncertainties. There are a number of important factors that could cause actual results to differ materially from those projected or suggested in any forward-looking statement made by the BX Group. These factors include, but are not limited to, certain risks and uncertainties for the BX Group that are specifically described above in the section of this document headed Risk Factors. If one or more of these risks or uncertainties materialises, or if underlying assumptions prove incorrect, the BX Group s actual results may vary materially from those expected, estimated or projected. Given these risks and uncertainties, potential investors should not place any reliance on forward-looking statements. Neither the Directors nor the Company undertake any obligation to update forward-looking statements or risk factors other than as required by the AIM Rules or by applicable law, whether as a result of new information, future events or otherwise. 12

13 PART I INFORMATION ON THE BX GROUP Introduction The BX Group operates business centres which represent an alternative to conventional office space. These business centres offer advantages of convenience, flexibility and immediate availability for SMEs, corporate and other clients (including government bodies). The BX Group s business centres can prove economical to clients, depending upon the term of occupancy and the number of workstations required for employees in each office. The BX Group delivers a range of flexible serviced offices, including Meeting and Conference Rooms, IT and telecoms, with high standards of office design, fixtures and fittings. The BX Group s business centres have developed a range of flexible products and services that have allowed it to meet the requirements of clients of all sizes. The BX Group delivers a high quality 3 to 5 star serviced office product and operates a portfolio of over 880,000 sq ft of prime office, meeting and conference room space across 51 UK locations. With over 12,500 workstations and in excess of 190 available meeting and conference rooms, MWB Business Exchange is the second largest provider of serviced office space in the UK, and is one of the seven operators managing one-third of the UK s serviced office market. The BX Group s portfolio is London based; the 21 London centres (4 of which are operated under management agreements or OMAs) account for 49 per cent. of the BX Group s total workstations and 62 per cent. of total turnover. 59 per cent. of London turnover is attributable to West End and Mid Town centres. History and development MWB Group established a serviced office business in 1996 when it acquired five business centres based in Southern England. The business has been expanded significantly over the period from its formation in 1996 to date. Whilst certain operating problems were encountered during the two financial years ended 2003, the BX Group has been generally successful and the financial year ended 2005 showed stronger results than the previous financial year. By June 2001 the BX Group operated 38 business centres, providing over 12,000 workstations throughout the UK and Europe. By June 2001, turnover more than doubled from June 2000 to approximately 70 million, EBITDA increased to 15 million and pre-tax profits of 6.2 million were recorded. At that year end, occupancy at mature centres was 84 per cent. and 72 per cent. across all the BX Group s business centres. During 2001 and 2002, a major expansion in Europe was undertaken by MWB Group with new business centres opened in France, Germany and the Netherlands. Eleven new business centres were opened during that period, bringing the total number of business centres operated by the BX Group to 48. However, the combination of a very difficult economic environment, especially in technology related sectors, an over-supply of space in the general office market, a weakening of demand, coupled with fierce price competition, caused significant losses during the year ended By 1 July 2002, overall occupancy across the BX Group had reduced to 61 per cent. During the difficult operating conditions in 2002 and 2003, the BX Group s business centres in Europe were closed and the BX Group no longer has any liability in respect of these former operations. By 2003, the UK operations of Business Exchange centres totalled approximately 9,300 workstations which were achieving occupancy levels of 76 per cent. This mirrored the average level achieved throughout the year and was a significant improvement over the position at the previous year end. During the year ended 2004, the business experienced significant large corporate client move-outs, especially in London, reducing occupancy levels to 68 per cent. by the year end. There was also less activity throughout that year by clients in taking vacant space. Changes in 13

14 the management team and, in particular, the appointment of John Spencer as Chief Executive and Keval Pankhania as Finance Director of the BX Group heralded a significant change and the new management team has developed a clear strategy, diversifying the client base to include more SMEs and Start Ups. This enabled the BX Group to create a number of differing but complementary income streams. In November 2004 the BX Group sold the freehold interests in three business centres (accounting for 560 workstations) and the proceeds were used to reduce the BX Group s bank debt. In addition to the BX Group s original 4/5 star rated serviced offices, the acquisition in January 2005 by the BX Group of 15 further serviced offices managed by its City Executive Centres division enabled the provision of a mid-market 3 star brand. Further, the BX Group has recently developed a Corporate Real Estate Partnerships division to work closely with potential occupiers and landlords in providing property solutions, including OMAs, within the framework of its serviced office business. At that time, the BX Group also developed a Meeting and Conference Room division focused on increasing cashflow and profit to the BX Group. By 2005, the BX Group had a clear business model based on four business divisions: 4/5 star Business Exchange Centres; 3 star City Executive Centres; Corporate Real Estate Partnerships; and Meeting and Conference Rooms. Occupancy and returns during that financial year both improved, resulting in occupancy as at 2005 being 80 per cent. One of the features behind this growth was a 35 per cent. increase in market leads. This demonstrated the increased professionalism and skill that was being developed across the BX Group s core areas of income generation. During that financial year the BX Group also signed its first OMA on 30,000 sq ft of space in Citigroup s Canary Wharf head office building. Two major deals were also concluded in Leeds through the Corporate Real Estate Partnerships division where the BX Group was able to source buildings on favourable terms, which included back-to-back break options with the landlord and the BX Group s client, thereby eliminating any contingent property liability for the BX Group or its clients. Services provided by the BX Group The BX Group s primary business is the provision of dedicated office space for use by clients. 88 per cent. of the BX Group s revenue is generated from licence fees and service income receivable from office space. The BX Group also provides shared office space suitable for Start- Up and SMEs (which do not always require dedicated office space), virtual office services and meeting and conference rooms. The BX Group also assists companies and landlords in operating and managing their surplus conventional office space through subletting and OMAs. OMAs provide a fixed income to the BX Group and the ability to achieve profit bonuses, without incurring significant financial liabilities to the BX Group. The BX Group manages a business centre within a third party s vacant space. The turnover is paid to the landlord, less a fixed management fee payable to the BX Group. The landlord remains responsible for all overheads including property costs and salaries. MWB Business Exchange addresses the serviced office and meeting room needs of: (i) (ii) medium to large corporate end-users and government bodies; SMEs; and (iii) Start-Ups; by offering services under the BX Group s four divisions, which are as follows: 1. Business Exchange Centres Business Exchange Centres provides high quality short to medium term serviced office solutions to start-up, SMEs and other corporate clients. The division operates in the 4/5 star segment of the market where clients demand strategic business locations, top quality offices, excellent service together with the flexibility in contract term. The average size of location is approximately 20,000 sq ft accommodating an average of 281 workstations. The division operates 32 leased 14

15 business centres, 2 back-to-back leased centres and 2 centres under OMAs. The majority of the divisions properties are sited in prime city centre locations with close proximity to major transport links. 36 per cent. (13 centres) are located in Central London of which 9 are in the West End and Mid Town districts. The Central London locations of Business Exchange Centres account for approximately 40 per cent. of the divisions total workstations available and approximately 50 per cent. of turnover. During the 18 months immediately preceding Admission, the Business Exchange Centres division has concentrated on increasing the number of SMEs and smaller corporate clients within its centres, thereby reducing its reliance on a small number of larger clients. As a result, the number of clients who occupy more than 15 per cent. of any one centre across the portfolio has been significantly reduced. Of approximately 1,000 clients who were occupying space in the division s centres at 31 October 2005, over 63 per cent. occupied between 1 and 5 workstations. Currently the principal client sectors for this division are: IT services (19 per cent.), recruitment (12 per cent.), business services and consultancy (10 per cent.), banking and finance (10 per cent.) and property (5 per cent.) The division s clients contract on average for an initial term of 8 months and approximately 80 per cent. of clients extend their contract beyond the initial term. Client occupation in this division ranges from 1 month to 5 years, with an average of 15 months. 2. City Executive Centres City Executive Centres specialises in providing medium and long term serviced offices to the start-up and SME marketplace across 15 centres in the UK, which are operated under management agreements. The division focuses primarily on the regional, SME and Start-Up markets and operates within the 3 star segment of the serviced office market. The average size of location is approximately 10,000 sq ft providing an alternative to the larger and higher quality Business Exchange Centre s sites which average 20,000 sq ft. Clients remain with the division for an average of 24 months. The Directors believe that the 3 star segment of the serviced office market has strong demand characteristics especially in regional markets with an undersupply of flexible office space. The Directors believe that the City Executive Centres division will provide the BX Group with long term sustainable revenue, especially in times of a weaker UK economy. 3. Meeting and Conference Rooms Meeting and Conference Rooms is the BX Group s specialist provider of meeting and conference rooms for businesses in the UK, operating over 190 dedicated meeting and conference rooms at the date of this document. The Directors believe that this division will be able to provide a significant growth opportunity to the BX Group as it improves the return from the existing business centres without incurring significant additional cost. The Directors have identified the opportunity to create a stand-alone branded meeting and conference rooms solution that they believe will help the BX Group to clearly target this niche for the provision of dedicated meeting and conference rooms for hourly or daily bookings. Because of the initiatives undertaken, the Directors believe that the BX Group will soon be recognised across its key target market as a dedicated provider of meeting and conference rooms, rather than as solely a serviced office provider that also provides meeting facilities. 4. Corporate Real Estate Partnerships Corporate Real Estate Partnerships specialise in delivering flexible property solutions that primarily address the needs of corporate end users, property owners and landlords. The Corporate Real Estate Partnerships division also works alongside commercial property agents. The Directors established this division to become a catalyst for growth in the other three divisions, whilst also reducing property risk to the BX Group overall. 15

16 The division works with property owners and landlords to help manage their surplus space and to provide income. The division already has strong relationships with commercial property agents who introduce the division to corporate end users, property owners and landlords who may require flexible property solutions. In many instances corporate end users have excess space from which they wish to receive an income stream, or insufficient space in locations where they wish to create or increase their presence. The Corporate Real Estate Partnerships division identifies suitable space and works with the client to negotiate an OMA or management agreement to convert the space into a business centre to be run either by Business Exchange Centres or City Executive Centres. The term of the OMA or management agreement will generally require the client to provide the space and fit out whilst the BX Group provides the management. When a client is short of space, the division will recommend suitable space in a Business Exchange Centre or a City Executive Centre for the client to occupy on a licence agreement. In instances where a suitable centre is not available or where there is insufficient available space, the division will seek to source suitable space for the client without the obligation of long term liabilities, on a managed fixed cost solution. The division will aim to secure this space on a back-to-back lease arrangement, and fit out the space to the client s specification. The lease term, which management would typically secure for between one and five years, is mirrored by the client s licence agreement, so that there is little or no leasehold risk to the BX Group. The business centre is then run by either Business Exchange Centres or City Executive Centres. The Corporate Real Estate Partnerships division has driven the expansion of both Business Exchange Centres and City Executive Centres over the last year and the Directors believe it provides significant opportunities for the future. Business centre locations The BX Group currently operates 51 business centres across the UK in its four operating divisions of which 34 are leaseholds and 17 are operated under either a management agreement or an OMA. All of the business centres have been developed to reflect one or more of the BX Group s four operating divisions. The business centres are summarised in the following table: Location Number of serviced business centres Business Exchange workstations City Executive Centres workstations Number of Meeting & Conference Rooms London City 5 1, London Mid Town London West End 8 2, Rest of London 6 1, Rest of the UK 30 4,287 2, Total 51 10,221 2, During the year to 31 December 2006, the BX Group is proposing to replace the Cannon Centre with a similar centre in a nearby location and to replace the BX Group s business centre in Deansgate, Manchester with a higher specification and larger business centre in Portland Street, Manchester. In addition the Board has authorised a refurbishment and increased leasehold interest in the BX Group s Birmingham business centre, which will involve the centre being doubled in size during that period. Market opportunities Currently serviced offices in the UK account for only 1.7 per cent. of UK properties available for business use, compared to 15 per cent. in the United States. Historically, the UK property sector has tied occupiers to 10 to 15 year leases that are often inflexible. The Directors believe that the serviced office market will benefit from the continuing corporate trend towards flexibility of overheads, particularly property related. The nature of today s economic environment means that it is difficult for businesses to predict what their property requirements will be over such a 16

17 timescale. Many UK regions are under-represented by serviced offices, offering potential for business centre expansion which the BX Group propose to pursue through management agreements or OMAs. The UK serviced office market is expected to experience a sustained rise in occupancy levels over the next three years, with an additional 30,000 workstations to come to market by December This is as a result of operator expansions and to satisfy the anticipated increase in demand for flexible office space. Operators of serviced office s were able to increase prices during 2004, with an average rise of 3.3 per cent. across the UK. DTZ Debenham Tie Leung concluded in 2005 that in London s West End, development intensity will remain relatively low following the fall in speculative development activity since Lambert Smith Hampton reinforces this view, stating in 2005 that the central London market is heading for a shortage of grade A business properties by 2008 unless more speculative construction is started by the end of The Directors expect office rentals between 2006 and 2008 in London s West End to increase by 7.7 per cent. per annum, London s Mid Town to increase by 6.0 per cent. per annum and London City to increase by 6.3 per cent. per annum. The BX Group is already experiencing an increase in licence fee rates as a result of these expected rises in office rentals. The SME and Start Up sectors provide the stability and foundation for the growth of BX Group s Business Exchange Centres and City Executive Centres division. Over 50 per cent. of the BX Group s clients fall into this category. According to the Department of Trade and Industry (2005) there were an estimated 4.3 million business enterprises in the UK at the start of 2004, up from an estimated 4.0 million at the start of Over 99 per cent. of these enterprises were small (0-49 employees). The growth in this sector provides the BX Group with continuing expansion opportunities in its core areas of operation. The growing UK meeting and conference room market is currently estimated at approximately 12.9 billion per annum, over 2.1 billion of which is made up of non-residential business meetings. The major operators in the market are the large hotel groups who are able to charge high rates with little flexibility for clients due to high levels of demand. In many cases service delivery has not been to a high standard, the facilities are very similar and they may not be business focused. The Directors believe there is strong, untapped demand in this sector particularly for the provision of professional and dedicated business meeting and training rooms for organisations of all sizes. As such, there is the opportunity to create a stand-alone branded meeting solution that the Directors believe will help the BX Group to clearly target this developing area for the provision of dedicated meeting and conference rooms for hourly or daily bookings. Year on year occupancy levels continue to grow as a result of focused activity to centre and non-centre users in addition to conference agents. International Financial Reporting Standards have introduced new rules on lease classification. The Directors believe that these new standards may present an opportunity for the BX Group to capitalise on its ability to provide flexible licenses and property solutions that can help clients remove their potential exposure to newly recorded accounting liabilities. Strategy The Directors have developed a clear strategy for the BX Group which is to build long-term financial returns through the development of sustainable income streams, whilst reducing operational risk. Strong organic and acquisitive programmes will be underwritten by dedicated risk mitigation strategies. The Directors plan that Business Exchange Centres will grow organically by improving yield. The two key drivers in the division are occupancy and price. The strategy is to maintain occupancy at approximately 80 per cent. and to increase revenues from both existing and new clients. Because of the strong operational gearing of Business Exchange Centres, emanating from the fact that this is a predominantly fixed cost division, the increased revenue produces a similar increase in EBITDA and pre-tax profit, thus substantially enhancing the rate of return of the division. Business Exchange Centres will continue to reduce operational risk, by reducing its reliance on clients that occupy more than 15 per cent. of any business centre and continually reviewing its sector reliance. 17

18 The organic growth strategy for City Executive Centres is to improve the performance of each business centre it manages, to maximise profit share to the BX Group. The Board is confident that it will add further management agreements to its City Executive Centre division and 2 management agreements for regional business centres have recently been signed. The Corporate Real Estate Partnerships division will look to acquire OMAs, freeholds, and selective leasehold assets so that it can increase the number of business centres for the BX Group. This growth strategy should increase revenues and profitability, and is also designed to reduce the operational risk to the BX Group by balancing its property portfolio with the addition of OMAs, management agreements, freeholds and further back-to-back leases. The BX Group has always provided meeting and conference rooms as part of its business centre service and the Board sees this as a core growth opportunity for the BX Group. The Board s strategy for the Meeting and Conference Rooms division is to continue to develop this division and to grow occupancy, whilst driving yield, from both existing clients and the external client market. Trading record Historical financial information The table below sets out summary financial information for the BX Group for the three financial years ended This information has been extracted from the financial information reported upon by the Company s reporting accountants, as set out in Part II. Year ended 1July 2003 Year ended 2004 Year ended 2005 Year ended Turnover 63,510 59,017 59,751 EBITDA 9,285 3,052 2,391 Profit/(loss) on ordinary activities before taxation (16,878) (7,346) 3,190 Bank debt and finance leases less cash at year end (34,641) (28,294) (14,114) Current financial information The BX Group s current unaudited trading performance since 2005 to 30 November 2005 as extracted from the BX Group s monthly management accounts adjusted to reflect the BX Group s current accounting policies is set out below: Jul 2005 Aug 2005 Sept 2005 Oct 2005 Nov 2005 Month ended estimate Turnover for the month 5,249 5,425 5,983 6,086 6,032 EBITDA for the month Profit/(loss) on ordinary activities before tax for the month Bank debt and finance leases less cash at month end (9,562) (7,837) (9,961) (8,023) (7,751)* * This figure comprises bank debt of 8.8 million and finance leases of 1.9 million, less cash of 3 million. On Admission, the bank debt will be reduced to 5 million as detailed in paragraph 10.8 of Part IV. Key performance indicators The following key performance indicators are used by the Board to control and measure the BX Group s performance. At 1 July 2003, the BX Group was reliant on a significant portion of its revenue being generated by a relatively small number of large corporate clients. When the licence agreements for these corporate clients expired in the financial year to 2004, there was a material adverse effect on the BX Group s financial performance which is demonstrated in the table below. Since 2004, the directors of the BX Group have focused strategically on attracting a larger number of smaller clients to its business centres and consequently its key performance indicators improved during the year ended 2005 and this trend has continued thereafter. 18

19 The number of available workstations was reduced by 560 during the year ended 2005 as a result of the sale in November 2004 of the freehold interests in three business centres as detailed in paragraph 10.1 of Part IV. The number of available workstations below relates to Business Exchange Centres leasehold interests only. It excludes the 2 back-to-back leases, City Executive Centres management agreements and OMAs, as the income receivable by the BX Group from such leases and agreements is not directly dependant upon the number of occupied workstations. The BX Group has 3,907 further workstations under the 2 back-to-back leases, City Executive Centres management agreements and OMAs, bringing the total number of workstations currently operated by the BX Group to 12,630. Historic key performance indicators Year ended 1July Number of available workstations at year end 9,283 9,283 8,723 Occupancy at year end 76% 66% 80% Monthly rate per workstation at year end ( ) Annualised REVPAW at year end ( ) 6,477 5,422 6,781 Annualised REVPOW at year end ( ) 8,473 8,215 8,402 Meeting and Conference Room income for the year ( 000) 2,641 2,761 3,910 Annualised EBITDA per available workstation at year end Current key performance indicators The BX Group s key performance indicators since 2005 to 30 November 2005 is set out below: Month ended Jul 2005 Aug 2005 Sept 2005 Oct 2005 Nov 2005 estimate Number of available workstations at month end 8,723 8,723 8,723 8,723 8,723 Occupancy at month end 81% 81% 83% 84% 84% Monthly rate per workstation at month end ( ) Annualised REVPAW at month end ( ) 6,637 6,523 7,175 7,312 7,299 Annualised REVPOW at month end ( ) 8,237 8,028 8,604 8,663 8,728 Meeting and Conference Room income for the month ( 000) Annualised EBITDA per available workstation at month end ( ) Prospects Since 2005, occupancy has increased by 3 per cent. to 84 per cent. and the rate per workstation has increased by 3.5 per cent., following the implementation of further sales and occupancy initiatives. In addition, service income over this five month period has increased due to additional focus on new initiatives, the results of which are demonstrated by the increased REVPAW and REVPOW figures. These initiatives will continue into the future. Meeting and Conference Room income has steadily increased as a result of focused marketing to new clients. This income stream is subject to seasonal fluctuations, particularly in July and August and again in the month of December, by reference to business holidays and lower related usage levels. The BX Group has recently implemented an integrated booking and yield management system. This is designed to provide real time management and stock optimisation capability of the Meeting and Conference Rooms division. This in turn is expected by the Directors to lead to an improved reservation process which, coupled with an on-line reservation facility, is expected by the Directors to increase revenues in this division. 19

20 The Directors believe that the relative infancy of the UK s serviced office market compared to that of the United States, coupled with the expected growth in demand for serviced offices and flexible office solutions, creates an opportunity for a substantial and profitable business in the future. Overall, the Directors believe the BX Group is well placed to increase revenues, not only from developing its existing property network, but also from driving occupancy, pricing and service revenue initiatives. Directors Details of the Directors, their roles and their backgrounds are as follows: Richard Balfour-Lynn, Non-Executive Chairman (aged 52) Richard formed Warwick Balfour Properties Plc in 1982, a commercial and residential property development and investment company, working in established and growth areas of central London. He co-founded MWB Group in 1994 and is the chief executive of and a substantial shareholder in that company. He has been a director of BXUK and its subsidiaries since the MWB Group s formation of this division in 1996 and has been a Director of the Company since November He is responsible for leading the Board in determining the BX Group s strategy and the achievement of its objectives. John Spencer, Chief Executive Officer (aged 47) John joined the BX Group as Chief Executive in April For the 11 years prior to joining the BX Group, John worked for Chubb plc, the last four of those as Managing Director of Chubb Fire Limited. He has been a director of BXUK and its subsidiaries since he joined the Group in 2004 and he has been a Director of the Company since November He is responsible for running the business and for formulating and implementing the Board s strategy for delivering profitability and shareholder value. He is responsible for liaison between the Company and its shareholders. Rick Aspland-Robinson, Executive Director (aged 45) Rick joined MWB Group in He has been a director of BXUK and its subsidiaries since 2004 and has been a Director of the Company since November He is responsible for property acquisitions and the negotiation of major tenancies and licences as well as all Corporate Real Estate Partnerships agreements. Keval Pankhania, Finance Director, FCCA, MBA (aged 33) Keval, a certified accountant, joined MWB Group as a finance team executive in He transferred to the BX Group as its Finance Director in August 2003 and has been a Director of the Company since November He is responsible for financial management across the BX Group, including accounts issued by the BX Group to its shareholders and debt and equity raising undertaken by the BX Group. He is also responsible for liaison between the Company and its shareholders. Jag Singh, Non-Executive Director (aged 47) Jag joined Hill Samuel in 1980 specialising in investment management. He moved to Lombard Odier et Cie. in 1985 where he was responsible for corporate and investment finance for quoted companies. He joined the board of MWB Group in November 1998 and amongst his other responsibilities in MWB Group, he has managed that group s investment in Business Exchange Centres. He has been a director of BXUK and its subsidiaries for a number of years and he has been a Director of the Company since November Employees The BX Group currently manages approximately 310 staff, of which approximately 280 are direct employees of the BX Group and the balance are employed in City Executive Centres under the BX Group s management agreements. All of the BX Group s staff are employed in the 20