WYG overhaul to see investors’ stakes diluted

Revealing its second deep restructure in less than two years, the Leeds-based group said it wants to raise £30m from new shareholders through a placing.

The refinancing, likened to a new initial public offering by finance director David Wilton, will mean “very significant” dilution of existing shareholders.

The overhaul of its finances will leave WYG with net cash and resources to attract and retain staff, helping speed up its strategy of growing abroad and in targeted sectors, said the group.

“This is the final piece of a 10,000-piece jigsaw that’s going to get put in place,” said chief executive Paul Hamer. “We’ve had to go through a huge amount of pain and turmoil.

“For staff, it’s very much the light at the end of the tunnel that they have been looking forward to.”

WYG, formerly called White Young Green, entered the recession with a heavy debt burden and significant exposure to Ireland’s crashing economy.

In late 2009 it was forced into a debt-for-equity swap which left its lenders Lloyds, Royal Bank of Scotland and Fortis holding 60.5 per cent of its shares. Shareholders were left with 15 per cent of its equity and an employee benefit trust took the remaining 24.5 per cent.

But Mr Hamer said while the group is now in “good shape”, its balance sheet has hampered growth.

“I reckon they can recover but it’s a tough game,” said Geoff Allum, support services analyst at Arden Partners.

“It’s better for the banks to try to keep them in business than to let them go bust,” he said.

“Their chief executive is very good but he’s got a very tough job on his hands.

“They have lowered their cost base an awful lot and that makes a big difference. People are competing very heavily for business and at the moment it’s more about price than quality.”

Although finer details of the restructure have not been revealed, WYG’s banks will convert much of the group’s £29.2m net debt into convertible shares.

Another £30m of preference shares will be converted into deferred shares.

The deal will need the support of shareholders. WYG said its banks, effectively majority shareholders, have already given it their non-binding backing. The lenders are likely to be left with “single digit” shareholdings, said Mr Wilton.

WYG added it has lined up institutional investors to take part in the placing. This must be sealed by the end of the month, or WYG will be in breach of its covenants.

Shares in the group plunged more than 40 per cent to 7.5p.

WYG admitted there may be more job cuts as it shrinks its office network across the UK and Ireland to 16 locations, from the current 30. It started the recession with 80 domestic offices.

WYG has more than halved its workforce since the start of the downturn to over 1,500 staff – cutting £110m from its cost base. Mr Wilton said this number disguises about 500 appointments it has made.

Mr Hamer insisted the deal is very different to 2009’s “survival” restructure, and will mean it has the finances to recruit and attract the best talent.

“Actually what we’re doing is going out to the markets and saying we want capital to fuel our growth,” he said.

“In order to take a consultancy business forward you need liquidity to incentivise and attract staff on a performance-related basis.

“As the business gets busier WYG will look like a very good place to work.”

Mr Wilton said existing shareholders will be left with a “very, very small percentage” of WYG’s shares. “It’s almost like a new IPO of the business.”

But he said the deal is vital as the group’s debt is unsustainable.

“The reality is it’s the best deal for everyone,” he said. “If and when we do this deal we have got a very strong business with a significantly stronger balance sheet.”

The group yesterday reported £28.6m pre-tax losses in the nine months to the end of March, on revenues of £121.5m. That compared with sales of £220.6m in the year to the end of June 2010, when losses totalled £21.9m.

WYG is focused on buildings and infrastructure, transport, energy and the environment and assurance services. It now makes 35 per cent of its sales abroad.

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