Tavistock Investment PLC (LON:TAVI) will hold a second meeting after its annual shareholder meeting next month to consider a capital reduction proposal that it said will facilitate the payment of dividends to shareholders.
The wealth management company currently has negative distributable reserves and is therefore prohibited under the Companies Act from paying dividends to its shareholders.
But it explained that this deficit arose mostly because of a substantial impairment provision made in its last annual results against the value of acquired intangible assets.
After an internal review into the value of these assets concluded that the value of these assets had been superseded by the input of the group's current management team, the board decided it would be prudent to accelerate the amortisation process and write the carrying value down to zero.
While a one-off £5mln impairment provision against the carrying value of these assets was put through the profit and loss account in the company's last reported accounts, the future amortisation charges relating to these assets will be reduced by approximately £1mln a year, which the company said will enable its annual pre-tax profit “to better reflect its current operational performance”.
In light of the group’s operational progress, the board said it believes “it is an appropriate time to undertake a reorganisation of its balance sheet”. In other words, a capital reduction plan, which will result in the creation of distributable reserves which would enable the payment of dividends in the future.
At its last March 31 year-end, the company had a profit and loss account deficit of a little over £7mln and a £13.4mln credit on its share capital, including £7.348mln of deferred shares “with such restricted entitlements as to cause them to be of no material value”, meaning the share premium account was £6.078mln in credit.
The capital reduction, if approved and made effective as planned in the fourth quarter of the year, will be sufficient to eliminate the deficit entirely and to create distributable reserves, by reducing the company's share capital by the £7.348mln amount currently representing the deferred shares and by reducing the share premium account by £4.46.
Together, Tavistock said this will be sufficient to eliminate the deficit on the profit and loss account and mean any positive distributable reserves created or generated afterwards would be available for the board to use for paying a dividend, “should circumstances in the future make it desirable to do so”.
The meetings will be held at 11.00am on Wednesday, September 23 and any investors who wish to vote are urged to use proxy voting forms.