SIMON GROUP
 
Hoare Govett Limited, which is regulated in the United Kingdom by the Financial
Services Authority, is acting exclusively for Simon Group plc in connection with
the matters set out in this announcement and for no one else and will not be
responsible to anyone other than Simon Group plc for providing the protections
afforded to clients of Hoare Govett Limited or for providing advice in relation
to the matters set out in this announcement and the other matters described
herein.
 
 
Background to and reasons for the Disposal
 
On 31 January 2002 the Board announced that it had undertaken a review of the
full range of strategic options available to the Simon Group with respect to the
Simon Group and its constituent parts. As a result of that review the Company
announced the disposal of Simon Storage Limited on 19 December 2002.
 
The Board has already reported to shareholders its assessment that the
performance of Seawheel in recent years has been unsatisfactory. In this
respect, during the year ended 31 December 2002, Seawheel incurred an operating
loss of £6.4 million and an exceptional loss of £4.1 million. In addition, £15.6
million of goodwill attributed to Seawheel Limited was written off, of which
£2.9 million was written off in Seawheel Limited's accounts. Against that
background a comprehensive financial and operating review was undertaken in late
2002 which resulted in a complete change in the senior management team of
Seawheel.
 
 
At the annual general meeting of the Company held on 22 May 2003, it was
announced that the new Seawheel management team was addressing the business'
poor performance and had made a number of significant changes. It was stated,
however, that progress remained slow and the Board did not anticipate Seawheel
returning to profit in 2003. The Board further stated that the Simon Group would
continue to keep its investment in Seawheel under review and was considering a
number of options to achieve the best result for shareholders.
 
 
Since the annual general meeting of the Company, the performance of Seawheel has
not improved as quickly as expected and the business continues to be cashflow
negative and incur losses. Consequently, of the various strategic options
available, the Board considers the Disposal to be in the best interests of
shareholders whilst retaining the benefit to Humber Sea Terminal Limited
('HSTL') of the Ro/Ro services operated from there by Seawheel and being the
most cost effective option to terminate the future cash support that Seawheel
would otherwise require. The Board expects Seawheel's business to represent
approximately 20 per cent. of HSTL's turnover during the year ending 31 December
2003.
 
Information on Seawheel
 
Seawheel is a leading provider of full-load intermodal door-to-door
transportation and distribution services throughout Continental Europe,
operating regular Lo/Lo and Ro/Ro sailings from the UK, Ireland and Continental
Europe. Seawheel owns and controls its fleet of containers and flatracks and its
IT system. It charters all its vessels and subcontracts all its haulage and
stevedoring requirements.
 
 
Seawheel was acquired by the Simon Group in December 1998, having previously
been the subject of a management buyout from the United Transport division of
BET plc. Seawheel's European network includes the following shipping routes:
 
 
• from Humber Sea Terminal ('HST') to and from Hamburg and Rotterdam;
 
• from the UK ports of Tilbury and Teesport to and from Rotterdam and
 Duisburg;
 
• from the Irish ports of Dublin, Cork and Belfast to and from
 Rotterdam;
 
• from the Spanish ports of Bilbao and Santander to and from Bristol,
 Greenock and Dublin;
 
• to and from Bristol and Waterford; and
 
• to and from Grangemouth and Rotterdam.
 
 
In the year ended 31 December 2002, these routes involved approximately 194,000
moves of unitised freight and generated turnover of £91.6 million.
 
 
Headquartered in Ipswich, Suffolk, Seawheel has offices in Dublin, Rotterdam,
Duisburg, Hamburg and Antwerp. In addition, Seawheel operates an agency network
across other European countries.
 
 
In June 2000, Seawheel acquired the business of CCTL Cargo-Connect Transport +
Logistics GmbH ('CCTL'), a Hamburg-based operator of a door-to-door freight
service on two dedicated, chartered Ro/Ro vessels between Hamburg and the
Humber. Since the acquisition, the CCTL business has been integrated into
Seawheel's existing management systems and service network, and has extended
Seawheel's capability and presence in Northern Germany, Denmark, Poland and
Eastern Europe. In early November 2000, the CCTL Humber/Hamburg Ro/Ro service
was transferred to HST.
 
 
In March 2002 Seawheel acquired Forthline Limited's Lo/Lo service, operating
between Grangemouth and Rotterdam, from Forth Ports PLC. This service completed
Seawheel's network by adding this East Coast of Scotland route to Seawheel's
European network.
 
 
In September 2002 Seawheel converted its Lo/Lo service from Rotterdam to Goole
on the Humber to a Ro/Ro service operating from HST. This change was designed to
improve Seawheel's service levels by operating a faster and more reliable
service compared with the former Goole operation, which was handicapped by tidal
restrictions and the need to use small vessels. This major change in Seawheel's
operations has had a negative impact on the route's financial performance during
the start-up of the operation, however, this is expected to show improvement
over time.
 
 
In the year ended 31 December 2002, Seawheel generated consolidated turnover and
consolidated losses after taxation of £91.6 million and £10.4 million,
respectively, and as at 31 December 2002 had net liabilities of £12.1 million.
 
 
Principal terms and conditions of the Disposal
 
Under the terms of the share sale agreement entered into on 11 July 2003, the
Company has conditionally agreed to sell, or procure the sale of, all of the
issued share capital of Seawheel Holdings to the Purchaser for a cash
consideration of £1. In addition, the Company will make certain cash
contributions, of up to £2.0 million, to Seawheel's ongoing business following
completion, together with retaining a £4.0 million loan repayable by Seawheel
Limited in the circumstances set out in the loan agreement and against which the
Company intends to make a full provision. The Company entered into the bridging
loan agreement with Seawheel Limited on 11 July 2003 and will advance to
Seawheel Limited £1.25 million for additional working capital in the period
prior to completion which is secured by the fixed charge and repayable at
completion.
 
 
Completion of the share sale agreement is conditional upon obtaining the
approval of the resolution by shareholders. The Company expects completion to
occur on the second business day after satisfaction of this condition, and if
the condition has not been fulfilled by 31 August 2003 the share sale agreement
shall have no effect.
 
 
Under the share sale agreement the Company undertakes that:
 
 
 •at completion it will pay the Purchaser £200,000 towards the Purchaser's
 legal, corporate finance, accountancy and tax advice in connection with the
 Disposal;
 
 
 •at completion it will pay the Managers £192,000 (before deducting tax),
 as reduced by any national insurance contributions, in aggregate in respect
 of the successful completion of the Disposal;
 
 
 •at 31 December 2003 it will pay Seawheel £175,000 and during the period
 from completion to 31 December 2004 it will pay Seawheel up to a maximum of
 £325,000, in both cases by way of a contribution towards the resolution of
 certain actual or contingent liabilities of Seawheel ;
 
 
 •after completion, in respect of the period commencing 1 July 2003 until
 29 October 2004, it will pay in monthly instalments a total contribution of
 £1.108 million towards Seawheel's working capital requirements; and
 
 
 •pending the discharge or release of certain third party obligations in
 the normal course by Seawheel Limited, following completion the Company will
 maintain limited guarantees to Barclays Bank plc and Barclays Mercantile
 Business Finance Limited in respect of certain banking facilities and
 finance leases currently outstanding. The Purchaser has undertaken that it
 shall, and shall procure that the relevant member of Seawheel shall
 indemnify the Company against any losses or claims the Company may suffer or
 incur in respect of such guarantees.
 
 
Under the share sale agreement the Purchaser undertakes that:
 
 
 •it will enter into the loan agreement with Seawheel Limited and the
 Company as guarantor of the retained debt of £4.0 million owing from
 Seawheel Limited to the Company;
 
 
 •it will procure that Seawheel Limited enters into the stevedoring
 contracts and the ancillary services agreement with HSTL at completion; and
 
 
 •it will procure that the amount outstanding from Seawheel Limited under
 the bridging loan agreement is repaid to the Company in full at completion.
 
 
The terms of the stevedoring contracts and the ancillary services agreement are
substantially the same terms that presently govern the trading relationship
between HSTL and Seawheel.
 
 
Financial effects of the Disposal
 
The proceeds of the Disposal before expenses are £1 and the Company's expenses
relating to the Disposal are estimated to be £0.6 million. The payments to be
made by the Company to Seawheel pursuant to the share sale agreement and which
are referred to in the previous paragraph entitled 'Principal terms and
conditions of the Disposal' will be paid from the Company's existing and future
cashflow.
 
 
The pro forma net assets attributable to shareholders of the Company and its
subsidiary undertakings (excluding Seawheel) following completion ('Continuing
Group') would have decreased by approximately £6.1 million to £94.7 million had
the Disposal occurred on 31 December 2002.
 
 
Based on the consolidated book value of Seawheel at 31 December 2002, the costs
relating to the Disposal mentioned above and the capitalisation since 31
December 2002 of approximately £16.6 million of inter group loans, there would
be a loss on disposal before taxation of approximately £6.1 million.
 
 
The Simon Group does not expect any tax charge or credit to arise from the
Disposal. As only one of the employees of Seawheel is a member of the Simon
Group Pension Fund, the Disposal will have no material effect on the valuation
or accounting treatment of the Simon Group Pension Fund nor on the Continuing
Group's level of annual contributions to it.
 
 
The immediate underlying effect of the Disposal on earnings will be enhancing,
but this statement should not be interpreted to mean that earnings per share in
the first full financial year following completion, or in any subsequent period
will match or necessarily be higher than those for the relevant preceding
financial period.
 
Current trading and prospects
 
Following the Chairman's statement on trading given at the annual general
meeting of the Company on 22 May 2003, trading in the ports division has
continued to be satisfactory with Ro/Ro volumes through HST now well ahead of
the same period last year. The contract for the marine works associated with the
building of the new third berth ('Berth 3') has been signed with Edmund Nuttall
Limited and work has commenced. The major piling works are due to be completed
by the end of August 2003 in order to comply with new environmental restrictions
and the berth should be completed in Spring 2004. The marine works for Berth 3
will cost approximately £10.8 million. Negotiations with potential customers for
the new berth continue and the Board remains confident that the new berth will
enhance shareholder value.
 
 
Seawheel has continued to experience trading difficulties and, despite the
significant changes and improvements made by the new management, monthly losses
have continued albeit at a reducing rate. If Seawheel remains under the Simon
Group's ownership, the Board believes that Seawheel will continue to be loss
making and require further cash injections until at least mid 2004.
 
 
Following the Disposal the Board intends to refocus the Simon Group on the
profitable ports division and the Board views the Continuing Group's prospects
for the current financial year with confidence.
 
 
The Simon Group's balance sheet remains strong and the Company's bank statements
disclose cash balances of approximately £16.0 million at the end of June 2003.
 
 
Strategy for the Continuing Group
 
Following completion, the Continuing Group will be an owner and operator of two
UK ports, namely, the HST on the South Bank of the Humber at North Killingholme
and Port Sutton Bridge ('PSB') on The Wash, both in Lincolnshire.
 
 
HSTL has commenced the application process for Phase III of the development of
HST, which involves increasing the number of river berths at the terminal to
six. The Directors believe that Phase III, when completed, will make HST the
premier multi-user river Ro/Ro terminal on the Humber and provide a major direct
gateway between the Midlands, the North of England and Continental Europe. With
increasing congestion on the UK's roads and the imminent restriction of lorry
drivers' hours through the Working Time Directive, the Directors believe that
direct ferry access to major markets will become increasingly important to
freight shippers and, therefore, they will be attracted to fast turnaround river
terminals such as HST.
 
 
The Board's strategy will continue to be focused on the development of HST and,
to a lesser extent, PSB, where terms for European Regional Development Grant Aid
are being finalised to increase significantly the land available to port users
and others for bespoke warehousing and other facilities at the port. In
particular, HST enjoys a strategically important location and boasts a state of
the art river terminal capable of accommodating current and future larger Ro/Ro
vessels. The Directors are confident that this strategy will enhance and
maximise value for shareholders.
 
 
The Board is confident that the substantial freehold and marine assets
represented by HST and PSB can be leveraged so as to provide adequate funding
for subsequent development at both ports and to meet the medium term working
capital requirements of the Continuing Group. Accordingly, once such new banking
facilities are in place, as previously stated, the Board will give further
consideration as to whether it is appropriate to return cash to shareholders and
how that might be best achieved.