This announcement contains inside information

Softline Holding plc

("Softline" or the "Company")

Softline announces separation of the Russian business from the Softline Group and issuance of Bonus SLH Securities by way of a Bonus Issuance

London, 7 October 2022 - Softline (LSE: SFTL), the Cyprus-registered global digital transformation and cyber security solutions and services provider today announces its intention to proceed with a separation of its Russian business ("SLR") (the "Separation") and issuance of ordinary shares or GDRs representing ordinary shares in the Company ("Bonus SLH Securities") for nil consideration (the "Bonus Issuance" and together with the Separation, the "Transaction").

The separation will be effected by way of sale of SLR to the original founder Mr Igor Borovikov (the "Founder") (or an entity controlled by the Founder), for a consideration of USD1 and a dilution of the aggregate shareholding of the Founder and SGI Limited (an entity controlled by the Founder and which is the Company's largest shareholder) in the Company. The dilution of the aggregate shareholding of the Founder and SGI Limited is to be effected by a waiver of their entitlements to the Bonus SLH Securities, which are being issued to the other Softline securityholders to compensate them for the loss of value in their securities arising from the sale of SLR for USD1.

The Founder's shareholding (and the shareholding of SGI Limited) in the Company will therefore be diluted as a result of the Transaction, and is expected to fall to 44% following completion of the Transaction. The Transaction reflects a relative valuation ratio of 1:3 as between the Softline Group's Russian and non-Russian businesses.

The Bonus Issuance requires approval from Softline securityholders ("Softline Securityholders"). The Company has today published a shareholder circular and convened a general meeting to allow Softline Securityholders to vote on the Bonus Issuance (the "General Meeting"). The Transaction is also conditional upon Russian regulatory approval.

The Board considers that the Transaction and the passing of the resolutions set out in the shareholder circular are in the best interests of the Company and Softline Securityholders taken as a whole. Accordingly, the Board unanimously recommends voting in favour of the Resolutions to be proposed at the General Meeting. The Founder, in his capacity as a Director, did not participate in and abstained from voting in the relevant meetings of the Board to consider and approve the Transaction.

Further details on the rationale for the Transaction and the Transaction structure is set out below and in the shareholder circular. Softline Securityholders should read the shareholder circular which contains full details on the Transaction, details of the resolutions and the General Meeting, as well as information on how to vote and action to be taken in respect of the Transaction. Full details and the notices are published in the Investor Relations section of Softline.com https://softline.com/investor-relations.

Rationale for the transaction:

The announcement of the Transaction follows a review initiated by Softline in May 2022 to adjust the Softline Group's assets and ownership structure in order to optimise value for all of its stakeholders. The review was initiated on the basis that the Softline Group's Russian and non-Russian businesses increasingly differ in their operations, priorities, and go-to-market strategies. Recent geopolitical events have led to major changes in the Russian technology market. International vendors have abruptly stopped their local operations, effectively changing the landscape of available technologies. Operational issues, including difficulties executing international payments and newly introduced regulations, also mean that Softline in Russia is facing a very different business climate.

From a shareholder's perspective, the recent events have also led to, amongst other things, a disconnect between the LSE and MoEX which has made trading GDRs more difficult. This has resulted in a collapse in liquidity of the GDRs and given that there are no trading volumes, it is not possible for investors to accurately determine the current value of the Softline Group. This has also impacted the Softline Group's employees as the Company has been unable to implement the Long-Term Employee Partnership Programme.

The Directors believe that the differences between the Russian technology market and the international technology market, outside Russia, will remain for the foreseeable future. The lack of liquidity in the GDRs is also likely to remain for the foreseeable future.

As a result of the strategic review, the Board has resolved to separate Softline's Russian businesses (the "Softline Russia Group") from the Softline Group. The Board believes this will allow Softline Global to better serve its customers, and to capitalise on its distinct growth strategy and to optimise value.

In connection with the Transaction, the business outside Russia will become "Softline Global", although the Board expects this name to change as Softline Global rebrands following the completion of the Transaction. Softline Global intends to retain the Company's LSE listing.

Softline remains committed to protecting the interests of all its stakeholders, including shareholders, employees, customers and vendors, and believes the Transaction is in the best interests of Softline Securityholders taken as a whole. Ongoing geopolitical events have had a disproportionate impact on Softline's market value, and the separation of its Russian and international businesses is designed to support a path to a more rational valuation for Softline Global that reflects the strong profitable growth, portfolio, capabilities, and fundamental value.

This change will also enable employees to benefit from the market-leading Long-Term Employee Partnership Programmes in each of the companies, therefore allowing the two separate groups to attract and retain talented professionals, and further supporting the owner-operator culture of both groups.

Softline recently announced strong results for Q1 FY2022 ending June 30, 2022, with strong gross profit growth of 25% overall, and constant currency turnover growth of 44% in its international business, which now represents more than 50% of Softline overall. The company has a very strong balance sheet and cash position.

Process in relation to Transaction structure:

The Company has undertaken an extensive process, committed significant time and resources, and incurred significant cost over the last few months to design and implement a transaction structure to effect the separation of Softline Group's Russian business in a very challenging and evolving regulatory and business environment. The objective of the process was to find a solution that equitably protects all Softline Securityholders, while also being able to effect the separation in a timely manner. Amongst other matters, the Company and its advisers sought to implement a structure that provided Softline Securityholders with the option of receiving shares in the Russian business if they wished to do so.

However despite the Company's best efforts, given complex sanctions environment, it was not possible to find a structure to provide that option to Softline Securityholders. In particular, EU asset freezing sanctions on the NSD, which has effectively blocked the operations between Euroclear and NSD, made it impossible to effect any distribution of Russian shares to Softline Securityholders who hold their securities through the clearing systems. Consequentially the only option practically available is  a straight forward distribution of SLH Securities to Softline Securityholders to compensate them for the value dilution caused by the sale of the Russian business.

Accordingly, the Board has determined the Transaction structure is the only viable transaction structure practically available to it, given the vital importance and urgency in needing to separate the two businesses, while protecting the interests of Softline Securityholders. Softline Russia will continue to explore options to enable Softline Securityholders in Russia to participate in SLR following completion of the Transaction (if they wish to do so).

Structure of the Transaction:

As noted above, the Separation will be effected through a sale of 100 per cent. of the share capital of JSC Softline Trade (being the holding company of SLR) to the Founder (or an entity controlled by the Founder), for a consideration of USD1 and a dilution of the aggregate shareholding of the Founder and of SGI Limited (an entity controlled by the Founder and the largest shareholder in the Company) in the Company.

To compensate Softline Securityholders for the value dilution caused by the sale of the Russian business, the Company proposes to proceed with the Bonus Issuance to all Softline Securityholders (other than the Founder and SGI Limited). Softline Securityholders who participate in the Bonus Issuance will do so in the following ratio:

Participating Softline Securityholders will receive 0.6066 Bonus SLH Securities for each SLH Security that they hold at the Bonus Issuance Record Time

The Founder's shareholding (and the shareholding of SGI Limited) in the Company is therefore expected to fall from approximately 53 per cent. to approximately 44 per cent. following completion of the Transaction. The payment of USD1 ensures that the Company directly receives some consideration for the sale by it of SLR, given that the dilution of the Founder's interest in the Company benefits the other Softline Securityholders and not the Company directly. 

The Bonus Issuance is conditional upon the passing of the resolutions by Softline Securityholders at the General Meeting. The Separation is conditional upon Russian regulatory approval.

While it is the intention of the Company to proceed with the Separation and the Bonus Issuance at the same time, the Separation is not conditional upon the Bonus Issuance may therefore proceed independently of (or without) the Bonus Issuance if the Board determines it to be in the best interests of the Company and Softline Securityholders as a whole. This may be the case if the Russian regulatory approval to effect the Separation is obtained prior to the General Meeting (or if the Resolutions are not approved at the General Meeting) and the urgency of the Separation is such that the Board determines to proceed with the Separation independently of the Bonus Issuance. 

While the Separation is not conditional on the Bonus Issuance occurring, the Bonus Issuance is conditional on the Separation occurring. Accordingly, if the Separation does not proceed for any reason, the Bonus Issuance will not proceed.

The Board believes that the Transaction structure to be the only viable transaction structure available to it, given the vital importance and urgency in needing to separate the two businesses, while protecting the interests of Softline Securityholders.

Indicative timetable of key dates:

It is expected that, subject to the successful passing of the resolutions, and obtaining Russian regulatory approval, the Transaction will be completed in early to mid-November 2022.

Set out below is an indicative timetable of key dates (which are subject to change).

Jacques Guers, Chairman of the Board of Directors of Softline Group noted:

"Softline remains committed to protecting the interests of all its stakeholders, including shareholders, employees, customers and vendors. We have undertaken an extensive process over the last few months to design and implement a transaction structure in the context of a very challenging and evolving regulatory and business environment. The Board has determined that this is the only viable way forward given the vital importance and urgency in needing to separate the two businesses. The Board considers that the transaction announced today, and the passing of the Resolutions are in the best interests of the Company and Softline Securityholders. The changes we have outlined will enable both companies to better serve customers, and will allow employees to benefit from the market-leading Long-Term Employee Partnership Programmes. Looking ahead, we have the right leadership team in place, who bring a vast depth of experience, and we have a very strong foundation for success. The changes will position us very well as we continue to partner with our customers in driving digital transformation and cyber security solutions and services globally, and therefore benefiting stakeholders of both companies."

Sergey Chernovolenko, Chief Executive Officer said:

"I am very proud to lead a company driven by a talented team who do incredible work for our customers in over 60 countries around the world. Softline Group's success depends fully on our people, their capabilities, motivation and constant development. Together, we have built a great company, with a very strong track record for growth, and this provides a solid foundation for the next chapter for both independent organisations that will be leaders in their markets, Softline Russia and Softline Global. During this time of unprecedented change in our history, we have demonstrated an unwavering focus on delivering tangible value for our customers, while driving strong business results in line with our commitment to shareholders. It is an honour for me to lead Softline during this extremely important business period in our history, and I am confident that both companies will continue their progress with investments, growth and strategic initiatives to strengthen their leadership."

About Softline

Softline today is a leading global solutions and services provider in digital transformation and cyber security, with its headquarters in London. The company enables, facilitates and accelerates the digital transformation of its customers' businesses, connecting over 150,000 organizations from all industries with over 6,000 best-in-class IT vendors, and delivering its own services and solutions.  Foundation of Softline's growth is so-called three-dimensional strategy, which includes geographic, portfolio and sales channel expansion. This strategy is supported by energetic M&A activity, so Softline is benefiting from the on-going consolidation of the industry.

Thanks to this strategy, Softline is currently one of the fastest growing companies in the sector. Softline delivered turnover of US$2.2 billion in fiscal year 2021. In October 2021, the company conducted a primary listing on the London stock exchange.

Softline's 8,400 employees work in almost 60 countries throughout Asia, Latin America, Eastern Europe, Middle East and Africa - markets with significant growth potential.