Last checked at 17 Mar 2016 09:00
Caffyns Plc
(Caffyns" or the "Company")
Proposed disposal (the "Disposal") of the Company's Land Rover Dealership in Lewes, East Sussex (the "Land Rover Business")
Caffyns announces that it has entered into an agreement (the "Sale and Purchase Agreement"), conditional upon the approval of holders of the Company's Ordinary Shares ("Ordinary Shareholders"), to sell the business and assets (excluding the freehold property) of the Land Rover Business to Harwood Limited (the "Buyer"). The consideration for the Land Rover Business, payable on completion of the Disposal, which is expected to be 29 April 2016 ("Completion"), is £5.7 million plus an amount to be agreed at Completion for vehicle and parts stock in the Land Rover Business at Completion (the "Consideration").
The Company has been informed that its current five year contract with Jaguar Land Rover Limited ("JLR") as an authorised dealer of new Land Rovers will not be renewed when it expires on 31 May 2016. The board of the Company (the "Board") therefore believes that the Disposal represents the best value for the Company and its shareholders as a whole.
Highlights
· Cash consideration for the Disposal of £5.7 million plus an amount for stock to be established at Completion. For illustrative purposes the value of vehicle and parts stock in the Land Rover Business at 29 February 2016 was £3.2 million;
· The Consideration will be used to reduce the Company's overall borrowings significantly in the short term, with the flexibility to reinvest in the ongoing Caffyns businesses following Completion (the "Continuing Business");
· Ownership of the freehold property in Lewes from which the Land Rover Business operates (the "Property") will remain with the Company, and will be leased to the Buyer for a period of up to three years from Completion subject to a two year tenant only break clause (the "Lease");
· Completion of the Disposal, which is a Class 1 Transaction under the Listing Rules, is conditional upon Ordinary Shareholder approval, to be sought at a general meeting of the Company to be convened for 2:30 p.m. on 21 April 2016 at 4 Meads Road, Eastbourne, East Sussex, BN20 7DR (the "General Meeting"); and
· The Board will recommend that Ordinary Shareholders vote in favour of the ordinary resolution to be proposed at the General Meeting to approve the Disposal (the "Resolution"). The Company has received irrevocable undertakings to vote in favour of the Resolution from Ordinary Shareholders, including the Board, who have beneficial interests in respect of, in aggregate, 583,366 Ordinary Shares (representing approximately 21.1 per cent. of the Company's issued Ordinary Shares).
A circular, containing full details of the Disposal and a notice convening the General Meeting (the "Circular") will be posted to Caffyns' shareholders later today. A copy of the Circular can be downloaded from the Company's website at www.caffynsplc.co.uk.
A copy of the Circular will also be submitted to the National Storage Mechanism and, once submitted, will be available for inspection at www.morningstar.co.uk/uk/NSM.
Enquiries:
Caffyns Plc | Simon Caffyn, Chief Executive | Tel: | 01323 730201 |
| Mark Harrison, Finance Director |
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Arden Partners plc | Steve Douglas | Tel: | 0207 6145900 |
(Sponsor to the Company) | Ciaran Walsh |
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Altium | Tim Richardson | Tel: | 0207 4844040 |
(Financial Adviser to the Company) | Declan O'Connor |
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The above highlights should be read in conjunction with the full text of the following announcement.
Capitalised terms used herein but not defined have the same meanings as set out in the Circular.
Arden Partners plc, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting exclusively for Caffyns Plc and for no one else in relation to the Disposal and is not advising any other person and accordingly will not be responsible to anyone other than Caffyns Plc for providing the protections afforded to the customers of Arden Partners plc or for providing advice in relation to the Disposal or any other matter referred to herein.
Altium Capital Limited, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting exclusively for Caffyns Plc and for no one else in relation to the Disposal and is not advising any other person and accordingly will not be responsible to anyone other than Caffyns Plc for providing the protections afforded to the customers of Altium Capital Limited or for providing advice in relation to the Disposal or any other matter referred to herein.
Caffyns Plc
(Caffyns" or the "Company")
Proposed disposal (the "Disposal") of the Company's Land Rover Dealership in Lewes, East Sussex (the "Land Rover Business")
Introduction
The Board announces that the Company has entered into the Sale and Purchase Agreement to sell the business and assets (excluding the Property) of the Land Rover Business located in Lewes, East Sussex to Harwoods Limited. The Consideration is £5.7 million plus an amount for vehicle and parts stock to be established as at Completion (for illustration purposes only, this figure was £3.2 million as at 29 February 2016), and is payable in cash on Completion.
In accordance with the Listing Rules, the Land Rover Business is of such a size relative to the Company that the Disposal constitutes a Class 1 Transaction and is, therefore, conditional upon the approval of Ordinary Shareholders at a General Meeting.
Background to and reasons for the Disposal
On 1 June 2011, the Company entered into a renewed contract with JLR as an authorised dealer of new Land Rovers for a five year fixed term (the "Dealership Agreement"). The Dealership Agreement is due to expire on 31 May 2016.
Since then, JLR has undertaken a fundamental re-evaluation of its franchise territories in the UK and has concluded that its Land Rover dealerships should be consolidated into larger geographic groups and amalgamated, where possible, with Jaguar dealerships. This is evidenced by the high number of Land Rover dealerships which have recently changed hands. As part of this consolidation, JLR has decided that a new combined Jaguar and Land Rover dealership should be located in the Brighton and Hove conurbation. Caffyns, with a single Land Rover dealership based in Lewes and covering the East Sussex area, has not been selected by JLR as a consolidator in this reorganisation, despite the Land Rover Business materially growing both revenue and profits in the year ended 31 March 2015, trading profitably in the six months ended 30 September 2015 and being ranked 38th out of 117 UK dealerships in Land Rover's most recent relative overall performance assessment.
Prior to the expiry of the Dealership Agreement on 31 May 2016, JLR has provided the Company with an opportunity to negotiate the sale of the Land Rover Business to the Buyer, JLR's chosen franchisee, which operates six Land Rover dealerships and four Jaguar dealerships (including one in Hove) in the surrounding territories and can address JLR's requirement for an amalgamated dealership. Due to the limited alternative options available to it, the Board has agreed the Disposal with the Buyer on the terms set out in the Sale and Purchase Agreement.
The Board believes that the Disposal represents the best value for the Company and its shareholders as a whole. The granting of a short-term lease of the Property to the Buyer in connection with the Disposal provides the Buyer with time to establish the combined facility required by JLR and also represents an opportunity for the Company to continue to generate income from the Property and offset some of the profitability lost with the Disposal. Additionally, the Consideration payable to the Company for the Land Rover Business will enable the Company to invest in alternative opportunities.
The Board highlights that, in the absence of the Disposal, on the expiry of the Dealership Agreement on 31 May 2016, Caffyns would no longer be an authorised Land Rover dealer and would be unable to offer new Land Rovers for sale from its Lewes site. The Board emphasises that the goodwill the Company has built up through the Land Rover Business over many years would diminish substantially in value if the Disposal is not approved.
Information on the Land Rover Business
The Land Rover Business has been conducted from the current site in Lewes (the county town of East Sussex) since 1986. Following major site expansion and redevelopment works in 2012, the Property is currently a modern, well invested premises, incorporating showrooms, workshop facilities, car parking and display areas.
The table below summarises the trading performance of the Land Rover Business for the three years and six months ended 30 September 2015:
Six months ended 30 September 2015 £000's | Year ended 31 March 2015 £000's | Year ended 31 March 2014 £000's | Year ended 31 March 2013 £000's | |
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Revenue | 21,791 | 37,293 | 30,917 | 28,214 |
Operating costs excluding depreciation, amortisation and impairment | (21,144) | (36,037) | (29,940) | (27,823) |
Earnings before interest, tax, depreciation and amortisation | 647 | 1,256 | 977 | 391 |
Operating profit | 597 | 1,157 | 873 | 273 |
Finance expense | (111) | (154) | (146) | (153) |
Profit before taxation | 486 | 1,003 | 727 | 120 |
In the year ended 31 March 2015, the Land Rover Business accounted for 17.7 per cent. of the Company's revenue and 40.6 per cent. of the Company's underlying profit before taxation. The underlying profit before taxation excludes non-underlying items that are unusual because of their size, nature or incidence.
Principal terms of the Disposal
The Sale and Purchase Agreement between the Company and the Buyer entered into on 16 March 2016 sets out the terms of the Disposal pursuant to which the Buyer has agreed to acquire the Land Rover Business from the Company for the Consideration of £5.7 million plus an amount for stock to be established as at Completion (for illustration purposes only, this figure was £3.2 million as at 29 February 2016), payable in cash on Completion.
The Sale and Purchase Agreement is conditional upon the approval of the Resolution by Ordinary Shareholders at the General Meeting.
As part of the terms of the Disposal, and with effect from Completion, the Buyer will enter into the Lease with the Company for the Property from where the Land Rover Business currently trades. The Lease will be for a term of up to three years at an initial rent of £490,000 per annum for the first two years and £390,000 for the final year. There will be a tenant-only break clause exercisable at any time after 18 months by the Buyer giving to the Company six months' notice, such notice not to expire before the date which is 24 months following the commencement of the Lease.
Assuming that the Ordinary Shareholders approve the Resolution at the General Meeting, Completion is expected to occur on or around 29 April 2016.
Use of the Disposal proceeds
The Consideration for the Disposal to be paid to the Company on Completion will, in the short-term, be utilised to significantly reduce the Company's overall borrowings and the associated servicing costs.
The terms of the Company's debt facilities allow the Company considerable flexibility in reinvesting the Consideration. The Board is reviewing the Company's options in this regard, both for the Continuing Business and for complementary new investments, which it believes can assist in replacing the revenue and profits derived from the Land Rover Business.
Information on the Continuing Business
Caffyns is one of the leading motor retail and aftersales companies in the south-east of England. Its principal activities are the operation of franchised motor car dealerships from which it undertakes the sale of new and used motor vehicles and their maintenance as well as the sale of tyres, oil, parts and accessories. In 2015, the Company celebrated its 150th year of operations.
The Company has a strategy of focusing on the premium and premium-volume market where the Board believes there is greater scope to delivering stronger sales, profits and returns. By representing multiple marques, the Board believes the diversity of the Company's operations reduces the potential impact of the loss of any one franchise. Following Completion, the Continuing Business will consist of a portfolio of six franchises of the Audi, Seat, Skoda, Vauxhall, Volkswagen and Volvo marques, operating from 12 dealerships in Sussex and Kent.
The General Meeting
Completion of the Disposal is conditional upon Ordinary Shareholder approval at the General Meeting to be convened for 2.30 p.m. on 21 April 2016 at Meads Road, Eastbourne, East Sussex BN20 7DR.
At the General Meeting, the Resolution, which will be an ordinary resolution, will be proposed to approve the Disposal.
Voting undertakings
The Company has received irrevocable undertakings to vote in favour of the Resolution from Ordinary Shareholders who have a beneficial interest in respect of 583,366 Ordinary Shares (representing approximately 21.1 per cent. of the issued Ordinary Shares).
This includes irrevocable undertakings to vote in favour of the Resolution received from the Directors, who between them hold in aggregate 106,976 Ordinary Shares (representing approximately 3.9 per cent. of the issued Ordinary Shares).
Board recommendation
In the Board's opinion, the Disposal is in the best interests of the Company and its shareholders as a whole.
Accordingly the Board will unanimously recommend that Ordinary Shareholders vote in favour of the Resolution to be proposed at the General Meeting as the Directors intend to do in respect of their own beneficial holdings of Ordinary Shares amounting, in aggregate, to 106,976 Ordinary Shares (representing approximately 3.9 per cent. of the issued Ordinary Shares).
The Circular
The Circular, setting out full details of the Disposal and the Board's recommendation that Ordinary Shareholders vote in favour of the Resolution to approve the Disposal, and containing a notice convening the General Meeting is expected to be posted to the Company's shareholders later today.
A copy of the Circular will also be made available on the Company's website at www.caffynsplc.co.uk