24 Dec 2010 07:00
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN OR SOUTH AFRICA
23 December 2010
JJB Sports plc
Statement re current trading, financing of the business and board changes
Further to its announcement regarding current trading and the future financing of the business on 2 December 2010, the Board of JJB Sports plc ("JJB Sports" or the "Company") is pleased to announce details of a number of measures to strengthen the short term financing of the business. These measures involve the support of each of its key stakeholder groups and include:
·; agreements in principle with each of Harris Associates and Crystal Amber, the Company's two largest shareholders, with Invesco Perpetual, the major shareholder in Crystal Amber, and with Bill & Melinda Gates Foundation Trust and GoldenPeaks Capital (together the "Proposed Investors") to support a proposed capital raising of at least £31.5 million by way of a firm placing and placing and open offer at 5 pence per new ordinary share; and
·; an agreement with the Company's lender Bank of Scotland ("BoS") to waive the January 2011 covenant tests in the Company's £25 million revolving facility on the basis of the proposed capital raising.
In addition, the Board announces the decision of John Clare to step down as Chairman and the appointment of Mike McTighe in his place and the appointment of Dave Williams as Chief Financial Officer in succession to Lawrence Coppock. The Company has also agreed in principle, subject to completion of the proposed capital raising, to offer non-executive board representation to certain Proposed Investors.
Each of the Company's key stakeholders welcomes the steps taken by management to strengthen the short term financing of the business and each has expressed its continued support for the business. In particular, the Company remains an important strategic partner of adidas group and Nike, who remain supportive of JJB Sports and its future plans.
Current trading and financial position
On a like-for-like (excluding VAT) basis (revenues from operating units that have been trading for over 52 weeks), revenue for the period 2 August 2010 to 19 December was 1.6% higher than for the same period last year. Total group revenue for the same period was up 1.0% year-on-year.
Overall gross margin for the same period was 37.0%.
Year-to-date like-for-like sales are up 8.5% compared to the equivalent period last year. Year-to-date gross margin is 39.9%.
In its Interim Management Statement issued on 11 November 2010 and in the Trading Update given on 2 December 2010, the Company referred to the challenging conditions for UK retailers, exacerbated by the recent weather conditions. These conditions have continued into the pre-Christmas trading period and, alongside continuing in store stock availability issues, have significantly affected sales; like-for-like sales for the period from 8 November 2010 to 19 December 2010 have decreased by -15.7% compared with the equivalent period last year. Gross margin for the same period was 35.4% compared with 45.3% in the equivalent period last year.
As previously noted by the Company, the performance of the six transformed stores remains encouraging. In the period from 1 November 2010 (following the final store refurbishment) to 19 December 2010, sales in these six stores were 14.0% above the Company average and money margin was 19.7% above the Company average.
Net debt at 19 December 2010 was £21.4 million. The Company is prudently managing its cash within the headroom of its revolving facility. With the mitigating actions that Directors are taking, the Directors currently believe that the Company has sufficient funds to enable it to operate within its cash headroom pending receipt of the proceeds of the proposed capital raising. However, the ability of the Company to operate within its cash headroom is dependent on trading over the important Christmas and New Year period and trading conditions in general.
Proposed financing arrangements
As highlighted in its Half Year Results published on 28 September 2010, the Company's forecasts at that time did not show any funding shortfalls or breaches of the financial covenants in its revolving facility for the 12 month period from that statement. Trading since that date has been difficult (as highlighted in the Interim Management Statement on 11 November 2010 and in the Trading Update on 2 December 2010) and below management's expectations. As announced on 2 December 2010, the Company now believes that it will breach certain financial covenants.
In order to provide the Company with access to additional working capital and to assist management to trade through these challenging trading conditions, the Board has agreed a number of measures to strengthen the short term financing of the business including agreements in principle with each of the Proposed Investors to support a proposed capital raising of at least £31.5 million at 5 pence per new ordinary share and an agreement with BoS to waive the January 2011 covenant tests in the Company's £25 million revolving facility.
These measures, welcomed by the Company's key stakeholders, will provide management with the opportunity to continue to develop and complete its business plan with input from the new Chairman and Chief Financial Officer.
Proposed capital raising
The Company has reached agreements in principle with each of the Proposed Investors to support a proposed capital raising to raise gross proceeds of at least £31.5 million. The new ordinary shares will be issued at an issue price of 5 pence per share, representing a premium of 25 per cent to the closing price of 4 pence per share on 22 December 2010.
If the capital raising proceeds, it is expected to raise net proceeds of approximately £30 million for the Company. Whilst these net proceeds will assist the Company to continue to trade in the short term, the Board does not believe that the proposed capital raising will address the Company's medium and longer term working capital requirements. The longer term funding requirements of the Company will be assessed once management has completed its work on the business plan.
The Board proposes to structure the capital raising as a firm placing and placing and open offer, with 50 per cent of the new ordinary shares placed on a firm basis with the Proposed Investors and 50 per cent placed on a conditional basis with the Proposed Investors subject to the right of all existing shareholders to subscribe for such conditionally placed shares in the open offer. The Board believes that it is appropriate that all existing shareholders be invited to participate in such a large capital raising as that currently being contemplated by the Board.
On the basis that the proposed capital raising raises gross proceeds of £31.5 million, with proposed investments in the capital raising of £11.9 million from Harris Associates, £4.5 million from Crystal Amber, £11.6 million from Invesco Perpetual, £1.5 million from Bill & Melinda Gates Foundation Trust and £2 million from GoldenPeaks Capital, the respective holdings of the Proposed Investors prior to and following the proposed capital raising would be as follows:
Name of investor | Existing percentage shareholding in the Company | Percentage shareholding following the capital raising (assuming other existing shareholders do not take up any of their entitlements under the open offer) | Percentage shareholding following the capital raising (assuming all existing shareholders take up their full entitlements under the open offer) |
Harris Associates | 20.0% | 28.7% | 24.4% |
Crystal Amber | 15.8% | 15.0% | 15.4% |
Bill & Melinda Gates Foundation Trust | 5.5% | 5.1% | 5.3% |
GoldenPeaks Capital | 3.0% | 4.7% | 3.8% |
Invesco Perpetual | 0.0% | 18.1%
| 9.1%
|
Total | 44.3% | 71.7% | 58.0% |
The support from the Proposed Investors is provided subject to a number of customary conditions including but not limited to the execution of legally binding placing letters, the preparation and publication by the Company of a shareholder circular and a prospectus in accordance with the requirements of the Listing Rules and the Prospectus Rules, receipt by the Company of necessary shareholder approvals for the capital raising, including compliance with the City Code as necessary, and admission of the new ordinary shares to listing on the premium segment of the Official List and to trading on the London Stock Exchange.
It is not intended that the capital raising would be underwritten, but the Company intends to secure receipt of the gross proceeds of at least £31.5 million through legally binding commitments from the Proposed Investors to subscribe for up to all of the new ordinary shares to be issued as described above. In consideration for these binding commitments and in lieu of placing commissions and recognition of the Proposed Investors' intention to invest at a premium of 25 per cent to the closing share price of 4 pence per share on 22 December 2010, on completion of the capital raising the Company proposes to issue warrants to the Proposed Investors to subscribe for further new ordinary shares in the Company. Whilst the final terms of the warrants are yet to be agreed and will be subject to shareholder approval, it is currently envisaged that on completion of the proposed capital raising the Proposed Investors will be granted warrants to subscribe for not more than 20 per cent of the Company's issued share capital from time to time over a 3 year period at a subscription price of 5 pence, or, if lower, the then current market price (subject to an appropriate share capital reorganisation approved by shareholders as part of the proposed capital raising as referred to below). The warrants will be allocated pro rata for the level of firm commitment of each Proposed Investor and are not subject to clawback. The full terms of the warrants will be set out in the prospectus to be published in connection with the proposed capital raising.
In addition, subject to the proposed capital raising proceeding as envisaged, the Company has agreed in principle to pay Crystal Amber a fee in connection with the introduction of certain of the Proposed Investors in an amount equal to 5 per cent of the gross amount firmly committed by such Proposed Investors in the proposed capital raising. This fee is payable on receipt of funds from the proposed capital raising and is payable in shares or cash at the sole discretion of the Company.
In connection with the proposed capital raising, the Company also intends to seek shareholder consent for a sub-division and subsequent consolidation of its ordinary share capital.
The Board may also seek to raise an increased amount of capital from further strategic investors who would participate on the same terms as Proposed Investors for the purposes of the proposed capital raising.
Further details of the proposed capital raising will be made available in due course. The Company currently expects to launch the proposed capital raising and to publish a shareholder circular and prospectus in January 2011 and to hold a general meeting of shareholders and receive the net proceeds of the proposed capital raising in February 2011.
Arrangements with BoS
As previously announced, the Company has been actively engaged in constructive discussions with BoS and its advisers in relation to the testing of certain financial covenants at the end of January 2011 in the £25 million revolving facility provided by BoS.
The Company is pleased to announce that BoS has agreed to a waiver of the January 2011 covenant tests. In connection with this waiver, the Company has agreed that it will be a default under the facility if the proposed capital raising fails to proceed. On the assumption that the capital raising proceeds, BoS has indicated its willingness to negotiate in good faith further amendments to the facility agreement.
A fee of £100,000 is payable to BoS in respect of the amendments to the banking facilities.
Board changes and Proposed Investor board representation
Board changes
The Company announces today that John Clare, JJB's Chairman since 31 January 2010, will step down with immediate effect. The Board would like to thank John for his significant contribution since July 2009, when he joined the Board as senior independent non-executive director.
The Company is delighted to announce that Mike McTighe has accepted the role of Chairman, again with immediate effect. Mike currently serves as Chairman of Pace plc, Volex Group plc and WYG Group plc, and is the senior independent non-executive director of Betfair Group plc. He is also a member of the Board of Directors of OFCOM (the United Kingdom's Office of Communications). He was recently voted the UK Quoted Companies 2010 Chairman of the Year. Mike previously served as a director of Alliance & Leicester plc, Chairman and CEO of Carrier1 International SA, and before that as Executive Director and Chief Executive, Global Operations of Cable & Wireless.
John Clare commented, "During my year as Chairman of JJB Sports, the Company has successfully begun the task of creating the foundations for future growth as the 'Serious about Sport' retailer. In light of recent trading conditions, we have also been looking at corporate restructuring and financing options for the business. During this process, it has become clear to me that the Company will benefit from having a Chairman with restructuring experience to complement Keith Jones' retailing skills, and I suggested to the Board that I step aside from the Chairman's role to be replaced by Mike McTighe. I'm delighted Mike has agreed and I wish him, the Board and the Company well."
As announced on 18 August 2010, Lawrence Coppock, the Finance Director, has previously signalled his wish to step down from his post. The Company is delighted to announce the appointment of Dave Williams to the Board as Chief Financial Officer, effective 17 January 2011, on which date Lawrence Coppock will resign as Finance Director and after an appropriate handover period leave the Company. Dave Williams joins from TJ Hughes Limited where he has held the position of Finance and IT Director since 2008. Before that, he worked in a number of senior finance roles at Focus DIY Group Limited, latterly as Group Finance Director. A Fellow of the Institute of Chartered Accountants and a former Director in the Transaction Services division of KPMG, Dave will bring a wealth of retail based turnaround experience to the Board.
Mike and Dave have each advised that there are no further details to be disclosed in accordance with Listing Rule 9.6.13.
Proposed Investor board representation
Finally, the Company has also agreed in principle, subject to completion of the proposed capital raising, to offer non-executive Board representation to certain Proposed Investors. Full details of the proposed non-executive Board representation following the proposed capital raising and details of the relationship between the Company and the Proposed Investors will be set out in the prospectus to be published in connection with the proposed capital raising.
Commenting on the package of proposed measures, Keith Jones, Chief Executive, said, "I welcome this package of measures and appreciate the support shown by our key stakeholders. The successful completion of the proposed capital raising will represent a significant step forward in strengthening the short term financing of the JJB Sports business. Despite the generally challenging trading conditions, we are encouraged by the performance of our six transformed stores. The Board and my new executive team remain excited by the 'Serious about Sport' opportunity and committed to delivering our turnaround plan. Finally, I would like to thank John Clare for his support and contribution to the business and look forward to working with Mike McTighe in the next stage of the restructuring and turnaround of JJB Sports."
Enquiries
JJB Sports plc 01942 221 400
Keith Jones
Lawrence Coppock
Richard Manning
Maitland 020 7379 5151
Neil Bennett
Emma Burdett
Lazard 020 7187 2000
Melanie Gee
Charlie Foreman
A copy of this press release can also be viewed on the JJB Sports plc corporate website,
www.jjbcorporate.co.uk.
About JJB Sports
JJB Sports plc (JJB: LSE) is one of the UK's leading sports retailers. The Group, headquartered in Wigan and listed on the Main Market of the London Stock Exchange, trades from 247 JJB branded retail stores in the UK and Ireland and employs over 6,300 people. Further information about the Group can be found on the Group's corporate website, www.jjbcorporate.co.uk.
Important notice
Lazard & Co., Limited, which is authorised and regulated in the UK by the Financial Services Authority, is acting for JJB Sports and no-one else in connection with the proposed capital raising and will not regard any other person (whether or not a recipient of this announcement) as a client in relation to the proposed capital raising and will not be responsible to anyone other than JJB Sports for providing the protections afforded to its clients or for providing advice in relation to the proposed capital raising or any other matters referred to in this announcement.
This announcement is not a prospectus but an advertisement and investors should not subscribe for any new ordinary shares referred to in this announcement except on the basis of the information contained in the prospectus. This announcement does not constitute an offer to sell, or a solicitation of an offer to subscribe for the new ordinary shares being issued in connection with the proposed capital raising, in any jurisdiction in which such offer or solicitation is unlawful.
The distribution of this announcement and/or the prospectus to be published in connection with the proposed capital raising into jurisdictions other than the United Kingdom may be restricted by law. Persons into whose possession this announcement comes should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.
In particular, the information contained in this announcement is not for publication or distribution, directly or indirectly, in or into the United States of America (including its territories and possessions, any state of the United States and the District of Columbia), Australia, Canada, Japan or South Africa. This announcement does not contain or constitute an offer for sale or the solicitation of an offer to purchase securities in the United States, Australia, Canada, Japan or South Africa. The securities referred to herein have not been and will not be registered under the Securities Act of 1933, as amended (the "Securities Act"), and may not be offered, sold, taken up, exercised, resold, renounced, transferred or delivered in the United States absent registration or an exemption from the registration requirements of the Securities Act. There will be no public offer of the securities referred to herein in the United States.
Neither the content of the JJB website nor any website accessible by hyperlinks on the JJB website is incorporated in, or forms part of, this announcement.
Certain statements made in this announcement constitute forward-looking statements. Forward looking statements can be identified by the use of words such as "may", "will", "expect", "intend", "estimate", "anticipate", "believe", "plan", "seek", "continue" or similar expressions and relate to, among other things, the performance of the business of JJB Sports in the near to medium term, the business strategy of JJB Sports and its plans and objectives for future operations. Such statements are based on current expectations and, by their nature, are subject to a number of risks and uncertainties that could cause actual results and performance to differ materially from any expected future results or performance, expressed or implied, by the forward-looking statement. Factors that might cause forward looking statements to differ materially from actual results, include among other things, general economic conditions in the United Kingdom. These forward-looking statements speak only as of the date of this announcement. The information and opinions contained in this announcement are subject to change without notice and, subject to compliance with applicable law, JJB Sports assumes no responsibility or obligation to update publicly or review any of the forward-looking statements.