Logistics Dev Regulatory News (LDG)

16 Mar 2006 07:44

Legacy Distribution Group Inc16 March 2006 Legacy Distribution Group Inc. Admission to trading on AIM Legacy Distribution Inc. ("Legacy" or the "Group"), one of Arizona's leadingcandy, cigarettes, tobacco products and groceries wholesalers and distributors,announces today that dealings in its shares have commenced on AIM under thesymbol LDG. The principal reason Legacy has floated on AIM is to enhance its ability to payfor acquisitions by enabling it to issue publicly traded securities and allow itto follow a strategy of growth, whilst avoiding the costly regulatoryrequirements of a US listing. The flotation will also raise Legacy's profileand allow the Company to incentivise staff. ADMISSION STATISTICS Price on admission 10pMarket capitalisation on Admission £7.3 million/$13 millionNumber of Ordinary Shares in issue on Admission 73,446,328 Legacy was founded in 1955 and is primarily engaged in the distribution oftobacco, cigarettes, candy and grocery products to independent retailers. TheGroup has a 50 year trading record, and is licensed and bonded for tobaccodistribution by the states of Arizona and Nevada, as well as by five NativeAmerican Tribes. The Group currently serves approximately 1,300 customers in over 2,200 retaillocations. Customers comprise almost all of the major grocery chains in thestate of Arizona as well as independent grocery stores, liquor stores, smokeshops, convenience stores, petrol stations and licensed casinos operated byNative American Tribes. It also serves businesses in the states of Nevada andNew Mexico. Frank Patton, chief executive, commented on the float: "Now that our sharesare quoted on AIM we can really start to drive the business forward. There area number of ways in which we intend to grow the business, both organically andby acquisition, and I look forward to delivering shareholder value in thefuture." Legacy Distribution Group Inc. Frank Patton, chief executive 00 1 602 344 6750 Corporate Synergy Oliver Cairns / Romil Patel 00 44 207 448 4400 Tavistock Communications Richard Sunderland / Rachel Drysdale 00 44 207 920 3150 The business Background The business was founded in 1955 by the Wendelken family. For 49 years thebusiness was family run and focussed primarily on Native American Triballocations as well as retail smoke shops. Over the years it continued to expandits customer base and geographical reach in Arizona. In August 2004 the businesswas acquired by a new management and consultant team. The management team soughtand obtained financial sponsorship by an investor group that recognised theopportunity to increase the Group's market presence and that a moresophisticated management system and strategy would accelerate the Group'shistoric financial performance. As part of the new strategic plans proposed, theGroup obtained a credit facility from a major US financial institution to pursuesubstantial new contracts such as that with Albertsons. When the business was acquired the majority of the Group's sales derived fromtobacco and cigarettes, with an immaterial portion from other items located nearthe check out location in retail stores. In the second quarter of 2005, Legacyintroduced grocery items to its range of products which allowed the Group toaccelerate the transition from its former selling strategy to the inclusion ofhigher margin products and more diversified income streams. Products The Group's breakdown of product segments as a proportion of turnover arecurrently as follows: Cigarettes 72 per cent.Other tobacco 13 per cent.Groceries (to include food, candy, beverages and sundry products) 15 per cent. Strategy The Directors intend to position the Group as a full service tobacco, candy andgrocery distributor. They intend to continue to expand the Group's business inthe US by maximising revenue and earnings growth. As principal elements of the Group's strategy, the Directors intend to: Continue to grow sales in convenience stores The Group's network of distribution centres strategically positions the businessto grow sales to a new channel of retailers; convenience stores. The Directorsbelieve that in recent years, consumers have been shifting their purchases offood and other consumable goods away from conventional full-service grocerystores towards these retail channels. For this reason, the Directors have movedbeyond the historic focus on conventional full-service grocery stores and havesuccessfully targeted convenience stores and other convenience-relatedretailers. Many potential customers are currently served by regional wholesalersthat cannot offer the service offered by the Group's localised network ofmulti-tier distribution. The Group's repositioned distribution strategy hasalready enabled it to increase sales to existing and new customers in thissector, and the Directors expect this trend to continue. Expand the business through acquisition The Directors intend to grow the business through acquisition both in and out ofthe state of Arizona, with the intention of increasing the Group's customer basethat should allow for greater synergies in purchasing, sales and administrationcosts. The Directors have already identified a number of potential acquisitiontargets in Arizona, New Mexico and Oregon. Continue to improve working capital management and reduce costs Improvements to working capital management are continually being enhancedthrough the centralised procurement operations, taking advantage of theefficiencies created by the Group's multi-tier distribution facility, and byfurther developing and implementing supply chain technologies better tointegrate the distribution centre and the central procurement operations. Capitalising on the market conditions created by the 1998 Tobacco MasterSettlement Agreement which has significantly reduced licensed distributors The Directors believe the Group has a distinct advantage over new businessesseeking to enter wholesale distribution due to the upfront capital required fromcigarette manufacturers. The Group has already entered into agreements withmanufacturers, which, for new businesses is highly restrictive. In addition,since the tobacco industry settlement of 1998, RJ Reynolds Tobacco and PhillipMorris, who together control approximately 80 per cent. of US tobacco sales,have restricted new distributor licenses and recently completely eliminated newdistributors. Key strengths The Directors believe the Group has the following key strengths: • the Group has a 50 year operating track record; • the Group has achieved a market reputation as being one of the leadingcigarette and tobacco distributors in Arizona and services customers rangingfrom multi-billion dollar corporations to small independent retailers; • the Group has a distinct advantage over new businesses wanting toenter the market as, in the Directors opinion, substantial upfront capital isnow required by cigarette manufacturers to become a distributor. Legacy alreadyhas purchasing licenses from certain manufacturers and obtaining these for newbusinesses is highly restrictive. In addition, since the tobacco industrysettlement of 1998, RJ Reynolds and Phillip Morris, who together controlapproximately 80 per cent. of US tobacco sales, have restricted new distributorlicenses and have not recently appointed new distributors; • the Group has a large and diverse customer base which includes majornational and state-wide grocery chains, such as Albertsons, as well as manysmaller operators. This varied customer base ensures that the Group is notwholly reliant on any particular customer, nor exposed to any considerablesingle debtor; • the Group's internal distribution and operational systems are welldeveloped allowing for efficient stock holdings, which maximise economies ofscale in purchasing and administrative costs. It also has a flexible deliverytimetable allowing customers to receive more than one delivery a week; and • the Directors bring substantial experience gained while working withleading food wholesale, supermarket and general merchandise retailers. The directors ("Directors") Michael Mills, aged 58, Non Executive Chairman Michael Mills is an experienced public company chairman and managing directorwith significant operating and financial experience in both small and largecompanies. He has had considerable involvement in mergers and acquisitionsactivity, turnarounds and rescues in the public sector. His career has coveredseveral sectors including technology, engineering, service and distribution,paper and packaging, food and textiles and includes five years as director of amajor private equity firm and five years as group financial controller of Bunzlplc, the specialist distribution group with operations across North America,Europe and Australia. Recent positions include chairman of Advance ValueRealisation Limited, chief executive of Drew Scientific Group plc and nonexecutive director of Ultrasis plc, which provides interactive solutions forhealthcare professionals. He was also previously a managing director and thennon executive director of S Daniels plc, which makes chilled, fresh and naturalfoods. Frank Patton, aged 40, Chief Executive Officer Frank Patton joined the Group in July of 2004 and is responsible for the overallday to day running of the Group. Mr. Patton was previously president of AlliantFoodservice, where he was responsible for the general management of all aspectsof sales, operations, product selection and profitability of a $1.4 billionbusiness unit for the third largest food distributor in the United States. Hewas responsible for the achievement of a 25 per cent. increase year-over-year inearnings before interest, tax, depreciation and amortisation and the highestgrowth rate of company-wide divisions in the Street Sales Segment (the mostprofitable sales segment in the food service industry). Michael Drexler, aged 39, Finance Director Michael Drexler, a certified public accountant in the US, joined the Group inNovember of 2005. From 1999 to 2005, he was a senior financial executive atseveral companies including SalesLogix Corporation, a software company listed onthe NASDAQ stock exchange. From 1987 to 1999, Michael Drexler was an auditorwith the international accounting firm Ernst & Young LLP. He took over his rolewith the Company with a view to implementing new systems and controls for thedevelopment of the Group and assisting with the preparation for Admission. Thisprocess has been substantially completed. The Company has agreed with MichaelDrexler that he continue for an interim transition period as Chief FinancialOfficer and that he will assist Legacy in the recruitment of a replacement. Hewill remain available to consult and advise the Company for an interim period. Grant Sardachuk, aged 47, Non Executive Director Grant Sardachuk is currently the president of Law Investments Inc., a privatelyowned real estate merchant bank based in Scottsdale, Arizona, a position he hasheld since 1994. From 1986 to 1994, he successively held several seniorexecutive positions in various publicly held subsidiaries of Brookfield AssetManagement Inc., a $12.2 billion New York Exchange listed asset managementcompany and merchant bank. During his tenure, Grant Sardachuk served in seniorexecutive capacities at Hees International Bancorp Inc., Carena DevelopmentLtd., BCE Development Corporation, Brookfield Development Corporation, CoscanDevelopment Corporation and Great Lakes Ltd. These corporations were majorityowned or controlled by Brookfield Asset Management Inc. and were largelyinvolved in merchant banking, real estate investment and development andfinancial services. In his capacity in the merchant banking operations he wasinvolved in numerous corporate and project financings and management andfinancial restructurings. Ian Blelloch, aged 44, Non Executive Director Ian Blelloch is a director of Chaco Limited, a private company specialising inresidential property investment in the UK. He is also a director and companysecretary of Resolve 106 Limited, a company that invests in affordable housingin the UK, and a board member and company secretary of the Southwest UrbanRegeneration Fund Limited, an FSA regulated industrial and provident societyestablished to finance regeneration projects in the South West of England. MrBlelloch was, until October 2002, a director of Allsop Chaco Limited.Previously, he was head of private finance at the Housing Corporation havingworked in the City. Mr Blelloch is a qualified chartered accountant. The Directors believe that their collective experience in the tobacco, food anddistribution industry, combined with skills in the areas of finance andmanagement, provide a solid platform successfully to implement the Company'sbusiness strategy. This information is provided by RNS The company news service from the London Stock Exchange