Quiz Regulatory News (QUIZ)

QUIZ Plc

("QUIZ" or the "Company", together with its subsidiaries the "Group")

Proposed Restructuring of Standalone Retail Store Portfolio

In order to protect the future for QUIZ, the omni-channel fast-fashion brand, the Board of the Company announces that it is proposing to restructure its standalone retail store portfolio.

The Group's 82 standalone stores in the United Kingdom and the Republic of Ireland are operated through its wholly owned subsidiary, Kast Retail Limited ("Kast"). Kast's wholly owned subsidiary, Kast International Spain SL ("Kast Spain"), operates the Group's three stores in Spain.

The Board of Kast has taken the decision to seek the appointment of joint administrators (the "Administrators") to Kast today.

The Group is proposing to subsequently acquire from Kast (acting through its Administrators) the business and certain assets of Kast for a cash consideration of £1.3m funded from the Group's existing cash resources.

The Board believes that the proposed restructuring announced today will enable the Group to operate an economically viable store portfolio alongside its online, UK concession and international channels which are unaffected by today's announcement. The Group continues to believe that stores, with appropriate property costs and flexible lease terms, can be a relevant pillar in QUIZ's omni-channel model moving forward. The Group remains confident in the relevance of the QUIZ brand and its omni-channel model to deliver future sustainable growth opportunities in both the UK and internationally.

Administration of Kast Retail Limited

As previously disclosed by the Company, QUIZ's standalone stores have experienced increasing trading pressures as a result of:

- the enforced closure of all UK and Irish stores since 22 March 2020 in accordance with UK Government guidance;

- the accelerating shift in consumer behaviour towards online shopping resulting in lower high street footfall;

- the difficulty in renegotiating reductions to the high levels of rents and rates with its consequent effect on the economics of store retail; and

- a sustained period of macro-economic uncertainty in the UK which has impacted consumer spending.

Although management has been taking proactive actions to address the performance of QUIZ's stores, including renegotiating rents on the expiry of leases, as a result of the above significant challenges QUIZ's stores estate has been loss-making in the last year. The enforced closure of QUIZ's stores since March in combination with significant levels of uncertainty going forward about the rate of recovery in consumer demand following the COVID-19 outbreak, has meant that the Kast business is not financially viable in its current structure.

The Board of QUIZ has therefore decided that it is not in the interests of the wider Group and its shareholders to provide continued financial support to Kast. The directors of Kast will therefore seek the appointment today of Blair Nimmo and Alistair McAlinden, licensed insolvency practitioners from KPMG LLP, as Administrators to the company.

As at today's date there are no sums due by the Group to its bankers under its bank facilities and those bankers have not objected to Kast making the proposed application to appoint the Administrators.

For the financial year ended 31 March 2019 (audited), Kast's revenue was £84.6m with profit before tax of £212,000. The revenue generated comprised £44.8m of third-party revenues and £39.8m of intra-group revenues in relation to product acquired by Kast and sold to other Group companies. As at 31 September 2019 (unaudited), gross assets of Kast were £39.6m.

In accordance with the AIM Rules for Companies, QUIZ notifies that Tarak Ramzan (Chief Executive Officer of the Company), Gerry Sweeney (Chief Financial Officer of the Company) and Sheraz Ramzan (Chief Financial Officer of the Company) will also be directors of Kast at the time that it is expected to enter administration.

Acquisition of business and certain assets from Kast Retail Limited

Subject to the appointment of the Administrators to Kast, Zandra Retail Limited ("Zandra"), a wholly owned subsidiary of the Company, has agreed the terms on which it will acquire from Kast (acting through its Administrators) the business and certain assets of Kast for a total cash consideration of £1.3m funded from the Group's existing cash resources (the "Acquisition").

The Acquisition is classified as a Substantial Transaction under the AIM Rules for Companies.

The Company will provide Zandra with the funding necessary to pay the cash consideration due in connection with the Acquisition. It will also provide a parent company guarantee with respect to Zandra's obligations under the sale and purchase agreement which will implement the Acquisition (the "Sale Agreement").

The Company will acquire from Kast assets including the stock, fixtures and fittings, contracts and vehicles used by Kast in connection with its business.

None of the leases associated with the standalone stores operated by Kast will transfer to Zandra.

As part of the Acquisition, the employment contracts of 822 of Kast's 915 employees will transfer to Zandra under the Transfer of Undertakings (Protection of Employment) Regulations 2006.

The Sale Agreement contains apportionment provisions and indemnities which are customary in the context of acquisitions from companies in administration.

Following completion of the Acquisition, the Group expects to renegotiate the lease arrangements for the majority of standalone QUIZ stores where appropriate leases can be secured on a flexible basis with rents commensurate with revenues generated.

Following the Appointment of Administrators, Kast Spain will no longer be under the Group's control, and the Group will cease to provide services or support to Kast Spain.

A further announcement will be made by the Company when the Administrators have been appointed and completion of the Acquisition has taken place.

Head Office and Distribution Centre leases

In addition to operating the Group's standalone retail store portfolio, Kast is also the tenant of the Group's Head Office located in Glasgow ("HO") and Distribution Centre located in Bellshill near Glasgow ("DC").

The landlord of the HO is Tarak Manufacturing Company Limited and the landlord of the DC is Big Blue Concepts Limited (the "HO and DC Landlords"); both companies are outside the Group structure but owned by some of the founding shareholders of the business, who in aggregate hold approximately 49% of the Company's issued share capital, and some of whom are also directors of the Company.

The HO and the DC are essential to the ongoing operations of the Group's business and so it has been agreed that Zandra will enter into new leases of the HO and the DC with the HO and DC Landlords ("New Lease Arrangements"), conditional upon the appointment of the Administrators and completion of the Acquisition. The New Lease Arrangements are substantially on the same terms as Kast's leases of the same premises with the HO and DC Landlords ("Existing Lease Arrangements"). Those Existing Lease Arrangements will terminate on the appointment of the Administrators and completion of the Acquisition.

The periods of occupancy, tenant-only break dates and rent review dates under the New Lease Arrangements for both the HO and the DC will be the same as would have been the case under the Existing Lease Arrangements. Both New Lease Arrangements will therefore terminate on 18 July 2027, which will be ten years after the commencement of the Existing Lease Arrangements, with a tenant-only break option and rent review date on 19 July 2022, which will be five years after the commencement of Existing Lease Arrangements. It is noted that upon the expiry of each of the New Lease Arrangements, Zandra will have the option to extend the relevant New Lease Arrangement for a period to be agreed between Zandra and the relevant HO and DC Landlord, both acting reasonably, but otherwise on the same terms as the relevant New Lease Arrangement.

The annual rental payments for the New Lease Arrangement in respect of the HO will remain the same as in the corresponding Existing Lease Arrangement in respect of the HO at £196,875 per annum, which represents 75% of open market rent, until the rent review date on 19 July 2022.

The rental payments for the New Lease Arrangement in respect of the DC will reflect higher utilisation of the DC space but the rental charge per square foot under the New Lease Arrangement will be no more than the rental charge per square foot under the corresponding Existing Lease Arrangement. After entering into the New Lease Arrangement in respect of the DC, the first-year rental payments will effectively be £234,375 per annum (being £187,500 per annum for the first six months and £281,250 per annum thereafter) and £281,250 per annum in the second-year until the rent review date on 19 July 2022. These charges represent 52% and 62% of the open market rent in each year respectively.

As at 30 September 2019 (unaudited), in the Group's consolidated balance sheet, both the HO and DC leases were capitalised under IFRS16 as part of the Right to Use asset with an aggregate value of £856,185: £439,176 for the HO and £417,009 for the DC respectively. The Lease Liabilities associated with the HO and the DC leases were in aggregate £951,316: £487,973 for the HO and £463,343 for the DC respectively.

The New Lease Arrangements constitute a related party transaction under the AIM Rules for Companies. As such, the Independent Directors consider, having consulted with the Company's nominated adviser, Panmure Gordon, that the terms of the New Lease Arrangements are fair and reasonable insofar as the Company's shareholders are concerned. For the purposes of this statement, the Independent Directors are considered to be Gerry Sweeney (Chief Financial Officer), Peter Cowgill (Independent Non-Executive Chairman), Roger Mather (Independent Non-Executive Director) and Charlotte O'Sullivan (Independent Non-Executive Director).

Group financial position and future prospects

As at 9 June 2020, on the assumption that the Acquisition had completed on that date, the Group had £5.93 million of cash available to it and additional bank facilities of £1.75 million which expire on 31 July 2020. Further to the Group's announcement on 21 April 2020, QUIZ is in discussions with regards to securing a longer-term bank facility.

QUIZ's management team have remained focused on controlling operating costs and capital expenditure during the current period of COVID-19-related macroeconomic uncertainty. The Board believes that the proposed restructuring announced today will enable the Group to operate an economically viable store portfolio alongside its online, UK concession and international channels which are unaffected by today's announcement. The Group continues to believe that stores, with appropriate property costs and flexible lease terms, can be a relevant pillar in QUIZ's omni-channel model moving forward. The Group remains confident in the relevance of the QUIZ brand and its omni-channel model to deliver future sustainable growth in both the UK and internationally.

Tarak Ramzan, Chief Executive Officer of QUIZ commented:

"It is with deep sadness and regret for some of our colleagues and partners that we had to take this decision to restructure the Group's operations. Physical retail in the UK was facing a major structural challenge prior to the outbreak of COVID-19 with the economics of operating stores on traditional leases becoming increasingly difficult. Whilst we have taken pro-active actions over the past 18 months to drive footfall to our stores and renegotiate leases to improve performance, the significant economic uncertainty we now face as consumers and businesses emerge from the COVID-19 pandemic has meant that, in order to ensure a sustainable future for the Group, we have taken this decision to place the subsidiary which operates our stores into administration.

We continue to believe that stores, with appropriate property costs and flexible lease terms, can continue to be a relevant pillar in our omni-channel model and we will be seeking to re-open QUIZ stores where we believe it is prudent and economic to do so. We believe that with an appropriately structured store estate in combination with our capital light concession model, international channel and online focus QUIZ will be better positioned for all its stakeholders over the long-term."

Notes: This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

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