TIDMQUIZ
RNS Number : 4600P
Quiz PLC
10 June 2020
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 GBP1.3m 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 GBP84.6m with profit before tax of GBP212,000. The
revenue generated comprised GBP44.8m of third-party revenues and
GBP39.8m 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 GBP39.6m.
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 GBP1.3m 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 GBP196,875 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 GBP234,375 per annum (being GBP187,500
per annum for the first six months and GBP281,250 per annum
thereafter) and GBP281,250 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
GBP856,185: GBP439,176 for the HO and GBP417,009 for the DC
respectively. The Lease Liabilities associated with the HO and the
DC leases were in aggregate GBP951,316: GBP487,973 for the HO and
GBP463,343 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 GBP5.93 million of cash
available to it and additional bank facilities of GBP1.75 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.
Enquiries:
QUIZ plc Via Hudson Sandler
Tarak Ramzan, Chief Executive Officer
Gerry Sweeney, Chief Financial Officer
Sheraz Ramzan, Chief Commercial Officer
Panmure Gordon (Nominated Adviser and
Sole Broker)
Alina Vaskina / Joanna Langley (Corporate
Finance)
Erik Anderson (Corporate Broking) +44 (0) 207 886 2500
Hudson Sandler LLP (Public Relations) +44 (0) 207 796 4133
Alex Brennan quiz@hudsonsandler.com
Lucy Wollam
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END
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