Placing and Open Offer

RNS Number : 5683M

Pittards PLC

08 May 2015

 

8 May 2015

Pittards Plc

(AIM: PTD)

("Pittards" or the "Company")

Placing and Open Offer

Pittards Plc (AIM:PTD), the AIM listed specialist producer of technically advanced leather and luxury leather goods for sale to retailers, manufacturers and distributors, is pleased to announce a share issue to raise a total of up to c.£5.8 million (before expenses) by way of:

·      an oversubscribed Placing of 4,000,065 New Ordinary Shares at 120 pence per share to the Placees to raise approximately £4.8 million (before expenses); and

·      a further issue of up to 842,003 New Ordinary Shares at 120 pence per share to Eligible Shareholders pursuant to the Open Offer to raise up to approximately £1 million (before expenses).

The issue price of 120 pence per New Ordinary Share represents a discount of 12.4 per cent. against the mid-market price of 137.0 pence per share at which the Ordinary Shares were quoted on AIM as at close of trading on 7 May 2015, the last trading day prior to announcement of the Placing and the Open Offer.

A circular will be posted today to Shareholders (the "Circular").  The Circular sets out in more detail the background to and reasons for the Placing and the Open Offer and their respective terms.  All capitalised terms in this announcement are as defined in the Circular which will be available on the Company's website: www.pittardsleather.com

1.                Background to and reasons for the Fundraising

The Company announced today that it has exchanged a conditional contract to acquire the freehold title to its premises at Sherborne Road, Yeovil for a total consideration of £3.6 million payable in cash on Completion. 

The Company intends to accept an offer of a mortgage from its bankers, Lloyds Bank, to part finance the Acquisition in respect of £2.1 million of the purchase price.

In order to meet the balance of the cash consideration payable under the Acquisition and to provide additional working and investment capital for the Pittards Group, the Company has also announced today a conditional Placing and Open Offer of up 4,842,068 Ordinary Shares at a price of 120 pence per share to raise approximately £5.6 million, net of expenses, and assuming full subscription under the Open Offer.

The Acquisition is conditional, inter alia, on the Fundraising being completed.  The Company's existing share authorities allowing it to issue shares on a non pre-emptive basis are insufficient to allow the Placing and Open Offer to proceed and therefore the Fundraising is conditional on Shareholders' approval. 

The Yeovil property

In July 2007 the Company's wholly owned subsidiary, Pittards Group Limited, entered into a sale and leaseback of the Group's principal operating site and premises in Yeovil. The sale realised £3.1 million and Pittards Group Limited entered into a 10 year lease at an initial annual rent of £254,000 which was revised upwards in July 2012 and is currently £272,000 per annum.  The sale proceeds were applied in repaying the loan of £3.175 million taken from the trustees of the Company's pension scheme as part of the arrangements made in 2006 in order to resolve the deficit on the pension scheme, then amounting to £32.9 million, as approved by the Pension Protection Fund.

The opportunity has been negotiated to buy back the Yeovil premises which the Company plans to do with a mix of long term debt and cash realised by the Fundraising. At present interest rates, the interest and loan repayments combined will approximately equal the current rent in the early years, reducing thereafter.

The Directors have been advised that demand for industrial occupational property in Yeovil and across the South West generally is increasing with a lack of good quality supply, especially for freehold premises of over 50,000 square feet. The Directors have also been advised that the cost of building an equivalent property for the Company's uses would be likely to be considerably in excess of the price of the Acquisition. In addition, a relocation to alternative premises, even if  such a site could be found at a financially acceptable cost, would be made more difficult by the need for new effluent disposal consents which are already in place at the Yeovil property.

Accordingly, the Directors firmly believe that the Acquisition represents an excellent opportunity to secure the freehold of a purpose built leather production factory from which the Group has operated successfully for over 50 years, without disruption to the established workforce and with associated support services and scope for further expansion, which the Company is unlikely to see again for a considerable time.

Business development and working capital

The extremely difficult situation with the pension fund deficit was resolved in 2006 and since then the Group has continued to develop its business successfully.  In 2009, the Company raised new equity finance to assist in the acquisition of the Ethiopia Tannery Share Company, the largest tannery in Ethiopia, which the Company had operated under a management contract since 2005.  The acquisition enabled the Company to continue and develop its successful policy of manufacturing volume quantities of leather in a low-cost manufacturing environment, while freeing up capacity in Yeovil for increased focus on research and development in product innovation, global sales and marketing and the production of more value added, technically advanced leathers.

Latterly, the Group has achieved annual sales of around £34 million - £38 million in fiercely competitive global markets for its products. The Group reported its preliminary results for the year ended December 2014 on 23 March 2015 in respect of which it achieved turnover of £34.7 million and operating profits of £1.97 million.

Despite this success, the Group has remained under capitalised and does not have the resources to take advantage of  opportunities to build the business. The funds raised in the Placing and Open Offer in excess of those required to purchase the Yeovil property will be used to acquire the 32 per cent. minority interest shareholding in the capital of the Pittards Global Sourcing Private Limited Company and in payment of the final instalment of deferred consideration payable in respect of the Ethiopia Tannery Share Company acquisition and for the continued development of the Group's operations.

2.                Information on the Yeovil property

The Yeovil property is situated on the edge of the town centre and was constructed for the Company in the 1960's specifically for the purpose of leather production. It remains the Group's principal and flagship asset and is at the centre of the Group's operations. The property extends to over 140,000 gross internal square feet over approximately 8.15 acres and comprises the Group's UK tannery and warehouse, a retail outlet, café and offices, workshop and stores as well as, on the first floor, administrative offices from where the Group's sales and marketing and financial functions are run. The property also benefits from a car park with about 450 spaces to accommodate the large workforce and visitors to the Group's retail outlet.

Yeovil is the "intellectual hub" of the Group and is responsible for the production of technically advanced leathers, such as anti-abrasion and fire resistant leathers and the multi-terrain camouflage leathers for the MOD. In addition, Yeovil is the centre of research and development into innovative types of "performance leather", and includes the Design Centre and consumer products division which makes new products for retail consumers through the development of the Pittards England and Daines & Hathaway collections. Yeovil is also the location of the retail outlet which, as well as making an increasing contribution to Group sales, showcases the Group's wide range of products, particularly to the retail customer. The majority of the Group's 230 UK employees are employed at Yeovil.

In the year to 31 December 2014, Yeovil achieved sales of over £31.5 million, representing approximately 68 per cent. of total external Group sales and owned assets valued at over £23 million, representing approximately 73 per cent. of total Group assets.

The property is currently leased by Pittards Group Limited for a ten year term from July 2007 at a current annual rent of £272,000.

3.                Principal terms and conditions of the Acquisition

Pittards and the Landlord have now agreed on the sale of the freehold in the Yeovil property to Pittards for £3.6 million, payable in cash on Completion. 

The Company intends to accept an offer of a mortgage from its bankers, Lloyds Bank, to part finance the Acquisition in respect of £2.1 million of the purchase consideration, with the balance of the consideration being raised from part of the proceeds of the Placing and Open Offer.

Immediately following Completion, the lease of the Yeovil property currently vested in Pittards Group Limited is to be surrendered.

The Acquisition is conditional on completion of the Placing and Open Offer in accordance with the terms of the Placing and Open Offer Agreement as described in paragraph 4 below.

Upon the Acquisition Agreement having become unconditional, by notice to be given by Pittards to the Landlord upon completion of the Fundraising, Completion is to take place 10 Business Days after the date of such notice. If the condition is not satisfied on or before 30 June 2015 either the Company or the Landlord may at any time after that date terminate the Acquisition Agreement (provided the condition has not been satisfied in the meantime). On such termination the £50,000 deposit paid by the Company to the Landlord on the date of exchange of the Acquisition Agreement shall belong absolutely to the Landlord.

4.                The Placing and Open Offer

The Company is proposing to raise £4,800,078 (before expenses) pursuant to the Placing and approximately a further £1 million (before expenses) pursuant to the Open Offer. The proposed Placing and Open Offer Price of 120 pence per New Ordinary Share represents a discount of 12.4 per cent. to the closing middle market price of 137.0 pence quoted on AIM on 7 May 2015, the latest trading day prior to publication of the Circular.

The Placing has conditionally raised a total of approximately £4.8 million (before expenses) through the placing of 4,000,065 New Ordinary Shares with institutional and other investors (including 123,667 New Ordinary Shares subscribed for by certain Directors and executives of the Company).  Funds advised by Downing Investments have subscribed for  2,075,898 New Ordinary Shares and Artemis has subscribed a further 416,667 New Ordinary Shares.  As Artemis currently holds approximately 20 per cent. of the Existing Ordinary Shares and is therefore a "substantial shareholder" under the AIM Rules, this subscription constitutes a related party transaction. The Directors consider, having consulted with WH Ireland, the Company's nominated adviser, that the terms of Artemis' subscription are fair and reasonable insofar as the shareholders of Pittards are concerned.

The Placing is conditional, inter alia, on:

·      the passing of the Resolutions;

·      the conditions in the Placing and Open Offer Agreement being satisfied or (if applicable) waived and the Placing and Open Offer Agreement not having been terminated in accordance with its terms prior to Admission; and

·      Admission becoming effective by no later than 8.00 a.m. on 5 June 2015 (or such later time and/or date, being no later than 8.00 a.m. on 30 June 2015, as the Company and WH Ireland may agree).

The Placing is not conditional upon the level of applications made to subscribe under the Open Offer.

The Placing and Open Offer Agreement contains customary warranties given by the Company to WH Ireland as to matters relating to the Group and its business and a customary indemnity given by the Company to WH Ireland in respect of liabilities arising out of or in connection with the Placing and Open Offer.  WH Ireland is entitled to terminate the Placing and Open Offer Agreement in certain circumstances prior to Admission including circumstances where the warranties are found not to be true or accurate or are misleading in any material respect or the occurrence of certain force majeure events.  If any of the conditions are not satisfied or waived (where capable of waiver), New Ordinary Shares will not be issued pursuant to the Placing and all monies received from investors in respect of such New Ordinary Shares will be returned to them (at the investors' risk and without interest) as soon as possible thereafter.

The Open Offer is being made on a pre-emptive basis, allowing all Eligible Shareholders the opportunity to participate. The Open Offer is not being underwritten.

The Open Offer provides Eligible Shareholders with the opportunity to apply to acquire the Open Offer Shares at the Placing and Open Offer Price pro rata to their holdings of Existing Ordinary Shares as at the Open Offer Record Date on the following basis:

1 New Ordinary Share for every 11 Existing Ordinary Shares

and so on in proportion for any other number of Existing Ordinary Shares then held.

Entitlements to apply to acquire New Ordinary Shares will be rounded down to the nearest whole number and any fractional entitlement to New Ordinary Shares will be disregarded in calculating the Open Offer Entitlement.

Shareholders who do not take up their Basic Entitlements in full will experience a dilution to their interests of approximately 34.3 per cent. following the Fundraising (assuming full subscription under the Open Offer).  Shareholders who take up their Basic Entitlements in full will suffer a dilution to their interests of approximately 28.4 per cent. on the same basis.

Eligible Shareholders should note that the Open Offer Shares have not been placed under the Placing subject to clawback under the Open Offer nor have they been underwritten, and the Placing is not conditional upon the number of applications received under the Open Offer.

The Open Offer is subject to the satisfaction, amongst other matters, of the following conditions on or before 5 June 2015 (or such later date being not later than 8.00 a.m. on 30 June 2015 as the Company may decide):

·      the Placing being unconditional in all respects;

·      the passing of the Resolutions; and

·      Admission becoming effective by 8.00 a.m. on 5 June 2015 (or such later time or date not being later than 8.00 a.m. on 30 June  2015 as the Company and WH Ireland  may decide).

The New Ordinary Shares will, when issued and fully paid, rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid after the date of Admission.

Excess Applications

The Open Offer is structured to allow Eligible Shareholders to subscribe for New Ordinary Shares at the Placing and Open Offer price pro rata to their holdings of Ordinary Shares on the Open Offer Record Date.

Eligible Shareholders may also make applications in excess of their Basic Entitlements. To the extent that Basic Entitlements are not subscribed by Eligible Shareholders, such Open Offer Shares will be available to satisfy such excess applications, subject to a maximum of 842,003 Open Offer Shares in aggregate.  To the extent that applications are received in respect of an aggregate of more than 842,003 Open Offer Shares, excess applications will be scaled back accordingly.

However, excess applications will be rejected if and to the extent that acceptance would result in any Eligible Shareholders, together with those acting in concert with him or her for the purposes of the Takeover Code, holding 30 per cent. or more of the issued share capital of the Company immediately following Admission.

Persons who have agreed to subscribe for New Ordinary Shares pursuant to the Placing and who are Eligible Shareholders will not be entitled to participate in the Open Offer.

Eligible Shareholders should note that the Open Offer is not a rights issue. Eligible Non-CREST Shareholders should be aware that the Application Form is not a negotiable document and cannot be traded. Eligible Shareholders should also be aware that, in the Open Offer, unlike in a rights issue, any Open Offer Shares not applied for will not be sold in the market or placed for the benefit of Eligible Shareholders who do not apply under the Open Offer.

Settlement and dealings

Application will be made to the London Stock Exchange for the New Ordinary Shares to be admitted to trading on AIM. It is expected that such Admission will become effective and that dealings will commence at 8.00 a.m. on 5 June 2015.

5.                Use of proceeds

The Company is raising £5.8 million before expenses (£5.6 million net of expenses) through the Placing and Open Offer (assuming full subscription under the Open Offer). The Directors intend to apply the proceeds of the Placing and Open Offer as follows:

·      £1.5 million to meet the balance of the cash consideration for the Acquisition that is not being funded by the mortgage from Lloyds Bank;

·      approximately £0.4 million in aggregate to acquire the minority 32 per cent. shareholding in the capital of the Pittards Global Sourcing Private Limited Company and in payment of the final instalment of deferred consideration payable in respect of the Ethiopian Tannery Share Company acquisition; and

·      for the continued development of the Group's operations.

Current trading and prospects

In its  preliminary results for the year to 31 December 2014 announced on 23 March 2015, the Company reported an operating profit of £1.97 million on turnover of £34.7 million.

The Chairman reported that the second half of 2014 was significantly more profitable than the first half and that trading is currently in line with the expectations of the Board which has identified a number of opportunities for expansion.

Succession planning

The Company has also begun the search for Stephen Boyd's successor as non-executive Chairman. Mr Boyd has been Chairman since December 2004. He led the process to eliminate the pension deficit and was responsible for  the successful outsourcing of manufacturing to Ethiopia which culminated in the Company acquiring Ethiopia Tannery Share Company in 2010 when it was voted the World Leather's Tannery of the Year.  It is intended that, after an appropriate period of transition to his successor, Mr Boyd will leave the Board at the AGM of the Company to be held in 2016.

Jan Holmstrom, who has been a non-executive director since 2010, will retire at the AGM of the Company to be held on 12 May 2015.

General Meeting

The Circular will contain a notice convening the General Meeting to be held at the Company's offices, Sherborne Road, Yeovil, BA21 5BA at 11.00 a.m. on 4 June 2015 at which resolutions will be proposed to inter alia, approve the Placing and Open Offer.

Intentions of the Directors in relation to the Fundraising

Stephen Boyd, Reg Hankey, Jill Williams and Godfrey Davis are subscribing for 112,500 New Ordinary Shares in aggregate under the Placing.  Jan Holmstrom, who is not subscribing under the Placing or Open Offer and is therefore deemed independent, having consulted with WH Ireland, considers the participation of those directors in the Placing to be fair and reasonable and in the interests of the Company and its shareholders as a whole. 

Placing and Open Offer statistics

Closing Price per Existing Ordinary Share on 7 May 2015	137.0 pence
Number of Existing Ordinary Shares in issue	9,262,039
Entitlement under the Open Offer	1 Open Offer Share for every 11 Existing Ordinary Shares
Issue Price of each New Ordinary Share	120 pence
Discount to market price of 137.0 pence per Existing Ordinary Share1	12.4 per cent.
Number of Open Offer Shares to be offered for subscription by Eligible Shareholders	842,003
Number of Placing Shares to be issued pursuant to the Placing	4,000,065
Expected proceeds of the Open Offer (before expenses)2	c.£1 million
Expected proceeds of the Placing (before expenses)	c. £4.8 million
Expected proceeds of the Fundraising (before expenses)2	c.£5.8 million
Enlarged Share Capital following Admission2	14,104,107
Percentage of Enlarged Share Capital represented by the Open Offer Shares2	up to 5.97%
Percentage of Enlarged Share Capital represented by the Placing Shares2	28.36%
Estimated net proceeds of the Fundraising2	up to £5.6m

Notes:

1.     The Closing Price on AIM on 7 May 2015, being the last practicable date prior to the publication of the Circular.

2.     Assuming full subscription under the Open Offer.

Expected timetable of principal events

	2015
Record Date for the Open Offer	5.00 p.m. on 7 May
Announcement of the Placing and Open Offer	8 May
Existing Ordinary Shares marked "ex" by the London Stock Exchange	8 May
Basic Entitlements credited to stock accounts in CREST of Qualifying CREST Holders	11 May
Recommended latest time for requesting withdrawal of Basic Entitlements from CREST	4.30 p.m. on 27 May
Latest time for depositing Basic Entitlements and/or Excess Entitlements into CREST	3.00 p.m. on 28 May
Latest time and date for splitting of Application Forms (to satisfy bona fide market claims only)	3.00 p.m. on 29 May
Latest time and date for receipt of completed Application Forms and payment in full under the Open Offer or settlement of relevant CREST instruction (as appropriate)	11.00 a.m. on 2 June
Latest time and date for receipt of Forms of Proxy	11.00 a.m. on 2 June
General Meeting	11.00 a.m. on 4 June
Admission and commencement of dealings of the New Ordinary Shares	8.00 a.m. on 5 June
New Ordinary Shares credited to CREST stock accounts	5 June
Despatch of definitive share certificates for New Ordinary Shares	week commencing 15 June

For further information, please contact:
Pittards plc	www.pittardsleather.com
Stephen Boyd, Chairman	[phone]
Reg Hankey, CEO
Jill Williams, Finance Director
WH Ireland Limited	www.wh-ireland.co.uk
John Wakefield/Ed Allsopp	[phone]

More information is available on the Company website www.pittardsleather.com

 

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