Property purchase agreement, Circular publication
20 September 2019
Creightons plc ("the Group", "Creightons", the "Company")
Agreement to purchase property
Publication of Circular
Creightons plc (CRL), the British-based beauty and well-being brand owner and manufacturer, announces that it has entered into a conditional contract with Oratorio Developments Limited ("the Purchase Contract") to purchase the Group's principal trading premises at 1210 Lincoln Road, Peterborough ("the Property") for the purchase price of £3,800,000 exclusive of VAT. The Purchase Contract is conditional on approval of the Purchase by the Company's Shareholders, and the Company have today published a circular to seek such approval. The circular will shortly be available from the Company's website: www.creightonsplc.com/investors
and from the National Storage Mechanism: www.morningstar.co.uk/uk/NSM
Related Party Transaction and Shareholder Approval
The seller of the Property, Oratorio Developments Limited, is a company wholly-owned by William McIlroy ("the Interested Director") and his wife. Mr McIlroy is a director of the Company. He and Oratorio between them hold 16,219,275 Ordinary Shares, representing 25.7% of the Company's total issued Ordinary Shares. The Purchase is, therefore, a Related Party Transaction within the meaning of the Listing Rules, and accordingly there is a requirement to obtain Shareholders' approval for that transaction.
In addition, and for the purposes of the Companies Act 2006 ("the Act"), Oratorio is a company connected with Mr McIlroy, and accordingly the Purchase will constitute a substantial property transaction with a director of the Company or person connected with a director, requiring approval by the Company's Shareholders in accordance with s.190 of the Act.
For both reasons, therefore, the Company cannot purchase the Property from Oratorio unless the Purchase is approved by Shareholders.
Under the class tests as set out under the Listing Rules, the size of the consideration payable for the purchase of the Property means that the Purchase represents a Class 2 Transaction for the Company.
A General Meeting will be held at 1210 Lincoln Road, Peterborough, PE4 6ND at 12:00 noon on 10 October 2019 for the purpose of seeking Shareholders' approval for the Purchase. A notice convening the General Meeting, at which a resolution to approve the Purchase will be proposed
Background and reasons for the Purchase
The Property has been occupied by the Group as a tenant since March 2003, when the business which has since been operated by Potter & Moore Innovations Ltd (Potter & Moore) was acquired. Apart from being the Group's principal manufacturing and storage premises, the administration of the Company is conducted from the Property.
Oratorio purchased the freehold interest in the Property from Potter & Moore's then landlord, Targetfollow (Peterborough) Limited, in July 2006 for a purchase price of £4,400,000. Mr McIlroy has indicated to the Independent Directors that Oratorio's investment in the Property was intended to help secure the long term future of the Group's business, and that his company would be willing to sell the Property to Creightons at the appropriate time.
The Group currently leases almost the entirety of the Property for its own purposes. Two small areas of the Property are separately let to operators as the site of mobile telecommunications masts: these two lettings generate an income of approximately £12,000 per annum. The Independent Directors also believe that approximately 3 acres (1.21 ha) have potential for development without adversely affecting the Group's operational requirements.
Potter & Moore's present lease of the Property from Oratorio will expire on 23 March 2020. The current rent payable is £350,000 per annum. The Independent Directors initiated discussions with Mr McIlroy with regard to the renewal of the lease and he indicated Oratorio's willingness to renew the lease, but also offered to sell the Property to the Company for its current market value. The recent growth of the Group has put it in a position in which the Independent Directors believed they could consider the purchase of the Property by the Company.
Accordingly, the Independent Directors obtained an independent valuation of the Property from Barker Storey Matthews, who have valued the Property at £3,800,000.
The Purchase would be financed in part with a 15 year term loan of £3,040,000 from HSBC UK Bank plc, secured on the Property, with the balance of the purchase price and the associated costs provided from the Group's own resources. Further details of the financing of the Purchase are provided below.
If the Purchase is approved by Shareholders and completed, the Company intends to lease the Property to Potter & Moore on a new lease for a term of 20 years at a rent of £350,000 per annum. There will be an intercompany leasing arrangement to provide the top company with the funds to repay the HSBC UK Bank plc and in overall terms the Group will be able to cover the repayments out of the trading of the operating businesses.
The Independent Directors believe that purchase of the Property will enable the Group to:-
· secure its tenure of the Property for its operations and so avoid the possibility of having to relocate its business elsewhere at any time in the foreseeable future;
· cease paying rent for the use of the Property to any third party;
· improve the underlying cash generation of the Group;
· invest in more modern and efficient manufacturing facilities for its own benefit rather than for the long term benefit of a landlord, whilst freeing up development land;
· invest in a tangible asset which may have potential for future growth in value; and
· provide further operational consolidation opportunities for the Group's more economical use of its resources in the future, including bringing all finished goods distribution back in house.
In the opinion of the Independent Directors, the purchase of the Property is a sound commercial and financial transaction for the benefit of the Group, its staff and its Shareholders, which will promote the success of the Company for the benefit of its Shareholders as a whole.
Accordingly, the Company has entered the Purchase Contract, which is conditional on the Resolution being passed.
The financing of the Purchase
The Purchase will cost the Company the purchase price of £3,800,000 plus stamp duty land tax and associated legal, valuation, financing and other professional adviser costs which the Independent Directors estimate at a total additional cost of £301,000.
The Independent Directors intend that these total purchase costs will be by financed by utilising a 15 years term loan of £3,040,000 ("the Bank Loan") from HSBC UK Bank plc ("the Bank") with the balance being provided from the Company's existing facilities.
The principal terms of the Bank Loan are:
· a 15 years repayment term, with five yearly break clauses for both the Bank and Creightons
· a fixed interest rate for the first 10 years which will be fixed when the Bank Loan is drawn down but is expected to be 3.13% per annum
· payment of an arrangement fee of £22,800
· repayable by 120 monthly payments, covering principal and interest, which (assuming an interest rate of 3.13% p.a.) will be £21,189.79 for the first 10 years then adjusted to ensure repayment of the Bank Loan by the end of the term
· the Bank Loan will be secured by a first legal charge over the Property.
The effect of the Purchase on the Group's cash flow will be to eliminate the annual rent of £350,000 currently payable to Oratorio and to generate a rental income of £12,000 per annum. The loan repayments (combining principal and interest) in the first 12 months are expected to be £254,277. The Independent Directors estimate that the net effect of completing the Purchase will be to enhance Group cash flow by £95,000 in the first full year following Completion.
The impact on profit will be to replace a rental cost of £350,000 with a rental income of £12,000. The Independent Directors estimate that interest and finance costs are likely to be £99,000 in the first year. The annual depreciation charge will be £218,000. The Independent Directors estimate that the net effect of completing the Purchase will be to enhance Group profits by £45,000 in the first full year following Completion. The relatively high depreciation charge is due to the fact that the directors have chosen to depreciate the oldest building on the site over 5 years.
General Meeting
The circular together with the Notice for the General Meeting will be posted to shareholder today and copies will be available on the company's website.
At this Meeting, the Resolution will be proposed as an ordinary resolution to approve the Purchase.
Irrevocable undertakings to vote in favour of the Resolution have been received by the Company from the independent directors in respect of their beneficial interests over 7,138,298 Ordinary Shares, representing approximately 11.4 per cent of the issued ordinary share capital of the Company.
ENDS
For further information
Nick O'Shea, Company Secretary, Creightons plc 01733 281000
Roland Cornish/ Felicity Geidt, Beaumont Cornish Limited (Sponsor) 020 7628 3396
Creightons plc
Creightons plc is the one of the United Kingdom's leading manufacturers and brand owners in the beauty and wellbeing sectors. Headquartered in Peterborough, Cambridgeshire, It exports to multiple markets. Brands owned by Creightons include: Feather + Down, BAMbeautiful, The Curl Company, Balance Active Formula and Creightons haircare.
Creightons' on-line portal can be found at www.creightonsplc.com
Capitalised terms used in this announcement and not otherwise defined have the meanings given to them in the circular.
This announcement contains inside information under Article 7 of Regulation (EU) 596/2014.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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