Placing & Open Offer
October 28 2003 - 2:01AM
UK Regulatory
RNS Number:3648R
Coffee Republic PLC
28 October 2003
FOR IMMEDIATE RELEASE 28 October 2003
COFFEE REPUBLIC plc
PROPOSED PLACING AND OPEN OFFER
Key Points
* Proposal to raise up to #2.45 million (net of expenses) through the
Placing and Open Offer
* #1.23 million conditionally placed firm by Teather & Greenwood through the
Placing
* #500,000 of the Open Offer underwritten by Seymour Pierce Ellis
* Proceeds of the Placing and Open Offer to be used to roll-out the deli
concept and for general working capital purposes
* Roll-out of deli concept at a fraction of the cost of a new site by
refurbishing the existing core coffee bars
* Results from existing delis have exceeded management expectations
Coffee Republic plc, the independent coffee bar operator, today announces that
in order to provide the Company with appropriate levels of funding to commence
the roll out of its deli-bar concept, it proposes to raise up to #2.45 million
(net of expenses) through the Placing and Open Offer. #1.23 million has been
conditionally placed firm by Teather & Greenwood through the Placing and
#500,000 of the Open Offer has been underwritten by Seymour Pierce Ellis, who
are to be appointed joint broker to the Company following completion of the
Placing and Open Offer. Qualifying Shareholders are also invited to participate
in this new issue at the Issue Price on the basis of 2 New Ordinary Shares for
every 3 Ordinary Shares held on the Record Date.
The issue of the shares pursuant to the Placing and Open Offer requires the
approval of Shareholders and an EGM will be held at 10.00 am on 20 November 2003
at which the necessary resolution will be put.
Background
The Company has reported that in a highly competitive market the last financial
year to 30 March 2003 was challenging. Like-for-like sales for the first half of
the year were negative although this trend was reversed in the second half of
the year. As a result, full year like-for-like sales from continuing bars were
flat.
To date the Company has focussed on implementing a recovery plan which has been
directed at rationalising the estate and improving the financial performance and
cash generation of the business. The number of bars has been reduced from a
peak of 107 bars in March 2002 to 72 bars today. Based on our target of 50 core
continuing bars, we have 22 disposal bars remaining, 12 of which are under offer
or have been exchanged. The Directors believe that the disposal programme will
be complete within the next eighteen months. This rationalisation programme
will result in a smaller but healthy and profitable estate. We have also
negotiated cost of goods reductions resulting in a 1.5 per cent. improvement in
the continuing gross margin percentage, and achieved ongoing central head office
cost savings of 30 per cent.
The core estate is profitable, well located and in good condition. Moreover, we
have high quality, well trained operational teams supported by robust
infrastructure. This provides an ideal platform to evolve a more food-led
proposition to raise average transaction values and profit per bar.
The 'deli-bar' concept
We have successfully developed two deli bars following a "US-style deli" format,
offering a range of freshmade sandwiches and a hot food counter in addition to
our strong coffee offer. The first trial, in Baker Street, London, which opened
in April 2003, successfully tested the processes and practices necessary to
deliver the new proposition. The second opened in Exchange Square in the City of
London in August under the new Republic Deli brand name. The results from these
delis have exceeded management expectations, with aggregate sales improving by
more than 20 per cent. on a like-for-like basis compared to the Company's other
central London bars predominately due to increased average spend per customer.
Republic Deli differentiates itself from the major sandwich brands, which mainly
offer pre-packed "wedge" take-away sandwiches, by focusing on fresh-made and
made-to-order sandwiches, including hot breakfast and lunch offers, in addition
to the Coffee Republic coffee favoured by our customers, for both eat-in and
take-away. Based on our experience to date the strength of this "Eat, Drink &
Meet" offer that spans the entire day significantly improves average spend per
customer, leading to increased overall sales and profitability. This is an
opportunity to create a consistent and high quality branded offer in the retail
sandwich market, which was worth #3.1 billion in the UK in 2001, a substantial
proportion of which has traditionally been dominated by locally operated
sandwich bars focussed mostly on take-away trade.
The roll out of the deli-bar concept
The proposed evolution of our offering will provide the opportunity to roll out
the Republic Deli brand throughout our estate by refurbishing our core coffee
bars at a fraction of the cost of a new site. Assuming that Qualifying
Shareholders do not take up their full entitlement under the Open Offer the
Directors expect that the proceeds of the Placing and Open Offer will allow for
a sufficient number of our core sites to be refurbished to demonstrate fully the
potential of the Republic Deli brand. The Directors believe that the Company is
an ideal platform with a portfolio of suitable locations, an existing customer
base, experienced bar staff, operational infrastructure and an experienced
management team.
Current Trading and Financing
The Company announced its results for the year ended 30 March 2003 on 30
September 2003. The Company made the following statement on current trading and
financing in those results:
"The estate has been divided into two groups; a core of 50 continuing bars and
those bars previously identified for disposal. Trading has remained stable since
the fiscal year end with flat like-for-like sales from continuing bars. Positive
same store sales growth from regional bars is offsetting the decline in London
which remains a difficult market."
"In order to fund the rollout of the Republic Deli concept we are in the
advanced stages of raising additional equity finance and rescheduling debt
finance. Raising additional funds will enable the Group to continue as a going
concern. The proposed fundraising and shareholder approval have yet to be
completed. Whilst there can be no certainty regarding the outcome of the
fundraising at this time, the Directors consider that additional funds will be
raised in the near future."
Financial and banking facilities
Barclays Bank PLC has agreed to reschedule the existing bank facilities and has
entered into a treasury loan facility, conditional on completion of the Placing
and Open Offer prior to 30 November 2003. Under the revised terms, this
treasury loan facility has a capital repayment holiday until 30 June 2004 and is
to be fully repaid by 30 June 2008.
Raising the minimum of #1.73 million (less expenses of #275,000) of additional
equity finance will enable the Company to commence the roll out of the Republic
Deli concept and continue as a going concern.
If the Placing and Open Offer is not approved by Shareholders the Board will be
forced to consider the options available to it in order to obtain alternative
sources of working capital in order to continue to trade and alternative sources
of working capital may not be available.
The Board urges all Shareholders to support the Placing and Open Offer by
attending the EGM and voting in favour of the Placing and Open Offer.
Use of proceeds
The proceeds of the Placing and Open Offer, net of expenses and assuming take-up
in full by Qualifying Shareholders, is #2.45 million. Of this amount
approximately #1.6 million will be used for the refurbishment of existing bars
and approximately #0.85 million will be used for general working capital
purposes. Should the Open Offer not be taken up in full by Qualifying
Shareholders, the proceeds of the Placing and Open Offer will be used for the
same purposes, but the refurbishment of existing bars will take place at a
slower rate.
Placing
The Company is proposing, inter alia, to raise approximately #1.23 million gross
by the issue of 123,200,000 New Ordinary Shares at the Issue Price pursuant to
the Placing. These New Ordinary Shares have been conditionally placed firm by
Teather & Greenwood with institutional and other investors under the Placing.
The Placing is not being underwritten.
Open Offer
The Company is proposing, inter alia, to raise up to approximately #1.5 million
by the issue of up to 149,710,202 New Ordinary Shares at the Issue Price
pursuant to the Open Offer. #500,000 of the Open Offer, amounting to 50 million
New Ordinary Shares, has been underwritten by Seymour Pierce Ellis to the extent
that if Qualifying Shareholders subscribed for any amount in aggregate which was
less than #500,000 Seymour Pierce Ellis would procure subscribers, failing
which, they will take up themselves such shares as to subscribe for such amount
of New Ordinary Shares to bring the total proceeds of the Open Offer to a
minimum of #500,000. Seymour Pierce Ellis are to be appointed joint broker to
the Company following completion of the Placing and Open Offer. Qualifying
Shareholders are being offered the opportunity to apply for up to 149,710,202
New Ordinary Shares in aggregate. The Directors do not believe that the Placing
and Open Offer would be successful at an Issue Price of more than 1p per New
Ordinary Share. By issuing the New Ordinary Shares at a substantial discount to
the current middle market price of the Existing Ordinary Shares, the Directors
believe that they are acting in the best interests of the Company and
Shareholders as a whole.
Qualifying Shareholders who wish to subscribe for New Ordinary Shares under the
Open Offer are invited to apply for as many New Ordinary Shares as are the
subject of the Open Offer as they wish. Subject to the Open Offer becoming
unconditional in all respects applications by Qualifying Shareholders will be
satisfied in full up to their pro rata basic entitlement of: 2 New Ordinary
Shares for every 3 Existing Ordinary Shares held at the close of business on the
Record Date at the Issue Price.
The Existing Ordinary Shares are traded on AIM. 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 Admission will occur and that dealings in the New
Ordinary Shares will commence on 26 November 2003.
Proposals in relation to the Company's share capital
Proposed Capital Reorganisation
The nominal value of an Existing Ordinary Share is 5p whilst its market value
(as at close of business on 24 October 2003) was 1.55p. The Company is
prohibited by law from issuing shares for a consideration less than their
nominal value. In order to be able to proceed with the Placing and Open Offer
the Company is proposing the Capital Reorganisation.
Under the terms of the Capital Reorganisation it is proposed that each Existing
Ordinary Share of 5p and each authorised but unissued Ordinary Share of 5p will
be divided into one new Ordinary Share with a nominal value of 0.1p and one
Deferred Share. The new Ordinary Shares of 0.1p (issued and unissued) thereby
created will have exactly the same rights (including voting and dividend rights
and rights on return of capital) as the existing Ordinary Shares (issued and
unissued). The Deferred Shares created by the Capital Reorganisation will be
non-voting, will have minimal rights and will not be listed or quoted on any
recognised investment exchange.
Upon implementation of the Capital Reorganisation new share certificates will,
where relevant, be issued in respect of the new Ordinary Shares of 0.1p and
certificates for Existing Ordinary Shares will be valueless. No share
certificates will be issued in respect of the Deferred Shares.
Proposed Capital Reduction
It is the present intention of the Directors to implement the Capital Reduction
as soon as reasonably practicable following the Capital Reorganisation. The
Directors intend to effect the Capital Reduction by cancelling the Deferred
Shares and reducing the amount standing to the credit of the share premium
account of the Company. These proposals will result in a credit which will be
available to eliminate a deficit of #26.41 million on the profit and loss
account which is where that deficit stood at 30 March 2003.
To be effective, the cancellation of the Deferred Shares element of the Capital
Reduction must be confirmed by the High Court and the subsequent Court order
registered with the Registrar of Companies. It is anticipated that before
issuing the requisite order the Court will require the Company to give certain
undertakings for the protection of its creditors. The Company expects to offer
such undertakings as the Court may require. It is anticipated that the Company
will undertake that, so long as there are relevant creditors, it will transfer
(i) any excess of the sum arising on the cancellation of the Deferred Shares
over the amount of the accumulated deficit on the profit and loss account of the
Company as at 30 March 2003; and (ii) any profit arising on any revaluation or
disposal of the Company's existing fixed assets (including any receipt of any
dividend from existing distributable profits of any of its subsidiaries) to a
special reserve which will be distributable only in limited circumstances.
Subject to the passing of the resolution and the necessary Court order being
obtained and so registered, the cancellation of the Deferred Shares element of
the Capital Reduction could become effective within 6 weeks of the date of the
Court application having been made (although it is not possible to say with
certainty when the confirmation of the Court would be obtained).
To be effective, the reduction of the amount standing to the credit of the
Company's share premium account element of the Capital Reduction must also be
confirmed by the High Court. Once that confirmation has been obtained, and the
relevant court order is registered by the Registrar of Companies, subject to the
undertaking referred to above, the new special reserve created by the
cancellation will enable the deficit of #26.41 million as at 30 March 2003 to be
eliminated.
Appointment of Seymour Pierce Ellis as joint broker
The Company is pleased to announce that, following the completion of the Placing
and Open Offer, Seymour Pierce Ellis will be appointed joint broker to the
Company. Teather & Greenwood will continue as the Company's nominated adviser
and joint broker.
Commenting, Bobby Hashemi, Chairman, said:
"We are delighted with the outcome of the fundraising, which will enable us to
demonstrate fully the potential of the Republic Deli concept and moves us
towards restoring shareholder value."
Expected timetable of principal events 2003
Record date for the Open Offer 23 October
Latest time and date for splitting of Application Forms
(to satisfy bona fide market claims only) 3.00pm on 14 November
Latest time and date for receipt of Application Forms
and payment in full under the Open Offer 3.00pm on 18 November
Extraordinary General Meeting 10.00am on 20 November
Announcement of the results of the Open Offer 20 November
Dealings in the New Ordinary Shares on AIM
expected to commence 26 November
Further information
Coffee Republic
Bobby Hashemi / Simon Drysdale 020 7033 0600
Teather & Greenwood
Jeff Keating / David Galan 020 7426 9000
Buchanan Communications
Tim Thompson / Catherine Miles 020 7466 5000
Definitions
The following definitions apply throughout this announcement unless the context
requires otherwise:
"Act" or "Companies Act" the Companies Act 1985, as amended
"Admission" the admission of the New Ordinary Shares to trading on
AIM becoming effective in accordance with the AIM Rules
"AIM" the Alternative Investment Market of London Stock
Exchange
"AIM Rules" the rules of London Stock Exchange governing admission
to, and the operation of, AIM
"Application Form" the personalised application form for use by Qualifying
Shareholders in connection with the Open Offer
"Approved Scheme" the 1998 approved Company share option plan (No.1)
"Capita Registrars" Capita Registrars
"Capital Reduction" the cancellation of all Deferred Shares arising on the
Capital Reorganisation and the reduction of the amount
standing to the credit of the share premium account of
the Company subject, inter alia, to the approval of the
High Court
"Capital Reorganisation" the reorganisation of the capital of the Company
proposed in this document and effected by passing of
Resolution No. 1 namely the splitting of each issued and
unissued ordinary share of 5p each in the capital of the
Company into one ordinary share of 0.1p and one Deferred
Share
"Coffee Republic" or "Company" Coffee Republic plc
"CREST" the relevant system (as defined in the CREST
Regulations) in respect of which CRESTCo is the Operator
(as defined in the CREST Regulations)
"CREST Regulations" the Uncertificated Securities Regulations 2001 (SI 2001
No. 3755)
''CRESTCo'' CRESTCo Limited
''Deferred Shares'' the deferred shares of 4.9p each in the capital of the
Company to be created pursuant to the Capital
Reorganisation
"Directors" or "Board" the directors of the Company
"Existing Ordinary Shares" the Ordinary Shares currently in issue
"Extraordinary General Meeting" or "EGM" the Extraordinary General Meeting of the Company
convened for 10.00 am on 20 November 2003
"Form of Proxy" the form of proxy accompanying this document for use in
connection with the Extraordinary General Meeting
"Group" the Company and its subsidiaries
"ICTA" Income and Corporation Taxes Act 1988
"Issue" the issue of New Ordinary Shares pursuant to the Placing
and Open Offer
"Issue Price" the price of 1p per share at which New Ordinary Shares
are being issued pursuant to the Placing and Open Offer
"London Stock Exchange" London Stock Exchange plc
"New Ordinary Shares" the aggregate number of up to 272,910,202 Ordinary
Shares to be allotted pursuant to respectively the
Placing and the Open Offer
"Open Offer" the conditional offer by Teather & Greenwood to
Qualifying Shareholders to subscribe for up to
149,710,202 New Ordinary Shares
"Ordinary Shares" as applicable, ordinary shares of 5p each in the capital
of the Company prior to the Capital Reorganisation and
ordinary shares of 0.1p each in the capital of the
Company following the Capital Reorganisation
"Overseas Shareholders" holders of Ordinary Shares who are resident in, or
citizens of, countries other than the United Kingdom
"Placing" the conditional placing by Teather & Greenwood of
123,200,000 New Ordinary Shares pursuant to the Placing
Agreement
"Placing and Open Offer Agreement" the agreement between Teather & Greenwood, Seymour
Pierce Ellis Limited and the Company
"POS Regulations" Public Offer of Securities Regulations 1995 (as amended)
"Qualifying Shareholders" for the purposes of the Open Offer, Shareholders on the
Register on the Record Date, other than Overseas
Shareholders
"Receiving Agent" Capita IRG Plc
"Record Date" the close of business on 23 October 2003
"Register" the register of members of the Company
"Resolution No. 1" the special resolution numbered one to be put to
Shareholders at the EGM
"Resolution No. 2" the special resolution numbered two to be put to
Shareholders at the EGM
"Resolutions" Resolution No. 1 and Resolution No. 2
"Seymour Pierce Ellis" Seymour Pierce Ellis Limited
"Shareholder" a holder of Ordinary Shares
"Unapproved Scheme" the unapproved 1994 executive share option scheme of the
Company
"Teather & Greenwood" Teather & Greenwood Limited
"uncertificated" or "in uncertificated form" recorded on the relevant register of the share or
security concerned as being held in uncertificated form
in CREST, and title to which, by virtue of the
Regulations, may be transferred by means of CREST
"Warrant Holder" Barclays Bank plc
This information is provided by RNS
The company news service from the London Stock Exchange
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