Disposal
October 22 2003 - 9:04AM
UK Regulatory
RNS Number:1848R
Springhealth Leisure PLC
22 October 2003
STOCK EXCHANGE ANNOUNCEMENT
22 October 2003
SpringHealth Leisure plc ("SpringHealth" or the "Company")
Proposed Disposal of the Northern Clubs
Key Points
* It is proposed to dispose of the Northern Clubs for a
consideration of #4.0 million in cash representing a premium of #0.7 million
to an independent valuation of the Northern Clubs
* The sale of the Northern Clubs is conditional, inter alia, upon
the proposed redemption of outstanding #4.0 million principal of 7% loan notes
* Early redemption of the loan notes will save #0.25 million in interest
payments and gearing will be reduced to 22% from 38%
* The sale of the Northern Clubs is to companies controlled by Stanley Henry,
a non-executive director of the Company and holder of the loan notes
* The Disposal is also subject to Shareholders' approval at an
Extraordinary General Meeting and documentation will be posted shortly
* The Independent Directors believe that the Disposal is in the best interests
of the Company and its shareholders as a whole
This summary should be read in conjunction with the full text of this
announcement
Enquiries:
Eric Lowry, Chief Executive 07768 338636
Russell Hudson, Finance Director 01454 877648
SpringHealth Leisure plc
22 October 2003
SpringHealth Leisure plc ("SpringHealth" or the "Company")
Proposed Disposal of the Northern Clubs
Introduction
SpringHealth announces that it has conditionally agreed the terms of the sale of
the Northern Clubs (the "Disposal") to the Buyer Companies for a consideration
of #4.0 million in cash. The consideration will be paid through a clearing
arrangement made available by Lloyds TSB Bank plc to the Company to enable the
Company to repay the amount due to Stanley Henry and Avril Henry in respect of
the outstanding #4.0 million principal of 7 per cent. loan notes of the Company
due October 2004 (the "Loan Notes").
The Disposal is conditional upon, inter alia, the approval of Shareholders,
pursuant to the provisions of the Act. A document explaining why the Independent
Directors consider that the Disposal is in the best interests of the Company and
its Shareholders as a whole, and containing a notice convening the Extraordinary
General Meeting, will be posted to Shareholders later today.
Shareholders should be aware that if the Resolution is not approved at the EGM,
the Company may or may not have sufficient resources to redeem the Loan Notes
when they become due in October 2004.
The Disposal is a related party transaction because Stanley Henry, who together
with his wife, Avril Henry controls each of the Buyer Companies (and is a
director of each of the Buyer Companies), is also a director of, and substantial
shareholder in, the Company. Accordingly, neither Stanley Henry nor his wife
Avril Henry nor any of Stanley Henry's other associates is entitled to vote on
the Resolution to be proposed at the EGM. The Independent Directors and their
family and other interests, representing in aggregate approximately 30.2 per
cent. of SpringHealth's issued Ordinary Shares, have undertaken to vote in
favour of the Resolution.
The Independent Directors believe that the Disposal is in the best interests of
the Company and its Shareholders as a whole and, having consulted with
Arbuthnot, consider the terms of the Disposal are fair and reasonable in so far
as Shareholders are concerned. In giving its advice, Arbuthnot has taken into
account the commercial assessments of the Independent Directors.
Background to and reasons for the Disposal
In October 2000, following its acquisition of Springhealth Fitness Limited,
Mazaran Leisure plc was renamed SpringHealth. A total consideration of #15.25
million was paid through a mixture of cash (#2.6 million), new Ordinary Shares
(#6 million) and loan notes. The loan notes, whose aggregate value was #6.65
million on issue, were to be redeemed on the second, third and fourth
anniversary of their issue in tranches of #1.7 million, #0.95 million and #4.0
million respectively. The first and the second tranches have already been
repaid. The first was financed through short term bank debt which was repaid
from the net proceeds of #2.45 million from the sale of the Bristol and
Leicester clubs in April 2003. The second tranche was financed by a loan of #0.9
million from Thistledown. This therefore leaves the largest tranche of #4.0
million outstanding. The Independent Directors are proposing to redeem the Loan
Notes through a clearing arrangement of #4.0 million to be made available
immediately prior to Completion by Lloyds TSB Bank plc. The consideration of
#4.0 million for the sale of the Northern Clubs to the Buyer Companies (which
are controlled by Stanley Henry, who is also the holder of the Loan Notes) will
be paid on the same day. The Disposal is subject to the approval of Independent
Shareholders, the redemption of the Loan Notes and the obtaining of certain
third party landlord consents (where the ultimate landlord is not Barton House).
The Company reported in its unaudited interim results for the six months to 28
February 2003, which were released on 30 May 2003, that market conditions at
that time were, and continue to be, highly competitive, resulting in pricing
pressure and fierce competition among operators for new members. These
conditions restricted growth in operating cash flows and, together with net debt
and interest payments of #0.89 million and capital expenditure of #0.22 million,
led to a net cash outflow of #0.5 million in the first half of the financial
year.
This net cash outflow was subsequently partially financed by the net proceeds of
the sale of the Bristol and Leicester clubs. The balance of the consideration
from the sale of the Bristol and Leicester clubs was utilised to repay debt and
interest of #1.87 million, which included the short term debt of #1.4 million
taken out to repay the first tranche of loan notes which was due in October
2002, and further capital expenditure in the second half of the year. The
Company has now put in place additional funding of #0.9 million which it has
borrowed from Thistledown, to repay the second tranche of loan notes of #0.95
million. The loan from Thistledown is repayable on the second anniversary of
drawdown.
Despite the competitive conditions referred to above, the Company is budgeting
for improved trading results in the financial year to 31 August 2004, relying
more on a reduction in costs than an increase in revenues. Further senior
management and club level restructuring has been carried out in September and
October 2003 at an estimated cost of #80,000 in redundancies (which will be
provided for in the financial statements for the year ended 31 August 2003).
Despite the planned restructuring, the Independent Directors have concluded that
there is no reasonable chance that trading will generate #4.0 million in twelve
months to enable the Loan Notes to be repaid from existing resources.
Furthermore, the Company's auditors have indicated to the Board that should the
arrangements for the repayment of the Loan Notes not be made the Directors may
have to note the uncertainty that exists with regard to the repayment of the
Loan Notes in the Company's accounts for the financial year ended 31 August
2003, although the auditors' opinion may not be qualified in this respect.
The Directors have reviewed the options open to them and decided against selling
the more profitable clubs in and around the London area, so that there is a
financially viable company left after Completion. Operating profits (before
goodwill and the allocation of certain central costs) from those remaining clubs
in the South were #0.89 million in the year to 31 August 2002 and net assets
were #6.55 million as at that date. Furthermore, despite an effort to market the
Northern Clubs to third parties over a period of many months, no offer was
received sufficient to solve the debt problem now. The Independent Directors
wished to secure the trading future of the Company rather than prolong the
uncertainty. They are satisfied that the Disposal provides such a premium over
market value that a further delay would not be beneficial to Shareholders. Given
these circumstances, the Independent Directors have concluded that the Disposal
is the best option available to the Company to provide the Company with
sufficient funds to redeem the Loan Notes.
Details of the Disposal
The Independent Directors instructed Edward Symmons to undertake a market
valuation of the Company's clubs. Edward Symmons have commented on the changes
which have taken place in the industry, both in respect of the privatisation of
previously publicly quoted health and fitness companies and the diminution in
the earnings multiples for the purposes of valuing leasehold sites, compared to
two or three years ago. Their report valued the Northern Clubs at #3.335
million. Further details of Edward Symmons' valuation report on the Northern
Clubs will be set out in the Circular to Shareholders. The Northern Clubs which
are the subject of the Disposal are:
Existing Use
Value*
Approx. size #'000
Location of Club Tenure sq.ft.
Hartlepool** Leasehold 25,600 345
Kingston Park Leasehold 28,400 2,000
Low Fell** Leasehold 23,000 190
Pandon Bank Leasehold 7,500 0
South Shields** Leasehold 18,800 100
Sunderland** Leasehold 25,800 700
Teesside Park** Leasehold 24,500 0
--------
Total 3,335
* as extracted from Edward Symmons' valuation report to be set out in the
Circular;
** the immediate landlord of these clubs is Barton House.
Operating profit (before goodwill and the allocation of certain central costs)
for the year to 31 August 2002 for the Northern Clubs was #0.58 million and net
assets were #4.1 million as at that date. Membership at these clubs as at 1
September 2003 totalled 11,400 against an estimated capacity of 16,750.
Under the terms of the Sale and Purchase Agreement, the Buyer Companies shall
purchase the Northern Clubs for a total consideration of #4.0 million. The
Northern Clubs will be bought as a going concern with the Buyer Companies
assuming control of the Business following Completion. A summary of the
principal terms of the Sale and Purchase Agreement is set out in the Circular.
Financial effects of the Disposal
If the Disposal is approved by Independent Shareholders and completed in
accordance with the terms of the Sale and Purchase Agreement and the relevant
landlords' consents relating to certain club premises are obtained, the Group
will immediately repay in full the outstanding Loan Notes through a clearing
arrangement of #4.0 million to be made available immediately prior to Completion
by Lloyds TSB Bank plc. The consideration of #4.0 million for the sale of the
Northern Clubs to the Buyer Companies (which are controlled by Stanley Henry,
who is also the holder of the Loan Notes) will be paid on the same day.
Consequently, the Group's indebtedness will be reduced by #4.0 million and its
gearing will be reduced to approximately 22 per cent. from its current level of
approximately 38 per cent. As a consequence of the Disposal and the early
redemption of the Loan Notes, the Company will save approximately #0.25 million
of interest payments which would otherwise have had to be made by October 2004
together with potential liabilities for dilapidations in respect of those club
premises where Barton House is the landlord.
The consideration of #4.0 million represents a premium of approximately #0.7
million to the aggregate valuation of the Northern Clubs as stated by Edward
Symmons in its report to be set out in the Circular. The Disposal will result in
a loss on disposal of the fixed assets and goodwill of approximately #9.1
million against the price of #4.0 million to be received.
Current trading and prospects of the SpringHealth Group
Shareholders will be aware of the competition experienced by the Group and, in
particular, the pricing pressure that now exists in the health and fitness
market. The Directors believe that since the release on 30 May 2003 of the
Company's unaudited interim results for the six months ended 28 February 2003,
the difficult trading conditions have continued and are likely to continue in
the foreseeable future. For this reason and the fact that following Completion
the Group will comprise, in aggregate, five clubs which are operated in and
around London, the Directors will examine all strategic options regarding the
continuing viability of the Company as a quoted entity.
Extraordinary General Meeting
For the reasons stated above, the Disposal constitutes a substantial property
transaction with a director of the Company pursuant to the provisions of the
Act. Accordingly, the Disposal is conditional, inter alia, on the passing by
Independent Shareholders of the Resolution. A notice convening an Extraordinary
General Meeting of the Company at which the Resolution will be proposed to
approve the Disposal, will be set out in the Circular.
Stanley Henry who may not vote on the Resolution has therefore undertaken to
abstain and to take all reasonable steps to ensure that his wife, Avril Henry,
and his other associates abstain from voting on the Resolution. The Independent
Directors and their family and other interests, representing in aggregate
approximately 30.2 per cent. of the Company's issued share capital, have
undertaken to vote in favour of the Resolution.
Further information
A circular containing, inter alia, Edward Symmons' valuation report and a notice
convening the EGM, will be despatched to Shareholders later today.
Arbuthnot, which is regulated in the United Kingdom by the Financial Services
Authority, is acting exclusively for SpringHealth and no-one else and will not
be responsible to anyone other than SpringHealth for providing the protections
afforded to customers of Arbuthnot nor for giving advice in relation to the
Disposal.
Definitions
"Act" the Companies Act 1985 (as amended)
"Arbuthnot" Arbuthnot Securities Limited, nominated adviser to the
Company
"Barton House" Barton House (No 50) Limited, a company controlled by Stanley
Henry and Mrs Avril Henry
"Board" or the directors of the Company
"Directors"
"Business" that part of the business of SpringHealth which comprises the
operation of the Northern Clubs
"Buyer each of Barton House, Springs Sanctuary Spa (Kingston Park)
Companies" Limited, Springs Sanctuary Spa (Hartlepool) Limited, Springs
Sanctuary Spa (South Shields) Limited, Springs Sanctuary Spa
(Sunderland) Limited and Springs Sanctuary Spa (Low Fell)
Limited, each of which is controlled by Mr and Mrs Henry
"Circular" the circular containing, inter alia, Edward Symmons' valuation
report and a notice convening the EGM to be despatched to
Shareholders later today
"Completion" completion of the Disposal in accordance with the Sale and
Purchase Agreement
"Disposal" the proposed disposal by SpringHealth of the Northern Clubs to
the Buyer Companies pursuant to the Sale and Purchase
Agreement
"Edward Edward Symmons & Partners, independent property valuer to the
Symmons" Company
"Extraordinary the extraordinary general meeting of the Company to be convened
General Meeting" at which the Resolution will be proposed
or "EGM"
"Independent Sandy Anderson, Eric Lowry and Russell Hudson
Directors"
"Independent all Shareholders other than Stanley Henry and his wife, Mrs
Shareholders" Avril Henry and his other associates
"Loan Notes" the outstanding #4.0 million principal of 7 per cent. loan
notes of the Company due October 2004
"Northern the health and fitness clubs operated by SpringHealth in
Clubs" Hartlepool, Kingston Park, Low Fell, Pandon Bank, South
Shields, Sunderland and Teesside
"Ordinary ordinary shares of 10 pence each in the capital of the
Shares" Company
"Resolution" the ordinary resolution to approve the Disposal to be proposed
at the Extraordinary General Meeting
"Sale and the conditional agreement providing for the sale and purchase
Purchase of the Northern Clubs and made between SpringHealth (1) the
Agreement" Buyer Companies (2-7), and Stanley Henry (8)
"Shareholders" holders of Ordinary Shares
"SpringHealth" SpringHealth Leisure plc
or "Company"
"SpringHealth SpringHealth and its subsidiary undertakings prior to
Group" or Completion
"Group"
"Thistledown" Thistledown Investments Limited, a company controlled by Sandy
Anderson
END
This information is provided by RNS
The company news service from the London Stock Exchange
END
DISPUGPUUUPWGWP