John Lewis of Hungerford Plc, the specialist manufacturer and retailer of kitchens, bedrooms and freestanding furniture, has announced the successful exchange of contracts of a sale and leaseback transaction in respect of its freehold purpose-built factory and administrative headquarters in Wantage, Oxfordshire.
TOF Corporate Trustees Limited, which is the Oxford Endowment Fund, a commercial subsidiary of the University of Oxford, has agreed to pay a total net cash consideration of £3m for the Property. This is significantly higher than the Property’s net book value of £2.2m in the Company’s balance sheet at 30 June 2022, following a formal revaluation exercise completed during the audit in November 2022.
The Company expects to complete on the transaction within two weeks and the gross proceeds are expected to be received by the Company at this time. The Company has agreed a protected lease with TOF Corporate Trustees, pursuant to which the Company will lease the Property for an initial term of 15 years and the Company will retain the security of tenure and the right to renew. The annual rent payable by the Company pursuant to the lease will be £192,000.
On 30 June 2020 the Company announced it had entered into a financing facility with Devon & Cornwall Securities Limited for £1.079 million, which was drawn down immediately. This Facility was secured against the Property. £1.079 million of the net proceeds receivable by the Company (expected to be £2.95 million after legal and agents fees) will be used to redeem the Facility, together with approximately £50,000 of early repayment penalties. In line with current rates of inflation, the interest rate on the Facility is currently close to 15%. The interest saved as a result of the sale and leaseback of the Property, together with expected rates of interest earned on the funds, will largely offset the rent payable on the new lease, with the Company’s balance sheet materially strengthened.
A portion of the funds received will support the Company’s strategic development plan targeted at growing the Company’s business. This will include funding upgrades to capital assets, ensuring the Company can continue its high standard of delivery to its customers, together with a review of the showroom portfolio.
Furthermore, John Lewis of Hungerford has announced that it intends to seek shareholder approval for the cancellation of the Company’s ordinary shares from trading on AIM. The Directors consider that the limited free float and liquidity of its ordinary shares, together with costs associated with having the Company’s shares admitted to trading on AIM are not commensurate with the associated benefits of Admission to the Company.
The considerable cost associated with maintaining the Company’s admission to trading on AIM (such as nominated adviser and broker fees, London Stock Exchange fees and the costs associated with being a quoted company in having higher level corporate governance and audit scope) are, in the Directors’ opinion, disproportionately high, compared to the benefits. The Board have identified circa £250,000 of direct costs related to Admission.
The Company intends to convene a general meeting shortly, at which it will propose a resolution to approve the Cancellation in accordance with Rule 41 of the AIM Rules for Companies.
Once re-registered as a private limited company, the Company intends to undertake a share buyback through the implementation of a tender offer through which the Company will offer to purchase, as principal, the Company’s shares so as to provide those shareholders who wish to sell shares in the Company the opportunity to do so.
Any shares successfully tendered for, would be subsequently cancelled. In order to return surplus cash to shareholders by way of a tender offer, the Company will need to undertake a capital reorganisation involving the reduction of the share premium account and revaluation reserves of the Company, and the creation of distributable reserves. Once the capital reorganisation is completed, the revised capital structure will need to be formally audited. The Company expects to complete the tender offer following the conclusion of the year-end audit.
The Directors currently anticipate that any tender offer made would be for approximately 10 per cent of the Company’s ordinary shares, around 1.5p per share, reflecting the Company’s average share price over the most recent 4-week period. The Directors and several of the largest shareholders have indicated that they do not intend to tender their shares.
With the Board focused on returning the business to sustained profitability, the Company expect to improve this further through the cost savings made from Cancellation, together with a materially improved balance sheet. It is the intention of the Company to distribute a proportion of its profits on an ongoing basis in future years through a combination of further tender offers and/or dividend payments. The Company also intends to introduce a matched bargain system, to help facilitate purchases or sales of shares once a private company.
Kiran Noonan, Chief Executive Officer and acting Chairman, commented: “The sale and leaseback transaction with TOF Corporate Trustees secures a strong strategic partnership with a fund committed to developing the Grove Business Park. As the Company continues to grow, we look forward to working closely with TOF Corporate Trustees to develop our property requirements over the coming years.
“The proposed cancellation of trading in our shares on AIM is a key part of the Board’s plan to ensure management time is exclusively focused on the progress of the Company.”