REG - Headlam Group PLC - Property Disposals

HeadlamAnnouncement

20/12/2024 07:00

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RNS Number : 9134Q  Headlam Group PLC  20 December 2024

20 December 2024

Headlam Group plc

('Headlam', the 'Company', the 'Group')

 

Progress against strategic initiative to simplify the Group's operations with
£54m cash proceeds from property disposals

Headlam (LSE: HEAD), the UK's leading floorcoverings distributor, is pleased
to announce that as part of its continued progress against its previously
announced transformation plan, it has sold properties for a total of £53.9
million (excluding VAT).

These sales represent a premium of 64% to book value and 14% to the last
market valuation(1) of £47.1 million. Collectively these properties had a
book value of £32.9 million and, as a result, a substantial profit(3) will be
generated on the sales; this will be recognised as non-underlying income.

The sale of these properties forms part of the Group's strategic initiative to
optimise its network, reinforcing its market-leading customer service and
driving improved operational efficiency. Following exchange and simultaneous
completion of the sales, the aggregate proceeds have been received in cash and
the Group is now in a net cash position(2) and continues to have an extensive
property portfolio valued at £95.0 million(1).

The property sales arise from two separate transactions:

i.    The sale of the Ipswich, Gildersome and Leeds properties for £50.9
million(4). Following operational improvements, the Ipswich property has
become surplus to requirements and will be fully vacated by the Group after
completing the relocation to the new distribution centre in Rayleigh(5) in Q1
2025. The Group has agreed a leaseback arrangement in relation to the
Gildersome and Leeds properties.

ii.    The sale of the Uddingston property, which had also become surplus
to requirements, for £3.1 million(4) on 11(th) December 2024. The property
was last valued by the Group at £2.3 million.

The sale of the three properties (Ipswich, Gildersome and Leeds) to a single
buyer constitutes a significant transaction under the Listing Rules. Further
details in relation to the significant transaction are contained in the
appendix to this announcement.

 

Commenting, Chris Payne, Chief Executive Officer, said:

"These property transactions, on highly attractive terms, have been enabled by
the progress we are making in optimising our operations, whilst also unlocking
cash from our business, and further strengthening our balance sheet to
re-invest in the Headlam proposition as the UK's leading floorcoverings
distributor."

Footnotes

1.   As at the market valuation undertaken in January 2023

2.   On a pre-IFRS 16 basis, i.e. before capitalised leases

3.   The calculation of the profit on sale is subject to IFRS 16 accounting
requirements regarding sale and leasebacks and will be finalised ahead of the
Group reporting its 2024 full year results

4.   Excluding VAT. In total, VAT of £10.8m has been collected on these
transactions and will be paid to HM Revenue & Customs in 2025

5.   As disclosed in the Group's half year results announcement the Group
has leased a new distribution centre in Rayleigh (Essex) to replace the
Ipswich facility. This new site optimises the size and location of our
operations in the South East of England, and better facilitates future growth
opportunities

Enquiries

 Headlam Group plc                            Tel: 01675 433 000
 Chris Payne, Chief Executive                 Email: headlamgroup@headlam.com (mailto:headlamgroup@headlam.com)
 Adam Phillips, Chief Financial Officer

 Panmure Liberum Limited (Corporate Broker)   Tel: 020 3100 2000
 Tom Scrivens / Atholl Tweedie

 Peel Hunt LLP (Corporate Broker)             Tel: 020 7418 8900
 George Sellar / Finn Nugent

 Houston (Financial PR)                          Tel: 020 4529 0549
 Kate Hoare / Kelsey Traynor / Polly Clarke

 

Notes to Editors

Operating for over 30 years, Headlam is the UK's leading floorcoverings
distributor. The Group works with suppliers across the globe manufacturing the
broadest range of products, and gives them a highly effective route to market,
selling their products into the large and diverse trade customer base. The
Group has an extensive customer base spanning independent and multiple
retailers, small and large contractors, and housebuilders. It provides its
customers with a market leading service through the largest product range,
in-depth knowledge, ecommerce and marketing support, and nationwide next day
delivery service. To maximise customer reach and sales opportunity, Headlam
operates businesses, trade brands and product brands across the UK and
Continental Europe (France and the Netherlands), which are supported by the
group's network, central resources and processes.

 

IMPORTANT NOTICE

The information contained within this announcement is deemed by the company to
constitute inside information as stipulated under the Market Abuse Regulation
(EU) no. 596/2014 as it forms part of UK domestic law pursuant to the European
Union (withdrawal) act 2018, as amended. Upon the publication of this
announcement via a regulatory information service, this information is
considered to be in the public domain.

This announcement has been issued by and is the sole responsibility of the
Company. The information contained in this announcement is for background
purposes and does not purport to be full or complete.

The information contained in this announcement is for background purposes only
and no reliance may or should be placed by any person for any purpose
whatsoever on the information contained in this announcement or on its
completeness, accuracy or fairness. Recipients of this announcement should
conduct their own investigation, evaluation and analysis of the business, data
and property described in this announcement.

The information in this announcement is subject to change. This announcement
is not intended to, and does not constitute or form part of, any offer to sell
or issue or any solicitation of an offer to purchase, subscribe for, or
otherwise acquire, any securities or a solicitation of any vote or approval in
any jurisdiction.

Panmure Liberum Limited is authorised and regulated by the Financial Conduct
Authority. Panmure Liberum Limited is acting for the Company only in
connection with the Transaction and no one else, and will not be responsible
to anyone other than the Company for providing the protections offered to
clients nor for providing advice in relation to the Transaction, the contents
of this announcement or any arrangement or other matter referred to in this
announcement.

Peel Hunt LLP is authorised and regulated by the Financial Conduct Authority.
Peel Hunt LLP is acting for the Company only in connection with the
Transaction and no one else, and will not be responsible to anyone other than
the Company for providing the protections offered to clients nor for providing
advice in relation to the Transaction, the contents of this announcement or
any arrangement or other matter referred to in this announcement.

Appendix

This Appendix, together with the main body of the announcement, sets out the
further information on the significant transactions.

1.   Key details of the Significant Transactions

The sale of the three properties, (Ipswich, Gildersome and Leeds) to XK 3
United Propco III Limited for £50.9 million, (the 'Property Portfolio
Transaction') constitutes a significant transaction under the Listing Rules.

In addition, the Company sold Stockport site to XK 3 United Propco II Limited,
a member of the same group of XK 3 United Propco III Limited on 7(th) June
2024 for £7.5 million, ('Stockport Transaction') (as referred to in the
Group's half year results). The Stockport Transaction will be aggregated with
the Property Portfolio Transaction as this is also now deemed to be a
significant transaction under UKLR 7.2.11R of the Listing Rules.

2.   Material Contracts

 

2.1. Property Portfolio Transaction

Sale Agreement

·      On 19th December 2024, the Group entered into a sale and purchase
agreement with XK 3 United Propco III Ltd to sell a portfolio of three
properties (Ipswich, Gildersome and Leeds) in consideration for a total of
£50.9 million plus VAT which is split as follows:

 

 Property    Consideration   Book Value
 Ipswich     £22.0 million   £18.4 million
 Gildersome  £9.5 million    £6.3 million
 Leeds       £19.4 million   £6.2 million

 

·      The sale and purchase agreement was subject to standard
commercial property terms. Completion occurred on 19(th) December 2024
("Completion").

 

·      The exchange and completion of the properties pursuant to the
terms of the sale and purchase agreement took place simultaneously and as
such, there are no conditions outstanding.

 

·      The Company has received the consideration of £50.9 million plus
VAT, in cash and there are no amounts outstanding.

 

Leaseback Overview

 

·      The Group has entered into separate lease agreements with the new
respective landlords of the properties, on the following terms:

 

 Ipswich     ·      Term: from Completion until 28(th) February 2025

             ·      No break clause

             ·      Customary provisions dealing with removing the Group's fixtures
             and fittings and making good any applicable dilapidations on expiry of the
             lease
 Leeds       ·      Initial term: from Completion until 31(st) December 2027

             ·      Full repairing and insuring lease terms on a contracted-out
             basis, with schedule of condition

             ·      Tenant-only option to break the lease on 31(st) December 2026

             ·      Customary provisions dealing with removing the Group's fixtures
             and fittings and making good any applicable dilapidations on expiry of the
             lease
 Gildersome  ·      Initial term: from Completion until 31(st) December 2027

             ·      Full repairing and insuring lease terms on a contracted-out
             basis, with schedule of condition

             ·      Tenant-only option to break the lease on 31(st) December 2026

             ·      Customary provisions dealing with removing the Group's fixtures
             and fittings and making good any applicable dilapidations on expiry of the
             lease

 

·      The leases are all at market rates. The aggregate annual lease
cost of the Gildersome and Leeds properties is £2.1 million.

 

2.2. Stockport Transaction

 

On 7(th) June 2024, the Group entered into a sale and purchase agreement with
XK 3 United Propco III Limited to simultaneously exchange and complete the
sale of its Stockport site in consideration for £7.5 million plus VAT, which
was received in cash.

 

3.   Risks

 

Headlam shareholders should carefully consider, together with all other
information contained in this announcement, the specific factors and risks
described below. The Company considers these to be the known material risk
factors relating to the Property Portfolio Transaction. There may be other
risks of which the Board is not aware or which it believes to be immaterial
which may be connected to the Property Portfolio Transaction and have a
material and adverse effect on the business, financial condition, results of
operations or future prospects of the Group.

 

The risks disclosed below are those which the Company considers: (i) are
material risks related to the Property Portfolio Transaction; (ii) will be
material new risks to the Group as a result of the Property Portfolio
Transaction; or (iii) are existing material risks for the Group which will be
impacted by the Property Portfolio Transaction. The risks described below are
not set out in any order of priority, assumed or otherwise.

 

·      The Group may incur liability under the sale contract and leases.

o  The sale contract is based on standard commercial property contract terms
and also includes customary provisions. Both the Group and XK 3 United Propco
III Limited carried out a customary due diligence and disclosure process to
minimise the liability under these provisions.

o  The leases are based on customary provisions and dealing with removing the
Group's fixtures and fittings and making good any applicable dilapidations on
expiry of the lease.

·      The market price of shares in the Group may fluctuate on the
basis of market sentiment surrounding the Property Portfolio Transaction:

o  The shares in the Group are quoted and the price which investors may
realise their shares are influenced by a number of factors, some specific to
the Group and its operations and some which may affect flooring distributors
or publicly traded companies as a whole, or other comparable companies.

o  The sentiments of the stock market regarding the Property Portfolio
Transaction will be one such factor and this, together with other factors
including actual or anticipated fluctuations in the financial performance of
the Group and its competitors, market fluctuations, and legislative or
regulatory changes for the flooring sector, could lead to the market price of
the Group's shares going up or down.

 

4.   Impact of the transactions on the Company's earnings, assets and
liabilities

 

4.1 Property Portfolio Transaction

 

·      Upon completion, the Group has de-recognised the £30.9 million
book value of the properties from its balance sheet and recognised the receipt
of £50.9 million (excluding VAT) in cash, plus a further £10.2 million of
cash collected in respect of VAT to be paid over to HM Revenue & Customs
in early 2025. Shortly after completion it is the Group's intention to use the
cash proceeds to repay the drawdown on its revolving credit facility.

 

·      A profit on disposal of the properties will be recognised. The
amount of profit on disposal is subject to the accounting requirements of
IFRS16 with regard to sale and leaseback transactions and will be calculated
and audited prior to finalising, and subsequently disclosed within, the
Group's full year results for the year ending 31(st) December 2024.

 

·      The profit on disposal will be classified as a non-underlying
item in the Group's income statement due to its material size and one-off
nature.

 

·      A right-of-use asset and lease liability will be recognised on
the Group's balance sheet in respect of the properties being leased back.
These amounts will be calculated and audited prior to finalising, and
subsequently disclosed within, the Group's full year results for the year
ending 31(st) December 2024.

 

4.2 Stockport Transaction

 

·      On completion the Group de-recognised the £4.2 million book
value of the property from its balance sheet and recognised the receipt of
£7.5 million (excluding VAT) in cash, which was then used to reduce
borrowings.

 

·      A profit on disposal of the property of £3.2 million was
recognised. This was reported in the Group's half year financial statements.
Due to its material size and one-off nature it was classified as a
non-underlying item in the Group's income statement.

 

4.3 Use of proceeds

 

·      The proceeds of the Stockport Transaction were used to reduce the
Group's borrowings.

 

·      The proceeds of the Property Portfolio Transaction will initially
be used to repay the Group's drawdown on its revolving credit facility,
resulting in the Group having a net cash balance (on a pre IFRS16 basis, i.e.
before accounting for lease liabilities). Over the next 12 months or so the
Group will invest a minority proportion of the proceeds in the implementation
of the Group's transformation plan. This transformation plan was announced on
17(th) September 2024, including details of the cost of implementation.

 

·      The Group's revolving credit facility matures in 2027 and the
terms of this facility are not changed by the Property Portfolio Transaction.

 

5.   Additional disclosures

 

·      The Board of the Company unanimously voted in favour of the
Property Portfolio Transaction and the Stockport Transaction and in its
opinion the Property Portfolio Transaction and the Stockport Transaction are
in the best interests of the Company's shareholders as a whole, as well as its
colleagues, suppliers and customers. This assessment is on the basis of the
transactions further strengthening the Group's financial position.
Furthermore, in the case of the Ipswich and Stockport property sales, these
resulted from network optimisation initiatives intended to enhance customer
service and facilitate future growth.

 

·      There are no related party transactions or material litigation to
disclose.

 

·    The information required by UKLR Annex 2.2(2) and 2.2(3) is not
available, and as referenced in the main body of this announcement the value
of the consideration for all of the transactions represent a premium of 64% to
book value and 14% to the last market valuation of £47.1 million, and
collectively these properties had a book value of £32.9 million and, as a
result, a substantial profit on sale will therefore be generated which will be
recognised as non-underlying income.  As such, the Board considers the
consideration for the properties is fair as far as the shareholders of the
Group are concerned.

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