23 March 2020
Ted Baker Plc
('Ted Baker' or the 'Group')
Sale and Leaseback of Ted Baker's Headquarters, Additional Loan Facility and COVID-19 Update - Amended for UK and E.U. Stores
Following the announcement in December 2019 that the Board of Ted Baker was launching a strategic asset review, the Group is pleased to announce that it has today exchanged contracts with a wholly owned subsidiary of British Airways Pension Trustees Limited (the 'Purchaser') in respect of the sale (the 'Sale') of the entire issued share capital of Big Lobster Limited ('Big Lobster').
Big Lobster is a wholly owned subsidiary of Ted Baker, which owns, as its sole asset, the Group's registered and head office, The Ugly Brown Building (6a St Pancras Way, London NW1 0TB - the 'Property'), which Big Lobster currently leases to the rest of the Group.
The consideration for the Sale is £78.75 million (subject to completion of a customary completion accounts adjustment mechanism) and will be paid in cash on completion, which is expected to take place in June 2020. The net proceeds of the Sale of at least £72 million will be applied to repay existing indebtedness to significantly de-lever the Group.
In connection with the Sale, Ted Baker has entered into a short-term lease of the Property for a period following completion, and at completion will enter into an option with the Purchaser to take a long-term lease of part of the adjacent newly developed property, to be known as Bowline, Tribeca, St Pancras Way ('Bowline') (the 'Leaseback' and together with the Sale, the 'Sale and Leaseback'). Further details on these arrangements are set out below.
The Sale and Leaseback is the last step of the Group's strategic asset review.
The Sale constitutes a Class 1 transaction for Ted Baker under the Financial Conduct Authority's Listing Rules. Completion of the Sale is therefore conditional on approval by a simple majority of shareholders of Ted Baker.
The Group has received an irrevocable undertaking from Ray Kelvin, who holds voting rights in respect of 15.5 million shares (representing 34.87% of the issued share capital of Ted Baker), to vote all the shares he is able to vote at the time of the relevant general meeting in favour of the Sale.
The Group will send a circular to shareholders in due course, setting out further details of the Sale along with notice of a general meeting of Ted Baker shareholders.
The consideration of £78.75 million represents a premium of approximately 39.1% to the last published book value of the Property as at 26 January 2019 of £56.6 million. An updated valuation of the Property will be included in the circular to be sent to shareholders.
Other transaction details and timing to completion
- Under the terms of the Sale and Leaseback, Ted Baker will continue to occupy the Property for an annual rent of £3.25 million (the 'Short-Term Lease') until Bowline is fully fit for purpose as the Group's headquarters. Accounting for the Short-Term Lease under IFRS 16, a right of use asset worth £9.2 million will be reflected on Ted Baker's balance sheet, along with an associated lease liability of £9.2 million.- Ted Baker has the option to sign an agreement for a lease of part of Bowline until 1 June 2021.- If the option is exercised, the lease of Bowline would last for 10 years from the commencement of Ted Baker's occupation. Following an initial 21-month rent-free period, an annual rent of up to £4.2 million (based on likely square footage required) would apply and be reviewed at the end of the fifth year (the 'Long-Term Lease'). - If Ted Baker does not exercise its option over the Long-Term Lease, the Short-Term Lease will expire on 31 March 2023, or on 3 months' notice after 1 June 2022.
- Ted Baker is also entitled to a rent-free period on Bowline equating to a capital sum of £8.0 million. If the Group exercises its option on the Long-Term Lease, it will benefit from this sum of £8.0 million which will be catered for, following expiry of the 21 month rent-free period under the Long-Term Lease, by way of a discounted rent over the remaining period of the first five years of the 10-year term. If the Group does not exercise its option over the Long-Term Lease, this will be paid as a cash sum on the expiry of the Short-Term Lease and vacant possession of the Property being granted to the Landlord.
Additional Loan Facility
Ted Baker also announces that its lending bank syndicate continues to be supportive and has agreed to increase the headroom under the Group's facilities by £13.5 million until 18 December 2020. The availability of this additional funding provides further financial flexibility while the Group implements its transformation programme, more details of which will be given at Ted Baker's full year results which are expected to be announced in May 2020.
The situation in regard to COVID-19 is rapidly evolving which creates uncertainty across many of the Group's markets. Visibility around how international public policy will develop is low but Ted Baker continues to monitor and respond to Government advice to best serve employees, customers and wider stakeholders, across its trading markets.
The Group is in ongoing dialogue with Government, both directly and through relevant trade associations, about the further support required for workers and businesses in the retail industry during these difficult and uncertain times.
The Group is also not hesitating and is acting now to take a series of steps to reduce costs and protect cashflow, including suspending all non-essential capital expenditure, stopping discretionary operating expenses, and severely restricting travel. All available opportunities to agree rescheduling or reduction of payments are being explored with parties such as HMRC, where the Government has already signalled flexibility, landlords, and suppliers. This is in addition to the actions on cost and people reductions that the Group announced on 26 February 2020.
The 100% business rates holiday for the next 12 months, which was announced by the UK Government to support retail businesses, is welcomed and the Group awaits further clarification of the details of this policy. Ted Baker paid UK business rates of £6.2m in FY 2020.
To date, there has been minimal disruption to the Group's supply chain, with the significant majority of its factories in China now operational. The Group does not currently envisage supply disruptions and inventory levels are sufficient.
The vast majority of the Group's retail stores and concessions are now closed (384 locations closed out of a total 416 locations globally). These represented approximately 68% of Ted Baker's Global Retail sales in FY2020.
Ted Baker's eCommerce channel has proved much more resilient and the performance in the financial year to date (last 8 weeks) has been up 16% on last year, albeit with some variability across recent weeks. The eCommerce service continues to operate for customers as normal, and is a channel the Group will be intensively managing during this period of store closures.
At this stage, it is too early to provide meaningful guidance for FY 2021 and the Group will update investors with the FY 2020 results in May. In line with prior guidance, the Group anticipates underlying pre-tax profit to be within the £5-10m range for the year ended 26 January 2020.
Rachel Osborne, Acting CEO, said:
'The sale and leaseback of the Ugly Brown Building and future relocation of our head office are significant developments resulting from the broad asset review we have undertaken in recent months.
This transaction and the agreed additional financing provides further headroom and flexibility, which will support the delivery of our transformation strategy.
The spread of COVID-19 has led to some unprecedented events around the world and uncertainty for our business and our people. We welcome the support packages so far announced by Governments and continue to focus on keeping our customers and employees safe and all of our stakeholders informed. By doing this, and by continuing to transform the way the business operates guided by our strategic priorities, we remain confident we can realise Ted's exciting, long-term potential.'
This announcement contains inside information. The person responsible for arranging the release of this announcement on behalf of the Group is Peter Hearsey-Zoubie, Company Secretary.
Tel: +44 (0) 20 7255 4800
Rachel Osborne, Acting Chief Executive Officer
David Wolffe, Acting Chief Financial Officer
Tel: +44 (0) 20 7353 4200
Jonathan Sibun/Michelle Clarke
Enquiries and further information:
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Cautionary statement regarding forward-looking statements
This announcement contains certain forward-looking statements. These forward-looking statements include matters that are not historical facts or are statements regarding the Group's intentions, beliefs or current expectations concerning, among other things, the Group's results of operations, financial condition, liquidity, prospects, growth, strategies, and the industries in which the Group operates.
Forward-looking statements are based on the information available to the Directors at the time of preparation of this announcement, and will not be updated. The Directors can give no assurance that these expectations will prove to have been correct. Due to inherent uncertainties, including both economic and business risk factors underlying such forward looking information, actual results may differ materially from those expressed or implied by these forward-looking statements.