THE INFORMATION CONTAINED IN THIS ANNOUNCEMENT IS CONSIDERED TO HAVE BEEN INSIDE INFORMATION PRIOR TO ITS RELEASE, AS DEFINED IN ARTICLE 7 OF THE MARKET ABUSE REGULATION (EU) 596/2014. UPON PUBLICATION OF THIS ANNOUNCEMENT THE INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN FOR THE PURPOSES OF THAT REGULATION.
23 September 2019
Connect Group PLC
("Connect Group" or "the Company")
The Proposed Sale and Leaseback of Selected Tuffnells Properties
The Group announced on 13 August 2019 that due to current market conditions and outlook, the proposed sale and leaseback of selected Tuffnells freehold and long leasehold properties would unlikely take place by the end of its FY2019 financial year. The Board has since concluded that a sale and leaseback of these properties in a number of smaller tranches is most likely to realise greater levels of deliverability and meet the Board's expectations in respect of value, economic return and timings.
Connect Group is therefore pleased to announce that its subsidiary, Tuffnells Parcels Express Limited ("Tuffnells"), has exchanged contracts with Urban Logistics Prop Co 1 (AC) Limited (the "Purchaser"), a subsidiary of Urban Logistics REIT plc, to dispose of a tranche of these properties, comprising six distribution depots, of which three properties are freehold and three properties are long leaseholds (the "Tuffnells Sale Portfolio No. 1").
The Group will receive consideration from the Purchaser in the sum of up to £9.9 million (excluding VAT) for the sale of the Tuffnells Sale Portfolio No. 1, payable in cash. The Purchaser will, as part of an associated leaseback transaction, let the Tuffnells Sale Portfolio No. 1 back to Tuffnells on full repairing and insuring leases for a period of 20 years from completion of the sale of each of the six relevant properties, with the leases to be guaranteed by Connect Group. The net rents payable under the leases, which will be at market standard rents, will be an aggregate of approx. £0.7 million (plus VAT) per annum.
The six properties comprising the Tuffnells Sale Portfolio No. 1 are located in local industrial estates within Andover, Coventry, Leighton Buzzard, Newport, Perth and Plymouth.
Completion of the sale of the Tuffnells Sale Portfolio No. 1 is expected to take place on or shortly after 27 September 2019, subject only to receipt of landlord consent in the case of the three long leasehold properties.
Background and rationale to the transaction
Connect Group is a UK based specialist distributor and a leading provider of distribution solutions in complex and fragmented markets. Through its core businesses, Smiths News and Tuffnells Parcels Express, the Group's networks are focused on serving high drop density early morning deliveries from its 78 distribution depots and the demands of mixed and irregular sized freight.
Tuffnells operates its business from a network of 37 local collection and delivery distribution depots. The Tuffnells Sale Portfolio No. 1 comprise part of the assets that were acquired as part of the acquisition of the Tuffnells business in December 2014 and the gross value of the assets being disposed of are £3.5 million as at 31 August 2019.
The sale and leaseback of the Tuffnells Sale Portfolio No. 1 will seek to align the Tuffnells real estate portfolio with the Group's other real estate interests (which are predominantly leasehold) and will ensure consistency in approach, oversight and flexibility of the Group's real estate network. Furthermore, in accordance with the operational progress achieved to date by the Group in its execution of the strategy and capital allocation programme set out in the trading statement released to the London Stock Exchange on 22 January 2019 (for further details, please see the Company's interim financial results announcement on 1 May 2019), the transaction represents another important step in the Group's strategy of promoting a disciplined capital allocation programme and (in driving a sustainable recovery of Tuffnells) introducing lean process management and continuous improvement principles, each of which are expected to drive efficiency savings and improved customer experience.
Use of proceeds
The Board intends to use the cash proceeds arising from the transaction to reduce the Group's net debt by the repayment of part of the Group's revolving loan facility under its current debt facility agreement and to achieve a more efficient balance sheet, providing sufficient ongoing headroom for further future investment in the Group, with any such investment to be funded from ongoing operating cashflow.
Jos Opdeweegh, Chief Executive Officer of Connect Group, commented on the transaction:
"The sale and leaseback of this tranche of properties is another step in our strategic plan and ambition to reduce the Group's net debt position to a targeted net debt/EBITDA ratio of 1x by FY2021 as announced on 22 January 2019. We will continue to explore other possible sale and leaseback opportunities for the remaining Tuffnells freehold real estate portfolio where those opportunities meet the Board's expectations in respect of value, economic return and timings as this transaction with Urban Logistics does so. Progress continues to be made on the key priorities referred to in our interim financial results published on 1 May 2019 and we look forward to presenting the Group's preliminary financial results on 6 November 2019."
Connect Group PLC
Jos Opdeweegh, Chief Executive Officer
Tony Grace, Chief Financial Officer
Buchanan (Financial PR)
Richard Oldworth / Jamie Hooper
Person responsible for arranging release of this announcement:
Stuart Marriner, General Counsel & Company Secretary
Connect Group PLC
Cherry Orchard North
About Connect Group
Connect Group PLC is a UK based specialist distributor and a leading provider of distribution solutions in complex and fragmented markets. The Group's networks are focused on serving high density early morning deliveries and the demands of mixed and irregular sized freight.
The Group's core businesses are each leading players in their markets:
Smiths News is the UK's largest newspaper and magazine wholesaling business with an approximate 55 per cent. market share. It distributes newspapers and magazines on behalf of the major national and regional publishers, delivering to approximately 27,000 customers across England and Wales on a daily basis. The speed of turnaround in the UK and density of Smiths News' coverage is critical to one of the world's fastest physical supply chains.
Dawson Media Direct (DMD) supplies newspapers, magazines and inflight entertainment technology and content to over 80 airlines in 50 countries. Delivering to strict time windows with security accreditation, DMD serves the specialist needs of airlines and travel points in the UK and worldwide with printed and digital media.
Tuffnells is a leading distributor of mixed and irregular freight, serving approximately 5,000 small and medium sized enterprises across the UK. Its network of 37 depots collects and delivers mixed parcel freight consignments, specialising in items of irregular dimension and weight ("IDW"), examples of which include bulky items, building materials and automotive parts. With a mix of local and national clients, Tuffnells completes up to 70,000 daily deliveries, offering a range of timed services that are responsive to customer demand.
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