Patisserie Holdings plc (AIM: CAKE) (“PH”, the “Company” and together with its subsidiary undertakings, the “Group”) announces that the Company, in conjunction with its professional advisers, has now further progressed its initial investigation into the shortfall between the Group's previously reported financial status and the actual financial status of the Group.
The board of directors of the Company (the “Board” or the “Directors”) believes that the current financial position of the Company is such that it requires an immediate cash injection of no less than £20 million without which there is no scope for the Group to continue trading in its current form and would therefore need to appoint administrators.
Following the initial investigation, the Directors can confirm that the Group has net debt of approximately £9.8 million. Historical statements on the cash position of the Company were mis-stated and subject to fraudulent activity and accounting irregularities as set out in the announcement of the Company on 10 October 2018. This activity and the irregularities are, in the Directors view, also likely to have affected the historical financial statements of the Company. The Directors estimate that based on current run rate information available, annual revenue and EBITDA, before exceptional one off costs, for the year ending 30 September 2019 could be approximately £120 million and £12 million, respectively. However, the Directors emphasise that these statements and amounts are based on the limited work performed to date, and cannot be verified until there has been a further work conducted including the re-audit of the Company's financial statements and the preparation of the 30 September 2018 year end audit.
Moreover, shareholders should be aware that the investigations into the Company's financial irregularities remain at a very preliminary stage, and will be subject to further, comprehensive review in the weeks and months to come. At this stage, the Directors cannot predict the outcome of those investigations with any degree of certainty. Any further findings of financial irregularity within the Group could result in yet further material losses for the Company, its shareholders and wider stakeholders.
The Company's shares remain suspended from trading on AIM. At present, the Directors do not expect that suspension to be lifted at least until (a) there is there is greater clarity disclosed to the market around the financial position of the Group and (b) they are satisfied that the Company's financial reporting function is appropriate for a quoted company.
Accordingly, the Company proposes to raise approximately £15 million through the issue of approximately 30,000,000 new ordinary shares of one penny each (“Ordinary Shares”) in the capital of the Company (the “Placing Shares”) at a price of 50 pence per share (the “Placing Price”) by way of an accelerated book build (the “Placing”). The Placing comprises a proposed firm placing of 10,000,000 Placing Shares (the “Firm Placing Shares”) utilising the Company's existing shareholder authorities to issue new shares on a non-pre-emptive basis for cash (the “Firm Placing”) and a conditional placing of approximately 20,000,000 Placing Shares (the “Conditional Placing Shares”) subject to shareholder approval in general meeting (the “General Meeting”) to be convened as soon as practicably possible following this Announcement (the “Conditional Placing”).
In conjunction with the Placing and in order to provide immediate liquidity to the Group, the Company expects to enter into a new £10 million loan agreement with Luke Johnson later today, the Company's executive chairman (the “Loan”). The Loan is for a three-year term and made on an interest-free/fee-free basis and will be secured in due course.
Due to the nature of the settlement period of the Placing, Luke Johnson will commit a further bridging loan facility of up to £10 million (the “Bridging Loan”), to provide the Company with the ability to fund immediate outstanding liabilities. The Company will repay the amount of the Bridging Loan drawn down in full immediately upon receipt of the Placing proceeds following Firm Admission and Conditional Admission (as defined below).
The net proceeds of the Placing and funds advanced pursuant to the Loan and the Bridging Loan will primarily be used to fund the Group's immediate outstanding liabilities, including amounts owed to HM Revenue & Customs, trade creditors, general working capital purposes and committed capital expenditure. The Company expects the Group's principal lenders to enter into standstill agreements with the Group and to agree not to take action to enforce the recovery of their outstanding indebtedness for a period of 12 months. The standstill period will, however, terminate in the event that the Placing does not complete, or certain insolvency procedures are commenced against the Group
Based on the current information available to them, the Directors believe that upon completion of this equity and debt fundraising, the Group will be able to continue trading in its current form for the foreseeable future. Shareholders should be aware that without the Loan, the Bridging Loan and the proceeds of the Placing the Group would need to immediately secure alternative financing. There can be no guarantee that alternative financing will be available to the Company in the required amounts or on acceptable terms for the ongoing working capital requirements of the Group and therefore the Group would likely enter into immediate administration.
Under the AIM Rules for Companies (the “AIM Rules”), a loan from a related party which exceeds a specified percentage in any of the class tests under the AIM Rules is subject to certain disclosure requirements. As a Director and due to the size of his holding Ordinary Shares the entering into of the Loan and the Bridging Loan by Luke Johnson will be deemed to be a transaction with a related party under Rule 13 of the AIM Rules. The independent Directors (for these purposes being Paul May, Lee Ginsberg and James Horler) consider, having consulted with Canaccord Genuity, acting in its capacity as the Company's Nominated Adviser, that the terms of the Loan and the Bridging Loan is fair and reasonable insofar as the Company's shareholders are concerned.
The Placing
The Placing is being conducted through an accelerated bookbuilding process to institutional investors (the “Bookbuild”) which will be launched immediately following this announcement. Canaccord Genuity Limited (“Canaccord Genuity”) is acting as sole bookrunner in connection with the Placing.
The Placing is subject to the terms and conditions set out in the appendix (the “Appendix”) to this announcement (which forms part of this announcement, such announcement and the Appendix together being this “Announcement”).
The Placing Shares when issued, are expected to represent approximately 30 per cent. of the Company's existing issued share capital.
The Placing Shares, when issued, will be fully paid and will rank pari passu in all respects with the existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid after the date of issue.
The Firm Placing
Application will be made for the Firm Placing Shares to be admitted to trading on AIM. It is expected that Admission of the Firm Placing (“Firm Admission”) will take place on 8.00 am on 18 October 2018. The Firm Placing (raising gross proceeds of £5 million at the Placing Price) is conditional upon Firm Admission becoming effective by no later than 8.00 a.m. on 18 October 2018 (or such later time and/or date as the Company and Canaccord Genuity may agree, but in any event not later than 8.00 a.m. on 31 October 2018).
The Firm Placing Shares will together represent approximately 7.5 per cent. of the enlarged share capital of the Company immediately following Firm Admission.
The Conditional Placing
In order to undertake the Conditional Placing, the Company needs to seek approval from the Company's shareholders at the General Meeting, notice of which will be set out in a circular to shareholders that will be posted as soon as practicably possible following this Announcement (the “Circular”).
Application will be made for approximately 20,000,000 Conditional Placing Shares to be admitted to trading on AIM (“Conditional Admission”) and it is expected that Conditional Admission will take place at 8.00 a.m on the business day following the General Meeting.
The Conditional Placing Shares will represent approximately 16 per cent. of the Enlarged Share Capital. Following Conditional Admission of the Conditional Placing Shares, the Company will have approximately 135,000,000 Ordinary Shares in issue.
Your attention is drawn to the Appendix to this Announcement (which forms part of this Announcement), which sets out further information relating to the Bookbuild and the terms and conditions of the Placing.
By choosing to participate in the Placing and by making an oral and legally binding offer to acquire Placing Shares, investors will be deemed to have read and understood this Announcement in its entirety (including the Appendix) and to be making such offer on the terms and subject to the conditions in it, and to be providing the representations, warranties and acknowledgements contained in the Appendix.
Enquiries:
Patisserie Holdings PLC +44 (0)121 777 7000