RNS Number:4938S
Mezzanine Group PLC
26 November 2003
Mezzanine Group plc ("Mezzanine" or the "Group")
Preliminary Results Announcement and Proposal to De-List from AIM
Overview
Mezzanine Group plc, the owner and operator of Smollensky's restaurants
announces its preliminary results for the 12 months ended 1 June 2003.
Furthermore, in discussions with our lending bank they have asked the Group to
seek further ways in which it can reduce costs. To this end the Board has
concluded that, given the size of the business and the costs associated with
maintaining its public status, it should de-list the group from the AIM Market.
The de-listing is subject to shareholder approval at the Group's annual general
meeting on Thursday 8 January 2004 ("AGM"). Assuming shareholders approve the
proposed resolution, de-listing will take effect at 8am on Friday 9 January 2004
and the last day of trading in the Group's shares on AIM will be Thursday 8
January 2004
Operational Review
* Strong performance from Smollensky's in Canary Wharf, with mixed
performances from other Smollensky's restaurants
* Turnover increased by 21% reflecting a full year's operations for the
Canary Wharf Smollensky's and the opening of a further Smollensky's in
Carter Lane in the City of London on 8 May 2003.
* Operating loss of #6.4 million compared with loss of #5.5 million last
year; with loss from continuing operations being #6.2 million against a
loss of #6.1 million in the prior year.
* Significant progress with non-core asset sales following the disposals
of Soho club Attica for consideration of #3.4 million, Storm nightclub
in Southend for #1 million, the sale of two Drake's wine bars for
consideration of #0.24 million and the proposed disposal of Kartouche
and Mezzanine nightclubs for #1 million.
* Offer of #1 million received for the Goat in Boots and Room sites.
* Proceeds of disposals received to date have been used to reduce net
indebtedness, which at 1 June 2003 stood at #16.0 million. Further
receipts will also be used to reduce indebtedness.
* Current trading remains difficult, with little expectation of an
improvement in the near term.
Roddy Sutherland, Chairman, commented:
"With the disposal of non-core operations coming to an end, Mezzanine will be
focused around the core Smollensky's restaurant business. While our restaurant
at Canary Wharf continues to trade strongly, performance at the other
restaurants has been more mixed reflecting the comparatively weak London
restaurant market. In discussions with our lending bank, they have asked the
Group to seek further ways in which it can reduce the cost base. Given the size
of the business and the costs associated with maintaining its public status, the
Board, after consulting with the Group's advisers, has applied to have its
ordinary shares de-listed from AIM with effect, subject to shareholder approval
at the Group's AGM, from the 9 January 2004. "
Audited Accounts
Copies of the Group's audited financial statements for the 12 months ended 1
June 2003 will be available for inspection from the Company's registered office
at 105 The Strand, London, WC2R 0AA. Copies of the Company's audited financial
statements will be posted to shareholders on Friday 28 November 2003.
Contacts:
Roddy Sutherland, Chairman and CEO, Mezzanine Group 020 7836 7030
Jonathan Glass, Brunswick 020 7404 5959
Chairman's Statement
Strategic Update
The Group has had another difficult trading year, which has led your directors
to conclude, after consultation with the Group's key shareholders, advisers and
bankers, that it is in the best interests of the Group to apply to be de-listed
from AIM. The intention of the de-listing is to enable the Group to reduce costs
and move the business towards profitability in what continues to be a difficult
trading environment. The proposal of the Group to de-list is subject to
shareholder approval at the Group's AGM. Further details relating to the Group's
de-listing are set out below.
In the year to 2 June 2002 it became apparent to the Board that Mezzanine needed
to restructure its operations. The directors made the decision to focus on the
Smollensky's format and strive for profitability by delivering first class
quality food and wine at affordable prices. As part of this process, the
directors embarked upon a non-core asset disposal programme to reduce the
Group's indebtedness and provide capital to expand the Smollensky's brand.
Mezzanine announced its new strategy to refocus the business on 29 November 2002
in its preliminary results for the year to 2 June 2002.
The first step in the Group's restructuring was announced together with
Mezzanine's interim results for the six months to 1 December 2002 on 27 February
2003, when the disposal of the Storm nightclub to Shea Properties Limited for a
cash consideration of #1 million was completed. The difficult trading conditions
faced by Mezzanine were highlighted in the Group's interim results with a
reported loss for the period of #2.2 million. The directors informed
shareholders that action was being taken to reduce the Group's administrative
costs by over #1 million to a more sustainable level. The Group reaffirmed its
strategy of disposing of non-core assets to reduce its indebtedness and to fund
further expansion of Smollensky's.
The Group took a further significant step on 27 March 2003 with the disposal of
Attica for consideration of #3.4 million to Soiram Limited. Marios Georgallides,
the former Chief Executive of Mezzanine is a director of Soiram Limited. Marios
Georgallides left the group upon the completion of the disposal of Attica. With
the disposal of Attica, and the departure of Marios Georgallides as Chief
Executive, I assumed the joint roles of Chairman and Chief Executive as from 28
March 2003 to drive through the disposal of non-core assets and move the Group
towards profitability. Following the disposal of Attica, the Group sold two of
its Drakes wine bars for a cash consideration of #0.24 million. This disposal
completed on 14 May 2003. The total net asset value of the two Drakes wine bars
was #0.2 million as at the completion date. During the period from 3 June 2002
to 14 May 2003 the wine bars generated sales of #0.4 million and loss before
interest, taxation, depreciation and amortisation of #0.02 million. With these
disposals completed the Group has achieved its objective of reducing overheads
by #1 million per annum, the benefits of which will be seen in 2004 results.
Our Focus on Smollensky's
At the beginning of the period the Group had five Smollensky's restaurants all
operating in the London area. As experienced by the broader London restaurant
market, Smollensky's has had a difficult trading period over the past 12 months,
although on the whole has performed satisfactorily. The performance of our
Smollensky's restaurant in Canary Wharf was very strong, with our restaurants in
Hammersmith and Wapping performing in line with management's expectations. The
Strand site although trading well was affected by the early hot summer and the
reduction in tourists during the period. Finchley Road continued to underperform
and subsequent to the year end the Board decided, due to continued operating
losses, to close the Finchley Road restaurant. Consequently Finchley Road ceased
trading on 15 September 2003. The decision was taken following a review of this
business and the potential for the site in the long-term. The Board is seeking
to dispose of its leasehold interest in this site, and is in discussions with a
number of parties.
As part of Mezzanine's focus on Smollensky's, the Group refurbished, at a
minimal cost, its Drakes wine bar on Carter Lane and reopened on 8 May 2003 a
Smollensky's format restaurant. The early signs of trading for Carter Lane are
encouraging. Unfortunately, due to the indebtedness of the Group the directors
have not been able to open any further Smollensky's restaurants. Instead the
directors have focused on reducing costs and improving the profitability of its
current operational restaurants.
Results
Turnover on continuing operations for the period increased by 21% to #8.5
million, reflecting a strong performance for Smollensky's in Canary Wharf and a
first contribution from the Carter Lane site. Gross profits fell by 8.8% to #8.1
million from #8.9 million last year, reflecting the continued difficult trading
experienced in the London restaurant market, together with the poor performance
of Attica and Storm nightclubs before they were disposed of and the poor
performance followed by the closure of the Mezzanine nightclub in Wolverhampton
on 4 January 2003. The total operating loss for continuing operations was #6.2
million against a loss of #6.1 million last year.
Administrative expenses in the 12 months to 1 June 2003 increased marginally
from the prior year reflecting the restructuring costs to the Group. The impact
of the aggressive cost savings made during the later part of the Group's 2003
financial year will be realised in 2004. The Board has made every effort to
reduce the cost base of the Group, to reflect the shape of the business going
forward and the economic circumstances faced by Mezzanine. In particular the
Group took the opportunity during the period to move from its head office in
King Charles Terrace in Wapping, to a much smaller head office within the
existing site at Smollensky's on the Strand. I also assumed the roles of Chief
Executive and Chairman, thereby eliminating the costs of employing a Chief
Executive. Since 1 October 2003, I have also waived a significant portion of my
salary to further reduce the central costs of the business.
Proceeds of disposals received to date have been used to reduce net
indebtedness, which at 1 June 2003 stood at #16.0 million, compared with net
debt of #14.8 million as at 2 June 2002. In contrast the Group's tangible fixed
assets at 1 June 2003 were #6.4 million, compared to tangible fixed assets of
#15.2 million as at 2 June 2002. Further receipts will also be used to reduce
indebtedness. Following the Group's aggressive cost reductions and assuming
shareholders approve Mezzanine's proposed de-listing from AIM, the directors
estimate that ongoing administrative expenses have been reduced to a more
sustainable level for the refocused Smollensky's based Group.
The annual revaluation of leasehold properties resulted in a total downward
revaluation of #3.7 million of which #1.8 million was taken to the profit & Loss
account. Net interest payable for the year increased to #978,000 against
#875,000 last year, reflecting higher average net debt balances during the year.
Update on Non-Core Asset Disposal Programme
The Group is pleased to announce, since the year end, that it has accepted an
offer for the disposal of the leases of the Kartouche nightclub in Ipswich ("
Kartouche") and the Mezzanine nightclub in Wolverhampton ("Mezzanine Nightclub")
for a cash consideration #1 million. While the Kartouche nightclub is still
operational, Mezzanine Nightclub has not traded since 4 January 2003. The offer
is from Brightsun Limited, a company under the control of Glynn McDonald and
myself. As a result of the relationship between Glynn McDonald and I, and the
Group, the disposal of these properties is classed as a related party
transaction pursuant to Rule 12 of the Aim Rules. In accordance with their
obligations, the Directors, excluding Glynn McDonald and myself, having
consulted the Company's Nominated Adviser, consider that the terms of the
disposal are fair and reasonable as far as Mezzanine shareholders are concerned.
The offer is subject to landlords consent and the Group anticipates the disposal
to complete in the following month.
The total net asset value of Kartouche and Mezzanine Nightclub was respectively,
#1 million and #nil as at the completion date. During the twelve months to 1
June 2003 Kartouche generated sales of #1.1 million and loss before interest,
taxation, depreciation and amortisation of #0.4 million and Mezzanine Nightclub
generated sales of #0.03 million and loss before interest, taxation,
depreciation and amortisation of #0.2 million, reflecting only 7 months trading
in the year.
In addition, the Company has received an offer for the sale of the Goat in Boots
and Room sites in Fulham, for total consideration of #1 million. The directors
believe this transaction will complete in the next 3 months.
Once this further transaction is finalised the Group would have completed its
non-core asset disposal and reduced the indebtedness of the Group by #6.64
million, providing the Group with a stronger base from which to expand its
Smollensky's format restaurants.
Board Changes
Marios Georgallides, former Chief Executive, left the group upon the completion
of the disposal of Attica to Soiram Limited. Mr Georgallides is a director of
Soiram Limited. In line with the group's strategy of focusing on its core
Smollensky's restaurant business and reducing costs, Operations Director, Kerpal
Bains resigned on 30 April 2003. Kerpal was primarily responsible for the
non-core businesses and has continued to work since 30 April 2003, on a
consultancy basis as required.
De-listing from AIM
With the disposal of non-core assets nearly complete, the Group is now focused
around the core Smollensky's restaurant business. Proceeds from asset sales have
been used to reduce indebtedness, with future proceeds to be used to reduce
debts further.
In discussions with our lending bank, they have asked us to seek further ways in
which we can reduce costs. To this end the Board has concluded that, given the
size of the business and the costs associated with maintaining its public
status, and subject to shareholder approval at the Group's forthcoming AGM, to
de-list the group from the AIM Market.
One of the key benefits of an AIM quotation for shareholders is, in theory, a
ready market for the Company's shares. However, in practice, the thinness of the
market has made it difficult for shareholders to buy or sell in significant
volumes. Another advantage to the Company of an AIM quotation should be the
ability to raise equity investment quickly and cost effectively via the market.
The current position of Mezzanine does not make it possible for the Group to do
this.
Consequently, the Board and its lending bank, consider that it is no longer
appropriate for Mezzanine to be quoted on AIM and recommends cancellation of
admission of the Group's shares on AIM. Such a change would result in cost
savings for Mezzanine.
With the continued support of its lending bank, it is the Board's intention to
further develop the Smollensky's business as a non-quoted company. If this
strategy proves to be successful, it would be the Board's intention to review
available options in order to return value to shareholders. The main objective
of the Board is to create a company which is profitable and which generates
cash, and it is felt that this objective is more likely to be achieved if the
Group's quotation on AIM is removed.
The Board is seeking shareholder approval for cancellation of the Company's
quotation at the Group's AGM to be held on Thursday 8 January 2004. The notice
of that meeting and the appropriate special resolution is being sent to
shareholders with the financial statements.
If the special resolution is passed the last day that the Group's shares can be
traded on AIM will be Thursday 8 January 2004.
Following removal of the shares' quotation on AIM the share register will
continue to be maintained by Computershare Services plc and it will be possible
for shares to be traded on a matched bargain basis operated by the directors.
The Board also intends to use its website, www.mezzaninegroup.com, to keep
shareholders appraised of future developments of the Group as an unquoted
company.
Finally, the Board wishes to make it clear that the proposal to remove the AIM
quote is not a "public to private transaction" and no offer is being made by
management or any other party to existing shareholders to acquire their shares.
Outlook
The directors remain committed to bringing the Group to profitability by
delivering first class quality food and wine at affordable prices. The general
economic climate appears to be improving and this should improve the underlying
performance of the Group's five trading restaurants. Together with the Group's
lending bank, the directors, when funds allow, will seek to acquire further
suitable sites to expand the Smollensky's brand.
Roddy Sutherland
Chairman
26 November 2003
GROUP PROFIT AND LOSS ACCOUNT
for the year ended 1 June 2003
2003 2002
Unaudited Audited
# #
Turnover
Continuing operations 8,474,907 7,000,306
Discontinued activities 2,834,828 4,831,082
________ _______
11,309,735 11,831,388
Cost of sales (3,162,949) (2,894,081)
________ ________
Gross profit 8,146,786 8,937,307
Administrative expenses
- Depreciation (1,270,324) (1,529,376)
- Other (13,277,000) (12,901,950)
Total administrative expenses (14,547,324) (14,431,326)
Operating loss
Continuing operations (6,159,829) (6,051,778)
Discontinued activities (240,709) 557,759
________ ________
(6,400,538) (5,494,019)
Profit/(loss) on disposal of subsidiary undertakings 38,870 (29,503)
Profit on disposal of fixed assets 307,272 -
________ ________
(6,054,396) (5,523,522)
Interest receivable 262,285 50,582
Interest payable (1,240,051) (925,680)
________ ________
Loss on ordinary activities before taxation (7,032,162) (6,398,620)
Taxation on loss on ordinary activities - -
________ ________
Loss for the financial year transferred to reserves (7,032,162) (6,398,620)
________ ________
Loss per share - basic and diluted (13.00p) (11.83p)
GROUP BALANCE SHEET
As at 1 June 2003
2003 2002
Unaudited Audited
# #
Fixed assets
Goodwill - 58,822
Negative goodwill - (505,734)
_________ ________
- (446,912)
Tangible assets 6,437,241 15,156,608
________ ________
6,437,241 14,709,696
________ ________
Current assets
Stock 147,731 204,502
Debtors 1,182,886 1,108,092
Cash at bank and in hand 13,593,581 3,007,783
________ ________
14,924,198 4,320,377
Creditors: Amounts falling due
within one year (25,520,889) (13,447,896)
________ ________
Net current liabilities (10,596,691) (9,127,519)
________ ________
Total assets less current liabilities (4,159,450) 5,582,177
Creditors: Amounts falling due after
more than one year (8,750,000) (9,570,870)
________ ________
Net liabilities (12,909,450) (3,988,693)
_________ ________
Capital and reserves
Called up share capital 2,639,728 2,631,649
Share premium account 2,811,419 2,811,419
Revaluation reserve 578,433 4,843,746
Merger reserve 122,353 122,353
Profit and loss account - deficit (19,061,383) (14,397,860)
_________ _________
Equity shareholders' funds (12,909,450) (3,988,693)
_________ _________
GROUP CASH FLOW STATEMENT
For the year ended 1 June 2003
2003 2002
Unaudited Audited
# #
Net cash outflow from operating activities (4,048,640) (2,218,654)
Returns on investments and servicing of
finance (977,766) (875,098)
Capital expenditure and financial investment 3,661,621 (2,794,143)
Acquisitions and disposals 240,000 66,092
________ ________
Cash outflow before financing (1,124,785) (5,821,803)
Financing (187,314) 5,395,642
________ ________
Decrease in cash in the year (note 6) (1,312,099) (426,161)
________ ________
Note 1
The financial information set out herein, which was approved by the Board on 26
November 2003 does not comprise the Group's statutory accounts. Statutory
accounts for the previous financial year dated 2 June 2002, have been delivered
to the Registrar of Companies.
The audited financial statements for the year ended 1 June 2003 will be posted
to shareholders on 28 November 2003.
The accounts for the year ended 1 June 2003 have not been delivered to the
Registrar of Companies.
The financial information for the year ended 1 June 2003 has been prepared on a
going concern basis. The auditors have indicated that they will make reference
to the basis of preparation in their audit report of the financial statements.
Note 2: Basis of preparation - going concern
The financial information has been prepared on a going concern basis. At 1 June
2003, the group had net current liabilities of #10,596,691 and had incurred a
loss for the year ended on that date of #7,032,162.
In deciding that it is appropriate to prepare the financial information on this
basis the directors have had regard to:
(a) an indication given by the bank that they will provide sufficient funding
facilities, subject to normal terms and conditions, to the group, in line
with the cash flow forecasts, to enable it to pay its creditors as and
when they fall due for a period of at least twelve months from the date
of signing the accounts.
(b) trading and cash flow projections for the period to 30 November 2005.
(c) the current disposal programme of non core assets.
The directors are confident that appropriate financing will be put in place.
However, until sufficient facilities are formally in place, there must remain an
element of uncertainty as to whether adequate financing will be in place to meet
the group's requirements.
As such, the accounts have been prepared on a going concern basis and no
adjustments have been made to the financial information that may result from the
Group not being considered a going concern.
Note 3
There is no charge to taxation due to the availability of losses.
Note 4
The loss per share is based on the loss for the period and the weighted average
number of shares in issue of 54,094,560 (2002 - 54,094,560). There is no
potential dilution.
Note 5
The preliminary announcement covers the year ending 1 June 2003.
Note 6: Analysis and reconciliation of net debt
At start of Cash flow Other non- At end of
year cash changes year
# # # #
Cash at bank and in hand 3,007,783 10,585,798 - 13,593,581
Overdrafts (6,337,680) (11,897,897) (652,770) (18,888,347)
________ ________ _______ _______
(3,329,897) (1,312,099) (652,770) (5,294,766)
________ ________ _______ ________
Debt due after one year (9,402,770) - 652,770 (8,750,000)
Debt due within one year (1,750,000) - - (1,750,000)
Finance leases (363,525) 195,393 - (168,132)
________ ________ _______ ________
(11,516,295) 195,393 652,770 (10,668,132)
________ ________ _______ ________
Net debt (14,846,192) (1,116,706) - (15,962,898)
________ ________ _______ ________
2003 2002
# #
Decrease in cash in the period (1,312,099) (426,161)
Cash outflow/(inflow) from decrease/(increase)
in debt and lease financing 195,393 (5,395,642)
________ ________
Change in net debt in period (1,116,706) (5,821,803)
________ ________
Net debt at 3 June 2002 (14,846,192) (9,024,389)
________ ________
Net debt at 1 June 2003 (15,962,898) (14,846,192)
________ ________
Note 7
Consistent accounting policies have been applied in preparing the 1 June 2003
figures as were used in preparing the audited results for the Group for the year
ended 2 June 2002.
Note 8: Related party transactions
On 27 February 2003, the group sold Storm Nightclub to Shea Properties Limited,
a company controlled by R Shea and J Smith who own 11.57% of the company's
ordinary share capital for #1,000,000, resulting in a loss of #458,524.
On 27 March 2003, the group sold Attica Nightclub to Soiram Limited, a company
controlled by M Georgallides, the Chief Executive for #3,400,000, he resigned
from the group on the date of sale. The profit on disposal was #530,585.
No amounts remain outstanding at the year end.
Note 9: Post balance sheet event review
The company has accepted an offer for the disposal of the leases of the
Kartouche nightclub in Ipswich and the Mezzanine nightclub in Wolverhampton for
a cash consideration of #1 million. The offer is from Brightsun Limited, a
company under control of R Sutherland and G McDonald directors of Mezzanine
Group Plc.
The company has received an offer from S MacDonald an employee of the Group to
acquire the Goat in Boots and Room sites in Fulham, for a total consideration of
#1 million.
Smollensky's, Finchley Road ceased trading on 15th September 2003, The board is
seeking to dispose of its leasehold interest in this site, and is in discussions
with a number of parties.
This information is provided by RNS
The company news service from the London Stock Exchange
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