Disposal
May 03 2002 - 2:08AM
UK Regulatory
RNS Number:4705V
Blacks Leisure Group PLC
3 May 2002
Embargoed until 0700 Friday 3 May 2002
Blacks Leisure Group plc
Proposed disposal of Blacks Sport & Fashion Division
Highlights
• Proposed disposal of Blacks Sport & Fashion Division to John David
Sports plc ("J D Sports") for £53.2 million in cash
- First Sport, AV and Pure Woman fascias, together 209 stores
• Blacks Sport & Fashion Division continues to experience difficult
trading conditions - results for the division for the year to 28 February 2002
to be below market expectations
• Proposed disposal provides Blacks with an exit from an increasingly
competitive sports retail market and concentrates resources on growing outdoor
and boardwear markets
• Disposal proceeds to be used to reduce gearing and strengthen the
Group's balance sheet
• Transaction repositions Group to focus on its market leading positions
in outdoor retail (Millets and Blacks Outdoor) and boardwear (O'Neill and Free
Spirit)
• Board to be realigned to reflect the new focus of the Group
- Simon Bentley to step down as Chief Executive
- Roy Crosland, currently Managing Director of the Outdoor Division, to
become Chief Executive
• Current trading in continuing operations in line with management's
expectations
- Like-for-like sales in the eight weeks since the year end
significantly ahead of the equivalent prior year period
- Outdoor retail market continues to recover from impact of foot and
mouth epidemic
- O'Neill order book significantly ahead of the same period last year
• Group to report preliminary results for the year to 28 February 2002 on
22 May 2002
David Bernstein, Chairman of Blacks, commented: "The Group's Sport & Fashion
Division has continued to report difficult trading conditions as competitive
pressures in its marketplace have intensified. The proposed disposal to J D
Sports will enable Blacks to exit from the sports retail market and concentrate
its resources and management effort on its market leading positions in outdoor
and boardwear. Trading in the continuing group in the current year has been
encouraging with our outdoor and boardwear businesses continuing to recover from
the effect of last year's foot and mouth epidemic and O'Neill and Free Spirit
growing strongly. Following the transaction the Group will have strong
positions in two growth markets, a significantly stronger balance sheet and
continued growth prospects."
Enquiries:
Blacks Leisure Group plc (03/05/02) 020 7950 2883
Roy Crosland (Thereafter) 01604 441 111
HSBC Investment Bank plc 020 7336 9000
Julian Gray
Weber Shandwick Square Mile 020 7950 2883
Josh Royston
This summary should be read in conjunction with the full text of this
announcement.
Introduction
The Board of Blacks Leisure Group plc ("Blacks" or "the Company") announces
today that it has reached agreement on the sale of the companies comprising its
Sport & Fashion Division ("Blacks Sport & Fashion Division") to John David
Sports plc ("J D Sports"), through its wholly owned subsidiary Athleisure
Limited, for £53.2 million to be satisfied in cash (the "Proposed Disposal").
Under the terms of the Agreement relating to the Proposed Disposal, Blacks will
receive a total sum of £53.2 million, representing £11.0 million in respect of
the entire issued share capitals of the relevant companies that comprise Blacks
Sport & Fashion Division and the repayment of inter-group debt of £42.2 million
owed by Blacks Sport & Fashion Division to the continuing operations of Blacks
Leisure Group following completion of the proposed disposal (the "Continuing
Group"). The £11.0 million is subject to an uncapped upward or downward revision
on a pound for pound basis to the extent that the net asset value of Blacks
Sport & Fashion Division (excluding amounts owed by Blacks Sport & Fashion
Division to the Blacks) as at 30 April 2002, which will ultimately be agreed
between the Company and Athleisure Limited, differs from £48.2 million, being
the current expected value. No adjustment will be made either upwards or
downwards unless the amount of such adjustment is greater than £250,000.
Background to and reasons for the Proposed Disposal
In December 1999, Blacks acquired The Outdoor Group Limited, combining it with
the existing Blacks outdoor business to create the UK market leader, in terms of
turnover, in outdoor retail. Since this acquisition the Group has further
developed this business through a combination of store openings, refurbishment
and some closures, resulting in a net increase of 32 stores in the period from
that date to February 2002. This organic expansion has been complemented
recently by the acquisition of 47 outlets from the administrative receivers of
Famous Army Stores Limited. Following these acquisitions, the Blacks outdoor
division now trades from 338 stores, under the Millets, Blacks, Free Spirit and
Famous Army Stores fascias (the "Outdoor Division"). It is intended that the
acquired stores will be converted to the Millets and Blacks fascias over the
next few weeks.
In view of the increasingly competitive nature of the sport and fashion retail
market, which has impacted upon the recent trading performance of Blacks Sport &
Fashion Division, the Directors believe it appropriate to refocus the Group,
concentrating its resources in markets in which it has leading positions. The
Directors believe that the Proposed Disposal will have the following benefits
for the Company and its Shareholders:
• it will enable the Continuing Group to focus its strategy and resources
upon its market leading position in outdoor sportswear & equipment, together
with its rapidly growing O'Neill and Free Spirit businesses in boardwear;
• the Group is withdrawing from a highly competitive market with
significant margin pressure;
• the cash proceeds from the Proposed Disposal will enable the Group to
reduce significantly its gearing levels which the Board believed were too high
in view of the poor recent performance of Blacks Sport & Fashion Division; and
• the significant reduction in debt levels will provide the Continuing
Group with the financial strength to take advantage of future opportunities
within its chosen markets.
Following the Proposed Disposal, the Continuing Group will be represented in two
growing markets, outdoor sportswear and equipment, through its Millets and
Blacks fascias, and boardwear, through its Free Spirit fascia and O'Neill.
Outdoor Sportswear and Equipment
A recent Mintel report identifies the retail market for outdoor sportswear to be
worth some £855 million in 2001, or 28 per cent. of the total UK sportswear
market. Moreover, the report suggests that this market will grow by 6.6 per
cent. in 2002 and will continue to show strong growth thereafter. The Directors
estimate that the outdoor equipment market is currently worth an additional £220
million giving a total outdoor sportswear and equipment market of approximately
£1.075 billion. Mintel identifies a number of key factors which will drive
growth in the outdoor sportswear market, namely:
• increasing participation in outdoor sports activities such as walking,
hiking and cycling by the population generally;
• an increase in the number of young adults (comprising 15-24 year-olds),
with a corresponding increase in participation in outdoor sports activities such
as climbing and hiking;
• a significant increase in the number of 55-64 year-olds, traditionally
the most important group to the outdoor market as they are particularly keen
walkers and enjoy visiting the countryside;
• continued growth in the activity holiday and adventure holiday markets;
• growing awareness of the health benefits of outdoor activities;
• a growing desire to "escape" from an urban, office environment into the
"great outdoors"; and
• a continuation of the trend towards outdoor sportswear being worn as
everyday casual wear.
The Outdoor Division is the market leader in terms of turnover in this important
market, with sales (excluding those at Free Spirit) of around £125 million in
the year to 28 February 2002 from over 250 Millets and Blacks stores. The Blacks
fascia is positioned at the premium specialist end of the market, with Millets
occupying the mid-market. The integration of the 47 outlets recently acquired
from the administrative receivers of Famous Army Stores is expected to provide
further growth in the year ended 28 February 2003 and thereafter. This market
remains highly fragmented, however, and with an estimated current market share
of around 15 per cent. (once the Famous Army Stores outlets are included), the
Directors believe there are significant opportunities for continued growth.
Boardwear
A recent report on the UK boardwear market by Sovereign Market Research
estimates it to be worth £383 million and to have grown by some 16 per cent.
during 2001.
The Group's Free Spirit fascia, which is the leader in this market in terms of
turnover, is growing rapidly, and achieved sales of some £26 million in 30
stores in the year to 28 February 2002.
O'Neill, for which the Group holds the UK distribution rights, is one of the
leading brands in the boardwear market worldwide as well as in the UK. The
O'Neill business is also growing rapidly. The last financial year saw the
opening of a store in Carnaby Street, London as well as a further three stores
in Birmingham, Leeds and Bromley bringing the total number of owned stores to
eight. Also in the last financial year the number of O'Neill branded areas
within other retailers' stores has been increased from 20 to 32. In total,
O'Neill sales in the last financial year increased by 42 per cent. to £23
million.
Overall, the Group has a commanding position in this exciting and fast growing
market which the Directors believe provides a sound base for continued future
growth.
Information on Blacks Sport & Fashion
Blacks Sport & Fashion Division comprises the First Sport, AV and Pure Woman
formats. First Sport is a high street sports retailer with 183 stores located
throughout the UK. First Sport offers a range of exclusive sports apparel,
footwear, accessories and equipment. AV is a chain of 24 menswear stores selling
footwear and clothing from lifestyle brands. Pure Woman operates from 2 stores
and offers a mix of both sportswear and more lifestyle orientated casual wear.
A summary of the trading results of Blacks Sport & Fashion Division for the two
years ended 28 February 2001 and 2002 is set out below.
Year ended February 2001 2002
(£000) (£000)
Turnover 176,972 190,919
Operating profit 7,083 5,028
Profit on ordinary activities before tax 6,200 4,054
At 28 February 2002, Blacks Sport & Fashion Division had net assets of £32.7
million.
Information on J D Sports
J D Sports is one of the UK's leading specialist retailers of fashionable
branded sports and leisure wear. Operating through the J D Sports retail chain,
it is solely focused on the sports fashion market with over 155 stores at the
end of September 2001, and is a competitor of Blacks Sport & Fashion Division.
In the year ended 31 March 2001 it had sales of £204 million and as at 30
September 2001 it had net assets of £51.2 million. As at close of business on 1
May 2002, J D Sports had a market capitalisation of approximately £133 million.
Use of the Proceeds and Financial Effects of Proposed Disposal
The proceeds, net of costs, of the Proposed Disposal are estimated at £51.7
million and will be used to repay in full the Group's term loan which amounted
to approximately £24 million at 28 February 2002. The remaining proceeds will be
retained in order to fund ongoing working capital requirements and the continued
development of the outdoor sportswear & equipment and boardwear businesses in
line with the Continuing Group's strategy as set out above. In addition, the
Continuing Group has the benefit of a £23 million revolving credit facility
together with standby overdraft facilities to cater for working capital
fluctuations within the Continuing Group to the extent not covered by the
retained disposal proceeds. There is currently no intention of returning
proceeds from the Proposed Disposal to shareholders.
Management
In view of the Proposed Disposal of Blacks Sport & Fashion Division, the
Directors have determined that the Board of Blacks should be restructured to
reflect the new focus of the Continuing Group. Accordingly, Simon Bentley has
decided, with effect from the later of completion of the Proposed Disposal and 4
June 2002 to step down as Chief Executive of the Company. At that time Roy
Crosland, currently Managing Director of the Outdoor Division, will become Chief
Executive.
In addition, it is intended that the Board will be strengthened through the
appointments as main Board directors of Darren Spurling, currently Managing
Director of O'Neill, and Terry Maywood, currently Operations Director of the
Outdoor Division.
Tom Knight, currently Managing Director of the Sport and Fashion Division will
be leaving the Group as part of the Proposed Disposal.
Current Trading and Prospects
The Directors expect Group profit before tax for the year ended 28 February 2002
will be below current market expectations but not to a significant extent. The
Group will provide further information in its full year results which are
expected to be announced on 22 May 2002.
In its trading statement of 16 January 2002 the Group reported that Blacks Sport
& Fashion Division was experiencing an adverse trend in gross margin. This trend
continued in the remaining period of the year ended 28 February 2002 and as a
result, Blacks Sport & Fashion Division's operating profit of £5 million for the
year was significantly below that of the previous year and of market
expectations. Trading continues to be difficult in that division, with like for
like sales and margins in the eight weeks since the year end below the levels
seen in the corresponding period last year.
The disappointing performance in Blacks Sport & Fashion Division was partially
offset by a stronger performance in the Continuing Group. With regard to the
Outdoor Division, turnover for the year ended 28 February 2002 was ahead of the
previous year, with like-for-like sales increasing by 5.8 per cent. Gross
margins, which had fallen in the first half as a result of the foot and mouth
epidemic, have recovered in the final six months to finish the year slightly
below last year's level. O'Neill continued its strong growth with turnover for
the year ended 28 February 2002 substantially ahead of the previous year.
Although the current financial year is at an early stage, trading to date for
the Continuing Group has been in line with management's expectations.
Like-for-like sales for the Continuing Group in the eight weeks since the year
end were significantly ahead of the equivalent prior year period. The Outdoor
Division has continued to benefit from the recovery in the rural economy
following last year's foot and mouth epidemic and outdoor clothing and equipment
sales have now returned to a more normal pattern. O'Neill's forward order book
is significantly ahead of the same period last year. The Board is encouraged by
trading in the year to date and believes the prospects for the Continuing Group
for the current financial year are promising. Furthermore, the Board believes
that the benefits of improved financial and management focus following the
Proposed Disposal will further enhance the Continuing Group's prospects.
A further update on current trading will be provided in the announcement of the
Group's preliminary results for the year ended 28 February 2002.
Extraordinary General Meeting
Due to its size, the Proposed Disposal is conditional, inter alia, upon
obtaining the approval of Blacks Shareholders at an Extraordinary General
Meeting. A circular and notice of Extraordinary General Meeting will be sent to
Blacks' shareholders shortly.
This information is provided by RNS
The company news service from the London Stock Exchange
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