Source - RNS
RNS Number : 5347O
Carpetright PLC
18 May 2018
 

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED IN IT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN OR THE REPUBLIC OF SOUTH AFRICA OR INTO ANY OTHER JURISDICTION WHERE TO DO SO MIGHT CONSTITUTE A VIOLATION OR BREACH OF ANY APPLICABLE LAW.  PLEASE SEE THE IMPORTANT NOTICE AT THE END OF THIS ANNOUNCEMENT.

THIS ANNOUNCEMENT, WHICH DOES NOT CONSTITUTE A PROSPECTUS OR PROSPECTUS EQUIVALENT DOCUMENT, IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES, AND NEITHER THIS ANNOUNCEMENT NOR ANYTHING HEREIN FORMS THE BASIS FOR ANY CONTRACT OR COMMITMENT WHATSOEVER.

This announcement contains inside information as defined in EU Regulation No. 596/2014 and is in accordance with the Company's obligations under Article 17 of that Regulation.

LEI: 213800GO32BSNNHXID90

 

Carpetright plc

("Carpetright" or the "Company" or the "Group")

 

Placing and Open Offer of 232,463,221 New Ordinary Shares

 

The Board of Carpetright is pleased to announce a fully underwritten proposed share issue to raise net proceeds of approximately £60.0 million (£65.1 million gross) through the issue of 232,463,221 New Ordinary Shares by way of a Placing and Open Offer at a price of 28 pence per New Ordinary Share.

The Issue Price represents a discount of 15.8 per cent. to the Closing Price of 33.25 pence per Ordinary Share on 17 May 2018.

Carpetright will shortly send Shareholders a Prospectus in connection with the Placing and Open Offer. The Prospectus will contain a notice of a general meeting, to be held at 4 p.m. on 6 June 2018, to approve certain Resolutions necessary to implement the proposed Placing and Open Offer.

This summary should be read in conjunction with the full text of the announcement.

Summary

·    

Issue of 232,463,221 New Ordinary Shares pursuant to a Placing and Open Offer to raise net proceeds of approximately £60.0 million.

·    

The New Ordinary Shares have been conditionally placed with Conditional Placees, subject to clawback in respect of valid applications by Qualifying Shareholders under the Open Offer.

·    

Qualifying Shareholders are being offered the opportunity to participate in the Open Offer on the basis of 88 New Ordinary Shares for every 27 Existing Ordinary Shares.

·    

The £60.0 million net proceeds of the Placing and Open Offer will be utilised approximately as follows:

£6.0 million to cover the additional anticipated costs associated with implementing the CVA;

£12.5 million for the repayment of the principal amount of the short term unsecured loan from Meditor entered into on 21 March 2018;

£33.0 million to fund the Group's capital expenditure plans as set out in the Revised Business Plan; and

The remainder to fund the Company's ongoing working capital requirements.

·    

The Placing and Open Offer is conditional on, amongst other things, the passing of the Resolutions at the General Meeting and there being no challenge to the CVA during the CVA Challenge Period (unless withdrawn or dismissed by the Court by no later than 5 June 2018 (or such later date as the Company's Lenders may agree)).

·    

If the Resolutions are passed and the other conditions to the Placing and Open Offer are satisfied, it is expected that dealings in the New Ordinary Shares will commence at 8.00 a.m. on 8 June 2018.

 

Wilf Walsh, CEO of Carpetright said:

"We are delighted to have received such strong support from our shareholders and other investors in achieving this fully underwritten fundraise. The £60m proceeds from the Placing and Open Offer will give us the resources we need to complete our restructuring and accelerate our recovery plan.  As well as funding implementation of the CVA to create a right-sized estate of stores on sustainable rents, it will provide the necessary capital to refurbish and modernise the ongoing store estate and to upgrade our digital platform - both vital investments in our future.  We believe that a recapitalised market leader will ultimately be better for customers, suppliers, landlords and shareholders."

Terms used in this announcement and not defined in Appendix I to this announcement shall have the meaning which will be given to them in the Prospectus.

Further details of the Placing and Open Offer are set out in this announcement. The times set out in the expected timetable of principal events below and mentioned throughout this announcement are times in London unless otherwise stated.

Expected timetable:

Record Date for entitlements under the Open Offer

close of business on
16 May 2018

 

Publication and posting of the Prospectus and Application Forms (to Qualifying Non-CREST Shareholders only)(1)

 

18 May 2018

Ex-entitlement date for the Open Offer

18 May 2018

 

Expiry of CVA Challenge Period

11.59 p.m.
on 28 May 2018

 

Latest time and date for receipt of completed Application Forms and payment in full under the Open Offer or settlement of relevant CREST instructions (as appropriate)

 

11.00 a.m. on 5 June 2018

Results of Open Offer to be announced through a Regulatory Information Service

 

by 8.00 a.m. on 6 June 2018

General Meeting

 

4.00 p.m. on 6 June 2018

Announcement of the results of the General Meeting

 

6 June 2018

Admission and commencement of dealings in the New Ordinary Shares on the London Stock Exchange

 

8.00 a.m. on 8 June 2018

(1)       Subject to certain restrictions relating to Overseas Shareholders.

Enquiries:

 

 

Carpetright plc

Wilf Walsh, Chief Executive

Neil Page, Chief Financial Officer

 

01708 802000

Peel Hunt LLP (Sponsor, joint bookrunner and joint broker)

Dan Webster

George Sellar

Nicole McDougall

 

020 7418 8900

Deutsche Bank AG (Joint bookrunner and joint broker)

Simon Hollingsworth

Mark Hankinson

Adam Miller

 

020 7545 8000

Citigate Dewe Rogerson (Financial PR)

Kevin Smith

Nick Hayns

 

020 7638 9571

 

Notes to Editors

Carpetright plc is Europe's leading specialist floorcoverings and beds retailer. Since the first store was opened in 1988 the business has developed both organically and through acquisition within the UK and other European countries. The Group is organised into two geographical regions, the UK and the Rest of Europe (comprising The Netherlands, Belgium and the Republic of Ireland).

 

IMPORTANT NOTICE

This announcement is an advertisement and does not constitute a prospectus or prospectus equivalent document.  Nothing in this announcement should be interpreted as a term or condition of the Placing and Open Offer.  Investors should not subscribe for or purchase any New Ordinary Shares except on the basis of the information which will be contained in the Prospectus expected to be published shortly after the release of this announcement or otherwise incorporated by reference into the Prospectus.  The Prospectus, when published, will be made available on the Company's website (www.carpetright.plc.uk) and be available for inspection during normal business hours on any day (except Saturdays, Sundays and bank holidays in England and Wales) free of charge at the offices of Travers Smith LLP, 10 Snow Hill, London EC1A 2AL, from the date of this announcement to the date one month from the date of Admission of the New Ordinary Shares.

This announcement does not constitute or form part of any offer or invitation to purchase, or otherwise acquire, subscribe for, sell, otherwise dispose of or issue, or any solicitation of any offer to sell, otherwise dispose of, issue, purchase, otherwise acquire or subscribe for, any security in the capital of the Company in any jurisdiction.

The information contained in this announcement is not for release, publication or distribution to persons in the United States, Australia, Canada, Japan or the Republic of South Africa or in any jurisdiction where to do so would breach any applicable law.  The New Ordinary Shares have not been and will not be registered under the securities laws of such jurisdictions and may not be offered, sold, taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, within such jurisdictions except pursuant to an exemption from and in compliance with any applicable securities laws.  No public offer of the New Ordinary Shares is being made by virtue of this announcement in or into the United States, Australia, Canada, Japan or the Republic of South Africa or any other jurisdiction outside the United Kingdom in which such offer would be unlawful. No action has been or will be taken by the Company, the Directors, Peel Hunt LLP, Deutsche Bank or any other person to permit a public offering or distribution of this announcement or any other offering or publicity materials or the New Ordinary Shares in any jurisdiction where action for that purpose may be required, other than in the United Kingdom.

THIS ANNOUNCEMENT DOES NOT CONTAIN OR CONSTITUTE AN OFFER OF SECURITIES FOR SALE OR THE SOLICITATION OF AN OFFER TO PURCHASE SECURITIES IN THE UNITED STATES. THE SECURITIES REFERRED TO HEREIN HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE US SECURITIES ACT OF 1933, AS AMENDED (THE "US SECURITIES ACT"), OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE OFFERED, SOLD, RESOLD, TRANSFERRED OR DELIVERED WITHIN THE UNITED STATES EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE US SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES.  THERE WILL BE NO PUBLIC OFFER OF SECURITIES IN THE UNITED STATES.

This announcement has been issued by, and is the sole responsibility of, the Company.

Peel Hunt LLP ("Peel Hunt"), has been appointed as sponsor and joint bookrunner to the Company.  Peel Hunt is authorised and regulated in the United Kingdom by the FCA in respect of regulated activities and is acting exclusively for the Company and no one else in connection with the transactions and arrangements described in this announcement and the Prospectus.  Peel Hunt will not regard any other person (whether or not a recipient of this announcement) as a client in relation to the transactions and arrangements described in this announcement and the Prospectus and will not be responsible for providing the protections afforded to Peel Hunt's clients nor for giving advice in relation to the contents of this announcement or the Prospectus or the transactions and arrangements described in this announcement or the Prospectus. Peel Hunt is not responsible for the contents of this announcement or the Prospectus.

Deutsche Bank AG, London Branch ("Deutsche Bank") has been appointed joint bookrunner to the Company. Deutsche Bank is authorised under German Banking Law (competent authority: European Central Bank) and, in the United Kingdom, by the Prudential Regulation Authority (the "PRA"). It is subject to supervision by the European Central Bank and by BaFin, Germany's Federal Financial Supervisory Authority, and is subject to limited regulation in the United Kingdom by the PRA and the FCA. Details about the extent of its authorisation and regulation by the PRA, and regulation by the FCA, are available on request or from www.db.com/en/content/eu_disclosures.html. Deutsche Bank is acting exclusively for the Company and no one else in connection with the transactions and arrangements described in this announcement and the Prospectus.  Deutsche Bank will not regard any other person (whether or not a recipient of this announcement) as a client in relation to the transactions and arrangements described in this announcement and the Prospectus and will not be responsible for providing the protections afforded to Deutsche Bank's clients nor for giving advice in relation to the contents of this announcement or the Prospectus or the transactions and arrangements described in this announcement or the Prospectus. Deutsche Bank is not responsible for the contents of this announcement or the Prospectus.

This announcement has been prepared for the purposes of complying with the applicable laws and regulations of the United Kingdom and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws and regulations of any jurisdiction outside of the United Kingdom.

Note regarding forward-looking statements:

This announcement includes statements that are, or may be deemed to be, forward-looking statements. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms anticipates, believes, estimates, expects, intends, may, plans, projects, should or will, or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this announcement and include, but are not limited to, statements regarding the Company's and/or Directors' intentions, beliefs or current expectations concerning, amongst other things, the Group's results of operations, financial position, prospects, growth, strategies and expectations for the floorcoverings and beds market.

Any forward-looking statements in this announcement reflect the Company's current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Group's operations, results of operations and growth strategy.  Investors should specifically consider the factors identified in this announcement which could cause actual results to differ before making an investment decision. Subject to the requirements of the Prospectus Rules, the Disclosure Requirements, the Transparency Rules and the Listing Rules, none of the Company, the Directors, Peel Hunt, Deutsche Bank and PWC undertakes any obligation publicly to release the result of any revisions to any forward-looking statements in this announcement that may occur due to any change in the Company's expectations or to reflect events or circumstances after the date of this announcement. Past performance of the Company is not necessarily indicative of future performance.

You are advised to read this announcement and, once available, the Prospectus and the information incorporated by reference therein, in their entirety for a further discussion of the factors that could affect the Company's or the Group's future performance, and the industries in which they operate.  In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements in this announcement may not occur.

Neither the content of the Company's website (or any other website) nor any website accessible by hyperlinks on the Company's website (or any other website) is incorporated in, or forms part of, this announcement.

Any person receiving this announcement is advised to exercise caution in relation to the Placing and Open Offer.  If in any doubt about any of the contents of this announcement, independent professional advice should be obtained.

This summary should be read in conjunction with the full text of the announcement which follows.



 

 

Carpetright plc

("Carpetright" or the "Company" or the "Group")

 

Placing and Open Offer of 232,463,221 New Ordinary Shares

 

1.         Introduction

On 12 April 2018, the Company announced that it proposed to implement a CVA between the Company and its creditors, pursuant to the terms set out in the CVA Proposal, with the principal objective to rationalise the Company's leasehold obligations in order to restore the viability of the Company's business. At the same time, it announced its intention, subject to and following the approval of the CVA by the Company's creditors and Shareholders, to raise net proceeds of not less than £60 million through a proposed equity fundraising.

Further to that announcement the Company announced on 11 May 2018 that it had obtained interim funding of £15.0 million (net) from the Meditor Loan Note to assist with its short term working capital requirements until it receives the net proceeds from the proposed equity fundraising, and that it had agreed the Post-CVA RCF Amendments (which are detailed further in paragraph 6 of this announcement) which are conditional upon, amongst other things, (i) the CVA not being subject, during the CVA Challenge Period, to a challenge which is not withdrawn or dismissed by the Court by no later than 5 June 2018 (or such later date, on or prior to the CVA Challenge Long Stop Date, as the Company's Lenders may agree); and (ii) receipt of the Placing and Open Offer net proceeds.

This announcement sets out the terms of the proposed equity fundraising to raise approximately £60.0 million net proceeds by way of a Placing and Open Offer of 232,463,221 New Ordinary Shares at an Issue Price of 28 pence per New Ordinary Share. The net proceeds of the Placing and Open Offer will be utilised to cover the additional anticipated costs associated with the CVA, repay the principal amount of the Meditor Facility, fund the Group's capital expenditure plans as set out in the Revised Business Plan and fund its ongoing working capital requirements. The Placing and Open Offer will only proceed if the proposed CVA is not subject to a challenge that is not withdrawn or dismissed by the Court by no later than 5 June 2018 (or such later date, on or prior to the CVA Challenge Long Stop Date, as the Lenders may agree)).

The Placing and Open Offer requires Shareholder approval: (i) of the terms of the Placing and Open Offer and to direct the Directors to implement the Placing and Open Offer; (ii) to grant the Directors authority to allot and issue the New Ordinary Shares; and (iii) to allot the New Ordinary Shares at the Issue Price, which represents a discount to the Closing Price of more than 10 per cent; and (iv) to allot and issue New Ordinary Shares to certain related parties in connection with the Placing and Open Offer. Approval of the Resolutions will be sought at a General Meeting to be held at 4 p.m. on 6 June 2018 at the offices of Travers Smith LLP, 10 Snow Hill, London, EC1A 2AL.

This announcement sets out the background to and explains the reasons for the Placing and Open Offer, including why the Directors believe it is in the best interests of the Group and Shareholders as a whole and to recommend that Shareholders vote in favour of the Resolutions.

In the event that the Resolutions are not passed, the Placing and Open Offer will not proceed. If the Placing and Open Offer does not proceed, the Company will be in default under the RCF immediately following the General Meeting and the CVA will be terminated. Under such circumstances, the Group will be unable to continue trading as a going concern which will likely result in the appointment of administrators or liquidators, as further described in paragraph 15 of this announcement.

2.            Conditions to the Placing and Open Offer

The Placing Agreement (and therefore the Placing and Open Offer) is conditional upon, among other things:

·    

Admission becoming effective by not later than 8.00 a.m. on 8 June 2018 (or such later time and/or date as the Company and the Joint Bookrunners may agree, being not later than 29 June 2018);

·    

the approval of the Resolutions (without amendment) by Shareholders at the General Meeting;

·    

there being no challenge to the CVA during the Challenge Period or, to the extent there is any such challenge during the Challenge Period, such challenge being withdrawn or dismissed by the Court by no later than 5 June 2018 (or such later date, on or prior to the CVA Challenge Long Stop Date, as the Lenders may agree); and

·    

each condition to enable the CVA to be implemented (other than Admission and the receipt of the net proceeds of the Placing and Open Offer) being satisfied on or before Admission.

 

3.            Background to the Placing and Open Offer

The core historical challenge to the Company's profitability and financial performance has been the size of its real estate portfolio. This has been a legacy issue for the Company resulting primarily from the aggressive store opening strategy pursued by its previous leadership, which has left the Company burdened with an oversized real estate portfolio consisting of too many sites on long leases with unsustainable rents. As at 16 May 2018 (being the latest practicable date prior to the publication of this announcement), the Company's UK real estate portfolio consisted of 410 operational stores, 15 non-operational stores and 20 warehouses, of which 205 (including: 194 operational stores; 10 non-operational stores; and 1 warehouse) have been identified as part of the CVA as underperforming (loss-making or broadly breakeven), and/or on unfavourable lease terms, or, in certain cases, not expected to have significant strategic value to the Company going forward. Many of these poor performing sites still have long leases to run on unfavourable terms, which has limited the Company's ability to effectively address the size of its real estate portfolio and exit a meaningful number of underperforming properties in the short-to-medium term despite having offered significant financial incentives to landlords in order to do so. Despite this, the Company has to date been able to make some progress in reducing the size of its real estate portfolio and improving lease terms by securing lower rents or exiting underperforming sites at lease renewal dates. As at 16 May 2018 (being the latest practicable date prior to the publication of this announcement), the Company has achieved a net reduction of 61 operational stores in its UK real estate portfolio from 471 as at July 2014.

Over the previous 24 months, additional macroeconomic and competitive challenges have emerged which have exacerbated the effects of the Company's oversized real estate portfolio and negatively impacted the Company's profitability and financial condition. Firstly, the UK's decision to exit the European Union on 23 June 2016 resulted in a dramatic depreciation of sterling against the euro that had the effect of increasing the cost of goods from the Company's European suppliers, requiring the Company to raise prices in order to mitigate the adverse effects on its profitability and negatively impacting its UK sales in the first half of the 2017 financial year. Since the vote to exit the European Union in 2016, UK disposable incomes and consumer confidence have declined, which has had a negative impact on UK consumer spending.

Concurrently, the competitive environment in the UK floorcoverings market intensified significantly over this period with a new national competitor entering the market with a widespread and aggressive store opening programme that has put significant pressure on the Group's best performing stores. In response to the changing competitive landscape, the Company has implemented, and continues to implement, a strategy focused on improving its brand image by (i) strategically refurbishing its stores (prioritising those most threatened by new competition); and (ii) offering enhanced local promotions (such as free fitting services) in the local areas impacted most by the new competitive pressure. The Company believes this strategy has been effective where it has been applied, as evidenced by those sites where such measures have been in effect for more than 12 months performing ahead of the rest of the Company's estate.

Despite the steps the Company has taken to address these challenges, it experienced a significant deterioration in UK trading in the second half of the 2018 financial year, most notably in the post-Christmas trading period. On 19 January 2018, the Company issued a trading update revising down its full year profit guidance based on a decline in UK trading with like-for-like sales decreasing by 3.6 per cent. in the 11 weeks to 13 January 2018, reflecting a poor post-Christmas trading period. Subsequently, the Company issued a further trading update on 1 March 2018, stating that, despite showing some improvement since 13 January 2018, like-for-like sales remained below management's expectations and that the Company expected to report a small underlying pre-tax loss for the financial year ending 28 April 2018. As a result of this deterioration in the Company's financial position, the Company also noted that it was proactively engaged in constructive discussions with the Lenders to ensure its continued compliance with the terms of the Company's facilities with the Lenders.

While the Board is confident that its brand investment and store refurbishment strategies have been, and will continue to be, successful in enabling the Company to respond to increased competition and a challenging macroeconomic environment, the Board has also examined the feasibility of a range of options, including disposals of assets and additional sources of funding, intended to stabilise its financial position and rationalise its real estate portfolio. However, in the Board's opinion none of these options alone would be sufficient to overcome the challenge posed by its legacy real estate portfolio, in light of the current trading environment, while improving its financial headroom and liquidity position.

Therefore, the Company announced on 21 March 2018 that it was exploring the feasibility of the CVA. The Company further announced that it had agreed the £12.5 million Meditor Facility to assist with its short term working capital requirements and that following the CVA it intended to raise additional funds of between £40 million and £60 million through an equity fundraising.

Following that announcement, the Company published the CVA Proposal including the full terms of the CVA on 12 April 2018 and also announced that its additional equity funding requirement would be not less than £60 million.

The CVA was approved by the requisite majority of the Company's creditors on 26 April 2018 and the requisite majority of Shareholders on 30 April 2018. However, the continued effect of the CVA remains effectively conditional upon (i) the Company receiving the net proceeds of the Placing and Open Offer, and (ii) the CVA not being subject, during the CVA Challenge Period, to a challenge which is not withdrawn or dismissed by the Court by no later than 5 June 2018 (or such later date, on or prior to the CVA Challenge Long Stop Date, as the Lenders may agree). In addition, the Company published a trading update on 30 April 2018 in which it announced that the Group anticipates reporting an underlying pre-tax loss for the year ended 28 April 2018 in the region of £7 million to £9 million.

On 11 May 2018, the Company announced that it had obtained additional interim funding of £15 million (net) from the Meditor Loan Note to assist with its short term working capital requirements until it receives the net proceeds from the Placing and Open Offer.

The Lenders have confirmed their support for the Company in order that the Company can implement the CVA and launch the Placing and Open Offer and have agreed the Pre-CVA RCF Amendments and Pre-CVA RCF Waivers with the Company prior to the CVA being announced. The Lenders have also agreed the Post-CVA RCF Amendments (which are detailed further in paragraph 6 of this announcement) which are conditional upon, amongst other things, (i) the CVA not being subject, during the CVA Challenge Period, to a challenge which is not withdrawn or dismissed by the Court by no later than 5 June 2018 (or such later date, on or prior to the CVA Challenge Long Stop Date, as the Lenders may agree); and (ii) receipt of the Placing and Open Offer net proceeds.

4.            Revised Business Plan

Following the receipt of the net proceeds from the Placing and Open Offer, the Company intends to implement a revised business plan (the ''Revised Business Plan''). The Revised Business Plan will continue to focus on the four key elements of the Company's existing business strategy consisting of: (i) 'Who we are' - updating the Group's brand image and customer perception, through modernising the stores estate and investing in its people; (ii) 'What we sell' - matching the Group's extensive range of floorcovering products to market trends and composition; (iii) 'How we sell' - delivering high quality customer service and an attractive customer proposition; and (iv) 'Where we sell' - providing an efficient multi-channel sales platform with a right-sized real estate portfolio. The Revised Business Plan represents a continuation and acceleration of the implementation of the Company's existing strategy.

The Group has allocated £6.0 million from the net proceeds of the Placing and Open Offer to fund the implementation of the CVA, including associated costs related to redundancy, staff retention, a compromised landlord fund, contract terminations and store closures, and £33.0 million to fund its capital expenditure plans forming part of its Revised Business Plan.

Right-sizing the Group's UK store portfolio

One of the core historical challenges to the Company's profitability and financial performance has been the size of its UK store portfolio, which has consisted of too many sites on long leases with unsustainable rents. The Company has sought to address this challenge since 2014 and, as at 16 May 2018, the Company has achieved a net reduction of 176 operational stores in its UK store portfolio from 586 stores as at May 2010. As at 16 May 2018 (being the latest practicable date prior to the publication of this announcement), the Group was trading from 410 operational stores in the UK, of which 194 have been identified as underperforming (loss-making or broadly breakeven), and/or on unfavourable lease terms, or, in certain cases, not expected to have significant strategic value to the Company going forward.

Implementation of the CVA will result in the Group exiting leases for 92 sites (including 81 operational stores), and the Company is expected to incur additional costs of approximately £6.0 million in connection with exiting these sites with such costs to be funded from the net proceeds of the Placing and Open Offer. In addition to the stores being exited, an additional 113 UK sites will be subject to rent reductions and revised lease terms under the terms of the CVA, which the Group expects to result in annualised cash savings over a three year period of £5.0 million (on an accounting basis, such savings will be phased in over the life of each relevant lease). For these sites, the CVA will also allow the Group greater flexibility for exiting such premises by giving it the ability to terminate such leases on three months' notice to the landlord with such notice period to expire (i) on the second or third anniversary following 26 April 2018 (in the case of the 82 Category B1 Premises) or (ii) on a date on or after 18 months following 26 April 2018 (in the case of the 31 Category B2 Premises). The Group intends to continue making strategic decisions in relation to the size of its UK and Rest of Europe store portfolio as part of its existing business strategy, and the implementation of the CVA will give it additional flexibility to do so with respect to the Category B Premises in the UK.

The annualised rental, business rates and employee cost savings associated with the closure of the Category C Premises as part of the CVA are expected to be £33.0 million, partially offset by a loss in gross profit from a reduction in sales from such stores of £30.0 million. Assuming a transfer of 20 per cent. of the revenues from the closed stores into the rest of the Group's store portfolio nationally (which would result in a net profit of £6.0 million, annualised cash savings for the Category B Premises over a three year period of £5.0 million and a reduction in the Group's annual central infrastructure costs of £8.0 million), the annualised cash savings to the Group as a result of the implementation of the CVA is expected to be approximately £19.0 million, factoring in a £3.0 million contingency for execution risk. This benefit is only potentially achievable following implementation of the CVA and stable UK trading conditions. The Company will also continue to bear additional costs associated with servicing indebtedness incurred in connection with implementing the Restructuring Plan.

Refurbishing and modernising the remaining store estate

The Group invested £10.8 million in store refurbishments and modernisations for the 43 weeks ended 24 February 2018 (financial year ended 29 April 2017: £12.7 million). Since 1 May 2016, 183 stores in the UK and 31 stores in the Netherlands and Belgium have received some level of refurbishment and modernisation investment. The level of improvements varies by store with some stores receiving a complete interior and exterior upgrade and others only being re-faced with the Group's updated branding. During the last three financial years a significant portion of the investment in the refurbishment and modernisation programme for UK stores was defensive in nature, with a priority given for refurbishment to key stores in areas facing new competitive pressure. The Directors believe refurbished stores have positively contributed to the Group's revenue and financial performance as evidenced by newly refurbished stores in the UK that have been unaffected by new competition and trading for 12 months following completion of refurbishment works generating like-for-like sales growth 9 percentage points higher than the stores in the UK that have not received refurbishment upgrades for the 52 weeks ended 28 April 2018.

Following the receipt of the net proceeds of the Placing and Open Offer, the Group expects to be able to accelerate its refurbishment and modernisation programme across its smaller, right-sized store portfolio. While it intends to deploy similar amounts of capital expenditure on a per store basis to that which it had expended in previous periods, the Group will be able to accelerate the re-branding of its entire UK store portfolio, instead of focusing primarily on defensive or targeted store refurbishments and modernisations. The Group expects that it will be able to complete the re-facing of all of its UK stores with the current branding within 24 months following the receipt of the net proceeds from the Placing and Open Offer (with some UK stores receiving more extensive refurbishment upgrades). The Group will also continue to progress the planned refurbishment of its stores in the Netherlands and Belgium consistent with its existing business strategy. The Group has planned capital expenditure of £14.2 million for store refurbishments over the next three financial years to April 2021, which will be funded by the net proceeds of the Placing and Open Offer.

Digital investment

As part of its existing business strategy, the Group has invested, and will continue to invest, in upgrading its digital platform through upgrades to its background systems and consumer facing websites. The Group is currently in the process of transforming its legacy IT systems by moving its UK and Republic of Ireland business onto a new Microsoft Dynamics 365 platform, which is expected to be completed in April 2019. The Directors expect this will lead to improvements in sales conversion and customer relationship management. The Group invested £3.7 million on IT related capital expenditure in the 43 weeks ended 24 February 2018 (financial year ended 29 April 2017: £1.7 million). As part of the Revised Business Plan, the Group intends to invest £7.8 million on digital re-platforming and IT systems upgrades over the next three financial years to April 2021.

Re-phasing of marketing spend

As part of the Revised Business Plan, the Group will refocus its UK marketing and advertising on promoting its brand image with consumers to counteract publicity surrounding the Restructuring Plan and potential negative perceptions associated with it. While the total expenditure on marketing and advertising in the UK is intended to remain consistent with previous periods, it will be re-phased with increased marketing and advertising by the Group following the summer period and the closure of stores as part of the CVA.

Increasing emphasis on hard flooring

The Group's existing business strategy includes a significant expansion of its product offering in the hard flooring segment to better reflect evolving consumer preferences, and the Group is targeting annualised like-for-like sales growth for hard flooring products of 14 per cent. over the next three financial years. In the UK, this involves increasing the range of hard flooring products being offered and the in-store merchandising of those products and implementing a marketing strategy focused on improving consumer awareness of the Group as a retailer of hard flooring products. The Directors believe that the rationalising of the UK store portfolio a part of the CVA will improve and accelerate its ability to execute this element of its strategy in its UK stores and that the refocus of its marketing as part of the Revised Business Plan will give it the opportunity to increase its brand awareness in the hard flooring segment.

5.            Impact of the CVA Proposal

The terms of the CVA were set out in the CVA Proposal published on 12 April 2018, and the principal objective of the CVA is to rationalise the Company's leasehold obligations in order to restore the viability of the Company's business. As set out in the CVA Proposal, the main objectives of the CVA are:

·    

to enable the exit, on or after 23 September 2018, of the 92 Category C Premises which have been determined by the Company, in conjunction with its advisors, to no longer be viable prospects for the Company, with reduced rent of 50 per cent. to be paid for the period between the Next Payment Date and 23 September 2018 (with an additional 5 per cent. of rent being paid in lieu of all dilapidations liabilities);

·    

to vary the terms of the leases of the Category B Premises, which have been determined by the Company, in conjunction with its advisors, to be viable prospects if an appropriate reduction in rent can be obtained, so that the rent will be reduced and the principal rent, service charge and insurance will be paid on a monthly rather than quarterly basis for a period of 3 years from the Next Payment Date (if this is not already the case). The Category B Premises have been split into two sub-categories, being Category B1 Premises and Category B2 Premises based on the rent reduction determined by the Company, in conjunction with its advisors, as necessary to restore the viability of the relevant Category B Leases. The applicable rent reductions for the two sub-categories that will be in effect until the earlier of the expiration of the relevant lease or 23 June 2021 (or, if later, such other date as falls 3 years after the day before the Next Payment Date for the relevant lease) is as follows:

i.    

30 per cent. reduction on the amount of rent payable on the 82 Category B1 Premises (with an additional 5 per cent. of rent being paid in lieu of all dilapidations liabilities); and

ii.   

50 per cent. reduction on the amount of rent payable on the 31 Category B2 Premises (with an additional 5 per cent. of rent being paid in lieu of all dilapidations liabilities);

·    

to temporarily vary the terms of the 195 Category A Premises which have been determined by the Company, in conjunction with its advisors, to be sites that are performing adequately and/or sites that are otherwise core to the Company's future business and profitability, so that principal rent, service charge and insurance will be paid on a monthly rather than quarterly basis for a period of 3 years from the Next Payment Date (if this is not already the case);

·    

to compromise the claims of the Compromised Contingent Property Creditors for the payment of £1; and

·    

to provide for an additional payment to the Compromised Landlords from the Compromised Lease Fund.

 

The CVA will continue until the CVA Supervisors are satisfied that the terms of the CVA have been fully implemented. While it is not possible to state with any certainty the proposed duration of the CVA, it is expected that the CVA will complete on or around 23 September 2021 or otherwise as soon as is reasonably practicable.

6.            Key terms of the RCF Amendments and other borrowings

The RCF is a £45 million revolving credit facility with a maturity date of 31 July 2019. As at 16 May 2018, the amount outstanding under the RCF was £45 million. The RCF requires the Company to comply with certain financial covenants and financial information covenants. The RCF also contains several events of default, including events relating to failure to pay, breach of certain undertakings, breach of certain financial covenants, insolvency and insolvency proceedings.

Pursuant to an overdraft facility letter dated 29 April 2015 (as amended from time to time) RBS acting as agent for National Westminster Bank plc has made a £7,500,000 uncommitted overdraft facility available to the Company (the ''Natwest Overdraft Facility''). As at 16 May 2018, the amount outstanding under the facility was £2,000,639.88, and the facility is repayable on demand by RBS. The Natwest Overdraft Facility will be committed when the Post-CVA RCF Amendments become effective.

Pursuant to an overdraft facility letter dated 4 December 2015 (as amended or replaced from time to time) Ulster Bank Ireland DAC (''Ulster Bank'') has made a €2,400,000 uncommitted overdraft facility available to the Company (the ''Ulster Bank Overdraft Facility''). As at 16 May 2018, the amount outstanding under the facility was €1,784,012.28, and the facility is repayable on demand by Ulster Bank. The Ulster Bank Overdraft Facility will be committed when the Post-CVA RCF Amendments become effective.

The Company and certain of its subsidiaries have entered into guarantees in respect of each other's obligations under the RCF and the overdraft facilities from RBS and Ulster Bank and have granted security to secure these obligations.

Pursuant to the Meditor Facility, Meditor has made a £12.5 million term loan to the Company. That facility contains several events of default, including events relating to failure to pay, breach of certain undertakings, insolvency and insolvency proceedings and events of default triggered if the key milestones in relation to the CVA are not met within certain agreed timeframes. The Company and certain of its subsidiaries have entered into unsecured guarantees in respect of each other's obligations under the Meditor Facility.

Pursuant to a consent, waiver and amendment agreement dated 12 April 2018, the Company and the Lenders agreed various waivers prior to announcement of the CVA, primarily being:

·    

a waiver with respect to the events of default under the RCF triggered by the CVA and the appointment of the Nominees or the Supervisors;

·    

a waiver in respect of any breach by the Company of the financial covenants in the RCF that were due to be tested with respect to the testing period ending on 30 April 2018 (these financial covenants will instead be tested with respect to a new testing period ending on 26 May 2018); and

·    

a waiver in respect of any failure by the Company to comply with its clean down obligations under the RCF for the 2018 financial year

 (together, the ''Pre-CVA RCF Waivers'').

As a condition of the Lenders' agreement to the Pre-CVA RCF Waivers, the Company agreed with the Lenders to amend the terms of the RCF to provide for, amongst other things: (i) additional information, business planning and cash management undertakings; (ii) an additional event of default that may be triggered if the 13 week look forward cash flow forecasts which the Company is required to deliver under the RCF show that the Group is forecast to have insufficient cash to meet its working capital requirements; and (iii) an additional event of default that may be triggered if the key milestones in relation to the CVA process and the Placing and Open Offer and related matters are not met within certain agreed timeframes (subject to a 5 business day grace period). As such there will be an event of default under the RCF (unless rectified during the 5 business day grace period) if, amongst other things:

·    

the CVA is subject, during the CVA Challenge Period, to a challenge which is not withdrawn or dismissed by the Court by no later than 29 May 2018 (or 5 June 2018 when taking account of the 5 business day grace period);

·    

the General Meeting is not held by 6 June 2018; or

·    

net proceeds of not less than £60 million from the Placing and Open Offer are not received by 8 June 2018

 

(together, the ''Pre-CVA RCF Amendments'').

Separately from the Pre-CVA RCF Waivers and the Pre-CVA RCF Amendments, the Company, as announced on 11 May 2018, has agreed further amendments with the Lenders which will only come into effect upon, amongst other things, (i) satisfaction of certain customary conditions precedent; (ii) the CVA not being subject, during the CVA Challenge Period, to a challenge which is not withdrawn or dismissed by the Court by no later than 5 June 2018 (or such later date, on or prior to the CVA Challenge Long Stop Date, as the Lenders may agree); and (iii) receipt of net proceeds of not less than £60 million from the Placing and Open Offer. These amendments include: (i) extending the maturity date of the RCF to 31 December 2019; (ii) amending financial covenant requirements for future testing dates; and (iii) making the Natwest Overdraft Facility and the Ulster Bank Overdraft Facility committed (together, the ''Post-CVA RCF Amendments'').

In addition, the Company also announced on 11 May 2018 that it had obtained interim funding of £15 million (net) from the Meditor Loan Note. The Meditor Loan Note is unsecured, and the Company and certain of its subsidiaries have entered into unsecured guarantees in respect of each other's obligations under the Meditor Loan Note.

7.            Use of proceeds

The net proceeds of the Placing and Open Offer of approximately £60.0 million will improve the Group's working capital position and substantially increase the Group's cash balance. The Group will utilise approximately £6.0 million of the net proceeds to cover the anticipated additional costs associated with implementing the CVA, £12.5 million for the repayment of the principal amount of the Meditor Facility, and £33.0 million to fund its capital expenditure plans as set out in its Revised Business Plan. The remainder of the net proceeds will be used for ongoing working capital requirements.

8.            Principal terms of the Placing and Open Offer

The Company is proposing to raise approximately £60.0 million (net of expenses) by way of the Placing and Open Offer of 232,463,221 New Ordinary Shares.

The Issue Price of 28 pence per New Ordinary Share, which is payable in full on acceptance by no later than 11.00 a.m. on 5 June 2018, represents a 15.8 per cent. discount to the Closing Price of 33.25 pence per Existing Ordinary Share on 17 May 2018, the last trading day prior to the date of this announcement.

The Joint Bookrunners have conditionally placed all the New Ordinary Shares at the Issue Price with Conditional Placees. The commitments of these Conditional Placees are subject to clawback in respect of valid applications for New Ordinary Shares by Qualifying Shareholders pursuant to the Open Offer. Subject to the Placing and Open Offer not being terminated, any New Ordinary Shares which are not applied for in respect of the Open Offer will be issued to Conditional Placees procured by the Joint Bookrunners at the Issue Price. To the extent that any Conditional Placee fails to take up any or all of the New Ordinary Shares which have been allocated to it or which it has agreed to take up at the Issue Price, each of the Joint Bookrunners has agreed, on the terms and subject to the conditions set out in the Placing Agreement, severally, and not jointly or jointly and severally, to itself take up such New Ordinary Shares at the Issue Price in its agreed proportion.

If a Qualifying Shareholder does not take up any of his entitlement to New Ordinary Shares, his proportionate shareholding will be diluted by 76.5 per cent. However, if a Qualifying Shareholder takes up his New Ordinary Shares in full, he will, after the Placing and Open Offer has been completed, and ignoring any fraction of an Ordinary Share, as nearly as practicable have the same proportionate voting rights and entitlements to dividends as he had on the Record Date.

Subject to the fulfilment of, among other things, the conditions set out below, Carpetright will offer 232,463,221 New Ordinary Shares to Qualifying Shareholders at the Issue Price of 28 pence per New Ordinary Share, payable in full on acceptance. The Open Offer will be offered on the basis of:

88 New Ordinary Shares for every 27 Existing Ordinary Shares

held by Qualifying Shareholders on the Record Date, and so in proportion to any other number of Existing Ordinary Shares then held. Qualifying Non- CREST Shareholders with registered addresses in the United States or in any of the Excluded Territories will not be sent Application Forms and Qualifying CREST Shareholders in such territories will not have their CREST stock accounts credited with Open Offer Entitlements, except where Carpetright and the Joint Bookrunners are satisfied that such action would not result in the contravention of any registration or other legal or regulatory requirement in such jurisdiction.

Shareholders should note that the Open Offer is not a rights issue. Qualifying CREST Shareholders should note that although the Open Offer Entitlements will be admitted to CREST and be enabled for settlement, applications in respect of entitlements under the Open Offer may only be made by the Qualifying CREST Shareholder originally entitled or by a person entitled by virtue of a bona fide market claim raised by Euroclear UK & Ireland's Claims Processing Unit. Qualifying non-CREST Shareholders should note that the Application Form is not a negotiable document and cannot be traded. Qualifying CREST Shareholders should be aware that in the Open Offer, unlike in a rights issue, any New Ordinary Shares not applied for will not be sold in the market or placed for the benefit of Qualifying CREST Shareholders who do not apply under the Open Offer, but will be placed under the Placing for the benefit of the Company.

The New Ordinary Shares will, when issued, rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive in full all dividends and other distributions declared, made or paid by reference to a record date after the date of their issue.

The results of the Placing and Open Offer, including the aggregate amount raised are expected to be announced by Carpetright to a Regulatory Information Service by 8.00 a.m. on 6 June 2018.

Applications will be made to the FCA for the New Ordinary Shares to be admitted to the premium listing segment of the Official List and to the London Stock Exchange for the New Ordinary Shares to be admitted to trading on its main market for listed securities. It is expected that Admission of the New Ordinary Shares will occur at 8.00 a.m. on 8 June 2018.

The Existing Ordinary Shares are already admitted to the premium listing segment of the Official List and to trading on the London Stock Exchange's main market for listed securities and to CREST. It is expected that all of the New Ordinary Shares, when issued, will be capable of being held and transferred by means of CREST. The New Ordinary Shares will trade under ISIN GB0001772945. The ISIN number for the Open Offer Entitlements is GB00BFMHKM53.

9.            Effect of the Placing and Open Offer

The New Ordinary Shares represent, in aggregate, approximately 325.9 per cent. of the Company's Existing Issued Share Capital. Upon completion of the Placing and Open Offer, the New Ordinary Shares will represent approximately 76.5 per cent. of the Company's Enlarged Issued Share Capital. The Resolutions which will be set out in the Notice of General Meeting must be passed in order for the Placing and Open Offer to proceed.

Qualifying Shareholders who are not eligible to or do not take up any of their entitlements in respect of the Open Offer will experience a dilution of approximately 76.5 per cent. of their interests in the Company as a result of the Placing and Open Offer.

The Placing and Open Offer will result in an increase in cash and other short term funds of approximately £60.0 million (net of expenses) with a corresponding increase of approximately £60.0 million in net assets.

10.          Related party transactions

The following Shareholders have agreed to subscribe up to the following amounts in aggregate for New Ordinary Shares in the Placing and Open Offer, subject to clawback to satisfy valid applications under the Open Offer:

·    

Meditor, which holds 21,388,048 Existing Ordinary Shares (approximately 29.99 per cent. of the Company's issued ordinary share capital), has agreed to subscribe up to 69,709,193 New Ordinary Shares (resulting in Meditor being interested in not more than 29.99 per cent. of the Enlarged Issued Share Capital, assuming no clawback);

·    

Crescent, which holds 8,618,656 Existing Ordinary Shares (approximately 12.08 per cent. of the Company's issued ordinary share capital), has agreed to subscribe up to 28,090,434 New Ordinary Shares (resulting in Crescent being interested in not more than 12.08 per cent. of the Enlarged Issued Share Capital, assuming no clawback).

As a consequence of the current interests of each of Meditor and Crescent in the Company, their proposed participations in the Placing and Open Offer are related party transactions for the purposes of Chapter 11 of the Listing Rules and each such transaction requires the prior approval of Independent Shareholders. Each of Meditor and Crescent is not entitled to vote, and has undertaken to take all reasonable steps to ensure that its associates will abstain from voting, on the relevant Resolution to approve its own related party transaction at the General Meeting.

Wilf Walsh, who as a Director is a related party of the Company for the purposes of the Listing Rules, has agreed to subscribe for 428,571 New Ordinary Shares at the Issue Price for a total consideration of approximately £120,000. This transaction is disclosed in accordance with Listing Rule 11.1.10R and the Company has received written confirmation from its Sponsor that the terms of the transaction are fair and reasonable as far as the Company's Shareholders are concerned.

 

11.          Current trading and outlook

The Group last provided a trading update with respect to the period ending on 28 April 2018 in its announcement published on 30 April 2018.

As stated in that announcement, trading conditions have remained difficult for the Group, as expected, in both its UK and Rest of Europe business segments. In the UK, continued weakness in consumer confidence, coupled with some inevitable disruption to trade arising from the publicity associated with the implementation of the Group's Restructuring Plan, resulted in like-for-like sales falling by 10.5 per cent. in the final quarter of the financial year ended 28 April 2018. This performance, combined with that of the previous nine months, will result in full year like-for-like sales in the UK being down by 3.6 per cent. However, the Group's refurbished stores in the UK continued to outperform the uninvested estate in the UK, thereby giving the Group confidence to continue with the store refurbishment and modernisation strategy following the receipt of the net proceeds from the Placing and Open Offer. Like-for-like sales in the Rest of Europe declined by 8.3 per cent. in the final quarter of the financial year ended 28 April 2018 against a similar trading background to that experienced in the UK, with the full year figure for the Rest of Europe being an increase in like-for-like sales of 1.1 per cent. for the financial year ended 28 April 2018. As a result of the above, the Group anticipates reporting an underlying pre-tax loss for the financial year ended 28 April 2018 in the region of £7 million to £9 million.

In addition, the Group's consolidated income statement for the 43 weeks ended 24 February 2018 included separately reported items of £59.8 million as a result of poor trading conditions. These items include the impairment of goodwill of £34.7 million, impairment of freehold property valuations of £5.1 million, impairment of assets in loss making stores of £4.7 million and a revision to onerous contract provisions of £13.3 million. Of these, a majority of the onerous contract provisions are expected to be reversed in the Group's consolidated income statement for the financial year ended 28 April 2018 as part of an adjustment to reflect changes in property costs and lease length of onerous leases for UK stores as a result of the implementation of the CVA.

Carpetright expects to report its final results for the 2018 financial year on 26 June 2018.

The Company expects that trading conditions will continue to be challenging for the first half of the current financial year, in the UK in particular, due to publicity surrounding the Restructuring Plan and potential negative perceptions associated with it and with low UK consumer confidence levels continuing to create a challenging economic environment for the Group and the UK retail sector generally. Despite the challenging trading environment and costs associated with implementing the Restructuring Plan, the Group expects the rationalisation of its UK store estate as part of the CVA to deliver annualised cash savings of approximately £19.0 million over the medium term. It will also, however, continue to bear additional costs associated with servicing indebtedness incurred in connection with implementing the Restructuring Plan.

12.          Dividend policy

The Board took the decision to prioritise the use of cash for the acceleration of the Group's business strategy and not pay a final dividend for the financial year ended 29 April 2017 or an interim dividend for the 26 weeks ended 28 October 2017. Based on the Group's current outlook and the restrictions on payment of dividends under the RCF Amendments and the Meditor Loan Note, the Directors do not expect this position to change prior to the maturity of the RCF on 31 December 2019 and the maturity of the Meditor Loan Note on 31 July 2020. However, there is an intention to return to paying a dividend when the Company has sufficient distributable reserves and the Directors believe it is financially prudent to do so.

13.          General Meeting

A notice convening a General Meeting to be held at the offices of Travers Smith LLP, 10 Snow Hill, London EC1A 2AL at 4.00 p.m. on 6 June 2018 will be set out at the end of the Prospectus. The purpose of the General Meeting will be to consider, and if thought fit, pass the Resolutions, to enable the Company to proceed with the Placing and Open Offer.

The Resolutions propose that Shareholders approve: (i) the terms of the Placing and Open Offer and direct the Directors to implement the Placing and Open Offer; (ii) granting the Directors authority to allot and issue the New Ordinary Shares; and (iii) the allotment of the New Ordinary Shares at the Issue Price, which represents a discount to the Closing Price of more than 10 per cent; and (iv) the allotment and issue of New Ordinary Shares to certain related parties pursuant to the Placing.

The Placing and Open Offer will not proceed unless each of the Resolutions is passed by the requisite majority.

14.          Serious loss of capital

It has recently come to the attention of the Directors that the value of the Company's net assets is now less than half of its called up share capital. It is a requirement of the Companies Act that where the net assets of a public company are half or less of its called up share capital, the directors must call a general meeting of the company to consider whether any, and if so what, steps should be taken to deal with the situation. Accordingly the business to be conducted at the General Meeting will include consideration of what, if any, such steps should be taken. If, however, the Resolutions are approved at the General Meeting such that the Placing and Open Offer becomes unconditional and the CVA continues to be in effect, the value of the Company's net assets will as a result be greater than half of its called up share capital. Therefore the Directors do not consider that any additional action needs to be taken to address the serious loss of capital.

15.          Importance of vote and working capital

15.1 Current working capital position

The Company is of the opinion that the Group does not have sufficient working capital for its present requirements, that is, for at least the next 12 months from the date of the Prospectus. The Group will not have sufficient working capital as at the date of the Prospectus, because the CVA remains subject to the possibility of a challenge in accordance with the relevant statutory procedure, the net proceeds of the Placing and Open Offer have not yet been received and the Post-CVA RCF Amendments have not yet come into effect.

Consequently, the Directors are of the view that the Group's future viability is dependent on three key inter-dependent steps occurring and that unless the net proceeds of the Placing and Open Offer are received, the Post-CVA RCF Amendments come into effect and all the conditions to the CVA's continued effect are satisfied, the Company will no longer be able to continue trading as a going concern, which would likely result in the appointment of liquidators or administrators.

15.2 Longer term funding requirements of the Group

The Directors have assessed the working capital resources required by the Group based on the Revised Business Plan and have concluded that, in addition to the £45 million available to the Group under the RCF, the approximately £10 million of committed overdraft facilities available to the Group (both of which if the Post-CVA RCF Amendments are implemented will continue to be available until 31 December 2019) and the £15 million (net) available to the Group under the terms of the Meditor Loan Note, the Group requires additional net funding of not less than £60 million (which is expected to be met through the net proceeds of the Placing and Open Offer) and the Post-CVA RCF Amendments coming into effect in order for the Directors to be in a position to confirm that the Company has sufficient working capital for its present requirements that is, for at least the next 12 months from the date of the Prospectus.

15.3 Approval of the Placing and Open Offer

The Resolutions must be passed by Shareholders at the General Meeting in order for the Placing and Open Offer to proceed and, as the continued effect of the CVA and the effectiveness of the Post-CVA RCF Amendments are dependent upon receipt of the net proceeds of the Placing and Open Offer, in order for the Post-CVA RCF Amendments to become effective and for the CVA to continue in effect.

Therefore, if the Resolutions are not passed by Shareholders at the General Meeting and the Placing and Open Offer does not proceed, the CVA will be terminated, the Post-CVA RCF Amendments will not become effective and the Company will be in default under the RCF following the General Meeting. Under such circumstances, the Group will have insufficient working capital to continue trading as a going concern which will likely result in the appointment of administrators or liquidators.

Accordingly, the Directors believe that the Placing and Open Offer is in Shareholders' best interests and that it is very important that Shareholders vote in favour of the Resolutions so that the Placing and Open Offer can proceed and, as a consequence, the Post-CVA RCF Amendments can come into effect and (absent a challenge which is not withdrawn or dismissed by the Court by no later than 5 June 2018 (or such later date, on or prior to the CVA Challenge Long Stop Date, as the Lenders may agree)) the CVA will continue in effect.

The Directors have no reason to believe that the Resolutions will not be approved and that the Placing and Open Offer will not proceed and accordingly the Directors are confident that the Company will receive the net proceeds, enabling the Post-CVA RCF Amendments to become effective and the CVA to continue in effect (absent a challenge which is not withdrawn or dismissed by the Court by no later than 5 June 2018 (or such later date, on or prior to the CVA Challenge Long Stop Date, as the Lenders may agree)).

15.4 Continued effect of the CVA

On 26 April 2018, the CVA was approved by 89.8 per cent. of unsecured creditors of the Company who cast a vote. Based on this level of support by the Company's creditors and the fact that no creditor proposed any modifications to the terms of the CVA at the CVA creditors' meeting, the Directors have no reason to believe that a creditor will seek to challenge the CVA.

As at 16 May 2018 (being the latest practicable date prior to publication of this Announcement), the Company had not received any notice of any challenge application although the CVA Challenge Period, being the period during which a challenge application may be made under the terms set out in the CVA Proposal, does not expire until 28 May 2018 and the continued effect of the CVA is conditional on any challenge application made in this period being withdrawn or dismissed by the Court on or prior to the CVA Challenge Long Stop Date. However, the Post-CVA RCF Amendments are conditional upon, amongst other things, the CVA not being subject to a challenge which is not withdrawn or dismissed by the Court by no later than 5 June 2018 (or such later date, on or prior to the CVA Challenge Long Stop Date, as the Lenders may agree). As the continued effect of the CVA and the effectiveness of the Post-CVA RCF Amendments are inter-conditional, the continued effect of the CVA is effectively conditional upon it not being subject to a challenge which is not withdrawn or dismissed by the Court by no later than 5 June 2018 (or such later date, on or prior to the CVA Challenge Long Stop Date, as the Lenders may agree).

If the CVA is the subject of a continuing challenge application on 5 June 2018, the Company and its advisers will evaluate the likely success of resolving the challenge application. If the Company and its advisers believe that it is reasonably likely that the challenge application will be withdrawn or dismissed by the Court on or before the CVA Challenge Long Stop Date, the Company would seek the agreement of the Lenders to extend the deadline in the Post-CVA RCF Amendments and the Pre-CVA RCF Amendments for the CVA not being subject to a challenge which has not been withdrawn or dismissed, subject to that date not being later than the CVA Challenge Long Stop Date. Assuming the Lenders agree to such request, the Company would also seek the consent of Peel Hunt and Deutsche Bank under the terms of the Placing Agreement to propose an adjournment of the General Meeting and a delay in Admission until after the challenge application has been withdrawn or dismissed by the Court, subject to such challenge being resolved on or prior to the expiry of the extended deadline granted by the Lenders. To the extent necessary, in such circumstances, the Directors would seek immediate debt finance or other alternative funding from stakeholders of the Group to enable the Company to continue to trade whilst seeking to resolve the challenge application. Whilst no discussions have been undertaken as at the date of this announcement, the Directors believe that the Company would be reasonably likely to secure an immediate short term loan to be repaid from the net proceeds of the Placing and Open Offer based on the level of support provided by key stakeholders thus far during the implementation of the Restructuring Plan and the fact that the Company would not continue to trade if the Directors and the Company's advisers did not believe it was reasonably likely that the challenge application would be withdrawn or dismissed on or prior to the CVA Challenge Long Stop Date. However, there can be no guarantee that such funding would be available on favourable terms or at all, and if the Company were to fail to secure such funding under the circumstances described above, the Group would have insufficient working capital to continue trading as a going concern which would likely result in the appointment of administrators or liquidators.

If the Company were unable to secure the agreement of the Lenders and the consent of Peel Hunt and Deutsche Bank under the circumstances described above, then the Placing and Open Offer would not proceed, the CVA would be terminated, the Post-CVA RCF Amendments would not become effective and the Company would no longer be able to continue trading as a going concern which would likely result in the appointment of administrators or liquidators.

Taking into account the circumstances set out above the Directors are confident that the Placing and Open Offer will proceed and that the CVA will continue in effect. However, in the event the CVA is the subject of a challenge application which cannot be resolved prior to the expiry of the CVA Challenge Period, the Group's funding position, as described above, would provide little latitude to accommodate any delay that may be required to resolve a challenge application.

To the extent that the CVA is subject to a challenge that has not been withdrawn or dismissed by the Court on or before 5 June 2018 (or such later date, on or prior to the CVA Challenge Long Stop Date, as the Lenders may agree) (and therefore the CVA would be terminated) or the Company experiences a funding shortfall and is unable to obtain alternative funding before a challenge application can be resolved or the Placing and Open Offer otherwise does not proceed to Admission, the Company will no longer be able to continue trading as a going concern which would likely result in its listing being suspended and its Ordinary Shares being suspended from trading on the London Stock Exchange followed by the appointment of administrators or liquidators.

15.5 Working capital on implementation of the Restructuring Plan

Accordingly, the Directors are of the opinion that, assuming the conditions to the CVA's continued effect have been satisfied and after taking into account the net proceeds of the Placing and Open Offer and the Post-CVA RCF Amendments becoming effective, the Group will have sufficient working capital for its present requirements, that is, for at least the next 12 months from Admission.

Admission will only occur after the net proceeds of the Placing and Open Offer are received, the Post-CVA RCF Amendments come into effect and the conditions to the CVA's continued effect have been satisfied. Accordingly and on this basis, the Directors confirm, having made due and careful enquiry, that the working capital available to the Group will be sufficient for its present requirements, that is for at least 12 months from the date of Admission.

16.          Board recommendation

The Board considers the Placing and Open Offer to be in the best interests of the Company and its Shareholders as a whole. The Board, having been so advised by Peel Hunt, considers that each Related Party Transaction is fair and reasonable as far as the Shareholders are concerned.

Accordingly, the Board unanimously recommends that Shareholders vote in favour of the Resolutions.



 

APPENDIX I

DEFINITIONS

The following definitions apply throughout this announcement unless the context requires otherwise:

Admission

admission of the New Ordinary Shares to the Official List and to trading on the main market for listed securities of the London Stock Exchange becoming effective in accordance with LR 3.2.7G of the Listing Rules and paragraph 2.1 of the Admission and Disclosure Standards published by the London Stock Exchange

Application Form

the personalised application form which will accompany the Prospectus for Qualifying non-CREST Shareholders for use in connection with the Open Offer

Articles

the articles of association of the Company

Banks

Peel Hunt and Deutsche Bank

Board

the board of Directors of the Company

Category A Premises

the Group's UK sites that are performing adequately and/or are sites that are otherwise core to the Group's future business and profitability

Category B Premises

the Group's UK sites that are marginally profitable (before absorbing their share of overhead costs) and/or in respect of which the property costs are above market and a rent reduction is necessary to restore the medium to long term viability of these sites

Category B1 Premises

Category B Premises, the Company's leases of which are subject to a 30 per cent. reduction in the amount of rent payable pursuant to the terms of the CVA

Category B2 Premises

Category B Premises, the Company's leases of which are subject to a 50 per cent. reduction in the amount of rent payable pursuant to the terms of the CVA

Category C Premises

the Group's UK sites that are underperforming and/or on unfavourable lease terms, or, in certain cases, are not expected to have future strategic value to the Group, and should not be part of the Group's real estate portfolio going forward

Closing Price

the closing middle-market price of a relevant share as derived from the London Stock Exchange's Daily Official List on any particular day

Companies Act

The Companies Act 2006

Company or Carpetright

Carpetright plc

Compromised Contingent Property Creditors

certain creditors of the Company to whom the Company has contingent liability in respect of the Company's existing and previous leasehold liabilities who are being compromised pursuant to the terms of the CVA

Compromised Landlords

the relevant landlords and any contingent property creditor of Category B Premises and Category C Premises

Compromised Lease Fund

the compromised lease fund established by the Company pursuant to the terms of the CVA

Conditional Placees

such persons as have agreed to subscribe for New Ordinary Shares subject to clawback to satisfy valid applications by Qualifying Shareholders under the Open Offer

Court

The High Court of Justice in England and Wales

Crescent

Crescent Holding GmbH

CREST

the electronic transfer and settlement system for the paperless settlement of trades in listed securities operated by Euroclear

CVA

the company voluntary arrangement between the Company and its creditors under Part I of the Insolvency Act 1986 (as amended from time to time) on the terms set out in the CVA Proposal

CVA Challenge Long Stop Date

29 June 2018

CVA Challenge Period

the period commencing on 30 April 2018 and expiring on 28 May 2018

CVA Proposal

the document setting out the terms of the CVA published on 12 April 2018

CVA Supervisors or Supervisors

jointly and severally the Nominees or such other person(s) elected to act as supervisor(s) of the CVA pursuant to the terms of the CVA

Deutsche Bank

Deutsche Bank AG, London Branch

Directors

the Executive and Non-Executive Directors of the Company

Enlarged Issued Share Capital

the issued ordinary share capital of the Company following the issue of the New Ordinary Shares pursuant to the Placing and Open Offer

Euroclear

Euroclear UK and Ireland Limited, the operator (as defined in the CREST Regulations) of CREST

Excluded Territories

Australia, Canada, Japan and the Republic of South Africa and any jurisdiction where the extension and availability of the Open Offer (and any other transactions contemplated in relation to it) would breach any applicable laws or regulations and Excluded Territory shall mean any of them

Existing Issued Share Capital

the issued ordinary share capital of the Company prior to the issues of the New Ordinary Shares pursuant to the Placing and Open Offer

Existing Ordinary Shares

the 71,323,943 Ordinary Shares which will be in issue at the date of the Prospectus

FCA

the UK Financial Conduct Authority

General Meeting

the general meeting of the Company to be convened pursuant to the Notice of General Meeting in order to, amongst other things, pass the Resolutions, including any adjournment thereof

Group

the Company and its subsidiaries and subsidiary undertakings, and, where the context requires it, its associated undertakings

Independent Shareholders

all Shareholders with the exception of Meditor and Crescent

Issue Price

28 pence per New Ordinary Share

Joint Bookrunners

Peel Hunt and Deutsche Bank

Lenders

the Fifth Restatement Date Lenders (as defined in the RCF), being (as at the date of this Announcement) (i) National Westminster Bank Plc; and (ii) AIB Group (UK) p.l.c.

Listing Rules

the listing rules of the FCA made under section 74(4) of the FSMA

London Stock Exchange

London Stock Exchange plc

Meditor

Meditor Master Fund Limited

Meditor Facility

the £12.5 million unsecured loan with Meditor entered into on 21 March 2018

Meditor Loan Note

the £15 million (net) loan note with Meditor entered into on 10 May 2018

Natwest Overdraft Facility

has the meaning given to it in paragraph 6 of this announcement

New Ordinary Shares

the 232,463,221 new Ordinary Shares for which Qualifying Shareholders will be invited to apply under the terms of the Open Offer

Next Payment Date

the next date falling on or after 24 June 2018 on which principal rent is payable under a lease subject to the CVA

Nominees

the nominees in respect of the CVA as defined in section 1(2) of the Insolvency Act 1986 (as amended from time to time)

Notice of General Meeting or Notice

the notice convening the General Meeting which will be set out at the end of the Prospectus

Official list

the Official List maintained by the FCA

Open Offer

the invitation to Qualifying Shareholders to subscribe for New Ordinary Shares at the Issue Price on the terms and subject to the conditions which will be set out in the Prospectus

Open Offer Entitlements

an entitlement to apply to subscribe for one New Ordinary Share, allocated to a Qualifying Shareholder pursuant to the Open Offer

Ordinary Shares

ordinary shares of one penny each in the Company

Overseas Shareholders

Shareholders with registered addresses outside the United Kingdom or who are citizens or residents of countries outside the United Kingdom

Peel Hunt

Peel Hunt LLP

Placing

the subscription by the Conditional Placees for New Ordinary Shares subject to clawback to satisfy valid applications by Qualifying Shareholders under the Open Offer

Placing Agreement

the sponsor and placing and open offer agreement entered into between the Company, Peel Hunt and Deutsche Bank relating to the Placing and Open Offer

Placing and Open Offer

the Placing and Open Offer

Post-CVA RCF Amendments

has the meaning given to it in paragraph 6 above

Pre-CVA RCF Amendments

has the meaning given to it in paragraph 6 above

Pre-CVA RCF Waivers

has the meaning given to it in paragraph 6 above

Prospectus

the document to be issued by the Company in connection with the Placing and Open Offer and Admission and approved under the Prospectus Directive

Qualifying CREST Shareholders

Qualifying Shareholders holding Ordinary Shares in uncertificated form on the Record Date

Qualifying Non-CREST Shareholders

Qualifying Shareholders holding Ordinary Shares in certificated form on the Record Date

Qualifying Shareholders

holders of Ordinary Shares on the register of members of the Company at the Record Date

RBS

the Royal Bank of Scotland plc

RCF

the Revolving Facility Agreement dated 19 March 2008 and entered into between (1) the Company; (2) RBS and AIB Group (UK) plc as Arrangers; (3) RBS as Agent and (4) RBS as Security Trustee

RCF Amendments

the Pre-CVA RCF Amendments, the Pre-CVA RCF Waivers and the Post-CVA RCF Amendments, taken together

Record Date

close of business on 16 May 2018

Regulatory Information Service

one of the regulatory information services authorised by the UK Listing Authority to receive, process and disseminate regulatory information from listed companies

Related Party Transactions

the related party transactions set out in paragraph 10 of this announcement

Resolutions

the Resolutions which will be set out in the Notice of General Meeting

Restructuring Plan

the CVA, the Post-CVA RCF Amendments and the Placing and Open Offer taken together

Revised Business Plan

the Company's revised business plan as set out in paragraph 4 of this announcement

Shareholders

holders of Ordinary Shares

Sponsor

Peel Hunt

Ulster Bank Overdraft Facility

has the meaning given to it in paragraph 6 of this announcement

United Kingdom or UK

the United Kingdom of Great Britain and Northern Ireland

United States or US

the United States of America, its territories and possessions, any state of the United States of America and the District of Columbia

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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