TIDMLBB
RNS Number : 9003W
Litebulb Group Limited
13 November 2014
LiteBulb Group Limited
("LiteBulb" or the "Company" or the "Group")
Proposed acquisition of Concept Merchandise Limited
Proposed issue of up to GBP3.5m secured convertible loan
notes
& Notice of Extraordinary General Meeting
LiteBulb (AIM: LBB), the branded product developer, announces
that it has entered into a conditional share purchase agreement to
acquire the entire issued share capital of Concept Merchandise
Limited ("Concept") (the "Acquisition"). Concept has an excellent
track record of earnings growth, is highly cash generative and debt
free. It has been profitable for the last six years and recorded
turnover of GBP7.5m and profits before tax of GBP1.1m for year
ended 31 December 2013. Concept is expected to have a net asset
position of over GBP3.8m on completion, mainly in liquid
assets.
LiteBulb is acquiring Concept for an initial consideration of
GBP5.0m, to be satisfied as to GBP4.75m in cash and GBP0.25m in
ordinary shares. There is a further deferred consideration of up to
GBP2.0m based on achieving various performance criteria, further
details of which are set out below. The Acquisition is expected to
enhance the Group's sales over the next 12 months and have a
positive effect on earnings.
Concept operates in a new product category for Litebulb. Concept
designs, develops and manufactures stationery and party products
for the retail market and has been creating bespoke consumer
products for some of the largest retailers in the UK for more than
24 years. Based in West Yorkshire, with a staff of 17, its customer
base is tightly focused and almost solely UK based. It adds another
product category to LiteBulb's offering and further extends the
ability of the group to cross-sell throughout its extensive retail
network, both at home and abroad. In addition, Concept has focused
on designing its own ranges and, whilst proving highly successful,
can benefit from the Group's brand relationships.
LiteBulb also announces that it intends to raise capital through
the conditional issue of up to GBP3.5m of a new series of secured,
convertible loan notes which may be converted into new Ordinary
Shares at any time at a conversion price of 1p, a material premium
to the current share price. Subscription letters for GBP3.5m have
been received based on various conditions being fulfilled, as
outlined below. The Board intends that the net proceeds of the
subscription for the new loan notes will be used to partly fund the
Acquisition.
The Board is pleased with current trading, with sales and
committed orders as at 31 October 2014 now standing at over GBP20m
for the financial year with two important trading months still to
go. Individual group companies are performing well, with the
earliest acquisition Bluw expected to show like-for-like sales
growth of over 35% for the full year. This is a good indicator that
the Group strategy is beginning to bear fruit.
Completion of the Acquisition and the issue of the Loan Notes is
conditional on, amongst other things, approval by the Company's
shareholders of the resolutions to be proposed at the Extraordinary
General Meeting of the Company to be held at the offices of
Fladgate LLP at 16 Great Queen Street, London WC2B 5DG at 10.00
a.m. on 10 December 2014.
The Directors recommend that shareholders vote in favour of the
Resolutions, as they intend to do so in respect of their aggregate
holding of 332,135,039 Ordinary Shares, representing c. 13.1% of
the Company. The Circular will be made available on the Company
website: www.litebulbgroup.com
Simon McGivern, CEO of LiteBulb, commented:
"I am delighted to welcome another cash generative, highly
complementary business to the Group as we continue to deliver on
our growth strategy. Concept's expertise in a new sector for us
further extends our product offering and we see this as a great
opportunity to cross-sell our products across a much wider range of
retail relationships.
"Current trading within the Group remains strong, particularly
in the build up to Christmas, and I am delighted that a number of
Shareholders, both Institutional as well as High Net Worth
Individuals, have again supported us through their participation in
the Loan Notes subscription."
LiteBulb Group Limited www.litebulbgroup.com
Simon McGivern, Chief Executive Tel: 020 3384 7131
finnCap (NOMAD & Broker) Tel: 020 7220 0500
Stuart Andrews/Ben Thompson (Corporate
Finance)
Joanna Weaving (Corporate Broking)
Walbrook PR Limited Tel: 020 7933 8780 or litebulb@walbrookpr.com
Paul McManus Mob: 07980 541 893
About LiteBulb Group (www.litebulbgroup.com)
LiteBulb Group designs, manufactures and distributes innovative
brands and products to the global retail market.
LiteBulb Products - our wide range of products are sold in over
30 countries through blue chip retailers including: ASDA, BHS,
Tesco, Sainsbury's, WH Smith, Halfords, Marks & Spencer,
Morrisons, QVC, Next, Fenwick and Toys R Us.
LiteBulb Creative is a creative agency with global reach,
delivering compelling and agile brand extension programmes to the
entertainment industry. LiteBulb Creative has designed products and
campaigns for clients around the world, including Disney, Hasbro
and Miramax.
Below are extracts from the Circular. The full document is
available on the Company's website: www.litebulbgroup.com
About Concept Merchandise Limited
Concept:
-- designs, develops and manufactures stationery and party products;
-- distributes to some of the UK's largest retailers;
-- has been operating in the consumer products market for over
24 years with a core of 17 members of staff based in Brighouse,
West Yorkshire; and
-- is a highly profitable, cash generative business with no debt
and a track record of earnings growth despite the difficulties of
the recent consumer recession. It has been profitable for the last
6 years and recorded turnover of GBP7,491,532 and earnings before
tax of GBP1,100,395 for the year ended 31 December 2013.
Shareholders' funds stood at GBP3,831,219 as at 31 December
2013.
The Acquisition is expected to enhance the Group's sales over
the next 12 months and have a positive effect on earnings.
Benefits of the Acquisition
The Acquisition is expected to provide a number of benefits to
the enlarged Group, these include:
-- the addition of a new product category to the brands that
LiteBulb currently works with: Concept does not work with any
brands and this provides a good opportunity for new sales;
-- further providing cross-selling opportunities within the
Group's existing retail customer base and the additional customer
relationships established by Concept: currently Concept does not
sell into the majority of LiteBulb's retail customers and there is
an opportunity to increase sales immediately;
-- bolstering existing relationships with mutual customers,
increasing the range of products that the Group has available to
sell to these customers;
-- providing cost savings through business synergies going
forward, including centralised quality control, logistics,
accounting function, ERP system and group wide sales agents;
-- continued increase in Group purchasing power due to the economies of scale;
-- reduced risk of pricing pressure from retailers due to an
increased critical mass and less reliance on a smaller number of
large customers;
-- strong positive cash flows and additional strength for the Group balance sheet; and
-- improved supplier credit terms and working capital facilities across the Group.
Principal terms of the Acquisition
On 12 November 2014, the Company entered into a conditional
share purchase agreement (Agreement) with Howard and Heather
Partington (Sellers) pursuant to which, subject to, amongst other
things, the approval of the Resolution, it has agreed to purchase
and the Sellers have agreed to sell the entire issued share capital
of Concept for the initial aggregate consideration of GBP4,750,000
in cash and GBP250,000 to be satisfied in Ordinary Shares
(Consideration Shares) (issued at the average mid-market price over
the five days preceding completion) (Completion Payment).
In addition, the Sellers will be entitled to an earn-out
relating to the performance of Concept in the financial year ending
31 December 2015. Under the earn-out, the Sellers will be entitled
to GBP1.25 in cash for every GBP1 by which Concept's EBITDA during
the earn-out period exceeds GBP500,000 (up to a maximum of
GBP1,300,000) and GBP1.25 to be satisfied in Ordinary Shares
(Earn-Out Shares) (issued at the average mid-market price over the
five days preceding their allotment) for every GBP1 by which
Concept's EBITDA during the earn-out period exceeds GBP500,000 (up
to a maximum of GBP1,300,000).
Assuming that Concept's EBITDA in the financial year ending 31
December 2015 is GBP1,300,000 or more and assuming a share price of
one penny per Ordinary Share, the number of Earn-Out Shares will be
100 million Ordinary Shares. If the Consideration Shares are also
issued at one penny per share then the Sellers' entitlement to
Ordinary Shares will be to 125 million Ordinary Shares or 4.7% of
the issued share capital as enlarged by the issue of the
Consideration Shares and Earn-Out Shares.
Completion adjustment
Following Completion, the Sellers will produce a completion
balance sheet for Concept. If this balance sheet shows net assets
which are less than GBP3,875,000, the Completion Payment will be
adjusted so that an amount equal to the deficit is repayable by the
Sellers to the Company, within ten business days of the amount
being agreed or determined.
Warranties
The Sellers have given customary warranties to the Company
(Warranties). Amongst other things, the Warranties concern
Concept's annual and management accounts, taxation affairs,
contracts, employees and assets. The Sellers' collective liability
under the Warranties is limited to the cash sums payable to the
Sellers under the Agreement. Any claim under the Warranties must be
initiated by the Company on or before 18 months after Completion
(unless such claim relates to a breach of any of the Warranties
given regarding taxation, in such case a claim must be initiated by
the Company on or before the date seven years after
Completion).
Conditions
Completion is conditional upon:
-- the approval of the Resolution by the Shareholders at the EGM;
-- completion of the Fundraising; and
-- Concept's debtor book being sufficient to support a factoring
facility, procured by the Company, of up to GBP1,500,000 and if the
book is not sufficient, Concept having the cash reserves to satisfy
the shortfall.
The conditions must be satisfied on or before 17 December 2014,
failing which the Agreement will lapse.
Lock-in
Each Seller has severally undertaken, subject to customary
carve-outs, that he or she will not for a period of 12 months after
Completion dispose of his or her respective holding of
Consideration Shares without the prior written consent of the
Company. Further, each Seller has severally undertaken, subject to
customary carve-outs, that for a period of 24 months from
Completion he or she will only dispose of his or her respective
holding of Consideration Shares through the Company's broker with a
view to maintaining an orderly market in the Ordinary Shares.
Other terms
Following Completion, Howard Partington will continue to act as
a director of Concept and, on Completion, will enter into a new
service contract with Concept. The composition of the LiteBulb
Board will not be affected by the Acquisition.
Fundraising and trade finance
Loan notes
The Board also announced today that it intends to raise capital
by the issue of up to GBP3,500,000 secured, convertible loan notes
(Loan Notes), in respect of which as at the date of this document
conditional subscription letters have been entered into by
institutional and other sophisticated investors for GBP3,500,000 of
Loan Notes in aggregate, a minimum of GBP3,000,000 of which is
conditional on shareholder approval at the EGM, and the balance is
also conditional on the Loan Notes being listed on the Channel
Island Stock Exchange or similar exchange within 60 days of the
EGM.
The issue of the Loan Notes is conditional upon the approval of
Resolution 1 at the EGM and the Acquisition being unconditional but
for the Fundraising. Subject to the satisfaction of these
conditions, the Loan Notes will be issued subject to the following
terms:
-- the Loan Notes will be redeemable three years from the date of issue;
-- the Loan Notes will bear interest from the date of issue of
the Loan Notes to the date of redemption of the principal amount of
the Loan Notes at the rate of 10 per cent per annum, payable
quarterly in arrears. Interest will be paid in cash or at the
election of the holder of the Loan Notes in Ordinary Shares at the
conversion price of one penny per share;
-- on redemption, in addition to payment of accrued but unpaid
interest, the holders of the Loan Notes will be entitled to a
redemption premium of 130% of the principal of the Loan Notes, less
the amount of the principal repaid;
-- the Loan Notes may be converted into new Ordinary Shares at
any time at a conversion price of one penny per new Ordinary Share.
The conversion price is subject to adjustment if, amongst other
things, the Company issues new Ordinary Shares at a discount to the
conversion price or the then prevailing price of the Ordinary
Shares; and
-- the Loan Notes will be secured by the grant of fixed and
floating charges in favour of the holders of the Loan Notes over
the assets of the Company and certain of its subsidiaries. In
addition, certain of the subsidiaries of the Company will guarantee
the performance of the obligations assumed by the Company in
respect of the Loan Notes.
In order to have sufficient authority to allot new Ordinary
Shares to effect the conversion of the Loan Notes into new Ordinary
Shares, the Board is seeking the approval of the Shareholders of
the Resolution at the EGM.
The Company has undertaken to the subscribers for the Loan Notes
that it will use all its reasonable endeavours to obtain a listing
for the Loan Notes on the Channel Islands Stock Exchange within 60
days of the date of issue of the Loan Notes.
Trade finance
The Company has agreed terms with Aldermore Bank plc (Bank)
whereby on completion of the Acquisition, Concept will enter into
an invoice discounting facility agreement with the Bank. Concept
will assign its debtor book to the Bank and the Bank will advance
to Concept up to a maximum facility of GBP1,500,000. Concept's
obligations under the facility will be secured by a debenture to be
granted by Concept, a guarantee from the Company and indemnities
from the Company's executive directors. The minimum term of the
facility will be one year. The cost to Concept will be GBP10,000 on
the commencement date plus 0.25% of the facility amount
(GBP1,500,000) a year on each anniversary of such date; plus a
service fee of 0.20% of the invoice value; plus applicable VAT.
Current trading & successful integration of previous
acquisitions
Current Trading
In the Interim Results statement announced on 30 September 2014
the Company described 2013 as a transformational year following the
successful completion of three acquisitions (Bluw, Rizon Studios
and Meld), and that this increase in scale continued in 2014 with
the acquisition of Go Entertainment Group. The Board is confident
that LiteBulb has a scalable model that can add value to clients at
each stage of the product and merchandising cycle and that is
already delivering incremental revenues.
Revenues from continuing operations for the six months ended 30
June 2014 increased by 183% to GBP4.0m (H1 2013: GBP1.4m), with an
increase in gross profit of 157% to GBP1.5m (H1 2013: GBP0.6m). We
announced that as at 30 September 2014 we had received sales orders
for over GBP12m for delivery in the second half, including:
-- a contract to supply 700 Tesco and 120 HMV stores in the UK
with Disney's Frozen products worth GBP0.69m; -- GBP4m of orders
signed with major retailers including Marks & Spencer,
Sainsbury's, Boots and Next; -- GBP1m order from a number of major
retailers including Christmas Gift Range products for Debenhams and
products for the German retailer Tchibo; and -- a deal to produce 5
styles guides for cable and satellite television network
Nickelodeon's own branded fashion range and our appointment as
creative partner for Epic Rights.
Within these orders, Sainsbury's placed an additional
re-stocking order for the Mary Berry range of kitchen gifts that
were launched in January this year. The range has been selling well
and the Board remain confident that this range should generate over
GBP1m of sales in the first year of launch alone.
The Board is pleased with current trading, with sales and
committed orders as at 31 October 2014 now standing at over GBP20m
for the financial year with two important trading months still to
go. Individual group companies are performing well, with the
earliest acquisition Bluw expected to show like-for-like sales
growth of over 35% for the full year. This is a good indicator that
the Group strategy is beginning to bear fruit.
Successful integration of previous acquisitions
The Company's strategy of building a larger integrated business
focussed on high quality branded products for major UK retailers
has been successful, and the Board believe that LiteBulb has a
scalable model which allows it to maximise the value of newly
acquired businesses by benefitting from economies of scale and
through cross-selling across the Group's extensive retailer
base.
In addition the centralisation of a number of Group functions
across the Company should show significant efficiency benefits in
2015.
Overall the Board remains very confident in the prospects for
the business and believe that the proposed Acquisition of Concept
will provide an excellent fit within the enlarged Group
complementing the Company's strategy for growth, both organically
and by carefully selected acquisitions.
EGM
At the EGM special resolutions will be proposed to:
-- authorise the Directors to allot up to 455m Ordinary Shares
in connection with the conversion of the Loan Notes and to approve
the dis-application of Article 6.3 of the articles of association
of the Company so that Ordinary Shares arising on conversion of the
Loan Notes can be issued for cash without the Company first being
required to offer such securities to existing shareholders of the
Company in proportion to their existing holdings; and -- authorise
the Directors to allot up to 125m Ordinary Shares in connection
with the issue of the Consideration Shares and the Earn-Out
Shares.
For the resolutions to be passed, at least two thirds of the
votes cast must be in favour.
Admission to trading
An application will be made by the Company for admission of the
Consideration Shares to trading on the AIM Market (Admission). It
is expected that Admission will become effective on or around 11
December 2014.
The Consideration Shares and Earn-Out Shares (if any) will, when
issued, rank equally in all respects with the existing Ordinary
Shares.
Recommendation
The Directors believe that the Acquisition, Fundraising and
Resolutions are in the best interests of the Company and the
Shareholders as a whole and accordingly recommend that shareholders
vote in favour of the Resolutions, as they intend to do so in
respect of their aggregate holding of 332,135,039 Ordinary Shares,
representing approximately 13.1% of the issued share capital of the
Company.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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