The City Pub Group PLC Placing and Open Offer to raise up to £22 million

27 March 2020

The Company today announces it is proposing to raise up to £22 million, before expenses, by way of a Placing to raise up to £15 million and an Open Offer to raise up to approximately £7 million at a price of 50 pence per share.

The net proceeds of the Placing and Open Offer will be used primarily to strengthen the Company’s balance sheet and also, should the right opportunities arise, to expand the Company’s portfolio of pubs at a time when the Directors’ believe acquisition prices will be reduced in the short term.

The Placing is being conducted through an accelerated bookbuild process, which will be launched immediately following this Announcement.

Liberum Capital Limited is acting as sole bookrunner in relation to the Placing.

Placing and Open Offer Highlights
• Proposed Placing of up to £15 million (before expenses) to certain existing shareholders and other institutional investors at the Issue Price.
• Open Offer of up to approximately £7 million (before expenses) with Qualifying Shareholders at the Issue Price.
• Issue Price of 50 pence per New Ordinary Share represents a discount of 10.7 per cent. to the closing mid-market price of the Company's existing ordinary shares on 26 March 2020, the latest practicable date prior to this Announcement.
• The net proceeds of the Placing and Open Offer will be used primarily to strengthen the Company’s balance sheet and also, should the right opportunities arise, to expand the Company’s portfolio of pubs at a time when the Directors’ believe acquisition prices will be reduced in the short term.
• Upon completion of the Placing and the Open Offer, the 44,015,634 New Ordinary Shares would represent approximately 41.6 per cent. of the Enlarged Share Capital (assuming the Open Offer is subscribed in full).
• The timing for the close of the Bookbuild and allocation of the Placing Shares shall be at the discretion of Liberum, in consultation with the Company. The Placing is not underwritten.

Background to and reasons for the Placing and Open Offer
City Pub Group was, prior to the onset of the COVID-19 virus, a fast-growing business which had developed from a start-up in 2011 to a highly cash generative and profitable business with a high- quality estate of predominately freehold pubs.

On 17 March 2020, the Company announced that recent trading had been impacted by COVID-19 and its wider effects.

Since that date, the Government announced the closure of all pubs and restaurants and, on 23 March, a strict lockdown across the country.

The Company has taken a number of steps to significantly reduce its monthly costs including temporary and permanent reductions in the number of employees, unpaid leave and salary sacrifice of staff, reduction in the salary of Directors by 50% until the pubs re-open and halting training and recruitment costs. Certain variable costs have been suspended e.g. BT, Sky and other entertainment and promotional activities.

The Company will also be pursuing the Government’s announced support of reimbursement of 80% of employees costs for those on salaries of £30,000 p.a. or less, is in discussions with Landlords with a view to achieving rent holidays and reduce other commitments, is in discussions with suppliers regarding extending credit terms and is also intending to submit claims under relevant insurance policies for both COVID-19 and for its pubs being closed down. The Company will also benefit from a business rates holiday in line with Government announcements.

The Company intends to retain key head office staff and pub managers in order to protect the business. Whilst headcount will be reduced in the near term, it is important that the Company maintains a nucleus of experienced staff who Directors’ believe will help the business to hit the ground running when normal trading conditions return. The Directors also intend to implement new sales and marketing technology platforms in order to further centralize marketing and sales activities and streamline operations.

As announced on 17 March the Board is confident the Company has sufficient working capital to maintain its operations for at least another six months without further capital. The Directors estimate that the monthly cash requirement, including retained employee costs and no deferral in rent, will be approximately £350,000 per month. Current net debt is approximately £32 million against a portfolio consisting of freehold assets (90%), with a net book value of £116 million as at 29 December 2019.

The Company has a strong and supportive relationship with its bank. Whilst its bank have waived key covenant tests until December 2020, its £35 million bank facility, repayable in 2022 is fully drawn and its £15 million accordion facility remains subject to credit committee approval.

The Company is therefore proposing to raise funds via a Placing to raise up to £15 million (before expenses) and up to a further approximately £7 million via the Open Offer in order to:
• Strengthen the Company’s balance sheet in the event that the ongoing suspended trading environment is extended;
• Improve operational execution as a result of a more streamlined business;
• Enable the Company to plan ahead for when more normal levels of business return; and
• Position the Company, should the right opportunities arise, to expand the Company’s portfolio of pubs at a time when the Directors’ believe short-term acquisition prices will be reduced.

The Directors believe that if the Placing is successful, the Company will be well placed to grow the business and recover shareholder value once its pubs reopen.

The cost base will be reduced and, although the cost base will increase when the pubs reopen, the Company will be well financed to enable the pub portfolio to be expanded at a time when the Directors believe acquisition prices will be reduced.

During the closure period, the senior management will focus on improving the operational structure of the business so that it can be operated and managed more effectively. The Company intends to continue with its cost reduction measures after completion of the Placing and Open Offer and to focus on improving shareholder value once its pubs reopen.

Current Trading
Further to the update to the market on 17 March 2020:
• For the first 11 weeks to 15 March 2020, total turnover was up 11% against the same period last year. Like for like sales for the same period were down 4.5%;
• For the 12 weeks to 22 March 2020, total turnover was up 2.5% against the same period last year; and
• Following the UK Government announcement on 20 March 2020, all the Company's pubs have closed as a result of measures required to combat the spread of COVID-19.