Connect Share Discussion Threads

[fenners66] 17/4/2020 01:35

We already commented on the sale and leaseback making the disposal of Tuffnells harder....


BUT

"The Company has entered into each Lease Agreement as guarantor (seepages44to 45 for further details).
As guarantor, the Company has indemnified each Landlord under each LeaseAgreement against all losses, costs, damages and expenses caused to the relevantLandlord by TPE defaulting or otherwise failing to comply with its obligations under theLease Agreement or as a result of TPE proposing or entering into any companyvoluntary arrangement, scheme of arrangement or other scheme having or purportingto have the effect of impairing, compromising or releasing any or all obligations of TPE.In addition, in the event that any Landlord notifies the Company within three monthsafter the date of any disclaimer or forfeiture of the relevant lease or TPE being struckoff the register of companies, the Company must, within 10 business days, at theLandlord’s option either: (i) at the Company’s own cost accept the grant of new a leaserelating to the relevant Sold Depot; or (ii) pay the Landlord any arrears of the rent, theoutgoings and all other sums due under the relevant Lease Agreement plus theamount equivalent to the main rent under the relevant Lease Agreement that wouldhave been payable for the period of six months following the disclaimer, forfeiture orstriking-off had there been no such event."


More risk adopted

[fenners66] 17/4/2020 01:31

Directors are as follows:
Notice period Notice period Annual Bonus/£ OtherExecutive Director Date of contract by Company by director salary/£ exercisable benefits/£Jonathan Bunting 1 April 2010 12 months 9 months 291,312* 0 91,700

Not formatted well but seems Bunting was there when Tuffnells was bought........

[fenners66] 17/4/2020 01:26

"The aggregate amount which may be recovered from the Seller for all claims under or in connection with the Share Purchase Agreement (including under the warranties and the indemnities) and the Tax Deed ..... is £5 million (five million pounds).

The aggregate amount which may be recovered from the Seller for all claims in respect of the general commercial warranties is limited to £1 million (one million pounds)."

So there are indemnities of up to £6m as well ?

[loiner1] 17/4/2020 00:55

So the appointed debt advisors are Rothschilds..

£6m will be paid to Tuffnells on completition of the 'sale'

The remaining £4m will be paid over the following four consecutive months

Immediate significant cost cutting to take place at Connect Group as without Tuffnells there is no requirement for 'group' employees. Head office numbers will be trimmed. However, they haven't worked that out yet.

Tuffnells have been losing on average just over £1m per month despite previous cost cutting. Since Covid and the impact on business, losses are projecting to be £2-4m per month and cost reduction of £5m per month needs to be found asap.

Connect are hoping that bidco will get financing immediately to allow them to pay back asap and help to sever all ties

[fenners66] 16/4/2020 23:07

After Tuffnells is disposed of and taking into account the reasons for last time.....

isn't it time for ....

a name change ?

May I suggest ....

Disconnected plc.

[fenners66] 16/4/2020 22:49

" However none of these options give the Board reasonable confidence that these alone, without some element of refinancing of the Continuing Group’s facilities which is the Company’s priority action in this regard, will be capable of addressing such working capital shortfall in the time available, or at all."

So to be clear....

They are CONFIDENT ,

that since the current refinancing terms are unacceptable ,

and the clock is winding down to now an anticipated insolvency,

whilst being incapable of putting a forecast P&L together because trading conditions are worse than they ever have been,

and all the potential actions they could do in mitigation .... starting 1-Nov-20 , would also be insufficient to avoid disaster,

with a worsening cash position , but avoiding the losses they would have made with Tuffnells (£7m in 6 months assuming the latest turnaround plan; enacted by the team the new owners want to give 30% equity to ; has zero effect since last August !)

but including lending them £10.5m, because its so difficult in a CV19 world to obtain corporate finance (!!!)

they should be able to get BETTER terms whilst having a loaded bazooka (I was going to say gun but that does not seem big enough) held to their head !



Is it just naivety?

"Taking into account the underlying profitability and cash generative nature of the ContinuingGroup, predominantly comprising Smiths News, which generated adjusted EBITDA of £48.6m and free cash flow of £36.8m in the year ended 31 August 2019, "

so taking into account that once upon a time we were profitable.....

Perhaps they should have refinanced last September then.
Like letting a great premier league player run his contract down... you sort it out a year before

World has changed - virtually everything they say acknowledges that.

There is a real danger they have highlighted of insolvency and by telling the lenders that they expect with 6 months or so to go, by then we will likely be in the worst world recession for 90 years or so , that lenders are not going to leverage that and take their pound of flesh ?


Essentially you had all better vote for giving away Tuffnells and just forget the £90m (or so?) of shareholders money we burned on it .

And to stop you focussing on the details of the transaction , or on just what appalling mismanagement there has been here , we instead will put it that not agreeing will cause insolvency......

[nicholasblake] 16/4/2020 18:09

It's in the Circular for the EGM to approve the transaction.

[fenners66] 16/4/2020 17:57

nicholas - where did you get the £83.1m comment from?

[colonel a] 16/4/2020 17:19

Fair enough.

[nicholasblake] 16/4/2020 17:03

Point is that if they can estimate the repayment shortfall in JANUARY to nearest £100k they can estimate the effect on trading to the nearest, say, £2m?!!!!!

[colonel a] 16/4/2020 16:04

Clearly not going down too well.
But £83.1 million does not seem outrageous given historical net debt and lending £10m against the Tuffnells property.

[nicholasblake] 16/4/2020 15:47

Although it is not possible for the Board, particularly in light of current trading conditions and,
specifically, the COVID-19 outbreak and the high levels of market volatility and uncertainty arising
therefrom, to determine with absolute certainty the quantum of any forecasted working capital
shortfall that may arise on expiry of the Facilities as at 31 January 2021, based on current trading
expectations and existing cash resources, the Directors estimate that the total immediate shortfall
at that date would be approximately £83.1m.

BUT IMPOSSIBLE TO GIVE GUIDANCE ON TRADING?

This smells.

[colonel a] 15/4/2020 16:28

I read the RNS quite early and was surprised by the initial slow movement.
I think the "sale" is good news, just.
Once the sale goes through I would expect the share price to settle somewhat above the current level.
Given that the current market cap is only a little over £50m I don't suppose many analysts will have moved their attention from breakfast tv for too long.

[nicholasblake] 15/4/2020 16:25

Paying off Tufnell's overdraft and lending it GBP10m when cash is tight.

What's NOT to like?

[fenners66] 15/4/2020 16:13

I noticed the share price about 9.30 and then read the RNS.

Hence my thought that it must be good news - until I read it.

Then my question about whether the analysts had read it.

It seems some of them now have....

Share price down about 27% since then.

[colonel a] 15/4/2020 14:50

f66,
I don't pretend for a second that CNCT is other than a long standing cluster####, but once upon a time they did know how to run Smiths News and that business should still be worth much more than the Cap+debt.
I expect they will get the "sale" through quite quickly and hopefully the privations that we are suffering will start to ease in a few weeks.
GLA.

[scotslass76] 15/4/2020 14:27

Sorry - just seen the news myself. Ignore me!

[scotslass76] 15/4/2020 14:24

@chickenvindaloo what?????

[scotslass76] 15/4/2020 14:23

@chickenvindaloo what?????

[nicholasblake] 15/4/2020 13:06

@chickenvindaloo More like paid someone to take you away (or have a go thereat)!

[chickenvindaloo] 15/4/2020 12:46

Nice to come home from work to find out we've been sold!

[fenners66] 15/4/2020 12:38

I like this bit

"The Group has stress tested the impact of a range of scenarios including a sustained and worsening reduction in sales. However, it is not possible to quantify with any certainty the impact of COVID-19 on Smiths News' full year adjusted profit before tax. "


We stress tested the numbers....... but cannot understand our own figures.

Does that mean ... we looked at the stress tested P&L and it had a load of negatives on it.
Everyone got spooked so we decided not to tell anyone what we found.......

However we did find a sandpit at the back of the boardroom , the only problem is that with social distancing not all of the board are allowed to use it at the same time ..... so now we are drawing lots to see which of them can go on furlough.....

[fenners66] 15/4/2020 12:31

They say

"the Board is confident that, following Completion of the proposed transaction, the Group will be in a stronger position from which to negotiate the proposed refinancing than would be the case either prior to the proposed transaction or were the proposed transaction not to proceed. "

So they introduce the risk that the transaction may not even go ahead and the deadline gets nearer.



"23 March 2020 further restrictions on social movement and the closure of certain retailers, which led to a marked reduction in volumes across both Smiths News and Tuffnells. Having taken actions (including costs controls) to mitigate the impacts of these volume declines, overall performance to the end of March 2020 was in line with the Board's revised adjusted profit before tax expectations. The extent of the impact over time cannot be quantified"

What is that supposed to mean ? marked reduction impact cannot be quantified but impact after 23rd March.
So they say that 1 weeks worth of impact , meant "their revised expectations" whatever they were, were in line.

Really ?
We are supposed to be assuaged because their revised view was not materially out in 1 week ?
FFS!

I guess when you have run a business where every forecast has failed for 10 years - revising down a forecast and testing your weak assumptions 1 week later and finding out you have not screwed it up by too much is a .... result......

[fenners66] 15/4/2020 12:20

Colonel A

I am , because its a counter to the BOD who take it that their job is to focus on spinning positives.
I say spinning, because having had an interest here previously I have been watching them mess this company up for a decade or so I guess, and the so called positives have never proved to be positive.

No current year forecast - but no Euro 2020 10% or more of shops stocking newspapers closed.
Airports and airlines closed
A deadline for the debt , fast approaching.
No answer so they employ some "experts" - they are just going to get screwed over by.

Their markets are not getting back to normal before 31-1-2021
How are they going to improve lending terms ?

So what should we expect ?

A last minute gun to the head deal with onerous interest and covenants.
Keeps them in the game and kicks the can down the road.
Then next year if business does not improve massively - and remember it was in long term decline, where do they go ?

Lenders are not charities , despite being requested to act that way.

To make up for lots of bad loans elsewhere they will squeeze the pips where they can. They can here.