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XXL ASA – Q3 2019 preliminary results and fully subscribed private placement
XXL ASA (“XXL” or the “Company”) today announces preliminary results for third quarter 2019. Revenues for the quarter are expected to be approximately NOK 2,470 million with a gross margin of approximately 37 per cent and an EBITDA in the range of NOK 130-135 million excluding IFRS 16 effects (NOK 265-275 million including IFRS 16). Prior to the effects of raising new equity, net debt is estimated to be at approximately NOK 1,870 million and Net debt/EBITDA will be slightly below the loan covenant at 4.25x.
In order to strengthen its balance sheet, XXL has obtained commitments for a private placement of new shares in the amount of approximately NOK 400 million directed at the largest shareholders of the Company, Dolphin Management AS, Altor Fund IV through Altor Invest 5 and Altor Invest 6 (“Altor”), Ferd AS, ODIN Forvaltning AS and Arctic Funds Plc (the “Private Placement”). The Board of Directors will propose a subsequent offering of approximately NOK 100 million to shareholders not allocated shares in the Private Placement (the “Subsequent Offering”). The Subsequent Offering is fully underwritten by Altor. The subscription price in both the Private Placement and the Subsequent Offering is NOK 15 per share.
Q3 2019 results
The Q3 2019 results are affected by continued negative like-for-like growth of around 4 per cent, especially driven by the Norwegian operation where the like-for-like growth in the quarter is down ~10 per cent. In particular, September proved to be a very challenging month. The lower sales volumes have impacted the gross margins negatively as the expected contribution from supplier volume bonuses is significantly lower than last year. In Q3 2019, this will have a negative effect of around NOK 15 million. EBITDA is impacted by the negative like-for-like growth influencing the scalability of the operations, especially in Norway and Sweden, but it is compensated by a positive effect of around NOK 20 million due to reversal of costs related to share option programs for key employees. Due to lower sales the inventory is still high, and is expected to end at around NOK 3.4 billion as per the end of Q3. In the third quarter, XXL has chosen not to fully utilize its cash discounts towards its suppliers and thereby increased the payables. Liquidity reserves are estimated to be around NOK 600 million.
XXL has initiated actions to improve the financial situation in the Company in the near term. Focus is still to improve the balance between growth and gross margin while at the same time reducing inventory. In addition, XXL will implement several cost initiatives. The long-term ambition of reducing the inventory down towards NOK 25 million per store remains firm, which, if successful, will strengthen the balance sheet significantly.
XXL will release its final Q3 2019 results on Wednesday 23 October 2019, also including a strategy update.
Private placement and subsequent offering
Based on the preliminary Q3 2019 figures, the Board of Directors proposes to strengthen the balance sheet with new equity.
XXL has completed a conditional private placement of 26,666,667 new shares in the Company at a subscription price of NOK 15 per share. The Private Placement was directed at the key shareholders of the Company. The Private Placement is subject to approval by an extraordinary general meeting to be held on or about 6 November 2019 (the "EGM"). Shareholders holding ~58% of the shares in the Company have undertaken to vote in favor of the Private Placement at the EGM.
The Board of Directors has considered the Private Placement in light of the equal treatment obligations under the Norwegian Securities Trading Act and Oslo Børs' Circular no. 2/2014, and is of the opinion that the proposed Private Placement is in compliance with these requirements. The equity issuance will be carried out as a private placement in order to complete a transaction in an efficient manner to strengthen the balance sheet following the publication of the preliminary Q3 2019 figures. The closing price on 14 October 2019 does not reflect the share price effect of the publication of the preliminary Q3 2019 figures. Further, the Company intends to carry out a subsequent offering directed towards shareholders not allocated shares in the Private Placement. On this basis, and based on an assessment of the current equity markets, the Company’s need for equity funding, deal execution risk and possible alternatives, Board of Directors has considered the Private Placement to be in the common interest of the Company and its shareholders. As a consequence of the overall transaction structure, the shareholders' preferential rights will be deviated from.
The Private Placement consists of 26,666,667 new shares which have been allocated as follows:
- Ferd AS 2,990,188 shares, ODIN Norden 1,983,529 shares, ODIN Norge 1,007,301 shares and Arctic Funds Plc 1,655,837 shares
- Dolphin Management AS up to 2,205,956 shares
- Altor those shares not allocated to the above investors
Ferd AS, ODIN Norden, ODIN Norge and Arctic Funds Plc have been allocated their pro-rata share of the number of new shares to be issued in the Private Placement and the Subsequent Offering. Altor and Dolphin Management AS are represented on the Board of Directors.
The Board of Directors will also propose a subsequent offering of 6,666,667 new shares, in which shareholders of the Company as of close of trading on 15 October 2019, as recorded in the VPS on 17 October 2019, who were not allocated shares in the Private Placement, and who are not resident in a jurisdiction where such offering would be unlawful, or would (in jurisdictions other than Norway) require any prospectus filling, registration or similar action (“Eligible Shareholders”), will receive subscription rights. Each Eligible Shareholder is expected to receive approximately 0.11 subscription right per existing share. The subscription rights will not be listed or transferable. Subscription without subscription rights and over-subscription in the Subsequent Offering will not be permitted. The Subsequent Offering is fully underwritten by Altor. The Subsequent Offering will, inter alia, be conditional upon (i) completion of the Private Placement, (ii) a resolution of the extraordinary general meeting, expected to be held on or about 6 November 2019, authorising the Board of Directors to issue the new shares in the Subsequent Offering, and (iii) approval and publication of a prospectus regarding, inter alia, the Subsequent Offering. The subscription price in the Subsequent Offering is equal to the Private Placement, NOK 15 per share.
DNB Markets, a part of DNB Bank ASA, and Nordea Advisory & ECM, part of Nordea Bank Abp, filial i Norge act as managers for the Private Placement and the Subsequent Offering. Advokatfirmaet Thommessen AS is acting as legal advisor to XXL in relation to the Private Placement and the Subsequent Offering.
Changes to the covenant for the bank financing
On 11 June 2019, XXL and the bank consortium, consisting of DNB Bank ASA and Nordea Bank Abp, filial i Norge, agreed on a new covenant. The following covenants were agreed on Net debt/EBITDA basis (excluding IFRS 16 effects) – Q2 2019 of 4.5x, Q3 2019 of 4.25x and Q4 2019 and going forward of 3.5x.
XXL has today agreed with its bank consortium the following main covenants, subject to completion of the Private Placement and the Subsequent Offering:
- The Net debt/EBITDA covenant for 2020 shall be 4x, excluding IFRS 16 effects and potential impact from liquidation/sale of inventory outside of existing distribution channels and main markets
- No distribution of dividends or share buy-back prior to 31 December 2020
Changes in the Board of Directors
Following completion of the Private Placement and the Subsequent Offering, Altor will be the largest shareholder of the Company. It is therefore proposed that the EGM resolves that current Board member Hugo Maurstad becomes the new Chairman of the Board of Directors while Øivind Tidemandsen shall continue as Board member.
For further queries, please contact:
Tolle O. R. Grøterud
Investor Relations XXL ASA
Tel: +47 90 27 29 59
E-mail:ir@xxlasa.com
This information is subject of the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act
About XXL ASA
XXL is a leading sports retailer with stores and e-commerce in Norway, Sweden, Finland, Denmark and Austria. It is the largest among the major sports retailers in the Nordics. XXL pursues a broad customer appeal, offering a one stop shop experience with a wide range of products for sports, hunting, skiing, biking and other outdoor activities. XXL’s concept is to have the largest stores with the best prices and the widest assortment of products, focusing on branded goods.
Alternative Performance Measures (APM)
Certain financial measures and ratios related thereto in this quarterly report, including growth, gross profit, gross margin, EBIT, EBIT margin, EBITDA, EBITDA margin, working capital and net interest bearing debt (collectively, the “Non-GAAP Measures”), are not specifically defined under IFRS or any other generally accepted accounting principles. These measures are presented in this quarterly report because they are among the measures used by Management to evaluate the cash available to fund ongoing, long-term obligations and they are frequently used by other interested parties for valuation purposes or as a common measure of the ability of a company to incur and meet debt service obligations. These measures may not be comparable to other similarly titled measures of other companies and are not measurements under IFRS or other generally accepted accounting principles, and you should not consider such items as alternatives to profit for the year, total operating revenues, operating income or any other performance measures derived in accordance with IFRS, and they may be different from similarly titled measures used by other companies.
1) EBIT
Our EBIT represents operating income.
2) EBITDA
Our EBITDA represents operating income plus depreciation.
3) Like for Like
Like for Like include comparable stores and E-commerce. Comparable stores are stores that have been open all months of the current year and all months of the previous year. Stores that have been relocated or significantly expanded are excluded from Like for Like stores.
4) Gross profit / Gross margin
Gross profit represents operating revenue less cost of goods sold. Gross margin is gross profit in per cent of revenue
5) Working capital
Working capital consists of accounts receivables, accounts payables, inventory, other receivables and other current liabilities.
6) Net interest bearing debt
Net interest bearing debt is defined as total other long-term debt and short-term borrowings less cash and cash equivalents
7) OPEX
OPEX is defined as other operating expenses including personnel expenses, but excluding depreciation and amortization
8) Inventory per store
Total inventory divided on number of stores and number of E-commerce markets at end of period
9) CAPEX
Capital expenditure is the sum of purchases of fixed assets and intangible assets
Important notice:
These materials do not constitute or form a part of any offer of securities for sale or a solicitation of an offer to purchase securities of the Company in the United States or any other jurisdiction. The securities of the Company may not be offered or sold in the United States absent registration or an exemption from registration under the U.S. Securities Act of 1933, as amended (the "U.S. Securities Act"). The securities of the Company have not been, and will not be, registered under the U.S. Securities Act. Any sale in the United States of the securities mentioned in this communication will be made solely to "qualified institutional buyers" as defined in Rule 144A under the U.S. Securities Act. No public offering of the securities will be made in the United States.
In any EEA Member State, this communication is only addressed to and is only directed at qualified investors in that Member State within the meaning of the EU Prospectus Regulation, i.e., only to investors who can receive the offer without an approved prospectus in such EEA Member State. The expression "EU Prospectus Regulation" means Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 (together with any applicable implementing measures in any Member State).
In the United Kingdom, this communication is only addressed to and is only directed at Qualified Investors who (i) are investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) (the "Order") or (ii) are persons falling within Article 49(2)(a) to (d) of the Order (high net worth companies, unincorporated associations, etc.) (all such persons together being referred to as "Relevant Persons"). These materials are directed only at Relevant Persons and must not be acted on or relied on by persons who are not Relevant Persons. Any investment or investment activity to which this announcement relates is available only to Relevant Persons and will be engaged in only with Relevant Persons. Persons distributing this communication must satisfy themselves that it is lawful to do so.
The Target Market Assessment is without prejudice to the requirements of any contractual, legal or regulatory selling restrictions in relation to the Transaction.
For the avoidance of doubt, the Target Market Assessment does not constitute: (a) an assessment of suitability or appropriateness for the purposes of MiFID II; or (b) a recommendation to any investor or group of investors to invest in, or purchase, or take any other action whatsoever with respect to the Company's shares.
Each distributor is responsible for undertaking its own Target Market Assessment in respect of the Company's shares and determining appropriate distribution channels.
Matters discussed in this announcement may constitute forward-looking statements. Forward-looking statements are statements that are not historical facts and may be identified by words such as "anticipate", "believe", "continue", "estimate", "expect", "intends", "may", "should", "will" and similar expressions. The forward-looking statements in this release are based upon various assumptions, many of which are based, in turn, upon further assumptions. Although the Company believes that these assumptions were reasonable when made, these assumptions are inherently subject to significant known and unknown risks, uncertainties, contingencies and other important factors which are difficult or impossible to predict and are beyond its control. Such risks, uncertainties, contingencies and other important factors could cause actual events to differ materially from the expectations expressed or implied in this release by such forward-looking statements. The information, opinions and forward-looking statements contained in this announcement speak only as at its date, and are subject to change without notice.
This announcement is made by and, and is the responsibility of, the Company. The Managers are acting exclusively for the Company and no one else and will not be responsible to anyone other than the Company for providing the protections afforded to their respective clients, or for advice in relation to the contents of this announcement or any of the matters referred to herein.
Neither the Managers nor any of their respective affiliates makes any representation as to the accuracy or completeness of this announcement and none of them accepts any responsibility for the contents of this announcement or any matters referred to herein.
This announcement is for information purposes only and is not to be relied upon in substitution for the exercise of independent judgment. It is not intended as investment advice and under no circumstances is it to be used or considered as an offer to sell, or a solicitation of an offer to buy any securities or a recommendation to buy or sell any securities of the Company. Neither the Managers nor any of their respective affiliates accepts any liability arising from the use of this announcement.
Each of the Company, the Managers and their respective affiliates expressly disclaims any obligation or undertaking to update, review or revise any statement contained in this announcement whether as a result of new information, future developments or otherwise.
The distribution of this announcement and other information may be restricted by law in certain jurisdictions. Persons into whose possession this announcement or such other information should come are required to inform themselves about and to observe any such restrictions.