)
Australian furniture group Nick Scali (ASX: NCK) plans to raise up to $60 million to support an expansion into the UK, where it will acquire the 21-store network of Fabb Furniture for just a couple of pounds, absorbing the retailer's debt while seeking to revitalise the business with a refurbishment and rebranding to its own name.
Nick Scali will acquire all secured debt owed by Fabb furniture for £3.5 million ($6.7 million), and intends to spend a further £0.5 million ($1.0 million) to exercise an option for exiting the group's existing distribution centre arrangement.
The Australian business has also budgeted for a net working capital injection of up to £6.0 million ($11.5 million) at Fabb Furniture, the trading name of Anglia Home Furnishings Limited, which was identified as a unique opportunity to "establish the Nick Scali brand at scale at a relatively low cost in the UK".
"The acquisition of Fabb Furniture provides an opportunity to enhance our geographic diversity and scale beyond Australia and New Zealand for the first time," says Nick Scali CEO Anthony Scali, who himself is putting up a $4 million placement towards the capital raise.
"The acquisition provides us an immediate entry point into the large UK market with a 21-store network across key locations; a scaled platform to establish the Nick Scali brand and product offering in an attractive new market."
For the financial year that ended on 31 March this year, Fabb is expected to deliver a revenue decline of 19 per cent to £34 million ($65 million) and loss of £2.8 million ($5.4 million), which is around £1 million ($1.9 million) down on the previous year's result.
Nick Scali intends to reset Fabb to the Nick Scali lounge and dining offering, sourced from its existing supplier network where it claims there will be "significant overlap", and also plans to set up a new distribution centre in Peterborough.
All stores for the UK group are in out-of-town retail parks and are predominantly of a large format, with an estimated total retail space of 39,000 square metres
Nick Scali expects the UK business will return to profitability on a run rate basis within 18 months, although losses are set to increase temporarily in FY25 during the transition period as a result of store refurbishments, rebranding and introduction of new product range.
The Australian company currently has more than five times the number of stores as Fabb, and generates more than 50 per cent more revenue per store on average at $4.7 million even though its average store size is slightly smaller.
"Fabb Furniture’s gross margin is estimated to be approximately 10 percentage points lower than larger UK competitors on a like for like basis," says Anthony Scali.
"As we did when we acquired Plush, we believe we can leverage the Nick Scali buying power, combined with our supply chain and logistics capabilities, to deliver significant gross margin uplift for the UK business."
The group expects to invest a further $27.2 million on store refurbishments, rebranding, marketing, additional working capital to support losses during the transition period, and general corporate purposes.
The acquisition and UK growth strategy will be bolstered by a $46 million fully underwritten placement to sophisticated and professional and other institutional investors, the $4 million conditional placement from the CEO, and a non-underwritten share purchase plan (SPP) for up to $10 million at $13.25 per share - a 5.8 per cent discount to the last traded price.
All eligible directors intend to participate in the SPP.
)
)
)
)
)
