28 Dec 2011
The Board of Source BioScience plc (LSE: SBS) the international diagnostics and genetic analysis business, announces that it has concluded an agreement with Simrock Holdings Limited to purchase the freehold land and buildings of its current business and Head Office premises at 1 Orchard Place, Nottingham, restructuring the existing lease obligation.
Rationale for the purchase
Since 2007 the Company has made significant investment in its operational and commercial infrastructure to support the continued growth of the business and deliver a considerably improved financial performance. This growth has been achieved through a combination of selective acquisitions, in addition to organic expansion of the business, and it remains the strategy to continue this programme of acquisition and investment.
At the same time as broadening and strengthening the product portfolio and extending the Company’s geographic reach to enhance revenue growth, there has also been an ongoing focus on the costs incurred by the business. One of the most significant costs was the lease for the Head Office facility in Nottingham, UK of £0.5 million per annum.
The Company occupied the Nottingham premises under a 25 year lease that, at the date of the purchase, had a remaining term of 17 years. Over the remaining term there was no provision to terminate the lease and the scheduled rent reviews were upwards only. The Directors recognised that this was not an appropriate arrangement for the Company and was not aligned with the ongoing investment that is being made in the business and its infrastructure.
The Company has secured a new £3 million term loan facility provided by Royal Bank of Scotland plc, the Company’s bankers. This loan is repayable 50% in instalments over three years with the balance on the fourth anniversary of draw down. The purchase price of £4.9 million has been funded using this new loan facility with the balance satisfied out of existing cash resources available to the Company.
Financial impact of the purchase
As a direct result of the purchase, operating profit and EBITDA is increased by £0.5 million per annum with immediate effect. There will be an incremental finance charge of £0.1 million per annum for the first four years, being the interest on the loan.
The purchase price of £4.9 million comprised the market value of the freehold land and buildings in conjunction with the attached lease. In the consolidated financial statements, the freehold property will be recognised at its valuation of £2.5 million, without ascribing value to the lease. The Directors believe this represents the most appropriate accounting treatment and fairest view of the property asset value.