Zetar plc: Acquisition of Lir Chocolates Limited for up to Euro 8.0m (£5.7m)

Dec. 18 - Zetar, the AIM listed confectionery and snack foods group, is pleased to announce that its wholly owned subsidiary Kinnerton (Confectionery) Company Limited (“Kinnerton”) has agreed the terms of the acquisition of Lir Chocolates Limited (“Lir”) (the “Acquisition”).

Consideration and funding of the Acquisition

 Total maximum consideration for the Acquisition is €8.0m (£5.7m). Initial consideration of €3.3m (£2.4m), comprising €3.0m (£2.1m) in cash and €0.3m (£0.2m) by the issue to the vendors of Lir of 34,202 new ordinary shares in Zetar (the “Consideration Shares”). Additional consideration of up to €4.7m (£3.4m) may become payable dependant upon the future financial performance of Lir for the four years ending 30 April 2008, 2009, 2010 and 2011. The maximum additional consideration will become payable upon Lir achieving the following EBITDA targets: 

The Group will also repay, and/or assume, bank loans and other indebtedness of approximately €2.5m (£1.8m).

On completion of the Acquisition, Zetar will hold 99.4 per cent. of the issued share capital of Lir. The balance is currently held up in probate. €0.2m (£0.1m) of the 2008 additional consideration will be withheld pending completion of this administrative process.

Zetar is raising approximately £4.0m by way of a non pre-emptive placing for cash (the “Placing”) of 714,285 new ordinary shares of 10p each (the “Placing Shares”) at a price of £5.60 per share (the “Placing Price”). The Placing Price represents a premium of 4.7 per cent. over the closing mid market price of 535 pence per Zetar ordinary 10p share (“Ordinary Share”) on 17 December 2007, the latest practicable date prior to this announcement. The Placing Shares represent 6.2 per cent. of the issued share capital of Zetar as enlarged the Acquisition and the Placing. Authority to allot the Placing Shares was granted to the Zetar Directors at the AGM of the Company on 26 September 2007.

The net proceeds of the Placing will be used to fund the initial cash consideration for the Acquisition and to repay part of Lir’s current bank and other indebtedness.

Lincoln Vale European Partners Master Fund has guaranteed the Placing by unconditionally agreeing to subscribe for all of the Placing Shares at the Placing Price, save that 357,142 of the Placing Shares (the “Clawback Shares”) have been made available to satisfy valid subscriptions from certain existing Zetar shareholders. Pursuant to an agreement with the Company Altium has conditionally agreed to use its reasonable endeavours to procure subscribers for the Placing Shares.

The Placing Shares and the Consideration Shares will rank pari passu in all respects with the existing Ordinary Shares. Application has been made for the Consideration Shares and the Placing Shares to be admitted to trading on AIM. Admission is expected on 18 December 2007. Following Admission, Zetar will have 11,505,395 Ordinary Shares in issue.

UK Chocolate market

The UK chocolate market was valued at £4.29bn in 2006 (Source: Leatherhead Food International) with boxed assortments having a 25 per cent. market share. Within this market the luxury indulgent sector grew market share from 16 per cent. in 2001 to almost 20 per cent. in 2006 (Source: Mintel). Other examples of successful companies operating in the luxury end of the chocolate market include Lindt and Green & Black’s.

Background to Lir

Lir was established in Ireland in 1987 by Connie Doody and Senator Mary White.Stephen Cope, Managing Director, and Hugh O’Brien, Commercial Director, joined in 2000 and together they have been responsible for the growth of Lir to date. Lir operates from a modern 28,000 sq ft factory in Navan, Ireland (approximately 50 kilometres north of Dublin) with approximately 120 employees.

Lir specialises in the manufacture of luxury boxed assorted chocolates to be sold under the Lir brand, the Baileys brand and supermarket private labels. Products include premium chocolate box assortments, assorted truffles, café truffles and caramels. Lir’s licence for Baileys chocolates into the Irish market was extended to cover the UK in May 2005. More recently the non-exclusive agreement has been extended to include Denmark, the Benelux countries, Iceland and Russia.

Confectionery products supplied under the Baileys brand include chocolate bars, chocolate truffles, Christmas gifts and Easter eggs.

Lir’s turnover has grown steadily from €3.3m (£2.4m) in the year ended 28 February 2004 to €8.5m (£6.1m) in the year ended 28 February 2007. EBITDA in the year ended 28 February 2007 amounted to €0.54m (£0.5m) (2006: €0.50m (£0.5m)). At 30 April 2007 Lir had net assets of €1.1m (£0.8m) and total borrowings of approximately €2.0m (£1.4m), including preference shares of €0.4m (£0.3m).

Benefits of the acquisition

The luxury chocolate market is growing and the directors believe that Lir’s expertise in luxury boxed assortments will complement Zetar’s current portfolio of confectionery products.The directors also anticipate that Lir’s strong Irish heritage will provide the Group with fresh marketing initiatives to build upon its existing export business, particularly in the US.

Zetar will seek to build upon the existing trading relationship between Lir and Diageo (owners of the Baileys brand) and in particular to utilise the strength of Zetar’s established UK distribution capabilities to increase sales of existing Baileys products. Following a newly signed licence for North European markets, there is the potential to provide opportunities for other Group chocolate products in these markets. The Baileys licence gives the Confectionery division the benefit of an internationally recognised premium brand.

The Acquisition, when added to Horsley, Hick & Flower (the manufacturer of luxury chocolate and yoghurt covered fruit and nuts acquired by Zetar in 2006) gives the Confectionery division a firm footing in the Premium end of the Confectionery Market which, combined with Kinnerton’s distribution and production capability, will greatly enhance the Group’s position in the luxury indulgent sector of the chocolate market.

The Acquisition is expected to be earnings enhancing in its first full year of operation as part of the Group.

About Zetar Plc

Zetar Plc listed on AIM in January 2005. Zetar’s objective is to build a Group with a balanced portfolio of niche snack and confectionery products with an emphasis on healthier options and/or premium products, based primarily in the UK with operations in Europe.

To date six acquisitions, including Lir, have established two strong trading divisions - Confectionery and Natural & Premium Snacks:

The Group will continue to concentrate on companies that, among other commercial considerations, focus on healthier options, quality products, innovation and service at competitive prices.

For the year ended 30 April 2007 Zetar reported sales up 64% to £94.9m (2006: £57.9m), adjusted profit before tax up 69% to £6.6m (2006: £3.9m), and adjusted diluted earnings per share up 22% to 40.5 pence (2006: 33.3 pence).