Cross Oak Inns plc - The Tax Shelter Report

Part II – Information on the Company
Introduction
Cross Oak Inns plc was incorporated on 3 June 2004 with the intention of developing and operating a
group of pub restaurants in Southern England, predominantly in Berkshire, Hampshire, Kent, Surrey
and Sussex. The Company intends to use the capital raised under the Offer to invest mainly in freehold
free-of-tie premises.
The pub restaurants will have a strong food element. They will not be branded or themed, but will cater
specifically for their local markets. The Board believes strongly in the commercial advantages of
owning pub restaurants of this type.
The Board proposes to ensure that the Company and its trade meet the Enterprise Investment Scheme
(“EIS”) qualifying conditions so that investors may take advantage of the tax reliefs available under the
EIS.
Assuming full subscription for the Offer, the net proceeds will be about £2.76 million, which, together
with bank borrowings and existing cash resources of £477,500, should allow approximately 5 to 10
pubs to be acquired. The Company will then refurbish the units where necessary with a view to having
all of the pub restaurants developed and operating fully under the Company’s template within 2 years
of their purchase.
Through the Management Agreement in place between Cross Oak Inns plc and Cross Oak Limited, the
Board will be able to draw upon the experience and knowledge of the Directors of Cross Oak Limited.
Under this agreement Cross Oak Limited will provide management services to the Company on the
basis of an agreed fee structure. Further details of this agreement are set out on in Part VII, paragraph
8.1.
The Management Agreement has been specifically designed to keep the Company’s fixed costs to a
minimum during its formative period whilst giving a strong incentive to Cross Oak Limited to achieve a
high level of operating profit from the pub restaurants developed by the Company. Higher profits should
enhance the likely capital value of the Company’s assets, the benefit of which will accrue exclusively
to shareholders. By taking this approach the interests of Cross Oak Limited are closely aligned to the
interests of the shareholders of Cross Oak Inns Plc.
The Concept
The Directors believe that there is an excellent opportunity to provide non-branded and un-themed pub
restaurants, which cater for their own local market. It is intended that the properties to be purchased,
once developed, will offer a menu for the more discerning customer with good quality wines from
around the world, traditional ales, and premium brand beers. The intention is to give restaurant style
food and service in more relaxed surroundings. To build good local relations the pub restaurants will
use, wherever possible, local suppliers for meat, game, fish and other fresh produce. To maintain the
vitality of each pub restaurant and increase customer loyalty and repeat business the menu and wine
lists will be reviewed on a regular basis. This regular updating will also enable popular dishes and wines
to be further exploited and seasonal specialities introduced.
In those pub restaurants close by major commercial conurbations, lunchtime trade will be targeted at
business, office workers and leisure eaters. It is expected that the evening trade will comprise mostly
leisure eaters and drinkers of an age group of 25 years and upwards who are looking for a quality, well
priced relaxing experience. The Directors believe that this age group will increasingly prefer a friendly,
relaxed atmosphere in a pub restaurant that offers a good quality and value eating and drinking
experience. The individual appeal and quality offering of these pub restaurants should, in the Directors’
opinion, provide opportunities for successful commercial operations.
It is expected that the majority of sites acquired will require refurbishment in order to achieve the
ambience and quality of presentation that the Board intends to pursue. It is expected that each pub
restaurant purchased will take up to two years from the date of refurbishment to contribute fully to
earnings which allows time for each new acquisition to be redesigned, refurbished or redeveloped as
required.
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