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Group Five Limited - The acquisition by Group Five of Quarry Cats (Proprietary) Limited and withdrawal of cautionary announcement Group Five Limited (Incorporated in the Republic of South Africa) (Registration number 1969/000032/06) Share code: GRF ISIN: ZAE000027405 ("Group Five" or "the company") THE ACQUISITION BY GROUP FIVE OF QUARRY CATS (PROPRIETARY) LIMITED AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT 1. Introduction Further to the cautionary announcement dated 3 November 2006, Nedbank Capital is authorised to announce that Group Five has entered into an agreement to acquire 100% of Quarry Cats ("Quarry Cats") from Cobblers Limited ("the vendor") ("the transaction"). 2. Nature and business of Quarry Cats Quarry Cats is involved in the supply of construction materials and crushing services to the construction and mining industries. The structure of the business is set out below: (Diagram removed) Quarry Cats - Commercial Aggregates (Gauteng): * Ekurhuleni Dolomite Quarry * Zimbiwa Sand and Stone Quarry Contract Crushing (National): * Kathu (3 contracts) * Secunda * Middleburg * Cato Ridge * Letseng (Lesotho) Ready Mixed Concrete "Afrimix" (Gauteng): * Chloorkop * Jet Park * Midrand * Benoni * Johannesburg City * Honeydew 2.1 Commercial aggregates The Ekurhuleni Dolomite quarry ("Ekurhuleni quarry") is located in the Modderfontein mining area to the east of Benoni and the Zimbiwa Sand and Stone quarry ("Zimbiwa quarry") is located in Laezonia to the west of Midrand and Centurion. Each supplies a full range of aggregates to concrete product manufacturers, the ready mixed concrete industry and the construction industry. The Ekurhuleni quarry"s reserves include both dolomite and dolerite with minimal overburden removal required to expose the high quality blue rock. Exploitable reserves on Quarry Cats" property are currently estimated to exceed 40 years of production. The Zimbiwa quarry is a granite quarry with reserves estimated to be in excess of 25 years of production. Separate plants process weathered granite and clean "blue" unweathered material. A full range of road building materials, concrete stone, washed crusher sand and unwashed "super sands" are produced from both quarries. The two facilities have two parallel high output crushing plants capable of exceeding current market demand levels. Both facilities are well located in relation to major growth nodes in Gauteng with competitive haulage distances to market. The current annual sales from the quarries are approximately three million tons. 2.2 Contract crushing Quarry Cats provides contract crushing solutions to a number of clients in the basic resources sector. The company designs, fabricates, commissions and operates its own plants, which gives the company a strong competitive advantage in this market. Experience has been gained in recovering, crushing and screening for iron ore, manganese, chrome, and coal. Commercial aggregates are also produced from mine waste dumps. Some seven million tons of material are processed per annum under long-term contracts. 2.3 Ready mixed concrete Afrimix operates in Gauteng and supplies ready mixed concrete and mortars to the building and civil engineering industries. As indicated previously, Afrimix currently operates from six locations. Afrimix is a member of the South African Ready Mix Association (SARMA) and focuses on providing high quality products and services. Afrimix currently produces approximately 400 000 m3 of ready mixed concrete per annum. 3. Rationale for the transaction Quarry Cats was identified as a business of strategic importance to Group Five for the following reasons: - its business compliments Group Five"s expansion and growth strategy in the infrastructure sector; - the transaction assists in mitigating the risk of future materials shortages with respect to key building and infrastructure projects undertaken by Group Five in its Gauteng market; - Quarry Cats operates at higher margins than Group Five"s overall group margin; and - Group Five has prior ownership experience, and key senior management with prior direct operating experience, in the crushing and ready mixed concrete sectors. 4. Conditions precedent to the transaction 4.1 The transaction is subject to various regulatory approvals, including the Competition Authorities, which conditions need to be fulfilled by no later than 30 June 2007. 4.2 The transaction agreement contains terms, conditions and warranties which are standard for an agreement of this nature. 5. Effective date of the transaction The effective date of the transaction will be the fifth business day following the day on which the last condition precedent is fulfilled, which is expected at the end of February 2007. 6. Purchase consideration The purchase consideration for the transaction is R750 million. It is envisaged that, subject to further negotiation with the vendors and taking market conditions into consideration, that the purchase consideration will be discharged as follows: - approximately R500 million through the issue of Group Five ordinary shares ("shares") to the vendor ("vendor placement"); and - approximately R250 million in cash. The cash component will be sourced from third party debt providers. 7. Financial effects of the transaction on Group Five shareholders The table below sets out the pro forma financial effects of the transaction on Group Five shareholders. These financial effects are for illustrative purposes only, to provide information about how the transaction might have affected the financial information presented by Group Five and, because of their pro forma nature, may not give a true reflection of Group Five"s financial position. These financial effects are the responsibility of the board of directors of Group Five. Before the After the % transaction transaction change Revenue (R"000) 5,864,721 6,237,328 6.4% Operating profit margin 4.11% 5.36% 30.4% (%) Earnings per share (R) 1.95 2.17 11.2% Headline earnings per 1.93 2.15 11.5% share (R) Net asset value per 9.27 13.52 45.9% share (R) Number of shares in 73,918 87,076 issue ("000) Weighted average number 73,496 86,654 of shares in issue ("000) Notes: 1. The "Before the transaction" column has been extracted, without adjustment, from the audited results of Group Five for the year ended 30 June 2006. 2. The revenue, operating profit margin %, earnings per share and headline earnings per share figures as reflected in the "After the transaction" column are based on the assumption that the transaction was implemented on 1 July 2005. 3. The earnings per share and headline earnings per share figures as reflected in the "After the transaction" column are adjusted for the after tax interest incurred at approximately 7% per annum (after tax) on the third party debt raised to fund the purchase consideration. 4. The net asset value per share figure as reflected in the "After the transaction" column is based on the assumption that the transaction was implemented on 30 June 2006 and adjusted for: the R250 million of assumed third party debt raised to discharge the cash component of the purchase consideration; and the R500 million assumed vendor placement calculated at R38.00 per share for purposes of this announcement. 5. The "After the transaction" column reflects the consolidated results of the company incorporating Quarry Cats" unaudited results for the eight months ended 30 October 2006 annualised to reflect a full 12 month period, as only eight months of comparable financial information is available for Quarry Cats. 6. The "After the transaction" number of shares in issue and weighted average number of shares in issue are adjusted for the vendor placement. 8. Categorisation of the transaction in terms of the JSE Limited"s ("JSE") Listings Requirements and withdrawal of cautionary announcement The transaction is a Category Three transaction in terms of Section 9.5 of the JSE Listings Requirements and no action is required by Group Five shareholders. Group Five shareholders are no longer advised to exercise caution when trading their Group Five shares. Sandton 21 November 2006 Investment bank, corporate adviser and sponsor to Group Five Nedbank Capital, a division of Nedbank Limited Legal adviser to Group Five Prinsloo, Tindle and Andropoulos Inc Legal adviser Cobblers Limited Hofmeyr Herbstein & Gihwala Inc Legal adviser in respect of mining legislation Werksmans Attorneys Date: 21/11/2006 12:27:25 PM Supplied by www.sharenet.co.za Produced by the JSE SENS Department
