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CSB - Cashbuild Limited - The proposed implementation of a performance based
Black Economic Empowerment ("Bee") transaction for qualifying employees ("The
Transaction" or "The Scheme")
Cashbuild Limited
(Incorporated in the Republic of South Africa)
(Registration number 1986/001503/06)
Share code: CSB ISIN:ZAE000028320
("Cashbuild" or "the Company")
THE PROPOSED IMPLEMENTATION OF A PERFORMANCE BASED BLACK ECONOMIC EMPOWERMENT
("BEE") TRANSACTION FOR QUALIFYING EMPLOYEES ("THE TRANSACTION" OR "THE SCHEME")
1. Introduction
- Shareholders are referred to the cautionary announcement dated 20 June 2011
wherein it was announced that Cashbuild was in the process of finalising an
employee based BEE transaction which specifically addresses the
incentivisation of high performing key store managers, divisional managers
and operational executives ("Management Members") within the Cashbuild
group of companies ("the Group").
- Cashbuild recognises that the Management Members play an integral role in
the current and future success of the Group. In light of this, Cashbuild
believes that the implementation of the Transaction could be beneficial to
the Group by encouraging entrepreneurial behaviour at a store, divisional
and operational area respectively, which will drive overall profitability
within the Group. In addition, approximately 59.30% of the Management
Members qualify as historically disadvantaged persons ("HDSAs"), as defined
in the Codes of Good Practice published on 9 February 2007 under the Broad-
Based Black Economic Empowerment Act, 53 of 2003. Accordingly the
Transaction further enhances Cashbuild`s BEE credentials, enabling the
Company to remain competitive and to preserve its leadership position as
the largest retailer of building materials in southern Africa.
- The implementation of the Transaction requires the adoption of the
Cashbuild Store Operations Management Member Trust ("the Trust") and the
potential specific issue of Cashbuild shares for cash in respect thereof.
2. Rationale for the Transaction
The rationale for the Transaction is as follows:
* to increase the current level of profitability within Cashbuild, in
particular the profit margin;
* to provide a framework for the incentivisation, empowerment and retention
of qualifying Management Members in the Group;
* to recognise and reward qualifying Management Members for achieving and
consistently exceeding Cashbuild`s financial business model;
* to develop an ethic and mindset of ownership, responsibility and
accountability within the Group;
* to promote the continued growth and profitability of stores within the
Group and the growth of the Group by providing qualifying Management
Members with an opportunity to acquire Cashbuild shares, thereby aligning
their interests with those of Cashbuild shareholders; and further
* to promote BEE within the Group and to increase broad-based and effective
participation in the Group by HDSAs.
3. Key terms of the Transaction
Participants in the Transaction comprise Management Members that meet certain
qualifying criteria ("qualifying Management Members"), being, inter alia:-
* the store/division/operations area in question must have a profit margin of
at least 10% which must be maintained to ensure continued participation in
the Scheme;
* the store manager, divisional manager and operational executive must have
been permanently employed in such position at their respective store,
division or operations area for a period of at least 3 months of the
financial year in which the relevant hurdle rate is to be calculated and
which continues to be employed as at the date an offer is made; and
* the relevant Management Member must not be subject to any pending or
ongoing disciplinary proceedings into alleged misconduct of such a nature
which, if established by the employer could result in his dismissal.
A qualifying Management Member will be entitled to receive a share of
profit in their respective store, division and operations area, which is
determined as the operating profit for the current year (excluding
management fees) less the greater of the previous year`s
store/division/operation area profit margin and 10%, multiplied by the
previous year`s store/division/operation area revenue increased by the
previous year`s average annual inflation rate ("Extra Profit").
Such Extra Profit will be allocated on the following basis:-
* 20% for a store manager;
* 3% for a divisional manager; and
* 2% for an operational executive.
The Extra Profit will be distributed as cash and shares in equal
proportion. The cash portion will be received immediately whilst the share
portion will vest at the end of a three year period, or such earlier dates
as provided in the Trust deed. This vesting period is expected to assist
with the retention and motivation of qualifying Management Members. It
should be noted that whilst the shares will be registered in the name of
the respective qualifying Management Member, they will be pledged back to
the Trust until vesting occurs, and are accordingly deemed to be treasury
shares for accounting purposes.
- The Scheme provides for the share portion of the distribution to be settled
primarily by way of a purchase of Cashbuild shares. Such share purchase is
envisaged to take place on the open market within a 15 day period at a
maximum price of a 10% premium to the 30 day volume weighted average traded
price of Cashbuild shares at the close of business on the day before any
particular date ("VWAP") prior to the date on which the last of the
relevant payment is made to the Trust and relevant information is given to
the Trust by the relevant employer Group company. Should the purchase of
Cashbuild shares on the open market not be possible within a 15 day period
from the date of payment of the cash portion, the Scheme provides for a
potential specific issue of Cashbuild shares at the 30 day VWAP immediately
prior to the date of the issue of the relevant Cashbuild shares, rounded
down. The Scheme provides for a maximum of 5% of Cashbuild`s issued share
capital to be issued as at the date of the general meeting, being 1 259 491
Cashbuild shares, in respect of the Scheme.
4. Condition precedent
The Transaction remains subject to approval by the requisite majority of
Cashbuild shareholders at the general meeting to be held at 09:00 at
Cashbuild`s registered offices, 101 Northern Parkway, cnr Crownwood Road,
Ormonde on Monday, 19 September 2011.
5. Financial effects
Unaudited pro-forma financial effects of the Transaction
The tables below set out the unaudited pro-forma financial effects, on a
earnings per share ("HEPS"), net asset value per share ("NAV") and net
tangible asset value per share ("NTAV") of the Company based on the audited
financial results for the six months ended 31 December 2010. This pro-forma
financial information has been prepared for illustrative purposes only and
because of its nature may not give a true picture of Cashbuild`s financial
position and results of operations, nor the effect or impact of the issue
of Cashbuild shares for cash going forward. The preparation of the pro-
forma financial information is the responsibilty of the directors of
Cashbuild.
- 5.1 Unaudited pro-forma financial effects of the Transaction assuming the
Scheme shares are acquired on the open market
(Cents per share) Before Pro- %
(1) forma change
After
(2)
EPS (3) 275.2 260.6 (5.3)
HEPS (3) 280.5 265.9 (5.2)
NAV (4) 2 893.8 2 877.1 (0.6)
NTAV (4) 2 772.7 2 755.9 (0.6)
Weighted average number of shares in issue 22 707 22 686
(5) (`000)
Number of shares in issue (5) (`000) 25 190 25 169
Notes:
(1) Extracted from Cashbuild`s audited interim results for the six months
ended 31 December 2010.
(2) Represents the unaudited pro-forma financial effects after the
Transaction.
(3) EPS and HEPS effects are based on the following principal assumptions:
* the Transaction was effective 1 July 2010;
* total estimated transaction costs of R1.64 million were incurred, which are
once off in nature; and
* the Extra Profit is calculated based on the actual results of Cashbuild for
the six month period ended 31 December 2010 as follows:
* qualifying Management Members generated R25.8million Extra Profit based on
the assumption of the the greater of the previous year`s
store/division/operation area profit margin and 10%, multiplied by the
previous year`s store/division/operation area revenue and grown by the
previous year`s average annual inflation rate ("hurdle rate") and an
average annual inflation rate of 7.1%, resulting in a distribution of the
cash portion of R1.9 million and charge to the income statement for the
vesting of the share portion over a period of four years, being R0.5
million and taxation thereon at 28%.
(4) NAV and NTAV per share effects are based on the following principal
assumptions:
* the Transaction was effective 31 December 2010;
* total estimated transaction costs of R1.64 million were incurred, which are
once off in nature; and
* accrual for the Scheme is determined based on the actual results of
Cashbuild for the six month period ended 31 December 2010 as follows:
* qualifying Management Members generated R25.8 million Extra Profit based on
the assumption of the hurdle rate and an average annual inflation rate of
7.1%, resulting in a distribution of the cash portion of R1.9 million and
acquisition in the open market of shares in Cashbuild to the value of R1.9
million, held as treasury shares until vesting;
* charge to income for the vesting of the share portion over a period of four
years, being R0.5 million; and
* taxation accrued at 28%.
(5) Assuming a price of R93.50 per Cashbuild share, a total of 20 525 shares
(representing 0.08% of the issued shares in Cashbuild) will be acquired in
terms of the Scheme and held as treasury shares until vesting.
5.2 Unaudited pro-forma financial effects of the Transaction assuming the
Scheme shares are issued under the potential specific issue of Cashbuild
shares
(Cents per share) Before Pro- %
(1) forma change
After
(2)
EPS (3) 275.2 260.3 (5.4)
HEPS (3) 280.5 265.7 (5.3)
NAV (4) 2 893.8 2 882.3 (0.4)
NTAV (4) 2 772.7 2 761.2 (0.4)
Weighted average number of shares in issue 22 707 22 707
(5) (`000)
Number of shares in issue (5) (`000) 25 190 25 190
Notes:
(1) Extracted from Cashbuild`s audited interim results for the six months
ended 31 December 2010.
(2) Represents the unaudited pro forma financial effects after the
Transaction.
(3) EPS and HEPS effects are based on the following principal assumptions
* the Transaction was effective 1 July 2010;
* total estimated transaction costs of R1.64 million were incurred, which are
once off in nature; and
* the Extra Profit is calculated based on the actual results of Cashbuild for
the six month period ended 31 December 2010 as follows:
* qualifying Management Members generated R25.8 million Extra Profit based on
the assumption of the hurdle rate and an average annual inflation rate of
7.1%, resulting in a distribution of the cash portion of R1.9 million and
charge to the income statement for the vesting of the share portion over a
period of four years, being R0.5 million and taxation thereon at 28%.
(4) NAV and NTAV per share effects are based on the following principal
assumptions:
* the Transaction was effective 31 December 2010;
* total estimated transaction costs of R1.64 million were incurred, which are
once off in nature; and
* accrual for the Scheme is determined based on the actual results of
Cashbuild for the six month period ended 31 December 2010 as follows:
* qualifying Management Members generated R25.8 million Extra Profit based on
the assumption of the hurdle rate and an average annual inflation rate of
7.1%, resulting in a distribution of the cash portion of R1.9 million and
issue of shares in Cashbuild to the value of R1.9 million, held as treasury
shares until vesting;
* charge to income for the vesting of the share portion over a period of four
years, being R0.5 million; and
* taxation accrued at 28%.
(5) Assuming a price of R93.50 per Cashbuild share, a total of 20 525
shares (representing 0.08% of the issued shares in Cashbuild) will be
issued in terms of the Scheme and held as treasury shares until vesting.
6. Salient dates and times
2011
Circular and form of proxy to be posted to Monday, 15 August
shareholders on
Last day to trade in order to be eligible to Friday, 2 September
vote on
Record date for the general meeting at 09:00 on Friday, 9 September
Form of proxy for the general meeting of Thursday, 15
shareholders to be received by the transfer September
secretaries by no later than 09:00 on
General meeting of shareholders to be held at Monday, 19
09:00 on September
Results of the general meeting released on SENS Monday, 19
on September
7. Further details
A circular, setting out the details of the Transaction, will be posted to
shareholders on or about 15 August 2011.
Johannesburg
15 August 2011
Investment bank and sponsor
Nedbank Capital
Attorneys
Webber Wentzel
Independent reporting accountants
PricewaterhouseCoopers Inc.
Date: 15/08/2011 07:05:15 Supplied by www.sharenet.co.za
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