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Proposed Rights Offer, Combined Pro Forma Financial Effects, Notice of General Meeting and Withdrawal of Cautionary
ECSPONENT LIMITED
(formerly John Daniel Holdings Limited
Incorporated in the Republic of South Africa
Registration number: 1998/013215/06
JSE Code: ECS - ISIN: ZAE000179594
("the Company" or "ECS" or "the Group")
PROPOSED RIGHTS OFFER, COMBINED PRO FORMA FINANCIAL EFFECTS, NOTICE OF
GENERAL MEETING AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
INTRODUCTION
The Directors of Ecsponent are pleased to advise shareholders of the successful conclusion of
negotiations in respect of the Company’s expansion strategy.
As previously announced on 7 November 2013, 20 December 2013, 10 January 2014, 25 February 2014,
7 March 2014, 23 April 2014 and 4 June 2014, the board of Ecsponent has decided to expand its financial
services business in Africa and requires an injection of capital and debt in order to grow the underlying
operations, acquire new businesses in Africa and begin Greenfield operations in certain countries.
In terms of the injection of capital required, shareholders have been advised that the Company is
proceeding with a rights offer of R100 100 000 through the issue of 715 000 000 new shares at an issue
price of 14 cents per share. The rights offer will be partially underwritten by its controlling shareholder,
Ecsponent Capital (RF) Limited (formerly Escalator Capital (RF) Limited) (“Escalator”) through the
capitalisation of its loan account in Ecsponent expected to amount to approximately R45 million at the
date of the rights offer. In addition, Escalator has advised of its intention to provide a funding facility to
Ecsponent up to R55 million, being the R100 million rights offer less the proceeds of the intended rights
offer inclusive of the underwritten amount. The funding facility will be convertible into ordinary shares in
Ecsponent at the rights offer price, subject to any necessary shareholder approval (“the Convertible
Loan”). Details of the Convertible Loan are included in a circular to shareholders dated 26 June 2014 for
approval by unrelated shareholders in General Meeting on 25 July 2014. The circular also contains
details of the three related party acquisitions (“Acquisitions”) as previously announced. Irrevocable
undertakings to approve the various resolutions have already been secured by the directors of
Ecsponent.
The capital raised from the Rights Offer or Convertible Loan will be utilised to further strengthen the
balance sheet of the group and then fund the continued organic growth of the existing operations as well
as the new Acquisitions. Ecsponent also intends to establish a financial services business in Zambia.
The details of the Rights Offer are set out below:
. RATIONALE FOR THE RIGHTS OFFER
It is the view of the Directors that the recapitalisation of Ecsponent by way of the Rights Offer is
required to enable the Ecsponent Group to strengthen its balance sheet by way of capitalisation of
borrowings, to continue to fund the working capital of the enlarged group and to facilitate the future
growth of the Group. The working capital requirements of Ecsponent during the year were
facilitated by the Escalator Loan.
The potential R100 100 000 raised through the Rights Offer of 715 000 000 shares at 14 cents per
share, should the Rights Offer be fully subscribed, will be utilised on an approximate basis, as
follows:
- R45 million to capitalise the Escalator Loan, which will incorporate the cost of the
Acquisitions;
- R55 million to settle group trade creditors, to inject working capital and to fund expansion of
the Ecsponent Group in relation to the proposed Acquisitions.
2. PARTICULARS OF THE RIGHTS OFFER
2.1 TERMS OF THE RIGHTS OFFER
715 000 000 Shares will be offered for subscription to Shareholders recorded in the Register
at the close of trade on a date still to be finalised. Qualifying Shareholders will receive rights
to subscribe for Rights Offer Shares on the basis of 159.90815 new Shares for every 100
Shares held on the Record Date at the Rights Offer Price. The Rights Offer will raise equity
capital of R100 100 000 if it is fully subscribed.
The Rights Offer Price is fixed at 14 cents per Share and will reflect an increase in the stated
capital account. The Rights Offer Price also represents a discount of 19.81% to the volume-
weighted average price (“VWAP”) of the Shares on the JSE for the 30 days ended 7
November 2013, being 17.46 cents and the date that the Rights Offer was initially approved
by the board. The board of directors agreed to a slightly discounted Rights Offer price to act
as an incentive to Ecsponent shareholders to follow their Rights.
2.2 UNDERWRITING OF THE RIGHTS OFFER
Escalator, which is a related party of Ecsponent, will be partly underwriting the Rights Offer
in the amount of up to R45 million, which amount is anticipated will be settled by the
capitalisation of loans owing by Ecsponent to Escalator as at 31 July 2014, pursuant to the
anticipated separate approval by Shareholders of the Acquisitions at a General Meeting of
Ecsponent Shareholders to be held on 25 July 2014.
Should a large number of Ecsponent shareholders follow their rights and/or apply for large
numbers of shares in terms of excess applications allowed, resulting in Escalator not being
required to underwrite all or a portion of the R45 million, such additional cash will be not be
used to settle the Escalator loans as the intention is for Escalator to follow its rights through
the part capitalisation of its loan and any additional cash raised will be used to grow the
Ecsponent group going forward.
It is anticipated that the majority of the Escalator loan will be capitalised through the
underwriting of the Rights Offer. However in the event that a facility remains, shareholders
will be asked to approve the conversion of any loan up to a maximum of R55 million as
detailed in the previously published announcements relating to the Convertible Loan. This
final amount can however only be established after the separate approval of the Acquisitions
and after the Rights Offer has closed.
Escalator or its nominee may, as a consequence of fulfilling its proposed Rights Offer
underwriting obligations of R45 million hold 65.92% in Ecsponent in the event that none of
the existing shareholders follow their rights. Should Escalator follow their 41.42% rights in
addition to the R45 million in terms of the underwriting, the shareholding of Escalator would
be approximately 75.40%. A mandatory offer will not be required as Escalator is already the
controlling shareholder of Ecsponent.
The board of directors have made due and careful enquiry to confirm that Escalator can
meet its commitments in terms of the Escalator Underwriting Agreement. It should be noted
that R28 million of the underwritten amount has already been advanced to the Company in
the form of loans to the Company as at the practicable date and the loan amount due is
expected to exceed R45 million by 31 July 2014, pursuant to the approval of the
Acquisitions.
2.3 CONVERTIBLE LOAN
In the event that the Rights Offer is not fully subscribed then Escalator will, subject to
Shareholder approval on 25 July 2014, provide the shortfall in the R100 100 000 Rights Offer
by way of a convertible loan, with a proposed conversion share price of 14 cents per share.
In the event that all shareholders follow their rights, the need for the Convertible Loan will not
arise.
3. PRO FORMA FINANCIAL INFORMATION
The pro forma financial effects have been prepared to illustrate the impact of the proposed Rights
Offer on the reported financial information of Ecsponent for the year ended 31 December 2013,
had the proposed Rights Offer occurred on 1 January 2013 for statement of profit and loss and
other comprehensive income purposes and on 31 December 2013 for statement of financial
position purposes.
In addition, the combined pro forma financial effects have been prepared to illustrate the impact of
the proposed Rights Offer at the underwritten amount of R45 million and the proposed Acquisitions
and the Convertible Loan as described in the circular to shareholders dated 26 June 2014 (“the
Transactions”), on the reported financial information of Ecsponent for the year ended 31 December
2013, had the Transactions occurred on 1 January 2013 for statement of profit and loss and other
comprehensive income purposes and on 31 December 2013 for statement of financial position
purposes. In addition, the effect of the post balance sheet disposal of certain Vinguard assets has
also been reflected.
The pro forma financial effects have been prepared using accounting policies that comply with
IFRS and that are consistent with those applied in the audited results of Ecsponent for the year
ended 31 December 2013.
The pro forma financial effects set out below are the responsibility of Ecsponent’s directors and
have been prepared for illustrative purposes only and because of their nature may not fairly present
the financial position, changes in equity, results of operations or cashflows of Ecsponent after the
Rights Offer or the Transactions.
The pro forma financial effects have been prepared in accordance with the JSE Listings
Requirements and the Guide on Pro Forma Financial Information issued by The South African
Institute of Chartered Accountants. These pro forma financial effects are the responsibility of the
Board. The material assumptions on which the pro forma financial effects are based are set out in
the notes following the table.
Rights offer only
Audited
31 December Adjustment Pro forma
2013 for Rights financial
Before Offer effects after %
(1) (3 - 6) Rights Offer Change
Attributable earnings per ordinary
share (cents) 0.48 (0.18) 0.30 (38%)
Headline earnings per share
(cents) 0.53 (0.22) 0.31 (40%)
Fully diluted attributable earnings 0.48 (0.18) 0.30 (38%)
per ordinary share (cents)
Fully diluted weighted headline
earnings per share (cents) 0.53 (0.22) 0.314 (40%)
Fully diluted headline earnings per
share (cents) 0.53 (0.22) 0.31 (40%)
Net asset value per share (cents) 5.35 5.29 10.64 99%
Net tangible asset value per share
(cents) 5.19 5.39 10.58 104%
Fully diluted net asset value per
share (cents) 5.35 5.29 10.64 99%
Fully diluted net tangible asset
value per share (cents) 5.19 5.39 10.58 104%
Weighted average shares in issue
(000’s) 444 132 715 000 1 159 132 161%
Fully diluted weighted shares in
issue (000’s) 444 132 715 000 1 159 132 161%
Ordinary shares in issue at period
end (000's) 444 132 715 000 1 159 132 161%
Fully diluted shares in issue (000’s) 444 132 715 000 1 159 132 161%
Notes and assumptions:
1. The "Before" column is extracted from the ESCPONENT Group`s audited, published results for
the year ended 31 December 2013.
2. For Statement of Financial Position purposes, it has been assumed that the Rights Offer
occurred on 31 December 2013 and for the Statement of Profit and Loss and other
Comprehensive Income it has been assumed that the Rights Offer occurred on 1 January
2013.
3. The Rights Offer of 715 000 000 new ECSPONENT shares at 14 cents per share has been
assumed to be fully subscribed at an issue price of 14 cents per share.
4. For Statement of Financial Position purposes, the proceeds of the Rights Offer have been
assumed to increase share capital and to settle the Escalator loan facility and other creditors
with the balance applied to cash and cash equivalents. This will have a continuing effect on
ECSPONENT going forward. Transaction costs of R600 000 pretax have been assumed and
treated as share issue expenses. This will be a once off effect on ECSPONENT.
5. For the Statement of Profit and Loss and other Comprehensive Income, it has been assumed
that the full interest expense provided at the current Escalator loan terms had not been
incurred. This will have a continuing effect on ECSPONENT going forward.
6. Normal taxation has been calculated at the corporate rate of 28%, where appropriate.
Combined pro forma financial effects on the Statement of Financial Position
After the After the After the
acquisition acquisition 100% After
of 100% in of the acquisition R45m After
Audited After Escalator Sanceda in Rights R55m Combined
Group 31 Dec Disposal of Financial going Ecsponent Offer Convertible pro forma
Balance 2013 Vinguard Services concern Botswana (minimum) Loan effects
Sheets (1) (3) (4) (5) (6) (7, 8) (9) (10)
Net asset
value per
share
(cents) 5.353 5.665 3.121 1.987 0.545 6.129 6.129 8.793
Net
tangible
asset
value per
share 5.194 5.506 2.962 1.828 0.386 6.037 6.037 8.732
Number 444 132 444 132 444 132 444 132 444 132 765 561 765 561 1 159 132
of shares
in issue
(‘000)
Notes to pro forma statement of financial position
1. The information presented in column 1 has been extracted from the audited financial
information as published on SENS for the year ended 31 December 2013.
2. The related party acquisitions of Escalator Financial Services, Sanceda and Ecsponent
Botswana are deemed to be common control transactions in terms of IFRS 3, Business
Combinations. Common control transactions are specifically excluded from the scope of
IFRS 3. The Group has adopted the following accounting policy to account for common
control transactions:
“The Group applies merger accounting for all its common control transactions which
requires that the assets and liabilities of the purchased business be incorporated at the
consolidated book value (by the ultimate parent) and the difference between the purchase
consideration and the book value of the assets and liabilities be recorded in equity as a
common control reserve. The financial statements of the purchaser incorporate the
combined companies’ results and cash flows as if the companies have always been
combined, including the re-presentation of the comparative figures”
3. The shareholders of Vinguard Limited approved the disposal of the gas sheet division in a
general meeting held on 24 January 2014, in terms of Section 112 of the Companies Act,
2008. The effective date of the transaction was determined as 31 January 2014 subsequent
to the 31 December 2013 financial period. The consideration comprised R6.3 million for the
going concern assets paid in cash.
4. The acquisition of 100% of Escalator Financial Services has been accounted for at a
purchase consideration of R15.0 million, which is expected to result in a transfer of R11.1
million to the common control reserve in terms of Ecsponent’s merger accounting policy.
The information has been extracted from the audited annual financial statements of
Escalator Financial Services for the year ended 31 December 2013 without adjustment. The
acquisition is considered to have a once-off effect on the statement of financial position of
Ecsponent.
5. The acquisition of the business and assets of Sanceda has been accounted for at a
purchase consideration of R7.0 million. The Sanceda Acquisition purchase consideration is
expected to result in a transfer of R2.3 million to the common control reserve in terms of
Ecsponent’s merger accounting policy. The information has been extracted from the audited
annual financial statements of Sanceda for the year ended 31 December 2013 without
adjustment. The acquisition is considered to have a once-off effect on the statement of
financial position of Ecsponent.
6. The acquisition of the business and assets of Ecsponent Botswana has been accounted for
at a purchase consideration of R5.0 million. The Ecsponent Botswana acquisition purchase
consideration is expected to result in a transfer of R6.2 million to the common control reserve
in terms of Ecsponent’s merger accounting policy. The information has been extracted from
the audited annual financial statements of Ecsponent Botswana for the year ended 31
December 2013 without adjustment, other than converting the financial information reported
in Botswana Pula to South African Rand. The acquisition is considered to have a once-off
effect on the statement of financial position of Ecsponent.
7. The Rights Offer is partly underwritten by Escalator and will result in the capitalisation of
approximately R45 million of the existing loan account with Escalator as well as settlement of
other liabilities. The Rights Offer is assumed to be at the minimum subscription level of
R45.0 million. The increase in issued capital and equity will have a continuing effect on the
calculation of the earnings per share. The increased capital raised will have a once off effect
on the statement of financial position.
8. The “Pro Forma financial effects after Ecsponent R45.0 million Rights Offer” column for
statement of financial position purposes assumes the Rights Offer Proceeds of R45.0 million
were received in cash as at 31 December 2013, net of costs, and were assumed to be
applied to settling interest bearing borrowings of R42.3 million and other financial liabilities of
R2.2 million. The rights offer proceeds will have a once off effect on the statement of
financial position. The settlement of interest bearing liabilities with the proceeds of the rights
offer will have a continuing effect on the Statement of profit and loss and other
comprehensive income.
9. The introduction of a Convertible Loan of R55.0 million has been assumed to be received
and applied to settle the balance of other financial liabilities of R7.9 million and trade and
other payables of R14.3 million with the balance of approximately R32.8 million being
applied to cash and cash equivalents. The incurring of interest bearing liabilities will have a
continuing effect on the Statement of Financial Position in the event that the Convertible
Loan is not capitalised.
10. The Convertible Loan of R55.0 million is assumed to be settled through the issue of
Ecsponent shares at 14 cents per share. It is further assumed that the fair value of the
Ecsponent shares at the conversion date will be 14 cents a share equal to the conversion
price. The settlement of interest bearing liabilities through the capitalisation of the
Convertible Loan will have a once-off effect on the Statement of Financial Position.
Combined pro forma financial effects on the Statement of Profit and Loss and Other
Comprehensive Income
After Pro
the After forma
Acquisition 100% effects
Audited After of 100% in acquisition after Combined
31 Disposal Escalator After in After R55m pro
December of Financial acquisition Escalator Rights Convertible forma
2013 Vinguard Services of Sanceda Botswana Offer Loan effects
(1) (2) (3) (4) (5) (7, 8) (12) (13)
Headline
earnings /
(loss) for
the period 2 335 3 935 1 384 (4 568) (5 489) 1 167 (8 337) 1 167
Earnings
(loss) per
share
(cents) 0.478 1.151 0.593 (0.747) (0.954) 0.316 (0.926) 0.209
Headline
earnings(l
oss) per
share
(cents) 0.526 0.886 0.312 (1.029) (1.236) 0.152 (1.089) 0.101
Number
of shares
in issue
(‘000) 444,132 444,132 444,132 444,132 444,132 765 561 765 561 1 159 132
Notes to the pro forma Statement of Profit and Loss and Other Comprehensive Income
1. The information has been extracted from the audited financial information as published on
SENS for the year ended 31 December 2013.
2. The shareholders of Vinguard Limited approved the disposal of the gas sheet division in a
general meeting held on 24 January 2014, in terms of Section 112 of the Companies Act,
2008. The effective date of the transaction was determined as 31 January 2014 subsequent
to the 31 December 2013 financial period. The consideration comprised R6.3 million for the
going concern assets paid in cash.
3. The acquisition of 100% of Escalator Financial Services has been accounted for assuming
the consolidation of the results for the 12 month year ended 31 December 2013 as though
the acquisition occurred on 1 January 2013. The information has been extracted from the
audited annual financial statements of Escalator Financial Services for the year ended 31
December 2013 without adjustment. The acquisition is considered to have an on-going
effect on the Statement of profit and loss and other comprehensive income of Ecsponent.
4. The acquisition of the business and assets of Sanceda has been accounted for assuming
the consolidation of the results for the 12 month period ended 31 December 2013 as though
the acquisition occurred on 1 January 2013. The information has been extracted from the
audited annual financial statements of Sanceda for the year ended 31 December 2013
without adjustment. The acquisition is considered to have an on-going effect on the
Statement of profit and loss and other comprehensive income of Ecsponent.
5. The acquisition of the business and assets of Ecsponent Botswana has been accounted for
assuming the consolidation of the results for the 12 month year ended 31 December 2013 as
though the acquisition occurred on 1 January 2013. The information has been extracted
from the audited annual financial statements of Ecsponent Botswana for the year ended 31
December 2013 without adjustment. The acquisition is considered to have an on-going
effect on the Statement of profit and loss and other comprehensive income of Ecsponent.
6. The acquisitions will be financed through the existing Escalator facility at the current loan
terms. It was assumed that the purchase consideration funded via the facility remained in
place throughout the 12 months to 31 December 2013 and additional funding costs of R7.4
million provided. (Escalator Financial Services R3.6 million, Sanceda R2.2 million and
Ecsponent Botswana R1.6 million).
7. The Rights Offer is partly underwritten by Escalator and will result in the capitalisation of
approximately R45 million of the existing loan account with Escalator as well as other
liabilities. Accordingly it has been assumed that Ecsponent would not incur any interest on
the loan from Escalator with effect from 1 January 2013. The interest adjustment has been
extracted from the actual interest charged for the 12 months ended 31 December 2013.
8. The “Pro Forma financial effects after Ecsponent R100 million Rights Offer” column assumes
that the R100 million Rights Offer proceeds were received at the beginning of the period for
statement of profit and loss and other comprehensive income purposes and that the interest
and loan transaction fees savings were realised over the period. The saving includes the
assumed interest provided for in the pro forma results of the individual acquisitions, refer
notes 2 to 5 above. The interest saving will have a continuing effect whilst the loan
transaction fees will have a once off effect. The interest saving and transaction costs would
impact the holding company's Statement of profit and loss and other comprehensive income
only and therefore no non-controlling shareholder adjustment would arise.
9. The interest saving and transaction costs would impact the holding company's Statement of
profit and loss and other comprehensive income only and therefore no non-controlling
shareholder adjustment would arise.
10. Transaction costs of R496 819 excluding VAT have been assumed. These costs will have a
once off effect on Ecsponent The costs of the circular have been assumed to be incurred
directly with the three acquisitions detailed in notes 3, 4 and 5 above as well as the
Convertible Loan in note 12 below.
11. Notional taxation at a rate of 28% has been assumed where appropriate.
12. The introduction of a Convertible Loan of R55 million has been assumed to be received at
the beginning of the period and assumed to attract an interest rate of 24% as per the signed
agreement. The incurring of interest bearing liabilities will have a continuing effect on the
Statement of profit and loss and other comprehensive income in the event that the
Convertible Loan is not capitalised. The option is held by Escalator and not Ecsponent and it
will not have a cost or value in Ecsponent’s accounts;
13. The Convertible Loan of R55 million is assumed to be capitalised through the issue of
Ecsponent shares at 14 cents per share. The settlement of interest bearing liabilities
through the capitalisation of the Convertible Loan will have a continuing effect on the
Statement of profit and loss and other comprehensive income.
NOTICE OF GENERAL MEETING
Shareholders are advised that the circular to shareholders relating to the Acquisitions and the Convertible
Loan has been posted to shareholders during June 2014 and the General Meeting will be held at Acacia
House, Green Hill Village Office Park, Cnr of Nentabos and Botterklapper Street, The Willows, Pretoria
East, 0181, at 10h00 on Friday, 25 July 2014 in order to approve the Acquisitions and Convertible Loan
as well as the approval by shareholders to issue more than 30% new shares.
TERMINATION OF GRAYPAGES ACQUISITION
The board of ECS announced to shareholders on 7 March 2014 that the company had entered into an
agreement with the shareholders of Graypages Financial Solutions (“Graypages”) of Zambia for the
acquisition of 86% of the issued share capital in Graypages. The acquisition was subject to a full due
diligence by the management of ECS. The board would like to advise that after reviewing the result of the
due diligence the board has decided not to proceed with the proposed acquisition and have duly advised
the shareholders of Graypages of their decision.
INCORPORATION OF NEW FINANCIAL SERVICES COMPANY
In accordance with the Group’s expansion strategy the board has decided to proceed with the
incorporation of a new financial services company in Zambia subject to the approval of the South African
and Zambian regulatory authorities. ECS has entered into an agreement with Graypages Financial
Services to acquire the company’s client base subject to certain conditions precedent. Shareholders will
be advised of the progress of the new company in due course.
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT AND RIGHTS OFFER DOCUMENTATION
Following the publication of the above information, shareholders are advised that the cautionary
announcement is now withdrawn. It is expected that the Rights Offer circular to shareholders will be
finalised and posted to shareholders during July or August 2014. The salient dates of the Rights Offer will
be published on SENS and in the press in due course once the dates have been finalised.
By order of the board
Pretoria
17 July 2014
Sponsor
Arcay Moela Sponsors Proprietary Limited
Date: 17/07/2014 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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