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The Subscription for an initial 80% of the BWG Group and Withdrawal of Cautionary
THE SPAR GROUP LIMITED
Registration number 1967/001572/06
Incorporated in the Republic of South Africa
Share Code: SPP ISIN: ZAE000058517
(“SPAR” or the “Company”)
ANNOUNCEMENT REGARDING THE SUBSCRIPTION BY THE SPAR GROUP LIMITED FOR AN INITIAL 80% OF THE
BWG GROUP, OWNER OF SPAR IN IRELAND AND SOUTH WEST ENGLAND AND WITHDRAWAL OF CAUTIONARY
EXECUTIVE SUMMARY
• SPAR is pleased to announce that it has entered into an agreement whereby it will subscribe
for a majority 80% stake in the BWG Group (as defined in paragraph 1 below), a leading food
retail and wholesale distribution company with operations in Ireland and South West England,
servicing more than 1,100 stores, including 100 company owned stores, with a total annual
turnover of approximately €1.2 billion.
• The BWG Group owns the SPAR brand in Ireland with 421 SPAR stores and an estimated
35% share of the Irish convenience store market.
• The Purchase Consideration (as defined in paragraph 4 below) of €55 million, for the 80%
stake in the BWG Group, has been funded by a Rand-denominated loan and supports
compelling long-term return expectations, underpinned by a well-established retail network
and positive economic fundamentals in Ireland.
• On a pro-forma basis, the Transaction and Acquisition of Minority Interests (as defined in
paragraph 1 below) would have led to a 6.8% increase in SPAR’s normalised headline
earnings per share to 397.2 cents for the six months ended 31 March 2014, with a 30.2%
increase in SPAR’s consolidated revenue.
• The pro-forma net asset value per share increases by 10.4% after the Transaction and
Acquisition of Minority Interests.
• Benefits of the Transaction for SPAR include a more geographically diversified revenue
stream, foreign currency diversification, enhanced scale and critical mass.
• Strong synergies exist between the businesses of SPAR and the BWG Group, particularly in
relation to their retail models, wholesale businesses and logistics.
• In addition, the Transaction provides SPAR with a well-positioned international retail platform
for future expansion.
1. INTRODUCTION
SPAR shareholders are advised that the Company has entered into an agreement with the BWG
group of companies which comprises the following operating companies, BWG Foods Limited
(“BWG Foods”), Triode Newhill Finance Limited (“Triode Newhill”) and Appelby Westward Group
Limited (“Appelby Westward”) (collectively the “BWG Group”), and its founders and shareholders,
namely, Leo Crawford, John O’Donnell, John Clohisey (“Founding Partners”) and senior
management of the BWG Group (collectively the “Minority Shareholders”).
The activities of the three operating companies that make up the BWG Group are as follows:
• BWG Foods is a wholesaler and distributor of grocery products to the retailing and
catering sectors in Ireland;
• Triode Newhill is a property management company; and
• Appelby Westward is the trading entity in South West England that trades under the
SPAR brand in that region.
In terms of the agreement, SPAR will subscribe for 80% of TIL JV Limited’s (“TIL JV”) issued
share capital, the holding company of the BWG Group, for a Purchase Consideration of €55
million (R799 million at a R:€ exchange rate of R14.5) (the “Transaction”).
The shareholders’ agreement, entered into between SPAR and the Minority Shareholders,
provides that upon issue of a compulsory delivery notice, the Minority Shareholders are required
to sell to SPAR their 20% shareholding in TIL JV’s issued share capital over a three year period,
five years from the effective date of the Transaction (“Acquisition of Minority Interests”).
2. NATURE OF THE BUSINESS
The BWG Group, whose turnover amounted to €1.2 billion in 2013, has a presence throughout
Ireland and South West England, operating through its three wholly-owned operating companies,
namely BWG Foods, Triode Newhill and Appleby Westward. The BWG Group owns the SPAR
brand in Ireland as well as several other retail brands. It has consistently been a leading player in
the Irish grocery trade / convenience retail sector for the last 50 years and has built a substantial
geographic presence throughout Ireland and South West England, with over 1,100 stores of
which c.850 are located in Ireland. These stores trade under the SPAR, Eurospar, Mace and XL
brands, ranging from large format supermarkets to forecourt and neighbourhood convenience
stores. The BWG Group also owns and operates a central distribution centre, a cash and carry
operation with 23 Value Centre Cash & Carry outlets and through BWG Foodservice also supplies
fresh and ambient products to the hospitality and catering sectors.
3. RATIONALE FOR THE TRANSACTION
The Transaction represents a unique opportunity for SPAR to acquire a synergistic business that
furthers various strategic objectives and will add value to the Company as a whole. These
synergies will stem from a similar skill and market focus as both companies operate in the food
retail, voluntary trading model and wholesale market segments, and the opportunity to share
knowledge, technology, and product and industry best practice.
The BWG Group will continue to be managed by the Founding Partners who have signed service
contracts (ranging from five to eight years), ensuring continuity within the businesses. As the
BWG Group has a strong operational management team, SPAR does not anticipate relocating
any of its South African executives. SPAR will have a controlling interest on the board of directors
of TIL JV and will collaborate with the operational team in Ireland, providing strategic input to
unlock the key strategic benefits of the Transaction including:
• SPAR and the BWG Group have a long standing professional association, having both
been members of SPAR International for more than 50 years. As a result, SPAR has a
solid understanding of the BWG Group’s business model, operating culture with SPAR
International, as well as the SPAR retail model and SPAR brands being at the foundation
of both businesses.
• SPAR has made significant investments in its warehousing, logistics and distribution
systems which are core to its operating structure and have enhanced internal efficiencies.
SPAR will evaluate the feasibility of rolling out similar initiatives within the BWG Group to
broaden its supply chain base internally. Underpinned by SPAR’s success in migrating a
number of its independent retailers in South Africa to larger store formats, including
SUPERSPAR, the Company foresees opportunities in the longer term to provide strategic
guidance to the BWG Group to migrate its offering from the convenience retail segment
into larger store formats.
• The BWG Group plans to roll out a five-year internally funded capital investment
programme to expand its wholesale and retail operations in Ireland and in South West
England.
• SPAR and the BWG Group should both benefit from sharing consumer insights in South
Africa, Ireland and England, with the goal of identifying innovations to service their
customers’ changing needs and sustain their market leading position.
• Lastly, the Transaction will enable SPAR to establish an attractive, well-positioned retail
sector platform for future expansion opportunities.
Furthermore, the BWG Group’s complementary operations in Ireland and South West England
will ensure a more geographically diversified revenue stream, bolstering SPAR’s offering in the
food retail and wholesale sector, and allowing SPAR to enhance its scale and critical mass, whilst
also providing foreign currency diversification benefits. In the short term, the economy of Ireland is
showing strong signs of recovery with positive longer term growth fundamentals.
4. CONSIDERATION
The purchase consideration for the Transaction is a cash payment of €55 million (R799 million at
a R:€ exchange rate of R14.5) (“Purchase Consideration”) paid by SPAR to TIL JV. TIL JV will
use the cash proceeds to, inter alia, settle some of the existing BWG Group bank debt, cancel the
outstanding share warrants held by certain BWG Group’s banks and provide funds for investment
in the business. On the strength of its ungeared balance sheet, SPAR entered into a Rand-
denominated short-term loan to fund the Purchase Consideration.
After the Transaction, SPAR will consolidate €130.6 million of debt attributable to the BWG
Group, in addition to the Purchase Consideration.
The value of the Acquisition of Minority Interests will be based on the normalised profit after tax
achieved by the BWG Group in the financial years ending 31 December 2019, 2020 and 2022
attributable to the Minority Shareholders’ 20% equity interest in TIL JV, multiplied by a price
earnings ratio of 11.7x. The Acquisition of Minority Interests will be effected over a three year
period.
5. FINANCIAL EFFECTS
The unaudited pro forma financial effects set out below have been prepared for illustrative
purposes only in order to assist SPAR shareholders in assessing the impact of the Transaction
and Acquisition of Minority Interests on SPAR’s basic earnings per share (“EPS”), diluted basic
EPS, headline earnings per share (“HEPS”), diluted HEPS, normalised HEPS, net asset value per
share (“NAVPS”) and net tangible asset value per share (“NTAVPS”). The unaudited pro forma
financial effects have been prepared based on SPAR’s unaudited interim results for six months
ended 31 March 2014 and the BWG Group’s calculated financial results for six months ended 31
December 2013, based on the BWG Group’s audited consolidated financial results for the twelve
months ended 31 December 2013.
The unaudited pro forma financial effects have been prepared in accordance with the Listings
Requirements of the JSE Limited (the “Listings Requirements”), the Guide on Pro Forma
Financial Information issued by the South African Institute of Chartered Accountants and the
measurement and recognition requirements of the International Financial Reporting Standards
(“IFRS”). The accounting policies used to prepare the unaudited pro forma financial effects are
consistent with those applied in the preparation of the SPAR unaudited interim results for the six
months ended 31 March 2014.
As the financial effects are unaudited and pro forma in nature, they may not give a fair
presentation of SPAR’s financial position or results of operations after the Transaction and
Acquisition of Minority Interests. The unaudited pro forma financial effects are the responsibility of
the directors of SPAR.
Before the After the
Transaction and Transaction and
Acquisition of Acquisition of %
Minority Interests Minority Interests change
(Note 2) (Note 3)
Basic EPS (cents) 372.1 2,041.9 448.7
Diluted basic EPS (cents) 348.9 1,914.4 448.7
HEPS (cents) (Note 1) 372.0 405.4 9.0
Diluted HEPS (cents) (Note 1) 348.8 380.1 9.0
Normalised HEPS (cents) (Note 1) 372.0 397.2 6.8
NAVPS (cents) 1,876.9 2,071.8 10.4
NTAVPS (cents) 1,647.2 241.9 (85.3)
Weighted average number of shares
in issue (net of treasury shares) 172.8 172.8 -
(million)
Fully diluted weighted average
number of shares in issue (net of 184.3 184.3 -
treasury shares) (million)
Notes to the unaudited pro forma financial effects:
1. To determine the sustainable earnings of the BWG Group, once-off and non-recurring items have
been excluded in the calculation of HEPS, in terms of IFRS, and additional once-off and non-
recurring items have been excluded in the calculation of normalised HEPS. Majority of these
adjustments relate to restructuring of the BWG Group during the last six months of the financial
year ended 31 December 2013 and include once-off and non-recurring items relating to the BWG
Group’s corporate and debt restructuring with a total value of R2,556.1 million. The board of
directors of SPAR considers it appropriate for this Transaction and Acquisition of Minority
Interests to also reflect the impact on normalised HEPS in the financial effects, in order to provide
SPAR shareholders with a more accurate reflection of the effective financial performance of the
BWG Group and the base on which SPAR management will measure future growth. The
normalised profit after tax for the BWG Group for the twelve months ended 31 December 2013
amounted to €11.6 million.
2. The financial information in the "Before the Transaction and Acquisition of Minority Interests"
column has been prepared based on SPAR's unaudited interim results for six months ended 31
March 2014.
3. The financial information in the "After the Transaction and Acquisition of Minority Interests"
column has been prepared based on SPAR's financial information as calculated in Note 2 above,
taking into account the following adjustments:
a. the total purchase consideration comprises of €55 million for 80% of the BWG Group and an
additional amount for 20% of the BWG Group (based on the stipulated formula and price earnings
ratio as detailed in paragraph 4 above and a normalised profit after tax of €11.6 million as detailed
in note 1 above) (“Total Purchase Consideration”) which is assumed to be funded by Rand-
denominated debt and incurs interest at an assumed after-tax debt funding rate of 5.6%;
b. in terms of IFRS and based on SPAR management's best estimate as at the date of this
announcement, the difference between the Total Purchase Consideration and the net asset value
of the BWG Group to be acquired, amounting to R358.7 million, has been recognised as goodwill
in the statement of financial position;
c. in terms of IFRS, SPAR will obtain control of the BWG Group as a result of the Transaction and
Acquisition of Minority Interests and the BWG Group's revised financial results for the six months
ended 31 December 2013 will be consolidated into SPAR's statement of comprehensive income
using an assumed average R:€ exchange rate of 13.5 and SPAR's statement of financial position
using an assumed closing R:€ exchange rate of 14.4. The BWG Group’s results are based on its
audited financial results for the twelve months ended 31 December 2013, however, it is assumed
that recurring items were earned evenly through the year and non-recurring or once-off items
occurred at the start of the six month period, i.e.1 July 2013;
d. the amortisation of goodwill in the BWG Group’s results of R78.3 million (€5.8 million converted at
a R:€ exchange rate of 13.5) has been reversed on consolidation of the BWG Group’s results into
SPAR in order to ensure compliance with SPAR's accounting policies and the requirements of
IFRS;
e. assumed once-off transaction costs for SPAR and the BWG Group have been expensed in the
statement of comprehensive income in accordance with IFRS. These amounts will be paid out of
available cash resources and are attributable to the various professional advisers, issuers of debt
and regulatory authorities;
f. all adjustments, with the exception of the debt write-off and transaction costs, are expected to
have a continuing effect; and
g. there are no post balance sheet events which require adjustment of the unaudited pro forma
financial effects.
6. CATEGORISATION OF THE TRANSACTION AND ACQUISITION OF MINORITY INTERESTS
The Transaction and Acquisition of Minority Interests has been categorised as a Category 2
transaction in terms of section 9.5(a) of the Listings Requirements.
7. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
With reference to the cautionary announcement issued on Friday, 1 August 2014, shareholders
are hereby advised that caution is no longer required when dealing in the Company’s securities.
Pinetown
11 August 2014
Financial Adviser and Transactional Sponsor to SPAR
Investec Bank Limited
Debt Adviser and Funder to SPAR
Investec Bank Limited
Sponsor
One Capital
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