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MORVEST BUSINESS GROUP LIMITED - Acquisition of assets of Simmons; disposal of holding in R&S; disposal of holding in Mint; cautionary withdrawal

Release Date: 18/08/2014 16:17
Code(s): MOR     PDF:  
Wrap Text
Acquisition of assets of Simmons; disposal of holding in R&S; disposal of holding in Mint; cautionary withdrawal

MORVEST BUSINESS GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration Number 2003/012583/06)
Share code: MOR      ISIN code: ZAE000152567
(“Morvest” or “the Company”)


FURTHER ANNOUNCEMENT REGARDING
- THE ACQUISITION OF CERTAIN OF THE BUSINESS ASSETS AND BUSINESS
  LIABILITIES OF SIMMONS (SOUTH AFRICA) PROPRIETARY LIMITED (“SIMMONS”)
  (“THE ACQUISITION”);
- THE DISPOSAL OF MORVEST’S SHAREHOLDING IN R AND S CONSULTING
  PROPRIETARY LIMITED (“R & S”) (“THE R&S DISPOSAL”);
- THE DISPOSAL OF MORVEST’S SHAREHOLDING IN MINT MANAGEMENT
  TECHNOLOGIES PROPRIETARY LIMITED (“THE MINT DISPOSAL”) AND
- WITHDRAWAL OF CAUTIONARY


1. INTRODUCTION


Shareholders are referred to
   1. the announcement published on 3 June 2014 setting out details of the Acquisition
       which is, based on the consideration payable of R37.5 million, being a Category 2
       transaction in terms of the JSE Limited Listings Requirements (“LRs”);
   2. the announcement dated 3 July 2014 setting out details of the R&S Disposal (“R&S
       Disposal Announcement”), being a Category 1 transaction in terms of the LRs; and
   3. the announcement dated 10 July 2014 setting out the details of the Mint Disposal
       (“Mint Disposal Announcement”) being a small related party transaction in terms of
       the LRs (collectively “the Announcements”).


Morvest’s portion of the final total consideration arising from the R&S Disposal is R63.3
million of the total R126.7 million based on R & S having achieved at least R28 million profit
after tax (“PAT”) for 31 May 2014 financial year. Further to this, an Agterskot, as referred to
in the R&S Disposal Announcement is contingent on the renewal of certain agreements with
a key client. As at the time of preparing this announcement, these agreements have not yet
been renewed and the Agterskot is not yet payable. Should these agreements be renewed,
the total Agterskot of R15 million will become payable, of which Morvest’s portion is R10
million. The aggregate purchase consideration payable to Morvest for the R&S Disposal,
including the Agterskot should it become payable, is R73.3 million.


4. FINANCIAL EFFECTS


The unaudited pro forma financial effects (“Financial Effects”) of the Acquisition, the R&S
Disposal and the Mint Disposal (collectively “the Transactions”) on Morvest’s basic
earnings per share (“EPS”), headline earnings per share (“HEPS”), fully diluted EPS, fully
diluted HEPS, net asset value per share (“NAVPS”) and net tangible asset value per share
(“NTAVPS”) are set out below.


Shareholders were advised in the Mint Disposal Announcement that the Financial Effects of
Mint Disposal were not significant (in terms of the LRs this is regarded as being less than
3%) and therefore, not disclosed. It has been established that the Financial Effects on
NTAVPS are significant and details thereof are therefore set out below.


The Financial Effects have been prepared for illustrative purposes only, in order to provide
information about how the Transactions might have affected shareholders had the
Transactions been implemented on the dates indicated in the notes below.


Due to their nature, the Financial Effects may not fairly present the financial position
changes in equity, results of operations of cash flows of Morvest after the Transactions. The
preparation of the Financial Effects is the responsibility of Morvest’s directors.


The Financial Effects have been prepared in accordance with the LRs and The Guide on Pro
Forma Financial Information issued by SAICA (“SAICA Guide”). The accounting policies
used in compiling the Financial Effects comply with International Financial Reporting
Standards (“IFRS”) and are consistent with those applied in compiling the reviewed
condensed consolidated interim financial statements for the six months ended 30 November
2013 which were published on 26 February 2014 (“Interim Results”).


                           Before the         After the       After the       After the   Change
                         Transactions       Acquisition    Acquisition    Transactions        %
                                            and before        and R&S
                                          the R&S and         Disposal
                                                   Mint     and before
                                             Disposals         the Mint
                                                              Disposal



EPS (cents)                         6.48            7.13         10.99           10.83        67.13
Fully diluted EPS                   6.20            6.83         10.52           10.36        67.10
HEPS (cents)                        6.48            7.13           5.22              5.14   (-20.68)
Fully diluted HEPS                  6.20            6.83           4.99              4.92   (-20.65)
NAVPS (cents)                     28.61            28.61         31.34           31.29         9.37
NTAVPS (cents)                    11.32             6.70         13.11           13.61        20.23
Number of ordinary              880 000          880 000       880 000        880 000          0.00
shares in issue at 30
November 2013
(‘000)
Weighted average                455 469          455 469       455 469        455 469          0.00
number of shares in
issue for the period
ended 30 November
2013 (‘000)
Fully diluted number            476 074          476 074       476 074        476 074          0.00
of shares in issue for
the period ended 30
November 2013


Notes:


   1. The “Before the Transactions” column information has been extracted, without
         adjustment, from the Interim Results.
   2. The Financial Effects are based on the assumption that the Transactions took place
         on 1 June 2013 for purposes of the pro forma statement of comprehensive income
         and on 30 November 2013 for purposes of the pro forma statement of financial
         position.
   3. The “After the Acquisition and before the R&S and Mint Disposal” column takes
         into account the Financial Effects of the Acquisition and the information is based on
         the “Before the Transactions” column and after the following:


         3.1      In terms of the purchase agreement, the total purchase price for the
                  acquisition of Simmons is R75 million and is payable as follows:
               a. R40 million, payable on signature of the agreement and all conditions
                  precedent having been met on 29 July 2014;
         b. R15 million, payable within 5 days, after the determination of the warranted
            PAT as at 31 May 2015 of R18 million;
         c. R10 million payable within 5 days, after the determination of the warranted
            PAT as at 31 May 2016 of R22 million; and
         d. R10 million, payable within 5 days, after the determination of the warranted
            PAT as at 31 May 2017 of R27.5 million.
   3.2      The purchase consideration calculated (on the assumption that all profit
            warranties have been achieved) is R71.1 million after discounting the
            purchase price to a present value at 9% based on the payment dates as set
            out in the purchase agreement. The purchase price has been unwound for 6
            months of the year resulting in interest of R726 000. (The unwinding of the
            discount does not have a tax effect). In terms of the purchase agreement,
            Morvest Retail Proprietary Limited is responsible for the payment of 75% of
            each tranche.
   3.3      The inclusion of a contribution to earnings and headline earnings of income
            generated by the Simmons assets acquired for the six months ended 31
            December 2013 of R7.2 million and R3.6 million respectively. The financial
            information relating to Simmons was extracted from the Simmons
            management accounts for the six months ended 31 December 2013
            (“Management Accounts”). Morvest management is satisfied with the
            accuracy of the Management Accounts.
   3.4      The purchase consideration will be funded from existing cash resources and
            R25 million of external funding. Interest on the external funding portion has
            been accounted for using an interest rate of 9%.


4. The “After the Acquisition and R&S Disposal and before the Mint Disposal”
   column information takes into account the Financial Effects of the Acquisition and is
   based on the “After the Acquisition and before the R&S Disposal” column and
   after the following:
   4.1      The reversal of R&S’ contribution to earnings and headline earnings as
            recorded in the Interim Results of R12.8 million and R6.4 million.
   4.2      The receipt of the proceeds for the R&S Disposal of R63.3 million, this
            excludes the Agterskot of R10.0 million.
   4.3      A profit after tax arising on the R&S Disposal equating to R26.9 million after
            the consideration of goodwill, minority interests and capital gains tax.
   4.4      No adjustment for interest accruing on the cash consideration of R63.3 million
            has been made, in line with the SAICA Guide.
       4.5       Should the Agterskot be paid, the financial effects “After the Transactions” on
                 EPS (cents) will increase from 10.99 cents to 12.79, the Fully diluted EPS to
                 increase from 10.52 per share to 12.24 and NAVPS to increase from 31.34
                 cents to 32.48 and the NTAVPS to increase from 13.11 cents to 14.25 cents
                 per share.
   5. The “After the Transactions” column information takes into account the Financial
       Effects of the Transactions and is based on the “After the Acquisition and R&S
       Disposal and before the Mint Disposal” column.
   6. The material change to the NTAVPS in terms of the Mint Disposal is as a result of the
       disposal of goodwill amounting to R4 793 000.


5. WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT


Further to the information included in this announcement regarding the Financial Effects of
the Transactions, shareholders no longer need to exercise caution when dealing in
Morvest’s securities.


Johannesburg
18 August 2014


Sponsor
Sasfin Capital
(a division of Sasfin Bank Limited)


Reporting Accountant
Mazars (Gauteng) Inc.

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