| Tue 10 Jun 2008, 10:46 | | CRM - Ceramic Industries - Announcement Regarding The Proposed Black Economic |
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CRM
CRM
CRM - Ceramic Industries - Announcement Regarding The Proposed Black Economic
Empowerment Transactions
CERAMIC INDUSTRIES LIMITED
Registration number 1982/008520/06
Incorporated in the Republic of South Africa
Share Code: CRM ISIN: ZAE000008538
("Ceramic Industries" or "the Group")
ANNOUNCEMENT REGARDING THE PROPOSED BLACK ECONOMIC EMPOWERMENT TRANSACTIONS
1. Introduction
Further to the announcement dated 31 October 2007 and the renewal of
cautionary announcement dated 27 May 2008, Ceramic Industries is pleased to
announce that it has reached agreement with all the parties involved in its
Black Economic Empowerment ("BEE") transactions ("BEE transactions").
The BEE transactions comprise two major initiatives, the empowerment of the
Group`s clay quarries ("the quarry transaction") and the issue of 2 029 283
Ceramic Industries ordinary shares to selected BEE partners ("the BEE
partners transaction").
2. Background
Ceramic Industries operates in a highly competitive global industry. The
industry ranges from up-market, fashionable producers (primarily in Italy and
Spain) through to low-cost, commodity producers, of whom China is the most
prominent. In order to compete effectively, Ceramic Industries has to be a
low-cost producer.
The Group has a long record of continuous improvement in quality,
productivity and cost reduction, achieved through a focus on developing the
skills of employees and by an ongoing investment in the latest technologies.
Evidence of this is seen in both Pegasus and Betta, which are world-class
factories employing leading technology.
Ceramic Industries is furthermore committed to the ongoing transformation of
South Africa and supports the principles embodied in the BEE Code and the
Mining Charter ("the Charter"). The Group has achieved substantial success in
its employment equity plans, and a black executive runs the group`s award
winning factory, Vitro. In addition, staff are encouraged to think as owners
of their respective divisions or factories by a profit sharing scheme through
which approximately 7% of divisional or factory pre-tax profit is distributed
to factory employees, the majority of whom are historically disadvantaged
South Africans ("HDSA").
The Board of Directors of Ceramic Industries ("the Board") is committed to
improve the Group`s performance across the Department of Trade and Industry`s
generic scorecard for Broad Based Black Economic Empowerment (the "BEE
Scorecard") and has therefore engaged with BEE groups who are able to assist
the Group to meet this commitment.
3. Rationale for the BEE transactions
3.1 The quarry transaction
Clay is a low-price product and, excluding transport costs, is not a major
input cost for the factories. The provision of clay is an integral part of
the Ceramic Industries business and without the security of clay supplies,
the Group would not have invested over R1 billion in its production
facilities in South Africa.
Ceramic Industries has set up a new company to acquire all of the Group`s
quarries at fair value. All employees of the Group who do not participate in
any share incentive schemes will be entitled to acquire units in a trust
which will acquire 60% of the shares in the new company with the balance
being held by Ceramic Industries.
Because the quarries are a wasting asset and are strategic to the Group, the
employees will be allowed to exchange their interest in the new company
owning all the quarries for shares in Ceramic Industries in 2018. The Group
will purchase the requisite number of Ceramic Industries shares in the market
in order to hedge its exposure to the employees. The latter will be entitled
to all the growth in the value of and the dividends from the Ceramic
Industries shares.
The quarry transaction will:
- acknowledge the individual contribution made by employees towards the
success of Ceramic Industries;
- allow Ceramic Industries to comply with the principles embodied in the
Mining Charter;
- provide employees with a risk-free investment in the quarries, which is
convertible into a JSE Limited ("JSE") listed share; and
- allow Ceramic Industries to continue to prosper as a low cost producer.
3.2 The BEE partners transaction
The Board has agreed to issue 2 029 283 Ceramic Industries shares to BEE
partners.
The Group has reached agreement with Peotona Group Holdings (Proprietary)
Limited ("Peotona") and Aka Capital (Proprietary) Limited ("Aka"), based on
their ability to assist the Group to meet its commitment across the BEE
Scorecard with an initial emphasis on transformation, skills development,
preferential procurement and enterprise development.
Ceramic Industries recognizes the need to create a broad-based vehicle that
will act for the benefit of HDSA communities surrounding the Group`s
factories (and in particular, the women of these communities). A public
benefit organization ("PBO Trust") is being established to administer the
projects that will be undertaken for the benefit of the HDSA participants
with whom the Group interacts. Peotona will, in conjunction with the
trustees, take the lead in managing the PBO Trust.
Given the importance of employees to the ongoing success of the Group,
employees will participate in the BEE transaction in addition to their
ongoing share in divisional profits and ownership of the quarries. The
employees` participation in the BEE transaction will be though an Employee
Share Trust, the sole purpose of which will be for the holding of the shares
on behalf of the employees.
The interest of the selected BEE partners in the new issue of shares will be
as follows:
PBO Trust 4% (811 712 shares)
Employees 2% (405 857 shares)
Peotona 2% (405 857 shares)
Aka 2% (405 857 shares),
(collectively "the BEE partners").
4. Consideration
The 2 029 283 new shares as discussed in 3.2 above will be issued to the BEE
partners for the nominal amount of R0.01 per share and the BEE partners will
be entitled to all the risks in and benefits of the shares.
A notional capital account will be established, based on the volume weighted
average ruling price for the thirty days prior to the exercise date. Notional
interest on this loan account will be calculated at 90% of the prime rate.
The BEE partners will be entitled to sell their shares after the seventh
anniversary of the transaction implementation and will be required to sell
sufficient shares (valued at the volume weighted average price for the 30
days prior to the exercise date) back to Ceramic Industries at the same
nominal price at which they were issued, in order to settle the amount on the
notional capital account.
In the event that the BEE partners have not settled the notional capital
account on the eighth anniversary, Ceramic Industries will be entitled to
purchase sufficient shares from them, on the same basis as above, to settle
the account.
The BEE partners will retain any shares not repurchased by Ceramic
Industries.
5. Suspensive conditions
The BEE transactions will be subject to the fulfillment of the following
suspensive conditions:
- the passing of all necessary resolutions by the requisite majority of
shareholders at general meetings of Ceramic Industries, Peotona and Aka;
- the approval of the JSE to the extent required; and
- the approval of the Department of Minerals and Energy and other
regulators to the extent required.
6. Warranties
The transactions are subject to the usual warranties and indemnities
associated with transactions of this nature.
7. Effective Date
The effective date of the transactions will be the date on which the
agreements are signed and are subject to the successful fulfillment and / or
waiver of the suspensive conditions. Shareholders will be advised when the
agreements are signed.
8. Unaudited pro forma financial effects of the BEE transactions
The table below sets out the unaudited pro forma financial effects of both
the quarry transaction and the BEE partners transaction.
The unaudited pro forma financial effects are presented for illustrative
purposes only and because of their nature may not give a fair reflection of
Ceramic Industries` results, financial position and changes in equity after
both transactions.
It has been assumed for purposes of the pro forma financial effects that the
transactions took place with effect from 1 August 2007 for income statement
purposes and 31 January 2008 for balance sheet purposes.
The directors of Ceramic Industries are responsible for the preparation of
the unaudited pro forma financial effects.
Before 1 After the After the After the %
BEE quarry BEE Change
partners transaction partners
transaction transaction
and the
quarry
transaction
Published Pro forma Pro forma Pro forma
Earnings per share 459.2 163.5 2 414.2 4 118.5 6 (74)
(cents)
Headline earnings 460.2 164.4 2 415.2 4 119.4 6 (74)
per share (cents)
Diluted earnings 459.2 163.5 2 414.2 4 118.5 6 (74)
per share (cents)
Diluted headline
earnings per share 460.2 164.4 2 415.2 4 119.4 6 (74)
(cents)
Net asset value 6 186.0 6 186.0 6 186.0 6 186.0 -
per share (cents)
Net tangible asset
value per share 6 159.7 6 159.7 6 159.7 6 159.7 -
(cents)
Number of shares 17 203 17 203 3 17 203 5 17 203 -
in issue
(millions)
Weighted average 17 210 17 210 3 17 210 5 17 210 -
number of shares
in issue
(millions)
Notes:
1. The "Before" financial information is based on Ceramic Industries`
published unaudited results for the six months ended 31 January 2008.
2. The "After the BEE transaction" earnings, headline earnings, diluted
earnings and diluted headline earnings per share have been adjusted for
IFRS 2 - Share based payments charge of R 50.90 million in respect of
the issue of Ceramic Industries shares to the BEE partners.
3. In terms of IAS 33 - Earnings per share Para 52, the issue of shares to
the BEE partners results in no adjustment to the number of shares in
issue nor the weighted average number of shares in issue.
4. The "After the quarry transaction" earnings, headline earnings, diluted
earnings and diluted headline earnings per share have been adjusted for
IFRS 2 - Share based payments charge of R7.75 million in respect of the
quarry transaction.
5. In terms of IFRS 3 - Business combinations, the shares issued in terms
of the quarry transaction with employees are treated as treasury shares
and therefore have no effect on the number of shares in issue or the
weighted average number of shares in issue.
6. The "After the BEE transaction and the quarry transaction" earnings,
headline earnings, diluted earnings and diluted headline earnings per
share have been adjusted for both the abovementioned transactions.
7. The financial effects have been calculated using a R80 share price. The
impact of an increase of R5 in the share price of Ceramic Industries
would be an increase of R3.18 million in the total IFRS 2 charge. A
decrease of R5 in the share price of Ceramic Industries share price
would result in an equal downward movement in the IFRS 2 charge.
9. Cautionary announcement
Shareholders are advised that the cautionary announcement is hereby
withdrawn.
10. Circular to shareholders
Shareholders are advised that a circular, containing full details of the BEE
transactions, will be posted to shareholders during July 2008 and will
incorporate a notice of the general meeting to be held for purposes of
obtaining the approval by shareholders.
Johannesburg
10 June 2008
Sponsor Legal adviser Financial
adviser
BJM Corporate Edward Nathan Morgan Stanley
Finance Sonnenbergs
Mining law adviser
Hofmeyr Herbstein &
Gihwala Inc
Date: 10/06/2008 10:46:01 Produced by the JSE SENS Department.
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