| Wed 23 Jul 2008, 17:30 | | SPG - Super Group Limited - Trading statement Sup |
|
SPG
SPG
SPG - Super Group Limited - Trading statement, Super Group Industrial Products
and Proposed Rights Offer Salient Terms
Super Group Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1943/016107/06)
ISIN number: ZAE000011334)
Share code: SPG
("Super Group" "the Group" or "the Company")
TRADING STATEMENT, SUPER GROUP INDUSTRIAL PRODUCTS AND PROPOSED RIGHTS OFFER
SALIENT TERMS
1. TRADING STATEMENT
1.1 Overview
Super Group is an integrated supply chain management business, operating through
five core business divisions:
- Supply Chain Management
- Fleet Solutions
- African Transport
- Retail Supply Chain (Mica & Autozone)
- Automotive (Dealerships & Industrial Products).
For the financial year ended 30 June 2008, four of Super Group`s five divisions
achieved operating profit growth. However, the Automotive division, which
consists of the motor vehicle dealerships and industrial products businesses,
will report an operating loss. The dealerships business has been impacted by the
tough economic conditions affecting passenger vehicle sales. The industrial
products business has underperformed as a result of an accounting adjustment
(refer paragraph 2 below) and certain operational difficulties and will make an
operating loss.
The group reported headline earnings per share ("HEPS") of 60 cents for the 6
months ended 31 December 2007 and expected similar earnings for the second half.
The worse than expected deterioration in economic conditions in the latter part
of the year, coupled with higher interest rates, had a greater than expected
negative impact on the group`s expectation of achieving HEPS of about 96 cents
for the year.
In compliance with paragraph 3.4(b) of the JSE Listings Requirements,
shareholders are advised that for the financial year ended 30 June 2008,
headline earnings per share ("HEPS") is expected to be between 65 cents and 75
cents.
1.2 Divisional Review
The forecast financial information in this trading statement has not been
reviewed or reported on by Super Group`s auditors. This update is based on the
available information at the time of publication. Super Group`s financial year
end results are expected to be published on or about 16 September 2008.
Supply Chain Management
The Supply Chain Management division maintained revenue performance and
increased operating profits despite challenging trading conditions. Cash flow
from operations also showed a significant improvement over the prior year,
reflecting stringent cost controls and working capital management. The division
expects to generate an increase in operating profits in the new financial year
with emphasis being on improving operational efficiencies and costs. The
business has a number of new client opportunities currently under consideration.
Fleet Solutions
Australia was slightly ahead of target and is expecting to show good operational
growth in 2009 with a number of exciting prospects and the previously announced
acquisition of the commercial fleet business of the National Australia Bank now
bedded down. The South African fleet business remains under margin pressure due
to the City of Johannesburg contract, which was renewed at lower margins. The
Eastern Cape Provincial Government contract has been extended by a further six
months to 31 January 2009.
African Transport
The African Transport operations have produced solid growth and exceeded budget.
Zimbabwe remains a concern but the growth in mining activities in the DRC and
the Zambian copper-belt should support good growth in the business. The business
is well positioned to benefit from the expected growth in the commodities
market.
Retail Supply Chain
Mica continues to dominate the independent DIY / Hardware market, being voted
for the 10th consecutive year by "Reader`s Choice" as "Favorite DIY / Hardware"
retailer. AutoZone remains Africa`s largest aftermarket distributor and retailer
of vehicle parts and accessories through a network of 167 branded Autozone
outlets countrywide. Both AutoZone and Mica have achieved operating profit
growth and are focusing on maintaining margins through further efficiencies and
synergies.
Automotive - Dealerships (For Industrial Products refer paragraph 2 below)
The higher interest rates and declining consumer spend have had a significant
negative impact on vehicle sales. Intense competition has put further pressure
on margins. The decline in sales volumes, as well as the impact of the National
Credit Act, have significantly reduced the source of finance and insurance
income to dealerships. Parts and service are becoming a growing contributor
within the dealer structure as good demand for servicing is expected to
continue, owing to the record new vehicle sales volumes in the prior four years.
Other Services (Insurance)
The insurance business experienced an unusual number of large property and
engineering related claims during the latter part of the financial year for
which provisions have been recognised. The insurance industry in general has
had similar experience in regards to industrial claims.
2. SUPER GROUP INDUSTRIAL PRODUCTS ("SGIP")
2.1 Background
SGIP was formed in 2006 as part of a business plan to address a new market
opportunity in the high growth truck and construction sector both locally and in
Southern Africa where we have representation. The plan also involved
consolidating existing businesses under one division. The aim of this change
was to enhance our customer value proposition and to extract synergies from
related businesses.
SGIP accounted for 14% of total group revenues in the six months to 31 December
2007 and 6% of total group revenues for the twelve months ended 30 June 2007. In
the past twelve months, SGIP has sold 1,427 units and are fulfilling an order
for 300 trucks and 50 trailers in Angola, of which the first 35 units have been
delivered.
The four business units that constitute SGIP are:
- Hermans - Heavy and extra heavy commercial vehicle accident repair
services
- Cargolite - manufacturer of trailer and load bodies for the
Industrial Products business as well as the market in general
- Equipment & Commercial Vehicles - importer, assembler, distributor
and retailer of commercial vehicles and industrial equipment
- MMS Cranes - importer and retailer of mobile cranes
2.2 SGIP Business Unit Review
Hermans & Cargolite
Overall operational performance is slightly behind budget. The business
fundamentals remain strong and continued operating growth is expected.
Equipment & Commercial Vehicles and MMS Cranes
Initial sales and growth are promising but various factors, including delays in
product launches, initial quality and operational difficulties, resulted in the
expected profitability not materialising. A revised plan has been implemented
to address these issues.
2.3 Accounting adjustment and restatement of accounts
In April 2008, the new Chief Financial Officer of SGIP identified
inconsistencies in the management accounts of the Equipment & Commercial
Vehicles and MMS Cranes businesses. Having been unable to reconcile and
substantiate the inconsistencies, management informed Super Group`s Board of
Directors ("the Board") and the Board immediately engaged an independent
forensic team from Ernst & Young ("E&Y") to investigate and report on the
inconsistencies. Super Group received preliminary feedback from E&Y on Friday,
11 July 2008 and the Board met on Monday, 14 July 2008 to discuss the findings.
The Board awaits the full findings of the forensic investigation to determine
the amount and extent of error or fraud in financial accounting and reporting
and to determine further courses of action. Such findings are expected mid-
September 2008.
Based on preliminary assessments, Super Group understands that the
irregularities took place between January 2007 and March 2008 and relate to
misstatement of foreign creditor reconciliations and errors in the pricing of
inventory. Initial indications are that Super Group will need to restate its
results for the year ended 30 June 2007 and the anticipated effect on the 2007
financial year is a reduction in HEPS to between 110 cents and 120 cents (a
reduction of between 9% and 17% to the previously reported HEPS of 132.3 cents).
The impact on HEPS for the financial year ended 30 June 2008 is currently
estimated to be a reduction in HEPS as indicated in the guidance in paragraph
1.1 above.
3. RIGHTS OFFER
The Board also wishes to advise ordinary shareholders that the Company intends
to proceed with a rights offer, subject to the fulfilment of the conditions
precedent referred to in paragraph 3.5 below, to raise up to R750 million (the
"Rights Offer"). Ordinary shareholders will be requested to approve an ordinary
resolution placing sufficient authorised but unissued Super Group ordinary
shares under the control of the Board at a general meeting ("the General
Meeting") to be held on 25 August 2008, to enable the Rights Offer to proceed. A
notice of the General Meeting will be posted to ordinary shareholders on or
about 8 August 2008.
3.1 Rationale
On 25 June 2008, Super Group announced that it had settled its existing R900
million corporate bond (SPG01) in compliance with its contracted settlement
obligations. Super Group secured new long term funding facilities (including
corporate bonds SGL04 and SGL05) amounting to R650 million at funding rates
which approximate the current prime rate less 2.2%.
The Board has considered its current capital structure and believes that the
Company requires additional long term equity funding:
- to reduce the gearing ratio to within the range acceptable to the
Board;
- to lower the financial leverage of the group in a high interest rate
environment; and
- to provide the Group with additional financial resources to improve
its financial flexibility.
A rights offer will give all existing ordinary shareholders an equal opportunity
to participate in the capital raising.
3.2 Terms
In terms of the Rights Offer and subject to the required approvals, a total of
187,500,000 new Super Group ordinary shares ("Rights Offer Shares") will be
offered to ordinary shareholders in the ratio of 50 Rights Offer Shares for
every 100 ordinary shares held at the close of trade on Friday, 12 September
2008, at an issue price of 400 cents per Rights Offer Share. The issue price of
400 cents per Rights Offer Share represents the following:
Cents per share Discount (%)
90 day VWAP 623 35.8%
60 day VWAP 578 30.8%
30 day VWAP 495 19.2%
Closing price (22 July 2008) 450 11.1%
The Rights Offer will not be underwritten. If fully subscribed, the Rights Offer
will raise R750 million before expenses.
Excess subscriptions will be invited and no minimum subscription is applicable.
3.3 Irrevocable undertaking from shareholders
The following major ordinary shareholders of Super Group, representing 66% of
the effective issued share capital eligible to vote in the Rights Offer, have
irrevocably undertaken to follow their rights:
Shareholder Number of shares %
eligible to vote
Allan Gray Limited 100 664 282 27.4%
Public Investment Corporation Limited 48 777 546 13.3%
Sanlam Investment Management (Proprietary) 40 725 680 11.1%
Limited
Investec Asset Management (Proprietary) 33 718 522 9.2%
Limited
Old Mutual Investment Group (South Africa) 19 480 930 5.3%
(Proprietary) Limited
Accordingly, Super Group is assured of a minimum subscription for shares in
terms of the Rights Offer of R487 million. The shareholders listed above also
have irrevocably committed to vote in favour of the ordinary resolution
necessary to implement the proposed Rights Offer at the General Meeting.
3.4 Use of proceeds
The proceeds from the Rights Offer will be used by the Company to repay debt as
follows:
- short term facilities; and
- general banking facilities with an average interest rate of current
prime rate less 1%.
Following the rights issue, trade gearing (excluding full maintenance leasing
and Australian non-recourse liabilities) of less than 50% will be achieved.
3.5 Conditions precedent
- Sufficient authorised but unissued ordinary Super Group shares being
placed under the control of the Board at the General Meeting;
- Approval of the rights offer circular by the JSE Limited ("JSE");
- Listings for the forms of instruction being granted by the JSE; and
- Registration of the rights offer circular and form of instruction by
the Companies and Intellectual Property Registration Office of South
Africa.
3.6 Salient dates and times
2008
Circular posted to ordinary shareholders on Friday, 8 August
General Meeting held at 09h00 on Monday, 25 August
Proxies need to be received by 09h00 on Thursday, 21 August
Notes:
1. These dates and times are subject to change. Any material change will be
released on SENS and published in the press. Any reference to time is a
reference to South African time.
The last date to trade in Super Group shares in order to be entitled to
participate in the Rights Offer is scheduled to be Friday, 5 September 2008 for
settlement by the record date which is Friday, 12 September, 2008.
Subject to the approval of the JSE, it is anticipated that the 187,500,000
letters of allotment will be listed on the JSE with effect from the commencement
of trade on Monday, 8 September 2008, on which date the Super Group shares will
trade "ex-rights".
A further announcement, confirming the results of the general meeting will be
published on Tuesday, 26 August 2008 and an announcement, confirming the salient
dates of the rights offer, will be published on or about Friday, 29 August 2008.
3.7 Financial effects
The table below sets out the unaudited pro forma financial effects of the Rights
Offer on Super Group`s unaudited basic earnings per share ("EPS"), HEPS, the net
asset value ("NAV") per ordinary share and tangible NAV ("TNAV) per ordinary
share based on the unaudited results of Super Group for the six months ended 31
December 2007.
The unaudited pro forma financial effects are the responsibility of the
directors and have been prepared for illustrative purposes only to provide
information about how the Rights Offer may have affected the financial position
of Super Group on the relevant reporting date. Due to the fact that the
unaudited pro forma financial effects are based on the unaudited interim
results, this may not be a fair reflection of Super Group`s financial position
after the implementation of the Rights Offer.
Cents per share Unaudited before the Unaudited subsequent to Change (%)
Rights Offer (1) the Rights Offer (2)
EPS 59.7 46.3 -22.4%
HEPS 60.0 46.5 -22.5%
NAV per share 626.6 548.6 -12.4%
TNAV per share 248.6 300.7 21.0%
Notes:
1. The "unaudited before the Rights Offer" column is based on Super Group`s
published unaudited interim financial statements for the six months ended
31 December 2007.
2. The financial effects are calculated on the assumptions that:
- all shareholders follow their rights and Super Group raises R750
million;
- the cash proceeds have been received and the Rights Offer shares issued
at the beginning of the 2008 financial year for the income statement
impact;
- the proceeds from the rights offer are used to repay debt facilities
with interest at prime minus one percent
- the cash proceeds have been received and the Rights Offer shares issued
on 31 December 2007 for the balance sheet impact.
3.8 Documentation
Further details of the Rights Offer will be contained in a circular containing
notice of the General Meeting to be posted to ordinary shareholders on or about
8 August 2008 and a rights offer circular and pre-listing statement to be posted
to ordinary shareholders on or about 15 September 2008. A form of instruction in
respect of the letters of allotment will be enclosed with the circular for use
by Super Group ordinary shareholders who have not dematerialised their Super
Group shares.
Sandton
23 July 2008
Merchant bank and transaction sponsor: Rand Merchant Bank, a division of
FirstRand Bank Limited
Corporate law advisors: Fluxmans Attorneys
Sponsor: Deutsche Securities (SA) (Proprietary) Limited
Date: 23/07/2008 17:30:02 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
