| Fri 13 Mar 2009, 12:35 | | QHL - Queensgate - Acquisition of 70% of XN Corporation Africa (Proprietary) |
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QHL
QHL
QHL - Queensgate - Acquisition of 70% of XN Corporation Africa (Proprietary)
Limited ("Xn Africa") and withdrawal of cautionary announcement
QUEENSGATE HOTELS AND LEISURE LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1998/013649/06)
Share code: QHL
ISIN code: ZAE000113718
(`Queensgate` or `the Company`)
ACQUISITION OF 70% OF XN CORPORATION AFRICA (PROPRIETARY) LIMITED ("XN AFRICA")
AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Introduction and terms of acquisition
Further to the cautionary announcement which was released on SENS on 10 February
2009, Queensgate Business Development (Proprietary) Limited ("QBD"), a wholly
owned subsidiary of the Company has entered into two agreements dated 03 March
2009 ("the agreements") to acquire 70% of the total issued share capital in XN
Africa from XN PLC, The Sun Valley Trust, The White Heather Trust and the Ganesh
Trust for a combined purchase consideration of R26 250 000.00 which will be
settled through the issue of 87 500 000 new ordinary shares in the Company ("the
shares") at an issue price of 30 cents per share. XN PLC will remain as a 30%
shareholder in XN Africa.
Nature of business of XN Africa
XN Africa is provider of software systems for the hospitality industry, with a
specific emphasis on hotels and restaurants. The software systems developed by
XN Africa are the In-Room Entertainment System software, commonly known as
"IES", which software provides for the touch screen, or remote control,
interface between a hotel (or other venue`s) entertainment options and the guest
in-room, and the X-Stream software, which software provides live streaming of
entertainment, television and advertising.
Rationale
QBD purchases, leases and/or refurbishes buildings in the leisure industry,
which buildings are then sold to third parties, primarily property funds, both
locally and internationally. The Company is often contracted on a long term
basis as the leisure operator, providing hotel, food and beverage, conferencing
and wellness operations. The software systems provided by XN Africa complement
both QBD and the Company`s business operations. Customers are predominantly
based in South Africa and Singapore, with recent penetration into Africa.
Shareholder and option agreements
A shareholders` agreement has been signed, and pre-emptive rights exist, between
the Company and XN PLC. In addition, the Company has the option to purchase
all, or in parts, the remaining 30% shareholding and loan account claims from XN
PLC up until 31 December 2011 at a price of 30% of the profit after taxation for
the immediately preceding calendar year (or part thereof), times a price
earnings ratio of 6.5 times, which purchase price will be settled in cash. The
option price is at a minimum of R9 000 000 for the 30% shareholding.
In addition, a call option agreement has been signed whereby the Company has the
option to purchase 30 000 000 shares from the Sun Valley Trust, the Ganesh Trust
and the White Heather Trust on or before 31 December 2011 at 36 cents per share
on or before 31 December 2009, 45 cents per share from 01 January 2010 up to 31
December 2010 and 54 cents per share from 01 January 2011 up to 31 December
2011. The option shares are also pledged to the company as security for
performance in terms of the profit warranty detailed below.
Conditions precedent
The XN Africa acquisition is subject to, inter alia, the fulfilment of the
following conditions precedent by 30 June 2009:
1. The Company conducting a due diligence on XN Africa by 31 March 2009;
2. South African Reserve Bank approval;
3. JSE Limited approval, where necessary; and
4. All the shares and loan accounts in XN Digital Streams (Proprietary)
Limited being sold to the Company for no more than one British Pound;
Profit and other warranties
The vendors warrant that 70% of the total consolidated profit after tax accruing
to the company over the three year period commencing 01 January 2009 and ending
31 December 2011 will be R21 000 000.00. In the event of a shortfall by 31
December 2011, the Vendor must deliver additional shares in XN Africa calculated
at the original valuation ratio, and, if insufficient to cover the shortfall,
shares in Queensgate will be recouped through the option agreement, and
thereafter any shortfall will be made up in cash.
Pro forma financial effects
The table below summarises the pro forma financial effects of the disposal on
the unaudited interim financial statements for the year ended 31 August 2008.
The financial effects are the responsibility of the directors and have been
prepared for illustrative purposes only, to show the possible financial effect
if the XN acquisition had been effective on 01 September 2007 for income
statement purposes and as at 31 August 2008 for balance sheet purposes. The pro
forma financial effects, because of their nature, may not give a true reflection
of the financial position, the statement of changes in equity, the results of
operations or cash flows of Queensgate.
As After the % Change
published XN
Acquisition
adjusted
Weighted average shares in 500 000 87 500 000 17.5%
issue (`000) 000
Earnings per share ordinary -0.90 -1.11 -23.2%
share (cents)
Headline earnings per ordinary 0.61 0.17 -71.8%
share (cents)
Shares in issue at period end 500 000 87 500 000 17.5%
(`000) 000
Net asset value per share 3.04 7.06 131.9%
(cents)
Net tangible asset value per 1.52 1.45 -4.6%
share (cents)
Assumptions:
1. The "As published" column is based on published results for the year ended
31 August 2008;
2. The "After the XN Acquisition adjusted" column has been adjusted for the
results of XN Africa as extracted from the draft audited annual financial
statements for the year ended 31 December 2008, adjusted for the large
write off of a 2005 debtor in the amount of R14 711 720, which effect is
regarded as non-recurring in nature. The taxation effect of the write off
adjustment has been calculated at a notional rate of taxation of 28%. The
adjustment has no impact on the net asset value and net tangible asset
value per share information.
3. No amortisation of intangible assets or impairment of goodwill has been
assumed.
4. No allocation between intangibles and goodwill has been made as the
purchase price allocation in accordance with IFRS 3 will be undertaken at
the year end.
Shareholders are reminded that the historical results of Queensgate do not
reflect the recent acquisitions of Queensgate Leisure Holdings (Proprietary)
Limited and Queensgate Business Development (Proprietary) Limited. The first
set of consolidated interim results pursuant to the acquisitions is expected to
be published during April 2009. In addition, the pro forma financial effects do
not take into account the profit warranty of an average of R7 million per annum
going forward.
Future prospects
XN Africa has a strong pipeline of new business and is a member of the NEPAD
ISPAD program, wherein XN Africa is a technology partner. XN Africa has a solid
monthly annuity income stream comprising rental, licensing, maintenance and
content as well as revenue sharing with its customers.
Withdrawal of cautionary
Pursuant to the above announcement, shareholders are advised to that the
cautionary announcement is now withdrawn.
Johannesburg
13 March 2009
Designated Advisor
Arcay Moela Sponsors (Proprietary) Limited
Date: 13/03/2009 12:35:01 Produced by the JSE SENS Department.
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