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UCS
UCS
UCS - UCS Group Limited - Disposal - DISPOSAL BY UCS
SOLUTIONS (PROPRIETARY) LIMITED ("UCS SOLUTIONS") OF ITS
ENTERPRISE SOLUTIONS BUSINESS ("THE ES BUSINESS") TO HCL
AXON (PROPRIETARY) LIMITED ("HCL AXON")
UCS GROUP LIMITED
(Registration number 1993/002253/06)
JSE Code: UCS ISIN: ZAE000016150
(Incorporated in the Republic of South Africa)
("UCS or the Group")
DISPOSAL BY UCS SOLUTIONS (PROPRIETARY) LIMITED ("UCS
SOLUTIONS") OF ITS ENTERPRISE SOLUTIONS BUSINESS ("THE ES
BUSINESS") TO HCL AXON (PROPRIETARY) LIMITED ("HCL AXON")
1. Introduction
Further to the cautionary announcements dated 7 May
2009 and 18 June 2009 ("the Cautionary
Announcements") shareholders are advised that UCS
Solutions and UCS Solutions Holdings (Proprietary)
Limited, wholly owned subsidiary companies of UCS,
have entered into a sale of business agreement with
HCL Axon (a wholly owned subsidiary company of Axon
Group Limited, United Kingdom ("Axon Group")) in
terms of which HCL Axon will acquire the ES Business
from UCS Solutions as a going concern ("the
Transaction").
2. Background
UCS is an IT business with a primary focus on the
provision of Software, Solutions and Services for
selected markets.
UCS has concluded a broad based strategic
partnership in the SAP market for retail which
includes the sale of its ES business to HCL Axon, a
global SAP enabled transformation consultancy, with
effect from 01 August 2009 subject to the conditions
precedent recorded below. Enterprise Solutions is a
part of UCS Solutions` Business Solutions Division
and offers Tier 1 retail and wholesale SAP project
implementations.
This partnership allows UCS Group to grow its
annuity services business internationally and to
support the growth of its SAP All in One business.
It supports HCL Axon`s SAP Retail international
ambitions and provides a launch platform for their
business in South Africa.
HCL Axon employs over 4,500 SAP consultants
globally.
3. Rationale for the Acquisition
The ES Business within UCS Solutions is recognised
internationally as possessing strong retail SAP
expertise as well as Tier 1 retail client
referencing capabilities, which HCL Axon would like
to position for the global market.
Whilst ES has established a pre-eminent place in the
South African market, UCS believes that in order for
this business to drive sustainable growth it needs
access to a global partnership with a wider skills
base and an international client base.
The acquisition of the ES Business is another
chapter in the progress of HCL Axon`s strategy in
which the company identifies and expands into new or
uncontested market spaces. The transaction deepens
HCL Axon`s SAP capabilities, widens its reach in the
retail vertical market, further increases the global
delivery capabilities and provides a significant
boost to the company`s market presence in South
Africa.
UCS is allowed the opportunity, albeit for a finite
period, to earn a potential upside on international
business developments for the ES Business.
4. Application of Proceeds
The sale proceeds will be applied partly towards
meeting current and future obligations of the UCS
group of companies and where appropriate, the UCS
board of directors will determine the optimal
utilisation of the balance of the proceeds for
acquisitive and organic growth initiatives.
5. Effective Date
The effective date of the Transaction is 1 August
2009 but the Transaction remains subject to the
fulfilment of the remaining conditions precedent
detailed below.
6. Purchase Consideration
The purchase price payable for the ES Business as a
going concern is a cash consideration of R57 100 000
("the Upfront Purchase Consideration"). UCS
Solutions will settle existing share incentive
obligations amounting to R340,000. The Upfront
Purchase Consideration becomes due upon the
fulfilment of all the conditions precedent and is
subject to an upward adjustment to the extent that
the ES Business achieves or exceeds certain revenue
targets:
? R15 500 000 will be payable should the ES Business
achieve or exceed revenues of R70 600 000 ("the Base
Revenue") for the 12 months ended 31 July 2010; and
? a further amount will be payable in accordance with
a multiple of all revenue earned for the 12 month period
ended 31 July 2011 in excess of the Base Revenue, but
limited to a maximum net R53 000 000 after providing for
the incentivisation of ES staff who are required to
assist in achieving such upside.
The total purchase consideration is therefore capped
at a maximum amount of R125 260 000.
7. Pro Forma Financial Effects
The unaudited pro forma financial effects, for which
the directors are responsible, are provided for
illustrative purposes only to show the effect of the
Transaction on earnings, headline earnings, net
asset value and net tangible asset value per UCS
share as if the Transaction had taken effect on 1
October 2008 for income statement purposes and 31
March 2009 for balance sheet purposes. Because of
their nature, the unaudited pro forma financial
effects may not give a true picture of the Group`s
financial position and performance. The unaudited
pro forma financial effects have been compiled from
reviewed consolidated financial information for the
six months ended 31 March 2009, adjusted as
described in the notes below:
Before After Movement
the the
Transact Transact
ion ion
Cents (%)
Headline earnings per 5,2 5,2 - -
share (cents)
Earnings per share 0,1 9,2 9,1 9
(cents) 100,
0
Net asset value per 161,1 171,2 10,1 6,3
share (cents)
Net tangible asset 21,7 39,4 17,7 81,6
value per share
(cents)
Weighted average 290,734 290,734 - -
number of shares in
issue (000`s)
Notes:
The pro forma financial effects in the "After the
Transaction" column are based on the following
assumptions:
? The reversal of the ES Business contribution to
earnings and headline earnings for the six months ended
31 March 2009 of R0.3 million
? R56.8 million net purchase consideration comprising
the upfront purchase consideration assuming no upward
adjustments, on the basis the ES Business does not
achieve or exceed the defined growth revenue targets,
after funding the settlement of the share incentive
obligations of R0.34 million
? The realisation of the applicable profit on sale of
the going concern business which amounts to R34.7 million
pre tax and transaction costs;
? The inclusion of a once-off licence fee of R2.5
million for the perpetual licence to use the pre-
configured SAP template;
? Restructuring costs associated with lease premises
and other infrastructure related commitments post the
transaction amounting to R1.8 million;
? Transaction costs of R0.8 million incurred in
relation to the disposal;
? The net tax effect of the preceding adjustments
totals R 7.9 million of which the once off component
specific to the profit on sale of the going concern
business amounts to R 8.4 million. This includes the
realisation of estimated tax losses, on which deferred
tax assets have historically been realised, in UCS
Solutions which amounts to R24.7 million at 1 October
2008. UCS Solutions will now as a consequence be in a
fully taxable position moving forward.
8. Conditions Precedent
The final remaining conditions precedent that
require fulfilment in order for the Transaction to
be implemented are as follows:
? resignation of key employees from UCS Solutions and
re-employment of these key employees by HCL Axon;
? consent and assignment of material contracts and
consent to certain trade references;
? conclusion of a services agreement governing the
rendering (with effect from the Closing Date) by UCS
Solutions or UCS to HCL Axon of the agreed support
services; and
? signed acceptance by HCL Axon of a disclosure letter
issued by UCS Solutions against the warranties provided
9. Withdrawal of Cautionary Announcements
As the terms and financial effects of the
Transaction have now been disclosed the Cautionary
Announcements are hereby withdrawn.
10. Categorisation of the Transaction
The Transaction is categorised as a category two
transaction in terms of the Listings Requirements of
the JSE Limited. Accordingly, UCS shareholders`
approval is not required.
Johannesburg
16 July 2009
Sponsor:
Barnard Jacobs Mellet Corporate Finance (Proprietary)
Limited
Date: 16/07/2009 17:51:04 Produced by the JSE SENS Department.
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