| Thu 18 Dec 2014, 17:50 | | JD GROUP LIMITED - Detailed Terms Announcement And Withdrawal Of Cautionary Announcement |
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JDG 201412180037A
Detailed Terms Announcement And Withdrawal Of Cautionary Announcement
JD GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1981/009108/06)
Share code: JDG ISIN Number: ZAE000030771
("JDG? or ?the Company?)
DETAILED TERMS ANNOUNCEMENT REGARDING THE PROPOSED DISPOSAL OF
THE COMPANY?S CONSUMER FINANCE BUSINESS AND WITHDRAWAL OF
CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
Shareholders of JDG are hereby advised that the Company and
a number of its subsidiaries (collectively ?JD Group?) have
entered into various agreements (?the Agreements?)
regulating the sale of the JDG consumer finance businesses
operated by JDG Trading Proprietary Limited (?JDGT?) and JD
Consumer Finance Proprietary Limited (?JDCF?) in South
Africa, and other smaller JD Group entities in Namibia,
Swaziland and Botswana (?the Consumer Finance Business?),
excluding the Company?s insurance operations, to RCS Cards
Proprietary Limited (?RCS Cards?) for the Sale
Consideration, details of which are set out in paragraph 7
below (?the Business Sale?).
2. BACKGROUND
The Consumer Finance Business provides credit solutions to
customers of the Company's retail chains. It also provides
limited consumer finance products to external retailers. The
customer-facing retail consultants in each store are
supported by the Consumer Finance Business? centralised
back-office credit origination and collections teams, as
well as third-party service providers. In addition to its
core focus of developing, granting and managing financial
services products across the entire value chain, the
business is well-placed to provide extensive business
intelligence relating to customer spending behaviour within
the JD Group.
The deteriorating financial position of the over-indebted
target market consumer adversely affected the performance of
the Consumer Finance Business during the previous financial
periods. This negatively impacted collections and the
overall quality of its consumer credit assets (?the Book?).
Corrective action has been taken in an attempt to slow the
pace of the deterioration in the overall quality of the
Book. This included the introduction of stricter credit
granting criteria and ceasing the granting of personal
loans. As a consequence of these actions and the prevailing
adverse market conditions, the gross loan Book only
increased by R441 million to R10.2 billion during the
financial year ended 30 June 2014. As at 30 June 2014, the
provision for doubtful debts (including the impairment of
assets held for sale) covered 74.6% of accounts in arrears
by more than three contractual instalments. At this date the
net asset value of the Consumer Finance Business amounted to
R6.3 billion. The loss attributable to the Consumer Finance
Business for the year ended 30 June 2014 was R2.1 billion.
3. BACKGROUND INFORMATION ON RCS CARDS
RCS Cards, a wholly-owned subsidiary of RCS Investment
Holdings Limited (?RCS IH?), is an independent, financial
services company operating in South Africa, Namibia and
Botswana. Since its inception in 1999, RCS IH, via its
subsidiaries, has provided credit and financial services to
more than one million customers.
In August 2014, BNP Paribas Personal Finance S.A. (Societe
Anonyme) (?BNPP PF?) acquired RCS IH. BNPP PF is a wholly-
owned subsidiary of the BNP Paribas Group. It is the largest
provider of personal loans in Europe and also provides
consumer credit, home loans and insurance cover.
BNPP PF operates in more than 20 countries on four
continents and employs over 16 000 employees.
4. RATIONALE FOR THE BUSINESS SALE
The Business Sale will enable the Company to henceforth
focus on the JD Group?s core business and competency, being
retail of furniture, consumer electronics, appliances,
building materials, DIY products and automotive products and
services. This will add to the strategic repositioning and
growth of its retail operations, whilst still availing its
customers with access to credible and affordable consumer
finance via its relationship with RCS Cards. RCS Cards and
BNPP PF add additional capability to develop and introduce
new consumer products tailored for the JD Group customer
base. In addition, the Business Sale will contribute to
streamlining JD Group?s retail and insurance operations,
accompanied by the benefit of a much reduced future funding
requirement and improved balance sheet structure.
5. THE EFFECTIVE DATE OF THE BUSINESS SALE
The effective date of the Business Sale will be the first
day of the month following the month in which all the
conditions precedent to the Agreements are fulfilled or
waived, as the case may be (?the Effective Date?), or 1
April 2015, whichever is the latest.
6. SALIENT TERMS
In terms of the Business Sale, the Consumer Finance Business
will be sold as a going concern to RCS Cards. The assets and
liabilities to be disposed of in terms of the Business Sale
shall include:
- all claims which JDGT and JDCF have against customers
indebted to JDGT and/or JDCF pursuant to credit and/or
loans having been granted to them, including any and all
forms of security relating to such claims, without
limitation, acknowledgements of debt or other liquid
documents, and all liabilities arising therefrom as at
the Effective Date;
- those tangible and intangible assets solely dedicated to
and required for the purpose of operating the Consumer
Finance Business;
- any rights and title to all contracts and other
commitments entered into in the normal course of and for
the sole purpose of the Consumer Finance Business; and
- the employment contracts of the dedicated Consumer
Finance Business employees who, as at the Effective
Date, are employed by either JDCF or JDGT including all
liabilities arising from such employment contracts.
RCS Cards and JD Group entered into a ten-year Commercial
Agreement in terms of which RCS Cards will continue to grant
credit to JD Group?s customers. In terms of the Commercial
Agreement, RCS Cards will be the preferred provider of
consumer loans and short-term loans, non-specific consumer
loans, basic credit life insurance, loyalty cards and such
other financial products for the benefit of JD Group?s
customer base (excluding its automotive and DIY customers).
JD Group has the right to underwrite credit refused by RCS
Cards for the duration of the Commercial Agreement. The
transaction includes warrantees, indemnities and guarantees
provided by JDG and Steinhoff International Holdings Limited
(?Steinhoff?).
7. SALE CONSIDERATION
The Sale Consideration payable by RCS Cards to JDGT and JDCF
will be an amount equal to the net asset value of the
Consumer Finance Business on the Effective Date (the ?Sale
Consideration?). The Sale Consideration based on the October
2014 net asset value of the Consumer Finance Business, after
providing for doubtful debts and after deducting the
impairment of assets held for sale, that collectively
covered 90% of accounts in arrears by more than three
contractual instalments, is R4.6 billion. This amount has
reduced since 30 June 2014 as a result of improved
collections, stricter credit granting criteria applied,
additional provisions raised and amounts written off.
The Sale Consideration will be settled in cash.
8. UNAUDITED PRO FORMA FINANCIAL EFFECTS OF THE BUSINESS SALE
The pro forma financial information as at 30 June 2014 for
JDG is set out below. The pro forma information has been
prepared for illustrative purposes only to provide
information on how the Business Sale might have impacted the
financial position of JDG and the results of JDG. Due to
its nature, the pro forma financial information may not
fairly present JDG?s financial position, changes in equity,
results of operations or cash flows after the Business Sale.
The pro forma financial information is presented in a manner
that is consistent with the accounting policies of JDG.
The directors of JDG are responsible for the preparation of
the pro forma financial information.
The table below sets out the pro forma financial effects of
the Business Sale on JDG, based on the audited financial
results for the year ended 30 June 2014 and on the
assumptions that:
- for calculating the loss / earnings per share and
headline loss / earnings per share, the Business Sale
was effected on 1 July 2013, this results in a material
loss on disposal of the business, but excludes any
debtors costs for the 12 months pro forma results ended
30 June 2014 (refer note 6 below); and
- for calculating the net asset value per share and net
tangible asset value per share, the Business Sale was
effected on 30 June 2014.
Audited Proposed Pro forma Change
before Transacti after the (%)
the on Business
Business Sale
Sale
Loss per
share ?
continuing
and
discontinue
d
operations
(Cents) (859.5) (659.5) (1 519.0) (77%)
Earnings
per share ?
continuing
operations
(Cents) 77.9 20.4 98.3 26%
Headline
(loss) /
earnings
per share ?
continuing
and
discontinue
d
operations
(Cents) (563.2) 670.1 106.9 119%
Headline
earnings
per share ?
continuing
operations
(Cents) 93.9 20.7 114.6 22%
Net asset
value per
share
(Cents) 2 927.2 (485.2) 2 442.0 (17%)
Net
tangible
asset value
per share
(Cents) 1 669.7 (485.2) 1 184.5 (29%)
Shares in
issue
throughout
the period
?000
(excluding
treasury
shares) 226 558 - 226 558 -
Shares in
issue at
year end
?000
(excluding
treasury
shares) 265 681 - 265 681 -
Notes and assumptions:
1. Interest of R372 million on the Sale Consideration and
other related cash flows has been calculated based on JD
Group?s borrowing rate of 7.75% and tax has been provided
at 28% on this amount.
2. Origination fee income was reduced by R118 million (after
providing for 28% tax) to reflect the decrease in fees
calculated per the Commercial Agreement.
3. Profits relating to credit life insurance business policies
issued during the 2014 financial year of R104 million
(after providing for 28% tax) were removed.
4. R2.1 billion net loss from the discontinued operations was
removed.
5. Payments of R252 million (after providing for 28% tax) that
will be made to RCS Cards over a three year period,
relating to deferred fees in terms of the Book, were
estimated and discounted to the effective date using a
7.75% discount rate. The discounted R224 million was
included in the loss on disposal. An interest expense,
calculated at 7.75% of the liability raised, of R17 million
(after providing for 28% tax) was processed in the income
statement.
6. The loss on disposal for income statement purposes of R3.4
billion (after providing for 28% tax) was calculated as the
difference between the carrying value of the assets and
liabilities disposed of as at 1 July 2013 of R9.3 billion
and the proceeds received as calculated for announcement
purposes of R4.6 billion. This loss on disposal was
included in capital items in discontinued operations. As
per the 30 June 2014 announced, audited results, additional
provisions were raised, amounts written off, collections
improved and stricter credit granting criteria applied.
Therefore this loss on disposal disclosed in the pro forma
results above is expected to be much lower on the effective
date. The loss on disposal disclosed in retained earnings
in the statement of financial position of R1.3 billion
(after providing for 28% tax) was calculated as the
difference between the carrying value of the assets and
liabilities disposed of as at 30 June 2014 of R6.3 billion
and the proceeds received as calculated for announcement
purposes of R4.6 billion
7. Transaction costs of R20 million are assumed to be
applicable to the Business Sale and were expensed.
8. All adjustments, except for the loss on disposal and the
transaction costs, are expected to have a continuing
effect.
9. No other adjustments have been made in respect of post
balance sheet events.
9. APPLICATION OF THE PROCEEDS FROM THE BUSINESS SALE
The Sale Consideration will be applied to reduce JD Group?s
interest-bearing debt.
10. CONDITIONS PRECEDENT TO THE BUSINESS SALE
The Business Sale will be subject to the fulfilment or
waiver of inter alia the following conditions precedent on
or before 31 May 2015:
- the Business Sale being approved by the Company?s
shareholders as a category 1 transaction in terms of the
Listings Requirements of the JSE Limited (?JSE?);
- the agreements governing the disposal of the businesses
operated in Namibia, Swaziland and Botswana (?Foreign
Sale Agreements?) have been entered into by the relevant
parties, although the Foreign Sale Agreements do not
have to be unconditional where they are subject to
Foreign Competition Commission approvals;
- JDCF and JDGT, as the case may be, and each relevant
material contract counterparty having agreed in writing
to have these contracts applicable to them transferred
to RCS Cards or, where such contract does not relate
exclusively to the Consumer Finance Business, those
portions of those contracts identified by RCS Cards
under which rights, benefits and obligations accrue to
JDCF and JDGT, as the case may be in respect of the
Consumer Finance Business;
- any authorisations, licenses or permits required to
operate the Consumer Finance Business or RCS Cards
remain valid and in force in South Africa;
- unconditional approval of the Business Sale, by the
Competition authorities under any applicable merger
control regulations, or approval subject to conditions
or restrictions acceptable to RCS Cards and, as the case
may be, the Company;
- Steinhoff, the controlling shareholder of the Company
subscribing at fair market value for shares in RCS IH in
terms of a subscription agreement for a minority stake
of 30%; and
- other conditions precedent that are customary to a
transaction of this nature.
11. CATEGORISATION OF THE BUSINESS SALE
In terms of the Listings Requirements of the JSE, as the
value of the Consumer Finance Business, in so far as it
relates to JDG, exceeds 30% of JDG?s market capitalisation,
it meets the definition of a category 1 transaction as
contemplated in terms of Section 9 of the Listings
Requirements of the JSE. As a result, a general meeting of
JDG shareholders will be convened and an ordinary resolution
in respect of the Business Sale will be required to be
approved by JDG shareholders at the general meeting.
12. IRREVOCABLE UNDERTAKING
Steinhoff, being the 86% shareholder of JDG (net of treasury
shares), has irrevocably undertaken to vote in favour of the
resolution required to implement the Business Sale at the
upcoming general meeting of JDG shareholders.
13. CIRCULAR
A circular (?Circular?) containing the full details of the
Business Sale, incorporating a notice convening the JDG
general meeting will soon be posted to those shareholders
and their agents who have elected to receive communication
from the Company. In addition, the date of the general
meeting will be announced on SENS once the Circular has been
posted.
14. WITHDRAWAL OF CAUTIONARY
Shareholders are referred to the announcement released on
SENS on 1 September 2014 and the cautionary announcements,
the most recent of which was released on SENS on 19 November
2014, and are advised that, due to the fact that the above
information has been disclosed in this announcement, caution
is no longer required to be exercised by shareholders when
dealing in the Company?s securities.
By order of the board
Johannesburg
18 December 2014
Sponsor
PSG Capital Proprietary Limited
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