| Mon 10 May 2004, 9:13 | | Acquisition Of Commonwealth Fleet Lease (pty) Ltd |
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Supergroup - Acquisition Of Commonwealth Fleet Lease (pty) Limited
Release Date: 10/05/2004 07:00:06 Code(s): SPG
Supergroup - Acquisition Of Commonwealth Fleet Lease (Pty) Limited
SUPER GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1943/016107/06)
(Share code: SPG)
( ISIN Code: ZAE000011334)
("Supergroup" or "the Company")
ANNOUNCEMENT TO SHAREHOLDERS OF SUPER GROUP LIMITED REGARDING THE ACQUISITION OF
COMMONWEALTH FLEET LEASE (PTY) LIMITED
Shareholders of Super Group Limited ("Super Group") are advised that, subject to
the fulfilment of the conditions precedent set out below, S.G. Fleet Services
Australia Pty Limited (incorporated in Australia) ("FleetAustralia"), a
subsidiary of Super Group Limited, has acquired 100% of the issued share capital
("the acquisition") of Commonwealth Fleet Lease Pty Limited (incorporated in
Australia) ("CFL") from Leaseway Transportation Pty Limited (incorporated in
Australia), a wholly-owned subsidiary of Commonwealth Bank of Australia
(incorporated in Australia) ("CBA").
Salient terms of the transaction
CFL is one of the largest providers of fleet management and fleet leasing
services in the Australian market.
FleetAustralia has been incorporated for the purposes of acquiring CFL. Seventy
per cent (70%) of the issued ordinary share capital of FleetAustralia is owned
by Super Group Australia Pty Limited (incorporated in Australia), a subsidiary
of Super Group. Thirty per cent (30%) of the issued ordinary share capital of
FleetAustralia is owned by a consortium of Australian private equity investors
("the private equity consortium"), led by Colonial First State, one of the
leading fund managers in Australia, and Committed Logistics, with whom Super
Group, for the past four years, has been working.
The effective date of the transaction ("the effective date") will be the first
day of the month succeeding the month in which the conditions precedent are
fulfilled.
FleetAustralia will pay CBA a purchase consideration of not more than A$63.25
million. The purchase consideration will be settled as to A$58.25 million on the
effective date and the balance of not more than A$5 million after receipt of the
effective date accounts. In addition to the purchase consideration,
FleetAustralia has committed approximately A$4 million ("capital commitments")
to CFL for the purposes of working capital and improving IT systems.
The purchase consideration, capital commitments and other costs associated with
the acquisition will be settled as to -
A$32 million by the shareholders of FleetAustralia pro rata to their respective
shareholdings, that is, Super Group"s 70% share is A$22.4 million and the
private equity consortium"s 30% share is A$9.6 million, via equity and
subordinated shareholders loans;
the balance via loans raised by FleetAustralia from Australian banks and
financial institutions. These loans are secured solely by the assets of
FleetAustralia and the lenders have no recourse to Super Group and its remaining
subsidiaries whatsoever.
In addition to the purchase consideration, Super Group and the private equity
consortium have agreed, pro rata to their respective shareholdings in
FleetAustralia, to provide CBA with a bank guarantee of A$15 million as security
for CFL"s obligations relating to residual values of vehicles leased by CBA"s
wholly-owned subsidiary, CBFC Leasing Pty Limited (incorporated in Australia)
("CBFC"), to third parties. CBFC is a specialist provider of equipment finance.
It has been agreed that for a minimum period of five years commencing on the
effective date:
- CBA and CBFC ("the CBA group") have entered into an exclusive referral
agreement with CFL. In terms of the agreement the CBA group will refer all
of their clients seeking the provision of fleet management services in
respect of passenger vehicles, light commercial vehicles, heavy commercial
vehicles and trailers to CFL on an exclusive basis.
- CBFC and CFL have entered into a principal and agency agreement in terms of
which CBFC has agreed to provide finance to customers of CFL for the
purposes of funding their motor vehicle fleet requirements. This funding
will be provided on terms and at interest rates equivalent to the best
terms and rates provided to CBFC"s other clients. In addition, CBFC will
continue to actively market CFL"s fleet management products to the CBA
group"s client base.
- CBA has entered into a fleet management agreement with CFL in terms of
which CFL will continue to manage the motor vehicle fleet of CBA. This
fleet comprises approximately 10% of the fleet managed by CFL.
CBA has given to FleetAustralia a comprehensive set of warranties and
indemnities, usual in a transaction of this nature.
CFL will change its name to FleetAustralia Pty Limited.
Conditions precedent
The acquisition is subject, inter alia, to the fulfilment of the following
conditions precedent:
- receipt of notice from the Australian Foreign Investment Review Board that
it does not have any objection to the transaction; and
- receipt of approval from the Exchange Control Department of the South
African Reserve Bank.
Rationale for the transaction
Over the past few years, Super Group has identified the Australian fleet leasing
and management market as an exciting market offering good growth potential. CBA
recently identified that its fleet management business was outside the core
activities of the bank. Consequently, a decision was made to sell CFL to
FleetAustralia.
Overview of the Australian fleet management and leasing market
The Australian fleet management and leasing industry is dominated by bank-owned
companies who merely sell fleet management as a financial service product. It is
estimated that the largest seven companies control in excess of 80% of the
market. The Australian market offers various fleet products, including funded
(finance and operating leases), non-funded (fleet managed) and funded novated
leases. A novated finance lease is essentially a private consumer lease,
currently prohibited in South Africa, where the employer pays the monthly rental
but the employee carries the risks and rewards of ownership.
The Australian fleet management and leasing market is significantly larger than
the South African market with the membership base of the Australian Fleet
Lessors Association (AFLA), managing more than 275,000 vehicles. This industry
procures approximately 140,000 units annually, divided between 90,000 funded
vehicles (A$2.6bn) and 50,000 non-funded vehicles. Passenger cars dominate the
industry, comprising 75% of the fleet with the balance comprising light
commercial vehicles (15%), trucks/vans/buses (5%) and other (5%).
From 1998 to 2002, the funded market achieved an average compound volume growth
of 7% per annum. This growth has largely resulted from the introduction of
novated leases, which based on AFLA data has grown at an average compound rate
of 34% p.a. over the same period.
All industry statistics are sourced from AFLA and are as at, or for the year
ended, 31 December 2002, as applicable.
Overview of Commonwealth Fleet Lease
CFL has operated in the Australian fleet leasing and management market since
1989 and has established itself as a specialist fleet management company with
the following attributes:
1. Financially sound business with good financial track record.
CFL"s business has grown strongly over the last three years and has potential
for further growth. In the three years to 30 June 2003, CFL"s funded fleet
increased by an average compound rate of 14% p.a. while the average compound
growth rate of net profit after tax for the same period has been in excess of
20%. CFL generates significant free cash flow annually. To capitalise on CFL"s
excellent cash generation ability, the acquisition has been partly financed
using debt ring-fenced to FleetAustralia"s balance sheet.
2. Motivated and experienced management team
The members of the executive team each have in excess of 25 years experience
within the Australian motor leasing and/or finance industry. Evidence of its
strong management is illustrated in their ability to capitalize on the high
growth experienced in the novated lease segment where CFL grew its market share
from 13.4% to 20.6% in the last 2 years.
3. Significant player in the fleet leasing and management industry
CFL currently manages 25,000 vehicles. Its market share is estimated to be 8%
overall and 20% in the novated lease segment. Its niche strategy, which is
focused on superior customer service, has resulted in it being estimated to be
the 3rd largest fleet management company in Australia. The vehicle fleet is
budgeted to increase to 27,000 by mid-2004.
4. Established funding relationship with the second largest bank in Australia
CFL provides a comprehensive range of vehicle fleet management services as well
as originating and administering leases on behalf of the CBA group to provide
customers with seamless vehicle fleet management and leasing services.
The existing relationship with the CBA group will continue for a minimum of five
years. The CBA group has appointed CFL as their exclusive fleet management
provider to their client base and will fund CFL"s client"s fleet leasing
requirements at the best terms and interest rates. CBA sees the relationship as
one of "value add collaborator assisting them in growing their financing book."
5. Established national network
CFL has offices in six states through which it manages products and services
nationwide.
6. Good quality, diversified client base
It has strong customer relationships with a broad base of customers that include
Australian State governments, institutions, major companies and medium-sized
enterprises across a range of industries.
7. Diversified revenue stream
Business is split between the three primary product offerings, namely operating
and finance funded leases (corporate and novated) and non-funded fleet
management.
8. Performance driven culture with robust risk management processes and
policies
CFL positions itself as a quality service provider in the motor vehicle managed
maintenance industry with emphasis on profitability rather than volume growth.
This is evidenced by its growth in fleet and financial track record. As a
result of being previously owned by the CBA, CFL has excellent risk management
procedures.
9. Exciting growth opportunities
CFL"s management believes that there are significant growth opportunities
emanating from new business still in the pipeline from newly signed customers
and by increasing penetration into their existing clients and clients of the CBA
group.
In addition to the new business opportunities envisaged by CFL"s management,
Super Group believes that there exists an opportunity within the Australian
Fleet Management and Leasing market for CFL to expand its product range to
include end-to-end fleet solutions (as it does in South Africa) and to further
penetrate the value chain for passenger and commercial vehicles.
To this end, Super Group"s FleetAfrica has proven competencies. Super Group has
operated in this industry for the last 15 years and is one of the market leaders
with 17,000 vehicles under management. Super Group has won the two largest
government fleet outsourcing contracts to date (9,000 vehicles). In addition,
Super Group"s supply chain management technologies have enabled FleetAfrica to
provide substantial value to clients through innovative fleet solutions and
vehicle optimisation technology.
The investment in CFL by Super Group is the culmination of the last few years"
efforts of actively seeking a financially sound business, with strong management
and which is a significant player in the Australian Fleet Management and Leasing
market.
Financial effects
The table below sets out the pro-forma effects of the acquisition on earnings
and net tangible asset value per share based upon the following assumptions:
1. The earnings of Super Group for the 12 months ended 30 September 2003 and
net tangible asset value of Super Group as at 30 September 2003.
2. The earnings of CFL for the year ended 30 June 2003 and the net tangible
asset value as at 30 June 2003.
3. The acquisition had been implemented for 12 months ended 30 September 2003.
Before the After the
acquisition acquisition % change
Headline earnings per 108.5 110.6 +2%
share (cents)
Net asset value (cents) 298.7 298.7 nil
Net tangible asset value 298.7 214.7 -28%
(cents)
Sandton
10 May 2004
Sponsor
Deutsche Securities (SA) (Pty) Ltd
Corporate Advisors
Nucleus Corporate Finance(Proprietary)Limited
Australian Legal Advisor
Morgan Lewis Alter
Legal Advisors
Fluxmans Attorneys
