| Mon 4 Apr 2005, 17:59 | | AVI Limited - Acquisition of A&D Spitz (Proprietar |
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AVI Limited - Acquisition of A&D Spitz (Proprietary) Limited
AVI Limited
(Formerly Anglovaal Industries Limited)
(Incorporated in South Africa)
(Registration number 1944/017201/06)
Share code: AVI
ISIN: ZAE000049433
(`AVI` or `the Group`)
Acquisition of A&D Spitz (Proprietary) Limited
Following its stated strategy of investing in branded consumer products, AVI has
reached an agreement to purchase 60% of the share capital of A&D Spitz
(Proprietary) Limited (`Spitz`) (`the acquisition`). Spitz owns, or has
exclusive access to, an exciting portfolio of international footwear brands.
1. Rationale
AVI is a branded consumer products group which seeks to provide enjoyment
through the supply of branded added-value products. Recently the Group`s focus
on consumer products was sharpened with the sale of Vector Logistics
(Proprietary) Limited and the unbundling of Consol Limited.
AVI owns some of South Africa`s oldest and best known brands, many of which are
market leaders in their categories. It has been a core growth strategy to
continue identifying brands within our target segments of food, beverages,
personal care and well being, out-of-home and branded semi-durables which
provide a differentiated product to the middle/upper income consumer groups and
offer high rates of growth.
An exciting development for branded consumer companies is the rate of growth and
consumption patterns of the emerging middle class. Anecdotal evidence, as well
as economic and consumer research, highlights the importance of brands to this
consumer group.
This trend reinforces our core strategy of continuing to add leading consumer
brands, aimed at middle income consumers, that will sustain the Group`s out-
performance.
AVI believes Spitz is well positioned to benefit from the structural changes
that are evident in the domestic consumer base.
2. Information on Spitz
Spitz procures, markets and distributes a portfolio of international footwear
and apparel brands through 22 A&D Spitz outlets. Over 60% of sales are branded
Kurt Geiger and Carvela, which are substantial international brands that Spitz
owns in South Africa. In addition, Spitz is the master distributor for Lacoste
footwear in South Africa and a licensee for the Salvatore Ferragamo, Stuart
Weitzman, J Renee, Furla, Prada, Bibi and DKNY brands.
The Spitz board anticipates that the turnover of Spitz for the year ending 30
June 2005 will be approximately R270 million with an operating profit of R70
million. This compares to the prior year`s turnover of R175 million and
operating profit of R34 million. The Spitz board believes that the growth in
performance is attributable to the ongoing strength of the brand portfolio in a
buoyant consumer market and the roll out of A&D Spitz outlets in selected
metropolitan areas.
Central to the acquisition are the following considerations:
- An exceptional opportunity to acquire direct ownership of premium
international footwear brands coupled to the 36 year pedigree of the A&D Spitz
brand. The value of these brands are evidenced by the ongoing growth and
operating margins of Spitz.
- South Africa`s footwear market is substantial, with an annual sales value
exceeding R7 billion. Spitz`s market share of the total market is less than 4%
and presents AVI with an opportunity to build a meaningful new category for the
Group.
- Spitz`s branded loyalty cards present AVI with an opportunity to gain primary
access to middle income consumers and to broaden our understanding of this
increasingly important, brand-conscious community of consumers.
- The phased acquisition of Spitz provides AVI with business continuity and
skills transfer. Spitz has a very experienced, successful management team and
board.
3. Particulars of the acquisition
Salient details of the acquisition are set out below.
3.1 Vendors
The vendors of the shares are Coronation Capital Limited (SA), Coronation
Capital Limited (Ireland), Geoffrey Craig Engel, Allan Dennis Leckie Cuzen, Alan
Roger Cherry and Natalie Dianne Morris, who are each selling 60% of their
ordinary and preference share holdings in Spitz.
3.2 Purchase consideration
The purchase consideration payable by AVI will be calculated on the basis of
8.75 times the audited net operating profit after tax of Spitz for the year
ending 30 June 2005. The expectation of the parties is that the purchase price
for 60% of the equity will be an amount of approximately R260 million. AVI will
discharge the purchase consideration in a single cash payment to the vendors.
AVI will fund the entire purchase consideration from existing cash.
At the time of the signing of the share sale agreement, AVI and the vendors
entered into a shareholders agreement containing put and call provisions
attaching to the remaining ordinary and preference share capital not owned by
AVI, the salient terms of which are that AVI shall have the right to call and
the vendors shall have the right to put the remaining 40% of the share capital
of Spitz to AVI on 1 July 2007 for a purchase consideration to be determined
using a multiple of 8.75 times the audited net operating profit after tax of
Spitz for the year ending 30 June 2007.
3.3 Effective date
The effective date of the acquisition is 2 July 2005.
3.4 Conditions precedent
The acquisition is subject to the following conditions precedent:
- the conclusion, to the sole satisfaction of AVI, of a due diligence
investigation into the affairs and business of Spitz;
- the receipt by the parties of the unconditional written approval of the
competition authorities; and
- the receipt by the parties of the written consent of certain brand owners in
respect of the entering into of the acquisition.
3.5 Financial effects
The table below sets out the pro forma financial effects of the acquisition on
the net asset value (`NAV`) and tangible net asset value (`TNAV`) per ordinary
AVI share and earnings per ordinary AVI share (`EPS`) and headline earnings per
ordinary AVI share (`HEPS`), based on the unaudited results of the Group`s
continuing operations for the six months ending 31 December 2004.
Before the After the %
acquisition acquisition Change
(Rands) (Rands)
NAV per AVI ordinary 6.72 6.72 0
share
TNAV per AVI ordinary 5.36 4.58 -14.6
share
EPS 0.54 0.56 3.7
HEPS 0.48 0.50 4.2
Notes:
1. The NAV and TNAV per AVI ordinary share `Before the acquisition` have been
calculated based on 310,738,853 AVI ordinary shares in issue at 31 December
2004.
2. The pro forma NAV and TNAV per AVI ordinary share `After the acquisition`
have been calculated based on 310,738,853 AVI ordinary shares in issue at 31
December 2004, assuming that the acquisition was implemented on 31 December
2004, and a purchase consideration of R260 million.
3. The EPS and HEPS `Before the acquisition` have been calculated based on the
weighted average of 310,326,004 AVI ordinary shares in issue over the six month
period ending 31 December 2004.
4. The pro forma EPS and HEPS `After the acquisition` have been calculated based
on the weighted average of 310,326,004 AVI ordinary shares in issue over the six
month period ending 31 December 2004, assuming that the acquisition was
implemented on 1 July 2004, and that the cash utilized to fund the transaction
would have been invested at a rate of 7.4% per annum (pre-tax) with effect from
1 July 2004. It has been assumed that no goodwill arising on the acquisition
will be written off.
4. Conclusion
AVI`s board believes that the acquisition is strategically robust and presents a
unique opportunity to build on the Group`s ambitions of owning leading brands.
Chislehurston
Sandton
4 April 2005
Sponsor
Standard Bank
ENQUIRIES:
Angus Band, Group Managing Director Tel: 011 779 2703
Simon Crutchley, Business Tel: 011 779 2708
Development Director
Sam Denoon-Stevens, Investor Tel: 011 779 2721
Relations Officer
