| Fri 10 Feb 2006, 17:02 | | Kingco - Disposal of right to franchise income fro |
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KNG
KNG
Kingco - Disposal of right to franchise income from Bimbo"s outlets
KING CONSOLIDATED HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration No. 1992/006472/06)
("Kingco" or "the company")
Share code: KNG & ISIN code: ZAE000073458
DISPOSAL OF RIGHT TO FRANCHISE INCOME FROM BIMBO"S OUTLETS
Introduction
It was announced on SENS on 16 November 2005 that Kingco had entered an
agreement ("the agreement") with Famous Brands Franchise Company (Pty) Ltd
("Famous Brands"), a subsidiary of Famous Brands Limited, in terms of which
Kingco"s complement of up to 38 Bimbo"s franchise agreements linked specifically
to Engen forecourt sites would be converted to Steers franchise agreements. The
agreement was subject to a minimum number of franchise owners agreeing to the
conversion, which minimum has now been achieved, and the transaction has been
finalised.
Kingco shareholders holding in excess of 75% of Kingco shares have irrevocably
undertaken to vote in favour of the resolution ratifying the agreement.
Rationale
In terms of an agreement between Kingco and Engen, Kingco undertook to establish
and, in conjunction with franchisees, maintain Bimbo"s outlets at selected Engen
fuel distribution sites around South Africa. The outlets are operated by third
party franchisees in terms of Bimbos franchise agreements with Kingco. At the
time of the disposal agreement, there were 38 such outlets. Engen had indicated
that their agreement would not be renewed with Kingco, when it expired in 2008
and the company decided to effectively dispose of its rights under the franchise
agreements in anticipation of non-renewal.
Particulars of the agreement
Terms of the agreement
In terms of the agreement, Kingco agreed to use its best endeavours to ensure
that as soon as possible after the effective date and that in any event by no
later than the conversion date, or such date as may be extended by agreement,
each Bimbos franchised business will be converted, by agreement with the
franchisee, to a Steers franchised business, which is operated by Famous Brands.
To date, 23 of such franchises have agreed to such conversion, and 3 have
provisionally agreed.
Until such time as each Bimbos franchised business has been converted to a
Steers franchised business, the business shall continue to operate as a Bimbos
franchised business, but with effect from the effective date, which is 1
November 2005, Kingco shall account for royalty income from such business and
shall pay all royalties (but excluding advertising income) to Famous Brands.
Consideration
The consideration payable to Kingco by Famous Brands in terms of the agreement
is R4 750 000, which has been paid to Kingco.
Application of the proceeds of the disposal
The disposal consideration was utilised by the group to increase working capital
and reduce borrowings.
Warranties
Kingco has warranted that:
- the Bimbos franchise agreements are valid and enforceable;
- Kingco is not involved in any litigation with any of the franchisees which
are the subject of the agreement, and
- it shall furnish Famous Brands with full details of franchise fees due and
payable under the Bimbos franchise agreements.
Directors" opinions and recommendations
The directors of the company have considered the terms and conditions of the
agreement and are of the opinion that they are beneficial to the company and
fair and reasonable to shareholders and unanimously recommend that shareholders
vote in favour of the resolutions to implement the agreement at the general
meeting referred to below.
All the directors who hold Kingco shares and are able to vote at the general
meeting intend to vote in favour of the resolutions necessary to implement the
agreement.
Unaudited pro forma financial effects
The following table and accompanying notes set out the unaudited pro forma
financial effects of the agreement on the earnings, headline earnings, net
tangible asset value and net asset value per share of the company based on the
published audited annual financial statements for the year ended 28 February
2005. The directors are responsible for the preparation of the unaudited pro
forma financial effects. The table has been prepared for illustrative purposes
only to provide information on how the agreement may have affected the financial
information presented and, because of its nature, may not fairly present
Kingco"s financial position after the implementation of the agreement nor of its
effect on future earnings.
Before (1) After Change
(cents) (cents) %
Earnings per share (2) (2.4) 24.2 1 105
Headline earnings per share (2) (1.0) (1.4) (41)
Net asset value per share (3) 71.2 98 38
Net tangible asset value (3) 71.2 98 38
Weighted number of shares in
issue (`000) 16 736 16 736
Number of shares in issue (`000) 16 736 16 736
Notes:
Based on the published audited annual financial statements of Kingco for
the year ended 28 February 2005.
Based on the assumptions that the disposal was concluded on 1 March 2004
and the consideration of R4 750 000 was applied to reduce borrowings and
earned interest at a pre-tax interest rate of the Prime overdraft rate.
Based on the assumption that the disposal was concluded on 1 March 2004
Categorisation of the transaction in terms of JSE Limited Listings Requirements
In terms of JSE Limited Listings Requirements, the transaction is classified as
a category 1 transaction. Accordingly, a circular giving full details of the
transaction and containing a notice of general meeting to ratify the transaction
is in the course of preparation and will be posted to shareholders in due
course.
Withdrawal of cautionary announcement
The cautionary announcement issued on SENS on 16 November 2005 is hereby
withdrawn.
Johannesburg
10 February 2006
Sponsor
SASFIN CAPITAL
A division of Sasfin Bank Limited
Date: 10/02/2006 05:02:10 PM Produced by the JSE SENS Department
