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STO
STO
Sethold - Acquisition by SIT of the business of Vikori Trading Cc
SET POINT TECHNOLOGY HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registered number 1996/014334/06)
Share code: STO
ISIN: ZAE000013629
("Sethold")
ACQUISITION BY SET POINT INDUSTRIAL TECHNOLOGY (PROPRIETARY) LIMITED ("SIT") OF
THE BUSINESS OF VIKORI TRADING CC
1. Introduction
SIT, a wholly-owned subsidiary of Sethold, has concluded an agreement in terms
of which it has acquired Vikori Trading CC ("Vikori") from Mr O J Blom and Mr D
E Labuschagne ("the acquisition"). The effective date of the acquisition was 2
March 2006, at which stage all the conditions precedent, including Competition
Commission approval, had been met and the agreement became unconditional.
2. Nature of business
Vikori commenced trading in 2001 under the name of Mineral Mining and operates
from premises in the Klerksdorp area. The company distributes imported conveyor
belting for mining and industrial applications. The conveyor belting includes
general and special purpose belting, heat resistant belting and fire retardant
textile-reinforced belting. Vikori has the sole distribution agency in South
Africa for Oriental Rubber Industries Limited of India.
3. Rationale
The business of Seran Engineering & Supplies ("Seran") acquired by SIT in June
2005 includes the manufacture of hoppers and conveyor belts for the mining
industry under proprietary and licensed technology. The acquisition of Vikori
complements this operation and enables the Mining Technology Division of SIT to
offer the mines added product for transporting ore underground.
4. Terms and conditions
4.1 The purchase consideration
4.1.1 The purchase price is based on a multiple of future earnings of
Vikori. The purchase consideration is an amount equal to the average
profit after tax over three annualised periods from 1 March 2006 to 31
August 2008, multiplied by three. The first period shall be from 1
March 2006 to 31 August 2006, pro rata. An additional payment of R1.4
million will be made in respect of the fixed assets of Vikori.
4.1.2 SIT has the option of paying up to 25% (twenty-five percent) of the
purchase consideration through the issue of Sethold shares as an early
payment.
4.1.3 Although management"s current best estimate of the purchase
consideration is R16.4 million, the parties have agreed that as the
ultimate purchase consideration will be determined on a three times
multiple of future profits formula, there should be a maximum purchase
consideration which has been agreed at R35 million.
4.2 Warranties and Indemnities
The warranties and indemnities usual in transactions of this nature have been
made between the parties.
5. Financial effects
The table below sets out the unaudited pro forma financial effects of the
acquisition on Sethold. The unaudited pro forma financial effects are presented
for illustrative purposes only and because of their nature may not give a fair
reflection of Sethold"s financial position or results of the operations after
the transaction. The pro forma financial effects are the responsibility of the
directors. It has been assumed for purposes of the pro forma financial effects
that the acquisition took place on 1 September 2004 for income statement
purposes and 31 August 2005 for balance sheet purposes. The unaudited pro forma
financial effects set out below are based on the following assumptions:
1. Sethold management"s best estimate of the total purchase consideration for
the business is R16.4 million.
2. The estimated value of fixed assets is R1.4 million.
3. The deferred purchase consideration has been net present valued using an
after tax discount rate of 7.46% for the year ended 31 August 2005, in
accordance with International Financial Reporting Standards ("IFRS") 3:
Business combinations.
Before (2) After the Change
acquisition (%)
Earnings (cps) 7.4 8.1(3) 9.5
Headline earnings 7.5 8.2(3) 9.3
(cps)
Net asset value 36.8 36.7(4) (0.3)
(cps)
Net tangible asset
value (cps) 3.7 0.2(4) (94.6)
Number of shares in
issue (`000) 307 619 307 619 -
Weighted average
number of shares in 247 619 247 619 -
issue (`000)
Notes:
1. Shareholders" attention is drawn to the announcement published on 12
December 2005 in which an amended pro forma balance sheet at 31 August 2005
was published showing the effects of the changes to the terms of the
acquisition of Seran implemented after the year end, and in particular the
effects of the change in the manner of payment of a large portion of the
consideration from future cash to a current share issue at 85 cents and the
agreed reduction in the earnings multiple payable for Seran from 4.5 times
to 3.5 times future earnings.
2. The "Before" financial information is based on Sethold"s audited, published
results for the year ended 31 August 2005 and adjusted in terms of the
announcement made to Sethold`s shareholders dated 12 December 2005, as
detailed in note 1 above.
3. The "After the acquisition" earnings and headline earnings per share have
been adjusted for the notional interest arising as a result of net present
valuing the deferred purchase consideration arising as a result of the
Vikori acquisition, in accordance with IFRS 3: Business combinations.
Earnings and headline earnings per share have also been adjusted to include
the results of Vikori for the 12 months ended 28 February 2005.
4. The "After the acquisition" net asset value and net tangible asset value
per share have been adjusted to include the deferred purchase
consideration, the goodwill arising on the acquisition of Vikori and the
write off of the estimated transaction costs of R 255 000 against share
premium.
Johannesburg
13 March 2006
Lead sponsor Sponsor
KPMG Services (Pty) Limited Standard Bank
Auditors and reporting accountants
KPMG Inc
Date: 13/03/2006 12:38:04 PM Produced by the JSE SENS Department
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