GROUP FIVE LIMITED - Disposal by Group Five and renewal of cautionary announcement

2019-01-17 15:22:00

GRF 201901170041A
Disposal by Group Five and renewal of cautionary announcement

GROUP FIVE LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1969/000032/06)
Share code: GRF
ISIN: ZAE000027405
('Group Five' or 'the Company' or 'the Group')

DISPOSAL BY GROUP FIVE OF THE ASSETS OF EVERITE PROPRIETARY LIMITED AND ITS
SUBSIDIARIES, AS WELL AS THE ASSETS OF SKY SANDS PROPRIETARY LIMITED AND
RENEWAL OF CAUTIONARY ANNOUNCEMENT

1. INTRODUCTION

   In line with previous announcements made and the Group's current cautionary, Group Five is
   pleased to announce that it has entered into a binding offer to dispose of the assets of Everite
   Proprietary Limited and its subsidiaries ('Everite') and Sky Sands Proprietary Limited ('Sky Sands')
   for ZAR480 million to a consortium comprising Trinitas Private Equity (Pty) Limited ('Trinitas') and
   Agile Capital (Pty) Limited ('Agile') (together 'the Consortium') ('the Transaction'). Everite and
   Sky Sands form part of the Group's Manufacturing cluster.

   The effective date agreed in final negotiations last week will be retrospectively implemented to 1
   July 2018 ('Effective Date'). The profits of H1 F2019 will therefore accrue to the Consortium.

   The Purchase Consideration excludes the one remaining asset in the Manufacturing cluster, the
   reinforcing steel business Barnes Reinforcing Industries ('BRI'). The Board has approved an in-
   principle transaction that its shares in BRI will be sold to its joint venture partner, the Barnes
   family. The sale agreements are currently in process, with the transaction expected to be
   concluded in early H2 F2019.

2. OVERVIEW OF ASSETS FOR SALE IN THIS TRANSACTION

   EVERITE

   Everite operates under the Fibre Cement segment of Manufacturing. Everite manufactures a range
   of building materials suitable for commercial, industrial and residential applications through its
   main 100% owned subsidiaries, Everite Building Products and Everite Pipe.

   Everite was established in 1941 prior to Group Five acquiring the entity in 1991. Everite operates
   out of a 35-hectare factory in Klipriver, South of Johannesburg, South Africa.

   SKY SANDS

   Sky Sands is a sand mining and washing operation. Sky Sands is well located to serve its customers
   and markets near Three Rivers in Vereeniging, South of Johannesburg in South Africa. Sky Sands
   mines and sells approximately one million tons of plaster and washed silica sand per annum.

3. OVERVIEW OF THE CONSORTIUM

   TRINITAS PRIVATE EQUITY

   Trinitas, founded in 2008, is a generalist private equity investor with a South African focus. Trinitas
   invests in a diverse range of mid-market businesses with enterprise values of R150 million to R1
   billion. The directors of Trinitas are Andrew Hall, John Stipinovich and Soteris Theorides.
   They have positioned Trinitas as an investor in established mid-market business across all industry
   sectors that target market leaders or significant players in their specific sector, ideally in industries
   with high barriers to entry. The fund has a preference for a minimum of significant influence, and
   will invest up to majority stakes in either growth capital transactions, or replacement capital
   transactions, including MBOs, (incorporating leverage), and MBIs.

   AGILE CAPITAL

   Agile Capital (Pty) Ltd ('Agile Capital') is a 100% black owned private equity investment vehicle
   which pursues investments in a number of diverse sectors in South Africa. With the backing of the
   FirstRand Group and RMB Corvest, Agile Capital has a long standing and successful track record in
   investing equity stakes in growing, well-managed and high-potential companies.

   Through Agile Capital Fund III of ZAR1 billion, Agile Capital invests in businesses with enterprise
   values of R100 million to R2 billion. The directors of Agile Capital are Tshego Sefolo and Londeka
   Shezi.

4. RATIONALE FOR THE TRANSACTION

   As announced in November 2017, Group Five's board of directors and management re-evaluated
   the Group's strategy and structure to address its underperformance and the changes necessary
   to achieve acceptable returns in a rapidly changing and challenging market landscape. This process
   included the strategic re-positioning of the Group in its chosen markets and an assessment of all
   the clusters and businesses, which resulted in a narrower focus on core businesses which will
   provide growth and improve margins and returns.

   Against ongoing market and economic changes, the Group sees an increasing role as an enabler
   for the development of infrastructure projects in the markets in which it operates. This requires a
   shift in emphasis from the Group's traditional construction-related bias towards infrastructure
   development and investment opportunities, which necessitated the rationalisation of some of its
   businesses. Developments & Investments (D&I) and Operations & Maintenance (O&M) will
   therefore be the core businesses of the Group going forward.

   Although the Manufacturing cluster has remained a strong performer within the Group and
   contributes solid earnings and cash flow, it is regarded as a non-core operation under the revised
   strategy. It was therefore decided to dispose of this cluster.

   The Manufacturing assets sold will be utilised to reduce the Group's indebtedness.

5. PURCHASE CONSIDERATION AND SETTLEMENT MECHANISM

   As outlined earlier, a purchase consideration of ZAR480 million has been agreed. Everite and Sky
   Sands recorded a net profit after tax of ZAR59,6 million in the financial year ended 30 June 2018
   ('F2018'), representing a price earnings ratio of 8.0 times for the transaction.

   The book value of the net assets as at 30 June 2018 was ZAR503,2 million. The purchase
   consideration does not exceed the book value due to the weak markets in which the businesses
   have been operating. In the case of Everite, the roll out of new Autoclaved Aerated Concrete line,
   with a capital cost of around R90 million two years ago, has taken longer than anticipated. This
   has resulted in a lower return and little economic value so far.

   The above information was extracted from Group Five's annual financial statements for the year
   ended 30 June 2018, which were prepared in accordance with the International Financial
   Reporting Standards ('IFRS') and have been audited.
   The Purchase Consideration will accrue interest at a market-related rate from the Effective Date
   until the fulfilment of all conditions precedent and the closure of the Transaction. The Purchase
   Consideration and the interest accrued will be settled in cash.

   ZAR50 million of the Purchase Consideration, attributable to Sky Sands, will be deferred pending
   the approval by the Department on Mineral Resources ('DMR') of the transfer of Sky Sand's
   mining right under s11 of the Mineral and Petroleum Resources Development Act.

   As outlined above, the Purchase Consideration excludes the one remaining asset in the
   Manufacturing cluster, that of the reinforcing steel business BRI.

6. CONDITIONS PRECEDENT

   The implementation of the Transaction is subject to the fulfilment (or waiver) of certain
   conditions precedent, inter alia:

       -   although terms have been signed, the negotiation and signing of legal agreements by the
           Consortium and Group Five specific to the Transaction;
       -   negotiation and execution of legally-binding finance documents by the Consortium with a
           third-party debt provider;
       -   final approval by the Consortium's respective Investment Committees;
       -   final negotiation and execution of revised key employment terms and parameters
           (including shareholding participation) of the key senior management team of the
           Company;
       -   there being no material adverse change in the financial performance and financial position
           of Everite or Sky Sands between the Effective Date and the closure of the Transaction;
       -   approval of Group Five shareholders, given the categorisation of the Transaction in terms
           of the JSE Listing Requirements;
       -   approval by the Competition Commission of South Africa;
       -   where applicable, each counterparty to any contract being executed by the business
           accepting the change in ownership; and
       -   specific to Sky Sands, the granting of approval by the DMR for the transfer of the mining
           rights.

7. CATEGORISATION

   The Disposal is classified as a Category 1 transaction for Group Five in terms of the Listings
   Requirements of the JSE. Accordingly, approval is required by Group Five shareholders for the
   requisite resolutions at a special general meeting of Group Five shareholders.

   A circular, together with a notice of special general meeting setting out full terms of the
   Transaction, will be posted to Group Five shareholders within the prescribed period.

8. RENEWAL OF CAUTIONARY ANNOUNCEMENT

   Shareholders are referred to the cautionary announcement regarding expressions of interest
   released on SENS on 13 December 2018 and are advised that Group Five is still in the process of
   considering expressions of interest for various part of the Group's business.

   As the above may have a material impact on the price of Group Five's securities, shareholders are
   advised to continue to exercise caution when trading in the Company's securities until a further
   announcement is made in this regard.

Johannesburg
17 January 2019

Financial Advisor and Transaction Sponsor to Group Five
The Standard Bank of South Africa Limited

Legal Adviser to Group Five
Norton Rose Fulbright

Legal Adviser to the Consortium
Werksmans Attorneys

Sponsor to Group Five
Nedbank Corporate and Investment Banking

Date: 17/01/2019 03:22:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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