| Official Announcement- Tuesday, 03 May 2016 |
| Hudaco - acquisition of Miro |
| Shareholders are advised that on 29 April 2016 Hudaco signed an Agreement with Miro to acquire its trading assets and liabilities with effect from 1 May 2016 ('the effective date') ('the Transaction'). Description of Miro Miro is a distributor of wireless, networking, VoIP and video products sourced from leading international producers. Miro services the growing IP convergence industries and focuses on supplying reliable and reputable products, providing strong after-sales service and technical support. Miro employs 127 staff in four locations in South Africa and generates sales of R292 million per annum. Rationale for the transaction Hudaco is a South African group of companies specialising in the importation and distribution of selected high quality branded consumer-related and industrial products, mainly in the southern African region. One of Hudaco's key strategies is to acquire new businesses in similar fields of activity when the opportunity arises. The acquisition of Miro is consistent with Hudaco's strategy of diversifying its portfolio to further reduce the percentage of its income that is derived from the mining and manufacturing sectors. The business of Miro is an ideal fit for the consumer-related products segment of Hudaco in that it focuses on selling quality, branded products, while providing significant value-add for the customer, which is an area of core competency of Hudaco. Hudaco will be able to utilise its experience and expertise in value-added distribution to enhance Miro's position, resulting in long term benefits to shareholders. Details of the transaction Purchase consideration The purchase consideration will be a multiple of the average annual profit after tax (but excluding interest received) of Miro for the three years ending 30 April 2019. If the business grows profits at 20% per annum for the three year earn-out period, which is considered a realistic prospect, the total consideration will be R172 million. The maximum consideration is R327 million, which would require compound annual growth of 57% over the three years. The purchase consideration will be funded from cash generation, existing and (if necessary) new facilities and paid as follows:
Management The two shareholders, Bertus van Jaarsveld and Jaco Malan ('the shareholders'), have entered into service contracts for a period of three years and restraint of trade agreements in favour of Hudaco for a period of five years after their employment ceases. Conditions precedent All conditions have been fulfilled, including approval by the Competition Commission, satisfactory due diligence, service agreements, main supplier approvals and approval by the Hudaco board of directors. Value of net assets and profit attributable to Miro The shareholders have committed to deliver a minimum of R42 million net trading assets on the effective date, which assets produced R21 million net profit after taxation in Miro's last financial year ending 29 February 2016. Categorisation The Transaction has been classified as a category 2 transaction in terms of Section 9 of the JSE Ltd. Listing Requirements and, accordingly, shareholder approval is not required. Operational update Two important factors that were central to the good results in our consumer-related products segment in the first half of 2015 may not be repeated this year. There has been no load shedding so far this year so sales into the alternative energy market are well down; and no large contract for communications equipment has been secured thus far. Furthermore, the difficult trading conditions experienced in the second half of 2015 by the engineering consumables businesses which supply mainly to the mining and manufacturing sectors, have persisted into 2016. As a result, the board expects that results for the six months ending 31 May 2016 will be down on those for the equivalent period in 2015. The board is not yet in a position to provide more definitive information because only four months' results are available and those include the traditionally slow months of December and January, as well as the Easter period. When adequate information becomes available, stakeholders will be updated if appropriate. Hudaco's management remains focused on optimising those aspects of our businesses that can be managed in these tough economic conditions and, although we are disappointed that earnings will decline, we are confident that the results will nevertheless be satisfactory under the circumstances. |
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