(Proprietary) Limited 8% Senior Secured Notes due 2013 The Issuer

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(Proprietary) Limited 8% Senior Secured Notes due 2013 The Issuer
€125,000,000
Savcio Holdings (Proprietary) Limited
8% Senior Secured Notes due 2013
The Issuer ................. We are the largest privately-owned provider of maintenance and repair services for rotating electrical
equipment and transformers in Africa and have been in operation for more than 90 years.
Use of Proceeds......... We intend to use the net proceeds of this offering to repay indebtedness under our existing senior credit
facilities and a portion of our existing shareholder loans and for general corporate purposes.
Issue Price................. 100%.
Maturity.................... 15 February 2013.
Interest Rate .............. 8% per annum, payable semi-annually on 15 February and 15 August of each year commencing on
15 August 2006.
Redemption and
We may redeem the notes prior to 15 February 2010 at 100% of their principal amount plus a
Offers to Purchase... •
make-whole premium, as described herein. We may redeem the notes on or after 15 February
2010 at the prices set forth herein.
•
We may redeem up to 35% of the notes prior to 15 February 2009 with the proceeds of certain
equity offerings at the price set forth herein.
•
We may also redeem all, but not a portion, of the notes upon the occurrence of certain tax events.
•
If we sell certain assets or experience certain kinds of changes in control, we must, unless certain
conditions are met, offer to repurchase the notes at the prices set forth herein.
Ranking .................... The notes will rank pari passu with all of our existing and future senior indebtedness and senior to all
subordinated indebtedness.
Security..................... The notes will be indirectly secured on a first-ranking basis by substantially all of our assets and any
future subsidiary guarantor, other than certain receivables that will secure our new revolving credit
facility.
Listing ...................... Application has been made to the Irish Stock Exchange for the notes to be admitted to the Official List
and traded on its Alternative Securities Market. This document constitutes Listing Particulars for such
an application.
You should be aware that investing in the notes involves risks. See "Risk Factors" beginning on page 13.
The notes have not been registered under the United States Securities Act of 1933, as amended. They are being offered
and sold in the United States only to qualified institutional buyers in reliance on Rule 144A and outside the United States in
reliance on Regulation S.
The notes will initially be issued in the form of global notes and will be deposited with, and registered in the name of a
common depositary for Euroclear and Clearstream Banking. Subject to the satisfaction of certain conditions, interests in the
global notes will be ready for delivery in book-entry form through the facilities of Euroclear and Clearstream Banking on or
about 10 February 2006.
Listing Particulars dated 9 March 2006
TABLE OF CONTENTS
General ........................................................................................................................................................................
ii
Presentation of Information ...........................................................................................................................................
iii
Forward-Looking Statements ........................................................................................................................................
vi
Exchange Rate Information........................................................................................................................................... viii
Summary .....................................................................................................................................................................
1
Risk Factors .................................................................................................................................................................
13
The Acquisition............................................................................................................................................................
25
Use of Proceeds............................................................................................................................................................
27
Capitalisation ...............................................................................................................................................................
28
Selected Historical Financial and Other Data..................................................................................................................
29
Management's Discussion and Analysis of Financial Condition and Results of Operations ...............................................
30
Market Overview..........................................................................................................................................................
48
Business.......................................................................................................................................................................
52
Management ................................................................................................................................................................
65
Principal Shareholders and Share
Capital ....................................................................................................................................................................................
70
Related Party Transactions............................................................................................................................................
72
Description of Certain Other Indebtedness .....................................................................................................................
77
Description of Notes.....................................................................................................................................................
83
Description of Book-Entry System ................................................................................................................................ 130
Tax Considerations....................................................................................................................................................... 133
Exchange Controls........................................................................................................................................................ 138
Plan of Distribution ...................................................................................................................................................... 139
Notice to US Investors.................................................................................................................................................. 141
Notice to Non-US Investors .......................................................................................................................................... 143
Service of Process and Enforcement of Liabilities .......................................................................................................... 145
Legal Matters ............................................................................................................................................................... 146
Independent Auditors.................................................................................................................................................... 146
Available Information................................................................................................................................................... 146
Listing and General Information.................................................................................................................................... 147
Index to Financial Statements........................................................................................................................................ F-1
Annex A—Summary of Differences Between South African GAAP and International Financial Reporting Standards .......
Annex B—Glossary of Defined Terms ..........................................................................................................................
A-1
B-1
GENERAL
Stabilisation
In connection with this offering, the initial purchaser (the "Initial Purchaser") or any person acting for it may over-allot
notes provided that the aggregate principal amount of notes allotted does not exceed 105% of the aggregate principal amount of
the notes or effect transactions with a view to supporting the market price of the notes at a level higher than that which might
otherwise prevail. However, there is no assurance that the Initial Purchaser or any person acting for it will undertake
stabilisation action. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of
the offer of the notes is made and, if begun, may be ended at any time, but it must end no later than the earlier of 30 days after
the issue date of the notes and 60 days after the date of the allotment of the notes.
Responsibility statement
Savcio Holdings (Proprietary) Limited (the "Issuer") accepts responsibility for the information contained in this Listing
Particulars. To the best of the knowledge and belief of the Issuer, the information contained in this document is in accordance
with the facts and does not omit anything likely to affect the import of such information.
This document contains summaries with respect to certain terms of certain documents, but reference is made to the
actual documents, including the indenture governing the notes, copies of which we will make available to prospective purchasers
upon request, for complete information with respect thereto. See "Available Information."
Offering and transfer restrictions
The notes have not been and will not be registered under the United States Securities Act of 1933, as amended (the "US
Securities Act"), or any securities law of any state of the United States. Unless so registered, the notes may not be offered or
sold within the United States except in a transaction that is exempt from, or not subject to, the registration requirements of the
US Securities Act. As a result, the notes are only being offered (a) to qualified institutional buyers as defined in Rule 144A
under the US Securities Act ("Rule 144A") in compliance with Rule 144A and (b) pursuant to offers and sales that occur outside
the United States in compliance with Regulation S under the US Securities Act ("Regulation S"). Prospective purchasers of the
notes are hereby notified that the sellers of the notes may be relying on the exemption from the provisions of the US Securities
Act provided by Rule 144A or Regulation S. See the sections entitled "Notice to US Investors" and "Notice to Non-US
Investors."
The notes offered hereby have not been approved or disapproved by the US Securities and Exchange Commission or
any other securities commission or other regulatory authority in the United States, nor have the foregoing authorities approved
this document or confirmed the accuracy or determined the adequacy of the information contained in this document. Any
representation to the contrary is unlawful.
We have applied to list the notes on the Alternative Securities Market of the Irish Stock Exchange. However, we
cannot assure you that the notes will be listed on any exchange at the time the notes are delivered to the Initial Purchaser or at
any other time.
The notes are subject to restrictions on transferability and resale and may not be transferred or resold except as
permitted under the US Securities Act and applicable laws. Prospective purchasers of the notes should be aware that they may
be required to bear the entire financial risk of the investment for an indefinite period of time.
The notes may not be and, accordingly, are not being offered or sold to prospective investors in the Republic of South
Africa ("South Africa"). Accordingly, the offer of the notes will not be a public offer as defined in Section 142 of the South
African Companies Act, No. 61 of 1973 (as amended) (the "SA Companies Act") and this document does not, nor is it intended
to, constitute a prospectus prepared and registered under the SA Companies Act.
This document is directed only at persons who (i) are outside the United Kingdom or (ii) have professional experience
in matters relating to investments or (iii) are persons falling within Article 49(2)(a) to (d) ("high net worth companies,
unincorporated associations etc") of the UK Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (all
such persons together being referred to as "relevant persons"). This document must not be acted on or relied on by persons who
are not relevant persons. Any investment or investment activity to which this document relates is available only to relevant
persons and will be engaged in only with relevant persons.
Prospective purchasers of the notes must comply with all applicable laws
The distribution of this Listing Particulars and the offer and sale of the notes in certain jurisdictions may be restricted
by law. This document does not constitute an offer of, or an invitation to purchase, any of the notes in any jurisdiction in which,
or to any person to whom, such offer or invitation would be unlawful in such jurisdiction.
Persons into whose possession this Listing Particulars comes are required by us and the Initial Purchaser to inform
themselves about and to observe any such restrictions. For a further description of certain restrictions on the offer and sale of the
notes, see "Plan of Distribution," "Notice to US Investors," and "Notice to Non-US Investors."
This Listing Particulars is preliminary and only as of its date
Prospective purchasers should rely only on the information contained in this document. Neither the Issuer nor the
Initial Purchaser has authorised anyone to provide prospective purchasers with information different from that contained in this
Listing Particulars. If anyone provides prospective purchasers with different or inconsistent information, prospective purchasers
should not rely on it. The Initial Purchaser makes no representation or warranty, express or implied, as to the accuracy or
completeness of information set forth herein, and nothing contained in this Listing Particulars is, or shall be relied upon as, a
promise or representation by the Initial Purchaser.
This Listing Particulars and the information contained herein are subject to completion or amendment without notice.
No investment, legal or tax advice
In making an investment decision, you must rely upon your own examination of the Issuer and its subsidiaries, the
terms of the offering and our financial information. You are not to construe the contents of this Listing Particulars as
investment, legal or tax advice. You should consult your own advisors as to those matters. The Issuer is not, and the Initial
Purchaser is not, making any representation to you regarding the legality of an investment in the notes by you under applicable
investment or similar laws.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS
BEEN FILED UNDER RSA 421-B WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS
EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A
FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE,
COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR
EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE
HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN
APPROVAL TO, ANY PERSON, SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE
MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT
WITH THE PROVISIONS OF THIS PARAGRAPH.
PRESENTATION OF INFORMATION
General
The Issuer, Savcio Holdings (Proprietary) Limited, is a newly incorporated company that acquired the repairs and
services and replacement parts businesses of Delta Electrical Industries Limited ("Delta"). In this Listing Particulars, we refer to
the acquired businesses as the "acquired business," and to the acquisition of the acquired business as the "Acquisition."
References to "Savcio," "we" and "us" are to the acquired business as operated by Delta in respect of periods prior to the
acquisition, and are references to Savcio Holdings (Proprietary) Limited, including the acquired business in respect of periods
subsequent to the Acquisition.
Definitions
For a description of certain terms we use in this Listing Particulars, see "Annex B — Glossary of Defined Terms." In
addition, in this Listing Particulars:
•
"EBITDA" means earnings before interest, taxes, depreciation and amortisation, as set forth on the face of our
income statement;
•
"EU" refers to the European Union;
•
"€" and "euro" mean the single currency of the participating member states in the Third Stage of European
Economic and Monetary Union of the Treaty Establishing the European Community, as amended from time to
time;
•
"IFRS" refers to International Financial Reporting Standards;
•
"rand" and "R" mean the currency of the Republic of South Africa;
•
"SA GAAP" refers to Generally Accepted Accounting Practices in the Republic of South Africa;
•
"South Africa" or "SA" means the Republic of South Africa;
•
"UK" refers to the United Kingdom of Great Britain and Northern Ireland;
•
"United States" or "US" refers to the United States of America; and
•
"US dollars" or "US$" means the currency of the United States.
Market data
This Listing Particulars contains information about our markets and competitive position therein, including the installed
base of rotating electrical equipment and transformers in our target markets, market sizes and our market shares. We are not
aware of any industry or market reports that individually or together comprehensively address the market for maintenance and
repair services for rotating electrical equipment and transformers in South Africa or for any of our other products or services.
We have assembled the information included in this Listing Particulars as follows:
(i)
the installed base in our maintenance and repairs market segments is based on government-issued statistics, including
information included in the operating reports of Transnet (the South African state-owned transport company), Eskom (the South
African power generation and distribution utility) and by the Chamber of Mines of South Africa;
(ii)
estimates of our market size are based on informal contacts with industry participants, customer orders and other
communications; and
(iii)
our position within each of our markets is based on the market data referred to above and our actual revenue in the
relevant market.
Unless otherwise stated, the installed base, market size and market share data contained in this Listing Particulars is for
the financial year ended 27 December 2004.
The overview of the South African maintenance and repair services market within the rail transportation and power
industries in "Market Overview" has been reviewed by Burlington Strategy Advisors (Proprietary) Limited ("Burlington"), a
South African strategy consultancy retained by us to perform a commercial review of, among other things, the structure of the
markets in which we operate. In executing this review, Burlington sourced data from industry participants, experts (including
retired industry participants) and commentators (including news and trade publications).
We believe that the market data contained in this Listing Particulars provide fair and adequate estimates of the size of
our markets and fairly reflect our competitive position within these markets. However, we cannot guarantee you that a third
party using different methods to assemble, analyse or compute market size and market share information would obtain or
generate the same results. In addition, our competitors may define our markets differently than we do.
Financial data
We are a newly organised company formed to acquire the repairs and services and replacement parts businesses of
Delta, which together we refer to as the "acquired business." As of the date of the Acquisition, we had no independent
operations, assets or liabilities. The acquired business was "carved out" of a larger business of Delta. The financial information
contained in this Listing Particulars relates to the carved out business. In connection with the Acquisition, we changed our
financial year end to 30 September and our basis of accounting to IFRS, both effective 1 October 2005.
We present in this Listing Particulars historical financial statements for the acquired business as of and for the financial
years ended 27 December 2002, 2003 and 2004 and the nine months ended 30 September 2005. These financial statements have
been prepared in accordance with SA GAAP and audited by Deloitte & Touche, South Africa. We also present in this Listing
Particulars historical interim financial statements for the acquired business for the nine months ended 30 September 2004. These
financial statements have been prepared in accordance with SA GAAP, and include, in the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial results of the acquired
business for the periods presented.
We intend to prepare our financial statements in accordance with SA GAAP and IFRS beginning with the financial
year ended 30 September 2006. As a result of the change in our financial year-end to 30 September, the three months ended
31 December 2005 is our first quarter of the current financial year, while the comparable three-month period in 2004 was the
fourth quarter of the financial year of the predecessor business and, therefore, subject to various normal year-end adjustments.
Accordingly, our results, which we will report in our first quarterly report, for the quarter ended 31 December 2005 (other than
revenue) will not be fully comparable to the results for the quarter ended 31 December 2004. A discussion of differences
between SA GAAP and IFRS relevant to our financial statements is set forth under the section entitled "Annex A—Summary of
Differences between South African GAAP and International Financial Reporting Standards." Potential investors should consult
their own professional advisers for an understanding of the differences between SA GAAP and IFRS, and how these differences
might affect the financial information contained in this Listing Particulars.
We present our financial statements in South African rand. We have translated, for your convenience, rand amounts
presented in this Listing Particulars into euro at the rate of R7.4546 = €1.00, the Bloomberg Composite Rate on 26 January
2006. We have also translated euro and rand amounts related to the proceeds of this offering and the application of such
proceeds based on this exchange rate. For your information only, the Bloomberg Composite Rate of the euro on 30 September
2005 was R7.6592 = €1.00. You should not view those conversions as a representation that the euro or rand amounts actually
represent those euro or rand amounts, or could be or could have been converted into euro or rand at the rate indicated or at any
other rate.
Certain amounts set forth in this Listing Particulars have been rounded and, as a result, figures shown as totals in some
tables may not be exact arithmetic aggregations of the figures that precede them.
Purchase accounting
The financial statements presented in this Listing Particulars have not been adjusted to reflect the impact of any
changes to the income statements, balance sheets or cash flow statements that might occur as a result of purchase accounting
adjustments to be applied as a result of the Acquisition. The application of purchase accounting could result in different carrying
values for existing assets and assets we may add to our balance sheet, which may include intangible assets, such as trademarks,
customer lists and customer contracts, and different amortisation and depreciation expense. Our financial statements could be
materially different once these adjustments are made.
Non GAAP financial measures
Certain ratios presented in this Listing Particulars are supplemental measures of our performance that are not required
by, or presented in accordance with, SA GAAP. In addition, we present EBITDA figures. EBITDA is not a measure of our
financial performance or liquidity and should not be considered as an alternative to net profit, operating profit or any other
performance measure derived in accordance with SA GAAP or as an alternative to cash flow from operating activities as a
measure of our liquidity. EBITDA has further limitations as an analytical tool, and you should not consider this item in isolation
from, or as a substitute for an analysis of, our operating results, as reported under SA GAAP. Some of these limitations are:
•
it does not reflect our cash expenditures or future requirements for capital expenditures or contractual
commitments;
•
it does not reflect changes in, or cash requirements for, our working capital needs;
•
it does not reflect the significant interest expense or the cash requirements necessary to service interest or principal
payments on our debt;
•
although depreciation and amortisation are non-cash charges, the assets being depreciated and amortised will often
have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements;
•
it is not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows; and
•
other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a
comparative measure.
Due to these limitations, EBITDA should not be considered as a measure of discretionary cash available to us to invest
in the growth of our business. We rely primarily on our SA GAAP results of operations, using EBITDA only as a supplemental
performance measure. See the section entitled "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Other
The financial information included in this Listing Particulars is not intended to comply with US Securities and
Exchange Commission requirements. Compliance with such requirements would require, among other things, the presentation
of financial information in accordance with accounting principles generally accepted in the United States ("US GAAP") (or the
reconciliation of our financial information to US GAAP) and the exclusion of certain non-GAAP financial measures.
The content of and information set forth on any of our websites is not to be deemed to be incorporated into any portion
of this Listing Particulars.
FORWARD-LOOKING STATEMENTS
This Listing Particulars includes forward-looking statements within the meaning of US securities laws. All statements
other than statements of historical facts contained in this Listing Particulars, including, without limitation, those regarding our
future financial position and results of operations, our strategy, plans, objectives, goals, targets and future developments in the
markets in which we participate or are seeking to participate, and any statements preceded by, followed by or that include the
words "anticipate," "believe," "continue," "could," "estimate," "expect," "forecast," "aims," "intends," "will," "may," "plan,"
"should" or similar expressions or the negative thereof, are forward-looking statements. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or
achievements, or industry results, to be materially different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding
our present and future business strategies and the environment in which we will operate in the future. Important factors that
could cause our actual results, performance or achievements to differ materially from those in the forward-looking statements
include, among others:
•
the impact of competition, particularly from large, state-owned repair shops;
•
lack of long-term customers and supplier contracts;
•
loss of significant customers;
•
changes in Black Economic Empowerment requirements and our ability to comply with them;
•
downturns in the industries we service and in the South African economy generally;
•
commodity demand and pricing, in particular for copper;
•
loss of significant suppliers;
•
changes in planned infrastructure spending by the South African government, state-owned utilities and large
state-owned entities, that control significant assets in a specific segment of the economy ("parastatal entities");
•
changes in the structure of parastatal entities resulting in lower private enterprise spending;
•
loss of key personnel;
•
changes in applicable health and safety and environmental regulations;
•
macroeconomic and political conditions in South Africa; and
•
fluctuations in the value of the South African rand.
These and other factors are discussed in the sections entitled "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere in this Listing Particulars.
Because the risk factors referred to in this Listing Particulars, and other factors, could cause actual results or outcomes
to differ materially from those expressed in any forward-looking statements made in this Listing Particulars by us or on our
behalf, you should not place undue reliance on any of these forward-looking statements. Furthermore, any forward-looking
statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of
unanticipated events. New factors will emerge in the future, and it is not possible for us to predict which factors they will be. In
addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors,
may cause actual results to differ materially from those described in any forward-looking statements.
EXCHANGE RATE INFORMATION
South African rand—euro
The following table sets forth, for the period from 1 January 2001 through 26 January 2006, the Bloomberg Composite
Rate expressed as rand per €1.00. The Bloomberg Composite Rate is a "best market" calculation. At any point in time, the bid
rate is equal to the highest bid rate of all contributing bank indications. The ask rate is set to the lowest ask rate offered by these
banks. The Bloomberg Composite Rate is a mid-value rate between the applied highest bid rate and the lowest ask rate.
Year
2001 ......................................................................................................
2002 ......................................................................................................
2003 ......................................................................................................
2004 ......................................................................................................
2005 ......................................................................................................
2006 (through 26 January) ......................................................................
Average*
Low
High
(South African rand per euro)
7.7182
9.8999
8.5256
7.9964
7.9108
7.3606
6.7597
8.9534
7.5118
7.3544
7.4100
7.2155
12.2213
11.2365
9.7106
9.2826
8.4251
7.5013
Period
End
10.6735
8.9809
8.4182
7.6782
7.5211
7.4546
*
The average rate for a year means the average of the closing Bloomberg Composite Rate on each business day during a
year. The average rate for a month, or for any shorter period, means the average of the closing Bloomberg Composite Rate of
each business day during that month, or during any shorter period, as the case may be.
The Bloomberg Composite Rate of the euro on 26 January 2006 was R7.4546 = €1.00.
South African rand—US dollar
The following table sets forth, for the period from 1 January 2001 through 26 January 2006, the Bloomberg Composite
Rate expressed as rand per US$1.00. The Bloomberg Composite Rate is a "best market" calculation. At any point in time, the
bid rate is equal to the highest bid rate of all contributing bank indications. The ask rate is set to the lowest ask rate offered by
these banks. The Bloomberg Composite Rate is a mid-value rate between the applied highest bid rate and the lowest ask rate.
Year
2001 ................................................................................................
2002 ................................................................................................
2003 ................................................................................................
2004 ................................................................................................
2005 ................................................................................................
2006 (through 26 January) ................................................................
Average*
Low
High
Period End
(South African rand per US dollar)
8.6095
10.4972
7.5430
6.4341
6.3661
6.0723
7.5175
8.5702
6.2025
5.6175
5.6537
5.9590
12.4450
12.4150
9.0502
7.3850
6.9200
6.3422
11.9610
8.5702
6.6843
5.6650
6.3288
6.1012
*
The average rate for a year means the average of the closing Bloomberg Composite Rate on each business day during a
year. The average rate for a month, or for any shorter period, means the average of the closing Bloomberg Composite Rate of
each business day during that month, or during any shorter period, as the case may be.
The Bloomberg Composite Rate of the US dollar on 26 January 2006 was R6.1012 = US $1.00.
Our inclusion of these exchange rates is not meant to suggest that the US dollar or euro amounts actually represent such
South African rand amounts or that such amounts could have been converted into South African rand at any particular rate, if at
all.
SUMMARY
This summary highlights information from this Listing Particulars. It is not complete and does not contain all of the
information that you should consider before investing in the notes. You should read this Listing Particulars carefully in its
entirety, including the "Risk Factors," our financial statements and the notes to those financial statements. For a further
description of some of the terms used below, see "Annex B—Glossary of Defined Terms."
Overview
We are the largest privately-owned provider of maintenance and repair services for rotating electrical equipment and
transformers in Africa and have been in operation for more than 90 years. We provide maintenance and repair services for a
variety of motors and transformers in a broad range of industries in South Africa, including the mining, rail transportation, power
generation and distribution, steel production, petrochemical and paper industries. We are also a leading independent
manufacturer and distributor of input materials to the broader South African electrical manufacturing and repair industries, and a
leading distributor of high-quality aftermarket replacement parts for earthmoving equipment and heavy trucks used in the South
African construction, mining and trucking industries. We currently operate two manufacturing facilities, nine workshops and 16
distribution centres throughout South Africa. For the twelve months ended 30 September 2005, we generated revenue of
approximately R1,012.7 million (€135.8 million) and earnings before interest, taxation, depreciation and amortisation
("EBITDA") of R193.7 million (€26.0 million).
Our primary business, which accounted for approximately 50% of our 2004 revenue, is providing maintenance and
repair services for rotating electrical equipment and transformers. We focus on maintaining and repairing medium- to
large-sized equipment. Customers in this market segment are focused on minimal downtime of mission critical facilities,
reliability of repairs and technical expertise. We believe the combination of our well-located and well-equipped workshops,
technical expertise and skilled workforce enables us to successfully undertake a wide range of maintenance and repair services
for motors ranging in size from 1KW to 50MW (among the largest motors in use in South Africa) and for transformers ranging
in size from 315KVA to 200MVA. These capabilities, together with our strong brand names and reputation for delivering highquality, reliable service in a timely manner, reinforce our leadership position in the South African maintenance and repairs
market.
We also operate manufacturing and distribution businesses that supply input materials to our maintenance and repairs
business, as well as to the broader South African electrical manufacturing and repair industries. These businesses accounted for
approximately 28% of our 2004 revenue. Our replacement parts business, which distributes high-quality aftermarket
replacement parts for earthmoving equipment and heavy trucks, accounted for the balance (approximately 22%) of our total
revenue in 2004.
Since January 2000, we have invested R123.0 million towards improving our facilities and technical capabilities,
including test equipment and vacuum pressure impregnation ("VPI") equipment, balancing machines, vacuum dryout ovens and
conductor strip rolling machines. These investments improve the finished product quality and enable us to differentiate
ourselves from lesser-equipped companies. The table below shows how our revenue and EBITDA have increased significantly
and our EBITDA margins have improved between 2000 and 2004:
2000
(unaudited)
Revenue.............................
EBITDA ............................
EBITDA margin(2) ..............
R576.1
86.0
14.9%
Financial year ended 27 December
2001
2002
2003
(unaudited)
(audited)
(audited)
(in millions, except percentages)
R615.1
96.5
15.7%
R772.9
135.2
17.5%
(1)
Compound annual growth rate.
(2)
EBITDA expressed as a percentage of revenue for the relevant period.
R839.2
154.2
18.4%
2004
(audited)
R973.6
180.1
18.5%
CAGR(1)
14.0%
20.3%
Market Opportunity
We compete primarily in the South African electrical maintenance and repairs industry, of which we estimate our
addressable market to be R2 billion. The industry encompasses a wide variety of equipment, ranging from small low voltage
electric motors, used in a number of household consumer and industrial applications, to specialised motors used in rail
transportation and mining, to transformers and large generators used in power generation and distribution facilities. Market
participants range from small workshops focusing on small electric motors (below 18KW) and small transformers (below
1MVA), of which there are over 400, to a few service providers (including original equipment manufacturers ("OEMs"))
capable of repairing medium- to large-sized electric motors (over 1MW) and transformers (over 5MVA). Participants provide
services either in their own workshops or on-site at customer locations. The market for smaller electric motor maintenance and
repairs is characterised by aggressive price competition and low barriers to entry, and is largely a commodity business. The
market for larger equipment maintenance and repairs is characterised by a focus on minimal downtime at "mission critical"
industrial facilities as well as on technical expertise.
We focus on providing maintenance and repair services for electrical equipment in the following sectors:
Mining. South Africa is the world's largest producer of many ores and minerals, including chrome ore, manganese ore,
vanadium, platinum group metals, as well as a significant producer of coal, gold and diamonds. Methods of extraction include
deep underground, open cast and mineral sands mining. Activity within the industry is relatively consistent, with cyclical
downturns in select areas of mining being offset by growth in other areas. For example, while South African gold mining
activity has recently decreased, platinum mining activity has increased. Within the mining sector, we provide maintenance and
repair services primarily for diesel-electric dump trucks, mine winders and medium voltage motors, of which we estimate the
installed base to be 150, 350 and 2,000, respectively.
Rail transportation. The state-owned South African rail transportation network is the largest in Africa, and consists of
commuter rail services for mass public transportation in large metropolitan areas and freight transportation. We provide
maintenance and repair services for commuter electric motor coaches, diesel-electric locomotives and electric locomotives, each
of which contains four or six traction motors and one motor/generator combination. We believe the installed base consists of
approximately 750 commuter electric motor coaches, 1,000 diesel-electric locomotives and 1,600 electric locomotives and has
been largely underserviced for as much as a decade.
We believe market opportunities in this segment will increase for private companies such as ours because the South
African government has announced the following plans: investing approximately R14 billion over the next five years to upgrade
and refurbish the freight rail transport fleet; spending R800 million to refurbish the commuter rail transport fleet, which
expenditure we expect will lead to further similar investments in the future; and the restructuring of the commuter rail transport
segment, which we expect will permit competitive bidding.
Power generation and distribution. South Africa's state-owned power generation and distribution company, Eskom,
was the world's 11th largest generator of electricity by generating capacity in 2004. To address capacity constraints, Eskom has
begun plans to demothball three power plants. The South African government announced the transfer of power distribution
management from Eskom to the country's six largest municipal bodies covering the majority of South Africa's population.
Eskom will continue to manage distribution in the remaining rural areas. We anticipate that these changes will create additional
opportunities by expanding the installed based of 1,200 ancillary electric motors and 15,000 medium-sized distribution
transformers, and by opening bidding on these repairs to independent operators.
General manufacturing. In general manufacturing industries, we maintain and repair electric motors of all types and
transformers across a broad spectrum of sub-industries critical to the South African economy. These include the steel,
petrochemical, paper and pulp and cement industries. We expect the installed base across the general manufacturing industries
we service to increase over the next few years, driven in part by significant announced capital expenditure programmes by major
South African manufacturing companies and anticipated growth in the South African economy.
Competitive Strengths
We believe we benefit from a number of competitive strengths, including the following:
Leading market position. We are the largest privately-owned provider of maintenance and repair services for rotating
electrical equipment and transformers in Africa and have been in operation for more than 90 years. The following table sets
forth our estimated market position in our primary market by product and by industries serviced based on 2004 revenue:
Product
Large-sized transformers.................................................
DC motors .....................................................................
Medium voltage motors ..................................................
Diesel traction motors.....................................................
Electrical traction motors ................................................
Medium-sized transformers.............................................
Low voltage motors........................................................
(1)
Mining
1
1
1
1
1
2
1
Rail
transportation
1
n/a(1)
n/a(1)
1
2
1
n/a(1)
Power
generation/
distribution
2
n/a(1)
2
n/a(1)
n/a(1)
3
2
General
manufacturing
1
1
1
1
1
2
1
Not used in this industry.
Strong customer relationships. We have developed strong, long-standing relationships with our customers by
consistently delivering high-quality maintenance and repair services. Our customers rely on us for "mission critical" repair
services and for our technical expertise. Our customer relationships are reinforced by our extensive proprietary service history
database of both standard and custom-made medium- and large-sized electric motors and transformers installed in South Africa
and our more than 90 years of operations. Fifteen of our top 20 customers during 2004, or their predecessors, have been
customers of ours for more than 20 years. Our customer base includes governmental entities such as Spoornet (the South
African government freight rail operator and a division of Transnet), as well as globally recognised companies, such as:
•
Mining: Anglo-American (and affiliates), Rio Tinto and Goldfields;
•
Steel production: Mittal Steel, Highveld and Columbus Stainless;
•
Petrochemicals: Sasol, Petronas and Caltex; and
•
Paper and pulp: Sappi and Mondi.
Diverse customer and revenue base. We have a diverse customer base and generate revenue across a wide spectrum
of industries. In 2004, we generated revenue from more than 4,200 customers. With the exception of Transnet, which
accounted for approximately 9% of our total revenue in 2004, no single customer accounted for more than 3% of our total
revenue. In addition, our maintenance and repairs business is well-balanced across the industries we serve. In 2004,
approximately 30% of our maintenance and repairs revenue was generated in the mining industry, approximately 23% in rail
transportation and approximately 47% across the general manufacturing and power industries. We believe that the diversity of
our customer and revenue base helps reduce our exposure to a downturn in any individual industry.
High barriers to entry. The segments of the maintenance and repairs industry on which we focus have significant
barriers to entry, including the need for technical know-how, significant capital investment and experienced management. Over
the course of our long operating history, we have built a proprietary service history database of both standard and custom-made
medium- and large-sized electric motors and transformers installed in South Africa. This proprietary knowledge enables us to
reduce maintenance and repair lead times by manufacturing and sourcing critical components required for repairs in advance of
receiving failed equipment at our workshops, as well as to more accurately price our contracts. Capital investment is also
essential to success in the market segments where we compete, as specialised facilities and equipment (such as cranes and test
bays) are required to service the larger-sized equipment on which we focus. Over the past five years, we have invested
R123.0 million towards improving our facilities and technical capabilities and on expanding our transformer repair facility, all of
which differentiate us from our smaller competitors and enhance our ability to service the high-end sectors of our market. We
believe that our proprietary service history database and infrastructure, together with our experienced operational management
team, create significant barriers to entry.
Highly respected trade names. Our trade names are recognised as leaders in the markets they serve and are associated
with reliability, high-quality and technical expertise. LH Marthinusen was founded in 1913 and is associated with advanced
electrical engineering and our total service solution programme, while our Reid and Mitchell brand, founded in 1940, is
associated with high-quality service and a deep knowledge of motors produced by General Electric ("GE"). The Wilec brand
was established in 1970 and is associated with "one-stop-shopping" for all input materials, and our ESP brand is well-respected
as a reliable source of value-for-money spare parts for the construction and mining industries. We believe the strength of our
trade names helps to distinguish us from our competitors.
Experienced management team. Our operational management team has significant industry experience. Our top 10
managers have an average of 19 years experience in our industry and an average of 16 years with us. During their tenure, our
annual revenue, EBITDA and EBITDA margins have consistently increased.
Black economic empowerment credentials. It is increasingly important for South African businesses to have strong
black economic empowerment, or BEE, credentials in order to acquire procurement contracts from public and private sector
customers. A BEE scorecard has been specified by the South African government and is widely used within government-owned
and operated entities, such as Transnet and Eskom, in their procurement process. A number of industries, including mining and
petrochemicals, have adopted or are expected to adopt their own scorecards, and the government has indicated that it intends to
make its BEE scorecard generally applicable to both public and private sector procurement. To date, we have been BEEaccredited by Transnet, Eskom, the South African Mining Preferential Procurement Forum ("SAMPPF"), the collective industry
body for the mining industries, and Empowerdex, a third-party BEE verification service. Our BEE credentials enhance our
ability to win contracts as well as differentiate us from many of our competitors.
Strategy
Our objective is to increase our revenue and cash flows by leveraging our strengths and by pursuing total service
solution opportunities. The key elements of our strategy are as follows:
Target specific infrastructure opportunities. We plan to capitalise on rail transportation upgrades and the expected
reorganisation of power distribution within South Africa.
•
Rail transportation upgrades. The South African government has recently announced plans that include spending
approximately R14 billion over the next five years to upgrade and refurbish the South African freight rail transport
fleet, which includes the refurbishment of traction motors. In addition, the government has announced plans to
spend R800 million to upgrade and refurbish the commuter rail transport fleet, which expenditure we expect will
lead to further similar investments in the future.
•
Creation of regional electricity distributors. Recently, the South African government announced it would
restructure power distribution in South Africa by creating seven regional electricity distributors ("REDs") and
transfer the management of six REDs from Eskom to metropolitan councils. Unlike Eskom, for whom
substantially all maintenance and repair services are conducted by its in-house repair workshop, Rotek, the six
municipal REDs are expected to invite open bidding for maintenance and repair contracts, including transformer
repair. We expect the REDs management transfer to begin in the near future.
We believe that these initiatives will significantly expand our addressable market and that we are well-positioned to
capitalise on expansion opportunities.
Continue to leverage our BEE credentials. We intend to capitalise on our strong BEE credentials and accreditations
to increase our revenue from government and large private contracts. We are currently BEE-accredited by Transnet, Eskom,
SAMPPF and Empowerdex. We will continue to focus on obtaining BEE accreditations from leading industry bodies as well as
from the key BEE verification agencies recognised by the South African government. We believe our BEE credentials will
increase our contract procurement opportunities, particularly in the rail transportation and power industries.
Focus on value-added services. We aim to leverage our strong customer base and other strengths to expand the
value-added services we offer. Prior to the 1990s, most of our customers elected to use internal workshops to design and
administer maintenance programmes. In the 1990s, we began offering monitoring and motor maintenance services, capturing
the growing trend toward outsourcing. We recently began offering a total service solution programme providing for on-site
equipment monitoring, diagnostics and preventive maintenance designed to reduce facility downtime. We believe that our
proprietary service history database for both standard and custom-made medium- and large-sized electric motors and
transformers installed in South Africa will position us well to offer these services cost-effectively, as well as to capture a higher
proportion of our customers' maintenance and repairs spending.
The Acquisition and Related Transactions
Effective 1 October 2005, we acquired substantially all of the assets and liabilities of the repairs and services and
replacement parts businesses of Delta Electrical Industries Limited ("Delta") and certain shareholdings in two BEE entities
controlled by Delta at a total cost of R1,393.7 million, including fees and expenses and a post-closing purchase price adjustment
of R46.3 million paid on 30 October 2005. The Acquisition was funded with a combination of R600.0 million of borrowings
under our existing senior credit facilities, R747.4 million of shareholder funding and R46.3 million of short-term borrowings,
which have been subsequently repaid, and cash on hand. See "The Acquisition" for further information about these transactions.
Our Principal Shareholders
Our principal shareholders are:
•
Ethos Private Equity Fund IV (referred to as "Ethos"), a fund managed by Ethos Private Equity, which holds
shares representing 25.00% of our voting rights;
•
funds managed by Actis Okavango Limited and AAEF Okavango Limited (referred to collectively as "Actis"),
which collectively hold shares representing 25.00% of our voting rights;
•
Old Mutual Life Assurance Company (South Africa) Limited (referred to as "Old Mutual"), the investments of
which are managed by its affiliate, Old Mutual Asset Managers (South Africa) (Proprietary) Limited ("OMAM"),
which holds shares representing approximately 15.00% of our voting rights;
•
Aka Capital (Proprietary) Limited, a BEE shareholder (referred to as "Aka"), which holds shares representing
approximately 12.35% of our voting rights; and
•
Sphere Fund I GP and Sphere Investments, BEE shareholders (referred to collectively as "Sphere"), the
investments of which are managed by Sphere Holdings (Proprietary) Limited, an affiliate of Ethos Private Equity,
which collectively hold shares representing approximately 12.35% of our voting rights.
Our remaining shareholders are members of management (through the Repairs and Services Management Trust and the
Replacement Parts Management Trust), which collectively hold shares representing 9.00% of our voting rights; Mr. Mervyn
Naidoo, a BEE shareholder (the "BEE Minority Investor"), who holds shares representing approximately 1.30% of our voting
rights; and two independent directors, Lex van Vught and Neill Davies, whose shares have nominal voting rights.
For a description of the rights of and other information about our principal shareholders, see "Our Principal
Shareholders and Share Capital."
Savcio Holdings (Proprietary) Limited is a limited liability company incorporated under the laws of South Africa on
23 December 2004 under the Registration No. 2004/036123/07. Our headquarters are located at Bruma Boulevard, 20 Zulberg
Close, Bruma, 2026, Republic of South Africa. Our telephone number is +27 11 615 6002.
THE OFFERING
The summary below describes the principal terms of the notes. Certain of the terms and conditions described below are
subject to important limitations and exceptions. The "Description of Notes" section of this Listing Particulars contains a more
detailed description of the terms and conditions of the notes, including the definitions of certain terms used in this summary.
Issuer .................................................
Notes Offered.....................................
Issue Price..........................................
Maturity.............................................
Interest...............................................
Savcio Holdings (Proprietary) Limited.
€125,000,000 aggregate principal amount of 8% senior secured notes due 2013.
100%.
15 February 2013.
8% per annum, payable semi-annually in arrears on each 15 February and 15 August
commencing on 15 August 2006.
Ranking of the Notes .......................... The notes will be the Issuer's senior obligations and will:
•
rank equal in right of payment to all of the Issuer's existing and future
indebtedness that is not subordinated in right of payment to the notes, including
indebtedness under the Issuer's new revolving credit facility;
•
rank senior in right of payment to all of the Issuer's existing and future
indebtedness that is subordinated in right of payment to the notes;
•
be effectively senior to all of the Issuer's existing and future unsecured
indebtedness to the extent of the assets indirectly securing the notes; and
•
indirectly be secured on a first-ranking basis by substantially all of the assets of
the Issuer (and any future subsidiary guarantor), other than the receivables of our
maintenance and repairs business unit which will secure the Issuer's new
Optional Redemption..........................
Mandatory Offers ...............................
Security..............................................
Certain Covenants ..............................
revolving credit facility. See the section entitled "—Security" below. The
holders of the notes will benefit from a reversionary cession in respect of such
receivables, entitling them to proceeds remaining following any enforcement by
the lender under the new revolving credit facility of its security. See "Description
of Certain Other Indebtedness."
The hedging arrangement in respect of currency conversion risk relating to the notes
will be secured on a pari passu basis with the notes.
We may redeem the notes prior to 15 February 2010 at 100% of their principal amount
plus a make-whole premium, as described herein. The Issuer also may redeem some
or all of the notes on or after 15 February 2010 at the redemption prices described in
the section entitled "Description of Notes—Optional Redemption."
We may redeem up to 35% of the aggregate principal amount of all notes outstanding
prior to 15 February 2009 at a redemption price of 108%, plus accrued and unpaid
interest, with the proceeds of certain public equity offerings. We may make that
redemption only if, after the redemption, at least 65% in aggregate principal amount of
notes originally issued remain outstanding.
The Issuer may, but is not obliged to, redeem all (but not some) of the notes if it has or
will become obliged to pay additional amounts due to certain tax developments. See
the sections entitled "Description of Notes—Additional Amounts" and "—Redemption
for Changes in Withholding Taxes."
Upon a change of control, as defined in the section entitled "Description of Notes," the
Issuer will be required to offer to purchase the notes. The purchase price will be equal
to 101% of the principal amount of the notes, plus accrued and unpaid interest.
In certain circumstances described under the caption "Description of Notes—Asset
Sales," the Issuer will be required to offer to purchase the notes with the net cash
proceeds from asset sales. The purchase price will be equal to 100% of the principal
amount of the notes, plus accrued and unpaid interest.
Project Okavango Security Vehicle (Proprietary) Limited, a special purpose vehicle
formed in connection with our financing arrangements (the "Security SPV"), will
provide a guarantee to each of the trustee under the indenture and the hedging
counterparties. The guarantees will constitute the only liability of the Security SPV.
The Issuer will counter-indemnify the Security SPV for any and all amounts payable
under the Security SPV guarantees. The Issuer's obligations under the
counter-indemnity will be secured by substantially all of the assets of the Issuer, other
than the receivables of the Issuer's maintenance and repairs business unit that will
secure the Issuer's new revolving credit facility. The counter-indemnity will be further
secured by a reversionary interest in any proceeds remaining following enforcement of
the security over the receivables of the Issuer's maintenance and repairs business unit
that secure the new revolving credit facility. Recovery under the Security SPV
guarantees will be limited to amounts recovered by the Security SPV under the
counter-indemnity and security arrangements.
Because the security interests in the Issuer's assets will not be granted directly to the
holders of the notes, the trustee for the holders of the notes, or the hedging
counterparties, neither the trustee nor any hedging counterparty will be entitled to take
any enforcement action with respect to those security interests other than through the
Security SPV guarantees.
The indenture governing the notes will contain covenants that, among other things,
will limit the ability of the Issuer and its subsidiaries to:
•
incur more debt;
•
create liens;
•
pay dividends and make distributions or repurchase shares;
•
make investments;
•
sell assets;
•
enter into new businesses;
•
enter into sale-leaseback transactions;
•
merge or consolidate or transfer and sell substantially all of our assets; and
•
engage in transactions with affiliates.
These limitations will be subject to a number of important qualifications and
exceptions. See the section entitled "Description of Notes—Certain Covenants."
Use of Proceeds.................................. The proceeds from the issuance of the notes are expected to be € 119.9 million after
deducting fees and expenses associated with the offering. The Issuer intends to use the
net proceeds to repay indebtedness under its existing senior credit facilities and a
portion of its existing shareholder loans and for general corporate purposes. See "Use
of Proceeds."
Form of Notes .................................... The notes will initially be issued in the form of global notes and will be deposited
with, and registered in the name of, a common depositary for Euroclear and
Clearstream Banking.
Ownership of interests in the global notes ("Book-Entry Interests") will be available
only to participants in Euroclear, Clearstream Banking or persons that hold interests
through those participants. Book-Entry Interests in the notes will be shown on, and
transfers thereof will be effected only through, records maintained in book-entry form
by Euroclear and Clearstream Banking and their participants. See the section entitled
"Description of Book-Entry System."
Transfer Restrictions........................... The notes have not been and will not be registered under the US Securities Act, or any
other securities laws and, as such, may not be offered or sold except pursuant to an
exemption from, or in a transaction not subject to, the registration requirements of the
US Securities Act and in compliance with all other applicable laws. See the sections
entitled "Notice to US Investors" and "Notice to Non-US Investors."
Governing Law .................................. The indenture and the notes will be governed by and construed in accordance with the
laws of the State of New York.
The agreements and the documents forming and governing the Security SPV, the
Security SPV guarantees, the counter-indemnity, the intercreditor agreement, the
shareholder subordination agreement and the security agreements will be governed by
and construed in accordance with South African law.
Listing ............................................... The Issuer has applied to list the notes on the Alternative Securities Market of the Irish
Stock Exchange.
Taxation............................................. For a discussion of the material tax consequences of an investment in the notes, see the
section entitled "Tax Considerations."
Risk Factors ....................................... See the section entitled "Risk Factors" for a discussion of certain factors that
prospective purchasers of the notes should carefully consider before investing in the
notes.
For additional information regarding the notes, see the section entitled "Description of Notes."
Summary Corporate and Financing Structure
The diagram below illustrates, in simplified form, our corporate and financing structure after giving effect to the
offering of the notes and the use of the proceeds therefrom in accordance with "Use of Proceeds." See "Use of Proceeds,"
"Description of Certain Other Indebtedness" and "Description of Notes." Each of the entities below is a limited liabilty company
incorporated under the laws of South Africa.
(1)
Percentages indicate voting rights. We also have two independent directors, Messrs. van Vught and Davies, who as
holders of Class D shares have nominal voting rights. See "Principal Shareholders and Share Capital."
(2)
The new revolving credit facility will be secured by a security interest in eligible receivables.
(3)
Eligible receivables consist of the receivables generated by the maintenance and repairs business of the Issuer.
Although the notes are not secured by the eligible receivables, the notes will be further secured by a reversionary interest in any
proceeds remaining following enforcement of the security over the eligible receivables that secure the new revolving credit
facility.
(4)
The Security SPV will provide each of the trustee under the notes and the hedging counterparties with a guarantee, and
will benefit from a counter-indemnity from the Issuer with respect to the guarantees. The counter-indemnity will be secured via
the guarantees by substantially all of the assets of the Issuer, other than the eligible receivables.
(5)
Bukubuhle Wire (Proprietary) Limited is a subsidiary in which BEE partners own the other 30%. This entity does not
guarantee the Issuer's obligations under the notes.
Summary Historical Financial Data
The audited historical financial data as of and for the nine months ended 30 September 2005 and the financial years
ended 27 December 2002, 2003 and 2004 are derived from the historical financial statements of the acquired business, which
appear elsewhere in this Listing Particulars. Those financial statements have been audited by Deloitte & Touche, South Africa,
as stated in their report thereon included elsewhere in this Listing Particulars. The unaudited historical financial data for the nine
months ended 30 September 2004 are derived from the unaudited financial statements for the acquired business for such period
included elsewhere in this Listing Particulars. The unaudited financial statements include, in the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial results for such period.
Interim results are not necessarily indicative of the results that may be expected for any other interim period or the full year.
You should read the summary historical financial data presented below in conjunction with the information contained
in "Presentation of Information—Financial data," "Risk Factors," "Capitalisation," "Selected Historical Financial and Other
Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements, including the related notes, appearing elsewhere in this Listing Particulars.
2005
Financial year ended 27 December
2002
2003
2004
(audited)
(audited)
(audited)
Consolidated income
statement data:
Revenue .......................
Cost of sales..................
Gross profit................
Operating costs(1)...........
Earnings before interest,
taxation, depreciation
and amortisation(2) ......
Depreciation .................
Amortisation of
trademarks .................
Operating profit..........
Net interest received......
Taxation .......................
Net profit ...................
Consolidated balance
sheet data (as at period
end):
Cash and cash
equivalents(3) ..............
Total liabilities..............
Total assets...................
Total owners' net
investment(4)...............
Other financial data:
Net cash inflow from
operating activities .....
Capital expenditures......
Nine months ended
30 September
2004
2005
(unaudited)
(audited)
R772,920
(477,298)
295,622
(160,416)
R839,187
(505,605)
333,582
(179,400)
R973,619
(591,048)
382,571
(202,446)
R742,210
(464,169)
278,041
(155,472)
R781,276
(484,300)
296,976
(160,816)
135,206
(11,877)
154,182
(13,900)
180,125
(15,406)
122,569
(11,264)
136,160
(12,526)
(589)
122,740
9,066
(45,422)
R86,384
(589)
139,693
12,353
(53,290)
R98,756
(589)
164,130
9,283
(59,793)
R113,620
(443)
110,862
6,625
(42,238)
R75,249
(443)
123,191
8,426
(50,096)
R81,521
R143,543
144,172
468,056
R173,409
164,543
554,456
R187,642
169,890
635,548
R158,689
183,607
597,810
R163,046
151,996
637,818
323,884
387,602
450,324
410,347
479,343
R102,427
(15,353)
R171,900
(23,594)
R159,749
(41,266)
R105,002
(30,120)
R94,196
(16,455)
(1)
Our carve out financial statements include allocations of some of Delta's expenses, including treasury, IT, tax,
insurance, audit, pension fund and medical aid costs. The expense allocations have been determined on the basis of actual cost,
except head office salaries and infrastructure costs, financial reporting, listing costs, legal and miscellaneous other costs, which
have been determined on bases considered by management to be reasonable reflections of the utilisation of services provided or
the benefit received by our businesses. The costs of these services charged to the businesses are not necessarily indicative of the
costs that would have been incurred if we had performed these functions as a stand-alone company during the periods presented.
Following the completion of the Acquisition, we will perform these functions using our own resources or through purchased
services. For more information about our carve out financial statements, see "Presentation of Information—Financial data."
(2)
We present earnings before interest, taxation, depreciation and amortisation (EBITDA) because we believe it is
frequently used by securities analysts, investors and other interested parties in evaluating similar issuers and as a supplemental
measure of our ability to service our debt. Nevertheless, EBITDA has limitations as an analytical tool, and you should not
consider it in isolation from, or as a substitute for an analysis of, our operating results, as reported under SA GAAP. See
"Presentation of Information—Non GAAP financial measures."
(3)
In connection with the Acquisition, we did not acquire any cash or cash equivalents from Delta. For a description of
our historical cash balances, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—
Financial statement presentation."
(4)
Because the acquired business was not a separate legal entity, owners' net investment is presented in place of
shareholders' equity.
RISK FACTORS
An investment in the notes involves a high degree of risk. You should carefully consider the following risks, together
with other information provided to you in this Listing Particulars, in deciding whether to invest in the notes. The occurrence of
any of the events discussed below could harm us. If these events occur, the trading price of the notes could decline, we may not
be able to pay all or part of the interest or principal on the notes, and you may lose all or part of your investment. Additional
risks not currently known to us or that we now deem immaterial may also harm us and affect your investment.
This Listing Particulars contains "forward-looking" statements that involve risks and uncertainties. Our actual results
may differ significantly from the results discussed in such forward-looking statements. Factors that might cause such
differences include those discussed below. See "Forward-Looking Statements."
Risks related to our business and industry
We face competition from in-house workshops of state-owned customers, from original equipment manufacturers and from
smaller private competitors.
In 2004, we generated approximately 9% and 2% of our revenue from maintenance and repair services undertaken for
the rail transportation and power industries, respectively, in which our largest customers were the parastatals Transnet and
Eskom. In this part of our maintenance and repairs business, we face significant competition from Transwerk and Rotek, the inhouse repair workshops of Transnet and Eskom, respectively. Historically, Transwerk and Rotek have undertaken all
maintenance and repairs work for Transnet and Eskom without the need for third-party bidding, subject only to their capacity
constraints. While capacity constraints at their workshops have in the past created, and continue to create, significant
opportunities for independent maintenance and repairs companies such as Savcio, if Transwerk or Rotek were to recapture all or
a portion of the maintenance and repairs work historically outsourced to us, our revenue, results of operations and liquidity could
be materially adversely affected.
In the medium-sized motor market, we face competition from OEMs, such as ABB South Africa (Proprietary) Limited
and Alstom Electrical Products (Proprietary) Limited, in the repair of their own motors, and from smaller independent
maintenance and repairs participants. Competition in this segment is partially based on price, as well as relationships with motor
manufacturers and technical capabilities. Some of our OEM competitors are affiliates of multinational companies with access to
greater financial resources than we have, and some of our smaller competitors in the market for medium-sized motor repair offer
lower prices. Both types of competitors may be better able to withstand changes in market or economic conditions than we can.
Increased competition in this market could result in lower prices and margins or a decrease in our market share, any of which
could have a material adverse effect on our revenue, results of operations and liquidity.
In the small-sized motor maintenance and repairs market, where we generated approximately 7% of our 2004 revenue,
we face significant competition from an estimated 400 market participants. Competition in this market is focused on price, and,
unlike in the medium- and large-sized motor maintenance and repairs market where we focus our activity, there are relatively
low barriers to entry as maintenance and repairs of small motors can be undertaken without making significant capital
investment in cranes and other workshop capabilities. Although this market currently represents a small component of our
business, our competitors in this market could move into the larger equipment maintenance and repairs markets where we
currently benefit from less competition. Were this to occur, we might lose market share, in which case our revenue, results of
operations and liquidity would be adversely affected.
Our customer concentration and lack of long-term contracts expose us to risks, as does the fixed price nature of our work
orders.
Our top five customers in 2004 generated approximately 19% of our revenue. As is industry practice, we undertake
substantially all of our maintenance and repair work under individual work orders. Consequently, our customers do not typically
maintain long-term contractual relationships with us. The loss of, or our failure to replace, one or more of our larger customers
could have a material adverse effect on our revenue, results of operations and liquidity. Furthermore, under our work orders, we
typically set prices for each work order based on our estimated costs, including materials (such as copper) and in-house labour
requirements. Some of our largest work orders—for mine winders, for example—could take up to 12 months to complete.
Consequently, we must accurately estimate our cost of materials and in-house labour requirements to achieve targeted
profitability. From time to time, there have been significant increases in the prices of input materials, such as copper, or energy
costs during a work order and failure to pass these price increases on to customers can reduce or eliminate projected profits
under work orders. Failure to achieve targeted profitability under a large work order or significant number of work orders could
adversely affect our results of operations and liquidity.
Maintaining and increasing revenue from public and private sector based customers will require us to comply with the
government's BEE requirements.
The South African Broad-based Black Economic Empowerment Act No. 53 of 2003 (the "SABEE Act") requires that
our parastatal customers, such as Transnet and Eskom, comply with BEE policies designed to encourage them to procure goods
and services from suppliers that demonstrate high levels of compliance with the South African government's BEE scorecard.
This trend is expected to intensify as BEE initiatives are rolled out by the South African government. In particular, our
parastatal customers generally may only award supply contracts to enterprises that meet minimum BEE standards (generally
including at least 25% black ownership) and are required to consider each vendor's credentials, as determined by reference to the
BEE scorecard contained in the Codes of Good Practice issued under the SABEE Act when awarding contracts. Private sector
customers, who themselves have significant interactions with the public sector (whether by reasons of a supplier relationship or
by reason of their holding a government issued licence), also use the same or similar scorecards to evaluate their suppliers.
We are currently BEE-accredited by Transnet, Eskom, SAMPPF and Empowerdex, and we believe that our BEE
credentials are more than minimally acceptable by market standards. We will continue to focus on improving our BEE
credentials, since we may have competitors whose BEE credentials are better than ours. Furthermore, BEE codes are still being
developed, and changes to the codes may require us to take further action to meet even minimal standards. In addition to
changes in BEE accreditation standards or changes to our shareholder base, the composition of our management or other
relevant factors, such as the racial composition of our employees, may make it difficult for us to maintain our current BEE
credentials. Loss of our state-owned customers or significant private customers who impose BEE requirements on their
suppliers could have a material adverse effect on our revenue, results of operations and liquidity.
The industries we target, and the South African economy generally, are subject to downturns, particularly resulting from
decreasing commodity prices and a strengthening rand.
The South African economy in general, and the specific industries we target, are sensitive to changes in commodity
prices and in the value of the rand. Changes in commodity prices impacts demand for many of our customers' products on the
global market. In addition, the value of the rand impacts our customers' cost to produce their products, and thus the profitability
of our customers. During the trough of the price cycle for a commodity, or periods in which the rand is strong, commodity and
manufacturing customers often defer maintenance of equipment and sometimes delay capital expenditure until their profitability
improves. As a result, during those periods, our maintenance and repairs orders and sales of input materials and spare parts may
decline and our revenue, results of operations and liquidity may be adversely affected. When industries are interrelated, such as
mining and finished metals production, the negative impact of commodity prices and rand value movements may be exacerbated
and maintenance expenditure and capital expenditure may be more adversely affected.
We face supply risks relating to copper, an essential input material in our conductor manufacturing business and a key
material for other parts of our business, as well as in respect of the supply of other items.
Copper is the primary component of magnet wire, the main product manufactured by our Transwire business.
Furthermore copper is, in the form of wire and other conducting elements of electric equipment, the most important input
material used in the repair of electrical equipment that we service. If the Palabora Mining Company ("PMC"), which supplied
approximately 85% of our copper rod needs in 2004, were to cease operating or to suffer a disruption in supply, we would be
forced to source copper internationally. PMC has recently suffered production set backs linked to its transition from open pit to
deep underground mining, causing us to open supply channels with suppliers in Australia, Germany and Zambia. We could
suffer delays in obtaining adequate supplies of copper in the international markets and would likely be required to incur
additional costs such as shipping, which we might be unable to pass on to our customers. As a result, our revenue, results of
operations and liquidity may be materially adversely affected.
We are also dependent on sole suppliers for certain products such as various brands of tape and electrical components,
including those we sell under agency arrangements through Wilec. If we were to lose a significant number of these
supply/agency arrangements, or cease to be an agent for various companies, it could have a material adverse effect on our
revenue, results of operations and liquidity.
We are exposed to foreign exchange rate fluctuations in respect of the copper conductor we use in our business as well the
materials we import.
Because of the significance of copper conductor in many aspects of our business, any change in the price of copper has
an impact on our revenue, cost of supply and profitability. The price of copper is subject to considerable volatility and is
affected by numerous factors beyond our control. In addition, the price we pay for copper is dependent on the rand - US dollar
exchange rate, as the price both for South African and imported copper is based on the US dollar spot price quoted by the
London Metal Exchange (LME). Since 1 January 2003, the LME per-pound price of copper has increased steadily from $0.72
to $2.16 as of 30 December 2005, offset from time to time during this period by increases in the value of the rand against the US
dollar. Volatility in the price we pay for copper can result in significant fluctuations in our cost of goods, and increases in the
rand price of copper would have an adverse impact on profitability if we are unable to pass the price increases on to our
customers.
In addition to the impact of exchange rate movements on the copper price, exchange rate movements also impact the
results of operations of our businesses that import other products or materials. In 2004, approximately 90% of revenue in our
replacement parts segment was from the sale of imported parts paid for by us mainly in US dollars or euro, and was therefore
impacted by fluctuations in the value of the rand against the US dollar and euro. Our results can also be impaired by our long
inventory cycle (up to 30 weeks) in the replacement parts segment, for which we take forward exchange cover at the time we
place our order. As a result, unit costs may not change as quickly as selling prices that are impacted by factors existing at the
time of sale. In 2004, our Wilec business unit derived approximately 25% of its total revenue from the sale of imported
merchandise paid for by us mainly in US dollars or euro, and is therefore also subject to fluctuations in the value of the rand
against these currencies. A decline in the value of the rand against these currencies would make goods purchased in those
currencies more expensive to us, and we may not be able to reflect such cost increases in the rand price we charge for our
products and services.
Part of our growth strategy focuses on opportunities arising out of announced infrastructure spending by the South African
government or expected reorganisations of South Africa's state-owned utilities and organisations. These opportunities may
not arise.
We derived approximately 11% of our 2004 revenue from sales to state-owned organisations and currently intend to
increase our revenue from state-owned customers, particularly in the power industry. We believe that we will increase our
revenue from government initiatives such as infrastructure investment and reorganisations. Although these expenditures and
reorganisations have been announced, there can be no guarantee that the investment or reorganisations will occur as planned, or
at all. In addition, the political climate and priorities in South Africa can change rapidly and a number of legislatively-approved
actions, including budgetary spending, may not occur as and when planned. If these government initiatives do not occur, we
may not achieve anticipated revenue growth.
We are reliant on our key personnel.
We are highly dependent on our key personnel, such as Messrs. Spoon and Hitchcock, our Chief Executive Officer and
Deputy Chief Executive Officer, respectively. The loss of the service of our key personnel could materially adversely affect our
ability to maintain or to increase our revenue and profitability. In addition, there is significant competition for qualified
management and skilled employees and our failure to recruit, train, and retain such employees could have a material adverse
effect on our revenue, results of operations and liquidity.
The cost of compliance with, and liabilities under, environmental and health and safety laws could increase our operating
costs and failure to comply with these laws could subject us to penalties.
Our operations are subject to the South African Occupational Health and Safety Act No. 85 of 1993, or OHSA, and
other environmental and health and safety laws and regulations, which govern, among other things, the release and cleanup of
hazardous substances, the installation of safety devices, workplace safety training and monitoring of workplace hazards. Future
environmental and health and safety regulations may impose stricter compliance requirements. We may also be liable for
damages should personal injuries occur from safety related or environmental violations. Our operations expose employees to
hazardous conditions, including to high voltage electrical currents. The cost of complying with environmental and health and
safety laws, the imposition of civil or criminal liability for violations and/or liability for damages arising under personal injury
actions could have a material adverse effect on our results of operations and liquidity. In addition, our operating locations have
generally not been subject to comprehensive environmental assessments to determine whether there are areas of contamination
at them, and no assurances can be given that we will not face material cleanup costs in the future in the event that such
contamination has (or is deemed to have) occurred.
Our rights to indemnification in respect of the Acquisition are capped.
As part of the Acquisition, Delta and DMS have agreed to indemnify us for various matters, including breaches of
representations, warranties and undertakings. These indemnities are subject to contractual limits. We generally would not
recover amounts in excess of such limits even if we incurred losses in excess of such amount. We also agreed to accept all
warranty claims that arise after 1 October 2005. Our obligations in respect of these claims are not capped.
Risks related to South Africa
There are risks associated with investing in South Africa.
South Africa is generally considered an emerging market and there are many risks associated with an investment in
South Africa, including:
•
adverse changes in economic and governmental policy;
•
relatively low levels of disposable consumer income;
•
relatively high levels of crime;
•
unpredictable changes in the legal and regulatory environment;
•
relatively high levels of corruption;
•
the impact of exchange controls;
•
inconsistent application of existing laws and regulations; and
•
slow or insufficient legal remedies.
Political, economic, social and other developments in South Africa may have an adverse effect on our revenue, results
of operations and liquidity or on the market value and liquidity of the notes.
South African exchange control restrictions could hinder our ability to procure and/or repay non-rand denominated
financings.
South Africa's exchange control regulations restrict business transactions between residents of the Common Monetary
Area on the one hand, which consists of South Africa, the Republic of Namibia and the Kingdoms of Lesotho and Swaziland,
and non-residents of the Common Monetary Area on the other hand. In particular, South African companies:
•
are generally not permitted to export capital from South Africa, hold foreign currency in excess of certain limits or
incur indebtedness denominated in foreign currencies without the approval of the South African exchange control
authorities; and
•
are prohibited from using transfer pricing and excessive interest rates on foreign loans as a means of expatriating
currency.
These restrictions could hinder our ability to procure non-rand denominated financings in the future. While the South
African government has relaxed exchange controls in recent years, it is difficult to predict what action, if any, the government
may take in the future with respect to exchange controls. The government may continue to relax or may abolish exchange
controls in the future. However, if the government were to tighten exchange controls, these restrictions could further hinder our
ability to procure non-rand denominated financings in the future and could adversely impact our results of operations and
liquidity.
The issuance of the notes and our ability to make scheduled interest payments and to pay principal at maturity under the
notes require the approval of the South African exchange control authorities, which we have obtained. To repurchase or redeem
notes prior to their stated maturity, however, including upon a change of control, upon a tax withholding event or with the
proceeds of asset sales, we would need to obtain additional approvals from the South African exchange control authorities,
which may take a significant amount of time to obtain, if we can obtain them at all. If we could not obtain that consent (and,
therefore, did not offer to repurchase or redeem the notes following a change of control, tax event or asset sale offer, as the case
may be), an event of default would occur, requiring us to repay the notes at par plus accrued interest.
The high rates of HIV infection in South Africa could cause us to lose skilled employees or incur additional costs, either of
which could cause our revenue, results of operations and liquidity to decline.
South Africa has one of the highest reported HIV infection rates in the world. The exact impact of increased mortality
rates due to AIDS-related deaths on the cost of doing business in South Africa and the growth rate at the economy is unclear at
this time. We may lose employees with valuable skills due to AIDS-related deaths, and our results of operations and financial
condition could be materially adversely affected if we lose those employees. In addition, we may incur education and
prevention costs. Our results of operations and liquidity could be materially adversely affected if our employee health-related
expenses increase.
Risks relating to the notes
We must use a significant portion of our cash flow to service our substantial indebtedness, which could limit our access to
additional capital. Our ability to generate sufficient cash in the future depends on many factors, some of which are beyond
our control.
As of 30 September 2005, on a pro forma basis after giving effect to this offering and the application of proceeds
therefrom as described under "Use of Proceeds," we had outstanding total external debt of R931.8 million (€125.0 million). We
also had R482.8 million (€64.8 million) of shareholder loans outstanding at such time on a pro forma basis. Our substantial
indebtedness could have important consequences to us including:
•
requiring us to dedicate a significant portion of our cash flow from operations to make payments on our
indebtedness, thereby reducing the portion of our cash flow available to fund our working capital and capital
expenditure needs and for other general corporate purposes;
•
increasing our vulnerability to general adverse economic and industry conditions;
•
limiting our flexibility in planning for, or reacting to, changes in our business and the industries in which we
operate;
•
limiting our ability to make strategic acquisitions or engage in other corporate transactions;
•
placing us at a competitive disadvantage compared to our competitors that have less indebtedness; and
•
limiting our ability to borrow additional funds and increase the cost of any such borrowings.
Our ability to make payments on and repay or refinance our indebtedness, including the notes, and to fund our working
capital requirements and capital expenditures, will depend on our future operating performance and ability to generate cash.
This will depend, to some extent, on general economic, financial, competitive, market and other factors, many of which are
beyond our control. Furthermore, we may incur additional indebtedness in the future that may contain financial or other
covenants more restrictive than those contained in the indenture governing the notes.
Although we currently believe that our future cash flows, together with available borrowings, will be adequate to
service our indebtedness and fund our working capital and capital expenditure needs, we cannot assure you that our business will
generate sufficient cash or that future borrowings will be available to us for such purposes. If our future cash flows and
available borrowings are insufficient to service our debt and fund our liquidity needs, we may be forced to:
•
reduce or delay capital expenditures;
•
sell assets;
•
obtain additional indebtedness or equity capital;
•
restructure or refinance all or a portion of our indebtedness, including the notes, on or before maturity; or
•
forego opportunities such as strategic joint ventures and acquisitions of other businesses.
This could have a material adverse effect on our revenue, results of operations and liquidity.
Despite our current levels of indebtedness, we may still be able to incur substantially more debt.
The terms of the indenture governing the notes and our new revolving credit facility will limit, but not prohibit, us or
our subsidiaries from incurring additional indebtedness. Consequently, we and our subsidiaries may incur substantial additional
indebtedness in the future. Any such incurrence of additional indebtedness could exacerbate the leverage related risks that we
now face.
Fluctuations in the value of the rand versus the euro may have an impact on our ability to borrow under the fixed charge
coverage ratio in the indenture governing the notes.
The indenture governing the notes permits us to incur indebtedness if we meet, on a pro forma basis, an agreed ratio of
fixed charges (as defined in the indenture) to consolidated cash flow (as defined in the indenture). Because a significant portion
of our future fixed charges will be payable in euro, an increase in the value of the rand compared to the euro would make it more
likely that we could meet the agreed ratio without any change in the underlying performance of our businesses or our ability to
generate cash flow. A decrease in the value of the rand versus the euro would have an inverse effect. Accordingly, the
protection afforded noteholders by the fixed charge coverage ratio test may be mitigated (or strengthened) by future currency
exchange rates. We expect to hedge our currency exposure in respect of principal and interest on the notes for up to four years.
Restrictions in the indenture and other instruments governing our indebtedness may limit our ability to operate our business.
Restrictions contained in the indenture governing the notes, our new revolving credit facility and/or our other
indebtedness may limit our ability to, among other things:
•
incur more debt;
•
create liens;
•
pay dividends and make distributions or repurchase shares;
•
make investments;
•
sell assets;
•
enter into new businesses;
•
enter into sale-leaseback transactions;
•
merge or consolidate or transfer and sell substantially all of our assets; and
•
engage in transactions with affiliates.
Furthermore, the new revolving credit facility contains mandatory repayment provisions if the value of the receivables
generated by our maintenance and repairs business at any time is less than the amount of debt then-outstanding under the new
revolving credit facility. This could require us to reduce our working capital debt, solely because our operations have
deteriorated. The provisions in our indebtedness could adversely affect our ability to engage in business activities that may be in
our interest and/or to finance our future operating or capital needs.
The insolvency laws of the Republic of South Africa may not be as favourable to you as the insolvency laws of other
jurisdictions with which you may be familiar.
Ranking of claims
We are organised in South Africa and substantially all of our assets are located in South Africa. In the event of our
insolvency, the claims of holders of notes would be subject to the insolvency laws of South Africa. The insolvency laws of
South Africa may not be as favourable to you as the laws of other jurisdictions with which you may be familiar.
Under South African law, there are three types of creditors:
•
secured creditors;
•
preferred creditors; and
•
concurrent creditors.
Secured creditors are creditors who hold security for their claims against the debtor in the form of a special mortgage,
landlord's lien, pledge or right of retention. A secured creditor will be entitled to be paid out of the proceeds of the collateral
subject to its security, after payment of liquidation and other related costs and expenses and payment of any secured claim which
ranks higher. If the proceeds of the encumbered property are insufficient to cover the secured creditor's claim against a debtor
entity such as the Issuer, the secured creditor will have a concurrent claim for the balance of its claim in regard to the free
residue in the estate of the debtor entity, if any.
Preferred creditors are entitled to payment out of the free residue of a debtor's estate (i.e., that portion of the debtor's
estate which is not subject to a security interest) before concurrent creditors. Preferred creditors' claims include, among others,
claims by the South African Revenue Services, costs of liquidation, salary or remuneration of employees and claims by holders
of a notarial general bond which has not been perfected by way of a court order prior to the date of presentation to the court of
the application for liquidation in respect of the debtor. A portion of the security for the Issuer's counter-indemnity obligation in
respect of the notes will be granted pursuant to a notarial general bond, thus making the Security SPV a preferred creditor in
respect of all the Issuer's movable assets until such time (if ever) that the notarial general bond is perfected by way of a court
order prior to any liquidation application date with respect to the Issuer. A notarial general bond may be perfected only by a
court, and only in the event of default or threatened liquidation (or reasonably apprehended liquidation). In the event that the
notarial general bond is not validly perfected, with respect to the assets of the Issuer covered by such notarial general bond, the
Security SPV will share with other preferred creditors in any proceeds of realisation of such assets. Perfected (by attachment
under order of court) notarial general bonds rank in order of their perfection, and unperfected notarial general bonds rank in
order of registration. Once perfected, a notarial general bond confers upon the creditor in favour of which the notarial general
bond has been granted, risks akin to a pledge and thus elevates the claims of such creditor to that of a secured creditor.
Concurrent creditors do not enjoy any advantage over other creditors of a debtor. Instead, they are paid out of the free
residue of the debtor's estate after any preferred creditors have been paid. Concurrent creditors all rank equally. Should the free
residue be insufficient to meet their claims each receives a pro rata portion of its claim by way of cash dividend.
Insolvency procedures and reorganisations
The procedures available to wind-up or reorganise companies under South African law are:
•
winding up;
•
scheme of arrangement; and
•
judicial management.
Winding up
The SA Companies Act and the South African Insolvency Act (the "SA Insolvency Act") govern the winding up of
companies in South Africa. Any creditor that has an unpaid claim of more than R100 or the debtor itself may present an
application for winding up to the court if the debtor is "insolvent." Generally, a company will be "insolvent" if its liabilities
exceed its assets or it cannot pay its debts as and when they become due or when certain technical events of insolvency occur
(such as failure to pay a judgement debt).
Appointment of the liquidator. After the court has issued a winding-up order, a liquidator takes control of the debtor in
the place of its directors, who lose all of their powers. The liquidator may only be removed if he does not act in the best interest
of the general body of creditors or has misappropriated funds. It has three main functions. First, the liquidator investigates the
affairs of the debtor. Second, the liquidator collects assets and claims in favour of the debtor. Finally, the liquidator realises the
assets of the debtor and administers the debtor's affairs in order to wind up its affairs and pay the debtor's creditors from the
debtor's estate.
General procedure and realisation of secured assets. In general, commencement of winding-up proceedings restricts
all creditors, including secured creditors, from taking any action to recover their claims against the debtor. Provided that the
liquidator has not elected to "take over" the assets forming the subject matter of a creditor's security (as more fully described
below), a secured creditor is entitled, prior to the date of the second creditors' meeting, to realise its security provided that all
proceeds from such realisation will have to be paid over to the liquidator and such creditor will still be obliged to prove its claim,
which will be paid to the extent of the realisation and following final liquidation, in the ordinary course. Where the creditor
elects not to realise its security in this manner, for example when the asset is part of a going concern, the liquidator will realise
the security, usually through public auction of the entire business or parts of business, taking into account the best interests of the
secured creditor after deducting its fees. There can be no assurance that a liquidator's realisation will be the same as that which a
secured creditor might achieve on its own.
"Take over" of collateral by the liquidator. As an alternative to realisation of a secured creditor's collateral, the
liquidator may, following certain notice periods "take over" the property from the creditor at a value agreed upon between the
liquidator and a secured creditor or at the full amount of the creditor's claim. In practice, the liquidator will only undertake this
process if he believes he can dispose of the assets of the debtor or the business of the debtor as a going concern. If the liquidator
takes over the collateral, the secured debt claims of the creditor is released.
Ongoing operations during liquidation. Regardless of whether the liquidator intends to take over the collateral of one
or more creditors, it is possible for the liquidator to continue operating the debtor's business in order to facilitate a sale of the
debtor or its assets as a going concern. A liquidator may arrange interim funding for the debtor which is paid as part of the costs
of the execution process, provided that the liquidator is reasonably confident the sale process will yield sufficient proceeds at
relevant times to repay such funding. Court approval is required for any secured borrowings by the debtor. Typically, a
liquidator will require indemnification from the creditors during continuation of the debtor's business.
Scheme of arrangement
A scheme of arrangement under the SA Companies Act may also be used to reorganise a debtor's debts. It amounts to
a compulsory compromise of claims between the debtor and its creditors (once approved by creditors). A creditors' compromise
or scheme of arrangement may be initiated by the creditors of a company or by the company itself. To become effective, it must
be approved by at least three quarters in value of the creditors affected (or each relevant class of creditors affected) present and
voting at a meeting convened for that purpose, as well as the shareholders of the company if the company has not been placed in
liquidation (see above) or under judicial management (see below). If the company is in liquidation or under judicial
management, then the discretion lies with the liquidator or judicial manager, as the case may be.
The scheme must be sanctioned by the court on good cause shown, primarily that the offer of compromise is fair and
reasonable. The application to sanction a scheme is subject to certain notice provisions. The entire scheme of arrangement
process generally takes about two months.
Judicial management
Judicial management is a seldom-used procedure provided for in the SA Companies Act. It is available if the debtor,
because of mismanagement or any other cause, is unable to pay its debts or meet its obligations; the debtor has not become, or
has been prevented from becoming, a successful concern; there is a reasonable probability that if the debtor is placed under
judicial management it will be able to pay its debts or meet its obligations and become a successful concern; and it appears just
and equitable to grant a judicial management order. The same parties entitled to apply for the winding-up of a company may
also apply to place a company under judicial management. In an application for the winding-up of a company, the court may
also order judicial management if circumstances permit. The purpose of judicial management is to get a company back into a
profitable position, thus the process could last for a few years.
In addition to these court-driven procedures, debtors and their creditors are free to enter into a contractually-sanctioned
reorganisation of claims against the debtor if the creditors and the debtor (and, where relevant, shareholders) agree.
Avoidance of claims. Under South African law, a number of pre-insolvency transactions, including granting security,
can be set aside by a court. For instance, a court may set aside certain dispositions of a debtor's property made prior to
commencement of winding up proceedings.
Transactions at under value. A court will set aside a pre-insolvency disposition of the debtor's property if it was not
made for value and, if:
•
the disposition was made within two years of the date of the provisional liquidation order and the petitioning party
proves that, immediately after the disposition was made, the liabilities of the debtor exceeded its assets; or
•
the disposition was made within two years before the date of the provisional liquidation order and the person who
benefited from the disposition is unable to prove that, immediately after the disposition was made, the assets of the
debtor exceeded its liabilities.
In either case, if it is proved that, at any time after the making of the disposition, the liabilities of the debtor exceeded
its assets by an amount less than the value of the property disposed of, the disposition may be set aside to the extent of such
excess.
Preferences. South African law also makes provision for setting aside a disposition of the debtor's property if such
disposition is made not more than six months before the date of the provisional liquidation order, such disposition has the effect
of preferring one creditor over another and, if immediately after the making of such disposition, the liabilities of the debtor
exceed the value of its assets. However, if the person in whose favour the disposition was made proves that the disposition was
made in the ordinary course of business and that the transaction was not intended to prefer one creditor above another, then such
disposition may not be set aside.
South African law also provides that if a debtor makes a disposition of its property at any time when its liabilities
exceed its assets, with the intention of preferring one of its creditors above another, and it is thereafter liquidated, the court may
set aside the disposition.
In addition, South African law provides that any disposition by a debtor made prior to the date of a provisional
liquidation order, in collusion with another person and in a manner which has the effect of prejudicing its creditors or of
preferring one creditor over another, it may be set aside. However, there is legal authority which states that in order for any
transaction to be set aside under this provision, the transaction must have been concluded with a fraudulent intention.
Finally, under South African common law, a disposition may be set aside where the creditors of the insolvent estate can
prove that:
•
the disposition reduces the assets of the company;
•
the company and the entity in favour of whom the disposition was made had a common intention to defraud or
prejudice the creditors of the insolvent; and
•
the prejudice to the insolvent's creditors was caused by the fraud referred to above.
Dispositions without notice. South African law provides that if a company transfers a business belonging to it or the
goodwill of that business or any goods or property forming part thereof (save in the ordinary course of business or for the
purpose of securing the payment of a debt) and such company has not published a notice of the intended transfer in the
Government Gazette within a period of not less than thirty and not more than sixty days prior to the date of such transfer, the
transfer will be void as against the creditors of the seller for a period of six months after such transfer and in addition will be
void against the trustee if the estate of the seller is liquidated within that time period.
If the Issuer were to experience financial difficulties, it is impossible to predict whether claims under the notes would
be paid in full or at all, how long payments under the notes could be delayed and whether or to what extent holders of the notes
would be compensated for any delay in payment under the notes. The ultimate recovery (if any) by noteholders will depend on
the value and numerous other factors, including those described above.
The collateral will not be granted directly to the holders of the notes.
The security interests in the collateral will not be granted directly to holders of the notes. Instead, they will be granted
to the Security SPV (which will issue a limited recourse guarantee of the notes) as security for the Issuer's obligations under its
counter-indemnity to the Security SPV. The Security SPV is described in "Description of Notes—Security SPV."
As a result, neither the trustee nor the holders of the notes will have the right to realise the collateral directly but,
instead, must instruct the Security SPV (which must take any such action to realise the security). This indirect claim over the
collateral could delay or make more costly any realisation of the collateral. Furthermore, because the indenture and the notes
will be governed by New York law and a Security SPV guarantee and security arrangements will be governed by South African
law, realisation may be further delayed by court proceedings in multiple jurisdictions or interpretation of foreign laws in a South
African court proceeding.
The value of the collateral may not be sufficient to satisfy our obligations under the notes.
Our obligations under the counter-indemnity that benefits the Security SPV guarantee running to the trustee and the
providers of the hedging obligation security rank pari passu with one another with respect to the same collateral. The proceeds
from realisation of the collateral may not be sufficient to satisfy our obligations under the notes and those hedging obligations.
Any such realisation will depend upon many factors including, among others, whether or not our business is sold as a going
concern, the jurisdiction in which the enforcement action or sale is completed, the ability to sell the collateral in an orderly sale,
the availability of buyers, the condition of the collateral and exchange rates. An appraisal of the collateral has not been prepared
in connection with the offering and sale of the notes. Furthermore, there may not be any buyer willing and able to purchase our
business as a going concern, or willing to buy a significant portion of our assets in the event of an enforcement action. Finally, a
going concern sale will be more difficult to achieve because available cash may be insufficient to fund our operations during any
sale process as a significant proportion of our receivables will secure the new revolving credit facility. Each of these factors
could reduce the proceeds realised upon enforcement of the collateral.
In addition, our new revolving credit facility will be secured by the receivables generated by our maintenance and
repairs business. While the notes indirectly benefit from a reversionary interest over such receivables, the overall value of the
collateral securing the notes will be diminished by any claims for amounts outstanding under the new revolving credit facility
(but only to the extent of the value of the receivables generated by our maintenance and repairs business unit).
The value of the collateral may decrease because of obsolescence, impairment or certain casualty events.
The value of the collateral may be adversely affected by obsolescence, changes in equipment or certain casualty events.
Although we will be obliged under the security documents to maintain insurance with respect to the collateral, the proceeds of
such insurance may not be sufficient to repurchase adequate replacement collateral or may be used for other business purposes.
Our insurance policies also may not cover all events that may result in damage to the collateral.
We may not be able to obtain enough funds to repurchase the notes if a change of control takes place.
A "change of control" is an event defined in the indenture governing the notes and includes certain changes in
ownership or voting rights with respect to us. If a change of control occurs, holders of the notes may require us to purchase any
or all of the notes at 101% of their principal amount together with accrued and unpaid interest. We may not have enough
money, however, to purchase the notes upon a change of control and also may not be able to raise the money to do so.
Furthermore, any such purchase by us will require the approval of South African exchange control authorities, which may not be
forthcoming. Restrictions on a change of control contained in the Indenture may make it more difficult for others to obtain
control of our company. The change of control provisions may not protect you in a transaction in which we incur a large amount
of debt, including a reorganisation, restructuring, merger or other similar transaction, because that kind of transaction may not
involve any shift in voting power or beneficial ownership, or may not involve a shift large enough to trigger a change of control.
An active liquid trading market for the notes may not develop.
The notes are a new class of securities that have never been traded. We have applied for the listing of the notes on the
Alternative Securities Market of the Irish Stock Exchange. However, we cannot assure you that the notes will be listed on any
exchange at the time the notes are delivered to the Initial Purchaser or at any other time. The Initial Purchaser has informed us
that it intends to make a market in the notes. However, it is not obliged to do so, and may discontinue such market making at
any time without notice. There can be no assurance that an active trading market for the notes will develop, or if one does
develop, that it will be sustained.
Historically, the market for non-investment grade debt has been highly volatile in terms of price. It is possible that the
market for the notes will also be volatile. This volatility in price or other factors may affect your ability to resell your notes or
the timing of their sale.
Transfers of the notes will be subject to certain restrictions.
We have not registered the notes under the US Securities Act or any other securities laws. Therefore, you may not
offer or sell the notes, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of
the US Securities Act and in compliance with all other securities laws. You should read the discussion under the heading
"Notice to US Investors" and "Notice to Non-US Investors" for further information about the transfer restrictions that apply to
the notes. It is your obligation to ensure that your offers and sales of notes within the United States and other countries comply
with all applicable securities laws.
Investors in the notes may have difficulty bringing actions, and enforcing judgments, against us, our directors and our
executive officers based on the civil liabilities provisions of the United States federal securities laws or other laws of the
United States or any state thereof or the securities laws.
We are a limited liabilty company incorporated in South Africa. All of our directors and executive officers reside in
South Africa. Substantially all of our assets and assets of these persons are located in South Africa. Although we will submit to
the jurisdiction of New York courts in connection with this offering, it may not be possible for investors to effect service of
process within the United States upon us or upon our directors and officers, or to enforce against us or any of them judgments
obtained in US courts predicated upon civil liability provisions of the federal securities laws of the United States to the extent
US legal concepts do not have a corresponding concept under South African law (class action certification, for example). In
addition, there is doubt as to the enforceability in South Africa, in original actions, of civil liabilities predicated solely upon the
federal securities laws of the United States.
The notes will initially be held in book-entry form and therefore you must rely on the procedures of the relevant clearing
systems to exercise any rights and remedies.
Unless and until definitive registered notes are issued in exchange for book-entry interests in the notes, owners of the
book-entry interests will not be considered owners or holders of the notes. Instead, the registered holder, or its nominee, will be
the sole holder of the notes. Payments of principal, interest and other amounts owing on or in respect of the notes in global form
will be made to The Bank of New York, London branch (as paying agent for the notes), which will make payments to the
common depositary, which will in turn distribute payments to Euroclear and Clearstream Banking. Thereafter, payments will be
made by Euroclear and Clearstream Banking to participants in these systems and then by such participants to indirect
participants. After payment to the common depositary neither we, the trustee nor the paying agent will have any responsibility
or liability of any aspect of the records relating to, or payments of, interest, principal or other amounts to Euroclear and
Clearstream Banking or to owners of book-entry interests.
Unlike holders of the notes themselves, owners of book-entry interests will not have the direct right to act upon our
solicitations or consents or requests for waivers or other actions from holders of the notes that we may choose to make in the
future. Rather, owners of book-entry interests will be permitted to act only to the extent that they have received appropriate
proxies to do so from Euroclear and Clearstream Banking or, if applicable, from a participant. We cannot assure you that
procedures implemented for the granting of such proxies will be sufficient to enable you to vote on any such solicitations or
requests for actions on a timely basis.
THE ACQUISITION
Acquisition of repairs and services and replacement parts businesses
Effective 1 October 2005, Savcio Holdings (Proprietary) Limited acquired substantially all of the assets and liabilities
of the repairs and services and replacement parts businesses of Delta (DMS) (Proprietary) Limited ("DMS"), the subsidiary of
Delta Electrical Industries Limited ("Delta"), under the terms of two sale-of-business agreements with Delta, DMS and various
other subsidiaries of Delta (the "Asset Sale Agreements"). We did not acquire any cash or cash equivalents of DMS.
Additionally, we acquired 70.0% and 74.0% of the outstanding ordinary shares of BEE companies Bukubuhle Wire
(Proprietary) Limited ("Bukubuhle Wire") and Loco Coil Technologies (Proprietary) Limited ("Loco Coil"), respectively, under
the terms of two share sale agreements with Delta and DMS (the "BEE Share Sale Agreements") and acquired the remaining
26.0% of the outstanding ordinary shares of Loco Coil from its minority shareholders, including Mr. Mervyn Naidoo. With the
consent of all our shareholders, Mr. Naidoo, the managing director of Loco Coil, simultaneously used his proceeds to acquire
ordinary and preference shares and a portion of our shareholder loans totalling R1.4 million. Mr. Naidoo is referred to as the
"BEE Minority Investor."
These transactions are collectively referred to in this Listing Particulars as the "Acquisition."
The outside shareholders of Bukubuhle Wire consist of an entity controlled by one of our managers who qualifies as a
"Historically Disadvantaged Person" ("HDP") as defined under South African law. We may decide to purchase the remaining
stake in Bukubuhle Wire that we do not own.
The total cost of the Acquisition was R1,393.7 million, including transaction and financing fees and expenses and a
post-closing purchase price adjustment of R46.3 million paid on 30 October 2005. The Acquisition was funded with a
combination of R600.0 million of borrowings under our existing senior credit facilities, R747.4 million of shareholder funding
as well as R46.3 million of short-term borrowings, which have been subsequently repaid, and cash on hand. The total cost of the
Acquisition includes R1.6 million allocated to acquire the 30.0% minority shareholding in Bukubuhle Wire, which amount has
not been used. No debt was assumed other than certain short-term liabilities such as payroll obligations, inventory in transit,
overdrafts in customer foreign currency accounts and other customary obligations.
Terms of the Asset Sale Agreements
The Asset Sale Agreements contain warranties, covenants and indemnities from Delta and DMS in favour of Savcio
customary for a transaction of this nature.
In particular, the Asset Sale Agreements include the following terms:
•
Delta and DMS indemnified and held us harmless for certain retained tax liabilities in the repairs and services
segment of the acquired business.
•
We accepted all warranty claims brought under DMS's standard warranties that relate to customer sales by the
repairs and services and replacement parts segments that arise after the effective date. We have provisioned
approximately R6.7 million in respect of such warranty claims as of 30 September 2005.
Under the Asset Sale Agreements, we may also claim a breach of representation, warranty or undertaking at any time
prior to 30 September 2006. Any such claim will be limited to R10.0 million in the case of a breach of warranty in respect of the
repairs and services business and R5.0 million in the case of a breach of warranty in respect of the replacement parts business,
with an aggregate deductible of R1.0 million, except that claims with respect to warranties of good title and certain related topics
are capped only by the total purchase price.
Terms of the BEE Share Sale Agreements
The BEE Share Sale Agreements contain warranties, covenants and indemnities from Delta and DMS in favour of us.
In particular, the BEE Share Sale Agreements provide that we may claim breach of representation, warranty or undertaking at
any time prior to 30 September 2006. Any such claim will be limited in the aggregate to approximately R19.1 million in respect
of Loco Coil and R4.7 million in respect of Bukubuhle Wire, and excludes any warranty claims brought by customers after the
effective date of the Acquisition.
Subscription of equity by new independent directors
In addition, in January 2006, in connection with their appointment as independent directors, Messrs. van Vught and
Davies each subscribed for 2,512 Class D ordinary shares and 2,512 Class D preference shares for an amount of R2.0 million in
total. See "Principal Shareholders and Share Capital."
USE OF PROCEEDS
We expect the proceeds from the issuance of the notes to be approximately €119.9 million after deducting fees and
expenses associated with the offering of the notes. We intend to use these net proceeds to repay indebtedness under our existing
senior credit facilities and a portion of our existing shareholder loans and for general corporate purposes. The following table
sets forth our expected sources and uses of funds in connection with the offering based upon our debt and cash balances as of
30 September 2005:
Sources of Funds
Senior secured notes offered hereby
Total sources.................................
Uses of Funds
(in millions)(1)
€125.0 Repayment of senior credit facilities ..
Repayment of a portion of
shareholder loans..............................
General corporate purposes ...............
Estimated fees and expenses..............
€125.0 Total uses.........................................
(in millions)(1)
€80.5
34.4
5.0(2)
5.1
€125.0
(1)
We have translated euro and rand amounts related to the proceeds of this offering and the application of such proceeds
based on an exchange rate of R7.4546 = €1.00, the Bloomberg Composite Rate on 26 January 2006. See "Presentation of
Information—Financial data." Actual amounts applied will be determined by the actual exchange rate in effect at closing.
(2)
After giving effect to the issuance of the notes, we will retain at least €5.0 million of cash for general corporate
purposes. During the period from 30 September 2005 to the date of the closing, our business has generated additional cash. We
intend to repay all amounts outstanding under our existing senior credit facilities and an incremental amount of shareholder
loans from the proceeds of the offering and such cash.
We incurred the existing senior credit facilities and shareholder loans that we will repay with the proceeds of the
offering to finance a portion of the purchase price paid for the Acquisition. The existing senior credit facilities mature in 2012
and bear interest at a weighted average rate of 9.5% per annum.
You should read "Capitalisation," "Description of Certain Other Indebtedness" and "Description of Notes" for a more
detailed description of our capitalisation and financing arrangements.
CAPITALISATION
The following table sets forth the Issuer's cash and cash equivalents and capitalisation as of 30 September 2005:
•
on a historical basis, as adjusted for the Acquisition, the effective date of which was 1 October 2005; and
•
as further adjusted to give effect to the issuance of the notes offered hereby and the application of the proceeds
therefrom as described under "Use of Proceeds".
You should read this table together with our historical financial statements and the notes thereto, and the information
under "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations—
Liquidity and capital resources."
Actual, as
adjusted(1)
Cash and cash equivalents ........................................
External debt
New revolving credit facility(4) ....................................
Senior credit facilities
Tranche A ...............................................................
Tranche B................................................................
Tranche C................................................................
Senior secured notes offered hereby.............................
Total external debt ................................................
Shareholder funding
Issued shares ...........................................................
Shareholder loans(5)..................................................
Total shareholder funding......................................
Total capitalisation ...................................................
R—
As of 30 September 2005
As further
Actual, as
adjusted(2)
adjusted(1)
(in millions)(3)
As further
adjusted(2)
R 37.3
€—
€ 5.0
R—
R—
€—
€—
445.0
115.0
40.0
—
600.0
—
—
—
931.8
931.8
59.7
15.4
5.4
—
80.5
—
—
—
125.0
125.0
R 7.7
739.7
747.4
R 1,347.4
R 7.7
482.8
490.5
R 1,422.3
€ 1.0
99.2
100.2
€ 180.7
€ 1.0
64.8
65.8
€ 190.8
(1)
On an actual basis, the Issuer had no liabilities, no cash and a nominal equity amount of R1.0 as of 30 September 2005.
The actual, as adjusted column gives effect to the Acquisition and related financings and excludes the notes offered hereby.
(2)
The as further adjusted column adjusts the actual, as adjusted column by giving effect to the issuance of €125.0 million
of notes and the use of proceeds thereof. The rand equivalent of the principal amount of the notes is based on the convenience
exchange rate translation (see note (3) below). We expect to hedge our currency conversion exposure in respect of the principal
amount of the notes for up to four years. The terms of the hedging arrangement will be determined at closing and will determine
our rand exposure. See "Description of Certain Other Indebtedness—Hedging arrangement."
(3)
We have translated euro and rand amounts related to the proceeds of this offering and the application of such proceeds
based on an exchange rate of R7.4546 = €1.00, the Bloomberg Composite Rate on 26 January 2006. See "Presentation of
Information—Financial data." Actual amounts applied will be determined by the actual exchange rate in effect at closing.
(4)
In connection with the offering of the notes, we will enter into a new revolving credit facility for up to R50.0 million
(€6.7 million) of borrowings. The new revolving credit facility will be secured by the receivables generated by our maintenance
and repairs business unit. At closing, we do not expect to draw any amount under the new revolving credit facility. See "The
Acquisition" and "Description of Certain Other Indebtedness."
(5)
As of 30 September 2005, on an as further adjusted basis, our shareholder loans consisted of R302.1 million
(€40.6 million) of junior loans and R180.7 million (€24.2 million) of equity loans. At closing, we intend to use a portion of the
proceeds of the offering and cash generated by our business during the period from 30 September 2005 to the date of the closing
to repay all amounts outstanding under our existing senior credit facilities and a portion of the junior loans. None of the equity
loans will be repaid at closing. See "Description of Certain Other Indebtedness" for a description of the terms of the junior loans
and equity loans and a breakdown of the lenders thereof, all of whom are our shareholders.
SELECTED HISTORICAL FINANCIAL AND OTHER DATA
The audited historical financial data as of and for the nine months ended 30 September 2005 and the financial years
ended 27 December 2002, 2003 and 2004 are derived from the historical audited financial statements of the acquired business,
which appear elsewhere in this Listing Particulars. Those financial statements have been audited by Deloitte & Touche, South
Africa, as stated in their report thereon included elsewhere in this Listing Particulars.
The unaudited historical financial data for the nine months ended 30 September 2004 are derived from the unaudited
financial statements for the acquired business for such period included elsewhere in this Listing Particulars. The unaudited
financial statements include, in the opinion of management, all adjustments (consisting solely of normal recurring adjustments)
necessary to present fairly the financial results for such period. Interim results are not necessarily indicative of the results that
may be expected for any other interim period or the full year.
You should read the selected historical financial data presented below in conjunction with the information contained in
"Presentation of Information—Financial data," "Risk Factors," "Capitalisation" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial statements, including the related notes, appearing
elsewhere in this Listing Particulars.
Financial year ended 27 December
2003
2004
2002
(audited)
Consolidated income statement data:
Revenue ..................................................
Cost of sales ............................................
Gross profit...........................................
Operating costs(1) .....................................
Earnings before interest, taxation,
depreciation and amortisation(2) ...........
Depreciation ............................................
Amortisation of trademarks ......................
Operating profit ....................................
Net interest received.................................
Taxation..................................................
Net profit..............................................
Consolidated balance sheet data (as at
period end):
Cash and cash equivalents(3) .....................
Total liabilities.........................................
Total assets..............................................
Total owners' net investment(4)..................
Other financial data:
Net cash inflow from operating activities .....
Capital expenditures.................................
(audited)
(audited)
(in thousands)
Nine months ended 30 September
2004
2005
(unaudited)
(audited)
R 772,920
(477,298)
295,622
(160,416)
R 839,187
(505,605)
333,582
(179,400)
R 973,619
(591,048)
382,571
(202,446)
R 742,210
(464,169)
278,041
(155,472)
R 781,276
(484,300)
296,976
(160,816)
135,206
(11,877)
(589)
122,740
9,066
(45,422)
R 86,384
154,182
(13,900)
(589)
139,693
12,353
(53,290)
R 98,756
180,125
(15,406)
(589)
164,130
9,283
(59,793)
R 113,620
122,569
(11,264)
(443)
110,862
6,625
(42,238)
R 75,249
136,160
(12,526)
(443)
123,191
8,426
(50,096)
R 81,521
R 143,543
144,172
468,056
323,884
R 173,409
164,543
554,456
387,602
R 187,642
169,890
635,548
450,324
R 158,689
183,607
597,810
410,347
R 163,046
151,996
637,818
479,343
R 120,427
(15,353)
R 171,900
(23,594)
R 159,749
(41,266)
R 105,002
(30,120)
R 94,196
(16,455)
(1)
Our carve out financial statements include allocations of some of Delta's expenses, including treasury, IT, tax,
insurance, audit, pension fund and medical aid costs. The expense allocations have been determined on the basis of actual cost,
except head office salaries and infrastructure costs, financial reporting, listing costs, legal and miscellaneous other costs, which
have been determined on bases considered by management to be reasonable reflections of the utilisation of services provided or
the benefit received by our businesses. The costs of these services charged to the businesses are not necessarily indicative of the
costs that would have been incurred if we had performed these functions as a stand-alone company during the periods presented.
Following the completion of the Acquisition, we will perform these functions using our own resources or through purchased
services. For more information about our carve out financial statements, see "Presentation of Information—Financial data."
(2)
We present EBITDA because we believe it is frequently used by securities analysts, investors and other interested
parties in evaluating similar issuers and as a supplemental measure of our ability to service our debt. Nevertheless, EBITDA has
limitations as an analytical tool, and you should not consider it in isolation from, or as a substitute for an analysis of, our
operating results, as reported under SA GAAP. See "Presentation of Information—Non GAAP financial measures."
(3)
In connection with the Acquisition, we did not acquire any cash or cash equivalents from Delta. For a description of our
historical cash balances, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—
Financial statement presentation."
(4)
Because the acquired business was not a separate legal entity, owners' net investment is presented in place of
shareholders' equity.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is qualified in its entirety by reference to, our
consolidated financial statements and the related notes included in this Listing Particulars. The following discussion should
also be read in conjunction with "Selected Historical Financial and Other Data." The discussions in this section contain
forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed
below. See "Forward-Looking Statements" and "Risk Factors".
Overview
We are the largest privately-owned provider of maintenance and repair services for rotating electrical equipment and
transformers in Africa and have been in operation for over 90 years. We provide maintenance and repair services for a variety of
motors and transformers in a broad range of industries in South Africa, including the mining, rail transportation, power
generation and distribution, steel production, petrochemical and paper industries. We are also a leading independent
manufacturer and distributor of input materials to the broader South African electrical manufacturing and repair industries, and a
leading distributor of high-quality aftermarket replacement parts for earthmoving equipment and heavy trucks used
predominantly in the construction and mining industries.
We report our results based on our two segments:
•
the repairs and services segment, encompassing:
•
our maintenance and repairs operation, through which we provide maintenance and repair services for rotating
electrical equipment and transformers, representing 50% of our 2004 revenue,
•
our Wilec operation, through which we supply input materials such as magnet wire and insulation materials,
representing 18% of our 2004 revenue, and
•
our Transwire operation, through which we manufacture electrical conductors, representing 10% of our 2004
revenue; and
•
the replacement parts segment, through which we distribute spare parts for earthmoving equipment and heavy
trucks predominantly in the construction and mining industries under our Equipment Spare Parts ("ESP"), Truck
Spare Parts ("TSP") and AMT Services ("AMT") brands, representing 22% of our total 2004 revenue.
Financial statement presentation
Periods prior to 1 October 2005
Savcio Holdings (Proprietary) Limited is a newly incorporated company formed to acquire the repairs and services and
replacement parts businesses of Delta Electrical Industries Limited ("Delta"). The acquired business was carved out of a larger
business of Delta. We refer to the acquired businesses as the "acquired business" and to the acquisition of the acquired business
as the "Acquisition." The financial information discussed below relates to the carved out business, which was acquired effective
1 October 2005. AMT was acquired in September 2003 by Delta, and only four months of AMT results are included in our
2003 results.
We discuss below the results of the acquired business as of and for the nine months ended 30 September 2004 and
2005 and the financial years ended 27 December 2002, 2003 and 2004. The financial statements for these periods (all of which
are audited except the financial statements for the nine months ended 30 September 2004) have been prepared in accordance
with SA GAAP and appear elsewhere in this Listing Particulars.
Management believes that assumptions underlying the combined carve out consolidated financial statements are
reasonable. However, the combined carve out consolidated financial statements may not necessarily reflect the financial
position, results of operations or cash flows of the acquired business that it would have achieved had it operated as a stand-alone
entity during the periods presented. Carve out adjustments have been applied to the combined financial statements to allocate
certain costs incurred by Delta on behalf of the acquired business as follows:
•
Allocations of some of the expenses of the acquired business, including treasury, IT, tax, insurance, external audit,
pension fund and medical aid costs have been made to the acquired business on the basis of actual cost, while
certain other expenses, including head office salaries and infrastructure costs, financial reporting, listing costs,
legal and miscellaneous other costs, have been determined on bases considered to reasonably reflect the utilisation
of services provided to or the benefit received by the acquired business. The cost of these services allocated to the
acquired business is not necessarily indicative of the cost it would have incurred had it performed these functions
as a stand-alone company. Following the Acquisition, we are performing these functions using our own resources
or through purchased services.
•
Delta used a centralised approach to finance the working capital and capital expenditures of its businesses during
the periods presented. Each business however operated its own bank accounts. Outstanding bank deposits and
bank overdrafts among the four business units comprising the acquired business were interest-bearing at market
related rates. Historical cash balances reflect Delta's cash management approach. Although the outstanding cash
deposits and bank overdrafts of the acquired business are reflected on the historical balance sheets, we did not
acquire these assets. As of 1 October, we had R37.3 million (€5.0 million) of cash and cash equivalents on hand
after giving pro forma effect to the offering of the notes.
•
Delta operated a long-term incentive scheme for executives of the businesses that have been acquired. These were
in the form of long-term incentives that were settled in cash and linked to the financial performance of each
business unit and subject to vesting requirements. Delta accounted for the long-term incentive scheme by taking a
provision on its balance sheet and by reflecting in its income statement any change in the value of the benefit
owing to participants. As part of the Acquisition, liabilities to management under the long-term incentive scheme
were settled by Delta as of 1 October 2005, the effective date of the Acquisition, and did not form part of the
Acquisition. As a result, we recorded an increase in owners' net investment.
•
The business units comprising the acquired business were not separate tax paying entities. Historically, the results
of these units were included in the tax return of DMS. The income tax expense and other tax-related information
in the financial statements included elsewhere in this Listing Particulars is presented as if the four business units
had filed tax returns on a stand-alone basis. The recognition and measurement of the income tax expense and
deferred income taxes required certain assumptions, allocations and significant estimates which management
believes are reasonable to measure the tax consequences as if the acquired business was a stand-alone taxpayer.
The financial statements presented in this Listing Particulars have not been adjusted to reflect the impact of any
changes to the income statements, balance sheets or cash flow statements that might occur as a result of purchase accounting
adjustments to be applied as a result of the Acquisition. The application of purchase accounting could result in different carrying
values for existing assets and assets we may add to our balance sheet, which may include intangible assets, such as trademarks,
customer lists and customer contracts and different amortisation and depreciation expense. Our financial statements could be
materially different once these adjustments are made.
The nine months ended 30 September 2005 were subject to various normal year-end adjustments as that is now our
financial year end. The nine months ended 30 September 2004 formed part of an accounting year and as such not all normal
year-end adjustments were made and accordingly that period is not fully comparable to the nine months ended 30 September
2005.
Periods after 1 October 2005
In connection with the transactions described under "The Acquisition," we changed our financial year end to
30 September effective 1 October 2005 and changed our basis of accounting to IFRS.
We intend to prepare our financial statements in accordance with SA GAAP and IFRS beginning with the financial
year ended 30 September 2006. In reporting in IFRS, we expect to report material differences in depreciation of property, plant
and equipment by reason of the application of IFRS 3 "Business Combinations" combined with IAS 16, which requires an
annual evaluation of useful lives. We do not expect the change to IFRS in respect of IAS 16 to result in a material change to the
financial statements presented elsewhere in this Listing Particulars.
As a result of the change in our financial year end to 30 September, the three months ended 31 December 2005 is our
first quarter of the current financial year, while the comparable three-month period in 2004 was the fourth quarter of the
financial year of the predecessor business and, therefore, subject to various normal year-end adjustments. Accordingly, our
results, which we will report in our first quarterly report, for the quarter ended 31 December 2005 (other than revenue) will not
be fully comparable to the results for the quarter ended 31 December 2004.
On 1 October 2005, Savcio Holdings (Proprietary) Limited acquired 100% of the outstanding shares of Loco Coil, as a
result of which Loco Coil became our wholly owned subsidiary. Subsequently, the business of Loco Coil as a going concern
was transferred to us. Following the completion of this transfer, Loco Coil became our dormant subsidiary we intend to dissolve
in the near future. Loco Coil's business involves the manufacture of traction coils and components used for the repair of
electrical traction motors in rail transportation.
We have one operating subsidiary, Bukubuhle Wire, which is a BEE company specialising in the manufacture and
distribution of covered copper conductor and transformer components to the transformer manufacturing and repair industries.
We currently own 70% of this subsidiary.
Key income statement items
Revenue
We derive revenue from the provision of services and the sale of products. We provide maintenance and repair
services for a variety of motors and transformers in a broad range of industries in South Africa, primarily medium- to large-sized
rotating electrical equipment in the mining, rail transportation and the broader manufacturing and power industries. We also
provide engineering services, typically on our customers' premises. These services, which form part of our total service solution
programme, include condition monitoring, customer education and training, advice on technology and troubleshooting.
We provide maintenance and repair services to a wide range of customers generally well-balanced across the industries
we serve, with approximately 30% of 2004 revenue generated in the mining industry, approximately 23% in rail transportation,
and approximately 47% across the broader manufacturing and power industries. Through our Wilec business unit, we finish and
distribute input materials to over 1,500 customers in the broader South African electrical manufacturing and repair industries.
Our Transwire business unit manufactures and supplies input products to Wilec and to original equipment manufacturers. Our
replacement parts segment distributes high-quality aftermarket replacement parts for earthmoving equipment and heavy trucks to
over 2,500 customers predominantly in the South African construction and mining industries.
With the exception of Transnet (the South African government state-owned transport company), which accounted for
approximately 9% of our total revenue in 2004, no single customer accounted for more than 3% of our total revenue.
We have historically recognised revenue from the sale of our services on a completed contract basis as the service is
performed and in accordance with the terms of the relevant agreements. For financial periods subsequent to 30 September 2005,
we are considering recognising revenue from the provision of services on a percentage of completion basis. We recognise
revenue from the sale of our products when goods are delivered and title has passed.
Cost of sales
Cost of sales relate primarily to the cost of merchandise, raw materials, labour and other direct variable costs incurred.
Cost of sales at our maintenance and repairs and Transwire business units relates principally to raw materials (copper and
insulation materials), labour and other direct variable costs such as consumable materials used in the general maintenance and
repairs of motors and transformers and the manufacture of copper conductors, respectively. Cost of sales at our Wilec business
unit relates principally to the purchase of copper conductors and other local or imported merchandise. Cost of sales at our
replacement parts segment relates principally to the importing of parts, primarily consisting of replacement parts for
earthmoving equipment and heavy trucks used predominantly in the South African construction and mining industries. Our
labour costs are principally related to time spent on providing maintenance and repair services to our clients, and to a lesser
extent to time spent on our manufacturing processes. Labour costs are subject to increases in line with inflation. We recognise
costs related to the provision of services on a completed contract basis.
Operating costs
Our operating costs include indirect employee costs, administration costs, rent on our premises and related costs, sales
and distribution costs and vehicle costs. These costs are typically subject to inflationary increases. Rental payments under our
leases, for example, are typically adjusted for inflation annually.
Taxation
Income tax expense may not accurately reflect future tax expenses, as the income tax expense for the acquired business
for these periods is presented in the financial statements as if each of the four business units comprising the acquired business
had filed tax returns on a stand-alone basis, which required certain allocations, assumptions and significant estimates. In
addition, in the future, we expect that higher interest cost related to the issuance of the notes will lower our taxable income. As a
result of these two factors, our effective tax rate is expected to be lower than it has been historically. The prevailing corporate
tax rate applicable to South African companies is currently 29%.
Significant factors affecting our results of operations
Demand for maintenance and repair services
Although we provide products and services to several industries, the level of demand or opportunities for maintenance
and repair services in each of these industries depends on the size and nature of our customers' installed base of equipment and
the frequency of required maintenance and repairs on such equipment. Our results of operations will therefore be affected by the
volume of available opportunities, despite our diversification into several industries and increasing the number of customers
within those industries. Motors and transformers require scheduled maintenance, typically driven by service cycles, that vary
across product, industry and usage.
Demand will also be affected by the profitability of the industries we service, in that during periods of low profitability
affecting an industry, customers in that industry are likely to defer maintenance on equipment and defer capital expenditures,
and incur costs only for necessary repairs for equipment that fails to function.
As the maintenance and repairs business is characterized by aggressive price competition and low barriers to entry at
the bottom end of the pricing range, our results of operations will be affected by how well we are able to leverage existing, and
build new, customer relationships that better allow us to maintain our market position towards the lower end of the pricing range
and take advantage of opportunities at the higher end of the pricing range.
Mining
Underground mining is the most equipment-intensive segment of the mining industry and we believe that the installed
base we service in this industry will remain relatively constant over the near term. Due to the size and complexity of the mine
winders and medium voltage motor equipment used in underground mining, maintenance and repairs of such equipment requires
a high level of technical expertise and lifting capabilities.
Open cast mining is conducted in geographic locations where veins of ore or minerals run close to the surface. The
installed base in this area is expected to increase over the next few years, which should cause an increase in the demand for
maintenance and repairs for this equipment. Equipment failures in this area require urgent repairs that must be done in
specially-equipped workshops and can take two to three months to complete.
Demand for maintenance and repairs on equipment used in mineral sands mining is dependent on the volume of
extraction of minerals. Mineral sands mining extracts minerals by using dredgers and pumps to filter surface and underwater
sands. We believe that the installed base we service in this industry will remain relatively constant over the near term.
Rail transportation
Our results of operations are affected by the usage level of rail transportation services. Increased usage of these
services may lead to increased demand for maintenance and repairs, and have a positive impact on our revenues and results of
operations. The bulk of maintenance and repairs for this segment have historically been performed by Transwerk, the in-house
maintenance and repair division of Transnet. However, the South African government recently announced the following plans:
investing approximately R14 billion over the next five years to upgrade and refurbish the freight rail transport fleet; spending
R800 million to refurbish the commuter rail transport fleet, which expenditure we expect will lead to further similar investments
in the future; and the restructuring of the commuter rail transport segment, which we expect will permit competitive bidding.
Public power generation and distribution industry
South Africa's state-owned power generation and distribution company, Eskom, was the world's 11th largest generator
of electricity by generating capacity in 2004. To address capacity constraints, Eskom has begun plans to demothball three power
plants, providing us, we believe, with opportunities to service ancillary motors such as in coal transporters located in the power
plants. In addition, the restructuring and clarification of local ownership of power distribution in South Africa is expected to
result in open bidding for maintenance and repair services that were previously conducted by in-house repair workshops. Over
the next few years our results of operations may be positively affected to the extent that we are able to successfully bid on such
opportunities. Furthermore, previously deferred maintenance on the equipment and transformers used by the power industry is
expected to cause a two to five year increase in asset refurbishment in this industry, which may also increase our results of
operations if we are able to secure such opportunities.
Demand for replacement parts
We supply replacement parts for earthmoving equipment and heavy trucks used mainly in the construction and mining
industries. Our results are driven largely by activity in these sectors. These results have been impacted by the continued lack of
activity in the civil engineering sector in South Africa and slow-downs in certain mining sectors resulting from the adverse
impact on exports and the strengthening of the rand against the dollar.
Price of copper
Changes in the price of copper impact our cost of sales and can impact revenue depending on our ability to pass along
increased costs to customers. The three business units of our repairs and services segment purchase significant amounts of
copper and use or sell significant amounts of copper products, and are thus exposed to fluctuations in the price of copper. These
fluctuations are reflected in the cost of supply, and where we are able to pass them on to our customers, they are also reflected in
revenue. Profitability is affected when we do not align the price we pay with the price we charge for copper products.
Copper prices are generally quoted in US dollars. As a result, although we source a significant portion of our copper
requirements locally from PMC, the price we pay for copper is affected by the rand exchange rate to the US dollar regardless of
whether or not the copper is imported. The price at which PMC sells its copper is based on the average of the US dollar London
Metals Exchange ("LME") price for copper, multiplied by the average rand to US dollar exchange rate for the month, and is
fixed for the month ahead. Imports of copper are priced based on the US dollar spot price quoted by the LME on a daily basis.
As a result, fluctuations both in the price of copper and the US dollar to rand exchange rate can significantly impact our
revenue and cost of sales.
Foreign exchange
In addition to the impact of exchange rate movements on the copper price, exchange rate movements also impact the
results of operations of our businesses that import other products or materials. In 2004, approximately 90% of revenue in our
replacement parts segment was from the sale of imported parts paid for by us mainly in US dollars or euro, and was therefore
impacted by fluctuations in the value of the rand against the US dollar and euro. In 2004, our Wilec business unit derived
approximately 25% of its total revenue from the sale of imported merchandise paid for by us mainly in US dollars or euro, and
was therefore also subject to fluctuations in the value of the rand against these currencies. The strengthening of the rand against
the US dollar had a negative impact on the results of our replacement parts segment during 2003 and 2004. The negative impact
of exchange rate movements was partially magnified by forward exchange cover in respect of imports in a period during which
the rand strengthened against relevant currencies.
Long inventory cycle
In addition to the impact of movements in exchange rates described above, our cost of goods can also be impacted by
our long inventory cycles (up to 30 weeks) in the replacement parts segment, for which we take forward exchange coverage at
the time we place an order. As a result, unit costs may not change as quickly as selling prices.
South African Black Economic Empowerment
We believe we are able to meet current BEE guidelines and requirements. Failure to meet applicable requirements
would make it harder for us to bid for contracts in a number of important industries. See "Market Overview—South African
Black Economic Empowerment."
Segment information
The following table provides key income statement data for our repairs and services and replacement parts segments
for the periods indicated:
Revenue
Repairs and services segment ......................
Replacement parts segment .........................
Gross profit
Repairs and services segment ......................
Replacement parts segment .........................
Earnings before interest, taxation,
depreciation and amortisation
(EBITDA)
Repairs and services business......................
As a percentage of revenue..........................
Replacement parts business.........................
As a percentage of revenue..........................
Financial year ended 27 December
Nine months ended 30 September
2002
2003
2004
2004
2005
(audited)
(audited)
(audited)
(unaudited)
(audited)
(in millions, except percentages)
R598.9
174.1
R648.3
190.9
R762.4
211.2
R577.4
164.8
R629.9
151.4
226.9
68.8
256.6
77.0
307.3
75.3
220.9
57.1
247.8
49.2
101.3
16.9%
33.9
19.5%
121.0
18.7%
33.2
17.4%
163.3
21.4%
16.8
8.0%
108.3
18.8%
14.2
8.6%
123.5
19.6%
12.7
8.4%
Results of operations
The following table presents selected historical consolidated financial data and related percentage relationships for the
periods indicated. Unless otherwise indicated, the financial data has been derived from our audited and unaudited consolidated
financial statements included elsewhere in this Listing Particulars. Percentages indicate relevant amounts expressed as a
percentage of revenue for the period.
Consolidated income
statement data:
Revenue.........................
Cost of sales...................
Gross profit ....................
Operating costs...............
Earnings before interest,
tax, depreciation and
amortization ................
Depreciation...................
Amortisation of
trademarks...................
Operating profit..............
Net interest received .......
Profit before tax..............
Taxation.........................
Net profit .......................
Financial year ended 27 December
Nine months ended 30 September
2003
2004
2004
2005
2002
(audited)
(audited)
(audited)
(unaudited)
(audited)
(in millions, except percentages)
R772.9
(477.3)
295.6
(160.4)
100.0% R839.2
(61.8) (505.6)
38.2
333.6
(20.8) (179.4)
135.2
(11.9)
17.5
(1.5)
154.2
(13.9)
(0.6)
122.7
9.1
131.8
(45.4)
R86.4
(0.1)
15.9
1.2
17.1
(5.9)
11.2%
(0.6)
139.7
12.3
152.0
(53.2)
R98.8
100.0% R973.6
(60.2) (591.0)
39.8
382.6
(21.4) (202.5)
18.4
(1.7)
100.0% R742.2
(60.7) (464.2)
39.3
278.0
(20.8) (155.4)
100.0% R781.3
(62.5) (484.3)
37.5
297.0
(20.9) (160.8)
100.0%
(62.0)
38.0
(20.6)
180.1
(15.4)
18.5
(1.6)
122.6
(11.3)
16.5
(1.5)
136.2
(12.6)
17.4
(1.6)
(0.1)
(0.6)
16.6
164.1
1.5
9.3
18.1
173.4
(6.3) (59.8)
11.8% R113.6
(0.1)
16.9
1.0
17.8
(6.1)
11.7%
(0.4)
110.9
6.6
117.5
(42.2)
R75.3
(0.1)
14.9
0.9
15.8
(5.7)
10.1%
(0.4)
123.2
8.4
131.6
(50.1)
R81.5
(0.1)
15.7
1.1
16.8
(6.4)
10.4%
Nine months ended 30 September 2005 compared to nine months ended 30 September 2004
Revenue
Revenue for the nine months ended 30 September 2005 was R781.3 million, an increase of R39.1 million, or 5.3%,
from R742.2 million for the nine months ended 30 September 2004. This increase was due primarily to an increase in revenue
of our repairs and services segment, partially offset by a decrease in revenue of our replacement parts business segment.
Revenue of our repairs and services segment for the nine months ended 30 September 2005 was R629.9 million, an
increase of R52.5 million, or 9.1%, from R577.4 million for the nine months ended 30 September 2004. This increase was due
primarily to increases in revenue at each of the three business units.
•
The increase in revenue of the maintenance and repairs business unit was due primarily to a significant increase in
the volume of traction motor repairs, resulting from increased work orders from the South African Rail Commuter
Corporation and Spoornet, the state commuter rail entity, as well as an increase in engineering services revenue
resulting from increased demand across existing customers. The increase in revenue was partially offset by a
decrease in revenue from the repair of small motors reflecting a decline in volume and from the repair of
transformers, for which completion of service occurred in the fourth quarter of 2005.
•
The increase in revenue of the Wilec business unit was due primarily to increased revenue from enamelled copper
wire sales, reflecting the increase in the rand price of copper as well as increased selling volumes of transformer
materials, covered copper conductor and tape resulting from increased demand across existing customers.
•
The increase in revenue of the Transwire business unit was due to a significant increase in the rand copper price
compared to the price during the comparable period in 2004 as well as sales of third-party products.
Revenue of our replacement parts business segment for the nine months ended 30 September 2005 was R151.4 million,
a decrease of R13.4 million, or 8.1%, from R164.8 million for the nine months ended 30 September 2004. This decrease was
due primarily to a reduction in sales volumes due to a general lack of activity in the civil engineering sector of the market and
reduced expansion in the mining sector, as well as price reductions reflecting a strengthening in the rand exchange rate
compared to the same period in 2004 and the impact of aggressive competition.
Cost of sales
Cost of sales for the nine months ended 30 September 2005 was R484.3 million, an increase of R20.1 million, or 4.3%,
from R464.2 million for the nine months ended 30 September 2004. This increase was due primarily to the factors contributing
to the increase in sales volume and the price of copper.
Cost of sales of our repairs and services segment for the nine months ended 30 September 2005 was R382.1 million, an
increase of R25.6 million, or 7.2%, from R356.5 million for the nine months ended 30 September 2004. This increase was due
primarily to increases in the international copper price and the increase in sales volumes at the maintenance and repairs business
unit, offset in part by a more efficient utilisation of labour and consumable materials at our maintenance and repairs business
unit reflecting the impact of continuing management efforts. Cost of sales as a percentage of segment revenue was 60.7% for
the nine months ended 30 September 2005 compared to 61.7% for the nine months ended 30 September 2004.
Cost of sales of our replacement parts segment for the nine months ended 30 September 2005 was R102.2 million, a
decrease of R5.5 million, or 5.1%, from R107.7 million for the nine months ended 30 September 2004. This decrease was due
primarily to declines in sales volumes, offset by unit costs remaining high due to long inventory cycles. Cost of sales as a
percentage of segment revenue was 67.5% for the nine months ended 30 September 2005 compared to 65.4% for the nine
months ended 30 September 2004. Cost of sales as a percentage of revenue was negatively impacted by the change in product
mix caused by the acquisition of AMT.
Gross profit
Gross profit for the nine months ended 30 September 2005 was R297.0 million, an increase of R19.0 million, or 6.8%,
from R278.0 million for the nine months ended 30 September 2004. This increase was due primarily to the increase in revenue
as well as the labour and consumable material efficiencies at our maintenance and repairs segment described above. The gross
profit margin was 38.0% for the nine months ended 30 September 2005 compared to 37.5% for the nine months ended
30 September 2004.
Operating costs
Operating costs for the nine months ended 30 September 2005 were R160.8 million, an increase of R5.3 million, or
3.4%, from R155.4 million for the nine months ended 30 September 2004. This increase was due primarily to cost increases due
to inflation, including labour, electricity, fuel and leases.
Operating costs of our repairs and services segment for the nine months ended 30 September 2005 were
R124.3 million, an increase of R11.8 million, or 10.5%, from R112.5 million for the nine months ended 30 September 2004.
This increase included a non-cash charge of R20.1 million in the nine months ended 30 September 2005 resulting from changes
in the carrying amount for a long-term incentive scheme provided by Delta to our management, compared to a similar charge of
R6.7 million during the nine months ended 30 September 2004. The increased charge was due to the impact of the Acquisition
on the pricing formula under the scheme and accelerated vesting due to the Acquisition. The balance of the increase reflected
cost increases tied to inflation with the maintenance and repairs business unit showing an overall reduction in year-on-year costs
due primarily to a reduction in IT expenses, social responsibility spending and provision for doubtful debts.
Operating costs of our replacement parts segment for the nine months ended 30 September 2005 were R36.5 million, a
decrease of R6.4 million, or 14.9%, from R42.9 million for the nine months ended 30 September 2004. This improvement was
due primarily to a small foreign exchange gain of R0.3 million during the first nine months ended 30 September 2005 compared
to a foreign exchange loss of R6.7 million for the nine months ended 30 September 2004. In addition, employee costs were
2.6% lower for the nine months ended 30 September 2005 despite salary increases tied to inflation of approximately 6.5%
having been granted during the period, due to lower headcount compared to the nine months ended 30 September 2004.
Earnings before interest, taxation, depreciation and amortisation
Earnings before interest, taxation, depreciation and amortisation for the nine months ended 30 September 2005 were
R136.2 million, an increase of R13.6 million, or 11.1%, from R122.6 million for the nine months ended 30 September 2004.
EBITDA as a percentage of revenue ("EBITDA margin") was 17.4% compared to EBITDA margin of 16.5% for the nine
months ended 30 September 2004. This increase was due primarily to an improvement in cost of sales as a percentage of
revenue in our repairs and services segment.
Earnings before interest, taxation, depreciation and amortisation at our repairs and services business segment for the
nine months ended 30 September 2005 were R123.5 million, an increase of R15.2 million, or 14.0%, from R108.3 million for
the nine months ended 30 September 2004. For the repairs and services segment, EBITDA margin was 19.6% compared to
EBITDA margin of 18.8% for the nine months ended 30 September 2004. This increase was due primarily to a decrease in cost
of sales as a percentage of revenue.
Earnings before interest, taxation, depreciation and amortisation of our replacement parts business segment for the nine
months ended 30 September 2005 were R12.7 million, a decrease of R1.5 million, or 10.6%, from R14.2 million for the nine
months ended 30 September 2004. For the replacement parts segment, EBITDA margin was 8.4% compared to EBITDA
margin of 8.6% for the nine months ended 30 September 2004. This increase was due primarily to a decrease in operating costs
as a percentage of revenue.
Depreciation
Depreciation for the nine months ended 30 September 2005 was R12.6 million, an increase of R1.3 million, or 11.5%,
from R11.3 million for the nine months ended 30 September 2004. This increase was due primarily to the effect of purchasing
fixed assets of R16.5 million, during the nine months ended 30 September 2005 on which additional depreciation was incurred.
Of this capital expenditure, R11.7 million was incurred by the maintenance and repairs business unit, including R4.7 million in
respect of the upgrade of our Denver transformer repair facility.
Amortisation of trademarks
Amortisation of trademarks for the nine months ended 30 September 2005 was R0.4 million, in line with the amount
incurred for the nine months ended 30 September 2004.
Operating profit
Operating profit for the nine months ended 30 September 2005 was R123.2 million, an increase of R12.3 million, or
11.1%, from R110.9 million for the nine months ended 30 September 2004.
Net interest received
Net interest received for the nine months ended 30 September 2005 was R8.4 million, an increase of R1.8 million, or
27.3%, from R6.6 million. This increase has no relevance following the Acquisition as the interest earned for the nine months
ended 30 September 2005 as well as for the nine months ended 30 September 2004 related to the funding structure of Delta,
which did not form part of the Acquisition.
Profit before taxation
Profit before taxation for the nine months ended 30 September 2005 was R131.6 million, an increase of R14.1 million,
or 12.0%, from R117.5 million for the nine months ended 30 September 2004.
Taxation
Taxation for the nine months ended 30 September 2005 was R50.1 million, an increase of R7.9 million or 18.7%, from
R42.2 million for the nine months ended 30 September 2004.
Net profit
The net profit for the nine months ended 30 September 2005 was R81.5 million. We reported a net profit of
R75.3 million for the nine months ended 30 September 2004, an increase of R6.2 million, or 8.2%.
Financial year ended 27 December 2004 compared to financial year ended 27 December 2003
Revenue
Revenue for the financial year ended 27 December 2004 was R973.6 million, an increase of R134.4 million, or 16.0%,
from R839.2 million for the financial year ended 27 December 2003. This increase was due primarily to an increase in revenue
of our repairs and services segment combined with a slight increase in revenue of our replacement parts segment.
Revenue of our repairs and services segment for the financial year ended 27 December 2004 was R762.4 million, an
increase of R114.1 million, or 17.6%, from R648.3 million for the financial year ended 27 December 2003. This increase was
due primarily to increased revenue at our maintenance and repairs business unit resulting from higher sales volumes combined
with increased revenue at our Wilec and Transwire business units resulting from the effect of increased copper prices.
•
Revenue of our maintenance and repairs business unit increased due primarily to increased volumes of traction
motor repairs, resulting from increased work orders from Spoornet, and transformer repairs, resulting from
increased work orders from the manufacturing sector. The increase also reflected increased sales of traction motor
coils by Loco Coil to Transwerk. Engineering services also achieved a significant increase in revenue off a low
base as a result of increased volumes of off-highway vehicle motor repairs.
•
Revenue of our Wilec business unit increased due to increased revenue from copper wire sales resulting from the
increase in the rand copper price, as well as increased selling volumes in transformer materials, covered conductors
and tapes resulting from increased demand across existing customers.
•
The increase in revenue of the Transwire business unit was due primarily to a significant increase in the rand price
of copper compared to the price during 2003.
Revenue of our replacement parts segment for the financial year ended 27 December 2004 was R211.2 million, an
increase of R20.3 million, or 10.6%, from R190.9 million for the financial year ended 27 December 2003. This increase was
due primarily to the full year impact of AMT, which we acquired in September 2003. Revenue from AMT for the year ended
27 December 2004 was R78.3 million, an increase of R53.1 million, from the R25.2 million for the four months ended
27 December 2003. Revenue from ongoing operations for the financial year ended 27 December 2004 was R132.9 million, a
reduction of R32.8 million, or 19.8%, from R165.7 million for the financial year ended 27 December 2003. This was due
primarily to a reduction in selling prices resulting from a 14.0% year-on-year strengthening of the rand against the US dollar and
6.1% against the euro. In addition, lack of activity in the earthmoving sector of the civil construction industry and reduced
expansion in the mining sector resulted in a reduction in sales volumes. The lower revenue also reflected lower selling prices in
certain niche product ranges as a result of competition.
Cost of sales
Cost of sales for the financial year ended 27 December 2004 was R591.0 million, an increase of R85.4 million, or
16.9%, from R505.6 million for the financial year ended 27 December 2003. This increase was due primarily to higher rand
copper prices and increased repair volumes.
Cost of sales of our repairs and services segment for the financial year ended 27 December 2004 was R455.1 million,
an increase of R63.4 million, or 16.2%, from R391.7 million for the financial year ended 27 December 2003. This increase was
due primarily to the increase in sales volumes of the maintenance and repairs and Wilec business units, offset by a more efficient
utilisation of labour and consumable materials in the maintenance and repairs business unit, resulting from continuing
management efforts. Costs of materials increased at our Wilec and Transwire business units as a result of increases in the rand
price of copper. Cost of sales as a percentage of segment revenue was 59.7% for the financial year ended 27 December 2004
compared to 60.4% for the financial year ended 27 December 2003.
Cost of sales of our replacement parts segment for the financial year ended 27 December 2004 was R135.9 million, an
increase of R22.0 million or 19.3% from R113.9 million for the financial year ended 27 December 2003. This increase was due
primarily to the increase in volumes as a result of the acquisition of the AMT business discussed above. Cost of sales of our
AMT business unit was R57.6 million for the year ended 27 December 2004, an increase of R39.1 million from R18.5 million
for the four months ended 27 December 2003. Cost of sales from ongoing operations was R78.3 million for the financial year
ended 27 December 2004, a reduction of R17.1 million or 17.9%, from R95.4 million for the financial year ended 27 December
2003, resulting from the strengthening rand exchange rate to the US dollar and euro and a reduction in sales volumes, offset by
the failure of unit costs to decline as quickly as selling prices as a result of long inventory cycles and by forward cover positions
taken on outstanding orders in foreign currencies. Cost of sales as a percentage of segment revenue was 64.3% for the financial
year ended 27 December 2004 compared to 59.7% for the financial year ended 27 December 2003. Cost of sales as a percentage
of revenue was negatively impacted by the change in product mix caused by the acquisition of AMT.
Gross profit
Gross profit for the financial year ended 27 December 2004 was R382.6 million, an increase of R49.0 million, or
14.7%, from R333.6 million for the financial year ended 27 December 2003. This increase was due primarily to the increased
volumes and improved efficiencies in the maintenance and repairs business unit. The gross profit margin was 39.3% for the
financial year ended 27 December 2004 compared to 39.8% for the financial year ended 27 December 2003.
Operating costs
Operating costs for the financial year ended 27 December 2004 were R202.5 million, an increase of R23.1 million, or
12.9%, from R179.4 million for the financial year ended 27 December 2003. This increase was due primarily to cost increases
tied to inflation combined with the increased costs associated with the AMT acquisition in September 2003.
Operating costs of our repairs and services business segment for the financial year ended 27 December 2004 were
R144.0 million, an increase of R8.4 million, or 6.2%, from R135.6 million for the financial year ended 27 December 2003. This
increase was due primarily to a charge of R9.5 million in the year resulting from changes in the carrying amount for the Delta
long-term share incentive scheme, compared to a similar charge of R5.9 million in the financial year ended 27 December 2003.
The balance of the increase was due to cost increases tied to inflation.
Operating costs of our replacement parts segment for the financial year ended 27 December 2004 were R58.5 million,
an increase of R14.7 million, or 33.6%, from R43.8 million for the financial year ended 27 December 2003. This increase was
due primarily to the effect of the acquisition of AMT in September 2003. Operating costs of the AMT business unit were
R13.5 million for the year ended 27 December 2004, an increase of R9.3 million from R4.2 million for the four months ended
27 December 2003. In addition, the replacement parts segment incurred a foreign exchange loss for the year ended
27 December 2004 of R9.6 million compared to a loss of R5.2 million for the year ended 27 December 2003. The balance of the
operating costs increased at less than the inflation rate in South Africa.
Earnings before interest, taxation, depreciation and amortisation
Earnings before interest, taxation, depreciation and amortisation for the financial year ended 27 December 2004 was
R180.1 million, an increase of R25.9 million, or 16.8%, from R154.2 million for the financial year ended 27 December 2003.
EBITDA margin was 18.5% compared to EBITDA margin of 18.4% for the financial year ended 27 December 2003. This
increase was due primarily to an increase in the EBITDA margin in our repairs and services business segment offset by a decline
in the EBITDA margin in our replacement parts business segment.
Earnings before interest, taxation, depreciation and amortisation of our repairs and services business segment for the
financial year ended 27 December 2004 were R163.3 million, an increase of R42.3 million, or 35.0%, from R121.0 million for
the financial year ended 27 December 2003. For the repairs and services business segment, EBITDA margin was 21.4%
compared to EBITDA margin of 18.7% for the financial year ended 27 December 2003. This increase was due primarily to a
decrease in operating costs as a percentage of revenue.
Earnings before interest, taxation, depreciation and amortisation of our replacement parts business segment for the
financial year ended 27 December 2004 were R16.8 million, a decrease of R16.4 million, or 49.4%, from R33.2 million for the
financial year ended 27 December 2003. For the replacement parts business segment, EBITDA margin was 8.0% compared to
EBITDA margin of 17.4% for the financial year ended 27 December 2003. This decrease was due primarily to increases in cost
of sales as a percentage of revenue resulting from long inventory cycles in a falling price environment.
Depreciation
Depreciation for the financial year ended 27 December 2004 was R15.4 million, an increase of R1.5 million, or 10.8%,
from R13.9 million for the financial year ended 27 December 2003. This increase was due primarily to the effect of purchasing
fixed assets, other than land on which no depreciation is charged and buildings, which carry a depreciation charge of 2% per
annum, of R17.8 million during the financial year ended 27 December 2004 on which additional depreciation was incurred.
Amortisation of trademarks
Amortisation of trademarks for the financial year ended 27 December 2004 was R0.6 million, in line with the amount
incurred for the financial year ended 27 December 2003.
Operating profit
Operating profit for the financial year ended 27 December 2004 was R164.1 million, an increase of R24.4 million, or
17.5%, from R139.7 million for the financial year ended 27 December 2003.
Net interest received
Net interest received for the financial year ended 27 December 2004 was R9.3 million, a decrease of R3.0 million, or
24.3%, from R12.3 million for the financial year ended 27 December 2003. This decrease has no relevance following the
Acquisition as the net interest earned for the financial year ended 27 December 2004 as well as for the financial year ended
27 December 2003 related to the funding structure of Delta, which did not form part of the Acquisition.
Profit before taxation
Profit before taxation for the financial year ended 27 December 2004 was R173.4 million, an increase of R21.4 million,
or 14.1%, from R152.0 million for the financial year ended 27 December 2003.
Taxation
Taxation for the financial year ended 27 December 2004 was R59.8 million, an increase of R6.6 million, or 12.4%,
from R53.2 million for the financial year ended 27 December 2003. This increase was due primarily to the increase in profit for
the financial year ended 27 December 2004.
Net profit
The net profit for the financial year ended 27 December 2004 was R113.6 million, an increase of R14.8 million, or
15.0%, from R98.8 million for the financial year ended 27 December 2003.
Financial year 27 December 2003 compared to financial year 27 December 2002
Revenue
Revenue for the financial year ended 27 December 2003 was R839.2 million, an increase of R66.3 million, or 8.6%,
from R772.9 million for the financial year ended 27 December 2002. This increase was due primarily to increases in revenue of
both the repairs and services and replacement parts segments.
Revenue of our repairs and services segment for the financial year ended 27 December 2003 was R648.3 million, an
increase of R49.4 million, or 8.2%, from R598.9 million for the financial year ended 27 December 2002. This increase was due
primarily to an increase in revenue of our maintenance and repairs business unit, partially offset by a decrease in revenue of our
Transwire business unit.
•
The increase in revenue at our maintenance and repairs business unit was due primarily to increased volumes of
mechanical, traction motor and small motor repairs and of coil manufacture resulting in each case from increased
demand from existing customers, partially offset by lower volumes of large motor repairs resulting from decreased
demand from existing customers. Price increases tied to inflation also contributed to the increase in revenue.
•
Revenue of our Wilec business unit was generally flat year-on-year.
•
The decrease in revenue of our Transwire business unit was due primarily to a decrease in the rand copper price
compared to the price during 2002. Sales volumes for the period at Transwire remained flat.
Revenue of our replacement parts segment for the financial year ended 27 December 2003 was R190.9 million, an
increase of R16.8 million, or 9.6%, from R174.1 million for the financial year ended 27 December 2002. This increase was due
primarily to the effect of the acquisition of AMT in September 2003. Revenue from AMT for the four months ended
27 December 2003 was R25.2 million. Revenue from ongoing operations decreased by 4.8% for the year ended 27 December
2003 compared to the year ended 27 December 2002, due primarily to reduced selling prices reflecting a strengthening of the
rand against the US dollar and the euro.
Cost of sales
Cost of sales for the financial year ended 27 December 2003 was R505.6 million, an increase of R28.3 million, or
5.9%, from R477.3 million for the financial year ended 27 December 2002. The increase was due primarily to increased sales
volume.
Cost of sales of our repairs and services segment for the financial year ended 27 December 2003 was R391.7 million,
an increase of R19.7 million, or 5.3%, from R372.0 million for the financial year ended 27 December 2002. This increase was
due primarily to the increase in sales volume of our maintenance and repairs business unit, offset by a decrease in cost of sales of
our Wilec and Transwire business unit as a result of the decrease in the rand price of copper as discussed above. Cost of sales as
a percentage of segment revenue was 60.4% for the financial year ended 27 December 2003 compared to 62.1% for the financial
year ended 27 December 2002.
Cost of sales of our replacement parts segment for the financial year ended 27 December 2003 was R113.9 million, an
increase of R8.6 million, or 8.2%, from R105.3 million for the financial year ended 27 December 2002. This increase was due
primarily to the increase in sales volumes as a result of the acquisition of the AMT business in September 2003. Cost of sales of
our AMT business unit was R18.5 million for the year four months ended 27 December 2003. Cost of sales from ongoing
operations was R95.5 million for the financial year ended 27 December 2003, a reduction of R9.9 million, or 9.4%, from
R105.3 million for the financial year ended 27 December 2002, reflecting a strengthening of the rand against the US dollar and
euro, partially offset by the failure of unit costs to decline as quickly as selling prices as a result of long inventory cycles and
forward cover positions taken on outstanding orders in foreign currencies. Cost of sales as a percentage of segment revenue was
59.7% for the financial year ended 27 December 2003 compared to 60.5% for the financial year ended 27 December 2002.
Gross profit
Gross profit for the financial year ended 27 December 2003 was R333.6 million, an increase of R38.0 million, or
12.9%, from R295.6 million for the financial year ended 27 December 2002. The gross profit margin was 39.8% for the
financial year ended 27 December 2003 compared to 38.2% for the financial year ended 27 December 2002.
Operating costs
Operating costs for the financial year ended 27 December 2003 were R179.4 million, an increase of R19.0 million, or
11.8%, from R160.4 million for the financial year ended 27 December 2002. This increase was due primarily to cost increases
tied to inflation.
Operating costs of our repairs and services segment for the financial year ended 27 December 2003 were
R135.6 million, an increase of R10.1 million or 8.0%, from R125.5 million for the financial year ended 27 December 2002.
This increase included a non-cash charge of R5.9 million in the year resulting from changes in the carrying amount for the Delta
long-term incentive scheme, compared to a similar charge of R9.2 million in the financial year ended 27 December 2002. The
balance of the increase was due to costs relating to the start up and running of the Loco Coil business unit which started in
January 2003.
Operating costs of our replacement parts segment for the financial year ended 27 December 2003 were R43.8 million,
an increase of R8.9 million, or 25.5%, from R34.9 million for the financial year ended 27 December 2002. This increase was
due primarily to the acquisition of the AMT business in September 2003. Operating costs of our AMT business unit was
R4.6 million for the four months ended 27 December 2003. For the financial year ended 27 December 2003, the business
segment incurred a foreign exchange loss of R5.2 million. Operating costs from ongoing operations excluding the items
discussed above increased by 10.4%. This was due primarily to an increase in employee costs as a result of additional hiring and
salary increases.
Earnings before interest, taxation, depreciation and amortisation
Earnings before interest, taxation, depreciation and amortisation for the financial year ended 27 December 2003 was
R154.2 million, an increase of R19.0 million, or 14.1%, from R135.2 million for the financial year ended 27 December 2002.
EBITDA margin was 18.4% compared to EBITDA margin of 17.5% for the financial year ended 27 December 2002. This
increase was due primarily to an increase in the EBITDA margin in our repairs and services business segment offset by a decline
in the EBITDA margin in our replacement parts business segment.
Earnings before interest, taxation, depreciation and amortisation of our repairs and services business segment for the
financial year ended 27 December 2003 was R121.0 million, an increase of R19.7 million, or 19.4%, from R101.3 million for
the financial year ended 27 December 2002. For the repairs and services segment, EBITDA margin was 18.7% compared to
EBITDA margin of 16.9% for the financial year ended 27 December 2002. This increase was due primarily to a decrease in cost
of sales as a percentage of revenue.
Earnings before interest, taxation, depreciation and amortisation of our replacement parts business segment for the
financial year ended 27 December 2003 was R33.2 million, a decrease of R0.7 million, or 2.1%, from R33.9 million for the
financial year ended 27 December 2002. For the replacement parts segment, EBITDA margin was 17.4% compared to EBITDA
of 19.5% for the financial year ended 27 December 2002. This decrease was due primarily to an increase in cost of sales and
operating costs as a percentage of revenue.
Depreciation
Depreciation for the financial year ended 27 December 2003 was R13.9 million, an increase of R2.0 million, or 16.8%,
from R11.9 million for the financial year ended 27 December 2002. The increase was due primarily to the capital expenditure of
R23.6 million during the financial year ended 27 December 2003 on which additional depreciation was incurred.
Amortisation of trademarks
Amortisation of trademarks for the financial year ended 27 December 2003 was R0.6 million, in line with the amount
incurred for the financial year ended 27 December 2002.
Operating profit
Operating profit for the financial year ended 27 December 2003 was R139.7 million, an increase of R17.0 million, or
13.9%, from R122.7 million for the financial year ended 27 December 2002.
Net interest received
Net interest received for the financial year ended 27 December 2003 was R12.3 million, an increase of R3.2 million, or
35.2%, from R9.1 million for the financial year ended 27 December 2002. This increase has no relevance following the
Acquisition as the net interest earned for the financial year ended 27 December 2003 as well as for the financial year ended
27 December 2002 related to the funding structure of Delta which did not form part of the sale transaction to Savcio.
Profit before taxation
Profit before taxation for the financial year ended 27 December 2003 was R152.0 million, an increase of R20.2 million,
or 15.3%, from R131.8 million for the financial year ended 27 December 2002.
Taxation
Taxation for the financial year ended 27 December 2003 was R53.2 million, an increase of R7.8 million, or 17.2%,
from R45.4 million for the financial year ended 27 December 2002. This increase was due primarily to the increase in profit
before tax.
Net profit
The net profit for the financial year ended 27 December 2003 was R98.8 million, an increase of R12.4 million, or
14.4%, from R86.4 million for the financial year ended 27 December 2002.
Liquidity and capital resources
Historically, our principal uses of cash have been for working capital and capital expenditures. We have funded those
needs with operating cash flow, intra-group cash pooling arrangements and borrowings under short-term overdraft facilities.
Following the Acquisition and related transactions, our long-term debt has increased significantly and, as a result, we will have
significant debt service obligations in the future.
Historical cash flows
The table below summarizes our historical combined carved-out cash flows for the years ended 27 December 2002,
2003 and 2004 and the nine months ended 30 September 2004 and 2005. Net cash outflow from investing activities was
relatively high because of our capital improvements program.
Cash generated from operations...........................
(Increase) decrease in working capital..................
Interest received .................................................
Interest paid .......................................................
Non-cash deferred tax movement ........................
Net cash inflow from operating activities .............
Net cash outflow from investing activities............
Nine months ended 30 September
Financial year ended 27 December
2002
2003
2004
2004
2005
(audited)
(audited)
(audited)
(unaudited)
(audited)
(in millions)
R135.0
(41.1)
15.0
(5.9)
(0.6)
102.4
(16.9)
R153.7
5.9
14.9
(2.5)
(0.1)
171.9
(53.7)
R175.3
(27.7)
10.4
(1.2)
2.9
159.7
(34.8)
R123.1
(25.2)
6.6
0.0
0.5
105.0
(30.0)
R135.7
(45.6)
8.6
(0.2)
(4.3)
94.2
(16.2)
Future liquidity and capital resources
Our principal uses of cash following the Acquisition and the offering of the notes will be for debt service requirements,
working capital requirements and capital expenditures. We intend to fund these requirements with operating cash flow and,
subject to the satisfaction of certain conditions to borrowing, drawings under our new revolving credit facility.
Capital expenditures
During the 2003, 2004 and 2005 fiscal periods, we undertook a capital expenditure program to improve our facilities.
During 2003, approval for R8.1 million was obtained to purchase land in Cape Town in order to build a new repair facility,
construction of which was completed during 2004. During 2004 the maintenance and repairs business unit purchased for
R15.0 million the building housing the Denver, Johannesburg transformer repair facility and the land on which it is situated. A
further R13.8 million was approved in 2004 to upgrade this facility, R4.7 million of which was spent during the nine months
ended 30 September 2005 with the balance expected to be spent during the 2006 financial year. From 2007 onward, we expect
to revert generally to maintenance-only capital expenditure. The following table sets forth our capital expenditure (including as
a percentage of revenue) for the periods indicated.
Capital expenditure.................................
As a percentage of revenue......................
Financial year ended 27 December
2003
2004
2002
(audited)
(audited)
(audited)
(in millions)
R 15.4
2.0%
R 23.6
2.8%
Nine months ended 30 September
2004
2005
(unaudited)
R 41.3
4.2%
(audited)
R 30.1
4.1%
R 16.5
2.1%
Scheduled repayments of our obligations (as adjusted)
The following table summarizes as of 30 September 2005 on a pro forma basis, giving effect to the offering of the notes
and the application of the proceeds therefrom, (a) the contractual obligations, commercial commitments and principal payments
we are committed to make under our debt obligations, leases and other agreements and (b) their maturities. See "Description of
Certain Other Indebtedness—Prepayment."
Total
New revolving credit facility(1) ......................................
Senior secured notes offered hereby(2) ............................
Shareholder loans(3) ......................................................
—
R 931.8
482.8
Payments due by period
Less than
1 year
1-3 years
3-5 years
(rand in millions)
—
—
—
—
—
—
—
—
—
More than
5 years
—
R 931.8
482.8
Total long-term debt obligations..............................
Operating lease commitments.....................................
Total contractual obligations.................................
(1)
1,414.6
30.6
1,445.2
—
8.7
8.7
—
15.5
15.5
—
3.7
3.7
1,414.6
2.7
1,417.3
At the closing of the offering, we do not expect to have any borrowings under our new revolving credit facility.
(2)
Represents the aggregate principal amount of the notes at maturity in rand terms based on the convenience exchange
rate of R7.4546 = €1.00. You should not review such translation as a representation that such rand amounts actually represent
such euro amounts, or could be or could have been converted into euro at the rate indicated or at any other rate. Does not
include interest on the notes, the payment of which, in euro, will be subject to foreign currency conversions. We expect to hedge
our currency conversion exposure in respect of the principal amount of and interest on the notes for up to four years. The terms
of the hedging arrangement will be determined at closing and will determine our rand exposure. See "Description of Certain
Other Indebtedness—Hedging arrangement."
(3)
By their terms, the shareholder loans have no maturity. The shareholder subordination agreement and shareholders
agreement provide that principal outstanding under these loans cannot be repaid (except in specified circumstances permitted
under our various financing agreements including the indenture governing the notes) until one year following maturity or other
repayment in full of the notes. Therefore, we have assumed for purposes hereof that the shareholder loans will not be repaid until
more than five years.
For a discussion of the impact of foreign currency fluctuations on our results of operations, see "—Significant factors
affecting our results of operations—Foreign exchange."
We are subject to warranty claims for repairs and services provided by our maintenance and repairs business unit. As
of 30 September 2005, we carried a provision of R6.7 million. See note 1.9 to our audited consolidated financial statements for
the nine months ended 30 September 2005. Such provision is calculated based on an average of the prior three years' actual
customer warranty costs as a percentage of revenue applied to the current year's revenue.
Market risk
Commodity price risks
We are exposed to risks associated with fluctuations in the market price of copper. Generally, we do not hedge our
exposure with respect to fluctuations in copper prices.
Foreign currency risk
We are exposed to the exchange rate movement of the South African rand, our operating currency, against other
currencies, predominantly the US dollar in respect of copper, and both the euro and the US dollar in respect of merchandise we
import. See "Risk Factors — Risks related to our business and industry — We are exposed to foreign exchange rate fluctuations
in respect of the copper conductors we use in our business as well the materials we import." We take forward cover on our
imports of merchandise, but do not apply hedge accounting.
Concurrently with the closing of this offering, we will enter into hedging arrangements covering the rand equivalent of
the principal of, and interest under, the notes for up to four years. See "Description of Certain Other Indebtedness — Hedging
arrangements."
Interest rate risk
We do not carry any floating rate indebtedness and our business is not directly impacted by changes in interest rates.
Inflation
Consumer price inflation in South Africa was 9.3%, 6.8%, 4.3% and 3.6% in the years 2002, 2003, 2004 and 2005
respectively. Inflation impacts, among other things, the costs we incur, in particular for labour.
Critical accounting policies and use of estimates
The preparation of our financial statements requires management to make estimates and judgments that affect the
reported amount of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. On an
ongoing basis, management evaluates its estimates including those related to revenue recognition, doubtful accounts and longlived assets. Management bases its estimates on historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for making judgments about the value of such assets and
liabilities that are not readily available from other sources. Actual results may differ from these estimates under different
assumptions or conditions. We believe that, of our significant accounting policies, the following accounting policies may
involve a higher degree of judgment and complexity.
Impairment
At each balance sheet date, we review the carrying amounts of our tangible and intangible assets to determine whether
there is any indication that those assets have suffered an impairment loss. If we estimate the recoverable amount of the asset to
be less than its carrying amount, we reduce the carrying amount we estimate to its recoverable amount. We recognise
impairment losses in the income statement immediately.
Warranty claims
We provision for liabilities under warranty claims for repairs and services provided by our maintenance and repairs
business unit. We calculate the provision based on an average of the prior three years' actual customer warranty costs as a
percentage of revenue applied to the current year's revenue. Actual warranty costs may exceed amounts provisioned as a result
of numerous factors.
Provisions
We recognise provisions when the business has a present legal or constructive obligation as a result of past events, for
which it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be
made for the amount of the obligation. Where the effect of discounting to present value is material, we adjust provisions to
reflect the time value of money.
Contract accounting and revenue recognition
For our repairs and services segment, we currently apply the completed contract method to our service revenue, as our
current information systems do not provide the required information that would enable us to estimate the stage of completion
sufficiently reliably to apply the percentage of completion method.
We will examine whether the percentage of completion method can practically be applied to our service revenue. This
method involves estimating the total sales and costs for each contract in order to develop an estimated gross margin percentage.
The amount reported as revenue is calculated by applying this estimated margin percentage to the proportion of costs incurred in
relation to total estimated costs, thereby aligning revenue recognition to the extent of service activity and performance during the
period. Due to the level of assumptions inherent in the estimation process, it is possible that materially different cost of sales
amounts could be recorded if different assumptions were used, or if the underlying circumstances were to change. Changes in
underlying assumptions and estimates, supplier performance or circumstances may adversely or positively affect financial
performance in future periods.
Inventory
Our replacement parts segment maintains significant inventory stock of parts leading to a long inventory cycle, which
in the case of certain slow moving parts, may be years long. Inventories are stated at the lower of cost or net realisable value.
We review the components of our inventory on a regular basis for excess, obsolete and impaired inventory based on estimated
future usage and sales history. Due to the long inventory cycle in the replacement parts segment, the likelihood of a material
write-down is increased relative to the rest of our business.
MARKET OVERVIEW
Our industry
We provide maintenance and repair services for rotating electrical equipment and transformers used in a variety of
industries. We also manufacture and distribute input materials used in the broader electrical manufacturing and repair industry
and distribute high-quality aftermarket replacement parts for earthmoving equipment and heavy trucks used in the construction
and mining industries.
Maintenance and repairs
We estimate that in 2004 our addressable market in South Africa for electrical maintenance and repair services was
approximately R2 billion. The industry encompasses a wide variety of equipment, ranging from small low voltage electric
motors used in a number of household consumer and industrial applications, to specialised motors used in rail transportation and
mining, to transformers and large generators used in power generation and distribution facilities. Market participants range from
small workshops focusing on small electric motors (below 18KW) and small transformers (below 1MVA), of which there are
over 400, to a few service providers (including OEMs) capable of repairing medium- to large-sized electric motors (over 1MW)
and transformers (over 5MVA). Participants provide services either in their own workshops or on-site at customer locations.
The market for smaller electric motor maintenance and repairs is characterised by aggressive price competition and low barriers
to entry, and is largely a commodity business. The market for larger equipment maintenance and repairs is characterised by a
focus on minimal downtime at "mission critical" industrial facilities as well as on technical expertise.
We focus on providing maintenance and repair services for rotating electrical equipment, transformers and generators
used in the mining, rail transportation, power generation and distribution and general manufacturing industries. Although each
of these industries has unique competitive and utilisation dynamics, the maintenance and repairs opportunities are driven largely
by the installed base of motors, transformers and generators and maintenance cycles.
Mining
We divide the South African mining industry into underground, open cast and mineral sands segments. Underground
mining is mainly for noble metals (such as gold and platinum), diamonds and coal. Open cast mining is mainly for iron ore,
coal, chrome and copper, while mineral sands mining involves extracting minerals such as rhodium and titanium from surface
level sands.
Underground mining. Underground mining involves drilling and operating to levels as deep as five kilometres. It is
the most equipment intensive segment of the mining industry. The principal equipment we service in underground mining
includes mine winders used for transporting equipment, ore and people, and medium-sized electric motors, used for a variety of
purposes including cooling, ventilating, pumping and crushing. Mine winders weigh up to 160 tonnes, are up to 7.5 metres in
diameter and have the capacity to haul significant weights in single drops of up to 3,200 metres by using sophisticated braking
and cable systems. The project-critical nature of mine winders ensures that they are removed from the shaft to be serviced at
regular intervals, usually with the substitution of a back-up mine winder in their place. Due to their size and complexity, service
of mine winders requires a high level of technical expertise, must take place in specially equipped workshops which have
adequate lifting capacity and may take as many as nine to twelve months to complete. Emergency repairs of mine winders may
garner premium pricing in order to speed turnaround times. We also service medium-sized AC and DC electric motors used for a
variety of purposes in the underground mining industry.
We believe that at the end of 2004 there were more than 350 mine winders and more than 2,000 medium voltage
(greater than 1,000V) motors operating in South Africa's underground mines. This installed base is expected to remain relatively
constant.
Open cast mining. Open cast mining is conducted in geographic locations where veins of ore or minerals run close to
the surface. The principal equipment we service in open cast mining includes draglines, which weigh up to 200 tonnes (used for
excavating), off-highway diesel-electric dump trucks with a load capacity of up to 300 tonnes, electric shovels, drills and other
material handling equipment. We believe there were approximately 30 draglines and approximately 150 diesel-electric dump
trucks in use in South Africa at the end of 2004. This installed base is expected to increase over the next few years. The
electrical motors on both draglines and large diesel-electric dump trucks require scheduled maintenance. In addition to
scheduled maintenance, unscheduled equipment failures require urgent repair. Due to their size and complexity, this work must
be done in specially-equipped workshops and typically takes two to three months to complete.
Mineral sands mining. Mineral sands mining is the extraction of minerals, such as titanium, from sand. The principal
equipment we service in mineral sands mining is dredgers and pumps, most of which contain medium- to large-sized electric
motors.
Rail transportation
The South African rail transportation industry is substantially state-owned and is divided into the freight and commuter
transport segments.
Freight rail transport segment. The principal equipment we service in the freight transport segment is electric
locomotives, each of which typically contains either four or six traction motors, and one motor generator combination. As of the
end of 2004, the freight transport segment operated approximately 1,000 diesel-electric locomotives and approximately 1,600
electric locomotives. A division of Transnet, a state-owned company that holds extensive transport assets, owns all freight rail
assets in South Africa. Transnet's in-house maintenance and repairs division, Transwerk, historically has undertaken the bulk of
all maintenance and repairs on these assets.
Commuter rail transport segment. The principal equipment we service in the commuter segment is electric motor
coaches, each of which contains four traction motors and one generator. As of the end of 2004, the commuter rail segment
operated approximately 750 electric motor coaches. Commuter rail transport historically has been managed under Transnet, but
the government has recently announced that operation of commuter rail transportation assets will be moved out of Transnet and
placed under another state-owned entity, which is not currently expected to exclusively use Transwerk or to establish an inhouse repair function for the commuter rail assets. We expect the transfer of commuter rail transportation operations out of
Transnet to begin in April 2006, which we expect will permit competitive bidding.
We believe market opportunities in this segment will increase for private companies such as ours because the South
African government has announced plans to invest approximately R14 billion over the next five years to upgrade and refurbish
the freight rail transport fleet. The South African government has also announced plans to spend R800 million to refurbish the
commuter rail transport fleet, which expenditure we expect will lead to further similar investments in the future.
Power generation and distribution. The public power generation and distribution industry in South Africa is run by
Eskom, with some distribution handled directly by metropolitan governments.
The principal electrical equipment used in the power generation segment includes turbine generators, generator
transformers and ancillary electric motors. The maintenance and repairs of Eskom's turbine generators and generator
transformers is presently performed exclusively by Rotek, Eskom's in-house repair workshop. Maintenance and repairs of
ancillary electric motors used by Eskom is often performed by external workshops including ours. As of the end of 2004, there
were approximately 1,200 ancillary electric motors in excess of 1MW installed at Eskom's power generation facilities. These
motors are used in a wide variety of equipment in the power generation process, including cooling, coal crushing and pumping.
The principal equipment we service in the power distribution industry is medium-sized distribution transformers
(1MVA-5MVA) and large-sized power transformers (5MVA-200MVA). As of the end of 2004, the installed base of these
transformers was approximately 15,000. A 200MVA power transformer can weigh as much as 156 tonnes. Recently, the South
African government announced that it would restructure power distribution by creating seven REDs, six of which would be
managed by the six largest municipal bodies covering the majority of South Africa's population and the seventh of which
(covering the remaining, less-populated areas of South Africa) would initially be retained by Eskom. Unlike Eskom, for whom
substantially all maintenance and repair services were conducted by Rotek, the REDs are expected to invite open bidding for
maintenance and repair contracts, including transformer repair.
General manufacturing. South Africa is the most industrialised economy in Africa and has a stable, well-established
manufacturing industry. South Africa's manufacturing industry uses a wide variety of electric motors across its manufacturing
segments, ranging from low voltage AC motors to highly specialised motors of up to 50MW. We service a broad range of
industries, of which the three most significant sub-segments in 2004 were steel and metal, petrochemical and paper and pulp
manufacturing.
In the steel and metal production industry, the installed base of furnace transformers and rolling mill motors is
increasing due to high demand for automotive grade and stainless steel. The petrochemical industry is installing additional
power transformers and very large electric motors (greater than 10MW), due to demand at Sasol facilities. In the paper and pulp
manufacturing industry, the installed base is expected to remain relatively constant for the foreseeable future, although future
industry cyclicality could cause changes.
Manufacturing and distribution
Our Transwire and Wilec businesses manufacture and distribute magnet wire and shaped conductor products, and
distribute other input materials (such as copper and aluminium strip, insulation materials, resins and varnishes, industrial tapes
and coated abrasives) to our maintenance and repairs business and the broader electrical manufacturing and repair industry. We
estimate that the market for conductors for electric motors and transformers was approximately R300 million in 2004. In
general, the market for Transwire and Wilec products is driven by the same factors that affect our maintenance and repairs
business.
Replacement parts
We also distribute high-quality aftermarket replacement parts for earthmoving equipment and heavy trucks to the South
African construction, mining and trucking industries. The market is characterised by numerous providers, including OEMs, and
customers with a few dominant players that obtain cost advantages through the extent of their distribution channel.
Macroeconomic factors
Many of the industries we target, such as mining and steel manufacturing, are sensitive to changes in commodity prices
and in the value of the rand. Changes in commodity prices impact demand for many of our customers' products on the global
market. In addition, the value of the rand impacts our customers' cost of producing their products, and thus the profitability of
our customers. During the trough of the price cycle for a commodity, or periods in which the rand is strong, commodity and
manufacturing customers often defer maintenance of equipment and sometimes delay capital expenditure until their profitability
improves. As a result, during those periods, maintenance and repair orders, as well as sales of input materials and spare parts,
may decline. When industries are interrelated, such as mining and finished metals production, the negative impact of
commodity price and rand value movements may be exacerbated.
South African Black Economic Empowerment
The South African government's broad-based black economic empowerment, or BEE, legislation (embodied in the
South African Broad-based Black Economy Empowerment Act, or SABEE Act) aims to address inequalities resulting from the
exclusion of most South Africans from meaningful participation in the economy prior to 1994. The main governmental vehicle
for black economic empowerment has been the Codes of Good Practice issued under the SABEE Act (the "BEE Codes"), which
are in the process of being finalised to take into account public comments. Because the BEE Codes are not final, there may be
changes to the BEE Codes requiring additional compliance measures.
The BEE Codes have introduced a BEE scorecard under which South African businesses gain points for achieving
certain thresholds in terms of black ownership and management control, procurement from, and joint ventures with,
black-owned enterprises and by providing employment equity and skills development to black people. Scoring is largely done
by independent private verification agencies such as Empowerdex. Although the BEE Codes are scheduled to become law in
2006, compliance is currently voluntary between private sector entities. The South African Preferential Procurement
Framework Policy Act No. 5 of 2000 (the "SAPPFP Act"), governs the procurement policies of the South African public sector
and imposes similar obligations to those in the BEE Codes. Currently, the BEE Codes and the SAPPFP Act are not aligned.
Nonetheless, governmental entities such as Transnet and Eskom are required to favour relationships with entities having
minimum BEE credentials, generally including those having at least 25% black ownership.
In parallel with the development of the BEE Codes, several industries also developed their own BEE charters, most
notably the mining industry, where adoption had been almost universal. Industry-wide BEE charters typically contain a
scorecard concept similar to that of the BEE Codes, with scoring being done by collective industry bodies and third-party
verification services. Of these charters, the mining industry charter enjoys a special status in that it takes precedence over the
BEE Codes in certain specific respects. As a result of the procurement component of the mining charter, companies wishing to
receive preferential treatment as suppliers to that industry have generally had to maintain a fairly significant level of mining
charter compliance, including having at least 26% ownership by historically disadvantaged individuals. Other industries, such as
petrochemicals and steel, have been in the process of developing rigorous charters along the lines of the mining industry charter,
although these charters are likely to be superseded by the BEE Codes once they become law.
BUSINESS
Overview
We are the largest privately-owned provider of maintenance and repair services for rotating electrical equipment and
transformers in Africa and have been in operation for more than 90 years. We provide maintenance and repair services for a
variety of motors and transformers in a broad range of industries in South Africa, including the mining, rail transportation, power
generation and distribution, steel production, petrochemical and paper industries. We are also a leading independent
manufacturer and distributor of input materials to the broader South African electrical manufacturing and repair industries, and a
leading distributor of high-quality aftermarket replacement parts for earthmoving equipment and heavy trucks used in the South
African construction, mining and trucking industries. We currently operate two manufacturing facilities, nine workshops and 16
distribution centres throughout South Africa. For the twelve months ended 30 September 2005, we generated revenue of
approximately R1,012.7 million (€135.8 million) and EBITDA of R193.7 million (€26.0 million).
Our primary business, which accounted for approximately 50% of our 2004 revenue, is providing maintenance and
repair services for rotating electrical equipment and transformers. We focus on maintaining and repairing medium- to
large-sized equipment. Customers in this market segment are focused on minimal downtime of mission critical facilities,
reliability of repairs and technical expertise. We believe the combination of our well-located and well-equipped workshops,
technical expertise and skilled workforce enables us to successfully undertake a wide range of maintenance and repair services
for motors ranging in size from 1KW to 50MW (among the largest motors in use in South Africa) and for transformers ranging
in size from 315KVA to 200MVA. These capabilities, together with our strong brand names and reputation for delivering highquality, reliable service in a timely manner, reinforce our leadership position in the South African maintenance and repairs
market.
We also operate manufacturing and distribution businesses that supply input materials to our maintenance and repairs
business, as well as to the broader South African electrical manufacturing and repair industries. These businesses accounted for
approximately 28% of our 2004 revenue. Our replacement parts business, which distributes high-quality aftermarket
replacement parts for earthmoving equipment and heavy trucks, accounted for the balance (approximately 22%) of our total
revenue in 2004.
Since January 2000, we have invested R123.0 million towards improving our facilities and technical capabilities,
including test equipment and VPI equipment, balancing machines, vacuum dryout ovens and conductor strip rolling machines.
These investments improve the finished product quality and enable us to differentiate ourselves from lesser-equipped companies.
The table below shows how our revenue and EBITDA have increased significantly and our EBITDA margins have improved
between 2000 and 2004:
2000
(unaudited)
Revenue.............................
EBITDA ............................
EBITDA margin(2) ..............
R576.1
86.0
14.9%
Financial year ended 27 December
2001
2002
2003
(unaudited)
(audited)
(audited)
(in millions, except percentages)
R615.1
96.5
15.7%
R772.9
135.2
17.5%
(1)
Compound annual growth rate.
(2)
EBITDA expressed as a percentage of revenue for the relevant period.
R839.2
154.2
18.4%
2004
(audited)
CAGR(1)
R973.6
180.1
18.5%
14.0%
20.3%
Competitive strengths
We believe we benefit from a number of competitive strengths, including the following:
Leading market position
We are the largest privately-owned provider of maintenance and repair services for rotating electrical equipment and
transformers in Africa and have been in operation for more than 90 years. The following table sets forth our estimated market
position in our primary market by product and by industries serviced based on 2004 revenue:
Product
Large-sized transformers.....................................
DC motors .........................................................
Medium voltage motors ......................................
Diesel traction motors.........................................
Electrical traction motors ....................................
Medium-sized transformers.................................
Low voltage motors............................................
(1)
Not used in this industry.
Mining
1
1
1
1
1
2
1
Rail transportation
1
n/a(1)
n/a(1)
1
2
1
n/a(1)
Power generation/
distribution
2
n/a(1)
2
n/a(1)
n/a(1)
3
2
General
manufacturing
1
1
1
1
1
2
1
Strong customer relationships
We have developed strong, long-standing relationships with our customers by consistently delivering high-quality
maintenance and repair services. Our customers rely on us for "mission critical" repair services and for our technical expertise.
Our customer relationships are reinforced by our extensive proprietary service history database of both standard and
custom-made medium- and large-sized electric motors and transformers installed in South Africa and our more than 90 years of
operations. Fifteen of our top 20 customers during 2004, or their predecessors, have been customers of ours for more than 20
years. Our customer base includes governmental entities such as Spoornet (the South African government freight rail operator
and a division of Transnet), as well as globally recognised companies, such as:
•
Mining: Anglo-American (and affiliates), Rio Tinto and Goldfields;
•
Steel production: Mittal Steel, Highveld and Columbus Stainless;
•
Petrochemicals: Sasol, Petronas and Caltex; and
•
Paper and pulp: Sappi and Mondi.
Diverse customer and revenue base
We have a diverse customer base and generate revenue across a wide spectrum of industries. In 2004, we generated
revenue from more than 4,200 customers. With the exception of Transnet, which accounted for approximately 9% of our total
revenue in 2004, no single customer accounted for more than 3% of our total revenue. In addition, our maintenance and repairs
business is well-balanced across the industries we serve. In 2004, approximately 30% of our maintenance and repairs revenue
was generated in the mining industry, approximately 23% in rail transportation and approximately 47% across the general
manufacturing and power industries. We believe that the diversity of our customer and revenue base helps reduce our exposure
to a downturn in any individual industry.
High barriers to entry
The segments of the maintenance and repairs industry on which we focus have significant barriers to entry, including
the need for technical know-how, significant capital investment and experienced management. Over the course of our long
operating history, we have built a proprietary service history database of both standard and custom-made medium- and
large-sized electric motors and transformers installed in South Africa. This proprietary knowledge enables us to reduce
maintenance and repair lead times by manufacturing and sourcing critical components required for repairs in advance of
receiving failed equipment at our workshops, as well as to more accurately price our contracts. Capital investment is also
essential to success in the market segments where we compete, as specialised facilities and equipment (such as cranes and test
bays) are required to service the larger-sized equipment on which we focus. Over the past five years, we have invested
R123.0 million towards improving our facilities and technical capabilities and on expanding our transformer repair facility, all of
which differentiate us from our smaller competitors and enhance our ability to service the high-end sectors of our market. We
believe that our proprietary service history database and infrastructure, together with our experienced operational management
team, create significant barriers to entry.
Highly respected trade names
Our trade names are recognised as leaders in the markets they serve and are associated with reliability, high-quality and
technical expertise. LH Marthinusen was founded in 1913 and is associated with advanced electrical engineering and our total
service solution programme, while our Reid and Mitchell brand, founded in 1940, is associated with high-quality service and a
deep knowledge of motors produced by GE. The Wilec brand was established in 1970 and is associated with "one-stopshopping" for all input materials, and our ESP brand is well-respected as a reliable source of value-for-money spare parts for the
construction and mining industries. We believe the strength of our trade names helps to distinguish us from our competitors.
Experienced management team
Our operational management team has significant industry experience. Our top 10 managers have an average of
19 years experience in our industry and an average of 16 years with us. During their tenure, our annual revenue, EBITDA and
EBITDA margins have consistently increased.
BEE credentials
It is increasingly important for South African businesses to have strong black economic empowerment, or BEE,
credentials in order to acquire procurement contracts from public and private sector customers. A BEE scorecard has been
specified by the South African government and is widely used within government-owned and operated entities, such as Transnet
and Eskom, in their procurement process. A number of industries, including mining and petrochemicals, have adopted or are
expected to adopt their own scorecards, and the government has indicated that it intends to make its BEE scorecard generally
applicable to both public and private sector procurement. To date, we have been BEE-accredited by Transnet, Eskom, SAMPPF
and Empowerdex. Our BEE credentials enhance our ability to win contracts as well as differentiate us from many of our
competitors.
Strategy
Our objective is to increase our revenue and cash flows by leveraging our strengths and by pursuing total service
solution opportunities. The key elements of our strategy are as follows:
Targeting specific infrastructure opportunities
Africa.
We plan to capitalise on rail transportation upgrades and the expected reorganisation of power distribution within South
•
Rail transportation upgrades. The South African government has recently announced plans that include spending
approximately R14 billion over the next five years to upgrade and refurbish the South African freight rail transport
fleet, which includes the refurbishment of traction motors. In addition the government has announced plans to
spend R800 million to upgrade and refurbish the commuter rail transport fleet, which expenditure we expect will
lead to further similar investments in the future.
•
Creation of regional electricity distributors. Recently, the South African government announced it would
restructure power distribution in South Africa by creating seven REDs and transfer the management of six REDs
from Eskom to metropolitan councils. Unlike Eskom, for whom substantially all maintenance and repair services
are conducted by its in-house repair workshop, Rotek, the six municipal REDs are expected to invite open bidding
for maintenance and repair contracts, including transformer repair. We expect the REDs management transfer to
begin in the near future.
We believe that these initiatives will significantly expand our addressable market and that we are well-positioned to
capitalise on expansion opportunities.
Continue to leverage our BEE credentials
We intend to capitalise on our strong BEE credentials and accreditations to increase our revenue from government and
large private contracts. We are currently BEE-accredited by Transnet, Eskom, SAMPPF and Empowerdex. We will continue to
focus on obtaining BEE accreditations from leading industry bodies as well as from the key BEE verification agencies
recognised by the South African government. We believe our BEE credentials will increase our contract procurement
opportunities, particularly in the rail transportation and power industries.
Focus on value-added services
We aim to leverage our strong customer base and other strengths to expand the value-added services we offer. Prior to
the 1990s, most of our customers elected to use internal workshops to design and administer maintenance programmes. In the
1990s, we began offering monitoring and motor maintenance services, capturing the growing trend toward outsourcing. We
recently began offering a total service solution programme providing for on-site equipment monitoring, diagnostics and
preventive maintenance designed to reduce facility downtime. We believe that our proprietary service history database for both
standard and custom-made medium- and large-sized electric motors and transformers installed in South Africa will position us
well to offer these services cost-effectively, as well as to capture a higher proportion of our customers' maintenance and repairs
spending.
Our businesses
We are the largest privately-owned provider of maintenance and repair services for rotating electrical equipment and
transformers in Africa and have been in operation for more than 90 years. Our business is organised into two segments: repairs
and services and replacement parts. Our repairs and services segment is divided into the following business units: maintenance
and repairs, supply of input materials (Wilec) and the manufacture of electrical conductors (Transwire). The following is a
breakdown of our primary products and services, based on our 2004 revenue:
(1)
A portion of our revenue from the sale of input materials is recorded in our maintenance and repairs business unit.
(2)
Other category includes abrasives and miscellaneous items.
Maintenance and repairs business
In 2004, we generated approximately 50% of revenue from our maintenance and repairs business unit. In the same
period, we undertook more than 28,000 maintenance and repair work orders, ranging from repairing 1KW motors to re-winding
5MW mine winders.
We provide both repair and scheduled maintenance services. Scheduled maintenance services provides us with stable
and recurring revenues, while repair services are provided in response to equipment failures and often give rise to high value
contracts, given the complexity and time sensitive nature of repairs. We provide our services on a fixed price basis and typically
do not have framework or long-term contracts with our customers.
In addition to the traditional maintenance and repair services, we are focused on increasing the value-added services we
provide to our customers. We have recently introduced the following value-added services:
•
installation of equipment for remote monitoring of production levels and condition of draglines;
•
on-site condition monitoring of equipment using infrared thermography, vibration measurement and analysis, laser
alignment, coil analysis and filtering and testing;
•
total motor maintenance contracts to monitor key operating characteristics, such as vibration levels and insulation
levels, and to more proactively undertake preventive maintenance in order to minimize down time; and
•
digital speed control and circuit breaker protection upgrades of electric motors.
Packaged together, we refer to these services as our total service solution. We currently have approximately 10 longterm value-added service contracts with customers including Anglo Coal, Portland Cement and Mittal Steel. We expect to
continue increasing our value-added services business.
Supply of input materials (Wilec)
Through our Wilec business, we are a leading supplier of input materials to the electrical manufacturing and repair
industry in South Africa. We act as a "one-stop shop" supplier of a wide variety of wire and insulation products, including
magnet wire, copper and aluminium strip, insulation materials for both high and low voltage machines and VPI resins and
impregnating varnishes. We also market a comprehensive range of quality self-adhesive tapes and coated and bonded abrasives.
Our products have applications in the mining, transport, power and manufacturing industries. In 2004, approximately 18% of
our total revenue was generated by our input materials supply business unit.
Manufacture of electrical conductors (Transwire)
Through our Transwire business, we manufacture a complete range of magnet wire and shaped conductor products for
both local and international customers and are one of the leading manufacturers of magnet wire in South Africa. Our products
have applications in the manufacture and repair of electrical motors and transformers, the electrical automotive industry, the
lighting industry and the electronic industry. We also manufacture products for the transformer manufacturing and repair
industry, including paper covered products as well as insulation components. In 2004, approximately 10% of our total revenue
was generated by our electrical conductor manufacturing business unit.
Supply of replacement parts for earthmoving equipment and heavy trucks
In 2004, approximately 22% of our total revenue was generated by our replacement parts business. Our replacement
parts business specialises in the procurement and distribution of high-quality aftermarket replacement parts, which include
ground engaging tools and undercarriage for earthmoving equipment, parts for diesel engines, transmissions and heavy trucks.
We distribute these products under our own ESP, TSP and AMT brand names through 16 distribution centres located throughout
South Africa. ESP and TSP also have agents based in the following locations: Botswana, East London (South Africa), Nelspruit
(South Africa), Port Elizabeth (South Africa) and Swaziland. In addition, AMT and GET have agents based in Bloemhof,
Kimberly, Machadadorp, Middelburg, Nelspruit and Pietersburg, all in South Africa.
Our product range includes high-quality parts supplied for well-known manufacturers, including undercarriages and
earthmoving parts for Caterpillar and Komatsu; diesel engine parts made for Cummins, Deutz, John Deere and others; and truck
parts made for Mercedes Benz, Ford Louisville and others. Our suppliers include internationally recognized manufacturers such
as Berco and Passini for undercarriages, Pyrsa and Metalogeria for ground engaging tools and Bulldog for hydraulic seals. We
market our parts under the Berco and ITM trade names for undercarriages, the Pyrsa, USCO and MTG trade names for ground
engaging tools, the ESP trade name for earthmoving parts and the TSP trade name for truck spare parts.
Customers
Maintenance and repairs
In our maintenance and repairs business, we believe the quality of our services and strength of our trade names has
enabled us to attract and retain "blue chip" and large governmental customers. Twelve of our top 15 maintenance and repairs
customers during 2004 (or their predecessors) have been our customers for more than 20 years. Our top five customers in 2004
generated approximately 19% of our revenue. Set out below is a list of our most significant maintenance and repairs customers
for 2004, including the industry in which they operate and the date on which we first provided services to them:
Customer
Transnet(1) ....................................................................................
Rotek...........................................................................................
Robert Bosch................................................................................
Impala Plats .................................................................................
Wiktra..........................................................................................
Tridonic .......................................................................................
Anglo Platinum ............................................................................
Mondi..........................................................................................
Sasol Synfuels Secunda ................................................................
Mittal Steel ..................................................................................
Optimum Colliery.........................................................................
Alstom.........................................................................................
Samancor Tabatse Ferro................................................................
Anglo Coal...................................................................................
Femco..........................................................................................
Industry
Transportation
Power
General Manufacturing
Mining
Transportation
General Manufacturing
Mining
Paper and Pulp
Petrochemicals
Steel
Mining
General Manufacturing
Mining
Mining
General Manufacturing
Relationship
started
1960
1999
1978
1962
2002
1993
1945
1960
1965
1951
1975
1985
1970
1975
1963
(1) Comprised of multiple independently operating divisions including Spoornet, its freight rail division.
Supply of input materials (Wilec)
As of 31 December 2004, our Wilec business had more than 1,500 customers across a broad spectrum of industries. In
addition to our maintenance and repairs business, more than 300 small motor repairers purchased products from Wilec.
Furthermore, our customers for industrial tapes include companies operating in the packaging and printing industry and for
abrasives include numerous do-it-yourself hardware customers.
Electrical conductors (Transwire)
As of 31 December 2004, our Transwire business had approximately 10 customers, including Wilec (40% of
Transwire's 2004 revenue) and our maintenance and repairs business. Our most significant third-party customers for our
manufactured conducting wire include Tridonic (lighting industry), Robert Bosch South Africa (automotive industry), Alstom
and Rotek (manufacture and repair of electrical motors and transformers).
Replacement parts
As of 31 December 2004, our replacement parts business had approximately 2,500 customers, mainly in the
construction industry. Customers range from South Africa's largest construction companies such as Murray and Roberts, Basil
Read and Concor Holdings to small sole-proprietor firms owning a single piece of equipment.
Facilities
We operate two manufacturing facilities, nine workshops and 16 distribution centres throughout South Africa. Our
workshops have significant crane capacity; large loading and unloading bays; electric motor stator burnout ovens; conductor
rolling, annealing and covering equipment; winding equipment for motors and transformers; VPI and resin impregnation
facilities; machine and boilermaker facilities; curing and drying ovens; high speed balancing equipment; oil regeneration and
storage; automated electric motor full load test equipment; and transformer dynamic and static test equipment. In order to meet
the quality standards required by our customers, particularly in the heavy industrial and mining industries, all of our workshops
have obtained the ISO 9000 quality accreditation.
Set out below is a summary of our workshops:
Workshop
Denver, Johannesburg
(LH Marthinusen)......
Benoni, Johannesburg
(Reid & Mitchell) ......
Cleveland,
Johannesburg
(Marthinusen &
Coutts) ......................
Klipfontein, Rustenberg
(TEMSO)..................
Bayhead, Durban (LH
Marthinusen) .............
Welkom (Marthinusen
& Coutts) ..................
Robertsham,
Johannesburg
(Metalplus)................
Paarden Eiland, Cape
Town
(LH Marthinusen)......
Phalaborwa (LH
Marthinusen) .............
Owned or
leased
Square Crane
metres capacity
VPI
High speed
balancing
Test
bays
Coil
manufacture
Transformer
repair
Owned
25,000 160 tons
_
_
_
_
_
Owned
10,000 50+ tons
_
No
_
No
No
Owned
5,000 50+ tons
_
_
_
_
No
Leased
4,000 10 tons
_
No
No
No
No
Leased
3,500 20 tons
_
_
No
No
_
Owned
3,500 20 tons
No
No
No
_
_
Leased
2,000 20 tons
No
No
No
No
No
Owned
1,500 10 tons
_
_
_
No
No
Owned
1,000 10 tons
_
No
No
No
No
In addition to our workshops, our Wilec business unit leases distribution facilities in Johannesburg, Cape Town,
Durban and two other locations ranging from 300 to 7,500 square metres. Wire manufacturing is done at our Transwire plant in
Olifantsfontein, Johannesburg and our Bukubuhle Wire facility in Chloorkop, Johannesburg, both of which are leased. Our
replacement parts segment leases 11 facilities across South Africa ranging from 375 to 3,325 square metres. We also lease
300 square metres in Bruma, Johannesburg for our corporate offices.
We believe that our facilities are suitable for our current business and adequate for our present needs.
Lifting capacity
A workshop's ability to service equipment is determined by its crane capacity, which will determine the maximum size
of the equipment it can service. We believe that we have the largest crane capacity of all independent repairers, at 160 tonnes.
Only Rotek has greater capacity, which it uses for Eskom's largest transformers. This gives us a competitive advantage in the
large-sized motor repair segment of the industry.
Competition
In the large-sized equipment maintenance and repair market we do not have independent competitors. However, we
face significant competition from the in-house repair workshops of the state-owned rail transportation and power industries in
which our largest customers are Transnet and Eskom. Transwerk and Rotek generally attempt to handle the maintenance and
repair work for Transnet and Eskom, respectively, and typically perform all such work subject only to capacity constraints. We
have historically received a number of orders from Transwerk and Rotek in relation to traction motors and ancillary motors
respectively.
In the medium-sized motor market, we face competition from OEMs in the repair of their own motors, and from
smaller participants. Some of our competitors are affiliates of multinational companies with access to greater financial resources
than we have, and some of our smaller competitors in the market for medium-sized motor repair offer lower prices. Both sets of
competitors may be better able to withstand changes in market conditions and within the economy generally.
In the small-sized motor maintenance and repairs market, where we generated approximately 7% of our 2004 revenue,
we face significant competition from an estimated 400 market participants. Competition in this market is focused on price, and
there are relatively low barriers to entry as maintenance and repairs of small motors can be undertaken without making
significant capital investment in cranes and other workshop capabilities. This market currently represents a small component of
our business.
In the market for replacement parts for earthmoving equipment and heavy trucks used in the civil engineering sector,
we face intense competition. Our competitors range from small, local suppliers of spare parts to affiliates of manufacturers of
the equipment we service.
Sales and marketing
Maintenance and repairs
We sell our maintenance and repair services to customers in a wide spectrum of industries, with a focus on the mining,
rail transportation, power and general manufacturing industries. As of 30 September 2005, we employed 35 sales employees in
our maintenance and repairs business. We compensate these employees through a combination of salary and commission.
In general, we manage our selling activities on a workshop-by-workshop basis. Typically, each customer is assigned at
least one customer representative and one service engineer per workshop. The customer representatives work from the field to
manage customer relationships and to provide information to our head office on customers' plans and needs. Service engineers
make site visits to perform maintenance and repairs on a scheduled or as needed basis. In addition to our customer
representatives, each of our major sites also employs a small number of sales staff dedicated to selling our total service solution
offering across our customer base.
Our local sales staff is also responsible for managing and negotiating work orders in conjunction with the relevant
customer representative. The sales staff is responsible for ensuring appropriate approvals are obtained before proposing contract
terms to our customers. Work orders above R100,000 require approval by the managing director of the relevant business unit;
work orders above R1.0 million must be approved by the chief executive officer; and those above R5.0 million require approval
by our board of directors.
In addition to our sales staff, we employ five marketing managers in our maintenance and repairs business. Our
marketing activities are managed on a business unit level. These activities include advertising in trade publications, customer
open house days, mailings and calendars. We also provide training with respect to implementation of new technologies, such as
VPI, at our training facility in Denver, Johannesburg.
Supply of input materials (Wilec)
Wilec sells to our maintenance and repair workshops, the broader electrical repair and manufacturing industry and to
general hardware distributors and retailers. As of 30 September 2005, Wilec employed a staff of 30 full-time sales
representatives. We compensate these representatives through a combination of salary and commission.
In general, we manage our Wilec selling activities on a facility-by-facility basis. Typically, each customer is assigned a
representative who is responsible for managing the relationship. The representative also advises the customer on our product
offerings and informs the head office as the customer requires. In addition, each of our five Wilec facilities maintains a sales
force responsible for processing sales orders.
We are currently in the process of implementing an internet-based sales function for our Wilec business which we
expect to roll out during the first quarter of 2006.
Marketing at Wilec is undertaken by a small marketing staff and includes a detailed website, brochures, trade show
appearances, training seminars and in-person demonstrations of new products.
Electrical conductors (Transwire)
Our electrical conductor manufacturing business, Transwire, provides magnet wire and other conductors and has
approximately 10 customers, as well as providing products to our maintenance and repairs and Wilec businesses. Transwire has
a single sales manager responsible for all customer relationships. Transwire does not currently engage in marketing.
Replacement parts
We sell replacement parts to customers in the open cast mining, construction and road freight transportation industries.
As of 30 September 2005, we employed 74 sales employees, some of whom also have other functions. We compensate our
sales representatives through a combination of salary and commission.
In general, each business unit has a dedicated internal sales force that handles all customer orders whether made by
telephone, catalogue or internet. Each customer is assigned a customer representative responsible for managing the relationship.
Top customer accounts are generally directly managed by the managing director of the relevant unit or branch.
We have recently implemented an internet-based sales function for our replacement parts business which allows our
major customers to access our inventory availability, place orders and monitor order status on a real-time basis.
Our sales representatives are also responsible for direct marketing of product information, and we maintain an
extensive email database of customers.
Employees
As of 30 September 2005, we had a total of 1,408 employees (1,198 permanent and 210 temporary) in our repairs and
services business. As of the same date, we had a total of 285 employees (261 permanent and 24 temporary) in our replacement
parts business.
Employee relations in South Africa are regulated by the South African Labour Relations Act No. 66 of 1995 (the "SA
Labour Relations Act"), which codifies the rights of employees to belong to trade unions and the rights of trade unions to have
access to the workplace. This act also guarantees employees the right to strike and the right to participate in secondary strikes in
certain prescribed circumstances. In addition, the SA Labour Relations Act recognises the right of employees to participate in
the decision-making of companies. As such, employees must be consulted with respect to a variety of matters insofar as they
affect employee terminations, including workplace restructurings, partial or total plant closures, mergers and transfers of
ownership. As of 30 September 2005, approximately 40% of our employees belonged to one of seven unions, with the majority
represented by either the National Union of Metal Workers South Africa (NUMSA) and the Metal and Electrical Workers'
Union of South Africa (MEWUSA).
Negotiation of wages and basic working conditions are negotiated biennially at the Metal and Engineering Industries
Bargaining Council. Employers are represented by the employers association and employees are represented by various unions.
Wages are binding on all employers and employees in the industry. The next bargaining council is scheduled to meet in 2007.
Training
Our Skills Development Center (SDC) at our Denver, Johannesburg site is accredited by the Manufacturing,
Engineering and Related Sector Education and Training Authority (MERSETA), the governmental agency that coordinates
training in our industry. Through the program, which is partially funded by MERSETA through a 1% levy on industry-wide
payroll amounts, four-year apprenticeships are offered on an as-required basis. We also train apprentices at our accredited
workshops in cities outside of Johannesburg.
Successful completion of MERSETA's armature winding trade test confers the nationally recognised Armature Winder
Artisan Qualification, the core qualification for skilled electric motor repair. In addition to armature winding training, we
provide AC and DC electrical motor and transformer mechanical fitting and mechanical repair along with safety, health and
environmental training, trade test preparation and trade theory. Apprentices may be hired by one of our group companies, on an
as-needed basis, or may be hired by our customers or competitors. As of 30 September 2005, 30 apprentices at various stages of
their training had been hired by us and five were hired by external companies. During the remaining time of their
apprenticeships, they are paid according to a wage schedule set by MERSETA. We also train customers and their employees on
the proper usage of the products and services we provide for them, both at our SDC and on-site.
We believe that running the SDC training program provides us with a competitive advantage, by enabling us to identify
and offer employment to skilled workers in advance of our competitors and by adding value to our customers through training.
It is also an important part of our skills development program whereby existing employees receive additional training in basic
numeracy and literacy, and provides an opportunity to further enhance our BEE credentials.
Employee trusts
Two management trusts, the Repairs and Services Management Trust and the Replacement Parts Management Trust,
together hold approximately R20.2 million in equity and shareholder loans on behalf of approximately 30 members of our
management. Participants in the trust provide consideration to fund the trust interests, which entitle them to capital and income
in respect of the instruments represented by their trust interests. Ownership of trust interests is conditional upon employment
with us. See "Principal Shareholders and Share Capital."
Suppliers and raw materials
We enjoy longstanding relationships with many of our suppliers. In the maintenance and repairs business, we attribute
our strong market position with respect to GE motors used primarily in the mining industry to our agency and parts agreement
with GE. With the exception of our arrangement with GE, our maintenance and repairs business sources its supplies from a
wide range of non-exclusive third party suppliers and through Wilec and Transwire.
Wilec sources its products from a significant number of suppliers and, in many cases, benefits from more than one
supplier for each of the products it distributes. Wilec has distribution arrangements from a number of major international
manufacturers, including Pucaro and Figholm for transformer products, Altana for Sterling resins, Isovolta for high voltage
materials, Risatti for test instruments, Tyco and Seal King for industrial tapes and a number of other smaller suppliers. In
addition, our ESP unit of our replacement parts business has a distribution agreement for Berco undercarriages and our AMT
unit has a distribution agreement for ITM undercarriages. Although our arrangements with these suppliers are non-exclusive
and we believe we could source equivalent materials from other suppliers, loss of a number of key suppliers could materially
impair our ability to supply our customers, including the maintenance and repairs business, and accordingly lead to a possible
decrease in sales and earnings.
Copper is the primary component of magnet wire, the main product manufactured by our Transwire business. Enamels
used by Transwire are sourced from various international suppliers, primarily based in Italy and the United Kingdom. Copper is,
in the form of wire and other conducting elements of electric equipment, the most important input material used in the repair of
electrical equipment that we service. If PMC, which supplied approximately 85% of our copper rod needs in 2004, were to
cease operating or to suffer a disruption in supply, we would be forced to source copper internationally. We could suffer delays
in obtaining adequate supplies of copper in the international markets and would likely be required to purchase it at higher prices,
which we might be unable to pass on to our customers. As a result, our revenue, results of operations and liquidity may be
adversely affected. We have recently identified alternative sources of copper supply in Australia, Germany and Zambia,
potentially reducing our dependence on PMC.
We are also dependent on sole supplies for certain other products, including those we sell under agency arrangements
through Wilec.
Information technology
We have developed a customised information technology ("IT") system for our maintenance and repairs business for
use in conjunction with standard off-the-shelf "Impact" operations management software provided by BMC Software. This
system enables precise management of the process of estimating time for completing incoming work orders, shop floor control
and costing, material input and financial management.
Our maintenance and repairs business also maintains an extensive database of information relating to a significant
majority of the large electric motors installed and repaired in South Africa. We use this as a tool to assist with technical
evaluation and quoting for repair work. In addition, together with in-house developed motor management software, our
maintenance and repairs business has developed its total service solution offering for its customers. Together with condition
monitoring data, the software enables us to monitor trends in key operating characteristics such as vibration levels and insulation
levels, enabling us to take a more proactive approach to minimise breakdowns.
The IT systems of Wilec and the replacement parts business:
•
have a nation-wide area network system with intranet facilities;
•
incorporate an extensive management information system that provides real time access to financial information,
such as revenue by customer and by branch, gross profit percentage, and comparisons against budget and previous
periods;
•
manage the complete procurement cycle with both local and international suppliers;
•
allow management to identify slow moving stock items;
•
includes ECAT, which is an electronic parts manual and catalogue system for our replacement parts business; and
•
provides an e-commerce solution for our customers (already in place for our replacement parts business and in the
process of being developed for Wilec).
History and operating structure
We operate our business in two segments—the repairs and services segment and the replacement parts segment. The
repairs and services segment is comprised of our maintenance and repairs business, and our Wilec and Transwire businesses,
which supply input materials and parts to our maintenance and repairs business and third parties. Although this structure creates
a degree of vertical integration, the three business units within our repairs and services segment operate independently, service
different markets and may compete with one another for contracts where the businesses overlap.
Within our maintenance and repairs business unit, we operate under four distinct service brands, LH Marthinusen,
Marthinusen & Coutts, Reid and Mitchell and Metalplus. LH Marthinusen, the oldest of our maintenance and repairs
businesses, was established in 1913. Over time, LH Marthinusen was combined with additional workshops operated by our
other maintenance and repairs businesses, and with Wilec and Transwire, to form the vertically integrated repairs and services
segment. Marthinusen & Coutts was established in 1954 and specialises in the repair and remanufacture of rotating electrical
equipment. Our Reid and Mitchell brand was founded in 1940 and benefits from its previous association with GE and its
reputation for quality. Metalplus has pioneered submerged arc micro welding since 1973 and is one of the few service providers
approved by the mining, petrochemical and transportation industries. We operate these businesses on a highly decentralised
basis.
Our replacement parts segment was established in 1980 and specialises in the procurement and distribution of highquality aftermarket replacement parts for earthmoving equipment including undercarriage and ground engaging tools and diesel
engines and heavy trucks. The business has grown through acquisitions since 1983, most recently through the acquisition of
AMT in September 2003.
Effective 1 October 2005, we acquired these businesses from Delta.
Environmental regulation
Our operations are subject to environmental laws and regulations, which govern, among other things, air emissions,
wastewater discharges, the handling, storage and disposal of hazardous substances and wastes, the remediation of contaminated
sites, and employee health and safety.
Financial responsibility for the remediation of contaminated property or for the amelioration of damage to natural
resources can be imposed on entities and individuals where current or prior operations have had an environmental impact. Such
liability can include the cost of investigating and cleaning up contaminated soil or ground water, fines and penalties sought by
environmental authorities, and damages arising out of personal injury, contaminated property, and other toxic tort claims, as well
as lost or impaired natural resources. Certain environmental laws impose joint and several liability for some of these damages,
meaning that a person can be held liable for all damages even though others were also involved in causing them. Certain
environmental laws also impose liability for some of these damages regardless of whether the person causing the damages did so
through any unlawful conduct or other fault. Our operating locations have generally not been subject to comprehensive
environmental assessments to determine whether there are areas of contamination at them as a result of past operations, and no
assurances can be given that we will not face material cleanup costs in the future in the event such contamination has (or is
deemed to have) occurred.
We believe that we conduct our operations in material compliance with all applicable environmental laws and
regulations, and we implement procedures including training to facilitate continuing compliance. We are not aware of any
material liability relating to past releases of hazardous substances. As of 30 September 2005, we had not accrued any loss
contingencies for environmental matters.
Legal proceedings
We are party to various claims and legal actions in the ordinary course of our business. We believe that such claims
and actions, either individually or in the aggregate, will not have a material adverse effect on our business, financial condition or
results of operations.
MANAGEMENT
Directors
We have a unitary board structure comprising three executive directors and 12 non-executive directors. The executive
address of our directors is Bruma Boulevard, 20 Zulberg Close, Bruma, Postnet Suite 112, Private Bag X4, South Africa. The
members of our board of directors are as follows:
Name
Lex van Vught.........................................................................
Neill Davies ............................................................................
Robert Spoon ..........................................................................
Bevan Hitchcock .....................................................................
Age Position
62
69
47
47
Andrew Grobler ......................................................................
46
Lorraine Corlét........................................................................
Christo Roos ...........................................................................
Jacob Hinson...........................................................................
Garth Jarvis.............................................................................
Mark Gevers ...........................................................................
Jonathan Larcombe..................................................................
Gary Morolo ...........................................................................
Sam Nematswerani..................................................................
Aadil Carim ............................................................................
Marang Denalane ....................................................................
30
34
32
46
42
31
47
44
34
29
Non-Executive Director and Chairman*
Non-Executive Director*
Executive Director and Chief Executive Officer
Executive Director, Deputy Chief Executive Officer
and Company Secretary
Executive Director, Chief Executive Officer
replacement parts business
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
* Independent director.
Lex van Vught has been serving as a non-executive director and as Chairman since 1 November 2005. From
1 January 2000 to 31 March 2002 Mr. van Vught was Chief Executive Officer of AECI Limited, a chemical group. Mr. van
Vught is a non-executive director of a number of listed and unlisted companies, including Impala Platinum Holdings Limited,
Tiger Brands Limited and Sturrock and Robson Holdings Limited.
Neill Davies is a non-executive director appointee. Mr. Davies is one of the founding members of the Clade Group and
serves as Chairman on their board of directors. He also served as Financial Director and Deputy Chairman of Altron, one of
South Africa's leading electronics companies, and was the Executive Chairman of Powertech Limited and Fintech Limited.
Mr. Davies has served as a non-executive director of several boards including, Anglo American, Rand Leases, Vestacor, Durban
Roodepoort Deep, Concor Limited, Astrapak Limited, Brait, Usko Limited, Afgri, Claude Neon, Clinical Emergencies, Rennies
Express Distribution, Rusfurn, Unispin, Nortec, ATM, Ampas Glass Limited, and Capital Contracting Group. Since 1997,
Mr. Davies has focused on turnarounds of both listed and unlisted companies.
Robert Spoon has been serving as Chief Executive Officer of Savcio since its inception. Mr. Spoon was previously a
Divisional Director of Delta and the Managing Director of Electrical Repair Engineering (the former name of our maintenance
and repairs business unit).
Bevan Hitchcock has been serving as Deputy Chief Executive Officer and Company Secretary since 21 November
2005 and in this capacity holds responsibility for our accounting and financial matters. From June 1995 to September 2005,
Mr. Hitchcock was Group Financial Director of Delta.
Andrew Grobler has been serving as Executive Director and Chief Executive Officer of the replacement parts
business since 27 November 2005. Mr. Grobler was the Managing Director of the replacement parts business beginning in
1996. He has been working for the replacement parts business since 1982.
Lorraine Corlét has been serving as a non-executive director since 30 November 2005. Ms. Corlét was previously an
Assistant Audit Manager at Anderson from 2000 to 2001 and a Financial Analyst at Citibank N.A., South Africa branch.
Ms. Corlét is currently an Investment Professional at Ethos.
Christo Roos has been serving as a non-executive director since 30 November 2005. Mr. Roos has worked as an
Investment Professional at Ethos since 2001. Prior to 2001, Mr. Roos was a Senior Consultant at Ernst & Young, Johannesburg
in the Corporate Finance Practice.
Jacob Hinson has been serving as a non-executive director since 1 November 2005. From 1 January 2002 to 1 July
2004, Mr. Hinson was a Senior Associate at Deutsche Bank AG, Johannesburg in the corporate finance department. Mr. Hinson
has been an Investment Principal of Actis since 2004.
Garth Jarvis has been serving as a non-executive director since 30 November 2005. For the past seven years
Mr. Jarvis has been serving as an Investment Principal of Actis Africa Limited.
Mark Gevers has been serving as a non-executive director since 21 November 2005. Since January 2001, Mr. Gevers
has been involved in private equity at Old Mutual Asset Managers, and was appointed as Head of Private Equity in 2004.
Previously, Mr. Gevers was employed at Brait Limited, where he was the Senior Executive and Company Secretary of a listed
Private Equity Investment Trust, CapeStar Growth Investments Limited.
Jonathan Larcombe has been serving as a non-executive director since 1 October 2005. From February 2000 to
April 2003, Mr. Larcombe was employed by Credit Suisse First Boston in London as a Portfolio Analyst for Fund Linked
Derivatives and later promoted to Assistant Vice President for Internal Audits. From September 2003 to the present,
Mr. Larcombe has been a Principal of Old Mutual Asset Managers of Cape Town.
Gary Morolo has been serving as a non-executive director since 21 November 2005. From 1 January 2000 to
30 September 2001, Mr. Morolo was Chief Executive Officer of Coordinated Network Investments (Proprietary) Limited, a
South African investment holding company. From 1 October 2001 to the present, Mr. Morolo has been the Executive Director
of Aka, a South African investment holding company. In addition, since 1 June 2001, Mr. Morolo has been the Executive
Chairman of Datacentrix Holdings Limited, an IT company listed on the JSE Limited.
Sam Nematswerani has been serving as a non-executive director since 21 November 2005. From 1 January 2000 to
30 September 2001 Mr. Nematswerani was an Executive Director of Co-ordinated Network Investments (Proprietary) Limited, a
South African investment holding company. From 1 October 2001 to the present, he has been Chief Executive Officer and
Director of Aka.
Aadil Carim has been serving as a non-executive director since 8 November 2005. Mr. Carim worked as a private
equity professional at Ethos Private Equity Limited from 1998 to December 2001. During 2002 Mr. Carim worked as a senior
associate at NEF Ventures, and worked at AMB Private Equity Partners from September 2002 to January 2004, as a private
equity professional. In February 2004, Mr. Carim joined Sphere Holdings (Proprietary) Limited as an executive director focused
on establishing a private equity business for Sphere Holdings (Proprietary) Limited.
Marang Denalane has been serving as a non-executive director since 8 November 2005. Ms. Denalane was employed
by Standard Corporate and Merchant Bank's Asset Management Division as an equity analyst from 1999 to 2002 researching the
industrial sector of the JSE Limited. In March 2002, Ms. Denalane was employed by Futuregrowth Asset Management as an
equity analyst and portfolio manager in the Quantitative Equity Division. Since June 2004, Ms. Denalane has been employed by
Sphere Holdings (Proprietary) Limited as a private equity transactor.
Right to appoint directors
In general, each of the five members of the Consortium are entitled to appoint two non-executive directors to the
Issuer's board and are entitled to remove and replace those directors at will. The shareholders of the Issuer as a group are also
entitled to appoint two independent non-executive directors and to remove and replace them at will. Messrs. van Vught and
Davies are the initial independent directors. They are considered independent by reason of having no prior financial relationship
with the Issuer or the shareholders. Any future shareholder that owns 10% or more of the voting rights exercisable in a general
meeting of the Issuer will also be entitled to appoint two non-executive directors and to remove and replace them at will.
Executive committee and senior management
Our board of directors has delegated authority for the day-to-day affairs of each of the repairs and services and
replacement parts segments to an executive committee comprising the two executive directors and certain members of our senior
management appointed by the executive directors. The executive committee meets regularly under the chairmanship of the chief
executive officer and is mandated to assist in reviewing operations and performance by Savcio and its subsidiaries, developing
strategy and policy proposals for consideration by our board of directors and implementing the directives of the board. Members
of the executive committee for the repairs and services segment are indicated below. The replacement parts executive
committee is comprised of Messrs. Hitchcock and Grobler and five additional members drawn from operations management in
the replacement parts segment.
Name
Robert Spoon ...........................
Bevan Hitchcock ......................
Dawie Liebenberg ....................
Gregory Marthinusen................
David Broom............................
Paulo Mateus............................
Altino da Silva .........................
Gavin Garland..........................
Terry Lawrenson ......................
Age Position
47
47
51
63
52
44
47
37
41
Executive Director and Chief Executive Officer
Executive Director, Deputy Chief Executive Officer and Company Secretary
Financial Director, repairs and services
Marketing Director, repairs and services
Managing Director, Wilec
Managing Director, Transwire
Managing Director, LH Marthinusen
Managing Director, Marthinusen & Coutts
Managing Director, Reid and Mitchell
Dawie Liebenberg has been serving as the financial director of the maintenance and repairs business unit, the previous
name of our maintenance and repairs business unit, for the past eight years. Mr. Liebenberg previously held various senior
financial positions within the Delta group, including Financial Director of LH Marthinusen and Transwire.
Gregory Marthinusen has been serving as marketing director of the maintenance and repairs business unit for the past
eight years. Previously, Mr. Marthinusen was managing director of Marthinusen & Coutts, Cleveland.
David Broom has been serving as managing director of Wilec since 1 November 2002. Mr. Broom was previously
General Manager of Alstom Machine Repairs, financial director of Alstom Large Machines, financial director at Nampak as
well as project manager at Ruico, an IT company.
Paulo Mateus has been managing director of Transwire since September 2001. Mr. Mateus has previously held senior
management positions within the Delta group including divisional director of Wilec, managing director of Metalplus and
managing director of Keval.
Altino da Silva has been serving as managing director of LH Marthinusen since January 2001. Previously Mr. da
Silva was managing director at Marthinusen & Coutts Cleveland and divisional manager at Reid and Mitchell Johannesburg and
Welkom.
Gavin Garland has been serving as managing director of Marthinusen & Coutts Cleveland since May 2003.
Mr. Garland was previously service manager of SKF, a private firm in Johannesburg.
Terry Lawrenson has been serving as managing director of Reid and Mitchell since 2000. Previously Mr. Lawrenson
was general manager of Joy Mining Machinery and has held various senior positions in the mining and petrochemicals industry.
Compensation
For the financial year ended 27 December 2004 and the nine months ended 30 September 2005, we paid our executive
directors and senior management named above aggregate compensation, including bonuses, of R11.8 million and R11.4 million,
respectively.
Board practices
We are managed by our board of directors, which is made up of 15 members. Our board of directors is responsible for
setting the direction of the company through the establishment of strategies, key policies and the approval of financial objectives
and targets. The board of directors monitors the implementation of strategies and policies through a structured approach to
reporting by executive management and recognises the importance of managing relationships with our various stakeholders.
The board of directors is committed to the principles of openness, integrity and accountability as advocated in the second King
Report on Corporate Governance for South Africa 2002 (Code of Corporate Practices and Conduct).
The board of directors consists of three executive directors and 12 non-executive directors. The executive directors are
involved in our day-to-day business activities and are responsible for ensuring that decisions, strategies and views of the board
are implemented. Non-executive directors bring with them diversity of experience, insight and independent judgment on issues
of strategy, performance, resources and standards of conduct.
The board of directors meets at least quarterly and retains full and executive control over the company and its
subsidiaries. The roles of chairman and chief executive officer do not vest in the same person and the chairman is a nonexecutive director.
Committees
On 1 December 2005, our board of directors established various committees in accordance with the Shareholder
Agreement. The committees are as follow:
Audit Committee
Name
Neill Davies ...................................................
Jacob Hinson..................................................
Jonathan Larcombe.........................................
Christo Roos ..................................................
Age Position
62
32
31
34
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Remuneration Committee
Name
Lex van Vught................................................
Robert Spoon .................................................
Bevan Hitchcock ............................................
Lorraine Corlét...............................................
Mark Gevers ..................................................
Garth Jarvis....................................................
Age Position
62
47
47
30
42
46
Non-Executive Director and Chairman
Executive Director and Chief Executive Officer
Executive Director and Deputy Chief Executive Officer
Non-Executive Director
Non-Executive Director
Non-Executive Director
Transformation Committee
Name
Robert Spoon .................................................
James Gabanakgosi ........................................
Aadil Carim ...................................................
Marang Denalane ...........................................
Gary Morolo ..................................................
Sam Nematswerani.........................................
Age Position
47
40
34
29
47
44
Executive Director and Chief Executive Officer
Group Head of Human Resources
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
The transformation committee oversees BEE compliance and related matters.
Internal control systems
To meet our responsibility to provide reliable financial information, we maintain financial and operational systems of
internal control. These controls are designed to provide reasonable assurance that transactions are concluded in accordance with
management's authority, that the assets are adequately protected against material losses, unauthorised acquisition, use or
disposal, and that transactions are properly authorised and recorded.
The systems include a documented organisational structure and division of responsibility, established policies and
procedures, including a code of ethics, which are communicated throughout the group, and the careful selection, training and
development of people.
We monitor the operation of the internal control systems in order to determine if there are deficiencies. Corrective
actions are taken to address control deficiencies as they are identified. The board of directors, operating through the audit
committee, oversees the financial reporting process and internal control systems.
There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human
error and the circumvention or overriding of controls. Accordingly, an effective internal control system can provide only
reasonable assurance with respect to financial statement preparation and the safeguarding of assets. Furthermore, the
effectiveness of an internal control system can change with circumstances.
PRINCIPAL SHAREHOLDERS AND SHARE CAPITAL
General
Our share capital consists of 5,163,530 outstanding shares divided into ordinary and preference shares.
Preference shares
The preference shares are divided into four classes: A, B, C and D. Class A preference shares and Class D preference
shares are entitled to dividends in respect of free cash flow of the entire business, while Class B preference shares and Class C
preference shares are entitled to dividends only in respect of free cash flow from the repairs and services segment and
replacement parts segment, respectively. Class D preference shares have nominal voting rights. Certain of the A and D
preference shares held by Ethos, Actis, Old Mutual and the BEE Minority Investor (along with certain shareholder loans held by
them) have been designated as BEE funding instruments entitled to preferential payment under the payment waterfall until a
certain BEE investment hurdle is reached. See "Description of Certain Other Indebtedness — Shareholder loans" for further
description of the BEE investment hurdle.
Subordination: The preference shares are subordinated in payment to the equity loans (other than in regard to a portion
of the equity loans that are subordinated in payment to the preference shares until a certain rate of return has been achieved on
the BEE financing instruments, as such term is described under "Description of Certain Other Indebtedness — Shareholder
loans") and are subordinated to the junior loans and the notes and any borrowings under our new revolving credit facility.
Convertibility: Old Mutual has the option to convert Class A preference shares into Class A ordinary shares at any
time within two years after the fifth anniversary of the date of issuance, 27 September 2005. Upon such election, a pro rata
portion of Class B, Class C and Class D preference shares shall also be converted.
Redemption: We have the option to redeem Class A preference shares at a price per share that delivers a minimum
return of 24% to the holders of the BEE funding instruments any time after the third anniversary of issuance. Upon such
election, a pro rata portion of Class B, Class C and Class D preference shares shall be redeemed.
See "Description of Certain Other Indebtedness — Payment waterfall" for how these terms operate in relation to
payments under the preference shares and our shareholder loans.
Ordinary shares
Class A ordinary shares and Class D ordinary shares are entitled to dividends in respect of free cash flow of the entire
business, while Class B ordinary shares and Class C ordinary shares are entitled to dividends only in respect of free cash flow
from the repairs and services segment and replacement parts segment, respectively. Class D ordinary shares have nominal
voting rights.
See "Description of Certain Other Indebtedness — Payment waterfall" for how these terms operate in relation to
payments under the preference shares and our shareholder loans.
Voting rights
The following table presents information regarding our current voting rights:
Shareholder
Ethos.....................................................................................................................................................................
Actis......................................................................................................................................................................
Old Mutual ............................................................................................................................................................
Sphere ...................................................................................................................................................................
Aka .......................................................................................................................................................................
BEE Minority Investor ...........................................................................................................................................
Independent directors .............................................................................................................................................
Voting
rights %
25.0001%
25.0001%
15.0000%
12.3500%
12.3500%
1.3000%
0.0001%
Repairs and Services Management Trust .................................................................................................................
7.9035%
Replacement Parts Management Trust.....................................................................................................................
1.0963%
Total................................................................................................................................................................... 100.0000%
Principal shareholder information
Ethos was founded in 1984 and the Savcio investment represents its 87th private equity transaction. Ethos is owner
managed and is the pre-eminent private equity firm in South Africa. It has been a pioneer and a leading innovator in the
development of the South African private equity industry. The Savcio investment has been made by Ethos Fund IV, the
investors in which consist of large US pension funds and fund of fund managers and major South African financial institutions
and pension funds. Ethos has managed and fully invested four buyout funds and has raised a significant pool of capital for its
current buyout fund, Fund V.
Actis was created in 2004 following its self-funded management buyout of the business from CDC Capital Partners.
Actis is headquartered in London and invests and manages capital on behalf of over 70 investors. It currently has US$2.7 billion
of funds under management. Its funds are focused on Africa, South Asia, China and Malaysia.
Old Mutual is the largest registered long-term insurer in South Africa and was founded in 1845. OMAM operates as an
independent global asset management company and is the largest institutional asset manager in South Africa with approximately
R317 billion in assets under management. OMAM is mandated by Old Mutual to act on its behalf in respect of Old Mutual's
investment into the company. Both Old Mutual and OMAM are affiliates of Old Mutual plc, the financial services company
headquartered in London with extensive operations in South Africa.
Aka Capital is a black-owned private equity and investment-holding group chaired by Mr. Reuel Khoza, a prominent
black South African businessman. Mr. Khoza is the immediate past non-executive Chairman of Eskom Holdings Limited, the
largest electricity utility in Africa. He is the current non-executive Chairman of the NEPAD Business Foundation, current
President of the South African chapter of the Institute of Directors, non-executive Chairman designate of Nedbank Group
Limited and currently holds directorships at, among other firms, JSE Limited, Corobrik (Proprietary) Limited, Protea Hospitality
Corporation (Proprietary) Limited, Gold Reef Casino Resorts Limited and Nampak Limited.
Sphere Holdings, a black-owned private equity firm with a significant stake in Ethos, was founded in 2004 and is
headed by Mr. Itumeleng Kgaboesele, a former investment banker who previously worked in asset management in London and
Johannesburg.
RELATED PARTY TRANSACTIONS
Shareholders agreement
The Shareholders Agreement was entered into in July 2005, and was subsequently amended and restated to reflect the
addition of new parties.
Parties
The parties to the Shareholders Agreement are Actis, Ethos, Old Mutual, Aka and Sphere (together, the "Consortium"),
the management trusts, the BEE Minority Investor and independent directors Messrs. van Vught and Davies. The BEE
shareholders from time to time of Bukubuhle Wire (the "BEE Minority Shareholders") are beneficiaries in respect of the
Shareholders Agreement in anticipation of their having the right to acquire a portion of the shares of Aka and Sphere. Aka,
Sphere, the BEE Minority Investor and the BEE Minority Shareholders are together known as the "BEE Shareholders."
Management
Composition of the board of directors and management
The minimum number of directors is three. In general, each of the five members of the Consortium is entitled to
appoint two non-executive directors and is entitled to remove and replace those directors at will. In addition, the shareholders of
the Issuer as a group are entitled to appoint two independent non-executive directors and shall be entitled to remove and replace
such directors at will. The shareholders have appointed Messrs. van Vught and Davies as initial independent directors. They are
considered independent by reason of having no prior financial relationship with the Issuer. Any future shareholder owning 10%
or more of the voting rights exercisable in a general meeting of the Issuer will also be entitled to designate two non-executive
directors and to remove and replace them at will.
The chief executive officer of the Issuer and the repairs and services segment, the chief executive officer of the
replacement parts segment and the deputy chief executive officer of the Issuer represent the Repairs and Services Management
Trust and the Replacement Parts Management Trust on the board of directors.
Committees
The board has established executive sub-committees for each of the two segments, a remuneration committee, an audit
committee and a transformation committee.
Management fees
The Issuer has agreed to pay each of Actis, Ethos and Old Mutual an amount of R300,000 per year, and each of Aka
and Sphere an amount of R150,000 per year, as aggregate directors' fees in respect of directors appointed by each such
Consortium member.
Voting
Voting pools
The BEE Shareholders (or their successors) will be treated as a voting pool. Other shareholders are not entitled to enter
into any voting pool.
Board approval
Board resolutions must be passed by a simple majority of votes cast. The directors currently have been assigned the
following voting rights:
•
Each independent non-executive director has 2% of the total votes cast;
•
The directors appointed by the BEE Shareholders together have 26% of the total votes cast; and
•
The directors appointed by the Consortium together have the remaining votes cast.
Quorum
A quorum at all meetings of the board of directors will be directors representing 65% of the total votes exercisable.
However, no quorum will exist unless a director appointed by each of Actis, Ethos and Old Mutual is present.
Frequency of meetings
Board meetings must be held at least four times per year.
Shareholder approval
matters:
Shareholder resolutions may be passed by simple majority of votes cast other than with respect to the following
100% approval matters
The affirmative vote of holders holding 100% of the outstanding ordinary shares is required to authorise the approval of
a new shareholder that is a competitor to the Issuer;
65% approval matters
The affirmative vote of holders holding at least 65% of the votes attaching to the outstanding ordinary shares is
required to authorise:
•
changes in the issued or authorised share capital of the Issuer;
•
issue of capitalisation or bonus shares or debentures in the Issuer;
•
issuance of any convertible debentures of the Issuer;
•
alteration of the memorandum and articles of association of the Issuer;
•
delegation of directors powers except in ordinary course;
•
borrowing of moneys in excess of R5.0 million other than as set out in the business plan and other than any
capitalisation of interest on any shareholders loans in accordance with their terms;
•
furnishing of any encumbrances, etc, save in the ordinary course of business;
•
sale, transfer or disposal of substantial assets of the Issuer;
•
dissolution, liquidation, discontinuance or winding up of the Issuer;
•
material expansion of the Issuer beyond its existing business;
•
sale of intellectual property other than in the ordinary course;
•
granting of any share options or the alteration of any profit sharing arrangements;
•
institution or defence of legal proceedings of any nature or settlement of any claim in excess of R5.0 million, other
than in the ordinary course of business;
•
a material change to the Issuer's financial policy;
•
incurrence of foreign exchange exposure other than in the ordinary course of business;
•
appointment and removal of certain members of management and/or the board of directors;
•
approval and removal of auditors;
•
entering into banking relationships with new banks;
•
listing the Issuer on any stock exchange;
•
any decision regarding additional funding requirements of the Issuer;
•
termination or variation of any material contract;
•
removal or replacement of independent directors;
•
approval of a new shareholder; and
•
approval of a new BEE party in accordance with the terms of the shareholders' agreement.
Actis and Ethos veto rights
For a period of five years from 1 October 2005, the following shall require the consent of Actis and Ethos:
•
sale, transfer or disposal of substantial assets of the Issuer; and
•
dissolution, liquidation, discontinuance or winding up of Issuer.
Old Mutual veto rights
If, following 1 October 2010, the A Preference Shares have been converted into A ordinary shares, the following
matters shall require the consent of Old Mutual (or its successor in title acting collectively) plus either Actis or Ethos:
•
sale, transfer or disposal of substantial assets of the Issuer; and
•
dissolution, liquidation, discontinuance or winding up of the Issuer.
BEE Shareholders veto rights
Until the redemption of all preference shares, any change of policy regarding dividend declarations requires the consent
of Sphere, Old Mutual and Aka Capital.
Quorum
The quorum at all meetings of shareholders will be shareholders holding shares representing 65% of the votes attaching
to the ordinary shares. However, no quorum will exist unless a representatives of each of Actis and Ethos is present.
Transfers of shares
General
A shareholder may not transfer any ordinary shares or preference shares unless it transfers corresponding shareholder
loans on a pro rata basis. Any transfer of shares requires 65% shareholder approval as described above and any transferee must
become a party to the shareholders agreement and any then applicable subordination agreement.
No shareholder may encumber its preference or ordinary shares save as permitted in the trust deeds pertaining to the
management trusts.
BEE Shareholders
No BEE Shareholder may transfer its shares prior to 30 September 2010. The BEE Shareholders are subject to the
following transfer provisions.
•
Loss of BEE status: If a BEE Shareholder ceases to comply with the definition of HDP — the term used to
describe the BEE shareholders and similarly-qualified persons — it shall offer its shares pro rata to the other BEE
Shareholders at a cost equal to 80% of the market value thereof. To the extent other BEE Shareholders do not buy
the shares, the Company shall endeavour to locate a BEE qualified buyer to acquire the shares. If Old Mutual's
BEE funding instruments remain outstanding, such transfer to another BEE shall be upon Old Mutual's consent,
not unreasonably withheld. To the extent the Company fails to locate a suitable buyer within a certain time period,
the normal (non-BEE) pre-emptive rights provisions shall apply (see below), provided that any approved offeree
(including existing shareholders) must acquire the BEE funding instruments relating to those shares at a price that
delivers a minimum return of 24%.
•
BEE preemptive rights: If a BEE Shareholder wishes to transfer preference or ordinary shares, other than in the
case of loss of BEE status, the other BEE Shareholders have a pre-emptive right to purchase those shares. To the
extent other BEE Shareholders do not buy the shares, the Company shall endeavour to locate a BEE qualified
buyer to acquire the shares. If Old Mutual's BEE funding instruments remain outstanding, such transfer to another
BEE shall be upon Old Mutual's consent, which will not be unreasonably withheld.
Pre-emptive rights
If a shareholder wishes to transfer preference or ordinary shares, the other shareholders have a pre-emptive right to
purchase those shares.
Tag-along rights
If a third party offers to purchase at least 50.1% of the Issuer's ordinary and preference shares, then the other
shareholders have a right to require the offeree to purchase up to a proportional amount of their shares. Arrangements which
may be regarded as disguised consideration for the interest of the disposing shareholders (including, without limitation, any
abnormal restraint of trade agreements, supply agreements or other trade relationships) shall be offered to the other shareholders.
Drag-along rights
Shareholder holding 65% of all votes exercisable by the members in general meeting may force the minority
shareholders to join in the sale of 100% of company. Such majority owner must give the minority shareholders the same price,
terms, and conditions as any other seller. For the period of five years from the effective date no such disposal shall be permitted
without the prior consent of Actis and Ethos and further provided that should, after a period of five years from the effective date,
any Class A Preference Shares have been converted to Class A ordinary shares in accordance with the rights and privileges
attaching to the Class A Preference Shares, no such disposal shall be made without the prior consent of Old Mutual or its
successor-in-title (acting collectively) plus the consent of Ethos or Actis.
Shareholder loans
The terms of the shareholder loans are set out in the Shareholders Agreement. See "Description of Certain Other
Indebtedness—Shareholders loans."
Additional shareholder contributions
The Board may request additional funding from shareholders. The Board shall provide the shareholders with such
information as each shareholder may reasonably request from the Board in order to assist the shareholder in its election to
contribute funds. The non-funding shareholders will do all such things necessary, including the exercise of votes and the
signature of all necessary documents, to procure the authorisation (if necessary) and the issue of such new funding instruments.
Management trust ratchet mechanism
The Repairs and Services Management Trust and the Replacement Parts Management Trust will receive 6.5% and
17.5%, respectively, of the incremental aggregate gain received by all other shareholders on their investments attributable to the
relevant business segment. Such amounts will be calculated on a pre-tax basis and may be paid in cash or kind. Payment may
be made by the Issuer or the shareholders other than the Repairs and Services Management Trust and the Replacement Parts
Management Trust, provided that the Issuer may make no such payment if it would be prohibited under the terms of the
indenture governing the notes. The payment shall be payable to either Management Trust upon the relevant trigger having been
met.
Repairs and services trigger
The internal rate of return of Ethos and Actis in relation to their initial investment (excluding investment attributable to
BEE funding instruments) attributable to the repairs and services business segment is at least 30%, and such shareholders have
realised at least 3.4 times the value of such initial investment.
Replacement parts trigger
The internal rate of return of Ethos and Actis in relation to their initial investment (excluding investment attributable to
BEE funding instruments) attributable replacement parts business segment is at least 35%, and such shareholders have realised
at least 4.5 times the value of such initial investment.
The incremental aggregate gain shall be calculated in terms of the amount realised exceeding the amount received by
Ethos and Actis at the relevant trigger.
Fee payments related to the Acquisition
In connection with the Acquisition, members of the Consortium were paid a fee.
DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
The new revolving credit facility
In connection with the issuance of the notes, we will enter into a four-year, R50.0 million working capital and general
banking facility agreement (the "new revolving credit facility" or "the facility") with ABSA Bank Limited.
Borrower; security
The new revolving credit facility will be available to us. Amounts outstanding under the facility will be secured on a
first-ranking basis by all of our outstanding accounts receivable generated by our maintenance and repairs business unit. The
notes will be secured on a first-ranking basis by all of our other assets, and will have a reversionary interest in the assets that
secure the facility. The assets securing the notes will not secure the new revolving credit facility.
Amount
The new revolving credit facility provides for revolving loans, letters of credit and bank guarantees of up to
R50.0 million outstanding at any time, inclusive of all interest that has accrued on amounts advanced under the new revolving
credit facility. If the amount of accounts receivable constituting security for the facility is either less than R100.0 million or the
amount then outstanding under the facility, then the maximum available amount under the facility will be reduced to an amount
equal to 50% of the amount of such accounts receivable.
Availability
The new revolving credit facility will be available for drawing until February 2010. Drawings under the facility will be
permitted only upon satisfaction of customary conditions.
Undertakings
The facility contains certain negative undertakings that require us (subject to certain customary and other agreed
exceptions) to, among other things:
•
ensure that our liabilities under the facility will rank at least pari passu with all of our other present and future
unsecured and unsubordinated liabilities (other than those which are mandatorily preferred by law); and
•
refrain from creating or permitting to subsist any other security interest over the receivables of our maintenance
and repairs business unit.
Mandatory prepayment
If the amount of our eligible accounts receivable constituting security for the facility is less than R100.0 million or the
amount then outstanding under the facility, then we are required to immediately repay all amounts outstanding under the facility
such that the amounts outstanding thereunder are equal to no more than 50% of our accounts receivable at this time.
Interest rates and fees
The interest rate under the new revolving credit facility will be the prime rate published by Absa Bank Limited
expressed as a percentage rate per annum, calculated daily and compounded monthly in arrears from time to time. Default
interest accrues on a daily basis from the due date of any amount not paid under the facility until the date of actual payment at
2% above the prime rate, due on demand and compounded on the last day of each month.
The first interest payment under the facility will be the last business day of the month following the month in which we
first draw under the facility. Thereafter interest will be payable monthly in arrears on the last business day of each month and
upon maturity.
Termination of the new revolving credit facility
The obligations under the facility terminate only upon repayment in full of all amounts due under the agreement being
repaid in full.
Events of default
The facility sets out certain events of default, the occurrence of which would allow the lenders to terminate the facility
and to demand immediate repayment of all amounts outstanding. The following constitute an event of default under the new
revolving credit facility:
•
cross default or cross acceleration by us with the notes or other material indebtedness;
•
material adverse change (or event which is likely to result in a material adverse change) in the business or financial
condition of us which would adversely affect our ability to comply with our obligations under the facility;
•
insolvency and related events;
•
cessation of business;
•
change of control (as defined in the indenture governing the notes);
•
illegality;
•
material qualification made by our auditors in respect of our audited financial statements delivered pursuant to the
facility;
•
expropriation of our business; and
•
breach of covenants (following a three-day cure period for non-payment of interest and five days for other defaults
except non-payment of principal).
Hedging arrangement
Concurrently with the closing of the offering of the notes, we expect to enter into a four-year cross currency swap with
ABSA Bank Limited. The cross currency swap will be for the rand equivalent of substantially all of the principal amount of and
interest in the notes for up to four years. The hedging obligations will share ratably in the first-ranking security interest in the
collateral granted to the Security SPV for the holders of the notes. The cross currency swap is subject to early termination in the
event of, among other things, bankruptcy or failure to make payments under the swap when due.
Shareholder loans
A portion of the financing for the acquisition was provided by our shareholders in the form of shareholder loans. The
loans consist of "equity loans" and "junior loans." Both the equity loans and the junior loans are divided into repairs and
services loans and replacement parts loans, with payments of interest and principal on the repairs and services loans payable
solely from the assets and cash flows of the repairs and services business, and payments of interest and principal on the
replacement parts loans payable only from the assets and cash flows of the replacement parts business. The equity loans are
divided into "A" loans and "B" loans. The "B" equity loans are subordinated in right of payment to the other shareholder loans.
The "B" equity loans are also subordinated in right of payment to the preference shares until an aggregate return equal to the
consumer price index plus 10% is received on the shareholder loans and preference shares (collectively, the "BEE instruments")
used to finance the participation of the BEE investors. This return is known as the "BEE investment hurdle." The junior loans
are also divided into "A" loans and "B" loans. The B junior loans are BEE instruments and A junior loans are not BEE
instruments.
The following table sets out the holders of our outstanding shareholders loans, as of 26 January 2006, after giving effect
to the issuance of notes and the application of the proceeds thereof. Aka does not hold shareholder loans:
A equity(1)
Ethos .....................................................................................
Actis......................................................................................
Old Mutual.............................................................................
Sphere....................................................................................
Aka........................................................................................
BEE Minority Investor............................................................
Independent directors..............................................................
Repairs and Services Management Trust..................................
Replacement Parts Management Trust .....................................
Total...................................................................................
R 44,875
50,361
49,734
5,485
n/a
233
447
14,308
5,206
R 170,649
B equity
A junior
(in thousands)
R 5,233
5,233
n/a
n/a
n/a
n/a
n/a
n/a
n/a
R 10,466
R 83,186
83,186
49,912
n/a
n/a
n/a
841
n/a
n/a
R 217,125
B junior(1)
R 1,652
14,930
56,088
13,278
n/a
565
n/a
n/a
n/a
R 86,513
(1)
An amount of R35.6 million (€4.8 million) A equity loans and the entire amount of B junior loans are BEE instruments
subject to the BEE investment hurdle.
Key terms of the shareholder loans
Equity loans
Interest rate. The "A" equity loans bear interest at a rate to be determined by the Board, subject to a cap of prime plus
2%. The initial rate of interest on the "A" equity loans is 0%. The "B" equity loans do not bear interest.
Ranking. The "B" equity loans are subordinated in right of payment to the "A" equity loans, the junior loans and the
preference shares, until such time as the BEE investment hurdle has been met, upon which time the preference shares will be
subordinated to the "B" loans.
Maturity. The equity loans have no stated maturity.
Acceleration. Subject to constraints under our various financing arrangements, including the indenture governing the
notes, and subject to the priority of payments described under "—Payment waterfall" below, principal of and interest on the
equity loans will become due and payable and shall be repaid if we are placed under judicial management or into liquidation or
with the net proceeds of any disposal of the segment to which the equity loans relate.
Junior loans
Interest rate: The junior loans bear interest at a rate to be determined by the Board, subject to a cap prime plus 2%.
The rate has been set at 0% until January 2007.
Maturity. The junior loans have no stated maturity.
Acceleration. Subject to constraints under our various financing arrangements, including the indenture governing the
notes, and subject to the priority of payments described under "—Payment waterfall" below, principal of and interest on the
equity loans will become due and payable and shall be repaid if we are placed under judicial management or into liquidation or
with the net proceeds of any disposal of the segment to which the junior loans relate.
Payment waterfall
No cash amounts (interest, principal or otherwise) will become due and payable under the shareholder loans if the
terms of any financing agreements (including the indenture governing the notes) would prohibit payment of such amounts. In
addition, prior to the maturity date of the notes or such earlier date as the notes shall have been repaid, redeemed in full or
refinanced (and, in the case of any refinancing, subject to the terms of any indebtedness issued to refinance the notes), no interest
on the junior loans or the equity loans shall be paid in cash. In lieu of cash interest payments, any interest due and payable on
the junior loans and equity loans shall be capitalised and added to principal of the relevant loan.
Subject to the foregoing, payments on the shareholders loans and our outstanding shares shall be made in the following
order of priority using available "Free Cash Flow" (as defined in the shareholders agreement):
•
first, that portion of the capital, interest, fees and other charges then due and payable under all of our other funding
arrangements including the notes;
•
second, interest payable on the junior loans;
•
third, principal in respect of the junior loans;
•
fourth, interest payable on the A equity loans;
•
fifth, principal in respect of the A equity loans;
•
sixth, dividends in respect of the preference shares until such time as the BEE investment hurdle rate is achieved
on the BEE instruments;
•
seventh, once the BEE investment hurdle rate has been achieved, the repayment of B equity loans; and
•
eighth, once the B equity loans have been repaid in full: 80% of the Free Cash Flow available for distribution will
be distributed to the holders of the preference shares and 20% of the Free Cash Flow available for distribution will
be distributed to the holders of the ordinary shares.
Subordination Agreement
To establish the relative rights of certain of our various creditors, our shareholders ("the Shareholders") will,
simultaneously with this offering, enter into a subordination agreement (the "Subordination Agreement") with the trustee for the
noteholders, the Security SPV, the hedging counterparties and the lenders under our revolving credit facility. As described in
"—Shareholder loans — Payment waterfall" above, the Shareholders, have agreed that, for so long as the notes are outstanding,
no cash interest will be payable under any shareholder loans.
Under the terms of the Subordination Agreement, all claims of the Security SPV on behalf of the holders of the notes
and the hedging counterparties, whether secured and unsecured, will rank senior to all claims in relation to the shareholder loans.
The Issuer shall not be entitled to repay any portion of the shareholder loans contrary to the provisions of the indenture
governing the notes, the notes, the intercreditor agreement, the counter-indemnity, the hedging arrangement or our new
revolving credit facility. Should such payment nevertheless be made to the Shareholders, each Shareholder undertakes to pay
such amount to the Security SPV.
Priority of debts
The Subordination Agreement will provide that all claims under the Shareholders Agreement will rank junior in right
and priority of payment to the notes, hedging arrangement and our new revolving credit facility.
Subordination on insolvency and similar events
The Subordination Agreement will provide that, upon any payment or distribution (including by exercise of any right
of receipt, set-off, combination of accounts or other discharge) to creditors of the Issuer, in a liquidation, dissolution,
winding-up, bankruptcy, administration, reorganisation, examination, receivership, administrative receivership or similar
proceeding relating to the Issuer or its property, or in an assignment for the benefit of creditors of the Issuer or in any
marshalling of the Issuer's assets:
(1)
holders of the notes and lenders under the hedging arrangement will be entitled to receive irrevocable payment in full in
cash of all obligations due (and that become due thereafter) in respect of all such debt (including interest accruing after the
commencement of any proceeding at the rate specified in such debt whether or not allowed or allowable in any such proceeding)
before the Shareholders will be entitled to receive any payment with respect to the shareholder funding; and
(2)
until all such debt of the Issuer has been irrevocably paid in full in cash, any payment or distribution to which the
Shareholders would be entitled but for the subordination provisions of the Subordination Agreement shall be made first to the
notes and lenders under the hedging arrangement in accordance with the terms of the Subordination Agreement if any
indebtedness is then outstanding.
Turnover
In the event that any Shareholder receives or recovers any payment or distribution on or with respect to the shareholder
funding at a time when such payment is prohibited by the Subordination Agreement, such payment will be held by the
Shareholders in trust for the benefit of, and will be paid forthwith over and delivered, upon written request, first to the lenders
under the holders of the notes and the lenders under the hedging arrangement in accordance with the terms of the Subordination
Agreement if any indebtedness is then outstanding thereunder. In the event that any such payment is received by any
Shareholder, such Shareholder shall give notice to the holders of the notes and the lenders under the hedging arrangement.
Payment block
The Subordination Agreement provides that the Issuer shall not be entitled to repay any portion of the shareholder loans
contrary to the provisions of the indenture governing the notes, the intercreditor agreement, the hedging arrangement or our new
revolving credit facility. Should such repayment nevertheless be made to the Shareholders, each Shareholder undertakes to pay
such amount to the Security SPV in accordance with the provisions of the Subordination Agreement.
Standstill on enforcement
The Subordination Agreement provides that the Shareholders may not, prior to any repayment in full of the notes,
without the prior written consent of the trustee for the noteholders, the Security SPV, the hedging counterparties and the lenders
under our new revolving credit facility, take any action to enforce their claims.
Intercreditor Agreement
To establish the relative rights of our various creditors, the trustee, on behalf of the holders of the notes, will,
simultaneously with this offering, enter into an intercreditor agreement (the "Intercreditor Agreement") with the facility provider
under our new revolving credit facility, the Security SPV, the hedging counterparties and the Issuer. By accepting a note,
holders of notes will be deemed to have agreed to, and accepted the terms and conditions of, the Intercreditor Agreement.
The Intercreditor Agreement sets out:
•
the relative ranking of certain debt of the Issuer;
•
the relevant ranking of security granted by the Issuer;
•
when payments can be made in respect of that debt; and
•
when enforcement action can be taken in respect of that debt.
The following is a summary of certain provisions contained in the Intercreditor Agreement. It does not restate the
Intercreditor Agreement in its entirety and, as such, we urge you to read that document because it, and not the discussion that
follows, defines your rights.
Priority of debts
The Intercreditor Agreement will provide that debt outstanding under the notes, our new revolving credit facility and
the hedging obligations will rank pari passu in right and priority of payment.
Priority of security
Our new revolving credit facility will be directly secured by all of the accounts receivables generated by our
maintenance and repairs business unit. The notes and the hedging obligations will be secured indirectly (through the Security
SPV) by substantially all of the other assets of the Issuer, and will have a reversionary interest in the maintenance and repairs
accounts receivables (collectively, the "Collateral"). The proceeds of any enforcement of the Collateral will be shared on a pro
rata basis between the holders of the notes and the hedging counterparties. See "Description of Notes—Security SPV Guarantee
and Security."
Enforcement of security
The Intercreditor Agreement will provide that enforcement with respect to the Collateral may only be taken by the
Security SPV. Holders of an aggregate of 25% or more of outstanding debt under the notes and the hedging arrangement have
the sole authority to direct the Security SPV to enforce or release the Collateral or to take any other action relating to the
Collateral. Determination of outstanding debt under the hedging arrangement will be calculated based on the amount due to the
hedging counterparties on the date of any default or early termination thereunder.
Standstill on enforcement
The Intercreditor Agreement will further provide that the lenders under our new revolving credit facility may not, prior
to any repayment in full of the notes, without the prior written consent of the trustee on behalf of the holders of the notes, take
any action to enforce their security.
The limitations on enforcement in the preceding paragraphs will not apply if:
•
an insolvency event has occurred with respect to the Issuer;
•
an event of default has occurred under the notes and (i) the Security SPV has received written notice of such
default from the relevant agent; (ii) a period of not less than the following number of days has pass from the date
of receipt by the Security SPV of the written notice referred to in (i): (A) in the event of a failure to pay interest or
principal when due under our new revolving credit facility, 90 days, (B) in the event of a default of a financial
covenant under our new revolving credit facility, 120 days, and (C) in the event of any other default under our new
revolving credit facility, 150 days (each, a "Standstill Period"); and (iii) at the end of the relevant Standstill Period,
the relevant default is continuing; or
•
the proposed enforcement action has been consented to by the trustee on behalf of the holders of the notes.
Repurchase Right
The Intercreditor Agreement will provide that, in the event of any default under our new revolving credit facility that
gives the lenders the right to accelerate or to enforce their security, the holders of the notes have the right to repurchase all debt
outstanding under our new revolving credit facility at par.
DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description under the subheading "Certain Definitions." In
this description, the word the "Company" refers only to Savcio Holdings (Proprietary) Limited and not to any of its subsidiaries.
The Company will issue the Notes under an indenture (the "Indenture") among itself, Project Okavango Security
Vehicle (Proprietary) Limited, as the limited recourse Security SPV the "Security SPV"), The Bank of New York, as Trustee,
Principal Paying Agent and Registrar, and AIB/BNY Fund Management (Ireland) Limited, as Irish Paying Agent, in a private
transaction that is not subject to the registration requirements of the US Securities Act. See "Notice to US Investors and "Notice
to Non-US Investors." The terms of the Notes will include those stated in the Indenture. The Indenture will not be qualified
under the US Trust Indenture Act of 1939, as amended ("TIA") and will not incorporate by reference any of the provisions of the
TIA.
The obligations of the Company under the Indenture and the Notes will be secured indirectly on a first-ranking basis as
described below under " —Security SPV Guarantee and Structure" through a limited recourse guarantee provided by the
Security SPV.
The following description is a summary of the material provisions of the Indenture, the Counter Indemnity and
Guarantee Agreement and the Security Documents. It does not restate those agreements in their entirety. We urge you to read
the Indenture, the Counter Indemnity and Guarantee Agreement and the Security Documents because they, and not this
description, define your rights as Holders of the Notes. Copies of the Indenture, the Counter Indemnity and Guarantee
Agreement and the Security Documents are available as set forth below under "—Additional Information." Certain defined
terms used in this description but not defined below under "—Certain Definitions" have the meanings assigned to them in the
Indenture. Unless the context requires otherwise, references to "Notes" for all purposes of the Indenture and this Description of
Notes include the Notes and any Additional Notes (as defined below) that are issued.
The registered holder of a Note will be treated as the owner of it for all purposes. Only registered Holders will have
rights under the Indenture.
Unless otherwise specified herein, notices will be provided in accordance with the procedures described in "—
Notices."
The Notes
The Notes will:
•
be general obligations of the Company;
•
rank pari passu in right of payment to all unsubordinated obligations of the Company, including obligations under
the Revolving Credit Facility and the Hedging Arrangement;
•
rank senior in right of payment to any future subordinated Indebtedness of the Company; and
•
be indirectly secured by the Collateral as described under " —Security SPV Guarantee and Structure" below.
As of the date of the Indenture, our only active Subsidiary and a dormant subsidiary will each be a "Restricted
Subsidiary." However, under the circumstances described below under the caption "—Certain Covenants—Designation of
Restricted and Unrestricted Subsidiaries," we will be permitted to designate certain of our Subsidiaries as "Unrestricted
Subsidiaries." Our Unrestricted Subsidiaries will not be subject to many of the restrictive covenants in the Indenture and will not
Guarantee the Notes.
Principal, Maturity and Interest
The Company will issue €125.0 million in aggregate principal amount of Notes in this offering. The Company may
issue additional Notes under the Indenture from time to time after this offering. Any issuance of additional Notes is subject to
all of the covenants in the Indenture, including the covenant described below under the caption "—Certain Covenants—
Incurrence of Indebtedness and Issuance of Preferred Stock." The Notes and any additional Notes subsequently issued under the
Indenture will be treated as a single class for all purposes under the Indenture, including, without limitation, waivers,
amendments, redemptions and offers to purchase. We refer to those further Notes as "Additional Notes." The Company will
issue Notes in minimum denominations of € 50,000 and integral multiples of €1,000 in excess thereof.
The Notes will mature on 15 February 2013.
Interest on the Notes issued on the Issue Date will accrue at the rate of 8% per annum and will be payable semiannually in arrears on 15 February and 15 August, commencing on 15 August 2006. Interest on overdue principal and interest
will accrue at a rate that is 1% higher than the then applicable interest rate on the Notes. The Company will make each interest
payment to the holders of record on the immediately preceding 1 February and 1 August.
Interest on the Notes will accrue from the date of original issuance or, if interest has already been paid, from the date it
was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.
If the due date for any payment in respect of any Note is not a business day at the place in which such payment is due
to be paid, the holder thereof will not be entitled to payment of the amount due until the next succeeding business day at such
place, and will not be entitled to any further interest or other payment as a result of such delay.
Methods of Receiving Payments on the Notes
Principal, interest, premium and Additional Amounts (as defined below), if any, on the Global Notes (as defined
below) will be payable in euros at the specified office or agency of one or more paying agents; provided that all such payments
with respect to Notes represented by one or more Global Notes registered in the name of or held by a nominee of Clearstream
Banking and Euroclear will be made by wire transfer of immediately available funds to the account specified by the holder or
holders thereof.
Principal, interest, premium and Additional Amounts, if any, on the Definitive Registered Notes (as defined below) will
be payable at the specified office or agency of one or more paying agents in the City of London and for so long as the Notes are
listed on the Alternative Securities Market of the Irish Stock Exchange and its rules so require, in Dublin, in each case
maintained for such purposes. In addition, interest on the Definitive Registered Notes may be paid by cheque mailed to the
person entitled thereto as shown on the register for the Definitive Registered Notes.
Paying Agent and Registrar for the Notes
The Company will maintain a paying agent for the Notes (each, a "Paying Agent") in (i) London (the "Principal Paying
Agent") and (ii) for so long as the Notes are listed on the Alternative Securities Market of the Irish Stock Exchange and its rules
so require, in Dublin (the "Irish Paying Agent"). The initial Paying Agents will be The Bank of New York, London branch, and
AIB/BNY Fund Management (Ireland) Limited in Dublin.
The Company will also maintain one or more registrars (each, a "Registrar"), and a transfer agent in each of London
and, for so long as the Notes are listed on the Alternative Securities Market of the Irish Stock Exchange and its rules so require,
Dublin. The initial Registrar will be The Bank of New York. The initial transfer agents will be The Bank of New York, London
branch, and AIB/BNY Fund Management (Ireland) Limited in Dublin. The Registrar and each transfer agent will maintain a
register reflecting ownership of Definitive Registered Notes, if any, outstanding from time to time and will make payments on
and facilitate transfers of Definitive Registered Notes, if any, on behalf of the Company.
Upon notice to the Trustee, the Company may change or add any Paying Agent, Registrar or transfer agent; provided,
however, that in no event may the Company appoint a Principal Paying Agent in any member state of the European Union where
the Principal Paying Agent would be obliged to withhold or deduct tax in connection with any payment made by it in relation to
the Notes unless the Principal Paying Agent would be so obliged if it were located in all other member states of the European
Union. For so long as the Notes are listed on the Alternative Securities Market of the Irish Stock Exchange and its rules so
require, the Company will publish a notice of any change of Paying Agent, Registrar or transfer agent in a newspaper having a
general circulation in Dublin (currently expected to be the Irish Times) in accordance with the provisions set forth under "—
Notices."
Transfer and Exchange
Notes sold within the United States to qualified institutional buyers pursuant to Rule 144A under the US Securities Act
will initially be represented by one or more global Notes in registered form without interest coupons attached (collectively, the
"144A Global Notes"). Notes sold outside the United States pursuant to Regulation S under the US Securities Act will initially
be represented by one or more global Notes in registered form without interest coupons attached (collectively, the "Reg S Global
Notes"). The 144A Global Notes and the Reg S Global Notes are collectively referred to herein as the "Global Notes."
The Notes in global form will be deposited with a common depositary for Euroclear and Clearstream Banking or its
nominee. The Global Notes may be transferred only to Euroclear or Clearstream Banking or a nominee of them, to a successor
of Euroclear or Clearstream Banking or to a nominee of such successor.
Ownership of interests in the Global Notes ("Book-Entry Interests") will be limited to persons that have accounts with
Euroclear and Clearstream Banking or persons that may hold interests through such participants. Ownership of interests in the
Book-Entry Interests and transfers thereof will be subject to the restrictions on transfer and certification or opinion delivery
requirements summarised below and described more fully under "Description of Book-Entry System—Transfers" elsewhere in
this Listing Particulars. In addition, transfers of Book-Entry Interests between participants in Euroclear or participants in
Clearstream Banking will be effected by Euroclear or Clearstream Banking pursuant to customary procedures and subject to the
applicable rules and procedures established by Euroclear or Clearstream Banking and their respective participants.
Book-Entry Interests in a 144A Global Note ("144A Book-Entry Interests") may be transferred to a person who takes
delivery in the form of Book-Entry Interests in a Reg S Global Note ("Reg S Book-Entry Interests") only upon delivery by the
transferor of a written certification (in the form provided in the Indenture) to the effect that such transfer is being made in
accordance with Regulation S under the US Securities Act or otherwise in accordance with applicable transfer restrictions set out
in the Indenture and any applicable securities laws of any state of the United States or any other jurisdiction. Subject to the
foregoing, Reg S Book-Entry Interests may be transferred to a person who takes delivery in the form of 144A Book-Entry
Interests only upon delivery by the transferor of a written certification (in the form provided in the Indenture) to the effect that
such transfer is being made to a person who the transferor reasonably believes is a "qualified institutional buyer" within the
meaning of Rule 144A in a transaction meeting the requirements of Rule 144A or otherwise in accordance with applicable
transfer restrictions set out in the Indenture and any applicable securities laws of any state of the United States or any other
jurisdiction.
Any Book-Entry Interest that is transferred will, upon transfer, cease to be a Book-Entry Interest in the Global Note
from which it was transferred and will become a Book-Entry Interest in the Global Note to which it is transferred. Accordingly,
from and after such transfer, it will become subject to all transfer restrictions, if any, and other procedures applicable to BookEntry Interests in the Global Note to which it was transferred.
If Definitive Registered Notes are issued, they will be issued only in minimum denominations of €50,000 principal
amount and integral multiples of €1,000 in excess thereof, upon receipt by the applicable Registrar of instructions relating
thereto and any certificates, opinions and other documentation required by the Indenture. It is expected that such instructions
will be based upon directions received by Euroclear or Clearstream Banking, as applicable, from the participant which owns the
relevant Book-Entry Interests. Definitive Registered Notes issued in exchange for a Book-Entry Interest, if any, will, except as
set forth in the Indenture or as otherwise determined by the Company in compliance with applicable law, be subject to, and will
have a legend with respect to, the restrictions on transfer summarised below and described more fully under "Notice to US
Investors" and "Notice to Non-US Investors."
Subject to the restrictions on transfer referred to above, Notes issued as Definitive Registered Notes, if any, may be
transferred or exchanged, in whole or in part, in minimum denominations of €50,000 in principal amount and integral multiples
of €1,000 in excess thereof. In connection with any such transfer or exchange, the Indenture will require the transferring or
exchanging holder to, among other things, furnish appropriate endorsements and transfer documents, to furnish information
regarding the account of the transferee at Euroclear or Clearstream Banking, where appropriate, to furnish certain certificates
and opinions, and to pay any taxes, duties and governmental charges in connection with such transfer or exchange. Any such
transfer or exchange will be made without charge to the holder, other than any taxes, duties and governmental charges payable in
connection with such transfer.
Notwithstanding the foregoing, the Company is not required to register the transfer of any Definitive Registered Notes:
•
for a period of 15 calendar days prior to any date fixed for the redemption of the Notes;
•
for a period of 15 calendar days immediately prior to the date fixed for selection of Notes to be redeemed in part;
or
•
which the holder has tendered (and not withdrawn) for repurchase in connection with a Change of Control Offer or
an Asset Sale Offer.
Future Subsidiary Guarantees
On the Issue Date, our only active Restricted Subsidiary will be Bukubuhle Wire (Proprietary) Limited, which will not
Guarantee the Notes. We also have one dormant subsidiary that will not guarantee the Notes. The Indenture will require,
however, that any future Restricted Subsidiary becomes a guarantor of the Notes; provided that the Company shall not be
obligated to cause such Restricted Subsidiary to Guarantee the Notes to the extent that such Guarantee could reasonably be
expected to give rise to or result in (now or in the future):
(1)
any violation of applicable law that cannot be avoided or otherwise prevented through measures reasonably available to
the Company or such Restricted Subsidiary;
(2)
any liability for the officers, directors or shareholders of such Restricted Subsidiary; or
(3)
any cost, expense, liability or obligation (including any tax) other than reasonable out of pocket expenses and other
than reasonable governmental or regulatory filing fees.
SPV.
Each such future guarantor is referred to herein as a "Guarantor." The term "Guarantor" does not include the Security
Security SPV Guarantee and Security
The Notes will be indirectly secured by substantially all of the existing and after-acquired property and other assets of
the Company and any future Restricted Subsidiary, other than the Excluded Assets, and will be further secured by a reversionary
interest in any proceeds remaining following enforcement of the security over the Excluded Assets (collectively, the
"Collateral").
Security SPV
The Security SPV is a special purpose company incorporated under the laws of the Republic of South Africa. Under a
counter indemnity and guarantee agreement (the "Counter Indemnity and Guarantee Agreement"), the Security SPV will issue a
limited recourse Guarantee (the "Notes Security Guarantee") to the Trustee on behalf of the holders of the Notes, which
Guarantee will be governed by South African law. Pursuant to this agreement, the Security SPV will also issue a limited
recourse Guarantee (the "Hedging Security Guarantee" and, together with the Notes Security Guarantee, the "Security
Guarantees") in favour of the Hedging Lenders. Further, under the Counter Indemnity and Guarantee Agreement, the Company
will indemnify each of the Security SPV and the Hedging Lenders in respect of the Security Guarantees. Recourse under the
Security Guarantees will be limited to recoveries by the Security SPV under the Counter Indemnity and Guarantee Agreement.
The Company's obligations under the Counter Indemnity and Guarantee Agreement will be secured by first-ranking security
interests in the Collateral. See "Risk Factors—Risks relating to the notes—The collateral will not be granted directly to the
holders of the notes."
The Trustee for the Notes, the Hedging Lenders, the Security SPV, the lenders under the Revolving Credit Facility and
the Company will enter into an agreement (the "Intercreditor Agreement") governing (among other things) the enforcement of
security interests in the Collateral. This agreement will be governed by South African law and will provide that holders of an
aggregate of 25% or more of the Relevant Debt (collectively, the "Enforcing Amount") will have the exclusive authority to direct
and instruct the Security SPV as to the enforcement of the security interests in the Collateral. Other actions with respect to the
Collateral will require the vote of at least 50.1% of the Relevant Debt. See "Description of Certain Other Indebtedness—
Intercreditor agreement."
Pursuant to the Security Guarantees, any distribution to the holders of either the Security Guarantee or the proceeds
from the sale of any Collateral will be allocated pro rata to such holders in accordance with the obligations then owing under
such Security Guarantees. See "Risk Factors—Risks relating to the notes—The value of the collateral may not be sufficient to
satisfy our obligations under the notes."
Security Documents
To grant the security interests in the Collateral, the Company will enter into the following documents (collectively the
"Security Documents"):
(a)
Mortgage Covering Bonds, which will hypothecate certain specified immovable property of the Company and any
Guarantors in favour of the Security SPV and provide a first-ranking security interest in such assets;
(b)
a Notarial Special Covering Bond, which will hypothecate specified fixed, movable and incorporeal assets of the
Company and any Guarantors in favour of the Security SPV and provide a first-ranking security interest in such assets;
(c)
a Notarial General Covering Bond, which will hypothecate generally the moveable and incorporeal assets of the
Company and any Guarantors in favour of the Security SPV and will, after perfection of such bond, provide a first-ranking
security interest in such assets;
(d)
a Pledge and Cession, which will pledge all of the shares of (and claims in and against) the Subsidiaries owned directly
or indirectly by the Company and any Guarantor in favour of the Security SPV and provide a first-ranking security interest in
such assets to the Security SPV; and
(e)
a Security Cession, which will include (i) a Cession and Pledge of all claims other than claims against normal trade
debtors of the Repairs and Services business, bank accounts and funds credited therein and provide a first-ranking security
interest in such assets; (ii) a Pledge of Intellectual Property, which will cover all intellectual property, including patents, trade
names and trademarks and provide a first-ranking security interest in such assets; and (iii) a Reversionary Cession, which will
create collateral, ranking after the lenders under the Revolving Credit Facility, over the claims against normal trade debtors of
the Excluded Assets.
The Security Documents relating to the Collateral will be governed by South African law, and the creation, perfection,
validity and enforceability of the security interests that are the subject of such Security Documents will be governed by South
African law. The security interests relating to certain assets that will be hypothecated or pledged, as the case may be, pursuant to
the Mortgage Covering Bond, the Notarial Special Covering Bond and the Notarial General Covering Bond will be required to
be registered in accordance with customary procedures under South African law following the closing of the offering of the
Notes in order to be perfected. The Indenture will provide that such registration must be completed no later than six months
following the closing date of the offering. For a description of certain of the risks relating to the enforceability of the security
interests granted under the Security Documents, see "Risk Factors—Risks relating to the notes—The collateral will not be
granted directly to the holders of the notes" and "Risk Factors—Risks relating to the notes—The insolvency laws of the
Republic of South Africa may not be as favourable to you as the insolvency laws of other jurisdictions with which you may be
familiar."
Release of Security
The Collateral will be released upon the payment in full of all obligations of the Company and the Guarantors under the
Notes, the Indenture, the Counter Indemnity and Guarantee Agreement, the Security Documents and the Hedging Arrangement.
Prior to such time, the Collateral may not be released other than (i) upon Legal Defeasance, (ii) (with respect to assets of a
Restricted Subsidiary) upon the designation of such Restricted Subsidiary as an Unrestricted Subsidiary in compliance with the
provisions of the Indenture described in "—Certain Covenants—Designation of Restricted and Unrestricted Subsidiaries," (iii) in
connection with an enforcement action, as described below, (iv) with the consent of the holders of Notes (with respect to the
Notes only) as set forth under "—Amendment and Waiver" below, or (v) in connection with an Asset Sale in compliance with
the provisions of the Indenture described in " —Repurchase at the Option of Holders—Asset Sales."
In the event that the Credit Facilities are refinanced under clause (1) of the second paragraph of the covenant described
under "—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock," the Trustee is hereby authorized and
directed to (i) enter into documentation reasonably acceptable to the Trustee and (ii) provide for the release and any subsequent
replacement of the reversionary cession relating to the Excluded Assets, in each case as may be required to provide that the
replacement Credit Facilities are secured by the Excluded Assets on the same priority and basis as the refinanced Credit
Facilities.
Enforcement of security
The Security Guarantees will provide that, while the Notes are outstanding, the Trustee and 25% in aggregate principal
amount of the Relevant Debt will have, except as provided below, exclusive authority to direct enforcement of the Collateral
through the Security SPV. For a more thorough description of the intercreditor arrangements, see "Description of Certain Other
Indebtedness—Intercreditor agreement."
Other
Subject to the terms of the Security Documents, and subject to certain exceptions required to ensure that the security
interests under the Security Documents are registered and otherwise perfected as first-ranking security interests, the Company
will have the right to remain in possession and retain exclusive control of the Collateral, to collect, invest and dispose of any
income therefrom and to vote any pledged shares.
No appraisal of any of the Collateral has been prepared by or on behalf of the Company in connection with the issuance
of the Notes. There can be no assurance, therefore, that the proceeds from the sale of the Collateral would be sufficient to satisfy
the obligations owed to the holders of the Notes and the Hedging Arrangement. By its nature, some or all of the Collateral will
be illiquid and may have no readily ascertainable market value. Furthermore, the accounts receivable generated by the
maintenance and repairs business unit of the Company will secure the Revolving Credit Facility, not the Notes or the Hedging
Arrangement (except that the Notes and the Hedging Arrangement will be secured by a reversionary cession in respect of such
accounts receivable). Accordingly, there can be no assurance that the holders of the Notes and the Hedging Arrangement will be
able to sell the Collateral quickly or at all. See "Risk Factors—Risks relating to the notes—The insolvency laws of the Republic
of South Africa may not be as favourable to you as the insolvency laws of other jurisdictions with which you may be familiar"
and "Risk Factors—Risks relating to the notes—The value of the collateral may not be sufficient to satisfy our obligations under
the notes."
Optional Redemption
At any time prior to 15 February 2009, the Company may redeem up to 35% of the aggregate principal amount of
Notes issued under the Indenture at a redemption price of 108% of the principal amount, plus accrued and unpaid interest to the
redemption date, subject to the rights of holders of Notes on the relevant record date to receive interest due on the relevant
interest payment date, with the net cash proceeds of one or more Public Equity Offerings; provided that:
(1)
at least 65% in aggregate principal amount of Notes originally issued on the Issue Date (excluding Notes held by the
Company and its Affiliates) remains outstanding immediately after the occurrence of each such redemption; and
(2)
the redemption occurs within 90 days of the date of the closing of such issuance and sale of Equity Interests.
At any time prior to 15 February 2010, the Company may also redeem all or a part of the Notes, upon not less than 30
nor more than 60 days' notice to each holder's registered address, at a redemption price equal to 100% of the principal amount of
Notes redeemed plus the Applicable Premium as of, and accrued and unpaid interest, if any, to the date of redemption, subject to
the rights of holders of Notes on the relevant record date to receive interest due on the relevant interest payment date.
At any time on or after 15 February 2010, the Company may also redeem all or a part of the Notes upon not less than
30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest on the Notes redeemed, to the applicable redemption date, if redeemed during the twelve-month
period beginning on 15 February of the years indicated below, subject to the rights of holders of Notes on the relevant record
date to receive interest on the relevant interest payment date:
Year
2010 .........................................................................................................................................................
2011 .........................................................................................................................................................
2012 and thereafter ....................................................................................................................................
Percentage
104.00%
102.00%
100.00%
Unless the Company defaults in the payment of the redemption price, interest will cease to accrue on the Notes or
portions thereof called for redemption on the applicable redemption date.
Mandatory Redemption
The Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes.
Redemption for Changes in Withholding Taxes
The Company may redeem the Notes, in whole but not in part, at any time upon giving not less than 30 nor more than
60 days' prior notice to the holders at a redemption price equal to the principal amount thereof, together with accrued and unpaid
interest, if any, to the date fixed by the Company for redemption (a "Tax Redemption Date") and all Additional Amounts (as
defined below, if any) then due and which will become due on the Tax Redemption Date as a result of the redemption or
otherwise (and subject to the right of holders on the relevant record date to receive interest due on the relevant interest payment
date and Additional Amounts (if any) in respect thereof), if on the next date on which any amount would be payable in respect of
the Notes the Company has or would be required to pay Additional Amounts and the Company cannot avoid any such payment
obligation taking reasonable measures available to it, as a result of:
(1)
any change in, or amendment to, the laws or treaties (or any regulations, or rulings promulgated thereunder) of the
relevant Tax Jurisdiction (as defined below) affecting taxation which change or amendment has not been publicly announced as
formally proposed before and which becomes effective on or after the date of the Indenture (or, if the relevant Tax Jurisdiction
has changed since the date of the Indenture, the date on which the then current Tax Jurisdiction became the applicable Tax
Jurisdiction under the Indenture); or
(2)
any change in, or amendment to, the existing official position or the introduction of an official position regarding the
application, administration or interpretation of such laws, treaties, regulations or rulings (including a holding, judgment or order
by a court of competent jurisdiction or a change in published practice), which change, amendment, application or interpretation
has not been publicly announced as formally proposed before and becomes effective on or after the date of the Indenture (or, if
the relevant Tax Jurisdiction has changed since the date of the Indenture, the date on which the then current Tax Jurisdiction
became the applicable Tax Jurisdiction under the Indenture).
The Company will not give any such notice of redemption earlier than 90 days prior to the earliest date on which the
Company would be obliged to make such payment or withholding if a payment in respect of the Notes were then due.
Notwithstanding the foregoing, the Company may not redeem the Notes under this provision if the relevant Tax
Jurisdiction under the Indenture changes after the Issue Date and the Company is obliged to pay any Additional Amounts as a
result of a change in, or an amendment to, the laws or treaties (or any regulations or rulings promulgated thereunder), or any
change in or amendment to, any official position regarding the application, administration or interpretation of such laws, treaties,
regulations or rules, of the then current Tax Jurisdiction which, at the time such Tax Jurisdiction became the applicable Tax
Jurisdiction under the Indenture, was publicly announced as formally proposed. Prior to the publication or, where relevant,
mailing of any notice of redemption of the Notes pursuant to the foregoing, the Company will deliver the Trustee an opinion of
independent tax counsel of recognised standing reasonably satisfactory to the Trustee to the effect that the circumstances
referred to above exist. The Trustee will accept such opinion as sufficient evidence of the satisfaction of the conditions
precedent described above, in which event it will be conclusive and binding on the holders of Notes.
Additional Amounts
All payments made by the Company, each Guarantor and the Security SPV under or with respect to the Notes (whether
or not in the form of Definitive Registered Notes), any Guarantee or the Notes Security Guarantee will be made free and clear of
and without withholding or deduction for, or on account of, any present or future Taxes unless the withholding or deduction of
such Taxes is then required by law. If any deduction or withholding for, or on account of, any Taxes imposed or levied by or on
behalf of any jurisdiction in which the Company, a Guarantor or the Security SPV, as the case may be (including any relevant
successor entity), is then incorporated, engaged in business or resident for tax purposes or any political subdivision thereof or
therein or any jurisdiction by or through which payment is made (each, a "Tax Jurisdiction") will at any time be required to be
made from, or Taxes are imposed directly on any holder or beneficial owner of the Notes on any payments made by the
Company, a Guarantor or the Security SPV under or with respect to the Notes, any Guarantee or the Notes Security Guarantee,
including payments of principal, redemption price, premium and interest, the Company, each Guarantor and the Security SPV
will pay such additional amounts (the "Additional Amounts") as may be necessary in order that the net amounts received in
respect of such payments by each holder (including Additional Amounts) after such withholding, deduction or imposition will
equal the respective amounts which would have been received in respect of such payments in the absence of such withholding,
deduction or imposition; provided, however, that no Additional Amounts will be payable with respect to:
(1)
any payments on a Note, any Guarantee or the Notes Security Guarantee in respect of Taxes which would not have
been imposed but for the existence of a connection between the relevant holder (or between a fiduciary, settlor, beneficiary,
member, partner of, shareholder or possessor of power over the relevant holder, if the relevant holder or beneficial owner is an
estate, nominee, trust, partnership or corporation) and the relevant Tax Jurisdiction, including such holder (or such fiduciary,
settlor, beneficiary, member, partner, shareholder or possessor of power over the relevant holder) of the Notes being or having
been a citizen or resident or national thereof or being or having been engaged in trade or business therein, but excluding, in each
case, any connection resulting from the mere receipt of such payment or the ownership of or holding of or the exercise or
enforcement of any rights under such Note, any Guarantee, the Indenture or the Counter Indemnity and Guarantee Agreement or
any other connection with respect to the Notes;
(2)
any Taxes that are imposed or withheld by reason of the failure of the holder of the Note or beneficial owner of the
Notes to comply with any written request of the Company, a Guarantor or the Security SPV addressed to that holder or
beneficial owner (and made at a time which would enable the holder or beneficial owner acting reasonably to comply with that
request) to provide timely and accurate certification, information, documents or other evidence concerning the nationality,
residence or identity of such holder or beneficial owner or to make any valid and timely declaration or similar claim or satisfy
any other information or reporting requirement, which is required or imposed by a statute, treaty, regulation or administrative
practice of the relevant Tax Jurisdiction as a precondition to exemption from all or part of such Taxes;
(3)
any Note presented for payment (where presentation is required) more than 30 days after the relevant payment is first
made available for payment to the holder (except to the extent that the holder would have been entitled to Additional Amounts
had the Note been presented for payment on the last day of such 30 day period);
(4)
any estate, inheritance, gift, sales, personal property or similar tax or assessment;
(5)
any Taxes payable otherwise than by withholding or deduction from payments made under or with respect to the Notes,
any Guarantee or Notes Security Guarantee;
(6)
any Taxes withheld, deducted or imposed on a payment to or for an individual and which are required to be made
pursuant to European Council Directive 2003/48/EC or any other directive implementing the conclusions of the ECOFIN
Council meeting of 26 and 27 November 2000 on the taxation of savings income or any law implementing or complying with or
introduced in order to conform to, such Directive;
(7)
any Note presented for payment by or on behalf of a holder of Notes who would have been able to avoid such
withholding or deduction by presenting the relevant Note to another Paying Agent in a Member State of the European Union; or
(8)
any combination of items (1) through (7) above.
Such Additional Amounts will also not be payable where, had the beneficial owner of the Note been the holder of the
Note, it would not have been entitled to payment of Additional Amounts by reason of clauses (1) through (8) inclusive above.
In addition to the foregoing, the Company, the Security SPV or any Guarantor, as applicable, will also pay (i) any
present or future stamp, issue, registration, transfer, court or documentary taxes, or any other excise or property taxes, charges or
similar levies or Taxes which are levied on the execution, delivery, registration or enforcement of any of the Indenture, the
Notes, any Guarantee, the Counter Indemnity and Guarantee Agreement, the Security Documents or any other document or
instrument referred to therein (other than a transfer of the Notes save for the initial sale of the Notes by the Company to the
Initial Purchaser and the initial resale of the Notes by the Initial Purchaser), and (ii) any stamp, court or documentary taxes
imposed with respect to the receipt of any payments with respect to the Notes, any Guarantee or the Notes Security Guarantee.
If the Company, any Guarantor or the Security SPV, as applicable, becomes aware that it will be obligated to pay
Additional Amounts with respect to any payment under or with respect to the Notes, any Guarantee or the Notes Security
Guarantee, the Company, any Guarantor or the Security SPV will deliver to the Trustee on a date which is at least 30 days prior
to the date of that payment (unless the obligation to pay Additional Amounts arises after the 30th day prior to that payment date,
in which case the Company, any Guarantor or the Security SPV shall notify the Trustee promptly thereafter) an officers'
certificate stating the fact that Additional Amounts will be payable and the amount estimated to be so payable. The officers'
certificate must also set forth any other information reasonably necessary to enable the Paying Agents to pay Additional
Amounts to holders on the relevant payment date. The Company, each Guarantor or the Security SPV will provide the Trustee
with documentation reasonably satisfactory to the Trustee evidencing the payment of Additional Amounts.
The Company, each Guarantor and the Security SPV will make all required withholdings and deductions and will remit
the full amount deducted or withheld to the relevant Tax authority in accordance with applicable law. The Company, each
Guarantor and the Security SPV will obtain certified copies of Tax receipts from each such Tax authority or, if certified copies
are not available, such other evidence satisfactory to the Trustee evidencing the payment of any Taxes so deducted or withheld.
The Company, any Guarantor or the Security SPV will furnish to the holders, within 60 days after the payment of any Taxes so
deducted or withheld is made, certified copies of Tax receipts evidencing payment by the Company, any Guarantor or the
Security SPV in such form as provided in the normal course by the relevant Tax authority or if, notwithstanding such entity's
efforts to obtain receipts, receipts are not obtained, other evidence of payments by such entity. The Company, any Guarantor or
the Security SPV, as applicable, will attach to each certified copy or other evidence, as applicable, a certificate stating (x) that
the amount of such Tax evidenced by the certified copy was paid in connection payments under or with respect to the Notes then
outstanding upon which such Taxes were due and (y) the amount of such withholding tax paid per €1,000 of principal amount of
the Notes.
Whenever in the Indenture or in this "Description of Notes" there is mentioned, in any context, the payment of amounts
based upon the principal amount of the Notes or of principal, interest or of any other amount payable under, or with respect to,
any of the Notes, such mention shall be deemed to include mention of the payment of Additional Amounts to the extent that, in
such context, Additional Amounts are, were or would be payable in respect thereof.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each holder of Notes will have the right to require the Company to repurchase all or any
part (equal to €50,000 or an integral multiple of €1,000 in excess thereof) of that holder's Notes pursuant to a Change of Control
Offer on the terms set forth in the Indenture. In the Change of Control Offer, the Company will offer a Change of Control
Payment in cash equal to 101% of the aggregate principal amount of Notes repurchased plus accrued and unpaid interest, if any,
on the Notes repurchased to (but not including) the date of purchase, subject to the rights of holders of Notes on the relevant
record date to receive interest due on the relevant interest payment date. Within 30 days following any Change of Control, the
Company will notify in the manner set out under "—Notices" of the Change of Control, describing the transaction or
transactions that constitute the Change of Control and offering to repurchase Notes on the Change of Control Payment Date
specified in the notice, which date will be no earlier than 30 days and no later than 60 days from the date such notice is made (or
such later date as is necessary to comply with the requirements under the Exchange Act and any applicable securities laws and
regulations) pursuant to the procedures required by the Indenture and described in such notice.
The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations to the extent those laws and regulations are applicable in connection with the repurchase of the Notes as a result
of a Change of Control. To the extent that the provisions of any applicable securities laws or regulations conflict with the
Change of Control provisions of the Indenture, the Company will comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under the Change of Control provisions of the Indenture by virtue of such
compliance.
If at the time of such Change of Control, the Notes are listed on the Alternative Securities Market of the Irish Stock
Exchange, to the extent required by the Alternative Securities Market of the Irish Stock Exchange, the Company will notify the
Alternative Securities Market of the Irish Stock Exchange that a Change of Control has occurred and any relevant details relating
to such Change of Control.
On the Change of Control Payment Date, the Company will, to the extent lawful:
(1)
accept for payment all Notes or portions of Notes properly tendered pursuant to the Change of Control Offer and not
withdrawn;
(2)
deposit with a Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions of
Notes properly tendered and not withdrawn; and
(3)
deliver or cause to be delivered to the Trustee the Notes (or a book-entry interest therein) properly accepted together
with an officers' certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by the
Company.
The relevant Paying Agents will promptly pay (by wire transfer of immediately available funds, by mail or otherwise)
to each holder of Notes properly tendered the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each holder a new Note equal in principal amount to any
unpurchased portion of the Notes tendered, if any; provided that the principal amount of each such Note must be at least
€50,000, and integral multiples of €1,000 thereafter. The Company will publicly announce the results of the Change of Control
Offer in the manner set out under "—Notices" on or as soon as practicable after the Change of Control Payment Date.
The provisions described above that require the Company to make a Change of Control Offer following a Change of
Control will be applicable whether or not any other provisions of the Indenture are applicable. Except as described above with
respect to a Change of Control, the Indenture does not contain provisions that permit the holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover, recapitalisation or similar transaction.
Notwithstanding the foregoing, the Company will not be required to make a Change of Control Offer upon a Change of
Control if (1) a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes
properly tendered and not withdrawn under the Change of Control Offer, or (2) notice of redemption has been given pursuant to
the Indenture as described above under the caption "—Optional Redemption," unless and until there is a default in payment of
the applicable redemption price. Any Notes tendered by a third party will not be required to be cancelled.
The provisions described above that require the Company or a third party to make a Change of Control Offer following
a Change of Control will be applicable whether or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain provisions that permit the holders of the Notes to
require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalisation or similar transaction.
The definition of Change of Control includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance
or other disposition of "all or substantially all" of the properties or assets of the Company and its Restricted Subsidiaries taken as
a whole. Although there is a limited body of case law interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a holder of Notes to require the Company to
repurchase its Notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of the
Company and its Restricted Subsidiaries taken as a whole to another Person or group may be uncertain.
Asset Sales
The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless:
(1)
the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of the Asset Sale at
least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of; and
(2)
at least 75% of the consideration received in the Asset Sale by the Company or such Restricted Subsidiary is in the
form of Qualified Proceeds.
For purposes of this provision, each of the following will be deemed to be cash:
(a)
any liabilities, as shown on the face of the Company's most recent consolidated balance sheet, of the Company or any
Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any
Guarantee thereof) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that
releases the Company or such Restricted Subsidiary from further liability;
(b)
any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such
transferee that are contemporaneously, subject to ordinary settlement periods, converted by the Company or any Guarantor into
cash, to the extent of the cash received in that conversion; and
(c)
any shares or assets of the kind referred to in clauses (1) or (3) of the next paragraph of this covenant.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the Company (or the Restricted Subsidiary,
as the case may be) may apply such Net Proceeds to:
(1)
acquire all or substantially all of the assets of, or any Capital Stock of, another Permitted Business, if, after giving effect
to any such acquisition of Capital Stock, the Permitted Business is or becomes a Guarantor;
(2)
make a capital expenditure;
(3)
acquire other assets (other than Excluded Assets) that are not classified as current assets under GAAP and that are used
or useful in a Permitted Business; or
(4)
in the case of a Replacement Parts Disposal, make a Replacement Parts Disposal Distribution; provided that at least
€5 million is used as set forth in clauses (1) to (3) above or to purchase any Notes validly tendered in any Asset Sale Offer; and
provided further, that the 360-day limit shall not apply.
The Company (or the Restricted Subsidiary, as the case may be) will be deemed to have complied with this paragraph
if, within 360 days after the receipt of Net Proceeds from an Asset Sale it has entered into a definitive agreement to undertake
any transaction set forth in clauses (1) or (3) above and such transaction is completed within 540 days after the receipt of any
Net Proceeds from an Asset Sale.
Pending the final application of any Net Proceeds, the Company must place the Net Proceeds in a bank account which
constitutes part of the Collateral.
Any Net Proceeds from Asset Sales that are not applied or invested as provided in the third paragraph of this covenant
will constitute "Excess Proceeds." At any time the Company may and, in any case, when the aggregate amount of Excess
Proceeds exceeds €10.0 million, within 10 days thereof, the Company will, make an offer to all holders of Notes to purchase the
maximum principal amount of Notes that may be purchased out of the Excess Proceeds (an "Asset Sale Offer"). The offer price
in any Asset Sale Offer will be equal to 100% of the principal amount plus accrued and unpaid interest to (but not including) the
date of purchase, and will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the
Company may use those Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal
amount of Notes tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee will select the Notes to
be purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds will be reset at
zero.
The Company will comply with the requirements of Rule 14e-1 under the US Exchange Act and any other securities
laws and regulations to the extent those laws and regulations are applicable in connection with each repurchase of Notes
pursuant to an Asset Sale Offer. To the extent that the provisions of any applicable securities laws or regulations conflict with
the Asset Sale provisions of the Indenture, the Company will comply with the applicable securities laws and regulations and will
not be deemed to have breached its obligations under the Asset Sale provisions of the Indenture by virtue of such compliance.
The agreements governing the Company's future Indebtedness may contain, and future agreements may contain,
prohibitions of certain events, including events that would constitute a Change of Control or an Asset Sale. Furthermore, the
exercise by the holders of Notes of their right to require the Company to repurchase the Notes upon a Change of Control or an
Asset Sale could cause a default under these other agreements, even if the Change of Control or Asset Sale itself does not, due to
the financial effect of such repurchases on the Company. In the event a Change of Control or Asset Sale occurs at a time when
the Company is prohibited from purchasing Notes, the Company could seek the consent of its other lenders to the purchase of
Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain a consent or
repay those borrowings, the Company will remain prohibited from purchasing Notes. In that case, the Company's failure to
purchase tendered Notes would constitute an Event of Default under the Indenture which could, in turn, constitute a default
under such other Indebtedness. Finally, the Company's ability to pay cash to the holders of Notes upon a repurchase may be
limited by the Company's then existing financial resources. See "Risk Factors—Risks related to the notes—We may not be able
to obtain enough funds to repurchase the notes if a change of control takes place."
Selection and Notice
If less than all of the Notes are to be redeemed at any time, the Trustee will select Notes for redemption on a pro rata
basis unless otherwise required by law or applicable stock exchange requirements.
No Notes of €50,000 or less can be redeemed in part. Notices of redemption will be mailed by first class mail at least
30 but not more than 60 days before the redemption date to each holder of Notes to be redeemed at its registered address, except
that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a
defeasance of the Notes or a satisfaction and discharge of the Indenture. Notices of redemption may not be conditional.
If any Note is to be redeemed in part only, the notice of redemption that relates to that Note will state the portion of the
principal amount of that Note that is to be redeemed. A new Note in principal amount equal to the unredeemed portion of the
original Note will be issued in the name of the holder of Notes upon cancellation of the original Note. Notes called for
redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on Notes
or portions of Notes called for redemption.
Certain Covenants
Restricted Payments
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly:
(1)
declare or pay any dividend or make any other payment or distribution on account of the Company's or any Restricted
Subsidiary's Equity Interests (including, without limitation, any payment in connection with any merger or consolidation
involving the Company or a Restricted Subsidiary, or to the direct or indirect holders of the Company's or any Restricted
Subsidiary's Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (in each
case, other than Disqualified Stock) of the Company and other than dividends or distributions payable to the Company or a
Restricted Subsidiary of the Company);
(2)
purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger
or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company;
(3)
make any (A) payment, including without limitation any payment of interest or principal, on or with respect to any
Shareholder Loans (but excluding any accrual or capitalisation of interest, or incurrence of additional Shareholder Loans, in lieu
of paying cash interest), or purchase, redeem, defease or otherwise acquire or retire for value any Shareholder Loans or
(B) payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness of the
Company (other than Shareholder Loans) that is contractually subordinated to the Notes (excluding any intercompany
Indebtedness between or among the Company and any Guarantor), except a payment of interest or principal on any such
Indebtedness at the Stated Maturity thereof;
(4)
make any Restricted Investment
(all such payments and other actions set forth in these clauses (1) through (4) above being collectively referred to as "Restricted
Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1)
no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted
Payment;
(2)
the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such
Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least
€1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under the caption "—Incurrence of Indebtedness and Issuance of Preferred Stock;" and
(3)
such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company
and its Restricted Subsidiaries since the date of the Indenture (excluding Restricted Payments permitted by clauses (2), (3), (4),
(5), (6), (10) and (11) of the next succeeding paragraph is less than the sum, without duplication, of:
(a)
50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) beginning
January 1, 2006 to the end of the Company's most recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of
such deficit); plus
(b)
100% of the aggregate net cash proceeds received by the Company since the date of the Indenture as a contribution to
its ordinary equity capital or from the issue or sale of Equity Interests of the Company (other than Disqualified Stock) or from
the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of the
Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified
Stock or debt securities) sold to a Subsidiary of the Company); plus
(c)
to the extent that any Restricted Investment that was made after the date of the Indenture is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (i) the cash return of capital with respect to such Restricted Investment (less the cost of
disposition, if any) and (ii) the initial amount of such Restricted Investment; plus
(d)
to the extent that any Unrestricted Subsidiary of the Company designated as such after the date of the Indenture is
redesignated as a Restricted Subsidiary after the date of the Indenture, 100% of the Fair Market Value of the Company's
Investment in such Subsidiary as of the date of such redesignation; plus
(e)
50% of any cash dividends or distributions received by the Company or a Restricted Subsidiary of the Company after
the date of the Indenture from an Unrestricted Subsidiary of the Company, to the extent that such dividends or distributions were
not otherwise included in the Consolidated Net Income of the Company for such period; plus
(f)
100% of the cash received by the Company in connection with the incurrence of any Deeply Subordinated Debt.
The preceding provisions will not prohibit:
(1)
the payment of any dividend or the consummation of any irrevocable redemption within 60 days after the date of
declaration of the dividend or giving of the redemption notice, as the case may be, if at the date of declaration or notice, the
dividend or redemption payment would have complied with the provisions of the Indenture;
(2)
the repurchase, redemption or other acquisition or retirement for value of (A) Equity Interests or (B) Indebtedness that
is contractually subordinated to the Notes, in either case, in exchange for, or out of the net cash proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company) of, Equity Interests of the Company (other than Disqualified Stock)
or from the substantially concurrent contribution of common equity capital to the Company or from the concurrent incurrence of
Deeply Subordinated Debt; provided that the amount of any such net cash proceeds that are utilised for any such Restricted
Payment will be excluded from clauses (3)(b) and (3)(f) of the preceding paragraph; and provided further, that the liquidation,
winding up or similar transaction for the purpose of dissolving Loco Coil Technologies (Proprietary) Limited will not constitute
a Restricted Payment;
(3)
the repurchase, redemption, defeasance or other acquisition or retirement for value of Indebtedness of the Company
that is contractually subordinated to the Notes (other than Shareholder Loans) in exchange for, or out of the net cash proceeds
from, a substantially concurrent incurrence of Permitted Refinancing Indebtedness;
(4)
the redemption, repurchase, retirement or other acquisition of Shareholder Loans made in exchange for, or out of the
net cash proceeds of, the substantially concurrent incurrence of Shareholder Loans or Deeply Subordinated Debt (other than to a
Restricted Subsidiary of the Company) incurred in compliance with "—Incurrence of Indebtedness and Issuance of Preferred
Stock;"
(5)
so long as no Default has occurred and is continuing or would be caused thereby, the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary of the Company held by
any current or former officer, director or employee of the Company or any of its Restricted Subsidiaries pursuant to the terms of
the Employee Share Ownership Trusts and any equity subscription agreement, stock option agreement, shareholders' agreement
or similar agreement; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity
Interests may not exceed €1.0 million in any calendar year, with unused amounts from one calendar year being carried forward
to the next succeeding calendar year; and provided further, that any cancellation of Indebtedness owing to the Company or any
Restricted Subsidiary by the Employee Share Ownership Trusts will not constitute a Restricted Payment.
(6)
the repurchase of Equity Interests deemed to occur upon the exercise of stock options to the extent such Equity
Interests represent a portion of the exercise price of those stock options;
(7)
so long as no Default has occurred and is continuing or would be caused thereby, the payment of any dividend (or, in
the case of any partnership or limited liability company, any similar distribution) by a Restricted Subsidiary of the Company to
the holders of its ordinary Equity Interests on a pro rata basis provided that any such payments to a Person other than the
Company will be included in the calculation of clause 3 of the preceding paragraph;
(8)
so long as no Default has occurred and is continuing or would be caused thereby, the declaration and payment of
regularly scheduled or accrued dividends to holders of any class or series of Disqualified Stock of the Company or Preferred
Stock of any Restricted Subsidiary of the Company issued on or after the Issue Date in accordance with the Fixed Charge
Coverage Ratio test described below under the caption "—Incurrence of Indebtedness and Issuance of Preferred Stock;"
(9)
so long as no Default has occurred and is continuing or would be caused thereby, cash payments in lieu of issuing
fractional shares pursuant to any stock dividend, stock split, reverse stock split of the Company's ordinary equity; provided that
such transaction is not undertaken in anticipation of, or to facilitate the payment of, any dividend or other return of capital to the
holders of the Company's ordinary equity;
(10)
conversion of preference shares into ordinary equity of the Company pursuant to the Shareholders' Agreement;
(11)
so long as no Default has occurred and is continuing or would be caused thereby, following the first Public Equity
Offering, the payment of dividends on the ordinary equity of the Company or any applicable holding company of the Company
of up to 6% per annum of the net cash proceeds received by the Company (or contributed in cash to the Company's ordinary
equity with the net cash proceeds) of any such Public Equity Offering;
(12)
so long as no Default has occurred and is continuing or would be caused thereby, a Replacement Parts Disposal
Distribution; provided that, at the time of and after giving pro forma effect to the Replacement Parts Disposal and such
Replacement Parts Disposal Distribution, the Leverage Ratio would not exceed the Initial Leverage Ratio;
(13)
so long as no Default has occurred and is continuing or would be caused thereby, payments or distributions to minority
shareholders in connection with the purchase by the Company of all ordinary Equity Interests owned by such minority
shareholders, in an aggregate amount not to exceed €2.5 million since the Issue Date;
(14)
so long as no Default has occurred and is continuing or would be caused thereby, payments of fees and expenses
incurred and owed pursuant to the terms of the Shareholders' Agreement (as in effect on the Issue Date) in an amount not to
exceed €500,000 in any calendar year; and
(15)
so long as no Default has occurred and is continuing or would be caused thereby, other Restricted Payments in an
aggregate amount not to exceed €6.0 million since the Issue Date.
In determining whether any payment is permitted pursuant to this covenant, the Company may allocate all or any
portion of such payment among clauses (1) through (15) of the preceding paragraph or among such clauses and the first
paragraph of this covenant; provided that, after giving effect to any such allocation, the aggregate amount of such payment
would be permitted hereunder. If there is a Replacement Parts Disposal and the Company is not able to satisfy the Leverage
Ratio set forth in clause (12) in order to make a Replacement Parts Disposal Distribution, but the Company is required to
distribute a portion of the cash proceeds received from such distribution to the Replacement Parts Management with respect to
their equity and debt (directly or indirectly owned) in the replacement parts business (the "Minority Distribution"), such
Minority Distribution shall (to the extent permitted hereunder) be made pursuant to clause (15). Any Minority Distribution
initially made pursuant to clause (15) may be, at the time of a Replacement Parts Disposal Distribution, reclassified as having
been made pursuant to clause (12) and the amount of such Minority Distribution shall be added back to the amount then
available under clause (15).
The amount of all Restricted Payments (other than cash) will be the Fair Market Value on the date of the Restricted
Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Restricted Subsidiary, as the
case may be, pursuant to the Restricted Payment. The Fair Market Value of any assets or securities that are required to be
valued by this covenant will be determined in good faith by the Board of Directors of the Company whose resolution with
respect thereto will be delivered to the Trustee.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, Guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt), and the Company will not issue any Disqualified Stock and
will not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that the Company
may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock, and any Guarantor may incur Indebtedness
(including Acquired Debt) or issue preferred stock, if the Fixed Charge Coverage Ratio for the Company's most recently ended
four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock or such preferred stock is issued, as the case may be, would have
been at least 2.0 to 1.0, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred or the Disqualified Stock or the preferred stock had been issued, as the case may
be, at the beginning of such four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of any of the following items of Indebtedness
(collectively, "Permitted Debt"):
(1)
the incurrence by the Company and any Guarantor of revolving credit Indebtedness and letters of credit and guarantees
under Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (1) (with letters of credit
and guarantees being deemed to have a principal amount equal to the maximum potential liability of the Company and the
Guarantors thereunder) not to exceed the greater of (x) R50.0 million (which would represent approximately €6.7 million as of
the Issue Date) or (y) the amount of the Borrowing Base as of the date of such incurrence;
(2)
the incurrence by the Company and its Restricted Subsidiaries of Indebtedness existing on the Issue Date;
(3)
the incurrence by the Company of Indebtedness represented by the Notes and the Counter Indemnity and Guarantee
Agreement to be issued on the Issue Date;
(4)
the incurrence by the Company or any Guarantor of Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase
price or cost of design, construction, installation or improvement of property, plant or equipment used in the business of the
Company or any Guarantor, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to
renew, refund, refinance, replace, defease or discharge any Indebtedness incurred pursuant to this clause (4), not to exceed
€5.0 million at any time outstanding;
(5)
the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange
for, or the net proceeds of which are used to renew, refund, refinance, replace, defease or discharge any Indebtedness or
Disqualified Stock (other than intercompany Indebtedness) that was permitted by the Indenture to be incurred under the first
paragraph of this covenant or clauses (2), (3), (4), (5) or (6) of this paragraph;
(6)
Indebtedness of a Restricted Subsidiary incurred and outstanding on or prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness incurred in contemplation of, or in connection with, the
transaction or series of related transactions pursuant to which such Subsidiary became a Restricted Subsidiary of or was
otherwise acquired by the Company); provided, however, that on the date that such Subsidiary is acquired by the Company, the
Company would have been able to incur €1.00 of additional Indebtedness pursuant to the first paragraph of this covenant after
giving effect to the incurrence of such Indebtedness pursuant to this clause (6).
(7)
the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness between or among
the Company and any of its Restricted Subsidiaries; provided, however, that:
(a)
if the Company or any Guarantor is the obligor on such Indebtedness and the payee is not the Company or a Guarantor,
such Indebtedness must be expressly subordinated to the prior payment in full in cash of all obligations with respect to the
Notes, the Guarantees and the obligations of the Company and the Guarantors under the Counter Indemnity and Guarantee
Agreement; and
(b)
(i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person
other than the Company or a Restricted Subsidiary of the Company and (ii) any sale or other transfer of any such Indebtedness to
a Person that is not either the Company or a Restricted Subsidiary of the Company,
will be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted
Subsidiary, as the case may be, that was not permitted by this clause (7);
(8)
the issuance by any of the Company's Restricted Subsidiaries to the Company or to any of its Restricted Subsidiaries of
shares of preferred stock; provided, however, that:
(a)
any subsequent issuance or transfer of Equity Interests that results in any such preferred stock being held by a Person
other than the Company or a Restricted Subsidiary of the Company; and
(b)
any sale or other transfer of any such preferred stock to a Person that is not either the Company or a Restricted
Subsidiary of the Company,
will be deemed, in each case, to constitute an issuance of such preferred stock by such Restricted Subsidiary that was
not permitted by this clause (8);
(9)
the incurrence by the Company or any of its Restricted Subsidiaries of Hedging Obligations in the ordinary course of
business and not for speculative purposes (such purpose to be determined based on the economic rationale for such agreement
and not solely on the basis of its accounting treatment);
(10)
the Guarantee by the Company of Indebtedness of a Restricted Subsidiary of the Company that was permitted to be
incurred by another provision of this covenant; provided that if the Indebtedness being Guaranteed by the Company is
subordinated to any Guarantee of the Notes, then the Company's Guarantee shall be subordinated to the Notes to the same extent
as the Indebtedness Guaranteed;
(11)
the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness in respect of workers'
compensation claims, self-insurance obligations, bankers' acceptances, the financing of insurance premiums, performance bonds,
surety bonds and other similar customary bonds, in each case in the ordinary course of business;
(12)
the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness arising from the honouring by a
bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds, so long
as such Indebtedness is covered within 10 business days of becoming aware of such event;
(13)
the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness arising from agreements providing
for guarantees, indemnities or obligations in connection with any disposition of assets; provided that the maximum aggregate
liability with respect to any such Indebtedness shall not exceed the net cash proceeds actually received from the sale of such
assets; and provided further that such Indebtedness is not reflected on the Company's consolidated balance sheet;
(14)
Indebtedness of the Company or any Guarantor arising by reason of any Lien granted by or applicable to a Person
securing Indebtedness of the Company or any Guarantor permitted to be incurred under the Indenture;
(15)
the incurrence by the Company of the Shareholder Loans and Deeply Subordinated Debt (including in connection with
the conversion of Shareholder Loans for Deeply Subordinated Debt); and
(16)
the incurrence by the Company or any Guarantor of additional Indebtedness in an aggregate principal amount at any
time outstanding, including all Permitted Refinancing Indebtedness incurred to renew, refund, refinance, replace, defease or
discharge any Indebtedness incurred pursuant to this clause (16), not to exceed €5.0 million.
The Company will not, and will not permit any Guarantor to, incur any Indebtedness (including Permitted Debt) that is
contractually subordinated in right of payment to any other Indebtedness of the Company or any Guarantor unless such
Indebtedness is also contractually subordinated in right of payment to the Notes or the applicable Guarantee on substantially
identical terms; provided, however, that no Indebtedness will be deemed to be contractually subordinated in right of payment to
any other Indebtedness of the Company or any Guarantor solely by virtue of being unsecured or by virtue of being secured on a
junior Lien basis or by virtue of not being Guaranteed.
For purposes of determining compliance with this "Incurrence of Indebtedness and Issuance of Preferred Stock"
covenant, in the event that an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted
Debt described in clauses (2) through (13) above, or is entitled to be incurred pursuant to the first paragraph of this covenant, the
Company will be permitted to classify such item of Indebtedness on the date of its incurrence, or later reclassify all or a portion
of such item of Indebtedness, in any manner that complies with this covenant. Indebtedness under Credit Facilities outstanding
on the Issue Date will be deemed to have been incurred on such date in reliance on the exception provided by clause (1) of the
definition of Permitted Debt. The accrual of interest, the accretion or amortisation of original issue discount, the payment of
interest on any Indebtedness in the form of additional Indebtedness with the same terms, the reclassification of preferred stock as
Indebtedness due to a change in accounting principles, and the payment of dividends on Disqualified Stock in the form of
additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance
of Disqualified Stock for purposes of this covenant; provided, in each such case, that the amount of any such accrual, accretion
or payment is included in Fixed Charges of the Company as accrued.
For purposes of determining compliance with any restriction on the incurrence of Indebtedness in euros where
Indebtedness is denominated in a different currency, the amount of such Indebtedness will be the Euro Equivalent determined on
the date of such determination; provided that if any such Indebtedness denominated in a different currency is subject to a
Hedging Arrangement (with respect to euros) covering principal amounts payable on such Indebtedness, the amount of such
Indebtedness expressed in euros will be adjusted to take into account the effect of such arrangement. The principal amount of
any Permitted Refinancing Indebtedness incurred in the same currency as the Indebtedness being refinanced will be the Euro
Equivalent of the Indebtedness being refinanced determined on the date such Indebtedness being refinanced was initially
incurred. Notwithstanding any other provision of this covenant, the maximum amount of Indebtedness that the Company or any
Restricted Subsidiary may incur pursuant to this covenant shall not be deemed to be exceeded solely as a result of fluctuations in
exchange rates or currency values.
The amount of any Indebtedness outstanding as of any date will be:
(1)
the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount;
(2)
the principal amount of the Indebtedness, in the case of any other Indebtedness; and
(3)
in respect of Indebtedness of another Person secured by a Lien on the assets of the specified Person, the lesser of:
(a)
the Fair Market Value of such assets at the date of determination; and
(b)
the amount of the Indebtedness of the other Person.
Liens
The Company will not and will not permit any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause
or suffer to exist or become effective any Lien of any kind (other than Permitted Liens) upon any of their property or assets, now
owned or hereafter acquired.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit
to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1)
pay dividends or make any other distributions on its Capital Stock to the Company or any of its Restricted Subsidiaries,
or with respect to any other interest or participation in, or measured by, its profits;
(2)
pay any Indebtedness owed to the Company or any of its Restricted Subsidiaries;
(3)
make loans or advances to the Company or any of its Restricted Subsidiaries; or
(4)
sell, lease or transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries,
provided that the priority of any preference shares in receiving dividends or liquidating distributions prior to dividends
or liquidating preferences being paid on ordinary shares shall not be deemed to constitute such an encumbrance or restriction.
However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of:
(1)
agreements governing Existing Indebtedness and Credit Facilities, in each case, as in effect on the Issue Date and any
amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings of those agreements;
provided that the amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings are
not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those
contained in those agreements on the Issue Date;
(2)
the Indenture, the Notes, and the Counter Indemnity and Guarantee Agreement and the Security Documents;
(3)
applicable law, rule, regulation or order;
(4)
any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness or Capital Stock was incurred in
connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or
the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired; provided that, in
the case of Indebtedness, such Indebtedness was permitted by the terms of the Indenture to be incurred;
(5)
customary non-assignment provisions in contracts and licenses entered into in the ordinary course of business;
(6)
purchase money obligations for property acquired in the ordinary course of business and Capital Lease Obligations that
impose restrictions on the property purchased or leased of the nature described in clause (4) of the preceding paragraph;
(7)
any agreement for the sale or other disposition of a Restricted Subsidiary that restricts distributions by that Restricted
Subsidiary pending the sale or other disposition;
(8)
Permitted Refinancing Indebtedness; provided that the restrictions contained in the agreements governing such
Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements
governing the Indebtedness being refinanced;
(9)
Liens permitted to be incurred under the provisions of the covenant described above under the caption "—Liens" that
limit the right of the debtor to dispose of the assets subject to such Liens;
(10)
provisions limiting the disposition or distribution of assets or property in joint venture agreements, asset sale
agreements, sale-leaseback agreements, stock sale agreements and other similar agreements entered into in compliance with the
Indenture and with the approval of the Company's Board of Directors, which limitation is applicable only to the assets that are
the subject of such agreements; and
(11)
restrictions on cash or other deposits or net worth imposed by customers under operating contracts entered into in the
ordinary course of business.
Merger, Consolidation or Sale of Assets
The Company will not, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not the
Company is the surviving corporation) or (2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the
properties or assets of the Company and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to
another Person, unless:
(1)
either: (a) the Company is the surviving corporation; or (b) the Person formed by or surviving any such consolidation
or merger (if other than the Company) or to which such sale, assignment, transfer, conveyance or other disposition has been
made is a corporation organised or existing under the laws of the Republic of South Africa, any member state of the European
Union, the United States of America, any state thereof or the District of Columbia, Australia or Canada;
(2)
the Person formed by or surviving any such consolidation or merger (if other than the Company) or the Person to which
such sale, assignment, transfer, conveyance or other disposition has been made assumes all the obligations of the Company
under the Notes, the Indenture, the Counter Indemnity and Guarantee Agreement and the Security Documents pursuant to
agreements reasonably satisfactory to the Trustee;
(3)
immediately after such transaction, no Default or Event of Default exists; and
(4)
the Company or the Person formed by or surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, conveyance or other disposition has been made would, on the date of such transaction
after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least € 1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption "—Incurrence of
Indebtedness and Issuance of Preferred Stock."
In addition, the Company will not, directly or indirectly, lease all or substantially all of the properties and assets of it
and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to any other Person.
This "Merger, Consolidation or Sale of Assets" covenant will not apply to:
(1)
a merger of the Company with an Affiliate solely for the purpose of reincorporating the Company in another
jurisdiction so long as the Company is the surviving entity; or
(2)
any consolidation or merger, or any sale, assignment, transfer, conveyance, lease or other disposition of assets between
or among the Restricted Subsidiaries or from the Restricted Subsidiaries to the Company.
Transactions with Affiliates
The Company will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make
or amend any transaction, contract, agreement, understanding, loan, advance or Guarantee with, or for the benefit of, any
Affiliate of the Company in one or a series of related transactions in excess of €25,000 (each, an "Affiliate Transaction"), unless:
(1)
the Affiliate Transaction is on terms that are no less favourable to the Company or the relevant Restricted Subsidiary
than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person; and
(2)
the Company delivers to the Trustee:
(a)
with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in
excess of € 1.0 million, a resolution of the Board of Directors of the Company set forth in an officers' certificate certifying that
such Affiliate Transaction complies with this covenant and that such Affiliate Transaction has been approved by a majority of
the disinterested members of the Board of Directors of the Company; and
(b)
with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in
excess of € 5.0 million, an opinion as to the fairness to the Company or such Restricted Subsidiary of such Affiliate Transaction
from a financial point of view issued by an accounting, appraisal or investment banking firm of international standing.
The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions
of the prior paragraph:
(1)
any employment agreement, employee benefit plan, officer or director indemnification agreement or any similar
arrangement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business and payments
pursuant thereto;
(2)
transactions between or among the Company and/or its Restricted Subsidiaries;
(3)
payment of reasonable directors' fees to Persons who are not otherwise Affiliates of the Company;
(4)
any issuance of Equity Interests of the Company or Deeply Subordinated Debt, in each case to Affiliates of the
Company;
(5)
Restricted Payments specified in clause (1), (12), (13) and (14) of the second paragraph of the covenant described
under " —Restricted Payments;"
(6)
transactions entered into in the ordinary course of business with any of the black economic empowerment entities
which are shareholders or investees of the Company or any Restricted Subsidiary on terms no less favourable to the Company or
such Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person;
(7)
loans or advances to employees in the ordinary course of business not to exceed €250,000 in the aggregate at any one
time outstanding;
(8)
transactions or payments contemplated by an agreement in effect on the Issue Date and disclosed in the Listing
Particulars (including the Shareholders Agreement), or any amendment, restatement or modification thereof provided that such
amendment, restatement or modification, taken as a whole, is not more disadvantageous to the Company or such Restricted
Subsidiary as the original agreement in effect on the Issue Date and disclosed in the Listing Particulars;
(9)
transactions with Persons who are Affiliates solely by reason of the Company's or a Restricted Subsidiary's ownership
of voting stock of such Person, provided that such Person is in a Permitted Business and the transactions are in the ordinary
course of business; and
(10)
any merger or consolidation with an Affiliate for the purpose of reincorporating the Company in another jurisdiction
permitted by the Indenture or for forming a holding company; provided in each case that no dividends, distribution or other
payments are made to any such Affiliate in connection with such transaction.
Business Activities
The Company will not, and will not permit any of its Restricted Subsidiaries to, engage in any business other than
Permitted Businesses, except to such extent as would not be material to the Company and its Restricted Subsidiaries taken as a
whole.
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors of the Company may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if
that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate
Fair Market Value of all outstanding Investments owned by the Company and its Restricted Subsidiaries in the Subsidiary
designated as Unrestricted will be deemed to be an Investment made as of the time of the designation and will reduce the amount
available for Restricted Payments under the covenant described above under the caption " —Restricted Payments" or under one
or more clauses of the definition of Permitted Investments, as determined by the Company. That designation will only be
permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary. The Board of Directors of the Company may redesignate any Unrestricted Subsidiary to be a Restricted
Subsidiary if that redesignation would not cause a Default. Any designation of a Subsidiary of the Company as an Unrestricted
Subsidiary will be evidenced to the Trustee by filing with the Trustee a certified copy of a resolution of the Board of Directors
giving effect to such designation and an officers' certificate certifying that such designation complied with the preceding
conditions and was permitted by the covenant described above under the caption " —Restricted Payments."
If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted
Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such
Subsidiary will be deemed to be incurred by a Restricted Subsidiary of the Company as of such date and, if such Indebtedness is
not permitted to be incurred as of such date under the covenant described under the caption "—Incurrence of Indebtedness and
Issuance of Preferred Stock," the Company will be in default of such covenant. The Board of Directors of the Company may at
any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary of the Company; provided that such designation
will be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness
of such Unrestricted Subsidiary, and such designation will only be permitted if (1) such Indebtedness is permitted under the
covenant described under the caption "—Incurrence of Indebtedness and Issuance of Preferred Stock," calculated on a pro forma
basis as if such designation had occurred at the beginning of the four-quarter reference period and (2) no Default or Event of
Default would be in existence following such designation.
Limitation on Sale and Leaseback Transactions
The Company will not, and will not permit any of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction (other than (i) between the Company and any Guarantor, (ii) between Guarantors, (iii) from a Restricted Subsidiary
that is not a Guarantor to the Company or a Guarantor or (iv) between or among Restricted Subsidiaries that are not Guarantors);
provided that the Company or any Guarantor may enter into a sale and leaseback transaction if:
(1)
the Company or that Guarantor could have (a) incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction under the Fixed Charge Coverage Ratio test in the first paragraph of the covenant
described above under the caption " —Incurrence of Indebtedness and Issuance of Preferred Stock" and (b) incurred a Lien to
secure such Indebtedness pursuant to the covenant described above under the caption "—Liens;"
(2)
the gross cash proceeds of that sale and leaseback transaction are at least equal to the Fair Market Value, as determined
in good faith by the Board of Directors of the Company and set forth in an officers' certificate delivered to the Trustee, of the
property that is the subject of that sale and leaseback transaction; and
(3)
the transfer of assets in that sale and leaseback transaction is permitted by, and the Company applies the proceeds of
such transaction in compliance with, the covenant described above under the caption " —Repurchase at the Option of Holders—
Asset Sales."
Limitation on Issuances of Guarantees of Indebtedness
The Company will not permit any of its Restricted Subsidiaries that is not a Guarantor, directly or indirectly, to
Guarantee any other Indebtedness of the Company unless such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture providing for the Guarantee of the payment of the Notes by such Restricted Subsidiary, which Guarantee
will be senior to or pari passu with such Restricted Subsidiary's Guarantee of such other Indebtedness.
The Guarantee of a Guarantor will automatically and unconditionally be released:
(1)
so long as no Default or Event of Default is outstanding, in connection with any sale or other disposition of all or
substantially all of the assets of that Guarantor (including by way of merger or consolidation) to a Person that is not (either
before or after giving effect to such transaction) the Company or an Affiliate of the Company, if the sale or other disposition
does not violate the "Asset Sale" provisions of the Indenture;
(2)
so long as no Default or Event of Default is outstanding, in connection with any sale or other disposition of all of the
Capital Stock of that Guarantor to a Person that is not (either before or after giving effect to such transaction) the Company or a
Restricted Subsidiary of the Company, if the sale or other disposition does not violate the "Asset Sale" provisions of the
Indenture;
(3)
if the Company designates any Restricted Subsidiary that is a Guarantor to be an Unrestricted Subsidiary in accordance
with the applicable provisions of the Indenture; or
(4)
upon legal defeasance or satisfaction and discharge of the Indenture as provided below under the captions "—Legal
Defeasance and Covenant Defeasance" and "—Satisfaction and Discharge."
Impairment of Security Interest
The Company shall not, and the Company shall not permit any Restricted Subsidiary of the Company to, take or omit
to take any action which would materially impair the security interest with respect to the Collateral and the Company shall not,
and the Company shall not permit any Restricted Subsidiary to, grant to any Person other than the Trustee, the Holders or the
Security SPV for the benefit of the Trustee and the holders of the Notes and the other beneficiaries described in the Security
Documents, any interest whatsoever in any of the Collateral; provided, however, that nothing in this provision shall restrict the
release or replacement of any Collateral in compliance with the terms of the Indenture as described under "—Security SPV
Guarantee and Security—Release of Security." Notwithstanding anything herein to the contrary, in the event that the Credit
Facilities are refinanced under clause (1) of the second paragraph of the covenant described under "—Incurrence of Indebtedness
and Issuance of Preferred Stock," the Trustee is hereby authorized and directed to (i) enter into documentation reasonably
acceptable to the Trustee and (ii) provide for the release and any subsequent replacement of the reversionary cession relating to
the Excluded Assets, in each case as may be required to provide that the replacement Credit Facilities are secured by the
Excluded Assets on the same priority and basis as the refinanced Credit Facilities.
Payments for Consent
The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to
be paid any consideration to or for the benefit of any holder of Notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the Indenture or the Notes unless such consideration is offered to be paid and is
paid to all holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
No Amendment or Waiver to Counter Indemnity and Guarantee Agreement
For so long as any Notes are outstanding, without the consent of the holders of at least a majority in aggregate principal
amount of the Notes then outstanding, the Company will not amend, modify or alter the Counter Indemnity and Guarantee
Agreement, the SPV Management Agreement or the Security Documents in any manner adverse to the holders of the Notes.
Reports
So long as the Notes are outstanding, the Company will furnish to the Trustee (who at the Company's expense, will
furnish by mail to the holders of Notes):
(1)
within 120 days after the end of each fiscal year, beginning with the fiscal year ended 30 September 2006, annual
reports containing the following information (substantially similar to the Listing Particulars, where applicable): (a) audited
consolidated balance sheets of the Company as of the end of the two most recent fiscal years and audited consolidated income
statements, statements of cash flow and statements of changes in equity of the Company for the three most recent fiscal years,
including appropriate footnotes to such financial statements and a report of the independent auditors on the financial statements;
(b) pro forma income statement and balance sheet information, together with explanatory footnotes, for any material
acquisitions, dispositions or recapitalisations that have occurred since the beginning of the most recently completed fiscal year;
(c) to the extent relating to annual periods, an operating and financial review of the audited financial statements, including a
discussion of the results of operations, financial condition, and liquidity and capital resources, and a discussion of material
commitments and contingencies and critical accounting policies; (d) a description of the business, management and shareholders
of the Company and all material affiliate transactions; and (e) material risk factors and material recent developments;
(2)
within 60 days after the end of each of the first three fiscal quarters of each fiscal year, reports containing the following
information: (a) an unaudited consolidated balance sheet as of the end of such quarter and unaudited statements of income, cash
flow and changes in equity for the most recent year-to-date period ending on the unaudited consolidated balance sheet date, and
the comparable prior year periods, together with condensed footnote disclosure; (b) pro forma income statement and balance
sheet information, together with explanatory footnotes, for any material acquisitions, dispositions or recapitalisations that have
occurred since the beginning of the most recently completed fiscal quarter; (c) an operating and financial review of the unaudited
financial statements, including a discussion of the results of operations, financial condition, and liquidity and capital resources,
and a discussion of material commitments and contingencies and critical accounting policies; and (d) material recent
developments; provided that, with respect to the quarter ending December 31, 2005, such report must be delivered within
90 days after the end of such quarter; and
(3)
promptly after the occurrence of a material acquisition, disposition, restructuring, senior management change at the
Company or change in auditors a report containing a description of such event.
At any time that any of the Company's Subsidiaries become Unrestricted Subsidiaries and such Subsidiaries constitute
(or would have constituted) a Significant Subsidiary at the time of designation as an Unrestricted Subsidiary, then the quarterly
and annual financial information required by the preceding paragraph will include a reasonably detailed presentation, either on
the face of the financial statements or in the footnotes thereto, and in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" or other comparable section, of the financial condition and results of operations of the
Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted
Subsidiaries of the Company.
In addition, the Company will furnish to the holders of the Notes and to prospective investors, upon request of such
holders, any information required to be delivered pursuant to Rule 144(d)(4) under the Securities Act so long as the Notes are
not freely tradable under the Securities Act.
The Company will also make available copies of all reports required by clauses (1) through (3) above (i) on the
Company's website, (ii) to the newswire or other service of Bloomberg L.P. or, if Bloomberg L.P. does not then operate any
such service, any similar agency and (iii) if and so long as the Notes are listed on the Alternative Securities Market of the Irish
Stock Exchange and the rules of that exchange so require, at the specified office of the Irish Paying Agent in Dublin.
Events of Default and Remedies
Each of the following is an "Event of Default":
(1)
default for 30 days in the payment when due of interest on the Notes,
(2)
default in the payment when due (at maturity, upon redemption or otherwise) of the principal of, or premium, if any,
on, the Notes
(3)
failure by the Company or any of its Restricted Subsidiaries to comply with the provisions described under the captions
"—Repurchase at the Option of Holders—Change of Control," "—Repurchase at the Option of Holders—Asset Sales" or "—
Certain Covenants—Merger, Consolidation or Sale of Assets;"
(4)
failure by the Company or any of its Restricted Subsidiaries for 30 days after notice to the Company by the Trustee or
the holders of at least 25% in aggregate principal amount of the Notes then outstanding to comply with any of the other
agreements in the Indenture, the Security Documents or the Counter Indemnity and Guarantee Agreement;
(5)
default under any mortgage, Indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the
payment of which is Guaranteed by the Company or any of its Restricted Subsidiaries), whether such Indebtedness or Guarantee
now exists, or is created after the date of the Indenture, if that default:
(a)
is caused by a failure to pay principal of, or interest or premium, if any, on, such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a "Payment Default"); or
(b)
results in the acceleration of such Indebtedness prior to its express maturity,
and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such
Indebtedness or the maturity of which has been so accelerated, aggregates €5.0 million or more; provided that, for purposes
hereunder, with respect to any principal payments due under the Hedging Arrangement, such Indebtedness shall be determined
based on the amount due to the Hedging Lender on the date of any default or early termination thereunder;
(6)
failure by the Company or any of its Restricted Subsidiaries to pay final judgments entered by a court or courts of
competent jurisdiction aggregating in excess of €5.0 million, which judgments are not paid, discharged, stayed or formal legal
proceedings are not launched to set aside such judgement or to appeal against such judgement within a period of 30 days;
(7)
failure for a period of 15 days by any party other than the Trustee or the holders of the Notes to comply with any
provisions of the Shareholder Subordination Agreement or the Intercreditor Agreement;
(8)
breach by the Company or any of its Restricted Subsidiaries of any representation or warranty or agreement in, or the
repudiation by the Company or any of its Restricted Subsidiaries of any of its obligations under, the Guarantees of the Notes, the
Security Documents, the Counter Indemnity and Guarantee Agreement, the Shareholder Subordination Agreement or the
Intercreditor Agreement, or the unenforceability of any of these agreements against the Company, any of its Restricted
Subsidiaries or the Security SPV for any reason; and
(9)
certain events of bankruptcy or insolvency described in the Indenture (other than a Technical Insolvency) with respect
to the Company any Guarantor, the Security SPV or any of the Company's Restricted Subsidiaries that is a Significant
Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary.
In the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the
Company, any Guarantor, the Security SPV, any Restricted Subsidiary of the Company that is a Significant Subsidiary or any
group of Restricted Subsidiaries of the Company that, taken together, would constitute a Significant Subsidiary of the Company,
all outstanding Notes will become due and payable immediately without further action or notice. If any other Event of Default
occurs and is continuing, the Trustee or the holders of at least 25% in aggregate principal amount of the then outstanding Notes
may declare all the Notes to be due and payable immediately.
Subject to certain limitations, holders of a majority in aggregate principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may withhold from holders of the Notes notice of any
continuing Default or Event of Default if it determines that withholding notice is in their interest, except a Default or Event of
Default relating to the payment of principal, interest or premium, if any.
Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default occurs and is
continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or
direction of any holders of Notes unless such holders have offered to the Trustee reasonable indemnity or security against any
loss, liability or expense. Except to enforce the right to receive payment of principal, premium, if any, or interest when due, no
holder of a Note may pursue any remedy with respect to the Indenture or the Notes unless:
(1)
such holder has previously given the Trustee notice that an Event of Default is continuing;
(2)
holders of at least 25% in aggregate principal amount of the then outstanding Notes have requested the Trustee to
pursue the remedy;
(3)
such holders have offered the Trustee reasonable security or indemnity against any loss, liability or expense;
(4)
the Trustee has not complied with such request within 30 days after the receipt of the request and the offer of security
or indemnity; and
(5)
holders of a majority in aggregate principal amount of the then outstanding Notes have not given the Trustee a direction
inconsistent with such request within such 30-day period.
The holders of a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may, on
behalf of the holders of all of the Notes, rescind an acceleration or waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default in the payment of interest or premium, if any,
on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture. Upon
becoming aware of any Default or Event of Default, the Company is required to deliver to the Trustee a statement specifying
such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Company or, as such, will have any liability for any
obligations of the Company under the Notes, the Indenture or the Security Documents or any Guarantors under any Guarantees,
the Indenture or the Security Documents or for any claim based on, in respect of, or by reason of, such obligations or their
creation. Each holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under the US federal securities laws
and under the SA Companies Act.
Legal Defeasance and Covenant Defeasance
The Company may at any time, at the option of its Board of Directors evidenced by a resolution set forth in an officers'
certificate, elect to have all of its obligations and the obligations of the Guarantors discharged with respect to the outstanding
Notes and any Guarantee ("Legal Defeasance") except for:
(1)
the rights of holders of outstanding Notes to receive payments in respect of the principal of, or interest or premium, if
any, on, such Notes when such payments are due from the trust referred to below;
(2)
the Company's obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security
payments held in trust;
(3)
the rights, powers, trusts, duties and immunities of the Trustee, and the Company's obligations in connection therewith;
(4)
the provisions relating to Additional Amounts; and
(5)
the Legal Defeasance and Covenant Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the obligations of the Company and the
Guarantors released with respect to certain covenants (including the Company's obligation to make Change of Control Offers
and Asset Sale Offers) that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with
those covenants will not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance
occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described
under "—Events of Default and Remedies" will no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the holders of the Notes, cash in
euro, euro-denominated non-callable Government Securities, or a combination of cash in euro and euro-denominated noncallable Government Securities, in amounts as will be sufficient, in the opinion of an internationally recognised investment bank,
appraisal firm or firm of independent public accountants, to pay the principal of, or interest and premium, if any, on, the
outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be, and the
Company must specify whether the Notes are being defeased to such stated date for payment or to a particular redemption date;
(2)
in the case of Legal Defeasance, the Company must deliver to the Trustee
(a)
an opinion of counsel reasonably acceptable to the Trustee confirming that
(i)
the Company has received from, or there has been published by, the US Internal Revenue Service a ruling or
(ii)
since the date of the Indenture, there has been a change in the applicable US federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel will confirm that, the holders of the outstanding Notes will not
recognise income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to
US federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such
Legal Defeasance had not occurred; and
(b)
an opinion of counsel reasonably acceptable to the Trustee in the jurisdiction of organisation of the Company to the
effect that the holders will not recognise income, gain or loss for income tax purposes of such jurisdiction as a result of such
deposit and defeasance and will be subject to income tax in such jurisdiction on the same amounts and in the same manner and
at the same times as would have been the case if such deposit and defeasance had not occurred;
(3)
in the case of Covenant Defeasance, the Company must deliver to the Trustee
(a)
an opinion of counsel reasonably acceptable to the Trustee confirming that the holders of the outstanding Notes will not
recognise income, gain or loss for U.S. federal income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such
Covenant Defeasance had not occurred; and
(b)
an opinion of counsel reasonably acceptable to the Trustee in the jurisdiction of organisation of the Company to the
effect that the holders will not recognise income, gain or loss for income tax purposes of such jurisdiction as a result of such
deposit and defeasance and will be subject to income tax in such jurisdiction on the same amounts and in the same manner and
at the same times as would have been the case if such deposit and defeasance had not occurred;
(4)
no Default or Event of Default will have occurred and is continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such deposit) and the deposit will not result in a breach
or violation of, or constitute a default under, any other instrument to which the Company or any Guarantor is a party or by which
the Company or any Guarantor is bound;
(5)
such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under,
any material agreement or instrument (other than the Indenture) to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound;
(6)
the Company must deliver to the Trustee an officers' certificate stating that the deposit was not made by the Company
or any Guarantor with the intent of preferring the holders of Notes over the other creditors of the Company with the intent of
defeating, hindering, delaying or defrauding any creditors of the Company or any Guarantor; and
(7)
the Company must deliver to the Trustee an officers' certificate and an opinion of counsel, each stating that all
conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture, the Notes, the Security Documents, the
Counter Indemnity and Guarantee Agreement, the Shareholder Subordination Agreement and the Intercreditor Agreement, may
be amended or supplemented with the consent of the holders of at least a majority in aggregate principal amount of the Notes
then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange
offer for, Notes), and any existing Default or Event of Default or compliance with any provision of the Indenture or the Notes
may be waived with the consent of the holders of a majority in aggregate principal amount of the then outstanding Notes
(including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes).
Without the consent of each holder of Notes affected, an amendment, supplement or waiver to any such agreement may
not (with respect to any Notes held by a non-consenting holder):
(1)
reduce the principal amount of Notes whose holders must consent to such amendment, supplement or waiver;
(2)
reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption
of the Notes;
(3)
reduce the rate of or change the time for payment of interest, including default interest, on any Note;
(4)
waive a Default or Event of Default in the payment of principal of, or premium, if any, on, the Notes or under the
Counter Indemnity and Guarantee Agreement (except a rescission of acceleration of the Notes by the holders of at least a
majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from
such acceleration);
(5)
make any Note or the obligations of the Company, any Guarantor or the Security SPV under the Counter Indemnity
and Guarantee Agreement payable in money other than that stated therein;
(6)
make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of holders of Notes
to receive payments of principal of, or interest or premium, if any, on, the Notes;
(7)
waive a redemption payment with respect to any Note;
(8)
release the Company, any of its Subsidiaries or the Security SPV from any of their respective obligations under any
Security Documents or under the Counter Indemnity and Guarantee Agreement, except in accordance with the terms thereof
such Security Documents;
(9)
change the ranking of the Notes, any Guarantees or the obligations of the Company, any Guarantor or the Security SPV
under the Counter Indemnity and Guarantee Agreement or the security interests granted under the Security Documents; or
(10)
make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any holder of Notes, the Company, and the Trustee may amend
or supplement the Indenture, the Notes, the Security Documents, the Counter Indemnity and Guarantee Agreement, the
Shareholder Subordination Agreement or the Intercreditor Agreement:
(1)
to cure any ambiguity, defect or inconsistency;
(2)
to provide for uncertificated Notes in addition to or in place of certificated Notes;
(3)
to provide for the assumption of the Company's or any Guarantor's obligations to holders of Notes or the substitution of
Collateral which does not reduce the value of the Collateral, in the case of a merger or consolidation or sale of all or substantially
all of the Company's or such Guarantor's assets;
(4)
to make any change that would provide any additional rights or benefits to the holders of Notes or that does not
adversely affect the legal rights under the Indenture of any such holder;
(5)
to conform the text of the Indenture, the Security Documents, the Counter Indemnity and Guarantee Agreement, the
Notes, the Shareholder Subordination Agreement or the Intercreditor Agreement, to any provision of this Description of Notes to
the extent that such provision in this Description of Notes was intended to be a verbatim recitation of a provision of the
Indenture, the Security Documents, the Counter Indemnity and Guarantee Agreement, the Notes, the Shareholder Subordination
Agreement or the Intercreditor Agreement;
(6)
to provide for the issuance of additional Notes in accordance with the limitations set forth in the Indenture as of the
Issue Date; or
(7)
to release a Guarantor in accordance with the release provisions of the Indenture.
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect as to all Notes issued thereunder, when:
(1)
either:
(a)
all Notes that have been authenticated, except lost, stolen or destroyed Notes that have been replaced or paid and Notes
for whose payment money has been deposited in trust and thereafter repaid to the Company, have been delivered to the Trustee
for cancellation; or
(b)
all Notes that have not been delivered to the Trustee for cancellation have become due and payable by reason of the
mailing of a notice of redemption or otherwise or will become due and payable within one year and the Company has
irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the holders, cash
in euro or a combination of cash in euro or non-callable, euro-denominated Government Securities, in amounts as will be
sufficient, without consideration of any reinvestment of interest, to pay and discharge the entire Indebtedness on the Notes not
delivered to the Trustee for cancellation for principal, premium, if any, and accrued interest to the date of maturity or
redemption;
(2)
no Default or Event of Default has occurred and is continuing on the date of the deposit (other than a Default or Event
of Default resulting from the borrowing of funds to be applied to such deposit) and the deposit will not result in a breach or
violation of, or constitute a default under, any other instrument to which the Company or any Guarantor is a party or by which
the Company or any Guarantor is bound;
(3)
the Company has paid or caused to be paid all sums payable by it under the Indenture; and
(4)
the Company has delivered irrevocable instructions to the Trustee under the Indenture to apply the deposited money
toward the payment of the Notes at maturity or on the redemption date, as the case may be.
In addition, the Company must deliver an officers' certificate and an opinion of counsel reasonably acceptable to the
Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied.
Prescription
Claims against the Company for the payment of principal or Additional Amounts, if any, on the Notes will be
prescribed ten years after the applicable due date for payment thereof. Claims against the Company for the payment of interest
on the Notes will be prescribed five years after the applicable due date for payment of interest.
Governing law
The Indenture and the Notes (and any future Guarantees) will be governed by and construed in accordance with the
laws of the State of New York. The Counter Indemnity and Guarantee Agreement, Intercreditor Agreement, the Shareholder
Subordination Agreement and the Security Documents will be governed by and construed in accordance with South African law.
Consent to Jurisdiction and Service of Process
The Company and each Guarantor will irrevocably submit to the jurisdiction of any New York state or US federal court
located in The Borough of Manhattan, City of New York, State of New York in relation to any legal action or proceeding
(i) arising out of, related to or in connection with the Indenture or the Notes and (ii) arising under any US federal or US state
securities laws. The Company will appoint CT Corporation as its agent for service of process in any such action or proceeding.
Judgment Currency
Any payment on account of an amount that is payable in euros (the "Required Currency") which is made to or for the
account of any holder or the Trustee in lawful currency of any other jurisdiction (the "Judgment Currency"), whether as a result
of any judgment or order or the enforcement thereof or the liquidation of the Company or any Guarantor, shall constitute a
discharge of the Company's or any Guarantor's obligation under the Indenture or the Notes only to the extent of the amount of
the Required Currency which such holder or the Trustee, as the case maybe, could purchase in the London foreign exchange
markets with the amount of the Judgment Currency in accordance with normal banking procedures at the rate of exchange
prevailing on the first Business Day following receipt of the payment in the Judgment Currency. If the amount of the Required
Currency that could be so purchased is less than the amount of the Required Currency originally due to such holder or the
Trustee, as the case may be, the Company and the Guarantors, jointly and severally, shall indemnify and hold harmless the
holder or the Trustee, as the case may be, from and against all loss or damage arising out of, or as a result of, such deficiency.
This indemnity shall constitute an obligation separate and independent from the other obligations contained in the Indenture, the
Notes and the Guarantees, shall give rise to a separate and independent cause of action, shall apply irrespective of any
indulgence granted by any holder or the Trustee from time to time and shall continue in full force and effect notwithstanding any
judgment or order for a liquidated sum in respect of an amount due hereunder or under any judgment or order.
Notices
All notices to the Holders (while any notes are represented by one or more Global Notes) shall be delivered to
Euroclear and Clearstream Banking, as applicable, for communication to entitled account holders or, alternatively, will be valid
if published in a leading English language daily newspaper published in the City of London or such other English language daily
newspaper with general circulation in Europe as the Trustee may approve. It is expected that any such publication will normally
be made in The Financial Times.
So long as the notes are listed on the Alternative Securities Market of the Irish Stock Exchange and to the extent the
Alternative Securities Market of the Irish Stock Exchange so requires, the Company will also provide a copy of all notices to the
Alternative Securities Market of the Irish Stock Exchange. In addition, to the extent required by the Alternative Securities
Market of the Irish Stock Exchange, for 14 days from the date of the listing particulars relating to the listing of the Notes on the
Alternative Securities Market of the Irish Stock Exchange, copies of the following documents will be available for inspection
during normal business hours at the specified office of the Irish Paying Agent: the Indenture (including the form of Notes); the
Intercreditor Agreement; the Shareholder Subordination Agreement; the Security Documents; the Counter Indemnity and
Guarantee Agreement; and any other documents furnished to the Trustee under the covenant described in "—Certain
Covenants—Reports" above.
If publication as provided above is not practicable, notice will be given in such other manner, and shall be deemed to
have been given on such date, as the Trustee may approve. In the case of Definitive Registered Notes, notices will be mailed to
Holders by first-class mail at their respective addresses as they appear on the records of the Registrar.
Notices given by publication will be deemed given on the first date on which publication is made. Notices delivered to
Euroclear and Clearstream will be deemed given on the date when delivered. Notices given by first class mail, postage paid,
will be deemed given five calendar days after mailing whether or not the addressee receives it.
Concerning the Trustee
If the Trustee becomes a creditor of the Company or any Guarantor, the Indenture limits the right of the Trustee to
obtain payment of claims in certain cases, or to realise on certain property received in respect of any such claim as security or
otherwise. The Trustee will be permitted to engage in other transactions.
The holders of a majority in aggregate principal amount of the then outstanding Notes will have the right to direct the
time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain
exceptions. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any holder of Notes, unless such holder has offered to the Trustee security and indemnity satisfactory
to it against any loss, liability or expense.
Listing
Application has been made to list the Notes on the Irish Stock Exchange's Alternative Securities Market. The
Company can provide no assurance that this application will be accepted. For so long as the Notes are listed on the Alternative
Securities Market of the Irish Stock Exchange, an agent for making payments on, and transfers of, Notes will be maintained in
Ireland. The Company has initially designated AIB/BNY Fund Management (Ireland) Limited as its agent for those purposes.
The address of AIB/BNY Fund Management (Ireland) Limited is Guild House, Guild Street, Dublin 1, Ireland.
Additional Information
Anyone who receives this Listing Particulars may obtain a copy of the Indenture without charge by writing to Savcio
Holdings (Proprietary) Limited, Bruma Boulevard, 20 Zulberg Close, Bruma 2026, Republic of South Africa, Attention:
Company Secretary.
So long as the Notes are listed on the Alternative Securities Market of the Irish Stock Exchange and its rules so require,
copies, current and future, of all of the Company's annual audited consolidated and unconsolidated financial statements, the
Company's unaudited consolidated interim quarterly financial statements and the Listing Particulars may be obtained, free of
charge, during normal business hours at the offices of the Paying Agent in Ireland.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure
of all defined terms used therein, as well as any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1)
Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary
of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other
Person merging with or into, or becoming a Restricted Subsidiary of, such specified Person; and
(2)
Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to
any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial
ownership of 10% or more of the Voting Stock of a Person will be deemed to be control. For purposes of this definition, the
terms "controlling," "controlled by" and "under common control with" have correlative meanings.
"Applicable Premium" means, with respect to any Note on any redemption date, the greater of:
(1)
1.0% of the principal amount of the Note; or
(2)
the excess of:
(a)
the present value at such redemption date of (i) the redemption price of the Note at 15 February 2010 (such redemption
price being set forth in the table appearing above under the caption "—Optional Redemption") plus (ii) all required interest
payments due on the Note through 15 February 2010 (excluding accrued but unpaid interest to the redemption date), computed
using a discount rate equal to the Bund Rate as of such redemption date plus 50 basis points; over
(b)
the principal amount of the Note, if greater.
"Asset Sale" means:
(1)
the sale, lease, conveyance or other disposition of any assets or rights; provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole will be
governed by the provisions of the Indenture described above under the caption "—Repurchase at the Option of Holders—
Change of Control" and/or the provisions described above under the caption "—Certain Covenants—Merger, Consolidation or
Sale of Assets" and not by the provisions of the Asset Sale covenant; and
(2)
the issuance of Equity Interests in any of the Company's Restricted Subsidiaries or the sale of Equity Interests in any of
its Subsidiaries;
Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale:
(1)
any single transaction or series of related transactions that involves assets having a Fair Market Value of less than
€1.0 million;
(2)
a transfer of assets between or among the Company and any Restricted Subsidiary or among Restricted Subsidiaries;
(3)
an issuance of Equity Interests by a Restricted Subsidiary of the Company to the Company or to a Restricted
Subsidiary;
(4)
the sale or lease of products, services or accounts receivable in the ordinary course of business and any sale or other
disposition of damaged, worn-out or obsolete assets in the ordinary course of business;
(5)
the sale or other disposition of cash or Cash Equivalents;
(6)
a Restricted Payment that does not violate the covenant described above under the caption "—Certain Covenants—
Restricted Payments" or that constitutes a Permitted Investment;
(7)
the conversion of or foreclosure on any mortgage or note if the Company or any Restricted Subsidiary receives the real
property underlying the mortgage or note;
(8)
the sale or discount, in each case without recourse, of accounts receivables arising in the ordinary course of business in
connection with the compromise, settlement or collection thereof or in bankruptcy or similar insolvency proceedings;
(9)
the surrender or waiver of contract rights on the settlement, release or surrender of contract, tort or other claims;
(10)
granting of Liens that are permitted to be granted under the Indenture;
(11)
granting of licenses or other rights to intellectual property in the ordinary course of business; and
(12)
leases, subleases or assignments to third persons in the ordinary course of business.
"Asset Sale Offer" has the meaning assigned to that term in the Indenture governing the Notes.
"Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value
of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback
transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such
present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in
accordance with GAAP; provided, however, that if such sale and leaseback transaction results in a Capital Lease Obligation, the
amount of Indebtedness represented thereby will be determined in accordance with the definition of "Capital Lease Obligation."
"BEE Shareholder" means Sphere Investments (Proprietary) Limited, Sphere Fund I GP (Proprietary) Limited, AKA
Capital (Proprietary) Limited, the minority black economic empowerment shareholders from time to time in Bukubuhle Wire
(Proprietary) Limited, and any of their respective assigns or successors-in-title as permitted pursuant to the terms of the
Shareholders Agreement and who complied with the definition of HDP as defined in that agreement at the time of the
acquisition of any Capital Stock of the Company.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act,
except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the
Exchange Act), such "person" will be deemed to have beneficial ownership of all securities that such "person" has the right to
acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the
passage of time. The terms "Beneficially Owns" and "Beneficially Owned" have a corresponding meaning.
"Board of Directors" means:
(1)
with respect to a company or corporation, the board of directors of the company or corporation or any committee
thereof duly authorised to act on behalf of such board;
(2)
with respect to a partnership, the Board of Directors of the general partner of the partnership;
(3)
with respect to a limited liability company, the managing member or members or any controlling committee of
managing members thereof; and
(4)
with respect to any other Person, the board or committee of such Person serving a similar function.
"Borrowing Base" means, as of any date, an amount equal to 50% of the face amount of the Excluded Assets owned by
the Company and its Restricted Subsidiaries as of the end of the most recent fiscal quarter preceding such date that were not
more than 30 days past due.
"Bund Rate" means, with respect to any relevant date, the rate per annum equal to the equivalent yield to maturity as of
such date of the Comparable German Bund Issue, assuming a price for the Comparable German Bund Issue (expressed as a
percentage of its principal amount) equal to the Comparable German Bund Price for such relevant date, where:
(1)
"Comparable German Bund Issue" means the German Bundesanleihe security selected by any Reference German
Bund Dealer as having a fixed maturity most nearly equal to the period from such redemption date to 15 February 2010, and that
would be utilised, at the time of selection and in accordance with customary financial practice, in pricing new issues of Euro
denominated corporate debt securities in a principal amount approximately equal to the then outstanding principal amount of the
Notes and of a maturity most nearly equal to 15 February 2010 provided, however, that, if the period from such redemption date
to 15 February 2010 is less than one year, the weekly average yield on actually traded direct obligations of the Federal Republic
of Germany adjusted to a constant maturity of one year shall be used;
(2)
"Comparable German Bund Price" means, with respect to any relevant date, the average of all Reference German
Bund Dealer Quotations for such date (which, in any event, must include at least two such quotations), after excluding the
highest and lowest such Reference German Bund Dealer Quotations, or if the Company obtains fewer than four such Reference
German Bund Dealer Quotations, the average of all such quotations;
(3)
"Reference German Bund Dealer" means any recognised dealer of German Bundesanleihe securities appointed by the
Company in good faith; and
(4)
"Reference German Bund Dealer Quotations" means, with respect to each Reference German Bund Dealer and any
relevant date, the average as determined by the Company of the bid and offered prices for the Comparable German Bund Issue
(expressed in each case as a percentage of its principal amount) quoted in writing to the Company by such Reference German
Bund Dealer at 3.30 p.m. Frankfurt, Germany time on the third Business Day preceding the relevant date.
"Business Day" means a day (other than Saturday or Sunday) on which banks and financial institutions are open in
New York, London, Dublin and Johannesburg.
"Capital Lease Obligation" means, at the time any determination is to be made, the amount of the liability in respect of
a capital lease that would at that time be required to be capitalised on a balance sheet prepared in accordance with GAAP, and
the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be prepaid by the lessee without payment of a penalty.
"Capital Stock" means:
(1)
in the case of a company or a corporation, stock or shares;
(2)
in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents
(however designated) of corporate stock;
(3)
in the case of a partnership or limited liability company, partnership interests (whether general or limited) or
membership interests; and
(4)
any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person,
but excluding from all of the foregoing any debt securities convertible into or exchangeable for Capital Stock, whether or not
such debt securities include any right of participation with Capital Stock.
"Cash Equivalents" means:
(1)
Euros, United States dollars, British pounds sterling or South African Rand;
(2)
direct obligations (or certificates representing an interest in such obligations) issued by, or unconditionally guaranteed
by, the government of a member state of the European Union (including any agency or instrumentality thereof), of the United
States of America (including any agency or instrumentality thereof) or the Republic of South Africa, as the case may be, the
payment of which is backed by the full faith and credit of the relevant member state of the European Union, the United States of
America or the Republic of South Africa, as the case may be, and which are not callable or redeemable at the issuer's option;
(3)
time deposit accounts, certificates of deposit and money market deposits with maturities of 12 months or less from the
date of acquisition issued by a bank or trust company which is organised under the laws of a member state of the European
Union, of the United States of America or any state thereof; provided that such bank or trust company has capital, surplus and
undivided profits aggregating in excess of € 500 million (or the foreign currency equivalent thereof as of the date of such
investment) and whose long-term debt is rated "A-3" or higher by Moody's or "A-" or higher by S&P or the equivalent rating
category or another internationally recognised rating agency;
(4)
repurchase obligations with a term of not more than seven days for underlying securities of the types described in
clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above;
(5)
commercial paper having one of the two highest ratings obtainable from Moody's or S&P and, in each case, maturing
within nine months after the date of acquisition; and
(6)
money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses
(1) through (5) of this definition.
"Change of Control" means the occurrence of any of the following:
(1)
the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or
consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Company and
its Restricted Subsidiaries taken as a whole to any "person" (as that term is used in Section 13(d) of the Exchange Act) other
than a Principal or a Related Party of a Principal;
(2)
the adoption of a plan relating to the liquidation, dissolution or winding up of the Company;
(3)
the consummation of any transaction (including, without limitation, any merger or consolidation), the result of which is
that any "person" (as defined above), other than the Principals and their Related Parties becomes the Beneficial Owner, directly
or indirectly, of more than 50% of the Voting Stock of the Company, measured by voting power rather than number of shares; or
(4)
the first day on which a majority of the members of the Board of Directors of the Company are not Continuing
Directors.
"Change of Control Offer" has the meaning assigned to that term in the Indenture governing the Notes.
"Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of
such Person for such period plus, without duplication:
(1)
an amount equal to any extraordinary loss realised by such Person or any of its Restricted Subsidiaries, to the extent
such loss was deducted in computing Consolidated Net Income; plus
(2)
an amount equal to any net loss realised by such Person or any of its Restricted Subsidiaries in connection with an
Asset Sale, or the extinguishment of any Indebtedness, in each case, to the extent such losses were deducted in computing such
Consolidated Net Income; plus
(3)
provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus
(4)
the Fixed Charges of such Person and its Restricted Subsidiaries for such period, to the extent that such Fixed Charges
were deducted in computing such Consolidated Net Income; plus
(5)
depreciation, amortisation (including amortization of intangibles but excluding amortisation of prepaid cash expenses
that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it
represents an accrual of or reserve for cash expenses in any future period or amortisation of a prepaid cash expense that was paid
in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortisation
and other non-cash expenses were deducted in computing such Consolidated Net Income; minus
(6)
non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the
ordinary course of business; minus
(7)
all fees, costs and expenses relating to the offering of the Notes and the application of the proceeds thereof as described
under "Use of Proceeds" in the Listing Particulars, solely for purposes of determining the Fixed Charge Coverage Ratio under
clause (2) of the second paragraph of "—Certain Covenants—Restricted Payments,"
in each case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes and the depreciation, amortisation and non-cash items of a
Restricted Subsidiary shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in
the same proportion, including by reason of minority interests) that the Net Income of such Restricted Subsidiary was included
in calculating Consolidated Net Income and only if a corresponding amount would be permitted at the date of determination to
be distributed to the Company by such Restricted Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, governmental rules and regulations
applicable to such Restricted Subsidiary or its shareholders.
"Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income
of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP;
provided that:
(1)
the Net Income (but not loss, except to the extent that such loss was funded by the Company or any Restricted
Subsidiary) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be
included only to the extent of the amount of dividends or similar distributions paid in cash to the specified Person or a Restricted
Subsidiary of the Person;
(2)
the Net Income of any Restricted Subsidiary will be excluded to the extent that the declaration or payment of dividends
or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any
prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary
or its stockholders (other than encumbrances or restrictions permitted by clause (1) of the second paragraph of the covenant
described under "—Certain Covenants—Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries") except to
the extent such Net Income is actually paid or distributed to the Company or any Restricted Subsidiary not subject to such
restrictions;
(3)
the cumulative effect of a change in accounting principles will be excluded;
(4)
notwithstanding clause (1) above, the Net Income of any Unrestricted Subsidiary will be excluded, whether or not
distributed to the specified Person or one of its Subsidiaries;
(5)
interest expense on Shareholder Loans, to the extent capitalised, will be excluded;
(6)
any net after-tax extraordinary gains, income, losses, charges or other costs related to any restructuring, redundancy or
severance arrangements will be excluded;
(7)
the effect of non-cash items resulting from an impairment charge related to goodwill or other intangible asset in relation
to any acquisition will be excluded;
(8)
any one-time non-cash charge or increase in amortisation or depreciation resulting from purchase accounting, in each
case in relation to any acquisition of another Person or business will be excluded; and
(9)
any unrealised non-cash gains or losses in respect of Hedging Obligations or, in the event that GAAP refers to IFRS,
any ineffectiveness recognised in earnings related to qualifying hedging transactions with respect to Hedging Obligations or the
fair value therein recognised in earnings for derivatives that do not qualify as hedging transactions, will be excluded.
"Consolidated Total Indebtedness" means with respect to any Person as of any date of determination, the sum, without
duplication, of (i) the total amount of Indebtedness of such Person and its Restricted Subsidiaries, plus (ii) the total amount of
Indebtedness of any other Person, to the extent that such Indebtedness has been Guaranteed by the referent Person or one or
more of its Restricted Subsidiaries, plus (iii) the aggregate liquidation value of all Disqualified Stock of such Person and all
preferred stock of Restricted Subsidiaries of such Person, in each case, determined on a consolidated basis in accordance with
GAAP, less (iv) any Shareholder Loans or Deeply Subordinated Debt.
"Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company
who was:
(1)
a member of such Board of Directors on the date of the Indenture;
(2)
nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing
Directors who were members of such Board of Directors at the time of such nomination or election; or
(3)
nominated for election or delegated by a Principal, a Related Party to a Principal or an Employee Share Ownership
Trust or a BEE Shareholder to such Board of Directors in any case pursuant to the terms of the Shareholders Agreement.
"Credit Facilities" means, one or more debt facilities (including, without limitation, the Revolving Credit Facility) or
commercial paper facilities, in each case, with banks or other institutional lenders providing for revolving borrowings, bank
guarantees or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced (whether upon or after
termination or otherwise) or refinanced in whole or in part from time to time.
Default.
"Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of
"Deeply Subordinated Debt" means, collectively, any funds provided to the Company by any shareholder of the
Company either directly or in exchange for the Shareholder Loans; provided that such Deeply Subordinated Debt:
(a)
does not (including upon the happening of any event) mature or require any amortisation or other payment of principal
prior to the earlier of the date one year after the final maturity of the Notes or the date the Notes are no longer outstanding (other
than through conversion or exchange of any such security or instrument for ordinary Equity Interests of the Company);
(b)
does not (including upon the happening of any event) require the payment in cash or otherwise, of interest or any other
amounts prior to the earlier of the date one year after the final maturity of the Notes or the date the Notes are no longer
outstanding (provided that interest may accrue while such Deeply Subordinated Debt is outstanding and accrued interest may
become due upon maturity as permitted by clause (a) or acceleration of maturity as permitted by clause (c) below and any
interest may be satisfied at any time by the issue to the holders thereof of additional Deeply Subordinated Debt);
(c)
does not (including upon the happening of any event) provide for the acceleration of its maturity and its holders have
no right (including upon the happening of any event) to declare a default or event of default or take any enforcement action,
prior to the first anniversary of the final maturity of the Notes;
(d)
is not secured by a Lien or any assets of the Company or a Restricted Subsidiary and is not guaranteed by the Company
or any Subsidiary of the Company;
(e)
is contractually subordinated and junior in right of payment to the prior payment in full in cash of all obligations
(including principal, interest, premium (if any) and Additional Amounts (if any)) of the Company under the Notes and the
Indenture such that:
(i)
the Company shall make no payment in respect of such Deeply Subordinated Debt (whether in cash, securities or
otherwise, except as permitted by clause (a) above) and may not acquire such Deeply Subordinated Debt except as permitted by
the Indenture until the prior payment in full in cash of all obligations in respect of the Notes and the Indenture;
(ii)
upon any total or partial liquidation, dissolution or winding up of the Company or in any bankruptcy, reorganisation,
insolvency, receivership or similar proceeding relating to the Company or its property, the holders of the Notes will be entitled to
receive payment in full in cash of the obligations under the Notes and the Indenture, including Additional Amounts, if any,
before the providers of such Deeply Subordinated Debt will be entitled to receive any payment in respect of such Deeply
Subordinated Debt;
(iii)
such Deeply Subordinated Debt may not be amended such that it would cease to qualify as Deeply Subordinated Debt
until a date that is after the prior payment in full in cash of all obligations in respect of the Notes and the Indenture;
(iv)
the providers of such Deeply Subordinated Debt shall assign any rights to vote, including by way of proxy, in a
bankruptcy, insolvency or similar proceeding to the Trustee to the extent necessary to give effect to the priority and
subordination provisions described in this definition; and
(v)
the providers of such Deeply Subordinated Debt shall agree that, in the event any payment on such Deeply
Subordinated Debt is received by such provider in contravention of its terms and any applicable subordination agreement
(including the Shareholder Subordination Agreement), then such payment shall be held in trust for the benefit of, and shall be
paid over or delivered to, the Trustee, on behalf of the holders of the Notes;
(f)
does not (including upon the happening of any event) restrict the payment of amounts due in respect of the Notes or
compliance by the Company with its obligations under the Notes and the Indenture;
(g)
does not (including upon the happening of any event prior to the prior payment in full in cash of all obligations in
respect of the Notes and the Indenture) constitute Voting Stock; and
(h)
is not (including upon the happening of any event) mandatorily convertible or exchangeable, or convertible or
exchangeable at the option of the holder, in whole or in part, prior to the date on which the Notes mature other than into or for
ordinary Equity Interests of the Company,
provided that any event or circumstance that results in such Indebtedness ceasing to qualify as Deeply Subordinated Debt shall
(x) constitute an incurrence of such Indebtedness by the Company and (y) reduce the sum described in clause (3) of the second
paragraph of " —Certain Covenants—Limitation on Restricted Payments," by an amount equal to the principal amount of such
Indebtedness.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is
convertible, or for which it is exchangeable, in each case, at the option of the holder of the Capital Stock), or upon the happening
of any event, matures or is mandatorily redeemable or repurchasable by the Company or a Restricted Subsidiary, pursuant to a
sinking fund obligation or otherwise, or so redeemable or repurchasable at the option of the holder of the Capital Stock, in whole
or in part, on or prior to the date that is 180 days after the date on which the Notes mature. Notwithstanding the preceding
sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the
right to require the Company or a Restricted Subsidiary to redeem or repurchase such Capital Stock upon the occurrence of a
change of control or an asset sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that the
Company or such Restricted Subsidiary is not obliged to, and may elect not to repurchase or redeem any such Capital Stock
pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under the caption
"—Certain Covenants—Restricted Payments." The amount of Disqualified Stock deemed to be outstanding at any time for
purposes of the Indenture will be the maximum amount that the Company and its Restricted Subsidiaries may become obligated
to pay upon the maturity of, or pursuant to any mandatory redemption or repurchase provisions of, such Disqualified Stock,
exclusive of accrued dividends save to the extent that they have been paid through the issuance of additional shares of
Disqualified Stock.
"Employee Share Ownership Trust" means (i) the Repairs and Services Management Trust established pursuant to a
deed of trust dated 19 August 2005 between Micawber 407 (Proprietary) Limited, Robert Brainerd Spoon, Dawie Liebenberg
and Bevan Garfield Hitchcock and (ii) the Replacement Parts Management Trust established pursuant to a deed dated 19
August 2005 between Micawber 407 (Proprietary) Limited, Andrew Leonard Grobler, Steven David Watt and Bevan Garfield
Hitchcock.
"Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding
any Indebtedness that is convertible into, or exchangeable for, Capital Stock).
"Euro Equivalent" means with respect to any monetary amount in a currency other than euro, at any time for the
determination thereof, the amount of euro obtained by converting such foreign currency involved in such computation into euro
at the spot rate for the purchase of euro with the applicable foreign currency as published under "Currency Rates" in the section
of the Financial Times entitled "Currencies, Bonds & Interest Rates" on the date two Business Days prior to such determination.
"European Union" means the European Union, including the countries of Austria, Belgium, Denmark, France, Finland,
Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden and the United Kingdom, but not
including any country which became a member of the European Union after April 2004.
"Excluded Assets" means all accounts receivable generated by the maintenance and repairs business unit of the
Company and its Restricted Subsidiaries.
"Fair Market Value" means the value that would be paid by a willing buyer to an unaffiliated willing seller in a
transaction not involving distress or necessity of either party, determined in good faith by the Board of Directors of the Company
(unless otherwise provided in the Indenture).
"Fixed Charge Coverage Ratio" means with respect to any specified Person for any period, the ratio of the
Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that
the specified Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees, repays, repurchases, redeems, defeases or
otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems
preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated
and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect to such incurrence,
assumption, Guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance,
repurchase or redemption of preferred stock, and the use of the proceeds therefrom, as if the same had occurred at the beginning
of the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1)
acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through
mergers or consolidations, or any Person or any of its Restricted Subsidiaries acquired by the specified Person or any of its
Restricted Subsidiaries, and including any related financing transactions and including increases in ownership of Restricted
Subsidiaries, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation
Date will be given pro forma effect as if they had occurred on the first day of the four-quarter reference period;
(2)
the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and
operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded;
(3)
the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or
businesses (and ownership interests therein) disposed of prior to the Calculation Date and Fixed Charges attributable to
Indebtedness repaid from the proceeds of any such disposition or discontinuation, will be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Restricted
Subsidiaries following the Calculation Date;
(4)
any Person that is a Restricted Subsidiary on the Calculation Date will be deemed to have been a Restricted Subsidiary
at all times during such four-quarter period;
(5)
any Person that is not a Restricted Subsidiary on the Calculation Date will be deemed not to have been a Restricted
Subsidiary at any time during such four-quarter period; and
(6)
if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness will be calculated as if
the rate in effect on the Calculation Date had been the applicable rate for the entire period (taking into account any Hedging
Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess
of 12 months).
For purposes of this definition, whenever pro forma effect is to be given to an Asset Sale, Investment or acquisition, the
amount of income or earnings relating thereto or the amount of Fixed Charges associated with any Indebtedness Incurred in
connection therewith, the pro forma calculation shall be determined in good faith by a responsible financial or accounting officer
of the Company.
"Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of:
(1)
the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or
accrued, including, without limitation, amortisation of debt issuance costs (but excluding debt issuance costs with respect to the
offering of the Notes on the Issue Date) and original issue discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed
interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of
credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations
in respect of interest rates; plus
(2)
plus
the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalised during such period;
(3)
any interest on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries
or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is
called upon; plus
(4)
the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of
such Person or any of its Restricted Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of
the Company (other than Disqualified Stock) or to the Company or a Restricted Subsidiary of the Company, times (b) a fraction,
the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case, determined on a consolidated basis in accordance with
GAAP.
Notwithstanding the foregoing, Fixed Charges shall not include any non-cash gains and losses from (i) transactions
under Hedging Obligations, (ii) the translation of non-Rand liabilities not constituting Indebtedness into rand on the Company's
consolidated balance sheet and (iii) interest on Shareholder Loans or Deeply Subordinated Debt, to the extent capitalised.
"GAAP" means generally accepted accounting principles applicable in the Republic of South Africa as in effect on the
Issue Date except that (i) if the Company shall so notify the Trustee in writing, GAAP shall mean International Financial
Reporting Standards as in effect at the time of such notification, provided that the Company shall not be entitled to make the
foregoing election on more than one occasion and such election shall be irrevocable, and provided further that in the event the
Company makes such election, it shall present its financial statements in accordance with the International Financial Reporting
Standards for the fiscal year ending immediately prior to the first fiscal year for which financial statements have been prepared
in accordance with International Financial Reporting Standards and for any quarterly periods during the first fiscal year for
which financial statements have been prepared and any comparable period for the prior year and (ii) GAAP shall mean such
generally accepted accounting principles as in effect from time to time for purposes of the covenant entitled "—Reports."
"Government Securities" means securities that are directly and fully and unconditionally guaranteed or insured by a
member state of the European Union or any agency or instrumentality thereof, which are unconditionally guaranteed as a full
faith and credit obligation of such government.
"Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary
course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters
of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take or pay or to
maintain financial statement conditions or otherwise).
"Hedging Arrangement" means the cross-currency swap to be dated on or prior to the Issue Date between the Company
and the Initial Purchaser relating to the Company's obligations under the Notes, the Indenture and the Counter Indemnity and
Guarantee Agreement (as the same may be extended, amended or modified from time to time).
"Hedging Lenders" means ABSA Bank Limited.
"Hedging Obligations" means, with respect to any specified Person, the obligations of such Person under:
(1)
interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements
and interest rate collar agreements;
(2)
other agreements or arrangements designed to manage interest rates or interest rate risk; and
(3)
other agreements or arrangements designed to protect such Person against fluctuations in currency exchange rates or
commodity prices, and shall include the Hedging Arrangements.
"Indebtedness" means, with respect to any specified Person, any Indebtedness of such Person (excluding accrued
expenses and trade payables in accordance with GAAP), whether or not contingent:
(1)
in respect of borrowed money;
(2)
evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in
respect thereof);
(3)
in respect of banker's acceptances;
(4)
representing Capital Lease Obligations or Attributable Debt in respect of sale and leaseback transactions;
(5)
representing the balance deferred and unpaid of the purchase price of any property or services due more than six
months after such property is acquired or such services are completed; or
(6)
representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit, Attributable Debt and Hedging Obligations)
would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the
term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not
such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified
Person of any Indebtedness of any other Person.
"Initial Leverage Ratio" means, with respect to the Company, the ratio of (x) the sum of pro forma net debt plus pro
forma cash and cash equivalents to (y) EBITDA, in each case (i) derived from the numbers in the relevant line items set forth
under "Summary Historical Financial Data" and (ii) as of or for the twelve months ended 30 September 2005.
"Investments" means, with respect to any Person, all direct or indirect investments by such Person in other Persons
(including Affiliates) in the forms of loans (including Guarantees or other obligations), advances or capital contributions
(excluding commission, travel and similar advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that
are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any
Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the
Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the
Company will be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value
of the Company's Investments in such Subsidiary that were not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the caption "—Certain Covenants—Restricted Payments." The
acquisition by the Company or any Subsidiary of the Company of a Person that holds an Investment in a third Person will be
deemed to be an Investment by the Company or such Subsidiary in such third Person in an amount equal to the Fair Market
Value of the Investments held by the acquired Person in such third Person in an amount determined as provided in the final
paragraph of the covenant described above under the caption "—Certain Covenants—Restricted Payments." Except as
otherwise provided in the Indenture, the amount of an Investment will be determined at the time the Investment is made and
without giving effect to subsequent changes in value.
"Issue Date" means the date on which the Notes are originally issued.
"Leverage Ratio" means with respect to any specified Person for any period, the ratio of Consolidated Total
Indebtedness of such Person for such period to the Consolidated Cash Flow of such Person for such period. In the event that the
specified Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees, repays, repurchases, redeems, defeases or
otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems
preferred stock subsequent to the commencement of the period for which the Leverage Ratio is being calculated and on or prior
to the date on which the event for which the calculation of the Leverage Ratio is made (the "Calculation Date"), then the
Leverage Ratio will be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase,
redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and
the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter reference period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any
kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any
conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any registration or filing of or agreement to give any financing statement under the Uniform Commercial
Code (or equivalent statutes) of any jurisdiction.
"Net Income" means, with respect to any specified Person, the net income (loss) of such Person, determined in
accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however:
(1)
any gain or loss, together with any related provision for taxes on such gain or loss, realised in connection with: (a) any
Asset Sale by any such Person or any of its Restricted Subsidiaries; or (b) the extinguishment of any Indebtedness of such
Person or any of its Restricted Subsidiaries; and
(2)
any extraordinary gain or loss, together with any related provision for taxes on such extraordinary gain or loss.
"Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in
respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale, including, without limitation, legal,
accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Asset
Sale, taxes paid or payable as a result of the Asset Sale, in each case, after taking into account any available tax credits or
deductions and any tax sharing arrangements, and any reserve for adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness:
(1)
as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a
guarantor or otherwise, or (c) constitutes the lender;
(2)
no default with respect to which (including any rights that the holders of the Indebtedness may have to take
enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of any other
Indebtedness of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the
payment of the Indebtedness to be accelerated or payable prior to its Stated Maturity; and
(3)
as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Permitted Business" means (a) the business of (i) maintaining, repairing and servicing rotating electrical equipment
and transformers (including but not limited to the provision of ancillary services such as monitoring, diagnostics and preventive
maintenance), (ii) manufacturing and distributing input materials to the electrical manufacturing and repair industries, (iii) the
distribution of industrial consumable products (including but not limited to electric motors, industrial tapes and abrasives) and
(iv) distributing replacement parts for earthmoving equipment, diesel engines and heavy trucks; and (b) any activity related to
the business described in clause (a).
Notes;
"Permitted Interest Payment Date" means any date falling within 15 days after a date on which interest is paid on the
"Permitted Investments" means:
(1)
any Investment in the Company or in a Restricted Subsidiary of the Company;
(2)
any Investment in cash or Cash Equivalents;
(3)
any Investment by the Company or any Restricted Subsidiary in a Person, if as a result of such Investment:
(a)
such Person becomes a Guarantor of the Company; or
(b)
such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets
to, or is liquidated into, the Company or a Guarantor;
(4)
any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to
and in compliance with the covenant described above under the caption "—Repurchase at the Option of Holders—Asset Sales;"
(5)
any acquisition of assets or Capital Stock solely in exchange for the issuance of Equity Interests (other than
Disqualified Stock) of the Company or Deeply Subordinated Debt;
(6)
any Investments received in compromise or resolution of (A) obligations of trade creditors or customers that were
incurred in the ordinary course of business of the Company or any of its Restricted Subsidiaries, including pursuant to any plan
of reorganisation or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer; or (B) litigation,
arbitration or other disputes with Persons who are not Affiliates;
(7)
Investments represented by Hedging Obligations;
(8)
loans or advances to employees made in the ordinary course of business of the Company or any Restricted Subsidiary
of the Company in an aggregate principal amount not to exceed €250,000 at any one time outstanding;
(9)
repurchases of the Notes;
(10)
any Investment existing on the Issue Date or made pursuant to legally binding commitments in effect on the Issue Date,
in each case that was disclosed in the Listing Particulars;
(11)
Guarantees of Indebtedness otherwise permitted to be incurred under the Indenture;
(12)
Investments consisting of the licensing or granting of or other transfers of rights to intellectual property in each case in
the ordinary course of business;
(13)
Liens otherwise permitted under the Indenture;
(14)
Investments in receivables created and owing to the Company or any Restricted Subsidiary in each case in the ordinary
course of business;
(15)
Investments in joint ventures, partnerships or Persons that are not subsidiaries of the Company in which the Company
owns not less than 45% of the Capital Stock of such Person; provided that such Investment must be made solely in a Permitted
Business and provided further that such Investments shall not exceed in the aggregate €5.0 million since the Issue Date; and
(16)
other Investments in any Person other than an Affiliate of the Company having an aggregate Fair Market Value
(measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken
together with all other Investments made pursuant to this clause (16) that are at the time outstanding not to exceed € 2.5 million.
"Permitted Liens" means:
(1)
Liens on Excluded Assets securing revolving Indebtedness and related obligations under Credit Facilities that were
permitted to be incurred under the Indenture, and/or securing Hedging Obligations related thereto;
(2)
Liens in favour of the Company or a Guarantor to secure obligations not pledged by the Company or such Guarantor to
secure any Indebtedness;
(3)
Liens on property of a Person existing at the time such Person is merged with or into or consolidated with the Company
or any Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company or
the Subsidiary;
(4)
Liens on property (including Capital Stock) existing at the time of acquisition of the property by the Company or any
Restricted Subsidiary of the Company; provided that such Liens were in existence prior to such acquisition and not incurred in
contemplation of such acquisition;
(5)
Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business of the Company;
(6)
Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (4) of the second paragraph of
the covenant entitled "—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock" covering only the
assets acquired with or financed by such Indebtedness;
(7)
Liens to secure obligations not constituting Indebtedness existing on the Issue Date;
(8)
Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in
good faith by appropriate proceedings promptly instituted and diligently concluded; provided that any reserve or other
appropriate provision as is required in conformity with GAAP has been made therefor;
(9)
Liens imposed by law, such as carriers', warehousemen's, landlord's and mechanics' Liens, in each case, incurred in the
ordinary course of business;
(10)
survey exceptions, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property that were
not incurred in connection with Indebtedness and that do not in the aggregate materially adversely affect the value of said
properties or materially impair their use in the operation of the business of such Person;
(11)
Liens created for the benefit of (or to secure) the Notes, the Guarantees, the obligations of the Company or the
Guarantors under the Counter Indemnity and Guarantee Agreement and/or (provided that the Hedging Lenders with respect
thereto execute the Intercreditor Agreement as "Hedging Lenders") securing Hedging Obligations related thereto;
(12)
Liens to secure any Permitted Refinancing Indebtedness permitted to be incurred under the Indenture; provided,
however, that:
(a)
the new Lien shall be limited to all or part of the same property and assets that secured or, under the written agreements
pursuant to which the original Lien arose, could secure the original Lien (plus improvements and accessions to, such property or
proceeds or distributions thereof); and
(b)
the Indebtedness secured by the new Lien is not increased to any amount greater than the sum of (x) the outstanding
principal amount, or, if greater, committed amount Indebtedness refinanced by such of the Permitted Refinancing Indebtedness
and (y) an amount necessary to pay any fees and expenses, including premiums, related to such renewal, refunding, refinancing,
replacement, defeasance or discharge;
(13)
Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business;
(14)
Liens resulting from escrow arrangements entered into in connection with an Asset Sale, other than Liens over any of
the Collateral;
(15)
Liens resulting from any right of first refusal, right of first offer, option or other agreement to sell or otherwise dispose
of an asset of the Company or any Restricted Subsidiary, other than Liens over any of the Collateral;
(16)
Liens constituted by rights of set-off or netting in the ordinary course of the Company's or any Restricted Subsidiary's
banking arrangements for the provision of clearing bank facilities or overdraft facilities under any Credit Facilities for the
purpose of netting debit and credit balances (other than cash collateral);
(17)
judgment Liens not giving rise to an Event of Default;
(18)
any interest or title of a lessor under any Capital Lease Obligation; provided that such Liens do not extend to any
property or assets which is not leased property subject to such Capital Lease Obligations;
(19)
any lease or sublease to a third party;
(20)
Liens in favour of customs or revenue authorities arising as a matter of law to secure payment of custom duties in
connection with the importation of goods;
(21)
Liens in existence on the Issue Date;
(22)
Liens on any property or assets of a Restricted Subsidiary that is not a Guarantor in favour of a Restricted Subsidiary
that is not a Guarantor; and
(23)
Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with
respect to obligations not constituting Indebtedness for borrowed money that do not exceed € 1.0 million at any one time
outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Restricted Subsidiaries
issued in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, defease or discharge other
Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness and Shareholder
Loans); provided that:
(1)
the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount (or accreted value, if applicable) of the Indebtedness renewed, refunded, refinanced, replaced, defeased or
discharged (plus all accrued interest on the Indebtedness and the amount of all fees and expenses, including premiums, incurred
in connection therewith);
(2)
such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being
renewed, refunded, refinanced, replaced, defeased or discharged;
(3)
if the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged is subordinated in right of
payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and
is subordinated in right of payment to, the Notes on terms at least as favourable to the holders of Notes as those contained in the
documentation governing the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged; and
(4)
such Indebtedness is incurred either by the Company or by the Restricted Subsidiary who is the obligor on the
Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged.
"Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust,
unincorporated organisation, limited liability company or government or other entity.
"Public Equity Offering" means an offer or sale to the public by way of a registered public offering or flotation or other
equivalent transaction (excluding any sale to Affiliates of the Company) of ordinary shares of the Company.
"Principals" means Ethos Private Equity Fund IV, Actis Okavango Limited, AAEF Okavango Limited, Sphere
Investments, Sphere Fund I GP, AKA Capital (Proprietary) Limited and Old Mutual Life Assurance Company (South Africa)
Limited.
"Qualified Proceeds" means any of the following, or any combination of the following:
(1)
cash;
(2)
Cash Equivalents;
(3)
Replacement Assets; and
(4)
Capital Stock of a Person engaged primarily in a Permitted Business if, in connection with the receipt by the Company
of such Capital Stock, such Person becomes a Guarantor or is merged, consolidated or amalgamated with or into, or transfers or
conveys all or substantially all of its assets to, the Company or a Guarantor.
"Related Party" means:
(1)
any controlling stockholder, 80% (or more) owned Subsidiary or immediate family member (in the case of an
individual) of any Principal; or
(2)
any trust, corporation, partnership, limited liability company or other entity, the beneficiaries, stockholders, partners,
members, owners or Persons beneficially holding an 80% or more controlling interest of which consist of any one or more
Principals and/or such other Persons referred to in the immediately preceding clause (1).
"Relevant Debt" means the Notes and any amounts due under the Hedging Arrangement, determined based on the
amount due to the Hedging Lenders on the date of any default or early termination under the Hedging Arrangement.
"Replacement Assets" means assets (other than cash or Cash Equivalents) or property used or useful in a Permitted
Business; provided that any assets or property received in exchange for assets or property of transferred in an Asset Sale shall
not be deemed to be related to a Permitted Business if they consist of securities of a Person, unless such Person is a Guarantor or,
upon receipt of the securities of such Person, such Person would become a Guarantor.
"Replacement Parts Disposal" means the sale for cash of the replacement parts business of the Company.
"Replacement Parts Disposal Distribution" means, following the Replacement Parts Disposal, a dividend or
distribution (including through repayment of principal or interest on the Shareholder Loans) to the shareholders of the Company
(or any holding company of the Company) of the cash proceeds received in connection with such disposal in excess of €
5 million.
"Replacement Parts Management" means the direct or indirect holders from time to time of the Company's Class C
ordinary shares, Class C preference shares, A equity loans held by the Replacement Parts Management Trust which was
established for the benefit of members of management.
"Restricted Investment" means an Investment other than a Permitted Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary.
"Revolving Credit Facility" means that certain Credit Agreement, to be dated the Issue Date by and among the
Company and ABSA Bank Limited, providing for up to R50.0 million of revolving credit borrowings, letters of credit and
guarantees, including any related notes, Guarantees, collateral documents, instruments and agreements executed in connection
therewith, and, in each case, as amended, restated or otherwise modified from time to time.
"Security Documents" means
(a)
Mortgage Covering Bond;
(b)
Special and General Notarial Covering Bonds;
(c)
Pledge and Cession;
(d)
Security Cession of Insurances;
(e)
Pledge of Intellectual Property; and
(f)
Reversionary Cession.
"Security SPV" means Project Okavango Security Vehicle (Proprietary) Limited (previously known as Clidet No. 577
(Proprietary) Limited), a special purpose vehicle, as the limited recourse guarantor of the Notes in accordance with the terms of
the Counter Indemnity and Guarantee Agreement.
"Shareholder Loans" means (i) the loans made by shareholders of the Company to the Company pursuant to the
Shareholders Agreement as in effect on the Issue Date and (ii) any future loans made by shareholders of the Company to the
Company on substantially the same terms; provided that at or prior to the making of each Shareholder Loan the holder thereof
must be or become a party to the Shareholder Subordination Agreement.
"Shareholder Subordination Agreement" means the Shareholder Subordination Agreement dated the Issue Date among
the shareholders party to the Shareholders Agreement, the Security SPV, the Trustee, ABSA Bank Limited and the Initial
Purchaser.
"Shareholders Agreement" means the amended and restated shareholders and subscription agreement entered into
among the Company, Trillion Nominees (Proprietary) Limited (as nominees for the partnerships comprising, and the coinvestment entities associated with, Ethos Private Equity Fund IV), Actis Okavango Limited, AAEF Okavango Limited, Sphere
Investments (Proprietary) Limited, Sphere Fund I GP (Proprietary) Limited, as nominee for The Sphere Private Equity Fund I
Partnership, AKA Capital (Proprietary) Limited, Old Mutual Life Assurance Company (South Africa) Limited, the trustees for
the time being of The Repairs and Services Management Trust, the trustees for the time being of The Replacement Parts
Management Trust, Mervyn Naidoo, Lex van Vught and Neill Oscar Davies on 24 January 2006.
"Significant Subsidiary" means any Restricted Subsidiary that meets any of the following conditions:
(1)
the Company's and its Restricted Subsidiaries' investments in and advances to the Restricted Subsidiary exceed 10% of
the total assets of the Company and its Restricted Subsidiaries on a consolidated basis as of the end of the most recently
completed fiscal year;
(2)
the Company's and its Restricted Subsidiaries' proportionate share of the total assets (after intercompany eliminations)
of the Restricted Subsidiary exceeds 10% of the total assets of the Company and its Restricted Subsidiaries on a consolidated
basis as of the end of the most recently completed fiscal year;
(3)
the Company's and its Restricted Subsidiaries' equity in the income from continuing operations before income taxes,
extraordinary items and cumulative effect of a change in accounting principle of the Restricted Subsidiary exceeds 10% of such
income of the Company and its Restricted Subsidiaries on a consolidated basis for the most recently completed fiscal year; or
(4)
upon the disposition of any assets of a Significant Subsidiary, or upon the acquisition of any assets by a Restricted
Subsidiary, the consolidated financial statements of the Company for the financial period immediately following such
acquisition or disposition will be used to determine whether such Subsidiary should be treated as Significant Subsidiaries for
future periods.
"SPV Management Agreement" means the Project Okavango Security Vehicle Owner Trust Deed to be dated on or
before the Issue Date between the Trustee, the Hedging Lenders and Maitland Trust Limited.
"Stated Maturity" means, with respect to any instalment of interest or principal on any series of Indebtedness, the date
on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness as of
the date of the Indenture, and will not include any contingent obligations to repay, redeem or repurchase any such interest or
principal prior to the date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any specified Person:
(1)
any corporation, association or other business entity of which more than 50% of the total voting power of shares of
Capital Stock entitled (without regard to the occurrence of any contingency and after giving effect to any voting agreement or
stockholders' agreement that effectively transfers voting power) to vote in the election of directors, managers or trustees of the
corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or
more of the other Subsidiaries of that Person (or a combination thereof); and
(2)
any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of
such Person or (b) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any
combination thereof).
"Tax" means any tax, duty, levy, impost, assessment or other governmental charge (including penalties and interest
related thereto).
"Taxes" and "Taxation" shall be construed to have corresponding meanings.
"Technical Insolvency" means, with respect to the Company, a circumstance where the liabilities of the Company
exceed its assets but the Company is able to continue to make required payments on its Indebtedness as such payments become
due.
"Unrestricted Subsidiary" means any Subsidiary of the Company that is designated by the Board of Directors of the
Company as an Unrestricted Subsidiary pursuant to a resolution of the Board of Directors, but only to the extent that such
Subsidiary:
(1)
has no Indebtedness other than Non-Recourse Debt;
(2)
except as permitted by the covenant described above under the caption "—Certain Covenants—Transactions with
Affiliates," is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less
favourable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not
Affiliates of the Company;
(3)
is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating results; and
(4)
has not Guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or
any of its Restricted Subsidiaries.
"US Exchange Act" means the US Securities Exchange Act of 1934, as amended.
"US Securities Act" means the US Securities Act of 1933, as amended.
"Voting Stock" of any specified Person as of any date means the Capital Stock of such Person that is at the time entitled
to vote in the election of the Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years
obtained by dividing:
(1)
the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial
maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by
(2)
the then outstanding principal amount of such Indebtedness.
DESCRIPTION OF BOOK-ENTRY SYSTEM
General
Notes sold within the United States to qualified institutional buyers will initially be represented by one or more global
notes in registered form without interest coupons attached (the "US Global Note") and notes sold outside the United States
pursuant to Regulation S under the US Securities Act will initially be represented by one or more global notes in registered form
without interest coupons attached (the "International Global Note" and, together with the US Global Note, the "Global Notes").
The Global Notes will be deposited with and registered in the name of a common depositary for Euroclear and Clearstream
Banking. Initially The Bank of New York (Nominees) Limited is expected to be the common depositary for Euroclear and
Clearstream Banking, with an address at One Canada Square, London E14 5AL, United Kingdom.
Ownership of interests in the US Global Note ("US Book-Entry Interests") and ownership of interests in the
International Global Note (the "International Book-Entry Interests" and, together with the US Book-Entry Interests, the "BookEntry Interests") will be limited to persons that have accounts with Euroclear and/or Clearstream Banking. Book-Entry Interests
will be shown on, and transfers thereof will be effected only through, records maintained in book-entry form by Euroclear and
Clearstream Banking and their participants.
The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of such securities
in definitive form. The foregoing limitations may impair the ability to own, transfer or pledge Book-Entry Interests.
So long as the notes are held in global form, the common depositary for Euroclear and/or Clearstream Banking (or its
nominee) will be considered the sole holder of Global Notes for all purposes under the indenture. Consequently, participants
must rely on the procedures of Euroclear and Clearstream Banking and indirect participants must rely on the procedures of the
participants through which they own Book-Entry Interests to exercise any rights of holders under the indenture.
None of the Issuer, the Security SPV, the trustee or any Paying Agent will have any responsibility or be liable for any
aspect of the records relating to any Book-Entry Interests.
Issuance of definitive registered notes
Under the terms of the indenture, to the extent permitted by Euroclear or Clearstream Banking, owners of Book-Entry
Interests will receive registered certificated notes without interest coupons ("Definitive Registered Notes") only:
•
if Euroclear and Clearstream Banking notify us that they are unwilling or unable to continue to act as a depositary
and we do not appoint at least one successor depositary within 120 days;
•
if the common depositary (or its nominee) acting on the instructions of an owner of Book-Entry interest so
requests at any time under the indenture; or
•
in whole (but not in part) at any time following a Default if we, in our sole discretion, determine that the Global
Notes should be exchanged for Definitive Registered Notes.
Such Definitive Registered Notes will be serially numbered, registered in the names of participants, and, as soon as
practicable, issued in any approved denomination, requested by or on behalf of Euroclear and Clearstream Banking, as
applicable (in accordance with their customary procedures and based upon directions received from participants reflecting the
beneficial ownership of the Book-Entry Interests), and such Definitive Registered Notes will bear the appropriate restrictive
legend referred to in "Notice to US Investors" or "Notice to Non-US Investors" unless that legend is not required by the
indenture or applicable law.
Payment on Global Notes
We will make payment of amounts owing in respect of the Global Notes (including principal, premium, if any, and
interest) to the Paying Agent. The Paying Agent will, in turn, make such payments to the common depositary for Euroclear and
Clearstream Banking (or its nominee) which will distribute such payments to participants in accordance with the procedures of
Euroclear and Clearstream Banking.
Under the terms of the indenture, we and the trustee will treat the common depositary for Euroclear and Clearstream
Banking (or its nominee) as the owner thereof for the purpose of receiving payments and for all other purposes. Consequently,
none of the Issuer, the Security SPV, the trustee or any of their respective agents has or will have any responsibility or liability
for:
•
any aspect of the records of Euroclear, Clearstream Banking or any participant or indirect participant relating to
payments made on account of a Book-Entry Interest, for any such payments made by Euroclear, Clearstream
Banking or any participant or indirect participant, or for maintaining, supervising or reviewing any of the records
of Euroclear or Clearstream Banking or any participant or indirect participant relating to payments made on
account of a Book-Entry Interest; or
•
Euroclear or Clearstream Banking or any participant or indirect participant.
Redemption of Global Notes
We understand that, in the event a Global Note (or any portion thereof) is redeemed, Euroclear and/or Clearstream
Banking, as applicable, will distribute the amount received by them in respect of the Global Note so redeemed to the holders of
the Book-Entry Interests in such Global Note from the amount received by it in respect of the redemption of such Global Note.
The common depositary will surrender such Global Note to the Registrar for a cancellation or, in the case of a partial
redemption, the common depositary will request the Registrar or the trustee to mark down, endorse and return the applicable
Global Note to reflect the reduction in the principal amount of such Global Note as a result of such partial redemption. We
further understand that the redemption price payable by Euroclear and Clearstream Banking in connection with the redemption
of such Book-Entry Interests will be equal to the amount received by them in connection with the redemption of such Global
Note (or any portion thereof). We understand that, under existing practices of Euroclear and Clearstream Banking, if fewer than
all of the notes are to be redeemed at any time, Euroclear and Clearstream Banking will credit their respective participants'
accounts on a proportionate basis (with adjustments to prevent fractions) or by lot or on such other basis as they deem fair and
appropriate; provided, however, that no Book-Entry Interest of less than €50,000 principal amount may be redeemed in part.
Action by owners of Book-Entry Interests
Euroclear and Clearstream Banking have advised us that they will only take any action permitted to be taken by a
holder of notes if directed by one or more participants to whose account the Book-Entry Interests in the relevant Global Notes
are credited and only in respect of such portion of the aggregate principal amount of notes as to which such participant or
participants has or have given such direction. Euroclear and Clearstream Banking will not exercise any discretion in the
granting of consents, waivers or the taking of any other action in respect of the Global Notes. However, if there is an Event of
Default under the notes, each of Euroclear and Clearstream Banking reserve the right to exchange the Global Notes for
Definitive Registered Notes in certificated form, and to distribute such Definitive Registered Notes to participants.
Transfers
The Global Notes will bear the appropriate legend to the effect set forth in "Notice to US Investors" or "Notice to NonUS Investors." Book-Entry Interests in the Global Notes will be subject to the restrictions on transfer and certification
requirements discussed under "Notice to US Investors" or "Notice to Non-US Investors."
All transfers of Book-Entry Interests will be recorded in accordance with the book-entry system maintained by
Euroclear and Clearstream Banking pursuant to customary procedures established by each respective system and its participants.
Any Book-Entry Interest in one of the Global Notes that is transferred to a person who takes delivery in the form of a
Book-Entry Interest in the other Global Note will, upon transfer, cease to be a Book-Entry Interest in the first-mentioned Global
Note and become a Book-Entry Interest in the other Global Note, and accordingly will thereafter be subject to all transfer
restrictions, if any, and other procedures applicable to Book-Entry Interests in such other Global Note for as long as it remains
such a Book-Entry Interest.
Clearance, settlement and trading of the notes under the Book-Entry System
Book-Entry Interests owned through Euroclear and Clearstream Banking accounts will follow the settlement
procedures applicable to conventional eurobonds in registered form. Book-Entry Interests will be created to the securities
custody accounts of Euroclear and Clearstream Banking participants and will be settled using the procedure applicable to
conventional Eurobonds in same-day funds. Since the buyer determines the place of delivery, it is important to establish at the
time of trading of any Book-Entry Interests where both the buyer's and seller's accounts are located to ensure that settlement can
be made on the desired value date.
Although Euroclear and Clearstream Banking have agreed to certain procedures to facilitate transfer of interests in the
Global Notes among account holders of Euroclear and Clearstream Banking, they are under no obligation to perform or to
continue to perform these procedures, and these procedures may be discontinued at any time. None of the Issuer, the Security
SPV, the trustee or any of our or their respective agents will have any responsibility for the performance by Euroclear or
Clearstream Banking or their respective account holders of their obligations under the rules and procedures governing their
operations.
Information concerning Euroclear and Clearstream Banking
Euroclear and Clearstream Banking hold securities for participant organisations and facilitate the clearance and
settlement of securities transactions between their respective participants through electronic book-entry changes in accounts of
such participants. Euroclear and Clearstream Banking provide to their participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing.
Euroclear and Clearstream Banking also interface with domestic securities markets in several countries. Euroclear and
Clearstream Banking participants are financial institutions including underwriters, securities brokers and dealers, banks, trust
companies and certain other organisations. Indirect access to Euroclear or Clearstream Banking is also available to others such
as banks, brokers, dealers and trust companies that clear through or maintain a custodian relationship with a Euroclear or
Clearstream Banking participant, either directly or indirectly.
Account holders' overall contractual relations with Euroclear and Clearstream Banking are governed by the rules and
operating procedures of Euroclear and Clearstream Banking and any applicable laws. Euroclear and Clearstream Banking act
under such rules and operating procedures only on behalf of their account holders and have no record of or relationship with
persons holding through their account holders.
We understand that, under existing industry practices, if either the Issuer or the trustee requests any action of owners by
Book-Entry Interests or if an owner of a Book-Entry Interest desires to give or take any action that a holder is entitled to give or
take under the indenture, Euroclear and Clearstream Banking would authorise participants owning the relevant Book-Entry
Interest to give or take such action, and such participants would authorise indirect participants to give or take such action or
would otherwise act upon the instructions of such indirect participants.
TAX CONSIDERATIONS
Prospective purchasers of the notes are advised to consult their own tax advisers as to the tax consequences, under the
tax laws of the country of which they are resident, of a purchase of notes including without limitation, the consequences of
receipt of interest and premium, if any, on and sale or redemption of, the notes or any interest therein.
Certain South African tax considerations
The following is a summary of certain South African tax consequences relating to the acquisition, holding and disposal
of the notes by non-residents of South Africa for tax purposes. This information is not a substitute for independent advice
pertaining to your particular circumstances as a holder of notes. It is intended as a general guide only, and is based on current
South African tax legislation and practice in force as at the date of this document. It relates to your position as a holder of notes,
assuming that you are the absolute beneficial owner of such notes and you own such notes as a capital investment. It is not
intended to apply to certain classes of holders of notes such as brokers or dealers. If you are in any doubt as to your tax position
you should consult your own tax adviser.
Stamp duty on issuance and transfer of notes
The issuance and transfer of notes is not subject to stamp duty in South Africa.
Basis of taxation
The South African income tax system is based on a residence system for South African tax residents and on a source
basis for non-residents of South Africa for tax purposes.
A natural person will not be a resident of South Africa for tax purposes if he or she is not "ordinarily resident" in South
Africa or, if not "ordinarily resident" in South Africa, was not physically present in South Africa for certain prescribed periods in
the five years prior to the tax year in question ("physical presence test"). A natural person, not "ordinarily resident" in South
Africa but who meets the "physical presence test," who is physically absent from South Africa for a continuous period of
330 days is deemed not to have been a resident from the day immediately after the date on which such person ceases to be
physically present in South Africa.
A person other than a natural person is not a resident of South Africa for tax purposes if it is incorporated, established
or formed outside South Africa and does not have its place of "effective management" in South Africa.
If any non-resident association, corporation, company, arrangement or scheme which falls within the definition of a
company (a "foreign company") in which, residents of South Africa hold more than 50% of the participation rights (a "controlled
foreign company") a proportionate amount of the net income and capital gains of the controlled foreign company will be
included in the income of such resident, subject to certain exclusions.
Income tax
Non-residents of South Africa presently enjoy the benefit of an exemption from South African income tax on their
interest income, unless one of the disqualifications set out below applies.
Any non-resident person of South Africa for tax purposes will be exempt from South African income tax on any
interest paid or accrued in respect of the notes, which includes any issue discount or redemption premium. This exemption will
not, however, apply in certain instances, including to:
•
any natural person who was physically present in South Africa for a period exceeding 183 days in aggregate
during the year of assessment in question; or
•
any person who carried on a business through a permanent establishment in South Africa at any time during the
year of assessment in question.
Capital gains tax
Non-residents of South Africa will not be subject to capital gains tax in South Africa in respect of the redemption or
disposal of notes, unless non-residents have a permanent establishment in South Africa and the notes were attributable as assets
to that permanent establishment.
EU directive on the taxation of savings interest
Pursuant to European Council Directive 2004/587/EC Member States are required to provide to the tax authorities of
other Member States details of payments of interest or other similar income paid by a person to an individual in another Member
State, except that Belgium, Luxembourg and Austria will instead operate a withholding system for a transitional period unless,
during such period, they elect otherwise.
Additional Amounts will not be payable if any tax is required to be withheld or deducted as a result of the
implementation of the Directive or the introduction of any law implementing or complying with, or introduced in order to
conform to, the Directive.
Certain US federal income tax considerations
The following is a general discussion of certain material United States federal income tax considerations that may be
relevant to the purchase, ownership and disposition of the notes by initial investors that are United States holders ("US
Holders"). This discussion is based on currently existing provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), existing, temporary and proposed Treasury regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as in effect or proposed on the date hereof and all of which are subject to change, possibly with
retroactive effect, or different interpretations. This discussion does not address the tax consequences to subsequent purchasers of
notes and is limited to initial investors who purchase the notes at the price set forth on the cover page, and who hold the notes as
capital assets, within the meaning of section 1221 of the Code. Moreover, this discussion is for general information only and
does not address the tax consequences to holders that are not US Holders or the tax consequences that may be relevant to
particular initial investors in light of their personal circumstances or to certain types of initial investors subject to special tax
rules (such as brokers, banks and other financial institutions, insurance companies, tax-exempt entities, dealers in securities or
currencies, traders in securities that elect to use a mark-to-market method of accounting for their securities holdings, regulated
investment companies, real estate investment trusts, US expatriates or former long-term residents of the United States, investors
liable for the alternative minimum tax, individual retirement accounts and other tax-deferred accounts, investors that will hold
the notes as part of straddles, hedging transactions or conversion transactions for United States federal income tax purposes or
investors whose functional currency is not the US dollar). In addition, this discussion does not include any description of estate
and gift tax consequences, or the tax laws of any state, local or foreign government that may be applicable to the notes. There
can be no assurance that the United States Internal Revenue Service ("IRS") will take a similar view as to any of the tax
consequences described in this summary.
PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
NOTES, INCLUDING THE APPLICABILITY OF ANY UNITED STATES FEDERAL TAX LAWS OR ANY STATE,
LOCAL OR FOREIGN TAX LAWS, AND ANY CHANGES (OR PROPOSED CHANGES) IN APPLICABLE TAX LAWS
OR INTERPRETATIONS THEREOF.
TO ENSURE COMPLIANCE WITH TREASURY DEPARTMENT CIRCULAR 230, YOU ARE HEREBY
NOTIFIED THAT: (A) ANY DISCUSSION OF FEDERAL TAX ISSUES IN THIS LISTING PARTICULARS IS NOT
INTENDED OR WRITTEN BY US TO BE RELIED UPON, AND CANNOT BE RELIED UPON BY YOU, FOR THE
PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON YOU UNDER THE INTERNAL REVENUE
CODE; (B) SUCH DISCUSSION IS WRITTEN IN CONNECTION WITH THE PROMOTION OR MARKETING OF THE
TRANSACTIONS OR MATTERS ADDRESSED HEREIN; AND (C) YOU SHOULD SEEK ADVICE BASED ON YOUR
PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.
As used herein, the term "US Holder" means a beneficial owner of a note that is, for United States federal income tax
purposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation or other entity taxable as a
corporation created or organised in the United States or under the laws of the United States or of any state thereof (including the
District of Columbia), (iii) an estate the income of which is subject to United States federal income tax regardless of its source,
or (iv) a trust (A) if a United States court is able to exercise primary supervision over the trust's administration and one or more
United States persons have authority to control all substantial decisions of such trust, or (B) that was in existence on 20 August
1996, was treated as a United States person under the Code on the previous day, and has a valid election in effect to continue to
be so treated.
If a partnership or other pass-through entity holds the notes, the tax treatment of a partner in or owner of the partnership
or pass-through entity will generally depend upon the status of the partner or owner and the activities of the entity. If you are a
partner in or owner of a partnership or other pass-through entity that is considering holding notes you should consult your tax
advisor.
Taxation of interest
In general, interest paid on a note (including any amount withheld as withholding tax) will be taxable to a US Holder as
ordinary interest income, generally at the time it is received or accrued, in accordance with such holder's regular method of
accounting for United States federal income tax purposes.
A US Holder that uses the cash method of tax accounting will be required to include in income the US dollar value of
the euro interest payment on a note based on the spot rate of exchange on the date of receipt. No exchange gain or loss will be
recognised with respect to the receipt of such payment (other than exchange gain or loss realised on the subsequent disposition
of the euro so received, see "—Transactions in euro," below).
A US Holder that uses the accrual method of tax accounting will accrue interest income on a note in euro and translate
the amount accrued into US dollars based on:
•
the average exchange rate in effect during the interest accrual period, or portion thereof within such holder's
taxable year; or
•
at such holder's election, at the spot rate of exchange on (1) the last day of the accrual period, or the last day of the
taxable year within such accrual period if the accrual period spans more than one taxable year, or (2) the date of
receipt, if such date is within five business days of the last day of the accrual period.
Such election must be applied consistently by the US Holder to all debt instruments from year to year and can be
changed only with the consent of the IRS. A US Holder that uses the accrual method of tax accounting will recognise foreign
currency gain or loss on the receipt of an interest payment in an amount equal to the difference, if any, between the US dollar
value of the euro payment received (determined on the date such payment is received) in respect of such accrual period and the
US dollar value of the interest income that has accrued during such accrual period (as determined above). Such foreign currency
gain or loss will be treated as US source ordinary income or loss and generally will not be treated as an adjustment to interest
income received on the notes. In certain circumstances we may be obligated to make payments on the notes in excess of stated
principal and interest. We intend to take the position that the notes should not be treated as contingent payment debt instruments
because we believe that the likelihood that we will be obligated to make any such additional payments is remote. Assuming
such position is respected, a US Holder would be required to include in income the amount of any such additional payments at
the time such payments are received or accrued in accordance with such US Holder's method of accounting for US federal
income tax purposes. If the IRS were to successfully challenge this position, and the notes were treated as contingent payment
debt instruments, United States Holders could be required to accrue interest income at a rate higher than the stated interest rate
on the note, to treat as ordinary income, rather than capital gain, any gain recognized on a sale, exchange or redemption of a
note, and to recognize foreign currency exchange gain or loss with respect to such income. United States Holders are urged to
consult their own tax advisors regarding the potential application to the notes of the contingent payment debt instrument rules
and the consequences thereof (see "Description of Notes—Principal, Maturity and Interest," "Description of Notes—Optional
Redemption," "Description of Notes—Repurchase at the Option of Holders—Change of Control" and "Description of Notes—
Additional Amounts").
Disposition of the notes
Upon the sale, exchange, redemption, retirement at maturity or other taxable disposition of a note (collectively, a
"disposition"), a US Holder generally will recognise capital gain or loss equal to the difference between the amount realised by
such holder (except to the extent such amount is attributable to accrued but unpaid interest, which will be taxable as ordinary
interest income (as described above) if such interest has not been previously included in income) and such holder's adjusted tax
basis in the note. The tax basis of a note to a US Holder will generally be the US dollar value of the euro purchase price on the
date of purchase calculated at the spot rate of exchange on that date. Upon the disposition of a note, the amount realised by a US
Holder will be the US dollar value of the euro received calculated at the spot rate of exchange on the date of disposition.
If the notes are traded on an established securities market, a US Holder that uses the cash method of tax accounting,
and, if it so elects, a US Holder that uses the accrual method of tax accounting, will determine the US dollar value of the amount
of euro realised by translating such amount at the spot rate of exchange on the settlement date of the disposition and will
determine the US dollar value of the tax basis by translating the amount paid for the note at the spot rate of exchange on the
settlement date of the purchase. The election available to accrual basis US Holders discussed above must be applied consistently
by the US Holder to all debt instruments from year to year and can be changed only with the consent of the IRS.
Except as discussed below in connection with foreign currency gain or loss on a disposition of a note, such capital gain
or loss will be long-term capital gain or loss if the US Holder's holding period for the notes exceeds one year. Long-term capital
gains recognised by individuals are eligible for reduced rates of taxation. The deductibility of capital losses is subject to
limitations. Gain or loss recognised by a US Holder on a disposition of a note generally will be treated as ordinary income or
loss to the extent that the gain or loss is attributable to changes in exchange rates during the period in which the holder held such
note. Such exchange gain or loss will generally equal the difference between the US dollar value of the euro purchase price of
the note determined on the date of disposition and the US dollar value of the euro purchase price of the note determined using
the spot rate of exchange on the date the US Holder acquired the note. The realisation of such exchange gain or loss will be
limited to the amount of overall gain or loss realised on the disposition of a note.
Transactions in euro
Euro received as interest on, or on a disposition of, a note will have a tax basis equal to their US dollar value at the time
such interest is received or at the time such proceeds are received. The amount of gain or loss recognised on a sale or other
disposition of such euro will be equal to the difference between (1) the amount of US dollars, or the fair market value in US
dollars of the other property received in such sale or other disposition, and (2) the US Holder's tax basis in such euro.
A US Holder that purchases a note with previously owned euro will generally recognise gain or loss in an amount equal
to the difference, if any, between such holder's tax basis in such euro and the US dollar fair market value of such euro note on
the date of purchase. Any such gain or loss generally will be ordinary income or loss and will not be treated as interest income
or expense. The conversion of US dollars to euro and the immediate use of such currency to purchase a note generally will not
result in any exchange gain or loss for a US Holder.
Foreign tax credit considerations
If interest payments on the notes become subject to South African withholding taxes, a US Holder may be able, subject
to generally applicable limitations, to claim a foreign tax credit or take a deduction for such withholding taxes imposed on
interest payments (including any Additional Amounts). Interest (including any Additional Amounts) will constitute income
from sources without the United States for United States foreign tax credit purposes. Interest income (including any Additional
Amounts) generally will constitute "passive income" or, in the case of certain holders, "financial services income" for United
States foreign tax credit purposes. If, however, such withholding tax is imposed at a rate of 5% or more, such income will
constitute "high withholding tax interest." Pursuant to changes in tax law that will apply to tax years beginning after
31 December 2006, interest payments on a note will constitute "passive category" income or for certain holders "general
category" income for foreign tax credit purposes.
Gain or loss on the sale, redemption, retirement at maturity or other taxable disposition of a note by a US Holder will
generally constitute United States source income or loss for United States foreign tax credit purposes.
Backup withholding and information reporting
Backup withholding currently at a rate of 28% and information reporting requirements may apply to certain payments
of principal, premium, if any, and interest on a note and to proceeds of the sale or other disposition of a note before maturity, if a
US Holder fails to furnish its taxpayer identification number, certify that such number is correct, certify that such US Holder is
not subject to backup withholding or otherwise comply with the applicable requirements of the backup withholding rules.
Certain US Holders, including corporations, are generally not subject to backup withholding and information reporting
requirements provided such holder demonstrates its exempt status when and as required. Any amounts withheld under the
backup withholding rules from a payment to a US Holder will be allowed as a credit against such US Holder's United States
federal income tax and may entitle the US Holder to a refund, provided that the required information is timely furnished to the
IRS.
Tax return disclosure requirement
A US Holder may be required to report a sale, retirement or other taxable disposition of its notes on IRS Form 8886
(Reportable Transaction Disclosure Statement) if it recognised a foreign currency loss that exceeds $50,000 in a single taxable
year from a single transaction in the notes, if such US Holder is an individual or trust, or higher amounts for non-individual US
Holders. US Holders are advised to consult their tax advisors in this regard.
EXCHANGE CONTROLS
The information below is not intended as legal advice and it does not purport to describe all of the considerations that
may be relevant to a prospective purchaser of notes. Prospective purchasers of notes that are not South African residents or
emigrants from the Common Monetary Area to South Africa are urged to seek further professional advice in regard to the
purchase of notes. For the purposes of the discussion below, the Common Monetary Area means South Africa, Lesotho,
Namibia and Swaziland.
General
The issuance and sale of the notes to the Initial Purchaser and any payment of interest or principal in respect thereof,
requires the approval of the South African Reserve Bank ("SARB"). We have obtained the approval of SARB for:
•
The issuance of the notes in the international capital markets;
•
For the Security SPV to issue a guarantee in favour of the trustee under the indenture governing the notes;
•
The payment of interest under the notes, the indenture relating thereto and the Security SPV guarantees;
•
The payment of "Additional Amounts" as such term is defined above under "Description of Notes"; and
•
The payment of principal and all other amounts under the notes, the indenture relating thereto and the Security
SPV guarantees.
We will, however, be required to obtain the approval of the SARB for any redemption or repurchase of notes prior to
their final maturity (including any repurchase of notes pursuant to a change of control, tax event or asset sale offer).
Non-residents of the Common Monetary Area
Non-residents of the Common Monetary Area may purchase, hold and transfer the notes without the SARB approval.
Residents of the Common Monetary Area
Under the terms of the SARB approval for the notes, no South African entity or institution nor any offshore subsidiary
or branch operation of a South African entity or institution is allowed to participate in or underwrite the notes without the prior
specific approval of the SARB. Accordingly, the notes are not being offered to prospective investors in South Africa.
Emigrants from the Common Monetary Area
Emigrants from the Common Monetary Area may not purchase notes using "blocked" rand amounts without
appropriate SARB approval. For purposes of this paragraph, "blocked" rand amounts mean funds denominated in rand which
may not be transferred out of South Africa or paid into the bank account of a non South African resident.
PLAN OF DISTRIBUTION
Under the terms and subject to the conditions set forth in a purchase agreement dated 7 February 2006 (the "Purchase
Agreement") between us and the Initial Purchaser, the Initial Purchaser has agreed to purchase all of the notes. The Purchase
Agreement provides that the obligations of the Initial Purchaser thereunder are subject to certain conditions precedent.
The Issuer has agreed in the Purchase Agreement to indemnify the Initial Purchaser, its respective affiliates and its
respective officers, directors, employees, representatives, agents and controlling persons against certain liabilities in connection
with the offer and sale of the notes, including liabilities under the US Securities Act, and to contribute to payments (including
expenses) that the Initial Purchaser may be required to make in respect thereof.
The Initial Purchaser proposes to offer the notes initially at 100% of the principal amount thereof. The issue price and
other selling terms may be changed at any time without notice.
The notes have not been and will not be registered under the US Securities Act or any state securities law. The Initial
Purchaser has agreed that it will offer to sell the notes within the United States through its US registered broker-dealer affiliate
only to persons who it reasonably believes to be qualified institutional buyers in reliance on Rule 144A and outside the United
States only to non-US persons in offshore transactions in reliance on Regulation S.
Until 40 days after the commencement of the offering, an offer or sale of any notes initially sold in reliance on
Regulation S within the United States by any dealer (whether or not participating in the offering) may violate the registration
requirements of the US Securities Act if such offer or sale is made otherwise than in accordance with Rule 144A or pursuant to
another exemption from registration under the US Securities Act.
The Initial Purchaser has represented and agreed that:
1.
it has only communicated or caused to be communicated and will only communicate or cause to be communicated any
invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) received by it in
connection with the issue or sale of any notes in circumstances in which section 21(1) of the FSMA does not apply to the Issuer;
and
2.
it has complied with and will comply with all applicable provisions of the FSMA with respect to anything done by it in
relation to the notes in, from or otherwise involving the United Kingdom.
We have applied to list the notes on the Alternative Securities Market of the Irish Stock Exchange. The Initial
Purchaser has advised us that it currently intends to make a market in the notes. However, the Initial Purchaser is not obligated
to do so and any market making may be discontinued by the Initial Purchaser at any time without notice. Accordingly, no
assurance can be given as to the liquidity of, or the trading market for, the notes.
In connection with this offer, the Initial Purchaser, or any person acting for it, may over-allot or effect transactions with
a view to supporting the market price of the notes at a level higher than that which might otherwise prevail for a limited period
after the issue date. However, there may be no obligation on the Initial Purchaser or any agent of it to do this. Such stabilising,
if commenced, may be discontinued at any time and must be brought to an end after a limited period.
In connection with this offering, the Initial Purchaser, or any person acting for it, may over-allot notes provided that the
aggregate principal amount of notes allotted does not exceed 105% of the aggregate principal amount of the notes or effect
transactions with a view to supporting the market price of the notes at a level higher than that which might otherwise prevail.
However, there is no assurance that the Initial Purchaser or any person acting for it will undertake stabilisation action. Any
stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the offer of the notes is
made and, if begun, may be ended at any time, but it must end no later than the earlier of 30 days after the issue date of the notes
and 60 days after the date of the allotment of the notes.
Such stabilisation activities will not be carried out by the Initial Purchaser as agent for the Issuer, and the Initial
Purchaser will not account to the Issuer for any resulting profit nor will it be liable for any loss.
The Initial Purchaser, directly or through its affiliates, has provided from time to time, and expects to provide in the
future, investment banking and commercial banking services to us and our affiliates for which the Initial Purchaser has received
and/or will receive customary fees. In particular, an affiliate of the Initial Purchaser is a lender under the existing senior credit
facility (and will therefore receive a portion of the proceeds of this offering when we repay the existing senior credit facility), is
the lender under the new revolving credit facility and is the counterparty under the hedging arrangement related to the notes.
NOTICE TO US INVESTORS
Because of the following restrictions, purchasers are advised to consult legal counsel prior to making any offer, sale,
pledge or other transfer of the notes.
Rule 144A
Each purchaser of US Book-Entry Interests offered in the United States will be deemed to have represented and agreed
as follows (terms used herein that are defined in Rule 144A, Regulation D ("Regulation D") under the US Securities Act or
Regulation S are used herein as defined therein):
•
The purchaser (A) is a qualified institutional buyer, (B) is aware that the sale of the Book-Entry Interests to it is
being made in reliance on Rule 144A and (C) is acquiring those Book-Entry Interests solely for its own account or
the account of one or more qualified institutional buyers.
•
The purchaser understands that the notes and such Book-Entry Interests have not been and will not be registered
under the US Securities Act and that (A) any offer, sale, pledge or other transfer thereof by that purchaser must be
made (A)(i) to a person whom the purchaser reasonably believes is a qualified institutional buyer in a transaction
meeting the requirements of Rule 144A, (ii) in a transaction meeting the requirements of Rule 904 of Regulation S,
(iii) pursuant to an exemption from registration under the US Securities Act provided by Rule 144 thereunder (if
available) or (iv) to the Issuer or any subsidiary thereof and (B) in each case, in accordance with all applicable laws
of any other jurisdiction.
•
The purchaser understands that, except as set forth in the indenture or as otherwise determined by Savcio Holdings
(Proprietary) Limited in compliance with applicable law, the notes corresponding to such Book-Entry Interests will
have a legend to the following effect:
"THIS NOTE DUE 2013 AND ANY INTEREST HEREIN HAVE NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE US SECURITIES ACT OF 1933, AS AMENDED (THE "US SECURITIES ACT"), AND ANY OFFER, SALE,
PLEDGE OR OTHER TRANSFER THEREOF MUST BE MADE ONLY (A) (I) TO A PERSON WHOM THE
PURCHASER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A UNDER THE US SECURITIES ACT ("RULE 144A") IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (II) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 OF
REGULATION S UNDER THE US SECURITIES ACT ("REGULATION S"), (III) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE US SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE), OR (IV) TO THE ISSUER OR ANY SUBSIDIARY THEREOF AND (B) IN EACH CASE, IN
ACCORDANCE WITH ALL APPLICABLE LAWS OF ANY OTHER JURISDICTION.
EACH PURCHASER OF THIS NOTE OR ANY INTEREST HEREIN AGREES THAT IT WILL DELIVER TO
EACH PURCHASER OF THIS NOTE OR BOOK-ENTRY INTERESTS FROM IT A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND."
•
The purchaser agrees that it will deliver to each purchaser of notes or Book-Entry Interests from it a notice to
substantially the foregoing effect. The purchaser understands that it may be required to deliver certain
certifications to the trustee or the registrar in connection with the foregoing restrictions on transfer.
•
The purchaser agrees that the Issuer, the Initial Purchaser and its affiliates and others will rely upon the truth and
accuracy of the foregoing acknowledgements, representations and agreements.
Regulation S
Each purchaser of International Book-Entry Interests offered outside the United States in reliance on Regulation S will
be deemed to have represented and agreed as follows (terms used herein that are defined in Rule 144A, Regulation D or
Regulation S are used herein as defined therein):
•
The purchaser is not a US Person and is not purchasing such International Book-Entry Interests for the account or
benefit of any US Person.
•
The purchaser's purchase of the International Book-Entry Interests is not part of a plan or scheme to evade the
registration requirements of the US Securities Act.
•
The purchaser understands that the notes and such International Book-Entry Interests have not been and will not be
registered under the US Securities Act, and that (A) on or prior to 22 March 2006, International Book-Entry
Interests may be offered, sold, pledged or otherwise transferred only (i) in an offshore transaction in accordance
with Rule 904 of Regulation S to a person that takes delivery in the form of an International Book-Entry Interest or
(ii) to Savcio Holdings (Proprietary) Limited or any subsidiary thereof and (B) after 22 March 2006, Book-Entry
Interests may be offered, sold, pledged or otherwise transferred only in compliance with the US Securities Act, in
each case, only in compliance with all applicable laws of any other jurisdiction.
•
The purchaser understands that, except as set forth in the indenture or as otherwise determined by Savcio Holdings
(Proprietary) Limited in accordance with applicable law, the notes corresponding to such Book-Entry Interests will
have a legend to the following effect:
"THIS NOTE DUE 2013 AND ANY INTEREST HEREIN HAVE NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE US SECURITIES ACT OF 1933, AS AMENDED (THE "US SECURITIES ACT"), AND, ON OR PRIOR TO
22 MARCH 2006, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) IN AN
OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE US SECURITIES
ACT ("REGULATION S") OR TO SAVCIO HOLDINGS (PROPRIETARY) LIMITED OR ANY SUBSIDIARY THEREOF
AND (B) IN COMPLIANCE WITH ALL APPLICABLE LAWS OF ANY OTHER JURISDICTION. AFTER 22 MARCH
2006, THIS NOTE AND ANY INTEREST HEREIN MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE US
SECURITIES ACT AND ALL APPLICABLE LAWS OF ANY OTHER JURISDICTION.
EACH PURCHASER OF THIS NOTE OR ANY INTEREST HEREIN AGREES THAT IT WILL DELIVER TO
EACH PURCHASER OF THIS NOTE OR BOOK-ENTRY INTERESTS HEREIN A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND."
•
The purchaser agrees that it will deliver to each purchaser of notes or Book-Entry Interests from it a notice to
substantially the foregoing effect.
•
The purchaser agrees that the Issuer, the Initial Purchaser and its affiliates and others will rely upon the truth and
accuracy of the foregoing acknowledgements, representations and agreements.
No representation can be made as to the availability of the exemption provided by Rule 144 under the US Securities
Act for resales of the notes. Because the Issuer is permitted to issue additional notes which may be consolidated and form a
single series of notes with the notes offered hereby, the start of any holding period under Rule 144 as applicable to all notes
could be deferred until after the date of any such additional issues. Consequently, any issue of such additional notes could have
the effect of deferring the availability of Rule 144 for purchasers of notes for a substantial period of time.
NOTICE TO NON-US INVESTORS
South Africa
The notes may not be and, accordingly, are not being offered or sold to prospective investors in South Africa.
Accordingly, the offer of the notes will not be a public offer as defined in the SA Companies Act, and this document does not,
nor is it intended to, constitute a prospectus prepared and registered under the SA Companies Act.
United Kingdom
In the United Kingdom the notes will only be available for subscription pursuant to the offering to a person who
represents and agrees that:
(i)
it has only communicated or caused to be communicated and will only communicate or cause to be communicated any
invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) received by it in
connection with the issue or sale of any notes in circumstances in which section 21(1) of the FSMA does not apply to the Issuer;
and
(ii)
it has complied with and will comply with all applicable provisions of the FSMA with respect to anything done by it in
relation to the notes in, from or otherwise involving the United Kingdom.
Italy
The offering of the notes in the Republic of Italy ("Italy") has not been registered with the Commissione Nazionale per
le Società a la Borsa ("CONSOB") pursuant to Italian securities legislation and, accordingly: (i) the notes cannot be offered, sold
or delivered in Italy in a solicitation to the public at large (sollecitazione all'investimento) within the meaning of Article 1,
paragraph 1, letter (t) of Legislative Decree no. 58 of 24 February 1998 (the "Financial Services Act"), nor any copy of the
Listing Particulars or any other document relating to the notes may be distributed in Italy, (ii) the notes cannot be offered, sold
and/or delivered, nor any copy of the Listing Particulars or any other document relating to the notes may be distributed, either in
the primary or in the secondary market, to individuals in Italy and (iii) sales of the notes in Italy shall only be:
(a)
negotiated with "Professional Investors" (operatori qualificati), as defined under Article 31, paragraph 2, of CONSOB
Regulation no. 11522 of 1 July 1998, as amended (the "CONSOB Regulation No. 11522");
(b)
effected in compliance with Article 129 of the Legislative Decree no. 385 of 1 September 1993 (the "Italian Banking
Act") and the implementing instructions of the Bank of Italy, pursuant to which the issue or the offer of securities in Italy may
need to be preceded and followed by an appropriate notice to be filed with the Bank of Italy depending, inter alia, on the
aggregate value of the securities issued or offered in the Republic of Italy and their characteristics;
(c)
effected in accordance with any other Italian securities, tax and exchange control and other applicable laws and
regulations and any other applicable requirement or limitation which may be imposed by CONSOB or the Bank of Italy; and
(d)
made by an investment firm, bank or financial intermediary permitted to conduct such activities in Italy in accordance
with the Italian Banking Act, the Financial Services Act, CONSOB Regulation no. 11522 and all the other relevant provisions of
Italian law.
Germany
The offering of the notes is not a public offering in the Federal Republic of Germany. The notes may be offered and
sold in the Federal Republic of Germany only in accordance with the provisions of the Securities Sales Prospectus Act of the
Federal Republic of Germany (WertpapierVerkaufsprospektgesetz), as amended, and any other applicable German law. No
application has been made under German law to publicly market the notes in or out of Germany. Therefore, this Listing
Particulars is strictly for private use and the offer is only being made to recipients to whom the document is personally addressed
and does not constitute an offer or advertisement to the public. The notes will only be available to persons who by profession or
by trade business buy or sell notes for their own or a third party's account.
France
The notes may not be offered or sold, directly or indirectly, to the public in France. Neither this Listing Particulars nor
any other offering material has been or will be submitted to the clearance procedure of the Commission des Opérations de
Bourse, and may not be released or distributed to the public in France. The investors in France may only purchase the notes for
their own account and in accordance with articles L. 411-1, L. 411-2 and L. 412-1 of the Code Monétaire et Financier and decree
no. 98-880 dated October 1, 1998, provided they are "qualified investors" within the meaning of said decree. Each French
investor must represent in writing that it is a qualified investor within the meaning of the aforesaid decree. Any resale, directly
or indirectly, to the public of the notes offered may be affected only in compliance with the above mentioned regulations.
"Les Obligations ne peuvent pas être, directement ou indirectement, offertes ou vendues dans le public en France. Ni
ce document d'information ni aucun autre document relatif à la présente opération n'a été ou ne sera soumis au visa de la
Commission des Opérations de Bourse et ne peut être diffusé ou distribué dans le public en France. Les investisseurs en France
ne peuvent acheter les Obligations pour compte propre et conformément aux articles L. 411-1, L. 411-2 et L. 412-1 du Code
Monétaire et Financier et du décret no98-880 du ler octobre 1998, que sous réserve qu'ils soient des investisseurs qualifiés au
sens dudit décret susvisé. Chaque investisseur doit déclarer par écrit qu'il est un investisseur qualifié au sens du décret susvisé.
Toute revente, directe ou indirecte, des Obligations dans le public ne peut être effectuée qu'en conformité avec la réglementation
susmentionnée."
Belgium
The notes may not be offered or sold directly or indirectly by way of a public offering in Belgium. Consequently, in
Belgium, the notes will only be available for subscription pursuant to the offering to registered Belgian credit institutions,
European Economic Area banks having a branch in Belgium, registered Belgian stockbroking companies, investment funds
registered with the Belgian Banking and Finance Commission or insurance companies and pension funds registered with the
Belgian Insurance Control Authority, provided in each case that these institutions are investing for their own account.
The Netherlands
The notes may not be offered, sold, transferred or delivered in or from the Netherlands, directly or indirectly, as part of
their initial distribution or at any time thereafter, and neither this listing particulars nor any other documents in respect of the
notes may be distributed or circulated, directly or indirectly, in or from the Netherlands, other than to individuals or legal entities
which include, but are not limited to, banks, brokers, dealers, institutional investors and undertakings with a treasury department,
who or which trade or invest in securities in the conduct of a business or profession.
SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES
Choice of law
Our South African counsel has advised us that in any proceedings for the enforcement of the obligations of any South
African party, the South African courts will generally give effect to the choice of foreign law as contemplated in the notes as the
governing law thereof.
Jurisdiction
According to said counsel, subject as set out below, any party's (i) irrevocable submission under the indenture and the
notes to the jurisdiction of a New York court; and (ii) agreement not to claim any immunity to which it or its assets may be
entitled, is generally legal, valid, binding and enforceable under the laws of South Africa, and any judgement obtained in the
foreign jurisdiction will be recognised and enforceable by the courts of South Africa without the need for re-examination of the
merits. The appointment by any party of an agent in a New York court to accept service of process in respect of the jurisdiction
of the New York courts is generally valid and binding on that party.
Under South African law, a court will not accept a complete ouster of jurisdiction, although generally it recognises
party autonomy and gives effect to choice of law provisions. However, jurisdiction remains within the discretion of the court
and a court may, in certain instances, assume jurisdiction provided there are sufficient jurisdictional connecting factors. South
African courts may, in rare instances, choose not to give effect to a choice of jurisdiction clause, if, for example, such choice is
contrary to public policy. Proceedings before a court of South Africa may be stayed until the conclusion of related proceedings
concurrently before any other court.
Recognition of foreign judgments
We have also been advised by our South African counsel that subject to obtaining the permission of the South African
Minister of Trade and Industry under South African Protection of Businesses Act, No. 99 of 1978 (the "SA PB Act"), an
authenticated judgement obtained in a competent court of jurisdiction other than South Africa will be recognised and enforced
by ordinary action in accordance with procedures ordinarily applicable under South African law for the enforcement of foreign
judgments, namely the issuance of a notice of motion and accompanying affidavits, or a summons claiming enforcement of the
foreign judgment; provided, that the judgment was pronounced by a proper court of law, was final and conclusive (in the case of
a judgment for money, on the face of it), has not become stale, and has not been obtained by fraud or in any manner opposed to
natural justice or contrary to the international principles of due process and procedural fairness, the enforcement thereof is not
contrary to South African public policy and the foreign court in question had jurisdiction and competence according to the
applicable rules on conflict of laws. A foreign judgement will probably not be recognised in South Africa if the foreign court
exercised jurisdiction over the defendant solely by virtue of an attachment to found jurisdiction or on the basis of domicile alone.
South African courts will not enforce foreign revenue or penal law (e.g. fines, governmental levy (in distinction to private
judgments)) and South African courts have, as a matter of public policy, generally not enforced awards for multiple or punitive
damages. Permission from the Minister of Trade and Industry will similarly not be granted if it would result in the recovery of
excessive damages.
Where obligations are to be performed in a jurisdiction outside South Africa they may not be enforceable under the
laws of South Africa to the extent that such performance would be illegal or contrary to public policy under the laws of South
Africa, or the foreign jurisdiction or to the extent that the law precludes South African courts from granting extra territorial
orders. South African courts have the discretion of refusing the granting of orders with extra territorial effect if the granting of
such order would be ineffectual.
Under South African Recognition and Enforcement of Foreign Arbitral Awards Act, No. 40 of 1977 (the "SA
Enforcement Act"), any foreign arbitral award may, subject to the provisions of sections 3 and 4 thereof, be made an order of
court by any court. Any such award which has been made an order of court pursuant to the provisions of the SA Enforcement
Act may be enforced in the same manner as any judgment or order to the same effect (subject to the provisions of the SA PB
Act, which apply mutatis mutandis to foreign arbitral awards).
Effect of Liquidation on Civil Proceedings
Said counsel has further advised us that, in general, civil proceedings (including arbitration proceedings) instituted by
or against a company are automatically stayed on the provisional liquidation of a company's estate until the final appointment of
a liquidator. A plaintiff wishing to continue with such proceedings against the company in liquidation must give notice of its
intention to do so within a proscribed period which may, in circumstances proscribed by the court, be extended.
LEGAL MATTERS
Certain legal matters in connection with the offering will be passed upon for us by Paul, Weiss, Rifkind, Wharton &
Garrison LLP, London, England, with respect to US federal and New York law, and Deneys Reitz Inc., Johannesburg, South
Africa, with respect to South African law. Certain legal matters in connection with the offering will be passed upon for the
Initial Purchaser by Latham & Watkins, London, England, with respect to US federal and New York law, and Cliffe Dekker
Inc., Johannesburg, South Africa, with respect to South African law.
INDEPENDENT AUDITORS
In this Listing Particulars, the historical financial statements for the acquired business as of and for the nine months
ended 30 September 2005 and the financial years ended 27 December 2002, 2003 and 2004 have been audited by Deloitte &
Touche, South Africa, independent auditors, as stated in reports appearing herein. Deloitte & Touche has confirmed that the
issuance of the Notes complies in all respects with the provisions of Government Notice 2172 (Government Gazette 16167) of
14 December 1994—Commercial Paper Regulations. Deloitte & Touche is a member of the Public Accountants and Auditors
Board (PAAB) in South Africa.
AVAILABLE INFORMATION
We are currently not subject to the periodic reporting requirements of the US Securities and Exchange Act of 1934, as
amended (the "US Exchange Act"). However, pursuant to the indenture governing the notes, we will furnish periodic
information to holders of the Notes. See "Description of Notes—Certain Covenants—Reports."
In addition, documents concerning this offering can be inspected at the Issuer's office at Savcio Holdings, Bruma
Boulevard, 20 Zulberg Close, Bruma, 2026, Republic of South Africa. Copies of such documents and other information relating
to the issuance of the notes will be available at the specified office of the paying agent in Dublin.
For so long as any of the notes remain outstanding and are "restricted securities" within the meaning of Rule 144(a)(3)
under the US Securities Act, we will, during any period in which we are not subject to Section 13 or 15(d) under the US
Exchange Act nor exempt from reporting thereunder pursuant to Rule 12g3-2(b) thereunder, make available to any holder or
beneficial holder of a note, or to any prospective purchaser of a note designated by such holder or beneficial holder, the
information specified in, and meeting the requirements of, Rule 144A(d)(4) under the US Securities Act upon the written request
of any such holder or beneficial holder. Any such request should be directed to us at the address given in the previous
paragraph. It should be delivered to the attention of the Company Secretary.
LISTING AND GENERAL INFORMATION
Listing
Application has been made to list the notes on the Alternative Securities Market of the Irish Stock Exchange. This
application is subject to the approval of the Alternative Securities Market of the Irish Stock Exchange. This document
constitutes Listing Particulars for such an application.
We will maintain a paying and transfer agent in Ireland for as long as any of the notes are listed on the Alternative
Securities Market of the Irish Stock Exchange. We reserve the right to vary such appointment and will notify the Alternative
Securities Market of the Irish Stock Exchange of such change of appointment.
So long as any of the notes remain outstanding and listed on the Alternative Securities Market of the Irish Stock
Exchange, electronic copies of this Listing Particulars will be made available for inspection at the main office in Ireland of
Dillon Eustace, our paying agent for the notes in Ireland, and at our registered office.
In addition, for so long as the notes remain listed on the Alternative Securities Market of the Irish Stock Exchange,
electrionic copies of the following documents will be made available for inspection at the main office in Ireland of AIB/BNY
Fund Management (Ireland) Limited, our paying agent for the notes in Ireland, and at our registered office located at Bruma
Boulevard, 20 Zulberg Close, Bruma, 2026, Republic of South Africa:
•
our memorandum and articles of association;
•
our most recent audited financial statements, and any interim financial statements published by us;
•
the purchase agreement relating to the notes;
•
the indenture relating to the notes (which includes the form of the notes); and
•
any other material documents relating to the listing.
The total expenses related to the admission of the notes to trading on the Alternative Securities Market of the Irish
Stock Exchange are expected to be less then €10,000. Except as disclosed in this Listing Particulars, we have not been involved
in any governmental, legal or arbitration proceedings that may have, or have had during the 12 months preceding the date of this
Listing Particulars, a significant effect on our financial position nor are we aware that any such proceedings are pending or
threatened.
As of the date of this Listing Particulars, our most recent audited financial statements available were as of and for the
nine months ended 30 September 2005. Except as disclosed in this Listing Particulars, as of the date of this Listing Particulars,
there has been no significant adverse change in our consolidated financial condition or trading position since
30 September 2005.
The notes have been rated B+ by Standard & Poor's and B2 by Moody's Investor Services.
Commercial paper exemption
As of 27 January 2006, the Issuer has not issued any "commercial paper" as defined in the South African Government
Notice 2172, Government Gazette 16167 of 14 December 1994, and to the best of the Issuer's knowledge and belief, the Issuer
estimates that it will issue €125 million (R931.8 million) of "commercial paper" (as so defined) during the current financial year,
ending 30 September 2006.
The directors believe that Savcio will be a going concern for the years ahead and can be reasonably expected to meet its
commitments.
Clearing Information
The notes sold pursuant to Regulation S and the notes sold pursuant to Rule 144A of the US Securities Act have been
accepted for clearance through the facilities of Euroclear and Clearstream Banking under common codes 24403157 and
24403190, respectively. The international securities identification number for the notes sold pursuant to Regulation S is
XS0244031570 and the international securities identification number for the notes sold pursuant to Rule 144A is
XS0244031901.
Organisational Information
The Issuer of the notes, Savcio Holdings (Proprietary) Limited (formerly known as Micawber 407 (Proprietary)
Limited), a limited liability company registered under the laws of South Africa, was incorporated on 23 December 2004 under
the Registration No. 2004/036123/07 pursuant to the SA Companies Act.
The issue of the notes was authorised by resolutions of the board of directors of the Issuer passed on 7 February 2006.
INDEX TO FINANCIAL STATEMENTS
Report of the Independent Auditors .............................................................................................................................
F-2
Financial Statements for the Combined Repairs and Services and Replacement Parts Businesses of Delta Electrical Industries
Limited for the Nine Months Ended 30 September 2005 (audited) and the Nine Months Ended 30 September 2004 (unaudited)
Income Statement ....................................................................................................................................................
F-3
Balance Sheet ..........................................................................................................................................................
F-4
Statement of Changes in Owners' Net Investment ......................................................................................................
F-5
Cash Flow Statement ...............................................................................................................................................
F-6
Notes to the Interim Financial Statements ....................................................................................................................
F-8
Audited Financial Statements for the Combined Repairs and Services and Replacement Parts Businesses of Delta Electrical
Industries Limited for the Years Ended 27 December 2004, 2003 and 2002
Income Statement .................................................................................................................................................... F-23
Balance Sheet .......................................................................................................................................................... F-24
Statement of Changes in Owners' Net Investment ...................................................................................................... F-25
Cash Flow Statement ............................................................................................................................................... F-26
Notes to Cash Flow Statement .................................................................................................................................. F-27
Notes to the Annual Financial Statements.................................................................................................................. F-28
REPORT OF THE INDEPENDENT AUDITORS
We have audited the accompanying balance sheets of the combined repairs and services and replacement parts
businesses of Delta Electrical Industries Limited (as defined in the notes to the financial statements) ("the Business") as of
27 December 2002, 2003, and 2004 and as of 30 September 2005 and the combined income statements, related combined cash
flows and related notes for the years and 9 month period then ended.
These financial statements are the responsibility of the management and directors of Savcio Holdings (Proprietary)
Limited. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with statements of South African Auditing Standards. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of
the businesses as of 27 December 2002, 2003 and 2004 and as of the 9 months ended 30 September 2005 and the results of its
operations and its cash flows for the years and the 9 month period then ended in conformity with statements of South African
Generally Accepted Accounting Practice.
The unaudited 9 month information for the period ended 30 September 2004 included in pages F-3 to F-14 does not
form part of the audited historical financial information and is presented as additional information. We have not audited this
information and accordingly we do not express an opinion on it.
Yours faithfully
Deloitte & Touche
Deloitte & Touche
Johannesburg
Chartered Accountants (SA)
Registered Accountants and Auditors
30 January 2006
COMBINED REPAIRS AND SERVICES AND REPLACEMENT PARTS
BUSINESSES OF DELTA ELECTRICAL INDUSTRIES LIMITED
Income Statement
Audited
9 months ended
30 September
2005
R'000
Notes
Revenue ..........................................................................................................
Cost of sales.....................................................................................................
Gross profit ......................................................................................................
Operating costs.................................................................................................
Earnings before interest, taxation, depreciation and amortisation .................
Depreciation.....................................................................................................
Amortisation of trademarks...............................................................................
Operating profit..............................................................................................
Interest received ...............................................................................................
Interest paid .....................................................................................................
Net interest received .........................................................................................
Profit before taxation......................................................................................
Taxation...........................................................................................................
Net profit for the period..................................................................................
781,276
(484,300)
296,976
(160,816)
136,160
(12,526)
(443)
123,191
8,609
(183)
8,426
131,617
(50,096)
81,521
3
4
Unaudited
9 months ended
30 September
2004
R'000
742,210
(464,169)
278,041
(155,472)
122,569
(11,264)
(443)
110,862
6,625
—
6,625
117,487
(42,238)
75,249
COMBINED REPAIRS AND SERVICES AND REPLACEMENT PARTS
BUSINESSES OF DELTA ELECTRICAL INDUSTRIES LIMITED
Balance Sheet
Audited
as of
30 September
2005
R'000
Audited
as of
27 December
2004
R'000
6
7
9
95,168
445
830
96,443
91,500
888
—
92,388
8
181,822
190,028
169,525
541,375
637,818
146,504
193,680
202,976
543,160
635,548
476,025
3,317
1
438,344
2,431
9,549
Notes
ASSETS
Non-current assets
Property, plant and equipment .............................................................................
Intangible assets .................................................................................................
Deferred taxation asset........................................................................................
Current assets
Inventories .........................................................................................................
Trade and other receivables.................................................................................
Cash and cash equivalents...................................................................................
TOTAL ASSETS................................................................................................
EQUITY AND LIABILITIES
Owners' net investment .......................................................................................
Owners' net investment Loco Coil Technologies ..................................................
Owners' net investment Bukubuhle Wire..............................................................
Non-current liabilities
Deferred taxation................................................................................................
Current liabilities
Trade and other payables.....................................................................................
Provisions ..........................................................................................................
Bank overdrafts ..................................................................................................
479,343
450,324
9
—
3,503
10
11
145,258
6,738
6,479
158,475
637,818
159,224
7,163
15,334
181,721
635,548
TOTAL EQUITY AND LIABILITIES ................................................................
COMBINED REPAIRS AND SERVICES AND REPLACEMENT PARTS
BUSINESSES OF DELTA ELECTRICAL INDUSTRIES LIMITED
Statement of Changes in Owners' Net Investment
Unaudited balance at 30 September 2004 ...........................................................................................................
Unaudited net profit for the period.........................................................................................................................
Unaudited movement in owners' net investment .....................................................................................................
—DMS divisions..................................................................................................................................................
—Bukubuhle Wire ...............................................................................................................................................
—Loco Coil .........................................................................................................................................................
Balance at 27 December 2004 .............................................................................................................................
Net profit for the 9 month period ...........................................................................................................................
Movement in owners' net investment .....................................................................................................................
—DMS divisions..................................................................................................................................................
—Bukubuhle Wire ...............................................................................................................................................
—Loco Coil .........................................................................................................................................................
Balance at 30 September 2005 ............................................................................................................................
R'000
410,347
38,371
1,606
5,023
(203)
(3,214)
450,324
81,521
(52,502)
(43,840)
(9,548)
886
479,343
COMBINED REPAIRS AND SERVICES AND REPLACEMENT PARTS
BUSINESSES OF DELTA ELECTRICAL INDUSTRIES LIMITED
Cash Flow Statement
Notes
CASH FLOWS FROM OPERATING ACTIVITIES
Cash generated from operations.........................................................................
A
Increase in working capital................................................................................
B
Interest received ...............................................................................................
Interest paid .....................................................................................................
Non-cash deferred tax movement ......................................................................
Net cash inflow from operating activities ...........................................................
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment .........................................................
Proceeds on disposal of property, plant and equipment .......................................
Net cash outflow from investing activities..........................................................
NET MOVEMENT IN OWNERS' INVESTMENT.............................................. (*)
NET INCREASE IN CASH AND CASH EQUIVALENTS ................................
Cash and cash equivalents at the beginning of the period ....................................
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD ..............
Audited
9 months ended
30 September
2005
R'000
Unaudited
9 months ended
30 September
2004
R'000
135,735
(45,632)
8,609
(183)
(4,333)
94,196
123,090
(25,255)
6,625
—
542
105,002
(16,455)
261
(16,194)
(102,598)
(24,596)
187,642
163,046
(30,120)
88
(30,032)
(89,690)
(14,720)
173,409
158,689
(*)
These transactions include dividend payments, taxation payments and movements in cash and cash equivalent balances
with Delta group companies.
COMBINED REPAIRS AND SERVICES AND REPLACEMENT PARTS
BUSINESSES OF DELTA ELECTRICAL INDUSTRIES LIMITED
Notes to the Cash Flow Statement
A. RECONCILIATION OF PROFIT BEFORE TAXATION TO CASH GENERATED FROM OPERATIONS
Profit before taxation ......................................................................................................
Adjusted for:
Depreciation of property, plant and equipment .................................................................
Amortisation of trademarks.............................................................................................
Interest received .............................................................................................................
Interest paid ...................................................................................................................
Net movement in provisions............................................................................................
Cash generated from operations.......................................................................................
Audited
9 months ended
30 September
2005
R'000
Unaudited
9 months ended
30 September
2004
R'000
12,526
443
(8,609)
183
(425)
135,735
11,264
443
(6,625)
—
521
123,090
(35,318)
3,652
(13,966)
(45,632)
(4,086)
(43,031)
21,862
25,255
131,617
117,487
B. (INCREASE) DECREASE IN WORKING CAPITAL
Increase in inventories ....................................................................................................
Increase in trade and other receivables .............................................................................
Increase in trade and other payables.................................................................................
COMBINED REPAIRS AND SERVICES AND REPLACEMENT PARTS
BUSINESSES OF DELTA ELECTRICAL INDUSTRIES LIMITED
Notes to the Interim Financial Statements
Basis of preparation
Effective 1 October, 2005, Delta Electrical Industries Limited ("Delta") disposed of its combined repairs and services
and replacement parts businesses (the "Business") to Savcio Holdings (Proprietary) Limited ("Savcio").
The accompanying unaudited combined consolidated financial statements have been prepared in accordance with
accounting practice generally accepted in South Africa for interim financial information and do not include all the disclosures
that would be required if these were full annual financial statements.
The nine months ended 30 September 2005 were subject to various normal year-end adjustments as that is now our
financial year end. The nine months ended 30 September 2004 formed part of an accounting year and as such not all normal
year-end adjustments were made and accordingly that period is not fully comparable to the nine months ended 30 September
2005.
The results for interim periods are not necessarily indicative of results which may be expected for any other interim
period or for the full year.
The Business comprised the following business units:
Maintenance and repairs business unit
The maintenance and repairs business unit is Africa's largest repairer of electric motors, transformers and drive systems
and is an approved electrical repairer to a number of large multi-national electric equipment manufacturers. The division has
repair workshops in the main industrial and mining centres and major ports in South Africa.
Transwire business unit
Transwire is one of the leading manufacturers of enamelled copper wire in South Africa. It manufactures a complete
range of magnet wire and bare and covered shaped copper conductor products.
Wire Electric business unit
Wire Electric is a leading supplier of input materials to the electrical motor and transformer repair and manufacturing
industries. This includes materials such as magnet wire, bare and covered shaped copper conductor and electrical insulation.
Wire Electric also distributes industrial tapes and abrasives.
Replacement parts business unit
The replacement parts business unit, comprising Equipment Spare Parts ("ESP"), Truck Spare Parts ("TSP") and AMT
Services ("AMT"), specialises in the procurement and distribution of high-quality aftermarket replacement parts, which include
ground engaging tools and undercarriage for earthmoving equipment, as well as parts for earthmoving equipment, diesel
engines, transmissions and heavy-duty trucks.
The above four business units were not separate legal entities but formed the greater part of Delta DMS (Proprietary)
Limited ("DMS"), a wholly-owned subsidiary of Delta.
Loco Coil Technologies (Proprietary) Limited
Loco Coil Technologies is a Black Economic Empowerment ("BEE") company and was a subsidiary company of Delta
managed by the maintenance and repairs business unit, specialising in the manufacture of traction coils and components used for
the repair of electrical traction motors in rail transportation.
Delta owned 74% of the share capital of Loco Coil. The 26% minority interest was also acquired by Savcio.
Bukubuhle Wire (Proprietary) Limited
Bukubuhle Wire is a BEE company and was a subsidiary company of Delta managed by Transwire, specialising in the
manufacture of shaped covered copper conductor and the distribution of this product together with shaped bare copper conductor
and transformer components to the transformer manufacturing and repair industries. Delta owned 70% and the BEE partners
continue to own 30%.
The financial statements of the Business have been prepared in accordance with Generally Accepted Accounting
Practice in South Africa ("SA GAAP").
The financial statements combine the financial position, results of operations and cash flows and changes in owners' net
investment of the four business units that were previously part of DMS with the financial position, results of operations and cash
flows and changes in owners' net investment of the two BEE companies (Loco Coil Technologies and Bukubuhle Wire)
acquired by Savcio because these entities were under common control during the periods presented. Normal consolidation
adjustments in respect of transactions between the four businesses that were part of DMS and the two BEE companies have been
made. The interest in these companies that was not held by Delta is not reflected as a minority interest.
The financial statements have been prepared on a "carve out" basis and have been derived from the financial statements
and accounting records of DMS and the two BEE companies using the historical results of operations and historical bases of the
assets and liabilities of the Business. The directors believe that assumptions underlying the combined "carve out" consolidated
financial statements are reasonable. However, the combined "carve out" consolidated financial statements may not necessarily
reflect the Business' financial position, results of operations and/or cash flows that the Business would have achieved had the
Business operated as a stand-alone entity during the periods presented.
Carve out adjustments have been made to the combined financials statements, as described below, to allocate certain
costs incurred by Delta and/or DMS on behalf of the Business.
General corporate expenses
The combined financial statements of the Business include allocations of some of Delta's and DMS' expenses,
including centralised treasury, tax, corporate finance, legal, technical, financial reporting, insurance, internal audit and other
corporate services and infrastructure costs. The expense allocations have been determined on the bases considered to reasonably
reflect the utilisation of services provided or the benefit received by the Business. All central costs have been allocated to the
four business units comprising the business and the two BEE companies as a recovery of Delta's actual cost.
The cost of these services allocated to the Business is not necessarily indicative of the costs the Business would have
incurred had it performed these functions as a stand-alone company. Following the acquisition by Savcio, the Business will
perform these functions using its own resources or through purchased services.
Interest expense and financing
Delta used a centralised approach to financing the working capital and capital expenditures of its businesses during the
periods presented. Each business however operated its own bank accounts. Outstanding net bank deposits or bank overdrafts
between the four businesses and their bankers were interest-bearing at market related rates. Although the outstanding cash
deposits and bank overdrafts of the Business are reflected on the balance sheet, they are not included in the assets and liabilities
acquired by Savcio.
Long-term compensation benefits
Delta operated incentive schemes for executives of the businesses which have been acquired. These were in the form
of long-term incentive schemes which were settled in cash and linked to the financial performance of each business unit. As a
result, a provision for long-term compensation benefits was raised. Any increase or decrease in the value of the benefit owing to
participants is reflected in the income statement of the operating unit.
The charges to the income statements for the years ended 27 December 2004 and for the 9 month period ended
30 September 2005 were R6.7 million and R20.1 million respectively. The increased charge was due to the impact of the
Acquisition, the pricing formula under the scheme and accelerated vesting due to the Acquisition.
These schemes were settled by Delta as at the effective date and did not form part of the sale of the business. As a
result the provision carried on the balance sheet has been included in Owners' net investment.
Owners' net investment
Because the four business units of the Business (which formed the greater part of DMS) were not separate legal
entities, Owners' net investment is presented in the place of Shareholders' equity. The Owners' net investment of the two BEE
companies is presented separately.
Taxation
The four business units were not separate tax paying entities. Historically, the results of these units were included in
the tax return of DMS. The income tax expense and other tax-related information in these combined financial statements is
presented as if each of the four business units had filed tax returns on a stand-alone basis. The recognition and measurement of
the income tax expense and deferred income taxes required certain assumptions, allocations and significant estimates which
management believes are reasonable to measure the tax consequences as if the four Businesses units comprising the business
were stand-alone taxpayers.
The two BEE companies were stand-alone taxpayers.
For purposes of these combined financial statements, the current income tax provision has been recorded within income
tax expense and current income tax liabilities were assumed to be immediately settled by Delta and are relieved through Owners'
net investment.
1. PRINCIPAL ACCOUNTING POLICIES
The combined financial statements are prepared under the historical cost convention, except for certain financial
instruments accounted for at fair value, and assets and liabilities that are periodically re-valued, in accordance with SA GAAP.
The principal accounting policies of the business are set out below.
1.1 Revenue
Revenue represents the net value of sales to customers. Intra-divisional revenue is eliminated. Sales of goods are
recognised when goods are delivered and title has passed.
Revenue arising from services is recognised on the completed contract basis and in accordance with the substance of
the relevant agreements.
Interest income is accrued on the time basis, by reference to the principal outstanding and the interest rate applicable.
Dividend income from investments is recognised when the shareholders' rights to receive payment have been
established.
1.2 Foreign currencies
Transactions denominated in foreign currencies are initially recorded at the rate of exchange prevailing on the
transaction date. Monetary assets and liabilities denominated in such currencies are retranslated at the rates prevailing on the
balance sheet date. Profits and losses arising on exchange are included in net profit or loss for the period.
1.3 Retirement benefit costs
The Business provides retirement benefits for its employees via its defined contribution retirement benefit plan.
Contributions by the Business to fund the obligations for the payment of retirement benefits are charged against income in the
year that they become payable. Payments to industry-managed retirement benefit schemes are dealt with as defined contribution
plans where the Business' obligations under the schemes are equivalent to those arising in a independent defined contribution
retirement plan. For defined benefit plans the cost of providing benefits is determined using the projected unit credit method.
Actuarial valuations are conducted on a triennial basis. The retirement benefit obligation or asset represents the present value of
the defined benefit obligation as reduced by the fair value of plan assets. A deficit is recognised immediately. To the extent that
there is uncertainty regarding the entitlement to a surplus, no asset is recorded.
1.4 Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as operating leases.
lease.
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant
1.5 Impairment
At each balance sheet date and whenever, the Business reviews the carrying amounts of its tangible and intangible
assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount
of the asset is estimated to be less than its carrying amount, its carrying amount is reduced to its recoverable amount.
Impairment losses are recognised in the income statement immediately.
1.6 Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is provided on bases which
write off the assets over their estimated useful lives. Provision for depreciation or replacement of loose tools and moulds is not
made, as the costs of renewals are written off in the year in which they are incurred. No depreciation is provided on freehold
land.
The annual rates of depreciation generally applied on a straight-line basis are as follows:
Freehold buildings......................................................................................................................................
Leasehold improvements ............................................................................................................................
Plant and machinery and vehicles ................................................................................................................
2.0%
12.5%
7.5%-33.3%
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the net sales
proceeds and the carrying amount of the assets and is recognised in income.
1.7 Inventory
Inventory is stated at the lower of cost and net realisable value. Cost is determined on the following bases:
•
Raw materials and consumable stores are valued at cost on a first-in, first-out basis.
•
Work-in-progress is valued on the average method that includes the cost of raw materials, direct labour and
appropriate overheads according to the stage of production.
•
Finished goods are valued on the average method that includes the cost of raw materials, direct labour and
appropriate overheads.
Redundant and slow moving stocks are identified at each reporting date and written down with regard to their estimated
economic or realisable values.
1.8 Taxation
The charge for current tax is based on the results for the year as adjusted for items which are non-taxable or disallowed.
It is calculated using the tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred taxation is the tax expected to be payable or recoverable on differences between the carrying amount of assets
and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit, and is
accounted for using the balance sheet liability method. Deferred taxation liabilities are recognised for all taxable temporary
differences and deferred taxation assets are recognised to the extent that it is probable that taxable profits will be available
against which deductible temporary differences can be utilised.
1.9 Provisions
Provisions are recognised when the business has a present legal or constructive obligation as a result of past events, for
which it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be
made for the amount of the obligation. Where the effect of discounting to present value is material, provisions are adjusted to
reflect the time value of money.
1.10 Financial instruments
Financial assets and financial liabilities are recognised on the Business' balance sheet when the Business becomes a
party to the contractual provisions of the instrument.
Trade receivables
amounts.
Trade receivables are stated at their nominal value as reduced by appropriate allowance for estimated irrecoverable
Loans and receivables originated by the company
Loans and receivables originated by the Business are stated at amortised cost.
Bank balances and cash
Deposits with banks and related party receivables are carried at nominal value which approximates fair value.
Bank borrowings
Interest bearing bank overdrafts are recorded at the proceeds received. Finance charges are accounted for on an accrual
basis and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they
arise.
Trade payables
Trade and other payables are stated at their nominal value.
Derivative financial instruments
The Business uses derivative financial instruments (forward exchange contracts) to hedge the risks associated with
foreign currency fluctuations relating to firm commitments. Hedge accounting is not applied. Such derivatives are initially
recorded at fair value which is cost, if any, and are re-measured to fair value at subsequent reporting dates. Changes in the fair
value of derivative financial instruments are recognised in the income statement as they arise.
COMBINED REPAIRS AND SERVICES AND REPLACEMENT PARTS
BUSINESSES OF DELTA ELECTRICAL INDUSTRIES LIMITED
Notes to the Interim Financial Statements
2. SEGMENTAL INFORMATION
Revenue
—Repairs and services....................................................................................................
—Replacement parts.......................................................................................................
Earnings before interest, tax, depreciation and amortisation
—Repairs and services....................................................................................................
—Replacement parts.......................................................................................................
Carrying amount of segmental assets
—Repairs and services....................................................................................................
—Replacement parts.......................................................................................................
Segment liabilities
—Repairs and services....................................................................................................
—Replacement parts.......................................................................................................
Audited
9 months
ended
30 September
2005
R'000
Unaudited
9 months
ended
30 September
2004
R'000
629,916
151,360
781,276
577,428
164,782
742,210
123,485
12,675
136,160
108,336
14,233
122,569
Audited
as of
30 September
2005
R'000
Audited
as of
27 December
2004
R'000
532,354
105,464
637,818
529,611
105,937
635,548
127,598
30,877
158,475
151,349
33,875
185,224
Three of the business units comprise the repairs and services segment; the Transwire, Wire Electric and maintenance
and repairs business units (including the BEE companies). The replacement parts business unit comprises its own segment.
3. OPERATING PROFIT
Operating profit has been arrived at after taking into account the following items:
Income
Profit on disposal of property, plant and equipment ............................................................
Expenses
Auditor's remuneration......................................................................................................
—audit fees......................................................................................................................
—expenses.......................................................................................................................
—fees for other services....................................................................................................
—under (over) provision prior year ...................................................................................
Depreciation of property, plant and equipment ...................................................................
—freehold buildings .........................................................................................................
—leasehold improvements................................................................................................
—plant, equipment and vehicles........................................................................................
Audited
9 months
ended
30 September
2005
R'000
Audited
12 months
ended
27 December
2004
R'000
—
3,523
748
726
22
—
—
12,526
358
32
12,136
781
685
20
4
72
15,406
399
29
14,978
Amortisation of trademarks...............................................................................................
Operating lease expenses ..................................................................................................
—fixtures, fittings and equipment......................................................................................
—land and buildings.........................................................................................................
443
5,949
97
5,852
590
8,833
118
8,715
Audited
9 months
ended
30 September
2005
R'000
Audited
12 months
ended
27 December
2004
R'000
47,402
(4,143)
43,259
51,596
3,108
54,704
44
(190)
(146)
299
(191)
108
6,983
50,096
4,981
59,793
4. TAXATION
South African normal
—current..........................................................................................................................
—deferred........................................................................................................................
Total current year .............................................................................................................
Under (over) provision of prior year's taxation
—current..........................................................................................................................
—deferred........................................................................................................................
Total prior year.................................................................................................................
Secondary taxation on companies
—current..........................................................................................................................
Reconciliation of rate of taxation
South African company taxation rate .................................................................................
Decrease in rate of taxation:
—Non-taxable income......................................................................................................
—Overprovision in prior year............................................................................................
—Rate change..................................................................................................................
%
29.0
%
30.0
(0.1)
(0.7)
(0.1)
(0.9)
(0.5)
(0.1)
—
(0.6)
4.8
4.7
0.5
10.0
38.1
2.0
2.9
0.2
5.1
34.5
Audited
9 months
ended
30 September
2005
R'000
Audited
12 months
ended
27 December
2004
R'000
1,115
242
72
1,430
1,420
275
113
1,808
Increase in rate of taxation:
—Non-deductible expenses...............................................................................................
—Secondary taxation on companies ..................................................................................
—Underprovision in prior year..........................................................................................
Effective rate of taxation ...................................................................................................
5. DIRECTOR'S EMOLUMENTS
Executive director
—services as managers .....................................................................................................
—defined benefit retirement fund contributions..................................................................
—other benefits................................................................................................................
Other benefits include vehicle, subsistence and entertainment allowances, contributions to the company's medical aid
scheme and the fringe benefit on low interest rate loans advanced by the Delta share incentive scheme.
6. PROPERTY, PLANT AND EQUIPMENT
Freehold
land
R'000
Freehold
buildings
R'000
Leasehold
improvements
R'000
Plant and
equipment
R'000
Total
R'000
At 30 September 2005
Cost .....................................................................
Accumulated depreciation.....................................
Net book value .....................................................
At 27 December 2004
Cost .....................................................................
Accumulated depreciation.....................................
Net book value .....................................................
4,364
—
4,364
25,798
(2,619)
23,179
1,377
(1,083)
294
171,047
(103,716)
67,331
202,586
(107,418)
95,168
9,316
(430)
8,886
24,240
(2,261)
21,979
1,374
(1,051)
323
148,782
(88,470)
60,312
183,712
(92,212)
91,500
The registers of land and buildings are open for inspection at the registered offices of the company.
Reconciliation of movement
Opening net book value 2004................................
Capital expenditure...............................................
Disposals .............................................................
Depreciation.........................................................
Closing net book value 2005 .................................
Opening net book value 2003................................
Capital expenditure...............................................
Disposals .............................................................
Depreciation.........................................................
Closing net book value 2004 .................................
Freehold
land
R'000
4,364
—
—
—
4,364
2,003
7,422
(109)
(430)
8,886
Freehold
buildings
R'000
21,979
1,558
—
(358)
23,179
6,362
16,034
(18)
(399)
21,979
Leasehold
improvements
R'000
323
3
—
(32)
294
352
—
—
(29)
323
Plant and
equipment
R'000
64,834
14,894
(261)
(12,136)
67,331
59,840
17,810
(2,790)
(14,548)
60,312
Total
R'000
91,500
16,455
(261)
(12,526)
95,168
68,557
41,266
(2,917)
(15,406)
91,500
7. INTANGIBLE ASSETS
Trademarks
Trademarks represent registered rights to the exclusive use of certain trademarks and
brandnames
Carrying value at beginning of the year...............................................................................
Amortisation .....................................................................................................................
Carrying value at end of the year ........................................................................................
Comprising:
Cost ..................................................................................................................................
Accumulated amortisation..................................................................................................
Audited
9 months
ended
30 September
2005
R'000
Audited
12 months
ended
27 December
2004
R'000
888
(443)
445
1,478
(590)
888
5,484
(5,039)
445
5,898
(5,010)
888
Audited
9 months
ended
30 September
2005
R'000
Audited
12 months
ended
27 December
2004
R'000
Audited
9 months
ended
30 September
2005
R'000
Audited
12 months
ended
27 December
2004
R'000
3,503
(4,333)
(830)
586
2,917
3,503
710
(1,540)
(830)
6,864
(3,361)
3,503
8. INVENTORIES
Raw materials...................................................................................................................
Work-in-progress..............................................................................................................
Finished goods .................................................................................................................
Merchandise.....................................................................................................................
Total inventory.................................................................................................................
26,460
40,899
12,590
101,873
181,822
20,949
24,640
11,903
89,012
146,504
9. DEFERRED TAXATION
Movement of deferred taxation liability:
Balance at beginning of period/year...................................................................................
Income statement..............................................................................................................
Balance at end of period/year ............................................................................................
Comprising:
Capital allowances............................................................................................................
Other temporary differences..............................................................................................
Total deferred taxation (asset)/liability...............................................................................
COMBINED REPAIRS AND SERVICES AND REPLACEMENT PARTS
BUSINESSES OF DELTA ELECTRICAL INDUSTRIES LIMITED
Notes to the Interim Financial Statements
10. TRADE AND OTHER PAYABLES
Trade and other payables principally comprise of amounts outstanding for trade purchases and ongoing costs.
The directors consider that the carrying amount of trade and other payables approximates their fair value.
11. PROVISIONS
Warranty Provision
Balance at beginning of period ..........................................................................................
(Reversed) charged to the income statement.......................................................................
Balance at end of period....................................................................................................
Audited
9 months
ended
30 September
2005
R'000
Audited
12 months
ended
27 December
2004
R'000
7,163
(425)
6,738
8,509
(1,346)
7,163
The warranty provision is calculated based on an average of the past three years' actual customer warranty costs as a
percentage of revenue applied to the current year's revenue.
12. COMMITMENTS
12.1 Capital expenditure
Contracted........................................................................................................................
Authorised but not contracted............................................................................................
3,546
8,922
12,468
7,078
11,485
18,563
12.2 Operating lease commitments
The company has entered into operating leases in respect of certain of its property, plant and equipment. The future
minimum lease commitments in terms of these lease agreements are as follows:
Plant and equipment
—due within one year.......................................................................................................
—thereafter......................................................................................................................
Total plant and equipment.................................................................................................
Property
—due within one year.......................................................................................................
—thereafter......................................................................................................................
Total property...................................................................................................................
Total operating lease commitments....................................................................................
Audited
9 months
ended
30 September
2005
R'000
Audited
12 months
ended
27 December
2004
R'000
99
33
132
37
39
76
8,642
21,773
30,415
30,597
7,910
21,695
29,605
29,681
13. RELATED PARTY TRANSACTIONS
Their were no material trading transactions between the Businesses and the rest of the Delta group or the minority
shareholders of the two BEE companies.
Certain costs are incurred centrally by Delta and are allocated out to the businesses. Management believes these
allocated costs are not materially different than the amounts that would have been recorded had the businesses operated as
unaffiliated entities.
14. FINANCIAL RISK MANAGEMENT
The financial instruments utilised in the Businesses, consist mainly of deposits with banks, accounts receivable and
payable and loans to related parties.
In respect of all financial instruments mentioned above, book value approximates fair value. Derivative instruments
consist of forward exchange contracts which are used by the Business for hedging purposes. The Business does not speculate in
the trading of derivative instruments.
Foreign currency management
Trade exposure
The policy of the Businesses is to cover forward foreign currency denominated purchases. Each business unit and BEE
company manages its own trade exposure.
Credit risk management
Potential areas of credit risk consist of trade accounts receivable and short term cash investments. Trade accounts
receivable arise mainly from a large widespread customer base. Each business unit and BEE company monitors the financial
position of their customers on an ongoing basis. Where considered appropriate, use is made of credit guarantee insurance. The
granting of credit is controlled by application and account limits. Provision is made for both specific and general bad debts and
at the year end management did not consider there to be any material credit risk exposure that was not already covered by credit
guarantee or a bad debt provision.
It is the policy of the Businesses to deposit short term cash investments with only the major banks.
Liquidity risk management
The Business manages liquidity risk by monitoring forecast cash flows and ensuring that adequate unutilised borrowing
facilities are maintained.
Foreign currency exposure
The following amounts represent the Rand equivalents of commitments to purchase and sell foreign currencies in terms
of forward exchange contracts. Details of these contracts are as follows:
Purchase of foreign currency
US dollars ..............................................................................
Pounds sterling.......................................................................
Euro.......................................................................................
Swedish krone........................................................................
Norwegian krone....................................................................
Japanese Yen..........................................................................
Australian Dollar ....................................................................
Fair value of financial instruments
Foreign amount
2005
2004
FC'000
FC'000
4,168
329
3,470
1,956
326
—
620
4,217
264
3,379
1,191
272
1,275
99
Average rate
(rand to
foreign currency)
2005
2004
6.491
12.058
8.476
0.956
1.110
—
5.060
6.423
11.258
7.876
0.961
0.923
0.055
4.677
Rand amount
2005
2004
R'000
R'000
26,785
12,910
20,527
1,869
362
—
3,137
27,087
2,972
26,612
1,145
251
70
463
The following fair value assets and liabilities for forward exchange contracts have been raised on the balance sheet at
year end and are included in trade and other receivables and trade and other payables respectively:
Forward exchange contracts
Financial assets.................................................................................................................
Financial liabilities ...........................................................................................................
Net financial liability raised...............................................................................................
Audited
9 months
ended
30 September
2005
R'000
Audited
12 months
ended
27 December
2004
R'000
—
(3,635)
(3,635)
161
(3,041)
(2,880)
15. RETIREMENT BENEFITS
Prior to the sale, the Business participated in the Delta Pension Fund for the years ended 2002, 2003 and 2004, a
registered and approved fund governed by the Pension Funds Act, 1956, as amended. The majority of the Business' employees
were members of the fund, other than those required by legislation to be members of the various industry funds.
The Delta Pension Fund has a defined contribution section and a defined benefit section. At year end 2004, one
member (2003: two) contributed to the defined benefit section and 600 (2003: 593) to the defined contribution section. All new
employees of the Business were required to join the defined contribution section. The Delta Pension Fund assets are valued by
an independent actuary every three years. The most recent statutory valuation, at 31 December 2004, concluded there was an
excess of assets over past service liabilities. The projected unit credit method was used for that valuation. As of 30 September
2005, the last actuarial valuation effective 31 December 2004 had not been updated.
Fair value of remaining assets............................................................................................
Present value of obligations...............................................................................................
Excess assets at end of the year .........................................................................................
Audited
9 months
ended
30 September
2005
R'000
Assumptions
Valuation interest rate (pre retirement)...............................................................................
Valuation interest rate (post retirement) .............................................................................
Discount rate....................................................................................................................
Rate of compensation increase...........................................................................................
business.
%
11,398
(1,203)
10,195
7.2
3.7
7.9
5.0
Audited
12 months
ended
27 December
2004
R'000
11,398
(1,203)
10,195
%
7.2
3.7
7.9
5.0
As a result of the uncertainties regarding the allocation of any excess Fund assets, no asset has been recognised by the
The Business has no obligation to fund post-retirement medical costs of pension fund members.
COMBINED REPAIRS AND SERVICES AND REPLACEMENT PARTS
BUSINESSES OF DELTA ELECTRICAL INDUSTRIES LIMITED
Income Statement
for the year ended 27 December
Notes
Revenue ................................................................................................
Cost of sales...........................................................................................
Gross profit ............................................................................................
Operating costs.......................................................................................
Earnings before interest, taxation, depreciation and amortisation .......
Depreciation...........................................................................................
Amortisation of trademarks.....................................................................
Operating profit....................................................................................
Interest received .....................................................................................
Interest paid ...........................................................................................
Net interest received ...............................................................................
Profit before taxation............................................................................
Taxation.................................................................................................
Net profit for the year...........................................................................
3
4
2004
R'000
973,619
(591,048)
382,571
(202,446)
180,125
(15,406)
(589)
164,130
10,451
(1,168)
9,283
173,413
(59,793)
113,620
2003
R'000
839,187
(505,605)
333,582
(179,400)
154,182
(13,900)
(589)
139,693
14,880
(2,527)
12,353
152,046
(53,290)
98,756
2002
R'000
772,920
(477,298)
295,622
(160,416)
135,206
(11,877)
(589)
122,740
14,959
(5,893)
9,066
131,806
(45,422)
86,384
COMBINED REPAIRS AND SERVICES AND REPLACEMENT PARTS
BUSINESSES OF DELTA ELECTRICAL INDUSTRIES LIMITED
Balance Sheet
for the year ended 27 December
Notes
2004
R'000
2003
R'000
2002
R'000
6
7
91,500
888
92,388
68,557
1,478
70,035
56,352
2,066
58,418
8
146,504
193,680
202,976
543,160
635,548
145,172
163,529
175,720
484,421
554,456
119,470
146,625
143,543
409,638
468,056
438,344
—
2,431
9,549
450,324
380,744
5,815
1,043
—
387,602
319,549
4,335
—
—
323,884
9
3,503
586
650
10
11
159,224
7,163
15,334
181,721
635,548
155,448
8,509
2,311
166,268
554,456
135,820
7,702
—
143,522
468,056
Balance at 27 December 2001 .............................................................................................................................
Net profit for the year ...........................................................................................................................................
Movement in owners' net investment .....................................................................................................................
—DMS divisions..................................................................................................................................................
—Temso..............................................................................................................................................................
Balance at 27 December 2002 .............................................................................................................................
Net profit for the year ...........................................................................................................................................
Movement in owners' net investment .....................................................................................................................
—DMS divisions..................................................................................................................................................
—Loco Coil .........................................................................................................................................................
—Temso..............................................................................................................................................................
Balance at 27 December 2003 .............................................................................................................................
Net profit for the year ...........................................................................................................................................
Movement in owners' net investment .....................................................................................................................
—DMS divisions..................................................................................................................................................
—Bukubuhle Wire ...............................................................................................................................................
—Loco Coil .........................................................................................................................................................
Balance at 27 December 2004 .............................................................................................................................
133,371
86,384
104,129
103,172
957
323,884
98,756
(35,038)
(30,266)
1,043
(5,815)
387,602
113,620
(50,898)
(61,835)
9,549
1,388
450,324
ASSETS
Non-current assets
Property, plant and equipment .............................................................................
Intangible assets .................................................................................................
Current assets
Inventories .........................................................................................................
Trade and other receivables.................................................................................
Cash and cash equivalents...................................................................................
TOTAL ASSETS................................................................................................
EQUITY AND LIABILITIES
Owners' net investment .......................................................................................
Owners' net investment Temso............................................................................
Owners' net investment Loco Coil Technologies ..................................................
Owners' net investment Bukubuhle Wire..............................................................
Non-current liabilities
Deferred taxation................................................................................................
Current liabilities
Trade and other payables.....................................................................................
Provisions ..........................................................................................................
Bank overdrafts ..................................................................................................
TOTAL EQUITY AND LIABILITIES ................................................................
COMBINED REPAIRS AND SERVICES AND REPLACEMENT PARTS
BUSINESSES OF DELTA ELECTRICAL INDUSTRIES LIMITED
Statement of Changes in Owners' Net Investment
for the year ended 27 December
R'000
COMBINED REPAIRS AND SERVICES AND REPLACEMENT PARTS
BUSINESSES OF DELTA ELECTRICAL INDUSTRIES LIMITED
Cash Flow Statement
for the year ended 27 December
Notes
CASH FLOWS FROM OPERATING ACTIVITIES
Cash generated from operations.......................................................................
A
(Increase) decrease in working capital..............................................................
B
Interest received .............................................................................................
Interest paid ...................................................................................................
Non-cash deferred tax movement ....................................................................
Net cash inflow from operating activities .........................................................
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment .......................................................
Proceeds on disposal of property, plant and equipment .....................................
Investments in businesses................................................................................
C
Net cash outflow from investing activities........................................................
NET MOVEMENT IN OWNERS' INVESTMENT............................................ (*)
NET INCREASE IN CASH AND CASH EQUIVALENTS ................................
Cash and cash equivalents at the beginning of the year......................................
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR................
2004
R'000
2003
R'000
2002
R'000
175,256
(27,707)
10,451
(1,168)
2,917
159,749
153,712
5,899
14,880
(2,527)
(64)
171,900
135,028
(41,052)
14,959
(5,893)
(615)
102,427
(41,266)
6,440
—
(34,826)
(110,690)
14,233
173,409
187,642
(23,594)
1,933
(32,050)
(53,705)
(88,329)
29,866
143,543
173,409
(15,353)
1,383
(2,912)
(16,882)
(43,695)
41,850
101,693
143,543
(*)
These transactions include dividend payments, taxation payments and movements in cash and cash equivalent balances
with Delta group companies.
COMBINED REPAIRS AND SERVICES AND REPLACEMENT PARTS
BUSINESSES OF DELTA ELECTRICAL INDUSTRIES LIMITED
Notes to the Cash Flow Statement
for the year ended 27 December
A. RECONCILIATION OF PROFIT BEFORE TAXATION TO CASH GENERATED FROM OPERATIONS
Profit before taxation ........................................................................................................
Adjusted for:
Depreciation of property, plant and equipment ...................................................................
Amortisation of trademarks...............................................................................................
Profit on disposal of property, plant and equipment ............................................................
Interest received ...............................................................................................................
Interest paid .....................................................................................................................
Net movement in provisions..............................................................................................
Cash generated from operations.........................................................................................
2004
R'000
2003
R'000
2002
R'000
173,413
152,046
131,806
15,406
589
(3,523)
(10,451)
1,168
(1,346)
175,256
13,900
589
(1,277)
(14,880)
2,527
807
153,712
11,877
589
(866)
(14,959)
5,893
688
135,028
(1,332)
(30,151)
3,776
(27,707)
(2,411)
(3,650)
11,960
5,899
(30,293)
(37,040)
26,281
(41,052)
—
—
—
(3,173)
(23,291)
(13,254)
(2,739)
(173)
—
B. (INCREASE) DECREASE IN WORKING CAPITAL
Increase in inventories ......................................................................................................
Increase in trade and other receivables ...............................................................................
Increase in trade and other payables...................................................................................
C. INVESTMENTS IN BUSINESSES
Property, plant and equipment ...........................................................................................
Inventories .......................................................................................................................
Receivables......................................................................................................................
Payables...........................................................................................................................
Cash consideration............................................................................................................
—
—
7,668
(32,050)
—
(2,912)
The cash paid in 2003 relates to the acquisition of the businesses of AMT and Seal King SA (Proprietary) Limited.
The acquisition in 2002 was Transformer Field Services' division of ABB South Africa (Proprietary) Limited.
COMBINED REPAIRS AND SERVICES AND REPLACEMENT PARTS
BUSINESSES OF DELTA ELECTRICAL INDUSTRIES LIMITED
Notes to the Annual Financial Statements
for the year ended 27 December
Basis of preparation
Effective 1 October, 2005, Delta Electrical Industries Limited ("Delta") disposed of its combined repairs and services
and replacement parts businesses (the "Business") to Savcio Holdings (Proprietary) Limited ("Savcio").
The Business comprised the following business units:
Maintenance and repairs business unit
The maintenance and repairs business unit is Africa's largest repairer of electric motors, transformers and drive systems
and is an approved electrical repairer to a number of large multi-national electric equipment manufacturers. The division has
repair workshops in the main industrial and mining centres and major ports in South Africa.
Transwire business unit
Transwire is one of the leading manufacturers of enamelled copper wire in South Africa. It manufactures a complete
range of magnet wire and bare and covered shaped copper conductor products.
Wire Electric business unit
Wire Electric is a leading supplier of input materials to the electrical motor and transformer repair and manufacturing
industries. This includes materials such as magnet wire, bare and covered shaped copper conductor and electrical insulation.
Wire Electric also distributes industrial tapes and abrasives.
Replacement parts business unit
The replacement parts business unit, comprising Equipment Spare Parts ("ESP"), Truck Spare Parts ("TSP") and AMT
Services ("AMT"), specialises in the procurement and distribution of high-quality aftermarket replacement parts, which include
ground engaging tools and undercarriage for earthmoving equipment, as well as parts for earthmoving equipment, diesel
engines, transmissions and heavy-duty trucks.
The above four business units were not separate legal entities but formed the greater part of Delta DMS (Proprietary)
Limited ("DMS"), a wholly-owned subsidiary of Delta.
Loco Coil Technologies (Proprietary) Limited
Loco Coil Technologies is a Black Economic Empowerment ("BEE") company and was a subsidiary company of Delta
managed by the maintenance and repairs business unit, specialising in the manufacture of traction coils and components used for
the repair of electrical traction motors in rail transportation.
Delta owned 74% of the share capital of Loco Coil. The 26% minority interest was also acquired by Savcio.
Bukubuhle Wire (Proprietary) Limited
Bukubuhle Wire is a BEE company and was a subsidiary company of Delta managed by Transwire, specialising in the
manufacture of shaped covered copper conductor and the distribution of this product together with shaped bare copper conductor
and transformer components to the transformer manufacturing and repair industries. Delta owned 70% and the BEE partners
continue to own 30%.
The financial statements of the Business have been prepared in accordance with Generally Accepted Accounting
Practice in South Africa ("SA GAAP").
The financial statements combine the financial position, results of operations and cash flows and changes in owners' net
investment of the four business units that were previously part of DMS with the financial position, results of operations and cash
flows and changes in owners' net investment of the two BEE companies (Loco Coil Technologies and Bukubuhle Wire)
acquired by Savcio because these entities were under common control during the periods presented. Normal consolidation
adjustments in respect of transactions between the four businesses that were part of DMS and the two BEE companies have been
made. The interest in these companies that was not held by Delta is not reflected as a minority interest.
The financial statements have been prepared on a "carve out" basis and have been derived from the financial statements
and accounting records of DMS and the two BEE companies using the historical results of operations and historical bases of the
assets and liabilities of the Business. The directors believe that assumptions underlying the combined "carve out" consolidated
financial statements are reasonable. However, the combined "carve out" consolidated financial statements may not necessarily
reflect the Business' financial position, results of operations and/or cash flows that the Business would have achieved had the
Business operated as a stand-alone entity during the periods presented.
Carve out adjustments have been made to the combined financials statements, as described below, to allocate certain
costs incurred by Delta and/or DMS on behalf of the Business.
General corporate expenses
The combined financial statements of the Business include allocations of some of Delta's and DMS' expenses,
including centralised treasury, tax, corporate finance, legal, technical, financial reporting, insurance, internal audit and other
corporate services and infrastructure costs. The expense allocations have been determined on the bases considered to reasonably
reflect the utilisation of services provided or the benefit received by the Business. All central costs have been allocated to the
four business units comprising the business and the two BEE companies as a recovery of Delta's actual cost.
The cost of these services allocated to the Business is not necessarily indicative of the costs the Business would have
incurred had it performed these functions as a stand-alone company. Following the acquisition by Savcio, the Business will
perform these functions using its own resources or through purchased services.
Interest expense and financing
Delta used a centralised approach to financing the working capital and capital expenditures of its businesses during the
periods presented. Each business however operated its own bank accounts. Outstanding net bank deposits or bank overdrafts
between the four businesses and their bankers were interest-bearing at market related rates. Although the outstanding cash
deposits and bank overdrafts of the Business are reflected on the balance sheet, they are not included in the assets and liabilities
acquired by Savcio.
Long-term compensation benefits
Delta operated incentive schemes for executives of the businesses which have been acquired. These were in the form
of long-term incentive schemes which were settled in cash and linked to the financial performance of each business unit. As a
result, a provision for long-term compensation benefits was raised. Any increase or decrease in the value of the benefit owing to
participants is reflected in the income statement of the operating unit.
The charges to the income statements for the years ended 27 December 2004, 2003, 2002 were R6.7 million,
R5.9 million and R9.2 million respectively.
These schemes were settled by Delta as at the effective date and did not form part of the sale of the business. As a
result the provision carried on the balance sheet has been included in Owners' net investment.
Owners' net investment
Because the four business units of the Business (which formed the greater part of DMS) were not separate legal
entities, Owners' net investment is presented in the place of Shareholders' equity. The Owners' net investment of the two BEE
companies is presented separately.
Taxation
The four business units were not separate tax paying entities. Historically, the results of these units were included in
the tax return of DMS. The income tax expense and other tax-related information in these combined financial statements is
presented as if each of the four business units had filed tax returns on a stand-alone basis. The recognition and measurement of
the income tax expense and deferred income taxes required certain assumptions, allocations and significant estimates which
management believes are reasonable to measure the tax consequences as if the four Businesses units comprising the business
were stand-alone taxpayers.
The two BEE companies were stand-alone taxpayers.
For purposes of these combined financial statements, the current income tax provision has been recorded within income
tax expense and current income tax liabilities were assumed to be immediately settled by Delta and are relieved through Owners'
net investment.
1. PRINCIPAL ACCOUNTING POLICIES
The combined financial statements are prepared under the historical cost convention, except for certain financial
instruments accounted for at fair value, and assets and liabilities that are periodically re-valued, in accordance with SA GAAP.
The principal accounting policies of the business are set out below.
1.1 Revenue
Revenue represents the net value of sales to customers. Intra-divisional revenue is eliminated. Sales of goods are
recognised when goods are delivered and title has passed.
Revenue arising from services is recognised on the completed contract basis and in accordance with the substance of
the relevant agreements.
Interest income is accrued on the time basis, by reference to the principal outstanding and the interest rate applicable.
Dividend income from investments is recognised when the shareholders' rights to receive payment have been
established.
1.2 Foreign currencies
Transactions denominated in foreign currencies are initially recorded at the rate of exchange prevailing on the
transaction date. Monetary assets and liabilities denominated in such currencies are retranslated at the rates prevailing on the
balance sheet date. Profits and losses arising on exchange are included in net profit or loss for the period.
1.3 Retirement benefit costs
The Business provides retirement benefits for its employees via its defined contribution retirement benefit plan.
Contributions by the Business to fund the obligations for the payment of retirement benefits are charged against income in the
year that they become payable. Payments to industry-managed retirement benefit schemes are dealt with as defined contribution
plans where the Business' obligations under the schemes are equivalent to those arising in a independent defined contribution
retirement plan. For defined benefit plans the cost of providing benefits is determined using the projected unit credit method.
Actuarial valuations are conducted on a triennial basis. The retirement benefit obligation or asset represents the present value of
the defined benefit obligation as reduced by the fair value of plan assets. A deficit is recognised immediately. To the extent that
there is uncertainty regarding the entitlement to a surplus, no asset is recorded.
1.4 Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as operating leases.
lease.
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant
1.5 Impairment
At each balance sheet date and whenever, the Business reviews the carrying amounts of its tangible and intangible
assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount
of the asset is estimated to be less than its carrying amount, its carrying amount is reduced to its recoverable amount.
Impairment losses are recognised in the income statement immediately.
1.6 Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is provided on bases which
write off the assets over their estimated useful lives. Provision for depreciation or replacement of loose tools and moulds is not
made, as the costs of renewals are written off in the year in which they are incurred. No depreciation is provided on freehold
land.
The annual rates of depreciation generally applied on a straight-line basis are as follows:
Freehold buildings............................................................................................................................................
Leasehold improvements ..................................................................................................................................
Plant and machinery and vehicles ......................................................................................................................
2.0%
12.5%
7.5%-33.3%
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the net sales
proceeds and the carrying amount of the assets and is recognised in income.
1.7 Inventory
Inventory is stated at the lower of cost and net realisable value. Cost is determined on the following bases:
•
Raw materials and consumable stores are valued at cost on a first-in, first-out basis.
•
Work-in-progress is valued on the average method that includes the cost of raw materials, direct labour and
appropriate overheads according to the stage of production.
•
Finished goods are valued on the average method that includes the cost of raw materials, direct labour and
appropriate overheads.
Redundant and slow moving stocks are identified at each reporting date and written down with regard to their estimated
economic or realisable values.
1.8 Taxation
The charge for current tax is based on the results for the year as adjusted for items which are non-taxable or disallowed.
It is calculated using the tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred taxation is the tax expected to be payable or recoverable on differences between the carrying amount of assets
and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit, and is
accounted for using the balance sheet liability method. Deferred taxation liabilities are recognised for all taxable temporary
differences and deferred taxation assets are recognised to the extent that it is probable that taxable profits will be available
against which deductible temporary differences can be utilised.
1.9 Provisions
Provisions are recognised when the business has a present legal or constructive obligation as a result of past events, for
which it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be
made for the amount of the obligation. Where the effect of discounting to present value is material, provisions are adjusted to
reflect the time value of money.
1.10 Financial instruments
Financial assets and financial liabilities are recognised on the Business' balance sheet when the Business becomes a
party to the contractual provisions of the instrument.
Trade receivables
amounts.
Trade receivables are stated at their nominal value as reduced by appropriate allowance for estimated irrecoverable
Loans and receivables originated by the company
Loans and receivables originated by the Business are stated at amortised cost.
Bank balances and cash
Deposits with banks and related party receivables are carried at nominal value which approximates fair value.
Bank borrowings
Interest bearing bank overdrafts are recorded at the proceeds received. Finance charges are accounted for on an accrual
basis and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they
arise.
Trade payables
Trade and other payables are stated at their nominal value.
Derivative financial instruments
The Business uses derivative financial instruments (forward exchange contracts) to hedge the risks associated with
foreign currency fluctuations relating to firm commitments. Hedge accounting is not applied. Such derivatives are initially
recorded at fair value which is cost, if any, and are re-measured to fair value at subsequent reporting dates. Changes in the fair
value of derivative financial instruments are recognised in the income statement as they arise.
2. SEGMENTAL INFORMATION
Revenue
—Repairs and services......................................................................................................
—Replacement parts.........................................................................................................
Earnings before interest, tax, depreciation and amortisation
—Repairs and services......................................................................................................
—Replacement parts.........................................................................................................
Carrying amount of segmental assets
—Repairs and services......................................................................................................
—Replacement parts.........................................................................................................
Segment liabilities
—Repairs and services......................................................................................................
—Replacement parts.........................................................................................................
2004
R'000
2003
R'000
2002
R'000
762,419
211,200
973,619
648,264
190,923
839,187
598,860
174,060
772,920
163,312
16,813
180,125
120,958
33,224
154,182
101,344
33,862
135,206
529,611
105,937
635,548
428,735
125,721
554,456
382,200
85,856
468,056
151,349
33,875
185,224
117,956
48,898
166,854
111,007
33,165
144,172
Three of the business units comprise the repairs and services segment; the Transwire, Wire Electric and maintenance
and repairs business units (including the BEE companies). The replacement parts business unit comprises its own segment.
COMBINED REPAIRS AND SERVICES AND REPLACEMENT PARTS
BUSINESSES OF DELTA ELECTRICAL INDUSTRIES LIMITED
Notes to the Annual Financial Statements
for the year ended 27 December
3. OPERATING PROFIT
Operating profit has been arrived at after taking into account the following items:
Income
Profit on disposal of property, plant and equipment ..................................................................
Expenses
Auditor's remuneration............................................................................................................
—audit fees............................................................................................................................
—expenses.............................................................................................................................
—fees for other services..........................................................................................................
—under (over) provision prior year .........................................................................................
Depreciation of property, plant and equipment .........................................................................
—freehold buildings ...............................................................................................................
—leasehold improvements......................................................................................................
—plant, equipment and vehicles..............................................................................................
Amortisation of trademarks.....................................................................................................
Operating lease expenses ........................................................................................................
—fixtures, fittings and equipment............................................................................................
—land and buildings...............................................................................................................
2004
R'000
2003
R'000
2002
R'000
3,523
1,277
866
781
685
20
4
72
15,406
399
29
14,978
589
8,833
118
8,715
1,821
817
4
1,000
—
13,900
134
45
13,721
589
8,893
361
8,532
677
663
47
—
(33)
11,877
160
100
11,617
589
8,107
65
8,042
2004
R'000
2003
R'000
2002
R'000
51,596
3,108
54,704
49,298
(1,877)
47,421
43,051
(153)
42,898
299
(191)
108
(856)
1,813
957
(109)
(462)
(571)
4,981
59,793
4,912
53,290
3,095
45,422
4. TAXATION
South African normal
—current................................................................................................................................
—deferred..............................................................................................................................
Total current year ...................................................................................................................
Under (over) provision of prior year's taxation
—current................................................................................................................................
—deferred..............................................................................................................................
Total prior year.......................................................................................................................
Secondary taxation on companies
—current................................................................................................................................
Reconciliation of rate of taxation
South African company taxation rate .......................................................................................
Decrease in rate of taxation:
—Non-taxable income............................................................................................................
—Overprovision in prior year..................................................................................................
Increase in rate of taxation:
—Non-deductible expenses.....................................................................................................
—Secondary taxation on companies ........................................................................................
—Underprovision in prior year................................................................................................
Effective rate of taxation .........................................................................................................
%
30.0
%
30.0
%
30.0
(0.5)
(0.1)
(0.6)
(0.8)
(0.6)
(1.4)
(0.9)
(0.5)
(1.4)
2.0
2.9
0.2
5.1
34.5
2.1
3.2
1.2
6.5
35.1
3.6
2.3
—
5.9
34.5
5. DIRECTORS EMOLUMENTS
2004
R'000
2003
R'000
2002
R'000
Executive director
—services as managers .................................................................................................................
—defined benefit retirement fund contributions..............................................................................
—other benefits............................................................................................................................
1,420
275
113
1,808
1,174
225
278
1,677
1,097
180
421
1,698
Other benefits include vehicle, subsistence and entertainment allowances, contributions to the company's medical aid
scheme and the fringe benefit on low interest rate loans advanced by the Delta share incentive scheme.
6. PROPERTY, PLANT AND EQUIPMENT
At 27 December 2004
Cost .........................................................................
Accumulated depreciation.........................................
Net book value .........................................................
At 27 December 2003
Cost .........................................................................
Accumulated depreciation.........................................
Net book value .........................................................
At 27 December 2002
Cost .........................................................................
Accumulated depreciation.........................................
Net book value .........................................................
Freehold
land
R'000
Freehold
buildings
R'000
Leasehold
improvements
R'000
Plant and
equipment
R'000
Total
R'000
9,316
(430)
8,886
24,240
(2,261)
21,979
1,374
(1,051)
323
148,782
(88,470)
60,312
183,712
(92,212)
91,500
2,003
—
2,003
8,230
(1,868)
6,362
1,374
(1,022)
352
143,889
(84,049)
59,840
155,496
(86,939)
68,557
859
—
859
7,227
(1,540)
5,687
1,501
(1,218)
283
123,455
(73,932)
49,523
133,042
(76,690)
56,352
The registers of land and buildings are open for inspection at the registered offices of the company.
Reconciliation of movement
Opening net book value 2003..................................
Capital expenditure.................................................
Disposals ...............................................................
Depreciation...........................................................
Closing net book value 2004 ...................................
Opening net book value 2002..................................
Capital expenditure.................................................
Business acquired...................................................
Disposals ...............................................................
Depreciation...........................................................
Closing net book value 2003 ...................................
Opening net book value 2001..................................
Capital expenditure.................................................
Business acquired...................................................
Disposals ...............................................................
Depreciation...........................................................
Closing net book value 2002 ...................................
Freehold
land
R'000
2,003
7,422
(109)
(430)
8,886
859
1,144
—
—
—
2,003
981
—
—
(122)
—
859
Freehold
buildings
R'000
6,362
16,034
(18)
(399)
21,979
5,687
941
—
(132)
(134)
6,362
5,877
—
—
(30)
(160)
5,687
Leasehold
improvements
R'000
352
—
—
(29)
323
283
—
114
—
(45)
352
383
—
—
—
(100)
283
Plant and
equipment
R'000
59,840
17,810
(2,790)
(14,548)
60,312
49,523
21,509
3,059
(524)
(13,727)
59,840
43,413
15,353
2,739
(365)
(11,617)
49,523
Total
R'000
68,557
41,266
(2,917)
(15,406)
91,500
56,352
23,594
3,173
(656)
(13,906)
68,557
50,654
15,353
2,739
(517)
(11,877)
56,352
7. INTANGIBLE ASSETS
Trademarks
Trademarks represent registered rights to the exclusive use of certain trademarks and
brandnames
Carrying value at beginning of the year...............................................................................
2004
R'000
2003
R'000
2002
R'000
1,478
2,066
2,655
Amortisation .....................................................................................................................
Carrying value at end of the year ........................................................................................
Comprising:
Cost ..................................................................................................................................
Accumulated amortisation..................................................................................................
(590)
888
(588)
1,478
(589)
2,066
5,898
(5,010)
888
5,898
(4,420)
1,478
5,898
(3,832)
2,066
2004
R'000
2003
R'000
2002
R'000
8. INVENTORIES
Raw materials...................................................................................................................
Work-in-progress..............................................................................................................
Finished goods .................................................................................................................
Merchandise.....................................................................................................................
Total inventory.................................................................................................................
20,949
24,640
11,903
89,012
146,504
13,806
22,876
9,836
98,654
145,172
14,088
14,884
11,423
79,075
119,470
2004
R'000
2003
R'000
2002
R'000
586
2,917
3,503
650
(64)
586
1,265
(615)
650
6,864
(3,361)
3,503
5,862
(5,276)
586
4,890
(4,240)
650
9. DEFERRED TAXATION
Movement of deferred taxation liability:
Balance at beginning of year .............................................................................................
Income statement..............................................................................................................
Balance at end of year.......................................................................................................
Comprising:
Capital allowances............................................................................................................
Other temporary differences..............................................................................................
Total deferred taxation ......................................................................................................
10. TRADE AND OTHER PAYABLES
Trade and other payables principally comprise of amounts outstanding for trade purchases and ongoing costs.
The directors consider that the carrying amount of trade and other payables approximates their fair value.
11. PROVISIONS
Warranty Provision
Balance at beginning of year .....................................................................................................
(Reversed) charged to the income statement...............................................................................
Balance at end of year...............................................................................................................
2004
R'000
2003
R'000
2002
R'000
8,509
(1,346)
7,163
7,702
807
8,509
7,014
688
7,702
The warranty provision is calculated based on an average of the past three years' actual customer warranty costs as a
percentage of revenue applied to the current year's revenue.
12. COMMITMENTS
12.1 Capital expenditure
Contracted................................................................................................................................
Authorised but not contracted....................................................................................................
12.2 Operating lease commitments
2004
R'000
7,078
11,485
18,563
2003
R'000
6,667
4,631
11,298
2002
R'000
5,049
2,838
7,887
The company has entered into operating leases in respect of certain of its property, plant and equipment. The future
minimum lease commitments in terms of these lease agreements are as follows:
Plant and equipment
—due within one year.............................................................................................................
—thereafter............................................................................................................................
Total plant and equipment.......................................................................................................
Property
—due within one year.............................................................................................................
—thereafter............................................................................................................................
Total property.........................................................................................................................
Total operating lease commitments..........................................................................................
2004
R'000
2003
R'000
2002
R'000
37
39
76
200
110
310
44
—
44
7,910
21,695
29,605
29,681
9,133
31,668
40,801
41,111
7,371
17,462
24,833
24,877
13. RELATED PARTY TRANSACTIONS
Their were no material trading transactions between the Businesses and the rest of the Delta group or the minority
shareholders of the two BEE companies.
Certain costs are incurred centrally by Delta and are allocated out to the businesses. Management believes these
allocated costs are not materially different than the amounts that would have been recorded had the businesses operated as
unaffiliated entities.
COMBINED REPAIRS AND SERVICES AND REPLACEMENT PARTS
BUSINESSES OF DELTA ELECTRICAL INDUSTRIES LIMITED
Notes to the Annual Financial Statements
for the year ended 27 December
14. FINANCIAL RISK MANAGEMENT
The financial instruments utilised in the Businesses, consist mainly of deposits with banks, accounts receivable and
payable and loans to related parties.
In respect of all financial instruments mentioned above, book value approximates fair value. Derivative instruments
consist of forward exchange contracts which are used by the Business for hedging purposes. The Business does not speculate in
the trading of derivative instruments.
Foreign currency management
Trade exposure
The policy of the Businesses is to cover forward foreign currency denominated purchases. Each business unit and BEE
company manages its own trade exposure.
Credit risk management
Potential areas of credit risk consist of trade accounts receivable and short term cash investments. Trade accounts
receivable arise mainly from a large widespread customer base. Each business unit and BEE company monitors the financial
position of their customers on an ongoing basis. Where considered appropriate, use is made of credit guarantee insurance. The
granting of credit is controlled by application and account limits. Provision is made for both specific and general bad debts and
at the year end management did not consider there to be any material credit risk exposure that was not already covered by credit
guarantee or a bad debt provision.
It is the policy of the Businesses to deposit short term cash investments with only the major banks.
Liquidity risk management
The Business manages liquidity risk by monitoring forecast cash flows and ensuring that adequate unutilised borrowing
facilities are maintained.
Foreign currency exposure
The following amounts represent the Rand equivalents of commitments to purchase and sell foreign currencies in terms
of forward exchange contracts. Details of these contracts are as follows:
Purchase of foreign currency
US dollars ..............................
Pounds sterling.......................
Euro.......................................
Swedish krone........................
Norwegian krone....................
Japanese Yen..........................
Australian Dollar ....................
Foreign amount
2004
2003
2002
FC'000
FC'000
FC'000
4,217
264
3,379
1,191
272
1,275
99
3,196
228
2,504
67
273
—
—
2,272
40
743
—
—
—
—
Average rate (rand to foreign
currency)
2004
2003
2002
6.423
11.258
7.876
0.961
0.923
0.055
4.677
7.003
11.790
8.421
1.134
1.040
—
—
Rand amount
2004
2003
2002
R'000
R'000
R'000
9.763
14.450
9.864
—
—
—
—
27,087
2,972
26,612
1,145
251
70
463
22,382
2,688
21,087
76
284
—
—
22,182
578
7,329
—
—
—
—
Fair value of financial instruments:
The following fair value assets and liabilities for forward exchange contracts have been raised on the balance sheet at
year end and are included in trade and other receivables and trade and other payables respectively:
Forward exchange contracts
Financial assets...................................................................................................................
Financial liabilities .............................................................................................................
Net financial liability raised.................................................................................................
2004
R'000
2003
R'000
2002(*)
R'000
161
(3,041)
(2,880)
252
(913)
(661)
—
—
—
15. RETIREMENT BENEFITS
Prior to the sale, the Business participated in the Delta Pension Fund for the years ended 2002, 2003 and 2004, a
registered and approved fund governed by the Pension Funds Act, 1956, as amended. The majority of the Business' employees
were members of the fund, other than those required by legislation to be members of the various industry funds.
The Delta Pension Fund has a defined contribution section and a defined benefit section. At year end 2004, one
member (2003: two) (2002: two) contributed to the defined benefit section and 600 (2003: 593) (2002: 547) to the defined
contribution section. All new employees of the Business were required to join the defined contribution section. The Delta
Pension Fund assets are valued by an independent actuary every three years. The most recent statutory valuation, at
31 December 2004, concluded there was an excess of assets over past service liabilities. The projected unit credit method was
used for that valuation.
Fair value of remaining assets............................................................................................
Present value of obligations...............................................................................................
Excess assets at end of the year .........................................................................................
Assumptions
Valuation interest rate (pre retirement)...............................................................................
Valuation interest rate (post retirement) .............................................................................
Discount rate....................................................................................................................
Rate of compensation increase...........................................................................................
business.
2004
R'000
11,398
(1,203)
10,195
%
7.2
3.7
7.9
5.0
2003
R'000
9,939
(1,288)
8,651
%
10.0
5.0
5.0
9.0
2002(*)
R'000
%
—
—
—
—
—
—
—
As a result of the uncertainties regarding the allocation of any excess Fund assets, no asset has been recognised by the
The Business has no obligation to fund post-retirement medical costs of pension fund members.
(*)
Information not available
ANNEX A—SUMMARY OF DIFFERENCES BETWEEN SOUTH AFRICAN GAAP AND INTERNATIONAL
FINANCIAL REPORTING STANDARDS
The combined financial information of the Issuer is presented in accordance with South African Generally Accepted
Accounting Principles ("SA GAAP") effective as at 30 September 2005 in respect of periods commencing before 1 January
2005, which differs in certain respects from International Financial Reporting Standards ("IFRS") as it will be applied by Savcio
Holdings (Proprietary) Ltd for periods commencing on 1 October 2005.
Certain differences exist between IFRS and SA GAAP as at 30 September 2005 in respect of periods commencing
before 1 January 2005.
This description is not intended to provide a comprehensive listing of all such differences specifically related to Savcio
or the industries in which it operates.
Savcio has not prepared financial statements in accordance with IFRS or prepared a reconciliation of its financial
statements to IFRS. In addition, Savcio cannot estimate the net effect that applying IFRS would have on its results of operations
or financial position, or any component thereof, in any of the presentations of financial information in this Listing Particulars.
However, the effect of such differences may be material, and in particular, it may be that the total shareholders' equity, and net
income prepared on the basis of IFRS would be materially different due to these differences.
The following paragraphs summarise certain differences between IFRS and SA GAAP as of 30 September 2005 having
regard to authoritative pronouncements the adoption of which was mandatory as of that date. Other standards or
pronouncements may have been issued whose adoption is only mandatory after that date. In addition, the organisations that
determine IFRS and SA GAAP have projects ongoing that could have a significant impact on future comparisons such as this.
IFRS is generally more restrictive and comprehensive than SA GAAP regarding account classification and disclosure
requirements. No attempt has been made to identify all disclosure, presentation or classification differences that would affect the
manner in which transactions and events are presented in the financial statements or the notes thereto.
SA GAAP has been harmonizing with IFRS over the past ten years, such that currently, all new IFRS standards issued
by the IASB are issued, virtually simultaneously as SA GAAP standards, with the same effective date as the equivalent IFRS
standard. As at 30 September 2005, all SA GAAP accounting standards were fully aligned with IFRS effective for periods
commencing on or after 1 January 2005.
A number of IFRS standards and revised versions of IAS standards, issued as part of the IASB improvements project
and published in December 2003, and IFRIC interpretations have been issued but are not mandatory for periods commencing
before 1 January 2005. Similarly, under SA GAAP, the equivalent new and revised standards (AC's) have also been issued, but
are not mandatory for periods commencing before 1 January 1 2005:
•
IFRS 2 / AC 139, Share-based Payment(1)
•
IFRS 4 / AC 141, Insurance Contracts(1)
•
IFRS 5 / AC 142, Non-current Assets Held for Sale and Discontinued Operations(1)
•
IFRS 6 / AC143, Exploration for and Evaluation of Mineral Resources(2)
(1)
Annual periods beginning on or after 1 January 2005
(2)
Annual periods beginning on or after 1 January 2006
•
International Accounting Standards ("IAS") No. 1 / AC 101 (Revised), "Presentation of Financial Statements"(1),
•
IAS 2 / AC108 (Revised), "Inventories"(1),
•
IAS 16 / AC 123 (Revised), "Property, Plant and Equipment"(1),
•
IAS 17 / AC 105 (Revised), "Leases"(1),
•
IAS 21 / AC 112 (Revised), "The Effects of Changes in Foreign Exchange Rates"(1),
•
IAS 27 / AC 132 (Revised), "Consolidated and Separate Financial Statements"(1),
•
IAS 28 / AC110 (Revised), "Investments in Associates"(1),
•
IAS 31 / AC 119 (Revised), "Interests in Joint Ventures"(1),
•
IAS 39 / AC 133 (Revised), "Financial Instruments: Recognition and Measurement"(1) and
•
IFRIC 2 / AC 434(1),
•
IFRIC 3 / AC 435(1),
•
IFRIC 4 / AC 437(2),
•
IFRIC 5 / AC 438(2),
In addition to the effect of applying new and revised standards under either IFRS or SA GAAP, further differences
between the financial position and results as reflected in the historical financial statements under SA GAAP and those to be
presented by Savcio Holdings (Proprietary) Ltd under IFRS may arise as a result of the application by Savcio Holdings
(Proprietary) Ltd of IFRS 1, "First-Time Adoption of International Financial Reporting Standards" ("IFRS 1").
In general, IFRS 1 requires an entity to comply with each IFRS effective at the reporting date for its first IFRS financial
statements. However, IFRS 1 grants limited exemptions (optional exemptions) from this requirement in specified areas where
the cost of complying with them would be likely to exceed the benefits to users of financial statements. The IFRS also prohibits
retrospective application of IFRS in some areas, particularly where retrospective application would require judgments by
management about past conditions after the outcome of a particular transaction is already known.
ANNEX B—GLOSSARY OF DEFINED TERMS
The following glossary of defined terms is intended as a general source of information and has not been prepared or
independently verified by us or our advisers or the initial purchaser or any of its respective affiliates or advisers.
"Amps" refers to amperes, the measure of the volume of electricity flowing through a conductor.
"AMT" means AMT Services, a division of the replacement parts business segment that specialises in the procurement,
distribution, reconditioning and manufacturing of high quality aftermarket replacement parts, including ground engaging tools,
undercarriage parts and earth moving equipment.
"Balancing machines" are equipment used to measure the weight distribution of electric coils to ensure balanced
rotation and therefore longer life of the electric motor.
"BEE" means Black Economic Empowerment, the South African governmental initiative designed to increase equity
ownership and management positions for black South Africans and given statutory effects in accordance with the following
legislation:
•
the Broad-Based Black Economic Empowerment Act and the codes of good practice issued hereunder in relation
to all sectors of the economy other than the mining sector, as read in conjunction with the Preferential Procurement
Framework Policy Act in relation to public sector procurement; and
•
the Mineral and Petroleum Resource Development Act and the mining charter issues thereunder in relation to the
mining sector.
"Bukubuhle Wire" means Bukubuhle Wire (Proprietary) Limited, a joint venture company 70% owned by Savcio
Holdings (Proprietary) Limited and 30.0% owned by BEE partners. Bukubuhle Wire specializes in the manufacture and
distribution of shaped covered copper conductors and the distribution of shaped bare copper conductors and transformer
components.
"Conductor strip rolling machines" are machines that produce strips of copper conductor, similar to copper wire but
flatter, that are used in various applications.
"Draglines" are large excavation machines used in surface mining to remove layers of rock and soil covering a seam of
coal or other ore.
"Eskom" is the South African state-owned power utility company.
"ESP" means Equipment Spare Parts, a division of replacement parts that specializes in the procurement and
distribution of high quality aftermarket replacement parts for ground engaging tools, earthmoving equipment, diesel engines and
transmissions.
"ESPA" means Equipment Spare Parts Africa, the collective name for the replacement parts businesses. Replacement
parts specializes in the procurement and distribution of high quality aftermarket replacement parts including ground engaging
tools and undercarriage for earth moving machines, diesel engines, transmissions and heavy duty trucks as well as the repair of
undercarriage for earth moving machinery. Replacement parts is comprised of four main divisions: AMT, ESP, GET and TSP.
"GET" means GET Warehouse, a division of replacement parts that focuses on wholesale distribution of ground
engaging tools.
"Ground engaging tools" refers to the part of digging equipment that comes into contact with the earth and is
consequently subject to increased wear.
"Historically Disadvantaged Person" or "HDP" refers to a natural person who by virtue of his or her race or gender
was prohibited from exercising certain fundamental rights prior to the South African national elections held in April 1994. This
term is generally regarded as referring to black people.
"Incremental aggregate gain" is defined as the amount realised minus the amount received by all shareholders other
than the Repairs and Services Management Trust and the Replacement Parts Management Trust.
"KW" means kilowatts, or 1,000 watts.
"KVA" means kilovolt amps or 1,000 volt amps.
"LH Marthinusen or LHM" is a division of Savcio's maintenance and repairs business unit specializing in redesign and
repair work to AC and DC electric motors and transformers.
"Loco Coil" means Loco Coil Technologies (Proprietary) Limited, a joint venture company that was 74.0% owned by
Savcio Holdings (Proprietary) Limited and 26.0% owned by BEE partners until 1 October 2005, when Savcio acquired 100.0%
of the outstanding shares. Subsequently the business was transferred to us as a going concern. Following the completion of this
transfer, Loco Coil became our dormant subsidiary which we intend to dissolve in the near future. Loco Coil specialises in the
manufacture of traction coils and components that are used for the repair of electrical traction motors for electrical rail
transportation.
"Large-sized electric motor" refers to motors with a power output of between 1MW and 10MW. Also referred to as a
large AC or DC motor.
"Large-sized transformer" refers to transformers using 5MVA-200MVA.
"Low voltage electric motor" refers to motors of less than 1000 volts. A shorthand for smaller, simple motors such as
those found in consumer items like washing machines.
"MW" means megawatts, or a million watts.
"MVA" refers to megavolt amps, or a million volt amps. See volt.
"Marthinusen & Coutts" is a division of Savcio's maintenance and repairs business unit specializing in the repair and
remanufacture of rotating electrical equipment.
"Medium- to large-sized electric motor" refers to motors with a power output of between 18 KW-1MW.
"Medium-sized transformer" refers to transformers using 1MVA-5MVA.
"Medium voltage motor" refers to motors of greater than 1000 volts. A shorthand for any relatively complex, heavy
duty motor.
"Mothballing" means the preservation of a production facility without using it to produce. Machinery in a mothballed
facility is kept in working order so that production may be restored quickly if needed. Demothballing indicates that a facility
will be restored to active production.
"Metalplus" is a division of Savcio's maintenance and repairs business unit focused on mechanical repairs, particularly
submerged arc micro welding, which serves the mining, petrochemical and transportation industries.
"Mine winders" are large electrical motors weighing up to 160 tonnes and up to 7.5 metres in diameter used for
transporting equipment, ore and people up and down mine shafts.
"OEM" means Original Equipment Manufacturer.
"parastatals" are large, South African state-owned entities that control significant assets in a specific segment of the
economy. Important parastatals for our business are Transnet (rail and other forms of transportation) and Eskom (power
generation and distribution).
"REDs" means Regional Electrical Distributors. The South African Government has announced plans to restructure
power distribution in South Africa by creating seven REDs. Six of the REDs are to be located in large municipal areas and are
expected to be owned by metropolitan councils, and are expected to invite open bidding for maintenance and repairs contracts.
The seventh RED will cover the remaining rival areas and will be owned by Eskom.
"Reid and Mitchell" is a division of Savcio's maintenance and repairs business unit specializing in the repair of GE
electrical equipment for large mechanical excavators, off-highway vehicles and traction equipment.
"Repairs and services" means the repairs and services business segment, which businesses offer a wide range of
engineering products and services including motor repairs, coil manufacture, wire drawing, specialized transformer and machine
manufacture and repair, insulation products, and on-site engineering services. Repairs and services is comprised of three main
business units: maintenance and repairs, Transwire and Wilec.
"Replacement parts" means the replacement parts business segment, which specialises in the procurement and
distribution of high quality aftermarket replacement parts including ground engaging tools and undercarriage for earth moving
machines, diesel engines, transmissions and heavy duty trucks as well as the repair of undercarriage for earth moving machinery.
Replacement parts is comprised of four main business units: AMT, ESP, GET and TSP.
"Rotek" means Rotek Engineering, Eskom's in-house repair and service facility for predominately large transformers
and turbine generators.
"Small electric motor" refers to motors with a power output of below 18 KW. Motors of this size typically can be lifted
without the assistance of lifting equipment.
"Small distribution transformer" refers to transformers using 315KVA-1MVA.
"Spoornet" is the division of Transnet that owns and operates freight rail assets.
"TSP" means Truck Spare Parts, a division of replacement parts that specializes in the procurement and distribution of
high quality aftermarket replacement parts for the heavy-duty trucking industry.
"Temso" is a division of Savcio's maintenance and repairs business unit focusing on the rewinding and repair of electric
motors, transformers and rotating equipment.
"Traction coil" refers to copper wire that has been wound into a coil forming the central component of traction motors
used in electric locomotives.
"Transnet" is the state-owned company that holds extensive transport assets.
"Transwerk" is the in-house repair and maintenance division of Transnet.
"Transwire" is a division of repairs and services that focuses on the manufacturing of enamelled copper wire and
copper conductor products.
"Trivetts or Trivetts Electrical" is a division of Savcio's maintenance and repairs business unit that focuses on both
marine electronics (including switchgear repair, cable fault finding and all electronic on-ship repair) and the repair of electrical
rotating machines such as motors, generators, alternators and transformers.
"Vacuum dryout ovens" are equipment used in the rewinding of electric motors and assist in speeding up the insulation
of the motor's coil by quickly drying the resin used for insulating the motor.
"Vacuum pressure impregnation" refers to a method of sealing the porosity of cast metal parts, like powder metal parts,
brass, plastics, ferrous and nonferrous, ceramics and many other porous materials.
"Very Large Electric Motor" refers to motors with a power output of over 10MW.
"Volts" refers to the amount of pressure needed to overcome resistance in an electrical device such as a motor or
transformer.
"Volt amps" refers to the product of volts times amps and is the measure of power capacity in electric transformers.
"Watts" refers to the power output of a motor, measured as the product of volts times amps.
"Wire Electric" or "Wilec" refers to Wire Electric, a division of our repairs and services business segment that focuses
on supply of input materials to the electrical motor and transformer repair and manufacturing industries.
REGISTERED OFFICE OF THE ISSUER
Savcio Holdings (Proprietary) Limited
Bruma Boulevard
20 Zulberg Close
Bruma, 2026
Republic of South Africa
LEGAL ADVISERS TO THE ISSUER
As to US law
As to South African law
Paul, Weiss, Rifkind, Wharton & Garrison LLP
Deneys Reitz Inc.
Alder Castle
82 Maude Street
10 Noble Street
Sandton, 2196
London EC2V 7JU
Republic of South Africa
United Kingdom
LEGAL ADVISERS TO THE INITIAL PURCHASER
As to US law
As to South African law
Latham & Watkins
Cliffe Dekker Inc.
99 Bishopsgate
1 Protea Place
London EC2M 3XF
Sandown
United Kingdom
Sandton, 2196
Republic of South Africa
INDEPENDENT AUDITORS
Deloitte & Touche
Chartered Accountants (SA)
Registered Accountants and Auditors
20 Woodlands Drive
Woodmead, 2199
Republic of South Africa
LOCAL PAYING AGENT
LISTING AGENT
AIB/BNY Fund Management (Ireland) Limited
Dillon Eustace
Guild House
Grand Canal House
Guild Street
1 Upper Grand Canal Street
Dublin 1
Dublin 4
Ireland
Ireland
TRUSTEE, REGISTRAR, TRANSFER AGENT AND PRINCIPAL PAYING AGENT
The Bank of New York
One Canada Square
London E14 5AL
United Kingdom
€125,000,000
Savcio Holdings (Proprietary) Limited
8% Senior Secured Notes due 2013
LISTING PARTICULARS
9 March 2006
(This page has been left blank intentionally.)
IMPORTANT NOTICE
THIS OFFERING IS AVAILABLE ONLY TO INVESTORS WHO ARE EITHER (1) QUALIFIED INSTITUTIONAL
BUYERS ("QIBs") UNDER RULE 144A OR (2) NON-US PERSONS OUTSIDE OF THE UNITED STATES.
IMPORTANT: You must read the following before continuing. The following applies to the listing particulars following
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