Details of the Proposed Acquisition are set out in the ensuing sections.

Transcription

1 POWER ROOT BERHAD ( POWER ROOT OR THE COMPANY ) PROPOSED ACQUISITION 1. INTRODUCTION On behalf of the Board of Directors of Power Root ("Board"), RHB Investment Bank Berhad ("RHBIB") is pleased to announce that Power Root had on 30 September 2016 entered into a conditional share agreement with Wong Tak Keong ( WTK or Vendor ) for the proposed acquisition by Power Root of the following: (i) (ii) seven (7) ordinary shares of United Arab Emirates Dirham ( AED ) 100,000 each in Power Root ME FZCO ( PRMF ) ( PRMF Shares ) ( Sale Shares ), an existing 77%- owned subsidiary company of Power Root, representing 14% of the equity interest in PRMF; and option granted to the Vendor, giving the Vendor the right to require Power Root to purchase from the Vendor such number of PRMF Shares held by the Vendor at the date of exercise of such option, pursuant to a put option agreement dated 28 March 2014 ( Option Rights ), for a total purchase consideration of approximately RM49.6 million, to be satisfied in full via the issuance of 24,200,000 new ordinary shares of RM0.20 each in Power Root ( Power Root Shares or Shares ) ( Consideration Shares ) at an issue price of RM per Power Root Share ( SA ) ( Proposed Acquisition ). Details of the Proposed Acquisition are set out in the ensuing sections. 2. PROPOSED ACQUISITION 2.1 Details of the Proposed Acquisition On 30 September 2016, Power Root had entered into the SA with the Vendor for the Proposed Acquisition, free from any and all encumbrances for a total purchase consideration of RM49,614,840 ( Purchase Consideration ), to be satisfied in full via the issuance of 24,200,000 Consideration Shares. Further details of the SA are set out in Section 2.10 of this Announcement. 2.2 Background information on PRMF PRMF was incorporated as a Free Zone Company in the Jebel Ali Free Zone on 23 February As at 20 September 2016, being the latest practicable date ( LPD ) for this Announcement, PRMF is principally involved in distribution of various beverage products. Further details of PRMF are set out in Appendix I of this Announcement. 2.3 Information on the Vendor WTK, a Malaysian aged 45 is the executive director of PRMF and Synergy Distribution FZC, a 51%-owned subsidiary company of Power Root. 1

2 2.4 Mode of settlement The Purchase Consideration will be satisfied via the issuance of 24,200,000 Consideration Shares at an issue price of RM ( Issue Price ) per Consideration Share to be allotted, issued and credited as fully paid-up on the date of completion of the SA. 2.5 Basis and justification for the Purchase Consideration The Purchase Consideration was arrived at on a willing-buyer willing-seller basis after negotiations between Power Root and the Vendor and taking into consideration the following: (i) (ii) (iii) a price-to-earnings multiple of approximately times based on the consolidated profit after tax ( PAT ) of PRMF (which includes the manufacturing profits from sales destined to the Middle East and North Africa ( MENA ) region that is currently recorded in PR (M) Sdn Bhd and PR Manufacturing Sdn Bhd) for the financial year ended ( FYE ) 31 March 2016 attributable to the Sale Shares of RM3,049,610; the rationale of the Proposed Acquisition, as set out in Section 3 of this Announcement; and the future prospects of PRMF, as set out in Section 4 of this Announcement. 2.6 Basis and justification in arriving at the Issue Price The Issue Price was arrived at based on the five (5)-day volume weighted average market price of Power Root Shares up to and including 29 September 2016, being the last market day prior to the date of execution of the SA, of RM Ranking of the Consideration Shares The Consideration Shares shall, upon allotment and issuance, rank pari passu in all respects with the existing Power Root Shares, save and except that the Consideration Shares shall not be entitled to any dividends, rights, allotments and/or other distributions that may be declared, made or paid to shareholders, the entitlement date of which is prior to the date of allotment of the Consideration Shares. 2.8 Listing of and quotation for the Consideration Shares An application will be made to Bursa Malaysia Securities Berhad ("Bursa Securities") for the listing of and quotation for the Consideration Shares to be issued pursuant to the Proposed Acquisition on the Main Market of Bursa Securities. 2.9 Liabilities to be assumed Save for the obligations and liabilities arising in and arising from the SA and for the liabilities arising from the ordinary course of business of PRMF, there are no other liabilities, including contingent liabilities and/or guarantees, to be assumed by Power Root arising from the Proposed Acquisition. 2

3 2.10 Salient terms of the SA (i) Conditions precedent The agreement to sell and purchase the Option Rights and Sale Shares is conditional upon satisfaction of the following conditions: (a) (b) (c) Power Root obtaining the approval from Bursa Securities for the listing of and quotation for the Consideration Shares on the Main Market of Bursa Securities; Power Root obtaining the approval from the Jebel Ali Free Zone Authority for the transfer of the Sale Shares; and any other approvals as may be required by any relevant authorities. (ii) Non-Satisfaction/Waiver If the conditions precedent stated above are not satisfied within sixty (60) days from the date of the SA or any such date as agreed by Power Root and the Vendor ( Parties ) in writing ( Conditional Period ), the obligations of the Parties shall lapse and be of no further effect save for the rights and obligations of the Parties pursuant to any antecedent breach of the SA. (iii) Completion date Unless otherwise agreed by the Parties hereto in writing, completion of the SA shall take place within thirty (30) days from the expiry of the Conditional Period or on such other date as the Parties hereto shall mutually agree in writing upon which the Vendor shall deliver or cause to be delivered to Power Root the following: (a) (b) (c) the original share certificates for the Sale Shares; valid and registrable memoranda of transfer for the Sale Shares duly executed by the Vendor in favour of Power Root or its nominee(s); and the original put option agreement for cancellation, and in return, Power Root shall procure the allotment of the Consideration Shares and listing of and quotation for the Consideration Shares on the Main Market of Bursa Securities. (iv) Costs and stamp duty All legal costs of and incidental to the SA shall be borne by the Company. 3. RATIONALE FOR THE PROPOSED ACQUISITION PRMF was incorporated in Jebel Ali Free Zone as a result of Power Root Group s strategy to expand its operations to United Arab Emirates ( UAE ) and expand the distribution network of Power Root Group. Over the years, approximately a quarter of Power Root Group's revenue has been contributed by PRMF due to distribution of various beverage products in UAE. The revenue recorded by PRMF for the FYE 31 March 2016 and the 13-months financial period ended 31 March 2015 ( FPE 31 March 2015 ) represent approximately 28.6% and 28.5% of Power Root Group's total revenue for the respective financial years. 3

4 Power Root Group is the holding company which currently holds 77% of the equity interest in PRMF. The Proposed Acquisition will allow Power Root to increase its equity interest in PRMF from 77% to 91%, thereby allowing Power Root Group to consolidate the earnings attributable to the Sale Shares. In addition, the Proposed Acquisition is not expected to expose Power Root to new business and operational risks as PRMF is an existing subsidiary of Power Root. The issuance of Consideration Shares as full settlement of the Purchase Consideration will lessen the cash outlay of Power Root Group for the Proposed Acquisition, which Power Root Group may otherwise channel towards its operations and other working capital requirements. 4. PROSPECTS OF PRMF The revenue of PRMF has been steady and gradually increasing over the past three (3) financial years, with a low of AED79,238,579 for the FYE 28 February 2014 and a high of AED108,196,479 for the FPE 31 March The PBT of PRMF has also been steady and gradually increasing over the financial years, with a low of AED7,032,893 for the FYE 28 February 2014 and a high of AED10,309,392 for the FPE 31 March Please refer to Appendix I for further information on PRMF. Power Root plans to build an overseas manufacturing plant in UAE and this will help cater to the growing demand from the MENA region. The Company hopes that this plant will eventually minimise handling and logistics costs as its production in the MENA region grow. Further to that, the Company will be able to enjoy lower import taxes when it exports its goods to the MENA region as its products will be produced from UAE. In addition, Power Root Group can capitalise on the strong United States Dollar exchange rate which drives PRMF s export sales that will contribute to Power Root Group s consolidated earnings. Premised on the above, the prospects of PRMF are expected to be positive. Barring any unforeseen circumstances, the Board is of the view that PRMF would continue to contribute positively to the earnings of Power Root Group moving forward. (Source: Management of Power Root) 5. RISK FACTORS IN RELATION TO THE PROPOSED ACQUISITION The Proposed Acquisition will not materially change the risk profile of Power Root Group s business as PRMF is currently a 77%-owned subsidiary of Power Root. Similar to Power Root Group, PRMF is exposed to business and operational risks inherent to the sector it is in. These include, amongst others, risks pertaining to the intense competition in the beverage products market, increased number of distribution points by other brands and ever increasing and heavy advertising and promotional expenses to maintain brand awareness. 4

5 The risks, amongst others, in relation to the Proposed Acquisition include non-completion of the Proposed Acquisition. The completion of the Proposed Acquisition is subject to the conditions precedent set out in Section 2.10 of this Announcement, some of which may be beyond the control of Power Root. Accordingly, there can be no assurance that the Proposed Acquisition can be completed. Nevertheless, the Company anticipates that this risk can be mitigated by proactively engaging with the relevant authorities and third parties to obtain all the necessary approvals and documents required within the prescribed timeframe in order to complete the Proposed Acquisition in a timely manner. 6. EFFECTS OF THE PROPOSED ACQUISITION On the assumption that the 5,885,400 treasury shares are retained in the Company prior to the implementation of the Proposed Acquisition and the current options available under the employees share option scheme ( ESOS ) are not exercised, the effects of the Proposed Acquisition are set out below. 6.1 Issued and paid-up share capital The proforma effects of the Proposed Acquisition on the issued and paid-up share capital of the Company are set out below: No. of Shares Issued and paid-up share capital as at the 304,386,185 60,877,237 LPD Less: Treasury shares, at par (5,885,400) (1,177,080) 298,500,785 59,700,157 To be issued pursuant to the Proposed 24,200,000 4,840,000 Acquisition Enlarged issued and paid-up share capital 322,700,785 64,540,157 RM THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK 5

6 6.2 NA per Share and gearing Based on the latest audited consolidated statements of financial position of Power Root Group as at 31 March 2016, the proforma effects of the Proposed Acquisition on the NA per Power Root Share and gearing of Power Root Group are set out below: Audited as at 31 March 2016 RM After adjusting for subsequent events RM Proforma I After the Proposed Acquisition RM Share capital 60,814,637 60,877,237 (1) 85,077,237 (3) Retained earnings 78,289,950 78,289,950 78,179,950 (4) Share premium 103,168, ,317,340 (1) 148,092,180 (3) Treasury shares (8,054,960) (9,554,175) (2) (9,554,175) Share option reserve 2,219,932 2,219,932 2,219,932 Exchange fluctuation reserve 1,119,014 1,119,014 1,119,014 Shareholders' funds/ NA 237,557, ,269, ,134,138 No. of ordinary shares 298,936, ,500, ,700,785 NA per share Total borrowings 10,897,412 10,897,412 10,897,412 Gearing (times) Notes: (1) Adjusted for the issuance of 313,000 Shares arising from the exercise of ESOS options subsequent to the financial year end and the recognition of RM148,675 of share premium arising from the exercise of the ESOS options. (2) Adjusted for shares buy-back subsequent to the financial year end. (3) After including the Consideration Shares to be issued at RM per Consideration Share pursuant to the Proposed Acquisition. (4) After deducting estimated expenses of RM110,000 in relation to the Proposed Acquisition. 6

7 6.3 Earnings and earnings per share ( EPS ) The Proposed Acquisition is expected to contribute positively to the future earnings of Power Root Group in the ensuing financial years with 91% consolidation of the earnings of PRMF. For illustrative purpose only, the proforma effects of the Proposed Acquisition on the earnings and EPS of Power Root Group on the assumption that the Proposed Acquisition had been effected on 1 April 2015, being the beginning of the latest FYE 31 March 2016, are as follows: Audited as at 31 March 2016 RM After the Proposed Acquisition RM PAT and minority interests 43,448,442 46,388,052 (1) Weighted average number of Power Root Shares outstanding 314,409, ,609,205 (2) Earnings per Power Root Share (sen) Notes: (1) After including the additional 14% of PRMF s consolidated PAT (which includes the manufacturing profits from sales destined to the MENA region) for the FYE 31 March 2016 of RM3,049,610 and deducting estimated expenses of RM110,000 in relation to the Proposed Acquisition. (2) After including the Consideration Shares to be issued pursuant to the Proposed Acquisition. THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK 7

8 6.4 Substantial shareholders' shareholdings The effects of the Proposed Acquisition on the shareholdings of the substantial shareholders are as follows. As at the LPD Proforma I After the Proposed Acquisition Direct Indirect Direct Indirect No. of Shares % (1) No. of Shares % No. of Shares (1) No. of % Shares Dato Low Chee Yen 64,673, ,673, Dato How Say Swee 63,228, ,228, Dato Wong Fuei Boon 60,807, ,807, WTK 4,067, ,267, % Note: (1) Excluding treasury shares. THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK 8

9 6.5 Existing Convertible Securities Save for the 25,036,500 outstanding ESOS options granted to the directors and employees of Power Root, the Company does not have any other existing convertible securities as at the LPD. 7. APPROVALS REQUIRED The Proposed Acquisition is conditional upon the following approvals being obtained: (i) (ii) Bursa Securities, for the listing of and quotation for the Consideration Shares to be issued pursuant to Proposed Acquisition; and any other relevant authorities and/or parties, if required. The Proposed Acquisition is not conditional upon any other proposals undertaken by the Company. 8. INTERESTS OF DIRECTORS, MAJOR SHAREHOLDERS AND/OR PERSONS CONNECTED WITH THEM Other than the directorship and shareholdings of WTK in the companies disclosed below, none of the Directors and/or major shareholders of Power Root and/or persons connected to them have any interests, whether direct or indirect, in the Proposed Acquisition. Company Directorship Shareholdings (%) Power Root No 1 Synergy Distribution FZC Yes - (51% owned subsidiary of Power Root) PRMF Yes 14 Power Root Nnergy Sdn Bhd (90% owned subsidiary of Power Root) No 5 Pursuant to Paragraph 10.08(11)(n) of the Main Market Listing Requirements of Bursa Securities, the Proposed Acquisition will not be regarded as a related party transaction as the Proposed Acquisition is a transaction between Power Root and another person where there are no other interested relationships except for a related party who is a director or major shareholder of a subsidiary of Power Root or person connected with such director or major shareholder having an interest in the transaction as WTK is not a director or major shareholder of Power Root. 9. DIRECTORS' STATEMENT After having considered all aspects of the Proposed Acquisition (including the rationale for the Proposed Acquisition, the salient terms of the SA, the basis and justification for arriving at the Purchase Consideration, the effects of the Proposed Acquisition and the prospects and future plans of PRMF), the Board is of the opinion that the Proposed Acquisition is in the best interest of the Company. 9

10 10. ESTIMATED TIMEFRAME FOR COMPLETION Barring any unforeseen circumstances, the Proposed Acquisition is expected to be completed by the fourth (4 th ) quarter of HIGHEST PERCENTAGE RATIO The highest percentage ratio applicable to the Proposed Acquisition pursuant to Paragraph 10.02(g) of the Main Market Listing Requirements of Bursa Securities is approximately 20.65% based on the Purchase Consideration of RM 49,614,840 as compared to the NA of Power Root of RM240,243, APPLICATION TO THE AUTHORITIES Barring any unforeseen circumstances, the application to the relevant authority in relation to the Proposed Acquisition is expected to be made within a period of two (2) months from the date of this Announcement. 13 ADVISER RHBIB has been appointed as the Adviser for the Proposed Acquisition. 14 DOCUMENTS AVAILABLE FOR INSPECTION A copy of the SA will be made available for inspection at the registered office of Power Root at 31-04, Level 31, Menara Landmark, No. 12 Jalan Ngee Heng, Johor Bahru, Johor during normal business hours from Mondays to Fridays (except public holidays) for a period of three (3) months from the date of this Announcement. This announcement is dated 30 September

11 APPENDIX I BACKGROUND INFORMATION ON PRMF 1. HISTORY AND BUSINESS PRMF was incorporated as a Free Zone Company in the Jebel Ali Free Zone on 23 February The principal activity of PRMF is distribution of various beverage products. 2. SHARE CAPITAL As at the LPD, the issued and paid-up share capital of PRMF are set out below: Par value AED No. of PRMF Shares Total AED Issued and paid-up share capital 100, ,000, DIRECTORS The directors of PRMF and their respective shareholdings in PRMF as at the LPD are set out below: Directors Nationality Direct No of PRMF Shares % Indirect No of PRMF Shares % WTK Malaysian Dato Low Chee Yen Malaysian (1) 77 Note: (1) Deemed interest by virtue of his shareholding in Power Root pursuant to Section 6A of the Companies Act, SUBSTANTIAL SHAREHOLDERES The substantial shareholders of PRMF and their respective shareholdings in PRMF as at the LPD are set out below: Shareholders Place of incorporation / Nationality Direct No of PRMF Shares % Indirect No of PRMF Shares % Power Root Malaysia WTK Malaysian Chay Hock Chang Malaysian

12 APPENDIX I 5. SUBSIDIARY AND ASSOCIATE COMPANIES As at the LPD, PRMF does not have any associate company. The subsidiaries of PRMF as at the LPD are set out below: Company P.R. Manufacturing ME LLC Date and Place of incorporation Principal activities Issued and paid-up share capital Effective equity interest UAE Dormant AED490,000 49% P.R. Egypt Egypt Dormant Egyptian Pound 250, % 6. SUMMARY OF FINANCIAL INFORMATION The summary of key financial information of PRMF for the past three (3) financial years up to the FYE 31 March 2016 are set out below: FYE 28 February 2014 Audited FPE 31 March 2015 FYE 31 March 2016 AED AED AED Revenue 79,238, ,196,479 98,821,724 Other income 10,004,652 14,430,186 15,995,337 Profit before tax 7,032,893 10,309,392 7,632,682 PAT 7,032,893 10,309,392 7,632,682 Share capital (PRMF Shares) Shareholders funds/na 5,251,406 11,460,798 9,093,480 Total borrowings NA per share (AED) 525, , ,870 EPS (AED) 703, , ,654 Current ratio (times) Gearing (times) For the past three (3) financial years under review: (a) (b) (c) there were no exceptional or extraordinary items; there were no accounting policies adopted by PRMF which are peculiar to PRMF because of the nature of its business or the industry in which it is involved in; and there were no audit qualifications of the financial statements of PRMF. 12

13 APPENDIX I Commentary of past financial performance FYE 28 February 2014 For the financial year under review, PRMF recorded revenue of AED79,238,579 representing a decrease of AED2,316,347 or -2.8% as compared to AED81,554,926 in the FYE 28 February The decrease in revenue was due to the decline in revenue from Egypt arising from the political unrest over the FYE 28 February Revenue contribution from Egypt for FYE 28 February 2013 was AED29,562,103 whereas contribution from Egypt for the FYE 28 February 2014 was AED8,027,948, being a decrease of AED21,534,155 or -72.8%. Despite this decline in revenue, growth in revenue from the other countries amounted to AED27,245,756, thus reducing the overall decrease in revenue to AED2,316,347. PRMF recorded a higher PAT of AED7,032,893, representing an increase of AED3,614,380 or 105.7% as compared to AED3,418,513 for the FYE 28 February This increase was mainly due to the increase in gross profit margins as well as lower advertising and promotional expenses ( ADEX ) incurred over FYE February FPE 31 March 2015 For the financial year under review, PRMF recorded revenue of AED108,196,479 representing an increase of AED28,957,900 or 36.5% as compared to AED79,238,579 in the FYE 28 February The increase in revenue was contributed by the increased sales from the Kingdom of Saudi Arabia, Qatar and UAE. PRMF recorded a higher PAT of AED10,309,392, representing an increase of AED3,276,499 or 46.6% as compared to AED7,032,893 for the FYE 28 February The increase in PBT was mainly due to the increase in revenue income. FYE 31 March 2016 For the financial year under review, PRMF recorded revenue of AED98,821,724 representing a decrease of AED9,374,755 or -8.7% as compared to AED108,196,479 in the FPE 31 March The decrease in revenue was contributed by the decrease in sales from the Kingdom of Saudi Arabia and Qatar. PRMF recorded a lower PAT of AED7,632,682, representing a decrease of AED2,676,710 or -26.0% as compared to AED10,309,392 for the FPE 31 March This decrease was mainly due to the lower revenue recorded for FYE 31 March 2016 and the increase in ADEX arising from a launch of a new product in MENA. 13