SEBATA HOLDINGS LIMITED - SEB : Empowerment Transaction Relating to the Disposal of the Majority of Sebatas Shareholding in UMS

31 January 2020 15:20

SEB : Empowerment Transaction Relating to the Disposal of the Majority of Sebata?s Shareholding in UMS:

Sebata Holdings Limited

Incorporated in the Republic of South Africa

(Registration number 1998/003821/06)

Share code: SEB ISIN: ZAE000260493

("Sebata" or "the Company")

EMPOWERMENT TRANSACTION RELATING TO THE DISPOSAL OF THE MAJORITY OF SEBATA'S

SHAREHOLDING IN UMS

1. INTRODUCTION

The Board of directors of Sebata ("the Board") is pleased to inform shareholders that the Company has

entered into a Sale of Shares Agreement and a Loan Agreement with USC Metering Proprietary Limited

("USC"), for the disposal of 100% of the total issued share capital in IPES Utility Management Services

Proprietary Limited ("UMS") to USC for a purchase consideration of R43 million- as more fully set out in

paragraph 2.3.1 below (the "Transaction"). Sebata will retain an indirect shareholding in UMS through

its 40% shareholding in USC.

The remaining 60% shareholding in USC is held by Inzalo Capital Holdings Proprietary Limited ("Inzalo")

pursuant to the empowerment transaction announced on SENS on 20 August 2019, that was disclosed

in the circular to shareholders dated 20 December 2019 and was approved by shareholders at the

general meeting on 22 January 2020,. The shareholders of Inzalo are Sihle Lloyd Ndlovu and Sbonelo

Trinity Mazibuko.

The effective date of the Transaction will be 1 February 2020 ("Effective Date").

2. THE TRANSACTION

2.1 Nature of the business of UMS

UMS was founded in 1996 to assist municipalities and utilities with the management of their

revenue enhancement and revenue protection needs. UMS developed its own range of bespoke

software applications and management solutions- most notably: credit control, indigent register

management, data cleansing, and meter installation and maintenance. UMS focuses on assisting

the municipal sector to achieve measurable financial well-being and growth by equipping them to

be financially viable. This is done whilst transferring related skills through personnel development

and mentorship programs. UMS has its head office in Pretoria and has several regional offices

throughout South Africa.

2.2 Rationale for the Transaction

UMS presently has extreme difficulty in securing new business and retaining long-standing clients

due to the increased focus on empowerment and UMS's clear shortcoming in this area. This has

resulted in a much poorer present economic performance even when compared to the most

recently concluded financial year (2019). The recently implemented empowerment transaction for

USC created an opportunity for this Transaction by repositioning the UMS business to be a direct

subsidiary of USC. UMS will not only significantly improve its empowerment standing but will also

benefit from the significant synergies between the two businesses. The acquisition of the UMS

business will allow USC to control the value chain from the production of smart water meters

through to installation of the meters. In addition, UMS business will assist USC to provide value

added services to the local authorities by offering credit control and debt collection functions. On

conclusion of the Transaction, UMS should immediately return to full profitability levels and the

Transaction has been priced and structured to be conditional on that.

2.3 The Transaction

2.3.1 Purchase Consideration

The consideration of R43 million ("Capital Amount") is payable:

2.3.1.1 on achievement by UMS of a significantly improved net profit after tax target of

R10 million for the first 12-month period ending 31 January 2021, based on the

finalised management accounts of UMS for the period in question;

2.3.1.2 in the form of 36 equal monthly payments in respect of the Capital Amount and

accrued interest thereon at the prime interest rate compounded monthly from the

Effective Date, over the 36-month period beginning 1 July 2021 and ending

30 June 2024.

Achievement of the profit target set out in paragraph 2.3.1.1 above and full settlement of

the repayment obligations set out in paragraph 2.3.1.2 above will constitute settlement of

the purchase consideration.

In the event that the profit target referred to in paragraph 2.3.1.1 above is not achieved, the

documents of title in respect of UMS will be returned to Sebata and the Transaction will be

terminated with neither party having any claim against the other.

USC will have the right at any time to make accelerated payments in full or in part of the

Capital and interest amounts.

All dividends received by USC, through its ownership of 100% of the issued share capital

of UMS, will first be apportioned to the settlement of the Capital Amount and accrued

interest thereon.

2.3.2 Suspensive conditions to the Transaction

There are no outstanding conditions precedent in respect of the Transaction.

2.4 Application of the sale proceeds

It is intended that the majority of the net proceeds of the Transaction will be distributed to

shareholders with the remainder being used to grow the businesses within the Sebata Group.

3. FINANCIAL INFORMATION

The audited value of the net assets of UMS as at 31 March 2019 is R15.3 million. The audited profit after

tax for UMS for the year ended 31 March 2019 is R6.6 million.

The financial statements were prepared in accordance with International Financial Reporting Standards

and the Companies Act, 2008 (Act 71 of 2008), as amended.

4. CLASSIFICATION OF THE TRANSACTION

The Transaction is categorised as a category 2 transaction in terms of the Listings Requirements of JSE

Limited.

Johannesburg

31 January 2020

Sponsor

Merchantec Capital

Date: 31-01-2020 03:20:00

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