| Tue 30 Sep 2008, 12:43 | | DON - The Don Group - Reviewed Financial Results For The Year Ended |
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DON
DON
DON - The Don Group - Reviewed Financial Results For The Year Ended
30 June 2008
The Don Group Limited
Incorporated in the Republic of South Africa
(Registration number 1946/023123/06)
Share code: DON & ISIN: ZAE000008462
("Don" or "the Group")
REVIEWED FINANCIAL RESULTS FOR THE YEAR ENDED 30 JUNE 2008
CONDENSED CONSOLIDATED INCOME STATEMENT
For the year ended 30 June 2008
Year
Year Ended
Ended Jun 07
Jun 08 Audited
Reviewed Restated
R`000 R`000
Revenue 70 074 62 578
Profit before interest and taxation 11 468 12 487
Interest received 427 218
Interest paid (6 570) (6 177)
Profit before taxation 5 325 6 528
Taxation 1 647 11
Taxation - SA normal tax (54) (221)
Taxation - deferred 1 701 232
Profit attributable to ordinary shareholders 6 972 6 539
Headline earnings 7 105 6 539
Number of ordinary shares in issue (000`s) 294 485 294 485
Weighted average number of ordinary shares
in issue (000`s) 294 485 294 485
Earnings per share (cents) 2.37 2.22
Headline earnings per share (cents) 2.41 2.22
Reconciliation of headline earnings
Profit attributable to ordinary shareholders 6 972 6 539
Impairment of investment in associate 133 -
Headline earnings 7 105 6 539
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Share Accumulated Revaluation
capital premium (loss) surplus Total
R`000 R`000 R`000 R`000 R`000
Balance at 36 811 119 103 (139 223) 52 976 69 667
30 June 2006
as
previously
stated
Prior year 1 577 20 017 21 594
restatement
Balance at
30 June 2006
as restated 36 811 119 103 (137 646) 72 993 91 261
Profit for 6 539 6 539
the year
Prior year 25 237 25 237
restatement
Balance at 36 811 119 103 (131 107) 98 230 123 037
30 June 2007
as restated
Profit for 6 972 6 972
the year
Revaluation 25 344 25 344
Surplus
Effect of 1 129 1 129
change in
tax rate on
deferred tax
balance
Balance at 36 811 119 103 (124 135) 124 703 156 482
30 June 2008
CONDENSED CONSOLIDATED BALANCE SHEET
At 30 June 2008
Jun 07
Jun 08 Audited
Reviewed Restated
R`000 R`000
Assets
Non-current assets
Property, plant and equipment 242 230 207 605
Unlisted investments - 1 437
Deferred tax asset 1 400 -
Current assets 10 749 8 553
- Inventory and accounts receivable 7 229 5 184
- Cash and cash equivalents 3 520 3 369
Total assets 254 379 217 595
Equity and liabilities
Capital and reserves 156 482 123 037
Non-current liabilities 44 034 48 269
- Interest free - 2 390
- Interest bearing 44 034 45 879
Deferred tax liability 37 518 32 743
238 034 204 049
Current liabilities 16 345 13 546
- Creditors and provisions 12 952 9 247
- Short term portion of interest bearing 2 576 3 536
liability
- Taxation 817 763
Total equity and liabilities 254 379 217 595
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
Jun 07
Jun 08 Audited
Reviewed Restated
R`000 R`000
Cash generated by operations 9 905 8 126
Investing activities (6 623) (3 157)
Financing activities - Repayments to IDC (3 131) (3 138)
Net movement in cash and cash equivalents 151 1 831
Cash and cash equivalents - beginning of 3 369 1 538
year
Cash and cash equivalents - end of year 3 520 3 369
Net asset value per share (cents) 53.1 41.8
Capital expenditure during the year 6 688 3 157
- Other fixed assets acquired during the 6 688 3 157
year
Directors valuation of unlisted investments - 1 437
Rental commitments
Payable in the next year 1 028 975
Payable thereafter 968 2 736
Commentary
Restatement
During the 2008 financial year, it was determined that the carrying amount of
the hotel properties differed materially from their fair values at the
balance sheet date. However, the increase in fair value did not all occur in
the 2008 financial year. Furthermore, the property valuations have now been
split by the directors into their estimated land and buildings components
going back to the 2006 and 2007 financial years. Land and buildings are now
split for both valuation and depreciation purposes whereas previously both
land and buildings had been depreciated.
The corrections to these prior period errors have been applied
retrospectively to the carrying value of the assets, liabilities and equity
at the end of the 2006 and 2007 financial years and been carried through to
the current year.
The effects of this on the Group`s restated balance sheet are as follows:
R`000 R`000
Cumulative effect on assets 2007 2006
Increase in property, plant and equipment 60 230 26 937
Cumulative effect on liabilities
Increase in deferred taxation 11 971 5 343
Cumulative effect on equity 48 258 21 594
Decrease in accumulated loss 3 005 1 577
Increase in revaluation surplus 45 253 20 017
Increase in earnings per share and
headline earnings per share (cents) 0.48 0.54
Increase in net asset value per share (cents) 16.4 7.3
OVERVIEW
The positive outcome of the financial year to 30 June 2008 was a notable and
gratifying increase in revenue, the highest yet generated by The Don Group`s
nine hotels with 409 suites. Headline earnings topped that of the previous
year by 9 percent.
Revenue increased 12 percent year on year from R62.6 million to R70.1 million
and this was attributable to increases in suite tariffs and a demand for
accommodation from guest categories other than corporate business, the
traditional mainstay of Don`s clientele, which in itself increased 45
percent. The Don brand of suite hotels with concierge, food and beverage
services at affordable prices also drew increased travel agent activity. This
was bolstered by the employment of major domestic and international online-
booking engines as well as targeting specific travel markets, which in one
market sector alone yielded a 195 percent increase in revenue.
However, momentum in operating profit growth relative to the upward growth
pattern of recent reporting periods was tempered by the swing in the economy
from a positive upbeat environment in the first half of the year to the
contraction of the economy in the second half of the year.
Rising interest rates, tightening credit legislation and waning consumer
confidence have, unfortunately, been in line with the caveat expressed at the
half year stage where untoward risks to the economy affecting year end profit
prospects were identified.
Inflationary pressures and the factors referred to above had the effect of
reducing profit before interest and taxation in comparison to last year,
restated, from R12.5 million to R11.5 million, a decline of 8 percent. The
five 50 basis point increases in the prime interest rate, during the year,
was government`s response to control inflation and resulted in an increase in
interest paid.
Also affecting bottom line profits were increased marketing costs, an
unbudgeted increase in travel agents` fees and the introduction of back
office reservation technology. Training of staff to better staff retention
rates in a high staff turnover industry lead to an increase in staff related
costs. These increases will, however, ensure that The Don is able to meet the
challenges associated with 2010.
Profit attributable to shareholders increased to R7 million, a 7 percent
increase from the previous year`s profit of R6.5 million on a restated basis.
Headline profit per share increased from 2.22 to 2.41 cents. Net asset value
per share increased by 27 percent from 41.8 cents to 53.1 cents per share on
a restated basis. The Group remains cash positive.
The Group continued with its refurbishment programme of its hotels in Cape
Town, Johannesburg, Sandton, Pretoria, and the OR Tambo International Airport
precinct during the year. Refurbishment resulted in acquisitions of fixed
assets increasing from R3.1 million to R6.7 million, an increase of 112
percent and was financed from internal resources. The upgrading is as much
essential to maintain three-star status consistent with its ranking as the
premier JSE-listed all-suite hotel group as to ensure the hotels are in top
class condition for the 2010 World Cup, for which Don is a FIFA-accredited
accommodation provider.
Revaluation
The Don Group`s property portfolio was previously valued three years ago. The
directors have arrived at the fair value of the properties based on the
growth in the tourism and hospitality industries and the property market. A
growth factor for each of the 2006, 2007 and 2008 financial years was then
applied to the properties based on their geographical locations. The
directors` valuation of the properties and its effects are mentioned in the
restatement paragraph and the current and prior year`s results and balance
sheet have been restated to reflect the fair value of the properties at 30
June 2008 and 2007.
Operations
Technology continues to be incorporated into the guest lifestyle offered by
the chain as well as in the management of the business. Expansion of
satellite television and wireless internet connectivity is a continuing
development, and the website (www.don.co.za) was revamped and went `live` at
year-end. There is now improved connectivity with major online-booking
engines and reservation agencies.
Don is again the accommodation partner with the Big Brother 3 reality
television programme. The Africa-wide exposure from the earlier and current
shows produced a significant flow of cross-border reservations, which is
continuing.
During the year, corporate social investment was mainly with community
upliftment projects (CUPS) chosen and driven by staff at head office and each
hotel. These projects embraced caring for the aged, the disabled, abandoned,
abused and destitute children, and HIV/AIDS sufferers. Items recovered from
refurbishment and/or deemed unsuitable or surplus to hotel use were donated
to CUPS and have delivered a visible benefit to the lives of the
underprivileged.
Board membership
There were no changes to the board for the year ended 30 June 2008.
Accounting policies
Basis of preparation: The consolidated financial statements have been
presented in accordance with the Group`s policies. These comply with
International Financial Reporting Standards (IFRS), IAS 34, the Companies Act
of South Africa and the JSE Listings Requirements and are consistent with
those of the prior period.
Owner-occupied property: Owner-occupied property is recognised initially at
cost. Thereafter, the property is carried at a revalued amount, as determined
by the directors and or professional valuers. Depreciation is provided on
buildings over their remaining useful lives (total estimated useful life is
50 years.) Residual values of properties are reassessed annually. Where the
residual value equals or exceeds the carrying amount of an asset no
depreciation is recognised. The revaluation reserve and related deferred tax
have been recognised in equity and liabilities. The requirements of IAS 16,
`Property, plant and equipment` on the valuations and depreciation of the
properties have been retrospectively applied in accordance with IAS 8
`Accounting policies, changes in accounting estimates and errors` and the
effects thereof are set out in this announcement in the restatement
paragraph.
Deferred taxation: Deferred tax liabilities are recognised for all
revaluations, prior period restatements and taxable temporary differences and
deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary
differences can be utilised.
Investment in associate company: Steps had been taken by the year end date to
have this company formally deregistered. Accordingly, the financial liability
has been de-recognised and the financial asset impaired. The Group is seeking
to minimise any obligations arising from de-registration and these are not
expected to exceed R0.28 million.
Review report: These condensed consolidated year end results to 30 June 2008
have been reviewed by PKF (Jhb) Inc. and their unqualified review report is
available for inspection at the Group`s registered office.
Dividends: No dividend has been declared.
Prospects
The domestic and worldwide economic horizon for the financial year to 30 June
2009 is uncertain. Current global financial turmoil has yet to play itself
out and the consequences on the local economy are uncertain. The Board is
confident that investment in enhancement of business operations, maintenance
of affordable quality of hotel accommodation and funding of advances into new
markets will stand the all-suite hotel chain in good stead in the prevailing
economic climate. The intention is to maximise resources to maintain upward
profitability, subject to any unexpected economic or political shocks.
By order of the board
Ms Salukazi Dakile-Hlongwane Thabiso Tlelai
Chairperson Chief Executive Officer
30 September 2008
Directors: Ms Salukazi Dakile-Hlongwane* (Chairperson),
Thabiso Tlelai (Chief Executive Officer),
Professor Francois Viruly*>, Max Maisela*, Wayne Wright*
* Independent Non-Executive Directors >Dutch
Company Secretary: Whitney Green
Registered Office: 65 Kyalami Boulevard, Kyalami Business Park, Kyalami, 1684
Transfer Secretaries: Link Market Services South Africa (Proprietary) Limited
Sponsors: Merchantec (Proprietary) Limited
Auditors: PKF (Jhb) Inc.
Date: 30/09/2008 12:43:08 Produced by the JSE SENS Department.
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