| Thu 30 Oct 2008, 14:31 | | ACC - Acc-Ross Holdings - Unaudited Condensed Consolidated Interim |
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ACC
ACC
ACC - Acc-Ross Holdings - Unaudited Condensed Consolidated Interim
Results For The Six Months Ended 31 August 2008
ACC-ROSS HOLDINGS LIMITED
(Registration Number: 2000/000059/06)
Share code: ACC & ISIN code: ZAE000077335
("Acc-Ross Holdings" or "the company")
UNAUDITED CONDENSED CONSOLIDATED INTERIM RESULTS
FOR THE SIX MONTHS ENDED 31 AUGUST 2008
Condensed Consolidated Income Unaudited Audited Unaudited
Statement 6 months 12 months 6 months
for the six months ended 31 31 Aug 2008 28 Feb 2008 31 Aug 2007
August 2008 R`000 R`000 R`000
Revenue 13 916 215 984 7 016
Cost of sales (12 627) (193 320) (7 304)
Gross profit / (loss) 1 289 22 664 (288)
Other gains and losses (3) 2 577 212
Investment revenue 7 747 10 136 132
Marketing and sales expenses (4 009) (11 621) (3 689)
Occupancy expenses (76) (261) (207)
Impairment of goodwill - (120 602) (17 128)
charges
Other expenses (16 097) (32 097) (5 801)
Finance costs (1 173) (6 586) (3 533)
Loss before tax (12 322) (135 790) (30 302)
Income tax (expense) / income (1 219) (172) 5 747
Loss for the period (13 541) (135 962) (24 555)
Attributable to:
Minority interest (273) (681) (231)
Ordinary shareholders of the (13 268) (135 281) (24 324)
parent
Loss per share:
Basic loss per share (cents) (1.04) (10.61) (1.99)
Diluted loss per share (1.04) (10.61) (1.99)
(cents)
Headline loss reconciliation:
Loss attributable to ordinary
shareholders of the parent (13 268) (135 281) (24 324)
Adjustments for:
Impairment of goodwill -- 120 602 17 128
Impairment of property, plant -- -- 54
and equipment
Profit on disposal of
investments, adjusted for -- (1 972) (78)
taxation effect
Headline loss for the period (13 268) (16 651) (7 220)
Headline loss per share:
Headline loss per share (1.04) (1.31) (0.59)
(cents)
Diluted headline loss per (1.04) (1.31) (0.59)
share (cents)
Weighted average shares in 1 278 058 1 275 558 1 222 412
issue (`000)
Weighted average shares in 1 278 058 1 275 558 1 222 412
issue for dilution (`000)
There are no securities with potential dilutive effects as at 31 August
2008 (2007: Nil) other than share-based payments granted to directors. As
Acc-Ross and its subsidiaries ("the Group") is reporting a loss for all
periods presented and all potential ordinary shares to be issued to
directors are anti-dilutive, diluted loss per share equals basic loss per
share, and headline loss per share equals diluted headline loss per
share.
Condensed Consolidated Unaudited Audited Unaudited
Balance Sheet 6 months 12 months 6 months
as at 31 August 2008 31 Aug 2008 28 Feb 2008 31 Aug
R`000 R`000 2007
R`000
ASSETS
Non-current assets 290 531 264 836 300 713
Property, plant and 816 700 2 771
equipment
Inventory/Freehold land 165 817 144 389 132 250
and stands
Goodwill 37 605 37 605 141 084
Trademarks 14 - -
Other financial assets 74 103 69 464 8 681
Deferred tax assets 12 176 12 678 15 927
Current assets 292 409 357 771 417 540
Inventory/Freehold land 230 985 220 145 381 911
and stands
Other financial assets 26 083 35 085 16 814
Trade and other 20 078 20 325 15 552
receivables
Cash and cash equivalents 15 263 82 216 3 263
Total Assets 582 940 622 607 718 253
EQUITY AND LIABILITIES
Equity and reserves 283 849 293 909 296 217
Issued capital, share
premium and share-based 440 981 437 773 329 124
payment reserve
Accumulated loss (157 132) (143 864) (32 907)
Minority interest 1 027 1 300 1 754
Non-current liabilities 164 081 129 954 197 507
Borrowings 131 903 106 768 156 276
Finance lease obligation 309 318 385
Deferred tax liabilities 31 869 22 868 40 846
Current liabilities 133 983 197 444 222 775
Trade and other payables 33 169 33 189 38 069
Borrowings 84 937 110 036 140 689
Finance lease obligation 84 158 142
Current tax payable 8 425 33 669 12 495
Provisions 7 368 20 392 31 380
Total Equity and 582 940 622 607 718 253
Liabilities
Shares in issue at period
end net of treasury 1 417 719 1 417 719 1 255 630
shares
Net asset value per share 20.02 20.73 23.59
(cents)
Net tangible asset value 17.37 18.08 12.35
per share (cents)
Condensed Consolidated Cash Flow Unaudited Audited Unaudited
Statement 6 months 12 months 6 months
for the six months ended 31 31 Aug 2008 28 Feb 2008 31 Aug 2007
August 2008 R`000 R`000 R`000
Net cash (used in) / generated (53 603) 93 345 (37 865)
by operations
Interest income 3 107 2 543 -
Finance costs (1 173) (6 586) (3 533)
Income taxes paid (16 960) (4 895) (4 902)
Net cash (outflow) / inflow from (68 629) 84 407 (46 300)
operating activities
Net cash inflow / (outflow) from 1 714 (69 271) 1 990
investing activities
Net cash (outflow) / inflow from (39) 65 444 45 934
financing activities
Net (decrease) / increase in (66 953) 80 578 1 625
cash and cash equivalents
Cash and cash equivalents at 82 216 1 638 1 638
beginning of the period
Cash and cash equivalents at end 15 263 82 216 3 263
of the period
Statement of Share Share Retained Attributable Minority Total
Changes in capital 1 premium earnings to equity interest
Equity 1 holders of
for the six the parent
months ended
31 August
2008
R`000 R`000 R`000 R`000 R`000 R`000
Balance at 28 112 280 488 (8 583) 272,017 1 981 273 998
February 2007
Loss for the - - (24 324) (24 324) (231) (24
period 555)
Issue of 9 17 992 - 18 001 - 18 001
ordinary
shares in
settlement of
liabilities
Issue of 6 29 994 - 30 000 - 30 000
ordinary
shares for
cash
Share issue - 523 - 523 - 523
costs
Acquired from - - - - 4 4
minorities
Balance at 31 127 328 997 (32 907) 296 217 1 754 297 971
August 2007
Loss for the - - (110 (110 957) (450) (111
period 957) 407)
Issue of 1 11 009 - 11 010 - 11 010
ordinary
shares in
settlement of
liabilities
Allocation of 3 22 068 - 22 071 - 22 071
shares to
staff and
directors for
services
Issue of 12 76 238 - 76 250 - 76 250
ordinary
shares for
cash
Share issue - (682) - (682) - (682)
costs
Acquired from - - - - (4) (4)
minorities
Balance at 29 143 437 630 (143 293 909 1 300 295 209
February 2008 864)
Loss for the - - (13 268) (13 268) (273) (13
period 541)
Allocation of 1 3,199 - 3 200 - 3 200
shares to
staff and
directors for
services
Share issue - 8 - 8 - 8
costs
Balance at 31 144 440 837 (157 283 849 1 027 284 876
August 2008 132)
1 Includes shares issued and shares contracted for but
not issued.
COMMENTARY
BASIS OF PREPARATION
The Group`s consolidated interim financial information for the six months
ended 31 August 2008 have been prepared in accordance with IAS 34 -
Interim Financial Reporting. The accounting policies, which comply with
International Financial Reporting Standards ("IFRS"), have been applied
consistently in all material aspects in the current and comparative
periods. The condensed consolidated interim financial information should
be read in conjunction with the audited annual financial statements for
the year ended 29 February 2008, which have been prepared in accordance
with IFRS. The interim results have not been reviewed or reported on by
the auditors.
BUSINESS OVERVIEW
Acc-Ross is primarily a developer of leisure resorts and residential
lifestyle estates, whereby land is acquired, rezoned, developed and on
sold. Revenue is initially derived from the sale of stands. Once stand
sales are completed, Acc-Ross plans to retain certain of the leisure or
commercial assets which have been developed, such as leisure golf
courses, sport facilities, conference facilities, club houses, hotels and
commercial or retail interests as well as rental units to ultimately
build a portfolio of revenue generating assets in order to provide
annuity income for the group. Shareholders are referred to subsequent
events and future prospects below.
FINANCIAL OVERVIEW
Income statement review
Revenue for the six months ended 31 August 2008 comprises transfer of
stands from Phases 2 and 3 of Gardener Ross Golf & Country Estate
("Gardener Ross") only. Following focussed marketing efforts and the
official opening of the golf course, sales for the six months doubled
compared to the comparative period in the prior year. The gross profit
margin improved from negative 4% to positive 9% as a result of the sales
mix of stands sold during the current period, being on average higher
value stands than sales of the comparative period. Shareholders are
reminded that cost of sales contains a non cash flow component relating
to the allocation of a portion of the purchase consideration of the
subsidiary to inventory and therefore the gross profit in the subsidiary
is higher than that recognised at group level. The non-cash component
included in cost of sales for the period amounted to R1.6 million (2007:
R1.0 million).
Investment revenue was earned on proceeds from the sale of the
development land, The Bay, which was sold in the latter half of the prior
year. Total interest charges and net finance costs expensed have
decreased due to the application of a portion of the sales proceeds to
settle outstanding finance relating to The Bay. In addition, the
redemption of the Gardener Ross Holdings preference shares on 1 March
2008, settled from the proceeds of additional shares issued, also
contributed to a decrease in finance costs.
There were no factors causing a reduction in the value of the Group`s
investments below its carrying values during the six months under review
and accordingly, no impairment charges relating to goodwill were
considered necessary for recognition during the period. In comparison,
impairment charges on goodwill of R17 million were recognised in the
prior year comparative period.
Other expenses increased in comparison to the comparative period due to
the following:
- The recognition of a share based payment charge of R3.2 million,
relating to remaining shares to be issued to directors in terms of
their employment contracts as previously approved by the
shareholders of Acc-Ross. This expense does not require any cash
outflow from the Group and is not deductible for tax purposes.
- The loan to Royal Oak Development and Construction (Pty) Ltd
receivable of R7.1 million was impaired. This loan originated prior
to the listing and the Group is taking legal action to recover the
amount due.
- An increase in consulting fees of R0.5 million relating to tax
services and advice as well as recruitment fees paid during the
period under review.
Despite the loss before tax of R12.5 million the Group recognised a tax
expense of R1.3 million as a result of the non-deductibility of share-
based payment charges, the impairment of the loan receivable mentioned
above, minor operating losses in subsidiaries for which no deferred tax
asset was raised as these subsidiaries are not expected to earn future
taxable income and R1.7 million secondary tax on companies (STC) paid on
the preference dividend declared by Gardener Ross Holdings Limited.
Balance sheet review
The increase in non-current inventory/freehold land and stands from the
prior year-end of R21.5 million mainly relates to an increase in costs
capitalised in respect of Lizard Point. These costs comprise the purchase
of an additional portion of land for R4.6 million, a R12.5 million buy-
out of Investec`s profit participation in terms of the financing
agreement and interest costs capitalised. Whilst the buy-out of the
Investec profit share represents a major cash outflow for the Group in
the current period, it is expected to enhance the future profitability of
the Lizard Point development.
The increase in current inventory/freehold land and stands from the prior
year-end of R10.8 million mainly relates to borrowing costs and project
management fees capitalised in respect of Gardener Ross.
Non-current loans and receivables increased from the prior year-end with
R4.6 million relating to interest charged on outstanding proceeds from
the sale of The Bay. This follows the fair value adjustment of R13.3
million made to the sales price of The Bay in accordance with IFRS during
the prior year. Current loans and receivables decreased with R9.0
million, mainly as a result of the impairment in receivables recognised
of R7.1 million discussed under the income statement review.
Non-current borrowings increased from the prior year-end with R25.1
million due to additional finance obtained from Investec for the
development of Gardener Ross. This was necessitated by slower than
anticipated sales for the project due to adverse economic conditions,
increase in interest rates and the general down turn in the residential
sales market. Current borrowings decreased from the prior year-end with
R25.1 million following the redemption of further Gardener Ross Holdings
preference shares together with the declared preference dividend.
Provisions decreased by R13.0 million following payment of a portion of
the profit share due to Investec for the financing of the Gardener Ross
development.
Cash Flow statement review
Cash and cash equivalents decreased by R67.0 million during the six
months under review, which is mainly a result of cash used in operating
activities of R68.6 million. Cash used in operating activities include
the following significant items:
- An increase in inventory of R32.8 million (more details provided
under balance sheet review);
- Repayment of a portion of the profit share due to Investec for the
financing of the Gardener Ross development, resulting in a net cash
outflow of R13.0 million;
- Payment of income taxes of R17.0 million, mainly income tax payable
on the sale of The Bay and STC payable on the preference dividend
declared in Gardener Ross Holdings.
SEGMENTAL REPORTING
The Group has one main operating segment, namely the sale of freehold
land and stands. During the period under review the segment included the
following projects:
- Gardener Ross Golf & Country Estate
- Lizard Point
- Welvergenoegd
- Blue Horizon Bay
- Zeranza
The results of the comparative periods also include The Bay, which was
sold in its entirety during November 2007.
No material intergroup transactions took place during the current or
comparative periods under review and accordingly, the results for the
Group materially reflects the results relating to the sale of freehold
land and stands.
Details of the Group`s projects are set out below.
Previously the Group also had a segment which sold advertising space on
the Group`s website and the webpages of its projects. The segment became
dormant and immaterial to the results of the Group and is therefore no
longer disclosed separately.
DETAILS OF PROJECTS
Gardener Ross Golf & Country Estate
Gardener Ross Golf & Country Estate comprises an Ernie Els signature golf
course and a housing development comprising 1 131 full title stands and
is situated in Centurion, Gauteng. The geographic position of the estate
offers owners the opportunity to enjoy a quiet and secure country
lifestyle, within range of major developing business areas, including
Centurion, Midrand, Sandton and Pretoria.
Project management for this development is being undertaken by Devco
Africa (Proprietary) Limited, who owns 10% of the development. The
development is fully financed by Investec. The development finance is a
rolling facility, attracting interest at prime less 0.5% and a profit
share of 30% (previously 25%) of the pre-tax profit from the entire
project. The profit share percentage increased following re-negotiation
of the facility and impacted negatively on the results for the six months
ended 31 August 2008 by R0.5 million. The profit share liability
recognised at 31 August 2008 increased by R7.0 million.
The golf course opened officially during November 2007 and received very
positive feedback overall. The course is expected to become one of the
top courses in South Africa, being nominated recently by the Compleat
Golfer as the top new course in Gauteng for 2008.
Zeranza is a show-house that has been built on the Estate and is 100%
owned by the Group.
Lizard Point
Lizard Point is a 700 hectare resort development with 6,4 kilometres of
water frontage, situated at the mouth of the Wilge river and on the banks
of the Vaal Dam next to Oranjeville in the Free State. The first phase
of the development comprises an 18 hole championship links golf course,
which will be co-designed by Retief Goosen, with 526 Residential One,
freehold stands and approximately 800 high density units. Phase One was
officially launched in August 2005, but the sales model is currently
being redesigned to a fractional sales model which would make it more
affordable and accessible to a wider market. Lizard Point will be re-
launched on the new model in 2009.
Welvergenoegd
Welvergenoegd is a planned township development situated outside
Durbanville in the Cape. Water Rights have been secured for the
development through our contribution to the funding of the Durbanville
water pipeline.
Blue Horizon Bay
Blue Horizon Bay Eco-Estate is a 76 hectare property located in an
extremely sought-after area of coastal land, between Port Elizabeth and
Jeffreys Bay. The sea facing development will cater to the holiday
market. The development is expected to be a low density eco estate, with
ample open space to allow small game to roam freely and allow for the
majority of the homes to have uninterrupted ocean views.
LITIGATION
Acc-Ross and its subsidiaries are not involved in any material legal or
arbitration proceedings or legal actions, nor are the directors aware of
any proceedings that are pending, that may have, or have had in the 12
month period preceding the last practicable date, a material effect on
the company`s financial position.
DIRECTOR CHANGES
During the period under review the following changes occurred to the
board of directors:
AB Mashiatshidi (Non-executive director and Chairman) - Resigned 10 March
2008
MJ Krastanov (Non-executive director) - Appointed 14 April 2008
YT Moerane (Non-executive director) - Appointed 16 May 2008
KS Mthembu, a non-executive director, assumed the role of Acting Chairman
of Acc-Ross on 10 March 2008 pending the intended restructure of the
board in relation to the acquisition of the Pinnacle Point group of
companies as detailed in subsequent events below.
DIVIDENDS
The directors have decided not to declare a dividend for the period under
review.
SUBSEQUENT EVENTS
On 24 October 2008 the shareholders of Acc-Ross in General meeting
approved:
- The acquisition by Acc-Ross, as one indivisible transaction, of all
the issued share capital in the following companies:
- Pinnacle Point Investments (Proprietary) Limited;
- Business Venture Investments No 1303 (Proprietary) Limited
("PPR Newco");
- Pinnacle Point Platinum Limited;
- Annford Investments (Proprietary) Limited;
- Goldfields Plaza (Proprietary) Limited;
- Festival Bay Trading 55 (Proprietary) Limited;
- Flashing Star Trading 98 (Proprietary) Limited;
- Wheatfields Investments No. 170 (Proprietary) Limited;
- Manupont 105 (Proprietary) Limited;
- Grindstone Investments 127 (Proprietary) Limited;
- Mascodor 182 (Proprietary) Limited;
- Pinnacle Point Financial Services (Proprietary) Limited
(collectively, "the Pinnacle Point Group");
and the rights of Pinnacle Point Resorts (Proprietary) Limited
("Pinnacle Point Resorts") in and to the loan account created in
favour of Pinnacle Point Resorts in PPR Newco representing the
consideration due to Pinnacle Point Resorts in terms of the Pinnacle
Point Resorts Business Sale Agreement from Pinnacle Point Holdings
(Proprietary) Limited, Property Promotions and Management
(Proprietary) Limited, New Port Finance Company (Proprietary)
Limited, Goldman Assets Management Limited, Pinnacle Point Resorts
and the Pinnacle Point Group executive management ("the Sellers")
for a purchase consideration of R1 764 670 297 in terms of the Share
Swop Agreement dated 29 August 2008, as amended (together "the
Acquisition");
- Various transactions and actions associated with the implementation
of the Acquisition, including:
- an increase in the authorised share capital of Acc-Ross
Holdings Ltd;
- placing the authorised but unissued shares under the control of
the directors;
- amendments to the articles of association of Acc-Ross Holdings
Ltd;
- the proposed waiver of the mandatory offer;
- the change of name of the Group to Pinnacle Point Group
Limited;
- reconstitution of the board of directors of the Group;
- An issue of up to an additional 850 000 000 Acc-Ross shares for cash
by Acc-Ross at a minimum issue price of 80 cents per Acc-Ross share;
- Specific issues of shares for cash amounting to R400 000 000 in
total, to Rakeen Development PJSc at an issue price of 50 cents per
Acc-Ross share and Lurco Trading 278 (Proprietary) Limited at an
issue price of 80 cents per Acc-Ross share; and
- Specific issues of shares in lieu of fees to Sales Affiliates 85
(Proprietary) Limited at an issue price of 100 cents per Acc-Ross
share, Mayibuye Capital (Proprietary) Limited at an issue price of
90 cents per Acc-Ross share, QuestCo Sponsors (Proprietary) Limited
and D van Huyssteen at an issue price of 65 cents per Acc-Ross share
and Rowmoor Investments 756 (Proprietary) Limited, at an issue price
of 100 cents per Acc-Ross share.
FUTURE PROSPECTS
The businesses of Acc-Ross and the Pinnacle Point Group will be merged
("the New Group") in order to exploit the benefits of the complementary
property development portfolios, the substantial synergies that exist and
cost savings that will be achieved and thereby increasing shareholder
value.
The New Group will have significant residential, leisure, hotel,
retirement, commercial and gaming development opportunities. These
opportunities exist in South Africa, Seychelles, Nigeria and Mozambique.
Approximately 70% of the combined projected revenue from existing
opportunities is expected to be generated in Euros and US Dollars over
the next three to five years.
The combined operations will give the New Group the critical mass to
finance new projects on more favourable terms and give it easier access
to large development opportunities both in South Africa and beyond the
borders of South Africa.
The Pinnacle Point Group has built a strong "in house" sales, marketing
and development capability, which can be utilised by Acc-Ross. Various
other "in house" capabilities, such as project management skills,
fractional unit management, hotel and leisure capabilities, will be
consolidated into the new operation thus making these important and
scarce skills available "in house" to the New Group.
The New Group will be better placed to attract new shareholders, both
local and international, who will invest cash into the New Group which
will assist in the funding of developments and projects.
It is the intention to issue shares for cash to secure strategic
investors for the New Group going forward as well as to significantly
reduce the New Group`s exposure to financiers and to strengthen the New
Group`s capital base in terms of new development project funding.
By order of the Board
KS Mthembu W Robinson
Chairman Chief Executive Officer
30 October 2008
Johannesburg
Registered Office
Arcay House, Number 3 Anerley Road, Parktown, Johannesburg,
2193
PO Box 62397, Marshalltown, Johannesburg, 2107
Business Address
MH House, Capricorn Road
Paulshof ext 40
Johannesburg
Directors
KS Mthembu *(Chairman), W Robinson (CEO), A Wiese, MJ
Krastanov*, YT Moerane*
* Non-executive
Designated Advisor Transfer Office
Arcay Moela Sponsors Computershare Investor Services
(Pty) Ltd (Proprietary) Limited
Date: 30/10/2008 14:31:01 Produced by the JSE SENS Department.
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