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GPL - Grand Parade Investments Limited - Unaudited Interim Results of Grand
Parade Investments Limited for the six months ended 31 December 2008
GRAND PARADE INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
Registration number 1997/003548/06
Share code GPL
ISIN ZAE00119814
Unaudited Interim Results of Grand Parade Investments Limited
for the six months ended 31 December 2008
Headline earnings UP 8%
Net asset value per share UP 13%
Increased exposure to select urban casinos - SunWest and Sibaya
Increased exposure to the LPM industry
8 million shares bought back at an average price of R2,44
Strong balance sheet with low gearing
Cash available for acquisitions
INCOME STATEMENT
Unaudited
31 December
2008
Notes R`000
Revenue 1 13 320
Operating costs 2 (8 222)
Profit from operations 5 098
Share of profit from associates 3 59 986
Impairment of investment in associate 4 -
Negative goodwill from associate 5 80 623
Net income before finance costs
and taxation 145 707
Finance costs 6 (15 176)
Net profit before tax 130 531
Taxation (3 760)
Net profit for the period 126 771
Attributable to ordinary shareholders 126 771
Reconciliation of earnings per share
Basic earnings 126 771
Preference dividend -
Attributable profit after
preference dividend 126 771
Negative goodwill from associate (80 623)
Impairment of investment in associate -
Associates 2 754
- BEE transaction -
- Gain on disposal of plant and equipment -
- Gain on disposal of investments
recycled to income statement -
- Provision for pension fund exposure 2 754
Tax effect of above -
Headline earnings 48 902
Headline earnings and dividend
per share
Shares in issue (`000) 460 667
Weighted average shares (`000) 464 003
Basic earnings per share (cents) 27,32
Diluted earnings per share (cents) 27,32
Headline earnings per share (cents) 7 10,54
Dividends paid per share (cents)* 10,00
Restated
Unaudited Audited
31 December 30 June
2007 2008
R`000 R`000
Revenue 16 381 34 032
Operating costs (7 422) (16 137)
Profit from operations 8 959 17 895
Share of profit from associates 1 483 47 052
Impairment of investment in associate - (92 132)
Negative goodwill from associate 784 087 784 087
Net income before finance costs
and taxation 794 529 756 902
Finance costs (554) (8 934)
Net profit before tax 793 975 747 968
Taxation (4 334) (9 385)
Net profit for the period 789 641 738 583
Attributable to ordinary shareholders 789 641 738 583
Reconciliation of earnings per share
Basic earnings 789 641 738 583
Preference dividend (3 481) (3 481)
Attributable profit after
preference dividend 786 160 735 102
Negative goodwill from associate (784 087) (784 087)
Impairment of investment in associate - 92 132
Associates 43 064 41 054
- BEE transaction 43 064 43 064
- Gain on disposal of plant and equipment - (60)
- Gain on disposal of investments
recycled to income statement - (2 312)
- Provision for pension fund exposure - 362
Tax effect of above - 563
Headline earnings 45 137 84 764
Headline earnings and dividend
per share
Shares in issue (`000) 374 720 469 028
Weighted average shares (`000) 360 410 365 767
Basic earnings per share (cents) 218,13 200,98
Diluted earnings per share (cents) 184,20 200,98
Headline earnings per share (cents) 12,52 23,17
Dividends paid per share (cents)* 7,50 7,50
*Final dividend declared in respect of the previous financial year and paid
in December.
BALANCE SHEET
Unaudited Unaudited Audited
31 December 31 December 30 June
2008 2007 2008
R`000 R`000 R`000
ASSETS
Non-current assets 1 855 858 1 208 638 1 696 386
Current assets 102 823 38 527 95 626
Total assets 1 958 681 1 247 165 1 792 012
EQUITY AND LIABILITIES
Capital and reserves
Shareholders` interest 1 633 883 1 169 316 1 572 534
Non-current liabilities 310 174 2 882 204 240
Current liabilities 14 624 74 967 15 238
Total equity and
liabilities 1 958 681 1 247 165 1 792 012
Net asset value (cents) 354,68 312,05 335,28
CASH FLOW STATEMENT
Unaudited Unaudited Audited
31 December 31 December 30 June
2008 2007 2008
R`000 R`000 R`000
Cash and cash equivalents at
beginning of period 81 834 69 710 69 710
Operating activities (9 399) (1 676) (2 595)
Investing activities (102 060) (203 238) (346 394)
Financing activities 112 834 159 174 361 113
Cash and cash equivalents at
end of period 83 209 23 970 81 834
STATEMENT OF CHANGES IN EQUITY AND RESERVES
Capital Ordinary
redemption share Share
reserve fund capital premium
R`000 R`000 R`000
Balance at 30 June 2007 115 83 112 201
Profit for the period - - -
Unrealised fair value loss on
available-for-sale investments - - -
Share of loss from associate prior to
becoming an associate - - -
Ordinary dividend paid - - -
Preference dividend - - -
Preference shares redeemed - - -
Transfer to capital redemption
reserve fund 115 - -
Share capital raised - 10 174 042
Balance at 31 December 2007 230 93 286 243
Loss for the period - - -
Unrealised fair value loss on
available-for-sale investments - - -
Share issue expenses - - (8 397)
Share capital raised - 24 462 872
Balance at 30 June 2008 230 117 740 718
Profit for the period - - -
Ordinary dividend paid - - -
Unrealised fair value gain on
available-for-sale investments - - -
Shares bought back - (2) (20 418)
Balance at 31 December 2008 230 115 720 300
Available-
Redeemable for-sale
preference fair value
share capital reserve
R`000 R`000
Balance at 30 June 2007 57 798 17 930
Profit for the period - -
Unrealised fair value loss on
available-for-sale investments - (223)
Share of loss from associate prior to
becoming an associate - -
Ordinary dividend paid - -
Preference dividend - -
Preference shares redeemed (57 798) -
Transfer to capital redemption
reserve fund - -
Share capital raised - -
Balance at 31 December 2007 - 17 707
Loss for the period - -
Unrealised fair value loss on
available-for-sale investments - (223)
Share issue expenses - -
Share capital raised - -
Balance at 30 June 2008 - 17 484
Profit for the period - -
Ordinary dividend paid - -
Unrealised fair value gain on
available-for-sale investments - 1 279
Shares bought back - -
Balance at 31 December 2008 - 18 763
Accumulative
profits Total
R`000 R`000
Balance at 30 June 2007 109 569 297 696
Profit for the period 789 641 789 641
Unrealised fair value loss on
available-for-sale investments - (223)
Share of loss from associate prior to
becoming an associate (5 669) (5 669)
Ordinary dividend paid (24 902) (24 902)
Preference dividend (3 481) (3 481)
Preference shares redeemed - (57 798)
Transfer to capital redemption
reserve fund (115) -
Share capital raised - 174 052
Balance at 31 December 2007 865 043 1 169 316
Loss for the period (51 058) (51 058)
Unrealised fair value loss on
available-for-sale investments - (223)
Share issue expenses - (8 397)
Share capital raised - 462 896
Balance at 30 June 2008 813 985 1 572 534
Profit for the period 126 771 126 771
Ordinary dividend paid (46 281) (46 281)
Unrealised fair value gain on
available-for-sale investments - 1 279
Shares bought back - (20 420)
Balance at 31 December 2008 894 475 1 633 883
SEGMENTAL ANALYSIS
Based on risks and returns the directors consider that the primary reporting
format is by business segment. The directors consider that there is only one
business segment, being investments.
The following table provides detail of GPI`s share of associate income from
its
various investments.
Unaudited Unaudited Audited
31 December 31 December 30 June
2008 2007 2008
R`000 R`000 R`000
Income from associates 59 986 1 483 47 052
- SunWest 41 409 (649) 36 809
- RAH 16 237 - 5 482
- Thuo WC 2 016 2 132 4 738
- Akhona GPI 324 - 23
NOTES
ACCOUNTING POLICIES AND BASIS OF PREPARATION
The interim financial statements were prepared in accordance with
International
Financial Reporting Standards (IFRS) and comply with IAS 34 - Interim
Financial
Reporting, and the Companies Act of South Africa No. 61 of 1973, as amended.
The accounting policies and methods of computation are consistent with those
applied in the financial results for the year ended 30 June 2008. The
external
auditor has not reviewed the interim financial report.
The comparative figures have been restated so as to fall in line with the
adjustments made in respect of the 30 June 2008 year-end. These include the
reversal of dividends received from SunWest out of share premium from
revenue,
fair valuing the investment in National Manco and the change in the
treatment of Western Cape Manco in the prior year from a subsidiary to a
joint venture.
COMMENTARY
INVESTMENT HIGHLIGHTS
During the period under review Grand Parade Investments Limited (GPI)
increased its direct stake in SunWest International (Proprietary) Limited
(SunWest) by 2,83% at a cost of R92,4 million by exercising 560 000 of its
700 000 SunWest share options at an exercise price of R165 per SunWest
share.
GPI indirectly increased its effective interest in the lucrative and
exceptionally well positioned Sibaya Casino by advancing R7 million to its
associate, Akhona Gaming Portfolio Investments (Proprietary) Limited (Akhona
GPI), which exercised all of its pre-emptive rights in Dolcoast Investments
Limited (Dolcoast). By the end of December 2008, Akhona GPI`s direct stake
in
Dolcoast, (which owns 22,4% of Sibaya Casino) had increased from 6% to 9,5%.
In
January 2009, Akhona GPI`s stake increased further to 18,5% of Dolcoast and
in order to achieve this GPI provided an additional R13 million to Akhona
GPI so that it could exercise the balance of its pre-emptive rights through
a second-round offer. GPI now indirectly owns an effective share in Sibaya
Casino of 6,3% as a result of these transactions and the 30,6% acquisition
in Real Africa Holdings Limited (RAH) the previous year.
GPI increased its direct stake in Thuo Gaming KwaZulu-Natal (Propriety)
Limited
(Thuo KZN) through its acquisition of Wild Rush Trading 97 (Proprietary)
Limited (Wild Rush), which owns 10% of Thuo KZN, at a cost of R6 million.
This
acquisition is in line with GPI`s strategy to increase its exposure to the
limited payout machine (LPM) market which has proven to be resilient in the
current economic climate with Thuo Gaming Western Cape (Propietary) Limited
(Thuo WC) growing its revenues by 15% and Thuo KZN, which benefited from
additional machines rolled out, growing its revenues by 165%.
The GPI Board believes that GPI`s share price is trading at a substantial
discount to GPI`s underlying value and resolved that GPI should repurchase
its
own shares in terms of its general authority granted by shareholders at the
annual general meeting on 9 December 2008. GPI has, through the market,
acquired some 8 million shares during the reporting period at an average
cost
of R2,44 cents per share. GPI will continue with the share buy-back while
its share trades at such a large discount to its underlying value.
The following table reflects GPI`s direct holding in its various
investments:
(%) (%) (%)
Direct interest Direct interest Direct interest
31 December 31 December 30 June
2008 2007 2008
SunWest 29,24 26,41 26,41
RAH 30,60 - 30,60
Akhona GPI 50,00 - 50,00
Worcester Casino 36,70 38,00 36,70
Thuo WC 25,10 25,10 25,10
Thuo KZN/Wild Rush 10,00 - -
National Manco** 5,67 5,67 5,67
Western Cape Manco* 50,00 50,00 50,00
* Western Cape Casino Resort Management (Proprietary) Limited
** National Casino Resort Manco (Proprietary) Limited
The additional shares acquired in SunWest increased GPI`s direct stake in
SunWest from 26,41% to 29,24%. GPI`s stake in Worcester Casino (Proprietary)
Limited (Worcester Casino) diluted slightly from 38% to 36,7% with the
introduction of the Sun International Employee Share Trust. GPI`s direct
stake
in Thuo KZN now amounts to 10%.
FINANCIAL PERFORMANCE AND POSITION
1. Revenue
Revenue comprises GPI`s share of management fees generated by Western Cape
Manco, dividends received from National Manco, and interest earned on
positive
cash balances. Revenue has decreased mainly due to lower interest received
as a
result of lower average cash balances during the reporting period and lower
revenues generated by Western Cape Manco.
2. Operating costs
Operating costs increased as a result of increasing the staff complement of
the
group, necessitated by the additional demands as a result of being a listed
company and the increased investments the group now has.
3. Share of profit from associates
GPI`s share of associate profits increased substantially compared to
December 2007. This growth in the case of SunWest is attributed to a BEE
transaction charge of R182 million incurred in the first half of the prior
year, which resulted in SunWest reporting a first half R3 million loss after
tax. This has not recurred in the current period.
Profit from RAH has been accrued for the full current reporting period
whereas
no earnings were accrued for this investment during the first six months of
the
prior year as RAH was only purchased during June 2008.
4. Impairment of assets
In terms of IAS 36 - Impairment of Assets, an entity must determine whether
there is any indication of impairment at each balance sheet date. IAS 36
requires that the higher of the market value or the value in use be used to
assess whether any impairment is necessary. Based on discounted free cash
flow
valuations prepared by management with the assistance of an independent
adviser
the Board of GPI is satisfied that no impairment is required.
5. Negative goodwill
In terms of IFRS 3 - Business Combinations, whenever there is a change in a
business combination, the fair value of the affected investment must be
brought
to account.
Independent advisers conducted a detailed fair value assessment of the net
assets of SunWest at the time of acquiring the additional stake in SunWest
and
confirmed a fair value of the net assets per SunWest share of R359,27. An
R80,6 million negative goodwill adjustment has therefore been accounted for.
6. Finance costs and activities
The increase in GPI`s finance costs is attributed to higher levels of
interest-bearing debt during the reporting period. GPI utilised this debt to
fund its long-term acquisitions this year and in the prior year and still
has
substantial capacity for additional acquisitions. GPI is well positioned
with
its relatively low gearing in this challenging environment.
The interest-bearing preference shares issued to Sun International Limited
were repaid on 25 October 2007. In the prior year the coupon on these
preference shares was reflected as dividends paid as the terms of these
preference shares resulted in this source of funds being treated as share
capital. During the current period, an additional R105 million of preference
share funding was raised with the coupon rate determined at 83% of the prime
lending rate.
7. Headline earnings and HEPS
Headline earnings increased from R45,1 million to R48,9 million for the half-
year ended December 2008. This represents an 8% increase on the six-month
period. As a result of the additional shares issued, headline earnings per
share declined by 16% from 12,52 cents last year to 10,54 cents this year.
While GPI`s highly cash-generative portfolio of investments has continued to
produce excellent dividends and has demonstrated good resilience to this
very challenging trading environment, it has not been immune to the economic
slow-down, with GrandWest Casino and Entertainment World (GrandWest), GPI`s
most significant asset reflecting a 4% decline in revenues. Pleasingly, the
many cost-saving initiatives implemented by GrandWest management have
contained the EBITDA dilution for the period to 5,7%. The additional finance
cost incurred by the expanded GrandWest offering together with the high STC
charge incurred on dividends paid by GrandWest, resulted in a decline in its
profits. Notwithstanding this decline, GrandWest remains GPI`s prize asset
and offers significant long-term value for GPI`s shareholders.
The results of RAH were boosted by the strong performance of Carnival City,
that despite operating in the most competitive market, which now has an
additional casino, grew its revenues by 6% and its EBITDA by 9%. Sibaya
Casino
also held up well, growing its revenues by 3% and keeping its EBITDA at the
same level as the previous year. The table below highlights the
contributions
from GPI`s various investments towards reported headline earnings as well as
the dilution from operating costs and financing costs.
Unaudited Unaudited Audited
31 December 31 December 30 June
2008 2007 2008
R`000 R`000 R`000
Headline earnings 48 902 45 137 84 764
Income from associates
- SunWest* 41 409 42 416 79 874
- RAH 16 237 - 5 482
- Thuo WC 2 016 2 132 4
738
- Akhona GPI 324 - 23
Western Cape Manco 10 253 10 709 21 734
Other# 2 061 (2 144) (2 016)
Operating costs (8 222) (7 422) (16 137)
Finance costs (15 176) (554) (8 934)
* This amount includes the reversal of the BEE charge incurred in the prior
year.
# Other includes interest received, tax paid and other adjustments to
headline
earnings.
8. Related party transactions
The group, in the ordinary course of business, entered into various
transactions with related parties. All transactions were concluded at arm`s
length. Any intra-group related party transactions and outstanding balances
are eliminated in the preparation of the interim results of the group as
presented.
9. Prospects
GPI is an investment company and will continue to seek out attractive
investment opportunities capable of delivering medium to long-term growth in
the underlying value of its expanding portfolio. While the trading
environment
is extremely challenging and we are in the midst of an uncertain future, the
Board of GPI believes that GPI is well positioned to capitalise on
opportunities that will no doubt arise in the present environment. GPI has a
strong balance sheet with a low level of gearing and is invested in high
quality cash-generative assets. GPI`s focus remains the urban casino and LPM
market, but it will also be reviewing other opportunities in the current
depressed market to expand its portfolio.
10. Dividends
GPI has historically never paid interim dividends and believes that it is
prudent in the current environment to maintain this status quo.
For and on behalf of the board
H Adams A Funkey
Chairman Chief Executive Officer
9 March 2009 Cape Town
Directors
H Adams (Chairman)#, A Abercrombie#, A W Bedford#, A Funkey, R Freese#,
R Hoption, Dr N Maharaj#*, N Mlambo#, C Williams#*
#non-executive *independent
GRAND PARADE INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
Registration number 1997/003548/06
Share code GPL
ISIN ZAE00119814
Registered offices
15th Floor Triangle House, 22 Riebeeck Street
PO Box 7746, Roggebaai, 8012
Transfer secretaries
Computershare Investor Services (Proprietary) Limited,
70 Marshall Street, Johannesburg, 2001
Attorneys
Bernadt Vukic Potash & Getz Attorneys
Corporate advisers
Leaf Capital (Proprietary) Limited
Sponsor
PSG Capital (Proprietary) Limited
Company Secretary
Ralph Gordon Freese
Date: 09/03/2009 12:40:01 Produced by the JSE SENS Department.
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