| Tue 31 Mar 2009, 16:54 | | DON - The Don Group Limited - Reviewed Interim Results for the Six Months Ended |
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DON
DON
DON - The Don Group Limited - Reviewed Interim Results for the Six Months Ended
31 December 2008
The Don Group Limited
Incorporated in the Republic of South Africa
(Registration number: 1946/023123/06)
Share code: DON & ISIN: ZAE000008462
("The Don" or "the Group")
REVIEWED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2008
CONDENSED CONSOLIDATED INCOME STATEMENT
for the six months ended 31 December 2008
Reviewed Reviewed Audited
six months restated year
ended six months ended
Dec 08 ended Jun 08
R`000 Dec 07 R`000
R`000
Revenue 35 448 34 477 70 074
Net income before interest and 3 332 6 256 11 468
taxation
Interest received 254 208 427
Interest paid (3 318) (3 222) (6 570)
Net profit before taxation 268 3 242 5 325
Taxation 186 85 1 647
- SA normal tax - (71) (54)
- Deferred 186 156 1 701
Profit attributable to ordinary 454 3 327 6 972
shareholders
Headline earnings 454 3 327 7 105
Number of ordinary shares in 294 485 294 485 294 485
issue (000`s)
Weighted average number of
ordinary shares in issue 294 485 294 485 294 485
(000`s)
Earnings per share (cents) 0.15 1.13 2.37
Headline earnings per share 0.15 1.13 2.41
(cents)
Reconciliation of earnings to
headline earnings:
Profit attributable to ordinary 454 3 327 6 972
shareholders
Impairment of investment in - - 133
associate (IAS28)
Headline earnings 454 3 327 7 105
CONDENSED CONSOLIDATED BALANCE SHEET
at 31 December 2008
Reviewed Reviewed Audited
Dec 08 restated Jun 08
R`000 Dec 07 R`000
R`000
Assets
Non-current assets
Property, plant and equipment 244 501 208 075 242 230
Unlisted investments - 1 437 -
Deferred tax asset 1 400 - 1 400
Current assets 6 431 9 815 10 749
- Inventory and accounts 4 803 4 136 7 229
receivable
- Cash and cash equivalents 1 628 5 679 3 520
Total assets 252 332 219 327 254 379
Equity and Liabilities
Capital and reserves 156 936 126 364 156 482
Non-current liabilities 79 538 79 992 81 552
- Interest free loan - 2 390 -
- Interest bearing loans 42 206 45 015 44 034
- Deferred tax liability 37 332 32 587 37 518
236 474 206 356 238 034
Current liabilities 15 858 12 971 16 345
- Creditors and provisions 12 039 9 238 12 952
- Short-term portion of 3 001 2 920 2 576
interest bearing loans
- Taxation payable 818 813 817
Total equity and liabilities 252 332 219 327 254 379
Net asset value per share 53.3 42.9 53.1
(cents)
CONDENSED CONSOLIDATED STATEMENT OF CHANGE IN EQUITY
for the six months ended 31 December 2008
Reviewed Reviewed Audited
Dec 08 restated Jun 08
R`000 Dec 07 R`000
R`000
Balance at the beginning of the 156 482 74 778 74 778
period as previously stated
Prior period adjustments - 48 259 48 259
Increase in:
- Revaluation surplus on - 45 254 45 254
properties
- Accumulated profit - 3 005 3 005
Balance at the beginning of the 156 482 123 037 123 037
period as restated
Profit for the period 454 3 327 6 972
Revaluation surplus on - - 25 344
properties
Effect of change in tax rate on - - 1 129
deferred tax balance
Balance at the end of the period 156 936 126 364 156 482
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for the six months ended 31 December 2008
Reviewed Reviewed Audited
Dec 08 restated Jun 08
R`000 Dec 07 R`000
R`000
Cash flow from operating 4 030 6 099 9 905
activities
Cash flow from investing (4 519) (2 151) (6 623)
activities
Cash flow from financing (1 403) (1 638) (3 131)
activities - repayments to IDC
Cash and cash equivalents - 3 520 3 369 3 369
beginning of the period
Cash and cash equivalents - end 1 628 5 679 3 520
of the period
Capital expenditure during the 4 519 2 201 6 688
period
- Other fixed assets acquired 4 519 2 201 6 688
during the period
Directors` valuation of unlisted - 1 437 -
investments
Rental commitments
Payable in the next period 1 009 984 1 028
Payable thereafter 532 1 502 968
Capital commitments
Payable in the next period 5 701 4 487 10 220
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 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 December 2007
period.
The effects of this on the Group`s restated balance sheet are as follows:
Dec 07
R`000
Cumulative effect on assets
Increase in property, plant and equipment 60 908
Cumulative effect on liabilities
Increase in deferred taxation 12 031
Cumulative effect on equity 48 259
Increase in revaluation surplus on properties 45 254
Increase in accumulated profit 3 005
Increase in earnings per share and headline earnings 0.21
per share (cents)
Increase in net asset value per share (cents) 16.6
Overview
The positive growth trend achieved by The Don over past years has been
considerably dampened for the six months ended 31 December 2008 mainly due to
economic and inflationary pressures as a result of the fluctuating oil price and
high interest rates. Further challenges faced by the Group were the rise in
supplier costs in every category of goods essential for hotel operation and a
decline in the demand for local accommodation.
Amid these challenges is The Don`s continued dedication to the refurbishment of
all nine hotels to the highest standards and the Group`s commitment to finance
this project from The Don`s cash reserves ("the refurbishment project"). With
three hotels already completed, the Group accelerated the refurbishment project
to commence the refurbishment of two hotels simultaneously in the current
reporting period.
The withdrawal of suites for refurbishment at the Sandton III property during
the reporting period had a negative impact on occupancies. Furthermore, The Don
also experienced a decline in spending from its corporate clients. This was
aggravated by room price discounting due to the oversupply of hotels in Rosebank
and Sandton fighting to retain market share in the light of dwindling travel
numbers.
Financial Results
Given the record revenue achievements and healthy bottom-line results reported
for the financial year ended 30 June 2008, the interim results make for
uncomfortable reading. The board of directors ("the Board") in the previous two
reporting periods cautioned shareholders against high expectations, given the
threat of economic turmoil at the time. Nevertheless, wherever possible the
Board took counter measures to protect profitability.
Although revenue for the six months to 31 December 2008 increased from R34.5
million in the previous corresponding period to R35.4 million, an increase of
2.8 percent, headline earnings declined 86.4 percent to R454 000 from R3.3
million in the previous corresponding period. This is reflected as headline
earnings per share of 0.15 cents (2007: 1.13 cents).
These results have been offset to an extent by a strong balance sheet built upon
the revaluation of The Don`s property portfolio which was dealt with in detail
in the June 2008 annual report.
Total assets are R252.3 million (2007: R219.3 million) and include positive cash
and cash equivalents of R1.6 million (2007: R5.7 million). The reduction is as a
result of the Group utilising cash reserves to meet refurbishment costs.
Net asset value per share was at 53.3 cents (2007: 42.9 cents).
Operations
Refurbishment has now been completed at Don Beach Road, Don Sandton III, and Don
Eastgate. The Don`s largest hotel, the 88-suite Don Johannesburg International,
and the smallest, the 24-suite Don Sandton I, are currently being upgraded, with
completion due in May 2009.
Capital expenditure during the period amounted to R4.5 million (2007: R2.2
million).
A measure to deal with rising costs was the creation of an in-house
refurbishment team. The cost thereof was recruitment, training and additional
wages.
The Don`s investment in refurbishment lies in meticulous improvements to suite
bedrooms, kitchens and bathrooms, the replacement of kitchen appliances, TV
sets, bedding and linen. In addition, the Group continues to expand satellite TV
and wireless internet connectivity throughout the chain. The first phase of
installing hotspots in all the hotels is expected to be completed by April 2009.
All public areas in the hotels also have connectivity.
The Don is banking on its high quality of suite refurbishment, the renowned
`freedom to stay your way` and spaciousness of the self-service suites as a
strong marketing tool to attract and retain guests to rise above the current
financial climate. There is evidence that the upgraded hotels are achieving
these objectives.
The investment also is a strong base to take advantage of any upturn in the
economy, spurred by continuing capital construction projects, the influx of
investment and tourism for the 2010 FIFA World Cup little more than a year ahead
(The Don is an approved accommodation provider).
Although the corporate market segment is not delivering business to previous
levels, The Don is seeing discernible growth in other important revenue
generating areas. These include business sourced by travel agents and tour
groups, the internet (with emphasis on cross border business) and a segment
comprising self or private business bookings. To this end, the improved Don
website (www.don.co.za) has become an invaluable marketing and reservation tool.
Board Membership
There were no changes to the Board for the six months ended
31 December 2008.
Accounting Policies
Basis of preparation:
The accounting policies applied in the preparation of these condensed
consolidated interim results, are in accordance with International Financial
Reporting Standards ("IFRS"), and are consistent with those applied in the
annual financial statements for the year ended 30 June 2008, and where
applicable are based on management judgements and estimates. These condensed
consolidated interim results as set out in this report have been prepared in
terms of IAS 34 - Interim Financial Reporting, the Companies Act, 1973 (Act 61
of 1973), as amended, and the Listings Requirements of the JSE Limited.
Owner-occupied property:
Owner-occupied property is recognised initially at cost. Thereafter, the
property is carried at a revalued amount, as determined by the Board 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 currently and retrospectively
applied in accordance with IAS 8 `Accounting policies, changes in accounting
estimates and errors`.
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.
Review report:
The consolidated interim results for the six months ended 31 December 2008 have
been reviewed by PKF (Jhb) Inc. and their unqualified review report is available
for inspection at The Don`s registered office.
Dividends:
No dividend has been declared or paid.
Prospects
With the current refurbishment of two hotels, the phased withdrawal of suites
from the market will continue to impact on room availability and occupancies.
The Don is addressing its marketing and sales resources to exploit wider
segmental markets to maintain viable occupancy levels in the remaining months of
the current financial year. The Board is aware that this will not be easy.
Nevertheless, the Board is confident that, with completion of the refurbishment
project, The Don will have a chain of suite hotels second to none, which will be
capable of competing strongly in order to own market share commensurate with its
small chain size.
By order of the Board.
Ms Salukazi Dakile-Hlongwane Thabiso Tlelai
Chairperson Chief Executive Officer
31 March 2009
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
Sponsor: Merchantec (Proprietary) Limited
Auditors: PKF (Jhb) Inc.
Date: 31/03/2009 16:54:04 Produced by the JSE SENS Department.
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