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QHL
QHL
QHL - Queensgate - Acquisition Of 100% Of Queensgate Business Development
(Proprietary) Limited ("The Acquisition") And Withdrawal Of Cautionary
Announcement
QUEENSGATE HOTELS AND LEISURE LIMITED
(Formerly Cyberhost Limited)
(Incorporated in the Republic of South Africa)
(Registration number 1998/013649/06)
Share code: QHL ISIN code: ZAE 000113718
("Queensgate" or "the company")
ACQUISITION OF 100% OF QUEENSGATE BUSINESS DEVELOPMENT (PROPRIETARY) LIMITED
("the acquisition") AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
Introduction
Further to the cautionary announcement dated 03 November 2008, shareholders are
advised that Queensgate has concluded an agreement, dated 17 November 2008, in
terms of which Queensgate will acquire 100% of the issued share capital in
Queensgate Business Development (Proprietary) Limited ("QBD") from Queensgate
Holdings (Proprietary) Limited ("QH") as further detailed below.
Terms of the acquisition
The purchase consideration to be paid for QBD is R75 million, which will be
settled by the issue of 375 000 000 new ordinary shares in Queensgate at 20
cents per share, which shares will be issued on approval of the acquisition at
the general meeting and fulfilment of the normal terms and conditions usual for
a transaction of the nature contemplated. The shares issued will rank pari
passu in all respects with the shares already issued. The effective date of the
acquisition is 31 October 2008.
A performance incentive shall be payable by QBD in the event that the profits of
QBD exceed R15 million profit after taxation for the period ended 31 August
2009, whereby if profit after taxation exceeds R15 million, 50% of such excess
(at a price earnings ratio of 5 time earnings), will be payable to QH by way of
the issue of new shares in Queensgate Hotels at a price that is equivalent to
the 30 day volume weighted average trading price calculated from the day prior
to the release of the relevant audited annual results.
For the financial year ending 31 August 2010, the performance incentive base of
R15 million will be adjusted and increased by 50% of the prior year incentive
achieved, with 50% of any excess over the adjusted base being payable as an
incentive on the same basis as described above.
This performance incentive will only be payable in respect of the two financial
years ending 31 August 2010.
QH, the vendor, is a related party to Queensgate as it is the controlling
shareholder in Queensgate and the board of directors of Queensgate and QH has
certain common directors, namely Messrs AJ Hubbard and HGB Friedrichsen. In
accordance with the JSE Listings Requirements, the transaction requires a
fairness opinion from a professional expert.
The purchase consideration will give rise to intangible assets and goodwill of
approximately R49 431 188. In accordance with the accounting policies of the
company, goodwill is not amortised, whilst intangible assets are separately
identified and amortised over periods of time related to the particular asset.
Goodwill and intangible assets are tested for impairment at each year end.
The company will prepare and publish a reviewed profit forecast during February
2009.
Pro forma financial effects of the acquisition
The table below summarises the pro forma financial effects of the acquisition of
QBD on the audited results of Queensgate as published for the year ended 31
August 2008. The audited financial statements have been prepared in terms of
accounting policies that comply with IFRS. The financial effects on the earnings
per share have been prepared on the assumption that the acquisition had been in
place for the financial year ended 31 August 2008. The financial effects on the
net asset value have been based on the assumption that the acquisition occurred
as at 31 August 2008.
The pro forma financial effects are the responsibility of the directors, have
been prepared for illustrative purposes only and, due to their nature, may not
give a fair reflection of the balance sheet, statement of changes in equity,
results of operations or cash flows of Queensgate after the acquisition has been
implemented.
INCOME
STATEMENT
for the year Queensgate 100% Pro forma
ended 31 Hotels Acquisition
August 2008
Audited of After
Before Queensgate "A"
("A")
Gross revenue 4,032 64,497 68,529
Cost of sales 0 -5,455 -5,455
Gross 4,032 59,042 63,074
profit/(loss)
Other income 10 170 180
Operating -2,235 -46,856 -49,092
costs
Operating 1,807 10,956 12,762
profit
Impairment -7,550 0 -7,550
loss
Investment 1 730 730
income
Profit from 0 946 946
equity
accounted
investments
Finance costs 0 -113 -113
Profit before -5,743 10,113 4,370
taxation
Taxation 1,220 -3,184 -1,964
Attributable -4,523 7,321 2,798
earnings
Loss from 0 -627 -627
discontinued
operations
Profit/ (loss) -4,523 7,198 2,675
after taxation
Reconciliation 0
of earnings
Basic earnings -4,523 2,675
- impairment 7,550 7,550
loss
Headline 3,027 10,225
earnings
Attributable -4,523 2,798
earnings
Earnings per (0.90) 0.23
share
Headline 3,027 10,225
earnings (see
calculations)
Headline 0.61 0.83
earnings per
share (cents)
Number of 500,000,000 1,231,819,736
shares in
issue
Weighted 500,000,000 1,231,819,736
number of
shares
INCOME STATEMENT (Continued......)
Issue of Pro forma 100% After
Acquisition
preference After of acquisition
shares "A" and "B" QBD Pro forma
("B")
0 68,529 50,150 118,679
0 -5,455 24,213 18,758
0 63,074 25,937 89,011
0 180 49 229
0 -49,092 -6,364 -55,456
0 12,762 19,412 32,174
0 -7,550 0 -7,550
0 730 0 730
0 946 0 946
7,200 7,087 -1,468 5,619
-7,200 -2,830 17,944 15,114
-2,016 -3,980 -5,654 -9,634
-5,184 -2,386 12,349 9,963
0 -627 0 -627
-5,184 -2,509 12,425 9,916
-2,509 9,916
7,550 7,550
5,041 17,466
-2,386 9,963
(0.19) 0.62
5,041 17,466
0.41 1.09
1,231,819,736 1,606,819,736
1,231,819,736 1,606,819,736
Assumptions:
1. The first column is extracted from the Queensgate Hotels audited results
for the year ended 31 August 2008.
2. Column A shows the pro forma effects of the acquisition of 100% of
Queensgate Leisure as though the acquisition had been in effect from 01
September 2007 as extracted from the circular to shareholders dated 24
August 2008, also incorporating transaction costs of R800 000 before
notional taxation of 28%, being the tax rate in effect for the period under
review and the weighted average number of shares issued has been calculated
as if all shares issued for the Queensgate Leisure acquisition were issued
on 01 September 2007.
3. Column B, as extracted from the circular to shareholder dated 24 August
2008, shows the effect of the interest charge arising from the preference
shares at a coupon rate of 12% per annum for a period of 12 months, as
though the preference shares had been in issue for the period commencing 01
September 2007. Notional taxation at 28% has been assumed as the
preference shares are redeemable within 3 years.
4. "After A and B" shows the combined effect of both the acquisition of
Queensgate Leisure and the issue of the preference shares for a 12 month
period.
5. Column C shows the QBD results, which have been extracted from the audited
results for the year ended 28 February 2008 as detailed in Annexure 2 to
the circular.
6. After A, B and C" shows the combined pro forma effects of the acquisition
of Queensgate Leisure, the issue of the preference shares for a 12 month
period and the acquisition of 100% of QBD as though the acquisition had
been in effect from 01 September 2007. In addition, costs of R105 000 have
been assumed, assuming notional taxation at 28%.
7. The weighted average number of shares issued has been calculated as if all
shares issued for the acquisition were issued on the 01 September 2007 and
have therefore been in issue for the full 12 months up to 31 August 2008.
8. No amortisation of intangibles or impairment of goodwill has been assumed.
Balance Queensgate Acquisition Pro forma
sheets Hotels of After
as at 31 Audited Queensgate "A"
August 2008 Before ("A")
R`000 R`000 R`000
Assets
Non-current 11,771 288,117 299,888
assets
Property, 7 2,468 2,475
plant and
equipment
Intangible 7,600 0 7,600
assets
Goodwill 0 213,779 213,779
Interest in 0 33,177 33,177
associates
Interest in 0 8,012 8,012
joint
ventures -
unlisted
Intragroup 0 683 683
indebtedness
Deferred tax 0 1,049 1,049
Other 4,164 0 4,164
financial
assets
Operating 0 28,949 28,949
lease premium
Current 4,698 20,784 25,482
assets
Other 0 0 0
financial
assets
Inventories 0 668 668
Trade 4,696 18,080 22,777
Receivables
Intra-group 0 0 0
indebtedness
Cash and cash 1 2,036 2,037
equivalents
Total assets 16,469 308,901 325,370
Equity and
liabilities
Capital and 15,223 219,546 234,769
reserves
Ordinary 35,296 219,546 254,842
issued
capital
Accumulated -20,073 0 -20,073
Profit/(Loss)
Non-current 0 72,395 72,395
liabilities
Shareholders 0 72,395 72,395
loan
Borrowings - 0 0 0
redeemable
preference
shares
Current 1,246 16,960 18,207
liabilities
Trade and 1,246 5,020 6,266
other
payables
Taxation 0 10,086 10,086
Provisions 0 1,855 1,855
Total equity 16,469 308,901 325,370
and
liabilities
Net asset 15,223 234,769
value
Net asset 3.04
value per 19.06
share (cents)
Net tangible 7,623 13,390
asset value
Net tangible
asset value 1.52 1.09
per share
(cents)
Number of 500,000,000 731,819,736 1,231,819,736
shares in
issue
BALANCE SHEET (Continued.....)
Issue of Pro forma Acquisition After
preference After of acquisition
shares "A" and "B" QBD Pro forma
("B")
R`000 R`000 R`000 R`000
0 299,888 49,431 349,320
0 2,475 0 2,475
0 7,600 0 7,600
0 213,779 49,431 263,210
0 33,177 0 33,177
0 8,012 0 8,012
0 683 0 683
0 1,049 0 1,049
0 4,164 0 4,164
0 28,949 0 28,949
0 25,482 39,614 65,095
0 0 0 -
0 668 11,071 11,739
0 22,777 958 23,734
0 0 27,376 27,376
0 2,037 209 2,246
0 325,370 89,045 414,415
0
0
0 234,769 75,000 309,769
0 254,842 75,000 329,842
0 -20,073 0 -20,073
6,979 79,374 0 79,374
-53,021 19,374 0 19,374
60,000 60,000 0 60,000
-6,979 11,228 14,045 25,273
-6,979 -713 729 16
0 10,086 13,316 23,401
0 1,855 0 1,855
0 325,370 89,045 414,415
234,769 309,769
19.06 19.28
13,390 38,958
1.09 2.42
0 1,231,819,736 375,000,000 1,606,819,736
Assumptions:
1. The first column is extracted from the Queensgate Hotels audited results
for the year ended 31 August 2008.
2. Column A shows the investment in Queensgate Leisure by means of an issue of
731 819 736 shares at 30 cents per share as extracted from the circular to
shareholders dated 24 August 2008, details of which were extracted from the
reviewed balance sheet of Queensgate Leisure for the year ended 31 August
2008 and reflects goodwill of approximately R180 267 921, being the
difference between the purchase price paid for the acquisition and the net
asset value as at 31 August 2008, are assumed to arise from the acquisition
and no impairment of goodwill has been assumed. Goodwill is not written
off and will be tested for impairment at the end of each financial
reporting period. The pro forma effects of the acquisition of 100% of
Queensgate Leisure are shown as though the acquisition had been in effect
as at 31 August 2008.
3. The shares issued for the consideration are assumed to have been issued as
at 1 September 2007 and have been in issue for the entire period.
4. In Column B, financial effects have been assumed for the R60 000 000
preference shares as they have subsequently been issued in terms of the
initial agreement with Mvelaphanda and form a material part of the
transaction, although they have no impact on the net asset value of the
company. These have been eliminated against shareholders loans as well and
the balance against trade and other payables and are extracted from the
circular to shareholders dated 24 August 2008.
5. Column C shows the investment in QBD by means of an issue of 375 000 000
shares at 20 cents per share and is based on the audited balance sheet of
QBD for the year ended 29 February 2008, which results in goodwill of
approximately R49 431 188, being the difference between the purchase price
paid for the acquisition and the net asset value as at 29 February 2008,
which is assumed to arise from the acquisition and no impairment of
goodwill has been assumed. Goodwill is not written off and will be tested
for impairment at the end of each financial reporting period.
6. The pro forma effects of the acquisition of 100% of QBD are shown as though
the acquisition had been in effect as at 31 August 2008.
7. The shares issued for the consideration are assumed to have been issued as
at 31 August 2008.
Background and Rationale
QBD`s turnover is derived from property development specifically for the leisure
industry. QBD purchases, leases and/or refurbishes buildings in the leisure
industry, which buildings are then sold to third parties, primarily property
funds, both locally and internationally. Often, Queensgate Leisure is
contracted on a long term basis as the leisure operator, providing hotel, food
and beverage, conferencing and wellness operations.
The directors of Queensgate believe that QBD has secured a niche market for
itself and that it has been able to and will continue to charge its development
and/or refurbishment fees based on the value added to the real estate by virtue
of such development, redevelopment or refurbishment, even in cases where QBD do
not physically take ownership of the real estate involved. As a result QBD will
access profits exceeding margins achieved by traditional property development
managers.
The development of the leisure business has resulted in the creation of business
development opportunities for other leisure players in South Africa as well as
the creation of much needed sustained employment opportunities in the leisure-
tourism industry.
Historically, two major clients of QBD include the German Investment Trust Fund,
based in Europe and the Hospitality Property Fund, a property fund listed on the
JSE.
QBD has already established itself in providing European investment
opportunities in the leisure property market in South Africa.
Accordingly, the board believes that the demand for developments in the leisure
sector will continue to sustain a niche market for QBD.
Circular to shareholders
A circular, which will incorporate full details of the acquisition, will be
posted to Queensgate` shareholders within 28 days of this announcement.
Withdrawal of cautionary announcement
As a result of the above announcement, shareholders are advised that the
cautionary announcement is now withdrawn.
Johannesburg
04 December 2008
Designated Advisor
Arcay Moela Sponsors (Proprietary) Limited
Date: 04/12/2008 17:52:11 Produced by the JSE SENS Department.
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