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PNG - Pinnacle Point Group Limited - Unaudited condensed consolidated interim
results for the six months ended 31 August 2010
PINNACLE POINT GROUP LIMITED
(Registration Number: 2000/000059/06)
Share code: PNG ISIN code: ZAE000127122
("Pinnacle Point" or "the Company")
Unaudited condensed consolidated interim results for the six months ended 31
August 2010
Condensed Consolidated Statement of Financial Position
Unaudited Audited Unaudited
6 Months 12 months 6 Months
31 August 28 February 31 August
2010 2010 2009
R`000 R`000 R`000
ASSETS
Non-current assets 1 025 330 1 100 147 1 139 754
Property, plant and 13 764 14 921 23 829
equipment
Investment property 4 400 4 400 6 075
Inventory/Freehold land 852 937 860 680 896 332
and stands
Goodwill 7 504 7 504 17 504
Other intangible assets 1 506 1 603 1 379
Loans and receivables at 121 365 179 169 84 083
amortised cost
Deferred tax assets 23 854 31 870 110 552
Current assets 317 631 502 293 544 894
Inventory/Freehold land 299 778 364 127 380 371
and stands
Loans and receivables at - 24 216 152 019
amortised cost
Trade and other 17 380 17 126 5 891
receivables
Current tax receivable 97 1 045 1 461
Cash and cash equivalents 376 95 779 5 152
Assets classified as held 18 243 23 506 -
for sale
Total Assets 1 361 204 1 625 946 1 684 648
EQUITY AND LIABILITIES
Equity and reserves
Issued capital1 1 151 007 1 151 007 813 866
Foreign currency (7 460) (15 159) (18 614)
translation reserve
Accumulated loss (397 117) (327 683) (114 854)
Equity attributable to
owners of the parent 746 430 808 165 680 398
Non-controlling
interests 10 567 11 189 34 096
Total equity 756 997 819 354 714 494
Non-current liabilities 262 956 239 685 424 702
Borrowings 40 117 39 819 172 195
Finance leases and 2 244 5 188 17 311
other arrangements
Deferred tax 220 595 194 678 235 196
liabilities
Current liabilities 325 218 541 901 545 452
Trade and other 76 572 111 918
payables 94 170
Borrowings 214 905 383 161 221 057
Finance leases and 3 600 3 631
other arrangements 7 419
Platinum Club 2 960 5 550
obligations 16 000
Loans payable - - 48 672
Provisions 7 180 14 857 12 958
Operating lease 98 102
liability 224
Current tax payable 1 566 4 034 6 749
Bank overdraft 18 337 18 648 138 203
Liabilities directly
attributed to assets
held for sale 16 033 25 006 -
Total Equity and
Liabilities 1 361 204 1 625 946 1 684 648
Calculated shares in
issue at year end
(`000) 7 006 622 7 006 622 4 599 738
Net asset value per
share issued (cents) 10.65 11.53 15.60
Net tangible asset
value per share (cents) 10.52 11.40 28.64
Actual shares in issue
at year end (`000) 7 006 622 7 006 622 4 579 783
Condensed Consolidated Statement of Comprehensive Income for the six months
ended 31 August 2010
Unaudited Audited Unaudited
6 Months 12 months 6 Months
31 August 28 February 31 August
2010 2010 2009
R`000 R`000 R`000
Revenue 144 396 16 759 9 248
Cost of sales (88 443) (93 348) (18 197)
Gross profit / (loss) 55 953 (76 589) (8 949)
Other gains and losses 3 847 16 322 18 591
Marketing and sales (264) (7 943)
expenses (12 206)
Impairment charges (96 186) (78 665) -
Other expenses (32 893) (117 440) (79 427)
Operating loss (69 543) (268 578) (77 728)
Investment revenue 12 165 26 030 13 965
Finance costs (16 763) (54 227) (25 649)
Loss before tax (74 141) (296 775) (89 412)
Tax (expense) / income (74) (9 361) 25 292
Loss for the period (74 215) (64 120)
(306 136)
Other comprehensive
income:
Exchange differences
arising on translation
of foreign operations (5 556) (3 544) (6 999)
Foreign currency 13 255 -
translation reserve
realised -
Tax relating to - -
components of other
comprehensive income -
Other comprehensive 7 699 (6 999)
income / (loss) for the
period (3 544)
(66 516) (71 119)
Total comprehensive
loss for the period (309 680)
Loss attributable to:
Owners of the parent (69 434) (276 945) (64 116)
Non-controlling
interests (4 781) (29 191) (4)
Total comprehensive
loss attributable to:
Owners of the parent (61 735) (280 489) (71 115)
Non-controlling (4 781) (4)
interests (29 191)
Loss per share
Basic loss per share (0.99) (1.40)
(cents) (5.63)
Diluted basic loss per (0.99) (1.40)
share (cents) (3.95)
(69 434) (64 116)
Headline loss
reconciliation
Loss attributable to
owners of the parent (276 945)
Adjusted for:
Profit on disposal of - -
property, plant and
equipment (4)
Impairment of goodwill - 10 000 -
Impairment of property, - -
plant and equipment 1 089
Impairment of assets - -
held for sale 2 309
Fair value adjustments - -
for investment property 939
Gains on available for - -
sale financial assets (7 445)
Profit on disposal of (259) -
investment property (343)
Headline loss for the (69 693) (64 116)
period (270 400)
Headline loss per share
Headline loss per share (0.99) (1.40)
(cents) (5.50)
Diluted headline loss (0.99) (1.40)
per share (cents) (3.86)
Weighted average shares 7 006 622 4 579 783
in issue (`000)2 4 915 747
Core headline loss (69 693) (64 116)
reconciliation
Headline loss
attributable to owners
of the parent (270 400)
Adjusted for:
Recapitalisation cost - 6 000 6 000
Rights offer cost - 29 115 27 487
Loans impaired 70 700 45 000 -
Core headline profit / 1 007 (30 629)
(loss) for the period (190 285)
0.01 (1.40)
Core headline loss per
share:
Core headline
earnings/(loss) per
share(cents) (3.87)
Core diluted headline 0.01 (1.40)
earnings /(loss) per
share(cents) (2.72)
Weighted average shares 7 006 622 4 579 783
in issue (`000)2 4 915 747
Condensed Consolidated Statement of Cash flows for the six months ending 31
August 2010
Unaudited Audited Unaudited
6 Months 12 months 6 Months
31 August 28 February 31 August
2010 2010 2009
R`000 R`000 R`000
Net cash outflow from (74 818) (163 484)
operating activities (252 699)
Net cash inflow
(outflow)from investing
activities 1 358 (36 416) (22 556)
Net cash (outflow)
inflow from financing
activities (21 943) 235 208 136 506
Net decrease in cash (95 403) (49 534)
and cash equivalents (53 907)
Cash in transit for
proceeds from issue of
equity shares - 95 000 -
Cash and cash 95 779 54 686
equivalents at
beginning of the year 54 686
Cash and cash
equivalents at end of
the year 376 95 779 5 152
Consolidated Statement of Changes in Equity for the six months ending 31 August
2010
Issued Foreign Accumulated
Capital 1 Currency loss
Translation
reserve
R`000 R`000 R`000
Balance at 1 March 2009 813 866 (11 615) (50 738)
Loss for the period - - (64 116)
Foreign exchange movement - (6 999) -
Total comprehensive - (6 999) (64 116)
income for the period
Balance at 31 August 2009 813 866 (18 614) (114 854)
Loss for the period - - (212 829)
Foreign exchange movement - 3 455 -
Total comprehensive - 3 455 (212 829)
income for the period
Issue of ordinary shares 165 515 - -
in settlement of
liabilities
Issue of ordinary shares 196 485 - -
for cash
Share issue costs (24 859) - -
Balance at 28 February 1 151 007 (15 159) (327 683)
2010
Profit for the period - - (6 171)
Foreign currency - 13 255 -
translation reserve
realised
Foreign exchange movement - (5 556) -
Total comprehensive - 7 699 (6 171)
income for the period
Balance at 31 August 2010 1 151 007 (7 460) (333 854)
Attributable Non- Total
to owners of Controlling
the parent interests
R`000 R`000 R`000
Balance at 1 March 2009 751 513 16 100 767 613
Loss for the period (64 116) (4) (64 120)
Foreign exchange movement (6 999) - (6 999)
Total comprehensive (71 115) (4) (71 119)
income for the period
Platinum Club - 18 000 18 000
Balance at 31 August 2009 680 398 34 096 714 494
Loss for the period (212 829) (29 187) (242 016)
Foreign exchange movement 3 455 - 3 455
Total comprehensive (209 374) (29 187) (238 561)
income for the period
Platinum Club - 6 280 6 280
Issue of ordinary shares 165 515 - 165 515
in settlement of
liabilities
Issue of ordinary shares 196 485 - 196 485
for cash
Share issue costs (24 859) - (24 859)
Balance at 28 February 808 165 11 189 819 354
2010
Loss for the period (69 434) (4 781) (74 215)
Foreign currency 13 255 - 13 255
translation reserve
realised
Foreign exchange movement (5 556) - (5 556)
Total comprehensive 7 699 (4 781) 16 415
income for the period
Projects disposed - 4 159 -
Balance at 31 August 2010 746 430 10 567 756 997
1 Includes share capital, share premium, share based payment reserve and equity
reserve arising from the reverse acquisition consolidation.
2 Excluding treasury shares and including shares contracted for but not yet
issued.
COMMENTARY
BASIS OF PREPARATION
The Group`s consolidated interim financial information for the six months ended
31 August 2010 have been prepared in accordance with IAS 34 - Interim Financial
Reporting and the AC500 standards issued by the Accounting Practices Board. 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 interim financial information has been prepared on a going concern basis.
The Board however wishes to draw shareholders` attention to the matters
discussed under the Litigation section below and to the commentary in the
Directors report dated 6 September 2010 drawing attention to the requirement to
replace certain existing banking facilities and the required continued support
by a major shareholder. As indicated below, the major shareholder has resolved
to support the Company by way of a Claw Back Offer.
The interim results have not been reviewed or reported on by the auditors.
BUSINESS AND MARKET OVERVIEW
After an improvement in the property market in the first quarter of this
financial year growth has slowed driven by base effects as well as recent
economic developments. The further cuts in interest rates in September leaving
variable mortgage interest rate at 9,5%, its lowest level since mid-1974, are
yet to positively impact on the residential property market.
The introduction of the credit act has also had a bigger impact on the property
market than initially expected and alternative forms of financing and selling
need to be explored such as the "let-to-buy" market which is now starting to
gain momentum.
In the property market the sale of vacant land has been hardest hit by the
reluctance of banks to finance mortgages of vacant land due to the higher
perceived risk. However, this is changing with lending criteria once again being
relaxed.
The overall average nominal value of land for new housing increased by 17.4%
year on year in the third quarter of 2010 but the same did not hold true for the
coastal regions, where land values for new housing declined. Pinnacle Point`s
secondary market coastal properties were therefore hardest hit but pricing has
now stabilised and should start improving as the low interest rates start taking
effect.
Pinnacle Point is in discussions, and has signed a heads of agreement, with a
Malaysian based Group to commence construction of homes at its Wedgewood
development targeting the middle income and young professional market with
completed homes priced at between R1,5 million and R2 million. The vacant stands
identified for this development are already fully serviced which will enable the
commencement of construction in the short term.
The sale of Pinnacle Point`s secondary market vacant stands and completed
apartments have proved to be difficult despite price reductions and for this
reason the Company has elected to sell the entire Pinnacle Point Beach and Golf
Resort to an investor who is taking a longer term view on the ownership of
prestigious golfing destinations across the globe.
As the Board has decided that ownership of golf courses will no longer be part
of its future strategy the golf course at The Clarens Golf and Trout Estate will
also be sold and the Company is at an advanced stage of concluding this sale.
The disposal of these golf course operations will lead to substantial cost
savings for the Group.
The downsizing of Pinnacle Point`s head office to align the staff requirement
with its outsourcing strategy has now also been completed. These staff
reductions together with the elimination of the associated costs will bring
substantial saving to the group. Where possible costs will, in future, be of a
variable nature to match income when earned.
FINANCIAL REVIEW
The net loss for the Group for the period amounts to R74.2 million whilst the
headline loss for the period amounts to R69.6 million. The core headline profits
for the period amounts to R1 million after adding back the loan impairments
compared to a headline loss of R30.6 million for 2009. Revenue was up on the
same period for 2009 at R144.4 million compared to R9.2 million mainly due to
the disposal of the Gardener Ross Golf and Country Estate properties.
The Group`s gross profit margin remains under pressure due to high standing time
costs and development expenditure on completed developments such as Pinnacle
Point and Clarens, which is expensed. The related finance costs on these
developments were also expensed during the period, resulting in finance costs on
development facilities expensed during the period, increasing slightly to R14.6
million from R12.5 million.
There was an overall reduction in finance costs on the same period for 2009 of
R8.6 million, due to the repayment of bank overdrafts and the conversion of
shareholders` loans to equity.
Impairments of projects/inventories of R25.5 million and certain loans and
receivables amounting to R70.7 million, for the period under review did not have
any cash flow related effects.
There is a significant reduction in other expenses compared to the same period
for 2009 amounting to R46.5 million due to the operational restructuring and the
reduction in work force. Other expenses still include the cost of operating the
various golf courses that the Group owns which will be eliminated once these
golf courses are sold.
Total interest bearing debt decreased by R165.4 million over the six month
period ending 31 August 2010, due to the disposal of the Gardener Ross Golf and
Country Estate development.
SEGMENTAL REPORTING
For management purposes, the Group is organised into the following segments
based on the products and services it renders:
Sale of freehold land and stands
The Group develops leisure resorts and residential lifestyle estates, whereby
land is acquired, rezoned, developed and sold. In the sale of freehold property
and serviced vacant land segment, revenue is derived from the sale of this
property.
The segment is further divided into geographical regions, namely South Africa,
Nigeria and Seychelles. Whilst the South African segments comprise a number of
projects, the various projects are exposed to similar risks and possess similar
characteristics and accordingly, are aggregated into one segment for financial
statement and other reporting purposes.
The developments in the countries other than South Africa are still in its
initial phases and no revenue has been derived from these segments yet.
Real estate agency services
Real estate agency services comprise commission earned on the sale of property
developed by the Group in South Africa. The service extends to include
subsequent resale of such properties.
Golf course operations
Revenue in this segment is derived principally from membership and green fees
received from golf operations in South Africa.
The operating segments which conduct real estate agency services and golf
operations are immaterial to the Group and accordingly, the Group`s consolidated
results materially reflect the results relating to sale of freehold property and
serviced vacant land.
31 August 2010
Freehold land and stands
South Nigeria Seychelles Subtotal
Africa
Segment Revenue 144,396 - - 144,396
Segment Interest 4,653 - - 4,653
income
Segment Finance cost 15,789 - - 15,789
Segment Depreciation 2,302 - - 2,302
and amortization
Segment impairments - - - -
Segment loss before 44,808 (390) (25,933) 18 485
taxation
Segment Taxation 274 (129) (71) 74
Segment Inventory 571,591 581,122 - 1,152,714
Segment total assets 723,921 581,543 885 1,306,349
Segment total assets 18,243 - - 18,243
held for sale
Segment Borrowings 251,802 - - 251,802
Segment Borrowings 16,033 - - 16,033
held for sale
28 February 2010
Freehold land and stands
South Nigeria Seychelles Subtotal
Africa
Segment Revenue 17,175 - - 17,175
Segment Interest 21,099 - - 21,099
income
Segment Finance cost 45,263 8,764 2,912 56,939
Segment Depreciation 5,734 - - 5,734
Segment impairments 122,412 - - 122,412
Segment Profit (271,766) (35,642) (7,710) (315,118)
(loss) before
taxation
Segment Taxation (10,457) - (778) (11,235)
for the year
Segment Inventory 635,940 574,461 14,406 1,224,807
Segment total assets 1,050,408 583,186 48,566 1,682,160
Segment total assets 23,506 - - 23,506
held for sale
Segment Borrowings 420,136 - - 420,136
excluding held for
sale
Segment borrowings 16,033 - - 16,033
held for sale
31 August 2010
Other Group cons.
Segment Revenue - 144,396
Segment Interest income 7,512 12,165
Segment Finance cost 974 16,763
Segment Depreciation and 321 2,623
amortization
Segment impairments - -
Segment loss before taxation (92,700) 74,215
Segment Taxation - 74
Segment Inventory - 1,152,714
Segment total assets 54,855 1,361,204
Segment total assets held for sale - 18,243
Segment Borrowings 3,220 255,022
Segment Borrowings held for sale - 16,033
28 February 2010
Other Group cons.
Segment Revenue (416) 16,759
Segment Interest income 4,931 26,030
Segment Finance cost (2,712) 54,227
Segment Depreciation 1,345 7,079
Segment impairments - 122,412
Segment Profit (loss) before 18,343 (296,775)
taxation
Segment Taxation for the year 1,874 (9,361)
Segment Inventory - 1,224,807
Segment total assets (79,720) 1,602,440
Segment total assets held for sale - 23,506
Segment Borrowings excluding held 2,844 422,980
for sale
Segment borrowings held for sale - 16,033
The group has one main operating segment, namely the development and sale of
freehold property. During the period under review, this segment included the
following active projects;
- Pinnacle Point Beach and Golf Resort
- Gardener Ross Golf and Country Estate
- Clarens Golf and Trout Estate
- Wedgewood Village Golf and Country Estate
- Lagos Keys
A number of other projects exist which have been put on hold until the
improvement in market conditions gains momentum.
LITIGATION
As advised in the directors` report dated 6 September 2010, certain of the
Company`s shareholders have engaged in legal proceedings against various parties
for alleged damages suffered by those shareholders as a result of, inter alia,
the non disclosure by the various parties ("defendants") of material information
in respect of the shares for assets exchange between the then Acc-Ross Holdings
Limited and the Pinnacle Group of Companies, during October 2008.
In its defence to the above action one of the defendants is claiming partial
indemnity and is also claiming a contribution from the Company relating to the
shareholder action and filed a third party notice setting out that relief. The
Board and the Company`s legal advisors believe that there is no basis for such
claim by the defendant and the Company has defended accordingly.
Certain companies in the Group are engaged in litigation with Nedbank Limited on
the following matters;
- Wedgewood Golf & Country Estate (Pty) Ltd & Others - summary judgment
application and
- Danger Point Ecological Development Company (Pty) Ltd & Others -
application to declare immovable property executable.
- Certain subsidiaries are joint sureties, together with a number of other
third party sureties, in favour of Nedbank Ltd in respect of a BEE related
transaction entered into by Pinnacle Point Holdings (Pty) Ltd for an
outstanding debt of approximately R39 million, which transaction took place
prior to the merger with Acc Ross mentioned above.
The courts have agreed to consider the above first two matters as one action and
have granted an order postponing these matters until May 2011.
The third matter will be heard by the courts on 1 February 2011. However, due
to Nedbank Ltd holding separate security outside of the group, as well as a
large number of other sureties, the impact on the group may not be material.
There is no other major litigation pending against the Company or its
subsidiaries that is expected to have a material impact on the group.
DIVIDENDS
The directors have decided not to declare a dividend for the period under
review.
SUBSEQUENT EVENTS
Festival Bay Trading 55 (Pty) Ltd and Pinnacle Point Resorts (Pty) Ltd, trading
under the name Pinnacle Point Beach and Golf Resort, has entered into an
agreement for the sale of its golf course business and remaining unsold
properties, subject to certain conditions being met. The effective date of
transfer of the business is expected to take place prior to the end of the
current financial year. Further announcements with regards to this transaction
will be made in due course.
DIRECTORS AND EXECUTIVE MANAGEMENT
During the period under review and to the date of this report, the directors of
the Group are as follows:
Director Date appointed Date resigned
S Maziya 8 June 2010 31 August 2010
IC Stratford* 31 October 2008
HPJ Pretorius 5 May 2009 10 December
2010
SLH Braun (Chief Operating 17 September 27 October 2010
Officer) 2009
S Kruger (Group Financial 31 October 2008
Director)
YT Moerane*# 16 May 2008 27 October 2010
AO Austen-Peters (Nigerian)* 31 October 2008
AV Fasedemi* 31 October 2008 8 June 2010
K Massaad (Swiss)* 20 March 2009
F Ogunsiaken (Nigerian)* 8 June 2010
GH Johannes (Chairman)*# 15 December 2010
SS Gamede *# 15 December 2010
PL Zim (Chairman)* 31 October 2008 8 June 2010
KS Mthembu*# 07 October 2005 8 June 2010
B Igbinedion (Nigerian)* 20 February 2009 8 June 2010
* non-executive # independent
Steven Kruger the current Financial Director will take over as acting CEO.
Further announcements in this regard will be made in due course.
Claw Back Offer
Pinnacle Point has resolved to enter into an agreement with the Trilinear
Empowerment Trust (Trilinear) whereby Trilinear will underwrite for Claw Back
Shares at an issue price of 1 (one) cent each which shares will then be offered
to Pinnacle shareholders by way of a Claw Back Offer at an offer price of 1
(one) cent per share each in the ratio of 1 (one) new Pinnacle ordinary shares
for every 5.39317 (Five comma three nine three one seven) Pinnacle ordinary
shares held. Further announcements in this regard will be made in due course.
FUTURE PROSPECTS
Due to the continuing poor state of the residential property and credit markets
PPG has decided to focus on sales in the completed or near completed
developments and on new developments, in markets where demand still outstrips
supply, such as the Wedgewood and Lagos developments.
Progressing sales on the Wedgewood and Lagos Keys developments is contingent on
new funding being arranged. The Group has signed Heads of Agreement with a
Malaysian based Group to fund these developments subject to certain conditions
being met.
Pinnacle Point is also in advanced discussions with new potential investors in
the Group which will bring in fresh capital and debt funding in order to realise
the full potential of its property assets. However, it is unlikely that these
initiatives will be completed in time to have any real impact on the results for
the full year to 28 February 2011 but the board expects that the group will be
better positioned for the forthcoming year.
By order of the Board
GH Johannes
Chairman
21 December 2010
Johannesburg
Registered Office
Arcay House Number 3 Anerley Road Parktown Johannesburg
2193
PO Box 62397 Marshalltown Johannesburg 2107
Directors
GH Johannes Chairman#*, IC Stratford*, Dr AO Austen-Peters
(Nigerian)*, S Kruger (Acting Chief Executive Officer and Group
Financial Director), Dr K Massaad (Swiss)#*, F Ogunsiakan
(Nigerian)#*, SS Gamede#*.
# Independent
* Non-executive
Designated Advisor Transfer Office
Arcay Moela Sponsors Computershare Investor Services
(Proprietary) Limited (Proprietary) Limited
Date: 21/12/2010 17:23:01 Produced by the JSE SENS Department.
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