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GPL - Grand Parade Investments Limited - Reviewed results for the year ended 30
June 2011
Grand Parade Investments Limited
(Incorporated in the Republic of South Africa)
Regirtration number: 1997/003548/06
Share code: GPL
ISIN: ZAE000119814
Reviewed results for the year ended 30 June 2011
Headlines
Grand Parade Investments Limited ("GPI", "the Company" or "the Group") had a
successful year, notwithstanding continuing adverse economic conditions. The
highlights of the year include:
- Reaching an agreement to restructure certain common interests with Sun
International Limited ("SUI");
- Increase adjusted HEPS by 15%;
- Successfully completing the integration of the Slots business and restructure
of the acquired Slots group;
- Acquiring a LPM licence in Gauteng;
- Acquiring the remaining effective 7.5% non-controlling interest in
Kingdomslots;
- Recommend a final dividend of 10 cents per share representing a 33% increase;
and
- GPI also intends paying a special dividend of 50 cents per share subject to
the successful conclusion of the proposed restructure with SUI and securing the
necessary regulatory approvals.
Condensed group statement of comprehensive income
Reviewed Audited
30 June 30 June
2011 2010 %
Notes R`000s R`000s change
Gross gaming revenue 1 316 193 - -
Cost of sales 2 (184 343) - -
Gross profit 131 850 - -
Other revenue 1 10 248 6 329 62%
Operating costs 3 (124 388) (26 958) 361%
Profit / (loss) from operations 17 710 (20 629) 186%
Profit from equity-accounted
investments 4 119 565 117 628 2%
Profit from jointly-controlled
entities 88 643 82 200 8%
Profit from associates 30 922 35 428 (13%)
Impairment of investments 5 (113 486) (3 860) -
Remeasurement of investment 6 - 42 488 -
Net income before finance costs
and taxation 23 789 135 627 (82)
Interest received 1 746 - 100%
Finance costs 7 (32 916) (29 835) 10%
Net (loss) / profit before taxation (7 381) 105 792 -
Taxation (15 291) (1 084) -
Net (loss) / profit for the year (22 672) 104 708 -
Other comprehensive income
Unrealised fair value (losses) /
gains on available-for-sale
investments, net of tax (4 492) 3 950 -
Change in reserves from
equity-accounted investments, net of tax 13 197 22 391 -
Total comprehensive (loss) /
income for the year (13 967) 131 049 -
Net (loss) / profit for the year
attributable to:
Ordinary shareholders (22 672) 104 708 -
(22 672) 104 708 -
Total comprehensive (loss) /
income attributable to:
Ordinary shareholders (13 967) 131 049 -
(13 967) 131 049 -
Basic and diluted (loss) /
earnings per share (cents) (4.89) 23.04 -
Adjusted basic and diluted (loss)
/ earnings per share (cents) (4.95) 23.34 -
Headline earnings per share (cents) 8 19.12 15.45 24%
Adjusted headline earnings per
share (cents) 22.38 19.52 15%
Dividends paid per share (cents)* 7.50 7.50 -
*Final dividend declared in respect of the previous financial year and paid in
December.
Reviewed Audited
30 June 30 June
2011 2010
R`000s R`000s
Headline earnings reconciliation
(Loss) / profit attributable to ordinary shareholders (22 672) 104 708
Remeasurement of investment - (42 488)
Impairment of investments 113 486 3 860
Profit on sale of investment (151) -
Loss on sale of property, plant and equipment 759 -
Adjustments by jointly controlled entities 412 1 871
- Loss on disposal of plant and equipment 412 682
- Fair value adjustment - 1 189
Adjustments by associates (2 855) 3 105
- Impairment of casino licence - 3 870
- Realised investment profits (1 987) (664)
- Impairment of available-for-sale investment - 2 252
- Profit on sale of investment (868) -
- Bargain purchase price - (788)
- Remeasurement of investment - (1 565)
Tax effect of above (286) (830)
Headline earnings 88 693 70 226
Reversal of employee share trust 751 62
Reversal of transaction costs 2 133 17 307
Reversal of IAS 12 tax adjustment 10 917 -
Adjusted headline earnings 102 494 87 595
Reconciliation of shares
Shares in issue (before deducting treasury shares)
(`000s) 470 460 462 331
Shares in issue (after deducting treasury shares) (`000s) 468 240 456 511
Weighted average number of shares in issue (`000s) 463 757 454 507
Adjusted weighted average number of shares in issue
(`000s) 457 937 448 687
Group statement of changes in equity
Capital
redemption Ordinary
reserve share Share Treasury
fund capital premium shares
R`000s R`000s R`000s R`000s
Balance at 30 June 2009 253 112 697 269 (11 669)
Comprehensive income for the year - - - -
Ordinary dividends paid - - - -
Ordinary shares issued - 3 29 959 -
Share issue expenses - - (42) -
Transfer to capital
redemption reserve fund 24 - - -
Non-controlling interest - - - -
Balance at 30 June 2010 277 115 727 186 (11 669)
Comprehensive (loss) / income
for the year - - - -
Ordinary dividends paid - - - -
Ordinary shares issued - 2 23 168 -
Share issue expenses - - (33) -
Transfer to capital
redemption reserve fund 24 - - -
Treasury shares issued - - 3 726 7 218
Acquisition of
non-controlling interest - - - -
Balance at 30 June 2011 301 117 754 047 (4 451)
Available-
for-sale Non- Accu-
fair value controlling mulative
reserve interest profits Total
R`000s R`000s R`000s R`000s
Balance at 30 June 2009 14 350 - 939 401 1 639 716
Comprehensive income
for the year 26 341 - 104 708 131 049
Ordinary dividends paid - - (33 282) (33 282)
Ordinary shares issued - - - 29 962
Share issue expenses - - - (42)
Transfer to capital
redemption reserve fund - - (24) -
Non-controlling interest - 4 978 - 4 978
Balance at 30 June 2010 40 691 4 978 1 010 803 1 772 381
Comprehensive (loss) /
income for the year 8 705 92 (22 764) (13 967)
Ordinary dividends paid - - (34 238) (34 238)
Ordinary shares issued - - - 23 170
Share issue expenses - - - (33)
Transfer to capital
redemption reserve fund - - (24) -
Treasury shares issued - - - 10 944
Acquisition of
non-controlling interest - (5 070) 3 603 (1 467)
Balance at 30 June 2011 49 396 - 957 380 1 756 790
Condensed group statement of financial position
Reviewed Audited
30 June 30 June
2011 2010
Notes R`000s R`000s
ASSETS
Non-current assets 9 1 631 716 2 156 127
Non-current asset held for sale 10 451 000 -
Current assets 11 112 177 122 352
Total assets 2 194 893 2 278 479
EQUITY AND LIABILITIES
Capital and reserves
Total equity 1 756 790 1 772 381
Shareholders` interest 1 756 790 1 767 403
Non-controlling interest - 4 978
Non-current liabilities
- Deferred tax liabilities 23 618 17 112
- Cumulative redeemable preference shares 12 256 961 281 124
- Interest-bearing loans and borrowings 12 106 436 120 057
- Provisions 126 93
Current liabilities 13 50 962 87 712
Total equity and liabilities 2 194 893 2 278 479
Net asset value (before deducting treasury
shares) (cents) 373 383
Net asset value (after deducting treasury
shares (cents) 375 388
Tangible net asset value (before deducting
treasury shares) (cents) 347 351
Adjusted tangible net asset value (after
deducting treasury shares) (cents) 349 356
Condensed group statement of cash flows
Reviewed Audited
30 June 30 June
2011 2010
R`000s R`000s
Cash flows from operating activities
Net (loss) / profit before taxation (7 381) 105 792
Non-cash flow items
- Depreciation and amortisation 36 010 478
- Loss on sale of property, plant and equipment 759 -
- Profit on sale of investments (151) -
- Impairment of investments 113 486 3 860
- Remeasurement of investment - (42 488)
- Profit from equity-accounted investments (119 565) (117 628)
Adjustments for:
- Finance costs per the statement of
comprehensive income 32 916 29 835
- Interest received per the statement of
comprehensive income (1 746) -
- Operations
- Interest received per the statement of comprehensive
income (1 659) (3 943)
- Investments
- Dividends received per the statement of
comprehensive income (2 008) (1 910)
Interest received - operations 1 746 -
Net working capital changes (23 879) (3 929)
Income tax paid (11 907) (842)
Net cash inflow / (outflow) from operating activities 16 621 (30 775)
Cash flows from investing activities
Plant and equipment acquired (28 299) (181)
Intangible assets acquired (2 578) -
Consideration from the disposal of plant and equipment 128 -
Net investments made (32 838) (203 308)
Acquisition of subsidiary (5 977) -
Cash acquired - acquisition of subsidiary - 42 916
Net cash (outflow) from investing activities (69 564) (160 573)
Cash flows from financing activities
Dividends received 143 682 130 203
Finance costs paid (32 916) (30 077)
Interest received 1 659 3 552
Share issue expenses on new share issue (33) -
Capital raised- ordinary shares - 29 921
Preference share capital raised - 20 000
Preference shares redeemed (24 163) (24 000)
Ordinary dividends paid (33 667) (32 814)
Loans raised - 120 000
Loans repaid (16 000) -
Finance lease liability raised 2 915 -
Finance lease liability repaid (479) -
Net cash inflow from financing activities 40 998 216 785
Net (decrease) / increase in cash and cash equivalents (11 945) 25 437
Cash and cash equivalents at the beginning of the year 81 191 55 754
Cash and cash equivalents at the end of the year 69 246 81 191
Segmental analysis
IFRS 8: Operating segments require a "management approach" whereby segment
information is presented on the same basis as that used for internal reporting
purposes to the chief operating decision-makers who have been identified as the
Board of Directors. With the acquisition of the Limited Payout Slot Machine
business ("LPM") the Group now reports to the Board of Directors in respect of
its fully controlled assets, jointly-controlled entities and associates. Listed
below is a detailed analysis of adjusted headline earnings:
Reviewed Audited
30 June 30 June
2011 2010 %
R`000s R`000s variance
FULLY CONTROLLED ASSETS
Operations 12 509 - -
- Gross profit 131 850 - -
- Operating costs (81 043) - -
- Depreciation and amortisation (35 899) - -
- Finance costs (8 042) - -
- Other# 5 643 - -
Investments (43 381) (47 402)
- Operating costs (7 335) (26 480) -
- Depreciation and amortisation (111) (478) -
- Finance costs (24 874) (29 835) -
- Other# (11 061) 9 391 -
JOINTLY-CONTROLLED ENTITIES 88 643 82 200 8
- SunWest 77 048 71 111 8
- GrandWest 90 570 82 208 10
- Table Bay Hotel (13 522) (11 097) (22)
- Western Cape Manco 11 595 11 089 5
ASSOCIATES 30 922 35 428 (13)
- RAH 25 773 23 619 9
- Akhona GPI 5 149 6 807 (24)
- Grandslots - 5 002 (100)
Reversal of employee share trust 751 62 -
Reversal of transaction costs* 2 133 17 307 -
Reversal of IAS 12 tax adjustment 10 917 - -
Adjusted headline earnings 102 494 87 595 17
# Other includes dividends and interest received, other revenue, tax paid and
adjustments to headline earnings.
* Total transaction costs include the transaction costs expensed as part of the
operating costs and the finance costs
Accounting policies and basis of preparation
The condensed consolidated annual financial information has been prepared on the
historical cost basis, except where stated otherwise, and in accordance with
International Financial Reporting Standards ("IFRS") and is presented in terms
of disclosure requirements set out in IAS 34: Interim Financial Reporting as
well as the AC 500 standards and the Companies Act of South Africa, 71 of 2008,
as amended. The accounting policies applied are consistent with those applied in
the financial statements for the year ended 30 June 2010.
Audit Opinion
Our auditor, Ernst & Young Inc., has reviewed the condensed consolidated annual
financial information contained herein. Their reviewed report in which they
expressed an unqualified opinion is available for inspection at the Company`s
registered office. Shareholders are advised that GPI has moved its physical
offices to 12th Floor, Convention Towers, Heerengracht, Foreshore, Cape Town,
8001. Whilst our existing telephone number, fax number and postal address may
still be used the telephone number of the new offices is +27 (0) 21 421 7771.
The change of the registered office at the Companies and Intellectual Property
Commission ("CIPC") is pending.
Notes to the financial statements
1. Revenue
Revenue comprises Gross Gaming Revenue ("GGR") from our LPM operations, Other
Operating Revenue, which include other LPM operating cost recoveries, as well as
Other Investment Revenue, being dividends received from National Casino Resort
Manco (Proprietary) Limited ("National Manco") and investment interest on
positive cash balances.
GGR is the term used for the revenue generated from an LPM, being the amount of
cash played through the LPM less the payouts to players. Although there is no
prior year GGR comparative, as GPI acquired control over the LPM operations on
the last day of the previous financial year, the GGR increased by 16.1% on the
prior year.
Reviewed Audited
30 June 30 June
2011 2010
R`000s R`000s
Gross Gaming Revenue 316 193 -
- Grandslots 213 598 -
- Kingdomslots 99 550 -
- Grand Gaming Slots - Gauteng 3 045 -
6 581 -
3 667 6 329
- Dividends received 1 659 3 943
- Interest received 2 008 1 910
- Other revenue - 476
TOTAL REVENUE 326 441 6 329
2. Cost of sales
Cost of sales is directly related to GGR, and comprises direct costs such as
commissions to site owners, gambling levies and monitoring fees. Although there
is no prior year comparative as explained above, cost of sales has increased by
16.1% in line with the increase in GGR.
3. Operating costs
Operating costs include transaction costs of R1.4 million which relate to SUI,
Playmeter Leisure Services (Proprietary) Limited ("Playmeter") and the SunWest
International (Proprietary) Limited ("SunWest") BEE lock-in transaction, which
are expensed in terms of IFRS 3R - Business Combinations, and which are reversed
for adjusted headline earnings per share.
4. Profit from equity-accounted investments
Profit from equity-accounted investments comprise profits from jointly-
controlled entities and profits from associates. Overall profits from equity-
accounted investments for the financial year increased by R1.937 million or 1.7
% on the prior year.
Profit from jointly-controlled entities consist of SunWest attributable earnings
and Western Cape Casino Resort Manco (Proprietary) Limited ("Western Cape
Manco") attributable earnings.
SunWest`s attributable earnings consists of attributable earnings from GrandWest
Casino and Entertainment World ("GrandWest") and The Table Bay Hotel. Western
Cape Manco attributable earnings consists of management fees, which are based on
SunWest`s attributable earnings and EBITDA less operating expenses.
Profit from associates consists of attributable earnings from Real Africa
Holdings Limited ("RAH") up to 13 May 2011 (see note 10) and Akhona Gaming
Portfolio Investments (Proprietary) Limited`s ("Akhona GPI") attributable
earnings.
5. Impairment of investment
In terms of IFRS 5 - Non-current Assets held for Sale and Discontinued
Operations assets that meet the specific criteria are required to be measured at
the lower of the carrying amount and fair value less cost to sell. The inclusion
of RAH in the 13 May 2011 Heads of Agreement to restructure certain common
interests with SUI has resulted in RAH having to be classified as a non-current
asset held for sale, and impaired by R95.646 million to its fair value less cost
to sell (see note 10 for detailed commentary).
In terms of IAS 36 - Impairment of Assets, an entity must determine whether
there is any indication of impairment at each reporting date. IAS 36 requires
assets to be impaired to the higher of market value or value in use based on
discounted free cash flow valuations. GPI fully subscribed for its allocation of
Worcester Casino (Proprietary) Limited (Golden Valley/ Worcester) rights offer
shares allotted in July 2010 and December 2010 at a total cost of R32.838
million. Of this, R15 million represents a reversal of the previous impairment
being the part of the shares that will be sold as part of the restructure of
common assets with SUI. Unlike RAH above, there will be no change in GPI`s
control after the restructure and therefore this measurement remains consistent
with prior years.
6. Remeasurement of investment
There was no change in control of investments, therefore no remeasurement was
required during the year in terms of IFRS 3R. The R42.488 million prior year
remeasurement relates to GPI`s previously held 25.1% interest in Grandslots,
which became a wholly-owned subsidiary of GPI following GPI`s acquisition of
Carentan Investment (Proprietary) Limited ("Carentan") on 30 June 2010 in the
prior year.
7. Finance costs
Finance costs increased by 10.3% due to the higher level of debt, which was
raised on 30 June 2010. The additional debt raised at 30 June 2011 is made up of
a R40.0 million term loan from Grindrod Bank Limited, an R80.0 million Sanlam
Capital Markets ("SCM") term loan and additional preference shares of R20.0
million drawn down from the existing SCM preference share facility. During the
year under review R16.0 million of the SCM term loan was repaid and R24.2
million of the preference share debt was redeemed. Finance costs include R0.7
million in transaction costs, which are reversed for adjusted headline earnings
per share.
8. Adjusted and headline earnings
Headline earnings increased by 26.3%, which resulted in adjusted headline
earnings per share increasing by 14.6% to 22.38 (2010: 19.52) cents per share.
The increase primarily arises from the acquisition of our LPM operations.
9. Non-current assets
Included in non-current assets are positive goodwill and intangibles to the
value of R12.3 million and R15.9 million respectively, which have been
recognised on the acquisition date of the LPM operator licence in Gauteng from
Playmeter.
10. Non-current asset held for sale
The application of IFRS 5 - Non-current Assets held for Sale and Discontinued
Operations has had an adverse effect on the reported basic earnings contained in
these results. Notwithstanding the comprehensive disclosures of the financial
effects of the proposed restructure with SUI in the circular sent to GPI
shareholders on 15 August 2011 ("the Circular"), IFRS 5 requires that assets
classified as held for sale be measured at the lower of the carrying amount and
fair value less cost to sell and that these assets are required to be presented
separately in the statement of financial position.
This means that as from 13 May 2011, the date the Heads of Agreement with SUI
was signed, GPI`s 30.57% investment in RAH is required to be reclassified from
an investment in associate, which is equity-accounted and only impaired in terms
of IAS 36 when the recoverable amount exceeds the higher of market value or
value in use, based on discounted free cash flow valuations, to a non-current
asset held for sale which is impaired in terms of IFRS 5 to the lower of its
carrying amount and fair value less cost to sell.
Consequently, the investment in RAH now has to be impaired by R95.646 million at
the time of the reclassification. In addition, the attributable earnings from
RAH from 13 May 2011 to the date that the sale, if approved, ceases to be
recognised in GPI`s earnings.
It is important to note here that when analysing performance, adjusted headline
earnings and not net profit / (loss) or total comprehensive income / (loss) is
the most appropriate measure to use since headline earnings removes distortions
caused by IFRS adjustments. This is particularly relevant in this case because
the proposed restructure with SUI is made up of many parts and will only be
concluded if all parts to this transaction are executed as each part cannot be
taken in isolation. Furthermore, in the event that the proposed restructure with
SUI is not concluded, this asset would not be regarded as for sale and GPI`s
intention would continue to be to recover this value through use.
The following additional information is therefore provided to the users of these
financial results:
IFRS 5 IFRS 5
applied not applied Impact
R`000s
The effect of this reclassification is
as follows: R`000s R`000s
Investment in associate 30 676 579 701 549 025
Non-current asset held for sale 451 000 - 451 000
Available-for-sale fair value reserve 50 161 49 287 (874)
Profit from associate 30 923 34 177 (3 254)
Impairment of investment per IFRS 5 95 646 - 95 646
Cents per Cents per Cents per
share share share
Basic and diluted earnings per share
(cents) (5.46) 15.86 (21.32)
Adjusted basic and diluted earnings
per share (cents) (5.53) 16.06 (21.59)
Headline earnings per share (cents) 21.78 22.47 (0.69)
Adjusted headline earnings per share
(cents) 22.69 23.38 (0.69)
11. Current assets
Current assets decreased mainly due to the decrease in cash. Included in current
assets are interest-free loans totalling R10.944 million advanced to employees
as assistance to acquire share options. As per the SENS announcement on 30 June
2011, 3 million share options were issued to Mr H Adams, the Executive Chairman,
and 0.25 million share options were issued to Ms S Petersen, the Financial
Director, from the GPI Share Incentive Trust. In addition 0.35 million share
options were issued to Ms A Sadler-Almeida, the
Chief Operating Officer: Slots. All the share options were issued at the 30
Volume Weighted Average Price share price of 304 cents per share and were
immediately exercised.
12. Non-current liabilities
Cumulative redeemable preference shares consist of the outstanding preference
share facilities with Standard Bank South Africa Limited and Depfin Investments
(Proprietory) Limited and SCM which amounts to R131.235 million (2010: R155.398
million) and R125.725 million (2010: R125.725 million) respectively.
Interest-bearing loans and borrowings consist of term loans and finance lease
liabilites of R104.0 million and R2.436 million respectively.
13. Current liabilities
Included in the prior year current liabilities is vendor finance to the value of
R22.0 million in respect of the acquisition of the minority interest in Carentan
and the Stripe Investments 7 (Proprietary) Limited (Stripe) acquisition. This
amount was paid to the respective parties during the current year in terms of
the purchase and sale agreement.
Also included in the prior year current liabilities is a provision for the R4.3
million specific payment to shareholders, H Adams (R1.0 million), A Abercrombie
(R0.339 million), R Freese (R0.040 million) and A Bedford (R0.050 million),
which was approved by the shareholders at the annual general meeting held on 15
December 2010 and paid during the year.
14. IFRS 3R - Business Combinations
As announced on SENS on 3 May 2011 Thuo Gaming Gauteng (Proprietary) Limited
("Grand Gaming Slots - Gauteng"), a wholly-owned subsidiary of GPI / GPI Slots
(Proprietary) Limited ("GPI Slots") acquired an LPM business and operator
licence in Gauteng from Playmeter. The total consideration of R29.1 million was
settled by way of a new issue of 8.1 million GPI shares (R23.2 million), and
R5.9 million cash. IFRS 3R requires that the fair value of net identifiable
assets and liabilities of the acquired Group be performed as at the date of
acquisition and that any goodwill or bargain purchase on acquisition is brought
to account. This exercise entails determining the fair value of each
identifiable asset and liability, and comparing this to the consideration paid.
The fair value of net identifiable assets and liabilities has been made and
goodwill and intangible assets of R12.3 million and R15.9 million respectively
have been recognised. An impairment review of goodwill and intangible assets
will be made annually.
The fair value of the identifiable assets and liabilities of Playmeter as at the
date of acquisition was:
Fair value
recognised on
acquisition
R`000s
Assets
Property, plant and equipment 573
Intangible assets 15 847
Trade and other receivables 563
Cash and cash equivalents 2
16 985
Liabilities
Provisions (96)
(96)
Total identifiable net assets at fair value 16 889
Goodwill on acquisition 12 260
Purchase consideration transferred 29 149
Shares issued 23 170
Cash paid 5 979
29 149
Net cash acquired with the subsidiary 2
Cash paid (5 979)
Net cash outflow (5 977)
Performance of GPI`s LPM slots operations
Western Cape
Grandslots achieved an 11.9% increase in revenue from last year to R213.6
million.
Our Western Cape-based LPM business continues to deliver a significant portion
of our LPM operation`s revenue and is our best performing province in terms of
LPM revenue. It grew 14.0% year-on-year from R335.7 million to R382.8 million to
June 2011.
With two licenced operators in the Western Cape, Grandslots enjoyed an active
LPM market share at 30 June 2011 of 53.2% and an even larger portion of the
total provincial LPM revenue at 55.8% in the Western Cape.
KwaZulu-Natal
Thuo Gaming KwaZulu-Natal (Proprietary) Limited ("Kingdomslots") achieved a
21.8% increase in revenue to R99. 6 million from last year.
Our KwaZulu-Natal-based LPM operation made significant in-roads during the
financial year under review by actively managing its network of actual LPM sites
in order to ensure greater operational efficiencies. The success thereof is
reflected in their 21.8% year-on-year revenue growth despite the strategic
decrease of 57 (7.6%) active LPMs at end June 2011 compared to 30 June 2010.
Provincially, KwaZulu-Natal saw a 22.6% annual increase in total LPM revenue
from R183.9 million to June 2010 compared to R225.4 million with a 0.8% increase
at 30 June 2011 compared to 30 June 2010 in active LPMs.
With four licenced operators in KwaZulu-Natal, Kingdomslots enjoyed an active
LPM market share at 30 June 2011 of 36.4% and a considerably larger portion of
the total provincial LPM revenue at 48%.
During the financial year GPI successfully aquired out the minority shareholders
in Kingdomslots, which ensured GPI a 100% ownership of all its LPM operations at
this time.
Grand Gaming Slots - Gauteng
Grand Gaming Slots - Gauteng acquired a licence to operate 1 000 LPM`s in
Gauteng on 29 April 2011. For the two months, Grand Gaming Slots - Gauteng
generated R3 million in GGR.
The conditions of the Gauteng Route Operator Licence require that a minimum of
30% ownership of the licence must be held in local black hands. Structures have
been designed to meet this requirement and progress is being made to implement
these structures.
Integration of Slots Business and Restructure of Slots Group
The Slots business has now been integrated into the GPI Group, and the benefit
of having GPI as the controlling shareholder is already been seen. The intended
restructure of the Slots group of companies as highlighted in the June 2010
annual report has been completed as planned, and the affected companies are in
the process of deregistration at the CIPC.
Perfor mance of GPI`s jointly-controlled entities
SunWest
On 23 September 2010, GPI exercised its remaining option to purchase 140 182
SunWest shares at an option price of R165 per share. This, together with other
pre-emptive rights exercised during June 2010 and issued in August 2010,
increased GPI`s direct shareholding in SunWest from 29.24% to 30.04%.
GrandWest`s initial 10-year casino exclusivity in the Cape Metropole expired
during December 2010.
The provincial government of the Western Cape (PGWC) is still considering
whether to permit the relocation of one of the other casino licences in the
Western Cape to the Cape Metropole. There is insufficient information to assess
the potential impact on GrandWest`s revenue and profitability.
GrandWest`s revenue increased by 4.4% compared to the prior year whilst its
attributable earnings increased by 7.9% despite the adverse economic environment
in the Western Cape over the last year. GrandWest`s EBITDA margin decreased
slightly from 38.8% last year to 37.8% this year.
The Table Bay Hotel`s attributable loss disappointingly increased by 18.7%
mainly due to a 9.9% drop in room occupancy from 53.4% to 48.1%.
Golden Valley Casino
The GPI Group took up certain rights and increased its direct and indirect
economic stake in Golden Valley Casino from 44.39% to 45.37%. The funds raised
were partly used to fund the completion of the Worcester N2 interchange that was
due for construction as committed to in the initial Golden Valley Casino licence
application submission to the Western Cape Gambling and Racing Board (WCGRB).
The cost of this investment to GPI has historically been very small given that
it has largely been funded internally through interest-bearing debt and
pleasingly revenues grew 10% to R123.3 million although the investment is yet to
produce a positive earnings contribution.
Western Cape Manco
Western Cape Manco`s attributable earnings increased by 5% for the year, which
is in line with the increase in GrandWest`s revenue and EBITDA.
Performance of GPI`s associate investments
Real Africa Holdings Limited
Attributable earnings from RAH increased by 9.1 % compared to the prior year,
despite RAH being reclassified as a non-current asset held for sale on 13 May
2011 and GPI`s share of associate earnings from RAH only being recognised up to
that date. The increase is mainly due to higher dividends received by RAH from
SunWest and the R6.5 million profit from the sale of a 14.3% interest in
Zonwabise. During the year the earnings from associate companies also increased,
due to the payment of a cancellation fee on the early termination of the
Emfuleni Manco management contract which resulted in higher earnings from
National Manco and Zonwabise who each own 50% of the Emfuleni Manco. RAH has
declared a final dividend of 12 cents per share compared to 14 cents per share
the previous year.
Akhona GPI
Akhona GPI is owned by GPI, Akhona Investment Holdings 2005 Limited ("AIHL") and
the Akhona Governing Body Trust ("AGBT"). At the beginning of the financial year
Akhona GPI held investments in Kingdomslots and in Dolcoast Investments Limited
("Dolcoast"), the empowerment shareholder of Afrisun KZN (Proprietary) Limited
("Sibaya").
Effective 8 March 2011, Akhona GPI sold its direct 20% interest in Kingdomslots,
and 100% interest in Wild Rush Trading 97 (Proprietary) Limited, holding a 10%
interest in Kingdomslots, to GPI Slots.
At the same time AIHL re-purchased shares (in terms of a call option) from GPI,
whilst AIHL and GPI purchased their respective rights issue shares, which
resulted in GPI`s shareholding reducing from 74.95% economic (49.99% voting) to
59.00% economic (40.21% voting) and shareholder`s loan accounts being equalised
at R2.7 million each.
Akhona GPI exercised and took up an additional 3.8 shares in Dolcoast in terms
of its pre-emptive rights. This transaction increased Akhona GPI`s stake in
Dolcoast from 23.0% to 24.9%. GPI`s reduced shareholding in Akhona GPI and
Akhona GPI`s increased shareholding in Dolcoast had the net effect of reducing
GPI`s investment through Akhona GPI in Sibaya to 3.3%. GPI`s total effective
stake in Sibaya amounted to 7.48% (2010: 8.05%).
GPI`s share of Akhona GPI`s associate earnings decreased by 24.4% due to lower
profits recognised from its investment in Dolcoast as a result of less dividends
received from Sibaya as well as GPI`s decrease in shareholding from 74.05% to
59.0 % effective 8 March 2011.
GPI aims to increase its stake in Sibaya Casino from 3.3% to a meaningful level
and if unable to do so will exit this investment.
Related party transactions
The Group, in the ordinary course of business, entered into various arm`s length
transactions with related parties. Any intra-group related party transactions
and balances are eliminated in the preparation of the financial statements of
the Group as presented.
Dividends
Notice is hereby given of the declaration of an ordinary cash dividend of 10 per
share (2010: 7.5 cents per share). The following salient dates will apply to the
payment of the dividend:
- Last date to trade "cum" the dividend Friday, 2 December 2011
- Trading commences "ex" the dividend Monday, 5 December 2011
- Record date Friday, 9 December 2011
- Date of payment of the dividend Monday, 12 December 2011
Share certificates cannot be dematerialised or rematerialised between Monday, 5
December 2011 and Friday, 9 December 2011, both days inclusive.
Subsequent events
As advised to shareholders, GPI and SUI have agreed to the restructure of
certain of their common interests (the Restructure). A Circular was sent to
shareholders on 15 August 2011 giving full details of the proposed transaction
and giving notice of the special general meeting to be held on 14 September
2011.
In terms of the Restructure, GPI will receive a combined consideration of R717.
8 million for the sale of shares in SunWest, Worcester and RAH while still
retaining significant interests (25.1%) of each in both SunWest and Worcester. A
further consideration of approximately R67. 4 million (after tax) will be
received from the cancellation of existing Sun International (South Africa)
(Proprietary) Limited management contracts and the implementation of new
beneficial long-term operating agreements with SUI to manage GrandWest, Golden
Valley Casino and the Table Bay Hotel.
There are two other important elements to the Restructure. Firstly, GPI is to be
released from all empowerment lock-in obligations. This will ultimately result
in the unbundling of the GPI Special Purpose Vehicle Trust ("GPI SPV Trust") and
the GPI Broad-based Black Economic Empowerment Trust ("GPI B-BBEE Trust"),
following on which unit holders will receive GPI shares which they can trade
freely. Secondly, the Restructure clearly defines the terms of the relationship
between GPI and SUI and allows GPI to further its own gaming interests
independently, particularly with regard to its LPM operations.
As set out in the table below the Restructure also provides GPI with the
opportunity to realise a fair value for its investments in RAH and the portions
of SunWest and Worcester that are being sold.
30 June 2010 Gross
% sold Consideration (Rm)
SunWest 4.9% 251.8
RAH 451.4
Worcester 30.6% 14.6
Consideration for assets 20.% 717.8
Cancellation of management contracts
(approximate) 67.4
Total consideration 785.2
The Board believes that the optimal manner of applying the proceeds of the
Restructure is through the reduction of debt and a one-off special dividend,
with the balance being retained for the pursuit of certain new investment
opportunities. This approach will result in an improved risk profile, increased
dividend flow to shareholders through the one-off special dividend and enhanced
capacity for future dividends arising from the reduction in gearing.
Directorate
Although there were some changes to the GPI Board during the year, we believe
that every member has contributed to the success and growth of our business.
The Board and management team continue to be fully committed to the future of
the Group and strive to deliver a superior return to all stakeholders.
Prospects
We have publicly stated that our vision is to become a major and respected force
in the gaming, tourism and leisure industry in Africa. Whilst we have been busy
consummating the SUI, Kingdomslots Minorities and Playmeter deals we have
continued to pursue and evaluate other opportunities. These opportunities lie in
improving and extending our LPM footprint and in new gaming ventures. We see
significant future value in technology-based gaming, which will allow us to
enter other betting arenas and also prepare us for online gaming. To this end we
have invested in human capital to develop this initiative further. Furthermore,
we continue to pursue the licensing of the Type-B 40 LPM Site markets, which we
believe will make a significant difference to our LPM business. In addition to
the gaming, tourism and leisure industry, we are currently seeking to enter the
non-gaming arena under the banner of Grand Capital.
For and on behalf of the board
H Adams S Petersen
Executive Chairman Financial Director
Cape Town
8 September 2011 Prepared by: D Pienaar CA (SA)
Directors
H Adams (Executive Chairman), A Abercrombie #, A W Bedford #,
R Freese #, R Hoption CA (SA) (Executive), Dr N Maharaj #*, N Mlambo#,
F Samaai #, S Petersen CA (SA) (Financial Director)
(# non-executive * lead independent)
Registered office
15th Floor, Triangle House, 22 Riebeek Street, Cape Town, 8001
(PO Box 7746, Roggebaai, 8012)
Transfer secretaries
Computershare Investor Services (Proprietary) Limited
70 Marshall Street, Johannesburg, 2001
Attorneys
Bernadt Vukic Potash & Getz Attorneys
Corportae advisors
Leaf Capital (Proprietary) Limited
Sponsor
PSG Capital (Proprietary) Limited
Company secretary
Lazelle Parton
Date: 08/09/2011 17:34:26 Produced by the JSE SENS Department.
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