| Wed 30 Nov 2011, 17:35 | | QPG - Quantum Property Group Limited - Abridged condensed audited consolidated |
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QPG
QPG
QPG - Quantum Property Group Limited - Abridged condensed audited consolidated
financial results for the year ended 31 August 2011 and notice of Annual General
Meeting
QUANTUM PROPERTY GROUP LIMITED
Incorporated in the Republic of South Africa
(Registration number 1984/002788/06)
Share code: QPG ISIN: ZAE000125647
("QPG" or "the Company" or "the Group")
ABRIDGED CONDENSED AUDITED CONSOLIDATED FINANCIAL RESULTS FOR THE YEAR ENDED 31
AUGUST 2011 AND NOTICE OF ANNUAL GENERAL MEETING
CONDENSED AUDITED CONSOLIDATED GROUP STATEMENT OF FINANCIAL POSITION AS AT 31
AUGUST 2011
Audited Audited
2011 2010
R`000 R`000
ASSETS
Non-current assets 709 172 937 402
Investment property 687 620 895 112
Furniture, fittings and equipment 16 325 21 662
Loans receivable 726 598
Deferred taxation 4 501 20 030
Current assets 83 687 94 428
Inventories 67 401 79 953
Accounts receivable 7 180 2 679
Prepaid expenses 344 256
Loans receivable 142 101
Loans to related parties 237 -
Cash and cash equivalents 8 383 11 439
Total assets 792 859 1 031 830
EQUITY AND LIABILITIES
Capital and reserves 185 412 410 679
Non-current liabilities 476 274 585 933
Borrowings 396 550 429 687
Loan payable 3 869 -
Loans from related parties 34 404 31 416
Deferred taxation 41 451 124 830
Current liabilities 131 173 35 218
Borrowings 91 392 -
Trade and other payables 23 102 17 895
Loans from related parties 16 679 17 323
Total equity and liabilities 792 859 1 031 830
Number of ordinary shares in issue at 152 944 087 152 944 087
year-end
Net asset value and net tangible asset 121 269
value per share (cents)
CONDENSED AUDITED CONSOLIDATED GROUP STATEMENT OF COMPREHENSIVE INCOME FOR THE
YEAR ENDED 31 AUGUST 2011
Audited Audited
2011 2010
R`000 R`000
Revenue 37 291 36 160
Cost of sales (15 450) (21 139)
Gross profit 21 841 15 021
Other income 3 270 1 754
Operating costs (46 939) (47 708)
Operating loss (21 828) (30 933)
Fair value adjustment (225 963) -
Depreciation (4 495) (2 398)
Interest received 569 540
Interest paid (41 400) (20 052)
Loss before taxation (293 117) (52 843)
Taxation 67 850 23 992
Total comprehensive loss for the year (225 267) (28 851)
Weighted average number of shares in 152 944 087 152 214 002
issue
Loss per share (cents) (147) (19)
Headline loss per share (cents) (39) (19)
Diluted loss per share (cents) (147) (19)
Diluted headline loss per share (39) (19)
(cents)
Reconciliation of earnings to headline R`000 R`000
earnings
Total comprehensive loss for the year (225 267) (28 851)
Plus: fair value adjustment on 225 963 -
investment property
Plus: write-down to net realisable 2 976 -
value of inventory
Less: deferred taxation movement on
fair value adjustment on investment (63 270) -
property
Headline loss (59 598) (28 851)
CONDENSED AUDITED CONSOLIDATED GROUP STATEMENT OF CASH FLOW FOR THE YEAR ENDED
31 AUGUST 2011
Audited Audited
2011 2010
R`000 R`000
Cash flows from operating activities (48 208) (20 348)
Cash flows from investing activities (19 317) (72 525)
Cash flows from financing activities 64 469 108 793
(Decrease)/increase in cash and cash (3 056) 15 920
equivalents
Cash and cash equivalents at beginning 11 439 (4 481)
of year
Cash and cash equivalents at end of 8 383 11 439
year
CONDENSED AUDITED CONSOLIDATED GROUP STATEMENT OF CHANGES IN EQUITY FOR THE YEAR
ENDED 31 AUGUST 2011
Share Share Acquisit Accumulated
Capita Premiu ion profit Total
l m Reserve
R`000 R`000 R`000 R`000 R`000
Balance at 1 September 305 46 143 (7 595) 399 527 438 380
2009
Issue of ordinary shares 8 1 142 - - 1 150
Total comprehensive loss - - - (28 851) (28 851)
for the year
Balance 31 August 2010 313 47 285 (7 595) 370 676 410 679
Total comprehensive loss - - - (225 267) (225 267)
for the year
Balance 31 August 2011 313 47 285 (7 595) 145 409 185 412
COMMENTARY
Introduction
During the year under review QPG, and its wholly owned subsidiary A Million Up
Investments (Pty) Ltd ("AMU"), implemented substantial changes to their boards
of directors in order to align the Group`s vision with its financiers Absa Bank
Limited ("Absa") and the operator of the 15 on Orange Hotel, African Pride
Hotels (Pty) Ltd ("African Pride"). These changes included management and the
relocation of the Company`s head office to QPG`s initial property development
located at the corner of Orange Street and Grey`s Pass, Gardens, in Cape Town
("the 15 on Orange property").
New Board of Directors
The new board of directors was formed with Gary Shaff accepting the appointment
of Chief Executive Officer with effect from 7 February 2011, Tessa Wolpe
appointed as a non-executive director with effect from 4 February 2011 and
Madeleine du Plessis appointed as Financial Director with effect from 1 July
2011. Both Peter Shaff and Barry Sneech continued in their positions as
non-executive director and independent non-executive director respectively.
The following directors terminated their positions during the period under
review: Johan Opperman resigned with effect from 30 September 2010, Clifford
Kupritz resigned as the Chief Executive Officer with effect from 20 January
2011, Chaim Cohen vacated his position with effect from 3 February 2011, Ian
Levitt resigned with effect from 7 February 2011, and Barak Cohen vacated his
position with effect from 9 February 2011. Mark Taitz resigned as Financial
Director with effect from 7 February 2011 and continued to assist the Company as
a consultant until the handover to the new Financial Director on 1 July 2011.
The priority of the new board was to ensure stability and focus on the core
business of QPG as a property investment company. The new management team,
which is now based in Cape Town, is fully aligned with the hotel operator
African Pride as well as Absa.
Group Profile
QPG continues as a property investment company that aims to build a quality,
sustainable property portfolio. The 15 on Orange property is a landmark
development in Cape Town and the initial development undertaken by QPG. The
property comprises the 15 on Orange Hotel, a residential component of 12 luxury
penthouses, 6 of which will be included in the hotel rental pool (whilst
remaining for sale), a boutique retail centre, 1 500m2 venue facility and four
levels of parking.
The 15 on Orange Hotel has established itself, since opening in December 2009,
as one of the city`s leading luxury hotels across multiple corporate and leisure
markets and continues to receive numerous accolades and awards.
Financial Results
In order to determine the fair value for the 15 on Orange property it was
revalued based on current market conditions and extensive market research. The
expertise of independent professionals was relied upon to arrive at a R226
million fair value adjustment of investment property and a R3 million write-down
of inventory.
Mainly due to this downward revaluation, the Group incurred a loss for the year
of R225.3 million which translates into a loss per share of 147 cents with a
headline loss per share of 39 cents. Part of the loss is also attributable to
lower than anticipated hotel occupancy and rates in line with the general
downturn in the hospitality industry, the oversupply of hotel rooms and the
hotel not having the full complement of facilities in place.
The property revaluation has resulted in a higher debt to asset ratio for the
Group. Reducing this will be a key focus area for the board going forward.
Acquisition of 50% of 15 on Orange and extended bank facilities
On 1 September 2011, AMU strategically acquired the remaining 50% of the issued
share capital in 15 on Orange Hotel (Pty) Ltd. The acquisition formed a key
element in negotiations with Protea Hotel Group (Pty) Ltd ("Protea") that
resulted in a new and extended 20 year management agreement under the premier
African Pride brand.
Simultaneously, AMU entered into an agreement with Absa on 31 August 2011. This
extended the facilities made available by Absa to AMU for a further five year
period until 2016, and facilitated both the 15 on Orange property venue facility
and enhancement programme.
The enhancement programme includes fit out of a 240-seater multi-use, high-
specification venue facility, furnishing of six penthouse units for inclusion in
the hotel inventory, a general exterior upgrade and improvements to the swimming
pool area.
The motivation for the expanded venue facility is based on demand from existing
clients of the hotel as well as an identified shortage of superior deluxe venue
facilities encompassing both the corporate and leisure markets. The venue
facility has recently opened and forward bookings are looking extremely
positive. We anticipate the venue doing brisk trade in the coming year and
contributing significantly toward hotel occupancy.
Litigation
The Group has instituted legal proceedings and a high court summons against Mr
Chaim Cohen, New City Group (Pty) Ltd, Bonheur 92 General Trading (Pty) Ltd, Mr
Gary Itzikowitz and Compass Projects (Pty) Ltd.
Mr Cohen and Mr Itzikowitz were previously directors of companies within the
Group and the other entities are parties related to them. New City Group (Pty)
Ltd and Bonheur 92 General Trading (Pty) Ltd had management agreements with the
Group. These agreements have been cancelled and/or terminated.
The underlying claims, which include inter alia claims for alleged: breach of
fiduciary duties; misrepresentation; non-disclosure and other breaches of
contract, are significant. The claims are for the recovery of certain payments
as well as shares in the Company and, if successful, would result in a
beneficial impact on the financial position of the Group.
The proceedings were instituted on the advice of the Group`s legal
representatives and are currently opposed. Certain counterclaims have been
threatened but not instituted as at current date.
To the extent that any conduct on the part of the former directors may have been
unlawful the Group has complied with its statutory reporting duties.
The board is not aware of any other legal or arbitration proceedings, including
any proceedings that are pending or threatened, that may have or have had in the
recent past, being at least the previous twelve months, a material effect on the
Group`s financial position.
Prospects
The directors are confident of the performance and prospects of the 15 on Orange
property. The 15 on Orange Hotel continues to cement its reputation as one of
Cape Town`s leading hotels and has now further strengthened its position in the
market place as a result of the various improvements and enhancements.
QPG will continue to pursue further investment and development opportunities
across a multitude of property disciplines.
Basis of preparation and accounting policies
These abridged condensed audited consolidated annual financial results for QPG
in this announcement have been prepared in accordance with the measurement and
recognition criteria of International Financial Reporting Standards ("IFRS"),
IAS 34: Interim Financial Reporting and in the manner required by the Companies
Act, 2008 and the Listings Requirements of JSE Limited. The accounting policies
and methods of measurement and assessment are consistent with those applied in
the audited annual financial statements for the year ended 31 August 2010.
Significant accounting policies include:
Significant judgments: Judgment is required in determining the fair value of
investment property. The fair value is determined annually with an independent
valuation carried out every three years and any fair value adjustment is
recognised in profit and loss.
Investment Properties: Investment properties are held to earn rental income and
to appreciate in capital value. Investment properties under development are held
for development in order to earn rental income and to appreciate in capital
value upon completion of the development. Consideration is given to ancillary
services provided. Investment properties held to earn rental income are treated
as longterm investments and are measured initially at cost including transaction
costs and thereafter at fair value. The fair value is determined annually with
an independent valuation carried out every three years and any fair value
adjustment is recognised in profit and loss. Existing investment properties
under development held for continued future use as investment properties are
treated as long-term investments and are measured at fair value, being the fair
value of the land and buildings. The fair values of the land and buildings are
determined annually with an independent valuation carried out every three years
and any fair value adjustments are recognised in profit and loss. Rental income
and operating expenses from investment property are reported within revenue and
operating costs respectively.
Material change in assets:
Investment property: The fair value of the land and buildings is approximately
R688 million which has been determined by directors valuation and substantially
based on a valuation performed by independent valuer, Chris Veldsman
(Professional Associated Valuer), as at 31 August 2011, on the basis of open
market value, supported by market evidence, in accordance with International
Valuation Standards. The fair value reflects a conservative value based on
market related researched rentals, hotel occupancies and hotel room rates.
Inventories: One of the nine available penthouses was sold during the year
under review, the cost of which was recognised as cost of sales and another one
subsequent to year-end in terms of the acquisition of the remaining 50% in 15 on
Orange Hotel (Pty) Ltd. See subsequent events note below.
Inventories: The available for sale penthouses reflected in inventories were
written down by R3 million to net realisable value based on an independent
valuation.
Deferred taxation: Deferred tax assets previously recognised for Quantum
Property Group Limited and one of its wholly owned subsidiaries, Quantum
Properties (Pty) Ltd, was expensed during the year.
Related party transactions and balances
There were no material new related party transactions or balances in the year
under review.
Bonheur 92 General Trading (Pty) Ltd ("Bonheur") ceased to be a related party
during the year under review. The management agreement between QPG and Bonheur
was cancelled with effect from 30 March 2011. The outstanding loan balances due
to/from Bonheur were reclassified from related party balances to loan payable
and loan receivable. These loans are currently under dispute and are not
expected to be settled in the next twelve (12) months.
Segmental report
The Group`s main business is currently operated from one property in Cape Town.
The chief operating decision maker is of the opinion that the operations of this
one property should be considered to be the business of a single segment.
Subsequent events
Subsequent to year-end AMU acquired the remaining 50% of the shares in 15 on
Orange Hotel (Pty) Ltd, making it a wholly owned subsidiary of AMU. The
effective date of the transaction is 1 September 2011. The acquisition was
instrumental in the renegotiation of the development loan facility. The
purchase consideration paid to Protea for the acquisition is R60 for the sale
shares and R22 million for the sale claims, with the balance of such claims
being settled by 15 on Orange. R11 million was paid in cash by AMU and a
penthouse, valued at R11 million will be sold and transferred by AMU to Protea
(or its nominee).
The Management Services and License Agreement for the management of the 15 on
Orange Hotel was renegotiated and re-signed with Protea Hospitality Group (Pty)
Ltd and African Pride Hotels effective from 1 September 2011; and the Lease
Agreement between AMU and 15 on Orange Hotel (Pty) Ltd was also amended and re-
signed effective from 1 September 2011. These revised agreements allow for a
positive and productive working relationship and an alignment of goals between
all parties concerned, which should be to the benefit of all stakeholders.
Report of the independent auditors
Grant Thornton, the Group`s independent auditors, have audited the consolidated
annual financial statements of QPG from which the condensed consolidated
financial results have been derived and have expressed a modified audit opinion
on the consolidated annual financial statements. The modification pertains to
the `report on other legal and regulatory requirements` which states,
"In accordance with our responsibilities in terms of sections 44(2) and 44(3) of
the Auditing Profession Act (`APA`), we report that we have identified certain
reportable irregularities as defined in Section 1 of the APA, and have reported
such matters to the Independent Regulatory Board for Auditors.
The following matters pertaining to the reportable irregularities have been
reported:
The Company has instituted legal claims against two former directors and
entities related to them who previously also had contractual relationships with
the Company. Refer to the Director`s Report for detail on the legal claims.
The Company has transgressed the requirements, as laid out in the JSE listing
requirements, in respect of the minimum number of independent non-executive
directors appointed to the audit committee. Refer to the Corporate Governance
Report for more detail."
The audit report is available for inspection at QPG`s registered office.
Word of Appreciation
I wish to extend my sincere thanks to the board, our advisors, bankers and hotel
operator for their support and dedication during a challenging year.
Notice of Annual General Meeting
Notice is hereby given that the 3rd Annual General Meeting ("Annual General
Meeting") of shareholders of Quantum Property Group Limited will be held at
10:00 on Tuesday, 8 May 2012 at DLA Cliffe Dekker Hofmeyr Attorneys, 11
Buitengracht Street, Cape Town for the purpose of considering, and, if deemed
fit, passing, with or without modification, the resolutions set out hereafter.
The board of directors of the Company ("the Board") has determined that, in
terms of section 62(3)(a), as read with section 59 of the Companies Act, 2008
(Act 71 of 2008), the record date for the purposes of determining which
shareholders of the Company are entitled to participate in and vote at the
Annual General Meeting is Thursday, 26 April 2012. Accordingly, the last day to
trade Quantum Property Group Limited shares in order to be recorded in the
Register to be entitled to vote will be Thursday, 19 April 2012.
GN Shaff
Chief Executive Officer
BY ORDER OF THE BOARD
30 November 2011
Directors
GN Shaff (Chief Executive Officer), M du Plessis (Financial Director), BH Sneech
*+, PM Shaff *, TM Wolpe *
* non-executive + independent
Registered office: Corner Grey`s Pass and Orange Street, Gardens, Cape Town,
8001
Company secretary: Corporate and Merchant Administrators (Pty) Ltd
Designated adviser: Merchantec Capital
Independent auditors: Grant Thornton Chartered Accountants (SA)
Transfer secretaries: Computershare Investor Services (Pty) Ltd, 70 Marshall
Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107)
Date: 30/11/2011 17:35:01 Produced by the JSE SENS Department.
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