Wrap Text
GPL - GPI - Provisional reviewed results for the year ended 30 June 2010
GRAND PARADE INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1997/003548/06
Share code: GPL
ISIN: ZAE000119814
("GPI" or "the Company")
Grand Parade Investments Limited (GPI) provisional reviewed results for the year
ended 30 June 2010
Headlines
Against recessionary trends GPI was able to:
- invest R192 million and become a leading slots operator;
- invest R28 million in increasing its direct stake in SunWest to over 30%;
- invest R4 million in increasing its stake in Golden Valley Casino to 44,4% and
achieve joint control;
- grow its indirect stake in Sibaya through Akhona GPI`s increased stake in
Dolcoast, which increased from 18,5% to 23%;
- maintain its commitment of being dividend active in matching last year`s 7,5
cents declaration; and
- increased its net asset base by 8% and contained its decline in adjusted
headline earnings per share to 7%.
Condensed group statement of comprehensive income
Reviewed
30 June
2010
Notes R`000s
Revenue 1 6 329
Operating costs 2 (26 958)
Loss from operations (20 629)
Profit from equity-accounted investments 3 117 626
Profit from jointly controlled entities 82 199
Profit from associates 35 427
Bargain purchase price 4 -
Remeasurement of investment 5 42 488
Net income before finance costs and taxation 139 485
Finance costs 6 (29 834)
Net profit before tax 109 651
Taxation (1 085)
Net profit for the year 108 566
Other comprehensive income
Unrealised fair value gains/(losses) on available-
for-sale investments, net of tax 3 950
Change in reserves from equity-accounted investments, net
of tax 22 391
Total comprehensive income for the year 134 907
Net profit for the year attributable to:
Ordinary shareholders 108 566
Non-controlling interest* -
108 566
Total comprehensive income attributable to:
Ordinary shareholders 134 907
Non-controlling interest* -
134 907
Basic and diluted earnings per share (cents) 23,89
Adjusted basic and diluted earnings per share (cents) 24,20
Headline earnings per share (cents) 15,45
Adjusted headline earnings per share (cents) 19,52
Dividends paid per share (cents) 7,50
Restated
30 June
2009 %
R`000s change
Revenue 6 733 (6)
Operating costs (13 190) 104
Loss from operations (6 457) 219
Profit from equity-accounted investments 130 492 (10)
Profit from jointly controlled entities 97 600 (16)
Profit from associates 32 892 8
Bargain purchase price 80 623 (100)
Remeasurement of investment - 100
Net income before finance costs and taxation 204 658 (32)
Finance costs (31 938) (7)
Net profit before tax 172 720 (37)
Taxation (1 000) 9
Net profit for the year 171 720 (37)
Other comprehensive income
Unrealised fair value gains/(losses) on
available-for-sale investments, net of tax (3 134)
Change in reserves from equity-accounted investments, net
of tax -
Total comprehensive income for the year 168 586
Net profit for the year attributable to:
Ordinary shareholders 171 720
Non-controlling interest* -
171 720
Total comprehensive income attributable to:
Ordinary shareholders 168 586
Non-controlling interest* -
168 586
Basic and diluted earnings per share (cents) 37,17
Adjusted basic and diluted earnings per share (cents) 37,17
Headline earnings per share (cents) 20,88
Adjusted headline earnings per share (cents) 20,89
Dividends paid per share (cents) 10,00
* There is no non-controlling interest in the above results of the GPI group as
the GPI group only took control of Carentan Investments (Pty) Limited (Carentan)
on 30 June 2010, the last day of the financial year, and commenced consolidating
Carentan`s results from that date.
30 June
2010
R`000s
Headline earnings reconciliation
Basic earnings 108 566
Remeasurement of investment (42 488)
Bargain purchase price -
Profit on sale of investment -
Loss on sale of plant and equipment -
Adjustments by jointly controlled entities 1 871
- Loss on disposal of plant and equipment** 682
- Fair value adjustment** 1 189
Adjustments by associates 3 105
- Impairment of casino licence 3 870
- Realised investment profits (664)
- Impairment of available-for-sale investment 2 252
- Provision for pension fund exposure -
- Bargain purchase price (788)
- Remeasurement of investment (1 565)
Tax effect of above (830)
Headline earnings 70 224
Reversal of employee share trust 62
Reversal of transaction costs 17 307
Adjusted headline earnings 87 593
Headline earnings calculation
Shares in issue (before deducting treasury shares) (`000s) 462 331
Shares in issue (after deducting treasury shares) (`000s) 456 511
Weighted average number of shares (`000s) 454 507
Adjusted weighted average number of shares (`000s) 448 687
Basic and diluted earnings per share (cents) 23,89
Adjusted basic and diluted earnings per share (cents) 24,20
Headline earnings per share (cents) 8 15,45
Adjusted headline earnings per share (cents) 19,52
Dividends paid per share (cents)* 7,50
30 June
2009
R`000s
Headline earnings reconciliation
Basic earnings 171 720
Remeasurement of investment -
Bargain purchase price (80 623)
Profit on sale of investment (213)
Loss on sale of plant and equipment 12
Adjustments by jointly controlled entities 53
- Loss on disposal of plant and equipment** 53
- Fair value adjustment** -
Adjustments by associates 5 495
- Impairment of casino licence 3 613
- Realised investment profits (869)
- Impairment of available-for-sale investment -
- Provision for pension fund exposure 2 751
- Bargain purchase price -
- Remeasurement of investment -
Tax effect of above 28
Headline earnings 96 472 (27)
Reversal of employee share trust 43
Reversal of transaction costs -
Adjusted headline earnings 96 515 (9)
Headline earnings calculation
Shares in issue (before deducting treasury shares) (`000s) 449 581
Shares in issue (after deducting treasury shares) (`000s) 443 761
Weighted average number of shares (`000s) 462 033
Adjusted weighted average number of shares (`000s) 462 033
Basic and diluted earnings per share (cents) 37,17
Adjusted basic and diluted earnings per share (cents) 37,17
Headline earnings per share (cents) 20,88
Adjusted headline earnings per share (cents) 20,89
Dividends paid per share (cents)* 10,00
* Final dividend declared in respect of the previous financial year and paid in
December.
** These items relate to adjustments in respect of SunWest.
Condensed group statement of financial position
Reviewed
30 June
2010
Notes R`000s
ASSETS
Non-current assets 9 2 159 964
Current assets 122 352
Total assets 2 282 316
EQUITY AND LIABILITIES
Capital and reserves
Total equity 1 776 239
Shareholders` interest 1 771 261
Non-controlling interest 4 978
Non-current liabilities
- Deferred tax liabilities 17 091
- Cumulative redeemable preference shares 6 281 124
- Interest-bearing borrowings 6 120 058
- Provisions 94
Current liabilities 10 87 710
Total equity and liabilities 2 282 316
Net asset value (before deducting treasury shares)
(cents) 384
Net asset value (after deducting treasury shares)
(cents) 389
Restated Restated
30 June 30 June
2009 2008
R`000s R`000s
ASSETS
Non-current assets 1 876 381 1 700 256
Current assets 79 363 90 217
Total assets 1 955 744 1 790 473
EQUITY AND LIABILITIES
Capital and reserves
Total equity 1 639 715 1 572 533
Shareholders` interest 1 639 715 1 572 533
Non-controlling interest - -
Non-current liabilities
- Deferred tax liabilities 2 372 2 842
- Cumulative redeemable preference shares 285 124 201 398
- Interest-bearing borrowings - -
- Provisions - -
Current liabilities 28 533 13 700
Total equity and liabilities 1 955 744 1 790 473
Net asset value (before deducting treasury shares)
(cents) 365 335
Net asset value (after deducting treasury shares)
(cents) 370 335
Condensed group statement of cash flows
Reviewed Restated
30 June 30 June
2010 2009
R`000s R`000s
Cash flows from operating activities
Profit before tax 109 651 172 720
Non-cash flow items
- Depreciation 478 310
- Other non-cash flow items - (201)
- Bargain purchase price - (80 623)
- Remeasurement of investment (42 488) -
- Profit from equity-accounted investments (117 626) (130 492)
Adjustments for:
- Finance costs per the statement of comprehensive
income 29 834 31 938
- Interest received per the statement of comprehensive
income (3 943) (2 836)
- Dividends received per the statement of
comprehensive income (1 910) (3 650)
Net working capital changes (3 927) 7 547
Income tax paid (845) (3 105)
Net cash (outflow) from operating activities (30 776) (8 392)
Cash flows from investing activities
Plant and equipment acquired (181) (566)
Loans advanced to associate - (7 818)
Investments made (29 204) (110 032)
Acquisition of subsidiary (174 104) -
Cash acquired - Carentan group 42 916 -
Net cash (outflow) from investing activities (160 573) (118 416)
Dividends received 130 203 144 255
Finance costs paid (30 075) (25 281)
Interest received 3 552 2 836
Capital raised - ordinary 29 921 -
Shares repurchased - ordinary - (43 658)
Capital raised - treasury shares - 3 773
Shares repurchased - treasury shares - (15 238)
Preference share capital raised 20 000 105 726
Preference shares redeemed (24 000) (22 000)
Ordinary dividends paid (32 814) (45 902)
Loans advanced to employees - (3 783)
Loans raised 120 000 -
Net cash inflow from financing activities 216 787 100 728
Net increase/(decrease) in cash and cash equivalents 25 438 (26 080)
Cash and cash equivalents at the beginning of the year 55 754 81 834
Cash and cash equivalents at the end of the year 81 192 55 754
Group statement of changes in equity
Capital
redemption Ordinary
reserve share
fund capital
R`000s R`000s
Balance at 30 June 2008 230 117
Comprehensive income for the year - -
Ordinary dividends paid - -
Shares repurchased - (5)
Treasury shares purchased - -
Treasury shares issued - -
Transfer to capital redemption reserve fund 22 -
Balance at 30 June 2009 252 112
Comprehensive income for the year - -
Ordinary dividends paid - -
Ordinary shares issued - 3
Share issue expenses - -
Transfer to capital redemption reserve fund 24 -
Non-controlling interest - -
Balance at 30 June 2010 276 115
Share Treasury
premium shares
R`000s R`000s
Balance at 30 June 2008 740 718 -
Comprehensive income for the year - -
Ordinary dividends paid - -
Shares repurchased (43 653) -
Treasury shares purchased - (15 238)
Treasury shares issued 204 3 569
Transfer to capital redemption reserve fund - -
Balance at 30 June 2009 697 269 (11 669)
Comprehensive income for the year - -
Ordinary dividends paid - -
Ordinary shares issued 29 959 -
Share issue expenses (41) -
Transfer to capital redemption reserve fund - -
Non-controlling interest - -
Balance at 30 June 2010 727 187 (11 669)
Available-
for-sale Non-
fair value controlling
reserve interest
R`000s R`000s
Balance at 30 June 2008 17 483 -
Comprehensive income for the year (3 134) -
Ordinary dividends paid - -
Shares repurchased - -
Treasury shares purchased - -
Treasury shares issued - -
Transfer to capital redemption reserve fund - -
Balance at 30 June 2009 14 349 -
Comprehensive income for the year 26 341 -
Ordinary dividends paid - -
Ordinary shares issued - -
Share issue expenses - -
Transfer to capital redemption reserve fund - -
Non-controlling interest - 4 978
Balance at 30 June 2010 40 690 4 978
Accu-
mulative
profits Total
R`000s R`000s
Balance at 30 June 2008 813 985 1 572 533
Comprehensive income for the year 171 720 168 586
Ordinary dividends paid (46 281) (46 281)
Shares repurchased - (43 658)
Treasury shares purchased - (15 238)
Treasury shares issued - 3 773
Transfer to capital redemption reserve fund (22) -
Balance at 30 June 2009 939 402 1 639 715
Comprehensive income for the year 108 566 134 907
Ordinary dividends paid (33 282) (33 282)
Ordinary shares issued - 29 962
Share issue expenses - (41)
Transfer to capital redemption reserve fund (24) -
Non-controlling interest - 4 978
Balance at 30 June 2010 1 014 662 1 776 239
Segmental analysis
IFRS 8 - Operating Segments requires a "management approach" whereby segment
information is presented on the same basis as that used for internal reporting
purposes to the chief operating decision-maker/s who have been identified as the
board of directors. These directors review the group`s internal reporting by
investment in equity-accounted investments. Only GPI`s profit from equity-
accounted investments can be reconciled to the statement of comprehensive
income.
PROFIT FROM EQUITY-ACCOUNTED INVESTMENTS
Reviewed Restated
30 June 30 June
2010 2009 %
R`000s R`000s variance
TOTAL REVENUE
Jointly controlled entities
Western Cape Manco 37 493 40 230 (7)
SunWest 1 749 114 1 841 382 (5)
- GrandWest 1 582 040 1 641 977 (4)
- Table Bay Hotel 167 074 199 405 (16)
Associates
RAH 62 718 77 041 (19)
Grandslots 193 164 188 240 3
Akhona GPI 4 870 2 427 101
TOTAL EBITDA
Jointly controlled entities
Western Cape Manco 34 058 37 542 (9)
SunWest 649 370 739 526 (12)
- GrandWest 614 051 674 630 (9)
- Table Bay Hotel 35 319 64 896 (46)
Associates
RAH 85 759 105 152 (18)
Grandslots 42 416 40 552 5
Akhona GPI 9 246 389 2 277
TOTAL ATTRIBUTABLE EARNINGS
Jointly controlled entities
Western Cape Manco 22 180 24 603 (10)
SunWest 242 981 291 718 (17)
- GrandWest 280 899 304 107 (8)
- Table Bay Hotel (37 918) (12 389) (206)
Associates
RAH 77 268 91 948 (16)
Grandslots 19 928 18 192 10
Akhona GPI 9 074 348 2 507
PROFIT FROM EQUITY-ACCOUNTED INVESTMENTS
Jointly controlled entities
Western Cape Manco 11 089 12 301 (10)
SunWest 71 110 85 298 (17)
- GrandWest 82 207 88 921 (8)
- Table Bay Hotel (11 097) (3 623) (206)
Associates
RAH 23 619 28 109 (16)
Grandslots 5 002 4 566 10
Akhona GPI 6 806 218 3 022
Profit from equity-accounted investments 117 626 130 492 (10)
CARRYING VALUE OF EQUITY-ACCOUNTED
INVESTMENTS
Jointly controlled entities
Western Cape Manco 3 407 4 028
SunWest 1 315 684 1 303 489
Golden Valley Casino 3 860 -
Associates
RAH 537 548 520 002
Grandslots - 5 908
Akhona GPI 31 896 25 090
1 892 395 1 858 517
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 and the
Companies Act of South Africa, as amended. The accounting policies applied,
other than those described below and except for the following standards which
are effective for the financial year beginning 1 July 2009 are consistent
with those applied in the financial results for the year ended 30 June 2009.
- IAS 1 (Revised) - Presentation of Financial Statements, which requires changes
in equity not relating to equity owners to be disclosed in a separate statement.
As permitted by the standard, the group has elected to present the required
information as part of the statement of comprehensive income.
- IFRS 8 - Operating Segments, which requires an entity to present segment
information on the same basis as that used for internal reporting purposes. The
operating segments have been identified as the group`s underlying equity-
accounted investments.
- IFRS 7 - Financial Instruments: Disclosures, which requires enhanced
disclosures about fair value measurement and liquidity risk.
- IFRS 3R - Business Combinations, which introduces significant changes in the
accounting for business combinations.
Change in accounting policy
Western Cape Casino Resort Manco (Pty) Limited (Western Cape Manco) was
previously proportionately consolidated as allowed by IAS 31 - Joint Ventures.
In terms of IAS 31 paragraph 38, the statement allows an entity to account for
its investment in a joint venture using the equity accounting method as an
allowed alternative. In order to better reflect the underlying substance of its
joint venture investments the group decided to change its accounting policy with
regards to the method used for measuring jointly controlled entities from
proportionately consolidating to equity accounting. Western Cape Manco is
therefore equity accounted for the year ended 30 June 2010. The retrospective
application of this policy is applied to the previous reporting period and
although the effect of the change in policy on net earnings is nil, it is
detailed in the table below.
Prior period reclassification
SunWest International (Pty) Limited (SunWest) was previously classified as an
investment in an associate. The directors of GPI have reviewed this
classification and believe that this investment is more fairly presented as a
joint venture. GPI has 50,01% of the voting rights of SunWest, however the
shareholders` agreement requires 60% majority vote on resolutions to be passed.
Sunwest is treated as a jointly controlled entity that is equity accounted as
allowed by IAS 31 pargraph 38. This reclassification has no effect on net
earnings. Accordingly, the statement of financial position includes restated
comparatives and the effect of the reclassification is detailed in the table
below.
The effects of the change in accounting policy and the prior period
reclassification are listed in the table below:
Effect of
Balance change in
previously accounting
reported policy
Year ended 30 June 2009 R`000s R`000s
Non-current assets 1 872 354 4 027
- Investment in jointly controlled entities - 4 027
- Investment in associates 1 854 490 -
- Other non-current assets 17 864 -
Current assets 84 017 (4 654)
Current liabilities (29 160) 627
Revenue 27 246 (20 513)
Profit from jointly controlled entities 1 12 301
Profit from associates 118 190 -
Operating costs (14 932) 1 742
Taxation (7 469) 6 469
Net effect on earnings -
Prior period
reclassifi- Restated
cation balance
Year ended 30 June 2009 R`000s R`000s
Non-current assets - 1 876 381
- Investment in jointly controlled entities 1 303 489 1 307 516
- Investment in associates (1 303 489) 551 001
- Other non-current assets - 17 864
Current assets - 79 363
Current liabilities - (28 533)
Revenue - 6 733
Profit from jointly controlled entities 85 298 97 600
Profit from associates (85 298) 32 892
Operating costs - (13 190)
Taxation - (1 000)
Net effect on earnings -
Balance Change in
previously accounting
reported policy
Year ended 30 June 2008 R`000s R`000s
Non-current assets 1 696 387 3 869
- Investment in jointly controlled entities - 3 869
- Investment in associates 1 675 121 -
- Other non-current assets 21 266 -
Current assets 95 626 (5 409)
Current liabilities (15 238) 1 539
Revenue 34 032 (22 061)
Profit from jointly controlled entities - 13 124
Profit from associates 47 051 -
Operating costs (16 137) 2 006
Taxation (9 385) 6 931
Net effect on earnings -
Prior period
reclassifi- Restated
cation balance
Year ended 30 June 2008 R`000s R`000s
Non-current assets - 1 700 256
- Investment in jointly controlled entities 1 148 985 1 152 854
- Investment in associates (1 148 985) 526 136
- Other non-current assets - 21 266
Current assets - 90 217
Current liabilities - (13 699)
Revenue - 11 971
Profit from jointly controlled entities 36 808 49 932
Profit from associates (36 808) 10 243
Operating costs - (14 131)
Taxation - (2 454)
Net effect on earnings -
The change in accounting policy and prior period reclassification had no effect
on earnings and headline earnings per share, nor did it have any tax effect.
Audit opinion
Our auditor, Ernst & Young Inc. has reviewed the condensed consolidated
financial information contained herein. Their reviewed report in which they
expressed their unqualified opinion is available for inspection at the company`s
registered office.
Notes to the financial statements
1. Revenue
The decrease in revenue is primarily due to lower dividends received of R338
000 (2009: R2,1 million) from a short-term investment. Previously Western Cape
Manco was measured using the proportional consolidation method. This was changed
to the equity accounting method. See change in the accounting policy note.
2. Operating costs
Operating costs include transaction costs of R11,0 million which relate to the
Carentan transaction of R5,6 million and SunWest BEE lock-in fees of R5,4
million as referred to below. In terms of IFRS 3R - Business Combinations, these
costs can no longer be capitalised and therefore must be expensed. These
transaction costs are non-recurring and were anticipated and include all
professional fees incurred to date, but exclude the vendor finance transaction
costs dealt with below.
3. Profit from equity-accounted investments
Overall profits from equity-accounted investments for the financial year
decreased by 10% from the prior year.
Profit from jointly controlled entities
SunWest attributable earnings consists of GrandWest Casino and Entertainment
World (GrandWest) and the Table Bay Hotel.
GrandWest`s attributable earnings declined by 8% and while this casino was
unable to escape the downturn in the global economy it certainly has been
resilient notwithstanding its dependence on severely pressured household
discretionary spend. The Table Bay Hotel was badly affected by the economic
crisis and its impact on the international tourism market. Occupancy rates at
The Table Bay Hotel decreased from 67,1% (2009) to 53,4% (2010) which resulted
in a substantial loss being incurred by this operation and a significantly
adverse impact on SunWest`s attributable earnings and GPI`s share thereof.
The 10% decline in earnings from GPI`s 50% stake in Western Cape Manco is in
line with the decline in GrandWest`s revenue and EBITDA from which its
management fees are derived. Western Cape Manco earns 1% of GrandWest`s revenue
and 3% of its adjusted EBITDA, whereas the total management fees incurred
amounts to 3% of revenue and 15% of adjusted EBITDA.
Profit from associates
Earnings from Real Africa Holdings Limited (RAH) decreased by 16% compared to
the prior year mainly due to lower earnings from Carnival City and a 15%
decrease in SunWest`s dividends, which RAH accounts for as an investment. On a
more positive note the dividend flow from RAH`s high-quality urban casino
investments along with the repayment of its interest-bearing borrowings enabled
the board of RAH to declare a substantially higher dividend compared to the
prior year.
Pleasingly, GPI`s share of Thuo Gaming Western Cape (Pty) Limited`s (Grandslots)
income increased by 10% to R5 million which highlights the resilience of the
Limited Pay-out Machine (LPM) market and lends further support to GPI`s
commitment to increasing its exposure to this market.
GPI`s share of Akhona Gaming Portfolio Investments (Pty) Limited`s (Akhona GPI)
income increased significantly to R6,8 million and is attributed to its
increased exposure to Sibaya, which managed to increase its revenues and EBITDA
in difficult conditions.
4. Bargain purchase price
There was no bargain purchase price adjustment in the current year. The R80,6
million bargain purchase price adjustment in the comparative year arose from GPI
increasing its direct stake in SunWest as a result of it exercising its call
option in July 2008 (SENS - 6 August 2008).
5. Remeasurement of investment
IFRS 3R - Business Combinations requires that where an acquirer purchases its
interest in an acquiree in stages and this results in a change in control of the
acquiree, then the acquirer remeasures its previously held interest at the
acquisition date and recognises the resulting gain or loss, if any, in profit or
loss. The R42,4 million relates to the remeasurement of its previously held
25,1% interest in Grandslots and arose due to the acquisition of Carentan (which
is dealt with below).
6. Finance costs
Finance costs decreased by 7% due to a combination of lower interest rates (10%
compared to 11% for the previous year) and a lower average level of interest-
bearing debt due to R24 million of The Standard Bank/Depfin preference shares
having been redeemed in March 2010. Finance costs also include R6,2 million in
respect of the LPM acquisition. Had this not been incurred during the 2010
financial year, finance costs would have decreased by 26%. The prior financial
year includes non-recurring finance cost of R2 million in respect of
short-term bridging finance and R1,2 million raising fees on the Utish
preference shares that were issued.
The group secured R120 million in additional borrowings at the end of the
financial year, which was partly used to fund the Carentan acquisition. The
group also drew down R20 million on an existing preference share facility held
with Sanlam Capital Markets.
7. Impairment of assets
No impairments were required in accordance with IAS 36 - Impairment of Assets,
which requires assets to be impaired to the higher of market value or value in
use based on discounted free cash flow valuations prepared by management. The
impairment disclosed in the headline earnings reconciliation relates to
adjustments made by associates.
8. Adjusted and headline earnings
Headline earnings decreased by 27%, which resulted in headline earnings per
share declining by 26% to 15,45 (2009: 20,88) cents per share. Had the
transaction fees and finance costs in respect of the LPM acquisition and SunWest
BEE lock-in fees as detailed below not been expensed this decline in headline
earnings per share reduces to 7% or 19,52 (2009: 20,89) cents per share.
The table below highlights the different components of GPI`s adjusted headline
earnings.
Reviewed Audited
30 June 30 June
2010 2009
R`000s R`000s % variance
Adjusted headline earnings 87 593 96 515 (9)
Profit from equity-accounted investments 117 626 130 492 (10)
Jointly controlled entities
- Western Cape Manco 11 089 12 301 (10)
- SunWest 71 110 85 298 (17)
Associates
- RAH 23 619 28 109 (16)
- Grandslots 5 002 4 566 10
- Akhona GPI 6 806 218 3 022
Other 9 390 11 108 (15)
Total operating costs (26 958) (13 190) 104
- Operating costs excluding transaction
costs (15 937) (13 190) 21
- Transaction cost* (11 021) - 100
Total finance costs (29 834) (31 938) (7)
- Finance costs excluding transaction
costs (23 548) (31 938) (26)
- Transaction costs* (6 286) - 100
Total transaction costs* 17 307 - 100
Reversal of employee share trust 62 43 44
* Total transaction costs include the transaction costs expensed as part of the
operating costs and the finance costs. In the prior year transaction costs were
capitalised.
9. Non-current assets
Included in non-current assets are positive goodwill and intangibles to the
value of R110,6 million and R37,5 million respectively, which were recognised on
the acquisition of Carentan.
10. Current liabilities
Included in current liabilities is vendor finance to the value of R22 million in
respect of the acquisition of the minority interest in Carentan and the Stripe
Investments 7 (Pty) Limited (Stripe) acquisition referred to below. This is only
payable at the end of December 2010 in terms of the applicable purchase and sale
agreements.
11. IFRS 3R - Business Combinations
The total consideration paid for the Carentan transaction amounted to R191,8
million, including the minority buy-out but excluding transaction costs, which
in terms of IFRS 3R - Business Combinations now have to be expensed and cannot
be capitalised (see detail in notes above). This transaction resulted in GPI
Slots acquiring tangible assets at a book value of R146,9 million, which
includes cash of R42,9 million before any IFRS adjustments. 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
R110,6 million and R37,5 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 Carentan as at the
date of acquisition was:
Fair value
recognised on
acquisition
R`000s
Assets
Property, plant and equipment 83 430
Intangible assets 37 533
Deferred tax asset 13 802
Inventories 1 329
Trade and other receivables 16 008
Tax receivable 672
Cash and cash equivalents 42 916
195 690
Liabilities
Deferred tax liabilities (14 072)
Provisions (1 746)
Trade and other payables (24 318)
Tax liabilities (174)
Borrowings (110 722)
(151 032)
Total identifiable net assets at fair value 44 658
Non-controlling interest (4 978)
Goodwill on acquisition 110 645
Fair value adjustment of previously held interest in Grandslots (53 399)
Goodwill on minority buy-out (17 703)
Loans acquired 94 881
Purchase consideration transferred 174 104
Analysis of cash flows on acquisition
Net cash acquired with the subsidiary 42 916
Cash paid (174 104)
Net cash outflow (131 188)
Taking control of GPI`s LPM interests
The table below highlights GPI`s shareholding in the companies it acquired
through this acquisition.
30 June 2010 30 June 2009
% %
Carentan 100 -
Thuo SA 100 -
Grandslots 100 25,1
Kingdomslots 92,5 22,5
As announced on SENS on 2 November 2009, an offer of R170 million was made to
and accepted by The Tatts Group for all its shares in and shareholders` loan
accounts against Carentan (LPM acquisition). Carentan owns 90% of Thuo Gaming
South Africa (Pty) Limited (Thuo SA), which in turn owns 70% of Grandslots (GPI
already directly owned 25,1% in Grandslots) and 70% of Thuo Gaming KwaZulu-Natal
(Pty) Limited (Kingdomslots) (GPI, through Akhona GPI, already owned an
effective 22,5% in Kingdomslots). Carentan has a number of other 100%-held
subsidiaries, which have been established in readiness for the acquisition of
licences and the establishment of operations in various other provinces.
In May 2010, GPI announced the buy-out of the remaining minority stakes in Thuo
SA and Grandslots through GPI Slots (Pty) Limited`s (GPI Slots) acquisition of
100% of the shares in and shareholders` loan claims against Business Venture
Investments No. 967 (Pty) Limited (BVI 967) (having a 10% interest in Thuo SA)
and Slots Solutions (Pty) Limited (Slots Solutions) (having a 4,9% interest in
Grandslots) (collectively referred to as the minority buy-out).
The LPM acquisition became unconditional on 30 June 2010, at which time GPI
Slots formally took control of Carentan, BVI 967 and Slots Solutions. The
acquisition of Carentan represents a significant milestone for GPI and its
shareholders in its planned transition from being purely an investment holding
company to an operating company with investments.
Carentan is consolidated as a subsidiary as at 30 June 2010. Income derived from
GPI`s previously held interest in Grandslots (25,1%) is accounted for as income
from an associate in the 2010 financial year. In terms of IFRS 3R Grandslots has
been remeasured on the acquisition date.
A total of 50 000 LPMs are available for roll-out by the LPM industry in South
Africa in two types of site formats, being sites with no more than five LPMs and
sites with no more than 40 LPMs. Given that only 5 473 LPMs out of this overall
allocation had actually been rolled out by the end of June 2010, GPI believes
that this is the part of the gaming sector with the most exciting growth
prospects. It also believes that due to the limits placed on machine pay-outs it
represents the most socially responsible form of gambling currently available.
The Western Cape and KwaZulu-Natal provinces were allocated 9 000 machines each
of which 2 000 and 4 000 LPMs have been licensed respectively. Grandslots and
Kingdomslots each owns a licence to operate 1 000 LPMs and presently have rolled
out 989 and 771 machines respectively.
Carentan`s consolidated profit for the year ended 30 June 2010 amounting to
R17,9 million was not consolidated into GPI`s accounts. In terms of IFRS 3R
consolidation could only commence on the date of effective control passing to
GPI, which was 30 June 2010. The profit earned therefore reduces the goodwill
recognised.
The table below highlights GPI`s shareholding in investments excluding
subsidiaries.
30 June 2010 30 June 2009
% %
Direct and indirect interest
Jointly controlled entities
- Western Cape Manco 50,00 50,00
- SunWest 30,04 29,24
- Golden Valley (Worcester Casino) 44,39 36,70
Associates
- Akhona GPI 75,00 75,00
- RAH 30,57 30,57
- Grandslots* - 25,10
- Grand World Vision Events 33,33 -
Available-for-sale investment
- National Manco 5,67 5,67
* Grandslots became a subsidiary on the acquisition of Carentan on 30
June 2010.
Review of GPI`s jointly controlled investments
SunWest
The GPI group exercised certain pre-emptive rights and increased its direct and
indirect economic stake in SunWest from 29,24% to 29,36% by acquiring 9 694
and 7 712 SunWest shares at a price of R333,68 and R329,44 respectively. GPI
further increased its direct economic stake in SunWest by an additional 0,68% to
bring the group`s total economic stake to 30,04% at a cost of R23 million
by exercising the last remaining 140 182 SunWest share options at an exercise
price of R165 per SunWest share. If these 140 182 SunWest options had been
exercised at the average prices paid for such pre-emptive rights in SunWest of
late, then the cost of exercising such options would have amounted to R46
million, thus resulting in an uplift to our shareholders of R23
million. Subsequent to year-end SunWest declared an additional dividend of R25
million due to the cash received as part of the exercise of such options, which
saw GPI receiving R7,5 million of such additional dividend.
The share options referred to above are subject to certain conditions as set out
in the call option agreement, which include the completion of an audit
confirming GPI`s locked in black shareholder status to be at least 35% as at 30
June 2010 (notably the actual unaudited black shareholding in GPI as at 30
June 2010 is higher than 50%). In order to achieve the required lock-in and in
so doing earn the right to exercise the remaining options as referred to above,
GPI entered into agreements with certain of its existing shareholders to lock in
their shares, i.e. these shares can only be sold to other qualifying black
shareholders, until 30 June 2012. In return for this lock-in GPI has provided
for lock-in fees to the value of R5,4 million, which includes an accrual for the
payment to these shareholders of R4,3 million in the 2010 financial year. This
amount forms part of the transaction costs for the 2010 financial year, which
have been added back for adjusted headline earnings purposes. The JSE Limited
has ruled that the payment of the lock-in consideration amounts to a specific
payment to certain shareholders and it therefore forms the subject-matter of a
separate announcement that has been released on Securities Exchange News Service
(SENS) simultaneously with these results (the lock-in announcement).
Shareholders are accordingly referred to such separate lock-in announcement for
further detail in this regard. The payments of these fees are conditional upon
GPI`s shareholders` approval, which will be sought from its shareholders at its
upcoming annual general meeting to be held on or about 9 December 2010.
GPI believes that by exercising these options its shareholders stand to benefit
substantially, particularly given the expiry at the end of 2014 of the operating
management agreement whereby Sun International Management Limited (SIML)
provides management services to GrandWest. While GPI has been dealing with this
issue with its partner, Sun International Limited (SUI), and is hopeful that a
mutually beneficial shorter-term solution will be found, the GPI board believes
that failing this solution, GrandWest should be fully capable of being self-
managed, especially after 15 years of skills transfer, when this contract
expires. GPI shareholders could therefore benefit from the cost saving that
would result should the management fees paid by SunWest to SIML be discontinued.
Golden Valley Casino
The group acquired an additional 7,72% interest in Golden Valley Casino at a
cost of R3,8 million by acquiring all of the shares in and loan claims against
Stripe. The preliminary fair value of net identifiable assets and liabilities
has not yet been completed and therefore no positive goodwill or bargain
purchase price has been recognised as the estimates cannot be reliably measured
at this point in time. In terms of IFRS 3R paragraph 45, it allows for the fair
value of net identifiable assets and liabilities to be completed within the
first year of the acquisition. Any adjustments that may arise from this exercise
will be made.
The cost of this investment to GPI has been very small given that it has largely
been funded internally through interest-bearing debt. The investment is yet to
produce a positive earnings contribution. The gearing structure of this
investment is being addressed and the Golden Valley Casino management are
confident that with the gearing structure addressed, a positive contribution to
earnings will be derived from the property in the short to medium term.
Review of GPI`s associates
Real Africa Holdings
Whilst the performance of RAH was 16% lower than in the prior year, it is
extremely pleasing that RAH has declared a 40% increase in its dividend to 28
cents per share from 20 cents per share in the previous year. RAH is comprised
of some of the best performing urban casinos in South Africa and certainly the
crown jewels of the SUI portfolio of assets.
Akhona GPI
GPI has a 74,95% economic and 49,95% voting stake in Akhona GPI and Akhona
Investment Holdings 2005 Limited, which together with Akhona Gaming Body Trust
owns the balance of the shares in Akhona GPI, has an option to call, based on an
agreed pricing mechanism, on GPI to restore its economic shareholding to 50% on
specific dates expiring in three years commencing from January 2009.
Akhona GPI took up certain pre-emptive rights in Dolcoast Investments Limited
(Dolcoast). These transactions had the effect of increasing GPI`s indirect stake
in Sibaya Casino to 8,05%. Akhona GPI has completed a preliminary fair value of
net identifiable assets and liabilities and GPI has recognised its share of the
remeasurement of R2,08 million and bargain purchase price of R1 million on
Akhona GPI`s existing stake in Dolcoast, which increased Akhona GPI`s
shareholding in Dolcoast to 23%, thereby making the Dolcoast investment an
associate. GPI`s commitment to developing this partnership is reaping just
rewards with the substantial increase in earnings contribution now evident.
Grand World Vision Events
GPI is a 33% shareholder in Grand World Vision Events (Pty) Limited, which is
accounted for as an investment in an associate. This company is the vehicle used
to share the residual profits remaining after each of its shareholding partners,
being GPI, prominent event managers World Sport South Africa (Pty) Limited and
leading experiential marketers VWV Group (Pty) Limited, have charged for their
respective contributions relating to the fees earned from the City of Cape Town
for project managing the Cape Town FIFA Fan Fest 2010.
The Fan Fest played a crucial role in raising the profile of Cape Town globally
with over half a million people attending the event. It was befitting that GPI
was instrumental in transforming its spiritual home, the Grand Parade in Cape
Town, into an international showcase.
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 7,5
cents per share (2009: 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, 26 November 2010
- Trading commences "ex" the dividend Monday, 29 November 2010
- Record date Friday, 3 December 2010
- Date of payment of the dividend Monday, 6 December 2010
Share certificates cannot be dematerialised or rematerialised between Monday, 29
November 2010 and Friday, 3 December 2010, both days inclusive.
Subsequent events
Subsequent to year-end GPI Slots offered to acquire Akhona GPI`s 7,5% stake in
Kingdomslots. While the board of Akhona GPI has accepted this offer it is still
subject to certain conditions, which includes obtaining the KwaZulu-Natal
Gambling Board`s approval.
In addition Golden Valley Casino had a rights issue and GPI share of this cost
R16,6 million and resulted in a further increase in its stake to 46,30%.
GPI is also in an advanced stage of negotiations with unrelated parties that
could see it further increase its LPM footprint in South Africa.
Prospects
Although trading conditions in the past financial year have been challenging,
the board of GPI firmly believes that 2010 will prove to be a crucial year in
the development of GPI with its transition to becoming a fully-fledged black-
owned and managed operator of gaming assets in South Africa. Further, it is
believed that the LPM acquisition represents a key milestone and a critical step
toward GPI`s march to becoming a major and respected force in the African gaming
and leisure industries. Whilst GrandWest`s casino exclusivity expires in
December 2010 and much has been said about the move by the Western Cape
Government to potentially allow for a transfer of an existing casino licence
(which includes Golden Valley Casino) into the Cape Town metropole, the
government has made no official pronouncements in this regard. At this stage,
government has indicated that should such transfer of licence occur, it will be
done in a responsible manner with due regard to the impact that this may have on
GrandWest Casino`s revenues. It is also unlikely that this would occur before
2012. GPI will be engaging with all the appropriate stakeholders in an effort to
ensure the best possible outcome for our communities and to strive to ensure
that the shareholders of GPI and SunWest are not adversely affected. The board
is mindful of the fact that the past decade has not come easy to GPI and its
shareholders and it is therefore befitting that GPI has now graduated into a
well-established business, which now look forward to a very bright future.
Shareholders are advised that GPI will be moving offices to 12th Floor
Convention Towers, Heerengracht, Foreshore, Cape Town, 8001, telephone number
021 421 7771, after the annual report has been published.
For and on behalf of the board
H Adams A Funkey
Chairman Chief Executive Officer
Cape Town
22 September 2010
Directors
H Adams (Chairman)#, A Abercrombie#, A W Bedford#, A Funkey (CEO), R Freese#, R
Hoption (Financial Director), Dr N Maharaj#*, N Mlambo#, C Williams#* (#
non-executive * independent)
Registration number: 1997/003548/06
Share code: GPL
ISIN: ZAE000119814
Registered office
15th Floor Triangle House, 22 Riebeek Street (PO Box 7746, Roggebaai, 8012)
Transfer secretaries
Computershare Investor Services (Pty) Limited 70 Marshall Street, Johannesburg,
2001
Attorneys: Bernadt Vukic Potash & Getz Attorneys
Corporate advisers: Leaf Capital (Pty) Limited
Sponsor: PSG Capital (Pty) Limited
Company secretary: Richard Hoption
Date: 23/09/2010 08:47:01 Supplied by www.sharenet.co.za
Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
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completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
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