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DON - The Don Group Limited - Provisional condensed consolidated
reviewed results for the year ended 30 June 2011
The Don Group Limited
Incorporated in the Republic of South Africa
(Registration number: 1946/023123/06)
Share code: DON ISIN: ZAE000008462
("the Don" or "the Group")
PROVISIONAL CONDENSED CONSOLIDATED REVIEWED RESULTS FOR THE
YEAR ENDED 30 JUNE 2011
Jun-11 Jun-10
CONDENSED CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME FOR THE YEAR ENDED 30
JUNE 2011
Reviewed Audited
R 000 R 000
Revenue 90 015 171 486
(Loss)/profit from operations (22 438) 10 043
Interest received 323 601
Interest paid (8 090) (9 111)
Impairment of goodwill (2 338) -
(Loss)/profit before tax (32 543) 1 533
Taxation (3 170) (4 002)
Loss for the year (35 713) (2 469)
Attributable to:
- Equity holders of parent (34 465) (9 201)
- Non-controlling interests (1 248) 6 732
(35 713) (2 469)
Other comprehensive (loss)/income for the (17 454) -
year
- Gross revaluation loss (57 540) -
- Deferred taxation 40 086 -
Total comprehensive loss for the year (53 167) (2 469)
Attributable to:
- Equity holders of parent (51 919) (9 201)
- Non-controlling interests (1 248) 6 732
(53 167) (2 469)
Number of ordinary shares in issue (000`s) 294 485 294 485
Weighted average number of
ordinary shares in issue (000`s) 294 485 294 485
Loss per share (cents) (11.70) (3.12)
Headline loss per share (cents) (10.97) (3.10)
Reconciliation of headline loss
Comprehensive loss for period
attributable to equity holders of the parent (34 465) (9 201)
Impairment of goodwill 2 338 -
Loss on disposal of assets 58 138
Tax effect of above (103) (38)
Minority effect of above (130) (28)
Headline loss (32 302) (9 129)
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE
2011
Jun-11 Jun-10
Reviewed Audited
R 000 R 000
ASSETS
Non-current assets 274 553 347 364
Property, plant and equipment 198 658 341 131
Investment properties 75 736 -
Goodwill - 2 338
Other intangible assets 159 176
Deferred tax asset - 3 719
Current assets 15 309 43 704
Other financial assets 5 718 1 244
Inventories 289 559
Trade and other receivables 7 910 19 183
Cash and cash equivalents 1 392 22 718
Total assets 289 862 391 068
EQUITY AND LIABILITIES
EQUITY
Share capital and reserves 133 225 184 570
Non-controlling interests 7 849 10 693
141 074 195 263
LIABILITIES
28 863 132 739
Non-current liabilities
Interest bearing liabilities 3 274 66 129
Deferred tax liability 25 589 66 610
Current liabilities 119 925 63 066
Trade and other payables 28 637 38 038
Short - term portion of interest bearing 81 878 13 841
liabilities
Non interest bearing liabilities 2 214 1 843
Provisions 2 239 -
Tax payable 1 795 2 445
Bank overdraft 3 162 6 899
Total equity and liabilities 289 862 391 068
Net asset value per share (cents) 47.91 66.31
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED
30 JUNE 2011
Jun-11 Jun-10
Reviewed Audited
R 000 R 000
Attributable to equity holders of parent:
Balance at beginning of year 184 570 193 771
Negative goodwill arising on further
acquisition
of subsidiary shares 574 -
Total comprehensive loss for the year (51 919) (9 201)
Balance at end of year 133 225 184 570
Non-controlling interests
Balance at beginning of year 10 693 3 961
Further acquisition of subsidiary shares (1 153) -
Total comprehensive (loss)/income for the (1 248) 6 732
year
Dividends paid (443) -
Balance at end of year 7 849 10 693
Total equity 141 074 195 263
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30
JUNE 2011
Jun-11 Jun-10
Reviewed Audited
R 000 R 000
Operating activities (18 481) 18 210
Investing activities (4 661) (9 627)
Financing activities 5 553 9 101
Net cash (outflow)inflow (17 589) 17 684
Cash & cash equivalents at beginning of 15 819 (1 865)
year
Cash & cash equivalents at end of year (1 770) 15 819
CONDENSED SEGMENTAL ANALYSIS
FOR THE YEAR ENDED 30 JUNE 2011
Jun-11 Jun-10
Reviewed Audited
R 000 R 000
Segmental Revenue
Hotels 50 280 58 648
Residential letting 117 -
Travel & Tourism 39 618 112 838
Net Revenue 90 015 171 486
Segmental (loss)/profit from operations
Hotels (19 139) (9 271)
Residential letting 71 -
Travel & Tourism (3 370) 19 314
(Loss)/profit from operations (22 438) 10 043
COMMENTARY
Trading conditions in the Hotel and Leisure industry have been depressed
in the last 2 years. The 2010 Soccer World Cup ("SWC"), which had a
welcome positive impact on the industry, did not however, attain the
levels expected. Instead of seeing an influx of visitors post the SWC, a
sudden decrease was experienced. In addition, the overall lack of
economic activity in South Africa, the trend by many companies towards
consolidation and cost-cutting (with minimal expansion taking place) and
an oversupply of hotel rooms affected occupancies and room rates for the
entire Hotel and Leisure industry.
Despite the lower occupancies, the positive after effects of the SWC
still continued up to the end of September 2010, which saw the Don
meeting its budgeted revenues for the first quarter of the current
reporting period. However in the following months leading up to the end
of the current reporting period, revenues began to decline resulting in
the Group achieving revenues of R90 million.
The tour operator subsidiary, iKapa Tours & Travel(Pty)Ltd ("iKapa"),
contributed R39,6 million towards the current reporting period`s Group
revenues down from R112,8 million which was as a result of the SWC in
the prior reporting period, whereas the hotel segment achieved revenues
of R50,3 million.
Generally, within the hotel segment, costs remained below budget as a
result of lower than expected occupancies and changes in business
operations that resulted in three hotels being converted to residential
apartments. However, persistent declining revenues forced the hotel
segment to implement cost cutting measures and management controls that
contributed to materially lower expenses in comparison to the previous
reporting period. These measures included retrenchments across the
board, salary cuts for management and relocation of the head office to
the Don Isando Hotel.
Even with the efforts of the Group to improve trading conditions through
various cost cutting exercises and alternative revenue generating
ventures, losses are still being generated by the Group. Losses of R35,7
million, before devaluation of property, were incurred by the Group in
comparison to the prior reporting period loss of R2,4 million. Ikapa
reported unprecedented pre-tax profits exceeding R19,3 million in 2010
as a result of the SWC. In the current reporting period, Ikapa`s pre-tax
losses were R3,4 million and the hotel segment`s pre-tax losses were
R19,1 million.
The above losses are attributable to extraordinary factors that could
not be avoided as a result of depressed trading conditions,
retrenchments and the provision for bad debts.
The board, during the current reporting period, assessed the valuations
of the properties in light of the change in use as a result of the
conversion to rental apartments and probable sale of the properties.
Certain properties were assessed as impaired whilst others retained
their prior reporting period values consistent with sale offers
received. The director`s valuation resulted in a net devaluation of
property of R17,5 million, increasing the Group loss to R53,2 million.
During the current reporting period the Don acquired a further 6%
interest in iKapa, thereby increasing its shareholding to 57%.
The Group`s non-current asset base is currently at R275 million.
The Group`s net asset value per share is 47.9 cents (30 June 2010: 66.3
cents).
The management contract in respect of Heritage Square in Krugersdorp and
the rental agreement for the Sir Lowry Restaurant in Cape Town
terminated as at 31 March 2011, by mutual agreement as a result of
continued losses that were being incurred from both these properties.
The management contract in respect of the Don Savoy in Kimberly was also
terminated by mutual agreement effective 30 June 2011.
The Board and management acknowledged in the 2011 interim report that
they confronted a significant task in recovering from recent losses.
Efforts were doubled to contain operational costs in the face of large
increases in electricity, other municipal charges, fuel and decreasing
occupancies.
Due to a saturated Hotel market, the Group was forced to consider
alternative revenue generating ventures. In light of this, the Group
moved towards leveraging on the suite configuration of a Don apartment
by converting 3 hotels to residential apartments as of 1 April 2011. The
affected properties were Arcadia 1, Sandton IV and Eastgate.
It was envisaged that the letting of the above properties as residential
properties would see an improvement in the occupancies of the hotels
that are in the vicinities of the affected properties i.e. the clientele
from the affected properties mentioned above will move to the properties
that will continue to be operated as hotels, therefore improving these
properties revenues. However, this expectation did not materialise
subsequently.
Furthermore, the hotel segment reviewed its Head Office structure and
its effectiveness and further reduced staffing in this cost centre.
General cost cutting measures were implemented by way of a 20% salary
cut for EXCO members and retrenchments across the board that have seen
the staff complement reduce considerably since the prior reporting
period.
In addition, the Head Office was relocated with effect from 7 March
2011, to the Don Isando hotel. This move resulted in a cost saving of
approximately R4.8 million per annum on Head Office costs.
In spite of the efforts of the Group to improve trading conditions
through various cost cutting exercises and alternative revenue
generating ventures, losses are still being generated by the Group.
The loss is attributable to uncollectable debtors of R2,5 million that
were written off in the current reporting period, retrenchment costs of
R1,4 million, higher interest incurred on the IDC loans as a result of
late payment, interest and penalties incurred on late payment of certain
liabilities, large increases in electricity tariffs and increases in
food costs and fuel costs.
The write off of the deferred tax assets in two of the Group`s
subsidiaries of R3,6 million also contributed to the Group`s losses.
Similarly, iKapa, in an effort to reduce costs, underwent retrenchments
resulting in an annual saving of R1,2 million towards their expenses. A
marketing agent was appointed in North and South America from June 2011.
It is envisaged that the returns of this appointment will reflect in the
June 2012 reporting period.
The strain on the cash flows of the Hotel segment resulted in various
liabilities remaining unpaid as at 30 June 2011 including payments to
the Provident Fund and certain payments to SARS. This has resulted in
interest and penalties being levied for non-payment. The Group`s
auditors, as detailed below have reported these irregularities to the
Independent Regulatory Board for Auditors. Management is currently
resolving this matter with the relevant fund administrators and all
monies due will be settled in full.
PROSPECTS
The Don, in light of continuing weak trading conditions, has been forced
to reconsider its future in the Hotels industry. A number of alternative
profitable strategies have been considered in order to unlock value for
its shareholders the Board has decided to dispose of certain of its
properties and pursue residential letting for remaining properties.
Shareholders are referred to the renewal of cautionary released on SENS
on 5 October 2011 and are advised to continue to exercise caution when
dealing in The Don`s securities until a further announcement is made.
Contingent liabilities relating to retrenchment and down-scaling
provisions which were in existence at year end amounted to R7,9 million.
The potential disposal of certain properties is intended to settle all
liabilities owing by the hotel segment, including any costs that will be
incurred in winding down of the hotel operations and the IDC debt.
With a debt free hotel segment, should disposals be successfully
concluded, minimal Group expenses, rental revenues from remaining,
unencumbered hotel segment properties, the appointment of a marketing
agent in the Americas in the travel and tourism segment, the second half
of the 2012 reporting period is set to be in line with the goals of the
Board for the Group to return to profitability.
BOARD MEMBERSHIP
During the reporting period, Professor Francois Viruly and Mr Max
Maisela resigned as independent non-executive directors with effect from
13 April 2011 and 7 June 2011, respectively.
DIVIDENDS
No dividend has been declared or paid.
BASIS OF PREPARATION
The accounting policies applied in the preparation of these reviewed
condensed consolidated financial statements, which are based on
reasonable judgments and estimates, are in accordance with International
Financial Reporting Standards ("IFRS") and are consistent with those
applied in the annual financial statements for the year ended 30 June
2010.
These reviewed condensed consolidated financial statements as set out in
this report have been prepared in terms of IAS 34 - Interim Financial
Reporting, the AC 500 series of interpretations, the Companies Act of
South Africa, Act 71 of 2008, as amended, and the Listing Requirements
of JSE Limited.
These results have been reviewed by the Group`s auditors.
EXTRACTS FROM AUDITOR`S REVIEW REPORT
Auditor`s report
The Group`s condensed annual financial statements for the year ended 30
June 2011 have been reviewed by the group`s auditors, PKF (Jhb) Inc. The
auditors` modified review report on the Group`s condensed annual
financial statements is available for inspection at the Group`s
registered office. The modification is extracted below:
Emphasis of Matter
Without qualifying our conclusion, we draw attention to the reviewed
condensed results which indicates that the Group incurred a loss of
R35,7 million during the year ended 30 June 2011. These conditions,
along with other matters as set forth in the results commentary,
indicate the existence of a material uncertainty that may cast
significant doubt about the Group`s ability to continue as a going
concern.
Reportable Irregularity
In accordance with our responsibilities in terms of sections 44(2) and
44(3) of the Auditing Profession Act, we report that in the current
year, we identified certain unlawful acts or omissions by persons
responsible for the management of Don Group Limited which constituted a
reportable irregularity in terms of the Auditing Professions Act, and we
have reported such matters to the Independent Regulatory Board for
Auditors. The matter pertaining to the reportable irregularity and the
actions taken by management have been described in the condensed
financial information."
STATEMENT OF GOING CONCERN
The reviewed condensed group financial statements for the year ended 30
June 2011, have been prepared on the going concern basis.
On a review of the Group`s statement of financial position there are
three significant issues that should be brought to the attention of the
users of these results. The Group currently has a computed loss of R35,7
million, creating material uncertainty about the Group`s ability to
discharge of its liabilities in the normal course of business. Given the
current circumstances of the Group, consideration has been made as to
the provisions of IAS 12 Income Taxes and deferred taxation assets
arising from previous periods which has been reversed in the current
period. Secondly, due to the Group`s request to change their business
model and dispose of the properties, interest-bearing liabilities have
become voidable and are to be settled in full by 30 June 2012. The
provisions of IAS 1 Presentation of Financial Statements and IFRS 7
Financial Instruments Disclosures have been applied resulting in the
full amount outstanding of R80 million being reflected as a current
liability instead of allocated between current and non-current
liabilities in terms of the original contractual undertaking. Management
are currently in the process of negotiating sale agreements for the
disposal of certain properties that will fund the settlement of the
interest-bearing liabilities. Finally, the intention of management to
cease hotel operations and the change in the Group`s business model
needs to be emphasized as well.
By order of the board.
Salukazi Dakile-Hlongwane Thabiso Tlelai
Chairperson Chief Executive Officer
6 October 2011
Directors: Salukazi Dakile-Hlongwane* (Chairperson),
Thabiso Tlelai (Chief Executive Officer), Uviwe Mzilikazi (Financial
Director), Carel van Zyl*
* Independent Non-Executive Directors >Dutch
Company Secretary: Whitney Green
Registered Office: 6 Electron Avenue, Isando
Transfer Secretaries: Link Market Services South Africa (Proprietary)
Limited
Sponsor: Merchantec Capital
Auditors: PKF (Jhb) Inc.
Date: 06/10/2011 12:30:06 Supplied by www.sharenet.co.za
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