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CULLINAN HOLDINGS LIMITED - Unreviewed Condensed Consolidated Results for the six months ended 31 March 2013

Release Date: 09/05/2013 17:30
Code(s): CUL CULP     PDF:  
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Unreviewed Condensed Consolidated Results for the six months ended 31 March 2013

CULLINAN HOLDINGS LIMITED
TOURISM AND LEISURE  
Registration number 1902/001808/06
(Share code: CUL      ISIN: ZAE000013710)
("Cullinan" or "the company" or "the group")

UNREVIEWED CONDENSED CONSOLIDATED RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2013

GROUP FINANCIAL HIGHLIGHTS

Attributable earnings  up 25,2%
Headline earnings  up 25,2%
Profit before taxation  up 24% to R36,9 million
Cash resources  increased by R5,7 million

GROUP CONDENSED STATEMENT OF FINANCIAL POSITION

                                            Unreviewed   Unreviewed        Reviewed
                                            six months   six months      year ended
                                              31 March     31 March    30 September
                                                  2013         2012            2012
                                                 R'000        R'000           R'000
ASSETS
Non-current assets                             159 945      134 135         150 618
 Property, plant and equipment                  77 097       71 578          75 305
 Goodwill                                       35 289       33 837          34 030
 Intangible assets                              28 148       15 644          22 112
 Investment properties                           7 900        5 700           7 900
 Investment in associate companies               3 748        2 968           3 748
 Investment in joint venture                     4 346        3 097           4 346
 Deferred tax asset                              3 417        1 311           3 177
Current assets                                 322 663      259 991         329 370
 Inventories                                    27 185       16 569          14 482
 Accounts receivable                           133 788       86 998         122 203
 Other financial asset                                                      2 217
 Taxation                                          291          711           1 869
 Cash resources                                161 399      155 713         188 599
Non-current assets held for sale                            2 200                
Total assets                                   482 608      396 326         479 988
EQUITY AND LIABILITIES
Ordinary shareholders' equity                  209 541      175 605         189 431
Preference shareholders' equity                    546          546             546
Non-controlling interest                           102           19             102
Total shareholders' equity                     210 189      176 170         190 079
Non-current liabilities                         16 497       17 571          17 175
 Deferred tax liability                          5 601        5 709           5 601
 Operating lease accrual                        10 396       11 362          11 074
 Preference shares                                 500          500             500
Current liabilities                            255 922      202 585         272 734
 Operating lease accrual                             9           55               4
 Accounts payable                              249 727      197 862         270 802
 Bank overdrafts                                   232          238             222
 Taxation                                        2 055        2 840             537
 Preference dividends                               15           15              15
 Provisions                                      3 884        1 575           1 154

Total equity and liabilities                   482 608      396 326         479 988

GROUP CONDENSED STATEMENT OF COMPREHENSIVE INCOME

                                            Unreviewed   Unreviewed         Reviewed
                                            six months   six months       year ended
                                              31 March     31 March     30 September
                                                  2013         2012             2012
                                                 R'000        R'000            R'000

Revenue                                        284 565      236 608          454 848
Turnover                                       280 362      233 770          448 845
Cost of sales                                 (87 061)     (57 458)         (99 225)
Gross profit                                   193 301      176 312          349 620
Net operating expenses                       (160 556)    (149 740)        (307 833)
Operating profit                                32 745       26 572           41 787
Finance income                                   4 203        2 838            6 003
Finance expenses                                                              (13)
Preference dividends paid                         (27)         (24)             (55)
Share of profit of associates                                   16              796
Share of profit of joint venture                               334            1 582
Profit before taxation                          36 921       29 736           50 100
Tax expense                                    (9 721)      (8 017)         (14 425)
Profit for the period                           27 200       21 719           35 675
Other comprehensive income:
Exchange differences on translating
 foreign operations                                 94         (69)            (116)
Revaluation of land and buildings                                                
Total comprehensive income
 for the period                                 27 294       21 650           35 559
Profit attributable to:
 equity holders                                 27 200       21 719           35 592
 non-controlling interest                                                       83
Total comprehensive income
attributable to:
 equity holders                                 27 294       21 650           35 476
 non-controlling interest                                                       83
Basic earnings per share (cents)                  3,79         3,02             4,95
Diluted earnings per share (cents)                3,79         3,02             4,95

GROUP CONDENSED STATEMENT OF CHANGES IN EQUITY

                                            Unreviewed   Unreviewed        Reviewed
                                            six months   six months      year ended
                                              31 March     31 March    30 September
                                                  2013         2012            2012
                                                 R'000        R'000           R'000
Ordinary share capital
Balance at beginning of period                   7 184        7 184           7 184
Balance at end of period                         7 184        7 184           7 184
Share premium
Balance at beginning of period                  59 905       59 905          59 905
Balance at end of period                        59 905       59 905          59 905
Share capital reduction reserve fund
Balance at beginning of period                  20 876       20 876          20 876
Balance at end of period                        20 876       20 876          20 876
Capital redemption reserve fund
Balance at beginning of period                       4            4               4
Balance at end of period                             4            4               4
Foreign currency translation reserve
Balance at beginning of period                 (1 927)      (1 811)         (1 811)
Reserve on translation of
 foreign subsidiary                                 94         (69)           (116)
Balance at end of period                       (1 833)      (1 880)         (1 927)
Revaluation reserve
Balance at beginning of period                     870          870             870
Balance at end of period                           870          870             870
Accumulated profit/(loss)
Balance at beginning of period                 102 519       74 111          74 111
Attributable income for period                  27 200       21 719          35 592
Ordinary dividend paid                         (7 184)      (7 184)         (7 184)
Balance at end of period                       122 535       88 646         102 519
Ordinary shareholders' equity                  209 541      175 605         189 431
Preference shareholders' equity
Balance at beginning of period                     500          500             500
Balance at end of period                           500          500             500
Non-controlling interest
Balance at beginning of period                     102           19              19
Profit attributable to non-controlling
 interest                                                                      83
Balance at end of period                           102           19             102
Total comprehensive income
Profit for period                               27 200       21 719          35 675
 Attributable to equity shareholders           27 200       21 719          35 592
 Attributable to non-controlling interest                                     83
Translation of foreign subsidiary                   94         (69)           (116)
                                                27 294       21 650          35 559

GROUP CONDENSED STATEMENT OF CASH FLOWS
                                             Unreviewed    Unreviewed        Reviewed
                                             six months    six months      year ended
                                               31 March      31 March    30 September
                                                   2013          2012            2012
                                                  R'000         R'000           R'000
Net cash (outflow)/inflow from
 operating activities                            13 885         2 430          55 396
Net cash outflow from investing activities     (33 911)      (19 357)        (39 421)
Net cash outflow from financing activities      (7 184)       (7 184)         (7 184)
Net (decrease)/increase in cash
 and cash equivalents                          (27 210)      (24 111)           8 791
Cash and cash equivalents
 at beginning of period                         188 377       179 586         179 586
Cash and cash equivalents
 at end of period                               161 167       155 475         188 377

NOTES

1.  Basis of preparation
    The unreviewed condensed consolidated results for the six months ended 31 March 2013 have
    been prepared in accordance with and contain information required by International Accounting
    Standard (IAS) 34: Interim Financial Reporting, as well as the AC 500 series as issued by the
    Accounting Practices Board, the Listings Requirements of the Johannesburg Stock Exchange
    Limited and the South African Companies Act, 71 of 2008, as amended. The accounting policies
    as well as the methods of computation used in the preparation of the unreviewed results for the
    six months ended 31 March 2013 are in terms of the International Financial Reporting Standards
    (IFRS) and are consistent with those applied in the audited annual financial statements for the
    year ended 30 September 2012. The unreviewed results are presented in Rand, which is Cullinan
    Holdings Limited's presentation currency.

    The unreviewed condensed consolidated interim results for the six months ended 31 March 2013
    have been prepared under the supervision of D Standage CA(SA), the financial director of the
    group.

2.  Notes to the statement of comprehensive income

                                             Unreviewed   Unreviewed        Reviewed
                                             six months   six months      year ended
                                               31 March     31 March    30 September
                                                   2013         2012            2012
   Ordinary shares ('000)
    In issue                                   718 355      718 355         718 355
    Weighted average                           718 355      718 355         718 355
                                                  R'000        R'000           R'000
   Determination of headline earnings:
   Earnings attributable to ordinary
    shareholders                                 27 200       21 719          35 592
   Loss on disposal of property,
    plant and equipment                                                        313
   Tax effect                                                                  (88)
   Adjustment to tax rate change
    on investment property                                                    (272)
   Headline earnings                             27 200       21 719          35 545
   Headline earnings
    per share (cents)                              3,79         3,02            4,95
   Diluted headline earnings
    per share (cents)                              3,79         3,02            4,95
   Dividends per share (cents)                     1,00         1,00            1,00
   Net asset value
    per share (cents)                             29,26        24,52           26,46

3.  JSE Limited ("JSE")
    The directors of the company ensured compliance with the JSE Listings Requirements during the
    period under review.

4.  Business combinations
    On 1 October 2012, 90% of the shares in Glacier Enterprises (Pty) Limited were purchased for a
    consideration of R18,961 million. Glacier is an import facilitator, contracting with various agencies to
    contract with, design, import and supply various goods to chain stores and other retailers.
	
    The primary reason for the acquisition was to diversify the group's risk away from its dependency on
    travel and tourism, while allowing for synergies with the Marine division in warehouse management
    and procurement.

    The acquisition was funded out of cash reserves.
   
    In terms of IFRS 3, the initial accounting for the acquisition has only been determined provisionally
    as the purchase price allocation, including the final purchase consideration, has not yet been
    finalised.

    The carrying value of the assets and liabilities as noted below is based upon unaudited amounts
    and is expected to approximate the fair value of assets and liabilities before the acquisition.
  
    Qualitative factors making up the goodwill include the excellent agencies and blue-chip retailers
    with which the business contracts, and the skill and expertise of the management.
	
    The assets and liabilities of Glacier Enterprises (Pty) Limited as at 1 October 2012 arising from
    acquisition are as follows:

                                  Acquiree's
                                    carrying
                                      amount      Value
                                       R'000      R'000

    Property, plant and equipment         51         51
    Current assets                    27 526     20 678
    Accounts receivable                7 276      6 944
    Inventories                       13 180      8 000
    Other                              7 070      5 734
    Current liabilities               32 437      2 938
    Net asset value acquired         (4 860)     17 791
    Purchase consideration            25 838     18 961
    Goodwill                          30 698      1 170

    The difference between the fair value and the acquiree's carrying amount relates to provisions
    agreed against stock values and against accounts receivable. These amount will be paid to the
    acquiree as the stock is sold or accounts receivable recovered.

    The acquiree's carrying amount of the accounts receivable of R7,276 million reflects the gross
    contractual amount receivable and represents the best estimate of the expected contractual cash
    flows expected to be collected. The fair value represents the value of accounts receivable payable
    in cash on acquisition.

    The acquiree's carrying amount for net current liabilities includes an amount of R29,528 million.

    In terms of the purchase agreement, this amount will be borne by the acquiree's shareholders.

    Since the acquisition date, the following amounts have been included in the statement of
    comprehensive income for the period:

                                                                                    R'000
    Revenue                                                                        23 023
    Operating profit                                                                1 487

5.  Segmental reporting
                            Tour         Tour    Coaching               Marine
                       Operators    Operators         and     Retail       and       Head
                        Outbound      Inbound     Touring     Travel   Boating     Office
                           R'000        R'000       R'000      R'000     R'000      R'000
   31 March
   2013 
   Revenue                41 865       49 396      83 600     62 216    22 544     24 944
   Operating profit        3 175       15 056      13 018      9 946      (148)   (8 302)
   31 March
   2012 
   Revenue                39 767       52 902      68 993     51 797    23 154        (5)
   Operating profit        3 044       17 411       8 614      7 451      (197)   (9 751)
   30 September
   2012
   Revenue                82 650       96 262     123 008    110 348    42 145        435
   Operating profit        6 283       26 570      11 025     17 838    (1 030)   (18 899)

OVERVIEW
We are pleased to announce the results for the Cullinan group for the six-month period ended
31 March 2013. During the period, sales increased by 20% while headline earnings increased
by 25% to R27,2 million (2012: R21,7 million). These results are particulary pleasing as they
come on top of a strong set of results presented in the prior year. The business continues to
generate strong cash flows and, despite incurring quite significant capital expenditure, has
seen a modest growth in cash resources to R161 million (2012: R155 million). The company
also acquired a 90% share in Glacier Enterprises (Pty) Limited for R18,9 million, which was also
funded out of cash resources. The company also declared and paid an addiitonal dividend of
1 cent per share in the period.

The six-month period has been characterised by strong growth in the domestically-dependent
travel and outbound tourism units despite the unpredictability in the local economy. The
Inbound divisions have seen positive results with some signs of a mild recovery out of Europe
and the UK, and good growth out of the USA and Asian markets. The Coaching divisions which
are primarily dependent upon the inbound tourism sector have benefited from the growth and
posted particularly pleasing results. The overall group results were also particularly pleasing as
the prior period to 31 March 2012 was boosted by material profits on the COP17 Conference.
Profit growth for the period resulted from a general growth in all of the group's travel businesses
as against any one event or one business in particular.

The period has also been an active and successful one for finalising a number of changes
that have helped to secure a strong operational base for the group for the future. These
include moving the Coaching divisions into their new state-of-the-art depot in Salt River in
Cape Town in November 2012, moving the various Cape Town-based travel businesses into
one office in Chiappini Square in Cape Town in March 2013 and completing the first phase
of the implementation of the Inbound Reservation system, which brings the group major
opportunities to transact electronically with suppliers and customers alike. The next phase of
this implementation will be to bring the Outbound tour operators onto the same system. This
is anticipated to happen in the second half of the year. The business has also invested heavily
in the fleet, expanding where appropriate and replacing ageing assets with new fleet to meet
customers' needs and remain the market leader in terms of quality and service. The group has
also begun a programme to upgrade its Johannesburg Coach depot to an equivalent standard
to its Cape Town depot. This upgrade is due to be completed by November 2013.

In addition to these operational changes, a number of successive periods of improvement
in the business have placed the group in a good position to look for new opportunities, both
through organic growth and through acquisition. Growth initiatives include the launch of the
Chinese Inbound department with staff based in Cape Town and a sales office in Shanghai,
while the Planet Africa division also opened a branch in Tokyo in February 2013 to secure its
dominant share of the Japanese tourism business into Southern Africa. On the local front, we
believe the time is now right for Pentravel to expand its travel agency network with the rollout
of an additional six branches in key shopping malls. The first of these will open in June 2013.

We are pleased to advise that, following the acquisition of the Ikapa coaching and Ikapa touring
businesses in September 2011, a number of key changes were made to the business model.
The changes have now been successfully implemented, and the result has seen a material
turnaround and improvement to both Ikapa businesses over the past six months. It is expected
that these improvements are sustainable and that we will see further improvement in these
businesses in the year ahead.

On the acquisition front, Cullinan acquired a controlling share of Glacier Enterprises (Pty) Limited
in October 2012. This business acts primarily as an import facilitator and presents opportunity
for the group to maximise the return on cash resources as well as presenting options to
diversify. The group has also established a new division, Cullinan Financial Services, which will
provide financial services to the travel, marine and property sectors. We will also continue to
look for appropriate opportunities in the tourism and travel segments.

REVIEW OF OPERATIONS
Cullinan Tour Operators
The Outbound divisions consist of business units which supply travel-related products and
holidays to the South African market through their customer, the retail travel agent. Over the last
two years, the group has expanded this segment of the business by establishing a number of
different Outbound operators, of which Thompsons Holidays is the largest. While the business
remains competitive with relatively small barriers to entry, the Outbound divisions have been
innovative in providing new products and focusing on customer service with excellent results.
One point in which these businesses can differentiate themselves from the smaller competition
is in technology and we expect the implementation of the new Reservation system to make
a major difference going forward.

The Inbound divisions consist of business units which act as tour wholesalers and destination
marketing organisations that sell South and Southern African travel packages to international
travel wholesalers, who in turn sell these on to international tourists. Sales continue to
feel the effects of an uncertain economy in traditional markets such as the UK and Europe,
while there has been a noticeable upturn out of Asia and the USA. Thompsons Africa, Planet
Africa and Ikapa Inbound are the major brands within this segment. Despite a tough sales
environment, the businesses continue to produce good results through efficient systems, good
cost management and retaining market share.

Cullinan Retail Travel
The Cullinan Retail Travel agency segment comprises Thompsons Corporate Travel, Thompsons
Leisure Travel, Visions Incentive Travel and Pentravel. Combined, these three brands have over
30 travel agencies in most major centres in South Africa.

The Corporate division has seen very good growth in the period. This has been achieved through
a combination of increased spend as corporates have resumed travel and through the business
securing a number of new accounts while the performance of the Thompsons Leisure division
has also been positive. Pentravel has continued its run of excellent results over the past two
years while refining its business model. This has created the structure to continue to increase
sales through the existing network while providing the business with the capacity to expand its
branch network.

Cullinan Transport and Touring
This segment comprises Hylton Ross Tours and Ikapa Coach Charter within South Africa and,
through a partnership with Wilderness Safaris, includes operations in Zimbabwe, Zambia and
Botswana. Through the various brands, the group owns and operates a fleet of over 150 vehicles,
comprising coaches, mini-buses, safari vehicles and sedans. These vehicles are chartered to
the Inbound and Domestic tourism markets. In addition, the various brands also provide day
tours and excursions in the eight centres in Southern Africa in which they operate.

The coaching segment has been affected over the past few years by reduced demand from
inbound tour operators, as this coaching business was traditionally dependent on Europe and
the UK. However, this period has seen a change with some improvement out of these traditional
markets and strong growth out of the USA and Asia as mentioned above. The business still
faces challenges, particularly on the cost side where major increases in fuel price impact the
business. Notwithstanding this, the higher utilisation has provided the group with very good
results in this area and this business continues to offer very good returns on investment as a
result of high service standards and good management.

Cullinan Marine and Boating
The Marine segment comprises Manex Marine and Central Boating, both suppliers to the boat-
building industry. Manex also acts as an agency for marine and leisure brands such as Aqualung
diving equipment. As mentioned in prior reports, the global demand for boat-building dropped
dramatically in 2008 and has yet to recover. This has been compounded by the relatively strong
Rand during the period under review, which has made South African boat-building struggle for
advantage. The segment has improved slightly over the prior period and there are some signs
of improvement in the sector going forward.

Cullinan Business Development
This division was established in 2010 to focus on corporate social responsibility for the group.
This includes enterprise development, corporate social investment and other aspects that allow
the group to contribute to social development in South Africa. To date, it has been active in
a number of areas such as development of emerging travel agencies, supporting enterprise
development and commencing a learnership and mentorship programme. These programmes
have been expanded over the past two years and are expected to expand further in the year
ahead.

Prospects
Whilst the general economic environment continues to look unpredictable, the group has
performed very well over the prior year and over the past six months and indications are that
this will continue although there are potential risks ahead. Risks include the effect of the
exchange rate on outbound travel in particular, higher input costs such as fuel and the general
uncertainty around the retail sector in South Africa. Conversely, the exchange rate presents
opportunity for inbound tourism while the operational changes detailed above provide a solid
base to grow. Obviously the sound financial position and strong cash reserves provide the group
with the necessary options to grow.

Looking forward, the Board has identified a number of opportunities to ensure the group
remains a market leader in Southern Africa. These include:

- The continued investment in technology to provide the tourism and travel businesses with a
  leading edge ERP system, providing seamless integration between the service provider, tour
  operator and the customer.

- The continued re-investment in fleet, including expansion in the Gauteng region, as well as
  ensuring that the standards of fleet, its services and its coach depots are of a world-class
  standard, and has the best standards in the industry.

- The continued focus on China as a growth area for inbound tourism.

The company will continue to look for meaningful acquisition opportunities.

On behalf of the Board

M Tollman                                          DK Standage
Executive Chairman                                 Financial Director

9 May 2013

Directors:
M Tollman, MA Ness*
DD Hosking*, LA Pampallis
G Tollman*, DK Standage
R Arendse, S Nhlumayo
A Azoulay
*Non-resident
 Non-executive

Company secretary:
B Allison

Registered office:
6 Hood Avenue, Rosebank, 2196

Auditors:
Mazars were re-elected as auditors in 2013.

Sponsor:
Arcay Moela Sponsors Proprietary Limited
(Registration number 2006/033725/07)

Transfer secretaries:
Computershare Investor Services Proprietary Limited
Ground Floor, 70 Marshall Street, Johannesburg, 2001
(PO Box 61051, Marshalltown, 2107)

For further information on group activities, please write to:

The Company Secretary, Cullinan Holdings Limited
PO Box 41032, Craighall, 2024
Registration number 1902/001808/06
(Share code: CUL      ISIN: ZAE000013710)
("Cullinan" or "the company" or "the group")
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