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Interim Condensed Consolidated Unaudited Financial Statements for the Six Months to 31 August 2014
TRADEHOLD LIMITED
(Registration number: 1970/009054/06)
("Tradehold" or "the Group")
Incorporated in the Republic of South Africa
JSE Share code: TDH ISIN: ZAE000152658
Interim Condensed Consolidated Unaudited Financial Statements for the Six
Months to 31 August 2014
Although listed on the JSE Limited ("JSE"), the bulk of the operating assets of
Tradehold Limited, an investment holding company, are located in the UK. These
assets consist primarily of a holding in the property-owning Moorgarth group of
companies and an indirect holding, through Reward Investments Limited, in
the two operating Reward LLP's, Reward Capital and Reward Commercial Finance.
The latter two entities focus on short-term, asset-backed loans to small and
medium-sized businesses and on invoice-discounting facilities to similar
businesses, respectively. By far the largest investment is in Moorgarth
which manages a £91.9 million portfolio of retail, commercial and industrial
buildings. In March 2014 Tradehold acquired the total issued share capital
of the South African financial services business Mettle, which will continue
as a separate business within the Group.
Tradehold has emerged from the six-month reporting period to August 2014 as
a different company from what it was at the end of its previous financial
year. Under a restructured board it embarked on a number of initiatives of
which the most significant were the expansion of its property interests to
Africa through a memorandum of understanding ("MOU") reached with the
long-established Collins Group of KwaZulu-Natal to acquire the bulk of its
property holdings outside the Republic, and the resultant formation of
Tradehold Africa.
Marked by improving trading conditions in the UK, Tradehold increased
comparative half-year revenue 73.5% to £10.1 million in the six months
to August 2014. Trading profit for the same period grew 117.5% from
£2.9 million to £6.3 million. A fair value loss of £1 million on a non-core
investment in Swiss banking group, UBS AG, as against a fair value gain of
£1.3 million on the same investment in the corresponding period, reduced the
operating profit to £5.3 million. As a result, the operating profit rose by
26.4% on the £4.2 million achieved last year. Net profit for the period
increased by 20% from £4 million to £4.8 million.
BUSINESS ENVIRONMENT
During the period under review, growth in the British economy continued to
gain momentum with GDP in the second quarter 3.2% higher than a year ago,
according to the UK's Office for National Statistics. Unemployment dropped
to 2008 levels while CPI inflation reduced to 1.5% from 2.7% a year ago.
However, the positive outlook in the UK can easily be reversed by economic
instability among its EU partners and a worsening political situation in the
Ukraine. Still, should the present momentum be maintained, the Bank of
England forecasts that the UK economy will grow by 3.5% in 2014, without any
inflationary setbacks. The property market across the spectrum is expected
to benefit from such growth. There are already signs of a lift in tenant
demand which is spreading from London across the UK with a particular focus
on office accommodation in the cheaper areas of central London and the
country's other major cities.
PROPERTY
Moorgarth
In the past 12 months, the value of Moorgarth's property portfolio increased
from £51.5 million in August 2013, to £91.9 million. Moorgarth reported a
trading profit of £4.6 million, an increase of 212% over the £1.5 million
for the corresponding prior year period. Trading profit was boosted by a
£1.7 million increase in the valuation of its property portfolio.
Moorgarth's net profit came to £2.6 million.
Its present acquisition focus is on shopping centres and central London
office accommodation. During the reporting period it acquired three office
buildings in central London at a combined cost of £18 million. The
refurbishment of one of these buildings was completed in August and eleven
tenants have taken up occupation. Continued strong rental growth is
predicted for the City of London due to the existing lack of suitable rental
accommodation.
Work has also started on the refurbishment of the regional shopping centre
in Greater Manchester. This property was acquired in the previous financial
year. Although greater consumer confidence is leading to improved retail
sales and a consequent increased demand for retail space, rentals remain
under pressure.
Tradehold Africa
As part of the expansion of its property investments in Africa, Tradehold
signed an MOU with the Collins Group of KwaZulu-Natal to acquire the bulk of
its commercial property holdings outside South Africa. This fourth-
generation family-owned property development business has built an excellent
track record for the development and management of commercial properties
across Southern Africa and beyond. About 50% of the portfolio is in the UK
and the rest in Africa, in countries such as Namibia, Zambia, Botswana and
Mozambique.
Tradehold Africa has also identified opportunities to either develop or
acquire commercial properties in various African countries. These
initiatives have the potential to deliver US dollar-denominated yields to
the Group. Work has started on a residential development in Maputo in
Mozambique. This will represent the first "greenfield" property to be
developed for Tradehold's Africa portfolio. Anadarko Petroleum Corporation
of Texas in the US has signed an eight-year lease for about 50% of the 70
units, while negotiations with another blue-chip tenant for the remaining
units have reached an advanced stage. These units will also be leased on a
long-term basis.
FINANCIAL SERVICES
Reward
The two operating units of Reward Investments Limited - Reward Capital and
Reward Commercial Finance - continued to benefit from the lack of available
funding from banks in the UK for small to medium-sized businesses. Of the
two, Reward Capital, which specialises in short-term, asset-backed loans, is
the dominant player.
On a turnover of £2.4 million, the two units produced a combined operating
profit of £1.6 million, as against £1.5 million in the corresponding period.
Reward Investments posted a net profit of £0.7 million which was marginally
above the net profit achieved in the corresponding period. At the end of
August, the net loan book stood at £16.4 million.
Mettle
The South African company Mettle was acquired by Tradehold in March 2014 as
an extension of its financial services portfolio. Mettle's products and
services include debtor and SME finance; incremental housing finance;
corporate finance advisory services; treasury services; and outsourced
credit administration in the asset finance industry. Mettle performed in
line with expectations and generated operating profit of £0.4 million and
net profit after tax and non-controlling interests of £0.3 million.
COMMENTS ON THE RESULTS
Fair value adjustments on non-core assets are:
Unaudited Unaudited Audited
to to to
6 months 6 months 12 months
(£'million) 31/08/14 31/08/13 28/02/14
Fair value adjustment of UBS AG shares (1) 1.3 1.7
DIVIDEND
The board has decided not to declare an interim dividend.
SHARE ISSUE
On 15 April 2014 Tradehold issued 2,666,666 shares to five key management
personnel on full recourse loan accounts, for a total consideration of
R31 999 992.
On 14 July 2014 Tradehold issued 14,366,844 shares to five investors for
cash, in terms of a special placement, for a total consideration of
R207 263 192.
DEVELOPMENTS AFTER YEAR END
On 1 September 2014, Mettle, a wholly owned subsidiary of Tradehold,
acquired the total issued share capital of an established Cape Town based
corporate finance advisory business, which will expand the existing advisory
services offered by Mettle.
In September 2014 Tradehold concluded a share purchase agreement for an
additional 10% shareholding in each of Moorgarth and Reward Investments.
Once implemented, its effective shareholding in Moorgarth and Reward will
be 95% and 70% respectively.
OUTLOOK
Tradehold has embarked on a growth path, to be continued in the second half
of the year. Should the transaction with the Collins Group be concluded, we
will be in a position to start to capitalise on the potential of property
development on the African continent. However, this will not in any way
detract from our focus on the growth and development of our existing
property portfolio in the UK where we are showing growth in our niche
markets. We are confident that we will be able to build further on the
encouraging results achieved in the first half of the year.
We also remain convinced of the potential of the two Reward businesses,
while the acquisition of Mettle not only extends the range of financial
services we offer but also gives us access to a pool of management skills
and entrepreneurial flair.
This general forecast has not been reviewed nor reported on by the group's
auditors.
ACCOUNTING POLICY
The consolidated interim financial information is prepared in accordance
with the requirements of the JSE Listings Requirements for interim reports,
and the requirements of the Companies Act of South Africa. The JSE Listings
Requirements require interim reports to be prepared in accordance with the
framework concepts, the measurement and recognition requirements of
International Financial Reporting Standards (IFRS), the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee and must also,
as a minimum, contain the information required by IAS 34 Interim Financial
Reporting excluding para 16A(j) of IAS34 as per the JSE listing requirements.
The accounting policies adopted are consistent with those of the previous
financial year except as described below.
The following new IFRSs and/or IFRICs were effective for the first time for
this interim period from 1 January 2014:
- Amendments to IFRS 10, IFRS 12 and IAS 27, Investment entities
- Amendments to IAS 32, Offsetting Financial Assets and Financial
Liabilities
- Amendments to IAS 36, Recoverable amount disclosures for non-financial
assets
- Amendments to IAS 39, Novation of derivatives and continuation of hedge
accounting
There was no material impact on the consolidated interim financial
information based on management's assessment of these standards. Taxes on
income in the interim period are accrued using the tax rate that would be
applicable to the expected total annual profit or loss.
PREPARATION OF FINANCIAL RESULTS
The preparation of the financial results was supervised by the group
financial director, Karen Nordier, BAcc, BCompt Hons, CA(SA). These results
have not been audited nor have they been reviewed by the group's auditors,
PricewaterhouseCoopers Inc.
REPORTING CURRENCY
As the operations of Tradehold's subsidiaries are conducted in pound
sterling and because of the distortion caused by the fluctuating value of
the rand, the company reports its results in the former currency.
C H Wiese K L Nordier
Chairman Director
Madrid
9 October 2014
Statement of comprehensive income
Unaudited Unaudited Audited
6 months 6 months 12 months
to to to
(£'000) 31/08/14 31/08/13 28/02/14
Revenue 10 052 5 795 12 559
Trading profit 6 291 2 892 6 143
Fair value (loss)/gain through
profit or loss (1 008) 1 288 1 741
Operating profit 5 283 4 180 7 884
Finance income 87 51 157
Finance cost (377) (34) (245)
Profit from associated companies 72 - -
Profit before taxation 5 065 4 197 7 796
Taxation 277 221 514
Profit for the period 4 788 3 976 7 282
Other comprehensive income
Currency translation differences (76) - 61
Total comprehensive income for the period 4 712 3 976 7 343
Profit attributable to:
Owners of the parent 3 955 3 666 6 392
Non-controlling interest 833 310 890
4 788 3 976 7 282
Total comprehensive income attributable to:
Owners of the parent 3 879 3 666 6 453
Non-controlling interest 833 310 890
4 712 3 976 7 343
Earnings per share (pence): basic
- before fair value (loss)/gain
through profit or loss 3.4 1.7 3.4
- basic 2.7 2.6 4.6
- headline earnings 1.2 2.6 4.5
Number of shares for calculation
of earnings per share ('000) 144 315 138 567 138 567
Earnings per share (pence): diluted
- before fair value (loss)/gain
through profit or loss 3.3 1.7 3.4
- diluted 2.6 2.6 4.6
- headline earnings 1.2 2.6 4.5
Number of shares for calculation
of earnings per share ('000) 149 518 138 567 138 567
Statement of financial position
Unaudited Unaudited Audited
(£'000) 31/08/14 31/08/13 28/02/14
Non-current assets 105 833 52 616 77 873
Investment properties 92 640 46 506 72 536
Goodwill 3 996 - -
Property, plant and equipment 5 476 5 449 5 337
Investments in associates 99 - -
Deferred taxation 164 27 -
Trade and other receivables 1 604 - -
Loans receivable 1 854 634 -
Current assets 58 848 54 396 50 274
Financial assets 6 883 7 946 8 130
Loans receivable 58 2 400 -
Trade and other receivables 26 162 14 477 16 952
Taxation 351 - -
Cash and cash equivalents 25 394 29 573 25 192
Total assets 164 681 107 012 128 147
Equity 117 076 97 039 99 939
Ordinary shareholders' equity 115 956 96 631 99 327
Non-controlling interest 1 120 408 612
Non-current liabilities 28 038 51 17 627
Preference share capital 51 51 51
Long-term borrowings 20 554 - 17 444
Deferred revenue 5 158 - -
Deferred consideration 2 143 - -
Deferred taxation 132 - 132
Current liabilities 19 567 9 922 10 581
Short-term borrowings 10 983 6 587 6 537
Deferred consideration 2 473 - -
Taxation 653 - -
Other current liabilities 5 458 3 335 4 044
Total equity and liabilities 164 681 107 012 128 147
Statement of changes in equity
Unaudited Unaudited Audited
6 months 6 months 12 months
to to to
(£'000) 31/08/14 31/08/13 28/02/14
Balance at beginning of the period 99 939 93 793 93 793
Proceeds from ordinary share issue 13 177 - -
Drawings (470) (230) (700)
Non-controlling interest on acquisition
of subsidiaries 145 - -
Other - - 3
Total comprehensive income for the period 4 712 3 976 7 343
Distributions to equity holders (427) (500) (500)
Balance at end of the period 117 076 97 039 99 939
Statement of cash flows
Unaudited Unaudited Audited
6 months 6 months 12 months
to to to
(£'000) 31/08/14 31/08/13 28/02/14
Cash flows from operating activities 3 848 2 698 5 678
Cash flows utilised by investing
activities (15 700) (2 959) (27 394)
Acquisition of investment properties (20 612) (208) (25 973)
Acquisition of property, plant and equipment (213) (37) (109)
Acquisition of subsidiaries 579 - -
Proceeds on disposal of investment
property and property, plant and equipment 8 668 - 17
Proceeds on disposal of financial asset - - 1 780
Borrowings repaid 82 - -
Reward loans issued (21 574) (19 562) (35 812)
Reward loans repaid 17 370 16 282 32 703
Other investment activities - 566 -
Net cash flow (11 852) (261) (21 716)
Cash flows from/(utilised by)
financing activities 12 049 (350) 16 663
Proceeds from ordinary share issue 11 323 - -
Redemption of preference shares (216) - -
Proceeds from/(repayment of) borrowings 1 412 (120) 17 363
Drawings (470) (230) (700)
Net increase/(decrease) in cash and cash
equivalents 197 (611) (5 053)
Effects of exchange rate 5 - 61
Cash and cash equivalents at beginning
of the period 25 192 30 184 30 184
Cash and cash equivalents at end of
the period 25 394 29 573 25 192
Non cash transaction
During the period under review the following non cash transactions took
place:
- Purchase of the subsidiary Mettle Investments Proprietary Limited
Refer to 8.1 for detail of the transaction
- Tradehold Limited share issues
On 15 April 2014 2,666,666 Tradehold Limited shares were issued to five key
management personnel on full recourse loan accounts.
Supplementary information
Unaudited Unaudited Audited
6 months 6 months 12 months
to to to
(£'000) 31/08/14 31/08/13 28/02/14
1. Depreciation for the period 193 154 297
2. Capital expenditure for the period 20 612 245 26 082
3. Calculation of headline earnings
Profit attributable to owners
of parent 3 955 3 666 6 392
Gain on revaluation of investment
properties (1 685) - (222)
Profit on disposal and scrapping of
property, plant and equipment and
investment properties (905) - (17)
Non-controlling interest 389 - 33
1 754 3 666 6 186
4. Number of shares in issue
(net of treasury shares) ('000) 155 600 138 567 138 567
5. Net asset value per share (pence) 74.5 69.7 71.7
6. Financial assets
Listed investments at fair value 6 883 7 946 8 130
7. Contingent liabilities 480 - 480
8. Business combinations
8.1. Mettle Investments Proprietary Limited
On 3 March 2014, the group acquired 100% of the share capital of Mettle
Investments Proprietary Limited ("Mettle"), a South African financial
services business. The total consideration was £4 533 936. The goodwill
of £3 719 291 arises from a number of factors including expected
synergies from combining a skilled and entrepreneurial management team,
as well as the operations of Reward Capital and Reward Commercial
Finance. Goodwill acquired has not yet been allocated to a cash
generating unit at the end of the period as accounting for the business
combination is still provisional. The following table summarises the
provisional purchase price allocation for the Mettle acquisition, and
the amounts of the assets acquired and liabilities assumed recognised
at the acquisition date.
£
Total consideration 4 533 936
Initial consideration 2 428 736
Additional contingent consideration 2 105 200
Recognised amounts of identifiable assets acquired
and liabilities assumed at provisional fair value:
Total assets 5 157 304
Total liabilities (4 148 508)
Total identifiable net assets 1 008 796
Non-controlling interest (194 151)
Goodwill 3 719 291
Total consideration 4 533 936
Acquisition-related cost of Mettle were charged to administrative
expenses in the consolidated income statement for the year ending
28 February 2014. The initial and contingent consideration arrangement
requires the group to pay the former owners of Mettle in full through
the issue of new Tradehold Limited shares in two separate tranches. The
initial consideration is 3,200,000 shares valued at £2.4 million on the
transaction date. The additional contingent consideration, limited to
£2.1 million, is dependent on Mettle's profit after tax for the year
ending 28 February 2015 and 29 February 2016, and its net asset value
at 28 February 2015. The potential discounted amount of all future
payments that the group could be required to make under this
arrangement is £4.5 million. The fair value of the contingent
consideration arrangement of £2.1 million was estimated based on
assumed profit after tax in Mettle of R11.7 million for the year ending
29 February 2016. This profit is based on management's forecast at the
date of acquisition and to date there has been no change in this
forecast. Every R2.50 of profit after tax below R8 million, and every
R10 of net asset value below R24 million for 28 February 2015, will
decrease the liability by 1 share, with a similar credit to the income
statement for the year ending 28 February 2015. Every R1 of profit
after tax below R11.67 million for 29 February 2016, will decrease the
liability by R6, with a similar credit to the income statement for the
year ending 29 February 2016. The fair value of loan receivables
included in total assets is R72 705 891. The gross contractual amount
for trade receivables due is R80 735 335, of which R8 029 444 is
expected to be uncollectable. The non-controlling interest has been
recognised as a proportion of net assets acquired. The revenue included
in the consolidated income statement from 1 March 2014 to 31 August
2014 contributed by Mettle was R30 469 178. Mettle also contributed
profit after tax and controlling interest of R5 055 776 over the same
period.
8.2. Cognis 1, Limitada
On 29 August 2014, the group acquired 90% of the share capital of
Cognis 1, Limitada ("Cognis"), a Mozambique registered property holding
company. The total consideration was 1,350,000 Meticais. The group's
effective shareholding in Cognis is 63.54%. Cognis owns land in Maputo,
Mozambique with development rights for a large residential development
comprising 18 buildings with 78 residential units, adjoining the
American, French and Portuguese private schools.
The following table summarises the provisional purchase price
allocation for the Cognis acquisition, and the amounts of the assets
acquired and liabilities assumed recognised at the acquisition date.
£
Total consideration 26 843
Recognised amounts of identifiable assets acquired
and liabilities assumed at provisional fair value:
Total assets 7 302 163
Total liabilities (7 434 981)
Total identifiable net liabilities (132 818)
Non-controlling interest 48 426
Goodwill 111 235
Total consideration 26 843
Acquisition-related cost of Cognis were charged to administrative
expenses in the consolidated income statement for the period ending
31 August 2014. The fair value of loan receivables included in total
assets is £1 367 115. The non-controlling interest has been recognised
as a proportion of net assets acquired.
8.3 Acquisition of other subsidiaries
Mettle Investments (Pty) Ltd acquired two former associates Mettle
Administrative Services and Mettle Vehicle Finance for £83 698,
resulting in a goodwill of £163 837.
Segmental analysis
Trading Total
(£'000) Revenue profit/(loss) assets
Six months to 31 August 2014 (unaudited)
Property - retail 3 569 3 825 59 971
- commercial 304 108 7 588
- offices 399 572 24 112
- leisure 1 553 139 6 367
- other - (46) 14 844
Short-term lending 4 227 1 997 24 477
Treasury - (304) 27 322
10 052 6 291 164 681
Six months to 31 August 2013 (unaudited)
Property - retail 1 860 1 378 38 722
- commercial 245 138 5 850
- offices 137 (5) 4 128
- leisure 1 388 158 6 719
- other - (4) 1 027
Short-term lending 2 165 1 484 13 798
Treasury - (257) 36 768
5 795 2 892 107 012
Twelve months to 28 February 2014 (audited)
Property - retail 4 559 3 274 64 324
- commercial 610 167 6 929
- offices 290 (12) 4 225
- leisure 2 839 35 6 541
- other - 122 1 101
Short-term lending 4 261 3 137 15 096
Treasury - (580) 29 931
12 559 6 143 128 147
Directors and administration
Executive directors: TA Vaughan, FH Esterhuyse, DA Harrop, KL Nordier
Non-executive directors: CH Wiese (alternate JD Wiese), HRW Troskie,
JM Wragge, MJ Roberts
Independent non-executive directors: HRW Troskie, JM Wragge, MJ Roberts
Company secretary: FM ver Loren van Themaat
Transfer secretary: Computershare Investor Services (Pty) Ltd
Sponsor: Bravura Capital (Pty) Ltd
Date: 22/10/2014 03:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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