Wrap Text
Audited results for year ended August 2014 and dividend declaration
TREMATON CAPITAL INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1997/008691/06)
JSE code: TMT
ISIN: ZAE000013991
("Trematon" or "the company")
ABRIDGED REPORT OF THE AUDITED RESULTS FOR THE YEAR ENDED 31 AUGUST 2014
AND DIVIDEND DECLARATION AND NOTICE OF AGM
STATEMENT OF FINANCIAL POSITION
Audited Audited
31 Aug 31 Aug
2014 2013
Note R'000 R'000
ASSETS
Non-current assets 330 348 236 886
Property, plant and equipment 8 191 8 572
Investment properties 210 410 109 397
Investments - 16 380
Investment in joint ventures 10 015 11 553
Investment in associate entities 91 330 86 579
Loans receivable 6 110 -
Deferred tax asset 4 292 4 405
Current assets 275 240 129 866
Loans receivable 12 918 17 585
Investments 12 070 2 555
Inventories 182 385 65 311
Current tax asset 259 1
Trade and other receivables 23 108 9 734
Cash and cash equivalents 44 500 34 680
Non-current assets held for sale - 146 403
Total assets 605 588 513 155
EQUITY AND LIABILITIES
Equity 322 320 282 849
Share capital and share premium 209 259 209 259
Treasury shares 2 (2 559) (2 559)
Fair value reserve 1 683 9 454
Share-based payment reserve 4 188 2 311
Accumulated profit 82 346 44 829
Total equity attributable to equity holders of the parent 294 917 263 294
Non-controlling interest 27 403 19 555
Liabilities
Non-current liabilities 241 196 188 210
Loans payable 227 216 172 070
Deferred tax liability 13 980 16 140
Current liabilities 42 072 42 096
Loans payable 10 965 8 664
Tax payable 10 121
Trade and other payables 31 097 33 311
Total liabilities 283 268 230 306
Total equity and liabilities 605 588 513 155
Net asset value per share (based on shares in
issue at year-end)(cents) 167 149
STATEMENT OF COMPREHENSIVE INCOME
Audited Audited
Year ended Year ended
31 Aug 31 Aug
2014 2013
R'000 R'000
Revenue 67 773 34 329
Realised profit on available-for-sale investments 13 902 2 063
Realised loss on settlement of derivative instrument - (9 048)
Realised profit/(loss) on held-for-trading investments 1 351 (3 743)
Realised profit on sale of non-current assets - 1 008
Realised profit on sale of property, plant and equipment 12 -
Gain on change in shareholding 1 034 3 420
Total realised profit/(loss) 16 299 (6 300)
Fair value adjustment on held-for-trading investments (1 285) 4 474
Fair value adjustment on investment properties 33 040 18 730
Fair value adjustment on previously held investment in
joint venture 2 229 3 457
Reversal of impairment of loan 4 593 3 405
Total profit from fair value adjustments 38 577 30 066
Employee benefits (12 853) (11 070)
Cost of property and land sold (16 173) (7 535)
Other operating expenses (31 718) (13 140)
Operating profit 61 905 26 350
Finance costs (17 845) (7 092)
Profit from equity-accounted investment (net of tax) 13 217 30 477
Profit before income tax 57 277 49 735
Income tax (8 915) 4 131
Profit for the year 48 362 53 866
Other comprehensive income
Items that will subsequently be reclassified to profit/(loss):
Fair value gain on available-for-sale investments 4 347 4 068
Reclassification adjustment on sale of available-for-sale
investments (13 902) (2 063)
Tax effects of fair value adjustments 1 784 (707)
Other comprehensive income for the year (7 771) 1 298
Total comprehensive income for the year 40 591 55 164
Profit attributable to:
Equity holders of the parent 43 247 51 498
Non-controlling interests 5 115 2 368
48 362 53 866
Total comprehensive income attributable to:
Equity holders of the parent 35 476 52 796
Non-controlling interests 5 115 2 368
40 591 55 164
Basic earnings per share (cents) 24.5 29.2
Diluted earnings per share (cents) 22.7 27.2
STATEMENT OF CHANGES IN EQUITY
Share-
Total Treasury based
Share Share share shares payment
capital premium capital (note 2) reserve
R'000 R'000 R'000 R'000 R'000
Balance at 1 September 2012 1 781 207 478 209 259 (1 239) 844
Total comprehensive income for the year - - - - -
Profit for the year - - - - -
Fair value gain on available-for-
sale investments - - - - -
Reclassification adjustment on sale
of available-for-sale investments - - - - -
Tax effects on revaluations - - - - -
Share purchases - - - (1 320) -
Share-based payment - - - - 1 467
Dividends paid - - - - -
Non-controlling interest on
acquisition of subsidiary - - - - -
Balance at 31 August 2013 1 781 207 478 209 259 (2 559) 2 311
Balance at 1 September 2013 1 781 207 478 209 259 (2 559) 2 311
Total comprehensive income for the year - - - - -
Profit for the year - - - - -
Fair value gain on available-for-
sale investments - - - - -
Reclassification adjustment on sale
of available-for-sale investments - - - - -
Tax effects on revaluations - - - - -
Share-based payment - - - - 1 877
Dividends paid - - - - -
Non-controlling interest on
acquisition of subsidiary - - - - -
Balance at 31 August 2014 1 781 207 478 209 259 (2 559) 4 188
Accumu-
Fair lated Non-con-
value profit/ trolling Total
reserve (loss) Total interest equity
R'000 R'000 R'000 R'000 R'000
Balance at 1 September 2012 8 156 (2 261) 214 759 - 214 759
Total comprehensive income for the year 1 298 51 498 52 796 2 367 55 163
Profit for the year - 51 498 51 498 2 367 53 865
Fair value gain on available-for-
sale investments 4 068 - 4 068 - 4 068
Reclassification adjustment on sale
of available-for-sale investments (2 063) - (2 063) - (2 063)
Tax effects on revaluations (707) - (707) - (707)
Share purchases - - (1 320) - (1 320)
Share-based payment - - 1 467 - 1 467
Dividends paid - (4 408) (4 408) - (4 408)
Non-controlling interest on
acquisition of subsidiary - - - 17 188 17 188
Balance at 31 August 2013 9 454 44 829 263 294 19 555 282 849
Balance at 1 September 2013 9 454 44 829 263 294 19 555 282 849
Total comprehensive income for the year (7 771) 43 247 35 476 5 115 40 591
Profit for the year - 43 247 43 247 5 115 48 362
Fair value gain on available-for-
sale investments 4 347 - 4 347 - 4 347
Reclassification adjustment on
sale of available-for-sale
investments (13 902) - (13 902) - (13 902)
Tax effects on revaluations 1 784 - 1 784 - 1 784
Share-based payment - - 1 877 - 1 877
Dividends paid - (5 730) (5 730) - (5 730)
Non-controlling interest on
acquisition of subsidiary - - - 2 733 2 733
Balance at 31 August 2014 1 683 82 346 294 917 27 403 322 320
STATEMENT OF CASH FLOW
Audited Audited
Year ended Year ended
31 Aug 31 Aug
2014 2013
R'000 R'000
Cash flows from operating activities
Cash (utilised in)/generated from operations (121 914) 5 093
Finance income 4 070 3 272
Dividends received 1 855 1 975
Dividends received from associate 5 927 8 891
Finance costs (17 845) (7 092)
Dividends paid (5 730) (4 408)
Taxation paid (9 996) (418)
Net cash inflow/(outflow) from operating activities (143 633) 7 313
Cash flows from investing activities
Acquisition of property, plant and equipment (809) (2 876)
Acquisition of and addition to investment properties (67 510) (1 657)
Proceeds on disposal of non-current assets held for sale 146 403 -
Proceeds on disposal of non-current assets 83 5 488
Loans receivable repaid 9 261 -
Loans receivable advanced (6 110) -
Business combination (61) (488)
Loans advanced to joint ventures (1 467) (15 912)
Loans repaid by joint ventures 3 673 -
Acquisition of held-for-trading and available-for-sale
investments (20 917) (7 454)
Proceeds on disposal of investments 33 459 27 088
Net cash inflow from investing activities 96 005 4 189
Cash flows from financing activities
Treasury share purchases - (1 320)
Settlement of derivative instrument - (10 421)
Decrease in borrowings (72 647) -
Increase in borrowings 130 095 2 149
Net cash outflow from financing activities 57 448 (9 592)
Net increase in cash and cash equivalents 9 820 1 910
Cash and cash equivalents at the beginning of the year 34 680 32 770
Total cash and cash equivalents at the end of the year 44 500 34 680
NOTES :
1 PRESENTATION OF ANNUAL FINANCIAL STATEMENTS
Trematon Capital Investments Limited (the "company") is a company domiciled in
South Africa. The consolidated financial statements of the company as at and for the
year ended 31 August 2014 comprise the company and its subsidiaries (together
referred to as the "group") and the group's interest in associates and joint ventures.
The financial statements were authorised for issue by the directors on 17 November 2014.
The annual financial results have been prepared in accordance with the framework
concepts and the measurement and recognition requirements of IFRS and the SAICA
Financial Reporting Guides as issued by the Accounting Practices Committee and
contain the information required by IAS 34: Interim Financial Reporting, the JSE
Listings Requirements and the Companies Act. The same accounting policies and
methods of computation have been followed in the preparation of these annual financial
results as compared with the most recent annual financial statements.
The consolidated annual financial statements and the company annual financial statements
are stated in Rands, which is the company's functional and presentation currency.
In preparing the annual financial statements, management is required to make
estimates and assumptions that affect the amounts represented in the annual financial
statements and related disclosures. Use of available information and the application
of judgement is inherent in the formation of estimates. Actual results in the
future could differ from these estimates which may be material to the annual
financial statements. Significant judgements include:
Impairment of financial assets
The group assesses loans and receivables for impairment on an ongoing basis. In
determining whether an impairment loss should be recorded in profit or loss, the group
makes judgements as to whether there is observable data indicating a measurable
decrease in the estimated future cash flows of that financial asset.
Fair value estimation
The fair value of financial instruments traded in active markets (such as held-for-
trading and available-for-sale securities) is based on quoted market prices at the
reporting period-end. The quoted market price used for financial assets held by the
group is the current bid price.
The fair value of financial instruments that are not traded in an active market is
determined by using valuation techniques. The group uses a variety of methods and
makes assumptions that are based on observable market conditions existing at the end
of each reporting period, where possible, but where this is not feasible a degree
of judgement is required in establishing fair values. The judgements include
considerations of inputs such as liquidity risk, credit risk and volatility. Changes
in assumptions about these factors could affect the reported fair value of financial
instruments.
Taxation
Judgement is required in determining the provision for income taxes due to the
complexity of legislation. There are many transactions and calculations for which
the ultimate tax determination is uncertain during the ordinary course of business.
The group recognises liabilities for anticipated tax audit issues based on estimates
of whether additional taxes will be due. Where the final tax outcome of these matters
is different from the amounts that were initially recorded, such differences will
impact the income tax and deferred tax provisions in the period in which such
determination is made.
The group recognises the net future tax benefit related to deferred income tax assets
to the extent that it is probable that the deductible temporary differences will
reverse in the foreseeable future. Assessing the recoverability of deferred income
tax assets requires the group to make significant estimates related to expectations
of future taxable income. Estimates of future taxable income are based on forecast
cash flows from operations and the application of existing tax laws in each
jurisdiction. To the extent that future cash flows and taxable income differ
significantly from estimates, the ability of the group to realise the net deferred
tax assets recorded at the end of the reporting period could be impacted.
Significant influence
The directors of the company assessed whether or not the group has significant
influence over Cloudberry Investments 18 (Pty) Limited and Clusten 54 (Pty) Limited
based on the power to participate in the financial and operating policy decisions
of the companies. After assessment, the directors concluded that the group had no
representation on the board of directors or participation in the policy-making
processes and due to the nature of the investment being a BEE structure, the group
had no significant influence over either company.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the estimate is revised
and in any future periods affected.
There have been no changes to the board of directors during the year under review.
The consolidated financial statements are summarised from a complete set of the group
financial statements on which the independent auditors, Mazars Inc., has expressed an
unmodified audit opinion, which is available for inspection at the company's
registered office. This abridged report is extracted from audited information, but
is not itself audited or independently reviewed. The auditor's report does not
necessarily report on all of the information contained in this announcement.
Shareholders are therefore advised that, in order to obtain a full understanding of
the nature of the auditor's engagement, they should obtain a copy of the auditor's
report together with the accompanying financial information from the company's
registered office.
The directors of Trematon take full responsibility for the preparation of this
report and that the financial information has been correctly extracted from the
underlying annual financial statements.
Audited Audited
Year ended Year ended
31 Aug 31 Aug
2014 2013
2 TREASURY SHARES
Number of shares held at year-end 1 772 771 1 772 771
3 HEADLINE EARNINGS PER SHARE
Audited Audited Audited Audited
Year ended Year ended Year ended Year ended
31 Aug 31 Aug 31 Aug 31 Aug
2014 2014 2013 2013
R'000 R'000 R'000 R'000
Gross Net Gross Net
Headline earnings per share is calculated
as follows:
Profit attributable to equity holders of
the parent 43 247 51 498
Gain on acquisition of subsidiary (1 034) (1 034) (3 420) (3 420)
Fair value adjustment on previously held
investment in joint venture (2 229) (2 229) (3 457) (3 457)
Fair value adjustment on investment
properties (33 040) (18 159) (18 730) (12 405)
Realised profit on available-for-sale
investments (13 902) (11 307) (2 063) (1 678)
Fair value adjustments within equity-
accounted profits (3 490) (2 838) (21 183) (17 223)
Realised profit on sale of property,
plant and equipment (12) (10)
Headline earnings 7 670 13 315
Headline earnings per share (cents) 4.3 7.5
Diluted headline earnings per share (cents) 4.1 7.0
The calculation of headline earnings per share is based on the weighted average
number of 176 323 052 shares in issue during the year (2013: 176 540 271).
The calculation of diluted headline earnings per share is based on the diluted
weighted average number of 190 137 162 shares in issue during the year
(2013: 189 105 340).
4 SEGMENTAL INFORMATION
Property
invest- Unallo- Elimin-
Gaming ments cated ations Total
R'000 R'000 R'000 R'000 R'000
2014
Revenue 2 257 64 501 1 015 - 67 773
Intersegment revenue 5 927 - - (5 927) -
Net income before tax 19 887 32 740 4 650 - 57 277
Total assets 95 130 489 270 21 188 - 605 588
Total liabilities - 283 268 - - 283 268
2013
Revenue 3 295 31 034 - - 34 329
Intersegment revenue 8 891 18 255 - (27 146) -
Net income before tax 18 654 25 423 5 658 - 49 735
Total assets 102 959 390 055 20 141 - 513 155
Total liabilities - 230 306 - - 230 306
5 BUSINESS COMBINATIONS
Stalagmite Property Investments (Pty) Limited ("Stalagmite")
On 18 November 2013 the group obtained controlling interest of Stalagmite by
acquiring an additional 16.7% of their share capital for a total cash consideration
of R0.33 million. The acquisition has resulted in an increased shareholding to 66.7%
in the property investment company.
The acquisition was made in terms of a shareholder's agreement whereby one of our
joint venture partners decided to sell his interest in the company. Management felt
that the company was placed in a strong position to take advantage of any future
opportunities and that there is future growth in the business. This resulted in us
purchasing the additional shares.
Details of the business combination are as follows:
Group
2014
R'000
Amount settled in cash 333
Fair value of previously held investment 4 100
Fair value of consideration transferred 4 433
Non-controlling interest 2 733
Recognised amounts of identifiable net assets:
Inventory 8 816
Cash and cash equivalents 272
Tax receivable 156
Trade and other receivables 22
Deferred tax (737)
Other liabilities (41)
Trade and other payables (288)
Net identifiable assets and liabilities 8 200
Gain on change in shareholding (bargain purchase) (1 034)
Previously held investment
On the acquisition date the group's 50% investment in Stalagmite, previously
accounted for as an equity-accounted investment, has been remeasured to fair value.
The previously held investment is considered part of what was given up by the group
to obtain control of Stalagmite. A fair value gain of R2.2 million was recognised
on the acquisition date. This has been presented as a separate line item in the
consolidated statement of comprehensive income.
Non-controlling interest
The non-controlling interest in Stalagmite is measured at their share of the fair
value of the assets and liabilities of the acquiree at acquisition date.
Bargain purchase from additional shares acquired
A bargain purchase of R1.03 million was recognised on the acquisition date as a
result of a minority stake being acquired at a price less than the identifiable
assets acquired and liabilities assumed. This has been presented as a separate line
item in the consolidated statement of comprehensive income.
Stalagmite's contribution to the group's results
Stalagmite has contributed Rnil to the group's revenue and a loss of R0.2 million
to the group's profit from the acquisition date to 31 August 2014. Had the acquisition
occurred on 1 September 2013 the group's revenue for the period to 31 August 2014
would have been unchanged and the group's profit for the period would have been
R48.1 million.
6 SUBSEQUENT EVENTS
Subsequent to year-end, on 4 September 2014, the properties purchased via Trematon's
50%-held subsidiary, Tremprop (Pty) Limited which consist of three apartment blocks in
Parklands, Cape Town were transferred and the balance of the purchase price settled.
The properties were purchased for a combined price of R53 million with the majority
of the purchase price being funded by bank borrowings.
Subsequent to year-end, on 11 September 2014, the property referred to as
Redefine North Wharf, situated at 42 Hans Strijdom Avenue, Cape Town, was purchased
via Trematon's 67%-held subsidiary, Arbitrage Property Fund (Pty) Limited for a
purchase price of R51 million.
The property will be funded by bank borrowings and cash.
7 SPECIAL DIVIDEND
Secondary tax on companies ("STC") credits of R26.7 million remained available for
future utilisation after the declaration of the 2013 dividend.
On 13 November 2014, subsequent to year-end, the board of directors declared a
special dividend for the year ended 31 August 2014 of 5.0 cents per share.
The directors have reasonably concluded that the company will satisfy the solvency
and liquidity test immediately after the dividend distribution.
Additional information pertaining to the cash dividend:
The gross special dividend declared, as defined by the Income Tax Act, of 5.0 cents
per share will be paid from income reserves. The dividend withholding tax ("DWT")
rate is 15%. The company will utilise STC credits of 5.0 cents per share resulting
in a net dividend of 5.0 cents per share to those shareholders who are not exempt
from dividend tax. The STC credits utilised as part of this dividend declaration
amount to R8.9 million, being 5.0 cents per share and consequently no DWT is payable
by shareholders who are normally not exempt from DWT. The net amount payable to
shareholders is R8.9 million, being 5.0 cents per share based on the current number
of 178 095 823 shares in issue. STC credits of R17.8 million, being 10.0 cents per
share, will remain available to be set off against future dividends.
The income tax reference number of Trematon Capital investments Limited is
9340/323/84/0.
Last date to trade Friday, 16 January 2015
Ex-date Monday, 19 January 2015
Record date Friday, 23 January 2015
Payment date Monday, 26 January 2015
Share certificates may not be dematerialised or rematerialised between Monday,
19 January 2015 and Friday, 23 January 2015, both days inclusive.
8 ANNUAL GENERAL MEETING
Notice is hereby given that the annual general meeting ("AGM") of the members of
Trematon Capital Investments Limited will be held in the boardroom on the first floor,
The Hudson, 30 Hudson Street, Cape Town on Wednesday, 21 January 2015 at 10:00.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S JOINT REPORT
Trematon is an investment holding company which invests in assets which we believe to
be undervalued. This means that the price at which assets can be purchased is at a
discount to the price which can be realised in due course. The broad aim is to achieve
an average internal rate of return of more than 20%. To achieve a consistent 20%
internal rate of return over time is neither easy nor guaranteed. It is more likely
that some investments will yield more than this where others will fall short of this
objective, but the aim is to have a decent batting average.
Trematon owns certain operating businesses with a stable income flow, but these tend
to be outweighed by investment activities during the year. The pattern of investment
acquisition and realisation is irregular, which can result in uneven profits that do
not follow an easily predictable pattern. Our objective is to pay a regular dividend
over time. We believe that the best measure of value for shareholders is the directors'
intrinsic value report which can be viewed in the Chief Financial Officer's report. In
this report the directors have attributed a valuation to each asset which represents
a fair and realisable market value. The intrinsic value at the reporting date was
315 cents per share.
For the current year the total profit attributable to shareholders was R43.2 million
(2013: R51.5 million). For a detailed review of the financial aspects of the results,
please refer to the Chief Financial Officer's report.
There are four major areas of operation: Club Mykonos (including a 30% share in the
Mykonos Casino), Arbitrage Property Fund (commercial, retail and industrial property
investments), Resi Investment Group (residential property investments) and other
investments which include listed and unlisted equities across many industry sectors.
These are discussed in more detail below.
CLUB MYKONOS LANGEBAAN (PTY) LIMITED ("CML")
Club Mykonos is located in Langebaan, which is a popular holiday destination on the
West Coast of the Western Cape and is situated 120 km from the Cape Town city centre.
Langebaan has approximately 9 000 permanent residents and the population of the
surrounding towns (of which Saldanha Bay and Vredenburg are the largest) is
approximately 100 000. The region's level of economic activity is increasing and has
benefited from infrastructural and investment spending by government and large
corporates. The recent proclamation of the Saldanha Bay Industrial Development Zone
("SBIDZ") has given impetus to this trend. The SBIDZ will be an oil and gas and marine
repair engineering and logistics services complex serving the needs of the upstream
exploration and production service companies operating in oil and gas fields in
sub-Saharan Africa.
Club Mykonos is well positioned to benefit from the increased permanent population,
the high level of tourists and regular commercial visitors.
The improvements at Club Mykonos have been described in previous annual reports and
this process continues.
MYKONOS CASINO
Mykonos Casino comprises one of the five casino licences in the Western Cape and is
operated by Tsogo Sun Holdings Limited. The casino has 320 slot machines and 6 tables.
The refurbishment referred to at the interim stage has commenced with the upgrading
and redesign of the restaurant and coffee shop facilities and will continue after the
holiday season. Mykonos Casino benefits from the reliable seasonal tourist trade and
should also benefit from the increased commercial traffic in the area as a result of the
SBIDZ. It is estimated that 50% of the casino's turnover is generated by visitors from
Cape Town and 50% by locals. The casino's contribution to group profits (see the Chief
Financial Officer's report) increased by 8% in the current year and growth momentum has
increased during the 2015 financial year to date. Cash balances on hand in the casino
operation amounted to R56 million at the reporting date.
THE MARINA AND BOATYARD
Mykonos Marina remains extremely popular and is an important component of the
attractiveness of the resort. Saldanha Bay is one of the premier yachting areas in
the country and the proximity to the Langebaan Lagoon makes it an enduring favourite
with yachtsmen and watersports enthusiasts. It also serves as a scenic hub for leisure
activities at the Marina Terraces restaurants and as a base for leisure activities
such as yacht charters and jet skis.
The third and final phase of the Mykonos Boatyard development is well under way and the
product is now well established. The ancillary activity around boat repair, supplies
and maintenance has grown along with the number of boats. The Boatyard is expected to
achieve full operating capacity during the next financial year once all of the garages
have been completed.
COMMERCIAL AND LEISURE PROPERTIES
The restaurants and rental properties on the resort have benefited from the overall
improvement in the popularity of the resort. Timeshare occupancies have been excellent
- although CML does not own these properties it results in regular foot traffic for the
casino, the commercial businesses and restaurants. The resort has maintained its
RCI Gold Crown and 4-star grading and has received nominations for several industry awards.
Plans have been submitted for a new beachfront restaurant on "Hobie Beach" to be leased
by a well-established local operator, which will generate increased rental income in
the new financial year.
Civil works are under way for the biggest new development at Club Mykonos in the last
decade. The Marina Village will comprise 25 luxury waterfront units situated on the
marina. The beauty, security and convenience of the resort and the glorious waterfront
location make this a sought-after product and the level of pre-sales is very encouraging.
The total capital cost of the project is estimated at R52 million and the targeted
completion date is the beginning of 2016.
Development capacity in terms of the current zoning exists for a further 400 - 500
residential and commercial opportunities, which will provide a lucrative pipeline over
the next few years if the market for leisure and residential properties continues to
strengthen.
ARBITRAGE PROPERTY FUND (PTY) LIMITED ("ARBITRAGE")
Arbitrage concluded two material transactions during the period under review. The first
of these is the newly branded Northgate Park, which was purchased and is planned to be
transfered in the following financial year, in partnership with Buffet Investments. The
property was originally a retail development, which is in the process of being
repurposed as A grade office park to which several national tenants have already
committed. Northgate Park is located on the N1 highway adjacent to Century City and
offers 18 000 sqm of premium office accommodation, good parking ratios and very high
visibility. The total cost of the project will be approximately R140 million and
Northgate Park has a targeted completion date of March 2015.
The second material transaction was the acquisition of North Wharf (previously known
as "The Spearhead") which comprises just over 5 000 sqm of office space in an excellent
commercial node situated between the new Portside Building (housing Old Mutual and FNB)
and the Southern Sun Waterfront hotel complex.
The investment pipeline for Arbitrage is extremely promising and we expect to conclude
various further transactions in the new financial year.
The modus operandi of Arbitrage is not to replicate a REIT or property loan stock
profile but to focus on opportunities where there is good potential to add significant
value. Some of the buildings (such as Northgate Park) may not have a high yield on the
date of purchase and may be a drag on reported earnings in the short term but have the
potential for an IRR which meets or exceeds Trematon's target of 20%.
RESI INVESTMENT GROUP ("RESI")
Resi currently invests in and manages residential properties which have been purchased
for both rental and trading.
Some units are purchased specifically for trading, notably those units in Hibernian Towers
on the Golden Mile of the Strand Beachfront which are in a market segment that does not
offer good rental returns although it has yielded excellent capital profits to date.
During the year under review Resi completed The Hub project (a joint venture with
Prime Point Properties), which comprises 72 residential units in Woodstock. This
project is expected to deliver total returns well in excess of our benchmark.
Resi also concluded the purchase of three apartment blocks from Diluculo Properties
(Pty) Limited comprising a total of 160 units in Parklands, Cape Town. The demand for
rental units in this market segment (high-quality smaller units in good residential
nodes), which is typical of the Resi product, is very strong and vacancies are currently
negligible.
Deal flow in this segment was fairly strong in the early part of the financial year and
the quality of the portfolio has been enhanced. The residential market has strengthened
which has resulted in good returns from our existing stock, but has reduced the pipeline
of attractive investments at competitive yields. We remain committed to this segment of
the market and we will continue to be disciplined in applying our investment criteria
and will therefore be selective in concluding transactions. All of our investments are
currently in the Western Cape and we will continue to invest in this region while we can
find deals of the right quality. It is Resi's long-term intention to expand nationally if
the right opportunity arises.
OTHER INVESTMENTS
The group realised profits of R14 million from share trading, the biggest component of
which was the sale of shares in Grand Parade Investments Limited and held an investment
portfolio of listed and unlisted investments of R12 million at year-end. This is a
highly variable component of earnings and will remain a part of the group's activities.
Several additional investments are contemplated in the new financial year.
Trematon owns an effective interest in approximately 9 million shares in Mazor Group
Limited ("Mazor") indirectly via Cloudberry Investments 18 (Pty) Limited, which is a
BEE structure. The Mazor investment, which has performed poorly, has been held for
several years and has resulted in significant losses over time. We will continue to
monitor and assess our options in respect of our investment in Cloudberry in order to
achieve the best possible long-term outcome.
PROSPECTS
Trematon's four main areas of operation (Club Mykonos, Arbitrage, Resi and Other
Investments) are all in areas which have good deal flow and committed, competent
management. The overall deal pipeline is bigger and potentially more lucrative than at
any time in Trematon's history and management is currently confident that our benchmark
returns can be achieved over the next decade. The scale of these opportunities is such
that the group is considering a capital-raising exercise which will be communicated to
shareholders in the upcoming months.
DIVIDENDS
The board has declared a special dividend of 5.0 cents per share, which is larger than
normal in order to provide existing shareholders with the benefits of the group's
accumulated STC credits. Future dividends should not be benchmarked at this level but
should be measured against the level established in 2013 (3.25 cents per share).
CHIEF FINANCIAL OFFICER'S REPORT
OVERVIEW
The 2014 financial year is the first year that both Arbitrage Property Fund (Pty) Limited
("Arbitrage") and The Resi Investment Group ("Resi") are consolidated for the full
12-month period. Both subsidiaries were equity accounted for part of the prior year.
This has resulted in the group's income and expenses increasing considerably over the
prior year.
RESULTS
The group made a profit attributable to equity holders for the year of R43.2 million
(2013: R51.5 million) which translates into earnings per share of 24.5 cents
(2013: 29.2 cents). The group's profit before tax and non-controlling interests
increased by R7.5 million, which is a 15% increase over the prior year. Operating
profit increased as a result of a realised profit on the sale of Grand Parade
Investments Limited ("GPI") shares as well as the fair value adjustments on investment
properties. The group's profit from equity-accounted investments has decreased as a
result of Arbitrage and Resi now being consolidated. Revenue has increased as a result
of Arbitrage and Resi now being consolidated as well as an increase in rental income
from additional properties purchased. Finance costs have also increased due to bank
borrowings on the additional properties purchased.
NET ASSET VALUE
The group's book net asset value increased by 18 cents per share to 167 cents per share
(2013: 149 cents per share). The intrinsic net asset value per share increased by
101 cents per share to 315 cents per share (2013: 214 cents per share). The group's
intrinsic net asset value has increased due to an increase in the fair value of the
investments held in Club Mykonos Langebaan (Pty) Limited ("CML") and other subsidiaries.
The intrinsic value of these assets, which is further disclosed in the "Intrinsic Value
Report" in the integrated report aims to provide the shareholders with a realistic yet
conservative estimate of the group's assets.
INDIVIDUAL INVESTMENTS
Subsidiaries
Club Mykonos Langebaan (Pty) Limited (100%)
CML achieved a profit for the year of R21.3 million (2013: R28.2 million). The profit
before tax in the current year was R25.2 million (2013: R24.9 million).
Rental income from investment properties continues to grow with increased demand for
holiday accommodation on the West Coast. Income from both the marina and boatyard has
also shown positive growth and has met all expectations. Further garages are being
constructed at the boatyard to meet the increased demand.
Construction of Marina Village, which is the first large sectional title residential
development at Club Mykonos for several years, has begun and is expected to make a
contribution to earnings in 2016.
The casino generated R10.7 million (2013: R9.9 million) equity-accounted profits for
the group. Dividends received from the casino for the year amounted to R5.9 million
(2013: R8.9 million). The casino has traded exceptionally well in its current financial
year and has consistently met or exceeded its budgeted targets during this period.
Arbitrage Property Fund (Pty) Limited (67%)
This is the first year that Arbitrage's results have been included for the full
12 months. Arbitrage contributed R16.2 million to the group's profit and this
contribution is expected to increase in future. Management continues to invest in
investment properties in the commercial, industrial and retail sectors which generate
both high yields and capital growth and are situated in good areas. The company has
low levels of gearing and has been actively pursuing more investments, which is
evident from the SENS announcements issued in the second half of this year.
Resi Investment Group (50%)
Resi is still a relatively new investment for the group, which has been consolidated
for the full 12-month period for the first time. Resi's contribution to group profits
was R1.1 million. Resi has a large residential property portfolio which is held for
both trading and long-term investment properties. The value of these assets has
increased considerably since acquisition and we are confident that as rental escalations
increase, and bank borrowings are reduced, Resi will make a growing contribution to
Trematon's earnings and asset base.
Stalagmite Property Investments (Pty) Limited ("Stalagmite") (67%)
During the year Trematon increased its holdings in Stalagmite. This resulted in
Stalagmite becoming a subsidiary of the group from 18 November 2013. Stalagmite owns
land in an industrial park situated adjacent to the route of the proposed N2 highway
in the Western Cape. There is no external debt in the company. The company contributed
an immaterial loss to the earnings of the group.
JOINT VENTURES
The Vredenburg Property Trust ("VPT") (50%)
The VPT is a joint venture of which Arbitrage owns 50%. VPT owns the Vredenburg Mall
in Vredenburg, Western Cape. VPT continues to perform well and contributed R4.6 million
to equity-accounted earnings.
The Woodstock Hub (Pty) Limited ("The Woodstock Hub") (50%)
The Woodstock Hub is a joint venture of which Resi owns 50%. This company purchases
properties in the Woodstock area on the outskirts of Cape Town with the intention to
redevelop and sell completed residential units. Due to the nature of the business
whereby properties are purchased and held until redevelopment, the majority of the
costs are bank interest. This has resulted in a loss of R1.5 million being equity
accounted into the group's results. We expect this investment to realise good returns
once we have purchased sufficient stock to begin the construction process and develop
properties for sale.
OTHER INVESTMENTS
Cloudberry Investments 18 (Pty) Limited ("Cloudberry") (49%)
The group's investment in Cloudberry increased by R4.6 million which is reflected as a
reversal of the provision for impairment previously raised against the loan to
Cloudberry. The value of the investment is directly linked to its net asset value
which has improved during the year as a result of a profit of R13.9 million realised
on the sale of its entire stake in GPI. This profit was off-set against a fair value
loss on the stake held in Mazor Group Limited. Cloudberry repaid R9.3 million to
Trematon during the year.
Other
The group maintains investments in various JSE-listed companies for both long-term and
short-term trading opportunities. These investments contributed R1.9 million in dividend
revenue for the year. At year-end the market value of these investments was R12 million.
INTRINSIC VALUE REPORT
An intrinsic value report has been prepared to improve shareholder communication. The
group's financial results have been prepared in terms of the required IFRS standards
which, in some cases, does not allow for certain investments to be shown at their
market values, such as investments in associates and joint ventures which are recorded
at cost plus its share of post-acquisition reserves less distributions received and
inventory which is carried at the lower of cost and net realisable value.
The intrinsic net asset value of the group includes valuations of all investment
categories and represents, in the opinion of the directors, a more accurate assessment
of the group's value than the net asset value calculated in terms of IFRS.
These valuations are either based on their listed market value, external professional
valuers' or directors' valuations. The following factors are taken into account in
determining the directors' valuations of various assets/investments:
- market value and earnings yield of similar companies/operations, taking into account
the earnings, risk and tradeability thereof;
- current market prices realised for similar or like assets; and
- earnings yields and the underlying growth potential.
31 August 2014 31 August 2013
Book Intrinsic Book Intrinsic
value value value value
R R R R Note
Listed shares 12 070 272 12 070 272 18 934 609 18 934 609 1
Cloudberry Investments 18 (Pty) Ltd 12 917 812 12 917 812 17 585 862 17 585 862 2
Stalagmite Property Investments
(Pty) Ltd 8 815 600 8 815 600 922 162 7 500 000 3
Club Mykonos Langebaan 162 674 206 374 407 445 149 996 067 257 638 526 4
Property, Marina and Casino
Arbitrage Property Fund (Pty) Ltd 111 462 382 111 462 382 218 276 312 218 276 312 3
Commercial property
Resi Investment Group 202 147 848 254 276 316 44 799 978 44 799 978 3
Residential property
Cash on hand 44 499 617 44 499 617 34 680 035 34 680 035 5
Other assets 50 999 822 50 999 822 27 959 862 27 959 862 5
Total assets 605 587 559 869 449 266 513 154 887 627 375 184
Liabilities 283 268 056 283 268 056 230 305 874 230 305 874 5
Non-controlling interests 27 402 457 30 802 457 19 554 655 19 554 655
Net assets (attributable to
equity holders) 294 917 046 555 378 753 263 294 358 377 514 655
Intrinsic net asset value per share 1.67 3.15 1.49 2.14
Note:
1 Valuation based on quoted market prices at year-end.
2 Valuation based on net asset value of company using quoted market prices at year-end,
less debt in the company.
3 Directors' valuation taking into account current market prices for similar assets as
well as the earnings, risk and tradeability thereof.
4 Valuation of assets at Club Mykonos based on current market prices of similar assets
and earnings, where applicable.
5 Market value equals book value.
Domicile and registered office: 2nd Floor, The Hudson, 30 Hudson Street, Cape Town, 8001.
PO Box 7677, Roggebaai, 8012, South Africa
Transfer secretaries: Link Market Services South Africa (Pty) Limited
19 Ameshoff Street, Braamfontein
Directors: M Kaplan (Chairman)*#, AJ Shapiro (Chief Executive Officer), AL Winkler
(Chief Financial Officer), JP Fisher*#, A Groll, AM Louw*#, R Stumpf*
* Non-executive # Independent
Secretary: SA Litten
Sponsor: Sasfin Capital, a division of Sasfin Bank Limited
Auditor: Mazars Inc.
Date published: 20 November 2014
Prepared by: The group financial results have been prepared under the supervision
of the chief financial officer, Mr AL Winkler CA(SA).
Contact details: Tel: 021 421 5550, Fax: 021 421 5551
The completed integrated annual report that has been summarised in this report for the
financial year ended 31 August 2014 may be obtained from Friday, 28 November, from the
company's website.
Website: www.trematon.co.za
Date: 20/11/2014 08:30:00 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 implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.