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ACSION LIMITED - Unaudited condensed consolidated interim results for the six months ended 31 August 2016

Release Date: 26/10/2016 10:55
Code(s): ACS     PDF:  
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Unaudited condensed consolidated interim results for the six months ended 31 August 2016

Acsion Limited
Incorporated in the Republic of South Africa
(Registration number 2014/1892931/06)
Share code: ACS
ISIN: ZAE000198289
("Acsion" or the company)

UNAUDITED CONDENSED CONSOLIDATED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2016

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                                                                  Group
                                                    Unaudited   Unaudited      Audited
                                                   Six months  Six months   Year ended
                                                    31 August   31 August  29 February
                                                         2016        2015         2016
                                                        R'000       R'000        R'000
Assets
Non-current assets
Investment property                                 4 461 505   3 752 585    4 311 974
Plant and equipment                                   161 576     104 170       92 322
Operating lease asset                                 121 692     103 665      119 235
Goodwill                                              625 464     625 464      625 464
Prepayments                                           362 536     199 835      366 610
Investment in associate                                   917       1 249          917
Other financial assets                                 13 134      12 982       13 324
                                                    5 746 824   4 799 950    5 529 846
Current assets
Operating lease asset                                   8 463      14 707        5 315
Loans to group companies                                1 401       1 715        1 661
Other financial assets                                      -           -           13
Current tax receivables                                 1 106         427          640
Trade and other receivables                            20 731      13 880       14 724
Cash and cash equivalents                              47 487      20 136       16 288
                                                       79 188      50 865       38 641
Non-current assets held for sale                       76 382      82 324       87 931
Total assets                                        5 902 394   4 933 139    5 656 418

Equity and liabilities
Equity
Share capital                                       3 974 979   3 979 781    3 975 482
Retained income                                       718 344     136 815      599 905
Equity attributable to owners of the company        4 693 323   4 116 596    4 575 387
Non-controlling interest                               10 438         (48)      10 446
Total equity                                        4 703 761   4 116 548    4 585 833

Liabilities
Non-current liabilities
Deferred tax                                          793 256     539 886      792 810
Other financial liabilities                           266 523     210 731      190 073
                                                    1 059 779     750 617      982 883
Current liabilities
Current tax payable                                     4 110          66        4 507
Loans from shareholders                                   506         516          506
Other financial liabilities                            65 325       9 013       16 729
Provisions                                              3 930       2 019        4 254
Trade and other payables                               64 983      54 360       61 706
                                                      138 854      65 974       87 702
Total liabilities                                   1 198 633     816 591    1 070 585
Total equity and liabilities                        5 902 394   4 933 139    5 656 418

NAV per share (cents)                                 1 190.0     1 042.3       1160.1
NAV per share excluding deferred taxation (cents)     1 391.1     1 179.0      1 361.1



CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

                                                                    Group  
                                                      Unaudited   Unaudited      Audited
                                                     Six months  Six months   Year ended
                                                      31 August   31 August  29 February
                                                           2016        2015         2016
                                                          R'000       R'000        R'000
Cash flows from operating activities
Cash generated from operations                          157 344     130 661      342 521
Finance income                                              541       1 076        1 974
Finance costs                                            (9 785)     (6 370)     (18 530)
Tax paid                                                (23 003)    (35 817)     (66 116)
Net cash from operating activities                      125 097      89 550      259 849

Cash flows from investing activities
Purchase of plant and equipment                         (83 359)       (989)     (20 496)
Development costs of investment property               (149 531)   (108 494)    (244 054)
Loans to group companies repaid                             260           -           54
Sale of investment property                                   -       1 255            -
Guarantees released                                           -         343            -
Increase in financial assets                                203           -          (13)
Net cash flow from non-current assets held for sale      13 986           -         (272)
Net cash from investing activities                     (218 441)   (107 885)    (264 781)

Cash flows from financing activities
Purchase of treasury shares                                (503)       (175)      (4 474)
Increase in other financial liabilities                 125 046      21 431        8 490
Loans repaid by shareholders                                  -           -          259
Loans received from shareholders                              -         414          145
Net cash from financing activities                      124 543      21 670        4 420

Total cash movement for the period                       31 199       3 336         (512)
Cash at the beginning of the period                      16 288      16 800       16 800
Total cash at end of the period                          47 487      20 136       16 288



CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 

                                                                       Group
                                                         Unaudited    Unaudited      Audited
                                                        Six months   Six months   Year ended
                                                         31 August    31 August  29 February
                                                              2016         2015         2016
                                                             R'000        R'000        R'000
Revenue                                                    247 365      215 352      453 343
Other income                                                 2 434       17 618       10 625
Operating expenses                                         (98 292)    (109 146)    (210 509)
Operating profit                                           151 416      123 824      253 459
Finance income                                                 541        1 076        1 974
Fair value adjustment                                            -            -      633 227
Amortisation                                                (4 074)           -            -
Income/(loss) from equity accounted investments                  -          113         (219)
Gain on non-current assets held for sale                     2 473            -        4 963
Finance costs                                               (9 785)      (6 370)     (18 530)
Profit before taxation                                     140 571      118 642      874 874
Taxation                                                   (22 140)     (22 668)    (305 316)
Profit for the period                                      118 431       95 974      569 558
Other comprehensive income                                       -            -            -
Total comprehensive income for the period                  118 431       95 974      569 558
Profit (loss) attributable to:
Owners of the company                                      118 439       96 004      559 094
Non-controlling interest                                        (8)         (30)      10 464
                                                           118 431       95 974      569 558
Total comprehensive income (loss) attributable to:
Owners of the company                                      118 439       96 004      559 094
Non-controlling interest                                        (8)         (30)      10 464
                                                           118 431       95 974      569 558
Reconcilition between earnings and headline earnings
Basic earnings/Diluted earnings                            118 439       95 974      559 094
Adjusted for:                                               (1 244)        (489)    (482 386)
Fair valuation adjustment                                        -            -     (633 227)
Amortisation                                                (4 074)           -            -
Fair value relating to non-controlling interest                  -            -       12 995
Gain on non-current assets held for sale                         -            -       (4 037)
Profit on sale of plant and equipment                        2 473         (489)          40
Tax effect                                                     357            -      141 843
Deferred tax as a result of rate change                          -            -      104 491
Headline earnings                                          117 195       95 485      181 199
Earnings per share
Per share information

Basic/Diluted earnings per share (cent)                       30.0         24.3        141.6
Headline earnings per share (cent)                            29.7         24.2         45.9

Weighted number of shares                              394 447 019  394 958 459  394 882 303


CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
  
                                                                                     Total equity       
                                                                                  attributable to             
                                     Share   Treasury         Total   Retained      owners of the  Non-controlling       Total               
                                   capital    shares  share capital     income            company         interest      equity
                                     R'000     R'000          R'000      R'000              R'000            R'000       R'000
Group
Balance at 1 March 2015          3 979 956         -      3 979 956     40 811          4 020 767              (18)  4 020 749
Profit for the period                    -         -              -     96 004             96 004              (30)     95 974
Purchase of treasury shares              -      (175)          (175)         -               (175)               -        (175)
Balance at 31 August 2015        3 979 956      (175)     3 979 781    136 815          4 116 596              (48)  4 116 548
Profit for the period                    -         -              -    463 090            463 090           10 494     473 584
Purchase of treasury shares              -    (4 299)        (4 299)         -             (4 299)               -      (4 299)
Balance at 29 February 2016      3 979 956    (4 474)     3 975 482    599 905          4 575 387           10 446   4 585 833
Profit for the period                    -         -              -    118 439            118 439               (8)    118 431
Purchase of treasury shares              -      (503)          (503)         -               (503)               -        (503)
Balance at 31 August 2016        3 979 956    (4 977)     3 974 979    718 344          4 693 323           10 438   4 703 761


IFRS 8 - Segment reporting
Due to the current investment property portfolio exposure being heavily weighted to retail, the chief operating decision maker (CODM) considers the operations to be a single operating segment and as such reviews financial 
information on this basis.

IFRS 13 and IAS 40 - Fair value measurement
The group's policy is to value investment properties at year-end, with independent valuations performed on a rotational basis to ensure each property is valued at least every three years by an independent external valuer. 
The directors value properties by applying the discounted cashflow method. There were no revaluations for the six-month period ended 31 August 2016.

Level 3
                       Unaudited   Unaudited     Audited
                      Six months  Six months  Year ended
                       31 August   31 August 29 February
                            2016        2015        2016
Fair value hierarchy        R'bn        R'bn        R'bn

Investment property       R4.830      R3.755      R4.617

IAS 24 - Related parties
During the financial period, K. Anastasi Projects Close Corporation of which K. Anastasiadis is the sole member, undertook construction of Mall@Moutsiya. For the period, the group spent R56m on this construction. 
Smaller ad-hoc projects amounted to R2.2m spend. Total spent towards K. Anastasi Projects Close Corporation therefore amounted to R58.5m for the period. Kinsella Consultants, a company owned by the wife of I. Anastasiadis, 
were used for ad-hoc repairs and supplies. A total of R110k was spend with Kinsella Consultants during the period under review.

GEOGRAPHIC AND TENANT PROFILES

Sector profile by revenue       Sector profile by GLA      Tenant profile by revenue           Tenant profile by GLA
  77% Retail-Metropolitan     68% Retail-Metropolitan                   61% National                    71% National
         22% Retail-Rural            29% Retail-Rural              18% Semi-National               13% Semi-national
      1% Light Industrial         3% Light Industrial  21% Line and other franchises   16% Line and other franchises


The tenant profile is separated into national and semi-national tenants, to indicate the exposure Acsion has to direct head office leases and individual franchises. Exposure to national and semi-national tenants as a percentage of
gross lettable area is relatively high at 84% (79% based on revenue). Line shops and other franchises are carefully vetted by Acsion's leasing division to promote maximum dwelling time and footfall in each centre, underpinning 
trading densities and the overall sustainability of tenants' lease terms.

Commentary
About Acsion
Acsion ("the group" or "the company") is a property manager, developer and owner which is listed on the Johannesburg Stock Exchange. Acsion is differentiated from Real Estate Investment Trusts ("REITs") in the listed property sector as
it focuses on the delivery of superior net asset value ("NAV") growth. NAV growth drivers include enhancing existing properties, completing the communicated secured development pipeline and obtaining additional future development
opportunities locally and abroad.

The group's development function and "value-engineering" approach to development significantly enhances returns to shareholders. Value engineering focuses on optimising upfront feasibility studies, planning, design and construction in
an innovative and more cost-effective way, resulting in lower construction costs, without compromising on quality. Existing investment properties consist of seven predominantly retail developments strategically located in Gauteng, Mpumalanga 
and Limpopo with an aggregate GLA of 219 000 m2 (2015:188 716 m2). The tenant profile by GLA comprises 71% national tenants (2015: 72%), 13% semi-national (2015: 15%) and 16% line and other franchises (2015: 13%).

Operational update
The group performed in line with expectation. Focusing on the development pipeline, the group completed and opened Mall@Moutsiya (Walkraal, Limpopo) in August 2016, partially delivering on its pre-listing promises. Construction of
Mall@Mfula (Piet Retief, Mpumalanga) is well underway and the opening date is set for November this year. 

The Acsiopolis development (Benmore, Sandton) is progressing well. Development of Mall@55 (Monavoni, Gauteng) will commence in the last quarter of 2016 and the group aims to open this development by November 2017. Refer to "Development
Pipeline progress update" for more detail.

Financial results
During the first six months of the financial year the group recorded revenue of R247.4m (2015: R215.4m). The 15% increase in revenue is due to a weighted average rental escalation of 7.8% and the opening of Mall@Carnival phase III in
September 2015 which was not reflected in the results for the previous corresponding period. Operating expenses decreased to R98m (2015: R109m) for the same period which demonstrates the group's strong focus on cost control.
Finance costs increased to R9.8m (2015: R6.4m) which was expected considering the funding for developments underway. The gearing of the group remained very low at 5.9%(2015: 5.5%).

Headlines earning per share, which was impacted by the share repurchased by the group, was 29.71 cents per share (2015: 24.18 cents per share). The increase in headline earnings per share and basic earnings per share for the six months
under review was a satisfactory 22.9% and 23.5% respectively.

The investment properties are currently carried at the February 2016 valuations as it is the group's policy to revalue investment properties for year-end purposes only. The seven retail properties from which the group derives income
are valued at R4.162bn. (2015: R3.246bn). Non-current assets held for sale decreased steadily to R76m (2015: R82m) as properties in the Hyde Park development were transferred to their new owners.

Prepayments which are amortised as actual capital spend on Acsiopolis is incurred, decreased by R4m during the six months. Total spend on new developments and renewable energy initiatives for the six months amounted to R233m (2015:R109m).

Treasury share purchase
The group repurchased 65 142 shares during the period and currently holds 558 012 shares as treasury shares. The decision to repurchase shares was made as the share price is trading significantly below the reported NAV of the company.
These shares were purchased at approximately 36% below the reported net asset value per share excluding deferred tax as at 31 August 2016.

Vacancy levels and lease expiry profile
Strategic vacancies are maintained in order to accommodate tenant relocations and support optimisation. The directors are satisfied with the reported vacancy numbers for the portfolio. The weighted vacancy (by GLA) for the portfolio as
at 31 August 2016 was 6.6% (2015: 5.05%). The increase was due to the inclusion of Mall@Moutsiya as some tenants had not taken beneficial occupation by the opening date. Management is of opinion that vacancy levels will return to
previously reported numbers by the financial year end.

The weighted average lease expiry ("WALE") by GLA for the portfolio is currently 3.68 years (2015: 4.87 years). The decrease of the WALE is expected as the once off extension of Mall@Carnival phase II influences this ratio
significantly. Management is not concerned with the reduction in this ratio as lease renewals will spread out over time and be of a lesser impact as the size and number of investment properties in the portfolio increases.


Developed investment property portfolio
The developed investment portfolio and developments under construction as at 31 August 2016 consisted of ten properties. Details are as follows:

                                      Valuation              Value/m2     Percentage
                                           (Rm)            (excluding       of total
                                       February      GLA  bulk, where   portfolio by
Property name                              2016      (m2)  applicable)     value (%)
Mall@Carnival                             2 000   87 700       22 810          48.1
Mall@Reds                                   980   54 300       18 050          23.5
Mall@Emba                                   486   24 500       19 840          11.7
Mall@Lebo                                   380   23 500       16 170           9.1
Mall@Moutsiya                               130   14 500        8 970           3.1
Moreleta Square                             154    8 500       18 120           3.8
Simarlo Rainbow                              32    6 000        5 330           0.8
Total developed investment portfolio      4 162  219 000       19 005         100.0


The developed investment property portfolio is trading at an achieved annualised operating profit yield of approximately 8.1% (2015: 7.6%) based on these results.
Properties under development include the following:

                                    Estimated                      Value/m2
                                 valuation at      Anticipated   (excluding
                                   completion              GLA  bulk, where
Developments nearing completion           (Rm)             (m2)  applicable)
Mall@55                                   275           25 000       11 000
Mall@Mfula                                170           18 700        9 090

                                         
 
                                       Current                     Value/m2
                                      carrying     Anticipated   (excluding
                                         value             GLA  bulk, where
Longer duration developments underway      (Rm)            (m2)  applicable)
Acsiopolis                                 255          67 000        3 810



Development pipeline progress update
Acsiopolis, Benmore, has been designed as a twenty storey mixed use development, situated in the heart of Sandton. The site is positioned on Benmore Drive and consists of an approximate 1 hectare parcel of land. Mixed use development
rights for 70 000 m2 have been obtained and transfer of the land has been completed. A majority of the rights, comprising approximately 61 000 m2, have been earmarked for residential use which supports Acsion's vision of sectoral
diversification. Of the 61 000 m2 approximately 35 000 m2 will be available as executive apartments, 26 000 m2 will be subject to short term rentals, 5 000 m2 will be utilised for retail and 1 000 m2 will be utilised as office space
bringing the total square metres to be developed to 67 000 m2. Acsiopolis will further offer six levels of parking equating to approximately 1 500 underground parking spaces, some of which will be on-grade parking to the retail
section, which is expected to further enhance convenience for shoppers and residents.

In addition to vehicular access, Acsiopolis has been designed to take into consideration the evolving public transport systems in Sandton to accommodate the integration of pedestrian accessibility and bus routes. Construction of the
development has commenced and is estimated to be completed early in 2019. The main contractor has completed the foundations and retaining walls and will commence with the first level of parking in November 2016.

Mall@55 Phase I, consists of a 15 000 m2 convenience shopping centre in Monavoni, Gauteng. It is located on an extremely busy arterial route accessible from the N14 freeway and the R55 provincial route. This development is ideal for a
value/convenience/lifestyle centre, which is underrepresented in the Monavoni area. The main contractor has been identified and bulk earthworks will commence in November 2016.

Trade 55 Phase I, comprises of a 10 000 m2 large ("big box") retail component with special commercial rights already obtained in Monavoni, Gauteng. It is located across from the Mall@55 site on an extremely busy arterial route
accessible from the N14 freeway and the R55 provincial route. Trade 55's value offering will be complementary to Mall@55's offering. Management decided to delay this development for a couple of months to first focus on finalising and
entrenching Mall@55 successfully into the area.

Hyde Park Terrace, located in Hyde Park, Gauteng is a residential development comprising of 12 completed cluster units and 27 residential land parcels. This high-end residential development is in the heart of one of Sandton's most
exclusive areas. The total land size comprises 2.5 hectares and is situated 500 metres from the exclusive Hyde Park shopping centre. The 12 units are approximately 350 m2 to 540 m2 under roof, with the remaining land to be sold as
stands of 450 m2 to 650 m2 with or without building packages. The sales have progressed satisfactorily and transfers of the properties are steadily being finalised. Six properties for which offers were received previously are available
for sale again as the sales could not be successfully concluded.

Mamahlodi Gardens is an affordable housing development in Walkraal, Limpopo with a total land size of 40 hectares. Acsion has formed a partnership with local residents and the local municipality to approach prospective buyers with
access to housing subsidies from the Department of Human Settlements. Proclamation of the land has been completed with all services (water, sewage and electricity) already secured. Plans to build up to 551 residential units for sale
are supported by a shortage of affordable housing in the Walkraal area. The market price will be between R300 000 and R350 000 per unit. Interest for approximately 50 units has already been secured. This development will be demand
driven with pre-approved finance for these units negotiated with the banks before construction commences.

Mall@Mfula will consist of a 17 300 m2 shopping centre with an anticipated 70% national tenancy and will provide a complete formal retail offering for Piet Retief. The development is set to open at the end of November 2016.
Mall@Lebo phase II planning has commenced as the group secured the rights to extend the development. There are no vacancies in phase I of this development and the extension of approximately 8 000 m2 is therefore warranted. 
The construction of this extension will commence once the planning stage is completed.

Further development opportunities
Acsion continuously evaluates a consistent stream of new opportunities and is in advanced discussions on certain projects to further enhance capital growth in financial years 2018 and beyond. Details of these projects are not contained
in these results and will be communicated to shareholders in due course and in line with JSE Listings Requirements once an appropriate level of certainty has been reached. At the last practicable date, the following further development
opportunities were under investigation by Acsion, amongst others:

The proposed Mall@Maputo development in northern Maputo will be located adjacent to the main Maputo ring road. A formal agreement has now been finalised with the Mozambican Ministry of Interior to develop a shopping centre of up to 
50 000 m2 once fully developed. Acsion will take cognisance of the Mozambican economy and ensure that it does not take on unnecessary risk. Management is confident that it secured a well-positioned site for its proposed development and
intends to develop it when the economic climate is suitable. At this stage most of the South African retailers are not focused on expanding into Maputo and will re-assess their strategy in the near future. 

With Offices@Lusaka, Acsion aims to take advantage of Zambia's limited available infrastructure for multinational companies. Negotiations with a local land owner to co-develop up to 20 000 m2 of office space are currently underway. The
site is located in close proximity to Manda Hill Shopping Mall and next to Stanbic's Lusaka offices.

Acsion is currently in advanced discussion with parties for a proposed retail development in south eastern Europe. This potential development could be the first step for Acsion to establish its international footprint. The company is
excited about this opportunity and will provide the market with the necessary information as and when it becomes required to do so.

Prospects
Acsion's board and management remain confident that the group's growth objectives can be achieved despite a challenging economic operating environment. The group remains focused on the completion of its secured development pipeline and
obtaining superior net asset value growth for its shareholders.

Acsion will also continue reinvesting in its existing portfolio and focus on its development expertise, or "value-engineering" approach, to ensure above average NAV growth. In addition, Acsion will explore further development
opportunities in high-growth markets in the rest of Africa and Europe.

Dividends
In line with the group's policy, no dividends have been declared for the period ended 31 August 2016.
By order of the board
Centurion, 26 October 2016

D Green           K Anastasiadis
(Chairman)        (Chief executive officer)


Basis of preparation and accounting policies
The interim unaudited consolidated financial statements for the six months ended 31 August 2016 were prepared in accordance with International Financial Reporting Standards (IFRS), the information required by IAS 34: Interim Financial
Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, the requirements of the Companies Act of South Africa and the JSE Listings Requirements. The accounting policies are consistent in all
material respects with those of the previous financial period.

The additional disclosure required in terms of IFRS 7 Financial Instruments: Disclosures and IFRS 13 Fair Value Measurements, will be included in detail in the next integrated report for the period ended 28 February 2017.
The directors are not aware of any matters or circumstances arising subsequent to the period ended 31 August 2016 that require additional disclosure or adjustment to the financial statements.
The directors take full responsibility for the preparation of the unaudited condensed consolidated financial results for the six months ended 31 August 2016.

Independent audit by auditors
The interim unaudited consolidated financial statements have not been audited or reviewed by the group's independent auditors.

Directors: D Green (Chairman)*, K Anastasiadis (CEO), P Scholtz (CFO), S Griesel*, PD Sekete*, T Jali* (*Independent non-executive) 
Registered office: Mall@Reds, 1st Floor, Corner of Rooihuiskraal and Hendrik Verwoerd Drives,
Rooihuiskraal, Ext 15, Centurion. Postal address: PO Box 569, Wierda Park, 0149. Registration number: 2014/182931/06. Transfer secretaries: Computershare Investor Services Proprietary Limited, 70 Marshall Street, Johannesburg 2001.
Sponsor: Nedbank Limited. JSE share code: ACS. ISIN code: ZAE000198289. Company secretary: MWRK Accountants and Auditors Inc.


Date: 26/10/2016 10:55:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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