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GOLD BRANDS INVESTMENTS LIMITED - Provisional Reviewed Condensed Group Financial Results for the year ended 28 February 2017

Release Date: 30/06/2017 17:00
Code(s): GBI     PDF:  
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Provisional Reviewed Condensed Group Financial Results for the year ended 28 February 2017

GOLD BRANDS INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2015/168426/06)
 JSE code: GBI
 ISIN: ZAE000212791
(“Gold Brands” or “the Company” or “the Group”)

PROVISIONAL REVIEWED CONDENSED GROUP FINANCIAL RESULTS
FOR THE YEAR ENDED 28 FEBRUARY 2017

CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME


                                                                        Reviewed          Audited
                                                                        February         February
                                                                          2017             2016
                                                                           R                R
Revenue                                                                 142 785 184      235 502 970
Cost of sales                                                          (126 516 074)    (174 894 526)
Gross profit                                                             16 269 110       60 608 444
Other income                                                              3 783 417        1 837 985
Impairment of non-current assets held for
sale and assets of disposal groups                                        (3 625 482)        -
Operating expenses                                                       (62 189 361)    (49 087 059)
(Loss)/Earnings before interest, taxation
and depreciation                                                         (45 762 316)    13 359 370
Depreciation                                                              (1 946 311)    (2 388 668)
(Loss)/Profit before interest and taxation                               (47 708 627)    10 970 702
Investment revenue                                                         3 560 594      2 309 314
Finance costs                                                             (4 072 103)      (928 104)
(Loss)/Profit before taxation                                            (48 220 136)    12 351 912
Taxation                                                                    (292 439)    (3 398 031)
(Loss)/Profit for the year                                               (48 512 575)     8 953 881
Other comprehensive income                                                   -              -
Total comprehensive (loss)/income for
the year                                                                 (48 512 575)      8 953 881

Attributable to:
Equity holders of the company                                            (48 512 575)      8 953 881

(Loss)/Earnings per share attributable to
equity holders of the company:
Basic (loss)/earnings per share (cents)                                       (44.10)          10.25
Headline (loss)/earnings per share (cents)                                    (40.89)          10.25
Diluted basic (loss)/earnings per share
(cents)                                                                       (44.10)          10.25
Diluted headline (loss)/earnings per share
(cents)                                                                       (40.89)          10.25
CONDENSED GROUP STATEMENT OF FINANCIAL POSITION

                                                                 Restated
                                                  Reviewed       Audited
                                                  February       February
                                                    2017           2016
                                                     R              R
ASSETS
Non-current assets                                 20 609 491     24 059 174
Property, plant and equipment                       8 777 577     12 172 550
Goodwill                                            5 931 416      5 931 416
Intangible assets                                   5 885 112      5 885 112
Deferred tax                                           15 386         70 096

Current assets                                     32 988 878     61 663 117
Inventories                                         3 063 835     11 570 041
Trade and other receivables                        12 525 675     27 423 288
Other financial assets                             14 672 941     17 679 717
Operating lease asset                                 701 308              -
Current tax receivable                              1 882 765      1 882 765
Cash and cash equivalents                             142 354      3 107 306

Non-current assets held for sale
and assets of disposal groups                       6 523 071      5 951 368
Total assets                                       60 121 440     91 673 659

EQUITY AND LIABILITIES
Equity                                              5 318 305     53 830 881
Share capital                                      44 877 000     44 877 000
Retained income                                   (39 558 694)     8 953 881

Non-current liabilities                             4 027 498      4 890 431
Instalment sale obligations                         3 784 337      4 884 999
Deferred tax                                          243 161          5 432

Current liabilities                                50 775 636     32 952 347

Trade and other payables                           40 916 953     28 161 216
Instalment sale obligations                         1 608 940      1 779 085
Operating lease liability                             717 985        780 517
Current tax payable                                 2 231 529      2 231 529
Provisions                                            850 000              -
Bank overdraft                                      4 450 229              -
Total equity and liabilities                       60 121 440     91 673 659

Number of ordinary shares in
issue at year-end                                 110 000 000    110 000 000
Net asset value per share (cents)                        4.83          48.94
Net tangible (liability)/asset value
per share (cents)                                       (5.91)         38.19
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
                                                                   Retained
                                               Share capital        income             Total equity
                                                    R                  R                    R
Balance at 1 March 2015                                        -             -                       -
Profit for the year                                            -     8 953 881               8 953 881
Other comprehensive income                                     -             -                       -
Total comprehensive income for the
year                                                         -       8 953 881                8 953 881
Issue of shares                                     44 877 000               -               44 877 000
Balance at 29 February 2016                         44 877 000       8 953 881               53 830 881
Loss for the year                                            -     (48 512 575)             (48 512 575)
Other comprehensive income                                   -               -                        -
Total comprehensive loss for the year                        -     (48 512 575)             (48 512 575)
Balance as at 28 February 2017                      44 877 000     (39 558 694)               5 318 306

CONDENSED GROUP STATEMENT OF CASH FLOWS
                                                                                             Restated
                                                                          Reviewed           Audited
                                                                          February           February
                                                                            2017               2016
                                                                             R                  R
Cash flows from operating activities

Cash (utilised in)/generated from operations                                  (6 517 509)        627 347
Investment revenue                                                                 3 428       2 185 980
Finance costs                                                                 (1 354 616)       (828 986)
Tax paid                                                                         -            (6 054 784)
Net cash utilised in operating activities                                     (7 868 697)     (4 070 443)

Cash flows from investing activities

Purchase of property, plant and equipment                                       (79 102)      (1 489 931)

Proceeds from disposal of property, plant and equipment                         390 090          -
Cash flows from non-current assets held for sale and assets
of disposal groups                                                            (4 197 185)     (5 951 368)
Cash acquired through business combinations                                            -         522 676
Decrease in other financial assets                                             7 185 402          -
Increase in other financial assets                                               -           (9 688 706)
Net cash generated from/(utilised in) investing activities
                                                                              3 299 205      (16 607 329)

Cash flows from financing activities

Proceeds from share issue                                                        -            25 002 000
Instalment sale obligation payments                                           (2 845 689)      (1 216 922)
Net cash (utilised in)/generated from financing activities                    (2 845 689)      23 785 078

Total cash movement for the year                                          (7 415 181)           3 107 306
Cash and cash equivalents at the beginning of the year                      3 107 306                   -
Total cash and cash equivalents at the end of the year                     (4 307 875)          3 107 306
NOTES TO THE FINANCIAL INFORMATION

Reconciliation of headline earnings for the year

                                                                                   Reviewed           Audited
                                                                                    February         February
                                                                                        2017             2016
                                                                                           R                R
  Earnings attributable to ordinary shareholders                                 (48 512 575)       8 953 881
  Adjusted for:
  After tax profit on disposal of property, plant and
  equipment                                                                          (95 159)          -
  After tax loss on Impairment of non-current assets                                 -                 -
  held for sale                                                                    3 625 482           -
  Headline earnings attributable to ordinary
  shareholders                                                                   (44 982 252)       8 953 881

  Weighted average shares in issue (number)                                     110 000 000        87 358 904

  Weighted average diluted shares in issue (number)                             110 000 000        87 358 904

  Basic (loss)/earnings per share (cents)                                             (44.10)              10.25
  Headline (loss)/earnings per share (cents)                                          (40.89)              10.25
  Diluted basic (loss)/earnings per share (cents)                                     (44.10)              10.25
  Diluted headline (loss)/ earnings per share (cents)                                 (40.89)              10.25


OVERVIEW

The directors herewith present the financial results of the Group for the year ended 28 February 2017.
Gold Brands Investments Limited is a franchisor, brand owner, service provider and an educator of food
offerings and products. The Group has its franchise food footprint through the following franchise food
chains: Chesanyama, 1 + 1 Pizza, Opa!Pitaland, Chicken Wild Wings and Blacksteer.

The 2017 financial year will be remembered as a year where, retailers in South Africa suffered significant
pressure due to the economy and consumers reducing their spending, as a result, the Group went through
significant change and transformation to position the Group for future growth by focusing on the key
element being the consumer.

Support structures and technology have been introduced to take the support of franchisees to the next
level. An online ordering platform has been implemented to minimize the risk of bad debts from debtors,
shrinkage of stock and convenience for our franchisees, as well as consistency of a quality product, which
in turn will bring an increase of customer satisfaction.

A full review and restructuring was undertaken of all the franchisees and the location of stores, as well as
a full review of the business, which has resulted in the Group having to relocate certain stores, review
certain franchisees and close over 100 franchised stores in the restructuring process.

During this process which was undertaken in the second half of the year, no new franchises were sold,
head office reduced staff and, head office decided to absorb most of the cost increases which occurred
during the year in the consumer products supplied to franchisees.

The above has resulted in the reduced sales, increased cost of sales and the write off of certain debtors,
temporarily weakening the Group’s balance sheet and heavily affecting the income statement.
FINANCIAL RESULTS
General

2017 has been a challenging year where we have produced losses due to a slowdown in the economy we
have not opened as many stores, store closures have been due to poor performing stores, leases not
being renewed due to unattractive locations and a number of stores being non-compliant which lead to
closure.

In South Africa the lower LSM sector at the moment consumers are spending less and becoming weary
of eating out – our turnaround strategy involves refining Chesanyama which in effect will target a higher
LSM and we are positive we will gain more of the market share. Chesanyama being a value driven brand
with the key element being the customer, is attracting more enquiries by potential franchisees in either
opening new stores or converting from other brands.

We were invited to present Chesanyama to the UK market in March 2017 and are in the process of
securing partners for area development licences in the UK. Our new refined look of the brand and our
South African Heritage and our tasty food was welcomed by potential investors in the UK.

The decrease in turnover from R235 million in 2016 to R143 million for the current year can be ascribed
to a general decrease in the economy which management estimate to have been responsible for at least
15% decrease, the closure of over 155 underperforming franchisees during the year and the halt in opening
new franchises in the last 6 months of the year of approximately 10 per month while the Group restructured
and reassessed its operations.

Gross profit percentage decreased from 25, 7% to 11, 4% due to the difference in the sales mix over the
last 6 trading months, the reduction of franchisees in the last 8 months of the year and the Group’s policy
to minimise price increases to franchisees and absorb price increases during a very difficult year.

Finance costs of R 4 072 103 included an IFRS adjustment related to discounting of R 2 717 487.

Impairment of trade receivables

It has been an ongoing policy of the Group to assist first time business owners and growing entrepreneurs
as part of its growth strategy. To this end the Group has in the past been too lenient on non-paying
franchisees, giving them the opportunity to grow and establish their businesses. Furthermore with the
majority of the franchisees being first time business owners with very little or no business experience,
management felt that it was their duty to assist wherever possible and not close down stores and write off
debtors on very stringent criteria. As is common with these types of entrepreneurs, not all of them end up
being successful, this coupled with the economic downturn experienced and leases of franchisees coming
to their natural end after 3 years and not being renewed, has resulted in the Group having to change their
approach to this and revisit this policy, apply stricter controls and take the decision to write off trade
receivables that cannot be collected anymore, this has resulted in trade receivables being impaired with
an amount of R14.1 Million.

Write-down of stores acquired from franchisees

The Group impaired stores acquired from franchisees and classified as non-current assets held for sale
and assets of disposal groups. The impairment amounted to R 3.6 Million.

The stores acquired from franchisees were assessed for impairment at year end. The profitability, coupled
with the price that a potential buyer would pay for the store and/or equipment were factors considered in
determining the recoverability of the purchase price of the store.

Head Office Chesanyama stores have been reduced from 13 at 29 February 2016 to 5 at 28 February
2017, resulting in a reduced staff cost of at least 20%.
BASIS OF PREPARATION

The condensed Group financial results for the year ended 28 February 2017 included in this
announcement have been prepared in accordance with the recognition and measurement criteria of
International Financial Reporting Standards (“IFRS”), and have been prepared in accordance with the
presentation and disclosure requirements of IAS 34 Interim Financial Reporting, the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee, and Financial Pronouncements as
issued by the Financial Reporting Standards Council, the Listings Requirements of the JSE Limited, and
the requirements of the South African Companies Act.

The accounting policies applied in the preparation of the condensed Group financial results are consistent
with those applied in the preparation of the previous Group financial results.

The condensed Group financial results are prepared in accordance with the going concern principle under
the historical cost basis. These condensed Group financial results are presented in the South African
Rand, which is the Group’s functional and presentation currency.

These condensed Group financial results incorporate the financial results of the company and its
subsidiaries. Results of subsidiaries are included from the effective date of acquisition. All significant
transactions and balances between group enterprises are eliminated on consolidation.

The preparation of the condensed Group financial results for the year ended 28 February 2017 was
supervised by the Financial Director, Terence Ballard.

The directors take full responsibility for the preparation of the condensed Group financial results for the
year ended 28 February 2017.

GOING CONCERN

The financial results indicate that the Group incurred a net loss for the year of R 48 512 575, and the
current liabilities exceeded the current assets by R 17 786 758 at year end.

These conditions indicate that a material uncertainty exists that may cast a significant doubt on the Group’s
ability to continue as a going concern.

Management have introduced a number of strategic interventions to improve the revenue, profitability and
liquidity position of the Group, which include:

   -   Online ordering platform and outsourcing the distribution of the food products which will reduce
       production overhead costs and shrinkage of stock, it will also enhance the consistency of products
       and service to our franchisees;
   - Sauces and spices will still be produced in-house;
   - On the online platform, all products supplied to franchisees will now be pre-paid and this will reduce
       our debtors and improve cash flow significantly;
   - New store and franchisee sales have started again under a new structure of a square meterage
       fee on store size for franchisees and a sales percentage based royalty system which has been
       accepted by the market and the Group has seen renewed interest from potential franchisees;
   - A cost cutting exercise was undertaken, resulting in a drastic decrease in fixed costs for the Group;
   - Excess staff were retrenched during the last 6 months resulting in a substantial decrease in staff
       costs;
   - The number of head office stores has been reduced from 13 to 2 at the date of this report; and
   - Discussions and arrangements have been made with most of the major creditors and repayments
       have commenced.
The ability of the Group to fund short term operations in the foreseeable future is largely dependent on the
outcome of these strategic interventions.

Furthermore, after performing a thorough review of the Group strategies implemented, and performing a
review of the Group’s cash flow forecasts and budgets, and considering the uncertainties described above,
the directors have a reasonable expectation that the Group has adequate resources to continue operations
for the foreseeable future.

For these reasons, and the effects of the interventions above on the first quarter of 2018, the board
continue to adopt the going concern basis of accounting to prepare the financial results.

RESTATEMENT

The Group, who is the franchisor, occasionally acquires a store from a franchisee, when the franchisee
would like to sell the franchise and the store is in a good location. The intention of management is to
immediately resell the store to an appropriate franchisee.

These stores acquired, were classified as inventory in the 2016 financial year, which was an error, as it
should have been classified as non-current assets held for sale and assets of disposal groups, as it meets
the recognition criteria of non-current assets held for sale and assets of disposal groups.

The comparative amounts for the 2016 financial year have been restated.

The error had no impact on the Statement of Comprehensive Income and Statement of Changes in Equity
for the 2016 financial year.

The effect of the reclassification on the financial results have been summarised below:


                                                                                             Restated
                                                                                             Audited
                                                                                             February
                                                                                               2016
                                                                                                R

 Statement of financial position

 Increase in non-current assets held for sale
 and disposal groups                                                                           5 951 368

 Decrease in inventory                                                                        (5 951 368)

 Statement of cash flows

 Increase (inflow) in cash generated from                                                      5 951 368
 operations

 Decrease (outflow) in cash flows from non-                                                   (5 951 368)
 current assets held for sale and disposal
 groups


FINANCIAL INSTRUMENTS RECOGNISED AT FAIR VALUE

The Group doesn’t recognise any of its financial instruments at fair value. The carrying values of the
Group’s financial instruments however approximates their fair values.
FINANCIAL RISK MANAGEMENT

The Group’s financial risk management objectives and policies are consistent with those disclosed in the
Group’s financial statements for the year ended 29 February 2016.
SEGMENTAL REPORTING

IFRS 8 requires an entity to report financial and descriptive information about its reportable segments,
which are operating segments or aggregations of operating segments that meet specific criteria. Operating
segments are components of an entity about which separate financial information is available that is
evaluated regularly by the chief operating decision maker.

The Chief Executive Officer of the Group, is the chief operating decision maker. She evaluates the financial
information of the Group as one operating unit. Separate operating segment financial information is not
available.

Therefore IFRS 8 was not implemented.

CONTINGENCIES

There are no material contingencies to report on.

REPORTABLE IRREGULARITY

During the financial year, Gold Brands Investments Limited and its subsidiaries did not submit Valued-
Added Tax and Employee Tax returns when due and, where applicable, did not make payments thereof
to the South African Revenue Services. However, subsequent to the year end, the Valued-added Tax and
Employee Tax returns have been submitted to the South African Revenue Services and payments thereof
have also been made to the South African Revenue Services.

EVENTS AFTER BALANCE SHEET

The finalisation and execution of the International Development Agreement between the UK Based Casual
Diner Group and Gold Brands Investments Ltd by no later than 31 July 2017.

Partnering with UK Based Casual Dining Group (“CDG”) who have appointed Gold Brands Investments
Ltd as its exclusive partner for the development of CDG branded restaurants in the territory of South Africa.
The new brands to be introduced are Café Rouge a group of French Bistros serving a delicious all-day
menu of classic French dishes with a contemporary twist. Las Iguanas bringing fresh South American
dishes, with their own unique Brazilian bottled Las Iguanas Magnifica Cachaça and awesome cocktails to
SA. Bella Italia Italian Casual Dining and Belgo, the world’s favourite Belgian beer and food emporium,
plays by its own rules, specialising in mussels, frites and over 62 Belgian beers.. Gold Brands management
believe that the South African consumer is in need of new exciting international brands. With the vast
experience and support by UK food giants CDG, offering 70% gross margins in their stores, and high
individual store sales, will in turn contribute positive returns, for the group, in the next 12-24 months.

Blacksteer has contributed substantial growth to the Group with the opening of its 19th store over the last
24 months with 9-10 stores due to open in North West Province, Free State, Gauteng and Durban in the
next year.

We were invited to present Chesanyama to the UK market in March 2017 and are in the process of
securing partners for area development licences in the UK the authentic South African Heritage of
Chesanyama was well received by the potential UK investors.

Acquisition of Hot Burger – Greece. The due diligence completed in June 2017 was inconclusive and the
transaction has been cancelled.
REVIEW CONCLUSION

These condensed group financial statements for the year ended 28 February 2017 have been reviewed
by Nexia SAB&T, who expressed an unmodified review conclusion. The auditor’s report contained the
following Emphasis of Matter and Reportable Irregularity Paragraphs:
Material Uncertainty related to going concern

We draw attention to the going concern paragraph of the provisional condensed group financial results.
The financial results indicate that the Group incurred a net loss for the year of R 48 512 575, and the
current liabilities exceeded the current assets by R 17 786 758 at year end. These conditions, along with
the matters set forth in the notes to the condensed group financial results, indicate that a material
uncertainty exists that may cast a significant doubt on the group’s ability to continue as a going concern

Report on Other Legal and Regulatory Requirements

In accordance with our responsibilities in terms of sections 44(2) and 44(3) of the Auditing Profession Act,
we report that we have identified a reportable irregularity in terms of the Auditing Profession Act. We have
reported such matter to the Independent Regulatory Board for Auditors. The matter pertaining to the
reportable irregularity has been described in the Reportable Irregularity paragraph of the condensed group
financial results.

A copy of the auditor’s review report is available for inspection at the company’s registered office.

DIVIDEND POLICY

No ordinary dividends were declared, and no ordinary dividend is proposed for the year.

PROSPECTS

The economy has seen a drastic decline in domestic consumer spend for individual consumers and in an
attempt to combat the slow- down in consumer spending we have had to absorb many of the costs and be
innovative in our menu ideas to ensure consumer affordability, without losing focus on product quality.

We look forward to taking our well-loved authentic South African Chesanyama and Black Steer brands to
global markets. Our aim is to launch new and exciting concepts to expand our portfolio of brands globally.
Our focus is on hands on operators and partners for our brands offering good quality, tasty and value for
money meals to ensure sustainability and profitability.

CHANGES TO THE BOARD OF DIRECTORS

The following non-executive directors have resigned during the period under review:

Non- executive directors:

 Name                                                   Date of resignation / termination
 Mr C.K. Rugara                                         06 October 2016
 Mr H. Biko                                             06 October 2016
 Ms V. Nichas                                           13 January 2017

APPRECIATION

The directors would like to thank the team, customers, strategic partners and suppliers for their
continued support during the year.

By order of the Board
30 June 2017

EfPraxia Nathanael: Terrence Ballard
Chief Executive Officer: Financial Director

CORPORATE INFORMATION
Non-executive directors: Clifford David Raphiri; Christos Kassianides
Executive directors: Efpraxia Nathanael (“Praxia”); Terrence Craig Ballard
Registration number: 2015/168426/06
Registered address: 195 Witch-Hazel Avenue, Highveld Technopark, Centurion, 0046
Postal address: PO Box 290, Cornwall Hill, Irene, 0178
Company secretary: River Group
Telephone: (012)346 8540
Transfer Secretary: Terbium Financial Services (Pty) Limited
Designated and Corporate Adviser: River Group

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