ADRENNA PROPERTY GROUP LIMITED - Audited Results for the Year Ended 28 February 2018

Release Date: 29/05/2018 08:05
Code(s): ANA
 
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Audited Results for the Year Ended 28 February 2018

Adrenna Property Group Limited
(Incorporated in the Republic of South Africa)
(Registration number 1998/012245/06)
(JSE share code: ANA       ISIN: ZAE000163580)

AUDITED RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2018


STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED
28 FEBRUARY 2018

                                                                                         Audited    Audited
                                                                                           Group      Group
R’000                                                                                       2018       2017
Revenue                                                                                   27 549     26 160
Operating income/(loss) before interest and revaluations                                  16 886     16 226
Fair value adjustment on investment properties                                            13 736     19 018
Investment income                                                                            838        953
Finance costs                                                                             (9 814)    (6 732)
Net income before taxation                                                                21 646     29 465
Taxation                                                                                  (5 978)    (8 368)
Income after taxation for the year                                                        15 668     21 097
Income attributable to ordinary shareholders                                              15 668     21 097
Other comprehensive income:
Total comprehensive income attributable to:
- Ordinary shareholders                                                                   15 668     21 097
- Non- controlling interests                                                                   -          -
                                                                                          15 668     21 097

Basic earnings per share (cents)                                                            28,0       37,7
Weighted average shares in issue (‘000)                                                   55 915     55 915

STATEMENT OF FINANCIAL POSITION AS AT 28 FEBRUARY 2018

                                                                                        Audited    Audited
                                                                                          Group      Group
R’000                                                                                      2018       2017
ASSETS
Non-current assets
Investment property                                                                     243 309    229 954
Property, plant and equipment                                                               898          -
Loans owing by third parties                                                              3 324      5 447
Operating lease asset                                                                     6 502      6 889
Other financial assets                                                                      800          -
Deferred taxation                                                                             -        289
                                                                                        254 833    242 579
Current assets
Loans owing by third parties                                                              2 061      1 873
Inventory                                                                                 1 430      1 430
Accounts receivable                                                                       5 191      3 082
Operating lease assets                                                                    3 730      2 871
Current taxation receivable                                                                 123         40
Cash and cash equivalents                                                                 6 395        263
                                                                                         18 930      9 559
Total assets                                                                            273 763    252 138
                                                              Audited    Audited
                                                                Group      Group
R’000                                                            2018       2017
EQUITY AND LIABILITIES
Equity
Stated Capital                                                    567        567
Retained Earnings                                             161 622    145 954
                                                              162 189    146 521
Non-current liabilities
Borrowings                                                     64 814     54 606
Deferred taxation                                              40 932     38 435
                                                              105 746     93 041
Current liabilities
Current portion of borrowings                                       -      9 626
Amounts owing to group companies                                    -          -
Accounts payable                                                2 530      1 280
Current taxation payable                                          514        313
Bank overdraft                                                  2 784      1 357
                                                                5 828     12 576
Total equity and liabilities                                  273 763    252 138


STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 28 FEBRUARY 2018

                                                               Audited    Audited
                                                                 Group      Group
R’000                                                             2018       2017
Cash generated by operations                                    15 636     12 687
Finance costs                                                   (9 814)    (6 732)
Investment income                                                  838        953
Taxation refunded                                                  136        281
Taxation paid                                                   (3 280)    (1 058)
                                                                 3 516      6 131
Cash flows from investing activities
Proceeds from sale of investment property                       11 500      6 745
Acquisition of investment property                             (11 119)      (804)
Acquisition of property, plant and equipment                      (910)         -
Acquisition of other financial assets                             (800)         -
Repayment of loans owing by third parties                        1 935      1 708
                                                                   606      7 649
Cash flows from financing activities
Proceeds from raising of additional bond finance                64 814          -
Repayment of borrowings                                        (64 231)    (8 996)
                                                                   583     (8 996)
Movement in cash and cash equivalents                            4 705      4 784
Cash and cash equivalents at beginning of the year              (1 094)    (5 878)
Cash and cash equivalents at end of the year                     3 611     (1 094)

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 28 FEBRUARY 2018

                                                                                               Audited                    Audited
                                                                                                 Group                      Group
R’000                                                                                             2018                       2017
STATED CAPITAL
Ordinary stated capital
Balance at beginning of the year                                                                   567                        567
Movements during the year                                                                            -                          -
Balance at end of the year                                                                         567                        567
RESERVES
Retained earnings
Balance at beginning of the year                                                               145 954                    124 857
Comprehensive income attributable to ordinary shareholders                                      15 668                     21 097
Balance at end of the year                                                                     161 622                    145 954
Total equity and reserves attributable to ordinary shareholders                                162 189                    146 521
Non-controlling interests
Balance at beginning of the year                                                                     -                          -
Balance at end of the year                                                                           -                          -
Total equity and reserves                                                                      162 189                    146 521

BASIS OF PREPARATION
The Board of Directors is pleased to present the Group’s audited results for the year ended 28 February 2018, which have
been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards
(“IFRS”), including IAS 34 on Interim Financial Reporting, and its interpretations issued by the International Accounting
Standards Board (“IASB”); the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee;
Financial Pronouncements as issued by Financial Reporting Standards Council; the Companies Act of South Africa, as
amended; and the JSE Limited (“JSE”) Listing Requirements. The accounting policies applied in the preparation of these
audited financial statements are in terms of IFRS and are consistent with those used in the prior year.

AUDIT OPINION
The annual financial statements have been audited by our auditors, RSM South Africa Incorporated. In their opinion, the
consolidated financial statements present fairly, in all material respects, the consolidated financial position of the group as at
28 February 2018, and its consolidated financial performance and consolidated cash flows for the year then ended in
accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa.

The auditor’s report does not necessarily report on all 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.

PREPARER
The Financial Director, Hartmann Beukes CA(SA), was responsible for the preparation of the audited financial results.

DIRECTOR’S RESPONSIBILITY STATEMENT
These audited financial statements have been derived from the Adrenna Group’s annual financial statements. The contents of
this announcement are extracted from audited information, although the announcement is not itself audited. The directors
take full responsibility for the preparation of the provisional report and the financial information has been correctly extracted
from the underlying annual financial statements.

ACQUISITIONS AND DISPOSALS DURING THE PERIOD
During the year under review the group invested in a new investment property, consisting of office space, within the
Fourways, Johannesburg area for an initial purchase price of R8,8 million. Further improvements of R0,2 million were made
to this property prior to the end of the financial year end.

Improvements to the value of R2,1 million were affected to the investment property in Goodwood, Cape Town, during the
year under review.

Two units of vacant, unutilised land were disposed of during the year for R5 million and R6,5 million respectively.

Items of computer equipment, motor vehicles and fittings for a consolidated cost price of R0,9 million were acquired during
the year.

Four shares, equal to four weeks, were acquired in the Warthog Wallow Shareblock Pty Ltd for a cost of R0,8 million for
both long-term capital gain and incentive purposes.
CHANGES TO THE BOARD
There were no changes effected to the Board during the year under review.

GENERAL REVIEW, FINANCIAL RESULTS AND PROSPECTS
Whilst the environment within which the group operates has remained fairly static during the year under review, the stability
of the market has provided the directors with a firm foundation upon which to embark upon a period of expansion and risk
mitigation.

During the year under review the directors endeavoured to dispose of unutilised, non-revenue generating properties with a
view to deploying the proceeds from such disposals toward the acquisition of revenue-generating investment property which
would bolster the net asset value of the group’s portfolio and contribute toward the future beneficial returns. The ensuing
disposal of two small, empty units of vacant land in Cape Town and the corollary acquisition and a fully-tenanted office
building in Gauteng denotes the successful completion of the directors’ intentions.

To facilitate an expansionary phase, the availability of funding is of pivotal importance, which is why the directors negotiated
the raising of an interest-only Participation Bond facility of R120 million during the year under review. The directors are of
the view that the risk of interest rate fluctuations may have significant cash flow effects in the near future and as such the
Participation Bond terms include a fixed interest rate of 11% on the portion drawn down for a period of five years. The fixed-
interest, interest-only terms of the Bond have provided the group with additional tax and cash benefits throughout the period
of the Bond.

The group achieved an increase in rental income, exclusive of straight-lining effects, of 13% on the prior year results. Annual
escalations on existing leases, accompanied with additional rental revenues generated by the new investment property for a
period of the financial year, contributed to this increase. Operating income before interest and fair value adjustments
increased to R16,9 million from R16,2 million, an annual increase regardless of the additional professional fees and
reparation costs associated with the new investment property acquired in the current year. A conservative fair value
adjustment as compared to the prior year, combined with additional finance charges incurred upon the raising of the
Participation Bond, has resulted in a decrease in net income after taxation from R21,1 million to R15,7 million, an expected
result when taking the portfolio restructuring effects into account.

The restructuring exercise within the group’s asset and liability portfolio has resulted in an increase in the value of
investment property holdings of R13,3 million, with an increase in direct borrowings of only R0,6 million. This has had a
beneficial effect on the group’s gearing by reducing this percentage to 26,6% from 27,9%.

Net asset value per share and net tangible asset value per share, the fundamental indication of the group’s value, has
increased by 10,7% from 262 cents per share to 290 cents per share. The directors are confident that, with the expansion in
the investment property portfolio and fixing of interest rates on borrowings having been implemented, the group will
continue to show marked improvements in Net Asset Value.

HEADLINE EARNINGS RECONCILIATION AND SHARE INFORMATION

                                                                                              Audited                  Audited
                                                                                                Group                    Group
R’000                                                                                            2018                     2017
Number of ordinary shares in issue at beginning of the year (000’s)                            55 915                   55 915
Number of ordinary shares in issue at end of the year (000’s)                                  55 915                   55 915
Weighted average number of shares in issue (000’s)                                             55 915                   55 915
Basic earnings
Net profit per statement of comprehensive income                                               15 668                   21 097
Basic earnings per share (cents)                                                                 28,0                     37,7
Headline earnings
Net profit per statement of comprehensive income                                               15 668                   21 097
Profit on disposal of assets                                                                        -                     (355)
Revaluation of investment property (net of taxation)                                          (11 630)                 (13 417)
Headline earnings                                                                               4 038                    7 325
Headline earnings per share (cents)                                                               7,2                     13,1

Net asset value per share
Net asset value per share (cents)                                                               290,0                    262,0
Net tangible asset value per share (cents)                                                      290,0                    262,0
SEGMENTAL RESULTS  
                                                                2018 - (R'000)                                                     2017 - (R'000)
                                  Investment      Property-          Property        Head                Investment   Property-         Property       Head
                                    Property        Related          Held for      Office                  Property     Related         Held for     Office
                                     Holding       Services            Resale       Admin       Total       Holding    Services           Resale      Admin             Total
Revenue                               27 549              -                 -           -      27 549        26 160           -                -          -           26 160
Operating income/(loss)
before
interest and revaluations             18 904              -                 -      (2 018)     16 886        21 352           -                -     (5 126)          16 226
Fair value adjustments                13 736              -                 -           -      13 736        19 018           -                -          -          19 018
Investment income                         36              -                 -         802         838            54           -                -        899             953
Finance costs                         (9 700)             -                 -        (114)     (9 814)       (6 240)          -                -       (492)         (6 732)
Net income/(loss) before              22 976              -                 -      (1 330)     21 646        34 184           -                -     (4 719)          29 465
taxation
Taxation                              (5 487)                                        (491)     (5 978)       (7 848)          -                -       (520)         (8 368)
Profit/(loss) for the year            17 489              -                 -      (1 821)     15 668        26 336           -                -     (5 239)          21 097
Other comprehensive income
Total comprehensive income
attributable to:
Ordinary shareholders                 17 489              -                 -      (1 821)     15 668        26 336           -                -     (5 239)          21 097
Non-controlling interests                  -              -                 -           -           -             -           -                -          -               -
                                      17 489              -                 -      (1 821)     15 668        26 336           -                -     (5 239)          21 097
Other information-
Segment assets                       265 250              -             1 430       7 083     273 763       241 677           -            1 430      9 031          252 138
Segment liabilities                  108 790              -                 -       2 784     111 574       104 137           -                -      1 480          105 617

                                                                                                          2018                                     2017
                                                                                          Western                                     Western
                                                                                             Cape       Gauteng        Total             Cape       Gauteng          Total
Revenue                                                                                    26 657           892       27 549           26 160             -         26 160
Operating income/(loss) before interest and revaluations                                   17 263          (377)      16 886           21 352        (5 126)        16 226
Fair value adjustments                                                                     11 763         1 973       13 736           19 018             -         19 018
Investment income                                                                              36           802          838               54           899            953
Finance costs                                                                              (9 700)         (114)      (9 814)          (6 240)         (492)        (6 732)
Net income/(loss) before taxation                                                          19 362         2 284       21 646           34 184        (4 719)        29 465
Taxation                                                                                   (5 397)         (581)      (5 978)          (7 848)         (520)        (8 368)
Profit/(loss) for the year                                                                 13 965         1 703       15 668           26 336        (5 239)        21 097
Other comprehensive income
Total comprehensive income attributable to:
Ordinary shareholders                                                                      13 965         1 703       15 668           26 336        (5 239)        21 097
Non-controlling interests                                                                       -             -            -                -             -              -
                                                                                           13 965         1 703       15 668           26 336        (5 239)        21 097
Other information
Segment assets                                                                            254 039        19 724      273 763          241 677        10 461        252 138
Segment liabilities                                                                       108 232         3 342      111 574          104 137         1 480        105 617

Segmental aggregation is based on the main sources of activity, namely Investment Property Holding, Property-related Services, Property Sales and Head Office Administration.

Inter-segment transactions are measured based on arm's length prices.

Major customers
Customers yielding revenues in excess of 10% of the group revenue are considered to be major. The table below illustrates the
major customers exceeding the 10% threshold:

 R'000                                                                                                 2018                 2017
 Investment Property Holding
 Customer A                                                                                           8 250                7 659
 Customer B                                                                                           6 237                5 809
 Customer C                                                                                           2 955                2 804


RELATED PARTIES

The following related parties have been identified in terms of their association with the group:

Islandsite Investments Twenty Three Proprietary Limited and                                    Entities controlled by a director,
Kwabahathi Eiendomme cc                                                                                             Mr RP Fertig
Propconsult Proprietary Limited                                                       Entity controlled by the Company Secretary,
                                                                                                                    Mr BW Kaiser
JNF Investment Trust                                                                Entity in which a director, Mr WP Alcock, is
                                                                                                both a beneficiary and a trustee
Phoenix Accounting Solutions – Chartered Accountants (SA)                                 Entity in which the financial director,
                                                                                                  Mr H Beukes, holds an interest
RMS Corporate Solutions Proprietary Limited                                                      Entity with common directorship
RMS Property and Facilities Management Proprietary Limited                                    An operating subsidiary within the
                                                                                                   RMS Corporate Solutions Group

During the year the group had the following related party transactions:

                                                                                                        Group              Group
R’000                                                                                                    2018               2017
Consultancy fees paid to Islandsite Investments Twenty Three Proprietary Limited and                      885                875
Kwabahathi Eiendomme cc
Consultancy fees paid to Propconsult Proprietary Limited                                                  510                465
Consultancy fees paid to JNF Investment Trust                                                             240                210
Accounting fees paid to Phoenix Accounting Solutions – Chartered Accountants (SA)                         504                482
Asset management fees paid to RMS Corporate Solutions Proprietary Limited                               3 471              3 289
Rental paid to RMS Corporate Solutions Proprietary Limited                                                 76                221
Operating costs paid to RMS Corporate Solutions Proprietary Limited                                         -                 71
Property management fees, facilities management fees and collection commission paid to                  2 308              1 507
RMS Property and Facilities Management Proprietary Limited
Interest received from RMS Corporate Solutions Proprietary Limited                                      (758)               (897)
Professional fees paid to RMS Property and Facilities Management Proprietary Limited                        -                200
Rental charged to RMS Corporate Solutions Proprietary Limited                                             200                  -
Rental charged to RMS Property and Facilities Management Pty Ltd                                          480                  -
At year-end the group had the following related party balances:
Loan owing (to)/by RMS Corporate Solutions Proprietary Limited                                          5 385              7 320


For and on behalf of the Board
29 May 2018

Directors: WP Alcock (Chairman); RP Fertig (CEO); H Beukes CA(SA) (FD); SP Mothelesi; M Moela; R Watson
Company Secretary: BW Kaiser
Transfer Secretaries: Computershare Investor Services (Pty) Limited, Rosebank Towers, 15 Biermann Avenue, Rosebank
2196
Registered Office: Unit 32, Waterford Office Park, Waterford Drive, Fourways 2021
Sponsor: Arbor Capital Sponsors (Pty) Limited, 20 Stirrup Lane, Woodmead Office Park, Corrner Woodmead Drive and Van
Reenens Avenue, Woodmead 2191

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