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Interim Consolidated Unaudited Financial Statements of the Tradehold Group for the Six Months to 31 August 2019
TRADEHOLD LIMITED
(Registration number: 1970/009054/06)
Incorporated in the Republic of South Africa
JSE Ordinary Share code: TDH ISIN: ZAE000152658
JSE B Preference Share code: TDHBP ISIN: ZAE000253050
("Tradehold" or "the Group")
INTERIM CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS OF THE TRADEHOLD GROUP
FOR THE SIX MONTHS TO 31 AUGUST 2019
KEY INFORMATION
- Total assets: £916.4 million (2018: £843.7 million)
- Revenue: £47.7 million (2018: £48.6 million)
- Ordinary shareholders' equity: £285.7 million (2018: £278.3 million)
- Loss attributable to shareholders: £0.4 million
(2018: profit £5.7 million).
- Headline earnings per share: 6.9 pence (2018: 2.3 pence)
- Tangible net asset value per share: 116.8 pence / R21.70
(2018: 119 pence / R22.73).
Tradehold's net assets at the reporting date were split across the United
Kingdom in pound sterling (42.7%), United States dollar assets in Africa
(8%), and the balance in South African rand (49.3%). In South Africa it owns
74.3% of the Collins Property Group (after the investment by I-Group). In
the UK it holds 100% of the Moorgarth Property Group, including a 90% stake
in Boutique (previously known as The Boutique Workplace Company), a provider
of serviced office accommodation in Greater London. Moorgarth owns a number
of Boutique's sites.
FINANCIAL PERFORMANCE
Total assets now amount to £916.4 million (2018: £843.7 million). Revenue
was £47.7 million (2018: £48.6 million) while total loss attributable to
shareholders stood at £0.4 million (2018: profit of £5.7 million). The
decrease is mainly due to the loss in the fair-value adjustment of its
investment properties of £14.8 million during the reporting period, compared
to a fair value loss of £2.1 million in the corresponding period, and profit
from discontinued operations of £0.3 million in the prior period.
Headline earnings per share was 6.9 pence, up from 2.3 pence and tangible
net asset value per share (as defined by management) was 116.8 pence /
R21.70, compared to 119 pence / R22.73 in the corresponding period.
The sum-of-the-parts valuation per share (as defined by management) was
119.6 pence / R22.22, compared to 125.8 pence / R24.03 in the corresponding
period.
BUSINESS ENVIRONMENT
The difficult business conditions under which Tradehold's subsidiaries
operated in South Africa and the UK last year, persisted during the
reporting period to 31 August 2019. In South Africa, business confidence
remained fragile, plunging to its lowest level since 1999, given concerns
about the poor health of the economy and perceptions of the inability of
Government to address the constraints that continue to impede growth. High
levels of unemployment, ongoing labour disputes, civil unrest across the
country and political in-fighting in especially the governing party have all
contributed to the prevailing negative sentiment.
In the UK, the uncertainty surrounding the outcome of Brexit has severely
hampered business confidence, with investment in future growth virtually
coming to a standstill. Media reports reflect a continuing decline in
consumer confidence with growth slowing to its lowest levels in six years.
Retail has been particularly hard hit.
Against this background, Tradehold's management teams in both the UK and
Southern Africa have adopted a defensive stance, preserving cash, reducing
debt, minimising non-core assets and managing assets astutely.
Collins Group
Collins Group owns a property portfolio comprising mainly industrial and
commercial buildings that collectively accounts for some 1.6 million square
metres of gross lettable area (GLA). Its major focus remains on quality
industrial and distribution centres that together represent about 91% of
total space available for rent. Political uncertainty has led many
corporates to postponing investments. Consequently, there has been little
opportunity to grow the size of the industrial portfolio. The focus has
therefore been on retaining tenants and vacancies remained low at just 1.55%
at the end of the reporting period. The weighted average lease expiring
profile remains at over seven years.
Management sought to focus on enhancing the quality of the portfolio and
protecting its current income stream. To strengthen the company's financial
position, I-Group Holdings (Pty) Ltd (I-Group) subscribed for a 25.7%
shareholding in Collins Group for R833 million in a transaction finalised
early in the reporting period. The capital raised was used to reduce gearing
thereby lowering the company's loan to value (LTV) from 67.5% to 61.2%,
while also allowing the company to start a process of restructuring
remaining debt more efficiently.
In the face of such depressed market conditions, Collins continued its
defensive strategy of disposing of non-core assets. This process started
during the 2019 financial year when 37 mainly smaller commercial buildings
were identified for sale. Of these, ten were sold in that year and six in
the period to end August, with the transfer of a further two to new owners
now underway. However, as most other property funds were also shedding non-
core assets, the number of buildings coming on to the market placed downward
pressure on valuations. This led to Collins suffering a loss of R16.5
million to book value on these sales, with R15 million resulting from three
vacant properties.
For the foreseeable future management's focus will in the main be on the
following:
- To grow the Group's industrial portfolio with quality acquisitions
- To further reduce exposure to Government-tenanted properties which
fortunately constitute just 2.5% of the portfolio's lettable space; and
- To restructure remaining debt thereby reducing overall cost of finance.
The total value of the Collins portfolio was £466.7 million (R8 673 million)
at end August, compared with £464.7 million (R8 634 million) as at
28 February 2019. It contributed net profit of £4.8 million
(2018: £4.6 million) to the group's net loss after minorities while its
total contribution to tangible net asset value per share was 55.4 pence
(R10.30).
Moorgarth
The significance of the impact on the British economy of the continuing
uncertainties surrounding Brexit should not be underestimated. Across the
board investment decisions have been postponed, cancelled and, in some
instances, diverted to mainland Europe. The property industry has been
particularly hard hit, with tenants increasingly defaulting through
insolvency or company voluntary arrangements (CVAs), the UK version of
business rescue. While all property segments have suffered, retail which
constitutes about 50% by value of Moorgarth's portfolio, has been especially
vulnerable.
In the light of major changes in consumer purchasing patterns, particularly
fast-growing online shopping, management has continued its focus on
repurposing its four large shopping malls to give them wider appeal while
reducing their reliance on retail. This is being done, inter alia, by
expanding the tenant mix to include quality restaurants, bars, cinemas,
gyms, dentists' and doctors' surgeries to transform these spaces into one-
stop meeting places for the community.
To reduce the focus on retail and reach consumers in other ways, asset
management initiatives have included other forms of hospitality. Plans are
underway to build a hotel and 493 residential apartments on or adjacent to
the property on which the group's Broad Street Mall in Reading outside
London is located. Planning permission has been obtained for the new hotel
that is to be leased to the Premier Inn hotel group.
Full planning consent has been obtained from the Edinburgh City Council for
the extensive redevelopment of the historic Waverley Mall, including that of
the rooftop area, a famous landmark in the heart of the old city centre.
Improvements to the entrances have already increased footfall through the
centre which adjoins the city's principal railway station.
A fire in the St Catherine's Retail Park in Perth Scotland, thought to be
arson according to media and other reports, virtually destroyed the centre a
week before the balance-sheet date. Rebuilding of the fully insured property
is expected to start in 2020.
Moorgarth's Market Place mall in Bolton, Greater Manchester, was
particularly hard hit by the slump in retail sales in the UK. The
financially troubled Debenhams chain, an anchor tenant, has entered into a
company voluntary arrangement (though which rental is automatically reduced
to 63% of the agreed contract price) while several other tenants were
declared insolvent and moved out. Although negotiations with potential
tenants to take up the vacant space are ongoing, management has nevertheless
obtained an external valuation for Market Place. This necessitated a
£5.3 million write-down to its valuation of £60 million. The fire in
Perth necessitated an additional write-down of £1.7 million net after
taking into account the insurance claim proceeds.
Moorgarth's share of the group net loss amounted to £7.1 million, against a
net profit of £145 000 in 2018. The value of its portfolio reduced to £244.6
million from £256.7 million if its interest in joint ventures (not reflected
in the balance sheet) is included. This was mainly due to fair-value losses
of £14.6 million on investment properties.
Moorgarth's contribution to tangible net asset value per share is 44.8 pence
(R8.32).
Boutique
Moorgarth continues to drive business at Boutique (previously known as The
Boutique Workplace Company or TBWC) in acquiring suitable properties which
are then refurbished for flexible office space lets. A recent acquisition is
Connolly Works, a building in Euston that has been leased to Boutique, which
is in turn sub-letting the entire building for five years to the London
motoring business Cazoo.
Boutique performed well during the reporting period and for the first time
exceeded income of £2 million in a single month. Occupancy averaged 91% in
an extremely challenging market and it now offers more than 4 500 work
stations spread across 31 buildings in Greater London.
Its early entry into the flexible-office environment has enabled it to
establish a presence ahead of a number of highly aggressive competitors in
the market. Management continues its investigations into expanding
Boutique's services into regional markets, including the UK's major
university cities.
Boutique's EBITDA (earnings before interest, tax, amortisation and
depreciation) for the six months to end August was £5 million, boosted by
the new IFRS 16 reporting requirements. Excluding IFRS 16, EBITDA would have
been £1.4 million (2018: £714,000).
Nguni Group (Namibia)
The Namibian portfolio consists of a selection of mainly retail but also
commercial buildings, offering a total of 92 000 square metres of gross
lettable space in the country's main centres. The period under review saw
the completion of the second and final phase of a new mall in Gobabis, a
major town strategically located on the Trans-Kalahari Highway. The mall,
which is anchored by the Shoprite Group, offers about 10 000 square metres
of trading space. The company is at present in negotiations with a major
corporate with a view to developing an office block as part of its own Steps
development in the capital, Windhoek.
The value of the Nguni Group's portfolio was £41.3 million (R767 million) at
the reporting date, compared with £40.8 million (R757 million) on
28 February 2019. It reported a net profit after minorities of £409,000
(2018: net profit of £403,000) while its total contribution to tangible net
asset value per share is 9.6 pence (R1.78).
Tradehold Africa Group (Mozambique, Botswana and Zambia)
In line with the Group's strategy of withdrawing from all the countries in
Africa outside of South Africa and Namibia, it has sold, or is in the
process of selling, all its properties in Zambia. It is also finalising the
sale of the last property in Botswana. All that remains of the existing
portfolio are three properties in Mozambique.
The value of the portfolio decreased by £0.8 million to £25.7 million from
£26.5 million at the end of February 2019, mainly due to the disposal of the
Lusaka Hotel in Zambia, offset by the strengthening of the USD against the
GBP during the period under review. The company contributed £1.7 million to
total group profits, compared to a net profit of £2.4 million for the
corresponding period. The decrease is due to the disposal of properties in
Mozambique and Zambia.
Tradehold Africa's contribution to tangible net asset value per share is
7.8 pence (R1.45).
DIVIDEND
The board has decided not to declare an interim dividend.
OUTLOOK
The stalemate in British politics continues with a general election now
scheduled for 12 December 2019. On the positive side, with the EU's decision
to grant the UK's request for a further three-month extension, one can
assume that a no-deal Brexit with its potentially disastrous consequences
for the British economy is no longer on the table. Whatever the outcome of
the election, we believe that in the coming months the British economy will
start recovering as certainty about the country's future grows.
In the case of South Africa, the country's economic future now appears much
bleaker following Finance Minister Mboweni's ominous description in his
medium-term budget policy statement of the sharp deterioration in the
country's finances and the looming debt trap it faces. It is obvious that it
will take years to return the country to a strong and consistent growth
path, even with the implementation of far-reaching turn-around strategies
which at this stage are completely absent.
In the light of the above and until there are clear indications of recovery
in the economies of both South Africa and the UK, we shall continue our
present defensive strategy. We shall focus relentlessly on our core
business; on upgrading and maintaining our portfolio, keeping it in prime
condition to assure full occupancy; and on reducing debt by selling off non-
core assets. At the same time, we shall remain sensitive to changes in the
market to benefit from any opportunities that may arise. Conditions will
undoubtedly remain difficult during all of the second half of the year, but
we are confident we have the capabilities to continue to achieve acceptable
results.
C H Wiese K L Nordier
Chairman Director
Malta
12 November 2019
FULL ANNOUNCEMENT
The contents of this announcement is the responsibility of the directors of
Tradehold Limited. It is only a summary of the information contained in the
full announcement. Any investment decisions by investors and shareholders
should be based on consideration of the full announcement published on SENS
on Thursday, 14 November 2019;
https://senspdf.jse.co.za/documents/2019/jse/isse/tdh/int2019.pdf and on
Tradehold's website at www.tradehold.co.za. Copies of the full announcement
are available for inspection and may be requested at no charge from
Tradehold's registered office at 36 Stellenberg Road, Parow Industria, or
from that of its sponsor, Exchange Sponsors (2008) (Pty) Ltd, 44a Boundary
Road, Inanda, Sandton, at no charge, from Monday to Friday during office
hours.
DIRECTORS AND ADMINISTRATION
Executive directors: T A Vaughan, F H Esterhuyse, D A Harrop, K L Nordier
Non-executive directors: C H Wiese (alternate J D Wiese), H R W Troskie,
M J Roberts, K R Collins, L L Porter
Independent non-executive directors: H R W Troskie, M J Roberts, L L Porter
Company secretary: P J Janse van Rensburg
Transfer secretary: Computershare Investor Services (Pty) Ltd
Sponsor: Exchange Sponsors (2008)(Pty) Ltd
Date: 14/11/2019 07:05:00
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