CONSOLIDATED PRO FORMA FINANCIAL INFORMATION OF GPI
NOTES TO THE CONDENSED GROUP STATEMENT OF FINANCIAL POSITION:
1) The “Results as at 31 December 2013” column has been extracted from the published unaudited interim results of GPI for the six months ended 31 December 2013.
2) Grand Casino Investment’s investment in Dolcoast is classified as an investment in associate which had been equity accounted in the GPI Group results for the six months ended 31 December 2013. As a result of the Sibaya Transaction, the carrying value of the investment at GPI Group level of R119.3 million has been reversed.
3) The cash and cash equivalents have increased as a result of the net cash received from the Sibaya Transaction of R129.3 million, which consists of R130.0 million consideration received less transaction fees of R0.7 million.
4) Total equity was affected by the following items; retained earnings increased by R10.7 million of profit recognised on the Sibaya Transaction, this amount was reduced by R0.7 million transaction fees and R2.0 million income tax (net of deferred tax) recognised on the disposal.
5) The deferred tax liability relating to the revaluation of the investment in Dolcoast to its fair value, when control of Grand Casino Investments KZN was obtained through acquisition, of R15.0 million was reversed and recognised through the statement of comprehensive income, on disposal of the investment.
6) The capital gains tax payable on the Sibaya Transaction of R17.0 million will only be payable in June 2014. Therefore an accrual of the full amount of R17.0 million has been recognised.
7) The GPI Group disposed of its entire holding in Sunwest, as the investment had been treated as an investment in a jointly-controlled entity, the carrying value of the investment of R1 046.9 million is derecognised as a result of the sale.
8) The cash and cash equivalents increased by R1 383.0 million as a result of the disposal of SunWest. The increase is due to the proceeds of R1 527.9 million received from the disposal of SunWest less R133.2 million used to redeem the outstanding redeemable cumulative preference shares, refer to note 10 for details of the redemption, and less R9.1 million in transaction fees and less R2.6 million of accrued preference shares dividends that will be paid as part of the preference share redemption.
9) The total equity increased by R471.3 million all as a result of an increase in the retained earnings. The retained earnings increased as a result of the R481.0 million profit recognised on the disposal of SunWest, however this was reduced by R9.1 million transaction fees being recognised as well as R0.5 million in capitalised costs relating to the redeemable cumulative preference shares, that were expensed as a result of the preference shares being redeemed.
10) The GPI Group’s investment in SunWest is offered as security against the redeemable cumulative preference shares issued by Grand Casino Investments. As a result of the disposal of SunWest, Grand Casino Investments is required to redeem the outstanding preference shares which have a carrying value of R132.6 million. The difference between the cash utilised for the redemption and the balance of the preference shares is as a result of initial raising fees that were capitalised to the carrying value of the preference shares in GPI.
11) The preference share dividends are paid semi-annually in March and September each year. Therefore at 31 December 2013 R2.6 million had been accrued for preference share dividends which, as part of the preference share redemption would have been paid to the shareholders.
12) The cash and cash equivalents increased by R22.0 million as a result of the disposal of Worcester Casino. The increase is due to the proceeds of R22.1 million received from the disposal of Worcester Casino less R0.1 million in transaction fees.
13) The total equity increased by R22.0 million all as a result of an increase in the retained earnings. The retained earnings increased as a result of the R22.1 million reversals of previous impairments to the investment in Worcester Casino, however this was reduced by R0.1 million transaction fees.
14) In terms of the GPI Slots Sale Agreement with effect from the closing date of GPI Slots Investment One Sale, GPI and SUI have agreed to operate the GPI Slots Group based on a predetermined set of business and trading policies. Therefore in terms of IFRS 11 – Joint Arrangements, GPI’s investment in GPI Slots is classified as a jointly controlled entity and GPI is required, for the closing date of GPI Slots Investment One Sale, to de-consolidate the results of the GPI Slots Group.
When de-consolidating the GPI Slots Group, 100% of the GPI Slots Group assets and liabilities have been removed from each line item and an investment in jointly controlled entity must be recognised under Non-current assets.
The following GPI Slots Group assets and liabilities have been removed; Investment in preference shares of R21.7 million;
Loans receivable of R0.6 million; Goodwill of R172.8 million; Property, plant and equipment of R111.9 million, Intangible assets of R85.8 million; Deferred tax assets of R15.5 million; Inventories of R1.5 million; Trade and other receivables of R30.3 million;
Related party loans of R0.7 million; Cash and cash equivalents of R37.5 million; Non-current deferred tax liability of R18.6 million;
Non-current interest bearing borrowings of R16.0 million; Non-current provisions of R0.6 million; Non-current finance lease
liabilities of R0.6 million; Trade and other payables of R47.5 million; Current portion of interest bearing liabilities of R9.9 million;
Provisions of R1.6 million and Income tax payable of R4.5 million and Related party loans of R19.4 million.
The investment in jointly controlled entity is recognised at the fair value of the portion of the GPI Slots Group’s net assets retained by GPI. The fair value of the Slots Group’s net assets at 31 December 2013 is assumed to be R868.1 million, therefore the value of the investment in a jointly-controlled entity is R650.2 million which represents 74.9% of the fair value.
In addition and as a result of the deconsolidation of the GPI Slots Group, certain related party balances that were eliminated on consolidation of the Slots Group into GPI, have been recognised as part of the de-consolidation process. These balances are:
• Goodwill related to acquisitions made by the GPI Slots Group of R14.5 million recognised as an asset under Non-current Assets and as a reduction of retained earnings under equity, the original transaction was recognised in the GPI Group results as follows: On 30 June 2010 GPI Slots acquired a controlling share in Grand Gaming KwaZulu-Natal which was treated as a business combination in the results of the GPI Slots Group. Goodwill and a non-controlling interest were recognised in the GPI Slots Group, however the non-controlling portion was held by Grand Gaming Casino KZN, which at the time was controlled by GPI. Therefore in the GPI Group results the non-controlling interest was eliminated and the Goodwill adjusted by the fair value of the non-controlling interest being R14.5 million,
• Preference share investment of R21.7m recognised as an asset under Non-Current Assets and as a liability under Cumulative redeemable preference shares, and
• Related party trade balances of R5.8 million as a trade receivable asset under current assets and a trade payable liability under current liabilities.
• Related party loans of R19.4 million which represents the loan account between Rowmoor Investments, a subsidiary of GPI and Grand Gaming Gauteng, a subsidiary of GPI Slots, recognised in loans receivable under current assets and related party loans under current liabilities. This entry eliminates the loan payable relating to Grand Gaming Gauteng under current liabilities and recognises the loan receivable relating to Rowmoor Investments under current assets.
15) The cash and cash equivalents have increased by the net cash received, which is made up of the proceeds received from the disposal of the GPI Slots Group less the related transaction fees. The net cash received in each tranche of the GPI Slots Transaction is as follows:
GPI Slots Investment One Sale, net cash of R284.3 million was received, made up of R268.2 million in proceeds from the disposal, R17.5 million in cancellation fees received net of VAT and less transaction fees of R1.4 million.
GPI Slots Investment Two Sale, net cash of R301.9 million was received made up of R303.4 million in proceeds from the disposal less transaction fees of R1.5 million.
GPI Slots Investment Three Sale, net cash of R290.6 million was received made up of R292.1 million in proceeds from the disposal less transaction fees of R1.5 million.
16) The movements in equity comprise the profit recognised on the disposal of GPI Slots, less the related Capital Gains Tax and transaction fees, described for each tranche of the GPI Slots Transaction as follows:
GPI Slots Investment One Sale, the net movement in equity is R545.1 million made up of R558.5 million profit from the disposal of GPI Slots, R17.5 million cancellation fees received net of VAT and R14.5 million Goodwill adjustment for the deconsolidation of the GPI Slots Group, less R40.3 million Capital Gains tax on the disposal of the GPI Slots Group, R3.7 million capital gains tax on the cancellation fee and R1.4 million of related transaction fees.
GPI Slots Investment Two Sale, the net movement in equity is R34.1 million made up of R86.4 million profit from the disposal of GPI Slots, less R50.7 million Capital Gains tax on the disposal of the GPI Slots Group and R1.5 million of related transaction fees.
GPI Slots Investment Three Sale, the net movement in equity is R64.9 million made up of R119.3 million profit from the disposal of GPI Slots, less R52.9 million Capital Gains tax on the disposal of the GPI Slots Group and R1.5 million of related transaction fees.
17) The capital gains tax on the disposal of the GPI Slots Group under the respective tranches of the GPI Slots Transaction, has been calculated using a tax base cost of the investment in the GPI Slots Group of R2.0 million. The taxes are recognised in the statement of comprehensive income on the date of disposal, therefore it has been assumed that the retained earnings are reduced by the value of the capital gains tax on each disposals effective date, being 31 December 2013 for the purposes of the statement of financial position. In addition the tax is assumed to be payable at the end of the financial year, being 30 June 2014, therefore a payable has been raised under the current liabilities. The capital gains tax under each tranche of the GPI Slots Transaction has been calculated as follows:
In terms of GPI Slots Investment One Sale, the capital gain on the disposal of 25.1% of the GPI Slots Group is R216.0 million, which is made up of proceeds from the disposal of equity of R217.9 million less the pro-rata share of the tax base cost of the investment in the GPI Slots Group of R0.5 million and less transaction fees of R1.4 million. The tax on the capital gain calculated
at a rate of 18.6% amounts to R40.3 million. A further R3.7 million CGT accrual has been recognised under current liabilities as a result of the cancellation of the Management and ICT contract. In terms of the cancellation R20.0 million (including VAT) was received as a cancellation fee and thus the proceeds received, and with the tax base of the contract being Rnil, the full R20.0 million is subject to capital gains tax at a rate of 18.6%.
In terms of GPI Slots Investment Two Sale, the capital gain on the disposal of 25.0% of the GPI Slots Group is R271.8 million, which is made up of proceeds from the disposal of equity of R273.9 million, less the pro-rata share of the tax base cost of the investment in the GPI Slots Group of R0.5 million and less transaction fees of R1.5 million. The tax on the capital gain calculated at a rate of 18.6% amounts to R50.7 million.
In terms of GPI Slots Investment Three Sale, the capital gain on the disposal of 19.9% of the GPI Slots Group is R283.6 million, which is made up of proceeds from the disposal of equity of R283.7 million, less the pro-rata share of the tax base cost of the investment in the GPI Slots Group of R0.4 million and less transaction fees of R1.5 million. The tax on the capital gain calculated at a rate of 18.6% amounts to R52.9 million.
18) In terms of IFRS 10- Consolidated Financial Statements, GPI’s control of its investment in GPI Slots changes from control to joint control after the completion of GPI Slots Investment One Sale. After GPI Slots Investment Two Sale, GPI loses control over its investment in GPI Slots and the investment is reclassified from a jointly controlled investment to an investment in associate.
GPI is required to equity account its investment in GPI Slots when it is both a jointly controlled investment and an investment in associate. As a result the investments are both classified under Non-current assets.
After GPI Slots Investment Two Sale is concluded, the investment in jointly controlled entity recognised in GPI Slots Investment One of R650.2 million is derecognised and an investment in associate is correspondingly recognised at the proportionate share of the fair value of the net assets of the GPI Slots Group. Therefore an investment in associate of R433.2 million is recognised, which represents 49.9% of the R868.1 million fair value of the GPI Slots Group.
The investment in associate recognised in GPI Slots Investment Two Sale is further reduced in Investment Sale Three when a further 19.9% of GPI Slots is sold. The reduction in the investment in once again at the related portion of the fair value of the GPI Slots Group. Therefore the investment in associate is reduced by R172.8 million which represents 19.9% of the R868.1 million fair value of the GPI Slots Group.
19) In terms of the GPI Slots Sale Agreement, the consideration paid includes the face value of the Shareholder Loans. The effect of this payment is to equalise the shareholder loans and to ensure that after each sales tranche the respective shareholders hold a proportionate share of these loans.
In the GPI Slots Investment One Sale, the GPI Slots Group results are de-consolidated from the GPI Results (refer to note 14 above) and as part of the de-consolidation process a shareholder loan to GPI Slots of R200.3 million is recognised in the GPI results, which is the value extracted from the GPI Slots Forecast Financial Information in Annexure 4 of this circular. The shareholder loan is recognised by reducing the carrying value of the Investment in jointly controlled entities.
In order to ensure that the shareholder loans are in proportion to the respective shareholder loans, the shareholder loan to GPI Slots is reduced by R50.3 million which represents the 25.1% (sold under GPI Slots Investment One Sale) of the R200.3 million forecast shareholder loan balance at 30 June 2014. The shareholder loan is reduced by increasing the carrying value of the investment in jointly controlled entities.
In the GPI Slots Investment Two Sale, and in order to ensure that the shareholder loans are in proportion to the respective shareholder’s investments, the shareholder loan to GPI Slots is reduced by R29.6 million which represents the 25.0% (sold under GPI Slots Investment Two Sale) of the R 118.3 million forecast shareholder loan balance at 30 June 2015 (extracted from the GPI Slots Forecast Financial Information in Annexure 4 of this circular). The shareholder loan is reduced by increasing the carrying value of the investment in associate.
In the GPI Slots Investment Three Sale, also to ensure that the shareholder loans are in proportion to the respective shareholder’s investments, the shareholder loan to GPI Slots is reduced by R6.6 million which represents 19.9% (sold under GPI Slots Investment Three Sale) of the R33.0 million forecast shareholder loan balance at 30 June 2016 (extracted from the GPI Slots Forecast Financial Information in Annexure 4 of this circular). The shareholder loan is reduced by increasing the carrying value of the investment in associate.
ANNEXURE 3