Revenue ADR EBITDAOccupancy REVPAR Gearing
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Africansun Limited HY 2014 financial results

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Africansun Limited Listed on the Zimbabwe Stock Exchange has released its Half Year Results. Check out
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Africansun Limited HY 2014 financial results

  1. 1. Revenue ADR EBITDAOccupancy REVPAR Gearing For investor information visit us on our website: www. africansunhotels.com Unaudited Interim Financial Results for the half year ended 31 March 2014 -4% US$25.33m -6 percentage points 41% -9% US$40 +4% US$97 -38% US$2.17m (US$0.81m) (0,09cents) 52% Loss before tax Basic loss per share Directors: B. L. Nkomo (Chairman), S A Munyeza (Group Chief Executive)*, S. P. Cranswick, E. A. Fundira, W. T. Kambwanji, A. Makamure, N. G. Maphosa, N. Mangwiro (Group Finance Director)*, T. Nuy, N. R. Ramikosi. *Executive INTRODUCTION The period under review saw the Group experiencing difficult trading conditions, with a decline in local business owing to persistent liquidity challenges facing the Zimbabwean economy.Inboundbusinessfrominternationalsourcemarkets remainedstrong,improvingtheGroup’sADRposition. In response to the constraints of the domestic market, the Group has proactively remodeled the business for sustainable growth through enhancing business efficiencies and competitiveness. Focused pursuit of recapitalization and debt reduction to reduce the Group’s gearing are at an advanced stage, and shouldbeconcludedbySeptember2014. BUSINESS OVERVIEW Foreign arrivals improved by a consolidated 2% from same period last year spurred by growth from Europe and Asia, which increased by 5% and 25% respectively. This growth trend was slowed by a decline of 5% and 19% in arrivals from America and the African region respectively. The African region’s poor performance was driven by a 36% decline in SouthAfricanarrivals. The 2% growth in foreign arrivals resulted in an increase of 12% in rooms revenue over same period last year. The domestic market rooms revenue reduced by 13% as a result of a 6.65% decline in room nights owing to the depressed economic environment. The sum effect was an improved contribution of foreign room nights to the business mix to 40%upfrom38%achievedlastyear. The Group’s ADR increased by 4% to close at US$97 from US$93 achieved in the comparable period. The growth was a result of a 14% increase in the foreign ADR for the Zimbabwean market and the opening of African Sun Amber AccraAirportinGhana. Occupancy declined to 41%, compared to 47% from prior year, resulting in a RevPAR of US$40, down from US$44 last year.Thereducedoccupancymusthoweverbereadintandem withthereturntofullcapacityfollowingthecompletionofthe rooms refurbishment program. On a like for like basis, prior year occupancies would have been 44%, showing a decline of3percentagepoints. The Group has embarked on various initiatives to reduce costs, resulting in a 3% decline in the Zimbabwe segment’s operatingcosts. FINANCIAL REVIEW Revenue for the 6 months to March was US$25.33 million; which is a 4% reduction from same period last year of US$26.44million.Thedropisattributedtoa5%declineinthe depressedZimbabwesegment. EBITDAfortheperiodreducedby38%toUS$2.17million(9% margin) from US$3.48 million (13% margin). The decline is attributable to depressed revenue performance as well as the openingofanewhotelinGhana.AmberHotelAccraAirportis stillinthe‘softopeningphase’andtheoperatingmodelisyet to achieve optimum efficiencies. Operating costs increased by 2% from the same period last year to US$16.90 million from US$16.61 million. Reported separately is US$230,000 relating to Ghana pre-opening expenses. Excluding Ghana, operating costs reduced by 3% as a result of the various cost reduction initiativesthatwereimplemented. Financing costs charged to the statement of comprehensive income reduced by 10% from US$1.55 million last year to US$1.397 million this year owing to a partial reduction of short-term loans in October 2013 amounting to US$4.1 million. Financing costs on short-term loans amounted to US$1.107 million, which is a 28.5% reduction from US$1.55 millionpostedlastyear. The Group reported a loss for the period of US$0.77 million down from a profit of US$0.91million last year. Exceptional costs amounted to US$202,945 relating to a fair value adjustment and selling costs for the 16.54% investment in Dawn Properties Limited which was classified as non-current assetsheldforsaleduringtheperiodunderreview. Net debt decreased by 14.5% from September last year, closing at US$15.47 million, owing to a net reduction in borrowings amounting to US$5.14 million and reduced cash balances. SIGNIFICANT FINANCIAL MATTERS Reclassification of 16.54% investment in associate to non-current assets held for sale The directors approved the disposal of the remaining investment in Dawn Properties Limited to reduce borrowings. TheinvestmentwascarriedatUS$6.07millionat30September 2013, and was subsequently adjusted by US$205,943 (US$57,751fairvalueadjustmentandUS$148,192estimated costs to sale) to a final amount in non-current assets held for sale of US$5.83 million. At an EGM held on the 21st March 2014, shareholders approved the disposal of the investment. Details on the reclassification are shown under note 5(a) and 16tothecondensedfinancialstatements. Reclassification of non-distributable reserves to accumulated losses Thedirectorspassedaresolutiontoreclassifynon-distributable reservesamountingtoUS$5.89millionto accumulatedlosses in the period under review. The reclassification resulted in a nil balance in non-distributable reserves. The movements have been shown separately in the Group statement of changes inequity. Change in accounting policy The Group has adopted and applied International Financial Reporting Standard (“IFRS”) 11 “Joint Arrangements” to all joint arrangements as of 1 October 2013. Under IFRS 11, investments in joint arrangements are classifed as either joint operations or joint ventures depending on the contractual rightsandobligationsofeachinvestor.Followingtheadoption ofthenewstandard,AfricanSunhasassessedthenatureofits jointarrangementsanddeterminedthemtobe: • The Victoria Falls Hotel – joint operation (50% joint control) • West African Sun Hotels Limited – associate (collective control) Joint operations are accounted for using the proportionate consolidation and associates are accounted for using the equity method. Previously, African Sun accounted for its investment in West African Sun Hotels Limited using the proportionate consolidation method. With the adoption of the new standard, the comparatives have been restated to showtheeffectofthischange. Details of change in accounting policy and investments accounted for using the equity method are given under note 4and5ofthecondensedfinancialstatements. DEBT REDUCTION Debt reduction remains the Group’s priority in this financial year. To date, the Group has paid net of US$5.14 million towards it’s borrowings using mainly proceeds from the disposal of 12% investment in Dawn Properties Limited. Gearing has slightly reduced to 52% from the previously reported 53% as at 30 September 2013. The Group is targetingtoraiseanadditionalUS$12millionthrough; • the conclusion of the disposal of the remaining 16.54% investment in Dawn Properties Limited by 30 September 2014, and • a possible rights offer, whose details will be announced in due course. If all the initiatives are achieved, the remaining borrowings will relate to long-term loans and offshore loans, which are cheaper,andhaveflexiblerepaymentstructures. OUTLOOK It is envisaged that the foreign market will continue to sustain the Group’s ADR and RevPAR as the domestic market may remain depressed into the next 24 months. To mitigate the depressed domestic business, the Group will leverage on its aggressive selling of the foreign market improving arrivals from our traditional inbound markets and any other upcominginternationalmarkets. Aswelookintothefuture,growthinprofitabilitywillbedriven by: • negotiated deals to reduce cost of sales and operating costs; • Ghana is expected to reach a breakeven from June 2014 thereafter contributing to the Group’s EBITDA; • improved foreign arrivals, mainly into the resort hotels; • further debt reduction, which will be achieved through a disposal of the remaining shareholding (16.54%) in Dawn Properties Limited and a possible capital call, and; • further staff rationalization to align structures to performance levels. DIRECTORATE There have been no changes to the Directorate since the last AnnualGeneralMeetingoftheCompany. DIVIDEND DECLARATION In view of the current difficult operating environment and the subdued performance, the Board has resolved not to declare aninterimdividendforthesixmonthsended31March2014. APPRECIATION We would like to commend management, staff and fellow directors for their continued hard work in this difficult environment. BLNkomo SAMunyeza Chairman GroupChiefExecutive 26June2014 All figures in US$ Note As at 31 Mar 2014 Unaudited As at 31 Mar 2013 Unaudited Restated As at 30 Sept 2013 Restated As at 30 Sept 2012 Restated Assets Non-current assets Property, equipment and motor vehicles 33,325,122 28,659,253 32,116,383 26,566,875 Biological assets 220,651 274,678 220,651 274,678 Investments accounted for using the equity method 5 273,375 18,262,502 6,287,644 17,711,331 Other receivables 2,635,317 596,455 2,162,403 238,665 36,454,465 47,792,888 40,787,081 44,791,549 Current assets Inventories 1,590,226 1,495,629 1,643,661 1,472,627 Trade and other receivables 7,308,670 7,576,734 8,564,474 8,225,167 Cash and bank balances 3,134,965 3,251,106 4,229,079 4,603,809 12,033,861 12,323,469 14,437,214 14,301,603 Non-current assets held for sale 5,956,533 - 4,354,381 - 17,990,394 12,323,469 18,791,595 14,301,603 Total assets 54,444,859 60,116,357 59,578,676 59,093,152 Equity and liabilities Equity attributable to owners of the company Share capital 8,314,729 8,239,409 8,239,409 8,239,409 Share premium 24,186,814 24,056,421 24,056,421 24,056,421 Non-distributable reserves - 6,520,784 5,888,531 5,888,531 Equity settled share based payments reserve 105,232 - 20,171 - Foreign currency translation reserve (1,894,588) (1,275,075) (1,187,990) (946,582) Revaluation reserve - 430,871 249,706 430,871 Accumulated losses (16,234,803) (14,451,756) (21,357,162) (14,788,708) Total equity 14,477,384 23,520,654 15,909,086 22,879,942 Liabilities Non-current liabilities Trade and other payables 1,449,220 - 1,758,132 - Borrowings 6 5,847,425 6,996,119 8,093,067 6,443,381 Deferred income tax liability 4,556,184 4,422,925 4,604,007 4,080,590 11,852,829 11,419,044 14,455,206 10,523,971 Current liabilities Trade and other payables 14,503,206 11,666,825 13,872,549 10,621,284 Provisions and other liabilities 848,946 1,119,744 1,113,929 1,418,073 Borrowings 6 12,762,494 12,390,090 14,227,906 13,649,882 28,114,646 25,176,659 29,214,384 25,689,239 Total liabilities 39,967,475 36,595,703 43,669,590 36,213,210 Total equity and liabilities 54,444,859 60,116,357 59,578,676 59,093,152 All figures in US$ Half year ended 31 Mar 2014 Unaudited Half year ended 31 Mar 2013 Unaudited Restated Revenue 8 25,334,877 26,443,465 Cost of sales (7,639,937) (7,606,415) Gross profit 17,694,940 18,837,050 Operating expenses 15 (16,896,198) (16,607,558) Other expenses including amortisation of pre-opening costs (315,114) - Operating profit 483,628 2,229,492 Financing costs - net (1,397,370) (1,546,592) Finance income 2,297 - Finance costs (1,399,667) (1,546,592) Fair value adjustment and impairment of investment in associate (329,283) - Recycled from other comprehensive income 249,706 - Share of profit from investments accounted for using the equity method 5 179,323 551,171 (Loss) / profit before income tax 8 (813,996) 1,234,071 Income tax credit / (charge) 9 47,824 (319,639) (Loss) / profit for the period (766,172) 914,432 Other comprehensive loss net of tax: Items that will not be reclassified to profit or loss - - Items that may be subsequenty reclassified to profit or loss Foreign currency translation reserve (706,598) (328,493) Comprehensive income from associate recycled to statement of comprehensive income (249,706) - Total other comprehensive loss (956,304) (328,493) TOTAL COMPREHENSIVE INCOME FOR THE PERIOD (1,722,476) 585,939 Profit attributable to: Owners of company (766,172) 914,432 Total comprehensive income attributable to: Owners of company (1,722,476) 585,939 Earnings per share: cents Basic (loss) / earnings 10 (0.09) 0.11 Diluted basic (loss) / earnings 10 (0.09) 0.11 Headline (loss) / earnings 10 (0.10) 0.11 Diluted (loss) / earnings 10 (0.10) 0.11 EBITDA RECONCILIATION (Loss) / profit before income tax (813,996) 1,234,071 Adjustments for: Depreciation 1,369,749 1,251,466 Financing costs 1,397,370 1,546,592 Other expenses 315,114 - Fair value adjustment and impairment of investment in associate 329,283 - Amounts recycled to statement of comprehensive income (249,706) - Share of profit from investments accounted for using the equity method (179,323) (551,171) Earnings before interest, tax, depreciation and amortisation 2,168,491 3,480,958 All figures in US$ Note Half year ended 31 Mar 2014 Unaudited Half year ended 31 Mar 2013 Unaudited Restated Cash flows from operating activities Cash generated from operations 11 3,004,476 5,068,361 Finance costs paid - net (1,397,370) (1,546,592) Net cash generated from operating activities 1,607,106 3,521,769 Cash flows from investing activities Additions to property, equipment and motor vehicles 12 (2,644,083) (2,388,563) Disposals of property, equipment and motor vehicles 12 25,819 13,100 Deferred expenditure (773,470) - Increase in loans and other investments 12 (87,180) - Dividends received 34,434 - Sale of shares in associate 4,224,721 - Net cash generated from / (used in) investing activities 780,241 (2,375,463) Cash flows from financing activities Proceeds from long-term borrowings - 1,800,000 Proceeds from short-term borrowings 987,332 3,513,074 Repayment of long-term borrowings (1,518,369) (1,247,262) Repayment of short-term borrowings (4,609,811) (4,772,863) Proceeds from sale of treasury shares 205,713 - Deposit utilised from debt service reserve account 101,950 - Cash used in financing activities (4,833,185) (707,051) Net (decrease) / increase in cash and cash equivalents (2,445,838) 439,255 Cash and cash equivalents at beginning of the period 1,608,123 1,459,663 Exchange loss on cash and cash equivalents 23,879 (33,514) Cash and cash equivalents at end of the period 13 (813,836) 1,865,404 8 Segment analysis All figures in US$ Half year ended 31 Mar 2014 Unaudited Half year ended 31 Mar 2013 Unaudited Restated Revenue Zimbabwe 25,007,641 26,443,465 Ghana 327,236 - Total revenue 25,334,877 26,443,465 Earnings before interest, tax, depreciation and amortisation Zimbabwe 2,520,499 3,487,845 Ghana (352,008) (6,887) Total EBITDA 2,168,491 3,480,958 (Loss) / profit before income tax Zimbabwe (231,987) 1,240,958 Ghana (582,008) (6,887) (Loss) / profit before income tax for the period (813,995) 1,234,071 Total assets Zimbabwe 46,922,569 59,007,672 South Africa 1,603,244 1,761,862 Ghana 5,919,045 395,560 Total group assets 54,444,858 61,165,094 Total liabilities Zimbabwe 35,398,600 34,530,104 South Africa 1,835,633 2,065,600 Ghana 2,733,241 - Total group liabilities 39,967,474 36,595,704 EBITDA has been calculated excluding charges relating to fair value adjustments and impairments for 2014 and the comparatives. There are no differences from the last annual financial statements on the basis of segmentation or on the basis of measurement of segment profit or loss. 9 INCOME Tax expense Current income tax - - Deferred income tax 47,824 (319,639) Credit / (charge) for the period 47,824 (319,639) 10 Basic, diluted and headline earnings per share Profit attributable to owners of the Company (766,172) 914,432 Adjusted for; Fair value adjustment and disposal costs - Dawn 16.54% 202,944 - Recycled from other comprehensive income (249,706) - Headline earnings (812,935) 914,432 Number of shares in issue 831,472,953 823,940,874 Weighted average number of shares in issue 828,962,260 823,940,874 Weighted average number of shares in issue for diluted earnings 849,376,786 823,940,874 Basic earnings per share: cents (0.09) 0.11 Diluted earnings per share: cents (0.09) 0.11 Headline earnings per share: cents (0.10) 0.11 Diluted headline earnings per share: cents (0.10) 0.11 Diluted earnings per share are calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all the dilutive number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. At the end of 31 March 2014, there were 32 926 655 potential dilutive share options (2013: nil) which were granted on the 4th of July 2013. For the share options, a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company’s shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares determined using described method is compared with the number of shares that would have been issued assuming the exercise of the share options. 11 Cash generated from operations (Loss) / profit before income tax (813,996) 1,234,071 Adjustments for : -depreciation 1,369,749 1,251,466 -loss on disposal of property and equipment 39,777 20,960 -share-based payment 85,061 - -recycled to statement of comprehensive income (249,706) - -unwinding of provision on long-term receivables (191,814) - -fair value adjustment and impairment of investment in associate 329,283 - -dividend income (34,434) - -finance costs - net 1,397,370 1,546,592 -share of profits from equity accounted investments (note 5) (179,323) (551,171) Changes in working capital -inventories 53,435 (23,002) -trade and other receivables 1,142,315 648,433 -trade and other payables 56,760 941,012 Cash generated from operations 3,004,476 5,068,361 12 Investing activities Assets additions and disposals Additions Normal replacements 2,285,459 546,767 Refurbishment 358,624 1,841,796 2,644,083 2,388,563 Disposals Cost, reconciled as; 100,958 67,007 -accumulated depreciation 35,362 32,947 -cash received 25,819 13,100 -loss on disposal charged to statement of comprehensive income 39,777 20,960 Assets additions under normal replacements relate to standard hotel assets replacements/additions and are financed from free cash flows. Assets additions under refurbishment relate mainly to the completion of the refurbishment of Crowne Plaza Monomotapa. Financing of the refurbishment program was through a 5 year loan from Afreximbank (see more details in the 2013 annual report). Increase in loans and other investments (87,010) - The increase in loans and other investments of US$87,010 (2013: nil) in the statement of cashflows relates to vehicle loans which were advanced to staff during the period under review. The carrying amount of the loans approximate their fair values as balances as at 31 March 2014, adjusted for any repayments have been used. 13 Cash and cash equivalents All figures in US$ As at 31 Mar 2014 Unaudited As at 31 Mar 2013 Unaudited Restated As at 30 Sept 2013 Restated For the purposes of the statement of cashflows, cash and cash equivalents comprise the following; Cash and bank balances 3,134,965 3,251,106 4,229,079 Bank overdrafts (3,498,082) (659,240) (2,068,288) Cash security on long-term loan (450,719) (726,462) (552,668) Cash and cash equivalents at the end of the period (813,836) 1,865,404 1,608,123 The cash security on the long-term loan of US$450,719 has been deducted from cash and bank balances to determine cash and cash equivalents as the use of the cash is restrictive in nature and is not available within a 90 day period. The cash is held in an offshore account by Afreximbank as part of the security to the outstanding US$5.621 million refurbishment loan. The amount is about 8% of the outstanding loan. Cash from this restricted account is available only to the extent that this balance is more than 8% of the loan outstanding. 14 Related party transactions All figures in US$ Half Year Ended 31 Mar 2014 Unaudited Half Year Ended 31 Mar 2013 Unaudited (i) Lease rentals paid to Dawn Properties Limited (Dawn) 1,080,991 1,082,701 African Sun Limited owns 16.54% (2013: 28.54%) of the shares in Dawn. Dawn has been accounted for as an associate based on shareholding and other qualitative factors (see 2013 annual report). As such, the transactions between the two companies have been treated as related party transactions. Lease rentals relate to the leases of 8 hotels rented from Dawn. All leases with Dawn are at normal commercial terms and conditions. (ii) Balances arising from transactions with related parties Payables - rentals 255,498 265,224 The payables arose from rentals charged by Dawn Properties Limited on the 8 hotels leased by African Sun. The rentals are due one month after billing and bear no interest. 15 Expenses by nature All figures in US$ Half year ended 31 Mar 2014 Unaudited Half year ended 31 Mar 2013 Unaudited Restated Cost of sales 7,639,937 7,606,415 Depreciation, usage and amortisation 1,369,749 1,251,466 Operating lease costs 3,002,688 2,747,965 Repairs and maintenance 1,041,311 1,228,265 Other expenses 11,482,450 11,379,862 Total cost of sales and administrative expenses 24,536,135 24,213,973 There was no write down or write back of inventory during the period under review. 16 Non-current assets held for sale All figures in US$ As at 31 Mar 2014 Unaudited As at 31 Mar 2013 Unaudited As at 30 Sept 2013 Opening balance 4,354,381 - - Assets classified as held for sale from investment in associate (note 5) 5,826,872 - 4,224,720 Total assets of a disposal group classified as held for sale - - 129,661 Sold during the year (4,224,720) - - Closing balance 5,956,533 - 4,354,381 During the period under review the Group classified as held for sale a 16.54% shareholding in Dawn Properties Limited following an approval of disposal by the shareholders on 21 March 2014. The Group entered into a sale agreement with Lengrah Investments (Private) Limited on 3 January 2014. However, at 31 March, all conditions to the sale were not met, hence the re-classification to non-current assets held for sale. As at 25 June 2014, the disposal had not yet been concluded pending finalisation of the financing structure by the buyer. For more details on the final disposal of 16.54% in Dawn Properties Limited, shareholders are referred to the circular published on 4 March 2014. The balance of US$129,661 relating to Fothergill Island had not been disposed as at 31 March 2014. It is anticipated that the disposal will go through before 30 September 2014. 17 Provisions The provision balance is made up of the following: All figures in US$ As at 30 Sept 2013 Utilised provision As at at 30 March 2014 Leave pay 749,462 (264,983) 484,479 Provision for claims 364,467 - 364,467 1,113,929 (264,983) 848,946 18 Capital commitments All figures in US$ As at 31 Mar 2014 Unaudited As at 31 Mar 2013 Unaudited Authorised by Directors and contracted for 222,000 1,052,181 Authorised by Directors, but not contracted for 698,000 6,115,173 920,000 7,167,354 Capital commitments will be financed from normal operating cashflows. 19 Events after reporting date There were no events after the reporting date requiring additional or separate disclosure. Group Statement of Changes in Shareholders’ Equity All figures in US$ Share capital Share premium Non- distributable reserve Equity settled share based payment reserve Foreign currency translation reserve Revaluation reserve Accumulated losses Total shareholders' equity Balance at 30 September 2012 8,239,409 24,056,421 5,888,531 - (946,582) 430,871 (14,788,708) 22,879,942 Comprehensive loss Loss for the year - - - - - - (6,568,454) (6,568,454) Other comprehensive loss: Currency translation differences - - - - (241,408) - - (241,408) Reclassified to income statement - - - - - (181,165) - (181,165) Total comprehensive loss for the year - - - - (241,408) (181,165) (6,568,454) (6,991,027) Transaction with owners Value of employee services - - - 20,171 - - - 20,171 Balance at 30 September 2013 8,239,409 24,056,421 5,888,531 20,171 (1,187,990) 249,706 (21,357,162) 15,909,086 Comprehensive income Loss for the period - - - - - - (766,172) (766,172) Other comprehensive loss: Currency translation differences - - - - (706,598) - - (706,598) Reclassified to statement of comprehensive income - - - - - (249,706) - (249,706) Transferred to accumulated losses - - (5,888,531) - - - 5,888,531 - Total comprehensive loss for the period - - (5,888,531) - (706,598) (249,706) 5,122,359 (1,722,476) Transaction with owners Disposal of treasury shares 75,320 130,393 - - - - - 205,713 Value of employee services - - - 85,061 - - - 85,061 Balance at 31 March 2014 8,314,729 24,186,814 - 105,232 (1,894,588) - (16,234,803) 14,477,384 Notes to the Interim Financial Report 1. BASIS OF PREPARATION The condensed financial statements for the six months ended 31 March 2014 have been prepared in accordance with IAS 34 “Interim Financial Reporting”, the Companies Act (Chapter 24:3) and the Zimbabwe Stock Exchange Listing Requirements. 2 Accounting Policies The accounting policies applied in the preparation of these condensed financial statements for the period under review, which are based on reasonable judgements and estimates, are in accordance with International Financial Reporting Standards (“IFRS”) and are consistent with those applied in the preparation of the Group’s financial statements for the year ended 30 September 2013. 3 Going concern The Directors assess the ability of the Group to continue operating as a going concern at the end of each reporting date. As at 31 March 2014, the Directors assessed the ability of the Group to continue operating as a going concern and believe that the preparation of these half year financial statements on a going concern basis is still appropriate. The appropriateness of the going concern has been arrived at after considering the initiatives the Group is implementing to improve the liquidity gap and profitability. The following initiatives will be implemented to deal with the two main financial matters of the Group; (i) Liquidity gap The Group is targeting to reduce the liquidity gap by raising about US$10.33 million to refinance its expensive short-term debt. The US$10.33 million will be raised through; -completion of the disposal of 16.54% investment in Dawn Properties Limited. The transaction is expected to be completed by 30 September 2014. Expected proceeds are US$5.83 million, and -other initiatives - US$4.5 million. (ii) Profitability The Group’s profitability was affected during the period under review owing to the depressed local market. It is the view of the Directors, that these conditions of trading are likely to persist until the end of the financial year. To align costs to the current business levels, the following will be implemented to improve profitability; -cost reduction- the Group has engaged various key business suppliers who have agreed to reduce prices. The price reductions will improve our cost of sales and hotel operating cost position, and -further staff rationalisation. 4 Change in accounting policy African Sun Limited adopted IFRS 11, “Joint arrangements”, on 1 October 2013. IFRS 11, focuses on the rights and obligations of the parties to the arrangement rather than its legal form. There are two types of joint arrangements: joint operations and joint ventures. Joint operations arise where the investors have rights to the assets and obligations for the liabilities of an arrangement. A joint operator accounts for its share of the assets, liabilities, revenue and expenses. Joint ventures arise where the investors have rights to the net assets of the arrangement; joint ventures are accounted for under the equity method. Proportional consolidation of joint ventures is no longer permitted. Impact of the new standard on the Group’s joint arrangements The Victoria Falls Hotel Partnership - 50% joint control The Directors reviewed and assessed the classification of the Group’s investments in The Victoria Falls Hotel Partnership in accordance with the requirements of IFRS 11. The Directors concluded that the Group’s investment in The Victoria Falls Hotel, which was classified as a joint venture under IAS 31 and was accounted for using the proportionate consolidation method, should be classified as a joint operation under IFRS 11, with the Group accounting for its assets, its liabilities, its income and its expenses. West African Sun Hotels Limited - collective control The Group has collective control over West African Sun Hotels Limited, a company incorporated in Nigeria in line with the clarified guidence in IFRS 11. The investment has been classifed as an associate as a result of adopting IFRS 11 and therefore, the equity method of accounting has been used in the consolidated statements. Prior to the adoption of IFRS 11, the Group’s interest in West African Sun Hotels Limited was proportionately consolidated. The Group recognised its investment in the associate at the beginning of the earliest period presented (1 October 2012), as the total of the carrying amounts of the assets and liabilities previously proportionately consolidated by the Group. This is the deemed cost of the Group’s investment in the associate for applying equity accounting. The reconciliation of the carrying amounts of investments accounted for using the equity method is shown under note 5. 5 Investments accounted for using the equity method The amounts recognised in the statement of financial position are as follows; All figures in US$ As at 31 Mar 2014 Unaudited As at 31 Mar 2013 Unaudited Restated As at 30 Sept 2013 Restated Dawn Properties Limited - 18,033,590 6,067,253 West African Sun Hotels Limited 273,375 228,912 220,391 Total carrying amount of investments 273,375 18,262,502 6,287,644 Amounts recognised in the statement of comprehensive income are as follows; Dawn Properties Limited 126,339 444,756 331,034 West African Sun Hotels Limited 52,984 106,415 97,894 Total equity accounted earnings 179,323 551,171 428,928 5(a) Investment in associate - Dawn Properties Limited Carrying amount at 1 October 6,067,253 17,588,834 17,588,834 Share of profit 126,339 444,756 331,034 Dividend received (37,437) - - Fair value adjustment on reclassification to non-current assets held for sale (148,192) - (3,210,684) Classified to non - current assets held for sale (note 16) (5,826,872) - (4,224,720) Impairment (181,091) - (4,417,211) Carrying amount - 18,033,590 6,067,253 5(b) Investment in joint venture - West African Sun Hotels Limited Carrying amount at 1 October 220,391 122,497 122,497 Share of profit 52,984 106,415 97,894 Carrying amount 273,375 228,912 220,391 The US$122 497 stated as the opening balance for the year ended 30 September 2013 is the net assets in West African Sun Hotels Limited on 1 October 2012. This has been adopted as the carrying amount of the investment for the purposes of equity accounting for the investment. 6 Borrowings All figures in US$ As at 31 Mar 2014 Unaudited As at 31 Mar 2013 Unaudited As at 30 Sept 2013 Non-current: Foreign 2,891,169 6,996,119 4,207,553 Local 2,956,256 - 3,885,514 Total non-current 5,847,425 6,996,119 8,093,067 Current: Foreign loans 4,850,000 2,500,000 4,148,987 Bank overdrafts 3,498,082 659,240 2,068,288 Local loans 4,414,412 9,230,850 8,010,631 12,762,494 12,390,090 14,227,906 Total borrowings 18,609,919 19,386,209 22,320,973 7 Seasonality of the business The first half of our financial year is relatively slower than the second half. This has been the trend for the past 4 years, with the first half contributing 45% to 48% of the full year revenue. The second half dominates because it sees the beginning of our international arrivals peak season as well as an increase in corporate and conferencing business. The Directors are of the opinion that the cycle or trends discussed above will continue and expect that, the revenue for the second half (six months ending 30 September 2014) will be higher than that achieved during the six months under review. Message to Shareholders Group Statement of Financial Position Group Statement of Comprehensive Income Group Statement of Cashflows ASL1197

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