(Formerly Presto Financing Proprietary Limited)
(Incorporated in the Republic of South Africa)
(Registration number 2006/030975/06)
(“the Company” or “Visual”)
ISIN Code: ZAE000187407Share code: VIS
ABRIDGED PROSPECTUS RELATING TO THE LISTING OF VISUAL
Prepared and issued in terms of the Listings Requirements (“the Listings Requirements”) of the JSE Limited (“the JSE”) and the Companies Act, 2008 (No. 71 of 2008), as amended (“the Act”), relating to an Offer for subscription of Visual ordinary shares by way of:
- an Offer by the Company by way of a private placement for subscription of up to 66000000 ordinary no par value shares in the issued share capital of the Company at an issue price of R0.50 per ordinary share; and
- the subsequent listing of the ordinary shares of Visual on the Alternative Exchange (AltX) of the JSE.
In the event of an over-subscription in terms of the Offer, the directors will adjust the allocation of applicants on an equitable basis in accordance with paragraph 5.18 of the JSE Listings Requirements. The shares offered in terms of this prospectus will rank pari passu with the existing ordinary shares in Visual and rank equally as to share in profits, dividends and distributions.
At the Last Practicable Date, Visual’s share capital comprises 1 000000 000 authorised ordinary shares of no par value and 189458 775 issued ordinary shares of no par value with stated capital of approximately R57 015 055.
At the date of closing of the Offer and assuming that the Offer is fully subscribed, Visual’s share capital will comprise 1 000000 000 authorised ordinary shares of no par value and 255 458 775 issued ordinary shares of no par value with stated capital of approximately R90 502 170. There will be no convertible or redeemable shares issued.
The Offer is subject to a minimum subscription of R3 600 000 which needs to be raised by the issue of 7200 000 shares in terms of this prospectus in order to achieve the spread requirements that at least 10% of the shares are held by the public and there are at least 100 public shareholders as stipulated in the AltX Listings Requirements.
The Offer has not been underwritten. The Company does not have any treasury shares in issue.
Subject to achieving the required spread of public shareholders in terms of the JSE Listings Requirements, (which stipulates that the public must hold a minimum of 10% of each class of equity securities and the number of public shareholders shall be at least 100), the JSE has granted Visual a listing in respect of up to 255 458 775 ordinary shares on the AltX under the abbreviated name “Visual”, share code “VIS” and ISIN ZAE000187407. In addition, the listing will be subject to all the properties being transferred into the Visual Group. The transfer of the properties is expected to be finalised during March 2014 but the properties must be acquired before the listing of Visual is permitted to proceed.
It is anticipated that the listing of the shares on AltX will become effective from the commencement of business on Friday, 28 March 2014.
Applications for ordinary shares in Visual must be for a minimum of 10000 ordinary shares at R0.50 cents per share, amounting to R5000, and in multiples of 100 ordinary shares thereafter. Fractions of shares in Visual will not be issued.
The shares in Visual will only be tradable on the JSE in dematerialised form and, as such, all investors who elect to receive their ordinary shares in Visual in certificated form, will have to dematerialise their certificated shares should they wish to trade therein.
An English copy of this prospectus, accompanied by the documents referred to under “Registration of Prospectus”, was registered by the Registrar of Companies on 28 February 2014 in terms of in terms of Regulation 52(5) of the Companies Act, 2008 (No. 71 of 2008), as amended.
Background, incorporation and nature of business
Visual was incorporated as a private company on 5 October 2006 under the name Presto Financing Proprietary Limited. The company’s name was changed, and it was converted to a public company, by way of special resolutions on 3October 2013, which special resolutions were registered by CIPC on 23December 2013. Presto Financing Proprietary Limited was a dormant subsidiary of Visual International until it was decided to use this group company as the new holding company for the purposes of the listing. Visual then acquired the controlling interest in Visual International from CKR Investment Trust with effect from 1March 2012 and became the holding company of the various Subsidiaries of Visual.
Thus Visual, with its wholly owned subsidiary Visual International, has operated as a group for the full year ended 28February 2013 and group annual financial statements are available for inspection. These results have been audited and have been prepared in accordance with accounting policies that are in accordance with IFRS.
Visual is essentially a property developer that acquires land, rezones the land, installs the relevant services and then constructs houses and apartments on the land for sale to homeowners or investors. Visual has recently started to hold some of the homes developed (27 units) which it rents out to families and intends to grow this area going forward with the initial intention to acquire a further 63 units during the first half of 2014.
Visual International, the main subsidiary and previously held 100% directly by the CKR Investment Trust, was established more than 20years ago and has been involved in a number of premier property development projects in South Africa over the past 14 years. In addition, a number of property developments were undertaken by entities associated with CK Robertson and Visual International, namely RAL Trust and My Place Trust, which properties have been acquired by the Visual Group by way of a restructure in accordance with Section 42 of the Income Tax Act ahead of the listing, termed inter-related acquisitions.
The additional properties and assets acquired subsequent to 28 February 2013 are summarised as follows:
- The acquisition of Erf 18363, Kuils River dated 18 October 2013 from RAL Trust, for a net purchase consideration of R21500 000 which was settled through the issue of 83 169 544 Shares in Visual;
- The acquisition of Erf 18358 and the remainder of farm 1286, Kuils River from RAL Trust dated 18 October 2013, for a net purchase consideration of R2362387 which was settled through the issue of 7706 987 Shares in Visual;
- The cancellation agreement dated 29 November 2013 with RAL Trust pursuant to the above acquisitions from RAL Trust terminating the former development agreement and beneficiary agreement with Visual International, resulting in a capital receipt of R32 million;
- An agreement was entered into on 15 February 2013 topurchase Erf 22887 with a fair value of R2 155 774 from the My Place Trust in exchange for the issue of shares by Stellendale Village to the amount of R6 600 000. On 20 January 2014 the agreement was cancelled. The property was substituted for Erf 24258, with a fair value of R7 350 000, with a commensurate issue of shares by Stellendale Village;
- The agreement with My Place Trust for the acquisition of the remaining minority shareholding of 10 shares in Stellendale Village dated 31 October 2013, for a net purchase consideration of R215587 which was settled through the issue of 703325 Shares in Visual.
The two trusts, namely CKR Investment Trust and the RAL Trust, now represent the controlling shareholders of the Visual Group, both being associated with the founder and Chief Executive Officer of the Visual Group, Mr CK Robertson.
The Visual Group, through Visual International and through the CKR Investment Trust, the RAL Trust and My Place Trust prior to the Section 42 restructure, has a long profit history and together has built up a property portfolio with a gross asset value of over R120million and a net asset value of R70.7 million as at 30 November 2013. Visual International used to be a beneficiary of RAL Trust and My Place Trust and used to receive a distribution of profits from these trusts, which was recognised in “Other Income”.
The revenue and cost of sales were recognised within the trusts. Due to the complex nature of the previous inter- related parties, all of which were managed by CKRobertson and the Visual International management team, a decision was taken to simplify the structure and bring the relevant properties under Visual International, as the main operating subsidiary and previous beneficiary of the RAL Trust and My Place Trust.
It should be noted that the executive directors that managed Visual International and also assisted with the property development of the properties held by the RAL Trust and My Place Trust as a team over the past seven years, remain in place and will continue to manage the Visual Group going forward. The executive directors have many years’ experience in property development and property management (including leasing, repairs and maintenance of the properties, running the home owners association and sales) as detailed in their Curriculum Vitaes as set out in the Prospectus.
Other than the acquisition of properties and assets in anticipation of the listing as described above (in which Mr CK Robertson had an indirect interest as a beneficiary of the RAL Trust and My Place Trust), as well as the dividend declared as detailed in the annual financial statements for the year ended 28 February 2013, there has been no material change in the business or the trading objects over the past five years.
Visual is the holding company of a number of Subsidiaries, focusing mainly on property development and to a much lesser extent, property investment and property services. It is the intention to establish a new area focussing on property sales to investors.
The majority of the revenue and profits of the group arise from residential property development of houses and apartments for sale to individuals or property investors.
To date, approximately 440 homes have been developed by Visual International at Stellendale for the various Trusts and Clidet, with a further 63 units under construction within Clidet, which units will be acquired and held for rental income by Visual as detailed in paragraph 1.7.2 of the Prospectus. The underlying land has since been acquired from the Trusts as detailed in paragraph 1.7.2 of the Prospectus and is owned by the Visual group going forward. The original intention was to also acquire the 50% shareholding in Clidet from My Place Trust, however, shareholder approval from the other 50% shareholder in Clidet could not be secured. Visual International will continue to manage this development for Clidet in terms of the management agreement that is in place.
Prospects
Going forward, most of the property development projects take place in Visual International, whilst Stellendale Village houses the Stellendale Lifestyle Retirement development, which project has commenced with 88 units sold of the planned approximately 840 units and the contractors having been appointed to install the services for construction of, the units at Northbank 1 and Northbank 2 within the Stellendale Lifestyle Retirement development.
Hoeksteen Projects and Richland respectively hold land for future development at Machadadorp and Richwood, although no development is planned or forecast on these two properties for the two years ending 28February 2014 and 28February 2015. Mystic Pearl similarly holds two pieces of land for future development in Hagley, with its joint venture partner, Oupossie Trust.
Visual International holds a 50% interest in Dream Weaver which owns under cover and open parking bays at three buildings from which income is generated through leasing of parking bays, with its joint venture partner Ruby and Martha Trust.
The Visual Property Club will be jointly operated as a 50:50 division under Visual International with Van Der Merwe & Robertson Bonds Proprietary Limited and provides comprehensive services to investors that wish to become property developers and holds a registered patent under ZA Patent Number 2012/03640 for the process to qualify an investor as a property developer in accordance with the Income Tax Act, that it has successfully developed over the past four years, although it does not generate any income or direct benefit for the group.
In addition, Clidet has entered into a joint development agreement with the Department of Local Government and Housing of the Western Cape Provincial Government (“the Department”), whereby the Department made a portion of state land, immediately adjacent to Stellendale Village, available for incorporation into Stellendale. In terms of this agreement, Clidet, with Visual as the management partner, commenced with, and will continue to build, a total of 140 “GAP” housing opportunities which are spread throughout Stellendale Village, and which are similar to the other homes and apartments.
These GAP units are available at ±R430 000 each (which is ±R80 000 less than the market value of these houses/apartments) to qualifying buyers, i.e. such buyers must earn less than R18 000 per month, must be South African citizens and must be first time home buyers to qualify. These “GAP” or affordable units represent ±10% of Stellendale Village’s homes and apartments, thus promoting an integrated society and providing real social upliftment. Visual will benefit in due course through an increase in its bulk available to the greater Stellendale Village.
Other than the above joint development agreement, there are no government protection or investment encouragement laws that impact on the company or the Group.
SUMMARY OF ESTIMATE AND FORECAST FINANCIAL INFORMATION
The Visual forecast for the years ending 28 February 2014 and 28 February 2015 respectively are summarised below.
2014 / 2015R / R
Revenue (Note 4) / 2 760 390 / 134214 499
Management fees received / 1 024 224 / 1024 224
Rental income / 1736 166 / 4 164 469
Property development (Note 4) / 129025 806
Cost of sales / (270 381) / (71 383 917)
Development costs (Note 4) / (70 379 979)
Inventory impairment / -
Property utilities / (270 381) / (1 003 938)
Gross profit / 2 490 009 / 62 830 582
Other income (Note 5) / 32 689 978 / 2 436 158
Capital Receipt and termination of beneficiary right / 27000000 / -
Capital Receipt – management agreement / 5000000 / -
Investment income / 545 186 / 2 213 048
Other income / 144 792 / 223 110
Expenses (Note 6) / (7 839 753) / (12 077 241)
Salaries & Wages (Note 6) / (2 931 178) / (5697277)
Listing costs (Note 6) / (908 272) / (415 000)
IFRS 2 charges (Note 7) / (1140 630) / -
Sales commissions / (2 081 857)
Other non-material expenses(Note 6) / (2859 673) / (3 355 106)
Rental guarantee (Note 8) / - / (528000)
Operating profit / 27 340 234 / 53 189 499
Finance costs (Note 9) / (3084 045) / (6 162 741)
Profit before taxation / 24 256 189 / 47 026 758
Taxation (Note 9) / (2 863 053) / (13167 492)
Profit for the year / 21 393 136 / 33 859 266
Profit/(loss) attributable to:
Owners of parent / 21 508 700 / 33 447 048
Non-controlling interest / (115 564) / 412 218
21 393 136 / 33 859 266
Total issued shares / 255 458 775 / 255 458 775
Earnings per share (cents) / 8.42 / 13.09
Headline earnings per share (cents) / (2.15) / 13.09
Assumptions:
The assumptions utilised in the profit forecast and which are considered by management to be significant or are key factors on which the results of the Company will depend, are disclosed below. The assumptions disclosed are not intended to be an exhaustive list. The actual results achieved during the forecast period may vary from the forecast and the variations may or may not be material.
- The current market conditions in the industry in which the business operates are not expected to change substantially.
- The forecast numbers have been prepared in terms of the accounting policies of the Visual Group in accordance with IFRS.
- Revenue and other income for the year ending 28 February 2014 has been substantially secured and is in terms of current agreements and top structure development work that is in progress or planned. The profit forecast for the year ending 28 February 2014 has been based on the actual reviewed results for the nine months ended 30 November 2014 and three month forecast information to the year-end being 28 February 2014. The revenue for the year ended 28 February 2015 is partly derived from a sale agreement with CK Robertson of R36 284 104 subject to CK Robertson being granted a 100% bond for the purchase.
- The substantial increase in revenue in 2015 is primarily related to revenue from property developments in the group. This is directly associated with the higher costs of sales which is incurred due to the standard cost of developing the residential unit is required to be recognised in cost of sales. Previously this cost was incurred in the respective trusts.
For the year ending February 2015, 63 units are assumed to be purchased on or about 31 May 2014 from Clidet using a portion of listing funds, a portion external bank financing and a portion shareholder finance. Approval from the bank financiers has been issue in principal, but Visual is awaiting final approval from the other shareholder in Clidet for the transaction and will only pursue the acquisition subject to the listing of Visual. It is assumed that Visual will retain the 63 units at the Stellendale Village development. The units will be completed by 31 May 2014 and will be let in full with no vacancies.
Erf 18358 (per Valuation B) will be developed into the Saxdownes Junction site. The start date of the project is around 1September 2014 and the completion date is estimated to be during December 2014, with transfer prior to 28 February 2014: The project consists of servicing the site and selling the serviced site. Management also allowed for a discount of up to 4,5% discount on the selling price.
Income from property services is expected to grow slowly in the first couple of years.
The directors have estimated income from property development based on current development work being undertaken at Northbank 1 and Northbank 2 in Stellendale Village being completed and all units thereon being sold in the period ending 28 February 2015, the estimated timing of property transfers and on past experience. These factors may not be completely under the control of the directors. For instance, sectional title property transfers are normally transferred simultaneously to avoid waiting for counter covers, etc. to be opened to lodge a second or third batch. Therefore, if the planned February 2015 transfer of 206 units in the second phase of Northbank 2 is late, in a worst case scenario, this will decrease revenue by R78 562 352 and cost of sales by R47 168030 (Cost of sales will be allocated to work in progress at 28 February 2014 and will then be expensed to cost of sales in the following year). The net effect in profit will be a reduction in profit before taxation by R31 394 322 to R15 323 710. However, this will be a timing difference and the R31 394 322 profit before taxation will then be recognised in the following year.
- Other income primarily arises from the termination benefits received as detailed in the reviewed results for the nine months ended 30 November 2013.
- Expenses have been forecast on a line by line basis and reflect the current budgeted expenditure with a year on year projected increase for most of the operating expenses of 10%.
The expenses for the year ending 28 February 2014 are higher due to the once off costs associated with the listing of the Company. Audit fees are expected to increase due to the Company being a listed entity going forward as well as salaries and wages due to the appointment of a number of independent non-executive directors and an additional member of key management during the latter part of 2013.
Whilst both revenue and property development expenses increased as reflected under cost of sales, normal operating expenses would not increase substantially or proportionately as the same employees are handling the process and administration. All expenses relevant to the property developments are included in cost of sales.
- The IFRS 2 charges are for once-off share based payments to advisors in connection with the listing and the issue of shares to the Community in order to achieve a spread of shareholders for the listing and to create goodwill within the community in which Visual develops its properties.
- The rental guarantee provision relates to a contracted sale for which a rental guarantee has been issued. Whilst this guarantee may not be called upon, it has been fully provided in the forecast for the year ending 28 February 2015.
- The present level of interest and tax rates will remain substantially unchanged
- The capital accounting receipt and termination benefit distribution of R27 000 000 received is not taxable due to it being received from a trust under Section 42 of the Income Tax Act transaction and therefore not taxable in the hands of Visual
- The cash raised on the Offer is utilised as follows:
b)R16364910 for the part funding of the development of the first two phases of the lifestyle estate, Stellendale Lifestyle Retirement. Should funding permit, any excess funds at the completion of Northbank 2 will be used to part fund the acquisition by Visual of up to 72 x Northbank 2 suites as well as part funding to install the infrastructure services for Stellendale 3 for the development of a private primary school, a ±9,000m2 shopping mall and ±200 building opportunities (apartments and houses).
c)Working capital including settling of existing liabilities and cash flow reserve of R9.1 million.
d)R2.3 million cost of listing and raising capital.
- Interest from cash in the bank or cash generated from operations has not been taken into account in the forecasts.
- Taxation has been assumed at a rate of 28%, as per the Income Tax Act 58 of 1962, except for exceptional items having a material effect.
- The weighted average number of shares in issue is based on the Offer for subscription being fully subscribed and an issue of shares and listing date of 28 February 2014.
Authorised and issued share capital