Unaudited Interim Results for the
six months ended 31 December 2008

Commentary

ACCOUNTING POLICIES AND BASIS OF PREPARATION

The interim financial statements were prepared in accordance with International Financial Reporting Standards (IFRS) and comply with IAS 34 – Interim Financial Reporting, and the Companies Act of South Africa No. 61 of 1973, as amended. The accounting policies and methods of computation are consistent with those applied in the financial results for the year ended 30 June 2008. The external auditor has not reviewed the interim financial report.

The comparative figures have been restated so as to fall in line with the adjustments made in respect of the 30 June 2008 year-end. These include the reversal of dividends received from SunWest out of share premium from revenue, fair valuing the investment in National Manco and the change in the treatment of Western Cape Manco in the prior year from a subsidiary to a joint venture.

INVESTMENT HIGHLIGHTS

During the period under review Grand Parade Investments Limited (GPI) increased its direct stake in SunWest International (Proprietary) Limited (SunWest) by 2,83% at a cost of R92,4 million by exercising 560 000 of its 700 000 SunWest share options at an exercise price of R165 per SunWest share.

GPI indirectly increased its effective interest in the lucrative and exceptionally well positioned Sibaya Casino by advancing R7 million to its associate, Akhona Gaming Portfolio Investments (Proprietary) Limited (Akhona GPI), which exercised all of its pre-emptive rights in Dolcoast Investments Limited (Dolcoast). By the end of December 2008, Akhona GPI’s direct stake in Dolcoast, (which owns 22,4% of Sibaya Casino) had increased from 6% to 9,5%. In January 2009, Akhona GPI’s stake increased further to 18,5% of Dolcoast in order and to achieve this, GPI provided an additional R13 million to Akhona GPI so that it could exercise the balance of its pre-emptive rights through a second-round offer. GPI now indirectly owns an effective share in Sibaya Casino of 6,3% as a result of these transactions and the 30,6% acquisition in Real Africa Holdings Limited (RAH) the previous year.

GPI increased its direct stake in Thuo Gaming KwaZulu-Natal (Proprietary) Limited (Thuo KZN) through its acquisition of Wild Rush Trading 97 (Proprietary) Limited (Wild Rush), which owns 10% of Thuo KZN, at a cost of R6 million. This acquisition is in line with GPI’s strategy to increase its exposure to the limited payout machine (LPM) market which has proven to be resilient in the current economic climate with Thuo Gaming Western Cape (Proprietary) Limited (Thuo WC) growing its revenues by 15% and Thuo KZN, which benefited from additional machines rolled out, growing its revenues by 165%.

The GPI Board believe that GPI’s share price is trading at a substantial discount to GPI’s underlying value and resolved that GPI should repurchase its own shares in terms of its general authority granted by shareholders at the annual general meeting on 9 December 2008. GPI has, through the market, acquired some 8 million shares during the reporting period at an average cost of R2,44 cents per share. GPI will continue with the share buy-back while its share trades at such a large discount to its underlying value.

The following table reflects GPI’s direct holding in its various investments:

  (%) (%) (%)
  Direct interest Direct interest Direct interest
  31 December 31 December 30 June
  2008 2007 2008
SunWest 29,24 26,41 26,41
RAH 30,60 – 30,60
Akhona GPI 50,00 – 50,00
Worcester Casino 36,70 38,00 36,70
Thuo WC 25,10 25,10 25,10
Thuo KZN/Wild Rush 10,00 – –
National Manco ** 5,67 5,67 5,67
Western Cape Manco * 50,00 50,00 50,00
* Western Cape Casino Resort Management (Proprietary) Limited
**    National Casino Resort Manco (Proprietary) Limited

The additional shares acquired in SunWest increased GPI’s direct stake in SunWest from 26,41% to 29,24%. GPI’s stake in Worcester Casino (Proprietary) Limited (Worcester Casino) diluted slightly from 38% to 36,7% with the introduction of the Sun International Employee ShareTrust. GPI’s direct stake in Thuo KZN now amounts to 10%.

FINANCIAL PERFORMANCE AND POSITION

1.   Revenue
Revenue comprises GPI’s share of management fees generated by Western Cape Manco, dividends received from National Manco, and interest earned on positive cash balances. Revenue has decreased mainly due to lower interest received as a result of lower average cash balances during the reporting period and lower revenues generated by Western Cape Manco.
2. Operating costs
Operating costs increased as a result of increasing the staff complement of the group, necessitated by the additional demands as a result of being a listed company and the increased investments the group now has.
3. Share of profit from associates
GPI’s share of associate profit increased substantially compared to December 2007. This growth in the case of SunWest is attributed to a BEE transaction charge of R182 million incurred in the first half of the prior year, which resulted in SunWest reporting a first half R3 million loss after tax. This has not recurred in the current period.

Profit from RAH has been accrued for the full current reporting period whereas no earnings were accrued for this investment during the first six months of the prior year as RAH was only purchased during June 2008.

4. Impairment of assets
In terms of IAS 36 – Impairment of Assets, an entity must determine whether there is any indication of impairment at each balance sheet date. IAS 36 requires that the higher of the market value or the value in use be used to assess whether any impairment is necessary. Based on discounted free cash flow valuations prepared by management with the assistance of an independent adviser the Board of GPI is satisfied that no impairment is required.
5. Negative goodwill
In terms of IFRS 3 – Business Combinations, whenever there is a change in a business combination, the fair value of the affected investment must be brought to account.

Independent advisers conducted a detailed fair value assessment of the net assets of SunWest at the time of acquiring the additional stake in SunWest and confirmed a fair value of the net assets per SunWest share of R359,27. An R80,6 million negative goodwill adjustment has therefore been accounted for.
6. Finance costs and activities
The increase in GPI’s finance costs is attributed to higher levels of interest-bearing debt during the reporting period. GPI utilised this debt to fund its long-term acquisitions this year and in the prior year and still has substantial capacity for additional acquisitions. GPI is well positioned with its relatively low gearing in this challenging environment.

The interest-bearing preference shares issued to Sun International Limited were repaid on 25 October 2007. In the prior year the coupon on these preference shares was reflected as dividends paid as the terms of these preference shares resulted in this source of funds being treated as share capital. During the current period, an additional R105 million of preference share funding was raised with the coupon rate determined at 83% of the prime lending rate.
7. Headline earnings and HEPS
Headline earnings increased from R45,1 million to R48,9 million for the half-year ended December 2008. This represents an 8% increase on the prior six-month period. As a result of the additional shares issued, headline earnings per share declined by 16% from 12,52 cents last year to 10,54 cents this year.

While GPI’s highly cash-generative portfolio of investments has continued to produce excellent dividends and has demonstrated good resilience to this very challenging trading environment, it has not been immune to the economic slow-down, with GrandWest Casino and Entertainment World (GrandWest), GPI’s most significant asset reflecting a 4% decline in revenues. Pleasingly, the many cost-saving initiatives implemented by GrandWest management have contained the EBITDA dilution for the period to 5,7%. The additional finance cost incurred by the expanded GrandWest offering together with the high STC charge incurred on dividends paid by GrandWest, resulted in a decline in its profits. Notwithstanding this decline, GrandWest remains GPI’s prize asset and offers significant long-term value for GPI’s shareholders.

The results of RAH were boosted by the strong performance of Carnival City, that despite operating in the most competitive market, which now has an additional casino, grew its revenues by 6% and its EBITDA by 9%. Sibaya Casino also held up well, growing its revenues by 3% and keeping its EBITDA at the same level as the previous year.
         
  The table below highlights the contributions from GPI’s various investments towards reported headline earnings as well as the dilution from operating costs and financing costs.
    Unaudited Unaudited Audited
    31 December 31 December 30 June
    2008 2007 2008
    R’000 R’000 R’000
  Headline earnings 48 902 45 137 84 764
  Income from associates      
  – SunWest* 41 409 42 416 79 874
  – RAH 16 237 – 5 482
  – Thuo WC 2 016 2 132 4 738
  – Akhona GPI 324 – 23
  Western Cape Manco 10 253 10 709 21 734
  Other# 2 061 (2 144) (2 016)
  Operating costs (8 222) (7 422) (16 137)
  Finance costs (15 176) (554) (8 934)
         
 
*    This amount includes the reversal of the BEE charge incurred in the prior year.
# Other includes interest received, tax paid and other adjustments to headline earnings.
8. Related party transactions
The group, in the ordinary course of business, entered into various transactions with related parties. All transactions were concluded at arm’s length. Any intra-group related party transactions and outstanding balances are eliminated in the preparation of the interim results of the group as presented.
9. Prospects
GPI is an investment company and will continue to seek out attractive investment opportunities capable of delivering medium to long-term growth in the underlying value of its expanding portfolio. While the trading environment is extremely challenging and we are in the midst of an uncertain future, the Board of GPI believes that GPI is well positioned to capitalise on opportunities that will no doubt arise in the present environment. GPI has a strong balance sheet with a low level of gearing and is invested in high quality cash-generative assets. GPI's focus remains the urban casino and LPM market, but it will also be reviewing other opportunities in the current depressed market to expand its portfolio.
10. Dividends
GPI has historically never paid interim dividends and believes that it is prudent in the current environment to maintain this status quo.

For and on behalf of the board  
H Adams A Funkey
Chairman Chief Executive Officer
9 March 2009 Cape Town

Directors
H Adams (Chairman)#, A Abercrombie#, A W Bedford#, A Funkey, R Freese#, R Hoption, Dr N Maharaj#*, N Mlambo#, C Williams#*
#non-executive   *independent


GRAND PARADE INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
Registration number 1997/003548/06  
Share code GPL  
ISIN ZAE00119814  
Registered offices  
15th Floor Triangle House, 22 Riebeeck Street  
PO Box 7746, Roggebaai, 8012  
Transfer secretaries  
Computershare Investor Services (Proprietary) Limited  
70 Marshall Street, Johannesburg, 2001  
Attorneys  
Bernadt Vukic Potash & Getz Attorneys  
Corporate advisers  
Leaf Capital (Proprietary) Limited  
Sponsor  
PSG Capital (Proprietary) Limited  
Company Secretary  
Ralph Gordon Freese