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PEMBURY LIFESTYLE GROUP LIMITED - Audited Provisional Consolidated Condensed Results for the Year Ended 31 December 2017

Release Date: 20/09/2018 16:00
Code(s): PEM     PDF:  
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Audited Provisional Consolidated Condensed Results for the Year Ended 31 December 2017

PEMBURY LIFESTYLE GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2013/205899/06)
(“PL Group” or “the Company”)
ISIN Code: ZAE000222949      JSE Code: PEM


AUDITED PROVISIONAL CONSOLIDATED CONDENSED RESULTS FOR THE YEAR ENDED
31 DECEMBER 2017


COMPANY AND FINANCIAL HIGHLIGHTS:
- The Company listed on the Alternative Stock Exchange (“AltX”) of the JSE with effect from
  31 March 2017 successfully raising R140 million by way of a private placing of 140 000 000
  shares at 100 cents each
- Revenue has grown 155% for the year ended 31 December 2017 compared the prior 10-
  month period ended 31 December 2016
- Increase in number of pupils from 844 (excluding 277 Ballito students) at 31 December 2016
  to 1 384 pupils at 31 December 2017, growing to 2 184 pupils in January 2018
- Four of the seven campuses that operated during the year under review are operating at
  a positive EBITDA and one is operating around breakeven and are thus through the J-Curve
- Acquisition of the Pembury Retirement Villages operations with effect from 1 July 2017
- Loss per share increased by 71% at (7.90) cents from (4.61) cents in the prior period
- Headline loss per share increased by 68% to (7.53) cents from a loss of (4.48) cents in the
  prior period
- Substantial increase in net asset value from 8.42 cents per share to 45.98 cents per share
- Strengthening of the total assets of the Company from R57.5 million at 31 December 2016
  to R262.5 million at the end of December 2017
- Other Comprehensive Income (net of tax) increased to R31.1m from R14.7 million in the prior
  period as a result of gains on property revaluations during the period under review.
- Total comprehensive income (net of tax) of R4.6 million compared to R5.4 million for 2016.
- Four new campuses were opened in January 2018, exceeding the minimum target of 3 new
  campuses as detailed in the prospectus

CHALLENGES
- The Group suffered from “growing pains”, with the accounting department and controls
  not operating well enough, combined with high growth and transitional problems. This was
  unfortunately only identified after year end and additional resources and costs were
  incurred and there was a substantial delay in the finalisation of the audit due to increased
  audit procedures. Management has focussed on substantially improving the internal
  controls and systems as well as the composition and competency levels of the finance
  department subsequent to year end
- The number of pupils in 2017 was lower than the 1 805 pupils projected in the prospectus
  due to the implementation of tougher credit procedures in the first quarter of 2017, normal
  school leavers and fewer than expected new pupils due to the delay in roll out of new
  classrooms
- Operating costs increased for the period, including a number of once off costs associated
  with the listing and higher audit fees than expected
- The establishing of new schools at similar pricing levels by some of the larger school
  groupings. What is pleasing is that in one of the schools, out of 27 pupils that previously left
  to join a larger private school grouping, 12 pupils have returned to the school reinforcing
  PLG Schools quality of education and the caring environment.

Consolidated Statement of financial position
 Figures in Rand                                    Audited         Audited
                                               31 December     31 December
                                                      2017            2016
 ASSETS
 Non-Current Assets                             184 483 674      52 833 696
 Property, plant and equipment                  142 890 550      47 689 789
 Goodwill                                         7 502 196       3 152 014
 Intangible assets                               27 399 038               -
 Loans to related parties                         4 591 890               -
 Deferred tax                                             -       1 291 893
 Prepayments                                      2 100 000         700 000

 Current Assets                                  77 969 518        4 696 070
 Trade and other receivables                      3 386 643        1 550 936
 Prepayments                                     72 700 000        3 145 034
 Cash and cash equivalents                        1 882 875              100

 Total Assets                                   262 453 192      57 529 766

 EQUITY AND LIABILITIES
 Equity
 Stated capital                                  180 609 409         400 100
 Reserves                                         46 834 342      14 683 409
 Accumulated loss                               (41 292 597)    (14 746 843)
                                                186 151 154          336 666
 Related party loan                                        -      16 528 691

 Total equity                                   186 151 154      16 865 357

 Liabilities
 Non-Current Liabilities                         38 633 349      19 965 463
 Finance lease liabilities                       22 237 463      19 965 463
 Financial liabilities                            1 655 929               -
 Deferred tax                                    13 492 871               -
 Life right liability                               737 778               -
 Deferred income                                    509 308               -

 Current Liabilities                             37 668 689      20 698 946
 Trade and other payables                        22 048 302      16 911 168
 Loans from related parties                       6 651 795               -
 Finance lease liabilities                        4 148 273         761 144
 Operating lease liability                        2 435 972          95 578
 Other financial liabilities                      1 605 953       2 875 024
 Deferred income                                    197 200               -
 Current tax payable                                525 242               -
 Provisions                                          50 000               -
 Bank overdraft                                       5 952          56 032

 Total liabilities                               76 302 038      40 664 409

 Total Equity and Liabilities                   262 453 192      57 529 766

 Number of shares in issue                      404 817 430      203 000 000
 Net asset value per share (cents)                    45.98             8.42
 Net tangible asset value per share (cents)           37.36             6.75
Consolidated Statement of Comprehensive Income
                                                               Audited          Audited
                                                             12 months        10 months
                                                                 ended           ended
                                                         31 December      31 December
Figures in Rand                                                    2017             2016
Revenue                                                      81 106 305       31 776 743
Other operating income                                        7 150 880           75 203
Operating expenses                                        (115 389 272)     (42 025 270)
Operating loss                                             (27 132 087)     (10 173 324)
Finance income                                                  635 888            3 802
Finance costs                                               (3 397 909)      (2 555 788)
Loss before tax                                            (29 894 108)     (12 725 310)
Income tax expense                                            3 348 354        3 481 998
Loss for the period                                        (26 545 754)      (9 243 312)

Other comprehensive income:
Items that will not be reclassified to profit or loss:
Gains on property revaluation                               40 117 280       18 892 181
Related tax                                                 (8 986 271)      (4 231 849)
Other comprehensive income for the period net of tax        31 131 009       14 660 332

Total comprehensive income for the period                    4 585 255        5 417 020

Headline earnings Reconciliation:
Attributable loss                                         (26 545 754)       (9 243 312)
Adjusted for (net of tax):
Impairment of property, plant and equipment                  1 232 786           269 793
Goodwill impairment                                          4 292 546                 -
Gain on bargain purchase                                   (4 287 232)                 -
Headline loss                                             (25 307 654)       (8 973 519)

Per share information:
Weighted average shares in issue                           336 070 555      200 362 637

Loss per share (cents)
Basic loss per share                                             (7.90)           (4.61)
Diluted loss per share                                           (7.90)           (4.61)

Headline loss per share (cents)
Basic headline loss per share                                    (7.53)           (4.48)
Diluted headline loss per share                                  (7.53)           (4.48)
Consolidated Statement of Changes in Equity

                                                                                    Share
                                                                                   based
                                                         Stated    Revaluation   payment     Related party   Accumulated
Figures in R                                             capital       reserve    reserve             loan           loss           Total

Balance at 1 January 2016                                   100              -           -               -     (5,503,530)    (5 503 431)
Loss for the year                                             -              -           -               -     (9,243,312)    (9,243,312)
Other comprehensive income                                    -     14,660,332                           -               -     14,660,332
Total comprehensive income for the year                        -    14,660,332           -               -     (9,243,312)     5,417,020
Issue of shares                                         400 000              -           -               -               -       400 000
Share based payments                                           -             -     23 077                -               -        23 077
Convertible loan                                               -             -           -      16 528 691               -    16 528 691
Total contributions by and distributions to owners
of company recognised directly in equity                400 000                    23 077      16 528 691                -    16 951 768
Balance at 01 January 2017                              400,100     14,660,332     23,077      16,528,691     (14,746,842)    16,865,357

Loss for the year                                              -                                              (26 545 754)   (26 545 754)
Other comprehensive income                                     -    31 131 010           -               -               -     31 131 010
Total comprehensive income for the year                        -    31 131 010           -               -    (26 545 754)     4 585 255
Issue of shares                                      178 700 000             -           -    (16,528,691)               -   162 171 309
Purchase of own shares                                 (306 381)             -           -               -               -     (306 381)
Shares to be issued                                  1 815 690               -           -               -               -     1 815 690
Share-based payment reserve                                  -               -   1 019 923               -               -     1 019 923
Total contributions by and distributions to owners
of company recognised directly in equity           180 209 309               -   1 019 923    (16 528 691)               -   164 700 541
Balance at 31 December 2017                        180 609 409      45 791 342   1 043 000               -    (41 292 597)   186 151 154
Consolidated Statement of Cash Flows

                                                                Audited            Audited
                                                              12 months          10 months
                                                                  ended              ended
                                                            31 December        31 December
Figures in Rand                                                    2017               2016
Cash flows from operating activities
Cash receipts from customers                                   78 129 272         32 461 831
Cash payments to suppliers                                   (93 566 100)       (36 171 607)
Cash used in operations                                      (15 436 828)        (3 709 776)
Finance income                                                    635 888              3 802
Finance costs                                                 (2 202 462)        (2 555 788)
Net cash used in operating activities                        (17 003 402)        (6 261 762)

Cash flows from investing activities
Purchase of property, plant and equipment                    (33 785 321)                   -
Prepayments - properties                                     (15 000 000)                   -
Business combinations                                         (5 000 000)                   -
Net cash used in investing activities                        (53 785 321)                   -

Cash flows from financing activities
Proceeds on share issue                                       70 912 249                   -
Proceeds from other financial liabilities                       1 675 985          1 040 576
Repayment of other financial liabilities                      (1 315 333)          (425 000)
Proceeds from life right liability                                737 778                  -
Finance lease payments                                        (1 508 868)          (408 746)
Loans from related parties                                      2 754 014          5 977 090
Repayment of loans from related parties                         (534 247)          (408 746)
Net cash from financing activities                            72 721 578           6 183 920

Total cash movement for the period                             1 932 855            (77 842)
Cash at the beginning of the period                             (55 932)              21 910
Total cash at the end of the period                            1 876 923            (55 932)

Segmental information
The reportable segments, which represent the structures used by the Chief Operating
Decision Maker, to make key operating decisions and assess performance are set out below:

Reportable segment
The Group's reportable segments are operating segments which are differentiated by the
activities that each undertake and markets they operate in.

The Group's reportable segments are operating segments which are identified on a service
basis.

The reportable segments identified and reported on are PLG Properties, PLG Retirement
Villages and PLG Schools.

The revenue earned by the Schools segment is derived from educational services. The major
sources of revenue are school fees, boarding fees, aftercare fees, registration fees and sundry
income. Taxation is assessed by the Chief Operating Decision Makers at a Group level and
not considered separately at a segmental level. The revenue earned by the Retirement
segment is primarily monthly rental and frail care fees.

The revenue of PLG Properties comprises inter-segmental revenue, being rent charged on
own properties.
Segmental revenue, total assets, total liabilities and results
The Executive Directors assess the performance of the operating segments based on the measure of operating profit. The segment information provided
to the Executive Directors is presented below:

Year ended 31 December 2017
                                                                                    PLG Retirement                                Inter segment
                                          PLG Properties         PLG Schools              Villages                   Other         eliminations                  Total
Revenue                                        3 940 124           52 379 236           28 727 070                       -                    -             85 046 430
Other income                                  42 433 640              525 660            8 116 944               2 038 491         (45 963 855)              7 150 880
Operating expenses                          (16 442 369)         (59 433 684)         (39 310 481)            (10 204 677)           18 275 248         (107 115 963)
EBITDA                                        36 098 969          (6 528 788)          (2 466 467)            (10 204 674)         (31 628 731)         (125 391 208)
Depreciation and amortisation                   (68 988)            (425 300)          (1 623 509)                  12 064                    -           (2 105 733))
Finance cost                                   (155 117)          (3 146 684)             (82 458)                (13 650)                    -            (3 397 909)
Finance income                                         -              155 807                    -                 480 081                    -                635 888
Profit/(Loss) before tax                      29 707 290          (9 944 965)          (4 172 434)             (7 687 691)         (31 628 731)            (7 902 203)

Total assets                                 174 470 309           49 254 904              38 790 976         175 876 443                     -           438 392 632
Total liabilities                           (18 116 789)         (38 509 995)            (25 963 470)           (612 934)         169 038 285 -          (83 203 191)



Ten-month period ended 31 December 2016
                                                   PLG            PLG             PLG               PLG            PLG            PLG            PLG
                                Ballito    Willow View  Hartbeespoort      Mellow Oaks       Northriding    Allens View        Raslouw        Springs            Total
Revenue                      7 131 210        5 171 554     8 446 477        5 882 007        4 681 695          70 300        301 000        92 500       31 776 743
Other income                          -              60         44 143               -                 -              -              -              -          44 203
Operating expenses         (7 968 307)      (5 045 762)   (8 492 415)      (4 088 837)      (5 099 857)       (602 957)      (576 792)     (353 970)     (32 228 897)
EBITDA                       (837 097)          125 852        (1 795)       1 793 170        (418 162)       (532 657)      (275 792)     (261 470)        (407 951)
Depreciation and
amortisation                 (455 271)         (81 298)      (113 426)        (31 926)         (41 969)        (5 668)         (5 224)       (8 594)        (743 376)
Interest received                   93               81          1 376           1 062            1 056             27              74            33            3 802
Finance cost                  (43 273)         (52 834)    (2 454 550)         (1 306)          (3 825)              -               -             -      (2 555 788)
Profit/(Loss) before tax   (1 335 548)          (8 199)    (2 568 395)      1 761 000         (462 900)      (538 298)       (280 942)     (270 031)      (3 703 313)


Total assets                   850 347        1 473 063      45 376 020      1 011 716        1 639 327        633 304         507 135       738 923       57 529 766
Total liabilities          (3 192 687)      (1 330 673)    (25 105 175)    (1 296 248)      (1 203 985)      (417 215)       (598 534)     (259 310)     (33 404 482)

BASIS OF PREPARATION AND ACCOUNTING POLICIES
The accounting policies and method of measurement and recognition applied in the preparation
of these consolidated condensed audited provisional results are in terms of International Financial
Reporting Standards (“IFRS”) and are consistent with those applied in the audited annual financial
statements for the ten months ended 31 December 2016.

The consolidated provisional results are prepared in accordance with the requirements of the
Listings Requirements of the Johannesburg Stock Exchange (“JSE”) for provisional reports and the
requirements of the Companies Act, 71 of 2008. The consolidated provisional results are presented
in terms of the disclosure requirements set out in International Accounting Standards (“IAS”) 34 –
Interim Financial Reporting, as well the SAICA Financial Reporting Guides as issued by the
Accounting Practices Committee and Financial Reporting Pronouncements as issued by the
Financial Reporting Standards Council.

The Financial Director, Riaan van Jaarsveld, was responsible for the preparation of the audited
consolidated provisional results. Any reference to future financial performance included in this
announcement has not been reviewed or reported on by the group’s external auditors. The
directors of PL Group (“the Board”) take full responsibility for the preparation of the provisional
results.

During 2016, the Company changed its financial year end from February to December. The Group
results for the year ended 31 December 2017 are thus compared to the ten months ended
31 December 2016.

These consolidated financial statements have been extracted from the audited consolidated
annual financial statements. The results have been audited by the Group’s auditors, Moore
Stephens FRRS. The auditor’s unmodified audit report is available for inspection at the registered
office of the Company.

The audit report contained details of reportable irregularities as detailed further below.

The directors take full responsibility for the preparation of the financial statements and confirm that
the financial information has been correctly extracted from the underlying consolidated annual
financial statements. The auditors’ report does not necessarily cover all of the information
contained in this financial report. Shareholders are therefore advised that in order to obtain a full
understanding of the nature of the auditors’ work they should obtain a copy of that report
together with the accompanying financial information from the registered office.

The Group annual financial statements are available for inspection at the Company’s registered
office.
COMPANY PROFILE
PL Group focuses mainly on providing accessible, affordable, private education through its
schools, but from 1 July 2017 expanded into retirement accommodation and associated services.

The Company operates as a holding company to three subsidiaries, namely:

-     Pembury Schools Proprietary Limited, known as PLG Schools, the education business;
-     PLG Properties Proprietary Limited, which owns the group properties; and
-     PLG Retirement Villages Proprietary Limited, known as Pembury Retirement Villages, the
      retirement segment.

Where possible, PL Group acquires the properties from which its schools or retirement villages
operate, with the initial property acquisitions being mostly PLG Schools properties. This was
facilitated by the listing on the JSE. The intention going forward is to acquire additional properties
associated with the PLG Schools and Retirement Villages operations.

COMMENTARY
The directors of PL Group are pleased to present the Company’s results for the year ended
31 December 2017, which represents the third period of operations as a group. When comparing
the results to the prior period, attention is drawn to the impact of the acquisition of the Retirement
Villages business with effect from 1 July 2017 and the acquisition of properties during the year. The
prior period results related primarily to the PLG Schools business.

Revenue has grown 155% for the year ended 31 December 2017 to R81.1 million compared to the
ten months ended 31 December 2016, of which PLG Schools contributed R52.4 million and
Retirement Villages R28.7 million.

PLG Schools revenue grew 64.8% from the revenue of R31.8m in the prior period, with growth in
pupil numbers at the seven campuses held during 2017. The growth in pupil numbers was initially
negatively impacted by the delay in capital expenditure caused by the Company listing later
than expected as well as the Company tightening its credit policies during the first term. However,
subsequent growth in pupil numbers is being achieved in the existing schools and also due to the
launch of four new campuses in January 2018.

With effect from 1 July 2017, the Company acquired the retirement business known as Pembury
Retirement Villages, which contributed revenue of R28.7 million for the six months to 31 December
2017.

Other operating income was negligible in the prior period and was substantially higher for the year
ended 31 December 2017 at R7.1 million. This comprised of a once off gain of R5,9 million (gross)
due to the recognition of a gain on bargain purchase arising from the acquisition of the retirement
business and Sanrock, with the balance being income from the sale of food, drinks and tuck shop
sales.
Operating costs increased by 175% compared to the ten months ended 31 December 2016,
which increase is primarily associated with the following:

-      expansion of PLG Schools, which operating costs increased by 49% to R59.5 million from
       R39.7 million;
-      the acquisition of Retirement Villages on 1 July 2017 with operating costs of R40.9 million
       for the 6 months from date of acquisition;
-      the acquisition of properties as part of the listing, with operating costs of R16.5 million for
       the year;
-      once-off costs associated with the listing of the Company during the year under review,
       which amounted to about R2.7 million as well as additional costs associated with the delay
       in listing;
-      additional fee payable in relation to the acquisition of the Hartbeespoort property of R1.7
       million;
-      the once-off impairment of fixed assets, primarily associated with Ballito, of R1.7 million (pre-
       tax);
-      the once-off impairment of intangible assets of R5.7 million (pre-tax) associated with the
       acquisition of Retirement Villages, of which R2.8 million was due to the decision to not
       continue with the retirement village in Plettenberg Bay due to the inability to acquire the
       underlying property. The impairment was largely off-set by a once-off gain on bargain
       purchase arising from the acquisition of Retirement Villages of R4.8 million;
-      the amortisation of intangible assets of R1.45 million
-      The operating costs of the holding company, including head office, increased by 12.1% to
       R10.2 million from R9.1 million.

Costs are centrally monitored and management is investing in an aggressive marketing campaign
to increase pupil numbers.

Finance income increased by R632k, primarily due to interest received on higher levels of cash
and cash equivalents pursuant to the listing. Finance costs increased by R842k, mostly due to an
increase in interest on finance leases.

Other Comprehensive Income (net of tax) increased to R31.1m from R14.6 million in the prior
period as a result of gains on property revaluations during the period under review. This resulted
in total comprehensive income (net of tax) of R4.6 million for the year compared to R5.4 million in
the prior period.

As a result of the above, the attributable loss after tax for the period was higher at R26.6 million
compared to a loss of R9.2 million for the previous ten-month period, of which R9.9 million (net of
tax) is attributable to once-off costs, offset partly by the once-off gain of R4.3 million (net of tax).

This resulted in a loss per share of (7.90) cents compared to the prior period loss per share of (4.61)
cents, being a change of 71%. The headline loss per share increased by 68 to (7.53) cents from
(4.61) cents. The weighted average share in issue for the year under review increased to
336 070 555 shares compared to 200 362 637 at 31 December 2016.

Stated capital increased due to the capital raised ahead of the Company’s listing on the
Alternative Exchange of the JSE as well as acquisitions made subsequent to the listing. The funds
were primarily applied towards the acquisition of various properties and/or the issuing of
guarantees (termed property deposits where properties had not been transferred into the group
as at 31 December 2017) as well as to reducing liabilities, including the capitalisation of a related
party loan (Pembury Services), which was reflected at R16 528 691 as at 31 December 2016.
Property, plant and equipment increased to R142.9 million from R47.7 million mostly due to
additional properties acquired by PLG Properties post the listing. These properties have also been
independently valued above the cost of acquisition, which has further strengthened the balance
sheet position. An analysis of additions, disposals, revaluations and impairment losses in 2017 on
each category of property, plant and equipment is set out below:

                                          Additions
                                           through
                                           business                                  Impairment
                          Additions    combinations      Disposals   Revaluations            loss
Land                     17 596 999       2 000 000              -     17 703 001               -
Buildings                21 166 686      24 000 000              -      3 954 280               -
Furniture and fixtures    1 028 542       1 982 711      (343 430)              -      (918 148)
Motor vehicles              383 800         965 788              -              -               -
Office equipment            494 749               -              -              -       (11 362)
IT equipment                 85 248         157 478              -              -       (92 281)
Leasehold
improvements              6 274 171           127 103            -              -       (701 312)
                         47 030 195        29 233 080    (343 430)     21 657 281     (1 723 103)

As disclosed in the prior period results, management made a decision to close the Ballito school.
Property, plant and equipment has been impaired with an amount of R1 723 103 due to the
closure.

The additions through business combinations arose from the acquisition of the business of
Gooderson Sanrock Resort and Conference Centre on 17 August 2017, now known as Sanrock, as
well as the Retirement Villages acquisition. Further details are set out below:

Sanrock Acquisition:
Fair value of assets acquired and liabilities assumed                                        2017
Property, plant and equipment                                                          1 216 008
Investment property                                                                   26 000 000
Consumable expenses                                                                      381 318
Total identifiable net assets                                                         27 597 326
Fair value gain on property                                                          (18 460 000)
Gain on a bargain purchase in a business combination                                  (1 137 326)
                                                                                       8 000 000
Acquisition date fair value of consideration paid
Cash                                                                                  (5 000 000)
Equity – 3 000 000 ordinary shares in Group                                           (3 000 000)
                                                                                      (8 000 000)

Fair value techniques applied:
The market approach valuation models have been applied in accordance with the
recommendations of the International Valuation Standards Committee for land and buildings.
Other non-current assets have been measured at the selling price less cost to sell.

On 01 July 2017, the Group acquired the business of Pembury Lodges CC, known as Pembury
Retirement Villages.
Pembury Retirement Villages
Fair value of assets acquired and liabilities assumed                                          2017
Property, plant and equipment                                                              3 233 078
Intangible assets                                                                        34 543 178
Deferred tax                                                                             (9 672 090)
Total identifiable net assets                                                            28 104 166
Intangible assets                                                                          4 513 027
Gain on a bargain purchase in a business combination                                     (4 817 193)
                                                                                         27 800 000

Acquisition date fair value of consideration paid
Equity                                                                                  (20 800 000)
Pembury Lodges CC loan                                                                   (7 000 000)
                                                                                        (27 800 000)

Fair value techniques applied:
The relief from royalty method was utilised to determine a fair value for the Pembury Brand. The
multi period excess earnings method ("MEEM") valuation methodology was used to determine a
fair market value for the non-contractual customer related intangible asset.

During the year under review, goodwill increased through business combinations by R4.4 million,
related to the acquisition of the Retirement Villages, with a small impairment of R163k attributed
to the retirement lodge in Plettenberg Bay.

Intangible assets also increased due to the acquisition of the Retirement Villages, which was tested
for impairment at year end. In certain instances, the value in use calculated was lower than the
cost. The acquisitions and impairment loss associated with intangible assets is set out below:

                                                                         Additions     Impairment
                                                                                                loss
 Customer relationships                                                 23 555 633      (4 638 122)
 Trademarks                                                             10 987 543      (1 053 545)
                                                                        34 543 176      (5 691 667)

Trade and other receivables amounted to R3.4 million (2016: R1.5 million), which is net of
allowance for credit losses and includes prepayments. The increase of 127% is correlated to the
increase in revenue of 155%. Prepayments (current and non-current) amounted to R74.8 million
at year end compared to R3.9 million in the prior year, which prepayment are related to properties
acquired during the year, which have not yet been transferred into PLG Properties.

At the end of December 2017, the Group took a conservative approach to its accounts
receivable and increased the provision for doubtful debts (termed allowance for credit losses) by
R1.4 million, taking the allowance to R4 643 089 (2016: R3 268 878), the majority of which relates to
Ballito, which was closed at the end of 2016. Management has implemented strict controls over
the debtors and started with a debtor recovery plan during 2017, which included hiring debt
recovery agents for older debt, while a stringent policy on short term defaulters is enforced.
The percentage of bad debts provided for the current year approximates 1.7% of the Group
turnover, noting that the bad debt experience on the Retirement Villages is relatively lower.

Trade and other payables of R22 million were higher than 31 December 2016 of R16.9 million
primarily due to a higher number of schools in existence in the period under review, the Retirement
Villages acquisition and capital expenditure.

A liability of R738k arose during the year in relation to life rights, which are associated with the
Retirement Villages business. Life rights have been granted to occupants in a retirement village
in exchange for the right to use loan capital granted, interest free, by those occupiers to the Group
for as long as they occupy the units. The Group currently has an agreement with tenants where
an amount is to be refunded to the tenant at the end of their life expectancy period based on
the future value of the life right. The liability is therefore measured at fair value. This is a level 2 fair
value measurement.

Currently, the Group has no overdraft facilities. Management is in the process of securing bond
facilities or other strategic partners to fund capital expenditure and working capital.

Details of the headline loss reconciliation and per share information are set out below:

                                                            31 December 2017            31 December 2016
                                                                           R                           R
 Headline earnings Reconciliation:
 Net loss after tax                                                 (26 545 754)                (9 243 312)
 Adjusted for:
- Impairment of fixed assets                                           1 232 786                    269 793
- Goodwill impairment                                                  4 292 545                          -
- Gain on bargain purchase                                           (4 287 232)                          -
 Headline income/ (loss) for the six months                         (25 307 654)                (8 973 519)

 Per share information:
 Weighted average shares in issue                                    336 070 555                200 362 637

 Loss per share (cents)
 Basic earnings/(loss) per share                                           (7.90)                     (4.61)
 Diluted earnings/(loss) per share                                         (7.90)                     (4.61)

 Headline loss per share (cents)
 Basic headline loss per share                                             (7.53)                     (4.48)
 Diluted headline loss per share                                           (7.53)                     (4.48)
ACQUISITIONS AND DISPOSALS
During the year under review, the Company entered into agreements to purchase various
properties from which PLG Schools operate. Details of these agreements are set out below:

-   the acquisitions of Portion 2 of Holding 54 for R13 150 000, excluding VAT and the remainder
    of Holding 54, Raslouw Agricultural Holdings for R3 500 000, being the current location of PLG
    Raslouw College which opened in January 2017;
-   the acquisition of ERF 1729, Strubenvale EXT. 2, Springs, being the current location of PLG
    Springs Academy which opened in January 2017, for a purchase consideration of R3 500 000,
    including VAT, which remains a commitment at year end;
-   the acquisition of Portion 8 of the Farm Rietfontein 31 IR, Bredell Kempton Park, being the
    current location of Willow View Academy, for a purchase consideration of R34 000 000,
    excluding VAT, which transfer is in process (also refer to commitments and subsequent
    events);
-   the acquisition of ERF 640, Allensnek EXT. 35, Roodepoort being the current location of PLG
    Allens View Academy which opened in January 2017, for a purchase consideration of
    R7 500 000, which remains a commitment at year end;
-   the acquisition of Portion 480 (a portion of portion 12) of the Farm Wilgespruit 190-IQ,
    Roodepoort being the current location of PLG Mellow Oaks Academy for a purchase
    consideration of R12 250 000, excluding VAT;
-   the acquisition of ERF 612, Portion 0, Northwold EXT. 13, Randburg, being the current location
    of PLG Northriding Academy for a purchase consideration of R35 000 000, excluding VAT,
    which property is in the process of being transferred (also refer to commitments and
    subsequent events).
-   the acquisition of Portion 57 of the Farm Knopjeslaagte No 385, City of Tshwane Metropolitan
    Municipality, Registration Division JR, Gauteng being the location of PLG Midview Academy,
    which opened in January 2018, for a purchase consideration of R14 000 000, including VAT
    which remains a commitment at year end;
-   the acquisition of Holding 126 Carlswald Agricultural Holdings being the location of PLG
    Carlswald Academy, which also opened January 2018, for a cash purchase consideration of
    R7 500 000, including VAT;
-   the acquisition of a Portion of Portion 163 of the Farm Elandsvlei 249, Registration Division IQ,
    Greenhills Extension 3 being the location of PLG Greenhills Academy, which opened in
    January 2018, for a purchase consideration of R6 000 000, including VAT & commission, of
    which R1.8 million remains a commitment at year end;
-   the acquisition of a property in Modimolle, Limpopo, measuring 19 hectares, with over 4 000
    m2 suited up to 1 200 pupils for a purchase consideration of R8 million, of which R3 million
    remains payable at year end.            PLG Sanrock academy opened in January 2018.
    Approximately 8 hectares of the property will be utilised for PL Group’s retirement business.

With effect from 1 July 2017, the Company acquired the retirement business, including current
lease agreements with third parties, comprising 6 retirement villages. The retirement business
historically supported the establishment and growth of the education business prior to the listing
of PL Group. The retirement business was acquired by PLG Retirement Villages Proprietary
Limited, a wholly owned subsidiary of PL Group. The total contracted acquisition consideration
was R39 500 000. Of this amount, R7 000 000 comprised cash (payable from future positive cash
flows generated by the group), while the remaining R32 500 000 was settled through the issue of
32 500 000 ordinary shares at an issue price of R1.00 per share, which was recognised at a fair
value of 0,64c per share as per IFRS thereby reducing the cost of acquisition to R27 800 000.
PROSPECTS AND PROFIT FORECAST
The Company issued its prospectus on 9 March 2017 ahead of its listing on the AltX of the JSE. The
prospectus contains a profit forecast for the year ending 31 December 2017, which has been
compared to the actual results for the year ended 31 December 2017.

                                                             31 December 2017  31 December 2017
                                                                     (Actual)        (Forecast)
Revenue                                                            81 106 305       68 558 960
Other operating income                                              7 150 879                 -
Operating expenses                                              (115 389 272)     (69 161 737)
Operating loss                                                   (27 132 087)      (1 368 745)
Finance income                                                        635 888                 -
Finance costs                                                     (3 397 909)      (4 986 268)
Loss before tax                                                  (29 894 108)      (6 355 103)
Income tax expense                                                  3 348 354         1 779 404
Net (loss) after tax                                             (26 545 754)      (4 575 610)
Other comprehensive income                                         31 131 009       33 678 400
   Revaluation of properties to fair value                         40 117 280       43 400 000
   Deferred tax                                                   (8 986 271)      (9 721 600)
Total comprehensive income                                          4 585 255       29 102 790

Total comprehensive loss for the year attributable to:
Owners of the parent                                                4 585 255           29 102 790
Non-controlling interest                                                    -                    -

Net loss for the year attributable to:
Owners of the parent                                              (26 545 754)          (4 575 610)
Non-controlling interest                                                     -                    -

Headline earnings reconciliation:
Attributable loss                                                 (26 545 754)          (4 575 610)
Adjusted for (net of tax):
Impairment of property, plant and equipment                          1 232 786            1 500 000
Goodwill and intangible impairments                                  4 292 546                    -
Gain on bargain purchase                                           (4 287 232)                    -
Headline loss                                                     (25 307 654)          (3 075 610)

Per share information (assuming fully diluted)                    336 070 555          353 000 000
Loss per share (cents)                                                  (7.90)               (1.30)
Headline loss per share (cents)                                         (7.53)               (0.87)


Revenue was higher than the forecast due to the inclusion of revenue for a 6-month period from
Pembury Retirement Villages of R28.7 million. The comparable revenue from PLG Schools was
R52.3 million and was 23.6% lower than the forecast primarily due to lower student numbers than
anticipated. This was attributed to tighter credit controls being introduced in the first quarter of
2017 and the delay in the expansion of the school properties due to the listing taking longer than
originally expected.
Operating expenses were similarly higher with the inclusion of R40.8 million of expenses related to
Pembury Retirement Villages for a 6-month period. The operating expenses for PLG Schools were
lower than forecast at approximately R59.1 million. Operating expenses also include a number of
once-off expenses or impairments of goodwill and intangible assets as detailed in the results
commentary above. The effect of the impairments has largely been offset by the once-off gain
in bargain purchase. Finance costs were lower than forecast due to lower levels of debt than
anticipated. The above impacted on the operating loss, loss before tax and the attributable loss
compared to the forecast loss.

The revaluation of properties to fair value was in line with the forecast, also due to the acquisition
of additional properties subsequent to listing although the mix of properties was different due to
the timing of property transfers. The acquisition cost was below the fair value of the property.

For details of the assumptions behind the profit forecast, shareholders are referred to the
Company’s prospectus which can be found on the Company’s website at www.plgschools.co.za.

The Company has secured four new properties subsequent to listing and has opened four new
campuses in January 2018, comprising 12 schools, namely PLG Greenhills Academy in
Randfontein, PLG Carlswald Academy in Midrand, PLG Midview Academy and a recently
acquired property in Modimolle known as PLG Sanrock Academy.

With the opening of four new campuses in January 2018, the increase in pupil numbers in the
existing PLG schools and the diversification in the retirement business which is well established, the
directors are of the view that the prospects are sound, although additional funding will be required
as detailed under the Going Concern paragraph below.

COMMITMENTS
During the period under review, the Group had on-going agreements to purchase various
properties from which Pembury Schools operate, some of which were concluded subsequent to
reporting period. Details of these agreements are set out below:

-     the acquisition of unregistered portions of remainder of Portion 163 of the Farm Elandsvlei
      249 IQ Elandsvlei, being the current location of PLG Greenhills Academy, which opened in
      2018, for R6 000 000 (including VAT and commission);
-     the acquisition of ERF 1729, Strubenvale EXT. 2, Springs, being the current location of PLG
      Springs Academy which opened in January 2017, for a purchase consideration of R3 500
      000, including VAT;
-     the acquisition of ERF 640, Allensnek EXT. 35, Roodepoort being the current location of PLG
      Allens View Academy which opened in January 2017, for a purchase consideration of
      R7 500 000;
-     the acquisition of Portion 57 of the Farm Knopjeslaagte No 385, City of Tshwane Metropolitan
      Municipality, Registration Division JR, Gauteng being the location of PLG Midview Academy,
      which opened in January 2018, for a purchase consideration of R14 000 000, including VAT;

During the year under review, the Company entered into a conditional acquisition of a property
in Bryanston, which conditions were not met on time and which agreement has since lapsed.
However, the intention is to revive the agreement in due course on similar terms and conditions.
RELATED PARTY DISCLOSURE
The following related party information, which is material to an understanding of these results, is
disclosed below:

                                                         31 December 2017       31 December 2016
Figures in Rands                                                        R                      R
Related party loans owed by/(to)
Pembury Services Proprietary Limited (treated as
equity at 31 December 2016 and converted to equity
during the year ended 31 December 2017)                                     -         (16 528 691)
Pembury Services Proprietary Limited                              (1 873 863)          (7 694 254)
Pembury Lodges CC (arising from the Retirement
Villages acquisition                                              (6 465 753)                     -
Kygoway Proprietary Limited                                         (186 042)
Amounts included in trade and other payables
Kygoway Proprietary Limited                                        (408 100)                      -
Rent paid to (received from) related parties
Pembury Services Proprietary Limited                                        -            5 307 868
Leasehold improvements paid to related parties
Kygoway Proprietary Limited                                        4 879 477                      -
Repair and maintenance paid to related parties
Kygoway Proprietary Limited                                          387 773                      -

The above related party loans did not bear interest during the period under review and there are
no fixed terms of repayment.

During the year under review, Pembury Services Proprietary Limited converted a loan of R19
019 060 into equity, which included the R16 528 691 as at 31 December 2016 (as per the above)
ahead of the listing at R1.00 per share.

Pembury Services Proprietary Limited provided head office and administration services to the PL
Group and a management services contract for shared services was in place. This service
contract was terminated with the related party acquisition of Retirement Villages with effect from
1 July 2017.

Kygoway Proprietary Limited provides construction and maintenance services to the group.
Pembury Services, Pembury Lodges CC and Kygoway have common directors and shareholders
to the PL Group.

SUBSEQUENT EVENTS
Approval to purchase Finch Haven property was obtained subsequent to year end. The purchase
price of R16 000 000 is to be financed through an interest-bearing loan that is payable within 7
years of the transfer of the property. Capital repayments shall be made in multiples of R100 000 at
the discretion of PLG Properties.

The Company entered into an agreement for the acquisition by PLG Properties of the property
known as Pembury Sandton, located on Katherine Street in Sandton, Johannesburg on the
remaining extent of Erf 22 Sandown and Erf 23 Sandown and the rental income stream received
from the Sandton Property from Zephan Properties Proprietary Limited for a total consideration of
R159 000 000, which agreement has lapsed. The intention of the parties is to revive the agreement
on the same terms and conditions, which acquisition will be subject to shareholder approval.
Subsequent to the year end, management has made a decision to close the Plettenberg Bay
Lodge as negotiations to acquire the underlying property were unsuccessful. As the Company's
objective is to own all land and buildings from which they operate, it was deemed not viable to
keep the lodge open as the Company does not have the option to purchase the property. This
resulted in a once-off impairment of the tangible and intangible assets associated with the
Plettenberg Bay retirement village as at 31 December 2017. With the closure of the lodge the
Company will improve their results of operations on a month to month basis as the lodge incurred
a loss for the six-month period to the 2017 financial reporting date.

REPORTABLE IRREGULARITIES
In its first period since listing, the Group has experienced some growing pains and has also noted
some Reportable Irregularities, all of which have been addressed or will be addressed following
the issuance of the Annual Report. These are summarised below:

a)    VAT was claimed on invalid tax invoices in relation to Retirement Villages, – this has since
      been rectified
b)    The Housing Development Schemes for Retired Persons Act were contravened whereby the
      title deeds were not endorsed at the Deeds Office for life rights and the contracts with the
      occupants did not meet all requirements according to the Act in relation to Pembury
      Retirement Villages. The requirements have been addressed in the new life right
      agreements and a process has been put in place to change the old life rights contracts,
      which formed part of the Pembury Retirement Villages acquisition. Management is in the
      process of investigating solutions to endorsement requirement.
c)    The company re-purchased its own shares on the open market without having a special
      resolution in place, nor did the directors perform a solvency and liquidity test as required by
      Section 48 and 46 respectively of the Companies Act, although solvency and liquidity is
      considered at the quarterly board meetings. The repurchase of shares was undertaken
      pursuant to the original authority, which expired on 7 August 2017. Accordingly, a special
      resolution is included in the attached notice of Annual General Meeting for ratification
      and/or approval by shareholders; and
d)    Contravention of Section 30 of the Companies Act and paragraphs 3.16, 3.17, 3.19, 3.20,
      3.21 and 3.23 of the JSE Listing Requirements due to the late publication of its results on SENS
      (rectified as at the date of issue of the Annual Report) and late issue of the Annual Financial
      Statements due to accounting issues, which is rectified through the issue of these annual
      financial statements for the year ended 31 December 2017.

The above matters do not have any material effect on the results of the Group, were not
intentional and are essentially matters of compliance. Steps have been put in place to avoid a
reoccurrence of such events, including enhancing the finance team and ensuring improved
controls and systems.

CONTINGENT LIABILITY
The Group currently has an agreement with tenants where an amount is to be refunded to the
tenant at the end of their life expectancy period. Pembury Retirement Villages could be held
liable for the life rights sold by the previous owner when the life rights are sold in the future even
though the Group is not contractually obligated to. This is due to the fact that the Group is
currently paying this liability on behalf of the previous owner which could lead to a constructive
obligation. The Group has a warranty from the previous owner that it would be liable for this debt.

A valuation was performed on all life rights within the Group. The value of the liability that could
potentially be paid out to tenants amounts to R9 145 967.
SHARE ISSUES AND REPURCHASES
During the year under review, the Company issued the following shares:

-     140 000 000 shares at R1.00 per share ahead of the listing of the Company;
-     400 000 shares were issued at R1.00 per share to extinguish liabilities as detailed in the
      prospectus;
-     32 500 000 shares at R1.00 per share (amended to 64 cents per share on fair value) for the
      acquisition of Pembury Retirement Lodges;
-     Black Management Forum Investment Company Limited (“BMFI”) acquired 20 000 000 new
      PL Group shares at a subscription price of R0.90 per share, totalling R18 000 000;
-     4 687 500 shares at 64 cents per share in part settlement for the acquisition of the Modimolle
      property, being the location of PLG Sanrock Academy; and
-     placed 4 999 580 shares under its general authority.

During the year under review, 769 650 shares were repurchased without a General Authority being
in place in the bona fide belief that the Company could repurchase shares in an open period.
The Company has self-reported the matter to the JSE. Shareholders will be asked to ratify the
repurchase of the shares at the upcoming Annual General Meeting.

GOING CONCERN
The financial statements have been prepared on the basis of accounting policies applicable to
a going concern. This basis presumes that funds will be available to finance future operations and
that the realisation of assets and settlement of liabilities, contingent obligations and commitments
will occur in the ordinary course of business.

We draw attention to the fact that at 31 December 2017, the Company had accumulated losses
of R 9 888 903 (2016: R1 732 458) and that the Company's total assets exceed its liabilities by R 175
263 506 (2016: R15 219 410). The Company's loss after taxation is R 8 156 445 (R1 732 458) with cash
used in operations of R8 613 321 (2016: R772 084).

The Group had accumulated losses of R41 292 597 (2016: R14 746 843) and the Group's total assets
exceeds its liabilities by R186 151 154 (2016: R16 865 357). Excluding the prepayments under trade
and other receivables because this relates to deposits paid on properties, current liabilities
exceeds current assets by R32 399 171. The Group's loss after taxation is R26 545 754 (2016: R9 243
312) with cash used in operations of R15 436 828 (2016: R 3 709 776).

The Group's total comprehensive income for the year was R4.6 million.

The directors believe that the Group has adequate financial resources to continue in operation
for the foreseeable future and accordingly, the consolidated and separate financial statements
have been prepared on a going concern basis. The directors have satisfied themselves that the
Group is in a sound financial position and that it is able to meet its foreseeable cash requirements
as detailed further below.

The directors are not aware of any new material changes that may adversely impact the group.

The directors are also not aware of any material non-compliance with statutory or regulatory
requirements or of any pending changes to legislation which may affect the Group and
Company.
Management has assessed the Group's cash flow forecast for the next 12 months and identified
the need to obtain additional funding for the operations for the next twelve months.

The cash flow forecast indicates that the schools will have positive cash flows in the next two years
based on the fact that the more established schools are reaching 70% occupancy levels (before
expansion of additional capacity). Currently 4 of the 7 schools are already profitable at an EBITDA
level, with another school approaching breakeven, and the higher student numbers in 2018 will
further enhance this profitability and positive cash flows. The revenue and cash flows will also be
enhanced where the campuses increase the existing student numbers within the grades where
there is capacity in an existing classroom without incurring significant additional costs.

Management will provide bursaries to pupils meeting pre-approved criteria and is going on a
strong marketing drive to increase pupil numbers. An increase in school fees of 8% as well as a
grade increase will further enhance the profitability of the Group.

Pembury Retirement Villages is currently trading at 85% capacity. Management is in the process
of increasing occupancy levels. The entity has also increased the rentals by 8% for the 2018
financial year. This will aid in the cash flow shortfall of the entity. The cash flow projections indicate
that this operating entity will be cash flow positive from the 2019 financial year.

The directors have identified the following opportunities from which to procure funding:
   -    PLG Properties has the option of entering into a sale and leaseback of the Raslouw
        property
   -    the option of entering into a section 12J investment ring-fencing selected school
        operations and the associated property to obtain cash inflows in the 2018 financial year.
   -    PLG Properties further has the option of obtaining bond finance over the owned properties
        to obtain cash inflows in 2018 financial year. PLG Properties has properties worth R87 million
        that are paid in full, with two additional properties of R78 million already paid for (in
        deposits) that are in the process of being transferred. Action has been taken by
        management with regards to this option and the final step will be the submission of the
        financial statements to the banking institutions.
   -    The Group successfully listed on 31 March 2017 on the Alternative Exchange of the JSE and
        raised R 140 000 000 in the process. A further 20 000 000 shares were issued to BMFI for cash
        at 90 cents per shares. The Group therefore has the option to obtain further capital from
        the market as well as from potential strategic investors.
   -    Strategic partnerships, with a view to securing a larger investor at the listed company level
        or a joint venture partner on the property company, either of which would include
        provision of additional funding for expansion;

The ability of the Group and Company to continue as a going concern is dependent on a number
of factors. The most significant of these are that the directors continues to procure funding for the
on-going operations of the Company. The uncertainty of the outcome of the relevant funding
options indicates a material uncertainty in the going concern assumption.

CHANGES TO THE BOARD OF DIRECTORS
Pursuant to the acquisition of shares by BMFI, Mr Njabulo Mthembu has been appointed as a non-
executive director of PL Group with effect from 7 August 2017. As at 31 December 2017, the Board
was comprised of two executive directors and five non-executive directors, of which three are
independent. Mr Sheldon Nielson was appointed as Chief Operating Officer on 8 August 2018.
DIVIDEND
The Company has not historically declared interim and final dividends and does not have a formal
dividend policy as at the date of this report.

In the Prospectus it was stated that from the year ended 31 December 2018, the Board will
consider a formal dividend pay-out policy of at least 10% of headline earnings of the consolidated
group of companies, unless the Board is of the opinion that a lower dividend is to be declared
because of the necessity to apply the Group’s cash resources to any planned acquisitions or that
it is in the interest of the Group to build up cash reserves for foreseeable unfavourable market or
economic conditions.

The Board’s current view is that the adoption of a dividend policy will be postponed due to the
need to fund expansion and capital expenditure, particularly of PLG Schools, for the foreseeable
future.

For and on behalf of the Board

ANDREW MCLACHLAN                                                          RIAAN VAN JAARSVELD
Chief Executive Officer                                                        Financial Director
20 September 2018

 Executive Directors                              Registered Office
 Andrew McLachlan (Chief Executive Officer)       111 9th Avenue
 Riaan van Jaarsveld (Financial Director)         Fairland, Johannesburg, 2030

 Independent Non-executive directors              Transfer Secretaries
 Lou Brits (Chairman)                             Link Market Services South Africa Proprietary
 Barry Moyo                                       Limited (Registration number 2000/007239/07)
 Grant Waters                                     13th Floor, 19 Ameshoff Street
                                                  Braamfontein, 2001
                                                  (PO Box 4844, Johannesburg, 2000)
 Non-executive directors                          Company Secretary
 Christo Hechter                                  Arbor Capital Corporate Services Proprietary
 Njabulo Mthembu                                  Limited (Registration number 2016/120671/07)
 Designated Advisor                               WEBSITE
 Arbor Capital Sponsors Proprietary Limited       http://www.plgschools.co.za

Date: 20/09/2018 04:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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