| Fri 25 May 2007, 7:00 | | HCI - Hosken Consolidated Investments Limited - Re |
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HCI
HCI
HCI - Hosken Consolidated Investments Limited - Reveiwed Preliminary Results For
The Year Ended 31 March 2007
HOSKEN CONSOLIDATED INVESTMENTS LIMITED
(Registration number 1973/007111/06)
(Incorporated in the Republic of South Africa)
Share code:HCI ISIN:ZAE000003257
("HCI")
REVEIWED PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2007
HIGHLIGHTS FOR THE YEAR
143% increase in headline profit for the year
149% increase in profit attributable to HCI shareholders
136% increase in headline earnings per share
52% increase in adjusted headline earnings per share
ABRIDGED CONSOLIDATED INCOME STATEMENT
31 March 31 March
2007 2006
R`000 R`000
(reviewed) (audited) % Change
Revenue 3,150,228 2,024,366
Net gaming win 1,166,155 87,454
Net funding income 66,477 14,243
Group revenue 4,382,860 2,126,063 106%
Other income 3,864 3,615
Income 4,386,724 2,129,678
Expenses (3,089,004) (1,686,661)
EBIDTA 1,297,720 443,017 193%
Depreciation and amortisation (212,442) (68,008)
Operating profit 1,085,278 375,009
Investment income 138,628 106,954
Finance costs (175,662) (171,710)
Share of profits of associates and
joint ventures 215,407 152,099
Negative goodwill released - 8,968
Investment surplus 57,647 3,177
Fair value adjustments of
investment properties 568 11,506
Fair value adjustments of investments 444 1,593
Impairment of goodwill &
investments (3,112) (225)
Profit before taxation 1,319,198 487,371 171%
Taxation (370,079) (200,889)
Profit for the year from
continuing operations 949,119 286,482 231%
Discontinued operations 3,630 -
Profit for the year 952,749 286,482 233%
Attributable to:
Equity holders of the parent 574,737 231,195 149%
Minority interest 378,012 55,287 584%
952,749 286,482
Reconciliation of headline profit
Profit attributable to equity
holders of the parent 574,737 231,195
Adjusted for:
Investment surplus (58,819) (3,151)
Impairment of goodwill &
investments 3,112 -
Revaluation of investment properties 777 (9,837)
Negative goodwill on acquisition
of subsidiary - (8,476)
Impairment of assets - 1,673
Profit on sale of assets (8,580) (1,079)
Headline profit 511,227 210,325 143%
Deferred tax in respect of losses (33,421) (23,891)
Deferred tax in respect of STC
credits 32,515 67,163
Non-recurring transaction costs
and raising fees - 72,479
Adjusted headline profit 510,321 326,076 57%
Earnings per share (cents)
-Basic 464.66 192.90 141%
-Headline 413.31 175.49 136%
-Adjusted headline 412.58 272.06 52%
Weighted average number of shares
in issue (`000) 123,691 119,853
Actual number of share in issue at
end of period
(net of treasury shares) (`000) 123,896 122,882
Diluted earnings per share (cents)
-Basic 457.42 188.39 143%
-Headline 406.88 171.38 137%
-Adjusted headline 406.15 265.70 53%
Weighted average number of shares
in issue (`000) 125,647 122,722
ABRIDGED CONSOLIDATED BALANCE SHEET
31 March 31 March
2007 2006
R`000 R`000
(reviewed) (audited)
ASSETS
Non-current assets 11,806,828 7,099,468
Property, plant and equipment 4,847,240 795,130
Investment properties 198,299 154,235
Goodwill 908,642 82,683
Interest in associates and joint ventures 592,460 904,769
Investments 164,214 120,270
Intangibles 276,719 1,876
Deferred taxation 325,813 357,664
Derivative financial instruments 62,370 -
Financial assets 3,986,861 4,622,921
Operating lease equalisation asset 5,000 3,400
Long-term receivables 439,210 56,520
Current assets 3,616,500 3,441,241
Other 1,385,335 1,090,590
Financial assets 1,489,062 1,568,572
Bank balances and deposits 742,103 782,079
Total assets 15,423,328 10,540,709
EQUITY AND LIABILITIES
Equity 4,349,888 2,586,291
Equity attributable to equity holders of the
parent 2,119,671 1,751,429
Minority interest 2,230,217 834,862
Non current liabilities 6,713,453 5,431,328
Financial liabilities 4,044,356 4,666,651
Deferred taxation 101,373 53,737
Long-term borrowings 1,995,139 688,640
Operating lease equalisation liability 266,457 22,300
Other 306,128 -
Current liabilities 4,359,987 2,523,090
Other 2,874,712 951,765
Financial liabilities 1,485,275 1,571,325
Total equity and liabilities 15,423,328 10,540,709
Net asset value carrying per share (cents) 1,711 1,422
ABRIDGED CONSOLIDATED CASHFLOW STATEMENT
31 March 31 March
2007 2006
R`000 R`000
(reviewed) (audited)
Cashflows from operating activities 726,362 294,575
Cashflows from investing activities (604,839) (1,441,057)
Cashflows from financing activities (386,199) 594,572
(Decrease)/increase in cash and cash equivalents (264,676) (551,910)
Cash and cash equivalents
At beginning of period 768,755 544,404
On acquisition/disposal of subsidiaries 206,366 776,261
At end of period 710,445 768,755
Bank balances and deposits 742,103 782,079
Bank overdrafts (31,658) (13,324)
Cash and cash equivalents 710,445 768,755
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Share Other
capital premium reserves
R`000 R`000 R`000
Balances at 31 March 2005 29,499 534,685 1,476
Share capital and premium
Shares issued 1,813 149,894 -
Shares repurchased (500) (53,500) -
Treasury shares acquired by subsidiary (91) (1,749) -
Share issue costs - (379) -
Current operations
Profit for the year
Share of pre-acquisition profit of
subsidiary - - -
Equity settled share-based payments - - 2,531
Foreign currency translation differences - - (2,202)
Minority interest on acquisition of
subsidiaries - - -
Capital reductions and dividends - - -
Balances at 31 March 2006 30,721 628,951 1,805
Share capital and premium
Shares issued 446 66,504 -
Shares repurchased (75) (11,625) -
Treasury shares acquired by subsidiary (101) (20,674) -
Current operations
Profit for the year - - -
Equity settled share-based payments - - 3
Current revaluations - - 15,784
Hedging - - 111
Foreign currency translation differences - - 9,144
Share of equity accounted pre-acquisition
profit of subsidiary - - -
Effects of changes in holding - - -
Capital reductions and dividends - - -
Balances at 31 March 2007 30,991 663,156 26,847
Accumulated Minority
profits interest Total
R`000 R`000 R`000
Balances at 31 March 2005 823,853 126,801 1,516,314
Share capital and premium
Shares issued - - 151,707
Shares repurchased - - (54,000)
Treasury shares acquired by
subsidiary - - (1,840)
Share issue costs - - (379)
Current operations
Profit for the year 231,195 55,287 286,482
Share of pre-acquisition profit of
subsidiary 34,904 - 34,904
Equity settled share-based payments - - 2,531
Foreign currency translation
differences - - (2,202)
Minority interest on acquisition of
subsidiaries - 660,473 660,473
Capital reductions and dividends - (7,699) (7,699)
Balances at 31 March 2006 1,089,952 834,862 2,586,291
Share capital and premium
Shares issued - - 66,950
Shares repurchased - - (11,700)
Treasury shares acquired by
subsidiary - - (20,775)
Current operations
Profit for the year 574,737 378,012 952,749
Equity settled share-based payments - - 3
Current revaluations - 3,513 19,297
Hedging - 37 148
Foreign currency translation
differences - 12,570 21,714
Share of equity accounted
pre-acquisition profit of
subsidiary (266,012) (88,085) (354,097)
Effects of changes in holding - 1,233,774 1,233,774
Capital reductions and dividends - (144,466) (144,466)
Balances at 31 March 2007 1,398,677 2,230,217 4,349,888
SEGMENT ANALYSIS
Group revenue
31 March 31 March
2007 2006
R`000 R`000
Media & broadcasting 903,252 669,786
Financial services 199,447 143,741
Limited payout gaming 121,325 89,854
Casino gaming 1,198,984 -
Hotels 478,798 -
Information technology 120,799 56,842
Transport 738,809 664,238
Industrial 442,400 431,592
Energy 44,000 -
Exhibition and Properties 118,000 67,000
Other 17,046 3,010
Total turnover 4,382,860 2,126,063
Profit before tax
31 March 31 March
2007 2006
R`000 R`000
Media & broadcasting 346,871 178,245
Financial services 14,492 69,368
Limited payout gaming 8,000 (13,555)
Casino gaming 575,778* 90,335**
Hotels 111,563* 26,983**
Information technology 28,631 13,444
Transport 120,911 107,018
Industrial 53,718 36,781
Food & beverage 28,796 15,525
Exhibition and Properties 36,000 22,000
Energy (66,000) -
Other 60,438*** (58,773)
Total group profit before tax 1,319,198 487,371
*Includes the group`s equity accounted share of after tax profits from TIH for
8 months and the pre-tax profit of TIH before minority for 4 months
**Includes the group`s equity accounted share of after tax profits from TIH for
12 months
*** Includes investment surplus
COMMENTARY
BASIS OF PREPARATION AND ACCOUNTING POLICIES
The results for the year ended 31 March 2007 have been prepared in accordance
with International Financial Reporting Standards (IFRS), specifically IAS 34 :
Interim Financial Reporting, and comply with the requirements of the South
African Companies Act, 1973 and the Listings Requirements of the JSE Limited.
The accounting policies of the group are consistent with those applied for the
year ended 31 March 2006.
OVERVIEW OF RESULTS
Group results and cash flow
The group has produced a year of sterling results. Significant increases in
revenue, EBITDA and operating profits of the groups` major subsidiaries in a
buoyant South African economy with good trading conditions has resulted in
substantial increases in both headline profits and adjusted headline profits
for the year.
As a result of the acquisition of a 19% interest in Tsogo Investment Holding
Company (Pty) Ltd ("TIH") from the Fabcos Group being implemented on 30
November 2006 ("the Fabvest acquisition"), the group acquired control of the
Tsogo Sun Group and has accordingly consolidated the results of the Tsogo Sun
Group for the period 1 December 2006 to 31 March 2007. The group`s share of the
results of the Tsogo Sun Group for the eight months ending 30 November 2006
have been equity accounted in these results and are included in the share of
profits of associate companies.
Due to the complexity of the entity and the limited time available, management
has decided to account for the Business Combination using the provisional
figures provided by the Tsogo Sun Group an alternative that is allowed in
terms of IFRS 3. IFRS 3 allows a company to update these provisional figures
within 12 months of the combination date. The detail assessment of Tsogo`s
assets, liabilities and contingent liabilities will be completed in the coming
months and the required adjustment will be made to these figures. It is
expected that the main adjustments will relate to the fair value of the land,
buildings and intangible assets acquired.
The consolidation of the results of the Tsogo Sun Group has resulted in
significant increases in many of the disclosable line items in the group income
statement for the year under review. These increases have hidden the strong
growth in revenues, EBITDA and operating profits of the groups` other major
investments. All of the line items in the income statement up to and including
profit for the year are not comparable with the prior year. The profit
attributable to HCI shareholders (up 149%), headline profit (up 143%) and
adjusted headline profit (up 57%) are comparable with that of the prior year.
The basic earnings per share, headline earnings per share and adjusted headline
earnings per share are also comparable with that of the prior year.
Basic earnings per share amounted to 465 cents for the year. This represents a
141% increase when compared to the prior year and is due to the continued
improved performance of the group`s major investments and the profit on the
disposal of the group`s interest in Tylon included in investment surpluses for
the year under review.
Headline earnings increased during the year from R210,3 million to R511,2
million which represents an increase of 143%. Headline earnings for the prior
year includes non recurring transaction costs and raising fees amounting to
R72,4m in respect of the Johnnic offer and Fabvest acquisition.
Adjusted headline earnings has once again been disclosed so as to more
accurately reflect the economic reality of the group`s results. Adjusted
headline earnings exclude all abnormal profits and losses including non
recurring transaction costs and raising fees and the effects of net deferred
tax assets raised or expensed in respect of unused tax losses and available STC
credits. Adjusted headline earnings increased from R326 million to R510,3
million. Adjusted headline earnings per share increased by 52% from 272 cents
to 413 cents. This increase is mainly due to the continued improved overall
performance of the group`s major investments during the year.
Cash generated from operating activities has increased significantly due to the
consolidation of the Tsogo Sun Group for the four months and the continued
strong cash flows generated by e-TV, GABS and Tsogo.
Group Balance Sheet
The group balance sheet reflects significant increases in non current assets,
non current liabilities and minority interest at year end. These increases are
mainly due to the consolidation of the Tsogo Sun Group for the first time. The
2007 figures are thus not comparable with the prior year which exclude the
assets and liabilities of the Tsogo Sun Group. The minority interest has
increased significantly due to the existence of a large minority in Tsogo Sun
which is reflected on consolidation.
The non current liabilities at year end comprise non recourse debt that is
presently ring fenced in operating subsidiaries (R1 510m) and recourse debt at
the HCI corporate level (R485,3m). The increase in non current liabilities
from that of the prior year was mainly due to the aggregation of debt
following the consolidation of the Tsogo Sun Group and the acquisition of
Montauk Energy Corporation by the Johnnic Group.
INVESTMENTS
Media and Broadcasting
e-TV (Pty) Ltd ("e-TV") -63% interest
eTV had an outstanding year with revenues up 31 % and profits after tax ("PAT")
up 95% on last year. Costs remained carefully controlled and inventory tightly
scheduled to achieve maximum benefit from programming spend. It has continued
to slowly increase its viewership and has further benefited from the steady
increase in the portion of adspend captured by TV from other media.
Efforts to extend e-TV`s footprint into sub-Saharan Africa have been slower
than anticipated but progress in developing partnerships in several countries
has been made. Several key programs have been used to extend its reach and it
is anticipated this process will continue to be developed in a manner that will
provide growth opportunities for e- TV this coming fiscal year without exposing
the company to undue risk.
The company has also applied for a pay television licence and is due to
participate in hearings in respect of same commencing in June 2007. It remains
somewhat unclear as to the number of licences ICASA intends to issue and the
terms thereof. Accordingly it is not clear presently as to whether acquiring
such a licence will prove significant or otherwise.
It does appear that Dreamworld Studios will finally commence being built this
financial year which will be a useful addition to the current business. e-TV
concluded an agreement to acquire a 50,01% stake in a company Viamedia subject
to certain conditions; which will be a useful extender of revenue
in the current financial year. It is also a business that will
flourish with the extension of eTV`s broadcast footprint across Africa
Yired (Pty) Ltd ("YFM") 77,5% interest
The station generated R15,1m in PAT in the first full year of consolidation in
HCI, 6% up on last year. The station has been through a difficult period with
several key presenters leaving but is now consolidating itself, having built on
new talent.
Gaming, Hotels and Leisure
Vukani Gaming Corporation (Pty) Limited ("Vukani")- 100% interest
The company has continued to roll out machines in five provinces of South
Africa in which it is licenced. As always this roll out is slower than
management would have liked but the fact remains there are now some 416 more
live licenced machines than twelve months ago and the company anticipates the
rate of the roll out increasing over the next period as several regions
continue simultaneously. Gross gaming revenue per machine continues to grow
steadily on a month on month basis.
Net gaming win for the year was R119m, 36% up on last year and the company made
its first profit of R8m. HCI intends to report on the LPM sector separately
from casinos in its sectoral breakdown to allow clarity on progress in this
business going forward. Your directors remain of the view that this will
develop into a significant contributor to group earnings in future years.
Tsogo Investment Holding Company (Pty) Limited ("TIH") 65,5% effective
interest
During the year HCI increased its stake in this company from an effective
41,76% to an effective 65,5% through implementing the Fabvest acquisition and
acquiring a further 4,6% effective interest in TIH by (t4)acquiring, African
Renaissance Investment Holdings (Pty) Ltd ("ARIH"). Disappointingly the
Mpumalanga Gaming Board saw fit to refuse approval for the Fabvest transaction
which has been approved by the three other Regional gaming boards concerned.
HCI has made application to review this refusal and has further obtained an
interdict restraining the Mpumalanga Gaming Board from requiring HCI to dispose
of its interest in the Mpumalanga licences pending this review.
HCI has also made further application for approval of its additional stake
since this amounts to more than 5% of the licences, being the interests
acquired via its holding in Johnnic and ARIH.
The Group also made a bid to acquire other minority interests in TIH but has
been unsuccessful to date in this regard.
In view of the fact that HCI has now taken control of TIH and thereby the board
of Tsogo Sun it has consolidated the results of Tsogo Sun with effect from 1st
December 2006 and will report progress in dealing with regulatory matters from
time to time.
Tsogo Sun is the major asset of HCI and is comprised essentially of two
different businesses, namely hotels and casino`s. It is the intention to report
on these as separate sectors in the sectoral breakdown of HCI`s results.(t5)
While the full impact of the consolidation of Tsogo Sun in HCI`s results will
appear more fully in future periods where the consolidation is for the full
period under review the addition of Tsogo Sun to the HCI stable is already of
major significance to the group.
Tsogo Sun Group had an excellent year with EBITDAR (before rentals) for the
year growing by 23% to R1 865 million. Net interest bearing debt at year end
was R1 042 million.
Tsogo Sun Gaming performed above expectations with casino revenue up 16% from
the 2006 financial year and EBITDA up 22% on that year. All Tsogo casinos
increased market share in the provinces within which they operate, except for
Emontweni in Mpumalanga.
The opening of the Montecasino East End development (theatre, hotel,
restaurants, piazza and conference facilities), the recently opened Highveld
Shopping Mall in Witbank and the December 2006 opening of the Suncoast Hotel
and Towers together with the planned major shopping centre development at
Hemingways in East London are all important to Tsogo Sun Gaming`s ability to
grow quality footfall and revenue.
Southern Sun Hotels had an exceptional year with revenues up 22% and EBITDA up
56% on last year. Of real significance is the fact that the hotel group
recommenced trading under its own Southern Sun brand and has spent significant
amounts refurbishing its hotels with very refreshing results. The group also
opened new hotels in Seychelles, Dubai and Durban and continues to develop as
South Africa`s leading hotel group.
Johnnic Holdings Limited ("Johnnic") 51% interest
Johnnic`s reported profit after tax for the year amounted to R114 million of
which the majority relates to Johnnic`s gaming interests. (t6)Shareholders are
referred to Johnnic`s results for its performance and activities.
Financial Services
Mettle Consolidated Investments (Pty) Ltd ("Mettle") 100% interest
Mettle`s business has been successfully transformed away from its original
structured finance focus. Mettle Factors which provides bridging loans to
facilitate inter alia fixed property transactions, has continued to perform
well, with the company refinancing much of the initial shareholder loans
advanced by HCI as the business developed a sustainable profit profile. A new
book focused on providing credit in respect of the purchase of building
materials was acquired by the purchase of a majority stake in Lendcor. While
small this business is likewise profitable and growing well.
Mettle`s traditional business yielded R22m profit after tax for the year.
Further Noah Financial Services performed well. The company has subsequently
disposed of its interest in the JSE Ltd and paid a dividend with the proceeds
thereof resulting in HCI receiving some R17,5m after year end.
Mettle Motor Loans has been disappointing. The business had relied on the
outsourcing of a number of functions including collections and credit vetting.
Further the business was highly reliant on a single originator. These factors
resulted in significant bad debt emerging in the book. Subsequent to year end,
the business has been significantly restructured with collections and credit
vetting taken in house and by re-assessing the relationships with
originators. Senior management has been changed and key experienced personnel
hired for the purpose. We have made suitable provisions for the potential bad
debt in the book but subject to continuing funding support from our funding
partner, remain committed to the business. We believe we ought to be able to
grow it significantly despite the school fees paid in its start up
phase.
Transport
Golden Arrow Bus Services (Pty) Ltd ("GABS") 100% interest
GABS continued to perform well. Passengers were up 5% on last year. Revenues
were up 12%. Expenses were well controlled and as a result profits before tax
have tracked the growth in revenue.
Since HCI acquired GABS in 2004 the company has purchased 169 new buses and
has refurbished another 126 buses, in total almost a third of its fleet at a
cost of approximately R195 million. The Company has committed to acquiring a
further 110 new buses in the forthcoming year. By December 2007, the Company
would have acquired and refurbished a total of over 400 buses at a cost of
over R300 million.This commitment to the upgrading of the bus service of Cape
Town is a key component in the company positioning itself as the primary
supplier of scheduled bus transportation for the city for the foreseeable
future. It is hoped the Department of Transport will regularize the
company`s short term contract with a more sustainable
one during the current financial year.
Food and beverages
Clover Industries Limited ("Clover") 46% economic interest
The group continued to hold its 25,1% interest in the ordinary share capital of
Clover but increased its investment in Clover preference shares to 38.5
million shares by acquiring a further 2,45 million preference shares on the
open market. This results in the group presently holding an effective 46%
economic interest in Clover.
Clover`s results for the six month period ending 31 December 2006 reflect a
significant decrease in profitability in relation to the prior period. The
company has not performed in accordance with HCI`s expectations as(t7) the
company`s ethos remains largely co- operative rather than commercial. The
current shortage of milk has resulted in significant pressure on its margins.
The company needs to be run more efficiently if it is to prosper.
HCI will continue to pursue the introduction and upholding of meaningful levels
of corporate governance, commerciality and financial discipline. Key to the
ongoing commercialization of the company is the freeing of its capital
structure from milk quotas.
The company has succeeded in(t8) buying the Danone interest in Clover/Danone
Beverages and is currently pursuing a Section 311 scheme to buy out the
remaining minorities which will better streamline the company`s businesses.
Clover has been classified as an associate company of the group. The group has
equity accounted its share of the profits of Clover amounting to R17,7million
for the year under review.
Information technology
Syntell (Pty) Ltd ("Syntell") 50.01% interest
Syntell provides electronic monitoring of traffic and traffic violations to
municipalities throughout South Africa.
The company is continuing to grow rapidly with profits after tax increasing by
53% in comparison with that of the previous year. This is likely to continue
next year as the Company was awarded a significant contract to provide
monitoring services to the Johannesburg Metro during the year.
Industrial
The growth in the construction and automotive components industries has enabled
the businesses of Formex Industries, Johnson Crane Hire and Johnson Access to
perform above expectation.
HCI sees potential to expand the operations of Formex both organically and by
acquisition in the future and has increased its stake in Formex from 80% to 90%
during the year under review. Formex has reported strong growth in revenues and
profits before tax during the year and is now the largest contributor to HCI`s
Industrial Sector.
During the period under review, the group disposed of its interest in Tylon
realizing a net surplus of R45,2m after tax.
With effect from April 2007, the group disposed of its interest in Johnson
Crane Hire for an after tax consideration of R103m.
HCI Khusela Coal 80% interest
Mining rights applications for two properties were submitted during the year.
Exploration results for both the reserves indicate that the properties can be
mined profitability with the Loopspruit reserve being Eskom quality coal and
the Klipportjie reserve producing coal for the domestic and export markets.
Exploration activities on the remaining property, Ogiesfontein, will commence
in the first half of the 2008 financial year. HCI Kusela Coal is evaluating
additional opportunities on an ongoing basis and it is hoped that the reserve
base will be expanded over time.
CHANGES IN DIRECTORATE
During the year under review, Mr J A Mabuza and Dr M L Molefi were appointed
non executive directors of the Company. With effect from 1 December 2006, upon
the group acquiring control of the Tsogo Sun Group, Mr Mabuza has now been
classified as an executive director of the company.
AUDITOR`S REVIEW
The abridged consolidated balance sheet, income statement, cash flow statement
and statement of changes in equity have been reviewed by the company`s
auditors, PKF (Jhb) Inc. Their unqualified review opinion is available for
inspection at the registered office of the company.
DIVIDEND ANNOUNCEMENT
Your directors have resolved to declare ordinary dividend number 39 of 50 cents
per HCI share. The last day to trade cum dividend will be Friday 29th June
2007. HCI shares will commence trading ex dividend as from Monday, 2 July 2007
and the record date will be Friday, 6 July 2007. The dividend will be paid on
Monday, 9 July 2007. Share certificates may not be dematerialised or
rematerialised between Monday 2 July 2007 and Friday, 6 July 2007, both days
inclusive.
For and behalf of the Board of Directors
MJA Golding Chairman
JA Copelyn Chief Executive Officer
Cape Town 24th May 2007
Date: 25/05/2007 07:00:01 Produced by the JSE SENS Department.
