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JNC
JNC
JNC - Johnnic - Unaudited Results For The Six Months Ended 30 September 2007
Johnnic Holdings Limited
("Johnnic" or "the Company")
Incorporated in the Republic of South Africa
Registration number 1889/000429/06
Share code: JNC & ISIN: ZAE000024352
Unaudited results for the six months ended 30 September 2007
Consolidated condensed income statement
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
30 September 30 September 31 March
2007 2006 2007
For the period Notes Rm Rm Rm
Revenue 162 69 175
Cost of sales (49) (14) (41)
Gross profit 113 55 134
Other expenses (101) (44) (154)
Profit/(loss) from
operations 12 11 (20)
Share of profits of
associated companies 76 51 127
Profit before interest and
tax 88 62 107
Finance costs (28) (2) (14)
Finance income 11 20 37
Profit before taxation 71 80 130
Taxation 8 (11) 4
Discontinued operations 2 (3) - 4
Group profit 76 69 138
Attributable to:
Equity holders of the 71 59 115
parent
Minority interests 5 10 23
76 69 138
Earnings per share (cents) 3
- Basic 43 35 69
Weighted average number of
shares in issue (`000) 166 470 166 470 166 470
Actual number of shares in
issue at end of period
(`000) 166 470 166 470 166 470
Profit attributable to
equity holders of the 71 59 115
parent
Reversal of investment
property write up - - (1)
Less: Remeasurements
included in equity
accounted
earnings of associates (3) (1) -
Total minority interest of
adjustments - - -
Headline profit 68 58 114
Headline and diluted
headline earnings per share
(cents) 41 35 68
Condensed balance sheet
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
30 September 30 September 31 March
2007 2006 2007
As at Notes Rm Rm Rm
Assets
Non-current assets 2 032 1 066 2 004
Property, plant and
equipment 603 176 630
Investment properties 174 128 174
Goodwill 26 6 26
Intangible assets 112 - 140
Deferred tax assets 80 20 56
Interests in associated 7
companies 950 706 878
Other financial assets 80 24 93
Operating lease
equilisation asset 5 4 5
Long-term receivables 2 2 2
Current assets 108 428 121
Other current assets 52 14 73
Bank balances, deposits and 8
cash 56 414 48
Total assets 2 140 1 494 2 125
Equity and liabilities
Capital and reserves
Share capital and premium 17 17 17
Accumulated profits 1 336 1 209 1 265
Other reserves 110 104 127
Equity attributable to
equity holders of the 1 463 1 330 1 409
parent
Minority interests 137 84 126
Total equity 1 600 1 414 1 535
Non-current liabilities 449 40 473
Long-term borrowings 377 - 375
Long-term provisions 13 - 35
Deferred tax liability 37 18 40
Operating leases
equalisation liability 22 22 23
Current liabilities 91 40 117
Payables and other current
liabilities 91 40 117
Total equity and 2 140 1 494 2 125
liabilities
Net asset carrying value
per share (rand) 9 8 8
Net tangible asset carrying
value per share (rand) 8 8 7
Condensed cash flow statement
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
30 September 30 September 31 March
2007 2006 2007
For the period Note Rm Rm Rm
Net cash inflow/(outflow) 63 33 (86)
from operating activities
Net cash outflow from (27) (49) (331)
investing activities
Net cash (outflow)/inflow (28) 57 92
from financing activities
8 41 (325)
Cash and cash equivalents 48 373 373
at beginning of period
Cash and cash equivalents 8 56 414 48
at end of period
Condensed statement of changes in equity
Accu- Non-distri-
Share mulated butable Minority
capital profits reserves interest Total
Rm Rm Rm Rm Rm
Balance at 1 April 17 1 150 104 16 1 287
2006
Profit for the period - 59 - 10 69
Dividends paid to
minorities - - - (1) (1)
Effects of changes in
holding - - - 59 59
Balance at 30
September 2006 17 1 209 104 84 1 414
Profit for the period - 56 - 13 69
Acquisition of
subsidiary - - - 31 31
Dividends paid to
minorities - - - (2) (2)
Exchange difference
arising on translation
of foreign entities - - 17 - 17
Revaluation increase - - 6 - 6
Balances at 31 March
2007 17 1 265 127 126 1 535
Profit for the period - 71 - 5 76
Revaluation increase - - 4 - 4
Dividends paid to
minorities - - - (4) (4)
Exchange difference
arising on translation
of foreign entities - - (17) (2) (19)
Effects of changes in
holding - - - 12 12
Cash flow hedge - - (4) - (4)
Balance at 30
September 2007 17 1 336 110 137 1 600
Group segmental analysis
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
30 September 30 September 31 March
2007 2006 2007
Rm Rm Rm
Revenue
Gaming 7 6 13
Gallagher and properties 73 63 118
Energy 82 - 44
Total 162 69 175
Profit/(loss) from operations
Gaming 6 5 11
Gallagher and properties 26 17 36
Energy (11) - (52)
Other (9) (11) (15)
Total 12 11 (20)
Segment assets
Gaming 877 716 802
Gallagher and Properties 383 388 376
Energy 850 - 924
Other 30 390 23
Total 2 140 1 494 2 125
Segment liabilities
Gaming 2 3 3
Gallagher and Properties 88 71 65
Energy 446 - 481
Other 4 6 41
Total 540 80 590
NOTES
1. Basis of accounting
These summarised consolidated financial statements have been prepared in
accordance with IAS 34: Interim Financial Reporting, the requirements of
the Companies Act of South Africa and the Listing Requirements of the
JSE. The accounting policies and methods of computation of the Group have
been consistently applied with those of the previous financial year ended
31 March 2007.
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
30 September 30 September 31 March
2007 2006 2007
Rm Rm Rm
2. Discontinued operations
Revenue 8 - 6
Operating costs (16) - (10)
Amortisation of intangibles (4) - (5)
Loss before tax (12) - (9)
Tax 9 - 13
(Loss)/profit after tax (3) - 4
The discontinued operations relate to interests that Montauk owns in
certain passive landfill sites. It is anticipated that these interests
will be disposed of in the next 12 months.
3. Earnings per ordinary share
The calculation of basic and headline earnings per share is based on
basic earnings of R71 million (2006: R59 million) and headline earnings
of R68 million (2006: R58 million) and a weighted average of 166 470 398
(2006: 166 470 398) shares in issue.
4. Contingent liabilities
The Group has entered into certain structured finance arrangements, in
relation to intellectual property sale and leaseback transactions, with
Nedbank. South African Revenue Services ("SARS") is currently assessing
these financial structures, the outcome of which remains uncertain. This
could have an adverse effect on the Group. The directors have taken
advise on the matter and believe that the Group will be able to defend
any actions.
5. Capital commitments
Authorised for 10 - 2
Contracted for 6 - 14
These capital commitments are
being funded by a combination of
working capital and borrowings.
16 - 16
6. Lease commitments
Operating leases
- within one year 4 5 5
- more than one year 52 59 57
Total 56 64 62
7. Interest in associated
companies
- Unlisted 950 706 878
Book value of interests in
associated companies 950 706 878
8. Cash and cash equivalents
Bank balances, deposits and cash 56 414 48
Head office cash included in the
above 56 414 48
Commentary
The six months ended 30 September 2007 have been spent bedding down the
acquisition of Montauk, which has not been without its problems, clarifying
our relationship with Blue Wolf Capital Management LLC ("BWCM") whilst
continuing to focus on our local investments in Suncoast, Tsogo Sun and
Gallagher. In line with our statement at year-end we have renewed our focus on
property and have investigated a number of property related opportunities.
SEGMENTAL REPORT
SUNCOAST
Suncoast continued to perform well although the increased interest rates,
constraints at the casino, in particular parking, and the general economic
pressures have started to have an effect on growth rates. Although the casino
is still expected to deliver growth going forward it is expected that this
growth will be more subdued than previously experienced. The casino has
reached a settlement with eThekwini Municipality in terms of which it is
required to pay R150 million to fulfil its bid commitments. R70 million has
been paid to date with the balance to be transferred shortly. It is hoped that
these funds will be utilised to enhance the complex and its surrounds.
The Group`s equity accounted share of Suncoast`s profit was R35 million in the
period under review, up R5 million (17%) from the corresponding period last
year.
TSOGO SUN
The Group`s equity accounted share of Tsogo Sun`s profit was R43 million for
the six months to September 2007, up R21 million (95 %) from the
corresponding period last year. It should be noted that this growth is not
entirely related to operational performance as certain non-recurring costs
were included in the previous period most notably an STC charge as well as
increased interest costs.
MONTAUK
Montauk extracts natural gas from landfills and converts this into energy in
the form of medium or high BTU gas or electricity. Montauk is the market
leader in the conversion of landfill gas into high BTU gas.
The performance of Montauk for the six months to September 2007 has been
disappointing and is behind expectations. The reasons for the disappointing
performance are related to both price and volume. On the volume side,
operational issues delayed the commissioning of the new 6 mmscfd ("millions of
standard cubic foot per day") plant at the Rumpke site in Cincinnati, Ohio. We
had expected that this plant would be fully operationally in July 2007 but
problems with equipment suppliers and design issues have resulted in the plant
only becoming operational at a 3 mmscfd level in September 2007. The plant is
only expected to operate at full capacity in March 2008. In total, the site
currently has installed capacity of some 12 mmscfd which is expected to grow
to 15 mmscfd in March 2008 when the new plant is operating at full capacity.
However, the wellfield collection system is only delivering 9 mmscfd of gas to
the plant, despite the gas curves at the site indicating that currently there
should be sufficient gas in the landfill to deliver 12 mmscfd. The wellfield
collection system will continue to be enhanced which should result in
increased volumes being processed by the plant. The difficulties experienced
in getting the plant operational has resulted in a capital expenditure
overspend of some US$2,9 million.
On the price side, movements in gas prices have historically been largely
correlated with movements in crude oil prices. However, natural gas prices
have not reacted to the recent spikes in crude oil prices. This can be
partially explained by increased natural gas supply capacity as there are
switching delays with respect to demand. However, in the medium to long term
provided oil prices remain at current levels, we expect there to be an
increase in the gas prices.
The price of natural gas has been below the level assessed in our acquisition
model. We have been shielded from the effect of these lower prices to some
extent, by the put options purchased which have been in the money for a
portion of the period under review. However, we had estimated that prices
would be above the put levels and hence despite the put, revenues have been
below expectations.
The future profitability of Montauk is dependent on increased volumes being
processed through the plants. A number of the facilities, most notably the
Rumpke facility in Ohio, are operating at below capacity at present. Work is
being done to enhance the wellfield gas collection systems in order to
increase the levels of landfill gas supplied to the plants.
The capital overspend at the Rumpke facility has resulted in Montauk breaching
its debt facility covenants related to expansion capex. In addition, the board
of Montauk has approved a further capital project at the McKinney site which
will result in approximately US$900 000 being spent on a wellfield gas
collection system. We estimate that the lower projected volumes and gas prices
may also result in Montauk breaching its interest and debt leverage covenants
in the future as these covenants are calculated based on a 12-month trailing
criteria.
To remedy the current breach of the capital expenditure covenants, fund the
required capital expenditure at the McKinney site and obtain a waiver of the
impending interest cover and debt leverage breaches, the Group has agreed in
principle, subject to the necessary regulatory approvals, to provide an
additional US$4 million to US$5 million of funding to Montauk.
For the six months ended 30 September 2007, Montauk recorded a loss of some
R25 million. This loss is after taking into consideration a R27 million
deferred tax asset which was raised in the period. The deferred tax asset
comprised R9 million relating to tax credits earned in terms of US regulations
and R18 million relating to operational taxable losses. The legislation giving
rise to the tax credits expires at the end of December 2007 and hence will not
be earned after this date. The board believes that sufficient taxable income
will be generated in the foreseeable future to realise the deferred tax assets
and hence its recognition is appropriate.
Despite the setbacks, the Johnnic board still believes that the investment in
Montauk will be value enhancing to shareholders.
BLUE WOLF CAPITAL MANAGEMENT
As reported at year-end, the South African Reserve Bank was unable to
accommodate an investment into a private equity fund in the current legal
framework, on the grounds that the Group would not acquire controlling
interests in the companies that the fund would invest into. In recognition of
the assistance that the Group provided to BWCM, BWCM has agreed, subject to
the Group procuring a US$800 000 facility for BWCM, to grant the Group a 25%
interest in any carried interests that BWCM may receive in the first two funds
it closes, subject to the approval of the fund investors. In light of the
restructured relationship Adam Blumenthal, the principal shareholder of BWCM,
has decided to resign from the board of Johnnic.
Hosken Consolidated Investments Limited ("HCI") has agreed to procure the
US$800 000 facility for BWCM, and to allocate certain HCI executives to become
non-executive managers of the fund to assist with fund raising efforts and
ongoing management of the fund. In return for the funds to be provided by HCI
as well as the work required to bring the fund to a close, the Group intends
allocating HCI 50% of its interest in its BWCM carry.
GALLAGHER ESTATE PROPERTIES AND EXHIBITION
The performance of Gallagher has been pleasing in the period under review. The
hearing in front of the Competition Appeal Court with regard to the disposal
of the conferencing and exhibition business is scheduled for the end of
November 2007. In the interim, we have continued to look for alternative
solutions to the issue but have yet to find a solution suitable to all parties
concerned.
OTHER
The Group continues to evaluate new investment opportunities with a specific
focus on the property sector. Despite investigating a number of opportunities
we have been unable to bring any to a satisfactory conclusion. We will
continue to look for ways to invest the Group`s funds in a value enhancing
manner and believe that the current economic pressures may deliver suitable
opportunities.
For and on behalf of the Board
A van der Veen MA Golding
Chief Executive Officer Chairman
15 November 2007
DIRECTORS: MA Golding (Chairman), A van der Veen (Chief Executive Officer), JA
Copelyn, VE Mphande, MF Magugu, SA Queen, RK Jackson, LW Maasdorp
COMPANY SECRETARY: HCI Managerial Services (Pty) Limited
HEAD OFFICE AND REGISTERED OFFICE: Block B, Longkloof Studios, Darters Road,
Gardens, Cape Town, 8001
PO Box 5251, Cape Town, 8000
AMERICAN DEPOSITARY RECEIPT ("ADR") PROGRAM: Cusip number 478058100. ADR to
ordinary share 1:1.
DEPOSITARY: The Bank of New York, 22nd Floor, 101 Barclay Street, New York,
N.Y. 10286, USA.
REGISTRAR: Computershare Investor Services 2004 (Pty) Limited, 70 Marshall
Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107. Telephone number 0800 117472/
(+27 11) 870 8201
INFORMATION AGENT: Symphony Investor Communications (Pty) Limited, 1st Floor,
9 Fricker Road,
Illovo Boulevard, Illovo, 2196.
Postnet Suite #182, Private Bag X31, Saxonwold, 2132. Tollfree number
0800 117 472
15 November 2007
Sponsor: Investec Bank
Date: 15/11/2007 11:15:01 Produced by the JSE SENS Department.
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