| Thu 15 May 2008, 17:40 | | JNC - Johnnic Holdings Limited - Year End Results |
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JNC
JNC
JNC - Johnnic Holdings Limited - Year End Results For 31 March 2008
Johnnic Holdings Limited
("Johnnic" or "the Company"
Incorporated in the Republic of South Africa
Registration number: 1889/000429/06
Share code: JNC & ISIN: ZAE000024352
Results
Commentary
Overview
Johnnic`s major assets at 31 March 2008 comprise:
- 29,9% effective interest in Tsogo Sun KwaZulu-Natal (Pty) Limited
("Suncoast");
- 9,7% effective interest in Tsogo Sun Holdings (Pty) Limited ("Tsogo Sun")
- 90,5% effective interest in Montauk Energy Capital ("Montauk")
- 100% of Gallagher Estate
The year under review has been one of consolidation for Johnnic with no
significant acquisitions or corporate action. The group`s effective stake in
Suncoast has decreased from 30,2% to 29,9% as a result of the exercise of an
option granted in 1998, which entitled the option holder to an effective 0,4% of
Suncoast. Johnnic`s effective interest in Montauk has been diluted to 90,5% from
93,5% through the exercise of certain co-investment rights awarded to management
and other investors and the granting of options to management.
The R29 million (25%) growth in attributable headline earnings from R114 million
in 2007 to R143 million in the current year can be attributed to the following
main factors:
- A R21 million (35%) increase in the attributable share of headline
earnings from Suncoast;
- A R46 million (75%) increase in the attributable share of headline
earnings from Tsogo Sun;
- A R15 million (83%) increase in headline earnings from Gallagher;
offset by
- A R29 million increase in the group`s share of Montauk`s headline losses;
and
- A R23 million swing in Johnnic from a R7 million profit last year to a R16
million loss in the current year. This swing is largely as a result of Johnnic
utilising its cash resources to acquire Montauk in Dec 06 and the resultant
reduction in interest income.
Divisional Review
Suncoast
The group`s attributable share of Suncoast`s headline earnings was R80 million
in the current year, up R21 million (35%) from the R59 million recorded for the
same period last year.
The Suncoast performance has been pleasing with the growth reflective of the
general growth in the KwaZulu-Natal gaming market. In the year under review,
Suncoast`s share of the KwaZulu-Natal gaming market was down 1,6% from the
previous year. The decline in market share can be attributed largely to the
opening of new casinos in the area. Increased interest rates, constraints at the
casino, particularly parking, and the general economic pressures have started to
have an effect on growth rates and these growth rates are expected to be more
subdued going forward. Suncoast will add a further 80 slot machines to its
gaming floor in the new financial year, which should alleviate some of the
constraints currently being experienced.
Tsogo Sun
The group`s equity accounted share of Tsogo Sun`s headline profit was R107
million in the current year up R46 million (75%) from the R61 million recorded
for the same 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 in the prior period.
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 period under review was below expectations
and the business delivered a net loss of R80,5 million (US$10,5 million). This
loss is after taking into consideration a R36,5 million deferred tax asset which
was raised. To date, Montauk has raised a deferred tax asset of R113 million
(US$14 million) in total. 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.
The reasons for the disappointing performance are related to both gas prices and
volume. On the volume side, operational issues delayed the commissioning of the
new six mmscfd (millions of standard cubic foot per day) plant at the Rumpke
facility in Cincinati Ohio. We had expected that this plant would be fully
operational in July 2007, but problems with equipment suppliers and design
issues resulted in the plant only becoming operational at a three mmscfd
operating capacity level in September 2007. The plant is expected to operate at
full capacity from early in the new financial year. Once the new plant is fully
operational, the facility will have installed capacity of 15 mmscfd. However,
the wellfield collection system is not delivering sufficient gas to the plant to
utilise the plant`s capacity. Enhancements continue to be made to the wellfield
collection system and an uptick in volumes has recently been experienced. The
average volume of gas sold at the Rumpke facility was 3 942 mmbtu`s (million
British thermal units) per day for the financial year ended March 2008 whilst
the average volumes for the months of March 2008 and April 2008 were 4 255 and 4
323 mmbtu`s per day respectively. The gas curves for the site indicate that
there is currently sufficient gas in the landfill and capacity at the plant to
produce in excess of 5 000 mmbtu`s per day. The wellfield enhancements are
expected to close the gap between the theoretical and actual volumes. The
difficulties experienced in getting the plant operational resulted in a capital
expenditure overspend of some US$2,9 million.
Two of Montauk`s active facilities, Valley and Monroeville, are operated by
Montauk`s 50% joint venture partner. In February 2008, the utility that
purchases the gas from the facilities refused to accept delivery of the
processed gas from each of the facilities and in March, the utility provided
notice to the joint venture of its intent to terminate the underlying gas
purchase agreement. As a result these facilities have not been able to sell any
gas since early February 2008. The loss of sales at these facilities results in
a loss to Montauk of some US$140 000 in EBITDA per month. The joint venture has
entered into negotiations with the utility company to replace the terminated
agreement and it is hoped that these negotiations will be successful.
On the price side, movements in gas prices have historically been correlated
with movements in crude oil prices. However, for most of the year under review,
the natural gas price did not react to the increases in crude oil prices. This
can be partially explained by increased natural gas supply capacity as there are
switching delays with respect to demand. One would expect that this phenomenon
would reverse itself in the medium to long term and the correlation with crude
oil would return. We have started to see increasing gas prices as the average
price per mmbtu earned by Montauk on its high BTU gas sales for the 12 months
ended 31 March 2008 was USD 7,20 per mmbtu whilst the average for the months of
March and April 2008 were US$8,85 and US$9,48 per mmbtu respectively. The
forward curve for the gas price indicates pricing in the US$10,00 to US$12,00
range for most of the next 12 months. If these price levels are realised, it
will have a significant impact on the performance of Montauk.
The capital overspend at the Rumpke facility resulted in Montauk breaching its
facility covenants related to expansion capex. In addition, the lower volumes
achieved at Rumpke coupled with the lower than expected gas prices experienced
in the first half of the year would have resulted in Montauk breaching its
interest and debt leverage covenants in the latter half of the year. In order to
remedy the breach and obtain a waiver for the impending future breaches at the
time, the group advanced US$20 million to Montauk in February 2008 which was
utilised to repay some of its first and second lien loans. This advance is
subordinated to the 1st and second lien loans but is secured by a third lien
over the assets of Montauk. It bears interest at a rate of Libor plus 900 basis
points which interest will be capitalised until the total debt outstanding under
first and second lien facilities is below a level of four times the company`s
EBITDA for three successive quarters. We anticipate that the interest will only
be serviced towards the end of the financial year 2009. The capital will not be
serviced until the 1st and 2nd lien loans have been repaid in full. Johnnic
received a US$1 million raising fee from Montauk, relating to the provision of
this facility, which will be capitalised against the loan and repaid on
redemption of the loan.
Despite the setbacks, the Johnnic Board still believes that the investment in
Montauk will be value enhancing to shareholders.
Gallagher Estate Properties and Exhibitions
The performance of Gallagher Exhibitions has been very pleasing and it has shown
good growth in an increasingly competitive environment. Gallagher`s attributable
headline profit was R33 million in the current year up R15 million (83%) from
the R18 million recorded in the prior period. In addition, the value of the
Gallagher property has increased by some R53 million on the basis of a fair
value adjustment. R27 million of this increase relates to the reversal of a
previous impairment and a fair value adjustment to investment properties. The
remaining R26 million relates to fair value adjustments on owner occupied
premises.
As reported previously, in terms of an order issued by the Competition Tribunal,
the group was required to divest of the Gallagher exhibition and conferencing
business as a going concern or alternatively divest of the group`s entire
shareholding in Gallagher Estate Holdings Limited. The disposal was subject to
the prior approval of the Competition Commission. The group disposed of the
business and entered into a lease agreement with a purchaser, subject to the
approval of the Competition Commission. The Competition Commission regrettably
decided that the disposal of the Gallagher exhibition and conferencing business
would effectively only be achieved by Johnnic selling the entire property of
Gallagher Estate, which included unrelated properties, and refused to approve
the transaction. The decision of the Competition Commission was appealed by the
group to the Competition Appeal Court, which has overturned the decision of the
Competition Commission, however the Competition Appeal Court has not issued its
reasons for its decision and the parties are awaiting the written reasons of the
court prior to proceeding with the divestiture.
Management changes
During the period under review the following appointments were made to the
Board:
- Mr Freddie Magugu was appointed as a Non-Executive Director;
- Subsequent to year-end Mr Rakesh Garach was appointed as a Non-Executive
Director
Resignations during the period under review:
- Mr Adam Blumenthal.
Dividend
The directors have decided not to propose a dividend at this time.
For and on behalf of the Board
A van der Veen MJA Golding
Chief Executive Officer Chairman
15 May 2008
Consolidated condensed income statement
Reviewed Audited
restated
12 months 12 months
ended ended
31 March 31 March
2008 2007
Notes Rm Rm
Continuing operations
Revenue 340 172
Cost of sales (95) (38)
Gross profit 245 134
Fair value adjustments 3 27 (47)
Other expenses (220) (109)
Profit/(Loss) from operations 52 (22)
Impairment of investments (4) -
Loss on sale of associate (4) -
Share of profits in associates 210 142
Profit before interest and taxation 254 120
Finance costs (73) (14)
Finance income 4 22
Profit before taxation 185 128
Taxation 10 7
Profit for the year from continuing 195
operations 135
Discontinued operations
(Loss)/Profit for the year from
discontinued operations 4 (13) 3
Group profit for the year 182 138
Attributable to:
Equity holders of the parent 169 115
Minority interests 13 23
182 138
Profit attributable to equity holders
of the parent 169 115
Less: IAS 36 reversal of impairment of
assets (27) -
Less: IAS 40 fair value adjustment on
investment properties - (1)
Plus: IAS 39 impairment of available
for sale investment 4 -
Less: Remeasurements included in equity
accounted earnings
of associates (3) -
Plus: Loss on disposal of equity
investment 4 -
Total tax effects of adjustments (3) -
Total minority interest of adjustments (1) -
Headline earnings 143 114
Earnings and diluted earnings per share
(cents) 2
- Basic 102 69
- Headline 86 68
Weighted average number of shares in
issue (`000) 166 470 166 470
Actual number of shares in issue at end
of year (`000) 166 470 166 470
Consolidated condensed balance sheet
Reviewed Audited
restated
12 months 12 months
as at as at
31 March 31 March
2008 2007
Notes Rm Rm
Assets
Non-current assets 2 310 1 994
Property, plant and equipment 724 623
Investment properties 171 174
Goodwill 28 24
Derivatives 30 63
Intangible assets 118 139
Interest in associates 5 1 072 878
Available for sale investments 39 30
Deferred tax assets 119 56
Operating lease equalisation asset 5 5
Long-term receivables 4 2
Current assets 112 122
Other current assets 70 74
Cash and cash equivalents 6 31 48
Assets classified as held for sale 11 -
Total assets 2 422 2 116
Equity and liabilities
Capital and reserves
Share capital and premium 17 17
Accumulated profits 1 432 1 265
Other reserves 204 127
Equity attributable to equity holders
of the parent 1 653 1 409
Minority interests 142 126
Total equity 1 795 1 535
Non-current liabilities 497 466
Long-term borrowings 393 375
Long-term provisions 26 28
Deferred tax liability 56 40
Operating leases equalisation liability 22 23
Current liabilities 130 115
Payables and other current liabilities 127 115
Liabilities directly associated with
assets classified as held for sale 3 -
Total equity and liabilities 2 422 2 116
Net asset value per share (rand) 10 8
Net tangible asset value per share
(rand) 9 8
Consolidated condensed cash flow statement
Reviewed Audited
restated
12 months 12 months
ended ended
31 March 31 March
2008 2007
Note Rm Rm
Net cash inflow/(outflow) from
operating activities 52 (86)
Net cash outflow from investing
activities (27) (331)
Net cash (outflow)/inflow from
financing activities (41) 92
(16) (325)
Cash and cash equivalents at beginning
of year 48 373
Effects of exchange rate changes on the
balance
of cash held in foreign currencies (1) -
Cash and cash equivalents at end of
year 6 31 48
Consolidated condensed statement of changes in equity
Accu- Revalua-
Share mulated Capital tion
capital profits reserves reserves
Rm Rm Rm Rm
Balances at 1 April 2006 17 1 150 85 19
Profit for the year - 115 - -
Exchange difference arising
on translation of foreign
entities - - - -
Acquisition of subsidiary - - - -
Dividends paid to minorities - - - -
Effects of changes in
holding - - - -
Revaluation increase - - - 6
Balances at 31 March 2007 17 1 265 85 25
Profit for the year - 169 - -
Revaluation increase - - - 25
Transfer between reserves - (2) - 2
Exchange difference arising
on translation of foreign
entities - - - -
Cash flow hedge - - (19) -
Equity share in reserves - - - -
Dividends paid to minorities - - - -
Effects of changes in
holding - - - -
Balances at 31 March 2008 17 1 432 66 52
Attributable
Foreign to equity
currency holders of Minority
reserve the parent interest Total
Rm Rm Rm Rm
Balances at 1 April 2006 - 1 271 16 1 287
Profit for the year - 115 23 138
Exchange difference arising
on translation of foreign
entities 17 17 - 17
Acquisition of subsidiary - - 31 31
Dividends paid to
minorities - - (3) (3)
Effects of changes in
holding - - 59 59
Revaluation increase - 6 - 6
Balances at 31 March 2007 17 1 409 126 1 535
Profit for the year - 169 13 182
Revaluation increase - 25 - 25
Transfer between reserves - - - -
Exchange difference arising
on translation of foreign
entities 58 58 3 61
Cash flow hedge - (19) (5) (24)
Equity share in reserves 11 11 - 11
Dividends paid to
minorities - - (8) (8)
Effects of changes in
holding - - 13 13
Balances at 31 March 2008 86 1 653 142 1 795
Group segmental analysis
Gallagher and
Energy Gaming properties Other Total
For the year ended 31
March 2008 Rm Rm Rm Rm Rm
INCOME STATEMENT
Revenue
External sales 180 15 145 - 340
Segment results
Operating (loss)/profit
from continuing
operations (15) 13 73 (19) 52
Impairment of
investments (4) - - - (4)
Loss on sale of
associate (4) - - - (4)
Share of profit of
associate (4) 214 - - 210
(Loss)/Profit before
interest and taxation (27) 227 73 (19) 254
Finance income 4
Finance costs (73)
Profit before taxation 185
Taxation 10
Profit for the year from
continuing operations 195
Loss from discontinuing
operations (13)
Total profit for the
year 182
BALANCE SHEET
Assets
Segment assets 881 20 433 16 1 350
Interest in associates 85 987 - - 1 072
Consolidated total
assets 966 1 007 433 16 2 422
Liabilities
Segment liabilities 524 3 83 17 627
Consolidated total
liabilities 524 3 83 17 627
Gallagher and
Energy Gaming properties Other Total
For the year ended 31
March 2007 Rm Rm Rm Rm Rm
INCOME STATEMENT
Revenue
External sales 41 13 118 - 172
Segment results
Operating (loss)/profit
from continuing
operations (54) 11 36 (15) (22)
Share of profit of
associate - 142 - - 142
(Loss)/Profit before
interest and taxation (54) 153 36 (15) 120
Finance income 22
Finance costs (14)
Profit before taxation 128
Taxation 7
Profit for the year from
continuing operations 135
Profit from
discontinuing operations 3
Total profit for the
year 138
BALANCE SHEET
Assets
Segment assets 819 20 376 23 1 238
Interest in associates 96 782 - - 878
Consolidated total
assets 915 802 376 23 2 116
Liabilities
Segment liabilities 472 3 65 41 581
Consolidated total
liabilities 472 3 65 41 581
NOTES
NOTES
1. Basis of accounting
This report complies with International Accounting Standard 34 as well as with
Schedule 4 of the South African Companies Act and the disclosure requirements of
the JSE Limited`s Listing Requirements. The accounting policies and methods of
computation of the group have been consistently applied with those of the
previous financial year.
2. Earnings per share
The calculation of basic and headline earnings per share is based on basic
earnings of R 169 million (2007: R115 million) and headline earnings of R143
million (2007: R114 million) and a weighted average of 166 470 398 (2007: 166
470 398) shares in issue. No fully diluted earnings per share has been disclosed
as the potential dilution is not considered to be material.
Audited
Reviewed restated
12 months 12 months
ended ended
31 March 31 March
2008 2007
Rm Rm
3. Fair value adjustments
Reversal of impairment loss 27 -
Mark to market - Energy commodity sales - (47)
27 (47)
4. Discontinued operations
Revenue 19 9
Operating costs (36) (16)
Loss before taxation (17) (7)
Taxation 4 10
(Loss)/Profit after taxation (13) 3
The discontinued operations consist of the operations from 10 passive sites that
were exited during the current financial year as a result of put options
exercised by Montauk Energy Capital LLC ("Montauk"). Discontinued operations
also include operations of two other sites that were sold by Montauk during the
current financial year as well as operations from Waste Energy Technology LLC as
a result of the restructuring of Montauk that discontinued the external
engineering and construction business.
5. Interest in associates
- Unlisted 1 072 878
Book value of interests in associates 1 072 878
Directors` valuation of unlisted shares 1 072 878
6. Cash and cash equivalents
Bank balances, deposits and cash 31 48
Head office cash included in the above 6 14
7. 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 Service ("SARS") has been assessing these financial structures,
the outcome of which remains uncertain. This could have an adverse effect on the
group. The directors have taken advice on the matter and believe that the group
will be able to defend any actions flowing from the SARS assessment.
8. Lease commitments
Operating leases
- within one year 4 5
- more than one year 51 57
Total 55 62
9. Capital commitments
Authorised 46 2
Contracted for 2 14
These capital commitments will be funded by a
combination of working capital and borrowings.
48 16
10. Reviewed results
These summarised consolidated annual financial statements have been reviewed by
our auditors, Deloitte & Touche.
A copy of their unmodified reviewed report is available for inspection at the
company`s registered office.
11. Listing requirements
The preliminary announcement has been prepared in compliance with the Listing
Requirements of the JSE.
12. Restatement of prior year numbers
12.1 Income statement
The prior year income statement numbers have been reallocated to take into
account the results of those operations that existed in the prior year, which
were classified as discontinued operations during the current financial
financial year.
The following line items were reclassified to discontinued operations:
Revenue 3
Cost of sales (3)
Other expenses 2
Taxation (3)
Change in profit from discontinued operations (1)
12.2 Balance sheet
Certain items in the prior year balance sheet have been
restated to reflect the adjustments that occurred against
the purchase price allocation of the foreign investment,
Johnnic Holdings USA LLC:
Assets
Decrease in goodwill (2)
Decrease in intangible assets (1)
Decrease in property, plant and equipment (7)
Increase in trade and receivables 1
Total movement in assets (9)
Liabilities
Decrease in long-term provisions (7)
Decrease in trade and other payables (2)
Total movement in liabilities (9)
DIRECTORS: MJA Golding (Chairman), A van der Veen (Chief Executive Officer), JA
Copelyn, R Garach, RK Jackson, L Maasdorp, F Magugu,
VE Mphande, S Queen
COMPANY SECRETARY: HCI Managerial Services (Pty) Limited
HEAD OFFICE AND REGISTERED OFFICE: Block B, Longkloof, Studios, Darters Road,
Gardens, Cape Town, 8001
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
Date: 15/05/2008 17:40:01 Produced by the JSE SENS Department.
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