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HCI
HCI
HCI - Hosken Consolidated Investments Limited - Unaudited abridged consolidated
results for the six months ended 30 September 2009
Hosken Consolidated Investments Limited
Incorporated in the Republic of South Africa
Share code: HCI ISIN: ZAE000003257
Registration number 1973/007111/06
("HCI" or "the company" or "the group")
Unaudited abridged consolidated results for the six months ended 30 September
2009
ABRIDGED CONSOLIDATED INCOME STATEMENT
30 September
2009
R`000
% Change Unaudited
Revenue 35,3 4 167 261
Net gaming win 1 785 377
Group revenue 24,9 5 952 638
Other operating expenses (4 500 680)
EBITDA (6,3) 1 451 958
Depreciation and amortisation (372 538)
(14,3) 1 079 420
Investment income 34 087
Finance costs (324 788)
Share of profits of associates
and joint ventures 83 573
Negative goodwill released -
Investment surplus 15 000
Other impairment reversals 1 608
Asset impairments -
Fair value adjustments of
investment properties -
Fair value adjustments of
financial instruments -
Impairment of goodwill,
investments and receivables (26 149)
Profit before taxation (9,3) 862 751
Taxation (240 015)
Profit for the year from
continuing operations 28,1 622 736
Discontinued operations (161 732)
Profit for the year (8,9) 461 004
Attributable to:
Equity holders of the parent (39,7) 125 028
Minority interest 12,4 335 976
461 004
Earnings per share (cents)
Basic (40.0) 100.09
- Continuing operations 189.31
- Discontinued operations (89.22)
Headline (16.3) 104.02
- Continuing operations 165.95
- Discontinued operations (61.93)
Weighted average number of shares in issue (`000) 124,916
Actual number of share in issue at end of period
(net of treasury shares) (`000) 125,239
Diluted basic (40,4) 96.87
- Continuing operations 183.22
- Discontinued operations (86.35)
Diluted headline (16,9) 100.67
- Continuing operations 160.61
- Discontinued operations (59.94)
Weighted average number of shares in issue (`000) 129,069
Restated Restated
30 September 31 March
2008 2009
R`000 R`000
Unaudited Audited
Revenue 3 079 658 7 510 026
Net gaming win 1 685 452 3 468 702
Group revenue 4 765 110 10 978 728
Other operating expenses (3 215 773) (7 658 413)
EBITDA 1 549 337 3 320 315
Depreciation and amortisation (290 070) (634 228)
1 259 267 2 686 087
Investment income 56 514 126 138
Finance costs (222 946) (710 431)
Share of profits of associates
and joint ventures 966 68 196
Negative goodwill released - 876 023
Investment surplus 66 844 49 778
Other impairment reversals - 4 070
Asset impairments - (72 517)
Fair value adjustments of
investment properties - (15 608)
Fair value adjustments of
financial instruments (207 300) (225 148)
Impairment of goodwill,
investments and receivables (2 000) (73 594)
Profit before taxation 951 345 2 712 994
Taxation (465 088) (772 491)
Profit for the year from
continuing operations 486 257 1 940 503
Discontinued operations 19 805 (57 212)
Profit for the year 506 062 1 883 291
Attributable to:
Equity holders of the parent 207 192 1 110 488
Minority interest 298 870 772 803
506 062 1 883 291
Earnings per share (cents)
Basic 166.85 890.58
- Continuing operations 151.99 918.05
- Discontinued operations 14.86 (27.47)
Headline 124.22 254.30
- Continuing operations 109.36 266.42
- Discontinued operations 14.86 (12.12)
Weighted average number of shares in issue (`000) 124,179 124,692
Actual number of share in issue at end of period
(net of treasury shares) (`000) 123,851 124,909
Diluted basic 162.63 869.09
- Continuing operations 148.15 894.33
- Discontinued operations 14.48 (25.24)
Diluted headline 121.07 248.16
- Continuing operations 106.59 259.99
- Discontinued operations 14.48 (11.83)
Weighted average number
of shares in issue (`000) 127,404 127,776
RECONCILIATION OF HEADLINE EARNINGS
30 September 2009 30 September 2008
Gross Net Gross Net
R`000 R`000 R`000 R`000
Unaudited Unaudited
Earnings attributable
to equity holders
of the parent 125 028 207 192
IAS 16 gains on
disposal of property (60) (44) (10 400) (3 739)
IAS 16 gains/(losses)
on disposal of
plant and equipment 6 349 4 635 267 96
IAS 16 impairment of
plant and equipment 48 143 34 080 - -
IAS 38 impairment of
intangible assets - - - -
IAS 39 impairment
of investments 4 200 2 973 600 300
IFRS 3 impairment
of goodwill - - 1 400 1 018
IFRS 3 negative goodwill - - - -
IAS 28 gain on
disposal of associates - - (8 840) (8 840)
IAS 28 impairment
of joint venture - - - -
IAS 36 reversal
of impairments (1 608) (1 567) - -
IAS 27 profit from
disposal/part
of subsidiary (15 000) (13 500) (56 873) (41 775)
IAS 40 fair value
adjustment to
investment property - - - -
Re-measurements
included in equity
accounted earnings
of associates (21 670) (21 670) - -
Headline profit 129 935 154 252
31 March 2009
Gross Net
R`000 R`000
Audited
Earnings attributable
to equity holders
of the parent 1 110 488
IAS 16 gains on
disposal of property - -
IAS 16 gains/(losses)
on disposal of
plant and equipment (13 083) (2 731)
IAS 16 impairment of
plant and equipment 72 517 49 307
IAS 38 impairment of
intangible assets 861 472
IAS 39 impairment
of investments - -
IFRS 3 impairment
of goodwill 12 106 12 106
IFRS 3 negative goodwill (876 023) (873 551)
IAS 28 gain on
disposal of associates (9 972) (8 840)
IAS 28 impairment
of joint venture 59 999 47 521
IAS 36 reversal
of impairments (4 070) (4 070)
IAS 27 profit from
disposal/part
of subsidiary (39 805) (24 706)
IAS 40 fair value
adjustment to
investment property 15 608 11 090
Re-measurements
included in equity
accounted earnings
of associates - -
Headline profit 317 086
ABRIDGED CONSOLIDATED BALANCE SHEET
Restated
30 September 30 September 31 March
2009 2008 2009
R`000 R`000 R`000
Unaudited Unaudited Audited
ASSETS
Non-current assets 14 502 535 11 300 483 13 979 556
Property, plant and equipment 9 545 900 7 790 918 9 271 620
Investment properties 166 937 182 933 166 937
Goodwill 1 528 925 1 238 485 1 263 883
Interest in associates and
joint ventures 2 114 020 639 106 1 960 894
Other financial assets 67 902 347 057 63 752
Other intangible assets 604 334 471 870 703 132
Deferred taxation 273 474 215 992 343 446
Operating lease equalisation
asset 5 112 4 430 4 970
Non-current receivables 195 931 409 692 200 922
Current assets 3 577 240 2 886 667 4 042 113
Other 2 903 151 1 979 100 3 146 759
Bank balances and deposits 674 089 907 567 895 354
Non-current assets held for
sale 245 009 2 120 26 972
Total assets 18 324 784 14 189 270 18 048 641
EQUITY AND LIABILITIES
Equity 7 809 424 5 902 966 7 619 925
Equity attributable to equity
holders
of the parent 4 163 141 3 265 545 4 211 289
Minority interest 3 646 283 2 637 421 3 408 636
Non-current liabilities 5 729 610 5 146 737 6 092 077
Deferred taxation 640 395 492 102 684 909
Borrowings 4 595 908 4 237 246 4 911 023
Operating lease equalisation
liability 290 769 284 630 262 067
Other 202 538 132 759 234 078
Current liabilities 4 693 830 3 139 567 4 336 639
Non-current liabilities held
for sale 91 920 - -
Total equity and liabilities 18 324 784 14 189 270 18 048 641
Net asset value carrying per
share (cents) 3 324 2 637 3 371
ABRIDGED CONSOLIDATED
STATEMENT OF COMPREHENSIVE INCOME
6 months 6 months 12 months
ended ended ended
30 September 30 September 31 March
2009 2008 2009
R`000 R`000 R`000
Unaudited Unaudited Audited
Profit for the period 461 004 506 062 1 883 291
Other comprehensive income:
Foreign currency translation
differences (240 915) 5 842 144 242
Cash flow hedge reserve 2 757 10 694 (21 819)
Asset revaluation reserve 1 084 433 920 274 554
Total comprehensive income 223 930 956 518 2 280 268
Attributable to:
Equity holders of the company (55 401) 340 037 1 283 359
Minority interests 279 331 616 481 996 909
223 930 956 518 2 280 268
ABRIDGED CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY
6 months 6 months 12 months
ended ended ended
30 September 30 September 31 March
2009 2008 2009
R`000 R`000 R`000
Unaudited Unaudited Audited
Balance at beginning of year 7 619 925 6 232 034 6 232 034
Share capital and premium
Shares issued - 79 102 79 102
Treasury shares released 2 145 - 3 620
Treasury shares acquired by
subsidiary - (22 950) (22 950)
Current operations
Total comprehensive income 223 930 956 518 2 280 268
Equity-settled share-based
payments 4 611 1 413 2 629
Transfers - 2 454 -
Effects of changes in holding (5 210) (597 838) (533 819)
Minority interest on acquisition
of subsidiaries - - 437 101
Capital reductions and dividends (35 977) (747 767) (858 060)
Balance at end of period 7 809 424 5 902 966 7 619 925
ABRIDGED CONSOLIDATED CASH FLOW STATEMENT
30 September 30 September 31 March
2009 2008 2009
R`000 R`000 R`000
Unaudited Unaudited Audited
Cash flows from
operating activities 926 005 661 868 952 335
Cash flows from
investing activities (1 329 603) (2 193 107) (3 997 457)
Cash flows from
financing activities 204 713 1 735 040 2 969 423
(Decrease)/increase in cash
and cash equivalents (198 885) 203 801 (75 699)
Cash and cash equivalents
At beginning of period 549 698 619 719 621 719
Foreign exchange difference (833) (2 124) 3 678
At end of period 349 980 821 396 549 698
Bank balances and deposits 674 089 907 567 895 354
Bank overdrafts (324 109) (86 171) (345 656)
Cash and cash equivalents 349 980 821 396 549 698
SEGMENTAL ANALYSIS
30 September 30 September 31 March
2009 2008 2009
Revenue R`000 R`000 R`000
Media and broadcasting 765 936 744 979 1 504 367
Limited payout gaming 6 265 3 464 10 534
Casino gaming 317 753 294 000 639 427
Hotels 898 695 1 022 850 2 037 375
Information technology 101 294 117 943 220 582
Transport 456 192 469 926 938 789
Vehicle component manufacture 160 308 261 441 615 160
Mining 60 029 - 6 409
Natural gas 66 722 130 724 220 994
Clothing and textiles 1 295 658 - 1 232 274
Exhibition and properties 29 463 24 653 60 553
Other 8 946 9 678 23 562
Total 4 167 261 3 079 658 7 510 026
30 September 30 September 31 March
2009 2008 2009
Net gaming win R`000 R`000 R`000
Limited payout gaming 125 445 103 052 225 226
Casino gaming 1 659 932 1 582 400 3 243 476
Total 1 785 377 1 685 452 3 468 702
30 September 30 September 31 March
2009 2008 2009
EBITDA R`000 R`000 R`000
Media and broadcasting 330 931 267 068 568 427
Limited payout gaming 30 707 17 976 28 584
Casino gaming 773 800 749 690 1 655 232
Hotels 238 600 365 719 790 568
Information technology 18 759 28 781 55 239
Transport 70 310 67 397 168 423
Vehicle component manufacture (22 453) 23 336 (6 480)
Exhibition and properties 10 572 13 008 31 941
Mining (7 171) (18 419) (22 810)
Natural gas 7 293 38 129 79 615
Clothing and textile 14 352 - 38 890
Other (13 742) (3 348) (67 314)
Total 1 451 958 1 549 337 3 320 315
30 September 30 September 31 March
2009 2008 2009
Profit before tax R`000 R`000 R`000
Media and broadcasting 289 114 220 812 466 392
Limited payout gaming 13 004 5 772 (7 350)
Casino gaming 528 800 426 387 1 012 942
Hotels 133 750 321 366 641 602
Information technology 9 887 22 373 40 009
Transport 31 219 32 903 92 418
Vehicle component manufacture (21 894) 5 896 (12 251)
Food and beverage 48 027 (4 717) (2 398)
Exhibition and properties 10 410 13 502 13 077
Mining (7 945) (17 365) (19 380)
Natural gas (42 284) (89 784) (189 586)
Clothing and textile (51 009) - (86 213)
Other* (78 328) 14 200 763 732
Total 862 751 951 345 2 712 994
*Profit before tax includes investment surplus and negative goodwill.
NOTES TO THE ABRIDGED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PREPARATION AND ACCOUNTING POLICIES
The results for the six months ended 30 September 2009 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 2009. As required by
the JSE Limited Listings Requirements, the group reports headline earnings in
accordance with Circular 3/2009: Headline Earnings as issued by the South
African Institute of Chartered Accountants. The group has applied IFRS 8 and
the revised IAS 1 in the current period. These two standards are disclosure
standards and have not impacted on the reported results of the group.
BUSINESS COMBINATIONS
With effect from 30 June 2009, the group acquired a 100% effective interest in
Century Casinos Africa (Pty) Limited, comprising 100% interest in Century
Casinos Caledon (Pty) Limited, Century Casinos Newcastle (Pty) Limited and
Celebration Accommodation and Food Services Management (Pty) Limited. These
companies carry on the businesses of casinos, hotels and food and beverage
services. The acquired businesses contributed revenues of R53 million and
attributable net profit of R6 million to the group for the period 30 June 2009
to 30 September 2009. If the acquisition had occurred on 1 April 2009, group
revenue would increase by R105 million and profit would have increased by R13
million excluding the funding impact of the acquisition. These amounts have
been calculated using the group`s accounting policies and by adjusting the
results of the subsidiaries to reflect the additional depreciation and
amortisation that would have been charged assuming the fair value adjustments
to property, plant and equipment and intangible assets had applied from 1 April
2009, together with the consequential tax effects.
The provisional accounting of the net assets acquired and goodwill at
acquisition is as follows:
R`000
Non-current assets 237 781
Current assets 20 069
Current liabilities (90 245)
Fair value of assets acquired 167 605
Goodwill 267 057
Purchase consideration 434 662
Deferred consideration (158 771)
Cash outflow on acquisition 275 891
DISCONTINUED OPERATIONS AND NON-CURRENT ASSETS HELD FOR SALE
Discontinued operations as disclosed in the group income statement relates to
the following:
* The convention business of Gallagher Estates which the group has been ordered
by the Competition Commission to dispose of. The group is currently awaiting
the Commission`s response to proposals by the group regarding the manner of
disposal;
* The access platform subsidiary, Johnson Access (Pty) Limited is in the
process of disposing of its operations;
* Four of Seardel`s manufacturing operations in the Frame division`s vertical
pipeline - spinning, weaving, finishing and denim; and
* The door module division of Formex Industries (Pty) Ltd.
The non-current assets held for sale, as disclosed in the group balance sheet,
relate to the following:
* A subsidiary of Johnnic Holdings USA, Montauk Energy Capital LLC, has taken a
decision to dispose of certain of its non-material passive landfill sites in
the next 12 months;
* The assets of the access platform subsidiary, Johnson Access (Pty) Limited,
which are in the process of being disposed of; and
* Certain assets of the Seardel Group which have been committed to being
disposed of.
POST-BALANCE SHEET EVENTS
Johnson Access (Pty) Limited (Johnson Access)
Effective from 5 November 2009 Johnson Access, the group`s access platform
business, disposed of its operations for a consideration of R93,5 million. It
is expected that the group will realise a net profit of approximately R40
million from this sale.
Tsogo Sun Kwazulu-Natal (Pty) Limited (Suncoast Casino)
On 2 July 2009 the HCI Group announced that Johnnic Holdings Limited, a
wholly-owned subsidiary of HCI, had entered into an agreement with Tsogo Sun
Gaming (Pty) Limited in terms of which the HCI Group would decrease its
indirect interest in Suncoast Casino. All conditions precedent to this
agreement have been fulfilled on 12 October 2009.
Restructuring of the group`s interest in Montauk Energy Corporation LLC
The group has restructured its investment in Montauk Energy Corporation LLC
by disposing of its interest in Johnnic Holdings LLC, the immediate holding
Company of Montauk, to its 74,67% held subsidiary, Tsogo Investment Holding
company (Pty) Limited, subject to certain terms and conditions. Accordingly
the group`s effective interest in Montauk Energy Corporation LLC will be
reduced to 68.3%
COMMENTARY
OVERVIEW OF RESULTS
Group results
The group results reflect an overall decrease of 40% in basic earnings
attributable to HCI shareholders and a decline of 16% in headline earnings.
These results are not directly comparable to the results for the six months
ended 30 September 2008 ("prior comparable period") due to the occurrence of
the following once off non-recurring events:
* Fair value losses incurred and reported in the prior comparable period due to
the mark to market of Tsogo Sun`s initial investment in Gold Reef Resorts;
* Fair value losses resulting from the collapse of Lehman Brothers reported in
the prior comparable period resulting in impairment of natural gas put options
held by Montauk;
* The consolidation of the Seardel Group in the second half of financial year
2009, whose results are fully consolidated in the period under review but not
in the prior comparable period.
The main increase in revenue is due to the consolidation of the Seardel Group.
The group EBITDA reflected a decline of 6% in comparison to the prior
Comparable period mainly due to the decline in EBITDA from the hotels segment
due to the difficult trading conditions.
Finance costs for the period have increased significantly primarily as a result
of the increased level of group borrowings, due to the consolidation of the
Seardel Group and the increase in borrowings in the second half of financial
2009, the majority of which was used to increase HCI`s interest in Tsogo Sun.
Profit from associates for the period is higher than reported in the prior
comparative period primarily because of the equity accounting of the group`s
interest in Gold Reef Resorts and significantly improved results from Clover
Industries Limited during the current period.
Investment surpluses relate mainly to profits on the disposal of the door
module business in Formex Industries (Pty) Ltd.
The taxation charge for the current period is lower due to lower STC charges in
the current period and the effects of certain tax adjustments having a positive
impact on the current tax charge.
As a result of the above, profit after tax from continuing operations for the
six month period increased to R622 million from R486 million in the prior year,
which included certain non-recurring fair value losses.
Group balance sheet
Property, plant and equipment has increased mainly due to the effects of the
business combination as set out above and the continued investment in the
group`s hotel and gaming divisions.
Goodwill increased due to the business combination set out above.
Non-current liabilities at 30 September 2009 comprise non-recourse debt that is
presently ringfenced in operating subsidiaries of R3 295 million and recourse
debt at the HCI corporate level of R1 300 million.
INVESTMENTS
MEDIA AND BROADCASTING
Sabido Investments (Pty) Limited ("Sabido" - 64% interest)
Undoubtedly the star of HCI`s performers in the current period has been its
media assets. Adspend on eTV continued to rise steadily. eNews has passed its
breakeven point and is expected to make its first contributions to profits for
the second half of the year.
Equally significant, the group has extended its mediums to broadcast four
channels; eTV, eNews, eAfricaTV and most recently eAfrica News which has been
launched as a three hour per day block but which will be further developed
towards the goal of a 24 hour continental news channel.
Likewise we have made steady progress in expanding our platforms to distribute
our programming across Africa and are now broadcasting out of Botswana and
Ghana as well as syndicating the distribution of our eAfricaTV feed into Kenya
and Namibia.
There remain major regulatory issues around migration to digital broadcasting.
These should not cause significant problems for the future growth of the group
if dealt with rationally. We remain particularly anxious however, about signal
distribution tariffs which have the capacity to combine substantial
overcharging with state monopoly at present.
GAMING, HOTELS AND LEISURE
Tsogo Sun Holdings (Pty) Limited ("Tsogo Sun" - 38% interest)
The financial results for the six months to 30 September 2009 reflect the
continued difficult trading conditions under which the Tsogo Sun Group is
operating, particularly in the Hotel division both locally and offshore. Group
revenue of R2 876 million (0,8% below the prior year) and EBITDAR of R1 092
million (12% below the prior year) were recorded, including the impact of a
loss on the translation of foreign monetary items of R37 million.
A segmental analysis of the Tsogo Sun Group`s revenue and EBITDAR is as
follows:
2009 2009 2008 2008
Revenue EBITDAR Revenue EBITDAR
Montecasino 898 313 884 323
Suncoast 589 242 566 239
Other Gaming 495 250 443 250
Tsogo Sun Gaming 1 982 805 1 893 812
Southern Sun Hotels: South
Africa 787 283 886 398
Southern Sun Hotels: Offshore 124 41 137 44
Foreign exchange losses - (37) - (9)
Inter-group elimination (17) - (17) -
2 876 1 092 2 899 1 245
The group has concluded a number of previously announced corporate activities
during the half year which will position the group to benefit substantially
from the economic recovery, when it arrives. These activities include:
* The opening of the StayEasy Emalahleni (Witbank), the Southern Sun Hydepark
and the Southern Sun Ikoyi Lagos. The Southern Sun Montecasino is on track for
opening in May 2010 and the group is developing two further hotels in
conjunction with Liberty properties, being the StayEasy Pietermaritzburg and
the Garden Court Umhlanga;
* The attainment of all regulatory approvals for the acquisition of the Century
Casinos Caledon and Newcastle operations;
* The acquisition of an additional 30% stake in the Suncoast Casino, through
the acquisition of 100% of the shares in Millennium Casino Limited from Johnnic
Limited, in a transaction intended to simplify the group`s operating structure;
* Obtaining all the regulatory approvals for the 25% shareholding (34,9%
voting) stake in Gold Reef Resorts Limited.
The Tsogo Sun Group remains focused on a growth strategy and will continue to
pursue opportunities to develop and enhance its core Hotels and Gaming
businesses.
GAMING
The Tsogo Sun Gaming division continues to outperform other operators in South
Africa in terms of Ebitdar margin. Total revenue of R1 982 million and EBITDAR
of R805 million were achieved in the six months. The Gauteng province has been
under pressure, recording a 4,8% decline for the six months, whilst Montecasino
recorded a 1% growth in gaming win, indicating that the Montecasino catchment
area is not as affected as other regions within Gauteng.
The KwaZulu-Natal market has continued to hold up reasonably well during the
period under review, with Suncoast casino further benefiting from improved
trading at the Suncoast Hotel & Towers. Additional slots have been added and
parking created at this unit to assist peak period capacity.
The group`s other casino interests in Witbank and East London as well as the
newly acquired Caledon and Newcastle operations (with effect from 30 June 2009)
have performed satisfactorily during the period.
Nelspruit has been under pressure as a result of significant road works
disrupting day time trade.
Hotels - South Africa
The contraction South African tourism and hospitality industry remained under
pressure in the first half of the financial year, with the benefit of a number
of large sporting events, including the IPL cricket tournament, the British and
Irish Lions Tour and the Confederations Cup, not being enough to offset the
substantial declines in the Government and Corporate sector revenue, to which
Southern Sun is particularly exposed.
International arrivals (including Africa by air) have recorded a decline of 8%
for calendar year to July 2008, with all months being negative except for June.
This has particularly impacted the Cape Town market.
Hotels South Africa has recorded revenue decline of 11% to R787 million and
EBITDAR decline of 29% to R283 million for the six months.
The group is well prepared for the FIFA World Cup in 2010 and looks forward to
this exciting opportunity to showcase what the South African hospitality
industry can deliver.
Hotels - Offshore
The Hotels Offshore division achieved total revenue of R124 million,
representing a 9% decline on the prior year. EBITDAR of R41 million was some 7%
below the previous year with a margin of 33,1%. The group`s African hotels,
which are mainly corporate-focused, traded satisfactorily, with leisure product
in the Seychelles experiencing reduced demand from Europe. A charge of R37
million was recorded on the translation of foreign denominated monetary items
at stronger Rand/US$ and Rand/Euro translation rates.
The Offshore division is involved in developments in Abu Dhabi and Saudi
Arabia, which should assist future years` growth through additional management
fee income.
Vukani Gaming Corporation (Pty) Limited ("Vukani" - 100% interest)
Vukani, the group`s limited payout machine operator, has over the six months
under review, focused strongly on increasing its Gross Gaming Revenue ("GGR")
per machine. In line with this focus it has embarked on a programme of closing
underperforming sites while continuing its efforts to improve the GGR per
machine performance across the installed base. The result of the above actions
is that GGR per machine has shown a pleasing increase in the Eastern Cape and
Limpopo. Management is confident that this improvement will be mirrored in the
other regions in the coming six months.
Vukani now has 2 985 installed machines nationally and has begun the long
awaited roll-out in Gauteng. As a result of strong cost control EBITDA as a
percentage of net gaming win has improved to 24,5% (17,4%) and management is
confident that this improvement can continue. The improved margin and increased
GGR per machine, coupled with the continuing roll-out of machines have resulted
in an increase in EBITDA of 70% over the prior comparable six months.
TRANSPORT
Golden Arrow Bus ServiceS (Pty) Limited ("GABS" - 100% interest)
In our last reporting period the company experienced major difficulties with
collecting debts on its contract with the state; with the result that it was
obliged to sue to enforce its rights as well as to take steps to renegotiate
its contractual arrangements so as to live within the state`s actual commitment
to bus subsidies.
In the current period we are pleased to report that this has satisfactorily
been achieved by various amendments to our contract which is now on a basis of
distance travelled rather than a per passenger carried basis. The lower level
of total subsidies will require some limitation of the services provided as
well as adjustment to the fares charged to passengers going forward. It remains
our hope, however, that these adjustments can be achieved without noticeable
effect on the overall service GABS provides to the city and that it will allow
the company to operate profitably going forward.
The company has experienced a significant decline in the number of passengers
being carried, which is undoubtedly the consequence of the overall decline in
economic activity in the city during the current recessionary conditions. This
has obliged the company to manage its costs even more tightly as well as
obliging it to restrict capital expenditure on further new buses.
The company remains in discussions around the Integrated Rapid Transport System
and our participation therein. There are undoubtedly serious problems still to
be resolved but we remain committed to attempt to arrive at a sensible outcome
that respects everyone`s rights and works fairly for all concerned.
FOOD AND BEVERAGES
Clover Industries Limited ("Clover" - 44% interest)
Clover has had a much better six months than anticipated. The company has done
well to align its milk purchases more closely with its sales of fresh product
and has also reduced surplus inventory.
More importantly, there has been a better alignment of shareholder interests
which has given fresh life to efforts to restructure the company and its
capital on a more commercially rational basis.
MINING
HCI Khusela Coal (Pty) Limited ("HKC" - 80% interest)
The development costs of the Palesa and Mbali mines has been assessed at
R550 million in aggregate at the interim reporting date HCI had invested
R400 million.
The Palesa mine is now delivering 55 000 tons per month of washed and unwashed
coal to Eskom. The completion of the wash plant remains on schedule for
completion and commissioning in the current financial year. Operating cost
reduction remains a priority with management who is particularly concerned
about the effect of diesel and electricity price increases on the operating
margin of the mine.
The review application against the decision of the DME to grant African
Exploration Mining and Finance Corporation (Pty) Limited a mining right,
despite our prospecting right, is ongoing. Construction of the plant is largely
complete and management is assessing the impact of the mining right grant to
AFEX on the mining programme and mining infrastructure.
The mining right for the Nokuhle property will be lodged in the current
financial year.
CLOTHING AND TEXTILES
Seardel Investment Corporation Limited ("Seardel" - 70,6% interest)
The results of Seardel are being published together with those of HCI and
details thereof, together with commentary thereon, can be obtained therefrom.
Of central importance to the future of that group, however, is its performance
over the next six months. We remain hopeful that the turnaround efforts we have
been driving at will bear fruit and allow the group to be returned to
profitability in its continuing operations.
ENERGY
Montauk Energy Corporation LLC ("Montauk" - 91,5% interest)
Turnover declined by 44% from USD14,6 million in 2008 to USD8,2 million in 2009
with the group producing 1 474 831 MMBTUs of gas (2008: 1 408 914) and
28 799 699 MW/H (2008: 28 847 496) of electricity. The decline in
turnover is mainly attributable to lower gas prices in the USA.
Natural gas prices have remained depressed during the last six months, with
Natural Gas prices touching the USD2,50 at its lowest. Prices have, however,
started to recover as the USA goes into winter and injections into gas storage
facilities decline. While prices for the November to March period are all in
excess of USD5 the significant pricing discrepancy between Oil and Natural Gas
remains with the relative ratio at 16 times versus the long-term average of
8 to 10 times.
Effective 1 July 2009 Montauk concluded a revised contract for the sale of its
electricity which increased the rate per MW/H by 80%. The group also concluded
revised gas sales agreements at its McCarty and Rumpke sites which increased
the price it is paid for its gas by approximately USD2 per MMBTU.
Gas production at the Rumpke site is currently constrained by elevated
temperate levels in a couple of wells on the site. This has resulted in the EPA
monitoring the activities at the landfill more closely and requires Montauk to
measure temperate and water levels in the well field at frequent intervals.
Improved operational processes, including better preventative maintenance,
should enable increased gas production and improved plant efficiency in the
future.
VEHICLE COMPONENT MANUFACTURE
Formex Industries (Pty) Limited ("Formex" - 90% interest)
Turnover reduced from R262 million to R160 million compared to the comparable
period last year. The door module division was disposed of effective 31 August
2009, and accordingly the results of its operations have been included in
discontinued operations.
The reduced turnover resulted in a loss of R21 million for the six months. The
pressings and tubing divisions are capital intensive and the current turnover
is not adequate to be able to service the interest cost on the debt incurred to
acquire the equipment and related infrastructure. HCI has advanced funds to
Formex during the period to ensure that the business can meet its commitments.
The depressed automotive sector is showing signs of increasing sales but this
is largely limited to the smaller vehicle platforms. It is difficult to
determine whether improved sales are the result of the restocking of the
logistics pipeline or if it is reflective of increased sales to the end
customer. Feedback from our customers appear to favour the latter explanation.
Management has, however, continued to focus on reducing the break-even sales
level and the renegotiation of below-margin sales contracts.
The pressings division returned to profitability during the last months and the
future order book is supporting profitable trading. The tubing division has not
exceeded break-even turnover but the confirmed future order book should see the
division break even and trade profitably in the first half of 2010.
Plans to close or sell the pulley division are progressing and it is expected
that the major part of the business will be sold or closed in the current
calendar year, with the majority of contracts already terminated.
EXHIBITIONS AND PROPERTY
Gallagher Estate Holdings Limited ("Gallagher Estates" - 100% interest)
The business has performed in line with expectations. As stated previously, the
competition issues remain unresolved.
CHANGES IN DIRECTORATE
Certain directors who are responsible for the running of group subsidiaries
resigned from the HCI board in order to focus their energies on the running of
these subsidiaries. These directors are JA Mabuza, VE Mphande and A van der
Veen.
Mr AM Ntuli, a full time employee and director of Seardel Investment
Corporation Limited ("Seardel"), a HCI group subsidiary, resigned in order to
join the executive management team of Seardel.
The Chief Financial Officer, Mr TG Govender, was appointed as the Group
Financial Director.
DISTRIBUTIONS TO SHAREHOLDERS
Your directors have decided not to declare any dividends at this interim stage.
For and behalf of the board of directors
MJA Golding JA Copelyn
Chairman Chief Executive Officer
Cape Town 6 November 2009
Registered office
Block B, Longkloof Studio, Darters Road, Gardens, Cape Town, 8001,
PO Box 5251, Cape Town, 8000
Transfer secretaries
Computershare Investor Services (Pty) Limited
70 Marshall Street, Johannesburg, 2001, PO Box 61051, Marshalltown, 2107
Sponsor
Investec Bank Limited
Directors
MA Golding (Chairman), JA Copelyn (Chief Executive Officer), TG Govender,
JG Ngcobo*, VM Engel*, MF Magugu*, Y Shaik*, ML Molefi*, R Garach*
*(Non-executive)
Company secretary
HCI Managerial Services (Pty) Limited
www.hci.co.za
Date: 06/11/2009 14:50:35 Produced by the JSE SENS Department.
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