| Thu 20 May 2010, 14:48 | | HCI - Hosken Consolidated Investments Limited - Reviewed abridged consolidated |
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HCI
HCI
HCI - Hosken Consolidated Investments Limited - Reviewed abridged consolidated
results for the year ended 31 March 2010
HOSKEN CONSOLIDATED INVESTMENTS LIMITED
Incorporated in the Republic of South Africa
Registration number 1973/007111/06
Share code: HCI ISIN: ZAE000003257
("HCI" or "the company" or "the group")
REVIEWED ABRIDGED CONSOLIDATED RESULTS FOR THE YEAR ENDED 31 MARCH 2010
ABRIDGED CONSOLIDATED INCOME STATEMENT
Reviewed Audited
31 March 31 March
2010 2009
R`000 R`000
Revenue 8 450 312 7 433 768
Net gaming win 3 686 356 3 468 702
Income 12 136 668 10 902 470
Expenses (9 026 074) (7 591 446)
EBIDTA 3 110 594 3 311 024
Depreciation and amortisation (713 206) (631 857)
Operating profit 2 397 388 2 679 167
Investment income 104 876 125 963
Finance costs (657 548) (686 961)
Share of profits of associates and
joint ventures 536 443 68 196
Negative goodwill released 2 544 876 023
Investment surplus 41 976 49 778
Fair value adjustments of investment properties 17 834 (15 608)
Impairment reversals 51 681 4 070
Asset impairments (48 692) (37 505)
Fair value adjustments of financial instruments 3 871 (225 148)
Impairment of goodwill and investments (197 573) (73 594)
Profit before taxation 2 252 800 2 764 381
Taxation (669 632) (775 426)
Profit for the year from continuing operations 1 583 168 1 988 955
Discontinued operations (251 680) (105 664)
Profit for the year 1 331 488 1 883 291
Attributable to:
Equity holders of the parent 603 995 1 110 488
Minority interest 727 493 772 803
1 331 488 1 883 291
RECONCILIATION OF HEADLINE EARNINGS
Gross Net
% 2010 2010
Change R`000 R`000
Earnings attributable to equity holders
of the parent 603 995
IAS 16 Gains/(losses) on Disposal of
Plant and Equipment 29 486 20 789
IAS 16 Impairment of Plant and Equipment 29 599 24 020
IAS 38 Impairment of Intangible Assets - -
IAS 36 Impairment of Goodwill 75 314 75 314
IFRS 3 Excess of Fair Value of
Assets on Business Combinations (2 544) (969)
IAS 28 Gain on Disposal of Associates - -
IAS 28 Impairment of Joint Venture 1 539 1 429
IAS 36 Impairment of Assets 161 589 142 129
IAS 36 Reversal of Impairments (49 338) (34 926)
IAS 27 Profit from Disposal/Part of Subsidiary (39 231) (36 483)
IAS 40 Fair Value Adjustment to Investment Property (17 834) (15 009)
IAS 39 Profit on Disposal of Available
for Sale Asset (2 747) (2 747)
Re-measurements included in equity-
accounted earnings of associates (408 026) (408 026)
Headline profit 369 516
Earnings per share (cents)
Basic (45,78) 482,87
Continuing operations 632,31
Discontinued operations (149,44)
Headline 16,17 295,41
Continuing operations 427,28
Discontinued operations (131,87)
Weighted average number of shares
in issue (`000) 125 085
Actual number of share in issue at end
of period (net of treasury shares) (`000) 125 254
Diluted earnings per share (cents)
Basic (45,92) 469,99
Continuing operations 615,45
Discontinued operations (145,46)
Headline 15,87 287,53
Continuing operations 415,89
Discontinued operations (128,36)
Weighted average number of shares
in issue (`000) 128 512
Gross Net
2009 2009
R`000 R`000
Earnings attributable to equity holders
of the parent 1 110 488
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
IFRS 3 Impairment of Goodwill 12 106 12 106
IFRS 3 Excess of Fair Value of
Assets on Business Combinations (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 Impairment of Assets - -
IAS 36 Reversal of Impairments (4 070) (4 070)
IAS 27 Profit from Disposal/Part of Subsidiary (39 805) (24 706)
IAS 40 Fair Adjustment to Investment Property 15 608 11 090
IAS 39 Profit on Disposal of Available for Sale Asset - -
Re-measurements included in equity-
accounted earnings of associates - -
Headline profit 317 086
Earnings per share (cents)
Basic 890,58
Continuing operations 918,05
Discontinued operations (27,47)
Headline 254,30
Continuing operations 266,42
Discontinued operations (12,12)
Weighted average number of shares
in issue (`000) 124 692
Actual number of share in issue at end
of period (net of treasury shares) (`000) 124 909
Diluted earnings per share (cents)
Basic 869,09
Continuing operations 894,33
Discontinued operations (25,24)
Headline 248,16
Continuing operations 259,99
Discontinued operations (11,83)
Weighted average number of shares in issue (`000) 127 776
ABRIDGED CONSOLIDATED BALANCE SHEET
Reviewed Audited
31 March 31 March
2010 2009
R`000 R`000
ASSETS
Non-current assets 14 968 791 13 979 556
Property, plant and equipment 9 660 977 9 271 620
Investment properties 218 585 166 937
Goodwill 1 544 195 1 263 883
Interest in associates and joint ventures 2 405 254 1 960 894
Other financial assets 62 827 63 752
Other intangible assets 644 402 703 132
Deferred taxation 230 997 343 446
Operating lease equalisation asset 962 4 970
Long-term receivables 200 592 200 922
Current assets 3 790 747 4 042 113
Other 2 499 162 3 146 759
Bank balances and deposits 1 291 585 895 354
Non-current assets held for sale 110 886 26 972
Total assets 18 870 424 18 048 641
EQUITY AND LIABILITIES
Equity 8 380 190 7 619 925
Equity attributable to equity holders of the
parent 4 639 167 4 211 289
Minority interest 3 741 023 3 408 636
Non-current liabilities 5 895 287 6 095 744
Deferred taxation 652 848 684 909
Long-term borrowings 4 715 207 4 911 023
Operating lease equalisation liability 287 429 262 067
Other 239 803 237 745
Current liabilities 4 574 694 4 332 972
Non-current liabilities held for sale 20 253 -
Total equity and liabilities 18 870 424 18 048 641
Net asset value carrying per share (cents) 3 704 3 371
ABRIDGED CONSOLIDATED
STATEMENT OF OTHER COMPREHENSIVE INCOME
Reviewed Audited
31 March 31 March
2010 2009
R`000 R`000
Profit for the period 1 331 488 1 883 291
Other comprehensive income:
Foreign currency translation differences (276 836) 144 242
Cashflow hedge reserve (1 478) (21 819)
Asset revaluation reserve 869 274 554
Total comprehensive income 1 054 043 2 280 268
Attributable to:
Equity holders of the company 409 076 1 283 359
Minority interests 644 967 996 909
1 054 043 2 280 268
ABRIDGED CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY
Reviewed Audited
31 March 31 March
2010 2009
R`000 R`000
Balance at beginning of year 7 619 925 6 232 034
Share capital and premium
Shares issued - 79 102
Treasury shares released 11 751 3 620
Treasury shares acquired by subsidiary - (22 950)
Current operations
Total comprehensive income 1 054 043 2 280 268
Equity-settled share-based payments 7 408 2 629
Minority interest on acquisition of subsidiaries - 437 101
Effects of changes in holding 5 061 (533 819)
Capital reductions and dividends (317 998) (858 060)
Balance at end of year 8 380 190 7 619 925
ABRIDGED CONSOLIDATED CASHFLOW STATEMENT
Reviewed Audited
31 March 31 March
2010 2009
R`000 R`000
Cashflows from operating activities 1 765 164 952 335
Cashflows from investing activities (2 061 381) (3 997 457)
Cashflows from financing activities 717 752 2 969 423
(Decrease)/increase in cash and cash equivalents 421 535 (75 699)
Cash and cash equivalents
At beginning of period 549 698 621 719
Foreign exchange differences (11 695) 3 678
At end of period 959 538 549 698
Bank balances and deposits 1 291 727 895 354
Bank overdrafts (332 189) (345 656)
Cash and cash equivalents 959 538 549 698
SEGMENTAL ANALYSIS
Net
Revenue gaming win
31 March 31 March
2010 2010
R`000 R`000
Media and broadcasting 1 614 898 -
Limited payout gaming 10 984 259 822
Casino gaming 646 871 3 409 651
Hotels 1 753 493 -
Information technology 230 281 -
Transport 897 554 -
Vehicle component manufacture 311 426 -
Exhibition and properties 69 592 -
Mining 141 551 -
Natural gas 172 468 -
Clothing and textile 2 586 923 -
Other 14 271 16 883
Total 8 450 312 3 686 356
Net
Revenue gaming win
31 March 31 March
2009 2009
R`000 R`000
Media and broadcasting 1 504 367 -
Limited payout gaming 10 534 225 226
Casino gaming 639 427 3 243 476
Hotels 2 037 375 -
Information technology 220 582 -
Transport 938 789 -
Vehicle component manufacture 499 600 -
Exhibition and properties 60 553 -
Mining 6 409 -
Natural gas 220 994 -
Clothing and textile 1 271 576 -
Other 23 562 -
Total 7 433 768 3 468 702
Profit before tax
31 March 31 March
2010 2009
R`000 R`000
Media and broadcasting 570 926 466 392
Financial services - -
Limited payout gaming 14 168 (7 350)
Casino gaming 1 144 973 1 012 942
Hotels 273 388 641 602
Information technology 35 724 40 009
Transport 98 048 92 418
Vehicle component manufacture (46 438) 5 432
Food and beverage 348 255 (2 398)
Exhibition and properties 46 006 13 077
Mining (6 643) (19 380)
Natural gas (53 734) (189 586)
Clothing and textile 6 859 (52 509)
Other* (178 732) 763 732
Total 2 252 800 2 764 381
Headline profit
31 March 31 March
2010 2009
R`000 R`000
Media and broadcasting 227 744 179 833
Financial services - (253)
Limited payout gaming 29 239 (15 007)
Casino gaming 320 529 266 904
Hotels 55 175 126 849
Information technology 15 931 17 020
Transport 76 225 71 077
Vehicle component manufacture (122 182) (8 769)
Food and beverage 35 197 (2 398)
Exhibition and properties 25 976 29 498
Mining (6 643) (19 380)
Natural gas (27 686) (78 903)
Clothing and textile (103 236) (55 070)
Other* (156 753) (194 315)
Total 369 516 317 086
*Profit before tax includes investment surplus and negative goodwill.
EBITDA EBITDA
31 March 31 March
2010 2009
R`000 R`000
Media and broadcasting 644 016 568 427
Limited payout gaming 56 829 28 584
Casino gaming 1 646 965 1 655 232
Hotels 480 294 790 568
Information technology 49 279 55 239
Transport 168 307 168 423
Vehicle component manufacture (30 180) 5 442
Exhibition and properties 28 611 31 941
Mining (3 833) (22 810)
Natural gas 38 468 79 615
Clothing and textile 72 006 17 677
Other (40 168) (67 314)
Total 3 110 594 3 311 024
NOTES TO THE ABRIDGED CONSOLIDATED FINANCIAL STATEMENTS
Basis of preparation and accounting policies
The results for the year ended 31 March 2010 have been prepared in accordance
with International Financial Reporting Standards ("IFRS"), specifically IAS 34:
Interim Financial Reporting and the AC 500 series, 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. The group
adopted IAS 1 (revised) and IFRS 8 during the current year. 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.
Business combinations
During the year under review the group acquired control of the following
entities:
Casino Gaming and Hotels segments
With effect from 30 June 2009, the Tsogo Sun group acquired a 100% effective
interest in Century Casinos Africa (Pty) Limited, comprising a 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 casino, hotel, and food and beverage
services.
On 31 March 2009, the Tsogo Sun group acquired effective control in Southern
Sun (Middle East) LLC ("SSME") which was previously accounted for as an
associate.
Media and Broadcasting
The Sabido group acquired a 100% interest in Crystal Brook Distributions (Pty)
Limited and Refinery Post Production Facilities (Pty) Limited on 30 September
2009 and 28 February 2010 respectively.
Other
On 10 December 2010, the group acquired control of Galaxy Bingo International
South Africa (Pty) Limited, a bingo operator.
The acquired businesses contributed revenues of R61 million and profit after
tax of R7 million to the group for the periods from dates of effective control
to 31 March 2010. Had the acquisitions been effective on 1 April 2009, the
contribution to revenue would have been R114 million and the contribution to
profit after tax would have been R9 million.
The details of the net assets acquired and goodwill at acquisition on business
combinations is as follows:
R`000
Non-current assets 289 080
Current assets 61 318
Non-current liabilities (128 396)
Current liabilities (59 259)
Net assets acquired 162 743
Goodwill arising on acquisitions 356 790
Purchase price 519 533
Costs 2 278
Loan acquired 6 780
Net cash on acquisition (23 579)
Net cash paid 505 112
Discontinued operations and non-current assets held for sale
Discontinued operations as disclosed in the group income statement relates to
the following:
2010 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 which was
disposed of during the year;
Four of Seardel`s manufacturing operations in the Frame division`s vertical
pipeline - spinning, weaving, finishing and denim; and
The door module and pulley divisions of Formex Industries (Pty) Limited.
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;
Certain assets of the Seardel group which has been committed to being
disposed of; and
The remaining assets of the pulley division of Formex Industries (Pty)
Limited.
COMMENTARY
OVERVIEW OF RESULTS
Group results
The group results reflect an overall increase of 16,5% in headline earnings
attributable to HCI shareholders.
Basic earnings declined when compared to the prior year due to the large
negative goodwill included in the prior year from the first-time consolidation
of the Seardel group. The results are somewhat of a mixed set with some
businesses severely affected by the economic downturn whilst others proved more
resilient. Growth in the media businesses together with the first-time full
year consolidation of Seardel were the most significant drivers of growth in
revenue. Despite significant cost controls across the group, group EBITDA fell
6% largely due to the disappointing performance of the hotel business and to a
lesser extent the natural gas and vehicle component businesses. Once again the
media and limited payout gaming businesses exhibited strong growth in EBITDA.
Finance costs for the year have decreased primarily as a result of the lower
interest rate environment. The share of the profits of associates has increased
significantly as a result of the inclusion of R408 million being the group`s
share of the profit on the sale of the Donone business by Clover Industries
Limited.
Included in investment surplus are the profits on the disposal of the Johnson
Access platform business and the door module business of Formex.
Fair value adjustments of investment properties relate largely to the upward
revaluation of the Gallagher properties.
Asset impairments relate primarily to property, plant and equipment impaired by
Seardel.
The impairment of goodwill and investments relates primarily to the impairment
of carrying value of the investment in Clover Industries Limited to the
expected proceeds from the forthcoming disposal as detailed below and the
impairment of the goodwill relating the group`s investment in the bingo
operations.
Group balance sheet and cash flow
The group`s overall financial position remains strong with the major businesses
still generating strong cash flows despite the difficult trading conditions.
The group remains well positioned to benefit from the recovery in the economy.
INVESTMENTS
Media and broadcasting
Sabido Investments (Pty) Limited ("Sabido")
Considering the impact of the prolonged recession, the Sabido group performed
above expectations in the period under review. While e.tv remains the major
revenue earner for the Sabido group, it should be noted that higher than
expected profits this year were largely a result of tight cost controls rather
than a significant increase in advertising revenue. Both audience and revenue
share for e.tv are under pressure from the growth in pay-TV which has seen an
unprecedented increase in middle-income earners. e.tv has increased its
footprint outside the country with the launch of the new "e.tv Africa" service
which is available via satellite in twelve African countries on a syndicated
basis. The syndication of e.tv Africa enhances the programming and advertising
of the group`s equity interests in Botswana and Ghana while providing a
low-risk opportunity to air e.tv in other African countries.
The eNews Channel, which has been on air for almost two years now, has been the
market leader from day one. It has contributed significantly to the growth in
subscribers to DStv and its coverage has been extended to the whole of Southern
Africa. The group plans to launch a pan-African version of the news channel
which will be syndicated around the continent and abroad.
YFM has shown marked improvement over the recent period while the content
production and distribution aspects of the group are growing according to plan.
The facilities businesses Sabido, Refinery and Cape Town Film Studios have
performed in accordance with expectations.
Gaming, hotels and leisure
Tsogo Sun Holdings (Pty) Limited ("Tsogo Sun")
During the year under review, the group entered into an agreement with Nafcoc
Investment Holdings Limited ("Nafhold") for the acquisition of their 25%
interest in Tsogo Investment Holding Company (Pty) Limited for a total purchase
consideration of R1,2 billion, subject to regulatory approvals. Nafhold
shareholders have approved the transaction and Gaming Board approvals remain
outstanding. HCI`s effective exposure to Tsogo Sun will increase to
approximately 51% from the present 38%.
The financial year ended 31 March 2010 proved to be one of the most difficult
trading periods in Tsogo Sun`s history. Total income of R5 810 million was 2%
below last year and earnings before interest, tax, depreciation, amortisation
and property rentals and exceptional items ("EBITDAR") at R2 309 million
reflected a 12% decline on the prior year. This decline in EBITDAR was driven
principally by the Hotel divisions which reflected a year- on-year decline in
EBITDAR of 29% (pre-foreign exchange losses) on the back of the lowest
occupancies on record as a result of the macroeconomic environment. The
underlying operations of the Tsogo Sun group remain sound and are highly geared
towards the South African consumer (in Gaming) and corporate market (in
Hotels). The group is poised for growth as these sectors of the South African
economy improve.
A segmental analysis of the Tsogo Sun group`s revenue and EBITDAR is as
follows:
2010
(R`million) Revenue EBITDAR Margin
Montecasino precinct 1 796 632 35,2
Suncoast precinct 1 195 504 42,2
Other Gaming 1 065 577 54,2
Tsogo Sun Gaming 4 056 1 713 42,2
Southern Sun Hotels South Africa 1 549 555 35,8
Southern Sun Hotels Offshore 237 72 30,4
Foreign exchange losses - (52) -
Inter-group elimination/corporate (32) 21 -
5 810 2 309 39,7
2009
(R`million) Revenue EBITDAR Margin
Montecasino precinct 1 817 694 38,2
Suncoast precinct 1 167 510 43,7
Other Gaming 902 529 58,6
Tsogo Sun Gaming 3 886 1 733 44,6
Southern Sun Hotels South Africa 1 778 780 43,9
Southern Sun Hotels Offshore 294 109 37,1
Foreign exchange losses - (5) -
Inter-group elimination/corporate (37) 5 -
5 921 2 622 44,3
The Tsogo Sun group remains focused on its growth strategy and will continue to
pursue opportunities to develop and enhance its core Hotel and Gaming
businesses.
The gaming industry has been under pressure in all markets with the Western
Cape and Gauteng provinces reporting market size reductions while KwaZulu-Natal
recorded some growth but at lower levels than previously experienced. Total
Gaming division income of R4 056 million and EBITDAR of R1 713 million were
achieved during the year, assisted by the acquisition of the two Century
casinos with effect from 30 June 2009.
EBITDAR margins in Tsogo Sun Gaming have been under pressure on the back of
revenue declines, excluding acquisition activity. However, the division
continued to outperform other operators in South Africa with a margin of 42,2%,
reflective of the quality of assets and the efficient cost structures in place.
Montecasino gaming win reflected a decline of 1,8% against a Gauteng provincial
decline of 3,2% for the year ended March 2010. The consequential gain in market
share arose as the Montecasino catchment area was less affected than other
Gauteng markets. This trend has seen some reversal in the last quarter of the
financial year, as some of these markets recovered from previously depressed
levels. Montecasino continues to service high levels of footfall attracted by
the entertainment and events on offer. Overall casino activity levels in terms
of number of wagers remains in line with the prior periods with the average bet
reflecting marginal decline. EBITDAR at R632 million is 9% below the prior year
as overheads increased by 3,7% including gaming taxes.
The KwaZulu-Natal market grew by 4,5% over the prior year with the Suncoast
casino reflecting growth of 3,8% in gaming win. The Durban market continues to
show greater resilience than other large gaming markets in South Africa.
EBITDAR at R504 million is 1% below the prior year as overheads increased by
5,2% including gaming taxes.
The group`s other Gaming interests (consisting of inter alia, Nelspruit,
Emalahleni (Witbank), East London, Caledon, Newcastle), the Sandton Convention
Centre and the central management activities, performed satisfactorily during
the year given the economic environment. EBITDAR for this segment of R577
million was some 9% above the prior year and included a R54 million
contribution from the newly acquired Century operations for the nine months
from 30 June 2009. Excluding this acquisition activity, EBITDAR reflected a 1%
decline on the prior year.
The Southern Sun Hotel group in South Africa experienced a continuation of the
economic contraction in the hospitality market that started half way through
the prior financial year. With no recovery in the core corporate and government
segments, occupancies were under pressure at 58% (prior year 68%). The group
managed to maintain average room rates achieved at R801 in line with the prior
year`s R803. The weakness in corporate and government spend was partially
offset by increases in the leisure and sports segments. In line with the
consequential Revpar decline, revenues declined by 13% to R1 549 million during
the year.
Operating costs were well controlled at R994 million, a R4 million reduction on
the prior year, despite above inflation increases in payroll, regulated utility
costs and property rates. However, with significant fixed capacity, EBITDAR
declined by 29% to R555 million. The group continues to actively manage costs
while maintaining operating standards. Occupancies, excluding the 2010 FIFA
World Cup period, will however, only reflect a recovery once corporate travel
returns to more normal levels. Southern Sun is well placed and fully prepared
for the 2010 FIFA World Cup and is looking forward to the opportunity to host a
significant portion of this event. This business is considered to be a good
long-term business, as evidenced by an EBITDAR margin of 35,8% being achieved
in difficult trading conditions.
The Offshore division of the Southern Sun
Hotel group achieved total revenue of R237 million, representing a 19% decline
on the prior year with EBITDAR pre-foreign exchange losses) of R72 million
reported for the year. Occupancies were negatively affected and at 66% was 5%
below the prior year, particularly in the Seychelles, which experienced weak
European leisure demand. US Dollar room rates held up on prior year at US$177
but when translated to Rand, reflected a decline of 15%. The Rand remained
strong during the year under review which impacted both the translation of US
Dollar and Euro earnings streams as well as resulting in a R52 million foreign
exchange loss on the translation of Offshore monetary items, being mainly cash
and loans to associates.
Tsogo Sun has previously disclosed a number of corporate activities undertaken
in pursuit of its growth strategy and has made significant progress on these
during the year under review. These include:
The conclusion of the regulatory process around the acquisition of a 25%
stake in Gold Reef Resorts Limited ("Gold Reef") and control of the Gold Reef
voting pool in June 2009, bringing the total voting interest in Gold Reef to
34,9%;
In February 2010, Tsogo Sun announced the proposed merger with Gold Reef and
effective reverse listing of Tsogo Sun via the acquisition by Gold Reef of the
entire issued share capital of Tsogo Sun through the issue of new shares to
Tsogo Investment Holding Company (Pty) Limited and SABSA (Pty) Limited. On 26
April 2010, the shareholders of Tsogo Sun and Gold Reef approved the proposed
transaction through the passing of the relevant resolutions. The closing of the
transaction remains subject to inter alia the approval of the various Gaming
Boards and the competition authorities. Once concluded this transaction will
lead to the creation of the pre-eminent Gaming and Hotel group in South
Africa, with 14 Casinos and over 90 hotels.Once concluded this transaction will
lead to the creation of the pre-eminent Gaming and Hotel group in South Africa,
with 14 casinos and over 90 hotels;
The conclusion of the regulatory process for the acquisition of Century
Casinos Inc`s, South African operations, being the Caledon Casino, Hotel and
Spa and the Century Casino Newcastle, and the integration of these operations
into Tsogo Sun Gaming with effect from 30 June 2009;
The acquisition of the 30% effective interest in Suncoast Casino, via the
acquisition of Millennium Casino Limited from Johnnic Holdings Limited, a
fellow subsidiary, with effect from 7 October 2009;
The conclusion of a joint venture arrangement with 888.com, a leading on-line
casino operator. Whilst the implementation of on-line gaming is being delayed
by pending approval of regulations, the group is well placed to ultimately
pursue on-line gaming once the legislation permits;
The completion of The Pivot development in the Monte Casino precinct,
including the exciting new Southern Sun Hotel, Conference Centre, offices and
parking;
The addition of the Southern Sun Hyde Park, Southern Sun Ikoyi (Lagos),
Garden Court Umhlanga, StayEasy Pietermartizburg and StayEasy Emalahleni
(Witbank) to the group`s hotel portfolio; and
The increase in the group`s effective economic interest in the Middle East
management company from 50% to 80%.
Vukani Gaming Corporation (Pty) Limited ("Vukani")
Vukani, the group`s limited payout machine operator, has operations in six
licenced provinces with a recent High Court decision ordering the Free State
Gambling Board to issue Vukani with a route operator licence.
Vukani`s installed machine base increased from 2 972 in the prior year to 3 121
at 31 March 2010. Despite increasing the installed base by only 5%, EBITDA as a
percentage of gross gaming revenue ("GGR") increased from 8,5% in the prior
year to 14,6% during the year under review. It is expected that the planned
increases to the installed machine base as well as a continued focus on
improving GGR will see this trend continue.
EBITDA has increased by some 98,8%. This increase has been achieved through
strict cost control and a programme of improving GGR per machine across the
installed machine base by closing underperforming sites and the introduction of
new games and machines.
Transport
Golden Arrow Buses (Pty) Limited ("GABS")
Passenger volumes have declined in comparison to previous periods which can be
attributed to both the economic downturn and the reduction of services due to
the limitations in Government funding. Whilst the company has managed the
transition from passenger to kilometre as the basis of its contract with
Government reasonably well, the legal framework within which it operates has
not yet been finalised.
During the build up to the 2010 FIFA World Cup, the company played a major role
in the successful hosting of events at the Cape Town Stadium and although not
directly involved in the transport for the event, remains ready to support the
city of Cape Town during this period.
The Integrated Rapid Transport System (IRTS), is moving ahead and the company
will continue to engage the City with its input and participation in the longer
term.
Internally, the company has continued to focus on passenger service reliability
as well as cost containment and will approach the future confidently. One of
the uncontrollable influences for the company remains the cost of diesel and
any major change in either the price of crude oil or the value of the Rand
would have a significant influence on profitability.
Food and beverages
Clover Industries Limited ("Clover")
The group has entered into an agreement to dispose of its equity interests in
Clover by way of a buyback of its ordinary shares by Clover and a restructuring
of the present preference shares held. The disposal is subject to approval by
Clover shareholders in general meeting which is scheduled for 31 May 2010. It
is expected that if Clover shareholders approve the transaction, the group will
receive approximately R490 million in proceeds from the disposal with the only
remaining exposure to Clover being R110 million in three-year compulsory
redeemable preference shares with a fixed dividend coupon of 90% of prime.
Mining
HCI Kusela Coal (Pty) Limited ("HKC")
The development of the Palesa and Mbali mines is now largely complete with the
exception of some adjacent infrastructure to the Mbali plant which will be
completed closer to the commissioning date. Total development costs will be
approximately R550 million for all three mines, of which R470 million has been
expended to date.
The Palesa mine has received an order to supply Eskom with up to 160 000 tons
of coal per month for the next eight years. This order should enable Palesa to
be a profitable mine on a standalone basis. While the move from start-up to
full production should improve efficiencies, mining costs and their future
escalations remain a concern. Management is in discussion with the mining
contractor to investigate opportunities to reduce costs per run of mine ("ROM")
ton.
The review application against the decision by the Department of Mineral
Resources ("DMR") to grant African Exploration Mining and Finance Corporation
(Pty) Limited a mining right on a portion of the Mbali mine, despite our
prospecting right, is ongoing. Nokuhle`s mining right application has been
lodged with the DMR. An agreement has been concluded to purchase the 20%
interest of Khusela Women Investments in HKC. The final implementation of the
agreement is subject to the approval of the Minister of the DMR and will result
in HKC being 100% owned by HCI.
Clothing and textiles
Seardel Investment Corporation Limited ("Seardel")
It has been 17 months since HCI became the majority shareholder of Seardel and
began its turnaround strategy despite much market scepticism. We have
previously mentioned that the performance of Seardel over the second half of
the financial year was of central importance to its future. We are pleased to
report that Seardel recorded an R18 million attributable profit for the second
six months of the year, reducing the loss of R222 million reported at interim
stage to R204 million by year-end. Of particular interest is the fact that
continuing operations managed to break even for the full year after having
reported a R50 million loss in the first half. If one adjusts for certain
reclassifications that took place during the second half of the year, then, on
a like for like basis, continuing operations delivered an attributable net
profit of R29 million for the second six months of the year.
The strong focus on cash generation in the year has meant that net
interest-bearing borrowings declined by R156 million improving the net
interest-bearing debt to equity ratio by 9% from 33% as at 31 March 2009 to
24%.
Although the results are encouraging and the majority of Seardel`s operations
look to be on solid ground, there are still some areas of concern. The
performance of the continuing clothing operations was particularly concerning
delivering an operating loss before interest of R55 million for the year. These
results were affected by a number of exceptional factors including a 12-day
industry strike, but nevertheless improvements are required before the labour
intensive clothing operations can be considered sustainable.
Seardel is a separately listed entity and its results are being published
together with those of HCI. The detailed results and commentary thereon, can be
obtained from Seardel`s results directly.
Energy
Montauk Energy Corporation LLC ("Montauk")
We indicated in 2009 that the natural gas market has the ability to surprise
and it was no different in 2010. While the number of drill rigs declined and
the US was hit by the coldest winter in many years, the price of natural gas
did not recover above the $6,00 per mmbtu level for any prolonged period of
time. This is even more surprising given the significant recovery in crude oil
prices. The historical relationship between crude oil and natural gas seems to
be broken or redefined to say the least (the ratio is now 18 times compared to
a historical 10-12 times).
The effect of the lower gas prices would have been more severe on Montauk had
it not entered into new gas sales agreements, at a premium to spot prices, at
two of its high BTU facilities. The premiums on these new contracts represent
the green value of Montauk`s production of renewable energy. The benefits of
these five year agreements were only included for a part of the year and 2011
should show a measurable increase in EBITDA from the $5,1 million in the
current year. Gas sales account for 66% of revenue and electricity 20% with the
remainder being profits on hedges and green energy credits.
Operational practices at site level are improving with measurement of
production metrics and plant maintenance being key priorities.
The business has a healthy development pipeline, mostly focused on electricity
generation, with investment opportunities approaching $100 million for the next
three years. Many of the projects will qualify for stimulus grant funding from
the US government. These projects, if developed, will result in a significantly
larger proportion of Montauk`s future income being derived from electricity
sales based on fixed price power purchase agreements.
Exhibitions and property
Gallagher Estate Holdings Limited ("Gallagher Estates")
The Gallagher business consists of exhibition and property businesses. The
exhibition business was impacted by the economy and 2010 EBITDA declined from
2009 by 60% to R7 million. The property business was less affected with the
lease for the Pan African Parliament being renewed for a further year.
While improved controls in the exhibition business has resulted in better
operating margins, the business will be negatively impacted by the 2010 FIFA
World Cup.
Vehicle components manufacture
Formex Industries (Pty) Limited ("Formex")
Formex experienced a very difficult trading year culminating in an operating
loss of R89 million. This loss far exceeded our expectations. Our belief that
the slump in the automotive market would be prolonged proved to be correct. The
extent of the actual sales decline was, however, considerably larger than
projected by our customers` sales forecasts. The Pulley division`s loss before
tax accounts for R54,7 million of total group loss.
In 2009, consolidated turnover from continuing operations was R499 million,
declining to R311 million in 2010. As a result HCI was required to support the
group by providing additional funding. During the year the Pulley division and
the Doorlock division were closed and sold respectively. The closure of the
Pulley division was precipitated by significant airfreight costs which resulted
from production constraints following the moving of the facility to Ga-Rankuwa
and an inability to obtain higher prices from customers. The Doorlock division
was sold as there was not enough turnover to support the overhead cost
structure needed to manage the division.
As indicated in 2009, Formex`s strategy is to grow the complementary Pressing
and Tubing businesses, where products are often sold to the same clients, into
the same exhaust systems. This strategy has thus far enabled the group to
reduce overhead costs and improve manufacturing processes and controls.
However, more needs to be done in order to reclaim lost margin and to operate
infrastructure at designed capacity in order to achieve return on asset
targets.
The forward order book and customer releases are showing an improvement, but
the key to the profitability of the division lies in improved execution and
cost control on the factory floor.
CHANGES IN DIRECTORATE
There were no changes in directorate since our interim report to shareholders
issued in November 2009.
AUDITOR`S REVIEW
These results 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.
DISTRIBUTIONS TO SHAREHOLDERS
The board has decided to postpone its consideration of a dividend until after
the shareholder meeting of Clover scheduled for 31 May 2010. A further
announcement in this regard will be made.
For and behalf of the board of directors
MJA Golding JA Copelyn
Chairman Chief Executive Officer
Cape Town 20 May 2010
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: 20/05/2010 14:48:02 Produced by the JSE SENS Department.
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