| Fri 19 Nov 2010, 15:44 | | HCI - Hosken Consolidated Investments Limited - Unaudited group interim results |
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HCI
HCI
HCI - Hosken Consolidated Investments Limited - Unaudited group interim results
for the six months ended 30 September 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")
Unaudited group interim results for the six months ended 30 September 2010
Highlights
* 135% increase in attributable profit
* 119% increase in headline earnings
* 118% increase in headline earnings per share
ABRIDGED CONSOLIDATED INCOME STATEMENT
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
% 2010 2009 2010
change R`000 R`000 R`000
Revenue 17,5 4 431 720 3 771 314 7 845 805
Net gaming win 1 961 292 1 785 377 3 686 356
Income 15,1 6 393 012 5 556 691 11 532 161
Expenses (4 757 068) (4 106 495) (8 464 231)
EBITDA 12,8 1 635 944 1 450 196 3 067 930
Depreciation and
amortisation (387 069) (354 526) (709 295)
Operating profit 14,0 1 248 875 1 095 670 2 358 635
Investment income 48 856 33 378 103 873
Finance costs (298 897) (311 493) (655 380)
Share of profits of
associates and
joint ventures 36 917 83 573 536 443
Negative goodwill
released - - 2 544
Investment surplus - - 41 976
Fair value
adjustments to
investment
properties 1 882 - 17 834
Impairment reversals 4 461 1 608 51 681
Asset impairments - - (48 692)
Fair value
adjustments to
financial instruments - - 3 869
Impairment of
goodwill and
investments - (21 949) (197 573)
Profit before taxation 18,3 1 042 094 880 787 2 215 210
Taxation (323 249) (230 538) (646 624)
Profit for the period
from continuing
operations 10,5 718 845 650 249 1 568 586
Discontinued
operations (43 649) (189 245) (237 098)
Profit for the period 46,5 675 196 461 004 1 331 488
Attributable to:
Equity holders of the
parent 134,5 293 163 125 028 603 995
Minority interest 13,7 382 033 335 976 727 493
675 196 461 004 1 331 488
RECONCILIATION OF HEADLINE EARNINGS
Unaudited Unaudited
Six months ended Six months ended
30 September 30 September
2010 2009
Gross Net Gross Net
R`000 R`000 R`000 R`000
Earnings attributable to
equity holders of the parent 293 163 125 028
IAS 16 Gains on Disposal of
Property (78) (30) (60) (44)
IAS 16 (Losses)/Gains on
Disposal of Plant and Equipment(22 151) (13 633) 6 349 4 635
IAS 16 Impairment of Plant
and Equipment 13 911 10 477 48 143 34 080
IAS 39 Impairment of
Investments - - 4 200 2 973
IFRS 3 Impairment of Goodwill - - - -
IFRS 3 Negative Goodwill - - - -
IAS 28 Impairment of Joint Venture - - - -
IAS 36 Impairment of Assets - - - -
IAS 36 Reversal of Impairments (4 461) (4 461) (1 608) (1 567)
IAS 27 Profit from Disposal/Part
Disposal of Subsidiary - - (15 000) (13 500)
IAS 40 Fair Value Adjustment to
Investment Property (1 882) (1 332) - -
IAS 39 Profit on Disposal of
Available for Sale Asset - - - -
Remeasurements included in quity
accounted earnings of associates (21 670) (21 670)
Headline profit 284 184 129 935
Audited
Year ended
31 March
2010
Gross Net
R`000 R`000
Earnings attributable to
equity holders of the parent 603 995
IAS 16 Gains on Disposal of Property - -
IAS 16 (Losses)/Gains on Disposal
of Plant and Equipment 29 486 20 789
IAS 16 Impairment of Plant and Equipment 29 599 24 020
IAS 39 Impairment of Investments - -
IFRS 3 Impairment of Goodwill 75 314 75 314
IFRS 3 Negative Goodwill (2 544) (969)
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)
Remeasurements included in equity accounted
earnings of associates (408 026) (408 026)
Headline profit 369 516
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 Sept 30 Sept 31 March
2010 2009 2010
% Net Net Net
change R`000 R`000 R`000
Basic earnings per share
Earnings (cents) 133 233,53 100,09 482,87
Continuing operations 269,33 212,42 638,18
Discontinued operations (35,80) (112,33) (155,31)
Headline earnings (cents) 118 226,38 104,02 295,41
Continuing operations 264,89 199,88 433,15
Discontinued operations (38,51) (95,86) (137,74)
Weighted average number of
shares in issue (`000) 125 534 124 916 125 085
Actual number of shares in
issue at end of period (net of
treasury shares) (`000) 126 001 125 239 125 254
Diluted earnings per share
Earnings (cents) 133 225,57 96,87 469,99
Continuing operations 260,15 205,59 621,16
Discontinued operations (34,58) (108,72) (151,17)
Headline earnings (cents) 117 218,66 100,67 287,53
Continuing operations 255,86 193,44 421,60
Discontinued operations (37,20) (92,77) (134,07)
Weighted average number of
shares in issue (`000) 129 966 129 069 128 512
ABRIDGED CONSOLIDATED
STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
30 September 30 September 31 March
2010 2009 2010
R`000 R`000 R`000
ASSETS
Non-current assets 14 372 063 14 502 535 14 968 791
Property, plant and equipment 9 467 582 9 545 900 9 660 977
Investment properties 363 901 166 937 218 585
Goodwill 1 475 791 1 528 925 1 544 195
Interest in associates and joint
ventures 1 815 155 2 114 020 2 405 254
Other financial assets 177 914 67 902 62 827
Other intangible assets 647 522 604 334 644 402
Deferred taxation 234 515 273 474 230 997
Operating lease equalisation asset 1 137 5 112 962
Non-current receivables 188 546 195 931 200 592
Current assets 4 309 503 3 577 240 3 790 747
Other 2 673 202 2 903 151 2 499 162
Bank balances and deposits 1 636 301 674 089 1 291 585
Non-current assets held for sale 201 530 245 009 110 886
Total assets 18 883 096 18 324 784 18 870 424
EQUITY AND LIABILITIES
Equity 8 904 176 7 809 424 8 380 190
Equity attributable to equity
holders of the parent 4 854 441 4 163 141 4 639 167
Minority interest 4 049 735 3 646 283 3 741 023
Non-current liabilities 5 531 822 5 729 610 5 895 287
Deferred taxation 660 526 640 395 652 848
Borrowings 4 335 978 4 595 908 4 657 471
Operating lease equalisation
liability 284 682 290 769 287 429
Other 250 636 202 538 297 539
Current liabilities 4 388 242 4 693 830 4 574 694
Non-current liabilities held for
sale 58 856 91 920 20 253
Total equity and liabilities 18 883 096 18 324 784 18 870 424
Net asset value carrying per
share (cents) 3 853 3 324 3 704
ABRIDGED CONSOLIDATED
STATEMENT OF OTHER COMPREHENSIVE INCOME
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2010 2009 2010
R`000 R`000 R`000
Profit for the period 675 196 461 004 1 331 488
Other comprehensive income:
Foreign currency translation
differences (46 455) (240 915) (276 836)
Cash flow hedge reserve (12 174) 2 757 (1 478)
Asset revaluation reserve (1 037) 1 084 869
Total comprehensive income 615 530 223 930 1 054 043
Attributable to:
Equity holders of the company 260 028 (55 401) 409 076
Minority interests 355 502 279 331 644 967
615 530 223 930 1 054 043
ABRIDGED CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2010 2009 2010
R`000 R`000 R`000
Balance at beginning of period 8 380 190 7 619 925 7 619 925
Share capital and premium
Treasury shares released 10 965 2 145 11 751
Current operations
Total comprehensive income 615 530 223 930 1 054 043
Equity settled share-based payments 6 412 4 611 7 408
Effects of changes in holding (14 097) (5 210) 5 061
Capital reductions and dividends (94 824) (35 977) (317 998)
Balance at end of period 8 904 176 7 809 424 8 380 190
ABRIDGED CONSOLIDATED CASH FLOW STATEMENT
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2010 2009 2010
R`000 R`000 R`000
Cash flows from operating activities 956 118 926 005 1 765 164
Cash flows from investing activities 203 952 (1 329 603) (2 061 381)
Cash flows from financing activities(653 172) 204 713 717 752
Increase/(decrease) in cash and
cash equivalents 506 898 (198 885) 421 535
Cash and cash equivalents
At beginning of period 959 539 549 698 549 698
Foreign exchange difference (1 802) (833) (11 694)
At end of period 1 464 635 349 980 959 539
Bank balances and deposits 1 663 882 674 089 1 291 728
Bank overdrafts (199 247) (324 109) (332 189)
Cash and cash equivalents 1 464 635 349 980 959 539
SEGMENTAL ANALYSIS
Unaudited Unaudited
Six months ended Six months ended
30 September 30 September
2010 2009
Net Net
gaming gaming
Revenue win Revenue win
R`000 R`000 R`000 R`000
Media and broadcasting 766 265 - 685 935 -
Limited payout gaming 3 180 150 139 6 265 125 445
Casino gaming 401 979 1 774 418 317 753 1 659 932
Hotels 979 399 - 898 695 -
Information technology 125 946 - 101 294 -
Transport 470 095 - 456 192 -
Vehicle component
manufacture 178 082 - 129 678 -
Exhibition and properties 30 209 - 29 463 -
Mining 167 844 - 60 029 -
Natural gas 93 309 - 66 722 -
Clothing and textile 1 201 870 - 1 010 342 -
Other 13 542 36 735 8 946 -
Total 4 431 720 1 961 292 3 771 314 1 785 377
Audited
Year ended
31 March
2010
Net
gaming
Revenue win
R`000 R`000
Media and broadcasting 1 431 586 -
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 2 165 728 -
Other 14 271 16 883
Total 7 845 805 3 686 356
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2010 2009 2010
R`000 R`000 R`000
Profit before tax
Media and broadcasting 246 658 257 559 502 429
Limited payout gaming 21 980 13 004 14 168
Casino gaming 547 778 528 800 1 144 973
Hotels 183 955 133 750 273 388
Information technology 21 142 9 887 35 724
Transport 69 027 31 219 98 048
Vehicle component manufacture (6 378) (11 847) (46 438)
Food and beverage - 48 027 348 255
Exhibition and properties 5 715 10 410 46 006
Mining 8 671 (7 945) (6 643)
Natural gas (37 275) (42 284) (53 734)
Clothing and textile 3 984 (11 465) 37 766
Other (23 163) (78 328) (178 732)
Total 1 042 094 880 787 2 215 210
EBITDA
Media and broadcasting 294 296 299 445 574 968
Limited payout gaming 41 687 30 707 56 829
Casino gaming 829 174 773 800 1 646 965
Hotels 280 014 238 600 480 294
Information technology 28 046 18 759 49 279
Transport 98 791 70 310 168 307
Vehicle component manufacture 3 863 (2 911) (30 180)
Exhibition and properties 5 830 10 572 28 611
Mining 15 130 (7 171) (3 833)
Natural gas 7 893 7 293 38 468
Clothing and textile 30 031 24 534 98 390
Other 1 189 (13 742) (40 168)
Total 1 635 944 1 450 196 3 067 930
Headline earnings
Media and broadcasting 117 792 122 561 227 744
Limited payout gaming 13 767 8 176 29 239
Casino gaming 139 284 181 235 340 641
Hotels 48 377 31 686 55 175
Information technology 7 896 3 173 15 931
Transport 50 724 23 141 76 225
Vehicle component manufacture (5 932) (24 770) (122 182)
Food and beverage - 26 357 35 197
Exhibition and properties 13 401 16 510 25 976
Mining 8 671 (7 945) (6 643)
Natural gas (18 774) (39 142) (27 686)
Clothing and textile (56 170) (116 323) (103 236)
Other (34 852) (94 724) (176 865)
Total 284 184 129 935 369 516
COMMENTARY
NOTES TO THE ABRIDGED CONSOLIDATED FINANCIAL STATEMENTS
Basis of preparation and accounting policies
The results for the six months ended 30 September 2010 have been prepared in
accordance with International Financial Reporting Standards ("IFRS"), the AC500
series of interpretations as issued by the Accounting Practices Board, and 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 2010 except for the first-time application of the revised
IAS 27. This standard requires that all changes in a parent`s ownership interest
in a subsidiary after control is obtained that do not result in a loss of
control, are accounted for as equity transactions. 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.
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;
* Sabido`s cellphone content provider, Viamedia, which is in the process of
being disposed of; and
* Seardel`s Intimate Apparel and Four of Seardel`s manufacturing operations
in the Frame division`s vertical pipeline - spinning, weaving, finishing and
denim.
The non-current assets held for sale, as disclosed in the group balance sheet,
relate to the following:
* Sabido`s cellphone content provider, Viamedia, which is in the process of
being disposed of;
* The remaining assets of the pulley division of Formex, the operations of
which had ceased in the year to March 2010; and
* Certain assets of the Seardel group which have been committed to being
disposed of, including those of Intimate Apparel.
POST BALANCE SHEET EVENTS
Tsogo Investment Holding Company ("TIH")
On 15 October 2010, TIH`s agreement to repurchase 25% of its issued share
capital from Nafcoc Investment Holdings Limited ("Nafhold"), for a purchase
consideration of R1 200 million, became unconditional. TIH settled the purchase
consideration by the payment of R700 million in cash and issuing R500 million of
redeemable preference shares. As a result of this transaction, the group`s
interest in TIH has increased from 74,67% to 99,56%, increasing the group`s
effective interest in TIH`s 51% held subsidiary, Tsogo Sun, from 38,08% to
50,78%.
OVERVIEW OF RESULTS
Group results
The group results reflect an overall increase of 134% in basic earnings
attributable to HCI shareholders and an increase of 119% in headline earnings.
There has been growth in revenue across all segments. In line with this growth
in revenue, group EBITDA has grown by 12% in comparison to the prior comparable
period.
A lower interest rate environment together with the amortisation of debt capital
has led to lower finance costs for the period when compared to the prior
comparable period, while investment income has increased in line with an
increase in cash resources.
Profit from associates and joint ventures for the period is significantly lower
than reported in the prior comparative period primarily because of the disposal
of Clover Industries Limited ("CIL") which had contributed significantly to the
prior comparable period profit from associates and joint ventures.
At March 2010 the carrying value of the group`s equity interest in CIL had been
impaired to the level of the proceeds expected on disposal, being R493 million.
The impairment reversal represents the proceeds received in excess of that
carrying value.
The taxation charge for the current period is relatively higher than that in the
prior comparable period due to the inclusion of certain tax positive tax
adjustments in the prior comparable period.
As a result of the above, profit after tax from continuing operations for the
six-month period has increased to R1 042 million from R880 million.
Statement of financial position
The structure of the group statement of financial position remains largely
unchanged from that at March 2010 with the exception of the group`s equity
interest in CIL being monetised and the reduction of total group borrowings from
R6 880 million to R6 290 million, which includes R1 300 million of recourse debt
at the HCI corporate level.
Of the R1 636 million of cash resources reflected on the group`s statement of
financial position, R875 million was held at the HCI corporate level, of which
R700 million was subsequently used to fund the Nafhold repurchase.
Once the proposed merger between Tsogo Sun and Gold Reef Resorts becomes
unconditional, HCI will not have control over the merged entity. As a result of
this loss of control, HCI will no longer consolidate the assets (R10 059 million
at September 2010) and liabilities (R6 188 million at September 2010) of Tsogo
Sun but will rather carry its equity accounted interest in the merged entity on
the Investment in Associates line in the group`s statement of financial
position.
INVESTMENTS
Media and broadcasting
Sabido Investments (Pty) Limited ("Sabido")
For the six-month period ended 30 September 2010, Sabido reported a 12% increase
in revenues when compared to the prior period. This was influenced mainly by
acquisition and subscriber revenue growth whilst advertising revenue only
increased by 4%.
The six-month period was dominated by the FIFA 2010 Soccer World Cup ("FIFA
World Cup"). In light of the fact that the event was in South Africa and the
rights thereto were not held by e.tv we anticipated this might be an especially
lean period for our business. Our results show us to be relatively flat compared
with the prior comparable period, which we regard as a very good result for this
period. We do not anticipate the soccer having any similar effect on the second
six-months and as a result remain confident that Sabido will continue to perform
well.
Gaming, hotels and leisure
Tsogo Sun Holdings (Pty) Limited ("Tsogo Sun")
The financial results for the six months ended 30 September 2010 reflect an
improvement in the trading position of the Tsogo Sun group, mainly due to a
reduced base in the prior year and the significant impact on trading from the
FIFA World Cup in June and July 2010. Group revenue of R3 156 million (9,7%
above the prior period) and EBITDAR of R1 211 million (10,9% above the prior
period) was recorded, including the impact of a loss on the translation of
foreign monetary items of R5 million.
A segmental analysis of the Tsogo Sun group`s revenue and EBITDAR is as follows:
2010 2010 2009 2009
Revenue EBITDAR Revenue EBITDAR
Montecasino 993 339 898 313
Suncoast 607 240 589 242
Other Gaming 588 289 495 250
Tsogo Sun Gaming 2 188 868 1 982 805
Southern Sun Hotels: SA 859 309 787 283
Southern Sun Hotels: Offshore 126 34 124 41
Foreign exchange losses - (5) - (37)
Inter-group elimination (17) 5 (17) -
3 156 1 211 2 876 1 092
Tsogo Sun Gaming
Despite an improved performance of the Tsogo Sun Gaming division, the gaming
industry continues to remain under pressure with low levels of growth in most
markets, although not as severe as experienced in the prior period. Total
revenue of R2 188 million and EBITDAR of R868 million were achieved in the six
months. Gaming win in the Gauteng province grew by 4,1% over the same period
last year, whilst Montecasino recorded a 4,5% growth in Gaming win on the back
of the FIFA World Cup and other specific initiatives to attract local customers
to the property.
The KwaZulu-Natal market recorded subdued growth of 3,3% for the six-month
period under review, with the Suncoast Casino growing gaming win by 2,9%. The
impact of the FIFA World Cup on the Suncoast property did not deliver as much
incremental activity as initially expected. Suncoast also experienced severe
road access problems on Durban match days.
The group`s other casino interests in Witbank and East London as well as the
newly acquired Caledon and Newcastle operations have performed satisfactorily
during the period.
Southern Sun Hotels: South Africa
The Hotels South Africa division has recorded revenue and EBITDAR growth of 9,1%
to R859 million and R309 million for the six months respectively.
This growth was recorded largely on the back of the FIFA World Cup and a reduced
base in the prior year. However, demand in the corporate and government sectors
continue to remain weak with the public sector strike in August 2010 also
reducing demand.
Pricing has also been reviewed in targeted units in the Garden Court and Stay
Easy brands to ensure that room rates are now relevant to the competitive
environment with a view to growing occupancies.
Despite tough trading conditions, the market is expected to grow during the
second six- month period to 31 March 2011.
Southern Sun Hotels: Offshore
The Hotels Offshore division, achieved total revenue of R126 million. EBITDAR of
R34 million was some 17% below on the prior period. Rates continue to remain
under pressure although occupancies were achieved as forecasted.
Merger with Gold Reef Resorts ("GRR")
The regulatory process around the merger with GRR continues with the Competition
Tribunal hearing set down for early December 2010.
Approvals from the gaming boards have now been received from the Gauteng Gaming
Board (subject to the proposed merger being approved by the Competition
authorities) and from the KwaZulu-Natal Gaming Board (which approval is
unconditional).
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.
Vukani Gaming Corporation (Pty) Limited ("Vukani")
Vukani, the group`s limited payout machine operator, has operations in seven
previously licensed provinces.
Vukani`s installed machine base increased from 3 121 at 31 March 2010 to 3 523,
with 402 machines being rolled out during the period under review. Net gaming
win increased by 19,6% and EDITDA grew by 35,5% to R41,6 million when compared
to the prior period. The EBITDA margin also improved from 24,5% to 27,7% when
compared to the prior comparable period. It is expected that the planned
increases to the installed machine base as well as a continued focus on
improving gross gaming revenue ("GGR") will see this trend continue.
Transport
Golden Arrow Buses (Pty) Limited ("GABS")
The business has performed well in the six-month period when compared to the
prior year. The restructuring of the business post the transition from passenger
to kilometre as the basis of the contract with Government and the continued
focus on cost containment, in particular maintenance costs following the
scrapping of approximately 96 buses, has resulted in increases in EBITDA and
headline profits.
The company is committed to upgrading its fleet with a further 42 new buses
expected to be introduced in the next six months, which should result in further
fuel and maintenance cost savings in future years.
The Integrated Rapid Transport System continues to move ahead and the company
will continue to engage the City with its input and participation.
Food and beverages
Clover Industries Limited ("Clover")
The interest in Clover was disposed of during the period under review with the
group receiving R493 million from the disposal. The group retained the
investment in the preference shares of R110 million, following their
restructuring.
Mining
HCI Khusela Coal (Pty) Limited ("HKC")
Mining operations are now past the start-up phase at the Palesa mine. EBITDA for
the group of R15 million is the first positive contribution in a reporting
period and was achieved despite lower than planned sales volumes, the ongoing
costs to maintain the Mbali infrastructure and significant legal and consultant
fees. Operating costs per run of mine ("ROM") ton mined and processed are
reducing with plans to reduce costs further by making additional investments in
the washplant and by reducing material movement on the mine. We are also in
discussion with the mining contractor regarding their contract and the cost of
mining.
While the Eskom contract was concluded for 160 000 tons per month, we have not
yet supplied at this level. Average coal sales are in the region of 140 000 tons
during the period.
The lower sales are mainly the result of transport constraints and Eskom being
overstocked at power stations supplied to by Palesa. We have reasonable
assurance that these constraints are temporary and will be eliminated by the
next financial year.
Our dispute with the state-owned mining company, AFEX, is continuing and they
have now also sought to challenge the award of our Nokuhle prospecting right. We
continue to engage with the DMR and the water authorities to procure outstanding
approvals in order to operate the plant at Mbali. The delay in these approvals
is most frustrating and is further evidence of the significant and unnecessary
difficulties which new entrants in the mining sector face.
Clothing and textiles
Seardel Investment Corporation Limited ("Seardel")
The results of Seardel are being published together with those of HCI and
details thereof together with commentary thereon can be obtained there from.
The efforts of the turnaround are evident in the results for the interim period
with Seardel reporting an attributable loss of R71 million (2009: R222 million
loss), with continuing operations recording a profit of R2,5 million (2009: R10
million loss) and discontinuing operations recording a loss of R74 million
(2009: R211 million loss).
We remain hopeful that the turnaround efforts we have been driving at will
continue to bear fruit and allow the group to grow profitability from continuing
operations. However, the impact of the strong rand and volatile cotton prices
remain a challenge.
Energy
Montauk Energy Corporation LLC ("Montauk")
The financial results of Montauk show an improvement from the prior period. This
improvement is mainly attributable to a favourable exchange rate which reduced
the level of losses.
Operationally the business is performing poorly with lower than expected gas
production at all the key sites. Management have cited exceptionally dry
landfill conditions as a significant factor in the lower production, but much
more needs to be done to analyse well field data and improve well field
infrastructure. Newly implemented preventative maintenance systems are improving
plant uptime and plant capacities.
The natural gas price has remained depressed and is currently trading in the $4
range. The disparity to the oil price remains and can be attributed to the
oversupply of gas in the USA following technological advancements in the shale
gas industry. It is anticipated that this oversupply is likely to persist for
the next couple of years. If economic growth is achieved in the US economy,
there is confidence that this oversupply position will be reversed.
The electricity development pipeline of the business remains robust with an
additional acquisition opportunity being considered. Delays in concluding final
electricity supply agreements may result in some projects not qualifying for
stimulus funding and this may result in their postponement until electricity
prices recover.
Vehicle component manufacture
Formex Industries (Pty) Limited ("Formex")
The recovery in the automotive industry, both locally and internationally, is
underway with the company`s end customers, mainly OEM`s, having released trading
updates which are above expectation. This improved trading environment has
filtered through to Formex and monthly turnover is on average above break-even
levels.
The lower levels of activity in the prior period and the resultant downsizing of
the business caused the loss of experienced staff. The effect of a strike in
September put further pressure on operations and negatively affected the
business in the reporting period.
As stated in the year-end report, the key to profitability remains improved
execution and cost control on the factory floor. The end of the financial year
has been set as the target date for steady state operations at acceptable
operating margins and progress towards achieving this target is already
observed.
HCI had to provide additional funds to the business in order to bridge cash-flow
deficits which resulted mainly from low trading volumes in prior periods and
working capital requirements.
Exhibitions and property
Gallagher Estate Holdings Limited ("Gallagher Estates")
The exhibition business`s recovery from the economic downturn has been slower
than anticipated which, along with the negative impact of the 2010 FIFA World
Cup, resulted in EBITDA being 15% lower than the comparative interim period. The
property business was less affected and the lease for the Pan African Parliament
was extended for four years.
The proposal for the sale of the Conferencing business to an independent
charitable trust, as a consequence of an order by the Competition Tribunal in
2005, is still under consideration by the Competition Commission.
CHANGES IN DIRECTORATE
During the period under review, Mr VE Mphande who had previously resigned from
all executive positions in the group, had been appointed to the board of HCI as
a non-executive director with effect from 1 September 2010.
Mr Yunis Shaik has been appointed as lead independent non-executive director
with effect from 31 August 2010. He was appointed to the board of HCI as a non-
executive director in August 2005.
DISTRIBUTIONS TO SHAREHOLDERS
The directors of HCI have resolved to declare ordinary dividend number 42 of 15
cents per HCI share. The last day to trade cum-distribution will be Friday, 3
December 2010. HCI shares will commence trading ex-dividend as from Monday, 6
December 2010 and the record date will be Friday, 10 December 2010. The dividend
will be paid on Monday, 13 December 2010. Share certificates may not be
dematerialised or rematerialised between Monday, 6 December 2010 and Friday, 10
December 2010, both days inclusive.
For and on behalf of the board of directors
MJA Golding JA Copelyn
Chairman Chief Executive Officer
Cape Town 19 November 2010
Registered office
Block B, Longkloof Studios, 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
MJA Golding (Chairman), JA Copelyn (Chief Executive Officer), TG Govender,
JG Ngcobo*, VM Engel*, MF Magugu*, Y Shaik*, ML Molefi*, RS Garach*,
VE Mphande*
*(Non-executive)
Company secretary
HCI Managerial Services (Pty) Limited
www.hci.co.za
Date: 19/11/2010 15:44:00 Produced by the JSE SENS Department.
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