| Thu 23 Jun 2005, 12:06 | | Johnnic - Audited Preliminary Results for the year |
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Johnnic - Audited Preliminary Results for the year ended 31 March 2005
Johnnic Holdings Limited (`Johnnic` or `the Company`)
Incorporated in the Republic of South Africa
Registration number 1889/000429/06
Share code: JNC - ISIN: ZAE000024352
Highlights
* R2,6 billion Johncom shares unbundled to shareholders
* Realised R1,3 billion from the disposal of MTN shares
* Strategic repositioning into the hotel and gaming industry
* Headline earnings (pro forma) up significantly to R127 million
* Cash and cash equivalents up to R1 505 million
Audited Preliminary Results for the year ended 31 March 2005
COMMENTARY
OVERVIEW
The year under review has been a watershed one in the history of Johnnic marked
by the distribution of R2,6 billion worth of Johnnic Communications Limited
(`Johncom`) shares to shareholders and the strategic evolution of the Company
into the hotels and gaming industry.
The unbundling of Johnnic`s 62,5% shareholding in Johncom served to abolish the
pyramid structure that existed between the two companies, enabled Johnnic
shareholders to hold shares directly in Johncom by unlocking substantial value
to the respective shareholders and increased the free float in Johncom shares on
the JSE Securities Exchange South Africa (`the JSE`).
This transaction realised an exceptional profit of R1,28 billion resulting from
the 65,1 million Johncom shares unbundled which were revalued from a book value
of R19,80 per share to a market value of R39,50 per share on the date of
unbundling, being 24 March 2005.
The unbundling formed part of Johnnic`s strategy to reposition itself within the
hotels and gaming industry. Such strategy involves building up critical mass
through making value-enhancing investments in the hotels and gaming sector. The
acquisition of a 50% stake in Fabcos Investment Holding Company Limited (`FIH`)
from Fabvest Investment Holdings Limited (`Fabvest`), for a cash consideration
of R295 million, resulted in the Company holding an effective 9,7% stake in
Tsogo Sun Holdings (Proprietary) Limited (`Tsogo Sun`) thereby enabling Johnnic
to make an initial investment in Tsogo Sun. The transaction was divided in two
equal tranches with the second tranche subject to suspensive conditions to be
fulfilled by 30 June 2005. The successful conclusion of the transaction depends
on unconditional approval from the Mpumalanga Gaming Board, which is still
outstanding.
FIH owns a 38% stake in Tsogo Investment Holding Company (Proprietary) Limited
(`TIH`), which in turn owns a majority and controlling 51% stake in Tsogo Sun.
The gaming and hotel interests include Montecasino, Suncoast Casino and
Entertainment World (`Suncoast Casino`), Hemingway`s Casino, Emnotweni Casino,
The Ridge and approximately 82 hotels in the Southern Sun Hotels Group. Johnnic
already owns an effective 28,6% interest in Tsogo Sun KwaZulu-Natal
(Proprietary) Limited (`Tsogo Sun KZN`) through its 71,5% interest in Durban Add
Ventures Limited, which owns 40% of the Suncoast Casino complex in Durban.
Johnnic disposed of its 40 million shares in MTN Group Limited (`MTN`), during
October and November 2004. This disposal realised R1,3 billion in cash (and an
exceptional profit of R1 billion), which will be used in the implementation of
the gaming strategy, after providing for all liabilities.
The surplus arising on the unbundling of Johncom and the profit realised on the
disposal of the MTN shares contributed to the attributable earnings of R2 410
million (2004: R4 196 million) achieved for the year.
At year end, Johnnic`s major assets comprised the following:
* 28,6% effective interest in Suncoast Casino;
* 4,85% effective interest in Tsogo Sun, with a further 4,85% effective interest
subject to regulatory approvals;
* 100% of Gallagher Estate Holdings Limited (`Gallagher`) and Johnnic
Properties; and
* Cash resources.
To enable better appreciation of Johnnic`s ongoing businesses, a pro forma
consolidated income statement has been presented for the current and prior year
using consistent accounting policies, assuming that both the telecommunications
and media and entertainment businesses were unbundled on 1 April 2003. Likewise,
all comparisons to the prior year numbers in this commentary relate to the pro
forma consolidated income statement.
FINANCIAL RESULTS
Revenue increased by 24% to R113 million (2004: R91 million) on the back of
improved performance from the gaming and property interests. Loss from
operations before exceptional items for the same businesses declined to a loss
of R13 million (2004: R1 million profit) due to once-off provisions of R19
million, relating to prior years.
Finance income totalled R85 million (2004: R12 million net finance income),
reflecting the net cash positive position of the Group.
Basic headline earnings increased significantly to R127 million (2004: R12
million), resulting in a 986% growth in basic headline earnings per share to 76
cents per share (2004: 7 cents per share).
Exceptional items amounting to R1 014 million (2004: R111 million) relate mainly
to the surplus realised on the disposal of the MTN shares.
Attributable earnings increased by 894% to R1 133 million (2004: R114 million),
with attributable earnings per share up 887% to 681 cents per share (2004: 69
cents per share).
DIVISIONAL REVIEW
Gaming Interests
Suncoast Casino
Trading at Suncoast Casino continued to improve in line with expectations,
bolstered by the completion of Phase 2 in July 2003. Revenue for the year rose
35% compared to the prior year, reflecting ongoing growth in visitor volumes and
associated growth in consumer spending. This translated into a 29% increase in
casino management fees earned from Tsogo Sun KZN.
Tsogo Sun
The business performed strongly on the back of continued growth in the gaming
market and reported improved trading performances from both its hotel and gaming
operations. The contributions from Tsogo Sun have been equity accounted in
Johnnic`s results and contributed R12,5 million to headline earnings.
EXHIBITION AND PROPERTY INTERESTS
Gallagher
The financial performance of Gallagher continues to improve, with a 30% increase
in turnover and a concomitant 133% increase in profit from operations before
exceptional items reported for the year.
Operationally, the award of an initial five-year contract to host the Pan-
African Parliament has boosted the business. The contract has enabled Gallagher
to complete the partially finished office block and construct a further
parliamentary chamber building and precinct at a total cost of R100 million, of
which R49 million was spent during the review period. The five-year contract has
placed Gallagher firmly in a profitable position.
Johnnic Properties
Johnnic Properties has, to all intents and purposes, been wound down
operationally and only a nominal property portfolio remains.
FINANCIAL POSITION
Johnnic`s total assets decreased from R4 406 million at the beginning of the
year to R2 021 million at year end as a result of the unbundling of Johncom.
Cash and cash equivalents increased to R1 505 million from R601 million at the
beginning of the year mainly as a result of proceeds from the disposal of the 40
million MTN shares. Future commitments are as follows: a R300 million corporate
guarantee; a R192 million casino equity guarantee, taxation on unbundling of
R284 million; R148 million for the second tranche in FIH; and R114 million for
other liabilities.
MANAGEMENT CHANGES
Christine Ramon was appointed acting Chief Operating Officer upon Jacob Modise`s
resignation in September 2004. She was appointed Chief Executive Officer in
March 2005.
POST-BALANCE SHEET EVENTS
Investment holding company, Hosken Consolidated Investments Limited (`HCI`),
acquired a 20,7% stake in Johnnic on the open market at the beginning of April
2005, effectively boosting Johnnic`s empowerment shareholding. HCI`s interest in
Johnnic has subsequently increased to approximately 30%.
HCI have requisitioned a general meeting for the appointment of three HCI
appointees as directors to the Johnnic board. Notice of this general meeting to
be held at 14:00 on Thursday, 30 June 2005 at Gallagher Estate, 19 Richards
Drive, Midrand, Gauteng was dispatched to shareholders on 26 May 2005.
Listed gaming group Gold Reef Casino Resorts Limited has acquired a 9,9%
interest in Johnnic in a series of open market trades during April 2005.
CAUTIONARY ANNOUNCEMENT
Johnnic continues to trade under a cautionary notice, relating to ongoing
negotiations with Nafcoc Investment Holding Company Limited (`Nafhold`), with
regard to their interest in TIH. Nafhold currently owns 25% of TIH.
PROSPECTS
Going forward, Johnnic is well placed to build on its existing gaming and hotel
interests by actively pursuing further investment opportunities in the rapidly
expanding gaming and hotels sector. It is hoped that the ongoing negotiations
with Nafhold will result in such an investment during the coming year.
Unconditional approval from the Mpumalanga Gambling Board for Johnnic`s
acquisition of the second tranche in FIH is awaited ahead of the 30 June 2005
deadline for fulfilment of the transaction`s suspensive conditions.
The recent significant changes in shareholders in the Company does to an extent
impact on negotiations and structuring of proposed transactions relating to the
gaming interests. The Johnnic board is confident that the gaming strategy as
outlined to shareholders can be achieved with their support.
The Group`s existing interests in the gaming and hotels sector, namely Suncoast
Casino and Tsogo Sun, are poised for continued solid growth in tandem with the
ongoing expansion of the leisure industry in South Africa. The prospects at
Suncoast Casino, in particular, have been boosted by the permission obtained
from the KwaZulu-Natal Gambling Board to commence Phase 3 of the complex,
comprising a 160-room hotel, in March 2006.
Good growth is also anticipated from the conference and exhibition industry,
based on the promising preliminary indications for the coming year. Gallagher is
well placed to capitalise on this growth.
RECLASSIFICATION OF LISTING
Shareholders are referred to the SENS announcement issued by the JSE on 8 June
2005, in terms of which Johnnic`s listing has been transferred from the Cyclical
Services - `Media and Photography` sector to the Financial - `Real Estate`
sector of the JSE list with effect from Monday 20 June 2005. The move, which
reflects the impact of the Johncom unbundling on Johnnic`s asset base, will be
an interim one, as the Company`s strategy to increase its exposure to the gaming
and hotels sector will place the group more appropriately on the JSE`s Leisure
sector. Should Johnnic not be able to utilise its cash resources by concluding
value enhancing transactions by 30 September 2005, the board will consider
returning the cash to shareholders.
DIVIDEND
In light of the major unbundling by the Company to its shareholders of all its
shareholding in Johncom by way of a distribution in specie, amounting to
approximately R2,6 billion in March 2005 and the growth strategy that the
Company has embarked on the directors have resolved not to declare a dividend
for the year ended 31 March 2005.
For and on behalf of the board
MC Ramaphosa KC Ramon
Chairman Chief Executive Officer
22 June 2005
Suncoast 28,6%
Tsogo Sun Group 4,85%
Johnnic Properties 100%
Gallagher Estate 100%
CONSOLIDATED INCOME STATEMENT
31 March 31 March
2005 2004 Change
For the years ended Notes Rm Rm %
Revenue 4 226 2 789 52
Cost of sales (2 479) (1 667)
Gross profit 1 747 1 122 56
Operating expenses - net (1 259) (911)
Depreciation (85) (82)
Amortisation of intangibles (18) (8)
Impairment and amortisation of goodwill (4) (5)
Profit from operations before 381 116 228
exceptional items
Exceptional items 3 2 370 3 779
Profit from operations 2 751 3 895 (29)
Finance costs (37) (35)
Finance income 115 61
Income from associated companies 4 151 375
Profit before taxation 2 980 4 296 (31)
Taxation (385) (33)
Profit after taxation 2 595 4 263 (39)
Minority interests (185) (67)
Attributable earnings 2 410 4 196 (43)
Analysis of earnings
Media and Entertainment 254 111 129
Gaming and properties 78 (38) 305
Interest and corporate head office 49* 3 1 533
Telecommunications - 304 (100)
Basic headline earnings 381 380 -
Impairment and amortisation of goodwill (2) (42) 95
after taxation and minority interests
Exceptional items after taxation and 2 031 3 858 (47)
minority interests
Attributable earnings 2 410 4 196 (43)
Earnings per share (cents)
- Media and Entertainment 153 67 128
- Gaming, properties and corporate head 76 (22) 445
office
- Telecommunications - 184 (100)
Total headline earnings (cents) 229 229 -
Attributable earnings (cents) 1 448 2 528 (43)
Number of ordinary shares in issue
(`000)
- at year end 166 470 166 466
- weighted average 166 470 166 022
Closing price (cents per share) 880 1 630
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
(excludes telecommunications and media and entertainment businesses)
31 March 31 March
2005 2004
Pro forma Pro forma Change
For the years ended Rm Rm %
Revenue 113 91 24
Cost of sales (23) (22)
Gross profit 90 69 30
Operating expenses - net (98)* (63)
Depreciation (5) (5)
(Loss) profit from operations before (13) 1 (1 400)
exceptional items
Exceptional items 1 014 111
Profit from operations 1 001 112
Finance costs - (16)
Finance income 85 28
Income (loss) from associated companies 28 (15)
Profit before taxation 1 114 109 922
Taxation 26 (2)
Profit after taxation 1 140 107 965
Minority interests (7) 7
Attributable earnings 1 133 114 894
Analysis of earnings
Gaming and properties 78 9 767
Interest and corporate head office 49* 3 1 533
Basic headline earnings 127 12 958
Goodwill amortisation after minority - (2) 100
interests and taxation
Exceptional items after minority interests 1 006 104 867
and taxation
Attributable earnings 1 133 114 894
Pro forma earnings per share (cents)
Total headline earnings (cents) 76 7 986
Attributable earnings (cents) 681 69 887
* Includes once-off provisions of R19 million.
GROUP SEGMENTAL ANALYSIS
31 March 31 March
2005 2004 Change
BUSINESS GROUPING Rm Rm %
Revenue
Media and Entertainment 4 113 2 698 52
Gaming and properties 113 91 24
Gaming 9 7 29
Gallagher Estate 65 50 30
Johnnic Properties 39 34 15
Total 4 226 2 789 52
Profit from operations before exceptional
items
Media and Entertainment 394 111 255
Gaming and properties 22 19 16
Gaming 8 4 100
Gallagher Estate 14 6 133
Johnnic Properties - 9 (100)
Corporate head office (35)* (14) (150)
Total 381 116 228
* Includes once-off provisions of R19 million.
SUMMARISED GROUP STATEMENT OF
CHANGES IN EQUITY
31 March 31 March
2005 2004
Rm Rm
Balance at 1 April as reported 2 667 5 817
Change in accounting policies in respect of
- AC140 adjustment 121 -
- AC133 adjustment - (52)
Restated balance at 1 April 2 788 5 765
Attributable earnings 2 410 4 196
Distribution in specie (2 571) (8 223)
Gains arising on revaluated listed equities (1 008) 1 034
Share capital issued at a premium less share - 46
issue expenses
Exchange differences arising on translation - (112)
of foreign entities
Goodwill and variation of interests - (41)
Other 2 2
1 621 2 667
SUMMARISED CONSOLIDATED BALANCE SHEET
31 March 31 March
2005 2004
As at Notes Rm Rm
ASSETS
Non-current assets 464 1 290
Property, plant and equipment 228 333
Goodwill and intangibles 6 (66)
Interests in associated companies 5 180 885
Investments and loans 6 21 25
Deferred taxation 29 113
Current assets 1 557 3 116
Bank balances, deposits and cash 7 1 314 494
Securitised cash deposits 7 192 192
Equities held as current assets 8 - 1 443
Other current assets 51 987
Total assets 2 021 4 406
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders` interest 1 621 2 667
Minority interests 2 666
Total equity 1 623 3 333
Non-current liabilities 15 155
Long-term liabilities 9 15 29
Provision for post-retirement medical - 121
costs
Deferred taxation - 5
Current liabilities 383 918
Non-interest-bearing liabilities 382 812
Interest-bearing liabilities 9 1 106
Total equity and liabilities 2 021 4 406
Net asset value per ordinary share
(rand)
- book value 10 16
- based on directors` valuation of 11 21
underlying investments
SUMMARISED CONSOLIDATED CASH FLOW STATEMENT
31 March 31 March
2005 2004
For the years ended Note Rm Rm
Cash inflows from operating activities 392 94
Cash inflows from investing activities 519 661
Cash outflows from financing (7) (215)
activities
Net increase in cash and cash 904 540
equivalents
Cash and cash equivalents at beginning 601 59
of year
Foreign entities translation - 2
adjustment
Cash and cash equivalents at end of 7 1 505 601
year
NOTES
1. Basis of accounting
These summarised consolidated financial statements have been prepared using
accounting policies that comply with South African Statements of Generally
Accepted Accounting Practice and the requirements of the South African Companies
Act. The principal accounting policies are consistent with those used in the
annual financial statements for the year ended 31 March 2004, except for the
adoption of the following statements:
AC140: Business Combinations, AC128: Impairment of Assets and AC129: Intangible
Assets
The major impacts arising from the adoption of these statements are that the
costs of business combinations are allocated to the assets acquired and
liabilities and contingent liabilities assumed, and that goodwill is not
amortised, but is subject to impairment testing. The effect of this change in
accounting policy is a reduction of R5 million in amortisation charged to the
income statement and an increase of R121 million to opening accumulated profits.
AC501: Accounting for Secondary Tax on Companies (STC)
To the extent that it is probable that dividends will be declared against which
STC credits could be used, a deferred tax asset is recognised. The adoption of
this statement has no effect on these financial statements.
2. Earnings per ordinary share
The calculation of headline and attributable earnings per ordinary share is
based on headline earnings of R381 million (2004: R380 million) and attributable
earnings of R2 410 million (2004: R4 196 million) respectively, and a weighted
average of 166 469 994 (2004: 166 022 116) ordinary shares in issue. No fully
diluted earnings per ordinary share have been disclosed, as the potential
dilution is not considered to be material.
31 March 31 March
2005 2004
Rm Rm
3. Exceptional items
Surplus arising on unbundling 1 275 3 682
Net surplus on disposal of investments 1 000 165
Adjustment (impairment) of goodwill, 65 (78)
investments, loans and assets
Fair value adjustment of investment available 21 -
for sale
Costs associated with rationalisation and 10 (5)
restructuring
Other (1) 15
Total 2 370 3 779
4. Income from associated companies
Share of profits earned by associates 172 410
Unrecognised losses in respect of prior years (21) (32)
now recognised
Share of associated companies exceptional - (3)
items
151 375
5. Interests in associated companies
- Listed - 438
- Unlisted 180 447
Book value of interests in associated 180 885
companies
Market value of listed shares - 731
Directors` valuation of unlisted shares 339 1 329
6. Investments and loans
Unlisted shares at cost less amounts written 19 16
off
Loans 2 9
Total 21 25
Directors` valuation of unlisted shares 19 16
7. Cash and cash equivalents
Bank balances, deposits and cash 1 314 494
Securitised cash deposits 192 192
Call borrowings (1) (85)
Total 1 505 601
Head office cash included in the above 1 465 252
8. Equities held as current assets
MTN Group Limited - 1 443
9. Interest-bearing debt
Long-term liabilities 15 29
Current liabilities 1 106
- call borrowings 1 85
- short-term borrowings - 21
Total 16 135
10. Capital expenditure incurred 61 64
11. Contingent liabilities
Guarantees 492 513
Suncoast Casino and Entertainment World
- Equity guarantee secured by cash deposits 192 192
(refer to note 7)
- Corporate guarantee 300 300
Other - 21
Contingent liabilities - 12
Total 492 525
12. Commitments
Second tranche - FIH 148 -
Commitments for capital expenditure
- authorised but not contracted for 51 23
The capital expenditure will be funded from operating cash flows and borrowings.
13. Lease commitments
Operating leases
- within one year 4 105
- more than one year 67 735
Total 71 840
14. Audited results
The auditors, Deloitte & Touche, have issued their opinion on the Group`s annual
financial statements for the year ended 31 March 2005. The audit was conducted
in accordance with South African Auditing Standards.
The auditors have issued an unqualified audit opinion.
A copy of the audit opinion is available for inspection at the Company`s
registered office.
These summarised financial statements have been derived from the Group audited
financial statements and are consistent in all material respects with those
annual financial statements.
The pro forma financial results do not form part of the annual financial
statements and are presented as additional information. The auditors have not
audited the pro forma financial results and accordingly do not express an audit
opinion on these.
Our reporting accountants, Deloitte & Touche have however issued a report on the
pro forma information, which is available at the Company`s registered office for
inspection. This report concludes as follows: `based on our review, nothing has
come to our attention that causes us to believe that:
- the pro forma financial information has not been properly compiled on the
basis stated;
- such basis is inconsistent with the accounting policies of Johnnic; and
- the adjustments are not appropriate for the purposes of the unaudited pro
forma income statement as disclosed in the preliminary announcement.`
15. Listings requirements
This preliminary announcement has been prepared in compliance with the Listings
Requirements of the JSE.
16. Corporate governance
The Board endorses and is of the opinion that the Company adheres to the Code of
Corporate Practices and Conduct as set out in the King Report on Corporate
Governance for South Africa 2002 (`King II`). The principles contained therein
are reviewed from time to time to take into account appropriate changes and
developments in the field of corporate governance, both locally and
internationally.
DIRECTORS:
MC Ramaphosa (Chairman), KC Ramon (Chief Executive Officer), CB Brayshaw, PE
Burton, ACG Molusi, TRA Oliphant
ALTERNATE DIRECTORS:
ZNA Cindi, PM Jenkins
COMPANY SECRETARY:
MRD Boyns (British)
HEAD OFFICE AND REGISTERED OFFICE:
Level 3 (West Wing), Gallagher House,
Gallagher Estate,
19 Richards Drive, Midrand, 1685.
PO Box 231, Johannesburg, 2000
AMERICAN DEPOSITARY RECEIPT (`ADR`) PROGRAM:
Cusip number 478058100.
ADR to ordinary share 1:1.
DEPOSITARY:
The Bank of New York, 22nd Floor,
101 Barclay Street, New York,
N.Y. 10286, USA.
REGISTRAR AND INFORMATION AGENT:
Computershare Investor Services 2004 (Pty) Limited,
70 Marshall Street, Johannesburg, 2001
PO Box 652000, Benmore, 2010.
Telephone number 0800 117472/(+27 11) 870 8201
SPONSOR:
Merrill Lynch South Africa (Pty) Limited,
138 West Street, Sandown, Sandton, 2196.
PO Box 651987, Benmore, 2010.
These results may be viewed on the Internet at http://www.johnnic.co.za E-
mail: investor_relations@johnnic.co.za
Date: 23/06/2005 12:00:51 PM
Produced by the JSE SENS Department
