| Mon 28 Nov 2005, 15:11 | | HCI - Group interim results for the six months end |
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HCI - Group interim results for the six months ended September 2005
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"
GROUP INTERIM RESULTS FOR THE SIX MONTHS ENDED SEPTEMBER 2005
* 41% increase in revenue
* 110% increase in trading profit
* 71% increase in headline earnings per share
* 56% increase in adjusted headline earnings per share
ABRIDGED CONSOLIDATED INCOME STATEMENT
30 September 31 March
2005 2004 2005
R"000 R"000 R"000
(unaudited) (unaudited (audited
restated) restated)
Revenue 894 454 634 859 1 413 422
Trading expenses (763 733) (572 741) (1 251 046)
Trading profit 130 721 62 118 162 376
Transaction costs
and raising fees (44 362) - -
Investment income 30 807 18 793 50 627
Finance costs (38 165) (347) (11 760)
Share of associated
companies" profits 52 060 47 884 82 042
Negative goodwill released - 109 036 102 470
Investment surplus 3 408 138 673 138 903
Fair value adjustments 127 389 - 5 505
Recoupment/(impairment)
of investments - 284 (9 606)
Profit before taxation 261 858 376 441 520 557
Taxation (82 009) (38 436) 220 666
Group profit 179 849 338 005 741 223
Attributable to:
Equity holders of the parent 155 667 336 728 621 188
Minority interest 24 182 1 277 120 035
179 849 338 005 741 223
Reconciliation of headline
profit
Profit attributable to equity
holders of the parent 155 667 336 728 621 188
Adjusted for:
Investment surplus (3 408) (138 673) (134 456)
Impairment/(recoupment)
of investments - (284) 9 606
Revaluation of investment
properties - - (2 109)
Negative goodwill released - (102 157) (102 470)
Amortisation of goodwill - 1 360 3 268
Impairment of assets - - 1 740
Profit on sale of assets (360) (19 606) (24 869)
Headline profit 151 899 77 368 371 898
Deferred tax in respect
of losses - - (198 014)
Deferred tax in respect
of STC credits 21 863 19 758 39 774
Adjusted headline profit 173 762 97 126 213 658
Earnings/(loss)
per share (cents)
- Basic 131,88 326,85 587,67
- Headline 128,69 75,10 351,83
- Adjusted headline 147,21 94,28 202,13
Weighted average number
of shares in issue ("000) 118 037 103 022 105 704
Actual number of shares
in issue at end of period
(net of treasury
shares) ("000) 118 197 104 336 117 997
Diluted earnings/(loss)
per share (cents)
- Basic 128,16 292,03 525,10
- Headline 125,06 67,10 314,37
- Adjusted headline 143,06 84,23 180,61
Weighted average number
of shares in issue ("000) 121 462 115 307 118 299
ABRIDGED CONSOLIDATED BALANCE SHEET
30 September 31 March
2005 2004 2005
R"000 R"000 R"000
(unaudited) (unaudited (audited
restated) restated)
ASSETS
Non-current assets 6 116 481 9 175 558 7 606 721
Property, plant and equipment 534 946 396 734 473 434
Goodwill 14 887 8 865 -
Intangibles 5 017 - -
Deferred taxation 373 001 137 185 414 521
Financial assets 3 951 221 8 319 050 5 928 846
Long-term receivables 15 538 - 13 793
Investments 1 221 871 313 724 776 127
Current assets 5 696 846 4 786 865 6 661 292
Other 1 132 007 938 967 588 081
Financial assets 4 367 829 3 308 278 5 526 574
Cash and cash equivalents 197 010 539 620 546 637
Total assets 11 813 327 13 962 423 14 268 013
EQUITY AND LIABILITIES
Equity 1 786 789 1 337 309 1 682 474
Equity attributable
to equity holders
of the parent 1 567 256 1 112 067 1 405 415
Minority interest 219 533 225 242 277 059
Non-current liabilities 818 656 82 937 196 053
Financial liabilities 4 005 907 8 377 689 5 987 449
Deferred taxation 52 435 49 514 33 907
Current liabilties 5 149 540 4 114 974 6 368 130
Other 777 758 813 694 838 141
Financial liabilities 4 371 782 3 301 280 5 529 989
Total equity and liabilities 11 813 327 13 962 423 14 268 013
Net asset carrying
value per share (cents) 1 326 1 066 1 191
ABRIDGED CONSOLIDATED CASH FLOW STATEMENT
30 September 31 March
2005 2004 2005
R"000 R"000 R"000
(unaudited) (unaudited (audited
restated) restated)
Cashflows from operating
activities (82 581) 29 043 470 173
Cashflows from investing
activities (818 051) (84 796) (675 720)
Cashflows from financing
activities 529 410 (19 054) 135 491
(Decrease)/increase in cash
and cash equivalents (371 222) (74 807) (70 056)
Cash and cash equivalents
At beginning of period 544 404 404 082 404 082
On acquisition/disposal of
subsidiaries 17 867 210 345 210 378
At end of period 191 049 539 620 544 404
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Non-
Share Share distributable
capital premium reserves
R"000 R"000 R"000
Balances at 31 March 2004 25 755 484 493 84 071
Share capital and premium
Shares issued 3 749 52 381 -
Treasury shares acquired
by subsidiary (5) (2 088) -
Share issue costs - (101) -
Current operations
Profit for the year - - -
Equity settled
share-based payments - - -
Currency translation
differences - - 224
Negative goodwill
released to equity - - -
Transfer of fair value
adjustments on realisation - - -
Effects of changes in holding - - -
Ordinary dividend - - -
Transfers on realisation - - (84 295)
Balances at 31 March 2005 29 499 534 685 -
Share capital and premium
Shares issued 50 5 050 -
Current operations
Profit for the year - - -
Equity settled
share-based payments - - -
Inclusion on acquisition - - -
Capital repayments
and dividends - - -
Balances at 30 September 2005 29 549 539 735 -
Accumulated Minority
profits interest Total
R"000 R"000 R"000
Balances at 31 March 2004 184 725 282 864 1 061 908
Share capital and premium
Shares issued - - 56 130
Treasury shares acquired
by subsidiary - - (2 093)
Share issue costs - - (101)
Current operations
Profit for the year 621 188 120 035 741 223
Equity settled
share-based payments 1 476 - 1 476
Currency translation
differences - - 224
Negative goodwill
released to equity 49 126 - 49 126
Transfer of fair value
adjustments on realisation 13 750 - 13 750
Effects of changes in holding - (125 840) (125 840)
Ordinary dividend (113 329) - (113 329)
Transfers on realisation 84 295 - -
Balances at 31 March 2005 841 231 277 059 1 682 474
Share capital and premium
Shares issued - - 5 100
Current operations
Profit for the year 155 667 24 182 179 849
Equity settled
share-based payments 1 074 - 1 074
Inclusion on acquisition - 9 354 9 354
Capital repayments
and dividends - (91 062) (91 062)
Balances at 30 September 2005 997 972 219 533 1 786 789
SEGMENT REPORT
The following are the summarised results for the various primary group
segments:
Revenue Results Assets
R"000 R"000 R"000
Media and broadcasting 279 194 69 948 783 741
Financial services 54 289 20 613 8 564 426
Gaming, hotels and leisure 30 588 102 494 1 521 801
Information technology 7 929 7 613 84 408
Transport 319 731 50 139 340 480
Industrial 196 051 22 240 228 838
Other 6 672 (93 198) 289 633
894 454 179 849 11 813 327
Fixed asset
Liabilities additions Depreciation
R"000 R"000 R"000
Media and broadcasting 205 717 11 837 7 915
Financial services 8 417 870 2 322 1 111
Gaming, hotels and leisure 828 540 8 015 1 966
Information technology 42 387 235 366
Transport 256 346 52 194 10 079
Industrial 126 704 6 126 6 014
Other 148 974 1 665 29
10 026 538 82 394 27 480
Taxation is included in other as follows: Assets R374 million, Liabilities R61,6
million and results R82 million.
No secondary segment report has been included as the group derives substantially
all its revenues and income from within the Republic of South Africa.
COMMENTARY
Investments
Media and broadcasting
Midi TV (Pty) Limited ("e-TV")
e-TV reported a 19% growth in operating profits for the current period in
comparison to the comparative prior period.
The recovery of audience share commented on in our 2005 annual report has
continued to strengthen with news and local soaps leading the way.
Given the buoyant advertising spend market, e-TV is well positioned to deliver
similar levels of growth over the next six months.
Yired (Pty) Limited ("YFM")
Subsequent to the period under review, the group received the required approvals
from the regulatory bodies for the acquisition of an effective 77,5% interest in
YFM.
The radio station generated approximately R15 million profits after tax in the
previous twelve months and future results will include the group"s interest in
these profits.
Gaming, hotels and leisure
Vukani Gaming Corporation (Pty) Limited ("Vukani")
Vukani presently operates limited payout gambling machines as a route operator
under licence from four provincial gaming boards with operations in KwaZulu-
Natal expected to commence shortly.
The company has recently been awarded a further license in the Limpopo region.
The licence is the only operator license to be issued in the region and as such
is of significant value to the company.
As reported in our 2005 annual report we have been rolling out about 100
machines per month in rececnt months. Gross gaming revenue per machine has
gradually escalated in line with our best expectations.
During the period under review the business turned its first monthly operating
profit with rapid growth in profitability being projected as further machines
are rolled out.
It is expected that as this investment develops over the next two years it will
add significant value to the group.
Tsogo Investment Holding Company (Pty) Limited ("TIH")
As was previously reported, the group has a 32,07% interest in TIH and has
entered into an agreement with the Fabcos Trust to acquire a further 19% (or
29%) effective interest in TIH. Shareholders are referred to announcements made
for details of this acquisition, which remains subject to certain regulatory
approvals. These approvals are expected during the next reporting period.
During the period under review the group equity accounted the earnings for the
32,07% interest in TIH which contributed
R35,2 million to group headline earnings.
Johnnic Holdings Limited ("Johnnic")
During the period under review the group increased its interest in Johnnic to
39,7% and has been required by the Securities Regulation Panel to extend an
offer to acquire all of the Johnnic shares that the group does not already own.
The group has made an offer to the remaining shareholders in Johnnic to acquire
all their shares in Johnnic for a consideration of R10,70 per share in cash or 1
HCI share for every 2,57 Johnnic shares surrendered, subject to a maximum of 15
million new HCI shares being issued.
The group has received irrevocable undertakings from Johnnic shareholders
holding 9,02 million Johnnic shares (5,4%) to accept the offer. The offer closes
at 12:00 on Friday, 2 December 2005 and is subject to the approval of the
Competition Authorities, which is anticipated soon after 6 December 2005.
Shareholders are referred to announcements made and the circular issued by the
company for further details of this offer.
As the group does not have control of Johnnic or representation on the Johnnic
Board, the interest in Johnnic has been accounted for as an available for sale
asset. Accordingly the investment in Johnnic has been marked up to market value
of R11,26 per share at the reporting date resulting in a fair value gain of
R108,9 million, net of tax, being included in the group"s headline earnings.
Transaction costs and raising fees amounting to R44,3 million incurred by the
group in respect of the Johnnic offer and the Fabvest acquisition have been
disclosed separately in the income statement for the period under review. These
costs, which are non-recurring and relate specifically to these transactions,
have been written off in computing headline earnings for the period.
Financial services
Mettle Limited ("Mettle")
Mettle is in the process of building substantial new businesses under its wing.
These include Mettle Motor Loans which provides loan finance to purchasers of
motor vehicles and Mettle Factors which provides loans to facilitate inter alia
fixed property transactions. The debtors books in these businesses have grown to
approximately R50 million to date and are geared. It is expected that these
businesses will have excellent growth potential in the coming years and are
expected to become meaningful contributors to group profits in future years.
Mettle"s traditional business has been well executed over the period with costs
being well controlled.
Transport
Golden Arrow Bus Services (Pty) Limited ("GABS")
GABS, which continues to perform well, contributed R31 million to group headline
profit.
The company has invested in fifty new buses and has committed itself to ordering
a further fifty new buses in the next period as part of its commitment to
providing a modernised fleet. Passenger numbers have increased by approximately
5% over the last year. Notwithstanding substantial fuel price escalations, costs
have been well contained.
Food and beverages
Clover Industries Limited ("Clover")
Subsequent to the period under review, the group subscribed for 25,1% of the
total issued ordinary share capital of Clover, as well as 25 million Clover
preference shares, for an aggregate subscription consideration of R91,8 million.
The group has secured an option to acquire a further 10% of the ordinary share
capital in Clover for R10 million. This investment broadens the group"s
strategic investment interests into the food and beverages sector.
The group holds a further 10,6 million preference shares in Clover giving it an
effective 43% economic interest in the company and has secured three seats on
the Clover board.
Clover"s results for the year ending 30 June 2005 reflect a turnover of R4,2
billion and an attributable loss of R38 million.
As part of the transformation of Clover from a co-operative to a commercial
venture, the company is in the process of being restructured to reduce costs and
improve profitability. Revised product packaging and branding are expected to
entrench Clover"s market position.
Clover will in future be categorised as an associate company of the group with
its results accordingly being equity accounted. It is expected that this
investment will be profitable in the next financial year and will generate
meaningful returns for the group in the coming years.
Information technology
Syntell (Pty) Limited ("Syntell")
During the period under review the group acquired an effective 50,01% interest
in Syntell, a company providing electronic monitoring of traffic and traffic
violations to municipalities throughout South Africa. The company made R7,8
million in profits after tax for the current period. The group has consolidated
these profits from 1 September 2005.
Industrial
The group had previously acquired a number of companies in leveraged buyouts
primarily financed by ring fenced debt in each company. These companies include
Johnson Crane Hire, Tylon, Johnson Access and Formex Industries. Each has
performed well above expectations and this debt has been significantly reduced.
It is anticipated that this debt will be paid off from the earnings of these
companies on average over the next two years whereafter the group will receive
contributions to its cash flow. The operating profit before interest and tax of
these companies collectively for the period under review was R27,1 million.
Other
The group disposed of its interest in Sukyae Land (Pty) Limited during the
period under review for R25 million.
OPERATIONS AND RESULTS FOR THE PERIOD
Business operations
The business operations of HCI include the making of investments in
opportunities as identified by the board of directors and to add value to these
investments over time. As such, HCI has consciously established itself and
pursued an investment policy in terms of which it has endeavoured to maintain
significant equity and capital participation in entrepreneurially run companies
with significant growth potential. The investments are constantly reviewed and
new ones sought to complement them.
Basis of preparation and accounting policies
The results for the six months ended 30 September 2005 have been prepared in
accordance with International Financial Reporting Standards (IFRS) and comply
with IAS 34 - Interim Financial Reporting and the Listings Requirements of the
JSE Limited. All comparative information has been restated to comply with the
new accounting policies. The accounting policies of the group have been
consistently applied with those of the previous financial year except for the
effects of changes in respect of IFRS.
With effect from 1 April 2004 the group has implemented International Financial
Reporting Standards (IFRS). Accordingly, the effects of the new standards have,
for the first time, been presented in these interim results to shareholders.
The adoption of IFRS has not resulted in any material adjustments to the prior
period opening balances. However certain of the comparative figures have been
restated to take into account the effects of the adoption of the following
standards.
IFRS 2 - Share based payments. Share options previously granted and
exercised have been valued using the Black Scholes method. This value is
amortised on a straight line basis and recognised as an expense over the
vesting periods.
IAS32 - The gross value of financial assets and financial liabilities, which
had previous been set off, have now been disclosed to comply with this
standard. IAS32 now requires that a legal enforceable right of set-off must
currently exist for set-off to occur.
Effects of adoption of IFRS and AC501 on group profit:
31 March 30 September
2005 2004
Group profit as previously reported 622 664 356 486
Effects of equity settled share-based
payments - IFRS 2 (1476) -
Effects of first time adoption of
AC501- STC credits - (19 758)
Group profit as restated 621 188 336 728
Effects of adoption of AC501 on equity:
Equity as previously reported 1 405 415 1 022 897
Effects of adoption of AC501 STC credits -
accumulated profits - 89 170
Equity as restated 1 405 415 1 112 067
The adoption of IFRS had no effect on equity as previously stated
AC 501
As reported in the group annual results for the year ended 31 March 2005 ("March
2005 results"), the group had adopted AC 501 with effect from 1 April 2004. In
terms of the provisions of AC 501, a deferred tax asset should be recognised for
unused STC credits to the extent that it is probable that future taxable profit
will be generated against which the STC credits can be utilised.
The comparative interim figures have been accordingly been restated to adjust
for the effects of AC 501.
As a result of the first time application of AC 501 in the March 2005 results,
Mettle, a wholly owned subsidiary of the group, has recognised a deferred tax
asset in respect of STC credits held by its subsidiaries, as a prior year
adjustment. These subsidiaries have historical contractual obligations to on-
declare all such dividends received to third party clients, with the result that
these credits are not available to the group for any other purpose. A margin is
earned over the term of the contracts and the asset does not reflect the
economic benefit arising from these transactions to the group. The income on
these transactions (dividends) is accounted for on the yield to maturity basis
and not on the declaration basis as is implicit in the application of the
statement. The effect is that the asset raised and the income statement impact
of the fluctuations in the value of the asset over time severely distort the
economic reality of the group"s results. Therefore, the group has in the March
2005 results presented adjusted headline earnings, which negate the effects of
deferred tax assets raised or expensed, as additional disclosure, to more
accurately reflect the economic reality of the group"s results. Accordingly
adjusted headline earnings has once again been presented in these results.
Deferred tax assets in respect of STC credits expensed in the current year
amount to R21,8 million which have been included in headline earnings. Deferred
tax assets in respect of STC credits previously raised and not expensed at the
reporting date amount to R92,7 million.
Results for the year
Basic earnings
Basic earnings per share amounted to 131,88 cents for the reporting period.
Basic earnings per share reflects the net earnings after investment surpluses,
negative goodwill released and impairment of investments and goodwill. This has
decreased when compared to the prior year as the comparative figures include the
profit on disposal of the group"s interest in Africa-on-Air and the negative
goodwill released on the acquisition of GABS.
Headline earnings
Headline earnings increased from R77,3 million to R151,9 million. This
represents an increase of R74,6 million during the current period. As stated
above headline earnings include fair value gains in respect of the mark to
market of the investment in Johnnic and non-recurring transaction costs and
raising fees in respect of the Johnnic offer and Fabvest acquisition. Headline
earnings per share increased from 75,1 cents to 128,7 cents.
Adjusted headline earnings
Adjusted headline earnings, which exclude the effects of net deferred tax assets
raised in respect of unused tax losses and available STC credits, has once again
been disclosed for so as to more accurately reflect the economic reality of the
group"s results. Adjusted headline earnings increased from R97,1 million to
R173,7 million. Adjusted headline earnings per share also increased
significantly from 94,28 cents to 147,21 cents.
This increase is mainly due to the continued improved overall performance of the
group"s major investments during the period.
DISTRIBUTION TO SHAREHOLDERS
Due to the need to retain funds for the acquisitions and operations of the group
the directors have decided not to declare any dividends for the period under
review.
For and on behalf of the board of directors.
MJA Golding JA Copelyn
Chairman Chief Executive Officer
Durban 25 November 2005
Registered office
Suite 624, Office Tower, Overport City, 430 Ridge Road, Durban,
4001 PO Box 70874, Overport City, 4067
Transfer secretaries
Computershare Investor Services 2004 (Pty) Limited,
70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, Johannesburg, 2107
Directors
MA Golding (Chairman), JA Copelyn (Chief Executive Officer), VE Mphande,
JG Ngcobo*, VM Engel*, MF Magugu*, AM Ntuli*, Y Shaik* *(non-executive)
Company secretary
TG Govender
Sponsor
Investec
Corporate Finance
Investec Bank Limited
(Registration number 1969/004763/06)
Date: 28/11/2005 03:16:16 PM Produced by the JSE SENS Department
