| Mon 26 Jun 2006, 15:08 | | HCI - Reviewed group annual results for the year e |
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HYP HCI
HYP
HCI - Reviewed group annual results for the year ended 31 March 2006
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 group annual results for the year ended 31 March 2006
* 56,6% increase in revenue
* 303% increase in trading profit
* 48% increase in adjusted headline earnings per share
ABRIDGED CONSOLIDATED INCOME STATEMENT
31 March 31 March
2006 2005
R"000 R"000
(reviewed) (audited
restated)
Revenue 2 111 982 1 348 287
Trading expenses (1 732 237) (1 254 094)
Trading profit 379 745 94 193
Transaction costs and raising fees (72 479) -
Net funding income 14 243 65 135
Investment income 106 954 50 627
Finance costs (118 210) (11 760)
Share of associated companies" profits 152 099 67 249
Negative goodwill on acquisition of subsidiary 8 968 102 470
Investment surplus 3 177 138 903
Fair value adjustments of investment properties 11 506 -
Fair value adjustments of investments 1 593 5 505
Impairment of investments and goodwill (225) (9 606)
Profit before taxation 487 371 502 716
Taxation (200 889) 221 683
Group profit 286 482 724 399
Attributable to:
Equity holders of the parent 231 195 605 286
Minority interest 55 287 119 113
286 482 724 399
Reconciliation of headline profit
Profit attributable to equity
holders of the parent 231 195 605 286
Adjusted for equity holders of the
parent"s share of:
Investment surplus (3 151) (134 456)
Goodwill impaired - 9606
Fair value adjustments of investment properties (9 837) (2 109)
Negative goodwill on acquisition of subsidiary (8 476) (102 822)
Impairment of assets 1 673 1740
Profit on sale of assets (1 079) (24 869)
Headline profit 210 325 352 376
Deferred tax in respect of losses (23 891) (198 014)
Deferred tax in respect of STC credits 67 163 39 774
Non-recurring transaction costs and raising fees 72 479 -
Adjusted headline profit 326 076 194 136
Earnings per share (cents)
- Basic 192,90 572,62
- Headline 175,49 333,36
- Adjusted headline 272,06 183,66
Weighted average number
of shares in issue ("000) 119 853 105 704
Actual number of shares in issue at
end of period (net of treasury shares) ("000) 122 882 117 997
Diluted earnings per share (cents)
- Basic 188,39 511,66
- Headline 171,38 297,87
- Adjusted headline 265,70 164,11
Weighted average number
of shares in issue ("000) 122 722 118 299
ABRIDGED CONSOLIDATED BALANCE SHEET
31 March 31 March
2006 2005
R"000 R"000
(reviewed) (audited
restated)
ASSETS
Non-current assets 7 099 468 7 593 216
Property, plant and equipment 795 130 460 166
Investment properties 154 235 13 729
Goodwill 82 683 -
Interest in associated companies 904 769 314 014
Investments 120 270 447 130
Intangibles 1 876 -
Deferred taxation 357 664 415 538
Financial assets 4 622 921 5 928 846
Operating lease equalisation asset 3 400 -
Long-term receivables 56 520 13 793
Current assets 3 441 241 6 661 292
Trade and other receivables 1 090 590 588 081
Financial assets 1 568 572 5 526 574
Cash and cash equivalents 782 079 546 637
Total assets 10 540 709 14 254 508
EQUITY AND LIABILITIES
Equity 2 586 291 1 516 314
Equity attributable to equity
holders of the parent 1 751 429 1 389 513
Minority interest 834 862 126 801
Non-current liabilities 5 431 328 6 217 409
Financial liabilities 4 666 651 5 987 449
Deferred taxation 53 737 33 907
Long-term borrowings 688 640 196 053
Operating lease equalisation liability 22 300 -
Current liabilities 2 523 090 6 520 785
Trade and other payables 951 765 990 796
Financial liabilities 1 571 325 5 529 989
Total equity and liabilities 10 540 709 14 254 508
Net asset carrying value per share (cents) 1,425 1,177
ABRIDGED CONSOLIDATED CASH FLOW STATEMENT
31 March 31 March
2006 2005
R"000 R"000
(reviewed) (audited
restated)
Cash flows from operating activities 315 261 157 002
Cash flows from investing activities (1 461 743) (364 503)
Cash flows from financing activities 594 572 137 445
Decrease in cash and cash equivalents (551 910) (70 056)
Cash and cash equivalents
At beginning of period 544 404 404 082
On acquisition/disposal of subsidiaries 776 261 210 378
At end of period 768 755 544 404
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 on acquisition
of subsidiary - - -
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 1 813 149 894 -
Shares repurchased (500) (53 500) -
Treasury shares acquired
by subsidiary (91) (1 749) -
Share issue costs - (379) -
Current operations
Profit for the year - - -
Share of pre-acquisition profit
of subsidiary - - -
Equity settled share-based payments - - -
Foreign currency
translation differences - - (2 202)
Minority interest on acquisition
of subsidiaries - - -
Capital reductions and dividends - -
Balances at 31 March 2006 30 721 628 951 (2 202)
Share-
Accu- based
mulated payment Minority
profits reserves interest Total
R"000 R"000 R"000 R"000
Balances at 31 March 2004 184 725 - 133 528 912 572
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 605 286 - 119 113 724 399
Equity settled
share-based payments - 1 476 - 1 476
Currency translation
differences - - - 224
Negative goodwill on
acquisition
of subsidiary 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 823 853 1 476 126 801 1 516 314
Share capital and premium
Shares issued - - - 151 707
Shares repurchased - - - (54 000)
Treasury shares acquired
by subsidiary - - - (1 840)
Share issue costs - - - (379)
Current operations
Profit for the year 231 195 - 55 287 286 482
Share of pre-acquisition
profit
of subsidiary 34 904 - - 34 904
Equity settled
share-based payments - 2 531 - 2 531
Foreign currency
translation differences - - - (2 202)
Minority interest on
acquisition
of subsidiaries - - 660 473 660 473
Capital reductions and
dividends - - (7 699) (7 699)
Balances at 31 March 20061 089 952 4 007 834 862 2 586 291
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 669 786 178 245 544 196
Financial services 129 498 69 368 6 479 582
Gaming, hotels and leisure 90 016 103 763 754 465
Information technology 56 842 13 444 73 827
Transport 664 238 107 018 491 736
Industrial 431 592 36 781 251 379
Food and beverage - 15 525 137 768
Gallagher Estate and properties 67 000 22 000 266 000
Other 3 010 (259 662) 1 541 756
2 111 982 286 482 10 540 709
Fixed asset
Liabilities additions Depreciation
R"000 R"000 R"000
Media and broadcasting 250 836 68 194 17 988
Financial services 6 381 247 1 618 1 602
Gaming, hotels and leisure 6 380 22 525 5 137
Information technology 35 199 5 626 2 437
Transport 352 599 100 045 27 481
Industrial 155 536 29 043 13 284
Food and beverage 24 446 - -
Gallagher Estate and properties 51 000 4 200 -
Other 698 175 62 -
7 955 418 231 313 67 929
Taxation is included in other as follows: Assets R363,7 million, liabilities
R70,6 million and results R200,9 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")
The buoyant advertising spend market and strict cost controls continue to assist
e-TV, with the station reporting a 36% growth in operating profits for the
current year in comparison to the prior year.
The drop in audience share commented on in our 2005 annual report has been
reversed and is now strengthening with news and local soaps leading the way.
The station has grown to become a strong cash generating business with a strong
market presence since turning profitable a few years ago. Future growth areas
lie in the station"s expansion into Africa with the acquisition of broadcasting
licences in East and West Africa during the current year without major cost. It
is anticipated that the African venture will provide new markets for the sale of
e-TV"s intellectual properties and programming rights without substantial cash
resources being committed.
Yired (Pty) Limited ("YFM")
During the year under review, the group acquired an effective 77,5% interest in
YFM. YFM is a Gauteng-based radio station focusing mainly on the black urban
youth market and has a weekly audience in excess of 1,2 million listeners.
The radio station generated R14 million profits after tax during the current
year. The group has consolidated R5,3 million of these profits in these results
since the date of acquisition.
Gaming, hotels and leisure
Vukani Gaming Corporation (Pty) Limited ("Vukani")
Vukani has been awarded licences to operate limited payout gambling machines as
a route operator from five provincial gaming boards in South Africa. The company
is presently operational in Mpumalanga, Western Cape and Eastern Cape.
Operations are expected to commence in KwaZulu-Natal and Limpopo during this
financial year, though the roll out of machines in these regions is likely to
commence late in the financial year.
The roll out of machines has been slower than we had anticipated but continue at
approximately 60 machines per month. Gross gaming revenue per machine continues
to grow steadily on a month on month basis as more sites are rolled out.
During the year under review, the business turned profitable on a monthly basis
with rapid growth in profitability being projected as further machines are
rolled out.
It is expected that as this investment matures over the next two years it will
add significant value to the group.
Tsogo Investment Holding Company (Pty) Limited ("TIH")
During the year under review the groups 32,07% effective interest in TIH was
increased to 41,76% as a result of the acquisition of 51% of Johnnic. The group
has entered into an agreement with the Fabcos Group to acquire a further 19%
effective interest in TIH ("the Fabvest acquisition"). Shareholders are referred
to announcements made for details of this acquisition, which remains subject to
approvals from certain Provincial Gaming Regulators. Approval has been obtained
from the KwaZulu-Natal Gaming Board. Approvals from the other Gaming Boards are
expected during the current financial year.
During the year under review the group equity accounted its share of TIH"s
earnings. Once the above transaction becomes unconditional, the group will have
effective control of the entire Tsogo Sun Group, whose results will in future be
fully consolidated into the group"s results.
Johnnic Holdings Limited ("Johnnic")
In December 2005 the group successfully acquired control of Johnnic by
increasing its interest in Johnnic to 51%. During the year under review, the
group increased its interest in Johnnic from an initial 20% to 39%. The group
was required by the Securities Regulation Panel to extend an offer to the
Johnnic minorities to acquire all of their shares.
The group made an offer to the Johnnic minorities 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. 11,082 million Johnnic shares were tendered in the offer
resulting in the group increasing its interest in Johnnic to 46%.
Immediately thereafter, the group acquired control of Johnnic by increasing its
stake to 51%. The Board of Johnnic is now controlled by HCI representatives.
The group"s acquisition of Johnnic shares required various regulatory approvals
which have all been obtained.
As stated in the group interim results for the six months ended 30 September
2005, the investment in Johnnic at that date was accounted for as an available
for sale asset as the group did not have control of Johnnic or representation on
the Johnnic Board. The group had accordingly fair valued the investment at that
date resulting in a fair value gain of R108,9 million, net of tax being included
in the group"s interim headline earnings.
On the group acquiring control of Johnnic, this fair value gain was reversed and
the group"s share of Johnnic"s profit after tax for the nine months ended 31
December 2005, amounting to R34,9 million, was taken directly to equity in the
group"s statement of changes in equity in accordance with IFRS 3: Business
Combinations.
The group has fully consolidated the results of Johnnic with effect from 1
January 2006. The group"s share of Johnnic"s profit after tax for the period 1
January 2006 to 31 March 2006 amounted to R4 million which has been included in
the group"s consolidated income statement. Shareholders are referred to
Johnnic"s results for its performance and activities.
Transaction costs and raising fees amounting to R72 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 year under review. These
costs, which are non-recurring and relate specifically to these transactions,
have been written off in computing headline earnings for the year.
Financial Services
Mettle Limited ("Mettle")
As reported in our interim report, Mettle is in the process of building
substantial new businesses under its wing. These include two new start up
businesses: Mettle Motor Loans which provides loan finance to purchasers of
motor vehicles and Mettle Factors which provides bridging loans to facilitate,
inter alia, fixed property transactions. The debtors books in these businesses
are geared and have grown rapidly in the second half of the year under review.
Mettle Factors has just recently become profitable. 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 performed well during the year contributing R31
million to group headline earnings due mainly to increased deal flow and
substantial cost reductions.
Transport
Golden Arrow Bus Services (Pty) Limited ("GABS")
GABS had continued its exceptional performance during the current year reporting
profits after tax of R84 million which represents a 56,7% increase when compared
to GABS contribution to the group for the nine month period ending 31 March
2005. Passenger numbers have increased by approximately 5% over the last year.
Despite substantial increases in fuel costs during the year, costs have been
contained.
As part of its commitment to providing a modernised fleet, the company had
invested in 84 new buses during the current financial year and has committed to
acquiring a further 25 during the next financial year.
The continued increases in the fuel price in recent months do remain a concern.
However, we are confident that this company will continue to deliver
satisfactory returns.
Food and beverages
Clover Industries Limited ("Clover")
During the second half of the year, 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 indefinite option to acquire a further 9,8% of the ordinary share
capital in Clover. 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 six months ending 31 December 2005, reflect a turnover
of R2,38 billion and an attributable profit of R65,3 million. Due to the
historically seasonal dairy market the next six months are expected to be less
profitable. 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
contain costs and improve profitability. In addition, trading in a low
inflationary environment requires a revised strategy which management is in the
process of implementing.
Clover has been classified as an associate company of the group with its results
accordingly being equity accounted. It is expected that this investment will
generate meaningful returns for the group in the coming years.
Information technology
Syntell (Pty) Limited ("Syntell")
During the year 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 group has fully consolidated the profits of this company from 1 September
2005 in these results.
Industrial
The group had previously acquired a number of companies in leveraged buyouts
primarily financed by ringfenced debt in each company. These companies include
Johnson Crane Hire, Tylon, Johnson Access and Formex Industries. The growth in
the construction and automotive components industries has enabled many of these
businesses to perform well-above expectation with this debt having 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.
Other
The group disposed of its interests in Sukyae Land (Pty) Limited and the IQ
Business Group (Pty) Limited during the year under review for R25 million and
R19 million respectively. The profits on these disposals are included in the
investment surplus.
OPERATIONS AND RESULTS FOR THE YEAR
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 year ended 31 March 2006 have been prepared in accordance
with International Financial Reporting Standards (IFRS) and comply with the
requirements of the South African Companies Act and the Listings Requirements of
the JSE Limited. The group"s consolidated financial statements for the year
ended 31 March 2006 are the first annual financial statements that comply with
IFRS.
The group has applied IFRS 1 in preparing these financial statements. The date
of the group"s transition to IFRS is 1 April 2004, and the financial statements
for the year ended 31 March 2005 have been restated accordingly.
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.
The following are the significant IFRS 1 exemptions which the group elected to
utilise:
Financial instruments previously designated as available for sale were
redesignated as financial assets or financial liabilities at fair value
through profit and loss.
The fair value or revaluation of certain items of plant and equipment at, or
before the transition date was deemed to be its cost.
IFRS 3 - Business Combinations, was not applied retrospectively to business
combinations which occurred prior to the group"s transition to IFRS. The
adoption of IFRS has not resulted in any material adjustments to the opening
retained earnings balances at 1 April 2004. Certain of the comparative
figures have been restated to take into account the effects of the adoption
of the following:
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.
IAS 32 - Financial Instruments: Disclosure and Presentation. The gross value
of financial assets and financial liabilities, which had previous been set
off, have now been disclosed separately to comply with this standard. IAS 32
now requires that a legal enforceable right of set-off must currently exist
at the reporting date for set-off to occur.
IAS 17 - Leases. Operating leases with fixed escalation clauses are now
accounted for on a straight-line basis over the period of the lease. The
reconciliation of group profit as previously reported to group profit as
restated in this report is set out below:
Year ended 31 March 2005
R"000
Profit attributable to equity holders of the
parent as previously reported 622 664
IFRS
Effects of share-based payments - IFRS 2 (1 476)
Effects of IFRS adjustments by associate (12 903)
Other restatements
Depreciation 461
Operating leases previously accounted
for on straight-line basis (1 570)
Other restatements by associate (1 890)
Profit attributable to equity holders
of the parent as restated 605 286
The reconciliation of group equity as
previously reported to group equity as
restated in this report is set out below:
Year ended 31 March 2005
R"000
Group equity as previously reported 1 405 415
IFRS
Effects of IFRS adjustments by associate (12 903)
Other restatements
Depreciation 461
Operating leases previously accounted
for on straight-line basis (1 570)
Other restatements by associate (1 890)
Group equity as restated 1 389 513
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.
As a result of the first time application of AC 501 in the March 2005 results,
Mettle, a wholly owned subsidiary of the group, had 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 R67,2 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 R48 million.
RESULTS FOR THE YEAR
Basic earnings
Basic earnings per share amounted to 192,9 cents for the year. Basic earnings
per share includes 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 decreased during the year from R352,3 million to R210,3
million. The comparative year included net deferred tax assets raised of R159
million mainly due to the initial recognition of a deferred tax asset in respect
of unutilised tax losses in e-TV, as compared to net deferred tax assets of
R43,3 million expensed in the current year. Headline earnings also include non-
recurring transaction costs and raising fees amounting to R72 million in respect
of the Johnnic offer and Fabvest acquisition. Due to these large abnormal items
being included in headline earnings, headline earnings is not comparable to that
of the prior year.
Adjusted headline earnings
Adjusted headline earnings has once again been disclosed so as to more
accurately reflect the economic reality of the group"s results. Adjusted
headline earnings exclude all abnormal profits and losses including non
recurring transaction costs and raising fees and the effects of net deferred tax
assets raised or expensed in respect of unused tax losses and available STC
credits. Adjusted headline earnings increased from R194,1 million to R326,1
million. Adjusted headline earnings per share also incre"ased significantly from
183,66 cents to 272,06 cents. This increase is mainly due to the continued
improved overall performance of the group"s major investments during the year.
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 year under
review.
AUDITORS" REVIEW
The abridged consolidated balance sheet, income statement, cash flow statement
and statement of changes in equity 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.
For and on behalf of the board of directors
MJA Golding JA Copelyn
Chairman Chief Executive Officer
Durban 26 June 2006
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*, A van der Veen *(non-executive)
Company secretary
TG Govender
Sponsor
Investec Bank Limited
(Registration number 1969/004763/06)
Date: 26/06/2006 03:10:44 PM Produced by the JSE SENS Department
