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HCI - Hosken Consolidated Investments Limited - Reviewed Abridged Consolidated
Results for the year ended 31 March 2012
HOSKEN CONSOLIDATED INVESTMENTS LIMITED
Incorporated in the Republic of South Africa
Registration number: 1973/007111/06
Share code: HCI
ISIN: ZAE000003257
("HCI" or "the company" or "the group")
REVIEWED ABRIDGED CONSOLIDATED RESULTS FOR THE YEAR ENDED 31 MARCH 2012
REVENUE +13,2%
HEADLINE EARNINGS +41,2%
HEADLINE EARNINGS PER SHARE +40,1%
REVIEWED CONSOLIDATED INCOME STATEMENT
Reviewed Audited*
31 March 31 March
% 2012 2011
change R`000 R`000
Revenue 7 092 277 6 319 790
Net gaming win 519 396 403 292
Income 13 7 611 673 6 723 082
Expenses (6 109 766) (5 440 481)
EBITDA 17 1 501 907 1 282 601
Depreciation and amortisation (376 088) (316 638)
Operating profit 17 1 125 819 965 963
Investment income 59 694 78 323
Finance costs (193 845) (245 483)
Share of profits of associates and
joint ventures 697 127 77 707
Negative goodwill on acquisition of subsidiary 107 659 -
Investment surplus 162 203 57 195
Fair value adjustments of investment properties (47 736) 84 303
Impairment reversals 20 365 5 691
Asset impairments (54 652) (43 483)
Fair value adjustments financial
instruments 75 768 (1 179)
Impairment of goodwill and investments (27 712) (37 195)
Profit before taxation 104 1 924 690 941 842
Taxation (466 583) (256 367)
Profit for the year from continuing
operations 113 1 458 107 685 475
Discontinued operations (20 277) 6 329 424
Profit for the year 1 437 830 7 014 899
Attributable to:
Equity holders of the parent (81) 1 217 978 6 427 527
Minority interest 219 852 587 372
1 437 830 7 014 899
* Restated
RECONCILIATION OF HEADLINE EARNINGS
Reviewed
2012 2012
% Gross Net
change R`000 R`000
Earnings attributable to equity holders
of the parent 1 217 978
IAS 16 Gains on Disposal of Property (75 336) (53 463)
IAS 16 Gains on Disposal of Plant
and Equipment (9 878) (8 875)
IAS 16 Impairment of Plant and Equipment 53 542 47 488
IAS 38 Impairment of Intangible Assets 7 609 7 575
IFRS 3 Impairment of Goodwill 27 712 24 704
IFRS 3 Negative Goodwill (107 659) (85 655)
IAS 28 Gain on Disposal of Associates - -
IAS 36 Impairment of Assets - -
IAS 36 Reversal of Impairments (20 365) (15 903)
IAS 27 Profit from Disposal/
Part Disposal of Subsidiary (86 867) (74 706)
IAS 40 Fair Value Adjustment to
Investment Property 47 736 38 122
IAS 39 Profit on Disposal of Available-
for-Sale Asset - -
Remeasurements included in equity-
accounted earnings of associates
and joint ventures (77 429) (77 100)
Headline profit 41 1 020 165
Basic earnings per share (cents)
Earnings (81) 957,91
Continuing operations 973,86
Discontinued operations (15,95)
Headline earnings 40 802,34
Continuing operations 813,68
Discontinued operations (11,34)
Weighted average number of shares
in issue (`000) 127 149
Actual number of shares in issue at the
end of the year (net of treasury shares) (`000) 127 198
Diluted earnings per share (cents)
Earnings (81) 927,63
Continuing operations 943,07
Discontinued operations (15,44)
Headline earnings 40 776,97
Continuing operations 787,96
Discontinued operations (10,99)
Weighted average number of shares
in issue (`000) 131 300
Audited*
2011 2011
Gross Net
R`000 R`000
Earnings attributable to equity holders
of the parent 6 427 527
IAS 16 Gains on Disposal of Property - -
IAS 16 Gains on Disposal of Plant
and Equipment (6 479) (1 980)
IAS 16 Impairment of Plant and Equipment 4 000 3 420
IAS 38 Impairment of Intangible Assets - -
IFRS 3 Impairment of Goodwill 37 195 33 475
IFRS 3 Negative Goodwill - -
IAS 28 Gain on Disposal of Associates (401) (404)
IAS 36 Impairment of Assets 370 133 209 809
IAS 36 Reversal of Impairments (46 986) (35 460)
IAS 27 Profit from Disposal/
Part Disposal of Subsidiary (5 807 523) (5 754 925)
IAS 40 Fair Value Adjustment to
Investment Property (105 878) (82 955)
IAS 39 Profit on Disposal of Available-
for-Sale Asset (33 398) (33 223)
Remeasurements included in equity-
accounted earnings of associates and joint ventures (42 685) (42 685)
Headline profit 722 599
Basic earnings per share (cents)
Earnings 5 095,75
Continuing operations 362,20
Discontinued operations 4 733,55
Headline earnings 572,88
Continuing operations 285,26
Discontinued operations 287,62
Weighted average number of shares
in issue (`000) 126 135
Actual number of shares in issue at the
end of the year (net of treasury shares) (`000) 127 089
Diluted earnings per share (cents)
Earnings 4 928,33
Continuing operations 350,30
Discontinued operations 4 578,03
Headline earnings 554,06
Continuing operations 275,89
Discontinued operations 278,17
Weighted average number of shares in issue (`000) 130 420
* Restated
REVIEWED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Reviewed Audited* Audited*
31 March 31 March 31 March
2012 2011 2010
R`000 R`000 R`000
ASSETS
Non-current assets 13 854 788 12 879 841 14 984 202
Property, plant and equipment 2 932 761 2 769 835 9 660 977
Investment properties 557 886 564 685 218 585
Goodwill 157 796 144 205 1 544 195
Interest in associates and joint
ventures 9 235 179 8 436 446 2 405 154
Other financial assets 105 869 116 230 62 827
Intangibles 701 348 577 218 644 402
Deferred taxation 67 928 189 203 246 508
Operating lease equalisation asset 8 258 2 658 962
Long-term receivables 87 763 79 361 200 592
Current assets 3 285 616 2 948 801 3 790 747
Other 2 564 166 2 368 669 2 499 162
Bank balances and deposits 721 450 580 132 1 291 585
Non-current assets held for sale 15 288 35 218 110 886
Total assets 17 155 692 15 863 860 18 885 835
EQUITY AND LIABILITIES
Equity 12 836 030 11 226 344 8 348 984
Equity attributable to equity holders
of the parent 11 777 703 10 500 409 4 633 243
Minority interest 1 058 327 725 935 3 715 741
Non-current liabilities 1 592 601 2 350 869 5 941 904
Deferred taxation 97 898 114 138 644 067
Long-term borrowings 1 275 373 2 056 658 4 715 207
Operating lease equalisation liability 1 808 4 447 287 429
Other 217 522 175 626 295 201
Current liabilities 2 721 263 2 270 279 4 574 694
Non-current liabilities held for sale 5 798 16 368 20 253
Total equity and liabilities 17 155 692 15 863 860 18 885 835
Net asset value carrying per share
(cents) 9 259 8 262 3 699
* Restated
REVIEWED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Reviewed Audited*
31 March 31 March
2012 2011
R`000 R`000
Balance as restated at the beginning of the year 11 226 344 8 348 984
Balance as previously stated 11 231 849 8 388 971
Adjustment (5 505) (39 987)
Share capital and premium
Treasury shares released 6 154 14 595
Current operations
Total comprehensive income 1 576 036 6 979 692
Equity-settled share-based payments 14 940 15 810
Minority interest on acquisition of subsidiaries 160 350 -
Disposal of subsidiary (497) (2 729 711)
Effects of changes in holding 10 865 (1 217 184)
Capital reductions and dividends (158 162) (185 842)
Balance at the end of the year 12 836 030 11 226 344
* Restated
REVIEWED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
Reviewed Audited*
31 March 31 March
2012 2011
R`000 R`000
Profit for the year 1 437 830 7 014 899
Other comprehensive income:
Foreign currency translation differences 150 977 (37 653)
Cash flow hedge reserve (8 411) 23 081
Asset revaluation reserve (4 360) (20 635)
Total comprehensive income 1 576 036 6 979 692
Attributable to:
Equity holders of the parent 1 349 708 6 394 376
Minority interest 226 328 585 316
1 576 036 6 979 692
* Restated
REVIEWED CONSOLIDATED CASH FLOW STATEMENT
Reviewed Audited
31 March 31 March
2012 2011
R`000 R`000
Cash flows from operating activities 687 563 1 968 597
Cash flows from investing activities (430 244) (2 059 505)
Cash flows from financing activities (345 337) (558 794)
Decrease in cash and cash equivalents (88 018) (649 702)
Cash and cash equivalents
At the beginning of the year 308 241 959 539
Foreign exchange differences 32 918 (1 596)
At the end of the year 253 141 308 241
Bank balances and deposits 721 450 586 567
Bank overdrafts (468 309) (278 326)
Cash and cash equivalents 253 141 308 241
SEGMENTAL ANALYSIS
Revenue Net gaming win Revenue Net gaming win
31 March 31 March 31 March 31 March
2012 2012 2011 2011
R`000 R`000 R`000 R`000
Media and
broadcasting 1 915 134 - 1 620 397 -
Limited payout
gaming 6 982 417 982 6 527 327 979
Information
technology 326 348 - 256 051 -
Transport 1 021 412 - 963 619 -
Vehicle
component
manufacture 455 578 - 440 757 -
Exhibition and
properties 78 289 - 66 843 -
Mining 513 012 - 363 166 -
Natural gas 257 022 - 214 871 -
Clothing and
textile 2 506 794 - 2 358 986 -
Other 11 706 101 414 28 573 75 313
Total 7 092 277 519 396 6 319 790 403 292
Profit before tax Headline profit
31 March 31 March 31 March 31 March
2012 2011 2012 2011
R`000 R`000 R`000 R`000
Media and broadcasting 639 181 555 687 282 056 251 623
Limited payout gaming 85 950 56 288 64 157 39 684
Casino gaming and hotels 708 895 36 678 632 204 408 016
Information technology 47 288 46 277 15 889 17 833
Transport 129 988 159 062 100 120 120 247
Vehicle component
manufacture (19 210) (42 506) 5 044 774
Food and beverage (6 883) - (10 444) -
Exhibition and properties 66 922 146 421 (1 077) 20 237
Mining 42 469 17 720 51 722 22 216
Natural gas (74 165) (44 445) (175 210) (8 923)
Clothing and textile 149 327 96 351 110 889 (11 881)
Other 154 928 (85 691) (55 185) (137 227)
Total 1 924 690 941 842 1 020 165 722 599
EBITDA
31 March 31 March
2012 2011
R`000 R`000
Media and broadcasting 765 748 654 691
Limited payout gaming 137 784 97 678
Information technology 60 034 59 860
Transport 199 331 218 386
Vehicle component manufacture 21 409 17 833
Exhibition and properties 22 334 30 105
Mining 75 962 30 263
Natural gas 55 294 49 988
Clothing and textile 233 145 165 388
Other (69 134) (41 591)
Total 1 501 907 1 282 601
COMMENTARY
Profitability
The 2012 financial year has seen the group`s headline earnings exceed a billion
rand for the first time. Admittedly some "one off`s" helped, though there were
some large write-offs to match. This is a good result and is a significant
milestone in the growth of the group.
The group`s major assets continued to perform well with Tsogo Sun lifting its
adjusted headline earnings per share by 12% and Sabido also by 12%. Golden Arrow
Bus Services was forced to give up some of the 57% growth it turned in a year
ago and slid by 17% on last year. Nevertheless it was a good contribution and is
nothing to complain about.
Start-up assets likewise did well with mining growing its PBT to R42,5 million
(2011: R17,7 million), Vukani weighed in at R86 million (2011: R56,3 million)
and Bingo reduced its losses before tax to R1,8 million (2011: R8,9 million).
The group struggled with its turnaround businesses this year. Seardel had a
disappointing year in its clothing division, forcing it to retrench about 1 500
workers. Unquestionably this was a big setback. Nevertheless the company
continues to improve in every other area of its endeavours and its future is no
longer primarily dependent on clothing manufacture, but a basket of very
different businesses including property development, distribution of
electronics, toys and stationery, and polymer and textile manufacture.
Formex continues to slowly trade itself out of its difficulties. Montauk
improved its EBITDA this year, but the virtual collapse of the price of natural
gas in the the USA after the warmest winter in living memory obliged us to
impair its assets significantly as clearly it will struggle at these selling
prices. KWV likewise struggled to make money. The party which sold the stake to
us has written a book on its success story, stating clearly its relief to have
exited the business. Clearly these businesses require belief in counter-cyclical
trends, carry execution risk and require patience. Your directors remain of the
view, however, that these businesses can make a significant contribution to HCI
shareholder value over time.
Investing activities
The group has continued to invest. Shortly before the start of the financial
year we acquired a significant stake in KWV and have been able to exert
significant influence over the management of the company. Tsogo Sun bought out
partners in Sun Coast Casino and Formula 1 hotels. It also bought the Millpark
Southern Sun and the Grace Hotel in Johannesburg which will shortly be reopened
as 54 on Bath. Likewise it successfully tendered for a further 15-year casino
licence in the Eastern Cape. We also bought a development property in Sea Point,
Cape Town.
Lastly, the year has seen us clean up a number of difficult loose ends including
various tax issues inherited via our takeover of Johnnic some years ago,
significant litigation to reclaim mining rights wrongfully given to a State-
owned entity instead of our coal subsidiary and the recovery of properties we
believed were corporate opportunities wrongfully taken from Seardel.
AUDITOR`S REVIEW
These results have been reviewed by the company`s auditors, PKF (Jhb) Inc. Their
unqualified review opinion is available for inspection at the registered office
of the company.
CHANGES IN DIRECTORATE
During the year under review, Mr RS Garach resigned from the board of HCI as a
non-executive director and chairman of the audit committee with effect from 30
January 2012.
DIVIDEND TO SHAREHOLDERS
The directors of HCI have resolved to declare ordinary dividend number 45 of 70
cents (gross) per HCI share. The salient dates for the payment of the dividend
are as follows:
Last day to trade cum dividend Friday, 15 June 2012
Commence trading ex dividend Monday, 18 June 2012
Record date Friday, 22 June 2012
Payment date Monday, 25 June 2012
No share certificates may be dematerialised or rematerialised between Monday, 18
June 2012 and Friday, 22 June 2012, both dates inclusive.
In terms of the new Dividends Tax ("DT") effective 1 April 2012, the following
additional information is disclosed:
- The local DT rate is 15%.
- The total STC credits utilised as part of this declaration amount to R91 455
930.
- The number of ordinary shares in issue at the date of this declaration is 132
976 996.
- The total STC credits utilised per share amount to 70 cents per share.
- The dividend to utilise for determining the DT due is Nil cents per share.
- The DT amounts to Nil cents per share.
- The net local dividend amount is 70 cents per share for all shareholders who
are not exempt from the DT.
- Hosken Consolidated Investments Limited`s income tax reference number is
9050/177/71/7.
In terms of the DT legislation, any DT amount due will be withheld and paid over
to the South African Revenue Service by a nominee company, stockbroker or
Central Securities Depository Participant (collectively "regulated
intermediary") on behalf of shareholders. All shareholders should declare their
status to their regulated intermediary as they may qualify for a reduced DT rate
or exemption in future.
For and on behalf of the board of directors
MJA Golding JA Copelyn
Executive Chairman Chief Executive Officer
Cape Town
17 May 2012
NOTES
Basis of preparation and accounting policies
The results for the year ended 31 March 2012 have been prepared in accordance
with International Financial Reporting Standards ("IFRS"), the disclosure
requirements of IAS 34, the AC 500 series of interpretations as issued by the
Accounting Practices Board ("APB"), the requirements of the South African
Companies Act, 2008, 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 2011. 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.
The comparative results of a previous subsidiary and current associate, Tsogo
Sun Holdings Limited ("TSH"), have been restated as follows:
In terms of IAS 19: Employee Benefits, a provision of R88 million relating to
long-service awards has been recognised retrospectively in the statement of
financial position of TSH as at 31 March 2011 (2010: R55 million).
The impact of this restatement on the results presented by HCI was that the
share of profits of associates and joint ventures decreased by R5,5 million,
profit from discontinued operations increased by R7,9 million and earnings
attributable to minority shareholders decreased by R6,8 million in the prior
year. Opening equity attributable to equity holders of the parent was decreased
by R5,5 million in the current year (2011: R14,7 million).
These financial statements were prepared under the supervision of the financial
director, Mr TG Govender, B.Compt (Hons).
BUSINESS COMBINATIONS
Media and broadcasting
During the year under review Sabido Investments acquired a 100% interest in
Powercorp International Limited, a London-based global content distributor of
films and television series with effect from 21 July 2011. An interest of 90%
and 80% in Media Film Equipment Services (Pty) Limited and Media Film Services
Incorporated, respectively, were acquired with effect from 1 September 2011.
These entities sell and rent specialised equipment to the film industry. In
addition, 66% of Jacana Media (Pty) Limited, a print publisher, was purchased
effective 1 March 2012. The acquired businesses contributed revenues of R94,3
million and net losses after tax of R26,9 million to the group for the year
ended 31 March 2012. Had the acquisitions been effective on 1 April 2011, the
contribution to revenue would have been R144,9 million and losses of R28,2
million would have been the contribution to profit before tax.
The details of the net assets acquired on the above business combinations, for
which the purchase price has been allocated to the respective assets and
liabilities, is as follows:
R`000
Non-current assets 51 966
Current assets 87 600
Non-current liabilities (23 449)
Current liabilities (47 950)
Net assets acquired 68 167
Minority interest 3 397
Goodwill on acquisition 35 697
Shares issued (8 912)
Cash balances acquired (13 164)
Net cash paid 85 185
Other business combinations
A subsidiary, HCI Australian Operations, acquired 71,6% of Oceania Capital
Partners Limited ("OCP"), an Australian Securities Exchange listed investment
company, with effect from 10 February 2012. The acquisition was effected through
a share repurchase offer by OCP in which HCI Australian Operations did not
participate.
The details of the net assets acquired on the above business combination, for
which the purchase price has been allocated to the respective assets and
liabilities using provisional numbers, is as follows:
R`000
Non-current assets 362 627
Current assets 225 119
Non-current liabilities (2 875)
Current liabilities (49 339)
Net assets acquired 535 532
Minority interest (154 835)
Negative goodwill on acquisition (104 745)
Cash balances acquired (172 156)
Net cash paid 103 796
The acquired business contributed revenues of Rnil and net profit after tax of
R3,1 million to the group for the year ended 31 March 2012. Had the acquisition
been effective on 1 April 2011, the contribution to revenue would have been Rnil
and losses of R13,5 million would have been the contribution to profit after
tax.
DISCONTINUED OPERATIONS AND NON-CURRENT ASSETS HELD
FOR SALE
Discontinued operations as disclosed in the group income statement for the year
under review relate to the following:
- the door module and pulley division of Formex Industries (Pty) Limited; and
- certain clothing divisions of Seardel Investment Corporation Limited.
Discontinued operations as disclosed in the group income statement for the prior
year relates mainly to the results of the group`s casino gaming and hotel
business, following the merger of the group`s major gaming and hotel subsidiary,
Tsogo Sun Holdings (Pty) Limited with Gold Reef Resorts Limited (GRR),
culminating in the reverse listing of the Tsogo Sun group on the JSE Limited in
March 2011, and resulting in the group diluting its interest in the new merged
company from 51% to 41,3%. Accordingly, due to the loss of control over this
business, the results were reflected under discontinued operations.
The non-current assets held for sale, as disclosed in the group statement of
financial position, relate to the following:
- 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 following the closure of the related divisions.
Comparative figures in the group income statement have been restated to reflect
any changes to the above.
RESULTS
Group income statement
The group results reflect an overall increase of 41% in headline earnings when
compared to the prior year. Basic earnings attributable to HCI shareholders
decreased by 81% mainly due to the extraordinary profit following the merger of
Tsogo Sun and GRR being included in the prior year.
The headline earnings for the current year also include the following items that
are not expected to be of a recurring nature:
- reversal of contingent purchase consideration relating to the acquisition of
minorities in the Suncoast casino by Tsogo Sun, an aggregate gain of R102
million;
- net litigation settlement proceeds with former directors in Seardel, in
aggregate R140 million; and
- certain deferred tax assets written off in Montauk Energy Corporation
amounting to R138 million.
Headline earnings for the current year after adjusting for the above items
amount to R918 million which represents a growth of 27% when compared to the
prior year.
Group revenue has grown by 13% when compared to the prior year. Significant
increases were recorded in media and broadcasting on the back of continued
advertising and subscription revenue growth (up 18%), with notable increased
contributions from mining (up 41%), limited payout gaming (up 27%) and
information technology (up 27%). Clothing and textiles recorded a modest 6% in a
difficult trading environment.
Group EBITDA has grown by 17% when compared to the prior year. Group EBITDA
includes the Seardel litigation settlement proceeds of R192 million (before
minorities). If this is excluded, growth in group EBITDA will be 2,1%. This is
mainly due to the significant losses recorded in the clothing division of
Seardel (R125 million) which impacts negatively on overall EBITDA despite
improved contributions in most of the other sectors.
Increases in EBITDA margins were recorded in limited payout gaming (from 29% to
32%) due to improved site selection and an overall higher gross gaming revenue
per machine and in mining (from 8% to 14%) due to tighter control of costs and
improved efficiencies in addition to it being its first full year of operations.
Profit from associates and joint ventures for the period is significantly higher
due to the equity-accounted earnings of the group`s 41,3% interest in Tsogo Sun
Holdings Limited which was consolidated and included in discontinued operations
for the prior year.
Negative goodwill on acquisition of subsidiaries comprises mainly the negative
goodwill realised on the acquisition of Oceania Capital Partners in Australia.
Included in investment surplus is the profit on the disposal of the Gallagher
Estate conferencing and exhibition business, the Pan African Parliament
buildings of Gallagher Estate and a further R8 million in additional proceeds on
sale relating to the sale of the group`s interest in Mettle Limited in April
2008.
The fair value adjustments of financial instruments mainly relates to the gain
on certain preference shares acquired by the group at a discount to face value.
Group statement of financial position and cash flow
The group`s overall financial position remains strong with the major businesses
still generating strong cash flows.
Group long-term borrowings at 31 March 2012 comprise borrowings of R482 million
at head office level and R793 million in operating subsidiaries. Included in
current liabilities is R600 million of preference share debt at head office
level that is in the process of being refinanced into longer-term borrowings.
The cash flow statement is not comparable to the prior period due to the
accounting treatment of the group`s investment in Tsogo Sun Holdings Limited.
Directors: MJA Golding (Chairman), JA Copelyn (Chief Executive Officer),
TG Govender, JG Ngcobo*, VM Engel*, MF Magugu*, Y Shaik*, ML Molefi*,
VE Mphande* * Non-executive
Company secretary: HCI Managerial Services (Pty) Limited
Registered office: Block B, Longkloof Studio, Darters Road, Gardens,
Cape Town, 8001. PO Box 5251, Cape Town, 8000
Transfer secretaries: Computershare Investor Services (Pty) Limited
70 Marshall Street, Johannesburg, 2001.
PO Box 61051, Marshalltown, 2107
Sponsor: Investec Bank Limited
www.hci.co.za
Date: 17/05/2012 14:52:01 Supplied by www.sharenet.co.za
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