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HCI - Hosken Consolidated Investments - Reviewed consolidated results for the

Release Date: 19/05/2011 15:54
Code(s): HCI
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HCI - Hosken Consolidated Investments - Reviewed consolidated results for the year ended 31 March 2011 Hosken Consolidated Investments 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 consolidated results for the year ended 31 March 2011 Highlights * Revenue +18,6% * EBITDA +35,5% * Headline earnings +97,4% REVIEWED CONSOLIDATED INCOME STATEMENT Audited % Reviewed (Restated) change 31 March 31 March
2011 2010 R`000 R`000 Revenue 6 381 408 5 445 441 Net gaming win 403 292 276 705 Income 19 6 784 700 5 722 146 Expenses (5 509 758) (4 781 475) EBITDA 35 1 274 942 940 671 Depreciation and amortisation (316 638) (276 699) Operating profit 44 958 304 663 972 Investment income 78 323 64 691 Finance costs (245 483) (248 286) Share of profits of associates and joint ventures 83 212 448 787 Investment surplus 57 195 41 976 Fair value adjustments of investment properties 84 303 17 834 Impairment reversals 5 691 51 681 Asset impairments (43 483) (48 692) Fair value adjustments of financial instruments (1 179) 3 869 Impairment of goodwill and investments (37 195) (197 573) Profit before taxation 18 939 688 798 259 Taxation (256 367) (244 899) Profit for the year from continuing operations 23 683 321 553 360 Discontinued operations 6 329 213 779 499 Profit for the year 7 012 534 1 332 859 Attributable to: Equity holders of the parent 960 6 418 327 605 366 Minority interest 594 207 727 493 7 012 534 1 332 859 RECONCILIATION OF HEADLINE EARNINGS 2011 2011 % Gross Net change R`000 R`000 Earnings attributable to equity holders of the parent 6 418 327 IAS 16 (Gains)/Losses on Disposal of Plant and Equipment (6 479) (1 980) IAS 16 Impairment of Plant and Equipment 4 000 3 420 IFRS 3 Impairment of Goodwill 37 194 33 475 IFRS 3 Negative Goodwill - - IAS 28 Gain on Disposal of Associates (401) (404) IAS 28 Impairment of Joint Venture - - 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 (5 782 141) (5 736 378) 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) Re-measurements included in equity-accounted earnings of associates and joint ventures (42 685) (42 685) Headline profit 97 731 946 Basic earnings per share (cents) Earnings 951 5 088,46 Continuing operations 365,11 Discontinued operations 4 723,35 Headline earnings 96 580,29 Continuing operations 288,17 Discontinued operations 292,12 Weighted average number of shares in issue (`000) 126 135 Actual number of shares in issue at end of period (net of treasury shares) (`000) 127 089 Diluted earnings per share (cents) Earnings 945 4 921,28 Continuing operations 353,11 Discontinued operations 4 568,17 Headline earnings 94 561,22 Continuing operations 278,70 Discontinued operations 282,52 Weighted average number of shares in issue (`000) 130 420 2010 2010 (Restated) Gross Net
R`000 R`000 Earnings attributable to equity holders of the parent 605 366 IAS 16 (Gains)/Losses on Disposal of Plant and Equipment 29 486 20 789 IAS 16 Impairment of Plant and Equipment 29 599 24 020 IFRS 3 Impairment of Goodwill 75 314 75 314 IFRS 3 Negative Goodwill (2 544) (969) IAS 28 Gain on Disposal of Associates - - IAS 28 Impairment of Joint Venture 1 539 1 429 IAS 36 Impairment of Assets 161 589 142 129 IAS 36 Reversal of Impairments (49 338) (34 926) IAS 27 Profit from Disposal/Part Disposal of Subsidiary (39 231) (36 483) IAS 40 Fair Value Adjustment to Investment Property (17 834) (15 009) IAS 39 Profit on Disposal of Available-for-Sale Asset (2 747) (2 747) Re-measurements included in equity-accounted earnings of associates and joint ventures (408 026) (408 026) Headline profit 370 887 Basic earnings per share (cents) Earnings 483,96 Continuing operations 338,48 Discontinued operations 145,48 Headline earnings 296,51 Continuing operations 133,89 Discontinued operations 162,62 Weighted average number of shares in issue (`000) 125 085 Actual number of shares in issue at end of period (net of treasury shares) (`000) 125 254 Diluted earnings per share (cents) Earnings 471,06 Continuing operations 329,46 Discontinued operations 141,60 Headline earnings 288,60 Continuing operations 130,32 Discontinued operations 158,28 Weighted average number of shares in issue (`000) 128 512 REVIEWED CONSOLIDATED STATEMENT OF FINANCIAL POSITION Audited Reviewed (Restated)
31 March 31 March 2011 2010 R`000 R`000 ASSETS Non-current assets 12 885 346 14 968 791 Property, plant and equipment 2 769 835 9 660977 Investment properties 564 685 218585 Goodwill 144 205 1 544195 Interest in associates and joint ventures 8 441 951 2 405254 Other financial assets 116 230 62827 Intangibles 577 218 644402 Deferred taxation 189 203 230997 Operating lease equalisation asset 2 658 962 Long-term receivables 79 361 200 592 Current assets 2 948 801 3 790 747 Other 2 368 669 2 499 162 Bank balances and deposits 580 132 1 291 585 Non-current assets held for sale 35 218 110 886 Total assets 15 869 365 18 870 424 EQUITY AND LIABILITIES Equity 11 231 849 8 388 971 Equity attributable to equity holders of the parent 10 505 914 4 647 948 Minority interest 725 935 3 741 023 Non-current liabilities 2 350 869 5 886 506 Deferred taxation 114 138 644 067 Long-term borrowings 2 056 658 4 715 207 Operating lease equalisation liability 4 447 287 429 Other 175 626 239 803 Current liabilities 2 270 279 4 574 694 Non-current liabilities held for sale 16 368 20 253 Total equity and liabilities 15 869 365 18 870 424 Net asset carrying value per share (cents) 8,267 3,711 REVIEWED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Audited
Reviewed (Restated) 2011 2010 R`000 R`000 Balance as restated at beginning of year 8 388 971 7 627 335 Balance as previously stated 8 380 190 7 619 925 Adjustment 8 781 7 410 Share capital and premium Treasury shares released 14 595 11 751 Current operations Total comprehensive income 6 977 327 1 055 414 Equity settled share-based payments 15 810 7 408 Disposal of subsidiary (2 761 828) - Effects of changes in holding (1 217 184) 5 061 Capital reductions and dividends (185 842) (317 998) Balance at end of year 11 231 849 8 388 971 REVIEWED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME Audited Reviewed (Restated) 2011 2010
R`000 R`000 Profit for the year 7 012 534 1 332 859 Other comprehensive income: Foreign currency translation differences (37 653) (276 836) Cash flow hedge reserve 23 081 (1 478) Asset revaluation reserve (20 635) 869 Total comprehensive income 6 977 327 1 055 414 Attributable to: Equity holders of the company 6 385 176 410 447 Minority interests 592 151 644 967 6 977 327 1 055 414 REVIEWED CONSOLIDATED CASH FLOW STATEMENT Reviewed Audited 31 March 31 March 2010 2010 R`000 R`000
Cash flows from operating activities 1 968 597 1 765 164 Cash flows from investing activities (2 059 505) (2 061 381) Cash flows from financing activities (558 794) 717 752 Decrease/increase in cash and cash equivalents (649 702) 421 535 Cash and cash equivalents At beginning of year 959 539 549 698 Foreign exchange differences (1 596) (11 694) At end of year 308 241 959 539 Bank balances and deposits 586 567 1 291 728 Bank overdrafts (278 326) (332 189) Cash and cash equivalents 308 241 959 539 SEGMENTAL ANALYSIS 31 March 31 March 31 March 31 March 2011 2011 2010 2010 Net gaming Net gaming Revenue Win Revenue Win
R`000 R`000 R`000 R`000 Media and broadcasting 1 620 397 - 1 431 586 - Limited payout gaming 6 527 327 979 10 984 259 822 Information technology 256 051 - 230 281 - Transport 963 619 - 897 554 - Vehicle component manufacture 440 757 - 311 426 - Exhibition and properties 66 843 - 69 592 - Mining 363 166 - 141 551 - Natural gas 214 871 - 172 468 - Clothing and textile 2 420 604 - 2 165 728 - Other 28 573 75 313 14 271 16 883 Total 6 381 408 403 292 5 445 441 276 705 Profit before tax Headline profit 31 March 31 March 31 March 31 March 2011 2010 2011 2010 R`000 R`000 R`000 R`000
Media and broadcasting 555 687 502 429 251 623 227 744 Limited payout gaming 56 288 14 168 39 684 29 239 Casino gaming and hotels 42 183 - 417 363 375 704 Information technology 46 277 35 724 17 833 15 931 Transport 159 062 98 048 120 247 76 225 Vehicle component manufacture (42 506) (46 438) 774 (122 182) Food and beverage - 348 255 - 35 197 Exhibition and properties 146 421 47 377 20 237 27 347 Mining 17 720 (6 643) 22 216 (6 643) Natural gas (44 445) (53 734) (8 923) (27 686) Clothing and textile 88 692 37 766 (11 881) (103 236) Other (85 691) (178 693) (137 227) (156 753) Total 939 688 798 259 731 946 370 887 EBITDA 31 March 31 March
2011 2010 R`000 R`000 Media and broadcasting 654 691 574 968 Limited payout gaming 97 678 56 829 Information technology 59 860 49 279 Transport 218 386 168 307 Vehicle component manufacture 17 833 (30 180) Exhibition and properties 30 105 28 611 Mining 30 263 (3 833) Natural gas 49 988 38 468 Clothing and textile 157 729 98 390 Other (41591) (40 168) Total 1 274 942 940 671 COMMENTARY REVIEW OF INVESTMENTS Growth in profitability The 2011 financial year has been a good year for HCI in several ways. Its headline profits are up on last year by 97%. This was achieved by the group`s major contributors (Tsogo and Sabido) improving their contribution to group headline profits on last year by 10,8% and several investments turning in really excellent performances. Of these Golden Arrow`s improvement of 57% over last year is really remarkable, particularly as the business might reasonably be regarded as "mature". This is its 150th year of providing passenger transport to the City of Cape Town. Also, Vukani`s 35% uptick despite all its difficulties is most encouraging. Among the turnaround operations, Formex broke even after losing R122 million the previous year and Seardel turned in substantial profits from continuing businesses. Losses from discontinued operations in Seardel will not be ongoing and the underlying business going forward is significantly profitable. EBITDA from Montauk improved by approximately 30% for the year, allowing them to significantly reduce their losses. Amongst the start up businesses, unstoppable drive and enthusiasm from the management of Galaxy Bingo has resulted in it turning cash positive from December 2010, and systematic attention to detail by management in our mining subsidiary produced its first annual profit of R22 million. Investment activity The group was engaged in a wide variety of new business activity. We purchased a 34,9% stake in KWV and, subsequent to year end, have obtained permission from the Competition authorities to take control of the company. The business has not been performing well and we hope our entry into its shareholding will result in it developing a stronger vision of its participation in the liquor industry going forward. We believe it is in any event a good base for HCI to grow into that industry and are very excited at the prospect of facilitating this. We also started a new investment holding subsidiary in Australia in consequence of three key former HCI employees emigrating there. Several other developments took place within the group`s subsidiaries and associates during the year. As reported at our interim results, Sabido disposed of its interest in Viamedia, TIH bought back 25% of its shares formerly owned by Nafhold, and Seardel resolved to close Intimate Apparel. Since that report we are in the process of taking over a London-based global content distributor of films and TV series, Powercorp. During the year Tsogo concluded its reverse takeover of Gold Reef Resorts. This resulted in HCI`s share in a major subsidiary being diluted to 41,3% and, whilst we remain very active in the company, we in consequence no longer consolidate the results. The merger itself resulted in the merged group becoming not only the central provider of hotel accommodation in South Africa but also the largest owner of casinos in South Africa. It has a strong balance sheet with relatively low debt levels in consequence of the merger having been achieved by a share swap and we believe it is in the best position to take advantage of consolidation opportunities arising within its industries. Montauk acquired a company called Viridis which produces some 30 megawatts of electricity from land fill gas and also commenced developing a new electricity site on its own site at the McKinney land fill. This should go into production in June 2011. Seardel commenced the redevelopment of the large industrial property vacated by the vertical pipeline formerly operated by the Frame group. This substantial redevelopment will result in that group renting to third parties approximately 150 000 square metres of additional industrial property. The development is being done in phases and is expected to be completed in the second half of 2012. The disposal of the Gallagher Convention business was achieved by leasing the premises to a third party accepted by the Competition authorities with effect from 1 April 2011. Legal disputes The group`s subsidiaries and associates have unfortunately been obliged to litigate in several matters we believe are vital to their interests. Other than ordinary commercial disputes which unavoidably arise from time to time, the central matters have been the following: Seardel has referred a dispute against certain previous directors amounting to approximately R320 million arising from their dealings in various property matters which Seardel alleges should have been for the benefit of the company rather than the individual directors. This matter is currently being heard through an arbitration process. There have been several cases against various Gambling Boards that have inhibited the growth of the business of Vukani Gaming Corporation. Fortunately most of this litigation has either been completed or settled on terms which should allow the business to roll out licensed machines over the next period. Progress in the mining area has been severely delayed arising from the Department of Minerals and Energy purporting to award mining rights to a state owned entity on property on which HCI Coal had been granted a prospecting licence, had prospected and submitted a mining right application. Lastly Golden Arrow Bus company has been forced to apply for relief in order to protect the business, arising from the City of Cape Town purporting to allocate bus operator licences to various others to operate buses. We have settled this litigation on the basis of compromise in exchange for written undertaking by the City to honour our contractual exclusivity going forward. 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 VE Mphande who had previously resigned from all executive positions in the group, had been appointed to the board of HCI as a non-executive director with effect from 1 September 2010. Mr Yunis Shaik has been appointed as lead independent non-executive director with effect from 31 August 2010. He was appointed to the board of HCI as a non- executive director in August 2005. DISTRIBUTIONS TO SHAREHOLDERS The directors of HCI have resolved to declare ordinary dividend number 43 of 60 cents per HCI share. The last day to trade cum dividend will be Friday, 17 June 2011. HCI shares will commence trading ex dividend as from Monday, 20 June 2011 and the record date will be Friday, 24 June 2011. The dividend will be paid on Monday, 27 June 2011. Share certificates may not be dematerialised or rematerialised between Monday, 20 June 2011 and Friday, 24 June 2011, both days inclusive. For and behalf of the board of directors MJA Golding JA Copelyn Executive Chairman Chief Executive Officer Cape Town 19 May 2011 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 Directors MA Golding (Chairman), JA Copelyn (Chief Executive Officer), TG Govender, JG Ngcobo*, VM Engel*, MF Magugu*, Y Shaik*, ML Molefi*, R Garach*, VE Mphande* *(Non-executive) Company secretary HCI Managerial Services (Pty) Limited NOTES TO THE REVIEWED CONSOLIDATED FINANCIAL STATEMENTS Basis of preparation and accounting policies The results for the year ended 31 March 2011 have been prepared in accordance with International Financial Reporting Standards ("IFRS"), specifically IAS 34: Interim Financial Reporting, the AC 500 series of interpretations as issued by the Accounting Practices Board ("APB") the requirements of the South African Companies Act, 1973, and the Listings Requirements of the JSE Limited. The accounting policies of the group are consistent with those applied for the year ended 31 March 2010 except as noted below. 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 group has applied the revised IAS 27 in the current period. This standard requires that changes in a parent`s ownership interest in a subsidiary after control is obtained, that do not result in a loss of control, are accounted for as equity transactions. During the current period the group early adopted the amendments to IAS 12 that was released in December 2010. In terms of this amendment there is a rebuttable presumption that the carrying value of investment property will ultimately be recovered through sale and therefore the deferred tax liabilities raised on the revaluations should be done at the CGT rate being 14%. The impact of this early application was that the deferred tax charge in the current year decreased by R16,6 million, the deferred tax charge in the prior year has been restated by R1,4 million and opening equity for 2010 by R7,4 million. BUSINESS COMBINATIONS Natural gas Montauk Energy Holding, LLC acquired a 100% interest in Viridis Energy, LLC and Toyon Landfill Gas Conversion, LLC on 01 February 2011. the acquired businesses contributed revenues of R5,4m and net losses after tax of R0,9m to the group for the year ending 31 March 2011. Had the acquisition been effective on 01 April 2010, the contribution to revenue would have been R39,8m and losses of R8,6m would have been the contribution to profit after 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: 2011 R`000 Non-current assets 82 284 Non-current liabilities (3 710) Net current liabilities (13 155) Net assets acquired 65 419 Purchase price 65 419 Liabilities acquired 2 232 Net cash paid 63 187 Discontinued operations and non-current assets held for sale Discontinued operations as disclosed in the group income statement relates to the following: - The convention business of Gallagher Estates which the group has disposed of subsequent to the year end further to an order by the Competition Commission; - Sabido`s cellphone content provider, Viamedia, which was disposed of during the year under review; - The door module and pulley division of Formex Industries (Pty) Limited; - Seardel`s Intimate Apparel division and four of its manufacturing operations in the Frame division`s vertical pipeline - spinning, weaving, finishing and denim; and - The merger of the group`s major gaming and hotel subsidiary, Tsogo Sun Holdings (Pty) Limited with Gold Reef Resorts Ltd (GRR), culminating in the reverse listing of Tsogo Sun on the JSE Limited, and resulting in the group diluting its interest in the new merged company from 51% to 41,3%. The result of the dilution is a change in the classification of the investment in GRR to Investment in Associate. The results of Tsogo Sun for the 11-month period ending 1 March 2011, whilst still a subsidiary and prior to the merger, have been reflected under discontinued operations and the results for the month of March 2011 have been reflected under the group`s share of profits from associate companies. The non-current assets held for sale, as disclosed in the group balance sheet, relate to the following: - The assets of the convention business of Gallagher Estates; - The remaining assets of the pulley division of Formex, the operations of which had ceased in the year to March 2010; and - Certain assets of the Seardel group which have been committed to being disposed of, including those of the Intimate Apparel division. Group income statement The group results reflect an overall increase of 951,4% in basic earnings attributable to HCI shareholders and an increase of 95,7% in headline earnings. There has been growth in revenue across all segments. In line with this growth in revenue group EBITDA has grown by 35,4% in comparison to the prior period on a (like for like) basis. Profit from associates and joint ventures for the period is significantly lower than reported in the prior year primarily because of the disposal of Clover Industries Limited (CIL) which had contributed significantly in the prior year. The prior year profit from associates and joint ventures included the disposal of CIL`s interest in its Danone subsidiary. The current year profit from associates includes the contribution from the merged Tsogo Sun Holdings for one month. Included in investment surplus is the profits on the unwinding of the Gallagher Estates property financing agreements and an agterskot payment amounting to R27m relating to the sale of the group`s interest in Suncoast Casino to Tsogo Sun in October 2009. Fair value adjustments of investment properties relate largely to the upward revaluation of the Gallagher Estates investment properties. Asset impairments relate primarily to property, plant and equipment impaired by Seardel and Gallagher Estate. The impairment of goodwill and investments relates primarily to the impairment of goodwill in Formex. Discontinued operations as per the consolidated income statements include: Reviewed Restated 31 March 31 March 2011 2010
Discontinued operations R`000 R`000 Tsogo Sun Holdings - profit on disposal/dilution 5 727 405 - Tsogo Sun Holdings - results for 11 months in 2011 (12 months in 2010) 631 649 1 016 597 Sabido - Viamedia 50 856 44 960 Seardel - Intimate Apparel and divisions of Frame (87 781) (234 706) Other 7 084 (47352) Total 6 329 213 779 499 Group balance sheet and cash flow The comparative amounts for the year ended 31 March 2010 (Restated) are not comparable due to Tsogo Sun not being consolidated on a line by line in the current year as a result of the group`s loss of control following the Tsogo Sun/Gold Reef merger and the investment now being reflected under interest in associates and joint ventures. The group`s overall financial position remains strong with the major businesses still generating strong cash flows. Group long-term borrowings have reduced from R4,7 billion in the prior year to R2 billion at year end due to the borrowings of Tsogo Sun being excluded as a result of the accounting treatment of Tsogo Sun in the current year. The net asset carrying value per share has increased by 122% at year end mainly due to the realisation of the investment in Tsogo Sun via the Gold Reef merger with the investment in Tsogo Sun/Gold Reef being recognised at fair value at the date of the transaction in terms of IAS 28. www.hci.co.za Date: 19/05/2011 15:54:01 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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