Wrap Text
Reviewed condensed consolidated results
for the year ended 31 March 2014
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 CONDENSED CONSOLIDATED RESULTS
For the year ended 31 March 2014
Group income R9 201,3 million + 24,9%
Headline earnings per share 946,23 cents + 10,0%
Headline earnings per share from continuing operations 1 083,74 cents + 13,2%
REVIEWED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Reviewed Reviewed* Reviewed*
2014 2013 2012
ASSETS
Non-current assets 16 851 858 15 811 394 13 883 204
Property, plant and equipment 3 735 578 3 959 409 2 932 761
Investment properties 1 695 532 907 503 557 886
Goodwill 279 011 256 470 186 212
Interest in associates and joint ventures 9 974 196 9 461 708 9 235 179
Other financial assets 9 163 56 789 105 869
Intangibles 806 887 984 116 701 348
Deferred taxation 127 941 84 189 67 928
Operating lease equalisation asset 27 185 8 276 8 258
Long-term receivables 196 365 92 934 87 763
Current assets 4 935 432 4 878 741 3 257 200
Other 3 746 752 3 892 240 2 535 750
Bank balances and deposits 1 188 680 986 501 721 450
Disposal group assets held for sale 1 006 446 2 543 15 288
Total assets 22 793 736 20 692 678 17 155 692
EQUITY AND LIABILITIES
Equity 14 930 161 15 432 755 12 836 030
Equity attributable to equity holders
of the parent 12 094 478 12 900 683 11 777 703
Non-controlling interest 2 835 683 2 532 072 1 058 327
Non-current liabilities 3 407 985 1 795 913 1 592 601
Deferred taxation 277 439 240 608 97 898
Long-term borrowings 2 917 689 1 304 221 1 275 373
Operating lease equalisation liability 3 596 118 1 808
Other 209 261 250 966 217 522
Current liabilities 4 336 792 3 462 320 2 721 263
Disposal group liabilities held for sale 118 798 1 690 5 798
Total equity and liabilities 22 793 736 20 692 678 17 155 692
Net asset carrying value per share (cents) 11 391 10 469 9 259
* Reviewed results have been restated.
REVIEWED CONSOLIDATED INCOME STATEMENT
Reviewed Reviewed*
% 2014 2013
change R'000 R'000
Revenue 8 382 905 6 677 101
Net gaming win 818 421 689 953
Income 24.9 9 201 326 7 367 054
Expenses (7 588 450) (5 902 013)
EBITDA 10.1 1 612 876 1 465 041
Depreciation and amortisation (407 177) (328 306)
Operating profit 6.1 1 205 699 1 136 735
Investment income 48 806 53 159
Finance costs (248 621) (150 799)
Share of profits of associates and joint ventures 748 228 691 799
Gain on bargain purchase - 476 901
Investment surplus - 35 416
Fair value adjustments of investment properties 23 284 427
Impairment reversals 509 21 885
Asset impairments (12 489) (55 521)
Fair value adjustments of financial instruments 21 010 10 834
Impairment of goodwill and investments (329) (1 084)
Profit before taxation (19.5) 1 786 097 2 219 752
Taxation (306 259) (294 526)
Profit for the year from continuing operations (23.1) 1 479 838 1 925 226
Discontinued operations (214 141) (109 978)
Profit for the year 1 265 697 1 815 248
Attributable to:
Equity holders of the parent (23.2) 1 060 455 1 381 466
Non-controlling interest 205 242 433 782
1 265 697 1 815 248
* Reviewed results have been restated.
REVIEWED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
Reviewed Reviewed*
2014 2013
R'000 R'000
Profit for the year 1 265 697 1 815 248
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss
Foreign currency translation differences 200 412 288 244
Cash flow hedge reserve 38 201 (9 973)
Asset revaluation reserve - (5 382)
Items that may not be reclassified subsequently to profit or loss
Actuarial gains on post-employment benefit liability 5 773 -
1 510 083 2 088 137
Attributable to:
Equity holders of the parent 1 300 005 1 645 249
Non-controlling interest 210 078 442 888
1 510 083 2 088 137
* Reviewed results have been restated.
REVIEWED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Reviewed Reviewed*
2014 2013
R'000 R'000
Balance at beginning of year 15 432 755 12 836 030
Share capital and premium
Treasury shares released 45 779 76 410
Shares repurchased (457 443) (114 324)
Current operations
Total comprehensive income 1 510 083 2 088 137
Equity-settled share-based payments 16 170 17 233
Non-controlling interest on acquisition of subsidiaries 3 359 794 573
Effects of changes in holding (1 347 440) 90 202
Dividends (273 102) (355 506)
Balance at end of year 14 930 161 15 432 755
* Reviewed results have been restated.
RECONCILIATION OF HEADLINE EARNINGS
Reviewed Reviewed*
Gross Net Gross Net
% 2014 2014 2013 2013
change R'000 R'000 R'000 R'000
Earnings attributable to equity
holders of the parent (23.2) 1 060 455 1 381 466
IAS 16 loss/(gain) on disposal
of plant and equipment 23 556 17 695 (16 846) (14 688)
IAS 16 impairment of plant
and equipment 6 563 2 265 15 134 8 344
IAS 38 impairment of intangible assets 4 617 3 396 - -
IFRS 3 impairment of goodwill 329 172 1 084 922
IFRS 3 gain on bargain purchase - - (476 901) (255 194)
IAS 28 gain on disposal of associates - - (25 954) (25 954)
IAS 28 impairment of associates and
joint ventures 5 925 4 823 43 024 29 059
IAS 36 reversal of impairments (509) (203) (22 822) (17 361)
IAS 40 fair value adjustment to
investment property (23 284) (17 418) (427) (463)
Other remeasurements and gains 107 43 (32 012) (30 050)
Remeasurements included in equity-
accounted earnings of associates
and joint ventures 31 101 14 926 8 886 8 851
Headline profit 0.1 1 086 154 1 084 932
Basic earnings per share (cents)
Earnings (15.6) 923.84 1 095.13
Continuing operations 1 084.36 1 173.40
Discontinued operations (160.52) (78.27)
Headline earnings 10.0 946.23 860.06
Continuing operations 1 083.74 956.99
Discontinued operations (137.51) (96.93)
Weighted average number of shares
in issue ('000) 114 788 126 146
Actual number of shares in issue
at end of year (net of treasury
shares) ('000) 106 177 123 224
Diluted earnings per share (cents)
Earnings (15.3) 908.62 1 072.16
Continuing operations 1 066.50 1 148.79
Discontinued operations (157.88) (76.63)
Headline earnings 10.5 930.64 842.02
Continuing operations 1 065.88 936.91
Discontinued operations (135.24) (94.89)
Weighted average number of shares
in issue ('000) 116 710 128 849
* Reviewed results have been restated.
REVIEWED CONSOLIDATED STATEMENT OF CASH FLOWS
Reviewed Audited
2014 2013
R'000 R'000
Cash flows from operating activities 1 045 692 891 888
Cash flows from investing activities (1 240 277) (992 712)
Cash flows from financing activities 430 598 92 436
Increase/(decrease) in cash and cash equivalents 236 013 (8 388)
Cash and cash equivalents
At beginning of year 311 762 253 141
Foreign exchange differences 26 611 67 009
At end of year 574 386 311 762
Bank balances and deposits 1 188 680 986 501
Bank overdrafts (706 908) (674 739)
Cash of disposal groups held for sale 92 614 -
Cash and cash equivalents 574 386 311 762
SEGMENTAL ANALYSIS
Revenue Net gaming win
2014 2013 2014 2013
R'000 R'000 R'000 R'000
Media and broadcasting** 2 538 841 2 200 355 - -
Non-casino gaming 44 770 27 672 818 421 689 953
Information technology 294 054 286 527 - -
Transport 1 194 948 1 130 774 - -
Vehicle component manufacture 300 620 333 722 - -
Beverages 1 110 212 233 764 - -
Properties 80 944 56 521 - -
Mining 652 873 556 129 - -
Clothing, textiles and toys 2 163 518 1 845 524 - -
Other 2 125 6 113 - -
Total 8 382 905 6 677 101 818 421 689 953
EBITDA
2014 2013
R'000 R'000
Media and broadcasting** 777 910 836 217
Non-casino gaming 215 835 194 720
Information technology 61 964 72 422
Transport 224 620 210 228
Vehicle component manufacture 15 829 17 552
Beverages 26 075 (4 496)
Properties 54 905 28 244
Mining 104 736 85 792
Clothing, textiles and toys 234 010 128 500
Other (103 008) (104 138)
Total 1 612 876 1 465 041
Profit before tax Headline earnings
2014 2013 2014 2013
R'000 R'000 R'000 R'000
Media and broadcasting** 620 998 717 732 258 816 320 954
Non-casino gaming 113 747 108 592 48 967 57 119
Casino gaming and hotels 779 791 675 324 785 062 682 272
Information technology 43 675 59 452 15 290 21 764
Transport 126 638 131 731 90 589 97 111
Vehicle component manufacture 1 520 (7 397) 17 (11 134)
Beverages (448) (24 601) 549 (14 364)
Properties 70 226 33 146 31 114 21 690
Mining 65 008 64 226 47 482 45 759
Natural gas - - (54 055) (86 885)
Clothing, textiles and toys 168 448 88 214 10 922 18 420
Other (203 506) 373 333 (148 599) (67 774)
Total 1 786 097 2 219 752 1 086 154 1 084 932
** Results of the group's Australian media interests have been included in the Media
and Broadcasting segment for March 2013 and March 2014. The results of these media
interests were previously included in Other.
NOTES
BASIS OF PREPARATION AND ACCOUNTING POLICIES
The results for the year ended 31 March 2014 have been prepared in accordance with
International Financial Reporting Standards (IFRS), the disclosure requirements of
IAS 34, the SAICA Financial Reporting Guides as issued by the Accounting Practices
Committee, the requirements of the South African Companies Act, 2008, and the Listings
Requirements of the JSE Limited. Except for the new standards adopted as set out and
as further noted below, the accounting policies applied by the group in the preparation
of these reviewed condensed consolidated financial statements are consistent with those
applied by the group in its consolidated financial statements as at and for the year
ended 31 March 2013. The group has adopted the following new standards:
i) Amendment to IFRS 7: Disclosures - Off-setting Financial Assets and Financial
Liabilities
ii) IFRS 10: Consolidated Financial Statements
iii) IFRS 11: Joint Arrangements
iv) IFRS 12: Disclosure of Interests in Other Entities
v) IFRS 13: Fair Value Measurement
vi) Amendments to IAS 1: Presentation of Items of Other Comprehensive Income
vii) Amendments to IAS 16: Property, Plant and Equipment
viii) Amendment to IAS 19: Employee Benefits
ix) Revised IAS 27 and 28: Investments in Associates and Joint Ventures
x) Amendments to IAS 32: Financial Instrument Presentation
xi) Amendments to IAS 34: Interim Financial Reporting
There was no material impact on the financial statements identified based on management's
assessment of these standards. As required by the JSE Limited Listings Requirements,
the group reports headline earnings in accordance with Circular 2/2013: Headline
Earnings as issued by the South African Institute of Chartered Accountants.
These financial statements were prepared under the supervision of the financial director,
Mr TG Govender, B.Compt (Hons).
RESTATEMENT OF PRIOR YEAR RESULTS
The acquisition of controlling interests during the prior comparative year in
KWV Holdings Limited (KWV), effective 1 January 2013 and Sunshine Coast Broadcasters
Proprietary Limited (SCB), effective 1 March 2013, qualified as business combinations
in terms of IFRS 3: Business Combinations. The results as at 31 March 2013 were
determined based on all information available at the acquisition date (provisional
accounting). The provisional accounting was adjusted in the current year for new
information obtained within a time frame of 12 months after the acquisition date.
These adjustments to the fair value determined in the provisional purchase price
allocations were not treated as movements in the current financial year, but as
adjustments to the comparative results as at 31 March 2013.
In respect of the acquisition of KWV the comparative results were restated as follows:
Income statement:
Depreciation and amortisation increased by R0.7 million
Taxation decreased by R0.2 million
Gain on bargain purchase increased by R212 million
Earnings attributable to non-controlling interest increased by R100 million
Statement of financial position:
Property, plant and equipment increased by R439 million
Intangible assets increased by R49 million
Deferred tax liability increased by R77 million
Equity attributable to non-controlling interest increased by R299 million
Opening equity attributable to equity holders of the parent increased by R112 million
in the current year.
In respect of the acquisition of SCB the comparative results were restated as follows:
Statement of financial position:
Property, plant and equipment decreased by R1 million
Goodwill increased by R62 million
Intangible assets decreased by R61 million
The income statement in the prior year and opening equity attributable to equity
holders of the parent in the current year were not affected.
In addition to the above KWV changed their accounting policy in the current year to
include excise duty in the valuation of inventory. Comparative results were restated
as follows:
Statement of financial position:
Inventory increased by R163 million
Trade and other receivables decreased by R163 million
Income statement:
Revenue increased by R58 million
Expenses increased by R58 million
Opening equity attributable to equity holders of the parent in the current year was
not affected.
BUSINESS COMBINATIONS
Clothing, textiles and toys
During the year the group's clothing, textiles and toys operations acquired 100% of
the issued share capital of two entities for a total purchase consideration of
R27 million. Goodwill of R14 million was recognised on acquisition. The purchase
consideration includes contingent consideration of R13 million, the payment of which
is dependent on the future profitability of the acquired entities.
Media and broadcasting
During the year the group's media and broadcasting operations acquired 70% and 80% of
the issued share capital of Strika Entertainment Proprietary Limited and Afrikaans
Satelliet Televisie Proprietary Limited respectively. The total purchase consideration
was R9 million. Goodwill of R3 million was recognised on acquisition.
DISCONTINUED OPERATIONS AND DISPOSAL GROUPS HELD FOR SALE
Following the group's announcement during March 2014 that it will unbundle and list
its natural gas interests, the results of these operations have been reclassified to
discontinued operations in the income statement and its assets and liabilities
reclassified to disposal groups held for sale in the statement of financial position.
The majority of the clothing divisions of the group's clothing, textiles and toys
operations were sold prior to the reporting date. Consequently, the results of these
divisions were reclassified to discontinued operations.
The remainder of discontinued operations consists of the door module and pulley
division of the vehicle component manufacture operations, which ceased operations
in 2010.
Discontinued operations as disclosed in the income statement consist of the following:
Clothing, Vehicle
textiles Natural component
and toys gas manufacture
R'000 R'000 R'000
2014
Revenue 604 457 336 258 -
EBITDA (98 840) 65 203 (31)
Loss after tax (159 901) (54 209) (31)
2013
Revenue 667 962 237 298 -
EBITDA (17 901) 33 368 (378)
Loss after tax (45 173) (62 727) (2 078)
The disposal groups held for sale, as disclosed in the statement of financial position,
relate to the assets and liabilities of the group's natural gas operations, a property
relating to certain clothing divisions of the clothing, textiles and toys operations
and a property, together with the remaining assets of the pulley division of the
vehicle component manufacture operations.
Disposal groups held for sale as disclosed in the statement of financial position
comprise the following:
Clothing, Vehicle
textiles Natural component
and toys gas manufacture
R'000 R'000 R'000
Disposal group assets held for sale
Property, plant and equipment 54 536 464 805 7 308
Intangible assets - 316 249 -
Other assets - 163 548 -
Disposal group liabilities held for sale
Long-term provisions - 65 161 -
Other liabilities - 53 570 67
RESULTS
GROUP INCOME STATEMENT
The group results reflect headline earnings of R1 086 million and earnings attributable
to HCI shareholders of R1 060 million for the year under review. Headline earnings
appears relatively unchanged in comparison to the prior year but cognisance should be
taken of the fact that this result was achieved with the group having repurchased more
than R2 billion of its own equity during the year. The weighted average number of
shares in issue in the prior year of 126 million was reduced to 115 million in the
current year due to 17.7 million shares being repurchased during the year. This
resulted in headline earnings per share increasing by 10% and headline earnings per
share from continuing operations increasing by 13.2%.
Highlights of the current year group results include the following:
Group income increased by 24.9%. The inclusion of KWV Holdings for the full year under
review resulted in an increase in revenue in respect of beverages of R876 million.
Media and broadcasting recorded a 15.3% increase in revenue, mainly as a result of
R63 million contributed by Sunshine Coast Broadcasters in Australia and Sabido
Investments recording growth in revenue of 11.2% as a result of strong increases in
advertising revenue, subscription revenue and content sales. An 18.6% increase in net
gaming win for non-casino gaming was a result of increased average gross gaming
revenue per machine in limited payout gaming and the opening of additional sites by
the bingo operations. A 17.2% increase in revenue in clothing, textiles and toys was
driven by branded products, textiles and chemicals. Transport managed to increase
revenue despite the transport sector strike in April and May 2013. Properties'
revenue increased by 43.2% due to additional revenue from new properties in Upington
and Cape Town. Revenue in respect of mining increased by 17.4% due to increased
transport revenue and an additional product delivered to Eskom during seven months
of the year.
Group EBITDA increased by 10.1%. EBITDA from media and broadcasting decreased by 7%.
This amount includes R20 million for Sunshine Coast Broadcasters and R784 million
relating to Sabido Investments, which represents a reduction of R59 million compared
to the prior year for this group and is a result of increased expenditure of
R155 million on the expansion of the group's multi-channel strategy. EBITDA from media
and broadcasting includes R76 million in respect of the expensing of distribution
rights. EBITDA from non-casino gaming increased by 10.8%, albeit reduced by an amount
of R31 million recognised in respect of a share-based payment expense. Information
technology's EBITDA reduced by 14.4% due to disappointing results in its Cape Town
road safety business. Beverages' EBITDA consisted of only three months' earnings in
the prior year and is not comparable. EBITDA relating to properties increased by 81.3%
to R51 million due to the additional contribution of new developments. Mining's EBITDA
increased by R19 million, aided by increased transport revenue and the more favourable
product mix delivered to Eskom. Clothing, textiles and toys' EBITDA from continuing
operations increased by 82.1% and includes the recognition of R38 million relating to
the Searll settlement.
The group's profit before tax decreased by 19.5%. Profit before tax for media and
broadcasting reduced by 13.5%, mainly as a result of the above-mentioned expenditure
recorded for expansionary activity. The established businesses of Sabido Investments
remained buoyant, resulting in this group contributing profit before tax of R670 million.
Included in profit before tax of media and broadcasting is R33 million in finance costs
in respect of the loan owing to the Southern African Clothing and Textile Workers Union
(SACTWU) following the restructure of the group's media interests in September 2013.
This loan was settled subsequent to the reporting date. The contribution by casino
gaming and hotels increased by 15.4% to R780 million, the increase driven by increased
average room rates and increased gaming spend at Tsogo Sun's major casinos. Transport
profit before tax decreased by 3.9% as a result of increased depreciation and employee
costs. Vehicle component manufacture showed an increase in profitability due to better
inventory and cost control. Properties' increase in profit before tax of 100.7% includes
the group's share of the revaluation of an office block in Claremont, Cape Town in the
amount of R27 million. Other operations' losses include R84 million in finance costs at
head office, R69 million in losses relating to Australian non-media operations and
head office costs. The decrease compared to the prior year is mainly due to a gain on
bargain purchase recognised in respect of the KWV acquisition in the amount of
R477 million in the prior year and the Australian non-media operations' increase of
R48 million in losses reported which were caused by its debt recovery operations
revaluing its debtors' books in the first half of the year.
Group headline earnings increased by 0.1%. Media and broadcasting reported a decrease
of 19.4% in headline earnings. These earnings include R299 million in respect of
Sabido Investments and finance costs of R33 million on the SACTWU loan. Non-casino
gaming's results are not directly comparable to the prior year due to the Niveus
distribution and repurchase transaction in the prior year, whereby the group's stake
was diluted to 52% in September 2012. Mining's headline earnings increased only
marginally, predominantly due to the box cut at its Mbali colliery being depreciated
by R13 million and the incurrence of start-up costs at this colliery. Natural gas'
losses have reduced by 38% due to a more favourable gas price during the year and
profits of R16 million recognised on forward sales. These effects were partially off-set
by operational issues encountered on two sites during the latter half of the year and
that have since been substantially resolved. Other includes R16 million in losses from
the Australian non-media operations, R84 million head office finance costs and other
head office costs. In addition to the Australian non-media losses, the variance can be
explained by the incurrence of debt refinancing costs in the current year and a tax
provision reversal in the prior year not recurring.
Finance costs' increase of R98 million is a result of R33 million accruing on the
SACTWU loan as noted above, interest in respect of properties increasing by R10 million
and head office finance costs increasing by R35 million (R9 million tax-related interest
was reversed in the prior year).
Profits from associates and joint ventures include R780 million from Tsogo Sun, losses
of R65 million from Australian non-media operations and profits of R29 million from
properties.
Fair value adjustments on investment property consists substantially of adjustments
recognised by clothing, textiles and toys on its properties in the amount of R21 million.
Fair value adjustments on financial instruments consist of R5 million discount realised
on the repurchase of preference shares from certain Nafcoc trusts and the remainder of
unrealised gains on forward exchange contracts and equity investments.
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 2014 comprise central borrowings of
R1 455 million, property-related borrowings of R621 million and R842 million in other
operating subsidiaries. Included in current liabilities, and mentioned above, is
R1 364 million owing to SACTWU.
17.7 million shares in the company to the value of R2 028 million were repurchased
during the year.
Cash flow from financing activities shows a significant increase compared to the prior
year predominantly due to the increase in property development facilities and finance
raised at head office level. The group invested R799 million in property, plant and
equipment, R718 million in investment properties and R184 million in distribution
rights and other intangible assets during the year. Also included in cash flow from
investing activities is the dividend of R364 million received from Tsogo Sun Holdings.
Shareholders are referred to the individually published results of Seardel Investment
Corporation Limited, Tsogo Sun Holdings Limited and Niveus Investments Limited for
further commentary on the media and broadcasting; clothing, textiles and toys; casino
gaming and hotels; non-casino gaming; and beverages operations.
COMMENTARY
Media
The past year has seen significant changes in HCI's media investments. During the year
HCI disposed of 30% of its interest in Sabido Investments to SACTWU in exchange for
14 million HCI shares at R112 per share. The subsequent performance of the HCI shares
has made this a lucrative transaction and has significantly increased HCI's headline
earnings per share as a result of the reduced number of shares in issue.
The group thereafter transferred its remaining interest in Sabido to its listed
subsidiary, Seardel Investment Corporation Limited, with the acquisition being funded
by a combination of equity and debt. Seardel then acquired SACTWU's interest in Sabido,
settled by the issue of Seardel N shares to SACTWU.
Subsequent to year-end Seardel successfully concluded a R5 billion rights issue, the
proceeds of which have gone to reducing its debt, including repayment of the debt
associated with the Sabido acquisition.
The reversal of HCI's stake in Sabido into Seardel has effectively allowed the public
direct access to the asset and the Seardel share performance has demonstrated the
substantial interest the public has in such ownership with the consequent appreciation
of the market value of the shares over the price at which it was transferred.
Sabido would have had its best year ever, increasing its earnings by 19% over the
previous year but for the investment in new businesses. The investment, while being
new business risk, is absolutely necessary to transform the company from one which is
primarily dependent on a single analogue channel to a multi-channel digital environment
and your directors believe that the investment both in new channels and in the new
satellite platform will, over time, provide the company with the opportunity to grow
substantially in the expanded digital environment which is slowly unfolding in
South Africa.
Casino gaming
The primary asset of HCI is its shareholding in Tsogo Sun Holdings. HCI's effective
interest in the company remained unchanged during the year and its contributed headline
earnings grew by 15% during the year. These earnings were the result of corporate
activity on a fairly flat year of organic results. The associate remains a very vibrant
part of HCI's holdings and its performance this year has provided HCI with 72% of its
headline earnings (up from 63% last year). Tsogo Sun's announcement after year-end of
its acquisition, subject to various suspensive conditions, of a 40% stake in
GrandWest Casino and various smaller entities, consolidates Tsogo Sun's prominence in
the casino industry in the country. Cape Town, with its single casino in a major urban
centre, was the primary area that had previously eluded it.
Tsogo Sun has also concluded an agreement to buy a majority stake in various hotels
it manages for the Liberty Group and this has greatly extended its joint venture with
that group.
Mining
The Group's mining operations have experienced a disappointing year. While we had hoped
to open a second mine, Mbali, early in the year, the commissioning of the mine proved
exceptionally difficult. Likewise the substantial flooding of our mines in March was an
unusually significant event interfering with our production, as was a service delivery
protest unrelated to our business. One should probably admit that when one is down to
blaming the weather and social problems it must have been a very bad year!
Nevertheless the year was a great year in relation to long-term value creation. We
secured our mining rights at Mbali and at Rooipoort. We have reason to believe we are
making steady progress in relation to obtaining our mining rights at Nokuhle and have,
subsequent to year-end, secured an additional contract to supply coal from Palesa to
Eskom. In addition, an off-take agreement has been entered into for export quality
coal from Mbali.
Your directors are satisfied that the group's coal assets are significantly increasing
in value and that the substantially unchanged bottom-line results of this year are
unlikely to be repeated next year.
Transport
Golden Arrow Bus Services (Gabs) has been operating for years under a short-term
contract to provide scheduled bus transport, primarily in the City of Cape Town (City).
This contractual arrangement, while always under threat because of its temporary
nature, came under increasing pressure as a result of the confluence of the City's
commitment to rolling out its own brand of bus transport, "MyCiti", as well as its
commitment to integrating various forms of public road transport, including taxis.
The fact that the contracting authority for the Gabs contract is in the process of
being transferred from the Provincial Department of Transport (PDOT) to the City of
Cape Town and the first phase of the roll-out of MyCiti services in the city resulted
in Gabs only being awarded a ten per cent market share of that service resulted in both
litigation, which Gabs ultimately lost, and major threats to our running the business
on a long-term plan based on providing sustainable services to the public going forward.
While Gabs continued its fleet renewal programme, it became agonisingly risky to continue
to do so in the circumstances and was rapidly growing to be an absolutely fundamental
obstacle to making commitments to long-term investment in the industry.
During the year both Gabs and the management of HCI devoted much effort to try and
resolve this impasse. We are pleased to report that subsequent to year-end Gabs has
succeeded in concluding a binding memorandum of understanding with both the City and
the PDOT, the effect of which is to align Gabs with the integrated public transport
plan for scheduled transport in the City of Cape Town, and to secure a commitment by
the City to negotiate a long-term contract with Gabs to provide the level of services
it currently provides under the MyCiti brand.
The effect of the memorandum is, in our opinion, to ensure Gabs will be able to provide
the same level of service to the residents of Cape Town, similar levels of employment
and the same level of capital investment in public transport over the next decade and
more. It comes as a huge relief to your directors that rationality has prevailed and
that we will be able to play a major role in ensuring that scheduled bus transport in
the city of Cape Town remains as an efficient and safe service available to its residents.
It must be noted that Gabs reported only a 6.7% drop in headline earnings for the year,
which is a commendable performance considering the negative effect of the transport
strike on the company in April and May 2013.
Niveus
This is the first full year of trading since HCI disposed of part of the assets of this
company pursuant to its listing in September 2012. Again the public has taken up the
opportunity to invest directly into its assets with real gusto and its shares have
quadrupled over the last 18 months.
The investment in KWV Holdings Limited is effectively a turnaround operation of a
prestigious and long-standing company which has a strong balance sheet but has not been
profitable since it was separated from other holdings of the company which were unbundled
prior to HCI's involvement. A very thorough overhaul of the business has been undertaken
over the last couple of years and much progress has been made. This year would have
been the first result that might have reflected a return to profitability but for a
substantial swing in the value of the Rand after we had hedged it in relation to
European sales. We are confident this will be reversed in the future and the basic
underlying profitability of the company ought to show itself going forward.
The non-casino gaming businesses are essentially Vukani Gaming and Galaxy Bingo.
Vukani remained the largest contributor to EBITDA in the gaming segment, contributing
most of the total gaming EBITDA for the year. Although the machines roll-out was slower
than anticipated, the gross gaming revenue (GGR) results exceeded expectations.
Galaxy Bingo's operational expenditure has increased significantly from the prior year
due to the expansion of the existing site base. Most of the new sites only opened
towards the latter part of the financial year and reduced the overall EBITDA due to
pre-opening expenses.
Properties
Significant progress has been made in the past year in securing and progressing
development opportunities. The Kalahari Village Mall in Upington was completed during
the year and is trading according to expectation. The first phase of The Point in
Sea Point was completed during the year, with overall completion expected in
August 2014. The investment in these two developments will total in excess of
R700 million at completion.
Prior to year-end the Lynnridge Mall property in Tshwane was transferred to the group,
with refurbishment of this property set to commence shortly. Elsewhere, the
Blue Hills Centre development in Midrand is progressing, with earthworks and civil
works starting soon.
The group took transfer of industrial land in Modderfontein subsequent to year-end,
with a further industrial property in Durban awaiting transfer. In addition, light
industrial space is being developed on the Gallagher Estate premises.
The joint venture with Tsogo Sun, Abland and Standard Bank in Bryanston is progressing
well, with the planned total development cost of all phases approximately R1.8 billion.
Office space owned by the group in Cape Town, La Lucia, and Midrand are substantially
tenanted, with the lease renewal for the single-tenanted office building in La Lucia
currently being negotiated.
Seardel
The year has been a transformative one for Seardel, with two significant events taking
place. Firstly, the acquisition by Seardel of HCI's interest in Sabido resulting in
the reversal of HCI's media assets into a separate listed platform. Secondly, the
disposal of the apparel manufacturing division to an associate of SACTWU.
The performance of the non-media businesses have been pleasing, with good growth being
shown across all the segments. Revenue grew by 22% with gross margins improving to
around 25%. Operating profit, after adjusting for non-recurring items, grew significantly
by 72%. The largest contributor to operating profit was the property division, with much
smaller contributions from branded products, the industrial division and textiles.
Included in discontinued operations are the results of the apparel manufacturing
division, following the disposal to an associate of SACTWU. These include the operating
losses until 30 September 2013, the discount on the assets sold and the costs of closure
for a total loss on discontinuance amounting to R160 million.
Natural gas
Montauk, which houses the group's natural gas assets, remains loss-making during the
year despite a much-improved performance resulting in reduced headline losses.
In October 2013 HCI injected further capital of R246 million into Montauk to settle
its $25 million indebtedness to certain banks, leaving the company now largely ungeared
and no longer requiring the financial support of HCI.
In March 2014 the group announced that it will unbundle and separately list Montauk on
the JSE Limited. The unbundling and listing remains subject to certain regulatory
conditions which are expected to be fulfilled in due course and upon which a pre-listing
circular will be issued to shareholders.
Your directors remain confident that this investment will yield positive returns to
HCI shareholders in time.
General
The primary drivers of value in the group remain both stable and are growing at a
reasonable rate. Corporate activity, at the subsidiary, associate and holding company
levels, has enhanced HCI's gains and has resulted in a good return to shareholders
over the last year.
AUDITOR'S REVIEW
These results have been reviewed by the company's auditors, Grant Thornton (Jhb) Inc.
Their unqualified review opinion is available for inspection at the registered office
of the company.
CHANGES IN DIRECTORATE
With effect from 19 March 2014 Ms R Watson and Mr LW Maasdorp were appointed to the
board of HCI as independent non-executive directors and Mr Y Shaik's status was
changed to that of executive director. On the same date Mr VE Mphande was appointed
lead independent non-executive director, replacing Mr Y Shaik in this capacity.
DIVIDEND TO SHAREHOLDERS
The directors of HCI have resolved to declare a final ordinary dividend number 49 of
110 cents (gross) per HCI share for the year ended 31 March 2014. The salient dates
for the payment of the dividend are as follows:
Last day to trade cum dividend Friday, 6 June 2014
Commence trading ex dividend Monday, 9 June 2014
Record date Friday, 13 June 2014
Payment date Tuesday, 17 June 2014
No share certificates may be dematerialised or rematerialised between Monday,
9 June 2014 and Friday, 13 June 2014, both dates inclusive.
In terms of legislation applicable to dividends tax (DT) the following additional
information is disclosed:
- The local DT rate is 15%.
- The total STC credits utilised as part of this declaration, based on the number of
ordinary shares in issue at the date of this declaration, amount to R131 856 304.
- The number of ordinary shares in issue at the date of this declaration is 119 869 367.
- The total STC credits utilised per share amount to 110 cents per share.
- The dividend to utilise for determining the DT due is Nil cent per share.
- The DT amounts to Nil cent per share.
- The net local dividend amount is 110 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
22 May 2014
Directors: MJA Golding (Chairman), JA Copelyn (Chief Executive Officer), TG Govender,
Y Shaik, VM Engel*, B Hogan*, LW Maasdorp*, MF Magugu*, ML Molefi*, VE Mphande*,
JG Ngcobo*, R Watson*
*Non-executive
Company secretary: HCI Managerial Services Proprietary Limited
Registered office: Block B, Longkloof Studios, Darters Road, Gardens, Cape Town, 8001
PO Box 5251, Cape Town, 8000
Transfer secretaries: Computershare Investor Services Proprietary Limited
70 Marshall Street, Johannesburg, 2001. PO Box 61051, Marshalltown, 2107
Sponsor: Investec Bank Limited
www.hci.co.za
Date: 22/05/2014 04:07:00 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.