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Unaudited Condensed Consolidated Interim Results for the six months ended 30 september 2016
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")
UNAUDITED CONDENSED CONSOLIDATED INTERIM RESULTS
for the six months ended 30 September 2016
Income +10.6%
EBITDA +5.8%
Headline earnings +14.3%
Headline earnings per share +18.5%
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
30 September 30 September 31 March
2016 2015 2016
R'000 R'000 R'000
ASSETS
Non-current assets 59 864 455 54 023 442 55 610 831
Property, plant and equipment 24 019 665 23 967 472 24 371 720
Investment properties 8 054 717 2 690 174 3 021 423
Goodwill 4 795 402 4 933 274 4 999 944
Interest in associates and joint ventures 1 341 019 1 087 485 1 453 268
Other financial assets 1 284 787 336 221 666 581
Intangibles 19 627 928 19 998 614 19 978 722
Deferred taxation 492 233 396 504 449 789
Operating lease equalisation asset 54 759 46 725 88 275
Long-term receivables 193 945 566 973 581 109
Current assets 8 089 815 9 474 141 8 850 081
Inventories 1 092 446 2 038 748 2 010 102
Programme rights 691 906 612 032 490 973
Other financial assets 45 757 73 504 87 056
Trade and other receivables 3 039 254 2 965 153 2 570 221
Taxation 153 232 131 484 152 071
Bank balances and deposits 3 067 220 3 653 220 3 539 658
Disposal group assets held for sale 1 820 177 566 072 147 298
Total assets 69 774 447 64 063 655 64 608 210
EQUITY AND LIABILITIES
Equity 34 381 060 31 418 534 32 927 180
Equity attributable to equity holders
of the parent 15 007 827 15 542 945 16 539 747
Non-controlling interest 19 373 233 15 875 589 16 387 433
Non current liabilities 21 966 011 21 927 294 21 482 544
Deferred taxation 8 133 852 7 818 406 8 135 293
Long-term borrowings 12 563 088 12 860 994 12 098 381
Operating lease equalisation liability 271 351 300 611 280 497
Other 997 720 947 283 968 373
Current liabilities 13 214 892 10 695 486 10 181 883
Trade and other payables 4 322 448 3 193 028 2 966 211
Current portion of borrowings 5 977 486 3 261 854 3 247 985
Taxation 118 757 111 258 155 846
Bank overdrafts 2 164 938 3 484 624 3 058 696
Other 631 263 644 722 753 145
Disposal group liabilities held for sale 212 484 22 341 16 603
Total equity and liabilities 69 774 447 64 063 655 64 608 210
Net asset carrying value per share (cents) 17 055 14 918 15 887
CONDENSED CONSOLIDATED INCOME STATEMENT
Unaudited Unaudited*
30 September 30 September
% 2016 2015
change R'000 R'000
Revenue 7 000 076 6 120 938
Net gaming win 4 324 914 4 117 201
Income 10.6% 11 324 990 10 238 139
Expenses (8 508 555) (7 574 866)
EBITDA 5.8% 2 816 435 2 663 273
Depreciation and amortisation (712 829) (675 250)
Operating profit 2 103 606 1 988 023
Investment income 120 199 81 667
Finance costs (782 572) (652 100)
Share of profits of associates and joint ventures 22 234 14 791
Gain on bargain purchase 12 764 -
Investment surplus 46 131 529
Asset impairments (4 997) (5 403)
Fair value adjustments of financial instruments - (22 552)
Impairment of goodwill and investments - (2 248)
Profit before taxation 8.2% 1 517 365 1 402 707
Taxation (396 419) (437 250)
Profit for the period from continuing operations 1 120 946 965 457
Discontinued operations (203 929) 29 919
Profit for the period 917 017 995 376
Attributable to:
Equity holders of the parent 376 611 506 676
Non-controlling interest 540 406 488 700
917 017 995 376
* Restated
CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
Unaudited Unaudited
30 September 30 September
2016 2015
R'000 R'000
Profit for the period 917 017 995 376
Other comprehensive income:
Items that may be reclassified subsequently to profit or loss
Foreign currency translation differences (412 532) 325 909
Cash flow hedge reserve (73 683) 37 954
Available-for-sale financial asset revaluations (19 006) -
Total comprehensive income 411 796 1 359 239
Attributable to:
Equity holders of the parent 1 975 727 428
Non-controlling interest 409 821 631 811
411 796 1 359 239
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited
30 September 30 September
2016 2015
R'000 R'000
Balance at the beginning of the period 32 927 180 30 503 423
Share capital and premium
Treasury shares released 13 545 29 592
Shares repurchased (1 722 859) (14 160)
Current operations
Total comprehensive income 411 796 1 359 239
Equity-settled share-based payments 5 106 4 786
Non-controlling interest on acquisition of subsidiaries 1 954 607 -
Disposal of subsidiary (327 275) -
Effects of changes in holding 1 655 996 (7 729)
Dividends (537 036) (456 617)
Balance at the end of the period 34 381 060 31 418 534
RECONCILIATION OF HEADLINE EARNINGS
Unaudited Unaudited
30 September 2016 30 September 2015
% Gross Net Gross Net
change R'000 R'000 R'000 R'000
Earnings attributable to equity holders
of the parent (25.7%) 376 611 506 676
Gain on bargain purchase (12 764) (5 535) - -
Impairment of goodwill - - 2 248 1 443
Remeasurement to fair value less cost to sell 191 134 37 533 - -
Losses/(gains) on disposal of plant and equipment 171 239 (5 093) (2 073)
Impairment of plant and equipment 1 775 597 5 195 1 876
Foreign currency translation reserve recycled (253 844) (216 314) - -
Losses/(profit) from disposal/part disposal
of subsidiary 419 370 401 702 (529) (274)
Gain on disposal of associates and joint ventures - - (4 873) (2 129)
Impairment of associates and joint ventures 85 18 - -
Impairment of intangible assets - - 208 133
Recycling of fair value reserves relating to
available-for-sale financial instruments (46 250) (20 056)
Gains on disposal of investment property 119 30 (8 497) (2 936)
Headline profit 14.3% 574 825 502 716
Basic earnings per share (cents)
Earnings (23.0%) 374.64 486.42
Continuing operations 564.75 467.40
Discontinued operations (190.11) 19.02
Headline earnings 18.5% 571.82 482.61
Continuing operations 540.07 465.17
Discontinued operations 31.75 17.44
Weighted average number of shares in issue ('000) 100 526 104 165
Actual number of share in issue at the end of
the period (net of treasury shares) ('000) 87 997 104 188
Diluted earnings per share (cents)
Earnings (23.0%) 370.45 480.85
Continuing operations 558.44 462.05
Discontinued operations (187.99) 18.80
Headline earnings 18.5% 565.43 477.09
Continuing operations 534.04 459.85
Discontinued operations 31.39 17.24
Weighted average number of shares in issue ('000) 101 662 105 371
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited
30 September 30 September
2016 2015
R'000 R'000
Cash flows from operating activities 863 086 1 020 926
Cash generated by operations 2 708 241 2 522 286
Net finance costs (677 200) (539 927)
Taxation paid (511 879) (504 816)
Dividends paid (656 076) (456 617)
Cash flows from investing activities (1 051 070) (2 003 208)
Business combinations and disposals 347 083 -
Investments acquired (514 686) (264 910)
Dividends received 66 602 13 858
Decrease/(increase) in loans and receivables 366 332 (272 517)
Intangible assets acquired (16 093) (28 200)
Investment properties
- Additions (234 451) (265 063)
- Disposals - 31 178
Property plant and equipment
- Additions (1 119 068) (1 234 690)
- Disposals 53 211 17 136
Cash flows from financing activities 652 098 444 011
Ordinary shares issued and treasury shares released 7 838 3 223
Ordinary shares repurchased (1 718 936) (14 159)
Transactions with non-controlling shareholders 688 055 4 876
Net funding raised 1 675 141 450 071
Increase/(decrease) in cash and cash equivalents 464 114 (538 271)
Cash and cash equivalents
At the beginning of the period 520 432 709 231
Foreign exchange differences (23 595) 16 124
At the end of the period 960 951 187 084
Bank balances and deposits 3 067 220 3 653 220
Bank overdrafts (2 164 938) (3 484 624)
Cash in disposal groups held for sale 58 669 18 488
Cash and cash equivalents 960 951 187 084
SEGMENTAL ANALYSIS
Unaudited six months ended Unaudited six months ended
30 September 2016 30 September 2015*
Net gaming Net gaming
Revenue win Revenue win
R'000 R'000 R'000 R'000
Media and broadcasting 1 266 149 - 1 137 719 -
Non-casino gaming 46 036 646 009 25 390 555 435
Casino gaming and hotels 2 615 271 3 678 905 2 288 786 3 561 766
Transport 817 064 - 725 088 -
Vehicle component manufacture 176 552 - 154 207 -
Properties 216 921 - 109 128 -
Mining 512 835 - 375 561 -
Branded products and manufacturing 1 348 233 - 1 303 875 -
Other 1 015 - 1 184 -
Total 7 000 076 4 324 914 6 120 938 4 117 201
EBITDA
Unaudited six months ended
30 September
2016 2015*
R'000 R'000
Media and broadcasting 285 692 196 600
Non-casino gaming 210 366 154 683
Casino gaming and hotels 1 910 189 1 985 355
Transport 213 230 173 170
Vehicle component manufacture 11 439 11 716
Properties 90 944 67 745
Mining 97 129 33 777
Branded products and manufacturing 59 877 75 801
Other (62 431) (35 574)
Total 2 816 435 2 663 273
Profit before tax
Unaudited six months ended
30 September
2016 2015*
R'000 R'000
Media and broadcasting 199 008 100 424
Non-casino gaming 132 984 78 519
Casino gaming and hotels 1 067 539 1 103 063
Transport 158 879 121 140
Vehicle component manufacture 649 3 304
Properties 32 760 26 844
Mining 47 961 2 550
Branded products and manufacturing 7 971 25 803
Other (130 386) (58 940)
Total 1 517 365 1 402 707
Headline earnings
Unaudited six months ended
30 September
2016 2015
R'000 R'000
Media and broadcasting 65 631 33 265
Non-casino gaming 48 610 25 342
Casino gaming and hotels 373 563 375 541
Information technology 4 920 6 167
Transport 110 498 83 950
Vehicle component manufacture 606 3 468
Beverages 16 491 (1 416)
Properties 25 185 22 503
Mining 35 687 2 650
Branded products and manufacturing 1 267 8 071
Other (107 633) (56 825)
Total 574 825 502 716
* Restated
NOTES
BASIS OF PREPARATION AND ACCOUNTING POLICIES
The results for the six months ended 30 September 2016 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. The accounting policies applied by the group in the
preparation of these condensed consolidated interim financial statements are consistent
with those applied by the group in its consolidated financial statements for the year
ended 31 March 2016. As required by the JSE Limited Listings Requirements, the group
reports headline earnings in accordance with Circular 2/2015: 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) and have neither been audited nor independently reviewed
by the group's auditors.
CHANGE IN ACCOUNTING ESTIMATE
Non-casino gaming
The review of the useful life of gaming machines by the group's non-casino gaming
operations resulted in an increase in the useful life used for depreciation purposes
due to the use of gaming machines for longer than originally expected. The group
revised the useful life of gaming machines from six years to seven years effective
1 April 2016. The effect of the change in the useful life of gaming machines on the
depreciation expense for the current period is a decrease of R5 million and an expected
decrease for future periods of R10 million per annum. Galaxy Bingo's site development
costs were previously depreciated over the term of the initial lease, but the estimated
depreciation period has been amended to include guaranteed renewal options, limited
to a 10-year total depreciation term. The effect of the change in the depreciation
term for site development costs on the depreciation expense for the current period
is a decrease of R4 million and an expected annual decrease for future periods of
R7 million.
DISCONTINUED OPERATIONS AND DISPOSAL GROUPS HELD FOR SALE
Beverages
The group entered into agreements on 10 May 2016 to dispose of its interest in the
business operations of KWV Holdings, included in the beverages segment. The results
of these operations are accordingly included in discontinued operations in the current
and prior periods and its assets of R1 704 million and liabilities of R212 million in
disposal groups held for sale in the statement of financial position in the current period.
Media and broadcasting
The board of eMedia Investments resolved to exit certain of its offshore and local
non-core operations during the financial year ending 31 March 2015. Further local non-core
operations have been reclassified to discontinued operations in the current year and the
prior period results restated for these. The results of these operations are included
in the media and broadcasting segment, are included in discontinued operations in the
current and prior period and its assets of R12 million (31 March 2016: R145 million)
and liabilities of R1 million (31 March 2016: R17 million) in disposal groups held for
sale in the statement of financial position in the current and prior years.
Media and broadcasting and other
During the current period the group disposed of its Australian subsidiary,
HCI Investments Australia. The results of these operations are included in the media
and broadcasting and other segments and have been reclassified to discontinued
operations in the current and prior periods in the income statement.
Information technology
During the current period the group disposed of its information technology operations
(Syntell). The results of these operations have been reclassified to discontinued
operations in the current and prior periods in the income statement.
Casino gaming and hotels
The assets acquired by Tsogo Sun Holdings upon the acquisition of Hospitality Property
Fund included properties held for sale and are consequently included in disposal group
assets held for sale. The carrying value of these properties totalled R88 million at
30 September 2016.
Branded products and manufacturing
Property, plant and equipment to the value of R16 million is held as disposal group
assets held for sale by Deneb Investments.
The results of discontinued operations were as follows:
eMedia HCI
offshore Investments KWV
operations Australia Syntell Holdings
Rm Rm Rm Rm
(Loss)/profit after tax (6) 28 11 (71)
Loss on disposal (59) (345) (15) -
Foreign currency translation reserves
reclassified to profit and loss 104 149 - -
DISPOSALS
The group disposed of the following subsidiaries during the current period:
- HCI Investments Australia (including Oceania Capital Partners), effective
16 August 2016, for proceeds of R325 million.
- Mars Holdings (including Syntell), effective 15 September 2016, for proceeds of
R92 million. The timing and amount in respect of contingent proceeds of a maximum
of R19.2 million has not been determined as at the reporting date.
- Power Entertainment, effective 1 July 2016, for proceeds of US$0.6 million.
The following were the assets and liabilities disposed of:
Rm
Non-current assets 812
Current assets 657
Non-current liabilities (133)
Current liabilities (168)
Net assets disposed of 1 168
Non-controlling interest (317)
Loss on disposal (419)
Disposal proceeds 431
Cash balances disposed of (226)
Net cash received 205
BUSINESS COMBINATIONS
Casino gaming and hotels
Tsogo Sun Holdings acquired control of Hospitality Property Fund ("HPF") effective
1 September 2016. The group initially acquired 55% of the HPF B-linked units (27% of
the voting interest) in August 2015. It subsequently acquired a controlling stake
through the injection of hotel assets for shares such that the issue of shares to the
group resulted in the group owning 50.6% of the shares following the reconstitution
of HPF's capital into a single class of shares.
The acquired business contributed incremental revenues of R32 million and profit after
tax of R31 million to the group for the period from date of control to 30 September 2016.
Had the acquisition occurred on 1 April 2016 group income would have increased by an
additional R128 million and profit after tax (including exceptional items recognised
during the HPF capital restructure) would have increased by R297 million. The assets
and liabilities acquired, for which the final fair values have been determined, are
as follows:
Rm
Investment properties 4 781
Other non-current assets 6
Other current assets 385
Borrowings (1 725)
Other current liabilities (223)
Net assets acquired 3 224
Purchase consideration paid in assets (2 913)
Existing interest at fair value (298)
Gain on bargain purchase 13
Non-controlling interests are recognised at their proportionate share of the entity's
net assets at fair value.
Media and broadcasting
The group acquired 100% of the shares in Waterfront Film Studios effective 1 July 2016.
The purchase consideration was R7.5 million, settled in cash. The purchase price
allocation is provisional and goodwill of R2 million was recognised upon acquisition.
The acquired business contributed incremental revenues of R3 million and losses after
tax of R2 million to the group for the period from date of control to 30 September 2016.
Had the acquisition occurred on 1 April 2016 group income would have increased by an
additional R10 million and profit after tax would have decreased by R1 million.
Branded products and manufacturing
Effective 31 May 2016 the group acquired 100% of the shares in Premier Rainwater Goods
for a cash consideration of R77 million. Goodwill of R28 million arose on acquisition,
for which the purchase price allocation is provisional. The acquired business
contributed incremental revenues of R34 million and profit after tax of R3 million to
the group for the period from date of control to 30 September 2016. Had the acquisition
occurred on 1 April 2016 group income would have increased by an additional R25 million
and profit after tax would have increased by R4 million.
RESULTS
GROUP INCOME STATEMENT AND SEGMENTAL ANALYSIS
Media and broadcasting
Revenue in respect of media and broadcasting includes only revenue from eMedia Holdings
as revenue from the Australian media operations is included in discontinued operations.
eMedia recorded an increase in revenue of 11% against the backdrop of an 11% increase
in advertising revenue. New scheduling and programming since March 2015 have led to
the regaining of lost market share in the second half of the previous financial year,
with increased advertising revenue following in the current period. Property and
facility revenue increased as well, with subscription and content revenue stable.
EBITDA increased by 45% and is all attributable to eMedia. The increase is mainly
attributable to the increase in advertising revenue and foreign exchange gains of
R20 million included in cost of sales, as opposed to a loss of R20 million in the
prior comparative period. EBITDA includes losses of R137 million in respect of the
multichannel and OVHD businesses, which remain in a start-up phase. Profit before tax
and headline earnings increased by similar margins, with no significant once-off items
included in the results of continuing operations.
Non-casino gaming
Net gaming win from non-casino gaming increased by 16% (Vukani 13% and other gaming 23%).
The number of active limited payout machines in Vukani have increased by 1.4% to 5 341
and average GGR per machine by 8.1% to R19 989 during the period. The number of
electronic bingo terminals increased by 14.9% to 1 886 during the period. EBITDA
increased 36%, with gains of R27 million in Vukani assisted by gains of R28 million
in other gaming. Due to overheads being kept stable, especially staff costs and salaries,
profit before tax showed a 70% improvement following the increase in EBITDA.
Casino gaming and hotels
Revenue contributed by Tsogo Sun increased by 14%, significantly as a result of a 12%
increase in rooms revenue and 63% increase in property rental income following the
acquisition of HPF. Net gaming win increased by 3%, with Gold Reef recording an
increase of 11% and the rest of the major casinos recording stable net gaming win.
EBITDA decreased by 4%, the decrease mainly attributable to a R98 million charge
relating to Tsogo Sun's long-term incentive scheme (R41 million gain in the prior
comparative period). Profit before tax decreased by 3% and includes a gain on bargain
purchase of R13 million relating to the acquisition of HPF. Also included are recycled
reserves in respect of available-for-sale financial instruments of R46 million,
relating to the shares held in HPF prior to the business combination. Contribution
to headline earnings remained stable at R374 million. This amount includes the effect
of the group's dilution of its stake in Tsogo Sun in August 2016. Headline earnings
were adjusted for the R46 million recycling of fair value reserves and R13 million
gain on bargain purchase.
Information technology
The results of Syntell have been reclassified to discontinued operations in the current
and prior periods following its disposal in September 2016.
Transport
Golden Arrow Bus Services ("GABS") managed to increase revenue by 13% subsequent to a
subsidy increase in excess of previous escalations and new routes having generated
additional revenue. EBITDA increased by 23% following the increase in revenue.
In addition, savings were achieved on supplies and services. Transport remains the
group's second-largest contributor to headline earnings, with gains in profit before
tax not affected by exceptional items reversed for headline earnings.
Vehicle component manufacture
The increase in vehicle component manufacture revenue of R22 million related significantly
all to tooling sales. The increase in revenue yielded no increase in EBITDA due to
tooling sales to manufacturers attracting no margin. These sales will, however, generate
future revenue and profit once the constructed production lines have started operations.
Increased finance costs resulted in a decrease of 80% in profit before tax.
Beverages
The results of KWV Holdings have been classified as discontinued operations in the prior
and current periods. Losses after tax of R71 million (2015: R4 million) in the current
year includes impairments of R191 million.
Properties
Properties' revenue increased by 99% due to additional revenue from the exhibition
business at Gallagher Estate acquired in March 2016, new development revenue for
Olympus Village Mall, Blue Hills Mall and Rand Daily Mail House, and annual escalations
in Kalahari Village Mall, The Point and Gallagher Estate. Properties' EBITDA gains
were somewhat off-set by increases in finance charges of R22 million, predominantly in
relation to the completion of Blue Hills Mall, Olympus Village Mall and the
Alexander Forbes office building in La Lucia.
Mining
Increased revenue was recorded at the Palesa and Mbali Collieries in mining. Sales
volumes at Palesa increased by 12% following reduced stockpile failures during the
period as compared to the prior comparative period. Sales volumes at Mbali increased
by 27%. In addition, export sales prices achieved at Mbali were 25% higher than the
prior comparative period. EBITDA increased by 188%, mainly as a result of coal quality
issues encountered at Palesa Colliery during the prior comparative period not recurring
and gross profit margins at the Mbali Colliery increasing from 29% to 42%. Profit before
tax increased by R45 million, with additional depreciation of R19 million reducing
EBITDA gains due to increased tonnages mined. Earnings increased in line with the
profit before tax increase, adjusting for tax.
Branded products and manufacturing
Deneb Investments increased revenue by 3%, with growth attributable to their industrial
operations and in particular the first-time recognition of revenue from Premier Rainwater
Goods. EBITDA decreased by 21% as foreign exchange losses of R20 million were recorded
compared to gains of R12 million in the prior comparative period, reversing gains made
in the industrials division. These losses were largely unrealised and relate to hedging
instruments. Combined with a marginal increase in finance costs, these losses resulted
in profit before tax and headline earnings decreasing significantly.
Other
EBITDA losses from other increased following a share-based payment charge in respect
of cash-settled options of certain directors of Niveus and the receipt of a raising
fee from the Ithuba funding arrangements in the prior period not recurring. Losses
before tax includes the mentioned share-based payment charge and head office finance
costs of R100 million. Furthermore, losses of R9 million from associate investments
at holding company level, investment income of R40 million from the Ithuba funding
arrangements and HCI and Niveus head office overheads are included. Headline earnings
also include R20 million headline profit from HCI Australia (non-media).
Notable items on the consolidated income statement include:
Finance costs increased as a result of head office finance costs increasing by R21 million,
Tsogo Sun finance costs by R74 million and HCI Properties finance costs by R22 million.
The gain on bargain purchase and investment surplus relate to the HPF acquisition.
Increased profitability in eMedia and Niveus led to the increase in non-controlling
interests' share of earnings.
Headline earnings per share increased by 18.5% with gross headline earnings increasing
14.3%. The weighted average number of shares in issue in the prior period of 104 165 000
was reduced to 100 526 000 in the current period due to 16 140 000 shares being
repurchased during August 2016, which resulted in the discrepancy between the gross
and per share profit increase.
GROUP STATEMENT OF FINANCIAL POSITION AND CASH FLOW
Group long-term borrowings at 30 September 2016 comprise central borrowings of
R1 629 million, central investment property-related borrowings of R1 250 million,
borrowings in Tsogo Sun of R8 787 million and the remainder in other operating
subsidiaries. Included in the current portion of borrowings is R551 million owing
to SACTWU, being part of their proportionate non-controlling share in eMedia Holdings,
R636 million central borrowings and R3 764 million in short-term borrowings in Tsogo Sun.
Current central borrowings of R200 million have been refinanced subsequent to reporting
date and a further R136 million is expected to be refinanced into longer-term borrowings
in due course. Bank overdraft facilities include R1 789 million in Tsogo Sun.
Included in cash flow from investing activities is R392 million received by the group
as part of the premature repayment of funding advanced to Ithuba Holdings, the current
operator of the National Lottery. Net funding of R1 675 million was raised during the
period, R574 million of which is short term. Transactions with non-controlling
shareholders include the repurchase of shares by Deneb Investments in the amount of
R268 million and the dilution of the group's interest in its Tsogo Sun holding vehicle
through an issue of shares to non-controlling shareholders.
Shareholders are referred to the individually published results of eMedia Holdings
Limited, Tsogo Sun Holdings Limited, Niveus Investments Limited and Deneb Investments
Limited for further commentary on the media and broadcasting; casino gaming and hotels,
non-casino gaming, beverages, and branded products and manufacturing operations.
COMMENTARY
Headline earnings of the group increased by 14.3% for the six-month period to the end
of September over the previous year. In itself this is a good result. When one
recognises that the resultant growth in headline earnings per share is enhanced some
15% by virtue of the share buy-back effected earlier this year, the result is rather better.
In truth, our results are a mixed bag of a flat performance by our main asset Tsogo Sun
combined with really encouraging performances by most of the other businesses in the group.
Tsogo Sun succeeded in closing its merger with the Hospitality Property Fund, which
over time will allow it to hold more of its valuable hotel properties in the form of
a listed REIT rather than simply having them privately held. It likewise succeeded in
implementing its purchase of 20% of Grand West and has commenced its major expansion
of Sun Coast Casino in Durban. These developments will strengthen the longer-term
performance of that company.
Our coal mining division improved significantly, both as a result of production
improving as well as the price of export coal starting to recover.
Likewise the media division doubled its headline earnings, admittedly off a low base.
The turnaround of eTV's audience share noted in our last year-end comment has been
followed by revenues lifting in its wake. The rollout of OVHD was a little slower
than hoped but approximately 150 000 new boxes were rolled out during the period.
There is every expectation that the bouquet will have grown sufficiently by our next
report for media agencies to be provided with independent daily ratings of the
performance of its channels. This will allow our multichannel offering on that
platform to be independently valued by the advertising industry, which is an important
start-up milestone.
We have not yet concluded any agreement extending the life of eNCA as an exclusive
channel on the DSTV platform but our relationship remains stable and we do not
currently foresee any major obstacle to doing so in the near future.
GABS has again done exceptionally well. Weak diesel prices have undoubtedly assisted,
but the company has performed well by any number of standards. We are happy to report
GABS recently bought its 1 000th MAN bus. This virtually completes the renewal of the
entire fleet since we took over the company 10 years ago. Unquestionably Cape Town
currently has the most modern bus fleet providing scheduled public transport of any
city in the country and we are really proud to have been able to play a major part
in that record. It is certainly a far cry from where we were 10 years ago when the
majority of the fleet was considerably more than 10 years old.
The property division has not yet emerged as a major contributor to profits in light
of the fact that many of the properties are either in the process of construction or
are heavily geared, having been recently developed. However, the growth of this division
is already visible as the EBITDA comparatives reveal. We remain excited at the progress
of this division, which has performed exceptionally well, identifying new developmental
stock, tightly managing developments within budget and efficiently managing completed
developments across a wide range of properties from shopping centres to office blocks,
industrial parks, warehousing, convention spaces and inner-city residential developments.
The continued growth of non-casino gaming has been very encouraging. Despite endless
obstruction to the rollout of new licences granted to us we have persevered. A good
step forward has been achieved in the KwaZulu-Natal region, where the Gambling Board
has settled such litigation with us. Hopefully this will allow our bingo operation to
finally roll out its licences which have been loss-making for quite some time while
legal impediments to their implementation were dealt with.
Deneb has had its rather encouraging progress disguised at the finish post by the
volatility in the Rand's exchange rate. Our policy of hedging foreign currency risk
has obliged the company to take on the chin a rather significant swing in its short-term
fortunes due to the reporting date valuation of hedging instruments. There is, however,
a steady increase in the underlying profitability of the business and we remain confident
this reversal will be recovered in consequentially wider margins as sales are realised
in the second half of the year. When one takes into consideration the fact that Deneb
succeeded in buying back approximately 24% of its equity during the period, this will
have an enhanced positive effect in the future.
The group also disposed of KWV, Power Entertainment and Syntell during the period for
cash. Likewise the buy-back of HCI shares was effected through a mixture of cash, the
sale of Oceania Capital Partners and an effective dilution of our holding into Tsogo Sun.
HCI is currently underwriting a rights issue for Impact Oil and Gas, which remains a key
developmental project of the group. Drilling in any of its marine areas in South Africa
remains on hold, pending government finalising amendments to the Mineral and Petroleum
Resources Development Act. Despite an apparent mutual understanding between industry
and the government department responsible early in the year, as well as encouraging
indications of intent to prioritise rapid implementation by both Treasury and Cabinet
as a whole, the progress of this Bill through its various parliamentary processes has
not been fast by any stretch of the imagination, though we remain hopeful for next year.
CHANGES IN DIRECTORATE
Mr Mahomed Gani was appointed as independent non-executive director and chairman of
the audit committee with effect from 30 August 2016.
DIVIDEND TO SHAREHOLDERS
The directors of HCI have resolved to declare an interim ordinary dividend number 54
of 45 cents (gross) per HCI share for the six months ended 30 September 2016 from
income reserves. The salient dates for the payment of the dividend are as follows:
Last day to trade cum dividend Monday, 12 December 2016
Commence trading ex dividend Tuesday, 13 December 2016
Record date Thursday, 15 December 2016
Payment date Monday, 19 December 2016
No share certificates may be dematerialised or rematerialised between Tuesday,
13 December 2016 and Thursday, 15 December 2016, 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 number of ordinary shares in issue at the date of this declaration is 92 814 648
(excluding treasury shares held by the company).
- The DT amounts to 6.75 cents per share.
- The net local dividend amount is 38.25 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.
For and on behalf of the board of directors
JA Copelyn TG Govender
Chief Executive Officer Financial Director
Cape Town
23 November 2016
Directors:
JA Copelyn (Chief Executive Officer), TG Govender (Financial Director), Y Shaik,
MSI Gani*, MF Magugu*, ML Molefi*, VE Mphande* (Chairman), JG Ngcobo*, R Watson*
* Independent non-executive
Company secretary:
HCI Managerial Services Proprietary Limited
Registered office:
5th Floor, 4 Stirling Street, Zonnebloem, Cape Town, 7925. PO Box 5251, Cape Town, 8000
Telephone: 021 481 7560
Telefax: 021 434 1539
Auditors:
Grant Thornton Johannesburg Partnership
@Grant Thornton, Wanderers Office Park, 52 Corlett Drive, Illovo, 2196
Private Bag X10046, Sandton, 2146
Transfer secretaries:
Computershare Investor Services Proprietary Limited
70 Marshall Street, Johannesburg, 2001. PO Box 61051, Marshalltown, 2107
Sponsor:
Investec Bank Limited
100 Grayston Drive, Sandton, Sandown, 2196
Website address:
www.hci.co.za
Date: 23/11/2016 03:42:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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