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CAPESTAR - INTERIM REPORT

Release Date: 27/11/1997 14:01:25      Code(s): HAR HARO
CAPESTAR GROWTH INVESTMENTS LIMITED
("CAPESTAR")
(FORMERLY TOWLES, EDGAR JACOBS LIMITED)
INTERIM REPORT AT 31 DECEMBER 1998 INCORPORATING A CAUTIONARY ANNOUNCEMENT
* HEADLINE EARNINGS PER SHARE UP FROM 0.6 CENTS AT DECEMBER 1997, TO 23.21
CENTS AT DECEMBER 1998
* THE STRATEGIC DEVELOPMENT OF PORTFOLIO COMPANIES, HIGHLIGHTED BY:
* THE SUCCESSFUL LAUNCH AND POSITIONING OF POPUFIN IN THE HIGH-GROWTH, LOW-RISK
END OF THE MICROLENDING SECTOR;
* THE DEVELOPMENT OF A NATIONAL PRESENCE BY WASTEMAN AND SUBSTANTIAL PROGRESS
TOWARDS A LISTING;
* SIGNIFICANT PROGRESS BY SAIL IN ACHIEVING LEADERSHIP IN THE COMMERCIAL
EXPLOITATION OF SPORTS AND LEISURE BRANDS;
* STRONG EXPORT SALES GROWTH IN TEJ
INCOME STATEMENTS
                                            6 MONTHS     6 MONTHS
                                            31.12.1998   31.12.1997
                                            UNAUDITED    UNAUDITED
                                 NOTES      R000'S       R000'S
INCOME BEFORE TAXATION           2          2 139        712
TAXATION                                    642          249
INCOME AFTER TAXATION                       1 497        463
SHARE OF RETAINED INCOME/(LOSS) OF ASSOCIATE
COMPANIES                                   1 412        (411)
PROVISION FOR DIMINUTION IN ASSOCIATE
 COMPANIES                                  (1 400)      -
EARNINGS ATTRIBUTABLE TO ORDINARY
 SHAREHOLDERS                               1 509        52
HEADLINE EARNINGS PER ORDINARY
 SHARE (CENTS)                              23.21        0.6
EARNINGS AFTER TAX PER ORDINARY SHARE
 (CENTS)                                    12.04        0.6
EARNINGS PER SHARE ON FULLY DILUTED
 BASIS (CENTS)                              11.53        0.5
NUMBER OF SHARES ISSUED
- ORDINARY SHARES OF 50C EACH               12 532 294   9 429 875
CONVERTIBLE PREFERENCE SHARES OF 0.1 C EACH *1 910 646   1 885 975
*BASED ON THE CLOSING CAPESTAR SHARE PRICE ON 31/12/1998 OF R7.55 (1997:
R8.40), AND THE PREFERENCE SHARE CONVERSION PARTICIPATION MECHANISM, THESE
WOULD CONVERT INTO 559 552 (1997: 932 625)  ORDINARY SHARES AT 31 DECEMBER.
BALANCE SHEETS
CAPITAL EMPLOYED
SHAREHOLDERS' INTEREST                      80 389       45 583
EMPLOYMENT OF CAPITAL
FIXED ASSETS                                280          56
INVESTMENTS IN ASSOCIATE COMPANIES    1     53 049       20 121
LOANS TO ASSOCIATE COMPANIES                9 676        7 807
NET CURRENT ASSETS                          17 384       17 599
CASH AND SHORT-TERM DEPOSITS                18 688       18 461
CURRENT LIABILITIES                         1 304        862
                                            80 389       45 583
NOTES
1. ASSOCIATE COMPANIES
THESE REPRESENT ALL OF CAPESTAR'S INVESTEE COMPANIES WHICH HAVE BEEN ACCOUNTED
FOR UNDER THE EQUITY METHOD.
SHARES AT COST                              49 717       20 532
SHARE OF POST-ACQUISITION RETAINED INCOME/
 (LOSSES)                                   4 732        (411)
PROVISION FOR DIMINUTION                    (1 400)      -
CARRYING VALUE OF INVESTEE COMPANIES        53 049       20 121
DIRECTORS' VALUE OF INVESTEE COMPANIES      67 913       20 532
2. INCOME BEFORE TAXATION
THIS COMPRISES INTEREST EARNED ON SURPLUS FUNDS AND LOANS MADE TO INVESTEE
COMPANIES, AND FEES EARNED.
OVERVIEW
DURING THE PERIOD UNDER REVIEW, THE INVESTMENT ACTIVITY OF CAPESTAR WAS
DIRECTED AT TWO FURTHER LINKED INVESTMENTS, IN PEOPLES FURNISHERS AND POPUFIN,
AND TWO ACQUISITIONS THROUGH THE WASTEMAN GROUP. IN ADDITION, NUMSA WAS
INTRODUCED AS A STRATEGIC INVESTOR IN SOURCECOM TECHNOLOGY SOLUTIONS.
WASTEMAN GROUP (PTY) LTD ("WASTEMAN")
* WASTEMAN'S BUSINESSES INCLUDE WASTE-TRANSPORT AND HANDLING, LANDFILL
MANAGEMENT, AND MUNICIPAL SERVICES. IN THE SIX MONTHS TO DECEMBER 1998,
WASTEMAN HAS GROWN SIGNIFICANTLY, BOTH ORGANICALLY AND THROUGH STRATEGIC
ACQUISITIONS, AND IS CURRENTLY TRADING WELL AND SIGNIFICANTLY AHEAD OF
EXPECTATIONS. WASTEMAN INTENDS TO PROGRESS TOWARDS A JSE LISTING IN THE SHORT
TO MEDIUM TERM.
* IN AUGUST 1998, WASTEMAN MERGED ITS BUSINESS WITH L&S PLANT HIRE (PTY) LTD
("L&S"), A GAUTENG BASED PROVIDER OF MUNICIPAL AND CORPORATE WASTE SERVICES,
FOR CASH AND SHARES. AS PART OF THIS TRANSACTION, CAPESTAR INVESTED AN
ADDITIONAL R2.5 MILLION INTO THE COMBINED COMPANY, TO BE RENAMED WASTEMAN
GROUP, AND AS A RESULT OF ISSUING SHARES TO THE L&S VENDORS, WAS DILUTED DOWN
TO A 21.2% OWNERSHIP.
* IN JANUARY 1999, WASTEMAN ACQUIRED RECLAM (PTY) LTD, COMPRISING WASTE
SERVICES AND HYDROCHEM, FOR R48 MILLION. THE ACQUISITION OF THESE DURBAN-BASED
WASTE MANAGEMENT AND INDUSTRIAL CLEANSING COMPANIES GIVES WASTEMAN A NATIONAL
PRESENCE IN THE WASTE INDUSTRY.
SOURCECOM TECHNOLOGY SOLUTIONS (PTY) LTD ("STS")
* STS, A PROVIDER OF INFORMATION TECHNOLOGY SERVICES, HAS DELIVERED
BELOW-FORECAST PROFIT RESULTS FOR THE INTERIM PERIOD, BUT HAS BEEN SUCCESSFUL
IN SHIFTING ITS REVENUE MIX TOWARDS HIGH-MARGIN, VALUE-ADDED SERVICES. SEVERAL
STRATEGIC ACQUISITIONS ARE CURRENTLY BEING INVESTIGATED.
* IN JULY 1998, STS ACQUIRED 51% OF THE ISU CAMPUS TRAINING BUSINESS FOR A
PURCHASE CONSIDERATION OF R11 MILLION. ISU CAMPUS PERFORMED SIGNIFICANTLY BELOW
MANAGEMENT EXPECTATIONS IMMEDIATELY UPON CONCLUSION OF THE ACQUISITION,
PROMPTING THE STS BOARD TO PROCEED WITH LEGAL ACTION AGAINST THE VENDORS. FACED
WITH CONTINUING LOSSES AND CASH REQUIREMENTS, THE STS BOARD PLACED ISU CAMPUS
INTO VOLUNTARY LIQUIDATION IN FEBRUARY 1999.
* IN AUGUST 1998, NUMSA INVESTMENT COMPANY (PTY) LTD ACQUIRED 35% OF STS FOR A
FRESH INJECTION OF CAPITAL. AS A RESULT OF THIS TRANSACTION, CAPESTAR'S EQUITY
STAKE IN STS WAS DILUTED FROM 37.3% TO 24.245%.
* IN LIGHT OF THE ABOVE, THE DIRECTORS HAVE REVISED THE 30 JUNE 1998 VALUATION
OF CAPESTAR'S INVESTMENT IN STS DOWNWARD AND HAVE PROVIDED FOR THE POTENTIAL
DIMINUTION IN VALUE RESULTING FROM THE ISU CLOSURE.
SOUTHERN AFRICAN INVESTMENTS LIMITED ("SAIL")
* SAIL, THE JSE-LISTED SPORTS BRAND INVESTMENT COMPANY, HAS BEEN HIGHLY ACTIVE
IN THE SIX MONTHS ENDING DECEMBER 1998. DURING THIS TIME, SAIL STRENGTHENED ITS
POSITION IN THE SOUTH AFRICAN SPORTS INDUSTRY BY MAKING THE FOLLOWING STRATEGIC
ACQUISITIONS:
* 54% OF PRO RANGE (PTY) LTD, OWNER OF UPMARKET GOLF DRIVING RANGES, EFFECTIVE
1 MARCH 1998;
* 100% OF SAIL MEDIA (FORMERLY "LUNA INTERNATIONAL"), EFFECTIVE 1 AUGUST 1998.
SAIL MEDIA IS INTERNATIONALLY FOCUSSED ON THE FOLLOWING AREAS:
* THE ACQUISITION OF PUBLISHING RIGHTS OF SPORTS LIFESTYLE MAGAZINES;
* ELECTRONIC PUBLISHING AND BROADCASTING;
* GLOBAL EVENT CONSULTING.
* SAIL ACQUIRED THE FOLLOWING INTERESTS IN VARIOUS SPORTS TEAMS IN JANUARY 1999
* 24.9% OF EAGLES RUGBY (PTY) LTD - FORMERLY SOUTH WESTERN DISTRICTS;
* 24.9% OF FALCONS RUGBY (PTY) LTD - FORMERLY GAUTENG FALCONS;
* 24.9% OF EASTERN PROVINCE RUGBY (PTY) LTD;
* 24.9% OF BORDER RUGBY (PTY) LTD;
* 50% INTEREST IN THE PSL FOOTBALL TEAM, BLOEMFONTEIN CELTICS FC (PTY) LTD.
* SAIL HAVE TRADED WELL FOR THE SIX MONTHS ENDED DECEMBER 1998 MAINLY ON THE
BACK OF THE SUCCESS OF THE BLUE BULLS RUGBY UNION, WINNERS OF THE BANKFIN
CURRIE CUP IN 1998. IN ADDITION, LOFTUS VERSFELD HAS SUCCESSFULLY STAGED
SEVERAL MAJOR LIVE ENTERTAINMENT EVENTS, AND HAS SECURED THE UTILISATION OF THE
STADIUM BY THE PREMIER SOCCER LEAGUE TEAM, MAMELODI SUNDOWNS, AS THEIR HOME
GROUND.
TEJ (PTY) LTD ("TEJ")
DESPITE UNFAVOURABLE RETAIL TRADING CONDITIONS, TEJ, A MANUFACTURER AND
MARKETER OF KNITWEAR, TRADED AHEAD OF FORECASTS FOR THE SIX MONTHS ENDED
DECEMBER 1998, MAINLY AS A RESULT OF STRONG EXPORT SALES GROWTH. IT IS
CUSTOMARY, DUE TO SEASONAL FACTORS, FOR TEJ TO REPORT OPERATIONAL LOSSES FOR
THE FIRST SIX MONTHS OF ITS FINANCIAL YEAR. THIS YEARS SUCH LOSSES WERE
MINIMAL, AND TEJ REMAINS ON PLAN TO ACHIEVE PROFITS FOR ITS FULL FINANCIAL YEAR
PERMANENT TRUST ASSOCIATION (PTY) LTD ("PTA")
PTA, A LONG ESTABLISHED CAPE TOWN COMMERCIAL PROPERTY SERVICES COMPANY, HAS,
CONSISTENT WITH ITS COMPETITORS, NOT ENJOYED A SUCCESSFUL HALF-YEAR, AND
REPORTED A LOSS FOR THE SIX MONTHS ENDED DECEMBER 1998. THIS HAS BEEN THE
RESULT OF THE POOR ECONOMIC CLIMATE, AND MORE PARTICULARLY, THE PUNITIVE
INTEREST RATES PREVALENT IN THE MARKET DURING THE SECOND HALF OF 1998. THESE
FACTORS, TOGETHER WITH AN INCREASED SPIRAL OF VIOLENCE IN THE WESTERN CAPE,
HAVE MATERIALLY DIMINISHED PROPERTY INVESTOR CONFIDENCE, RESULTING IN A
MATERIAL REDUCTION IN PROPERTY BUSINESS LEVELS. THE SEVERITY OF THE CHANGED
MARKET CONDITIONS IS CAUSING CAPESTAR TO CONSIDER VARIOUS RESTRUCTURING
OPTIONS, AND ACCORDINGLY, A PROVISION FOR THE POTENTIAL DIMINUTION IN
CAPESTAR'S INVESTMENT VALUE HAS BEEN MADE.
AMALDA TRADING (PTY) LTD (TRADING AS "PEOPLES FURNISHERS")
* IN AUGUST 1998, CAPESTAR ACQUIRED A 33.3% SHAREHOLDING IN PEOPLES FURNISHERS.
PEOPLES FURNISHERS IS INVOLVED IN FURNITURE AND APPLIANCE RETAILING IN THE
WESTERN CAPE, WITH 9 STORES CURRENTLY OPERATIONAL.
* PEOPLES FURNISHERS, HAVING OPENED A FURTHER 2 OUTLETS, REPORTED A HEALTHY
PROFIT FOR THE INTERIM PERIOD, UP 28% ON THE COMPARATIVE PRIOR YEAR'S RESULTS.
POPUFIN (PTY) LTD AND POPUFIN AGENCY (PTY) LTD ("POPUFIN")
* SIMULTANEOUS TO THE INVESTMENT IN PEOPLES FURNISHES, CAPESTAR ACQUIRED A
22.2% SHAREHOLDING IN POPUFIN, AS WELL AS A 10% SHAREHOLDING WITH AN OPTION
OVER A FURTHER 10% EXERCISABLE ONE YEAR HENCE, IN POPUFIN AGENCY.
* THESE COMPANIES HAVE SUCCESSFULLY LAUNCHED THEMSELVES IN THE MEDIUM TO
LONG-TERM PAYROLL DEDUCTION BASED MICROLENDING BUSINESS. POPUFIN'S EXPERIENCED
MANAGEMENT TEAM HAVE SECURED NUMEROUS CONTRACTS BETWEEN, INTER ALIA, EMPLOYER,
EMPLOYEE, LABOUR UNION AND FINANCIER ORGANISATIONS.
* AS POPUFIN ARE INVOLVED IN THE PAYROLL DEDUCTION BASED END OF THE
MICROLENDING INDUSTRY, AND HENCE THE LOW RISK END OF THE MARKET, ITS PRODUCTS
ARE PRICED ACCORDINGLY, AND OFFER AMONGST THE MOST AFFORDABLE MICROLOANS
AVAILABLE. CONSEQUENTLY, POPUFIN WELCOME THE ENVISAGED TIGHTENING UP OF THE
MICROLENDING INDUSTRY, AS PROPOSED IN THE MINISTER OF FINANCE'S 1999 BUDGET
SPEECH.
* POPUFIN'S SUCCESSFUL FORMULA, WHICH HAS RESULTED IN SPECTACULAR OFFTAKE AND
MICROLOAN DRAWDOWN SINCE STARTUP, IS BASED ON LEADING THE ONGOING MARKETING AND
SCHEME MANAGEMENT FUNCTIONS, WHILST SOURCING AND LEVERAGING MICROLOAN FINANCING
FROM BOTH INTERNAL AND EXTERNAL FUNDING SOURCES. A NUMBER OF ADDITIONAL
STRATEGIC PARTNER FUNDING AND DELIVERY CONTRACTS ARE CURRENTLY IN THE PROCESS
OF BEING FINALISED.
PROSPECTS
DUE TO THE CALENDAR REVENUE SPREAD IN TEJ, THE PROFIT IMPROVEMENT TAKING PLACE
AT STS, THE ACCELERATING PROFITS OF PEOPLES FURNISHERS, POPUFIN AND WASTEMAN,
SECOND-HALF HEADLINE EPS ARE EXPECTED TO BE SIGNIFICANTLY AHEAD OF FIRST-HALF
HEADLINE EPS. ACQUISITIONS, PORTFOLIO RATIONALISATION AND PORTFOLIO COMPANY
VALUE ENHANCEMENT WILL ATTRACT GREATER URGENCY AND FOCUS IN THE SECOND-HALF
YEAR.
CAUTIONARY ANNOUNCEMENT
SHAREHOLDERS ARE REFERRED TO THE ANNOUNCEMENT PUBLISHED IN THE PRESS ON 12
JANUARY 1999 RELATING TO, INTER ALIA, THE ACQUISITION BY CAPESTAR OF A FURTHER
25.8% OF STS. IN VIEW OF THE CHANGED CIRCUMSTANCES, SHAREHOLDERS ARE ADVISED
THAT THE PARTIES WISH TO REVIEW THE TERMS OF THE TRANSACTION AS PREVIOUSLY
ANNOUNCED. THESE DISCUSSIONS MAY HAVE AN IMPACT ON THE PRICE AT WHICH CAPESTAR
ORDINARY SHARES TRADE ON THE JOHANNESBURG STOCK EXCHANGE. ACCORDINGLY,
SHAREHOLDERS ARE ADVISED TO EXERCISE CAUTION IN THEIR DEALINGS IN CAPESTAR
SHARES UNTIL A FURTHER ANNOUNCEMENT IS MADE.
ON BEHALF OF THE BOARD:
C L R HIRSCHSOHN (CHAIRMAN)           REGISTERED OFFICE
                                      SUITE 1A, NAUTICA
                                      THE WATER CLUB
CAPE TOWN                             BEACH ROAD
25 FEBRUARY 1999                      MOUILLE POINT, 8005
DIRECTORS: C L R HIRSCHSOHN (CHAIRMAN), P W BAIRD (CHIEF EXECUTIVE), A C BALL,
M DU PLESSIS, D W GANT, L N MILLER, B A OWEN, C A SONN, P G A WRIGHTON.



                                        
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