- November 21, 2018
- Posted by: Cheryl
- Category: SENS Announcements
The results are available on www.sharenet.co.za
NOTES AND COMMENTARY
BASIS OF PREPARATION AND ACCOUNTING POLICIES
The results for the six months ended 30 September 2018 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 Companies Act of South Africa, No. 71 of 2008, and the Listings Requirements of the JSE Limited (JSE).
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 2018, except for the adoption of IFRS 9 and IFRS 15 in the current period, which did not have a material impact on the results of the company. Opening retained earnings and opening non-controlling interest in the current period were decreased by R14.7 million and R2.9 million, respectively, in respect of the adoption of IFRS 9: Financial Instruments. This adjustment was made in accordance with the transitional provisions of IFRS 9 in terms of which comparative results do not need to be restated. As required by the JSE Listings Requirements, the Company reports headline earnings in accordance with Circular 4/2018: 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.
RESTATEMENT OF PRIOR PERIOD RESULTS
Gaming and hotels
The group has established during the period under review that it had treated the share of net gaming win paid to site owners in its limited payout operations incorrectly in prior periods. Net gaming win was previously recognised net of payments made to site owners in respect of their share of net gaming win and certain costs recovered reflected in revenue. In accordance with advice received from its auditors, the group wishes to restate its prior period results to correctly reflect the nature of the net gaming win share paid to site owners and certain costs recovered from these parties. The following restatement to the prior comparative period results has been recognised:
Decrease in revenue R4.5 million
Increase in net gaming win R234.2 million
Increase in expenses R229.7 million
The restatement does not affect earnings per share or headline earnings per share and no restatement to equity opening balances is required.
DISCONTINUED OPERATIONS AND DISPOSAL GROUPS HELD FOR SALE
Media and broadcasting
The results of Silverline Three Sixty and certain non-core offshore operations are included in the media and broadcasting segment and are included in discontinued operations in the current and prior periods respectively. Disposal group assets of R20 million and liabilities of R5 million relate to these operations.
Branded products and manufacturing
The board of Deneb Investments resolved during the prior comparative period to significantly rationalise its Wineland Textiles division, as well as its Seartec digital and electronic equipment division. The results of the discontinued operations of these divisions are included in discontinued operations in the income statement in the current and prior periods.
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 R65 million at 30 September 2018.
The results of discontinued operations were as follows (R’million):
Branded products and
Media and manufacturing textiles
broadcasting and electronic Gaming non-core
non-core operations equipment divisions operations
(Loss)/profit after tax (29) 1 –
Profit on disposal – – 2
Gaming and hotels
Vukani Gaming Corporation concluded agreements with TAB-Austria (TAB) to acquire the intellectual property rights to the Golden Island Casino Limited payout machines for Africa, which include the processes, formulae, methods and information controlled and owned by TAB, currently being manufactured by TAB. The effective date was 21 September 2018. The acquired business contributed no revenue or earnings to the group for the period to 30 September 2018. The provisional fair value of net assets acquired is as follows:
Intangible assets 49
Net assets acquired 49
Deferred cash purchase consideration (36)
Cash outflow on acquisition of business 13
No provisional goodwill arose on the acquisition.
GROUP INCOME STATEMENT AND SEGMENTAL ANALYSIS
Media and broadcasting
eMedia recorded an increase in revenue of 5%. A 6% increase in advertising revenue was recorded in a difficult television advertising environment. Licence fee revenue increased by 5% due to the annual contractual increase. Property and facility and content revenue remained stable. EBITDA increased by 26%, assisted by a decrease of 13% and 4% in signal distribution and employee costs, respectively, and general cost control. EBITDA includes losses of R84 million in respect of the multi-channel and OVHD businesses, which increased revenue from R22 million to R58 million in the current period, but remain in a start-up phase. To be noted is that active set top boxes have increased from 1 008 114 in the prior comparative period to 1 432 521 at this period-end. Profit before tax increased by R47 million (80%) and headline earnings increased by a similar margin. Discontinued operations, consisting significantly of Silverline Three Sixty, incurred losses of R29 million, including the impairment of goodwill of R17 million.
Gaming and hotels
The alternative gaming operations of Niveus Investments were acquired by Tsogo Sun effective end of November 2017. Due to this amalgamation of the group’s gaming operations the results of Niveus Investments’ previously held alternative gaming operations have been incorporated into those of Tsogo Sun in the gaming and hotels segment for the current and prior periods.
Revenue in respect of gaming and hotels increased by 2%. Overall net gaming win increased by 7%, with casino gaming win increasing by 3%. Alternative gaming net gaming win increased by 19%. SA hotel revenue was stagnant, significantly affected by the Western Cape drought. Offshore hotel revenue increased by 10% following the opening of the StayEasy Maputo. EBITDA increased by 1%, with casino gaming and hotels largely stagnant. Profit before tax decreased by 10%. A net downward revaluation of investment properties in the amount of R119 million was recognised by HPF in respect of two hotel properties in Cape Town and one in Gauteng following a reassessment of expected future trading and is included in profit before tax. Contribution to headline earnings decreased by 21% to R392 million. The prior period included an effective share of R133 million of a deferred tax liability reversal following the sale of certain hotel properties to HPF. Excluding the effect of this reversal results in an increase in contribution to headline earnings of approximately 8%.
The number of active machines in Vukani has increased by 2% to 6 033 during the current period. The number of electronic bingo terminals increased by 18% to 3 410 during the current period.
Transport revenue decreased by 4%, following a prolonged bus driver strike during April and May 2018. EBITDA decreased by 13%. Above inflation wage increases at 8.5% and significantly increased fuel costs outweighed savings in supplies and maintenance costs, resulting in a R26 million decrease in EBITDA. Profit before tax reduced by only 8% following an increase of R19 million in interest income as a result of the promissory notes held. Headline earnings was affected by the group’s reduced effective interest in HPL&R of 74%, the dilution resulting in a loss of approximately R20 million in headline earnings.
Properties’ revenue increased by 19% due to new development revenue of R15 million from Whale Coast Village Mall and R10 million from Shell House, with annual escalations and tenanting efficiencies in the rest of the portfolio responsible for the remaining increase. EBITDA increased by 28%, with EBITDA margin increasing slightly to 45% following further tenanting in the Westlake and Monte Circle precincts in the current year. EBITDA gains were somewhat off-set by an increase in finance charges, originating from the launch of Shell House and Whale Coast Village Mall only in the second half of the previous year.
Increased revenue was recorded at the Palesa and Mbali Collieries. However, sales volumes at Palesa decreased by 46 000 tons (4%), mainly attributable to mining contractor inefficiencies. Revenue increased by 49% and sales volumes by 9% to 502 000 tons at the Mbali Colliery. In addition, export sales prices achieved at the Mbali Colliery were 30% higher than the prior comparative period. EBITDA increased by 58%, mainly as a result of the increase in sale volumes and the increase in the price of export coal achieved at the Mbali Colliery. EBITDA margins at the Palesa Colliery increased from 18% to 19% and at the Mbali Colliery from 34% to 47% compared to the prior comparative period. Headline earnings increased in line with the profit before tax increase, adjusting for income tax.
Branded products and manufacturing
Branded products and manufacturing increased revenue by 5%, with growth attributable mostly to their industrial operations. Revenue in Formex increased by R111 million, off-set to some extent by a reduction in the textile division. EBITDA increased by 53%. Foreign exchange gains improved by R17 million compared to the prior comparative period, however most manufacturing businesses faced reduced gross margins. In addition to factors mentioned under EBITDA, an increase in finance costs and depreciation reduced profit before tax. R2 million in impairments included in profit before tax were reversed to arrive at headline earnings.
Losses before tax increased by R111 million compared to the prior comparative period. The increase in losses is partly attributable to equity earnings in respect of Impact Oil and Gas in the prior comparative period being R43 million, as compared to a loss of R5 million in the current period, the prior period including an effective R53 million profit on part disposal of an exploration licence. In addition, interest earned by La Concorde reduced by R45 million following its distribution of cash and transfer of promissory notes during the group’s restructure of its interest in HPL&R. Included in the current period’s losses before tax and headline loss is R111 million head office finance costs, R13 million in costs relating to the group’s newly established internal audit function and the remainder head office and other overheads of the company, Niveus and La Concorde.
Notable items on the consolidated income statement include:
Consolidated investment income decreased by R28 million as a result of the distribution of cash by La Concorde during the restructure of the group’s interest in HPL&R and reduced interest earned on promissory notes recognised in respect of the sale of La Concorde’s operational assets in October 2016. R34 million less interest was earned by Tsogo Sun during the period following reduced average cash balances.
Finance costs increased only marginally, with increased finance costs in properties off-setting savings in gaming and hotels.
Profit from associates and joint ventures includes R3 million profit from BSG Africa, R25 million profit from International Hotel Properties and Redefine BDL, R6 million profit from Sibanye in HPL&R and R5 million in losses from IOG.
Investment surplus consists of a profit on disposal of associate Da Vinci Media by eMedia.
The downward fair value adjustments of investment properties of R119 million are all in respect of properties held by HPF.
Fair value adjustments of financial instruments consist of ineffective portions of foreign exchange
and interest rate hedges at Tsogo Sun and head office.
The average taxation rate, including once-off items, equalled 6.5% in the prior comparative period due to the reversal of R307 million in deferred tax liabilities in Tsogo Sun upon the sale of certain hotel properties to HPF in the current period. The average taxation has normalised in the current period.
Headline earnings decreased by 9.3%; however, excluding the impact of the favourable deferred tax reversal in the prior comparative period, headline earnings would have shown an increase of approximately 19%. Headline earnings per share decreased by 6.7%. The weighted average number of shares in issue in the prior period of 88 330 000 was reduced to 85 882 000 in the current period due to the conclusion of a repurchase of 2.7 million shares during March 2018, 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 2018 comprise central borrowings of R784 million, central investment property-related borrowings of R1 883 million, borrowings in Tsogo Sun of R11 979 million and the remainder in other operating subsidiaries. Included in the current portion of borrowings is R1 923 million central borrowings and R2 219 million in short-term borrowings in Tsogo Sun. Current central borrowings of R1 500 million is due to be refinanced in the first half of the 2020 financial year. Bank overdraft facilities include R2 268 million in Tsogo Sun, R779 million at head office and R367 million in Deneb.
Included in the prior comparative period changes in working capital was R376 million paid in anticipation of the implementation of a repurchase of shares by the group. Included in cash flows from investing activities is net expenditure on investment properties of R309 million and R1 174 million on property, plant and equipment, of which R1 003 million was incurred by Tsogo Sun. Included in cash flows from financing activities is net funding raised during the year of R271 million.
Shareholders are referred to the individually published results of eMedia Holdings Limited, Tsogo Sun Holdings Limited, Niveus Investments Limited, Deneb Investments Limited and Hosken Passenger Logistics and Rail Limited for further commentary on the media and broadcasting; gaming and hotels; branded products and manufacturing; and transport operations.
CHANGES IN DIRECTORATE
There were no changes in directorate during the period under review.
DIVIDEND TO SHAREHOLDERS
The directors of HCI have resolved to declare an interim ordinary dividend number 58 of 55 cents (gross) per HCI share for the six months ended 30 September 2018 from income reserves. The salient dates for the payment of the dividend are as follows:
Last day to trade cum dividend Tuesday, 11 December 2018
Commence trading ex dividend Wednesday, 12 December 2018
Record date Friday, 14 December 2018
Payment date Tuesday, 18 December 2018
No share certificates may be dematerialised or rematerialised between Wednesday, 12 December 2018 and Friday, 14 December 2018, both dates inclusive.
In terms of legislation applicable to Dividends Tax (DT) the following additional information is disclosed:
– The local DT rate is 20%.
– The number of ordinary shares in issue at the date of this declaration is 92 814 648.
– The DT amounts to 11 cents per share.
– The net local dividend amount is 44 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 the “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
21 November 2018