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e_TV BUOYS HCI

Free-to-Air television station e-TV’s move to profitability has buoyed the results of effective 66% shareholder Hosken Consolidated Investments (HCI) for the full year to end-march. The group reported a R132-m profit to shareholders – compared to a loss of almost seven times that figure in 2003.

HCI’s future as a listed entity, however, is still up in the air. The company said in the commentary to the results that the R3.50 a share offer to minorities and delisting from the JSE Securities Exchange remained “in abeyance” pending the outcome of the High Court application brought by a shareholder in HCI: UK-based Marathon Asset Management, which was joined by smaller SA shareholder Consillium Capital.

HCI chairman Marcel Golding said the matter had been postponed until January or February next year as there had to be oral evidence and both parties were in the process of drawing up further legal documents. The hearing had been set down for September last year but was delayed to March this year, and now again to next year.

A share buy-back of roughly two- thirds of the issued share capital in January 2003 converted Marathon’s small percentage stake into a significant one, at around 24%. Together with Consillium, the two account for more than 25% of the shares. Almost all of the other institutional shareholders sold their shares for 237,6c in cash after HCI sold its 5% stake in Vodacom back to Venfin and Vodafone, the two parties that originally put the empowerment deal together when Vodacom was formed. HCI got R1,5bn from the share sale, a stake that was valued at just r90-m when put together. The cash meant HCI could pay off most of the debt incurred in starting up e-TV, significantly reducing the finance costs involved in servicing the debt.

Marathon has opposed the delisting of HCI on the grounds that e-TV will prove to be a lucrative investment. Now the 2004 results appear to confirm Marathon’s view.

HCI said e-TV had contributed R21.02-m to group headline profit. But, in an increasingly competitive market, the big challenge for e-TV would be to increase market share and revenue while maintaining an efficient cost structure.

It has been a year of significant changes for HCI.

The group sold its Africa-on-Air stake (which houses Highveld Stereo) for R180-m, disposed of its 80% stake in Red Pepper, increased its share in Tsogo Sun to an effective 14,1% and upped the interest in Vukani Gaming to 96%. Vukani was granted a gambling license in the Western Cape and has lodged applications for other provinces. HCI said Vukani would require the injection of significant cash resources during the roll-out phase, but said the directors were confident “that once the business matures it will make a positive contribution to the group”.

Golding said that the number of licences that his company succeeded in acquiring would determine the extent of the investment required.

Also during the year, HCI increased its stake in now-delisted financial services group Mettle to 66% and injected R15-m in the IQ Business Group, taking its stake to 22%. It also sold its stake in Seardel for R47,4-m and won the approval of shareholders to buy Golden Arrow Bus Services for R250-m.

The group’s net asset value increased to 645c a share, from 522c in 2003.

HCI shares were suspended last year because of the uncertainty around the delisting. After discussions with the JSE and Securities Regulation Panel (SRP), the offer was extended and HCI shareholders were given three choices; to reject the offer, accept it and agree to sell their shares regardless of whether the delisting goes ahead or accept it, and be paid only of and when the delisting is implemented. The result was that shareholders with 3, 68-m shares took the cash, while those with 21, 66-m – about 20% of the issued share capital – accepted it subject to the outcome of the court hearing. If the court hearing rules the delisting cannot go ahead, then these shareholders will keep their shares.

Source: Belinda Anderson – Moneyweb Digest