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AUDITED GROUP RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2008

– 20% increase in group revenue
– 14% increase in EBITDA
– 39% decline in profit for the period

Unaudited group results for the six months ended 30 September 2008

ABRIDGED CONSOLIDATED INCOME STATEMENT

30 Sept 30 Sept 31 March
2008 2007 2008
% R`000 R`000 R`000
Change Unaudited Unaudited Audited
Revenue 33 3 298 401 2 482 439 5 522 361
Net gaming win 1 685 452 1 688 668 3 392 232
Group revenue 20 4 983 853 4 171 107 8 914 593
Other operating
expenses (3 400 191) (2 777 120) (5 727 758)
EBITDA 14 1 583 662 1 393 987 3 186 835
Depreciation and
amortisation (294 764) (244 241) (495 626)
Operating profit 12 1 288 898 1 149 746 2 691 209
Investment income 56 876 32 030 111 985
Finance costs (228 041) (137 846) (344 470)
Share of profits of
associates and joint
ventures 966 118 820 188 036
Negative goodwill
released – 2 836 4 885
Investment surplus 66 844 56 391 83 884
Other impairment
reversals – – 30 175
Fair value
adjustments of
investment
properties – – 29 171
Fair value
adjustments of
financial
instruments (207 300) – (57 956)
Impairment of
goodwill and
investments (2 000) – (12 422)
Profit before
taxation (20) 976 243 1 221 977 2 724 497
Taxation (471 785) (364 917) (867 535)
Profit for the year
from continuing
operations (41) 504 458 857 060 1 856 962
Discontinued
operations 1 604 (23 205) (17 934)
Profit for the period (39) 506 062 833 855 1 839 028
Attributable to:
Equity holders of
the parent (51) 207 192 421 740 871 855
Minority interest (28) 298 870 412 115 967 173
506 062 833 855 1 839 028
RECONCILIATION OF HEADLINE EARNINGS
30 Sept
2008
R`000
Unaudited
Gross Net
Earnings attributable to equity holders
of the parent 207 192
IAS 16 Gains on disposal of property (10 400) (3 739)
IAS 16 Losses on disposal of
plant and equipment 267 96
IAS 16 Impairment of plant and
equipment
IAS 39 Impairment of investments 600 300
IFRS 3 Impairment of goodwill 1 400 1 018
IFRS 3 Negative goodwill
IFRS 3 Excess of fair value of assets
of an associate
IAS 28 Gain on disposal of associates (8 840) (8 840)
IAS 36 Reversal of impairments
IAS 27 Profit from disposal/part of
subsidiary (56 873) (41 775)
IAS 40 Fair value adjustment to
investment property
Re-measurements included in equity
accounted earnings of associates
Headline profit 154 252
30 Sept
2007
R`000
Unaudited
Gross Net
Earnings attributable to equity holders
of the parent 421 740
IAS 16 Gains on disposal of property (38 900) (9 481)
IAS 16 Gains/(losses) on disposal of
plant and equipment 592 534
IAS 16 Impairment of plant and
equipment
IAS 39 Impairment of investments
IFRS 3 Impairment of goodwill
IFRS 3 Negative goodwill (2 836) (1 418)
IFRS 3 Excess of fair value of assets
of an associate
IAS 28 Gain on disposal of associates (56 348) (56 403)
IAS 36 Reversal of impairments
IAS 27 Profit from disposal/part of
subsidiary
IAS 40 Fair value adjustment to
investment property
Re-measurements included in equity
accounted earnings of associates (72 532)
Headline profit 282 440
31 March
2008
R`000
Audited
Gross Net
Earnings attributable to equity holders
of the parent 871 855
IAS 16 Gains on disposal of property (38 898) (10 418)
IAS 16 Gains/(losses) on disposal of
plant and equipment 403 967
IAS 16 Impairment of plant and
equipment 2 500 264
IAS 39 Impairment of investments 7 534 5 752
IFRS 3 Impairment of goodwill 4 888 4 888
IFRS 3 Negative goodwill (4 885) (2 613)
IFRS 3 Excess of fair value of assets
of an associate 4 489 1 533
IAS 28 Gain on disposal of associates (75 394) (59 855)
IAS 36 Reversal of impairments (30 175) (19 306)
IAS 27 Profit from disposal/part of
subsidiary (7 209) (7 209)
IAS 40 Fair value adjustment to
investment property (29 171) (24 519)
Re-measurements included in equity
accounted earnings of associates (71 799)
Headline profit 689 540
30 Sept 30 Sept 31 March
% 2008 2007 2008
Change Unaudited Unaudited Audited
Earnings per share (cents)
Basic (51) 166,45 339,06 702,10
Headline (45) 123,92 227,07 555,28
Weighted average number of
shares in issue (`000) 124 480 124 384 124 179
Actual number of share in
issue at end of period
(net of treasury shares) (`000) 123 851 123 954 123 896
Diluted earnings per share
(cents)
Basic (51) 162,63 331,17 684,86
Headline (45) 121,07 221,78 541,65
Weighted average number of
shares in issue (`000) 127 404 127 349 127 304
ABRIDGED CONSOLIDATED BALANCE SHEET
30 Sept 30 Sept 31 March
2008 2007 2008
R`000 R`000 R`000
Unaudited Unaudited Audited
ASSETS
Non-current assets 11 300 483 10 582 856 9 686 353
Property, plant and equipment 8 003318 6 256 230 6 876 854
Investment properties 182933 198 302 182 665
Goodwill 1 238485 725 855 846 098
Interest in associates and joint
ventures 639106 640 028 753 567
Other financial assets 347057 192 659 353 159
Other intangible assets 259470 305 901 286 559
Deferred taxation 215992 283 919 255 004
Financial assets – 1 626 373 –
Operating lease equalisation asset 4 430 4 988 4 980
Non-current receivables 409 692 348 601 127 467
Current assets 2 886 667 4 902 018 2 540 922
Other 1 979 100 1 848 615 1 867 932
Financial assets – 2 269 653 –
Bank balances and deposits 907 567 783 750 672 990
Non-current assets held for sale 2 120 – 3 855 894
Total assets 14 189 270 15 484 874 16 083 169
EQUITY AND LIABILITIES
Equity 5 902 966 5 566 459 6 232 034
Equity attributable to equity
holders
of the parent 3 265 545 2 422 082 2 940 494
Minority interest 2 637 421 3 144 377 3 291 540
Non-current liabilities 5 146 737 4 681 611 3 169 265
Financial liabilities – 1 652 953 –
Deferred taxation 492 102 480 791 511 902
Borrowings 4 237 246 2 190 128 2 259 258
Operating lease equalisation
liability 284 630 273 679 279 521
Other 132 759 84 060 118 584
Current liabilities 3 139 567 5 236 804 2 917 685
Other 3 139 567 2 972 962 2 917 685
Financial liabilities – 2 263 842 –
Non-current liabilities held for
sale – – 3 764 185
Total equity and liabilities 14 189 270 15 484 874 16 083 169
Net asset value per share (cents) 2 637 1 954 2 373
CONDENSED CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY
6 months 6 months 12 months
ended ended ended
30 Sept 30 Sept 31 March
2008 2007 2008
R`000 R`000 R`00
Unaudited Unaudited Audited
Balance at beginning of year 6 232 034 4 937 311 4 937 311
Share capital and premium
Shares issued 79 102 36 000 42 500
Shares repurchased – (67 000) (67 000)
Treasury shares released – – 1 441
Treasury shares acquired by subsidiary (22 950) (6 066) (27 333)
Current operations
Profit for the year 506 062 833 855 1 839 028
Equity settled share-based payments 1 413 530 1 816
Transfers 2 454 – (5 621)
Revaluations 433 920 (6 150) 20 656
Foreign currency translation
differences 5 842 (32 710) 127 590
Hedging 10 694 – (19 427)
Effects of changes in holding (597 838) 28 558 (235 244)
Capital reductions and dividends (747 767) (157 869) (383 683)
Balance at end of year 5 902 966 5 566 459 6 232 034
ABRIDGED CONSOLIDATED
CASH FLOW STATEMENT
30 Sept 30 Sept 31 March
2008 2007 2008
R`000 R`000 R`000
Unaudited Unaudited Audited
Cash flows from operating
activities 661 868 861 620 1 476 136
Cash flows from investing
activities (2 193 107) (389 717) (1 593 668)
Cash flows from financing
activities 1 735 040 (454 110) 11 973
(Decrease)/increase in cash and
cash equivalents 203 801 17 793 (105 559)
Cash and cash equivalents
At beginning of period 621 719 710 445 710 445
Foreign exchange difference (4 124) – 16 833
At end of period 821 396 728 238 621 719
Bank balances and deposits 907 567 783 750 672 990
Bank overdrafts (86 171) (55 512) (100 547)
Bank balances classified as
held for sale – – 49 276
Cash and cash equivalents 821 396 728 238 621 719
SEGMENTAL ANALYSIS
30 Sept 30 Sept 31 March
2008 2007 2008
Revenue R`000 R`000 R`000
Media and broadcasting 744 979 544 555 1 175 169
Limited payout gaming 3 464 – 3 075
Casino gaming 294 000 271 850 610 122
Hotels 1 022 850 778 300 1 665 645
Information technology 117 943 104 895 204 662
Transport 469 926 392 876 782 416
Industrial 437 275 235 482 737 041
Energy 130 724 81 731 177 357
Exhibition and properties 67 562 72 750 144 706
Other 9 678 – 22 168
Total 3 298 401 2 482 439 5 522 361
Net gaming win
Limited payout gaming 103 052 70 368 169 242
Casino gaming 1 582 400 1 618 300 3 222 990
Total 1 685 452 1 688 668 3 392 232
EBITDA
Media and broadcasting 267 068 238 485 481 567
Limited payout gaming 17 976 19 658 30 611
Casino gaming 749 690 739 530 1 645 007
Hotels 365 719 188 970 647 600
Information technology 28 781 25 742 50 970
Transport 67 397 82 610 174 049
Industrial 47 596 27 785 76 099
Exhibition and properties 23 073 27 622 42 386
Energy 19 710 15 150 46 486
Other (3 348) 28 435 (7 940)
Total 1 583 662 1 393 987 3 186 835
Profit before tax
Media and broadcasting 220 812 225 171 459 698
Financial services – 9 885 38 310
Limited payout gaming 5 772 10 945 11 656
Casino gaming 426 387 609 568 1 312 303
Hotels 321 366 161 986 600 407
Information technology 23 961 26 671 45 705
Transport 32 903 58 812 116 905
Industrial 21 427 13 592 37 550
Food and beverage (4 717) 83 905 129 802
Exhibition and properties 22 869 26 351 73 140
Energy (114 963) (43 644) (107 919)
Other 20 426 38 735 6 940
Total 976 243 1 221 977 2 724 497
COMMENTARY
BASIS OF PREPARATION AND ACCOUNTING POLICIES
The results for the six months ended 30 September 2008 have been prepared in
accordance with International Financial Reporting Standards (“IFRS”),
specifically IAS 34 Interim Financial Reporting, and comply with the
requirements of the South African Companies Act, 1973 and the Listings
Requirements of the JSE Limited. The accounting policies of the group are
consistent with those applied for the year ended 31 March 2008.
Consolidation of Tsogo Sun Holdings (Pty) Limited
IFRS 3 Business combinations, requires that both the identified and
unidentified assets and liabilities of the entity being acquired be valued at
the date of acquisition and that these values be used in accounting for the
business combination.
As an alternative treatment IFRS 3 allows the business combination to be
accounted for using provisional figures provided the final accounting is
completed with 12 months.
At 30 September 2007 the acquisition of Tsogo Sun Holdings (Pty) Limited
(“Tsogo Sun”) had been accounted for using the carrying value of assets and
liabilities as shown on the balance sheet of Tsogo Sun at the date of
acquisition (1 December 2006).
The required adjustments arising from the detailed assessment of Tsogo Sun`s
assets, liabilities and contingent liabilities were reflected in the results
for the year ended 31 March 2008.
Accordingly the 30 September 2007 results have been restated to take these
adjustments into account. These adjustments relate to the upwards revaluation
of property, plant and equipment on business combination in the amount of R1
251 million, a reduction of R297 million of goodwill and an increase in
minority interest of R592 million. As a result of the revaluation, the
depreciation charge for the six months ended 30 September 2007 has increased by
R6,5 million.
Discontinued operations and non-current assets held for sale
Discontinued operations as disclosed in the group income statement and
non-current assets/liabilities as disclosed in the group balance sheet, for the
current period relate to certain passive landfill sites that a subsidiary,
Johnnic Holdings USA, has taken a decision to dispose of in the next 12 months.
As previously disclosed, the group had entered into agreements to dispose of
its interest in the Mettle Group of Companies. At 31 March 2008 the conditions
precedent had not yet been fulfiled and these businesses had been classified as
discontinued operations with their assets and liabilities being disclosed as
held for sale and the results of their operations being disclosed as
discontinued operations. The September 2007 income statement has been restated
on this basis. The transaction became unconditional on 9 July 2008.
GROUP RESULTS
The group has achieved significant increases in group revenue (20%), EBITDA
(14%) and operating profits (12%) for the six months under review when
compared to the six months ended 30 September 2007 (“the prior comparative
period”) despite a difficult trading environment. Strong revenue growth in
hotels, media and industrial businesses resulted in an increase in the group
EBITDA despite a decline in EBITDA in the transport business due to higher fuel
costs.
Finance costs for the period have increased significantly primarily as a result
of the increased level of group borrowings, the majority of which was used to
increase HCI`s interest in Tsogo Sun.
Profit from associates for the period is lower than that reported in the prior
comparative period primarily because of the drop in the earnings of Clover
Industries Limited, which in the prior year had included profits from the sale
of the Ultramel business to Danone.
Investment surpluses relate mainly to profits on the disposal of the Mettle
Group of Companies including the group`s interest in Noah Financial Innovation.
The fair value adjustments of financial instruments relates to the following:
* R136 million fair value losses charged by Tsogo Sun to its income
statement. These fair value losses relate to the mark to market of Tsogo
Sun`s initial 5% investment in the issued share capital of Gold Reef
Resorts Limited (“GRR”). Following the acquisition by Tsogo Sun of a
further 15% interest in GRR subsequent to the period under review, the
investment will in future be accounted for as an associate, with Tsogo Sun
holding a 20% interest in GRR.
* The group`s USA subsidiary Montauk Energy Corporation LLC (MEC) had as part
of its price hedging strategy purchased natural gas price put contracts
from Lehman Brothers Commodity Services, Inc. (LBCS). On 3 October 2008
LBCS filed a petition in the United States Bankruptcy Court seeking relief
under Chapter Eleven of the United States Bankruptcy Code, triggering
default under the terms of the contracts. On 8 October 2008 MEC exercised
its right under the terms of the contracts to terminate the remaining put
option contracts with LBCS and claim early termination damages from LBCS of
approximately US$6,6 million. The bankruptcy filing of LBCS was the
culmination of publicised defaults by LBCS relating to other third party
claims prior to 30 September 2008. As a result of the uncertainty that
existed at 30 September 2008 relating to the creditworthiness of LBCS, MEC
has effectively as of 1 April 2008 discontinued the hedge accounting that
had previously been applied to the LBCS put contracts and as at 30
September 2008 fully impaired the carrying value of the LBCS put contracts.
The total pre-tax loss recognised by MEC in the six months under review
relating to the LBCS hedges amounted to approximately US$8,6 million (R70,6
million).
Primarily as a result of the above non-recurring and non-cash charges, the
profit before tax for the six-month period decreased to R976 million from R1
221 million in the prior comparative period, likewise headline earnings have
decreased during the period to R154 million from R282 million in the prior
comparative period.
Group balance sheet
Property, plant and equipment has increased significantly following
expansionary capital expenditure in the coal business, media business,
primarily due to the 24 hour e News channel being launched, and the gaming and
hotels businesses.
Goodwill increased primarily due to the acquisition of the remaining shares in
Johnnic Limited that the group did not already own.
Non-current liabilities at 30 September 2008 comprise non-recourse debt that is
presently ringfenced in operating subsidiaries of R2 937 million (2007: R1 628
million) and recourse debt at the HCI corporate level of R1 300 million (2007:
R562 million).
During the period under review the company issued 1 005 744 ordinary shares as
part of the consideration paid to acquire the remaining shares in Johnnic
Holdings Limited.
INVESTMENTS MEDIA AND BROADCASTING
Sabido Investments (Pty) Limited (“Sabido”) – 63% interest
The group`s media and broadcasting investments are housed in Sabido. Sabido`s
major investments include the free to air television channel e.tv,
Gauteng-based radio station Yfm, Cape Town Film Studios, satellite television
licence holder e.sat tv, including the 24 hour e News channel and mobile
solutions and innovations provider ViaMedia.
This sector has continued to perform well with e.tv`s audience share increasing
gradually. Revenues have likewise continued steadily upward.
Both the Botswana TV and e News channel have been successful startups and are
useful additions to the HCI media stable. We have expensed all startup costs on
these ventures as they were incurred resulting in the EBITDA climbing at a
slower rate than the associated revenue (12% compared with 36,8%). Increased
finance costs to fund capital equipment purchased for the e News channel
resulted in the profit before tax declining some 2% on the comparable period.
We remain confident, however, that the news channel will become a profitable
business over the next 12 months.
ViaMedia continues to perform well in line with management`s expectations.
The Cape Town Film Studios are finally starting to happen. The preparation of
the site is nearly complete and the awarding of the tender to construct the
studios is scheduled for the end of 2008.
The studios are likely to take a further 15 months to complete and we
accordingly expect the business will become operational in the financial year
2011.
Other media related properties are performing well, including Sasani Studios.
The single disappointment has been the radio station which has not yet managed
to turn increased listenership into revenue.
GAMING AND HOTELS
Vukani Gaming Corporation (Pty) Limited (“Vukani”) – 100% interest
Vukani, the group`s limited payout machine operator, increased its installed
based to 2 465 machines.
The outcome of the group`s bid for a license in Gauteng is eagerly awaited and
is expected in early December. A review application has been filed in the Free
State to challenge the outcome of Vukani`s unsuccessful bid to obtain a license
in the province.
Subsequent to the period end, Vukani acquired Luck Holdings, a route operator
that holds licenses in KwaZulu-Natal, Mpumalanga and Limpopo. The acquisition
will add 405 machines to Vukani`s machine base and provide it with a license to
operate an additional 1 000 LPMs in KwaZulu-Natal.
The gross profit of the business has increased to 41% from 38% due to lower
machine rental charges. The average daily gross gaming revenue (“GGR”) per
machine has increased despite the fact that very few machines were rolled out
in the Western Cape, where the average daily GGR per machine is significantly
higher than other provinces. EBITDA however did not increase in line with the
increase in turnover due to certain non-recurring expenses, the costs of the
Gauteng office incurred in anticipation of the Gauteng license and the startup
costs incurred in establishing the ATM and VPlay divisions, all of which were
expensed.
We remain confident that Vukani will become a substantial contributor to group
EBITDA once the roll-out is completed.
Tsogo Sun Holdings (Pty) Limited (“TSH”) – 38% interest
The group`s casino and hotel interests are held via holdings in Johnnic
Holdings Ltd (“Johnnic”) and Tsogo Investment Holding Company (Pty) Limited
(“TIH”).
HCI is pleased to report that litigation with the Mpumalanga Gaming Board
following its refusal to grant approval in respect of our acquisition of the
Fabcos interest in TIH has been settled and the approval granted by consent.
The group has further increased its stake in TIH by buying out the minority
shareholders in Johnnic and delisting it. The consequence has been to increase
our holdings in TSH to 38% and our interest in Sun Coast to 46,5%. These
increased holdings again require approval of relevant Gaming boards and we are
currently awaiting progress in this regard though we do not anticipate any
undue delay.
The group has further increased its holdings in the casino industry by TSH
acquiring a 20% stake in Gold Reef Casino Resorts. TSH are responsible for the
voting of an additional 10% of the shares of the company by virtue of being the
majority holder of shares in the BEE voting pool of the company.
In general the results show flat revenue in the casino sector, which we find
acceptable particularly in light of the fact that the comparable period was one
in which a new casino entrant in the Gauteng market had not yet started
operation. The hotel sector remains buoyant and is expected to remain so.
FINANCIAL SERVICES
The group disposed off its interest in the Mettle Group of Companies with
effect from 9 July 2008.
The group`s 49% interest in Noah Financial Innovation was also sold during the
current period for R13,2 million. Certain property bare dominiums were
retained.
TRANSPORT
Golden Arrow Bus Services (Pty) Limited (“GABS”) – 100% interest
The lower level of profitability in GABS is the result of our decision not to
try to recover all of the rapidly escalating diesel costs from customers in the
period under review. Now that these prices have stabilised, we anticipate that
the next six months will result in margins being more in line with the past and
accordingly are confident in the performance of the business over the remainder
of the year. We have continued our rapid fleet renewal programme and have
purchased a further 40 buses in the period under review. We have likewise spent
capital on extending depot facilities which will be completed by year-end, to
manage the steadily growing fleet.
FOOD AND BEVERAGES
Clover Industries Limited (“Clover”) – 44% economic interest
Clover`s earnings of R119 million, for the 12 months ended 30 June 2008, showed
an improvement from the preceding period. This was mainly due to a very good
six months of trading leading up to December 2007 which realised an
attributable profit of R94 million. The results for the next nine months
declined significantly, with the result that Clover`s equity accounted earnings
for the six-month period ending September, amounted to a loss of R11 million
compared to R12 million profit (excluding the effect of the Ultramel sale) for
the corresponding period last year.
The decline in earnings results reflect a market which is now characterised by
an over-supply of milk by producers and a slowdown in retail sales as a result
of the economic climate. Significantly Clover`s interest cost has also
increased by R43 million in the last financial year and it is expected that the
higher working capital requirements will increase this cost even more for the
next financial year.
As indicated in our annual report, Clover`s business model is dependent on
volume in order to amortise its fixed cost base. In order to prosper in the
current market conditions Clover must become more efficient. The requisite
efficiency improvements are currently constrained by a lack of capital and the
board of Clover and its management have indicated that they are investigating
alternatives to address the recapitalisation of the group. Progress is however
exceedingly slow.
The charges brought against the company by the Competition Commission remain
outstanding.
Clover received a negative judgement from the Competition Appeal Court on
certain procedural and technical aspects of the investigation by the
Competition Commission. This judgement is currently on appeal to the Supreme
Court of Appeal. The allegations against the company by the Commission all
relate to matters which preceded HCI acquiring its interest in the group.
ENERGY
Montauk Energy Corporation LLC (“Montauk”) – 91,5% interest
Montauk extracts natural gas from landfills and converts this energy into
medium or high BTU gas or electricity. The performance of Montauk for the
period under review was once again below expectations and the business
delivered a net loss of US$7,5 million. This loss was exacerbated by the
impairment of a put option acquired, at acquisition, from Lehman Brothers due
to the specific Lehman commodity trading subsidiary filing for bankruptcy. The
impairment amounted to R70,6 million (US$8,6 million).
The average price realised per MMBTU was US$10,61, a 33% increase compared to
the corresponding period. Profits were nevertheless affected by the decline in
natural gas prices during the period, from a high of US$13 to the current level
of US$6,40. While the total MMBTU volumes processed increased by 4% to 1,304
million MMBTUs during the period, the slower than expected commissioning of a
new gas processing plant at Rumpke, coupled with the reduced gas flow from the
Rumpke well field, resulted in lower sales than budgeted. The Valley and
Monroeville operations were also prevented by a local utility to supply gas due
to a dispute regarding the quality of gas supplied. The dispute has now been
resolved and the operations are back on line with measurable guidelines to
monitor any offending substance levels.
The management team of the business was strengthened by the reassignment of two
senior managers from Formex Industries to the USA to provide HCI with more
direct management control.
This necessitated the cancellation of the Montauk management agreement with
Blue Wolf Capital Management.
HCI Khusela Coal – 80% interest
Construction activities to commission the coal processing plants on Mbali and
Palesa are ongoing.
Unfortunately the replacement of the project management company responsible for
the project has delayed the completion of the construction project. To date HCI
has invested R220 million in the project.
Efforts are currently focused on the start of mining at Palesa where the
possibility exists that unwashed coal will be mined and sold for approximately
10 months, prior to the commissioning of the wash plant.
The financial feasibility at Mbali was reassessed following the decision by the
DME to exclude a portion of HKC`s prospecting rights from its mining rights.
Should the DME not reconsider their decision, HKC will file a review
application in the immediate future to set aside the decision by the DME.
The feasibility study for the third project, Nokuhle, is nearing completion and
it is anticipated that application will be made for a mining right in the near
future.
The board of the company has been strengthened through the appointment of
additional non-executive directors with construction and coal mining
experience. The appointments significantly enhance the coal mining
and construction expertise available to the company.
EXHIBITIONS AND PROPERTIES
Gallagher Estate Holdings Limited – 100%
Gallagher`s results reflect the combination of the traditional conference,
exhibition and banqueting business, the Gallagher letting business and the
remnants of the Johnnic property division. The conference and exhibition
business had a disappointing period with turnover falling 9%. Operating
expenses increases were contained to 1% despite the additional costs of standby
generators which are required in order to provide a full service to its
clients.
Overall EBITDA for all operations declined by R4,5 million to R23 million, with
R3 million being attributable to the conferencing and exhibition business.
Following the favourable decision by the Competition Appeal Court we have
proposed the unbundling of the exhibition business to the shareholders of HCI.
We currently await the Commission`s response to the court ruling and our
unbundling proposal.
INFORMATION TECHNOLOGY
This sector comprises the group`s investments in Syntell and Business Systems
Group (Africa) (“BSG”).
Syntell has performed in line with budget and its integrated service offering
to the JMPD continues to set the benchmark to the industry. The automated
number plate recognition system employed in its road blocks has proved to be
successful and collection rates remain high despite the increased pressure on
consumers. The call centre division was sold during the period which will
enable management to focus more time on the development of its core traffic and
road safety business. The payfine.co.za payment portal is now firmly
established as the industry leader and continues to attract new visitors.
Management are exploring a number of international enquiries for the company`s
products and services.
BSG`s profits have declined, mainly due to increased salary costs of
consultants and higher fixed costs to accommodate the future growth of the
business. Management are focused to restore the operating margin to previous
levels.
INDUSTRIAL
The group`s industrial assets comprise Johnson Access and Formex Industries.
Formex Industries grew its turnover by 100% to R382 million but higher finance
costs, mainly due to the acquisition costs of the ATM business, resulted in a
PBT increase of 89% to R14,1 million.
The automotive industry worldwide is coming under increasing pressure and the
steps management have taken to restore margins through cost containment are
bearing fruit in the pressings and doorlock divisions. The tube business is
operating below optimal capacity however sales efforts to increase turnover
have resulted in a good forward order book. Problems were experienced in the
pulley division which resulted in high airfreight charges. It is expected that
new manufacturing capacity, additional management appointments and the
automation of existing facilities will enable the pulley division to return to
budgeted margins and profitability.
Johnson Access is performing in line with expectations. The current slowdown in
the economy is expected to place further pressure on rates.
Seardel Investment Corporation Limited (“Seardel”)
During the period under review, the group advanced an interest-bearing loan of
R250 million to Seardel. The loan formed part of an agreement with Seardel to
underwrite, up to a maximum of R250 million, a R306 million rights issue at 50
cents per Seardel ordinary share to all Seardel shareholders. Following the
conclusion of the Seardel rights issue subsequent to the period under review,
and pursuant to its underwriting commitment, the group converted its loan into
approximately 497 million Seardel ordinary shares (70% interest) effective from
27 October 2008. The disclosure required by IFRS 3 relating to the fair value
of the identifiable assets, liabilities and contingent liabilities have not
been disclosed. The disclosure is considered to be impracticable due to the
timing of this transaction.
Seardel is currently significantly loss making. The group views it as a major
turn around acquisition with the hope is that it will be restored to
profitability after 12 months.
DISTRIBUTIONS TO SHAREHOLDERS
Your directors have decided not to declare any dividends at this interim stage.
In line with HCI`s dividend policy, an annual dividend will be considered with
the publishing of the year-end results.
For and behalf of the board of directors
MJA Golding JA Copelyn
Chairman Chief Executive Officer
Cape Town