Anyone who has not been keeping a reasonably close eye on Johnnic Holdings over the past few years would have serious difficulties finding their way through the recently released 2007 annual report.
After less than two years under the control of Hosken Consolidated Investments (HCI), the group’s asset base and income contributors have been substantially altered.

Gallagher Estate Properties, energy and gaming were the three revenue generators, contributing R118.2 million, R38.2 million and R13 million, respectively.

Gallagher was the largest profit contributor, with R36.2 million, followed by gaming, with R10.9 million. Energy sucked out R52 million.

The cash balances on the group’s balance sheet in 2006 have been replaced by R428 million worth of “interest in subsidiaries”.

This is a 93.5 percent stake in US based Montauk, which according to the annual report “extracts natural gas from landfills under contract, either for use to generate electricity or for use as natural gas energy”.

This investment is the source of the R52 million loss on energy. According to Marcel Golding’s chairman’s review: “The performance of Montauk is influenced by natural gas prices, which have demonstrated extreme volatility in the period since acquisition.”

It seems Johnnic management decided to buy Montauk because it was unable to secure the necessary Reserve Bank approval to buy into a US-based private equity fund. Another interesting snippet in the annual report is the reference to disagreement Johnnic is having with the SA Revenue Service (Sars) concerning the treatment of certain structured finance arrangements.

Sars is assessing these structures and the outcome of such assessment `”could have an adverse effect on the group”. But the directors reckon they can “defend any actions”.

Source: Business Report – opinion/analysis