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1HCI annual report 2007

annual report

HCI Annual Report 2007.indb 1 19/9/07 12:34:3 PM

2 HCI annual report 2007

Corporate Administration

DIRECTORS

Marcel Jonathan Anthony Golding (Chairman)Block B, Longkloof Studios Darters Road, GardensCape Town, 8001

John Anthony Copelyn (Chief Executive Officer)Block B, Longkloof Studios Darters Road, Gardens,Cape Town, 8001

Virginia Mary Engel *Block A, Longkloof StudiosDarters Road, GardensCape Town, 8001

Jabulane Albert Mabuza3rd Floor, Palazzo Towers EastMonte Casino BoulevardFourways, 2055

Mimi Freddie Magugu *No 1 Falcon ParkMeisieshaltGonubie, 5207

Dr Moretlo Lynette Molefi #Block B, Longkloof Studios Darters Road, GardensCape Town, 8001

Velaphi Elias Mphande33 Fricker RoadIllovo BoulevardIllovo, 2196

Jabulani Geffrey Ngcobo #Block B, Longkloof Studios Darters Road, GardensCape Town, 8001

Amon Malencane Ntuli*Block B, Longkloof Studios Darters Road, GardensCape Town, 8001

Yunis Shaik #52 Troon RoadGreenside, 2193

Andre van der VeenBlock B, Longkloof Studios Darters Road, GardensCape Town, 8001

* Non-executive# Independent non-executive

WEBSITE ADDRESS

www.hci.co.za

COMPANY REGISTRATION NUMBER

1973/007111/06

SHARE CODE

HCI ISIN: ZAE000003257

COMPANY SECRETARY AND REGISTERED OFFICE

Theventheran Govindsamy Govender Block B, Longkloof StudiosDarters Road, Gardens,Cape Town, 8001

Telephone: (021) 426 2711Telefax: (021) 426 2777

P O Box 5251Cape Town, 8000

AUDITORS

PKF (Jhb) IncRegistration number 1994/001166/2142 Wierda Road West, Wierda Valley, Sandton, 2196

Private Bag X10046,Sandton 2146

BANKERS

First National Bank of Southern Africa LimitedInvestec Bank Limited

SPONSOR

Investec Bank Limited100 Grayston DriveSandton, Sandown, 2196

TRANSFER SECRETARIES

Computershare Investor Services Limited 8th Floor, 11 Diagonal StreetJohannesburg, 2001

P O Box 1053Johannesburg, 2000



Group Financial Highlights

FINANCIAL HIGHLIGHTS FOR THE YEAR

GROUP REVENUE ADJUSTED HEADLINEEARNING PER SHARE

FIVE YEAR REVIEw

2007 2006

Adjusted headline earnings - Rm 510 326

- per share - cents 412 272

Dividend per share - cents 50 -

Net asset carrying value per share - cents 1 711 1 422

Share price - high - cents 6 200 4 400

- low - cents 3 700 2 400

- at year end - cents 6 035 4 000

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2005 2006 2007 2005 2006 2007

2007 2006 2005 2004 2003

Group Revenue 4 382 860 2 126 063 1 413 422 862 598 508 559

Headline earnings* 510 321 326 076 194 136 2 979 (98 292)

Net asset carrying value per share – cents 1 711 1 425 1 177 756 521

Shares in issue – average (‘000) 123 691 119 853 105 704 100 581 306 031

– at year end (‘000) 123 896 122 882 117 997 103 022 107 802

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HEADLINE EARNINGS NET ASSET CARRYINGVALUE PER SHARE

2003 2004 2005 2006 2007

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* Adjusted headline earnings for 2004, 2005, 2006 and 2007 2003 not restated for IFRS


Board of Directors

Jabu is chief executive officer of the Tsogo Sun Group. Prior to this appointment he was managing director of Tsogo Sun Gaming. He is also chairman of the Casino Association of South Africa as well as the South African Tourism Board. He holds various directorships in the larger Tsogo Sun Group. He was appointed to the HCI board in June 2006.

Marcel Jonathan Anthony Golding Executive ChairmanB.A. [Hons]

Marcel joined HCI as chairman in 1997. Prior to this he was a member of parliament and deputy general secretary of the National Union of Mine workers. He is also chief executive officer of e.tv; chairman of Johnnic Holdings Limited and holds directorships in numerous companies.

John Anthony Copelyn Chief Executive OfficerB.A. [Hons] B.Proc.

John joined HCI as chief executive officer in 1997. He was general secretary of various unions in the clothing and textile industry from 1974 before becoming a member of parliament in 1994. He holds various directorships and is non-executive chairman of e.tv, Mettle Limited and Tsogo Sun Holdings.

Velaphi Elias Mphande Executive DirectorElec. Eng. [dip]

Elias is group chief executive of Vukani Gaming Corporation (Pty) Ltd. He was appointed to the board of HCI as non-executive director in January 1997. With effect from October 2004 he became an executive director of HCI. He is chairman of Golden Arrow Bus Services (Pty) Limited and holds directorships in e.tv, Clover SA, Johnnic Holdings Limited and Tsogo Sun Holdings.

Andre van der Veen Executive DirectorCA[SA], CFA

Andre joined HCI in 2004 after it’s acquisition of Mettle in 2004. He was appointed chief executive officer of Johnnic Holdings Limited in November 2006. He holds directorships in numerous companies including Tsogo Sun Holdings, Clover Industries Limited and Formex.

Jabulane Albert Mabuza Executive Director

EXECUTIVE DIRECTORS



Yunis is an attorney of the High Court and presently in private practice. He is a former deputy general secretary of the Southern African Clothing and Textile Workers Union and a director of Workers’ College and has served as the senior commissioner to the CCMA in KwaZulu Natal. He was appointed to the board of HCI as a non-executive director in August 2005.

Amon was the president of the Southern African Clothing and Textile Workers Union for 10 years and has been a director of SACTWU Investment Group since inception. He is also a director of various trade union investment companies. He was appointed to the board of HCI as a non-executive director in June 2002.

Virginia is the executive chairperson of the HCI Foundation. Previous to this she was the co-ordinator of the SACTWU Welfare Trust and private secretary to Nelson Mandela during the last two years of his presidency. She holds a non-executive directorship in Golden Arrow Bus Services (Pty) Limited and was appointed to the Board of HCI as non-executive director in January 2004.

Amon Malencane Ntuli

Virginia Mary Engel

Jabu was the regional secretary for Africa of the International Textile Garment and Leather Workers Federation. Prior to this appointment he held the position of general secretary of the South African Clothing and Textile Workers Union for 6 years. Jabu was appointed to the board of HCI as a non-executive director in October 2004.

Freddie worked for the Southern African Clothing and Textile Workers Union, reaching the position of national organising secretary. He was appointed to the board of HCI as a non-executive director in April 1998.

Mimi Freddie Magugu

Jabulani Geffrey Ngcobo

NON-EXECUTIVE DIRECTORS

Yunis ShaikB.Proc

Moretlo is employed as a director at the Medical Research Council. Prior to this she was a consultant for Aspen Pharmacare and the COO for Safika Health. She currently serves on the World Health Organisation Global Observatory on e-Health and the European Union Telemedicine Task Force. She serves on the board of JC Capital and was appointed to the board of HCI in December 2006.

Moretlo Lynette Molefi BSc, MB ChB



Report of Chairman and Chief Executive Officer

“....value creation is a long term process, requiring patience and persistence....”

Ten years ago Hosken Consolidated Investments (HCI) became the largest trade union-controlled investment company on the JSE

Limited (JSE) when the Southern African Clothing and Textile Workers Union (SACTWU) and the National Union of Mineworkers (NUM) acquired control by reversing their investment company assets into HCI for shares. Controlled and managed by trade unionists, HCI was a novelty on the exchange. Since then, much has changed. The Mineworkers Investment Company (MIC) (NUM’s investment company) decided to sell its interests in HCI and go its separate way. SACTWU and HCI management concentrated their shareholding to become the major shareholders of the company.

Our report reflects on some of the developments that have led to HCI being rated the number one financial services company in terms of broad-based black economic empowerment ownership and the fifth overall empowered company on the JSE. We also review HCI’s evolving investment strategy to build strong, profitable and enduring companies as well as its tentative steps in the offshore market.

Under our watch, the HCI Group started primarily as an opportunistic equity investor, acquiring minority stakes in a host of listed and unlisted companies that we hoped would provide above average market returns. We were fortunate enough to have a small stake in Vodacom which constantly and significantly appreciated in value. We also arrived at a fairly good time generally in the market and, as a result, happily picked some stocks like Datatec and Softline that quickly quadrupled in value in our hands.

In 2000 we had the good sense and the luck to take our profits. We sold some of the assets and unbundled others, repaying all debt in the company and giving our shareholders a substantial dividend in species. Only when the market crashed a few months later did we realise quite the extent of our good fortune and the difference between being a popular stock-picker in a good time and a long-term owner of businesses.

On the other hand, we faced a rude shock with our investment in e.tv. We owned some 25% of the station when the licence was awarded in 1998. However, we soon discovered that starting up a new company with partners who were either unable, or unwilling, to fund it, and a management who had no investment in the downside of the business, was a recipe for disaster. We were drawn into borrowing large sums of money to meet e.tv’s losses. On top of this, we were initially unable to take control of the company because of the painfully slow process of getting regulatory approval in circumstances where the licence had been awarded primarily because of the diversity of its ownership.

The crossroads appeared pretty sharply by 2002. Institutional shareholders who owned close to 50% of HCI were at pains to point out their lack of confidence in us managing assets, particularly start-up ventures. Their vision was simple: hang on to Vodacom; get rid of everything else and relax. Their vision was utterly incompatible with our own as managers and, happily, was equally incompatible with that of SACTWU. The trade union was committed to us fixing e.tv and developing businesses in which we could add real value, as opposed to relying on passive affirmative stakes in businesses owned by other people.

Desperate situations call for desperate solutions. At the end of 2002 we negotiated a cash exit for all shareholders who wanted out in the form of a voluntary share buy-back. We could achieve this only by



“Promoting social good, as an aspect of our work, has become an increasingly important feature of our business”

selling the mainstay of the HCI - its stake in Vodacom - to raise the cash to fund the buy-back and pay off the debt which had funded e.tv. Approximately 73% of the total share capital of the company was thrown back at the company at R2,37 per share as the combined weight of MIC and all South African managed institutional funds headed for greener pastures. HCI was left with SACTWU and HCI’s management as major shareholders. Its primary assets were its stake in e.tv and some smaller companies in which it had significant influence.

As often happens in times of radical change, the pendulum swung too far. While shareholders unsupportive of the streamlined company had voted with their feet, the company and its management were so disillusioned with being a publicly traded company that they pursued a delisting from the JSE despite resistance of its remaining (foreign managed) institutional minority. This resulted in a bruising eighteen month legal wrangle settled in the end when HCI abandoned its delisting efforts and concentrated on building its businesses in the public eye.

On the positive side, HCI was free to throw all its weight into taking control of e.tv and turning it around. Some twelve months later, the bleeding had stopped and the following year e.tv turned its first profit. As e.tv has grown into the second largest channel in the country, watched by some 11 million people nightly, HCI has become the beneficiary of a prized and highly profitable asset. It has also developed its ability to manage difficult businesses and to attract skilled managers who believe in the group and who can take its business further.

Over the last five years, HCI’s investment strategy has tended to seek controlling interests in most of its assets. In doing so, it has achieved the benefits of a stronger balance sheet through financial consolidation and control over the cash flows of its subsidiaries. This has resulted in us buying out minorities and generally increasing our stake in each subsidiary to the maximum possible. This strategy has allowed our group to consolidate its position in a number of key industries and to become the key point of reference for the management of its subsidiaries. In turn this has allowed the group to deepen its vision of the potential of these businesses and, together with their management, develop a vision for growth and development. Our investment view has been shaped by a long-term perspective to create value by reinvesting in our businesses and committing ourselves as owners and partners to their growth and re-capitalisation.

While it is not a venture fund, HCI has in many respects invested in a number of start-up businesses ranging from Vukani through to YFM and e.tv. SACTWU Investment Group (SIG), SACTWU ‘s investment company, was also a founding shareholder in Tsogo Sun, which made it possible to start the long arduous task of building a controlling stake in that group over a four-year period. Likewise, HCI has become involved in several businesses in serious need of restructuring such as Tylon, Formex and Clover. All these opportunities have involved HCI postponing a regular dividend to its shareholders in favour of acquiring new subsidiaries and associates and feeding cash-hungry businesses.

This strategy has yielded the classic high risk, high return position for the group. Over the last 10 years we have effectively achieved a return to our shareholders of 57% per annum. This has been



reflected, primarily, in the company’s share price which has risen from our entry point of R2,50 per share to a high of over R80,00 per share. More importantly the success of the group’s underlying investments has now created a holding company with significant annual cash inflows and sustainable profits. In turn, this has allowed us to start paying an ordinary dividend to shareholders this year without jeopardising the growth of our businesses. This is a practice we hope we can maintain regularly in the future.

Significant features for the past year include:

• Consolidation of our gaming interests in Tsogo Sun through Tsogo Investment Holding Company (TIH) despite one outstanding regulatory dispute;

• Rebranding the hotel group into its own Southern Sun brand together with major associated refurbishments and the opening of new hotels in Seychelles, Dubai, Fourways, Durban and at Montecasino;

• Expanding Vukani in Kwazulu-Natal, Limpopo and other provinces through aggressive marketing and improved management;

• Through Johnnic, starting an offshore investment diversification via the purchase of Montauk Energy Capital LLC in the USA;

• Reorganisation and consolidation of our media group through Sabido, the holding company of e.tv, which included additional acquisitions and expansions in the sector;

• Our resources initiative through HCI-Khusela Coal has also improved considerably over the year with production likely to commence early in our next financial year. Hopefully we will succeed over time in expanding the resources portfolio with additional prospects as well as other metals and minerals;

• Continued major renovation of the Golden Arrow bus fleet through the purchase of new buses and the refurbishment of older buses.

In some ways all businesses are similar, but in fundamentally important ways, each business is unique. Over time, HCI has endeavoured to ensure that its businesses play a positive role beyond profit-making. Promoting social good, as an aspect of our work, has become an increasingly important feature of our business. Partly, this commitment has been realised by our main shareholder developing a social programme for its members, their families and the communities in which they live. To date their investments have allowed them to fund some R100m in

Report of Chairman and Chief Executive Officer

such programmes. To some extent it has been realised through subsidiaries and associates developing their own innovative ways of contributing to the communities around them and through whose patronage they have done so well. It has also been achieved by us developing a separate capital base of some R400m for the HCI Foundation that has allowed HCI to contribute to philanthropic projects at a far higher level than its own size might normally sustain.

The HCI Foundation documents some of the initiatives that have been undertaken to improve the opportunities of disadvantaged communities. A separate report of its activities is attached.

In these times, with excess capital available to many private equity groups and significantly higher valuations placed on assets, it is necessary to be prudent to ensure that value opportunities and assets are acquired at the right price.

We remain optimistic that we can continue to seek out value propositions. In addition, our emphasis on enhancing the vertical integration of our businesses remains the most important medium term requirement. This will position our companies to become dominant players in their respective sectors and provide an opportunity for externalisation and offshore development.

A large reason for the progress and success must be attributed to:

• the many people who work in our companies, who share our vision and benefit from its implementation;

• a supportive and reliable shareholder base in SACTWU, the HCI management team and key institutional shareholders that have believed in the company over several years;

• the emphasis on building a strong core team, who rely on each other’s strengths and recognise each other’s weaknesses and act in ways which benefit the group as a whole. This trust and loyalty is without doubt a key ingredient for HCI’s continued success;

• the key understanding that value creation is a long term process, requiring patience and persistence;

• the willingness of some of our partners to back HCI in some of its businesses when no-one else was happy to do so.

Finally, it’s often simply about luck. Here is to the hope that HCI continues with its fair share.



Operational Review

MEDIA AND BROADCASTING

e.tv

Sustained growth in the South African economy, increased consumer spending and a buoyant advertising market resulted in e.tv’s performance exceeding expectations during the year under review.

By the end of this period, e.tv had consolidated its position as the most-watched English-medium television channel in South Africa and the second largest channel overall. It had secured 21% of the “all adults” market and 25% of the black middle income market. Its ‘yesterday’ viewership now stands at 10.7 million (AMPS 2005/2006).

The solid audience ratings performance was achieved through strategic acquisition and scheduling of a cross-section of popular programming genres. This included popular movies, the daily local drama ‘Scandal’, WWE wrestling, live UEFA football and reality shows such as ‘Fear Factor’ and ‘The Biggest Loser’. Despite the competitive timeslot, e.news Prime Time – e.tv’s 7pm news bulletin - showed significant and consistent growth in viewer numbers. e.news Prime Time has become the most-watched English news broadcast in South Africa, outstripping its competitor’s ratings by some 35%.

e.tv’s healthy overall performance during the year culminated in the communications regulator, the Independent Communication Authority of South Africa (ICASA), renewing e.tv’s licence in December 2006.

Progressive technological developments and the global shift in traditional business models have compelled television operators

to seek alternatives to single-channel businesses. In South Africa, the imminent introduction of new subscription television services together with the launch of digital terrestrial television (DTT) in 2008 necessitate that e.tv adapts its business to a multi-channel and multi-platform environment. e.tv intends to take advantage of its market strength in exploring new opportunities provided by this shifting environment both within South Africa and across the African continent.

e.tv has applied to ICASA for a subscription television licence and expects a decision in the last quarter of 2007. Over the past twelve months, e.tv has also played a critical role in the policy debate on government’s plans for the national roll-out of DTT, investigated multi-channel opportunities across new media platforms including mobile content and, in line with the NEPAD vision, developed business partnerships with media companies in other African territories. The acquisition of the mobile solutions and innovations provider, ViaMedia, at the end of the period has further strengthened relevant synergies within Sabido Investments, e.tv’s holding company.

Interest rate hikes over the next year may impact on robust consumer spending habits with a concomitant effect on advertising spend. However, management has positioned e.tv to take advantage of the opportunities and challenges in the changing media landscape. e.tv is confident that the business will continue to deliver to both its traditional viewer base while attracting new viewers, to maintain its share of advertising revenue and to deliver value to its shareholders.

Yfm celebrates its 10th birthday this year. It is the country’s only radio station providing dedicated infotainment to a core youth target market of 16-24 years. The station’s current audience over the past 7 days is around 1,2 million listeners.

During the financial year, net profit after tax increased by 13% y-o-y. Management anticipates a slowing in revenue growth for the current financial year as a result of difficult trading conditions for the radio sector in Gauteng.

The past five years have seen marked swings in Yfm’s audience composition driven primarily by the significant growth in wealth levels among black audiences. This has led to the station taking the strategic decision to market and focus programming on the growing affluent end of the audience at the expense of the less urbanised market. Management view the 2006/07 financial year as one of consolidation and steady growth.

YFM

THREE BLIND MICE COMMUNICATIONS (TBM)

TBM is a media company focussed on outdoor digital signage and corporate internal communications networks. Campaigns are delivered, via satellite, to over 1000 screens, many of which can be seen at the arrival/departure areas of the ACSA airports.



Operational Review

GAMING AND LEISURE

During the year HCI increased its stake in Tsogo Sun Investment Holding Company (TIH) from an effective 41.76% to an effective 65.5% through implementing the Fabvest acquisition and acquiring a further 4.6% effective interest in TIH by acquiring, African Renaissance Investment Holdings (Pty) Limited’s stake in TIH.

In view of the fact that HCI has now taken control of TIH, a 51% owner of Tsogo Sun, and thereby the board of Tsogo Sun, it has consolidated the results of Tsogo Sun with effect from 1 December 2006.

Tsogo Sun is the major asset of HCI and is comprised essentially of two different businesses, namely hotels and casinos.

While the full impact of the consolidation of Tsogo Sun in HCI’s results will be more meaningful in future periods when the consolidation is for a full year, the addition of Tsogo Sun to the HCI stable is already of major significance to the group.

Tsogo Sun Gaming owns and operates five casinos in Southern Africa, including its flagship Montecasino complex in Johannesburg and the Suncoast casino in Durban. The five casinos all of which are located in entertainment complexes have a total of 4 053 slot machines and 155 gaming tables.

Southern Sun Hotels has 81 hotels comprising 13 300 rooms. The hotels cover all segments of the industry from deluxe resorts to budget city centre hotels. The company

currently trades in seven countries in addition to South Africa.

Tsogo Sun Group had an excellent year with EBITDAR (before rentals) for the year growing by 23% to R1 865 million. Net interest-bearing debt at year end was R1 042 million.

Tsogo Sun Gaming performed above expectation with casino revenue up 16% from the 2006 financial year and EBITDA up 22% on that year. Tsogo casinos increased market share in the provinces within which they operate.

The opening of additional facilities associated with the Group’s casino developments, including the Montecasino East End (theatre, hotel, restaurants, piazza and conference facilities), the Highveld Shopping Mall in Witbank and the Suncoast Hotel and Towers, together with a planned major shopping centre development at Hemingways in East London are all important to Tsogo Sun Gaming’s ability to grow quality footfall and revenue.

Southern Sun Hotels had an exceptional year with revenues up 22% and EBITDA up 56% on last year. The re-launch of the Southern Sun brand has been completed and the Group has spent significant amounts refurbishing its hotels to complement the new brand positioning. The group has opened new hotels in Seychelles, Dubai, Fourways and Durban and continues to develop as South Africa’s leading hotel group, with an increasing global reach.

TSOGO SUN GROUP

JOHNNIC

The year ended 31 March 2007 was Johnnic’s first full year under the control of HCI.

The significant features of the year for Johnnic were:

• the acquisition of an effective 91.5% interest in Montauk Energy Capital LLC (Montauk), a US based operator of landfill gas plants, for an equity consideration of USD 61.1 million (R428 million).

• the increase in it’s Suncoast shareholding from 28.6% to 30.2%; and

• the pleasing performance of Gallagher Estate in an increasingly competitive environment.

Other than the above mentioned investments Johnnic alsoowns an effective 9,8% interest in Tsogo Sun.

Johnnic is listed on the JSE Limited and shareholders arereferred to its website where its results and businessesare more comprehensively explained in its annual report(www.johnnic.co.za).



GAMING AND LEISURE

Operational Review

VUKANI GAMING CORPORATION (VUKANI)

Vukani is the largest limited payout route operator in South Africa, being the only operator that is licenced in all operating provinces. As a route operator, Vukani is legislated to issue maximum jackpots of R500 per spin - placing the group in the Limited Payout Machine (LPM) gaming segment.

The transition of Vukani from a start-up business, operating in an industry that is plagued by delays and under-investment, to a business which is recognised to be a significant contributor to future group earnings, was advanced significantly in the financial year. The business was reorganised to streamline all operations under a newly appointed Chief Operating Officer (COO) and centralise these operations, as far as possible, at head office. In addition, business processes were redesigned and a decision made to invest in technology. These changes will enable Vukani to achieve a per unit reduction in cost, better manage the future roll-out of Limited Payout Machines, fulfil ongoing compliance requirements, manage the potential Gauteng license and also enable it to continue to support customers and site owners countrywide.

Vukani is currently licensed to roll-out 5000 LPM machines and, if the Free State bid is successful, this will increase to 6000. Frustratingly, the LPM industry has continued to experienced difficulties in getting sites licensed with the approval processes, and the frequency of gaming board meetings not yet optimal. In addition, the business is plagued by site closures where site owners cannot adhere to the relicensing requirements. The regional managers are working closely with the relevant gaming boards to ensure that delays are minimised as far as possible. Despite these problems the installed machine base increased from 1149 to 1545 during the financial year and it is expected that more machines will be rolled out in the 2008 financial year than in the 2007 financial year.

The KwaZulu Natal (KZN) licenses were awarded in the latter part of 2006 and the first batches of sites were approved for roll-out in December and January. Vukani managed to secure one of four licences which were awarded, each entitling the licence holder to operate 1000 machines. Vukani’s performance in selecting sites and managing the roll-out in the province was not as efficient as required and

increased management time and focus has been directed to the province to ensure an improved performance. The roll-out in the province is currently being hampered by an industry dispute with KZN liquor board. The LPMSA has engaged the liquor board to resolve the matter. Once resolved, we expect the pace of roll-out to increase significantly.

The Limpopo route operator license was also awarded to Vukani during the year. Whilst the market for LPM’s is fairly small in Limpopo, Vukani faces no competition in the market and management believes that the territory will be a profitable one, albeit at a lower average Gross Gaming Revenue (GGR) per machine.

The Western Cape roll-out is currently constrained by the PDI conditions in the license which require 60% of all site owners to be from a previously disadvantaged background. In addition, Vukani has had to restructure the regional management team to achieve cost and customer service targets. The new management team and revised business processes are expected to increase the efficiency of site roll-out and improve profitability in the province.

The Free State Province has requested interested parties to submit applications for route operator licenses and the process is expected to finish in the third quarter of the 2008 financial year. The company is still waiting to hear the outcome of its route operator application to the Northwest Province.

Although behind budget and expectations, the increased number of LPM machines enabled Vukani to become cash flow and profit positive for the period under review. Net gaming profit was up 36% on the previous year. The EBITDA has increased from a loss of R8.6 million for the prior year to a profit of R17.6 million for the year under review.

The head office and technical centre structure should be fully operational in the first quarter of the 2008 financial year with the expected benefits realising almost immediately. In addition increased management training and focussed customer development programs are expected to increase the average GGR per machine.



TRANSPORT

Operational Review

GOLDEN ARROW BUS SERVICES (GABS)

During the year under review Golden Arrow’s services continued to expand steadily with passenger growth increasing by 2,5%. Revenues were up 12%, whilst expenses were well controlled, which resulted in profits before tax tracking the growth in revenue.

The purchase of 46 new buses at a cost of approximately R48m during this period means that the company is currently operating a fleet of 1013 buses, with another 110 buses on order. In addition, the company’s engineering plant continues to refurbish older buses, with 25 buses having been refurbished during the period under review.

Since HCI acquired Golden Arrow in April 2004, some 169 new buses have been purchased and 126 have been refurbished at a cost of approximately R195m. It is HCI’s intention to continue to modernise the fleet as rapidly as possible. This commitment to the upgrading of the bus service of Cape Town is a key component of the company’s strategic positioning as the primary supplier of scheduled bus transportation for the city in the foreseeable future.

A major concern is the continued spiralling cost of fuel, with diesel having increased by 16,7% during the past year. The effects of this increase on company costs were only partially offset by a 4,5% fare adjustment implemented during August 2006.

Golden Arrow continues to expand its BEE initiatives, and approximately 67% of its annual procurement expenditure was sourced from accredited BEE suppliers. In addition the company subcontracted some 18% of its turnover to BEE subcontractors. The biggest of these is Sibanye, a joint venture company established in 2001 between Siyakhula Bus Services, Abahlobo Transport Services and Golden Arrow Bus Services. Sibanye operates the Atlantis routes as a subcontractor to Golden Arrow. Through the sub-contracting initiatives and facilitation of skills to the participants by Golden Arrow, 52 small businesses have been enabled to participate in the transport field.

Golden Arrow has continued its program to improve its

operating efficiency, which during the review period averaged 95%. Through a number of external interventions, and internal continuous improvement analyses, new benchmarks for efficiencies in both the operational and engineering functions are continually adjusted and vigilantly measured.

During the review period, a comprehensive program to improve customer service was undertaken in the operations division. This initiative has been spearheaded by a training intervention for drivers called “Free to Grow” which focused on personal development and the effective management of interpersonal relationships, which is central to dealing with public transport commuters.

A major challenge facing public transport is the pivotal role the sector is anticipated to play in the staging of the 2010 World Cup. The Provincial Government has stated that 300 buses planned for the transportation of the expected 200 000 fans projected to visit Cape Town for the soccer showpiece will be integrated into the existing bus passenger transportation system.

As the current provider of scheduled bus passenger transport services to the Western Cape Provincial Government, Golden Arrow is ready to engage with all stakeholders to ensure that the 2010 public transport initiatives are sustainable and synchronised with related programmes.

The most significant issue facing Golden Arrow remains the intention to change the regulatory framework governing bus subsidies and the replacement of the existing system with a tendered contract system. It is also anticipated that the Department of Transport will regularize the company’s short term interim contract with a more sustainable one during the current financial year.

Engagement with government at all three levels continues on the implementation of a negotiated contract for the Cape Metropole. Golden Arrow considers this as the most balanced option in introducing the contract system without causing an inordinate disruption of the current passenger transport services.



ENERGY

Operational Review

HKC is a coal mining company 80% owned by HCI and 20% owned by Khusela Women Investment (Pty) Ltd. The company has been in operation for 18 months and has secured three prospecting rights. All three properties are located in the Mpumalanga Province; one property, Loopspruit, is in Bronkhorstspruit and the other two properties, Klippoortje and Oogiesfontein, are in Ogies near Witbank.

During the period under review the prospecting programme on Loopspruit and Klippoortje was completed and both of the coal resources can be classified as measured resources in terms of the SAMREC classification. Mining rights have been applied for both Loopspruit and Klippoortje and the projects

are progressing toward bankable feasibility. Discussions are underway with potential customers and the outlook is positive. It is expected that mining rights will be granted before the end of 2007 and that mining operations will commence as soon as the rights are granted. Prospecting activities are underway at Oogiesfontein.

The management team is expected to be strengthened through the appointment of experienced operational and technical staff.

As HKC approaches the commissioning of the mines actions to increase the resource base continue and it is expected that these activities will yield additional projects and resources.

Montauk extracts natural gas from landfills under contract, either for use to generate electricity or for use as natural gas energy. Montauk is also testing technology that will enable it to convert Landfill Gas to Liquefied Natural Gas (LNG).

Johnnic Holdings, a 51% subsidiary of HCI, acquired a 91.5% interest in Montauk Energy Capital LLC (“Montauk”) for an equity contribution of USD 61.1 million (R428 million). The

balance of the USD 101 million purchase consideration was funded by Montauk raising non-recourse debt in the USA.

It is believed that the market for green energy will develop significantly as concern about the emission of greenhouse gasses and global warming grows. Given its position as a leader in this niche market, Montauk is expected to benefit from this growth.

MONTAUK ENERGY CAPITAL LLC (MONTAUK)

HCI KHUSELA COAL (HKC)



Operational Review

FOOD AND BEVERAGES

The challenges in the international dairy industry are well documented and publicised. Worldwide dairy consumption has increased, underpinned, as in most commodities, by dairy demand in China and India. This has resulted in increases in dairy prices worldwide.

The higher international prices have constrained imports into the South African dairy market of powdered milk and cheese. The supply problem in the local market was exacerbated by the relatively low retail prices for dairy products thereby preventing the local milk processors from stimulating milk production by increasing raw milk prices at the farm gate. Low inflation also limited price increases and producers in general had to focus on volume growth in order to obtain profit growth through production efficiencies.

Clover’s results were negatively impacted by these supply constraints as its business model is predicated on an increase in milk production in order to optimally amortise the significant overheads costs involved in the collection and processing of milk countrywide. Its collection and processing network is also burdened by an under investment in fixed capital infrastructure, primarily due to low profitability in the preceding years, resulting in higher per unit costs compared to other regional producers.

During the year Clover implemented a regional milk price model which is based on a cost to serve model. The model seeks to retain milk producers in the regions where they are most required and to pay the producers in line with these requirements. Previously milk prices were determined nationally with limited adjustment for volumes or locations. Ultimately the benefits of the cost to serve model were eroded when the milk shortage resulted in a price war between milk processors and Clover was required to increase milk prices significantly in order to arrest the loss

of volume. The increased milk prices could not be recovered in the retail market immediately.

Part of the Clover realignment process involved the acquisition of Group Danone’s interest in Clover Beverages, increasing Clover’s interest to approximately 95%. An offer to acquire the minority interest was rejected by the remaining shareholders. The transaction was funded by the sale of Ultramel to Danone Clover, in which Clover holds a 45% interest. The acquisition enables Clover to obtain an increased share of the profits of Clover Beverages, where margins in the value added beverages business is significantly higher than in the rest of the product portfolio.

Notwithstanding the above constraints the company has not performed in accordance with HCI’s expectations. The efforts to adapt Clover to trading in a low inflationary environment, to improve efficiencies and to provide more price stability and visibility to producers were superseded by the turmoil in milk procurement. The restructuring challenges still remain and are significant.

To survive and prosper in future Clover is required to adapt its business model and free its capital structure from quotas. The successful introduction of SealFresh milk and Aquartz mineral water is testimony to the potential of Clover and its brand, however this potential will not realised with the current capital structure and resources.

Subsequent to year end HCI exercised its option to increase it shareholding in the ordinary shares of Clover to 34.9%. We have indicated to the board that a single share structure is the only realistic method to raise sufficient capital in the long term and that additional debt to fund future capital expenditure programs is not appropriate given the current profitability of Clover.

CLOVER



INDUSTRIAL

Operational Review

Formex manufactures and supplies catylytic converter assemblies, doorlocks and pressed parts to the automotive industry. Formex grew its turnover in line with expectations. Management’s focus remains on the growth of market share in the existing businesses and to leverage the existing client base by providing a wider range of related product.

The pressings division, which mainly supplies stainless steel pressings to the catalytic converter assembly market, has grown its local market share during the year and successfully integrated the Precision Engineering acquisition. The automated facility at Precision Engineering is now operating at full capacity and has enabled Formex to be very cost competitive. Additional press capacity was also commissioned in the Port Elizabeth facility. A significant investment was made to improve the capability of the Formex toolroom as specialised toolroom capability is becoming a competitive advantage.

The focus of the doorlock division was the commissioning of a new facility in East London to assemble doorlocks for the new C Class Mercedes. The project is on schedule and is expected to be operating at full capacity in October 2007. The market for new doorlock projects remains constrained and new orders in the near future will be limited. Efforts

to market pulleys in the US and Europe are bearing fruit and significant orders were obtained during the year. The new orders require additional capacity which will be installed in the next 12 to 18 months. The forward order book is healthy and is mainly export based. It is expected that future pulley orders, based on submitted quotations, will require a further increase in pulley manufacturing capacity.

Subsequent to year end a tube manufacturing and bending business was acquired which will enable Formex to provide a wider range of product to its catalytic converter client base. In addition, capital expenditure of R60 million is being budgeted for the next financial year to grow production capacity across all business divisions.

The management team at Formex is being strengthened to enable the business to manage its rapid growth. Skill shortages, specifically engineers, remain a constraint in the industry. In addition, increased salary costs, especially for skilled staff continue to put pressure on margins.

The business will continue to grow organically and acquisitively in the year ahead and is expected to make a bigger contribution to group earnings in future.

The buoyant conditions in the construction industry and the need to adopt safer work practises have significantly increased the demand for powered access platforms. Access platforms are increasingly seen as a replacement option for scaffolding, ladders and suspended access, providing a safer and more efficient alternative.

Johnson Access (JA) has increased its fleet of access platforms by 50% to 300 platforms. The worldwide shortage of access platforms hampered the growth of the fleet with long lead times being common. Notwithstanding the increased fleet size the current utilisation levels are the highest since the start of the business and it is expected that

utilisation will remain high for the foreseeable future.

The buoyant market conditions have seen increased competition, especially by operators who acquire second hand fleet in the overseas market. These operators have put rate pressure on the market but due to the age of the second hand fleet they have also seen higher levels of breakdown, thereby increasing customer dissatisfaction levels. JA continues to monitor its rates table but its newer fleet and better infrastructure is enabling it to achieve a rate premium. EBITDA increased by 49% during the year and the business is expected to match this growth in the year ahead if additional rental units can be acquired.

FORMEX ENGINEERING (FORMEX)

JOHNSON ACCESS



FINANCIAL SERVICES

Operational Review

Now in its 11th year of operation, Mettle has consolidated its position as an independent financial intermediary serving a diverse portfolio of clients as well as expanding its own proprietary financial businesses. In adapting to the changing financial services’ market Mettle’s focus lies in the realm of niche lending and credit arbitrage opportunities. The team employs its debt skills both on behalf of its clients and in support of its own growth and expansion into the provision of credit by means of secured lending.

Mettle Specialised Finance (MSF) focuses on debt origination and structuring for corporate clients and is considered to be a specialist in securitisation and fund raising products. MSF manages an ever increasing diverse portfolio of securitisation assets currently exceeding R2 billion, with a number of additional transactions mandated and in the process of being implemented. Solutions are characterized by a greater proportion of annuity income than upfront fees in line with the overall group strategy of long-term sustainability and profitability. This approach is underpinned by Mettle’s insistence on the highest duty of care towards risk management and financial administration capability.

Mettle Factors operates nationally in the bridging finance arena. Products include bridging finance to facilitate cash flow on property transfer transactions; mezzanine finance to property developers; equity finance to property developers; bridging finance to SME’s secured by mortgages over fixed property; and factoring services to suppliers to the short term insurance industry. Mettle Factors currently manages assets in excess of R250 million and is expected to significantly contribute to Mettle’s profitability in future.

The Mettle Motor Loans business relied on the outsourcing of a number of functions, including origination, collections and credit vetting. Further, the business was highly reliant on a single originator. These factors resulted in significant bad debts of up to R70 million emerging in the book. Subsequent to year-end, the business has been significantly restructured with collections and credit vetting taken in-house and by reassessing the relationships with originators. Senior management has been changed and key experienced personnel hired for the purpose. Subject to continuing funding support from its funding partner, Mettle remains committed to the business. Other opportunities in the asset based finance industry are currently being explored to complement this business.

Mettle acquired a 51% shareholding in Lendcor, a specialist retail finance company in 2006. Lendcor provides retail credit to individuals for the purpose of acquiring building material to build homes or improve existing homes. This is achieved through a network in excess of 600 building supply merchants. Lendcor’s origination platform is expanding geographically and through the launch of a Lendcor savings and debit card that will provide banking services to its customer base, including customers in remote areas.

Further niche lending businesses that take advantage of credit and margin arbitrage opportunities and other financial services opportunities have been identified. These opportunities will leverage the infrastructure that has been created in managing the existing motor loan book. To manage this growth, Mettle will continue to add to the existing skill and staff complement.

Noah completed its fourth full financial year amidst buoyant conditions in both the domestic and global financial markets.

Annual revenues to 31 March 2007 were up 45% on the previous year. This resulted in net operating profits as well as cash generated from operations increasing by over 150% over the comparable period in 2006.

This commendable achievement was underscored by Noah’s enhanced market positioning as the pre-eminent black stock-broking firm with accolades for innovative, value-added services and a distinct corporate brand. Noah’s profit contribution per employee was also markedly improved and bears testimony to its team of dedicated and energetic professionals.

METTLE

NOAH FINANCIAL INNOVATION



SYNTELL

BUSINESS SYSTEMS GROUP (BSG)

LIMTECH BIOMETRIC SOLUTIONS (LIMTECH)

ISILUMKO STAFFING

Operational Review

PROPERTY AND EXHIBITIONS

TECHNOLOGY AND SERVICES

Syntell is the leading supplier of Traffic Management and Road Safety services and systems to municipalities throughout South Africa. The company has continued on it’s growth path with profits after tax increasing by 53% in comparison with that of the previous year. It is forecasting good growth in the year ahead, mainly

as a result of the winning of a significant new contract with Joburg Metro Police and through identified acquisitions that are in the process of being concluded. The company has also launched South Africa’s first fully integrated online fine viewing and payment system. www.payfine.co.za.

GALLAGHER ESTATE

The Gallagher complex consists of three main parts:

• the conferencing and exhibition business;

• the Pan African Parliament premises; and

• a multi-tenanted office complex and development land

The performance of Gallagher has been pleasing and it has shown good revenue growth in an increasingly competitive environment.

In terms of an order issued by the Competition Tribunal, Johnnic is required to dispose of its interest in the conferencing and exhibition business. Johnnic is in dispute with the Competition Authorities over the interpretation of this order as the Competition Authorities hold the view that

the disposal of the conferencing and exhibition business can effectively only be achieved through the sale of the Gallagher property in its entirety, including the unrelated properties and land. It is hoped that this dispute will be resolved satisfactorily.

The Pan African Parliament premises are leased to the Department of Public Works (DOPW) which lease expires in February 2010. The DOPW recently advertised for the submission of designs for a new proposed African Parliament in Randjiesfontein, Midrand and hence it appears unlikely that the Pan African Parliament lease will be extended. Options for an alternative use of the property are being investigated.

Business Systems Group (Africa) (BSG) enjoyed significant growth over its 10th Anniversary year and celebrated key successes as well as positioning the company for further steady growth. Contributing, was a new marketing campaign that was launched, creating a stronger identity for BSG in both the business and software solutions markets as well as being awarded ‘Innovator of the Year’ by Proudly South African at the recent HomeGrown awards.

BSG’s revenue growth of 50% year on year was based on a continued upturn in the IT market, growth of its client base and increase in stature at current clients as BSG secured engagements for larger, strategic programmes. The strong growth in demand led BSG to grow its consultant base further, up by 32%, as well as launch its service offering in the United Kingdom.

Limtech is an integrator of Access Control and Time and Attendance solutions. The demand for integrated access control, payroll and time and attendance systems has grown

significantly and Limtech is positioning itself to become a national service provider. Its focus in the year ahead is to increase it’s exposure and acceptance in the corporate market.

Isilumko Staffing offers corporate and parastatals services in the areas of temporary and flexible staffing. The core areas

and functions are in the call centre, administration and office support industries.



GAMING, HOTELS AND LEISURE


TRANSPORT

ENERGY

PROPERTYAND EXHIBITIONS

FINANCIAL SERVICES

INDUSTRIAL

SERVICES AND TECHNOLOGY

Business Segments

Tsogo Investment Holding Company

74.7%**

Vukani GamingCorporation

100%

Business Systems Group (Africa)

40%Syntell50.1%

Formex Engineering

90%

Johnson Access80%

Mettle100%

Noah FinancialInnovation

49%

Golden ArrowBus Service

100%

e.tv63%

Yired77.5%

Three Blind MiceCommunications

71.3%

Limtech58.9%

MontaukEnergy Capital

91.5%*

Clover45.7%

FOOD AND BEVERAGES

HCIKhusela Coal

80%

Gallagher100%*

* Held through Johnnic Holdings

** Includes 19% of TIH held through Johnnic Holdings

Johnnic Holdings 51%

as at 4 September 2007

Isilumko30.1%



Shareholders’ Information

ANALYSIS OF SHAREHOLDERS

Listed below is an analysis of shareholdings extracted from the register of ordinary shareholders at 31 March 2007.

Number of % of total Number of shares % of total shareholders ’000

1 - 1 000 shares 736 61,6 224 0,2 1 001 - 10 000 shares 283 23,7 991 0,8 10 001 - 100 000 shares 101 8,5 3 582 2,8 100 001 - 1 000 000 shares 51 4,2 18 587 14,7 Over - 1 000 000 shares 24 2,0 102 825 81,5

1195 100,0 126 209 100,0

Type of shareholder Number of % of current Number of shares % of issued shareholders shareholders ’000 capital Public companies 7 0,6 1 939 1,5Banks 43 3,6 20 699 16,4Close corporations 25 2,1 45 0,1Individuals 808 67,6 15 880 12,6Nominees and trusts 104 8,7 9 101 7,2Other corporations 97 8,1 61 735 48,9Pension funds 67 5,6 2 535 2,0Private companies 43 3,6 13 020 10,3Share trust 1 0,1 1 255 1,0

1195 100,0 126 209 100,0

SHAREHOLDERS’ DIARY Financial year end 31 MarchAnnual general meeting OctoberReports- Preliminary report and dividend announcement June- Interim report at 30 September October- Annual financial statements September

STOCK EXCHANGE PERFORMANCE 31 March 2007

Total number of shares traded (000’s) 7 989Total value of shares traded (R’000) 401 875Market price (cents per share) - Closing 6 035- High 6 200- Low 3 700 Market capitalisation (R’000) 7 616 698



SIGNIFICANT SHAREHOLDINGS

At 31 March 2007, insofar as HCI is aware, the following members beneficially held directly or indirectly 5% or more of the issued shares: Percentage held 2007 2006Southern African Clothing and Textile Workers Union and associated entities 39,9 40,4JA Copelyn 10,0 10,2MJA Golding 7,1 7,2 57,0 57,8

Shareholder spread Percentage held Number of shareholders 2007 2006 2007 2006

Public 34,9 35,3 1 173 1 126

Non Public 65,1 64,7 22 19

Controlling shareholders 39,9 40,4 2 2Directors 18,4 17,8 11 9Associates of directors 4,9 5,0 6 6Share trust 1,0 1,1 1 1Treasury shares 0,9 0,4 2 1

100,0 100,0 1 195 1 145

Shareholders’ Information



Corporate Governance

Hosken Consolidated Investments Limited (HCI) and its subsidiaries subscribe to the Code of Corporate Practices and Conduct (the code) as set out in the second King Report on Corporate Governance. HCI believes that in all material respects it complies with the major recommendations of the code and in particular those set out below.

BOARD OF DIRECTORS

The board of directors of HCI comprises five executive and six non-executive directors. The board retains control over HCI and its subsidiaries, meeting at least quarterly, to review the performance of subsidiary and associated companies and group strategy and other matters relating to the achievement of HCI’s objectives. Directors are provided with full board papers to enable them to consider the issues on which they are requested to make decisions. Four of the executive directors have entered into three year service contracts with the company. These contracts expire March 2010 and are renewable thereafter. These contracts have been approved by the remuneration committee and define the terms of employment of the executive directors.

The roles of the Chairman and the Chief Executive are separated. The Chairman is an executive director which is considered acceptable in relation to the company and board which has a majority of non-executive directors.

BOARD ATTENDANCE

Director’s June October November Marchname 2006 2006 2006 2007

MJA Golding Yes Yes Yes YesJA Copelyn Yes Yes Yes YesVM Engel Yes Yes Yes YesJA Mabuza * N/A Yes No YesMF Magugu Yes Yes Yes YesML Molefi ** N/A N/A N/A YesVE Mphande Yes Yes Yes YesAM Ntuli Yes Yes Yes YesJG Ngcobo Yes Yes Yes YesY Shaik Yes Yes Yes YesA van der Veen Yes Yes Yes Yes* Appointed 26 June 2006** Appointed 11 January 2007

AUDIT COMMITTEE

HCI has an audit committee which has written terms of reference setting out its scope and objectives. The members of the audit committee comprise of a majority of non-executive directors and is also chaired by a non-executive director. The external auditors have unrestricted access to this committee. The audit committee meets at least three times a year. It reviews the effectiveness of internal control in the group with reference to the findings of the external auditors. Other areas covered include the review of important accounting issues, specific disclosures in the financial statements and a review of major audit recommendations.

MEMBERS

MF Magugu (Chairman); Y Shaik; ML Molefi

REMUNERATION COMMITTEE

The remuneration committee for HCI and its subsidiaries comprises non-executive directors who approve remuneration and terms of employment of executive directors and senior management.

MEMBERS

AM Ntuli (Chairman); MF Magugu; JG Ngcobo

FINANCIAL STATEMENTS

The company’s directors are responsible for preparing the financial statements and other information presented in reports to members in a manner that fairly presents the financial position and results of the operations and cash flow position of the HCI group.

The annual financial statements are prepared in accordance with International Financial Reporting Standards and are based on appropriate accounting policies which have been consistently applied except where otherwise stated and are supported by reasonable and prudent judgments and estimates. Adequate accounting records have been maintained throughout the financial year under review.

The external auditors are responsible for carrying out an independent examination of the financial statements in accordance with International Standards on Auditing and in the manner required by the Companies Act.

After making enquiries, the directors are of the opinion that HCI and its subsidiaries will continue as going concerns for the ensuing financial year. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

INTERNAL CONTROL AND RISK MANAGEMENT

HCI and its subsidiaries maintain internal controls and systems designed to provide reasonable assurance as to the integrity and reliability of the financial statements and to adequately safeguard, verify and maintain accountability for the assets of the group.

The board is responsible for identifying and monitoring key risk areas and key performance indicators. Risk management is addressed in the areas of business and operational risk, foreign exchange risk, credit risk, interest rate risk and liquidity risk.

The effectiveness of the internal controls and systems is monitored through, inter alia, the external auditors, the group internal audit function, adherence to performance standards and the aid of internal control procedures. Nothing has come to the attention of the directors or the external auditors to indicate that any material breakdown in the functioning of the internal controls and systems has occurred during the financial year under review.

MANAGEMENT REPORTINGThe company has established comprehensive management reporting disciplines which include the preparation of annual budgets by HCI and its subsidiaries. Performance relative to budget and prior years is monitored on a regular basis and reported to the board of directors.

AFFIRMATIVE ACTION

HCI and its subsidiaries are committed to providing equal opportunities to all their employees, irrespective of ethnic origin or gender.



Corporate Governance

I certify that Hosken Consolidated Investments Limited has lodged with the Registrar of Companies, for the financial year ended 31 March 2007, all such returns as are required by a public company in terms of the Companies Act of South Africa and that such returns are true, correct and up to date.

MA GOLDING JA COPELYNChairman Chief Executive OfficerJohannesburg4 September 2007

CERTIFICATION BY COMPANY SECRETARY

TG GOVENDERCompany secretary4 September 2007

STATEMENT OF RESPONSIBILITY BY THE BOARD OF DIRECTORS

The directors of Hosken Consolidated Investments Limited are responsible for the preparation, integrity and fair presentation of the financial statements of the company and of the group and for other information contained in this annual report. The financial statements set out on pages 24 to 74 have been prepared in accordance with International Financial and Reporting Standards and include amounts based on prudent judgments and estimates by management.

The going concern basis has been adopted in preparing the financial statements. The directors have no reason to believe that the group or any company within the group will not be a going concern in the foreseeable future based on forecasts and available cash resources. These financial statements support the viability of the company and the group.

The financial statements have been audited by the independent accounting firm, PKF (Jhb) Inc, which was given unrestricted access to all financial records and related data, including minutes of all meetings of shareholders, the board of directors and committees of the board. The directors believe that all representations made to the independent auditors during the audit were valid and appropriate. The annual financial statements for the year ended 31 March 2007 which appear on pages 24 to 74 were approved by the board of directors on 4 September 2007 and are signed on its behalf by:



Independent Auditor’s Report

We have audited the annual financial statements and group annual financial statements of Hosken Consolidated Investments Limited, which comprise the director’s report, the balance sheet as at 31 March 2007, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 24 to 74.

DIRECTOR’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

The directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the Companies Act of South Africa. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

AUDITOR’S RESPONSIBILITY

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are

free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPINION

In our opinion, the financial statements present fairly, in all material respects, the financial position of Hosken Consolidated Investments Limited and the group as of 31 March 2007, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act in South Africa.

to the members of Hosken Consolidated Investments Limited

PKF (JHB) INCChartered Accountants (S.A.)Registered AuditorsRegistration number 1994/001166/21Per T SchoemanJohannesburg4 September 2007



Directors’ Report

The directors have pleasure in presenting their report and the annual financial statements of the company and the group for the year ended 31 March 2007.

NATURE OF BUSINESS

Hosken Consolidated Investments Limited (HCI) is an investment holding company which is listed on the JSE Limited.

OPERATIONS AND RESULTS FOR THE YEAR

The business operations of HCI include the making of investments in opportunities as identified by the board of directors and to add value to these investments over time.

As such, HCI has consciously established itself and pursued an investment policy in terms of which it has endeavoured to maintain significant equity and capital participation in entrepreneurially run companies with significant growth potential. The investments are constantly reviewed and new ones sought to complement them. The directors are confident that the group will deliver satisfactory growth in the future.

REVIEW OF INVESTMENTS


e.tv (Pty) Limited (e.tv)

e.tv had an outstanding year with revenues up 31% and profits after tax (PAT) up 95% on last year. Costs remained carefully controlled and inventory tightly scheduled to achieve maximum benefit from programming spend. It has continued to slowly increase its viewership and has further benefited from the steady increase in the portion of adspend captured by TV from other media.

Efforts to extend e.tv`s footprint into sub-Saharan Africa have been slower than anticipated but progress in developing partnerships in several countries has been made. Several key programs have been used to extend its reach and it is anticipated this process will continue to be developed in a manner that will provide growth opportunities for e.tv this coming fiscal year without exposing the company to undue risk.

The company has also applied for a pay television licence and is due to participate in hearings in respect of same commencing in June 2007. It remains somewhat unclear as to the number of licences ICASA intends to issue and the terms thereof. Accordingly it is not clear presently as to whether acquiring such a licence will prove significant or otherwise.

It does appear that Dreamworld Studios will finally commence being built this financial year which will be a useful addition to the current business. e.tv concluded an agreement to acquire a 50,01% stake in a company, Viamedia, subject to certain conditions; which will be a useful extender of revenue in the current financial year. It is also a business that will flourish with the extension of e.tv`s broadcast footprint across Africa.

Yired (Pty) Ltd (YFM)

The station generated R15,1m in PAT in the first full year of consolidation in HCI, 6% up on last year. The station has

been through a difficult period with several key presenters leaving but is now consolidating itself, having built on new talent

GAMING HOTELS AND LEISURE

Vukani Gaming Corporation (Pty) Limited (Vukani)

The company has continued to roll out machines in five provinces of South Africa in which it is licenced. As always this roll out is slower than management would have liked but the fact remains there are now some 416 more live licenced machines than twelve months ago and the company anticipates the rate of the roll out increasing over the next period as several regions continue simultaneously. Gross gaming revenue per machine continues to grow steadily on a month on month basis.

Net gaming win for the year was R119m, 36% up on last year and the company made its first profit of R8m. HCI intends to report on the LPM sector separately from casinos in its sectoral breakdown to allow clarity on progress in this business going forward. Your directors remain of the view that this will develop into a significant contributor to group earnings in future years.

Tsogo Investment Holding Company (Pty) Limited (TIH)

During the year HCI increased its stake in this company from an effective 41,76% to an effective 65,5% through implementing the Fabvest acquisition and acquiring a further 4,6% effective interest in TIH by acquiring African Renaissance Investment Holdings (Pty) Ltd (ARIH).

Disappointingly the Mpumalanga Gaming Board saw fit to refuse approval for the Fabvest transaction which has been approved by the three other Regional gaming boards concerned. HCI has made application to review this refusal and has further obtained an interdict restraining the Mpumalanga Gaming Board from requiring HCI to dispose of its interest in the Mpumalanga licences pending this review.

HCI has also made further application for approval of its additional stake since this amounts to more than 5% of the licences, being the interests acquired via its holding in Johnnic and ARIH.

The Group also made a bid to acquire other minority interests in TIH but has been unsuccessful to date in this regard.

In view of the fact that HCI has now taken control of TIH and thereby the board of Tsogo Sun it has consolidated the results of Tsogo Sun with effect from 1st December 2006 and will report progress in dealing with regulatory matters from time to time.

Tsogo Sun is the major asset of HCI and is comprised essentially of two different businesses, namely hotels and casino’s. It is the intention to report on these as separate sectors in the sectoral breakdown of HCI’s results. While the full impact of the consolidation of Tsogo Sun in HCI`s results will appear more fully in future periods where the consolidation is for the full period under review the addition of Tsogo Sun to the HCI stable is already of major significance to the group.



Directors’ Report

Tsogo Sun Group had an excellent year with EBITDAR (before rentals) for the year growing by 23% to R1 865 million. Net interest bearing debt at year end was R1 042 million.

Tsogo Sun Gaming performed above expectations with casino revenue up 16% from the 2006 financial year and EBITDA up 22% on that year. All Tsogo casinos increased market share in the provinces within which they operate, except for Emontweni in Mpumalanga.

The opening of the Montecasino East End development (theatre, hotel, restaurants, piazza and conference facilities), the recently opened Highveld Shopping Mall in Witbank and the December 2006 opening of the Suncoast Hotel and Towers together with the planned major shopping centre development at Hemingways in East London are all important to Tsogo Sun Gaming’s ability to grow quality footfall and revenue.

Southern Sun Hotels had an exceptional year with revenues up 22% and EBITDA up 56% on last year. Of real significance is the fact that the hotel group recommenced trading under its own Southern Sun brand and has spent significant amounts refurbishing its hotels with very refreshing results. The group also opened new hotels in Seychelles, Dubai and Durban and continues to develop as South Africa’s leading hotel group.

Johnnic Holdings Limited (Johnnic)

Johnnic’s reported profit after tax for the year amounted to R114 million of which the majority relates to Johnnic’s gaming interests. Shareholders are referred to Johnnic’s results for its performance and activities.

FINANCIAL SERVICES

Mettle Limited (Mettle)

Mettle’s business has been successfully transformed away from its original structured finance focus. Mettle Factors which provides bridging loans to facilitate inter alia fixed property transactions, has continued to perform well, with the company refinancing much of the initial shareholder loans advanced by HCI as the business developed a sustainable profit profile. A new book focused on providing credit in respect of the purchase of building materials was acquired by the purchase of a majority stake in Lendcor. While small this business is likewise profitable and growing well. Mettle’s traditional business yielded R22m profit after tax for the year.

Further Noah Financial Services performed well. The company has subsequently disposed of its interest in the JSE Ltd and paid a dividend with the proceeds thereof resulting in HCI receiving some R17,5m after year end.

Mettle Motor Loans has been disappointing. The business had relied on the outsourcing of a number of functions including collections and credit vetting.

Further the business was highly reliant on a single originator. These factors resulted in significant bad debt emerging in the book. Subsequent to year end, the business has been significantly restructured with collections and credit vetting taken in house and by re-assessing the relationships with

originators. Senior management has been changed and key experienced personnel hired for the purpose. We have made suitable provisions for the potential bad debt in the book but subject to continuing funding support from our funding partner, remain committed to the business. We believe we ought to be able to grow it significantly despite the school fees paid in its start up phase.

TRANSPORT

Golden Arrow Bus Services (Pty) Ltd (GABS)

GABS continued to perform well. Passengers were up 5% on last year. Revenues were up 12%. Expenses were well controlled and as a result profits before tax have tracked the growth in revenue.

Since HCI acquired GABS in 2004 the company has purchased 169 new buses and has refurbished another 126 buses, in total almost a third of its fleet at a cost of approximately R195 million. The Company has committed to acquiring a further 110 new buses in the forthcoming year. By December 2007 the Company would have acquired and refurbished a total of over 400 buses at a cost of over R300 million. This commitment to the upgrading of the bus service of Cape Town is a key component in the company positioning itself as the primary supplier of scheduled bus transportation for the city for the foreseeable future. It is hoped the Department of Transport will regularize the company’s short term contract with a more sustainable one during the current financial year.

FOOD AND BEVERAGES

Clover Industries Limited (Clover)

The group continued to hold its 25,1% interest in the ordinary share capital of Clover but increased its investment in Clover preference shares to 38.5 million shares by acquiring a further 2,45 million preference shares on the open market. This results in the group presently holding an effective 46% economic interest in Clover.

Clover’s results for the six month period ending 31 December 2006 reflect a significant decrease in profitability in relation to the prior period. The company has not performed in accordance with HCI`s expectations as the company’s ethos remains largely co- operative rather than commercial. The current shortage of milk has resulted in significant pressure on its margins.

The company needs to be run more efficiently if it is to prosper. HCI will continue to pursue the introduction and upholding of meaningful levels of corporate governance, commerciality and financial discipline. Key to the ongoing commercialization of the company is the freeing of its capital structure from milk quotas.

The company has succeeded in buying the Danone interest in Clover/Danone Beverages and is currently pursuing a Section 311 scheme to buy out the remaining minorities which will better streamline the company’s businesses. Clover has been classified as an associate company of the group. The group has equity accounted its share of the profits of Clover amounting to R17,7 million for the year under review.



Directors’ Report

INFORMATION TECHNOLOGY

Syntell (Pty) Ltd (Syntell)

Syntell provides electronic monitoring of traffic and traffic violations to municipalities throughout South Africa. The company is continuing to grow rapidly with profits after tax increasing by 53% in comparison with that of the previous year. This is likely to continue next year as the Company was awarded a significant contract to provide monitoring services to the Johannesburg Metro during the year.

INDUSTRIAL

The growth in the construction and automotive components industries has enabled the businesses of Formex Industries, Johnson Crane Hire and Johnson Access to perform above expectation.

HCI sees potential to expand the operations of Formex both organically and by acquisition in the future and has increased its stake in Formex from 80% to 90% during the year under review. Formex has reported strong growth in revenues and profits before tax during the year and is now the largest contributor to HCI`s Industrial Sector.

During the period under review, the group disposed of its interest in Tylon realizing a net surplus of R45,2m after tax.

With effect from April 2007, the group disposed of its interest in Johnson Crane Hire for an after tax consideration of R103m.

HCI Khusela Coal

Mining rights applications for two properties were submitted during the year. Exploration results for both the reserves indicate that the properties can be mined profitability with the Loopspruit reserve being Eskom quality coal and the Klipportjie reserve producing coal for the domestic and export markets. Exploration activities on the remaining property, Ogiesfontein, will commence in the first half of the 2008 financial year. HCI Khusela Coal is evaluating additional opportunities on an ongoing basis and it is hoped that the reserve base will be expanded over time.

RESULTS FOR THE YEAR

Basic Earnings

Basic earnings per share amounted to 465 cents for the year. This represents a 141% increase when compared to the prior year and is due to the continued improved performance of the group’s major investments and the profit on the disposal of the group’s interest in Tylon included in investment surpluses for the year under review.

Headline Earnings

Headline earnings increased during the year from R210,3 million to R511,2 million which represents an increase of 143%. Headline earnings for the prior year includes non recurring transaction costs and raising fees amounting

to R72,4m in respect of the Johnnic offer and Fabvest acquisition.

Adjusted Headline Earnings

Adjusted headline earnings have once again been disclosed so as to more accurately reflect the economic reality of the group’s results. Adjusted headline earnings exclude all abnormal profits and losses including non recurring transaction costs and raising fees and the effects of net deferred tax assets raised or expensed in respect of unused tax losses and available STC credits. Adjusted headline earnings increased from R326 million to R510,3 million. Adjusted headline earnings per share increased by 52% from 272 cents to 413 cents. This increase is mainly due to the continued improved overall performance of the group’s major investments during the year.

Cash generated from operating activities has increased significantly due to the consolidation of the Tsogo Sun Group for the four months and the continued strong cash flows generated by e.tv, GABS and Tsogo.

Group Balance Sheet

The group balance sheet reflects significant increases in non current assets, non current liabilities and minority interest at year end. These increases are mainly due to the consolidation of the Tsogo Sun Group for the first time. The 2007 figures are thus not comparable with the prior year which excludes the assets and liabilities of the Tsogo Sun Group. The minority interest has increased significantly due to the existence of a large minority in Tsogo Sun which is reflected on consolidation.

The non current liabilities at year end comprise non recourse debt that is presently ring fenced in operating subsidiaries (R1 510m) and recourse debt at the HCI corporate level (R485,3m). The increase in non current liabilities from that of the prior year was mainly due to the aggregation of debt following the consolidation of the Tsogo Sun Group and the acquisition of Montauk Energy Corporation by the Johnnic Group.

SHARE CAPITAL

Details of the issued share capital and share premium are set out in note 13. 200 000 shares were issued for cash at R53 per share, 1 585 555 shares issued to fund various acquisitions and 300 000 shares were repurchased at R39 per share.

BORROWING POWERS

There are no limits placed on borrowing in terms of the articles of association. Certain companies in the group have entered into various loan agreements with providers of loan finance. These loan agreements include various covenants and undertakings by companies in the group which may restrict the group’s borrowing powers. Details of these covenants and undertakings are available from the registered office of the company. The group’s borrowings increased during the year to fund the acquisition of investments.



Directors’ Report

DISTRIBUTION TO SHAREHOLDERS

Ordinary dividend number 39 of 50 cents per HCI share was paid to shareholders on 9 July 2007.

DIRECTORATE

During the year under review, Mr JA Mabuza and Dr ML Molefi were appointed non-executive directors of the Company. With effect from 1 December 2006, upon the group acquiring control of the Tsogo Sun Group, Mr Mabuza has now been classified as an executive director of the company.

SECRETARY

TG Govender held office throughout the period covered by this report. His business and postal address appear on page 2 of this annual report.

SPECIAL RESOLUTIONS ADOPTED BY SUBSIDIARIES

The statutory information relating to special resolutions passed by subsidiaries is available from the registered office of the company.

LITIGATION

An application was made to the High Court of South Africa (Witwatersrand Local Division) by Nafcoc under case number 03/7941 for an order declaring, inter alia, that the transfer of 66 shares in TIH (the disputed shares) that HCI’s wholly-owned subsidiary, Tangney Investments (Proprietary) Limited purchased from African Renaissance Holdings (Proprietary) Limited (African Renaissance), is invalid for want of compliance with TIH’s articles of association as read with its shareholders agreement, and directing that the disputed shares be transferred back to African Renaissance. These 66 shares constituted 4.4% of all the ordinary issued shares in the capital of TlH. HCI has opposed the application and the application has been argued. The court has referred the matter to oral evidence and Nafcoc has filed a declaration setting out its claim. HCI intends filing a plea to the claim in due course.

In another matter, Nafcoc caused its attorneys to address a letter of demand to TIH demanding that TIH in turn send letters of demand to HCI subsidiaries that are shareholders in TIH. Nafcoc contends that the acquisition by HCI of the shares in the subsidiaries concerned is a breach of the shareholders agreement regulating the affairs of TIH. The TIH board resolved to seek independent legal advice on

the matter and the independent legal advice was that the complaint is without substance and that TlH is not required to address demands to the relevant HCI subsidiaries. Although this independent advice is not binding on Nafcoc, it is hoped that Nafcoc will not seek to take the matter any further. It should be noted that more than I8 months has passed since the independent advice was obtained. Should Nafcoc take the matter further the matter will be defended by the relevant HCI subsidiaries.

In addition to the above, HCI’s application to the relevant Gaming Authorities for approval of the FIH Acquisition was objected to by Nafcoc. Approval of the FIH Acquisition has since been obtained from the KwaZulu-Natal Gambling Board, the Eastern Cape Gambling and Betting Board, and the Gauteng Gambling Board. The Mpumalanga Gambling Board MGB refused the application earlier this year. HCI has filed an application for the review of the MGB’s decision in the Transvaal Provincial Division under case number I 3937/07. The MGB consented to an interdict in relation to its demand that HCI dispose of the interest acquired in FIH, pending the final determination of the review. The record of the decision of the MGB has now been lodged with the Registrar of the High Court and HCI has filed its supplementary affidavit in these proceedings. Given that an answering affidavit wiII have to be filed by the MBG thereafter and that HCI will have to reply thereto, it is not possible to determine at this stage when the review will be heard by the High Court.

Given that HCI is opposing and resisting the various objections and legal proceedings referred to above, the sub judicae rule prohibits discourse on the merits of the various matters at this stage. An adverse outcome may affect the fulfillment of the conditions to the FIH Acquisition and/or HCI’s interests in the Tsogo group. The extent of the impact which such matters may have on the HCI Group cannot be determined at this stage.

Adequate provisions have been made for the legal fees relating to the abovementioned litigation.

SUBSEQUENT EVENTS

Other than as previously detailed in this report, the directors are not aware of any event or circumstance occurring between the balance sheet date and the date of this report that materially affects the results of the group or the company for the year ended 31 March 2007 or the financial position at that date.



Balance Sheets

Group Company 2007 2006 2007 2006 Notes R’000 R’000 R’000 R’000

Assets

Non-current assets 11 814 309 7 099 468 1 532 009 1 354 765 Property, plant and equipment 1 4 847 240 795 130 - - Investment properties 2 198 299 154 235 - - Goodwill 3 908 642 82 683 - - Intangible assets 4 276 719 1 876 - - Investments in associates 5 408 357 904 769 9 256 10 367 Investments in joint ventures 6 184 103 - - - Other financial assets 7 226 584 120 270 - - Subsidiary companies 8 - - 1 513 217 1 334 332 Deferred taxation 9 345 783 357 664 - - Operating lease equalisation asset 10 5 000 3 400 - - Finance lease receivables 11 299 725 47 625 - - Non-current receivables 12 126 996 8 895 9 536 10 066 Financial assets 13 3 986 861 4 622 921 - -

Current assets 3 616 500 3 441 241 20 178 5 636

Inventories 14 180 480 69 915 - - Programme rights 15 186 314 230 565 - - Financial assets 13 1 489 062 1 568 572 - - Other financial assets 7 15 945 - - - Finance lease receivables 11 85 096 11 100 - - Trade and other receivables 16 913 803 772 606 15 935 2 739Taxation 3 697 6 404 703 483Bank balances and deposits 17 742 103 782 079 3 540 2 414

Total assets 15 430 809 10 540 709 1 552 187 1 360 401

Equity and liabilities

Capital and reserves 4 349 888 2 586 291 1 434 008 1 308 346 Ordinary share capital 18 30 991 30 721 31 552 31 181 Share premium 18 663 156 628 951 696 524 641 645 Other reserves 19 26 847 1 805 - - Accumulated profits 1 398 677 1 089 952 705 932 635 520 Equity attributable to equity holders of the parent 2 119 671 1 751 429 1 434 008 1 308 346 Minority interest 2 230 217 834 862 - -

Non-current liabilities 6 716 448 5 453 991 75 050 16 906

Financial liabilities 20 4 044 356 4 666 651 - - Operating lease equalisation liability 10 266 457 22 300 - - Borrowings 21 1 887 027 669 084 - - Finance lease liabilities 22 91 137 11 396 - - Post retirement medical benefit liabilities 23 56 065 30 823 - - Long term incentive plan 24 214 533 - - - Long term provisions 25 35 530 - - - Amounts owing to subsidiary companies - - 75 050 16 906 Deferred taxation 9 121 343 53 737 - -

Current liabilities 4 364 473 2 500 427 43 129 35 149

Trade and other payables 26 1 083 831 462 373 43 129 35 040 Financial liabilities 20 1 485 275 1 571 325 - - Current portion of borrowings 21 795 035 316 474 - - Current portion of finance lease liabilities 22 11 955 8 209 - - Taxation 157 056 17 627 - - Short term loans 27 440 353 25 676 - - Forward exchange contracts 1 964 16 307 - - Provisions 25 231 967 69 112 - - Long term incentive plan 24 125 379 - - - Bank overdrafts 28 31 658 13 324 - 109

Total equity and liabilities 15 430 809 10 540 709 1 552 187 1 360 401

As at 31 March 2007



for the year ended 31 March 2007

Income Statements


Revenue 30 3 150 228 2 024 366 - -

Net gaming win 1 166 155 87 454 - -

Net funding income 66 477 14 243 - -

Group revenue 4 382 860 2 126 063 - -

Other income 3 864 3 615 - -

Income 4 386 724 2 129 678 - -

Depreciation and amortisation (212 442) (68 008) - -

Other operating expenses (3 089 004) (1 686 661) (11 609) (20 010)

Investment income 31 138 628 106 954 111 383 110 553

Share of profit of associated companies & joint ventures 215 407 152 099 - -

Negative goodwill on acquisition of subsidiary - 8 968 - -

Investment surplus 32 57 647 3 177 4 022 7 218

Fair value adjustments of investment properties 568 11 506 - -

Fair value adjustments of investments 444 1 593 - -

Impairment of goodwill and investments 33 (3 112) (225) (33 284) (67 946)

Finance costs 34 (175 662) (171 710) ( 100) ( 717)

Profit before taxation 35 1 319 198 487 371 70 412 29 098

Taxation 36 (370 079) (200 889) - ( 582)

Profit for the year from continuing operations 949 119 286 482 70 412 28 516

Discontinued operation 37 3 630 - - -

Profit for the year 952 749 286 482 70 412 28 516

Attributable to:

Equity holders of the parent 574 737 231 195 70 412 28 516

Minority interests 378 012 55 287 - -

952 749 286 482 70 412 28 516

Earnings per share (cents) 38

- Basic 464.66 192,90

- Headline 413.31 175,49

Diluted earnings per share 38

- Basic 457.42 188,39

- Headline 406.88 171,38




Statements of Changes in Equity

Share Share Accumulated capital premium profits Total R’000 R’000 R’000 R’000

COMPANY Balances at 31 March 2005 29 868 545 630 607 004 1 182 502 Share capital and premium Shares issued 1 813 149 894 - 151 707 Share issue costs - ( 379) - ( 379)Shares repurchased ( 500) (53 500) - (54 000) Current operations Profit for the year - - 28 516 28 516 Balances at 31 March 2006 31 181 641 645 635 520 1 308 346 Share capital and premium Shares issued 446 66 504 - 66 950 Shares repurchased ( 75) (11 625) - (11 700) Current operations Profit for the year - - 70 412 70 412 Balances at 31 March 2007 31 552 696 524 705 932 1 434 008



Statements of Changes in Equity


Share Share Other Accumulated Minority capital premium reserves profits interest Total R’000 R’000 R’000 R’000 R’000 R’000

GROUP Balances at 31 March 2005 29 499 534 685 1 476 823 853 126 801 1 516 314 Share capital and premium Shares issued 1 813 149 894 - - - 151 707 Shares repurchased ( 500) (53 500) - - - (54 000)Treasury shares acquired by subsidiary ( 91) (1 749) - - - (1 840)Share issue costs - ( 379) - - - ( 379) Current operations Profit for the year - - - 231 195 55 287 286 482 Share of pre-acquisition profit of subsidiary - - - 34 904 - 34 904 Equity settled share-based payments - - 2 531 - - 2 531 Foreign currency translation differences - - (2 202) - - (2 202)Minority interest on acquisition of subsidiaries - - - - 660 473 660 473 Capital reductions and dividends - - - - (7 699) (7 699) Balances at 31 March 2006 30 721 628 951 1 805 1 089 952 834 862 2 586 291 Share capital and premium Shares issued 446 66 504 - - - 66 950 Shares repurchased ( 75) (11 625) - - - (11 700)Treasury shares acquired by subsidiary ( 101) (20 674) - - - (20 775) Current operations Profit for the year - - - 574 737 378 012 952 749 Share of pre-acquisition profit of subsidiary - - - (266 012) (88 085) (354 097)Equity settled share-based payments - - 3 - - 3 Revaluations - - 15 784 - 3 513 19 297 Foreign currency translation differences - - 9 144 - 12 570 21 714 Hedging - - 111 - 37 148 Minority interest on acquisition of subsidiaries - - - - 1 233 774 1 233 774 Capital reductions and dividends - - - - (144 466) (144 466) Balances at 31 March 2007 30 991 663 156 26 847 1 398 677 2 230 217 4 349 888



Cash Flow Statements



Cash flows from operating activities 726 362 294 575 98 369 126 602 Cash generated by operations 39.1 1 481 574 462 742 103 796 95 043 Investment income 104 578 106 954 - - Changes in working capital 39.2 (363 850) 5 686 (5 107) 32 571 Cash generated by operating activities 1 222 302 575 382 98 689 127 614 Finance costs 34 (175 662) (171 710) ( 100) ( 717)Taxation paid 39.3 (320 278) (101 398) ( 220) ( 295)Ordinary dividend paid - (7 699) - Cash flows from investing activities (604 839) (1 441 057) (152 914) (124 042)Business combinations 39.4 (220 415) (579 233) - - Investment in: - Subsidiary companies - - (152 914) (145 045)- Associated companies and joint ventures (37 807) (239 814) - 9 598 - Other (22 086) ( 39) - 9 538 Short term loans advanced 8 347 (384 750) - - Increase in long term receivables (9 252) (57 964) - - Proceeds on disposal of investments - 43 523 - 1 867 Intangible assets acquired (8 268) (1 753) - - Property, plant and equipment: - Additions (315 358) (231 313) - - - Disposals - 10 286 - - Cash flows from financing activities (386 199) 594 572 55 780 (26 787)Ordinary shares issued and treasury shares sold 530 24 383 66 950 23 146 Treasury shares acquired (21 305) - - - Ordinary shares repurchased (11 700) (55 840) (11 700) (54 000)Short term loans raised (24 446) 15 642 - - Change in minority shareholders (89 587) - - - Long term funding raised / repaid (239 691) 610 387 530 4 067 Cash and cash equivalents Movements (264 676) (551 910) 1 235 (24 227)At beginning of year 768 755 544 404 2 305 26 532 On business combinations 206 366 776 261 - -

At end of year 39.5 710 445 768 755 3 540 2 305



Accounting Policies


1. Accounting policies This summary of the principal accounting policies of the

Hosken Consolidated Investments Limited group is presented to assist with the evaluation of the annual financial statements. These policies have been consistently applied in all material respects excepts as stated below.

a) Basis of preparation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and the Companies Act, 1973, as amended. The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation to fair value of investment properties and certain financial instruments as described in the accounting policies below.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgment in the process of applying the Group’s accounting policies. Actual results could differ from those estimates.

b) Segmental reporting

A reportable segment is a distinguishable business component of the Group that provides products or services that are different from those of other segments. A business segment is a Group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

The Group’s primary segmental analyses are in accordance with the basis on which the businesses are managed and according to the differing risk and reward profiles. The Group presents its business analysis as its primary segmentation.

No useful secondary segment exists and accordingly no secondary segmental information is provided.

c) Basis of consolidation

The consolidated financial statements include the financial information of the subsidiary and associated entities controlled by the Group.

i) Subsidiaries

Subsidiaries are entities controlled by the Group, where control is the power directly or indirectly to govern the financial and operating policies of the entity so as to obtain benefit from its activities, regardless of whether this power is actually exercised. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Where the Group’s interest in subsidiaries is less than 100%, the share attributable to outside shareholders is reflected in minority interests. Subsidiaries are included in the financial statements from the date control commences until the date control ceases.

Intra-group balances, and any unrealised gains and losses or income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred.

ii) Transactions and minority interests

The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group. Disposals to minority interests result in gains and losses for the Group that are recorded in the income statement. Purchases from minority interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary.

iii) Associates

Associates are entities in which the Group has a long-term interest and over which the Group has directly or indirectly significant influence but not control, generally accompanying a shareholding of 20% to 50%, where significant influence is the ability to influence the financial and operating policies of the entity.

iv) Joint ventures

A joint venture is a company over which the Group contractually shares control with one or more partners.

The post acquisition results of joint ventures are incorporated in the financial statements using the equity method. Joint ventures’ accounting policies have been changed where necessary to ensure consistency with the policies adopted by the Group.

d) Foreign exchange

(i) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in South African Rands which is the Group’s functional and presentational currency.

(ii) Transactions and balances

The financial statements for each group company have been prepared on the basis that transactions in foreign currencies are recorded in their functional currency at the rate of exchange ruling at the date of the transaction. Monetary items denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date with the resultant translation differences being credited to or charged against income in the income statement. Translation differences on non-monetary assets such as equity investments classified as available-for sale assets are included in equity.

(iii) Foreign subsidiaries and associates – translation

Once-off items in the income and cash flow statements of foreign subsidiaries and associates expressed in currencies other than the South African Rand are translated to South African Rand at the rates of exchange prevailing on the day of the transaction. All other items are translated at weighted average rates of exchange for the relevant reporting period. Assets and liabilities of these undertakings are translated at closing rates of exchange at each balance sheet date. All translation exchange differences arising on the retranslation of opening net assets together with differences between income statements translated at average and closing rates are recognised as a separate component of equity. For these purposes net assets include loans between



Accounting Policies


group companies that form part of the net investment, for which settlement is neither planned nor likely to occur in the foreseeable future and is either denominated in the functional currency of the parent or the foreign entity. When a foreign operation is disposed of, any related exchange differences in equity are recycled through the income statement as part of the gain or loss on disposal.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

e) Business combinations

(i) Subsidiaries

The purchase method is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets acquired, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. The separable net assets (including intangibles), are incorporated into the financial statements on the basis of the fair value to the Group from the effective date of control, and the results of subsidiary undertakings acquired during the financial year are included in the Group’s results from that date.

Control is presumed to exist when the Group owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity unless, in exceptional circumstances, it can be clearly demonstrated that such ownership does not constitute control. Control also exists where the Group has the ability to direct or dominate decision making in an entity, regardless of whether this power is actually exercised.

(ii) Associates

The Group recognises its share of associates’ results as a one line entry before tax in the income statement, after taking account of the share of interest, tax and minority interests.

Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost.

The Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition.

The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition reserve movements is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

Some of the Group’s associates have accounting reference dates other than 31 March. These are equity accounted using management prepared information on a basis coterminous with the Group’s accounting reference date.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence

of an impairment of the asset transferred. Associates’ accounting policies have been changed where necessary to ensure consistency with the policies adopted by the Group.

(iii) Goodwill

Goodwill arising on consolidation represents the excess of the costs of acquisition over the Group’s interest in the fair value of the identifiable assets (including intangibles), liabilities and contingent liabilities of the acquired entity at the date of acquisition. Where the fair value of the Group’s share of separable net assets acquired exceeds the fair value of the consideration, the difference is recorded as negative goodwill. Negative goodwill arising on an acquisition is recognised immediately in the income statement.

Goodwill is stated at cost less impairment losses and is reviewed for impairment on an annual basis. Any impairment identified is recognised immediately in the income statement and is not reversed.

The carrying amount of goodwill in respect of associates is included in the carrying value of the investment in the associate.

Where a business combination occurs in several stages, the goodwill associated with each stage is, where practicable, calculated using fair value information at the date of each additional share purchase.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. Each of those cash-generating units is in accordance with the basis on which the businesses are managed and according to the differing risk and reward profiles.

f) Property, plant and equipment

Property, plant and equipment are stated at cost net of accumulated depreciation and any impairment losses.

Cost includes expenditure that is directly attributable to the acquisition of the assets. Subsequent costs are included in the asset’s carrying value or recognised as a separate asset as appropriate, only when it is probable that future economic benefits associated with the specific asset will flow to the Group and the cost can be measured reliably. Repairs and maintenance costs are charged to the income statement during the financial period in which they are incurred.

Assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

(i) Land and buildings

Land and buildings (excluding investment property) have been included at their cost and comprise mainly bus workshops and parking, television studios, factories, offices, hotels and casinos.

(ii) Assets in the course of construction

Assets in the course of construction are carried at cost less any impairment loss. Cost includes professional fees and for qualifying assets certain borrowing costs as determined below. Depreciation of these assets, on the same basis as other property assets commences when the assets are ready for their intended use.

iii) Assets held under finance leases

Assets held under finance leases which result in the Group



Accounting Policies


bearing substantially all the risks and rewards incidental to ownership are capitalised as property, plant and equipment. Finance lease assets are initially recognised at an amount equal to the lower of their fair value and the present value of the minimum lease payments at inception of the lease, then depreciated over their useful lives.

iv) Exploration and evaluation assets

Qualifying, directly attributable exploration expenditure is capitalised when incurred. Capitalised exploration expenditure (mineral assets) is stated at cost less accumulated amortisation and impairment losses.

v) Depreciation

No depreciation is provided on freehold land or assets in the course of construction. In respect of all other property, plant and equipment, depreciation is provided on a straight-line basis at rates calculated to write off the cost or valuation, less the estimated residual value of each asset over its expected useful life as follows:

Freehold buildings 10-50 years Leasehold land and buildings Period of the lease Plant and machinery 5 – 12½ years Other equipment and vehicles 3 -10 years Buses 5 years Broadcast and

studio equipment 5 years Exploration and

evaluation assets Units of production method over estimated useful life

Gas rights Units of production method of depletion over gas rights term

Leasehold improvements Lesser of estimated useful life or period of lease

vi) Profit or loss on disposal

The profit or loss on the disposal of an asset is the difference between the disposal proceeds and the net book amount of the asset.

vii) Capitalisation of borrowing costs

Direct financing costs incurred, before tax, on major capital projects during the period of development or construction that necessarily take a substantial period of time to be developed for their intended use are capitalised up to the time of completion of the project.

g) Investment properties

Investment properties are held for capital appreciation and are not occupied by the Group. Investment properties are treated as a long term investment and are carried at fair value representing estimated market value. Changes in fair value are recorded in the income statement in the period in which they arise.

h) Intangible assets

Intangible assets are stated at cost less accumulated amortisation on a straight-line basis (if applicable) and impairment losses. Cost is usually determined as the amount paid by the Group, unless the asset has been acquired as part of a business combination. Amortisation is included together with depreciation in the income statement.

Intangible assets with indefinite lives are not amortised but are subject to annual reviews for impairment.

Intangible assets with finite lives are amortised over their estimated useful economic lives, and only tested for impairment where there is a triggering event. The directors’ assessment of the useful life of intangible assets is based on the nature of the asset acquired, the durability of the products to which the asset attaches and the expected future impact of competition on the business.

Intangible assets acquired as part of a business combination are recognised separately when they are identifiable and it is probable that economic benefits will flow to the Group and the fair value can be measured reliably.

(i) Computer software

Where computer software is not an integral part of a related item of property, plant and equipment, the software is capitalised as an intangible asset.

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring them to use. Direct costs associated with the production of identifiable and unique internally generated software products controlled by the Group that will probably generate economic benefits exceeding costs beyond one year are capitalised. Direct costs include software development employment costs (including those of contractors used) and an appropriate portion of overheads. Capitalised computer software, licence and development costs are amortised over their useful economic lives that are reassessed on an annual basis.

Internally generated costs associated with maintaining computer software programs are expensed as incurred.

(ii) Bid costs and casino licences

Costs incurred during the bidding process, including finance costs, for a casino licence are capitalised by the individual casino on the successful award of a casino licence, and amortised over the exclusivity period applicable to each licence, which ranges from 10 to 12,5 years from date of commencement of those operations.

The costs associated with unsuccessful casino licence applications, including finance costs, are written off as and when related bids are determined to be unsuccessful.

(iii) Management contracts

The Group owns a management contract which has been externally purchased and capitalised at cost. This contract is amortised on a reducing balance basis over its useful life of 5 years which represents the term of the contract.

(iv) Trademarks

Trademarks are recognised initially at cost. Trademarks have definite useful lives and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of trademarks over their estimated useful lives.

(v) Tax credits

Tax credits are earned by qualified landfill gas operations in the United States based on levels of qualified production. Tax credits are amortised on use.

(vi) Customer contracts

These contracts represent a guaranteed source of income



Accounting Policies


over the life of the contract for the purchase of processed gas. The contract is amortised over a 15 year period on a straight-line method.

i) Financial assets and financial liabilities

Financial assets and financial liabilities are initially recorded at fair value (plus any directly attributable transaction costs where applicable). For those financial instruments that are not subsequently held at fair value, the Group assesses whether there is any objective evidence of impairment at each balance sheet date.

Financial assets are recognised when the Group has rights or other access to economic benefits. Such assets consist of cash, equity instruments, a contractual right to receive cash or another financial asset, or a contractual right to exchange financial instruments with another entity on potentially favourable terms. Financial assets are derecognised when the right to receive cash flows from the asset have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.

Financial liabilities are recognised when there is an obligation to transfer benefits and that obligation is a contractual liability to deliver cash or another financial asset, or to exchange financial instruments with another entity on potentially unfavourable terms. Financial liabilities are derecognised when they are extinguished, that is discharged, cancelled or expired.

If a legally enforceable right exists to set off recognised amounts of financial assets and liabilities, which are in determinable monetary amounts, the relevant financial assets and liabilities are offset.

Interest costs are charged against income in the year in which they accrue. Premiums or discounts arising from the difference between the net proceeds of financial instruments purchased or issued and the amounts receivable or repayable at maturity are included in the effective interest calculation and taken to net interest payable over the life of the instrument.

(i) Financial instruments at fair value through profit or loss

Financial instruments at fair value through the income statement are non-derivative financial assets held for trading and/or designated by the entity upon initial recognition as fair value through the income statement. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management.

(ii) Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. The Group does not hold any investments in this category.

(iii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets (trade and other receivables), except for maturities of greater than 12 months after the balance sheet date which are classified as non-current assets.

(iv) Available-for-sale investments

Available-for-sale investments are non-derivative financial

assets that are either designated in this category or not classified as any of the above. Investments in this category are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date. They are initially recognised at fair value plus transaction costs and subsequently re-measured at fair value. Gains and losses arising from changes in fair value including any related foreign exchange movements are recognised in equity. On disposal or impairment of available-for-sale investments, any gains or losses in equity are recycled through the income statement.

Purchases and sales of investments are recognised on the date on which the Group commits to purchase or sell the asset. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.

The Company records its investment in subsidiaries at cost less any impairment charges.

(v) Trade receivables

Trade receivables are initially recognised at fair value and subsequently measured at amortised cost less provision for impairment.

A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the terms of the receivables. The amount of the provision is the difference between the asset’s carrying value and the present value of the estimated future cash flows discounted at the original effective interest rate. This provision is recognised in the income statement.

(vi) Cash and cash equivalents

Cash and cash equivalents are carried at cost and include cash in hand, bank deposits, other short-term highly liquid investments and bank overdrafts.

Bank overdrafts are shown within borrowings in current liabilities and are included within cash and cash equivalents on the face of the cash flow statement as they form an integral part of the Group’s cash management.

j) Derivative financial assets and financial liabilities

Derivative financial assets and financial liabilities are financial instruments whose value changes in response to an underlying variable, require little or no initial investment and are settled in the future.

Derivative financial assets and liabilities are analysed between current and non-current assets and liabilities on the face of the balance sheet, depending on when they are expected to mature.

For derivatives that are not designated to have a hedging relationship, all fair value movements thereon are recognised immediately in the income statement. See note (k) for the Group’s accounting policy on hedge accounting.

k) Hedge accounting

The derivative instruments used by the Group, which are used solely for hedging purposes (i.e. to offset foreign exchange and interest rate risks), comprise interest rate swaps and forward foreign exchange contracts. Such derivative instruments are used to alter the risk profile of an existing underlying exposure of the Group in line with the Group’s risk management policies.



Accounting Policies


Derivatives are initially recorded at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the hedging relationship.

In order to qualify for hedge accounting, the Group is required to document the relationship between the hedged item and the hedging instrument. The Group is also required to document and demonstrate that the relationship between the hedged item and the hedging instrument will be highly effective. This effectiveness test is re-performed at each period end to ensure that the hedge has remained and will continue to remain highly effective.

The Group designates certain derivatives as either: hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); hedges of highly probable forecast transactions or commitment (cash flow hedge); or hedges of net investments in foreign operations.

(i) Fair value hedges

Fair value hedges comprise derivative financial instruments designated in a hedging relationship to manage the Group’s interest rate risk to which the fair value of certain assets and liabilities are exposed. Changes in the fair value of the derivative offset the relevant changes in the fair value of the underlying hedged item attributable to the hedged risk in the income statement in the period incurred.

Gains or losses on fair value hedges that are regarded as highly effective are recorded in the income statement together with the gain or loss on the hedged item attributable to the hedged risk.

(ii) Cash flow hedges

Cash flow hedges comprise derivative financial instruments designated in a hedging relationship to manage currency or interest rate risk to which the cash flows of certain liabilities are exposed. The effective portion of changes in the fair value of the derivative that is designated and qualifies for hedge accounting is recognised in equity. The ineffective portion is recognised immediately in the income statement. Amounts accumulated in equity are recycled to the income statement in the period in which the hedged item affects profit or loss. However, where a forecasted transaction results in a non-financial asset or liability, the accumulated fair value movements previously deferred in equity are included in the initial cost of the asset or liability.

iii) Hedges of net investments in foreign operations

Hedges of net investments in foreign operations comprise either foreign currency borrowings or derivatives (typically forward exchange contracts) designated in a hedging relationship.

Gains or losses on hedging instruments that are regarded as highly effective are recognised in equity. These largely offset foreign currency gains or losses arising on the translation of net investments that are recorded in equity, in the foreign currency translation reserve. The ineffective portion of gains or losses on hedging instruments is recognised immediately in the income statement. Amounts accumulated in equity are only recycled to the income statement upon disposal of the net investment.

Where a derivative ceases to meet the criteria of being

a hedging instrument or the underlying exposure which it is hedging is sold, matures or is extinguished, hedge accounting is discontinued. A similar treatment is applied where the hedge is of a future transaction and that transaction is no longer likely to occur.

Certain derivative instruments, whilst providing effective economic hedges under the Group’s policies, are not designated as hedges. Changes in the fair value of any derivative instruments that do not qualify or have not been designated as hedges are recognised immediately in the income statement. The Group does not hold or issue derivative financial instruments for speculative purposes.

l) Inventories

Inventories are valued at the lower of cost or net realisable value. Cost is determined using the weighted average or first-in-first-out method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity) but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of the business, less selling expenses. Provision is made for slow-moving goods and obsolete materials are written off.

m) Programme rights

Programme rights are stated at the contracted costs incurred in obtaining the rights to transmit the programmes, less the cost of programmes transmitted or written off during the year.

n) Share capital

Ordinary shares are classified as equity. Mandatory redeemable preference shares are classified as liabilities (see Note [n]). Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options, or for the acquisition of a business, are included in the share premium account.

Where subsidiaries hold shares in the holding company’s equity share capital, the consideration paid to acquire these shares is deducted from total shareholders equity as treasury shares. Where such shares are subsequently sold or reissued, any consideration received is included in shareholders’ equity. Shares issued to or held by share incentive plans within the Group are treated as treasury shares until such time when participants pay for and take delivery of such shares.

o) Trade payables

Trade payables are initially recognised at fair value and subsequently measured at amortised cost.

Trade payables are analysed between current and non-current liabilities on the face of the balance sheet, depending on when the obligation to settle will be realised.

p) Borrowings

Borrowings are recognised initially at fair value, net of transaction costs and are subsequently stated at amortised cost and include accrued interest and prepaid interest. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months from the balance sheet date.

Preference shares, which are mandatorily redeemable on a



Accounting Policies


specific date, are classified as liabilities. The nondiscretionary dividends on these preference shares are recognised in the income statement as interest expense.

q) Impairment

This policy covers all assets except inventories (see note l), financial assets (see note j), non-current assets classified as held for sale (see note i), and deferred tax assets (see note w).

Impairment reviews are performed by comparing the carrying value of the non-current asset to its recoverable amount, being the higher of the fair value less costs to sell and value in use. The fair value less costs to sell is considered to be the amount that could be obtained on disposal of the asset. The value in use of the asset is determined by discounting, at a market based pre-tax discount rate, the expected future cash flows resulting from its continued use, including those arising from its final disposal. When the carrying values of non-current assets are written down by any impairment amount, the loss is recognised in the income statement in the period in which it is incurred.

Where the asset does not generate cash flows that are independent from the cash flows of other assets the Group estimates the recoverable amount of the cash generating unit (CGU) to which the asset belongs. For the purpose of conducting impairment reviews, CGU’s are considered to be the lowest level of groups of assets and liabilities that have separately identifiable cash flows. They also include those assets and liabilities directly involved in producing the income and a suitable proportion of those used to produce more than one income stream.

When an impairment is recognised, the impairment loss is held firstly against any specifically impaired assets of the CGU, then taken against goodwill balances. Any remaining loss is set against the remaining intangible and tangible assets on a pro-rata basis.

Should circumstances or events change and give rise to a reversal of a previous impairment loss, the reversal is recognised in the income statement in the period in which it occurs and the carrying value of the asset is increased. The increase in the carrying value of the asset is restricted to the amount that it would have been had the original impairment not occurred. Impairment losses in respect of goodwill are irreversible.

Intangible non-current assets with an indefinite life and goodwill are tested annually for impairment. Assets subject to amortisation are reviewed for impairment if circumstances or events change to indicate that the carrying value may not be fully recoverable.

r) Non-current assets held for resale

Non-current assets and all assets and liabilities classified as held for resale are measured at the lower of carrying value and fair value less costs to sell.

Such assets are classified as held for resale if their carrying amount will be recovered through a sale transaction rather than through continued use. This condition is regarded as met only when a sale is highly probable, the asset or disposal group is available for immediate sale in its present condition and when management is committed to the sale which is expected to qualify for recognition as a completed sale within one year from date of classification.

s) Provisions

Provisions are recognised when there is a present obligation, whether legal or constructive, as a result of a past event for which it is probable that a transfer of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Such provisions are calculated on a discounted basis where the effect is material to the original undiscounted provision. The carrying amount of the provision increases in each period to reflect the passage of time and the unwinding of the discount and the movement is recognised in the income statement within interest costs.

Provisions are not recognised for future operating losses however provisions are recognised for onerous contracts where a contract is expected to be loss making (and not merely less profitable than expected).

t) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable.

(i) Sale of goods

Revenue from the sale of goods is recognised when all of the following conditions are satisfied:

The Group has transferred to the buyer the significant • risks and rewards of ownership of the goods;

The Group retains neither continuing managerial • involvement to the degree usually associated with ownership nor effective control over the goods sold;

The amount of revenue can be measured reliably;•

It is probable that the economic benefits associated • with the transaction will flow to the Group; and

The costs incurred or to be incurred in respect of the • transaction can be measured reliably.

(ii) Rendering of services

Revenue from a contract to provide services is recognised by reference to the stage of completion of the contract.

Advertising(iii)

Advertising revenues from the Group’s free to air television and radio platforms are recognised on flighting and over the period of the advertising contract.

(iii) Interest income

Interest income is recognised using the effective interest method.

When a receivable is impaired the Group reduces the carrying amount to its recoverable amount by discounting the estimated future cash flows at the original effective interest rate, and continuing to unwind the discount as interest income.

(iv) Royalty income

Royalty income is recognised on an accrual basis in accordance with the relevant agreements and is included in other income.

(v) Dividend income

Dividend income is recognised when the right to receive payment is established.



Accounting Policies


u) Net gaming win

Net gaming win comprises the net table and slot machine win derived by casino and limited payout route operations from gambling patrons. In terms of accounting standards, betting transactions concluded under gaming operations meet the definition of derivatives and therefore income from gaming operations represents the net position arising from financial instruments. The net gaming win is measured as the net cash received from betting transactions from casino operations. Due to the short term nature of the Group’s casino and limited payout route operations, all income is recognised in profit and loss immediately, at fair value.

VAT and other taxes, including gaming levies, that are charged on casino and limited payout winnings are included in net gaming win and are treated as direct costs as these are borne by the Group and not customers (see note 2 [iv]).

v) Leases

(i) The Group is the lessee

Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the asset’s useful life and the lease term.

Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged or credited to the income statement on a straight-line basis over the period of the lease.

ii) The Group is the lessor

The Group recognises finance lease receivables on its balance sheet. Finance income is recognised based on a pattern reflecting a constant periodic rate of return on the Group’s net investment in the finance lease.

Assets leased to third parties under operating leases are included in property, plant and equipment in the balance sheet. They are depreciated over their expected useful lives on a basis consistent with similar owned property, plant and equipment. Rental income (net of any incentives given to lessees) is recognised on a straight-line basis over the lease term.

w) Income tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax expense is based on the results for the period as adjusted for items that are not taxable or not deductible. The Group’s liability for current taxation is calculated using

tax rates and laws that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is provided in full using the liability method, in respect of all temporary differences arising between the tax bases of assets and liabilities and their carrying values in the consolidated financial statements, except where the temporary difference arises from goodwill or from the initial recognition (other than a business combination) of other assets and liabilities in a transaction that affects neither accounting nor taxable profit.

Deferred tax liabilities are recognised where the carrying value of an asset is greater than its tax base, or where the carrying value of a liability is less than its tax base. Deferred tax is recognised in full on temporary differences arising from investment in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it is probable that future taxable profit will be available against which the temporary differences (including carried forward tax losses) can be utilised.

Deferred tax is measured at the tax rates expected to apply in the periods in which the timing differences are expected to reverse based on tax rates and laws that have been enacted or substantively enacted at balance sheet date. Deferred tax is measured on a non-discounted basis.

x) Dividend distributions

Dividend distributions to equity holders of the parent are recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders. Interim dividends are recognised when approved by the board. Dividends declared after the balance sheet date are not recognised, as there is no present obligation at the balance sheet date.

y) Employee benefits

(i) Defined contribution plans

A defined contribution plan is a pension or provident plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.

For the defined contribution plans, subsidiaries of the Group pay contributions to both in-house pension funds managed by employer and employee nominated trustees and public administered provident plans on a contractual basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expenses when they are due. The rules of the funds do not allow for prepaid contributions.

(ii) Other post-employment obligations

A subsidiary of the Group operates a defined benefit plan for a portion of the medical aid members. This fund is now closed to new entrants. The assets of the scheme are held separately from those of the Group and are administered by trustees.



Accounting Policies


The liability recognised in the balance sheet in respect of the plan is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised actuarial gains and losses and past service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related plan liability.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised as income or expense if the net cumulative unrecognised actuarial gains and losses at the end of the previous reporting period exceeded the greater of:

- 10% of the present value of the defined benefit obligation at that date (before deducting plan assets); and

- 10% of the fair value of any plan assets at that date.

Past service costs are recognised immediately in income, unless the changes to the plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past service costs are amortised on a straight-line basis over the vesting period.

A subsidiary of the group pays a monthly grant to the Golden arrow Employee’s Medical Benefit Fund which the Fund uses to cover outgoings not financed by members contributions. The subsidiary also makes monthly payments to Discovery Health in respect of certain employees and pensioners.

The cost of providing benefits in respect of retirement healthcare is determined separately for each plan using the projected unit credit method, with actuarial valuations at each balance sheet date. Past service cost is recognised immediately to the extent that benefits have already vested, or otherwise amortised on a straight-line basis over the average period until the amended benefits become vested. The amount recognised in the balance sheet represents the present value of the defined benefit obligation.

(iii) Termination benefits

Termination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal, or providing termination benefits as a result of an offer made to encourage voluntary redundancy.

(iv) Bonus plans

The Group recognises a liability and an expense for bonuses. The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. An accrual is maintained for the appropriate proportion of the expected bonuses which would become payable at the year-end.

(v) Long term incentives

A subsidiairy of the Group has long term incentive plans for certain employees. Liabilities equal to the current fair market values of the plans are recognised at each balance sheet date. The moves in the fair values of these liabilities are expensed.

(vi) Share based payments

The Group grants share options to employees in terms of the HCI Employee Share Trust (2001). In terms of IFRS 2 these options are fair valued at the date of grant and the fair value determined on the date of grant recognised as an expense over the relevant vesting periods. The fair value of options granted is measured using the Black Scholes Model.

z) Earnings per share

Earnings per share is calculated on the weighted average number of shares in issue, net of treasury shares, in respect of the year and is based on profit attributable to ordinary shareholders. Headline earnings per share is based on profits before investment surplus or deficit, including impairment of available for sale investments and goodwill impairment.

2 Critical accounting estimates and judgments

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

(i) Principles of critical accounting estimates and assumptions

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(ii) Estimated impairment of goodwill

The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in Note (e). The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates.

(iii) Income taxes

The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

(iv) Net gaming win

The Group regards the national VAT levied on net gaming



Accounting Policies


win to be comparable with the gaming levies which are paid to provincial gaming boards. These are seen as direct costs of the Group as they are borne entirely by the Group and have no effect on casino activities from the punters’ perspective.

In the casino industry, the nature of betting transactions makes it difficult to separate bets placed by customers and winnings paid to punters. It therefore follows that casinos experience practical difficulties reflecting output tax separately from input tax. Accordingly, SARS allows casinos to account for VAT by applying the tax fraction to the net betting transaction. Provincial gaming levies are calculated on a similar basis by applying the tax fraction to the net betting transaction. Any change in either the VAT rate or the provincial gaming levies would be absorbed entirely by the Group and would have no impact on the punters. The Group thus treats VAT and other taxes levied on casino winnings as direct costs. These costs are included in net gaming win which is disclosed separately on the face of the income statement.

(v) Deferred tax assets

Management has applied a probability analysis to determine future taxable income against which calculated tax losses will be utilised. A similar probability analysis was applied in determining the amount of STC credits that would be utilised in the foreseeable future.

3. New Standards, Interpretations and Amendments to existing Standards issued that are not yet effective:

Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the Group’s accounting periods beginning on or after 1 April 2007 or later periods but which the Group has not early adopted, are as follows :

3.1 IFRS 7 - Financial Instruments: Disclosures and a complementary Amendment to IAS 1 - Presentation of Financial Statements: Capital Disclosures (effective for periods beginning 1 April 2007)

IFRS 7 introduces new disclosures to improve the information about financial instruments. It requires the disclosure of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk, including sensitivity analysis to market risk. It replaces IAS 30, Disclosures in the Financial Statements of Banks and Similar Financial Institutions, and disclosure requirements in IAS 32, Financial Instruments: Disclosure and Presentation. It is applicable to all entities that report under IFRS. The amendment to IAS 1 introduces disclosures about the level of an entity’s capital and how it manages capital. The Group is assessing the impact of IFRS 7 and the amendment to IAS 1 and will ascertain what

additional disclosures in terms of the sensitivity analysis to market risk and the capital disclosures required by the amendment of IAS 1 are required. The Group will apply IFRS 7 and the amendment to IAS 1 from annual periods beginning 1 April 2007.

3.2 IFRS 8 – Operating segments (effective for periods beginning 1 January 2009)

IFRS 8 specifies how an entity should report information about its operating segments in annual financial statements. The requirements of IFRS 8 are based on the information about the components of the entity that management uses to make operating decisions. The Group will apply IFRS 8 from 1 April 2008; it is not expected to have any material impact on the current segment disclosure of the Group.

3.3 IFRIC 8 – Scope of IFRS 2 (Effective for periods beginning 1 May 2006)

This clarifies that IFRS 2 – Share-based Payment applies to arrangements where an entity makes share-based payments for apparently nil or inadequate consideration. Management is currently assessing the impact of IFRIC 8 on the Group’s operations.

3.4 IFRIC 10 – Interim Financial Reporting and Impairment (Effective for periods beginning 1 November 2006)

IFRIC 10 prohibits the impairment losses recognised in an interim period on goodwill, investments in equity instruments and investments in financial assets carried at cost to be reversed at a subsequent balance sheet date. The Group will apply IFRIC 10 from 1 April 2007, but it is not expected to have any impact on the Group’s accounts.

3.5 IFRIC 11- IFRS 2 – Group and Treasury Share Transactions (effective for annual period beginning on or after 1 March 2007)

IFRIC 11 applies to situations where a parent makes a grant of its shares to employees of a subsidiary and where a subsidiary makes a grant of its parent’s shares to its own employees. Management is currently assessing the impact of IFRIC 11 on the Group’s accounts.

3.6 Management have assessed the relevance of the following standards, interpretations and amendments with respect to the Group’s operations and concluded that they are not relevant to the Group:

IFRIC 9 - Reassessment of Embedded Derivatives • (Effective for periods beginning 1 June 2006)

IFRIC 12 – Service concession Arrangements • (Effective for periods beginning 1 January 2008)

AC 503 – Accounting For Black Economic • Empowerment (BEE) Transactions (Effective for periods beginning 1 May 2006)



Group Company 2007 2006 2007 2006 R’000 R’000 R’000 R’000

1. PROPERTY, PLANT AND EQUIPMENT

Cost Broadcast studios, equipment and frequencies 141 448 130 003 Land and buildings 3 607 457 443 759 Leasehold improvements 86 629 18 801 Properties under construction 314 283 - Plant and machinery 153 841 145 152 Buses 362 064 312 631

Other equipment and vehicles 1 733 812 149 211 Exploration and evaluation asset 6 007 - Gas rights 249 190 - 6 654 731 1 199 557

Accumulated depreciation Broadcast studios, equipment and frequencies 96 219 80 111 Land and buildings 616 973 104 457 Leasehold improvements 22 921 13 216 Plant and machinery 68 854 69 864 Buses 68 054 40 660 Other equipment and vehicles 929 970 96 119 Gas rights 4 500 - 1 807 491 404 427

Carrying value Broadcast studios, equipment and frequencies 45 229 49 892 Land and buildings 2 990 484 339 302 Leasehold improvements 63 708 5 585 Properties under construction 314 283 - Plant and machinery 84 987 75 288 Buses 294 010 271 971 Other equipment and vehicles 803 842 53 092 Exploration and evaluation asset 6 007 - Gas rights 244 690 -

4 847 240 795 130

Movements in property, plant and equipment Balance at beginning of year Broadcast studios, equipment and frequencies 49 892 46 385 Land and buildings 339 482 118 687 Leasehold improvements 5 708 2 335 Plant and machinery 73 616 59 863 Buses 271 971 204 250 Other equipment and vehicles 54 461 27 781 795 130 459 301Additions Broadcast studios, equipment and frequencies 11 444 17 353 Land and buildings 46 094 53 814 Leasehold improvements 3 193 3 173 Properties under construction 127 960 - Plant and machinery 41 257 30 267 Buses 51 600 94 120 Other equipment and vehicles 122 793 32 586 Exploration and evaluation asset 6 007 - 410 348 231 313


Notes to the Annual Financial Statements






Business combinations Broadcast studios, equipment and frequencies - 138

Land and buildings 2 563 937 167 500 Leasehold improvements 59 327 2 900 Properties under construction 323 391 - Plant and machinery - 65 Other equipment and vehicles 677 868 11 864 Gas rights 249 190 - 3 873 713 182 467

Disposals Broadcast studios, equipment and frequencies - (98) Land and buildings (14 605) - Leasehold improvements (511) (651) Buses (2 225) (2 885) Plant and machinery (14 947) ( 848) Other equipment and vehicles (6 045) (6 265) (38 333) (10 747) Depreciation Broadcast studios, equipment and frequencies (16 107) (13 962) Land and buildings (30 013) (699) Leasehold improvements (4 009) (2 172) Plant and machinery (14 939) (14 059) Buses (27 336) (23 514) Other equipment and vehicles (65 246) (12 798) Gas rights (4 500) - (162 150) (67 204)

Revaluations Land and buildings 9 390 -

Currency translation Land and buildings 5 198 - Other equipment and vehicles 545 - 5 743 -

Realloactions and transfers Land and buildings 71 001 - Properties under construction (137 068) - Other equipment and vehicles 19 466 - (46 601) -

Balances at end of year Broadcast studios, equipment and frequencies 45 229 49 892 Land and buildings 2 990 484 339 302 Leasehold improvements 63 708 5 585 Properties under construction 314 283 Plant and machinery 84 987 75 288 Buses 294 010 271 971 Other equipment and vehicles 803 842 53 092 Exploration and evaluation asset 6 007 - Gas rights 244 690 - 4 847 240 795 130

A register of land and buildings is available for inspection at the registered office of the company.

Encumbrances

Mortgages are registered over access platforms, certain plant and machinery and certain land and buildings as security for borrowings and finance leases. Refer notes 21 and 22. The carrying values of assets encumbered is R1 056,5 million (2006: R298,2 million).




2. INVESTMENT PROPERTIES

Investment properties consist of:

Bare dominiums 24 459 25 235 Other investment properties 173 840 129 000 198 299 154 235 Investment properties are stated at fair value. The

latest external valuations, of the bare dominiums, were at 31 January 2006. Bonds are registered over the bare dominiums. The fair value of the other investment properties at 31 March 2007 has been arrived at on the basis of a valuation carried out on 2 March 2006 by Mr Conrad Penny, an independent valuer not connected to the Group. This valuation was arrived at by reference to market evidence of transaction prices for similar properties. The property rental income earned by the Group from its investment property, all of which leased out under operating leases, amounted to R20,2 million. Direct operating expenses arising on the investment property in the period amounted to R0,7million.

Details of investment properties are available at the registered office of the company.

Reconciliation of carrying value At beginning of year 154 235 13 729 Fair value adjustments 464 11 506 Transfer from property, plant and equipment 43 700 - Disposals (100) - Business combinations - 129 000 At end of year 198 299 154 235 3. GOODWILL Arising on acquisition of shares in subsidiaries 908 642 82 683

Reconciliation of carrying value At beginning of year 82 683 - Business combinations 830 837 82 683 Derecognised (1 190) - Impairment (4 488) - Effects of foreign exchange currency differences 800 - At end of year 908 642 82 683

Goodwill relates primarily to the Group’s casino and hotel interests. The Group performs an annual group valuation for purposes of valuing the shares that form part of the long term incentive plans (note 24). This valuation method is the basis for valuing the Group’s cash-generating units to which goodwill is allocated. This valuation represents the recoverable amounts for these groups. The carrying values of these groups are then deducted from their respective recoverable amounts to determine whether the allocated goodwill is impaired or not.

The annual valuation is based on an “Earning Before Interest, Tax, Depreciation and Amortisation” approach which utilises a multiple determined by two independent audit firms (“the experts”) to determine the Group’s enterprise value. This enterprise value is adjusted to equity value through adding the market value of cash less the market value of interest bearing debt. The multiple determined by the experts is based on comparative companies’ trading on the JSE Limited, and is considered to represent a fair multiple that the Group would achieve were it to list.

The value of other CGU’s to which goodwill has been allocated has been determined based on value in use calculations using management generated cash flow projections. The net present value has been calculated to be in excess of the current carrying value and therefore no impairment is required.





4. INTANGIBLE ASSETS Management Computer Customer Bid costs contract software Trademark Tax credits contracts Total R’000 R’000 R’000 R’000 R’000 R’000 R’000

Group 2007 Carrying value at beginning of year - - 1 876 - - - 1 876 Additions - - 8 267 - - - 8 267 Business Combinations 88 508 32 404 28 401 11 136 37 050 116 240 313 739 Transfers - - 3 128 - - - 3 128 Amortisation (4 939) (25 742) (6 458) (152) (10 900) (2 100) (50 291) Carrying value at end of year 83 569 6 662 35 214 10 984 26 150 114 140 276 719 Cost 159 803 273 833 99 077 11 402 37 050 116 240 697 405 Accumulated amortisation (76 234) (267 171) (63 863) (418) (10 900) (2 100) (420 686) 83 569 6 662 35 214 10 984 26 150 114 140 276 719 Group 2006 Carrying value at beginning of year - - 865 - - - 865 Additions - - 1 753 - - - 1 753 Business Combinations - - 62 - - - 62 Amortisation - - (804) - - - (804) Carring value at end of year - - 1 876 - - - 1 876 Cost - - 2 636 - - - 2 636 Accumulated amortisation - - (760) - - - (760) - - 1 876 - - - 1 876 The amortisation expense has been included in the line item depreciation and amortisation in the income statement.

The following useful lives were used in the calculation of amortisation:

Bid costs 10 to 12.5 years Management contract 5 years Computer software 1 to 3 years Trademark 25 years Tax credits 1 year Customer contracts 15 years





5. INVESTMENTS IN ASSOCIATES

Unlisted Name of associates Principal 2007 2006 2007 2006 2007 2006 activity R’000 R’000 R’000 R’000 R’000 R’000

The following are the group’s principal associates:

Business Systems Group Information (Proprietary) Limited techology 40% 40% 9 299 6 918 3 000 3 000 Clover Industries Limited Dairy & allied 45% 42% 169 341 132 693 - - Johnson Crane Hire (Proprietary) Limited Crane hire 50% 50% 44 164 26 716 - - Tsogo Investment Holding Company (Proprietary) Limited * Gaming & hotels - 51% - 640 924 - - Tsogo Sun KwaZulu-Natal (Proprietary) Limited * Gaming & hotels - 29% - 66 300 - - Hotel Formula 1 (Proprietary) Limited Hotel operator 47% - 19 740 - - - Malelane Lodge (Pty) Ltd Hotel operator 49% - 4 361 - - - Noah Financial Innovation (Proprietary) Limited Brokerage 49% 49% 24 086 6 979 - - Magellan-Montauk LFS LLC # Energy 50% - 79 558 - - - Apollo Energy III LLC # Energy 50% - 15 976 - - - Other associates** 41 832 24 239 6 256 7 367

408 357 904 769 9 256 10 367

Directors valuation 461 081 2 145 529

* Now subsidiaries ** a list of these investments is available for inspection at the company’s registered office *** Economic interest # incorporated in the United States

The summarised financial information in respect of the Group’s principal associates is set out below: Hotels & Information Food & Financial casino Technology Beverages* Industrial** Services Energy gaming

Total assets 27 776 2 559 455 251 876 65 051 94 000 135 740 Total liabilities 6 759 1 841 792 171 756 12 652 9 700 89 830 Net assets 21 017 717 663 80 120 52 399 84 300 45 910 Revenue 41 818 2 354 635 188 268 42 849 3 800 135 153 Attributable profit 7 642 43 488 17 577 3 502 (300) 33 822

Group Company Group’s interest Carrying value Carrying value

* Based on the interim results of Clover Industries Limited, for the six months ended 31 December 2006. ** Based on annual financial statements of Johnson Crane Hire (Pty) Limited for the year ended 30 June 2006.

The following associates do not have 31 March year ends: Name of associate Year end Johnson Crane Hire (Proprietary) Limited June Hotel Formula 1 (Proprietary) Limited December Magellan-Montauk LFS LLC December Apollo Energy III LLC December Clover Industries Limited December The results of these associates are equity accounted using management prepared information on a basis coterminous with the

Group’s accounting reference date.







6. INVESTMENT IN JOINT VENTURES

Unlisted Group’s Group interest Carrying value Name of joint ventures Principal activity 2007 2006 2007 2006 R’000 R’000

The following are the group’s principal joint ventures:

The Cullinan Hotel (Proprietary) Limited Hotel operator 50% - 80 621 - Southern Sun Middle East LLC * Hotel operator 49% - 241 - United Resorts & Hotels Limited ** Hotel operator 50% - 103 241 - 184 103 - Directors valuation * Incorporated in Dubai * Incorporated in Seychelles

The following amounts are not included in the Group’s financial statements as the Group accounts for its investment in joint ventures on an equity basis:

Current assets 69 675

Non-current assets 304 030

Current laibilities (72 788)

Non-current liabilities (133 329)

Income 94 551

Expenses 92 297

Net 2 254

Group’s share of joint ventures capital commitments* 40 372

* of which R24,8 million is subject to contractual negotiations

Group 2007 2006 R’000 R’000

7. OTHER FINANCIAL ASSETS

Derivatives designated and effective as hedging instruments carried at fair value

Interest rate swap 2 575 - Financial assets carried at fair value

through profit or loss Natural gas put options 75 740 -

Available for sale investments held at fair value * Redeemable preferences shares** 110 045 85 213 Sinking fund insurance policies 30 060 24 000 Other 24 109 11 057 164 214 120 270

Total 242 529 120 270

Current portion 15 945 - Non-current portion 226 584 120 270 242 529 120 270

* These investments are included under this specific IFRS category by default as they do not qualify for inclusion under alternative financial asset categories in terms of IFRS principles. The investments are not intended to be sold or realised in the near future.** Redeemable preference shares comprise investments in unlisted companies of which R 5 million is redeemable in 2008,

R85,2 million is redeemable by December 2009 and R19,8 million is redeemable by 2012 and attract dividends at rates linked to prime rate.




8. SUBSIDIARY COMPANIES Shares at cost less impairment 1 145 097 579 088 Amounts owing by subsidiary companies 368 120 755 244 1 513 217 1 334 332 Amounts owing to subsidiary companies (75 050) (16 906) 1 438 167 1 317 426 Full details of subsidiary companies are

provided on pages 72 and 73 9. DEFERRED TAX

Movements in deferred taxation At beginning of year 303 927 380 614 Business combination (12 734) 22 683 Asset revaluations (2 685) (16 169) Accelerated tax allowances (32 492) (2 451) Provisions and accruals 51 385 570 Assessed losses (67 437) (40 047) Other 16 991 1 863 Application of AC 501 (32 515) (43 136) At end of year 224 440 303 927

Analysis of deferred taxation

Application of AC 501 15 007 71 414 Accelerated tax allowances (232 596) (43 910) Provisions and accruals 201 230 24 828 Deferred revenue 11 434 - Asset revaluations (20 685) (20 569) Assessed losses 240 327 280 589 Other 9 723 (8 425) 224 440 303 927 Composition of deferred taxation Deferred taxation assets 345 783 357 664 Deferred taxation liabilities (121 343) (53 737)

224 440 303 927

10. OPERATING LEASE EQUALISATION

Straight-lining of operating leases Assets 5 000 3 400 Liablities (266 457) (22 300)

(261 457) (18 900)






11. FINANCE LEASE RECEIVABLES

Finance lease receivables 299 725 47 625 - -

Details of finance lease receivables Gross investment in leases 550 658 79 106 - - Initial direct costs to be amortised 13 084 - - - Unearned finance income (133 537) (18 565) - -

Net investment in leases 430 205 60 541 - - Provision for impairment of finance lease receivables (42 908) (1 816) - - Additional amortisation of indirect costs due to provision for impairment (2 476) - - -

Present value of minimum lease payments 384 821 58 725 - - Less: short term portion (85 096) (11 100) - -

299 725 47 625 - -

Reconciliation of total minimum lease payments at 31 March 2007 and their present value:

Up to 1 year 2 to 5 Years More than 5 years Total Minimum lease payments 134 353 373 397 - 507 750 Initial direct costs to be amortised 4 491 6 117 - 10 608 Unearned finance charges (53 749) (79 788) - (133 537) 85 095 299 726 - 384 821

The finance lease receivables comprise debt purchased from third parties. The average term of these loans is 54 months and the average interest rate is 2.45% above prime. These receivables are secured by means of the motor vehicles that are financed. The provision for impairment of finance lease receivables is estimated after evaluating the finance lease receivables and after taking securities into account.

12. NON-CURRENT RECEIVABLES

Loans to minority shareholders

These loans are repayable on the earlier of 31 May 2011 or as agreed to by all shareholders of Tsogo Sun KwaZulu-Natal (Pty) Ltd, a subsidiary of the Group. Interest is charged at rates linked to the three month Johannesburg Inter-Bank Agreed Rate (JIBAR) and settlement occurs bi-annually on the last day of March and September. These loans are secured by a cession of claims by these minority shareholders of loan accounts in Ripple Effect 31 (Pty) Ltd, a subsidiary of the Group.

Loans to development trusts These unsecured loans are interest free 11 500 - - -

Loan to HCI Employee Share Trust (2001) - - 9 536 10 066 Other loans

These loans are due within 1 to 6 years and bear interest at rates ranging from 0% to 5% per annum. 16 496 8 895 - -

126 996 8 895 9 536 10 066



99 000 - - -




13. FINANCIAL ASSETS

Financial assets 5 475 922 6 191 493 Short term portion of financial assets (1 489 061) (1 568 572)

3 986 861 4622 921 Financial assets consist of: Loans and receivables 3 811 647 4 001 420 Held-to-maturity investments (preference shares) 1 664 275 2 190 073

5 475 922 6 191 493

Detailed records of the shares are maintained at the subsidiary companys’ registered office and will be made available upon written request.

Group 2007

Maturity dates for each class of financial asset: Loans and Held-to-maturity receivables investments Total < 1 year 1 489 061 - 1 489 061 1 - 2 years 2 148 916 1 664 275 3 813 191 2 - 3 years 117 007 - 117 007 3 - 4 years - - - 4 - 5 years 16 646 - 16 646 > 5 years 40 017 - 40 017 Total 3 811 647 1 664 275 5 475 922

Aggregate carrying value of fixed rate and floating interest and dividend rate financial assets:

Floating rate Fixed rate Total Loans and receivables 222 523 3 589 124 3 811 647 Held-to-maturity investments - 1 664 275 1 664 275 222 523 5 253 399 5 475 922

Range of effective rates for each class of financial assets: Low High Loans and receivables (interest rate) 7.69% 18.65% Held-to-maturity investments (dividend rate) 7.61% 18.51%

Loans and receivables have been ceded as security for the obligation to redeem preference shares. R7 622 099 is denominated in US Dollars, secured, with interest at 12,5% p.a. and repayable within one year.





13. FINANCIAL ASSETS CONT.

Group 2006

Maturity dates for each class of financial asset: Loans and Held-to-maturity receivables investments Total < 1 year 809 929 758 643 1 568 572 1 - 2 years 1 090 246 - 1 090 246 2 - 3 years 1 928 483 1 386 601 3 315 084 3 - 4 years 111 559 - 111 559 4 - 5 years 61 203 44 829 106 032 > 5 years - - - Total 4 001 420 2 190 073 6 191 493 Aggregate carrying value of fixed rate and floating

interest and dividend rate financial assets: Floating rate Fixed rate Total Loans and receivables 388 218 3 613 203 4 001 421 Held-to-maturity investments - 2 190 072 2 190 072 388 218 5 803 275 6 191 493 Range of effective rates for each class of financial assets: Low High Loans and receivables (interest rate) 7.82% 18.65% Held-to-maturity investments (dividend rate) 7.73% 23.82% Group Company 2007 2006 2007 2006 R’000 R’000 R’000 R’000

14. INVENTORIES Raw materials 33 613 28 074 Work in progress 7 560 13 585 Finished goods 17 358 12 464 Consumables and spares 24 830 16 965 Merchandise 31 858 - Operating equipment 69 024 - Provision for obsolete inventory (3 763) (1 173) 180 480 69 915 No inventory is held at net realisable value.

Encumbrances Certain inventories have been ceded as security

for loans due. Refer note 21. 15. PROGRAMME RIGHTS

Television programmes - International 153 825 191 173 - Local 32 489 39 392 186 314 230 565 Reconciliation of carrying value At beginning of year 230 565 263 536 Additions 84 328 117 395 Amortised through cost of sales (128 579) (150 366) At end of year 186 314 230 565

16. TRADE AND OTHER RECEIVABLES Trade receivables 650 433 360 293 - - Other receivables 263 370 19 216 15 935 2 739 Short term loans - 393 097 - - 913 803 772 606 15 935 2 739 Encumbrances Certain trade receivables have been ceded as security for amounts owing by the Group. Refer notes 21 & 29





17. PLEDGED DEPOSITS

Bank deposits of R2,01 million (2006 : R2,01 million) have been pledged to support guarantees of R2 million (R2006 : R2 million) issued by the company’s bankers in favour of certain South African Provincial Gaming Boards for the due and punctual fulfilment of the licence obligations under which certain Group subsidiaries operate.

18. ORDINARY SHARE CAPITAL 2007 2006 2007 2006 Number Number R’000 R’000 of shares of shares ‘000 ‘000

Authorised Ordinary shares of 25 cents each 450 000 450 000 112 500 112 500 Issued In issue in company 126 209 124 723 31 552 31 181 Treasury shares held by subsidiary and employee share trust (2 313) (1 841) (561) (460)

123 896 122 882 30 991 30 721 Details of the issued share capital and share

premium and changes during the current and prior year are as follows:

Number of shares Share capital Share premium ‘000 R’000 R’000

In issue at 31 March 2005 119 472 29 868 545 630 Issued for cash 200 50 5 050 Issued to fund acquisition of Johnnic Holdings Ltd 4 627 1 157 127 025 Issued to employee share trust 2 424 606 17 820 Shares repurchased (2 000) (500) (53 500) Share issue expenses - - (379)

124 723 31 181 641 645

Treasury shares held by subsidiary and employee share trust (1 841) (460) (12 694)

In issue at 31 March 2006 122 882 30 721 628 951

In issue at 31 March 2006 124 723 31 181 641 646 Issued for cash and vendor consideration placings 1 786 446 66 504 Shares repurchased (300) (75) (11 625)

126 209 31 552 696 524 Treasury shares held by subsidiary and employee share trust (2 313) (561) (33 368)

In issue at 31 March 2007 123 896 30 991 663 156 Details of options over shares are set out in

note 40.

The unissued shares are under the control of the directors until the next annual general meeting.





19. OTHER RESERVES Foreign Currency Non Translation Share based Distributable Reserve payments Hedging Revaluation Reserve Total R’000 R’000 R’000 R’000 R’000 R’000 Group 2007 At beginning of year 2 066 4 007 - - (4 268) 1 805 Exchange differences on translation of foreign subsidiaries 9 144 - - - - 9 144 Equity-settle share based payments - 3 - - - 3 Fair value gains - - 111 - - 111 Current revaluations - - - 26 303 - 26 303 Transfer of revaluation to profit or loss - - - (10 519) - (10 519) At end of year 11 210 4 010 111 15 784 (4 268) 26 847 Group 2006 At beginning of year 4 071 1 476 - - (4 268) 1 279 Exchange differences on translation of foreign subsidiaries (2 005) - - - - (2 005) Equity-settle share based payments - 2 531 - - - 2 531 At end of year 2 066 4 007 - - (4 268) 1 805


20. FINANCIAL LIABILITIES

Financial liabilities 5 529 631 6 237 976 Short term portion of financial liabilities (1 485 276) (1 571 325)

4 044 355 4 666 651 Financial liabilities consist of: Loans due to third parties 1 888 307 2 397 935 Preference share liabilities 3 641 324 3 840 041

5 529 631 6 237 976 Group 2007 Maturity date for each class of financial liabilities: Loans due to Preference share third parties liabilities Total < 1 year 220 057 1 265 219 1 485 276 1 - 2 years 1 668 250 2 199 610 3 867 860 2 - 3 years - 117 771 117 771 3 - 4 years - - - 4 - 5 years - 18 683 18 683 > 5 years - 40 041 40 041

Total 1 888 307 3 641 324 5 529 631

Aggregate carrying value of fixed rate and floating interest and dividend rate financial liabilities:

Floating rate Fixed rate Total Loans due to third parties 199 091 1 689 216 1 888 307 Held-to-maturity investments 24 752 3 616 572 3 641 324

223 843 5 305 788 5 529 631

Range of effective rates for each class of financial assets: Low High Loans due to to third parties (interest rate) 7.11% 16.10% Preference share liabilities (dividend rate) 7.72% 18.51%

The obligation to redeem preference shares is secured by loans and receivables - refer to note 8





20. FINANCIAL LIABILITIES CONT.

Group 2006 Maturity date for each class of financial liabilities: Loans due to Preference share third parties liabilities Total < 1 year 936 786 634 539 1 571 325 1 - 2 years 7 424 1 087 388 1 094 812 2 - 3 years 1 392 012 1 956 143 3 348 155 3 - 4 years 5 631 107 889 113 520 4 - 5 years 56 081 54 083 110 164 > 5 years - - -

Total 2 397 934 3 840 042 6 237 976

Aggregate carrying value of fixed rate and floating interest and dividend rate financial liabilities: Floating rate Fixed rate Total Loans due to third parties 172 661 2 225 273 2 397 934 Held-to-maturity investments 214 475 3 625 567 3 840 042

387 136 5 850 840 6 237 976

Range of effective rates for each class of financial assets: Low High Loans due to third parties (interest rate) 7.85% 23.82% Preference share liabilities (dividend rate) 7.72% 14.90%

The obligation to redeem preference shares is secured by loans and receivables - refer to note 11

2007 2006 2007 2006 R’000 R’000 R’000 R’000

21. BORROWINGS

Bank borrowings 1 880 806 762 692 Other borrowings 579 095 179 982 Redeemable preference shares 113 583 - Loans to minority shareholders 108 578 42 884 2 682 062 985 558 Current portion of borrowings (795 035) (316 474) 1 887 027 669 084 Secured 2 205 516 840 787 Unsecured 476 546 144 771 2 682 062 985 558 The following represents the book value of the

security for these borrowings: Property, plant and equipment 948 130 298 169 Inventory 5 406 6 752 Trade receivables 56 700 12 636 Finance lease receivables 134 040 - Bank balances 6 049 - Guarantees 780 726 - 1 931 051 317 557 Fixed rates 763 784 130 262

Floating rates 1 918 278 855 296 2 682 062 985 558 Maturity of these borrowings is as follows: Due within 1 year 795 035 316 474

Due within 2 - 5 years 1 578 117 669 084 Due after 5 years 308 910 - 2 682 062 985 558 Analysis by currency

United States Dollar 419 580 - South African Rand 2 262 482 985 558

2 682 062 985 558 At 31 March 2007, the carrying value of borrowings approximates their fair value.





2007 2006 2007 2006 R’000 R’000 R’000 R’000

22 FINANCE LEASE LIABILITIES Due within 1 year 23 110 8 315 Due within 2 to 5 years 71 584 12 955 Due after 5 years 59 921 -

Less future finance charges 154 615 21 270 Present value of finance lease liabilities (51 523) (1 665) 103 092 19 605

Due within 1 year 19 446 8 209 Due within 2 to 5 years 59 518 11 396 Due after 5 years 24 128 - 103 092 19 605

Included in financial statements as: Current 11 955 8 209 Non-current 91 137 11 396 103 092 19 605

The following represents the carrying value of security for these liabilities:

Property, plant and equipment 98 430 22 238

23. RETIREMENT BENEFIT INFORMATION

23.1 Pension

Certain subsidiaries of the Group operate pension funds. These are defined contribution funds, governed by the Pension Funds Act, 1956, which provide retirement and death benefits for all permanent, full time employees who are not members of any other approved pension or provident fund.

23.2 Medical aid

23.2.1 A subsidiary operates a defined benefit plan for a portion of its medical aid members. The assets of the funded plans are held independently of the Group’s assets. This fund is valued by independent actuaries every year using the projected unit credit method.

Present value of funded obligations 38 042 - Fair value of plan assets (18 286) - 19 756 - Unrecognised actuarial gains 3 446 - Unrecognised past service costs (1 448) - Liability per the balance sheet 21 754 -

Group 2007 % The principal actuarial assumptions used

for the valuation were: Discount rate 7.75 Health care cost inflation 6.75 Expected return on plan assets 8.75 Remuneration inflation 6.25





23.2.2 A subsidiary pays a monthly grant to the Golden Arrow Employees’ Medical Benefit Fund (MBF or “the Fund”). The Fund uses the grant to cover the outgoings not financed from member contributions. The administrators of MBF are the Metropolitan Health Group. The subsidiary also makes contributions to Discovery Health.

Group 2007 2006 R’000 R’000

The amounts recognised in the income statement are as follows:

Current service cost 1 535 1 519 Interest cost 2 365 2 618 Net actuarial loss / (gain) 1 244 (97) Total included in employee costs 5 144 4 040

Movements in the net liability recognised in the balance sheet are as follows:

Balance at beginning of year 30 823 28 350 Net expense recognised in the income statement 5 144 4 040 Benefit payments (1 656) (1 567) Balance at end of year 34 311 30 823

The calculation of accrued service liability in respect of post-retirement healthcare was performed by Fifth Quadrant Actuaries and Consultants as at 31 March 2007.

Group 2007 2006 The principal actuarial assumptions used

for the valuation were: Discount rate 8.5% 7.5% Medical aid subsidy increase rate 5.5% to 7% 4.5% to 6% Normal retirement age 65 years 65 years Continuation of membership at retirement 55% 55%





24. LONG TERM INCENTIVE LIABILITIES

Certain subsidiaries of the Group operate cash settled long term incentive plans. Liabilities equal to the current fair values are recognised at each balance sheet date. The movements in the fair value of these liabilities are expensed.

The fair value is expensed over the period as services are rendered by the employees. In terms of the rules, the fair values of the payments are determined using the application of an Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) based formula as described in note 3 above.

The Group has two long term cash settled incentive payment plans:

24.1 The Tsogo Sun Group Share Incentive Plan is a long term incentive plan whereby participants receive a cash settlement on exercise and delivery of options. Share options were granted at the fair value price of the shares on the date of the grant less a discount of 2%, and are exercisable at that price. Options only begin to vest from three years after they were allocated. After three years 25% vest, an additional 25% vest after four years, and after five years the remaining options fully vest. Options expire after a maximum period of eight years. The charge is not reversed if the options are exercised where the market value of the shares is lower than the option price at the date of the grant. When an option is exercised the option holder receives the differential between the strike/grant price and the fair value of the underlying shares in cash which fair value is determined by reference to a pre-determined formula, as noted in 24 above.

At 31 March 2007 the Group has recorded liabilities of R326 million in respect of this long term incentive plan. The current portion of this liability is R125,4 million.

Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:

2007

Number of shares Group Outstanding at year end 7 491 762

Exercisable at year end 2 497 254

24.2 The Tsogo Sun Share Appreciation Bonus Plan is a bonus scheme whereby participants receive cash bonuses, the amounts of which are determined with reference to the notional growth in the Group’s share price. Participants under this bonus appreciation plan are not entitled to take up shares or options whatsoever. 25% of the bonus appreciation plan vests from three years after date of allocation, an additional 25% vests after four years, and the balance after five years.

The Group has recorded liabilities of R13,9 million in respect of this plan. The current portion of this liability is R nil (2006: R nil).





R’000

25. PROVISIONS

Group 2007

Frequent guest Balance at beginning of year - On acquisition of subsidiary 38 675 Raised during the year 15 545 Utilise (22 575) Balance at end of year 31 645

Incentives Balance at beginning of year - On acquisition of subsidiary 46 087 Raised during the year 32 246 Utilised (16 100) Balance at end of year 62 233

Jackpot provisions Balance at beginning of year - On acquisition of subsidiary 14 149 Raised during the year 19 612 Utilised (15 869) Balance at end of year 17 892

Environgas preferred stock Balance at beginning of year - On acquisition of subsidiary 7 300 Balance at end of year 7 300

Asset retirement obligation Balance at beginning of year - On acquisition of subsidiary 11 800 Raised during the year 200 Balance at end of year 12 000

Leave pay Balance at beginning of year 14 112 On acquisition of subsidiary 100 Raised during the year 14 709 Unused amounts reversed (3) Utilised (11 800) Balance at end of year 17 118

Staff bonuses Balance at beginning of year 10 053 On acquisition of subsidiary 5 300 Raised during the year 31 198 Unused amounts reversed (7 600) Utilised (13 527) Balance at end of year 25 424

Repurchase of service Balance at beginning of year 30 246 Raised during year 3 419 Balance at end of year 33 665

Third party claims Balance at beginning of year 8 919 Raised during the year 5 944 Utilised (5 682) Balance at end of year 9 181

Provision in respect of guarantees given Balance at beginning of year - Raised during the year 20 000 Balance at end of year 20 000





R’000

25. PROVISIONS CONT.

Other Balance at beginning of year 5 782 On acquisition of subsidiary 8 000 Raised during the year 13 155 Unused amounts reversed (2 097) Utilised (2 751) Other 8 950 Balance at end of year 31 039 Total provisions 267 497 Non-current 35 530 Current 231 967 267 497

Envirogas preferred stock The Envirogas provision relates to

preferred stock in Envirogas Recovery Incorporated, one of the subsidiaries of the Montauk Group. The preferred stock comprises 10 shares at R726 490 (US$100 000) per share. Currently there are no operations or assets in this entity and these shares may be redeemed at any time after 2018 at par value.

Repurchase of service This is a provision raised in respect of

costs that will be payable to employees on completion of the restructuring of the bus industry by the Department of Transport.

Third party claims Third party claims are legal claims

resulting from traffic accidents.Claims that are insured are excluded from this provision.


26. TRADE AND OTHER PAYABLES

Trade payables 423 012 460 898 43 129 35 040 Other payables 660 819 1 475 - - 1 083 831 462 373 43 129 35 040





29. COMMITMENTS Operating lease arrangements where the Group is a lessee: Future leasing charges for premises: Payable within one year 144 809 3 305 Payable within two to five years 611 300 6 436 Payable after five years 835 110 - 1 591 219 9 741 Future leasing charges for equipment: Payable within one year 259 - Payable within two to five years 44 - Payable after five years - - 303 - Operating lease arrangements where the

Group is a lessor: Future leasing charges for premises: Payable within one year 15 012 - Payable within two to five years 25 463 - Payable after five years 2 411 - 42 886 9 741 Capital expenditure Authorised by directors but not yet contracted for: Property, plant and equipment 848 467 - Intangible assets - software 53 800 - 902 267 - Authorised by directors and contracted

to be expended: Property, plant and equipment 252 737 20 000 Intangible assets - software 1 800 -

It is intended that this expenditure will be funded from bank finance.

Group 2007 2006 R’000 R’000

27. SHORT TERM LOANS

Loan structured as 90 day unsecured non amortising debentures. Interest payments are due quarterly in arrears. The rate on the facility is priced quarterly at the 3 month JIBAR rate plus 80 basis points. The security for these debts are managed in terms of the Trust Deed under the Mettle Motor

Loans Debenture Holders Trust. 388 821 -

Loan secured by a debtors book bearing interest at 1.5% per month 27 817 -

Loan secured by a residual cession of a debtors book bearing interest

at the prime rate plus 3% 15 057 -

Other secured short term loans bearing interest at varying rates. - 24 446

Unsecured short term loans bearing interest at varying rates. 8 658 1 230

434 353 25 676

28. BANK OVERDRAFTS

Trade receivables totalling R60,8 million have been ceded as security for debtor’s factoring facility. The balance of the facility at year end was R31,4 million.








30. GROUP REVENUE

Media & broadcasting 903 252 669 786 Financial services 199 447 143 741 Limited payout gaming 121 325 89 854 Casino gaming 1 198 984 - Hotels 478 798 - Information technology 120 799 56 842 Transport 738 809 664 238 Industrial 442 400 431 592 Energy 44 000 - Exhibition and properties 118 000 67 000 Other 17 046 3 010 4 382 860 2 126 063

31. INVESTMENT INCOME

Dividends Listed investments - 31 - 30 Unlisted investments 34 558 7 705 - - Associates - - 4 275 - Subsidiaries - - 106 578 108 469 34 558 7 736 110 853 108 499 Interest Investments - 770 - - Bank 102 676 12 867 530 2 054 Other 1 394 85 581 - - 104 070 99 218 530 2 054

32. INVESTMENT SURPLUS On realisation of investments 57 647 3 177 4 022 7 218

33. RECOUPMENT/(IMPAIRMENT) OF GOODWILL AND INVESTMENTS Impairment of goodwill and investments 3 112 ( 225) - - Impairment of investments in subsidiaries - - (33 284) (67 946) 3 112 ( 225) (33 284) (67 946)

34. FINANCE COSTS Interest 165 593 118 210 100 717 Preference dividends 10 069 - - - Raising fees - 53 500 - - 175 662 171 710 100 717

35. PROFIT BEFORE TAXATION

Auditors remuneration - Audit fees - current year 6 617 4 958 542 745 - prior year 561 328 - - - Other services 1 598 1 085 187 40 Consultancy fees 51 770 19 705 297 707 Listing fees 225 368 225 368 Operating lease charges - Premises 85 846 23 740 - - - Plant and equipment 11 964 878 - - Foreign exchange (profit) / loss 7 547 (3 453) - - Loss / (profit) on disposal of fixed assets (1 746) 704 - - Gaming levies 110 325 8 294 - - VAT 139 871 10 200 - -




36. TAXATION

South African taxes Current normal tax 270 389 108 167 - 582 Prior year normal tax (5) (4 793) - - Deferred normal tax 46 306 (25 977) - - Capital gains tax 504 681 - - Secondary tax on companies 20 284 55 941 - - Application of AC 501 32 515 67 028 - - Foreign taxes Current normal tax 86 (158) - - 370 079 200 889 - 582

Various subsidiaries have incurred operating losses which result in losses for tax purposes. Deferred tax assets have not been raised unless it is probable that future taxable profits will be available against which the unused tax losses can be utilised. Losses for tax purposes available for set off against future taxable income and which deferred tax assets have not been raised are estimated at:

- Normal tax 445 273 616 405 - Capital gains tax 362 500 362 500 - Secondary tax on companies 373 857 167 045

Tax relief at current rates:

- Normal tax 129 129 178 757 - Capital gains tax 52 563 52 563 - Secondary tax on companies 46 732 20 881

Reconciliation of tax rate % % Normal tax rate 29 29 Deferred tax not raised on losses 2 12 Capital losses and non-deductible expenses 3 - Non-taxable income including share of

associates income (4) ( 13) Raising of deferred tax assets (7) - Differential tax rates - CGT and foreign 1 - Secondary tax on companies 4 ( 7) Effective rate 28 21

37. DISCONTINUED OPERATION

Discontinued operations relate to interests that a subsidiary of Blue Wolf Energy Holdings LLC has in certain passive landfill sites. A decision has been taken to dispose of these sites in the next 12 months.

Profit from discontinued operations

Revenue 5 500 -

Operating costs (10 400) - Ammortisation of intangibles (4 700) - Loss before taxation (9 600) - Taxation 13 200 - 3 600 - Cash flows from discontinued operations Cash flows from operating activities (4 800) - Cash flows from investing activities (12 700) - (17 500) -








38. EARNINGS PER SHARE

Earnings per share is based on the weighted average number of 123 691 000 ordinary shares in issue (2006 : 119 853 314) Diluted earnings per share is based on the weighted average number of 125 647 212 ordinary shares in issue (2006: 122 721 634) In order to more accurately reflect the economic reality of the Group’s results, adjusted headline profit and earnings per share are also disclosed. Adjusted headline earnings exclude all abnormal profits and losses including non-recurring transaction costs and raising fees and the effects of net deferred tax assets raised or expensed in respect of unused tax losses and available STC credits.

Reconciliation of headline earnings:

Profit attributable to equity holders of the parent 574 737 231 195 Adjusted for equity holders of the parent’s share of investment surplus (58 819) (3 151) Goodwill and investments impaired 3 112 - Fair value adjustments of investment properties 777 (9 837) Negative goodwill on acquisition of subsidiary - (8 476) Impairment of assets - 1 673 Profit on sale of assets (8 580) (1 079) Headline profit 511 227 210 325 Deferred tax in respect of losses (33 421) (23 891) Deferred tax in respect of STC credits 32 515 67 163 Non-recurring transaction costs and raising fees - 72 479 Adjusted headline profit 510 321 326 076

39. NOTES TO THE CASH FLOW STATEMENTS

39.1 CASH GENERATED BY OPERATIONS Profit before taxation 1 319 198 487 371 103 696 29 098 Profit from discontinued operation 3 630 - - - Depreciation 162 150 67 204 - - Amortisation 50 292 804 - - Share based payments 3 2 531 - - Profit on disposal of property, plant and equipment (1 746) - - - Impairment of goodwill and investments 6 400 225 - 67 946 Impairment of receivables 51 943 - - - Equity accounted profits retained (188 421) (142 435) - - in subsidiaries - (8 968) - - Forex translation (26 182) (2 202) - - Fair value adjustments ( 454) (13 099) - - -Dividends (34 558) (7 736) - - -Interest (104 070) (99 218) - - Preference dividends and interest 175 662 171 710 100 717 Non cash movements in natural gas put options (76 151) - - - Investment surplus (55 208) 6 452 - (2 718) Movement in provisions 68 633 1 178 - - Post retirement medical retirement benefits 36 462 - - - Operating lease equalisation asset 14 716 (3 400) - - Long term incentive charges 79 301 - - - Other non cash items (26) 2 325 - - 1 481 574 462 742 103 796 95 043




39.2 CHANGES IN WORKING CAPITAL Inventory (20 991) (12 831) - - Programming rights 44 251 32 971 - - Trade and other receivables (542 759) (31 808) (13 196) 10 628 Trade and other payables 164 066 37 082 8 089 21 943 Forex contracts (14 343) (4 193) - - Net financial liabilities 5 926 (15 535) - - (363 850) 5 686 (5 107) 32 571

39.3 TAXATION PAID Unpaid at beginning of year (11 223) (10 139) 483 770 Charged to the income statement (370 079) (200 889) - ( 582) Deferred tax movement 78 248 102 252 - - Business combinations (170 583) (3 845) - - Unpaid at end of year 153 359 11 223 ( 703) ( 483) (320 278) (101 398) ( 220) ( 295)

39.4 BUSINESS COMBINATIONS/DISPOSALS 2007 2006 2006 Acquisition Acquisition Disposal R’000 R’000 R’000 At acquisition/disposal Property, plant and equipment (3 854 125) (190 123) 7 656 Investment properties (129 000) - Intangible assets (307 539) ( 62) - Investments (299 695) (254 000) 4 232 Deferred tax asset (66 078) (22 683) - Goodwill (815 519) (82 683) - Derivative financial instruments (2 164) - - Negative goodwill - 8 968 - Long term receivables (112 876) (4 507) - Inventories (89 574) (7 371) 6 771 Trade and other receivables (378 036) (87 711) 3 147 Current tax assets (2 261) - - Deferred tax liability 67 317 - - Non-current borrowings including current portion 2 024 035 25 944 (20 060) Long term incentive plan liability 260 611 - - Post retirement medical aid liabilities 19 603 - - Operating lease equalisation liability 227 841 22 300 - Trade and other payables 904 450 75 538 (1 979) Taxation liability 172 844 3 845 - Provisions 98 929 10 815 - Pre effective date income - 34 904 -

(2 152 237) (595 826) (233) Bank at date of acquisition/disposal (206 366) (776 494) 233

(2 358 603) (1 372 320) - Minority interest 1 106 930 656 963 - Issue of shares 32 450 126 945 - Amounts owing to group offset against

purchase price 416 000 - - Purchase price remaining unpaid 36 000 - - Carrying value of investments at date that it

became a subsidiary 546 808 9 179 - (220 415) (579 233) -








39.5 CASH AND CASH EQUIVALENTS Bank balances and deposits 742 103 782 079 3 540 2 414 Bank overdraft and loans (31 658) (13 324) - (109) 710 445 768 755 3 540 2 305

40. HCI EMPLOYEE SHARE OPTION SCHEME

In terms of the option scheme, share are offered on a combined share option and deferred sale basis. Participants can take up shares in tranches over a period of seven years from the date of grant at the exercise price, provided that they remain in the group’s employ until the options vest.

Options must be exercised within ten years of being granted, whereafter the options lapse. Options vest as follows: 25% after 1 year, 25% after 3 years, 25% after 5 years and 25% after seven years. These vesting periods may be varied by the trustees. Participants have ten years from date of the scheme grant to pay for the shares.

Share options granted to eligible participants that have been exercised but have not yet become unconditional: Number of shares

2007 2006 Balance at beginning of the year 1 324 474 3 424 474 Options granted and exercised 1 134 460 - Options vested and paid for (69 737) 2 100 000)

Balance at the end of the year 2 389 197 1 324 474

The options outstanding at 31 March 2007 become unconditional between the following dates:

Number of Exercise price share options R 1 September 2005 and 31 August 2007 356 118 8,55 1 September 2007 and 31 August 2008 356 119 8,55 1 September 2009 and 31 August 2011 356 119 8,55 25 July 2006 and 24 July 2007 186 500 40,50 25 July 2007 and 24 July 2009 186 500 40,50 25 July 2009 and 24 July 2011 186 500 40,50 25 July 2011 and 24 July 2007 186 500 40,50 8 September 2006 and 7 September 2007 97 115 40,50 8 September 2007 and 7 September 2009 97 115 40,50 8 September 2009 and 7 September 2011 97 115 40,50 8 September 2011 and 7 September 2013 97 115 40,50 2 202 816 Options vested but not yet paid for 186 381 8,55 2 389 197

Options granted to executive directors 2007 2006 Number of Weighted average Number of Weighted

shares exercise price shares average exercise price VE Mphande Balance at the beginning of the year 900 000 8,55 1000 000 8,55 Options granted and exercised - - - - Options vested and paid for (50 000) 8,55 (100 000) 8,55 Balance at the end of the year 850 000 8,55 900 000 8,55 A van der Veen Balance at the beginning of the year 250 000 8,55 250 000 8,55 Options granted and exercised - - - - Options vested and paid for - - - - Balance at the end of the year 250 000 8,55 250 000 8,55



41. DIRECTORS’ SHAREHOLDINGS

Direct Beneficial Indirect Beneficial

31 March 2007 Percentage Percentage Number holding Number holding Executive directors

JA Copelyn 5 549 931 4.4 7 047 587 5.6 MJA Golding 7 541 109 6.0 1 480 733 1.2 VE Mphande - - - - A van der Veen 600 000 0.5 - - JA Mabuza 455 555 0.4 - -

Non-executive directors

VM Engel - - - - MF Magugu - - - - ML Molefi - - - - JG Ngcobo 6 995 - - - AM Ntuli 3 358 - - - Y Shaik - - - - Total 14 156 948 11.3 8 528 320 6.8

31 March 2006

Executive directors

JA Copelyn 5 549 931 4,5 7 047 587 5,7 MJA Golding 7 541 109 6,0 1 480 733 1,2 VE Mphande - - - - A van der Veen - - - -

Non-executive directors VM Engel - - - - MF Magugu - - - - JG Ngcobo 6 995 - - - AM Ntuli 3 358 - - - Y Shaik - - - - Total 13 101 393 10,5 8 528 320 6,9

None of the directors have any non-beneficial interest in the share capital of the company except for:

- JA Copelyn who is non-beneficially indirectly interested in 549 638 (2006 : 549 638) shares (0,4% of the shares in issue)

- The HCI Foundation holds 4 500 000 shares in HCI. The trustees of the foundation include Messrs JA Copelyn, VE Mphande, MJA Golding and VM Engel. To this extent they are indirectly non-beneficially interested in these shares.







42. DIRECTORS EMOLUMENTS Gains from

Year ended 31 March 2007 share options, Other share appreciation Board fees Salary benefits and bonus plans Bonus Total Executive directors R’000 R’000 R’000 R’000 R’000 R’000 JA Copelyn - 1 866 - - 5 487 ## 7 353 MJA Golding - 1 866 - - 5 487 ## 7 353 VE Mphande - 832 - 41 2 173 ## 3 046 A van der Veen - 1 109 - 164 2 498 ## 3 771 JA Mabuza* - 1 033 25 7 172 - 8 230 #

Non-executive directors VM Engel 120 - - - - 120 MF Magugu 120 - - - - 120 ML Molefi ** 30 - - - - 30 JG Ngcobo 120 - - - - 120 AM Ntuli 120 - - - - 120 Y Shaik 120 - - - - 120

630 6 706 25 7 377 15 645 30 383 * Appointed 26 June 2006** Appointed 11 January 2007# These amounts were paid by a Tsogo Sun Holdings (Pty)

Ltd (Tsogo), a subsidiary of HCI and have been apportioned to include only those emoluments since Tsogo became a subsidiary on 1 December 2006.

## These amounts represent bonuses paid in respect of the 2007 and 2006 financial years.

Gains from Year ended 31 March 2006 share options, share appreciation Board fees Salary Bonus and bonus plans Total Executive directors R’000 R’000 R’000 R’000 R’000 JA Copelyn - 1 794 2 331 ## - 4 125 MJA Golding - 1 794 2 331 ## - 4 125 VE Mphande - 799 540 ## 164 1 503 A van der Veen* - - - - Non-executive directors VM Engel 110 - - - 110 MF Magugu 110 - - - 110 JG Ngcobo 110 - - - 110 AM Ntuli 110 - - - 110 Y Shaik 73 - - - 73

513 4 387 5 202 164 10 266 * appointed 30 March 2006 ## these amounts represent bonuses paid in respect

of the 2005 financial year



43. SEGMENT REPORT

The following are the summarised results for the various primary group segments: Fixed asset

Revenue Results Assets Liabilities additions Depreciation R’000 R’000 R’000 R’000 R’000 R’000 2007

Media & broadcasting 903 252 346 871 527 040 186 382 16 320 21 372 Financial services 199 447 14 492 6 231 276 6 103 688 2 554 907 Limited payout gaming 121 325 8 000 93 103 33 805 45 722 8 677 Casino gaming 1 198 984 575 778 3 728 481 1 791 425 163 256 51 892 Hotels 478 798 111 563 1 802 290 706 078 47 504 18 232 Information technology 120 799 28 631 90 015 45 218 11 908 4 613 Transport 738 809 120 911 518 318 377 704 59 439 31 582 Industrial 442 400 53 718 314 310 181 214 35 108 13 206 Food & beverage - 28 796 172 639 - - - Energy 44 000 (66 000) 931 767 481 223 24 459 7 966 Exhibition and properties 118 000 36 000 375 900 65 100 1 500 3 600 Other 17 046 60 438 645 670 1 109 084 2 578 103

4 382 860 1 319 198 15 430 809 11 080 921 410 348 162 150

Taxation is included in other as follows: Assets R349,5 million and liabilities R138,4 million

2006 Media & broadcasting 669 786 178 245 544 196 250 836 68 194 17 263 Financial services 143 741 69 368 6 479 582 6 381 247 1 618 1 602 Limited payout gaming 89 854 (13 555) 32 965 6 380 22 525 5 137 Casino gaming and hotels - 117 318 721 500 - - - Information technology 56 842 13 444 73 827 35 199 5 626 2 437 Transport 664 238 107 018 491 736 352 599 100 045 27 481 Industrial 431 592 36 781 251 379 155 536 29 043 13 284 Food & beverage - 15 525 137 768 24 446 - - Gallagher Estate and Properties 67 000 22 000 266 000 51 000 4 200 - Other 3 010 (58 773) 1 541 756 698 175 62 -

2 126 063 487 371 10 540 709 7 955 418 231 313 67 204

Taxation is included in other as follows: Assets R363,17 million and liabilities R70,6 million Amounts applicable to associates and joint ventures included above : 2007 2006 Investment in Investment in associates and associates and Results joint ventures Results joint ventures R’000 R’000 R’000 R’000 Media & broadcasting (2 756) 5 817 ( 914) 2 435 Financial services 16 482 33 858 4 617 17 834 Casino gaming and hotels 140 732 221 747 114 926 707 224 Information technology 3 187 9 638 2 784 8 868 Transport 7 494 9 891 5 432 7 733 Industrial 18 414 44 164 - - Food & beverage 31 474 169 341 6 527 26 716 Energy (348) 95 536 17 652 132 693 Other 728 2 468 1 075 1 266 215 407 592 460 152 099 904 769







44. RELATED PARTY TRANSACTIONS

Related parties include:

44.1 The group entered into transactions in the ordinary course of business with various partly owned subsidiaries and associated companies.

These transactions are conducted on an arms length basis and relate to funding and administrative services. Details of loans to these entities are set out in note 4 and annexure A.

44.2 The Company repurchased three hundred thousand shares from The Bevin Trust for an aggregate purchase consideration of eleven million seven hundred thousand rand. A former director of a subsidiary, Gavin Chamberlain, is a beneficiary of The Bevin Trust.

44.3 The Company acquired a 15% interest in Catwalk Investments 167 (Pty) Ltd (Catwalk), which company holds a 4.6% interest in Tsogo Investment Holding Company (Pty) Ltd, for an aggregate consideration of twenty six million five hundred thousand rand from Mr JA Mabuza, a director of the Company.

44.4 Key management compensation was paid as follows: 2007 2006 R’000 R’000

Salaries and other short-term employees benefits 28 213 21 299

Details of directors’ remuneration are disclosed in note 41 to the financial statements.

45 CONTINGENT LIABILITIES

Group As part of its provision of funding and investment services, FI Funding and

Investments Holdco (Pty) Ltd subsidiaries enter into various guarantees, pledges, options and cessions as security arrangements with client companies. These should not result in any net exposure to the Group.

There are existing claims of R181million against certain FI Funding and Investments Holdco (Pty) Ltd subsidiaries. The directors of these companies are confident that the claims will be successfully defended.

The South African Revenue Service (“SARS”) is challenging the deductibility of pre-opening expenditure incurred prior to the opening of new casinos in the gaming industry. These expenses consist in the main of payroll, training, marketing and other operating costs incurred prior to opening and have historically been allowed as a deduction for income tax purposes. The Group is engaging with SARS on this issue. Based on legal opinion obtained the Group believes that these expenses are deductible. Not withstanding the opinions it should be noted that the potential exposure could amount to a tax charge of up to R 8 million across the Group.

Certain subsidiaries of the Group have entered into structured finance arrangements in relation to intellectual property sale and lease back transactions with Nedbank. SARS is currently assessing these financial structures, the outcome of which remains uncertain. This could have an adverse effect on the Group. The Group has taken advice on the matter and based on this advice believe that the Group will be able to defend any actions.

Company

The company has issued guarantees and suretyships to Investec Bank Limited and First Rand Bank Limited for the loan facilities and preference share debt granted to HCI Treasury (Pty) Ltd and Mercanto Investments (Pty) Ltd, subsidiaries. At 31 March 2007 the total amount owing in respect of these loans facilities and preference share debt amounted to R616 million (2006: R581 million).



46 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT 46.1 FOREIGN EXCHANGE RISK

The Group is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US Dollar.

Entities in the Group use forward contracts to manage their foreign exchange risk arising from the future commercial transactions for recognised assets and liabilities. Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the entity’s functional currency.

46.2 CASH FLOW AND FAIR VALUE INTEREST RATE RISK MANAGEMENT

The Group’s cash flow interest rate risk arises from the trading in and holding of floating rates assets, debt instruments and cash balances.

Interest rate risk exposures are reviewed regularly.

Certain of the Group’s debt facilities are linked to the JIBAR rate with the yield on related receivables being linked to the prime rate. Any shift in the JIBAR versus Prime rates will not significantly impact the Group, as there is a high degree of correlation.

Where appropriate the Group manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting floating rate borrowings to fixed rates. Under the interest rate swaps, the Group agrees with other parties to exchange, at specified intervals, the difference between fixed contract rates and floating rate interest amounts calculated by reference to an agreed reference interest rate calculated on agreed notional principal amounts.

46.3 CREDIT RISK MANAGEMENT

Potential concentrations of credit risk include cash balances, loan, trade and other payables and finance lease receivables.

The group maintains cash, cash equivalents and short term investments with various financial institutions. The group’s policy is designed to limit exposure with any one financial institution and a high credit standing is necessary for the financial institutions with which transactions are executed.

Trade and other receivables and finance lease receivables comprise a large number of customers, dispersed across different industries and geographical areas. Senior management conducts ongoing credit evaluations on the financial condition of counter parties within set credit limits. Debtors are presented net of the allowance for doubtful debts.

46.4 MARKET / PRICE RISK MANAGEMENT

Market risk arises from the group’s trading activities and holding of fixed income securities, derivatives and equity instruments, and the possible adverse price movements thereof. A range of statistical models are utilised in order to address these risks and maintain an acceptable risk profile.

Risk limits are set taking into account the risk characteristics of the instruments and markets, the average risk exposure, volatility, maximum potential changes over a specified period in the underlying price determinants, level of reserves and the experience and qualification of the dealers.

46.5 LIQUIDITY RISK

The group manages liquidity risk by monitoring forecast cash flows and ensuring that adequate cash resources and unutilised borrowing facilities are maintained.

46.6 LEGAL RISK MANAGEMENT

Legal risk includes the risk of non-compliance with applicable legal and regulatory requirements and the risk that a counterparty’s performance obligation will be unenforceable. Risk management procedures ensure compliance with applicable statutory and regulatory requirements.







Group 2007 2006 R’000 R’000

46.7 HEDGES OF FOREIGN EXCHANGE RISKS

Outstanding hedges as at 31 March 2007 for all currencies, by nature are as follows:

(In Rands, translated using exchange rates as of 31 March 2007)

Instruments that hedge operating transactions:

- Forward sales contracts (total Rand value) 48 178 84 962 Foreign currency cash exposure - all United States dollars Average rate US$’000 1$= Maturity

2007 6 272 R 7.68 April 2007 to March 2008

2006 13 608 R 6.24 April 2006 to March 2008 47. RECLASSIFICATION OF PRIOR YEAR FIGURES Reclassified in

current year

R’000

Non current assets Finance lease receivables 47 625 Non current receivables (47 625)

Current assets Finance lease receivables 11 100 Trade and other receivables (11 100)

Non current liabilities Borrowings (19 605) Finance lease liabilities 19 605

Current liabilities Current portion of borrowings (49) Current portion of finance lease receivables 49

48. BUSINESS COMBINATIONS AND DISPOSALS

48.1 THE ACQUISITION OF AN ADDITIONAL 19% OF TSOGO SUN INVESTMENT HOLDING COMPANY (PROPRIETARY) LIMITED

During the year the group increased its interest in Tsogo Sun Investment Holding Company (Proprietary) Limited from 51% to 74%. The group acquired effective control on 1 December 2006. The acquired business contributed revenues of R1 677 million and profit after tax of R331 million to the group for the period from the date of effective control to 31 March 2007.

If the acquisition had occurred on 1 April 2006 the contribution to group revenue would have been R4 474 million and the contribution to profit after tax would have been R750 million.

At the date of finalisation of these financial statements the necessary market valuation of Tsogo Sun Holdings’ identifiable assets, liabilities and contingent liabilities had not been finalised. Accordingly the initial accounting for the acquisition of Tsogo Sun Holdings has only been provisionally determined at balance sheet date.

48.2 THE ACQUISITION OF 100% OF BLUE WOLF ENERGY HOLDINGS

During the year the group acquired a 100 % interest in Blue Energy Holdings LLC (Blue Wolf). The group acquired effective control on 29 December 2006. The acquired business contributed revenues of R43.7 million and a loss after tax of R30.8 million to the group for the period from the date of effective control to 31 March 2007.

Prior to the acquisition the various subsidiaries of Blue Wolf had not operated as a group for financial reporting purposes. Accordingly it is impracticable to disclose what the contribution to revenue and profit after tax would have been, had the



acquisition occurred on 1 April 2006.

Goodwill included in the cost of the acquisition is primarily attributable to the assembled workforce.

48.3 OTHER BUSINESS COMBINATIONS AND DISPOSALS

Other business combinations and disposals are as follows: - Acquisition of 100% of C&A Associated Consultants (Pty) Ltd, effective 1 April 2006 - Increasing the groups’ interest in 21 Impala Road Properties (Pty) Ltd to 100%, effective 1 April 2006 - Acquisition of a 51% interest Lendcor (Pty) Ltd.

The acquired businesses contributed revenues of R82,7 million and profit after tax of R13,6 million to the group for the period from the dates of effective control to 31 March 2006.

If the acquisitions had occurred on 1 April 2005 the contribution to group revenue would have been R195,9 million and the contribution to profit after tax would have been R31,8 million.

The goodwill is attributable to the underlying business units in each on the investees acquired.

48.4 DETAILS OF THE NET ASSETS ACQUIRED AND GOODWILL AT ACQUISTION ON BUSINESS COMBINATIONS

Tsogo Sun Blue Wolf Energy Other Holdings Holdings combinations Total R’000 R’000 R’000 R’000 Fair value of net assets acquired 1 238 908 - 12 765 1 251 673 Carrying value of investment at date that it

became a subsidiary (546 808) - - (546 808) Amounts owing to the group deducted

from purchase price (416 000) - - (416 000) Purchase price outstanding (36 000) - - (36 000) Purchase consideration settled by issue of shares (32 450) - - (32 450) Purchase consideration settled by cash

per cash flow statement 207 650 - 12 765 220 415 Cash and cash equivalents in subsidiary acquired (203 508) (360) (2 498) (206 366)

Cash outflow /(inflow) on acquisition 4 142 (360) 10 267 14 049 The assets and liabilities arising from the

acquisition are as follows: Cash and cash equivalents 203 508 360 2 498 206 366 Property, plant and equipment 3 378 152 468 330 7 643 3 854 125 Intangible assets 160 449 147 090 - 307 539 Goodwill and negative goodwill 788 361 18 039 9 119 815 519 Long term receivables 122 355 12 591 (22 070) 112 876 Derivative financial instruments 2 164 - - 2 164 Inventories 89 574 - - 89 574 Deferred tax asset 59 749 - - 59 749 Investments 199 737 92 094 7 864 299 695 Trade and other receivables 309 413 49 826 18 797 378 036 Current tax asset 2 237 - 24 2 261 Operating lease equalisation liability (227 841) - - (227 841) Deferred tax liability (55 783) (16 656) (1 131) (73 570) Post retirement medical aid liability (19 603) - - (19 603) Long term incentive liability (260 611) - - (260 611) Borrowings (1 127 986) (393 647) (5 128) (1 526 761) Trade payables (554 424) (348 753) (1 273) (904 450) Current portion of long term liabilities (497 274) - - (497 274) Taxation payable (158 865) - (1 397) (160 262) Provisions (98 911) - (18) (98 929)

Net assets 2 314 401 29 274 14 928 2 358 603 Minority interest (1 075 493) (29 274) (2 163) (1 106 930) Net assets acquired 1 238 908 - 12 765 1 251 673





Issued Effective 2007 2006 share capital Interest Shares Loans Shares Loans R’000 % R’000 R’000 R’000 R’000Shares and loans stated at cost less impairment

Investment Holding companies Almania Investments (Proprietary) Limited * 100 1 13 652 1 13 652 Ancestral Investments (Proprietary) Limited * 100 * ( 17) * ( 17)Catwalk Investments 167 (Proprietary) Limited * 100 111 566 Descarte Investments No. 8 (Proprietary) Limited 2 100 574 ( 574) 574 ( 574)Durban Add-Ventures Limited 61 500 36 ** ** ** Fabcos Investment Holding Company (Proprietary) Limited 50 582 012 Flaghigh Investments (Proprietary) Limited * 100 35 000 39 751 35 000 39 854 HCI Properties (Proprietary) Limited * 100 * * * Johnnic Holdings Limited * 51 ** ** ** Johnnies Strategic Holdings Limited * 51 ** ** ** Lennings Limited 7 000 51 ** ** ** Mercanto Investments (Proprietary) Limited * 100 * 126 951 * 126 944 Mettle Food & Beverages (Proprietary) Limited * 100 * 5 * Merilyn Investments (Proprietary) Limited 25 002 100 25 065 13 660 25 065 13 660 Millenium Casino Holdings Limited * 51 ** ** ** Move On Up 104 (Proprietary) Limited * 100 * 5 * HCI Lifting Services (Proprietary) Limited * 100 2 256 9 226 2 256 9 226 Rowan Tree 4 (Proprietary) Limited * 100 * ( 597) 3 477 ( 597)Sabido Investments (Proprietary) Limited 1 021 63 23 496 156 974 66 998 Sagewise 118 (Proprietary) Limited * 100 * * Squirewood Investments (Proprietary) Limited * 100 * 21 305 Tangney Investments (Proprietary) Limited 1 100 32 500 45 035 32 500 45 097 Winslet Investments (Proprietary) Limited * 100 * * Gaming, hotels and leisure

Tsogo Investment Holding Company (Proprietary) Limited ** 65 ** Tsogo Sun Holdings (Proprietary) Limited ** 33 ** Tsogo Sun Gaming (Proprietary) Limited ** 33 ** Southern Sun Hotels (Proprietary) Limited ** 33 ** Southern Sun Offshore (Proprietary) Limited ** 33 ** Tsogo Sun (Proprietary) Limited ** 33 ** Global Payment Technologies Holdings (Proprietary) Limited 44 888 100 * 55 845 * 55 804 Online Gaming Systems Australia (Proprietary) Limited * 60 * Vukani Gaming (Proprietary) Limited * 100 ** ** Financial & management services

C&A Associated Consultants (Proprietary) Limited * 100 5 013 HCI Managerial Services (Proprietary) Limited * 100 * (2 516) * (9 463)HCI Treasury (Proprietary) Limited 150 100 * 22 535 * 365 946 HJS Advisory Services (Proprietary) Limited * 100 * 1 221 * 2 115 Ligitprops 109 (Proprietary) Limited * 90 ** ** Mettle Asset Securitisation Limited * 100 ** ** Mettle Central Investments (Proprietary) Limited * 100 ** ** Mettle Factors (Proprietary) Limited * 76 ** ** Mettle Management (Proprietary) Limited * 95 ** ** FI Financial Trading (Proprietary) Limited * 100 ** ** FI Funding and Investments (Proprietary) Limited * 100 ** ** Mettle Isle of Man Limited (1) * 100 ** ** FI Funding Investments (Holdco) (Proprietary) Limited * 100 ** ** (6 255)Mettle Motor Loans Management Company (Proprietary) Limited * 100 ** ** FI Operations Limited * 100 ** (5 000) ** FI Supreme Limited * 100 ** **

Interests in Principle Subsidiary Companies Annexure 1




Lendcor (Proprietary) Limited * 51 ** Mettle Property Group (Proprietary) Limited * 83 ** Issued Effective 2007 2006 share capital Interest Shares Loans Shares Loans R’000 % R’000 R’000 R’000 R’000Industrial

Baisch Engineering (Proprietary) Limited 90 ** ** Formex Industries (Proprietary) Limited 100 90 6 759 20 970 6 550 9 180 Formex Pressings (Proprietary) Limited 90 ** ** Hi-Reach Manlift (Proprietary) Limited 80 ** ** Johnson Access (Proprietary) Limited 2 000 80 4 090 4 090 Tylon (Proprietary) Limited 100 ** ** Tylon Holdings (Proprietary) Limited * 100 16 429 (67 911) 12 920 Transport

Golden Arrow Bus Services (Proprietary) Limited * 100 265 014 265 014 - Hollyberry Props 12 (Proprietary) Limited * 100 ** ** 6 174

Broadcasting and media

Sabido Properties (Proprietary) Limited * 63 ** ** e.tv (Proprietary) Limited 860 488 63 ** ** Sam Sisonke (Proprietary) Limited * 100 1 362 1 362 594 Yired (Proprietary) Limited * 77 13 504 13 504 Energy

HCI Khusela Coal (Proprietary) Limited * 80 * Blue Wolf Energy Holdings LLC (2) ** 51 ** Other

IGI Investment Company Limited 37 546 55 * * 21 Impala Road Properties (Proprietary) Limited * 100 655 ( 967) Limtech Biometric Solutions (Proprietary) Limited * 51 * 491 * Gallagher Estate Holdings Limited 19 300 51 ** ** Mars Holdings (Proprietary) Limited * 51 19 801 19 801

1 145 097 293 070 579 088 738 338 * under R1 000 ** Indirectly held

Subsidiaries whose financial position or results are not material are excluded. Details of excluded subsidiaries are available from the company secretary. 2007 2006 R’000Profits and losses of consolidated subsidiary companies attributable to the company

Aggregate profits after tax 832 557 246 943 Aggregate losses after tax (56 180) (95 672) Subsidiaries are incorporated in South Africa unless otherwise shown.(1) Isle of Man (2) USA

Encumbrances Shares and loans having a total carrying value of R1 562 million (2006:R1 283 million) have been pledged as security for certain loans and preference share debts of the Group. Refer note 21


Interests in Principle Subsidiary Companies



Notice to Members

HOSKEN CONSOLIDATED INVESTMENTS LIMITEDRegistration number 1973/007111/06Incorporated in the Republic of South Africa(HCI or the Company)ISIN Code: ZAE000003257 Share Code: HCI

NOTICE TO SHAREHOLDERS FOR THE YEAR ENDED 31 MARCH 2007

If you are in any doubt as to what action you should take arising from the following resolutions, please consult your stockbroker, banker, attorney, accountant or other professional adviser immediately.

Notice is hereby given that the Annual General Meeting of shareholders of Hosken Consolidated Investments Limited (HCI or the Company) will be held at the offices of Mettle, 33 Fricker Road, Illovo Boulevard, Illovo, Johannesburg, on Wednesday 31 October 2007 at 10h00, for the following business:

1. To consider and adopt the Annual Financial Statements of the Company for the year ended 31 March 2007 together with the reports of the directors and auditors contained therein.

2. That the directors’ remuneration as set out in the reports and accounts for the year ended 31 March 2007 be and is hereby approved.

3. To re-elect the following directors of the Company:

3.1 JA Copelyn3.2 AM Ntuli3.3 VM Engel3.4 ML Molefi

who retire by rotation at the Annual General Meeting, but, being eligible, offer themselves for re-election. A brief curriculum vitae in respect of each director referred to in 3.1, 3.2, 3.3 and 3.4 appears on page 4 and 5 of this annual report.

4. To authorise the directors to re-appoint PKF (Jhb) Inc as the independent auditors of the Company for the ensuing year and to authorise the directors to determine the remuneration of the auditors.

As special business, to consider and, if deemed fit, pass with or without modification, the following resolutions:

ORDINARY RESOLUTIONS

CONTROL OF AUTHORISED BUT UNISSUED SHARES

5. “RESOLVED THAT the authorised but unissued shares in the capital of the Company be and are hereby placed under the control and authority of the directors of the Company and that the directors of the Company be and are hereby authorised and empowered to allot, issue and otherwise dispose of such shares to such person or persons on such terms and conditions and at such times as the directors of the Company may from time to time and in their discretion deem fit, subject to the provisions of the Companies Act (Act 61 of 1973) as amended (“the Act”), the Articles of Association of the Company and the Listings Requirements of the JSE Securities Exchange South Africa (JSE), when applicable.”

APPROVAL TO ISSUE SHARES OR OPTIONS FOR CASH

6. “RESOLVED THAT the directors of the Company be and they are hereby authorised by way of a general authority, to issue, or issue options over, all or any of the authorised but unissued shares in the capital of the Company for cash, as and when they in their discretion deem fit, subject to the Act, the Articles of Association of the Company, the JSE Listings Requirements, when applicable, and the following limitations, namely that –

6.1 the equity securities and options which are the subject of the issue for cash must be of a class already in issue or in the case of options in respect of a class of equity securities already in issue, or where this is not the case, must be limited to such securities or rights that are convertible into a class already in issue;

6.2 any such issue of shares or options will only be made to “public shareholders” as defined in the Listings Requirements of the JSE and not related parties, unless the JSE otherwise agrees;

6.3 the number of shares or options issued for cash shall not in the aggregate in any one financial year exceed 15% (fifteen per cent) of the Company’s issued share capital of ordinary shares. The number of ordinary shares or options which may be issued shall be based on the number of ordinary shares in issue at the date of such application less any ordinary shares issued during the

This document is important and requires your immediate attention.



Notice to Members

current financial year, provided that any ordinary shares to be issued pursuant to a rights issue (announced and irrevocable and underwritten) or acquisition (concluded up to date of application) may be included as though they were shares in issue at the date of application;

6.4 this authority is valid until the Company’s next annual general meeting, provided that it shall not extend beyond 15 (fifteen) months from the date that this authority is given;

6.5 a paid press announcement giving full details, including the impact on the net asset value and earnings per share, will be published at the time of any issue of shares or options representing in the aggregate, on a cumulative basis within 1 (one) financial year, 5% (five per cent) or more of the number of equity securities in issue prior to that issue; and

6.6 in determining the price at which an issue of shares or options may be made in terms of this authority post the listing of the Company, the maximum discount permitted will be 10% (ten per cent) of the weighted average traded price on the JSE of those shares over the 30 (thirty) business days prior to the date that the price of the issue of shares or options is determined or agreed by the directors of the Company.

This resolution is required, under the JSE Listings Requirements, to be passed by achieving a 75% majority of the votes cast in favour of such resolution by all members present or represented by proxy and entitled to vote, at the annual general meeting.

DISTRIBUTION TO SHAREHOLDERS OUT OF SHARE PREMIUM

7. “Resolved that the board of directors of HCI be and they are hereby authorised by way of general authority to make a payment to HCI shareholders as and when they in their opinion deem fit, subject to the Companies Act (Act 61 of 1973), as amended and specifically to the provisions of section 90 of the Act, the Company’s Articles of Association, the JSE Listings Requirements, and the following limitations, namely that –

• this authority is valid until the Company’s next annual general meeting, provided that it shall not extend beyond 15 (fifteen) months from the date that this authority is given; and

• the payment shall not exceed 20% of the Company’s

issued share capital, including reserves but excluding minority interests, and revaluations of assets and intangible assets that are not supported by a valuation by an independent professional expert acceptable to the JSE prepared within the last six months, in any one financial year, measured as at the beginning of such financial year.”

7.1 Rationale for the authority

The board of directors of HCI intend to use the authority, if appropriate, to make a cash payment to shareholders out of share premium should there be excess cash reserves on hand in the group.

7.2 Adequacy of working capital

The board of directors of HCI, having considered the impact which the distribution out of share premium would have on the company, is of the opinion that for a period of 12 months from the date of passing of ordinary resolution number 7, being 31 October 2007:

• the company and the group will be able, in the ordinary course of business to pay its debts;

• the assets of the company and the group will be in excess of the liabilities of the company and the group. For this purpose, the assets and liabilities have been recognised and measured in accordance with the accounting policies used in the latest audited group financial statements; and

• the working capital, share capital and reserves of the company and the group will be adequate for ordinary business purposes.

• Upon making the payment, the company’s sponsor shall comply with its responsibilities contained in Schedule 25 of the JSE Listings Requirements.

SPECIAL RESOLUTION NUMBER 1APPROVAL TO REPURCHASE SHARES

8. “RESOLVED THAT, as a general approval contemplated in sections 85(2) and 85(3) of the Act, the acquisitions by the Company, and/or any subsidiary of the Company, from time to time of the issued ordinary shares of the Company, upon such terms and conditions and in such amounts as the directors of the Company may from time to time determine, but subject to the Articles of Association of the Company, the provisions of the Act and the JSE Listings Requirements, when applicable, and provided that –



Notice to Members

8.1 the repurchase of securities are being effected through the order book operated by the JSE trading system and done without any prior understanding or arrangement between the company and the counter party;

8.2 this general authority shall only be valid until the Company’s next annual general meeting, provided that it shall not extend beyond 15 (fifteen) months from the date of passing of this special resolution;

8.3 in determining the price at which the Company’s ordinary shares are acquired by the Company in terms of this general authority, the maximum premium at which such ordinary shares may be acquired will be 10% (ten per cent) of the weighted average of the market price at which such ordinary shares are traded on the JSE, as determined over the 5 (five) trading days immediately preceding the date of the repurchase of such ordinary shares by the Company;

8.4 the acquisitions of ordinary shares in the aggregate in any one financial year are not exceeding 20% (twenty per cent) of the Company’s issued ordinary share capital from the date of the grant of this general authority;

8.5 the Company and the Group are in a position to repay its debt in the ordinary course of business for the following year;

8.6 the consolidated assets of the Company and the Group, will be in excess of the Company and the Group’s liabilities for a period of 12 months after the date of the annual general meeting;

8.7 the ordinary capital and reserves of the Company and the Group will be adequate for a period of 12 months after the date of the notice of the annual general meeting;

8.8 the working capital of the Company and the Group will be adequate for ordinary business purposes for a period of 12 months after the date of the notice of the annual general meeting;

8.9 upon entering the market to proceed with the repurchase, the Company’s Sponsor has confirmed the adequacy of HCI’s working capital for the purposes of undertaking a repurchase of shares in writing to the JSE;

8.10 after such repurchase the Company will still comply with paragraphs 3.37 to 3.41 of the JSE Listings requirements concerning shareholder spread requirements;

8.11 the Company or its subsidiary are not repurchasing securities during a prohibited period as defined in paragraph 3.67 of the JSE Listings Requirements;

8.12 when the Company has cumulatively repurchased 3% of the initial number of the relevant class of securities, and for each 3% in aggregate of the initial number of that class acquired thereafter, an announcement will be made; and

8.13 the Company only appoints one agent to effect any repurchase(s) on its behalf.

OTHER DISCLOSURE IN TERMS OF THE JSE LISTING REQUIREMENTS SECTION

The JSE Listings Requirements require the following disclosure, some of which are elsewhere in the annual report of which this notice forms part as set out below:

– Directors and management – page 4 and 5; – Major shareholders of HCI – page 18 and 19;

– Directors interests in securities – page 64 and 65; and – Share capital of the company – page 51.

LITIGATION STATEMENT

The directors, whose names are given on page 4 and 5 of the annual report of which this notice forms part, are not aware of any legal or arbitration proceedings, including proceedings that are pending or threatened, that may have or have had in the recent past, being at least the previous twelve months, a material effect on the financial position of the HCI group other than that as set out below:

An application has been made to the High Court of South Africa (Witwatersrand Local Division) by Nafcoc Investment Holding Company Limited (Nafcoc) under case number 05/7941 for an order declaring, inter alia, that the transfer of 66 shares in TIH (“the disputed shares”) that HCI’s wholly owned subsidiary, Tangney Investments (Proprietary) Limited purchased from African Renaissance Holdings (Proprietary) Limited, is invalid for want of compliance with TIH’s articles of association as read with its shareholders agreement, and directing that the disputed shares be transferred back to African Renaissance Holdings (Proprietary) Limited. These 66 shares constitute 4,4% of all the ordinary issued shares in the capital of TIH. HCI opposed the application and following the hearing of the application, the Court referred the matter



Notice to Members

to trial. Since then the matter has largely been stationary.

In another matter Nafcoc has caused its attorneys to address a letter of demand to TIH demanding that TIH in turn send letters of demand to HCI subsidiaries that are shareholders in TIH. Nafcoc contends that the acquisition by HCI of the shares in the subsidiaries concerned is a breach of TIH’s shareholders agreement. The TIH board resolved to seek independent legal advice on the matter and the independent legal advice was that the complaint is without substance and that TIH is not required to address demands to the HCI subsidiaries. Although this independent advice is not binding on Nafcoc, it is hoped that Nafcoc will not seek to take the matter any further. Should Nafcoc do so, the matter will be defended by the relevant HCI subsidiaries.

In addition to the above, HCI’s application to the relevant Gaming Authorities for approval of the FIH Acquisition was objected to by Nafcoc. Approval of the FIH Acquisition has since been obtained from the KwaZulu-Natal Gambling Board, the Eastern Cape Gambling and Betting Board, and the Gauteng Gambling Board, The Mpumalanga Gambling Board MGB, refused the application earlier this year. HCI has filed an application for the review of the MGB’s decision in the Transvaal Provincial Division under case number I 3937/07. The MGB consented to an interdict in relation to its demand that HCI dispose of the interest acquired in FIH, pending the final determination of the review. The record of the decision of the MGB has now been lodged with the Registrar of the High Court and HCI has filed its supplementary affidavit in these proceedings. Given that an answering affidavit will have to be filed by the MBG thereafter and that HCI will have to reply thereto, it is not possible to determine at this stage when the review will be heard by the High Court.

Given that HCI is opposing and resisting the various objections and legal proceedings referred to above, the sub judicae rule prohibits discourse on the merits of the various matters at this stage. An adverse outcome may affect the fulfillment of the conditions to the FIH Acquisition and/or HCI’s interests in the Tsogo group. The extent of the impact which such matters may have on the HCI Group cannot be determined at this stage.

Adequate provisions have been made for the legal fees relating to the abovementioned litigation.

DIRECTORS RESPONSIBILITY STATEMENT

The directors, whose names are given on page 4 and 5 of the annual report, collectively and individually accept full responsibility for the accuracy of the information pertaining to this resolution and certify that to the best of their knowledge and belief there are no facts that have been omitted which would make any statement false or misleading, and that all reasonable enquiries to ascertain such facts have been made and that this resolution contains all information.

MATERIAL CHANGE

Other than the facts and developments reported on in the annual report, there have been no material changes in the affairs or financial position of HCI and its subsidiaries since the date of signature of the audit report and the date of this notice.The reason and effect for special resolution 1 is to authorize the Company and/or its subsidiary company by way of a general authority to acquire its own issued shares on such terms, conditions and such amounts determined from time to time by the directors of the Company subject to the limitations set out above.

The directors of the Company have no specific intention to effect the provisions of special resolution number 1 but will, however, continually review the Company’s position, having regard to prevailing circumstances and market conditions, in considering whether to effect the provisions of special resolution number 1.

OTHER BUSINESS

9. To transact such other business as may be transacted at an Annual General Meeting.

VOTING AND PROXIES

A member entitled to attend and vote at the Annual General Meeting is entitled to appoint a proxy or proxies to attend, speak and vote in his/her stead. A proxy need not be a



Notice to Members

member of the Company. For the convenience of registered members of the Company, a form of proxy is enclosed herewith.

The attached form of proxy is only to be completed by those shareholders who are:

- holding HCI ordinary shares in certificated form; or- are recorded on the electronic sub-register in “own

name” dematerialised form.

Shareholders who have dematerialised their shares through

a Central Securities repository Participant (CSDP) or broker, other than with “own name” registration, and wish to attend the annual general meeting, must instruct their CSDP or broker to provide them with a Letter of Representation, or they must provide the CSDP or broker with their voting instructions in terms of the relevant custody agreement/mandate entered into between them and the CSDP or broker.

By order of the BoardTG GovenderCompany SecretaryDate: 4 September 2007Place: Cape Town



Notes


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