INTEGRATED ANNUAL REPORT 2012 - HCI · integrated report and believe it addresses the material...

INTEGRATED ANNUAL REPORT

2012

CONTENTS

02 Corporate administration

03 About this report

04 Performance highlights

05 Group financial highlights

06 Geographical footprint

08 Board of directors

12 Report of the chairman and chief executive officer

14 Review of operations

26 Business segments

28 Analysis of shareholders

29 Significant shareholdings

30 Corporate governance

32 Report of the audit committee

33 Report of the risk committee

34 Report of the remuneration committee

40 Report of the social and ethics committee

41 Sustainability report

48 Approval of annual financial statements

48 Declaration by company secretary

49 Directors’ report

53 Summarised financial statements

64 Notice of meeting to members

WEBSITE ADDRESSwww.hci.co.za

COMPANY REGISTRATION NUMBER1973/007111/06

SHARE CODEHCI ISIN: ZAE000003257

COMPANY SECRETARY AND REGISTERED OFFICEHCI Managerial Services Proprietary Limited

Block B, Longkloof Studios

Darters Road, Gardens,

Cape Town, 8001

Telephone: (021) 481 7560

Telefax: (021) 426 2777

P O Box 5251

Cape Town, 8000

AUDITORSPKF (Jhb) Inc

Registration number 1994/001166/21

42 Wierda Road West,

Wierda Valley,

Johannesburg, 2196

Private Bag X10046,

Sandton, 2146

BANKERSFirst National Bank of Southern Africa Limited

SPONSORInvestec Bank Limited

100 Grayston Drive

Sandton, Sandown, 2196

TRANSFER SECRETARIESComputershare Investor Services Proprietary Limited

70 Marshall Street

Johannesburg, 2001

PO Box 61051

Marshalltown, 2107

corporate aDMINIStratIoN

DIRECTORS

Executive Directors

Marcel Jonathan Anthony Golding (Chairman)


Darters Road, Gardens

Cape Town, 8001

John Anthony Copelyn (Chief Executive Officer)


Darters Road, Gardens,

Cape Town, 8001

Theventheran Govindsamy Govender [Kevin]

(Financial Director)



Cape Town, 8001

Non-Executive Directors

Virginia Mary Engel

Block A, Longkloof Studios


Cape Town, 8001

Barbara Hogan #



Cape Town, 8001

Mimi Freddie Magugu #



Cape Town, 8001

Dr Lynette Moretlo Molefi #



Cape Town, 8001

Velaphi Elias Mphande



Cape Town, 8001

Jabulani Geffrey Ngcobo #



Cape Town, 8001

Yunis Shaik #

52 Troon Road

Greenside, 2193

# Independent2

aBoUt tH IS reportIn line with the requirements of the King Report on Corporate Governance (“King III”), this is the second integrated report generated by HCI in its journey to ensure improved reporting systems and measures so as to provide meaningful information to stakeholders.

This report provides a consolidated review of the group’s financial, economic, social and environmental performance on matters material to the group, and those of interest to the group’s key stakeholders. In accordance with the stated objectives of integrated reporting, this report focuses on those issues that have a material impact on the group to create and sustain value, and outlines how these issues have been integrated within the group’s business strategy.

The integrated report includes all our subsidiaries, associates and joint ventures and covers the period from 1 April 2011 to 31 March 2012. Where relevant in the report, adjusted comparatives are shown on a like-for-like basis to assist in the understanding of the group’s results. It has also been necessary to restate comparative data from prior years in the annual financial statements (refer note 48 for more information).

The information included in the integrated annual report has been provided in accordance with International Financial Reporting Standards (IFRS), Companies Act of South Africa 2008 (as amended), the JSE Listings Requirements, King III and the guidance provided in the Integrated Reporting Committee of South Africa’s Framework for Integrated Reporting and the Integrated Report Discussion Paper (Framework) 2011. The sustainability information included in this report has been guided by the Global Reporting Initiatives (GRI) G3 guidelines.

The legal requirements in the South African Companies Act which became effective on 1 May 2011, coupled with the JSE’s initiatives, has allowed the company to provide shareholders with summarised financial information. This has enabled the company to exclude the financial reporting requirements and corporate governance disclosures. Ultimately, the shorter, integrated report reduces the company’s carbon footprint and promotes the company’s sustainability efforts. The full integrated annual report and annual financial statements will be available on our website www.hci.co.za from 28 September 2012.

Assurance for this report has been provided through a combination of external and internal sources. The company’s external auditors, PKF (Jhb) Inc, audited the annual financial statements and reviewed the annual integrated report to assess the report against the framework and the disclosure requirements in King III.

The board, assisted by the audit and risk committee, is ultimately responsible for overseeing the integrity of the integrated report. The directors confirm that they have collectively reviewed the content of the integrated report and believe it addresses the material issues and is a fair presentation of the integrated performance of the group.

Combined assurance is a work in progress and the group has, as yet, not achieved optimal co-ordination of the different forms of assurance.

The board approved this integrated annual report on 29 August 2012.

Framework, codes, guides Framework for the following sections Assurance providers

IFRS Annual financial statements PKF (Jhb) Inc (external audit)

Companies Act of 2008Annual financial statements and corporate governance

PKF (Jhb) Inc (external audit) and Investec Bank Limited (sponsors)

King III Corporate governance Audit committee

Global reporting initiative Sustainable development information CoZero

Broad-based BEE code BEE scorecard and contributor level ratings Empowerlogic

Carbon disclosure project Sustainable development information CoZero

JSE listing requirements and SRI framework Full suite of reports and index Investec Bank Limited (sponsors) and JSE Limited

3

perForMaNce H IGHL IGHtS

traNSForMat IoN aND eMpoWerMeNt

•Revenue R7611,7million +13,2%•EBITDA R1501,9million +17,1%•Profitbeforetax R1924,7million +104,4%•Headlineearnings R1020,1million +41,2%•Headlineearningspershare 802,34cents +40,1%•Netassetcarryingvaluepershare 9259,35cents +12,1%

•BBBEElevel Level2 •BBBEEscore 85.26 •Enterprisespend R33million •Socialdevelopmentspend R22million +41,2%•Employeeskillsdevelopment R25million +40,1%•Reductioninemissions 16.4%

4

HEADLINE EARNINGS NET ASSET CARRYING VALUE PER SHARE

2007 2008 2009 2010 2011 2012

Dividend per share - cents 50 60 0 60 75 90

Share price - high - cents 6 200 9 000 7 850 8 195 8 699 8 744

- low - cents 3 700 6 040 3 303 3 550 7 205 7 400

- at year end - cents 6 035 7 700 4 021 7 880 7 799 8 100

FINANCIAL HIGHLIGHTS FOR THE YEAR

SIX YEAR REVIEW

2007 2008 2009 2010 2011 2012

Group Revenue (R’m) 4 185 8 820 10 902 12 136 6 784 7 612

Net asset carrying

value per share – cents1 710 2 375 3 371 3 704 8 267 9 259

Shares in issue (‘000)

(net of treasury) – average 123 691 124 179 124 692 125 085 126 135 127 149

– at year end 123 896 123 851 124 909 125 254 127 089 127 198

100 000 1000

CentsR’0000 0

200 000 2000

300 000 3000

400 000 4000

500 000 5000

600 000 6000

700 000 7000

800 000 8000

9000900 000

100001 000 000

2011 20112012 20122010 20102009 20092008 20082007 2007

GroUp F INaNcIaL H IGHL IGHtS

5INteGrateD aNNUaL report 2012 HoSKeN coNSoL IDateD INVeStMeNtS L IM IteD

GeoGrapH IcaL Footpr INt

Tsogo Sun

Vukani Gaming Corporation

Galaxy Bingo

Sabido

Golden Arrow Bus Services

Montauk Energy Capital

Seardel Investment Corporation

KWV Holdings

Formex Industries

Syntell

HCI Coal

Limtech

HCI Australia

BSG Africa

Three Blind Mice Communications

Seychelles

Botswana

Gauteng

Ladysmith

Lesotho

Durban

East London

Cape Town

Nigeria

Ghana

Vukani - LPM machines installed in all provinces except Northern Cape

Tsogo Sun - Hotels in all the provinces; casinos in all provinces except North West; Limpopo and Northern Cape

Kenya

Tanzania

Mozambique

Zambia

ZimbabweNamibia

6


UNITED STATES OF AMERICA

CHINA

UNITED KINGDOM

AUSTRALIA

BoarD oF D IrectorS

FREDDIE MAGUGU

KEVIN GOVENDER

MARCEL GOLDING

MORETLO MOLEFI

YUNIS SHAIK

JOHN COPELYN

JABU NGCOBO

BARBARA HOGANELIAS MPHANDE

VIRGINIA ENGEL

8

YUNIS SHAIK

ELIAS MPHANDE


BoarD oF D IrectorS

JABU NGCOBO (61)

Independent Non-Executive Director

Jabu was the regional secretary for Africa

of the International Textile Garment and

Leather Workers Federation from 1999 to

2006, Prior to this appointment he held the

position of general secretary of the Southern

African Clothing and Textile Workers Union

for 6 years from 1994 to 1999. Jabu was

appointed to the board of HCI as a non-

executive director in October 2004. He also

serves on the board of Tsogo Sun Holdings,

Niveus Investments and HCI Coal.

FREDDIE MAGUGU (52)


Freddie worked for the Southern African

Clothing and Textile Workers Union from 1982,

reaching the position of national organising

secretary which he held from 1993 to 1998.

He was the senior development manager at

Unibank from 1999 to 2002. He was appointed

to the board of HCI as a non- executive director

in April 1998.

VIRGINIA ENGEL (62)

Non-Executive Director

Virginia retired from the position of chief

executive officer of the HCI Foundation

in 2011. 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

was appointed to the Board of HCI as non-

executive director in January 2004.

non - EXECUT I V E D I R EC ToRS

JOHN COPELYN (62)

Chief Executive Officer

B.A. [Hons] B.Proc

John joined HCI as chief executive officer

in 1997. Prior to this he was a member

of parliament and general secretary of

the Southern African Clothing and Textile

Workers Union. He is chairman of e.tv,

Seardel Investment Corporation, Tsogo Sun

Holdings and the HCI Foundation.

MARCEL GOLDING (52)

Executive Chairman

B.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 Mineworkers. He is chairman

of Golden Arrow Bus Services and KWV

Holdings.

EXECUT I V E D I REC ToRS

BARBARA HOGAN (60)

Independent Non-Executive DirectorBA [Hons] (Development Studies)

Barbara worked at the Development Bank of South Africa as an institutional specialist until her appointment as a member of parliament in 1994. She served as chair of numerous committees including the budget committee, finance portfolio committee the standing committee of the auditor-general. She was appointed to cabinet as minister of health in 2008 and then as minister of public enterprises in 2009. She was appointed to the board of HCI as a non-executive director in August 2012.

10

YUNIS SHAIK (54)


B.Proc

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. He has served as a senior commissioner

to the CCMA in KwaZulu Natal. He also serves on

the board of Niveus Investments and Tsogo Sun

Holdings. He was appointed to the HCI Board in

August 2005 and as lead independent non-executive

director of the HCI Board in August 2010.

MORETLO MOLEFI (43)


BSc MBChB Telemed [dip] SMP

Moretlo is a businesswoman with interests

in the health sector. Prior to this she was the

director of the Telemedicine program at the

Medical Research Council of SA; consultant for

Aspen Pharmacare and COO of Safika Health.

She currently serves as a board member of

International Society for Telemedicine and

eHealth and vice-president of SA Telemedicine

Association. She also serves on the board

of Niveus Investments and e.tv. She was

appointed to the board of HCI in December

2006.

KEVIN GOVENDER (41)

Financial Director

B.Comm [Hons] B.Compt [Hons]

Kevin is the financial director of HCI. He joined

the HCI group in 1997 where he has also

held the position of company secretary and

chief financial officer from 2001. He holds

directorships in several HCI subsidiaries and

is a trustee of the HCI Foundation. He was

appointed to the HCI Board as an executive

director in June 2009.

INteGrateD aNNUaL report 2011 HoSKeN coNSoL IDateD INVeStMeNtS L IM IteD

ELIAS MPHANDE (54)

Non-Executive Director

Elec. Eng. [dip]

Elias Mphande has served as the national

organising secretary of the Southern African

Clothing and Textile Workers Union, marketing

director of Viamax Fleet Solutions, chief

executive officer of AUTA and the Vukani Group

and chairman of Golden Arrow Bus Services.

He was appointed to the HCI board in 2010 as

a non-executive director and serves on the board

of Vukani Gaming Corporation and e.tv.


For the first time this year, HCI produced annual

headline profits in excess of a billion rand. This

figure is in fact more than the entire market

capitalisation of the company at the time when

the current management team started working

for the company in 1997. The company currently

has only half the number of issued shares as in

1997.

Debt:While the company has at various times been

fairly heavily indebted, its ratio of total debt

to EBITDA is currently less than a multiple of

one. Cash generated by operations during

the year amounted to more than half our total

debt at the end of the year. In addition, debt

was greatly reduced during the year through the

sale of our interest in A.I.C. Holding Company

to partners in that business, as well as by the

disposal of the Pan African Parliament to various

NAFCOC trusts in exchange for the majority of

the preference shares previously issued to them

by the group.

The Core Assets:The major mature businesses of the group

(hotels, gaming, media and transport) produced

headlineprofitsthatweresome30%uponthe

previous year. Admittedly, significant contributing

reasons for this extraordinary improvement

year-to-year is due to HCI’s increased stake

in Tsogo Sun during the previous financial year

as well as Tsogo Sun increasing its operations

through its merger with Gold Reef Resorts.

Nevertheless, all these businesses performed

strongly, notwithstanding the fact that the

general economy was not doing nearly as well.

Assets that perform well in bad times are good

core assets to own and we are pleased that they

represent the heart of the HCI value proposition.

Growth Assets:Some businesses that HCI had invested in a

few years earlier, in the hope they would provide

strong growth, did exactly that. In particular,

HCI Coal has emerged as a valuable business.

Palesa mine produced about 2 million tons of

coal for the year on contract to Eskom which

resulted in it earning R51,7m in headline earnings

(2011: R22,2m). Subsequent to year end, HCI

succeeded in obtaining a final high court order

obliging the state to correct the mis-award of our

mining rights at Mbali mine forthwith. We have

finally succeeded in obtaining the water licence

for the property and are now in the final stages

of implementing the section 11 transfer of the

rights to our wholly owned subsidiary. We hope

to complete the development of Mbali by year

end. This should increase the value of coal sold

during the 2014 financial year.

Likewise, Seardel has emerged as a diversified

company with strong property interests, as well

as several profitable businesses in distribution

and manufacture. Litigation against former

directors resulted in the recovery of some

R250m worth of assets. The transfer of these

assets to Seardel is now fairly advanced in

one case and complete in the rest. Admittedly,

clothing manufacture has been exceptionally

difficult to bring to profitability. The weakening

of the rand has helped in relation to imports

but enormous hurdles remain as a result of

huge disparities between the cost base of local

manufacturers. Over the three years since HCI

rescued the firm, its share price has grown from

50c a share to R1,45 a share. While this may, in

itself, not always be a great gauge of underlying

performance, it does demonstrate the markets’

confidence in the restoration of shareholder

value there since we took the company over.

New Projects:HCI has developed a set of strong relationships

with various different property developers over the

last year and is in the process of investing in the

development of two retail shopping centres. The

first of these is in Upington and the second will

shortly be commenced in Seapoint, Cape Town.

Both appear to be lucrative developments and will

hopefully add significantly to our property portfolio

which also includes Gallagher Estate in Midrand, an

officeblockinUmhlangaRidgeanda50%stake

in another office block in Claremont, Cape Town.

HCI’s diversification offshore has continued though

we believe it is too early to judge progress in

these latest developments. We have succeeded

in acquiring 67% of a listed vehicle in Australia,

Oceania Capital Partners and have a good

management team with whom we have a long

relationship focused on developing our interests

there. Likewise we have restructured our media

interests so as to retain a larger stake in an offshore

media vehicle, Longkloof, which we have bought

out of Sabido subsequent to the year end together

with our partner in that business. Longkloof is

currently involved in developing various start up

media opportunities in Europe, the USA and Asia.

We have now built our interest in KWV to about

40% and have satisfied both the Competition

report oF tHe cHa IrMaN

MJA GoldingChairman

12

aND cHIeF eXecUtIVe oFF Icer

Board requirements to take control thereof, and

the Companies Act requirements to make an

offer to its minority shareholders. The business

is not profitable currently but we believe it to be

a great base to develop a distribution business in

the liquor industry.

Struggling Businesses:Montauk, our landfill gas business in the USA,

continues to produce Hi-BTU gas and electricity

under difficult circumstances given the low natural

gas prices that currently prevail there. While it

remains loss making, it is stable and produces

sufficient cash to meet its short term commitments.

Further, there are opportunities for it to grow where

projects can be developed with fixed price off-

take agreements. Last year we developed such

a project at McKinney which has performed well

and in the coming year we have committed to

developing AEL on a very similar basis. The forward

gas price of natural gas in the USA indicates a slow

improvement over the next couple of years which

should help though, until demand for the commodity

grows to match the current very substantial

oversupply from shale gas, this is unlikely to be

that significant. Until infrastructure develops to

export gas from the USA to Europe and Japan

(where gas costs are several times the USA price)

and more coal fired plants are converted to gas

fired plants, this business will have to be carefully

managed. Nevertheless, every commodity has its

moment and we believe patience will be rewarded

at some point. It seems unrealistic to us that gas

can continue to trade at a small fraction of its heat

exchange value compared to oil without the market

ultimately correcting this and we are continuing to

grow this business counter-cyclically.

Formex remains a disappointing business with

little improvement. Most of the value associated

with the business has been written off, so only

the upside remains. It is an open question what

this might turn out to be, but it is slowly trading

its way out of the hole it fell into, and prudent

managing of the business over the next year or

two should allow it to recover.

Decentralisation:HCI has developed as a conglomerate

investment company holding controlling stakes

in businesses with vastly differing profiles across

several unrelated industries. The blend of these

businesses has allowed HCI to fund its growth

from the profits of the mature assets coupled

with some debt. In turn this has allowed us to

grow without diluting our current shareholders,

and especially our BBBEE shareholders. This has

been the basis whereby HCI has maintained its

majority Black owned status to date.

Nevertheless, the very success of the group

in relation to media and casino investments

has created a situation where other extremely

interesting companies are so hidden in the

shade of these successes that they are being

grossly undervalued by the market. As a result,

we have decided to consider decentralising

the company’s operations to some extent. The

first consequence of this has been the recent

announcementofthesplittingoffofsome45%

of the shares in Niveus Investments Limited.

This company is centred in non-casino gaming

and our stake in KWV. The assets are managed

by a close-knit team that has grown within HCI

and will allow them an opportunity to show the

market what they have been doing in the shade,

as well as to allow these smaller assets to be

separately viewed by the market while retaining

HCI as it s BBBEE shareholder.

Sustainability:Finally, we are happy to report that the group

has developed a substantial sustainability

section to this report which is reflective of the

general concerns the group has to develop

as a rounded, corporate contributor in areas

of integrity, Black Empowerment, corporate

governance, environmental concern as well as

social responsibility. In truth the corporation is

an unusual one on the JSE with enviable BBBEE

credentials, a corporate social investment profile

larger than others several times its size, and

an environmentally balanced portfolio of assets

where major contributions to global warming

through coal mining and a large diesel based bus

company are largely offset by renewable energy

assets operated by the group.

Board:There have been two changes in our board

since our last report. Firstly, Rakesh Garach

resigned with effect from January 2012. We

would like to thank him for his valuable time

and services. In his place the board co-opted

Barbara Hogan with effect from the August

2012 board meeting. Barbara was previously,

since 1994, a member of Parliament and was a

member of cabinet until late 2010. We believe

she will become a great addition to our board

from the outset and warmly welcome her.

JA CopelynChief Executive Officer


TSOGO SUN HOLDINGS LIMITED (“TSOGO SUN”)

www.tsogosun.com

The merger of Tsogo Sun and Gold Reef Resorts and the effective

listing of the Tsogo Sun group was concluded on 24 February 2011.

During the year under review, the group has focused on integrating the

Gold Reef businesses and this process has largely been completed,

culminating in the rebranding and launch of the group’s new look

identity in April 2012.

The overall performance for the year was satisfactory, with a noticeable

increase in activity levels in the second six months. Both casino win and

hotel occupancy showed accelerated year on year growth and allowed

the group to achieve margin expansion for the first time since 2008.

Total incomeofR9,0billionended39%above theprior year, assisted

by the inclusion of R2,2 billion incremental income from Gold Reef, and

satisfactory organic growth offset by the non-recurrence of 2010 FIFA

World Cup related income. Like-for-like growth in income (including Gold

Reef)is5%.

EBITDARatR3,5billion reflecteda41% increaseon theprioryear,

including additional EBITDAR from Gold Reef and good organic growth

inthecurrentyear.Like-for-likeEBITDAR(includingGoldReef)is7%

up on the prior period, again impacted by the non- recurrence of World

Cup related earnings in hotels. The overall group EBITDAR margin of

38.8%is0,6ppabovetheprioryear.

Gaming experienced revenue growth throughout the financial year with

accelerated revenue growth across many of the group’s casinos during

the second six months. Hotels, which benefited from the World Cup

in June and July 2010, reflected revenues in line with the comparative

period for the full year but have shown stronger revenue growth, driven

by increased occupancies, during the second half of the year.

Overallrevenueforgamingoperationsincreased5%ontheprioryear

toR7.1billion.Operatingcostswerewellcontrolledwitha2%increase

on the prior year, despite increased regulated utility costs and property

rates, partially due to savings achieved through the merger. EBITDAR

increased10%toR2,9billionatamarginof40.6%.

The hotel industry in South Africa is still experiencing the dual

impact of depressed demand and oversupply, with overall industry

occupanciesof57%for theyear.Thegroup’shotelsare likewise

affected. However, as a result of the strong sales and distribution

channels and the superior product and service quality available

within the group, a significant occupancy and rate premium is being

achieved in the segments in which the group operates. Showing

some recovery, the group’s system-wide occupancies in South

Africaimprovedto60.9%(2011:58.4%),asroomssoldincreased

by5%despitetheclosureofSouthernSunGraystoninDecember

2011. Average room rates in the South African operations declined

by7%toR775,withvirtuallyallthedeclineattributabletothehigher

achieved rates during the World Cup in the prior year.

FoR THE Y E A R EnDED 31 M A RC H 2012reVIeW oF operat IoNS

GAMInG, HoTELS AnD LEISURE

14

The offshore division of hotels achieved total revenue of R324 million

duringtheyear,representinga20%improvementontheprioryear,

assisted by the inclusion of Southern Sun Nairobi as a leased hotel

(previously managed) with effect from 1 August 2010. EBITDAR

(pre-foreign exchange gains) of R88 million was achieved. The Rand

weakness in the second half of the year positively impacted both

the translation of USD and Euro earnings streams of the offshore

hotels as well as resulting in a R13 million foreign exchange gain on

the translation of offshore monetary items.

The underlying operations of the group remain highly geared towards

the South African consumer (in gaming) and the corporate market (in

hotels) with both sectors experiencing difficult economic conditions

and increased administered costs. The group is poised for growth if

these sectors of the South African economy continue to improve.

Regulatory risks remain a threat to the group as evidenced by the

announcement in the National Budget of a proposed additional tax of

1%ofgamingrevenuewitheffect from1April2013,albeitabetter

alternative to the previously proposed withholding tax on winnings. The

risk remains of additional changes to tax rates and an increased cost

burden of compliance with various regulations.

The group continues to engage with the various regulatory bodies and

other Government departments on a constructive basis to ensure that

proposed changes are warranted and capable of being implemented

without having a negative impact on both current and new investment

in the industry, and consequently on employment levels.

The accelerated trading performance across the group’s operations in

the second half of the year is encouraging, although the sustainability

thereof is uncertain. Nevertheless, the group remains highly cash

generative and has significant opportunities to invest capital in its

growth strategy.

Plans are at an advanced stage for the redevelopment of the Silverstar

casino, where the group expects to invest some R320 million in new

facilities, including cinemas, restaurants, concert and entertainment areas

and conferencing facilities, to better service the West Rand market.

The group is also exploring a variety of projects, including the

redevelopment of the Gold Reef City Theme Park, the expansion

of the Suncoast Casino and related entertainment facilities, and the

opportunity to bid for the relocation of one of the smaller casinos in the

Western Cape to the Cape Metropole as well as a number of potential

acquisitions under negotiation.

The ability to continue to pursue such investment will depend on the

final outcome of, and impact from, the variety of proposed regulatory

and tax changes considered by Government and will require the

successful interaction with various regulatory bodies including gaming

boards, city councils, provincial authorities and national departments.

Tsogo Sun is separately listed and more detailed commentary on its

results can be found within its results which are published separately.


GALAXY BINGO INTERNATIONAL SOUTH AFRICA PROPRIETARY LIMITED (“BINGO”)www.bingo.co.za

www.themarcopolo.co.za

Galaxy Bingo’s operational efficiency has been improved considerably

over the past year and the upgrading of operating sites has been

concluded, which is expected to yield positive returns for the 2013

financial year. Even though it made an insignificant loss for the 2012

financial year, the turnaround was successful and the business

generated cash from its operations during the year. Existing operations

of the group are expected to be profitable, for the first time since

our investment, for the 2013 financial year and should realise a solid

positive EBITDA performance.

However, national regulatory uncertainty still exists for Galaxy Bingo

relating to its wholly electronic bingo terminals (“EBTs”). The release of

the long awaited Gaming Review Commission (“GRC”) report and the

Portfolio Committee (“PC”) recommendations have raised concerns

that the further roll-out of EBTs will be contained, mainly based on

unsupported and ill-advised concerns about the detrimental social

impact of electronic bingo, while other sectors within the gambling

sector are allowed to utilise technology to expand their businesses. The

adoption of these recommendations will lead to job losses and reduced

investment. All this while the GRC and PC seem to be supporting the

legalisation of online gambling which will include wholly electronic bingo

and which will have a detrimental effect on all land based gambling

operations which create employment opportunities.

VUKANI GAMING CORPORATION PROPRIETARY LIMITED (“VUKANI”)

www.vslots.co.za

Vukani Gaming is a group of companies principally engaged in

the offering of limited payout machines (“LPM”) gaming services.

VSlots, which was established in 1994, is the largest operator

of limited payout machines in South Africa. VSlots manages a

network of sites and is the only Route operator that is licensed in all

operational provinces across South Africa.

TheinstalledLPMbaseincreasedby13%from3505intheprior

year to 3 963 at March 2012. Management is optimistic that the

planned increase in the number of LPMs, as well as a focus on

improving the quality of the gaming offering, will see an increasing

trend of profitability for the business. The degree of this projected

growth will be determined by the extent to which the rollout of LPM’s

is efficiently managed.

The growth strategy will be focused on the continued improvement of

gross gaming revenue (“GGR”) per machine and the rollout of machines in

the various provinces, particularly where licenses have only recently been

awarded.

Furthermore, as part of a strategy to increase its footprint in Africa, it

has successfully procured an interest in licensed gambling operations

in Swaziland, and is awaiting the necessary regulatory approvals prior

to commencing operations in this region.

TheGGRandEBITDAincreasedby27%and42%respectivelyfrom

the prior year which was achieved through strict cost control measures

and continued focus on improving the GGR per LPM.

FoR THE Y E A R EnDED 31 M A RC H 2012reVIeW oF operat IoNS

16

SABIDO GROUP (“SABIDO”)

www.etv.co.za

The Sabido Group once again performed well ahead of expectations

in the period under review. While there are some smaller investments

which require closer attention to bring their performance into line with

expectations, the main part of the business – e.tv and e.sat tv – is on a

solid footing and this provides a firm base for continued growth.

Despite aggressive growth in pay-TV – which is impacting on

audience share for free-to-air services – e.tv has managed to

hold its own against the increasing competition. AMPS figures

forDecember2011showeda4%growthfore.tv,takingitsreach

to 16.1 million viewers. However, continued delays in the launch

of DTT have started to demonstrate an impact on the free-to-air

broadcast market as viewers turn to the multi-channel offerings of

pay-TV. Proposed legislation which would ban the advertising of

alcohol on television may have a significant impact on revenues if

the legislation is passed.

e.sat’s primary operating business - the eNews Channel - benefited

from growth in the DStv Compact platform and retained its position

as the premier news service on DStv. eNews continued to provide

syndicated services to e.tv Africa, The Africa Channel and Kyknet (via

its eNuus brand). The 24-hour news business has entrenched itself

firmly in the South African market since its launch in 2008 and is now in

a position to expand its horizons.

Yfm – the Gauteng-based youth radio station – managed to perform

according to budget for the period under review and audiences remain

stable at just over 1.4 million, although radio remains under pressure

on the revenue front.

On the rest of the continent, Sabido’s investments in Botswana

and Ghana have both shown improvement with Ghana showing

particular promise in the context of the country’s forecast for double-

digit advertising growth. e.tv Africa continues to broadcast in 49

countries across the continent via direct-to-home satellite as well as via

syndicated partners in Nigeria, Kenya, Zimbabwe, Namibia, Botswana

and Ghana.

Sasani Studios performed ahead of expectations for the period and

Media Film Services (now part of the Memar Group) also returned

a good performance. The post-production business continues to

struggle with the decline in business and The Refinery once again

experienced losses in this regard. Cape Town Film Studios, while still

in an investment phase, is gaining traction among the international

film-making community and Phase 2 of its development is under

consideration.

On the production and distribution front, Crystalbrook – Sabido’s

African distributor – completed the period under review well ahead of

targets with broadcast licensing deals driving revenue. UK distribution

arm, Power, is re-establishing itself in the market having been bought

out of administration by Sabido subsidiary, Longkloof. Both distribution

agencies represent Sabido’s factuals and wildlife product which are

being produced primarily for international export and sales. Music

publisher, Lalela, has shown solid growth over the past year and is

starting to earn revenues from public performance royalties.

Subsequent to the year-end, Longkloof Investments (Sabido’s off-

shore subsidiary) was separated from Sabido Investments and will

be held by HCI and Remgro under a separate shareholding structure.

Longkloof houses all media businesses outside of Africa including The

Africa Channel (UK), Power (UK), Setanta Sports Asia (Ireland and

South East Asia), e.tv China and Lalela Music’s offshore operation in

Los Angeles, USA.

Overall performance by the Group has been satisfactory and provides

a solid base for further growth and expansion in the next fiscal.

MEDIA AnD BRoADCASTInG


GOLDEN ARROW BUS SERVICES PROPRIETARY LIMITED (“GABS”) www.gabs.co.za

GoldenArrowBusServices(GABS)postedacreditable7,6%risein

turnover, which for the first time in the company’s history, exceeded the

billion Rand threshold. However, continual increases in fuel prices and

the relative weakness of the Rand placed considerable strain on the

company’s operating expenses and severely eroded the revenue gains.

Fuelandoilrelatedexpensesincreasedby23,8%.Theneteffectof

the extraordinary price escalations of this major input cost resulted in a

decreaseof16,9%innetprofitaftertax.

The increase in the price of petrol, triggered increased demand for

commuter bus services,with approximately 1,2million (2,5%)more

passengers opting to use the bus for commuting during the reporting

period. The company continued its ambitious fleet recapitalisation

programme to improve the commuting experience and safety of its loyal

commuter base, and during the year, 93 new replacement buses at a

cost of R 141million were purchased. This has significantly improved the

age of the fleet which now boasts an industry best practice benchmark

average age of 10 years.

In line with the company’s ongoing practice of gauging passenger

approval levels and identifying areas for improvement, an independently

conducted customer satisfaction survey was commissioned. The

survey, which incorporated the random sampling of 2 500 respondents,

was overseen by the Cape Peninsula University of Technology’s (CPUT)

Mathematics and Physics Department at five separate termini located

in Khayelitsha, Mitchell’s Plain, Bellville, Golden Acre and Killarney.

A significant 81% of respondents gave the service a resounding

endorsement and empirically confirmed that the 200 000 passengers

who make use of GABS services on a daily basis, are most satisfied

with safety levels, driving competencies, bus availability and the overall

reliability and comfort of the service.

The launch of the MyCiti bus service ushered in a new era of Integrated

Rapid Public Transport Networks as envisioned in the National Land

Transport Act of 2009. GABS has proactively embraced this new

development and expanded its operational repertoire through its

operation of the trunk route in the new bus rapid transport network.

Legislation allows the local authority to offer a 12-year negotiated contract

to existing bus and taxi operators whose businesses will be affected by

the BRT. Key to this process is the determination of existing market share

which will determine the shareholding in the BRT operating companies and

the subsequent alienation of assets. GABS’ challenge will be to ensure

that its rights and interests and future sustainability are not in any way

compromised as it navigates the divide between the current and new

dispensation and to this end we are involved in litigation with the City of

Cape Town over the market share determination.

The impending establishment of the City’s Transport Authority

(Transport for Cape Town), which will be responsible for the planning,

financial, regulatory, contracting and monitoring functions of road and

rail-based public transport across Cape Town is set to define the future

architecture of the sector.

reVIeW oF operat IoNS

TRAnSPoRT

FoR THE Y E A R EnDED 31 M A RC H 2012

18

MONTAUK ENERGY CAPITAL, LLC (“MONTAUK”)

www.montaukenergy.com

As in the past, the profitability of Montauk’s business continues to be

highly sensitive to the market price of natural gas. During the period

under review, approximately 49% total revenue was derived from

prices indexed to natural gas, including the recently acquired Viridis

portfolio of electric generation assets located in Texas where power

pricing is closely correlated to natural gas.

Despitea10%decreaseintheaveragepriceofnaturalgasforthe2012

fiscal year as compared to fiscal 2011, Montauk’s EBITDA increased

by11%toR55millionprimarilyasaresultofa15%increaseinMWh

production over annualised 2011 MWh production in the Viridis portfolio

acquiredinFebruary2011,aswellasanoverall5%increaseinHigh-Btu

productionover2011.Revenuealsoincreasedinfiscal2012by20%to

R257 million as a result of the increased production as well as the full

year of operations from the Viridis portfolio acquisition. The operational

improvements experienced are a result of management’s completion

of existing deferred maintenance items in the Viridis portfolio acquired

as well as continued focus on the preventative maintenance plans and

operational efficiencies across the entire portfolio.

The continued slow growth in the US economy and on-going impact

of shale gas supply has caused natural gas prices in the US to remain

highly volatile and react significantly to short term market fundamentals,

such as weather, that impact natural gas storage levels. According

to theUSEnergy InformationAdministration (EIA) over 75%ofUS

households utilise natural gas to heat their homes. Therefore the

winter heating season (November through March) typically provides

pricing support given the large usage during this time of year. From

November 2011 through March 2012 the US experienced the 4th

warmest heating season on record, which reduced residential usage

and increased storage levels. This resulted in natural gas futures pricing

dropping to 10 year lows by the end of fiscal 2012. As of a result of this

market condition, management made the decision to impair goodwill

and certain assets totalling R44 million and to provide for a reserve of

previously recognised deferred tax benefits of R138 million in the fiscal

2012 financial statements.

However, the lower pricing has accelerated the move from coal

fired to natural gas fired electric generation whereas, according

to the EIA, the amount of US electricity produced by natural gas

firedunitsrose40%inMarch2012ascomparedtoMarch2011.In

addition the EIA reported that in April 2012 natural gas fired electric

generation equalled that of coal fired generation for the first time in

US history. Also, as a result of the low pricing, several major shale

gas producers have announced significant cutbacks in expected

production evidenced by recent reductions in natural gas drilling rig

counts. Despite recent recoveries in natural gas pricing since March

2012, the ratio of oil to gas prices remains in excess of 20 times. The

on-going recovery and stabilisation in natural gas pricing will depend

on the continued increase in natural gas fired electric generation, led

by price or regulatory issues associated with coal fired generation,

the relative cost and possible environmental concerns related to

shale gas production, as well as the continued development of

alternative uses for natural gas such as transportation fuel to reduce

US dependence on foreign oil.

Even with the significant volatility in profits associated with a large

percentage of revenues derived from current market pricing, the current

depressed pricing does not warrant locking in long term pricing at this

time. Management maintains a longer term view of pricing and with the

on-going operational improvements and the continuation of significant

value realised from the green attributes of the energy produced,

management believes it has positioned Montauk to capitalise on

opportunities that arise to lock in longer term pricing arrangements

when market conditions dictate.


EnERGY AnD MInInG


20

HCI COAL PROPRIETARY LIMITED (“HCI COAL”)

The business continued its steady progress and performed ahead of expectations for the year under review. The Palesa Colliery achieved sales of

1 959 032 tons of coal for the year, up from the 1 591 979 tons sold in the previous year. Operational improvements and meeting its contractual

obligations to Eskom continue to be the main focus for management at the Colliery. The documentation for the mining right at Rooipoort, contiguous

with the Palesa reserve, was completed and lodged with the Department of Mineral Resources (“DMR”). Approval of this right will increase the

Palesa resource by 32 million tons of probable resources.

As mentioned in the previous year the Mbali court case was heard and a judgement was received in favour of HCI Coal. Subsequently African

Exploration Mining and Finance Corporation (“AEMFC”) appealed the judgement and thereafter also lodged an application with the Supreme

Court of Appeals. Both their applications were unsuccessful. The DMR was accordingly ordered to take the necessary steps which will ultimately

enable the registration of these rights in Mbali Coal (Pty) Ltd. Subsequent to year end the Mbali Colliery received its integrated water use licence

from the Department of Water Affairs. Management will now complete the remaining infrastructure with a view to starting mining operations in the

latter part of 2012 or the first quarter of 2013.

The approval of the Nokuhle mining right has not yet been received from the DMR but management is optimistic that this right will be granted in

the near future. The mineral resource at Nokuhle is made up of 28 million inferred tons not included in the resource and reserve statement below.

Revenue for the year increased by R150 million to R513 million and EBITDA from R30 million to R76 million for the year under review. Management

continues to assess additional coal reserves which will enhance the asset.

Palesa Colliery Mbali Colliery Nokuhle Colliery Total

Tons Tons Tons Tons

Mineral reserve: proven 68 149 144 6 834 932 - 74 984 076

Mineral reserve: probable 32 721 175 - 9 858 718 42 579 893

100 870 319 6 834 932 9 858 718 117 563 969

HCI Coal (Pty) LtdCoal


GALLAGHER ESTATE HOLDINGS LIMITED (“GALLAGHER”)

In December 2011, Gallagher sold the Pan African Parliament chamber

and office complex with a resultant profit arising from the sale of R73.5

million. When HCI took over Johnnic Holdings Limited (“Johnnic”) ,

the owner of Gallagher, certain tax issues were inherited. The result

of these tax matters led to a payment and settlement of which the net

was an expense of R40 million before tax, being incurred during this

financial year.

As mentioned in last year’s report, the conference and exhibition

business was disposed of on 1 April 2011. The sale was necessitated as

part of a competition commission ruling when Johnnic was acquired in

December 2005. This sale resulted in Gallagher leasing the conference

and exhibition buildings at a below market related rental for a period of

6 years. As a consequence of this, when the buildings were revalued

during the period under review, it resulted in a fair value adjustment

downwards of R41.8 million. This should reverse once Gallagher re-

negotiates the lease on expiry of the initial term thereof.

The net effect of the adjustments and numbers described herein

resultedinaPBTofR70millionforthebusiness,adeclineof45%from

the preceding year.

The overall occupancy of Gallagher’s buildings across its portfolio was

closeto100%fortheperiodunderreview.Furthermore,theopeningof

the Gautrain station in Midrand, finalisation of the Allandale interchange

upgrade and the commencement of various high profile developments

in and around Midrand bode well for Gallagher in the long term.

SYNTELL PROPRIETARY LIMITED (“SYNTELL”)

www.syntell.co.za

Syntellgrewsalesby27%toR326million.ThisgrowthmainlycamefromtheTrafficManagementbusinesswhereSyntellhasseenreasonable

orders from Metros as well as good performance on our road counting contract with SANRAL. The core Road Safety business remains strong

with the Cape Town and JMPD contracts performing well. Syntell has unfortunately not been able to resolve the Free State province non-payment

issue and this resulted in a provision of R13 million being made against this year’s profits. Despite this provision the company achieved profit

before tax of R 47.2 million – a small increase from last year’s figure of R 46.2 million. Syntell has made satisfactory progress with the finalising of

legal proceedings with the Free State and is hopeful for a favourable resolution in the new year.

Both the Cape Town and JMPD contracts will be re-tendered during the new financial year and winning these contracts is a key priority for

management. The delay of AARTO is still creating problems for the industry but Syntell is optimistic that outstanding issues will be resolved by

government soon.

The e-commerce business is still a key strategic focus area through www.paycity.co.za. Syntell continues to build brand value by attracting new

users and adding additional services. A new subscription service has recently been launched that will see the business start making profits in the

new year and open up many new possibilities.


EXHIBITIonS AnD PRoPERTY

SERVICES AnD TECHnoLoGY


22

SEARDEL INVESMENT CORPORATION LIMITED

(“SEARDEL”)

www.seardel.co.za

Seardel reports income attributable to ordinary shareholders of R136.9

million (2011: R8.6 million) and total comprehensive income of R163

million (2011: R42.2 million loss) for the year ended 31 March 2012.

However, the current year’s results were overwhelmingly influenced

by the settlement of the various litigation proceedings with former

directors and officers of Seardel with income of R191.8 million

relating to a portion of that settlement having been recognised in the

period. If one excludes the effect of the settlement on the current

year’s results, Seardel would have reported a loss attributable to

ordinary shareholders of R54.8 million against a R8.6 million profit

in the prior period.

The main reason for the deterioration was the poor performance

of the Seardel Apparel division. The competition that this business

unit faces from imports out of lower wage paying countries and

manufacturers from within the South African borders that do not

pay the prescribed minimum wages meant that rising input costs

could not be recovered in higher prices for products supplied. The

resultant losses were of such a magnitude that it left no alternative

but to rationalise the business unit.

The textiles segment also found itself under pressure. Reduced gross

margins saw operating profit before finance costs from continuing

operations fall to R38.3 million in the current period down from R56.2

million in the prior period.

Good progress has been made on the property developments with 88

480m2 having been developed and made available for letting to external

tenants by financial year end. Of this, 87 190m2(98.5%)hadbeenlet.

Approximately another 60 000m2 across three different sites is available

for development.

The businesses within the Toy, Stationery and Electronics segment

continuetodeliverexcellentresultswithoperatingprofitup46.2%to

R56.6 million.

Seardel is separately listed and more detailed commentary on its

results can be found within its results which are published separately.

CLoTHInG AnD TEXTILES


HCI INVESTMENTS AUSTRALIA PROPRIETARY LIMITED

HCI Australian Operations has had a productive first year. Through a series of transactions it has successfully acquired a controlling stake in

Oceania Capital Partners Limited (“OCP”), a company listed on the Australian Stock Exchange. It intends to grow OCP and thereby to enhance

value for the HCI Group.

FORMEX INDUSTRIES PROPRIETARY LIMITED (“FORMEX”)www.formex.co.za

The automotive sector in South Africa remains challenging with high labour

costs and the delay in the implementation of the export incentive scheme

proving to be significant obstacles the sector faces to maintain global

competitiveness. Countries such as Mexico, Eastern Europe, India and

China are generally viewed as more favourable investment locations due

to higher productivity and lower labour costs. In addition, a drop in demand

has resulted in automotive companies consolidating work in European and

US locations.

While automation has assisted the pressings division to become more

competitive, the tubing division is still plagued by inefficiencies and high unit

costs. A decision was made to curtail the operations of the tubing division

and significant customer contracts were cancelled by Formex following

unsuccessful price increase negotiations.

The pressings division has a good order book and customers have a

positive view of its capability and quality of production. It is hoped that the

implementation of the export incentive scheme will result in new production

orders being allocated to South Africa, following a generally quiet period for

the industry over the last two years.

The pressings division is executing according to budgeted activity and

costs levels while the tubing division remains below breakeven. Plans are

therefore underway to further consolidate operations and to reduce small

volume contracts in both tubing and pressings which are difficult to execute

profitably.


VEHICLE CoMPonEnT MAnUFACTURE

oTHER


24

KWV HOLDINGS LIMITED (“KWV”)www.kwv.co.za

Headline earnings for the full year ended June 2011 was a loss of R17, 5 million

and the interim results for the period ended 31 December 2011 showed a

headline loss of R6, 5 million.

The brandy market in South Africa is declining. KWV is very dependent on brandy

sales and has a significant investment in distillation and maturation infrastructure.

A significant portion of the infrastructure is currently mothballed due to high

inventory levels and declining local demand. KWV has managed to increase its

market share but the diversification of the product portfolio remains a strategic

imperative.

Significantly a new Ready-to-Drink (“RTD”) product was launched during 2011

and KWV also launched a new range of pre-mixed cocktails. New product

launches are capital and resource intensive and it is important that the investment

returns and risks are monitored on an ongoing basis. While two new products are

not a panacea for KWV, the focus on innovation and new products outside the

traditional product portfolio is important.

KWV has also decided to insource all sales activities and to expand its local

sales force to provide better market coverage. The fixed cost of this investment

is high but the risk of a ban on alcohol advertising makes the establishment of a

dedicated sales force a necessity. The increased cost of this sales force must be

leveraged through a wider product portfolio which KWV is attempting to build.

Wine sales remain competitive with prices at the lower end of the market often

below breakeven. The emergence of cheaper imported wine is also distorting

pricing and an increase in dealer-owned brands by the large retailers is putting

further pressure on the market. KWV has rebranded its flagship KWV wine

portfolio and its Laborie range, and the positive effects thereof can already be

seen in the market. KWV was recognized as the top wine producer at the Veritas

wine awards in 2011, winning the most double gold medals ever in a single year

by an entrant, and also won the award for the top wine producer at the Old Mutual

wine awards. Other awards include the top entrant and the Young Wine Awards

and the top Muscadel award.

BEVERAGES


A S AT 29 AUGUST 2012BUS INeSS SeGMeNtS

Business Systems Group (Africa)

40%

KWV Holdings

39.9%

e.tv64%

Yired64%

e sat.tv64%

Golden ArrowBus Service

100%

Formex Engineering

90%

Syntell55%

Gallagher

100%

MontaukEnergy Capital

87.9%

Seardel Investment Corporation

74.1%

Limtech Biometric Solutions51%

HCI Coal

100%

TRAnSPoRT

MEDIA AnD BRoADCASTInG

VEHICLE CoMPonEnT MAnUFACTURE

SERVICES AnD TECHnoLoGY

EnERGY AnD MInInG

EXHIBITIonS AnD PRoPERTY

BEVERAGES

CLoTHInG AnD TEXTILES

Tsogo SunHoldings41.5%

Vukani Gaming Corporation

100%

GAMInG, HoTELS AnD LEISURE

HCI Coal (Pty) LtdCoal

Galaxy Bingo100%

HCI Properties

100%

HCI Properties


aNaLYS IS oF SHareHoLDerS

Listed below is an analysis of shareholdings extracted from the register of ordinary shareholders at 31 March 2012

Number of shareholders

%oftotal Number of shares

%oftotal

1 – 1000 shares 1 020 64.24 286 932 0.22

1 001 – 10 000 shares 344 21.66 1 279 309 0.96

10 001 – 100 000 shares 142 8.94 4 503 177 3.38

100 001 – 1 000 000 shares 62 3.90 22 779 052 17.13

Over – 1 000 000 shares 20 1.26 104 128 526 78.31

1 588 100.00 132 976 996 100.00

Type of shareholder Number of shareholders

%ofcurrentshareholders

Number of shares

%ofissuedcapital

Public companies 19 1.20 5 835 142 4.39

Banks 20 1.26 13 857 877 10.42

Close corporations 40 2.52 4 632 421 3.48

Individuals 1 317 82.93 37 957 101 28.54

Nominees and trusts 100 6.30 5 593 035 4.21

Other corporations 34 2.14 57 447 681 43.20

Pension funds 33 2.08 1 325 310 1.00

Private companies 25 1.57 6 328 429 4.76

1 588 100.00 132 976 996 100.00

Shareholders’ Diary

Financial year end 31 March

Annual general meeting October

Reports

- Preliminary report May

- Interim report at 30 September November

- Annual financial statements September

Stock Exchange Performance 31 March 2012

Total number of shares traded (000’s) 9 448

Total value of shares traded (R’000) 762 688

Market price (cents per share)

- Closing 8 100

- High 8 744

- Low 7 400

Market capitalisation (R’000) 10 771 137

28

S IGNIF IcaNt SHareHoLD INGS

At 31 March 2012, insofar as HCI is aware, the following members beneficiallyhelddirectlyorindirectly5%ormoreoftheissuedshares:

2012 2011

Southern African Clothing and Textile

Workers Union and associated entities 37.8 37.9

M.J.A Golding 6.8 6.8

44.6 44.7

Shareholder Spread

Percentage held Number of shareholders

2012 2011 2012 2011

Public 42.0 41.9 1 575 1 567

Non public 58.0 58.1 13 13

Directors 11.0 11.1 6 6

Associates of directors 5.3 5.4 4 4

Significant shareholder 37.8 37.9 1 1

Share trust 2.9 2.7 1 1

Treasury shares 1.0 1.0 1 1

100.0 100.0 1 588 1 580


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 King Report (King III) 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, to ensure sound corporate governance and structures are applied within the Group.

The board of directors of HCI comprises of three executive directors and seven non-executive directors, of which five are independent.

The board is structured so as to ensure clear division of responsibilities at board level to ensure a balance of power and authority, such that no-one individual has unfettered powers of decision making. Such appointments are formal and transparent, and a matter for the board as a whole. All non-executive directors are appointed so as to bring independent judgment on material decisions of the company. The directors are entitled to seek independent professional advice at the company’s expense concerning the company’s affairs and have access to any information they may require in discharging their duties as directors.

The board retains control over HCI and its subsidiaries, meetings are held at least quarterly, to review the performance of subsidiary and associated companies, group strategy and other matters relating to the achievement of HCI’s objectives. Directors are provided with substantive board papers to enable them to consider the issues on which they are requested to make decisions.

All of the executive directors have entered into three year service contracts with the company. These contracts have been approved by the remuneration committee and define the terms of employment of the executive directors. Where appropriate, the chief executive officers and executive directors of subsidiary companies have entered into service contracts with that subsidiary.

The roles of the chairman and chief executive officer are separated. HCI has appointed Mr Yunis Shaik as lead independent non-executive director in view of the fact that the chairman is an executive director. This is considered acceptable by King III. According to the Memorandum of Incorporation of the company, HCI may have a maximum of 12 directors.

Mr Rakesh Garach resigned as a non-executive director as of the 20th January 2012. Ms Barbara Hogan has been appointed as a non-executive director as of the 29th August 2012. There were no further changes to the non-executive directorate during the year under review.

In terms of the company’s Memorandum of Incorporation, one-third of directors must retire at every annual general meeting and are eligible for re-election. The directors retiring by rotation at the forthcoming annual general meeting are Mr JA Copelyn; Mr TG Govender and Mr MF Magugu who offer themselves for re-election.

Ms B Hogan, who was appointed by the board during the course of the year and who is required to retire in terms of the company’s memorandum of incorporation, is eligible and has offered herself for re-election at the forthcoming annual general meeting.

In terms of the company’s Memorandum of Incorporation, there is no mandatory retirement age for non-executive directors. Non-executive directors do not hold service contracts with the company.

The board met four times during the period under review.

Board attendance

Director May August November March

JA Copelyn Yes Yes Yes Yes

VM Engel * No No No Yes

RS Garach** Yes Yes Yes n/a

MJA Golding Yes Yes Yes Yes

TG Govender Yes Yes Yes Yes

B Hogan *** n/a n/a n/a n/a

MF Magugu Yes Yes Yes Yes

LM Molefi Yes Yes Yes Yes

VE Mphande Yes No No Yes

JG Ngcobo Yes Yes Yes Yes

Y Shaik Yes No Yes Yes

* Leave of absence** Resigned 20 January 2012*** Appointed 29 August 2012

Details of directors of the board appear on pages 2, 10 and 11 of this integrated report.

Seminars, workshops and lectures by leading experts in their fields are given on an on-going basis to directors to assist in their duties.

The board’s key roles and responsibilities are:• Promotingtheinterestsofallstakeholders• Formulationandapprovalofstrategy• Retainingeffectivecontrol• Ultimateaccountabilityandresponsibility fortheperformanceand

affairs of the company and its subsidiaries.

BOARD OF DIRECTORS

BOARD COMMITTEES

EXCOAUDIT AND RISK REMUNERATION

SOCIAL AND ETHICS

JA Copelyn Y Shaik MF Magugu LM Molefi

MJA Golding LM Molefi JG Ngcobo JG Ngcobo

TG Govender B Hogan MJA Golding

JA Copelyn

BOARD COMMITTEES

Board committees have been established to assist the board in discharging its responsibilities. In line with King III, all board committees comprise of only members of the board. All committees are empowered to obtain such external or other independent professional advice as they consider necessary to carry out their duties.

30

corporate GoVerNaNce

Each of the company’s major subsidiaries has established board and committee structures which submit regular reports to the company. This ensures the maintenance of high standards and best practice for corporate governance and internal control throughout the group. The boards of the main subsidiaries comprise of a majority of non-executive directors. The board has appointed the following committees to assist it in the performance of its duties:

• Executivecommittee• Remunerationcommittee• Auditandriskcommittee• Socialandethicscommittee

EXECUTIVE COMMITTEE

The HCI Executive Committee (“EXCO”) comprises MJA Golding (Executive Chairman), JA Copelyn (Chief Executive Officer) and TG Govender (Chief Financial Officer). The three executives are in regular discussions and are primarily responsible for the daily management of the group, including the allocation and investing of the group’s resources.

The major operating subsidiaries and associated companies operate on similar principles.

AUDIT COMMITTEE

Members: Y Shaik (chairman), LM Molefi and B HoganA report by the HCI Audit Committee has been provided on page 32 of this integrated report.

REMUNERATION COMMITTEE

Members: MF Magugu (chairman) and JG Ngcobo.

A report by the HCI Remuneration Committee has been provided on page 34 of this annual report.

SOCIAL AND ETHICS COMMITTEE

Members: LM Molefi (chairperson); JG Ngcobo, JA Copelyn, MJA GoldingA report by the HCI Social and Ethics Committee has been provided on page 40 of this integrated report.

COMPANY SECRETARIAT

The board is assisted by a suitably qualified company secretary, in line with legislated requirements. All directors have access to the advice and services of the Company Secretariat, who is responsible for ensuring the Board complies with all applicable procedures, statutes and regulations.

COMPLIANCE WITH LAWS, CODES AND STANDARDS

HCI respects and complies with the laws of the countries in which it operates. This includes corporate laws, common law as well as specific laws, including regulations of all the gambling boards, mining and energy laws. HCI will strive to be a good corporate citizen of the country in which it operates.

BOARD ASSESSMENTS

A framework has been put in place for assessments by the board of directors, as required by King III, to evaluate the effectiveness of the

board, its members and the committees. These self-assessments are integral to best governance practices and have practical applications to assess areas of strength and/or development.

DEALING IN THE COMPANY’S SECURITIES

The company has a policy in place regarding dealings in its securities. The company’s directors, executives and senior employees are prohibited from dealing in HCI securities during certain prescribed restricted periods. The company secretary regularly disseminates written notices to inform them of the insider trading legislation and advise them of closed periods. All directors and senior executives are required to obtain clearance from the company secretary prior to their dealings in the company’s securities. All dealings in the company’s securities are disclosed in terms of the applicable JSE listings requirements.

CONFLICTS OF INTEREST

The directors are required to avoid situations where they have direct or indirect interests that conflict or may conflict with the company’s interests. Processes are in place for disclosure by any director of any potential conflicts and for authorisation to be sought if conflict arises.

GOVERNANCE OF INFORMATION TECHNOLOGY

Due to the inherent risks in information technology, King III has recommended that the board of directors is responsible for the assessment, implementation and monitoring of IT within the company. The board of directors of HCI acknowledges the need for an IT Governance Framework which, if effectively managed, can streamline and add value to the underlying businesses.

Due to the diverse nature of HCI’s business operations, IT plays different roles within the group. Processes are being implemented at major subsidiary companies to address the requirements of King III at strategic levels within the companies. At a group level, HCI does not believe it is necessary to employ a chief information officer as recommended by King lll. The audit committee is responsible for the monitoring of IT compliance within the Group.

DISCLOSURES

To ensure shareholder parity, HCI ensures that accurate and timely disclosure of information that may have a material effect on the value of its securities or influence investment decisions is made to all shareholders. The company publishes details of its corporate actions and performance on the SENS and in the main South African daily newspapers. The company maintains a website through which access is available to the broader community on the company’s latest financial, operational and historical information, including its annual report.

LITIGATION

There are no material legal or arbitration proceedings (including proceedings which are pending or threatened of which the directors of HCI are aware) which may have or have had, during the 12-month period preceding the last practicable date, a material effect on the financial position of HCI.


Members: Y Shaik (chairman), LM Molefi, B Hogan

Mr Shaik was appointed as chairman of the committee subsequent to

the resignation of Mr Garach. Ms Hogan was appointed as a member

of the audit committee on the 29th August 2012.

The audit committee has pleasure in submitting this report, as required

by section 94 of the Companies Act 2008, as amended (“the act”).

FUNCTIONS OF THE AUDIT COMMITTEE

The audit committee has adopted formal terms of reference, delegated

to it by the board of directors, as its audit committee charter.

The audit committee has discharged the functions in terms of its charter

and ascribed to it in terms of the act as follows:

• Reviewedtheinterim,provisionalandyear-endfinancialstatements,

culminating in a recommendation to the board to adopt them;

• Reviews legalmatters thatcouldhaveasignificant impacton the

group’s financial statements;

• Reviewed the external audit reports on the annual financial

statements;

• Verified the independenceof theexternal auditor, nominatedPKF

(Jhb) Inc. as the auditor for 2012 and noted the appointment of Mr

Theunis Schoeman as the designated auditor;

• Approved the audit fees and engagement terms of the external

auditor; and

• Determined thenatureandextentof allowablenon-audit services

and approved the contract terms for the provision of non-audit

services by the external auditor.

The audit committee fulfils an oversight role regarding the group’s

financial statements and the reporting process, including the system of

internal financial control.

MEMBERS OF THE AUDIT COMMITTEE AND ATTENDANCE AT

MEETINGS

The audit committee consists of the independent non-executive

directors listed hereunder and meets at least three times per annum

in accordance with the audit committee charter. All members act

independently as described in section 94 of the Companies Act.

ATTENDANCE

The external auditors, in their capacity as auditors to the group,

attended and reported at all meetings of the audit committee.

Executive directors and relevant senior managers attended meetings

by invitation.

During the year under review four audit committee meetings were held

and attended as below:

Member Profession May August November February

RS Garach** Chartered

Accountant Yes Yes Yes n/a

B Hogan*** Analyst n/a n/a n/a n/a

LM Molefi Doctor Yes Yes Yes Yes

Y Shaik Attorney Yes No Yes Yes

** Resigned 20th January 2012

*** Appointed 29th August 2012

CONFIDENTIAL MEETINGS

Audit committee agendas provide for regular confidential meetings

between the committee members and the external auditors without

management present.

INDEPENDENCE OF EXTERNAL AUDITOR

During the year under review the audit committee reviewed a

representation by the external auditor and, after conducting its own

review, confirmed the independence of the auditor.

Non-audit services of the external auditor, as approved by King III, are

pre-approvedbytheauditcommitteeuptoamaximumof10%ofthe

annual audit fee.

EXPERTISE AND EXPERIENCE OF FINANCIAL DIRECTOR

As required by JSE Listings Requirement 3.84(h), the audit committee

has satisfied itself that the financial director has appropriate expertise

and experience.

INTERNAL AUDIT

The group does not consider it necessary to establish an internal audit

function at parent company level. Where appropriate, subsidiaries

have their own internal audit departments. Reports generated by the

subsidiary companies’ internal audit departments are made available

and discussed at the HCI group audit and risk committee.

RISK MANAGEMENT AND INTERNAL CONTROL

The board acknowledges that it is accountable for the process of risk

management and the system of internal control of the group.

The group operates in a highly regulated environment. Where

necessary, compliance officers have been appointed at each of the

report oF tHe aUDIt coMMIttee

32

report oF tHe aUDIt coMMIttee

group’s key operating subsidiaries and associated company levels for

ensuring adherence to the various Acts and Codes that govern the

day-to-day operations. Each group company has its own board of

directors responsible for the management, including risk management

and internal control, of that company and its business.

Mr JR Nicolella has been appointed as Group Risk Officer for the HCI

Group. The risk report is presented below.

Internal control structures have been implemented to ensure that

significant business and financial risk is identified and appropriately

managed.

The group audit and risk committee assists the board in discharging

its responsibilities. It also considers reports and information generated

by the subsidiary companies’ audit or finance committees to their

respective boards.

Y Shaik

Chairman

29 August 2012

During the period under review a Risk Committee was established

under the auspices of the board. As HCI is an investment holding

company, the risk management process takes into account the risks

and opportunities within the company as well as those inherent in its

portfolio of investments.

The members of the Risk Committee are the Audit Committee as well

as the Group Risk Officer and the CEO who are invited to attend all

audit committee meetings.

The committee is accountable to the board for implementing and

monitoring the processes of risk management and integrating this into

day-to-day activities. The process of advising the board on the risk

management of the group assists the board to foster a culture in the HCI

Group that emphasises and demonstrates the benefits of a risk based

approach to internal controls and management of the group. Effective

risk management is seen as fundamental to the sustainability of the

group’s interests. It further enables the principle that risk management

is also about analysing opportunities and not only guarding against

downside possibilities.

A disciplined and timeous reporting structure enables the Risk

Committee to be fully apprised of group company activities, risks and

opportunities. All controlled entities are required to adhere to the

relevant principles of King III.

Members of the committee are individuals with risk management skills

and experience, and the committees’ responsibilities are:

• toensure it ismanagement’s responsibility todesign, implement

and monitor the risk management policies;

• thatriskassessmentsareperformedonacontinualbasis;

• frameworks and methodologies are implemented to increase

probability of anticipating unpredictable risks;

• riskresponsesbymanagementareconsideredandimplemented;

• riskmonitoringiscontinuous;and

• theBoardshouldreceiveassuranceregardingeffectivenessofrisk

management.

Since implementation substantial progress has been made in achieving

the objectives set out above, however there are still certain components

and changes that need to be further developed and embedded.

The committee will conduct annual reviews of its performance and

ensure it is provided with resources to perform its duties and ensure

sufficient training to its members.

JR Nicolella

Group Risk Officer

29 August 2012

report oF tHe r ISK coMMIttee


Members: MF Magugu (chairman) and JG Ngcobo

All the members of the committee are independent non-executive directors. In line with the recommendations of King III the chief executive officer attends the meetings of the committee at the request of the committee but recuses himself from the meeting before any decisions are made in which he is affected.

The committee met twice during the past year as per the memorandum of incorporation.

Each major group subsidiary has its own remuneration committee.

This committee is primarily responsible for overseeing the remuneration and incentives of the executive directors and executive management. It takes cognisance of local best remuneration practices in order to ensure that such total remuneration is fair and reasonable to both the employee and the company. The committee utilises the services of independent remuneration consultants to assist in providing guidance on the remuneration for executive management.

The functions and mandates of the remuneration committee include:• make recommendations to the board on directors’ fees and the

remuneration and service conditions of executive directors including the chief executive officer;

• provide a channel of communication between the board andmanagement on remuneration matters;

• reviewthegroup’sremunerationpoliciesandpracticesandproposalsto change these and to make recommendations in this regard to the board;

• reviewandapprovethetermsandconditionsofexecutivedirectors’employment contracts taking into account information from comparable companies;

• determineandapproveanygrantstoexecutivedirectorsandothersenior employees made pursuant to the company’s executive share scheme and share appreciation rights scheme; and

• reviewandapproveanydisclosuresintheannualreportorelsewhereon remuneration policies or directors’ remuneration.

During the year under review HCI shareholders approved the HCI Employee Share Scheme which is a net-equity settled incentive scheme. In terms of this scheme share options are granted to executive directors and senior and middle management.

Share options are allocated to participants at a ten percent discount to the 20 day volume weighted average market price as at date of grant. The number of share options granted is determined by use of a multiple of the participant’s basic salary divided by the discounted market price. The multiples relating to each level of management are as follows:

Position Multiple

Chief executive officer 6

Executive chairman 6

Chief financial officer 5

Senior management 4 - 5

Other management 2 - 3

The fair value of options granted is measured using the Black Scholes Model. Share options granted in the current year were fairly valued usingavolatilityindicatorof20%andanannualinterestrateof5.5%.

Executive directors earn a basic salary which is determined by independent remuneration consultants and escalate in line with inflation for the duration of their contracts. Bonuses payable are purely discretionary and are determined annually after reviewing the performance of the group and its subsidiaries. The maximum bonuses that can be earned by executive management are as follows:

Position

%ofannual

salary

Chief executive officer 75

Executive chairman 75

Chief financial officer 65

Other senior management 40 - 65

Non-executive directors earn a basic fee which is in line with companies of a similar size. These fees escalate annually in line with inflation and are reviewed every 3 years by an independent remuneration consultant.

Directorscanearnup toamaximumof50%of theirboard feesbyserving on the committees responsible to the board of directors.

Position

Actual fee

2012

R’000

Proposed

fee

R’000

Non-executive director 210 210

Member of audit committee 70 87

Member of remuneration committee 35 55

Member of social and ethics committee n/a 64

KEY MANAGEMENT PERSONNEL EMOLUMENTS FOR THE YEAR ENDED 31 MARCH 2012 Detail of personnel remuneration of three highest paid members of management is reflected below:

Salary per

annum

R’000

Bonus

R’000

Gains on share

options

R’000

Total

R’000

Employee A 4 839 2 928 3 629 11 396

Employee B 4 839 2 928 3 629 11 396

Employee C 3 142 2 042 1 485 6 669

Directors’ emoluments and other relevant remuneration information are disclosed under note 41 and on pages 35 to 39.

MF MaguguChairman29 August 2012

report oF tHe reMUNerat IoN coMMIttee

34


HCI EMPLOYEE SHARE OPTION SCHEME

During the current year the Group adopted an updated option scheme. In terms of the new scheme, shares are offered on a share option basis to participants, provided they remain in the Group’s employ until the options vest. Any gain realised on the exercise of these options will be settled on a net equity basis, whereby the participant will receive that number of shares that equates in value to the gain made on exercise date.

Options must be exercised within three months of the vesting date, where after the options lapse. Options vest over periods of three to five years. These vesting periods may be varied by the board of directors.

In terms of the previous option scheme, shares were offered either on a share option or on a combined share option and deferred sale basis. Participants were able to exercise options to purchase shares in tranches within periods of three to seven years from the grant at the exercise price, provided that they remained in the Group’s employ until the options vested. The terms of the previous option scheme remain applicable to all options issued in terms of that scheme and that have not yet been paid for or become unconditional.

Options issued in terms of the previous scheme must be exercised within three years of being granted, where after the options lapse. Options vest over periods of three to seven years. These vesting periods may be varied by the trustees of the scheme. Participants are required to pay for the shares between five and ten years from the date of grant.

Share options granted to eligible participants that have not yet become unconditional: 2012 2011

Number of share

options

Weighted average

exercise price

Number of share

options

Weighted average

exercise price

R R

Balance at beginning of the year 4 126 914 50.79 4 181 881 43.46

Options granted 636 688 60.49 592 332 71.52

Options vested and paid for (109 481) 44.61 ( 647 299) 20.50

Options forfeited (16 466) 61.31 - -

Balance at the end of the year 4 637 655 52.45 4 126 914 50.79

The volume weighted average closing share price during the current year was R80.72 (2011: R79.19).



HCI EMPLOYEE SHARE OPTION SCHEME (continued)

The options outstanding at 31 March 2012 become unconditional between the following dates:

Number of share options

Exercise price R

25 July 2011 and 24 July 2013 107 500 40,50

8 September 2011 and 7 September 2013 94 404 40,50

29 June 2010 and 28 June 2012 225 675 70,00

29 June 2012 and 28 June 2014 250 677 70,00

4 June 2011 and 3 June 2012 885 557 37,80

4 June 2012 and 3 June 2014 17 500 37,80

4 June 2014 and 3 June 2016 17 500 37,80

15 October 2009 and 14 October 2012 128 810 46,58

17 June 2010 and 16 June 2013 547 829 71,52

17 June 2013 and 16 June 2014 16 729 71,52

17 June 2014 and 16 June 2015 16 728 71,52

16 May 2011 and 15 May 2014 178 000 30,00

15 March 2012 and 14 March 2015 458 688 72,32

2 945 597

Options vested but not yet paid for 374 694 40,50



4 637 655

36


2012 2011

Number of share

options

Weighted average

exercise price

Number of share

options

Weighted average

exercise price

HCI EMPLOYEE SHARE OPTION SCHEME (continued)

Options granted to executive directors

JA Copelyn

Balance at the beginning of the year 915 088 54.02 769 523 50.71

Options granted 137 015 72.32 145 565 71.52

Balance at the end of the year 1 052 103 56.40 915 088 54.02

Unconditional between the following dates:

29 June 2008 and 28 June 2014 308 571 70.00 308 571 70.00

4 June 2009 and 3 June 2012 460 952 37.80 460 952 37.80

17 June 2010 and 16 June 2013 145 565 71.52 145 565 71.52

15 March 2012 and 14 March 2015 137 015 72.32 - -

MJA Golding


Options granted 137 015 72.32 145 565 71.52

Balance at the end of the year 1 052 103 56.40 915 088 54.02


29 June 2008 and 28 June 2014 308 571 70.00 308 571 70.00

4 June 2009 and 3 June 2012 460 952 37.80 460 952 37.80

17 June 2010 and 16 June 2013 145 565 71.52 145 565 71.52

15 March 2012 and 14 March 2015 137 015 72.32 - -

TG Govender


Options granted 52 424 72.32 55 695 71.52

Balance at the end of the year 361 629 54.87 309 205 51.91


29 June 2008 and 28 June 2014 77 143 70.00 77 143 70.00

4 June 2009 and 3 June 2012 176 367 37.80 176 367 37.80

17 June 2010 and 16 June 2013 55 695 71.52 55 695 71.52

15 March 2012 and 14 March 2015 52 424 72.32 - -



Direct beneficial Indirect beneficial

Number Percentage

holding Number Percentage

holding

DIRECTORS' SHAREHOLDINGS

31 March 2012

Executive directors

JA Copelyn 5 559 931 4.2 - -

MJA Golding 7 541 109 5.7 1 519 133 1.1

TG Govender 100 - 17 250 -

Non-executive directors

VM Engel 2 000 - - -

Y Shaik 17 500 - - -

VE Mphande 125 000 0.1 - -

13 245 640 10.0 1 536 383 1.1

31 March 2011

Executive directors

JA Copelyn 5 559 931 4.2 - -

MJA Golding 7 541 109 5.7 1 519 133 1.1

TG Govender 100 - 17 250 -


VM Engel 2 000 - - -

Y Shaik 17 500 - - -

VE Mphande 187 500 0.1 - -

13 308 140 10.0 1 536 383 1.1

Mr VE Mphande has sold 37 500 shares between the reporting date and the date of issue of this report. There were no other changes in directors’ shareholdings during this period.

38


Gains fromshare options

Other benefits

Board fees Salary Bonus Total

R'000 R'000 R'000 R'000 R'000 R'000

DIRECTORS' EMOLUMENTS

Year ended 31 March 2012

Executive directors

JA Copelyn - 4 839 - 2 928 3 629 11 396

MJA Golding - 4 839 - 2 928 3 629 11 396

TG Govender - 1 833 - 1 060 1 191 4 084


VM Engel 201 - - - - 201

MF Magugu 234 * - - - - 234

ML Molefi 268 ** - - - - 268

JG Ngcobo 234 * - - - - 234

RS Garach # 221 *** - - - - 221

Y Shaik 268 ** - - - - 268

VE Mphande 201 - - - - 201

1 627 11 511 - 6 916 8 449 28 503

# resigned 20 January 2012* includes R33 475 remuneration committee fees** includes R66 950 audit committee fees*** includes R55 283 audit committee fees

Year ended 31 March 2011

Executive directors

JA Copelyn - 4 642 - 3 291 3 131 11 064

MJA Golding - 4 642 - 3 291 3 131 11 064

TG Govender - 2 129 - 1 199 1 246 4 574


VM Engel 192 - - - - 192

MF Magugu 224 * - - - - 224

ML Molefi 256 ** - - - - 256

JG Ngcobo 224 * - - - - 224

RS Garach 256 ** - - - - 256

Y Shaik 256 ** - - - - 256

VE Mphande ## 112 - - - - 112

1 520 11 413 - 7 781 7 508 28 222

## appointed 01 September 2010* includes R31 950 remuneration committee fees** includes R63 900 audit committee fees


report oF tHe SocIaL aND etH IcS coMMIttee

Members: Dr LM Molefi (Chairperson); JG Ngcobo, JA Copelyn, MJA

Golding

The social and ethics committee has pleasure in submitting this report,

as required by section 72(4) to section 72 (10) of the Companies Act

2008, as amended (“the Act”) and regulation 43 to the Act.

FUNCTIONS OF THE SOCIAL AND ETHICS COMMITTEE

To ensure that the committee fulfils its responsibilities in line with the

Companies Act, 2008 (as amended) and King III, the composition of

the committee has been expanded. A number of personnel within

the company, who are the drivers of the underlying functions of the

committee, has been invited to join the meetings. In line with the Act,

the invitees do not have voting powers. The committee also considers

reports and information generated by the subsidiary companies to their

respective boards. The committee reports back to the board of HCI and

all decisions taken are decided by the board of directors.

The social and ethics committee has discharged the monitoring

functions in terms of regulation 43.5 of the act as follows:

• Social and ethic development, including the standing of the

company with regard to:

• the10principlessetout in theUnitedNationsGlobalCompact

Principles; and

• theEmploymentEquityAct;and

• theBroad-BasedBlackEconomicEmpowermentAct;

• Goodcorporatecitizenship

• Environment,healthandpublicsafety

• Labourandemployment

The sustainability report on pages 41 to 47 incorporates the various

aspects overseen by the committee.

Dr LM Molefi

Chairperson

29 August 2012

40

SUSta INaB I L I tY report

This report outlines HCI’s sustainability initiatives from an environmental,

social and economic perspective. It focuses on issues that can be

aggregated to Group level and which can be sensibly governed by the

Group with a common set of policies and reporting protocols.

The Group is reporting according to Global Reporting Initiative

Reporting Index (“GRI”) Reporting Framework in order to promote

a standardised approach to sustainability reporting. A range of key

economic, social and environmental indicators have been selected

to report on sustainability practices within the Group to benchmark

progress year on year. These indicators fall in line with the GRI but are

not exhaustive.

Implementing sustainable business practices is a journey for every

organisation. To succeed along this path of continuous improvement,

the principles of sustainable development need to be embedded in our

organisation’s strategy and culture.

HIGHLIGHTS

• HCIreducedoverallscope1and2emissionsby16.4%

• HCI established a social and ethics committee tasked with

monitoring the social, economic and environmental impacts of HCI.

• HCIretainedit’sleveltwostatusasacontributortoBroad-Based

Black Economic Empowerment based on the new (post February

2012) standards.

• OverR22million spentonsocial responsibility projects andover

R33 million spent on enterprise development

• Golden Arrow buses continuedwith its investment in newmore

efficient buses. By the end of 2012, Golden Arrow will have

approximately 700 new, Euro3 specification buses in service,

accounting for more than two thirds of its total fleet.

• Continuedinvestmentinemployeetraininganddevelopment,with

over R25 million being spent on employee skills development in the

past financial year.

RECOGNITION

• TheTextilesGroupwithinSeardel,specificallyFrameNewGermany

and Frame Mobeni, is committed to a process of continual

environmental improvement, which is achieved by compliance with

all requirements of the SANS ISO14001 Standard for Environmental

Management System.

• Syntell, aswell asmultipledivisionswithinSeardel, are ISO9001

compliant.

• HCICoalmaintainsaHealth,Safety,Environmental,Communityand

Quality Management system (HSEC and QMS) in accordance with

the international standard BS8800/OHSAS18001, and is currently

drafting a programme to implement ISO9001, 14001 and 18001.

• BasedonindependentresearchbytheCRFInstitute,whichisan

organisation which identifies best employers, the Tsogo Sun Group

has been certified as a Best Employer South Africa 2011/12.

ENVIRONMENTAL

HCI and its subsidiaries are committed to the protection of the environment

through the implementation of effective environmental management

programs. At a minimum, the Group endeavours to comply with

environmental legislation and makes every reasonable effort to exceed its

formal obligations for protecting the environment. As an example of an

initiative implemented by a subsidiary, Golden Arrow Bus Services collects

and returns used motor oil to the manufacturer for recycling. Approximately

160 000 litres of used motor oil was collected and returned for recycling

during the previous financial year. A single litre of used oil, if improperly

disposed of, can find its way into the groundwater and render 1,000,000

litres of water almost undrinkable. This is enough water to cover the needs

of 13 people for a year.

The Group is taking reasonable steps to inform its employees of their

duties and obligations to prevent, contain and clean up the release

of pollutants generated at locations under the Group’s control or as

the result of Group’s activities and with the applicable regulations

and procedures for protecting the environment. Where appropriate,

the Group has established, and shall continue to establish, special

procedures and programs to assist in preventing the release of

pollutants, the containment of pollutants, cleaning up spills and recycling

materials.

Climate and Energy

All our subsidiaries are now collecting energy and emissions data on

an annual basis, and HCI responds yearly, as a Group, to the Carbon

Disclosure Project (CDP).

HCI is actively engaging with project developers, in terms of the SA

governments Renewable Energy IPP Procurement Programme with the

aim to invest in renewable energy projects. Currently HCI has a host of

products and services that directly enables third parties to reduce their

emissions. For example:

• Syntell isactively involved in road trafficmanagement,withCape

Town, Johannesburg, Durban and Pretoria municipalities employing

their traffic management systems to reduce congestion and hence

total vehicle emissions in these cities. Reductions in emissions are

difficult to estimate, and these types of emissions reductions would

not be eligible under any carbon offset initiatives.

• Golden Arrow Bus Services (GABS) is a public transport

provider which operates a fleet of over 1000 buses in the Cape



Town metropolitan area. GABS carried approximately 56 million

passengers during the past year. Any modal shift from private

to public transport will result in a decrease in GHG emissions.

Reductions in emissions are difficult to estimate, and these types

of emissions reductions would not be eligible under any carbon

offset initiatives. It is estimated that every passenger that shifts

from using their private motor vehicles to GABS transport to get

to work and back would result in an average of 0.5 tons CO2e

saved per annum.

• Formex is involved in the production of the boxes for catalytic

converters which directly reduces vehicle exhaust emissions.

• Montaukisinvolvedintheconversionandsaleoflandfillgas.Any

shift from the use of fossil fuel such as coal to the use of High

Btu gas as generated by Montauk would result in a decrease in

emissions. Three landfill gas projects are currently producing offset

credits under the California Climate Action Reserve. During 2011

approximately 154 000 metric tons CO2 equivalent were avoided

as a result of these projects. This figure is based on the amount

of credits that were sold during 2011. Further, through the sale of

landfill gas and electricity generated at landfill gas sites, and the

flaring of land fill methane, Montauk directly enabled the avoidance

of 4 125 745 tons CO2e.

• Seardel has a division which manufactures a product known as

Isotherm. This product is used in factories and homes for roof and

wall insulation, effectively reducing energy requirements and hence

reduces carbon emissions.

Energy Eff iciency

During the past financial year HCI has, in aggregate, reduced total

scope1and2emissionsby16.4%.Thiswasmainlyduetoincreased

energy efficiency of the Tsogo Sun and Seardel operations.

Scope 1 emissions increased mainly due to the improvement in the

data collection process and also in part to HCI Coal significantly

increasing mining production.

The Group’s emissions for the financial year ending 31 March 2012

are as follows:

Subsidiary

Scope 1 Scope 2

2012 tons

CO2e

2011 tons

CO2e

2012tons

CO2e

2011 tons

CO2e

BSG 0 0 532 0

Sabido 355 344 6 241 6 551

Formex 232 413 15 273 4,846

Golden Arrow Bus Services 67 064 73 493 3 636 3 363

Galaxy Bingo 20 17 2 494 1 380

Gallagher 0 340 0 9 047

HCI Coal 16 073 12 873 5 435 4 080

Montauk 9 186 8 912 21 652 30 785

Seardel 13 787 7 834 77 823 65 219

Syntell 935 774 618 1 352

Tsogo 1 686 1 172 172 016 264 257

Vukani 1 591 1 498 630 619

Total 110 929 107 670 306 350 391 499

The GHG Protocol Corporate Standard is designed to prevent double

counting of emissions between different companies by separating

scope 3 emissions from those of scope 1 and 2. Nevertheless we

disclose scope 3 in view of the relatively large numbers involved

through mining coal. HCI believes that reporting only on Scope 1 and

Scope 2 is too narrow a view and has therefore included Scope 3

emissions where possible.

Description

Scope 3

2012Tons CO2e

2011Tons CO2e

Emissions from purchase of fossil fuels 27 126 19 411

Emissions from business travel in commercial airlines 2 553 1 341

Emissions from business travel in rental cars 81 0

Emissions from consumption of office paper 1 951 386

Use of sold goods and/or services * 4 873 870 3 549 577

TOTAL 4 905 581 3 570 715

42


* According to the Scope 3 Accounting and Reporting by the

Greenhouse Gas Protocol Initiative, the product sold by HCI Coal

can be classified as product type 3: Fuels including fossil fuels.

Product type = tons sold * fe

fe = emission factor associated with the use of that product.

Calculations were performed using the Defra conversion factor of

2271.2 kgs CO2e / tons of coal sold.

Offset of emissions:

If we include our “offset” emissions from Montauk, which include

154 000 tons CO2e, along with 4 125 745 tons CO2e, our Scope 3

emissions can be seen as a vastly reduced number of 624 676 tons

CO2e.

Water

HCI and the majority of the subsidiaries are not vast waters users.

The largest user of water in the Group is undoubtedly the coal mining

operations of HCI Coal using approximately 3 million cubic meters of

reclaimed water per year. All the water required for the operations is

reclaimed from the mining pit, and no additional sources of water are

used. The water use of the mine is strictly controlled by the Department

of Water Affairs and Forestry, and the mine operates within the

boundaries as dictated to it by the Department.

However, HCI and its subsidiaries go beyond compliance needs and

aims to reduce water usage wherever it can. The subsidiaries have

various initiatives in place, including recycling of water, the use of

boreholes where possible, and the Water Wise campaigns, where

applicable. In total, the group, excluding HCI Coal, consumed 4.1 million

cubic meters of water in the period under review.

Waste

Most subsidiaries employ the services of external recycling contractors

to sort and recycle their waste. All waste disposed of in this way is

sorted, weighed, recorded and then recycled.

The Hydrocarbon condensate is produced by Montauk as a by-product

in the process of extracting landfill gas. However, this is recycled

through an energy recovery process.

Total waste in tons for the year is detailed below.

Waste Category Unit Total

General waste to landfill tons 14 017

Used oil kilolitres 31 184

Industrial effluent kilolitres 292 254

Fabric and general textile waste tons 119

Filter dust tons 720

Other general tons 98

Waste paper tons 247

Glass tons 0

Steel tons 29 987

Plastic tons 625

Non-condensate hazardous waste tons 2 554

Hydrocarbon condensate tons 2 434

The increase in the numbers compared to 2011 is as a result of the

improvement in data collection and quality in the last financial year. This

is only the second year in which HCI has collected sustainability related

data across the group and the third year of collecting carbon emissions

data.

Biodiversity

Two of our subsidiaries operate in known, protected areas, namely

the Cape Town Film Studios, which is part of the Sabido Group,

and Montauk Energy. The Cape Town Film Studios are situated on a

site composed of a mosaic of wetlands and patches of irreplaceable

and critically endangered Swartland Shale Renosterveld. In order

to protect this endangered area, berms have been constructed

as boundaries between operational areas and wetland areas.

Hazardous waste containers are to be built to further prevent any

spillage into storm water drains and prevent resultant spills into the

wetlands.

Montauk Energy operates in areas that include the unique coastal

sage scrub. A number of rare and endangered species occur in



Southern coastal scrub habitats. Montauk has fully developed

action plans to protect these endangered species, as is required

under California building law.

PRODUCT RESPONSIBILITY

Customer Health and Safety

HCI, through its subsidiaries, works systematically on product safety

and compliance to guarantee that its products meet the requirements

imposed by applicable legislation, customers and voluntary agreements

in trade associations.

Since HCI’s product and services range is highly diversified, a variety

of routines and processes relating to product safety are in place across

the different subsidiaries. As a rule, however, these include safety

and quality assessments of raw material, quality assurance, hygiene

standards, information to customers, and processes for dealing with

complaints and product recalls. Procedures related to product safety

are well established and involve marketing, sourcing, research and

development and quality.

Compliance

HCI respects and complies with the laws of the countries in which it

operates. This includes corporate laws, common law as well as specific

laws, including regulations of all the gambling boards, mining and

energy laws. The Group operates in a highly regulated environment and

where necessary, compliance officers have been appointed at each of

the Group’s key operating subsidiaries and associated company levels

for ensuring adherence to the various Acts and Codes that govern

the day-to-day operations. Each group company has its own board of

directors responsible for the management, including risk management

and internal control, of that company and its business.

Customer satisfaction

Customer satisfaction is the responsibility of the subsidiary, which

sells the product and or service. Each subsidiary considers customer

satisfaction as critical to their success and there are established

procedures within relevant subsidiaries to measure and ensure

customer satisfaction is achieved. The procedures include customer

surveys and questionnaires, dialogue and complaints logging systems.

All of this is to procure customer retention.

Gaming Marketing

Gaming companies in the Group adhere to the standards set by

the National Responsible Gaming Association (NRGA). The NRGA

requires a disclosure on all marketing material stating “The Company

supports responsible gambling. Gambling only for persons 18 years

and older. Winners know when to stop. National Responsible Gambling

Program Toll-Free Counselling Line: 0800 006 008”.

ECONOMIC

Regulatory Risks

A number of the HCI subsidiaries operate in heavily regulated

environments. Infringement of regulations could result in penalties,

fines, or even the loss of a license to operate. The gaming entities

(Vukani Gaming Corporation, Galaxy Bingo and Tsogo Sun) are

regulated by various gambling boards who attach specific conditions

to gambling licenses. In the case of non-compliance the license can

be revoked. Sabido is required to abide by local content regulations.

Sabido is required to pay radio spectrum fees which impose additional

costs on the business.

Training and Education

There is continuous training and development of employees across all

subsidiaries. The Group invests significant resources in competence

development to strengthen employees’ abilities to build a career within

the Group. During the past financial year, the Group spent R22.5 million

on skills development, which equates to 1.6% of the total payroll.

Employees within specific income categories can apply for assistance

to educate their children through a HCI bursary scheme.

Health and Safety

All subsidiaries operate in accordance with the Health and Safety Act.

HCI subsidiaries continuously pursue health and safety activities that

aim to reduce the risk of accidents and reinforce safety awareness,

thereby also increasing productivity. Health and Safety Committees

are established in those subsidiaries where it is deemed necessary

as per legislation. HCI Coal is also in the process of establishing the

framework for implementing the OHSAS18001 standard to ensure it

maintains world-class health and safety standards.

Labour and management relations

HCI recognises the right of employees to freely associate, and thus

all HCI employees are free to join trade unions. However, the level of

trade union activity and the existence of formal collective bargaining

arrangementsvary fromsubsidiary tosubsidiary,withbetween10%

and90%ofemployeesinthedifferentsubsidiariesbeingcoveredby

collective bargaining agreements during the period under review.

44


TRANSFORMATION

HCI is committed to the transformation of South Africa’s society

and economy. The performance of the Group over the past years

and its BBBEE status demonstrates the company’s determination to

drive change. Voting rights by previously disadvantaged individuals

(PDIs) totals91.9%of theboardwith8outof10directorsbeing

previously disadvantaged, including two black females. Further, two

out of three senior top management positions are filled by PDIs.

Being a black-owned and controlled companywith 31.14% black

women ownership, any company that HCI acquires or invests in gets

the full recognition of black ownership.

The Group’s transformation efforts have to date been aligned with DTI

codes of good practice. HCI Group maintained a level 2 BBBEE status

withanoverallscoreof85.26%.ThisplacesHCIfirmlyamongstthetop

Empowerment Companies listed on the JSE.

HCI’s Broad based Black Economic Empowerment Profile is

summarised below:

BEE Category 2012 2011* 2010 2009

Ownership 23.00 23.00 23.00 23.00

Management control 9.19 9.39 9.45 9.50

Employment equity 8.67 9.46 10.11 10.60

Skills development 6.34 5.46 7.02 5.94

Preferential procurement 18.06 18.43 16.77 12.90

Enterprise development 15.00 15.00 15.00 15.00

Socio economic

development 5.00 5.00 5.00 5.00

Total% 85.26 85.74 86.35 81.94

Level Level 2 Level 2 Level 2 Level 3

* restated

HCI has a score of 18.06 out of a maximum of 20 points for Preferential

Procurement and has spent R 2 226 866 004 on black companies for

procurement.Thisisanincreaseinspendfromjustbelow50%in2011

to95.62%in2012.Further,HCIisclassifiedasaValueAddingVendor

withaBEErecognitionlevelof156%.Thisimpliesthatanycompany

procuring goods or services from HCI, or one of its subsidiaries, can

claim156%oftheirspendasBEEspend.

Enterprise development and socio-economic development scored

maximum points due to the high levels of investment in minorities and CSI

programs.

HUMAN RIGHTS

HCI has established a social and ethics Committee, which, including

Enviromental, Social and to ensure that HCI continues to support and

respect the protection of internationally proclaimed human rights. HCI

upholds the freedom of association and the effective recognition of

the right to collective bargaining within all subsidiaries. Any form of

discrimination, be it with respect to race, gender, employment and

occupation is not tolerated and is dealt with within the normal disciplinary

procedures. HCI promotes the elimination of all forms of forced and

compulsory labour, as well as the effective abolition of child labour. HCI

supports the fight against corruption in all its forms, including extortion

and bribery.


CORPORATE SOCIAL RESPONSIBILITY

The HCI Group places major importance on its corporate social investment activities, which are implemented and overseen by the HCI Foundation (“the foundation”). Further social investment is also funded by its group companies and its stakeholders, such as SACTWU (the single largest shareholder in HCI) the latter who fund these by dividends received from their investment in HCI.

In order to assist in maximising the impact of the funding committed by HCI to its foundation, various people from across the HCI Group (including HCI board members) are part of the permanent make up of the foundation. This varied skill base and experience compliment the full time employees of the foundation in providing guidance and in the application of the funds received for social investment projects. Furthermore, the foundation is part of, and reports to, the HCI Social and Ethics committee.

This well established foundation is, in essence, the co-ordinator and driver of the HCI Groups socio-investments which, during the period under review, totalled R28 million, the major portion being allocated tothegroupsprimaryinitiative,education(approximately58%ofthespend). The balance of the allocated funds was spread across health, environment and welfare projects (see table below).

Totalspendwasapproximately2.8%ofHCI’sheadlineearnings.

HCI Social Investment spend for period under review

SpendR’000 %ofspend

Tertiary education 10 186 36.15

Secondary education 1 000 3.55

Primary education 600 2.13

Early childhood development 1 668 5.92

Health 1 216 4.32

Environment 1 250 4.44

Welfare and social development 7 234 25.68

Administrative costs 5 020 17.81

Total as per audited financials 28 174 100.00

The above table excludes the monies spent by SACTWU on its CSI programmes, which are funded by its dividends from HCI, which totalled R45 million. Furthermore, the monies spent by HCI group companies on initiatives and programmes being implemented by them also has to be taken into account.

Tertiary education

As is evident from the allocation of the foundation spend on its corporate and social initiatives, the work of the foundation is primarily focussed on education projects. The overall objective of the foundation undergraduate bursary programme is to provide tertiary bursaries to financially and academically deserving students. Over 900 bursaries weregrantedthisyearandofthose85%ofthestudentsinthebursaryprogramme either graduated or continued with their studies.

Mentorship

The on-going Seardel initiative of a mentorship programme where 76 of the 83 students completed the academic year, is encouraging, and the programme went into its second year with 60 students continuing as mentees. The success of this initiative has encouraged other HCI group companies to implement mentorship initiatives. Senior employees across the group have committed themselves this year in engaging and making themselves available to mentor students who are part of the foundations bursary programme.

The results of the Seardel programme point out the obvious fact that it’s not only about funding, but also connecting with the students. During the course of the programmes, it is important to give these students life skills and coaching, as much as in giving them the funding for their studies. With this objective in mind, the foundation has encouraged other group companies and NGO’s to participate actively.

Primary and Secondary education

The foundation has specifically identified these areas of education to become involved in. The social accord that South African corporates assist failing institutions is somewhat different to that of what the foundation seeks to implement which identifies those institutions that are in part succeeding.

36.15

3.55 2.135.92

4.32

4.44

25.68

17.82


46

The foundation’s efforts are focussed on mobilising NGO’s, educational institutions amongst others, so as to promote broad based participation which allows outreach work of all participants to focus on these education initiatives. The foundation is working with, and funding, LEAP school initiatives. LEAP was further encouraged to get involved in outreach work with Litha Primary School in Gugulethu.

Applying the foundation’s philosophy of focussing on instructions where partial success is evident, LEAP was identified as a platform open to students who make the effort to apply themselves. The programme was further enhanced with the linking of LEAP 2, whose pupils are drawn from Gugulethu, with the private school, Herzlia. Both schools benefit from this relationship in terms of bridging gaps and engaging with cultural differences. They also work together to contribute to the disadvantaged members of the communities from which their learners are drawn.

Intervention at primary school has focused on two aspects: a continued commitment to enhanced learning support for teachers and pupils in terms of mathematics and literacy and secondly, the uplifting of underperforming schools. The foundation has partnered with Litha to essentially improve the numeracy and literacy levels of the learners as well as replicating and rolling out a workable model in other primary and secondary schools.

Other group initiatives

There are various other corporate social investment projects carried out by the foundation and other HCI group companies. These cover the support of clinics in Kwa Zulu Natal, upkeep of libraries, road safety programmes, HIV and AIDS education and prevention programmes and many more. A number of these projects are detailed in the published integrated reports of the listed subsidiaries.



approVaL oF aNNUaL F INaNcIaL StateMeNtS

DecLarat IoN BY coMpaNY SecretarY

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 summarised financial statements set out on pages 49 to 63 and the annual financial statements for the year ended 31 March 2012, available on the company website www.hci.co.za, have been prepared in accordance with International Financial 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 auditing 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 2012, which are available on the company website, were approved by the board of directors on 29 August 2012 and are signed on its behalf by:

MJA Golding JA Copelyn TG GovenderChairman Chief Executive Officer Chief Financial Officer

29 August 2012Cape Town

We certify that Hosken Consolidated Investments Limited has lodged with the Registrar of Companies, for the financial year ended 31 March 2012, 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.

HCI Managerial Services Proprietary LimitedCompany secretary29 August 2012Cape Town

48

NATURE OF BUSINESS

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

OPERATIONS AND RESULTS

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.

BASIS OF PREPARATION AND ACCOUNTING POLICIES The results for the year ended 31 March 2012 have been prepared in accordance with International Financial Reporting Standards (“IFRS”), the discolsure requirements of IAS 34, the AC 500 series of interpretations as issued by the Accounting Practices Board (“APB”), the requirements of the South African Companies Act, 2008, and the Listings Requirements of the JSE Limited. The accounting policies of the group are consistent with those applied for the year ended 31 March 2011. As required by the JSE Limited Listings Requirements, the group reports headline earnings in accordance with Circular 3/2009: Headline Earnings as issued by the South African Institute of Chartered Accountants.

The comparative results of a previous subsidiary and current associate, Tsogo Sun Holdings Limited (“TSH”), have been restated as follows:

In terms of IAS 19: Employee Benefits, a provision of R88 million relating to long service awards has been recognised retrospectively in the statement of financial position of TSH as at 31 March 2011 (2010: R55 million).

The impact of this restatement on the results presented by HCI was that the share of profits of associates and joint ventures decreased by R5,5 million, profit from discontinued operations increased by R7,9 million and earnings attributable to minority shareholders decreased by R6,8 million in the prior year. Opening equity attributable to equity holders of the parent was decreased by R5,5 million in the current year (2011: R14,7 million).

These financial statements were prepared under the supervision of the financial director, Mr T.G. Govender, B.Compt (Hons).

BUSINESS COMBINATIONS

MEDIA AND BROADCASTING DuringtheyearunderreviewSabidoInvestmentsacquireda100%interest in Powercorp International Limited, a London based global content distributor of films and television series with effect from 21

July 2011. An interest of 90% and 80% inMedia Film EquipmentServices Proprietary Limited and Media Film Services Incorporated, respectively, were acquired with effect from 1 September 2011. These entities sell and rent specialised equipment to the film industry. Inaddition,66%ofJacanaMediaProprietaryLimited,aprintpublisher,was purchased effective 1 March 2012. The acquired businesses contributed revenues of R94,3m and net losses after tax of R26,9m to the group for the year ended 31 March 2012. Had the acquisitions been effective on 1 April 2011, the contribution to revenue would have been R144,9m and losses of R28,2m would have been the contribution to profit before tax.

The details of the net assets acquired on the above business combinations, for which the purchase price has been allocated to the respective assets and liabilities, is as follows:

R’000

Non-current assets 51 966

Current assets 87 600

Non-current liabilities (23 449)

Current liabilities (47 950)

Net assets acquired 68 167

Minority interest 3 397

Goodwill on acquisition 35 697

Shares issued (8 912)

Cash balances acquired (13 164)

Net cash paid 85 185

OTHER BUSINESS COMBINATIONS

Asubsidiary,HCIAustralianOperations,acquired71,6%ofOceaniaCapital Partners Limited (“OCP”), an Australian Securities Exchange listed investment company, with effect from 10 February 2012. The acquisition was effected through a share repurchase offer by OCP in which HCI Australian Operations did not participate.

The details of the net assets acquired on the above business combination, for which the purchase price has been allocated to the respective assets and liabilities using provisional numbers, is as follows:

R’000

Non-current assets 362 627

Current assets 225 119

Non-current liabilities (2 875)

Current liabilities (49 339)

Net assets acquired 535 532

Minority interest (154 835)

Negative goodwill on acquisition (104 745)

Cash balances acquired (172 156)

Net cash paid 103 796

DIrectorS ’ report



The acquired business contributed revenues of Rnil and net profit after tax of R3,1m to the group for the year ended 31 March 2012. Had the acquisition been effective on 1 April 2011, the contribution to revenue would have been Rnil and profit of R13,5m would have been the contribution to profit after tax.

Discontinued operations and non-current assets held for sale

Discontinued operations as disclosed in the group income statement for the year under review relates to the following:

• ThedoormoduleandpulleydivisionofFormexIndustriesProprietaryLimited; and

• CertainclothingdivisionsofSeardelInvestmentCorporationLimited.

Discontinued operations as disclosed in the group income statement for the prior year relates mainly to the results of the group’s casino gaming and hotel business, following the merger of the group’s major gaming and hotel subsidiary, Tsogo Sun Holdings Proprietary Limited with Gold Reef Resorts Limited (GRR), culminating in the reverse listing of the Tsogo Sun group on the JSE Limited in March 2011, and resulting in the group diluting its interest in the new merged company from51%to41.3%.Accordingly,duetothelossofcontroloverthisbusiness, the results were reflected under discontinued operations.

The non-current assets held for sale, as disclosed in the group

statement of financial position, relate to the following:

•TheremainingassetsofthepulleydivisionofFormex,theoperationsof which had ceased in the year to March 2010; and

•CertainassetsoftheSeardelgroupwhichhavebeencommittedto being disposed of following the closure of the related divisions.

Comparative figures in the group income statement have been restated to reflect any changes to the above.

AUDITOR’S REPORT

The consolidated annual financial statements have been audited by PKF (Jhb) Inc. and their unqualified audit report on the comprehensive annual financial statements and the summarised annual financial statements are available for inspection at the registered office of the company.

DIRECTORATE

The directors of the company appear on page 2. Details of changes are set out on page 30.

SHAREHOLDING OF DIRECTORS

The shareholding of directors of the company and their participation in the share incentive scheme and in the issued share capital of the company as at 31 March 2012, are set out in the remuneration report on pages 35 to 38 and in notes 39 and 40 respectively in the annual financial statements.

DIRECTORS’ EMOLUMENTS

Directors’ emoluments incurred by the company and its subsidiaries for the year ended 31 March 2012 are set out in the remuneration report on page 39 and in note 41 in the annual financial statements.

SECRETARY

The secretary of the company is HCI Managerial Services Proprietary Limited. There was no change in the office of the Company Secretary. The name, business and postal address of the Company Secretary are set out on page 2 of this report.

SUBSIDIARIES

Details of the company’s subsidiaries are set out in the annexure A in the annual financial statements available on the company website www.hci.co.za.

BORROWING POWERS

There are no limits placed on borrowing in terms of the memorandum of incorporation. 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.

LITIGATION STATEMENT

There are no material legal or arbitration proceedings (including proceedings which are pending or threatened of which the directors of HCI are aware) which may have or have had, during the 12-month period preceding the last practicable date, a material effect on the financial position of HCI.

MATERIAL CHANGE

There has been no material change in the financial or trading position of the HCI group since the publication of its provisional results for the year ended 31 March 2012.

SPECIAL RESOLUTIONS The following special resolutions were passed by the company’s shareholders at the Annual General Meeting held on 24 October 2011:• Approval of the fees payable to non-executive directors for their

services as directors or as members of the board sub-committees in respect of the financial period ended 31 March 2012;

•Grantingthecompanyandthesubsidiariesofthecompanyageneralauthority in terms of the listings requirements of the JSE Limited for the acquisition by the company, or a subsidiary of the company, of ordinary issued shares issued by the company;

50


• Authorisation for the company to provide financial assistance toits holding company (if any) and/or its subsidiary companies from time to time during the ensuing two years if the directors consider it necessary or expedient for the purposes of the conduct of the business and affairs of the company, its holding company (if any) and/or its subsidiary companies.

SPECIAL RESOLUTIONS OF SUBSIDIARIES

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

DIVIDEND TO SHAREHOLDERS

Ordinary dividend number 44, in the amount of twenty cents per share, was paid to shareholders on 12 December 2011.

The directors of HCI have resolved to declare ordinary dividend number 45 of 70 cents (gross) per HCI share. The salient dates for the payment of the dividend are as follows:

Last day to trade cum dividend Friday, 15 June 2012Commence trading ex dividend Monday, 18 June 2012Record date Friday, 22 June 2012Payment date Monday, 25 June 2012

No share certificates may be dematerialised or rematerialised between Monday, 18 June 2012 and Friday, 22 June 2012, both dates inclusive.

In terms of the new Dividends Tax (“DT”) effective 1 April 2012, the following additional information is disclosed:

• ThelocalDTrateis15%.• ThetotalSTCcreditsutilisedaspartofthisdeclarationamount

to R91 455 930.

• The number of ordinary shares in issue at the date of thisdeclaration is 132 976 996.

• ThetotalSTCcreditsutilisedpershareamountto70centspershare.

• ThedividendtoutilisefordeterminingtheDTdueisNilcentspershare.

• TheDTamountstoNilcentspershare.• The net local dividend amount is 70 cents per share for all

shareholders who are not exempt from the DT.• Hosken Consolidated Investments Limited’s income tax

reference number is 9050/177/71/7.

In terms of the DT legislation, any DT amount due will be withheld

and paid over to the South African Revenue Services by a nominee-company, stockbroker or Central Security Depository Participant (collectively “regulated intermediary”) on behalf of shareholders. All shareholders should declare their status to their regulated intermediary, as they may qualify for a reduced DT rate or exemption in future.

SUBSEQUENT EVENTS

The following events have occurred subsequent to the reporting date:

- The group has announced the separate listing of its subsidiary Niveus Investments Limited on the JSE Limited. HCI shareholders will be afforded the opportunity to swop approximately 3% of their HCIshares for shares in Niveus Investments Limited up to a maximum of 45%ofNiveusInvestmentsLimited.

Refer note 47 in the annual financial statements for further information.

Other than as previously detailed in this report, the directors are not aware of any event or circumstance occurring between the reporting date and the date of this report that materially affects the results of the Group or company for the year ended 31 March 2012 or the financial position at that date.



ORDINARY SHARE CAPITAL

Authorised

Ordinary shares of 25 cents each 450 000 450 000 112 500 112 500

Issued

In issue in company 132 977 132 401 33 244 33 100

Acquired and pending cancellation ( 1 000) (1 000) ( 250) ( 250)

In issue in company 131 977 131 401 32 994 32 850

Treasury shares held by subsidiary and employee share trust ( 5 779) (5 312) (1 444) (1 328)

126 198 126 089 31 550 31 522

Details of the issued share capital and share premium and changes during current and prior the year are as follows:

Number of shares

Share capital Share premium

'000 R'000 R'000

In issue at 31 March 2010 131 401 32 850 937 299

Treasury shares held by subsidiary and employee share trust (5 312) (1 328) (238 948)

In issue at 31 March 2011 126 089 31 522 698 351

In issue at 31 March 2011 131 401 32 850 937 299

Shares issued 576 144 41 042

Treasury shares held by subsidiary and employee share trust ( 5 779) (1 444) (273 864)

In issue at 31 March 2012 126 198 31 550 704 477

Details of options over shares are set out on pages 35 to 37.

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

2012 2011 2012 2011

Number of shares

’000 ’000 R’000 R’000

SHARE CAPITAL

Details of the authorised and issued share capital are set out below:

52

INcoMe StateMeNtSSUMMar ISeD aNNUaL F INaNcIaL StateMeNtS

Group Company

2012 2011* 2012 2011

Notes R'000 R'000 R'000 R'000

Revenue 29 7 092 277 6 319 790 - -

Net gaming win 519 396 403 292 - -

7 611 673 6 723 082 - -

Depreciation and amortisation (376 088) (316 638) - -

Other operating expenses and income (6 109 766) (5 440 481) (7 604) 12 745

Investment income 30 59 694 78 323 200 308 453 769

Share of profits of associates and joint ventures 697 127 77 707 - -

Gain on bargain purchase 107 659 - - -

Investment surplus 31 162 203 57 195 1 282 325 5 169

Fair value adjustments of investment properties (47 736) 84 303 - -

Other impairment reversals 20 365 5 691 70 453 1 384

Asset impairments (54 652) (43 483) - -

Fair value adjustments of financial instruments 75 768 (1 179) - -

Impairment of goodwill and investments 32 (27 712) (37 195) (6 759) (32 208)

Finance costs 33 (193 845) (245 483) - (9 097)

Profit before taxation 34 1 924 690 941 842 1 538 723 431 762

Taxation 35 (466 583) (256 367) (72) (2 134)

Profit for the year from continuing operations 1 458 107 685 475 1 538 651 429 628

Discontinued operations 36 (20 277) 6 329 424 - -

Profit for the year 1 437 830 7 014 899 1 538 651 429 628

Attributable to:

Equity holders of the parent 1 217 978 6 427 527

Minority interest 219 852 587 372

1 437 830 7 014 899

Earnings per share (cents) 37 957.91 5 095.75

Continuing operations 973.86 362.20

Discontinued operations (15.95) 4 733.55

Diluted earnings per share (cents) 37 927.63 4 928.33

Continuing operations 943.07 350.30

Discontinued operations (15.44) 4 578.03

* Restated




Group Company

2012 2011* 2012 2011

Notes R'000 R'000 R'000 R'000

Profit for the year 1 437 830 7 014 899 1 538 651 429 628

Other comprehensive income/(loss) net of tax: 20

Foreign currency translation differences 150 977 (37 653) - -

Share of other comprehensive income of associate (8 411) 23 081 - -

Asset revaluation reserve (4 360) (20 635) - -

Total comprehensive income for the year 1 576 036 6 979 692 1 538 651 429 628

Attributable to:

Equity holders of the parent 1 349 708 6 394 376

Minority interest 226 328 585 316

1 576 036 6 979 692

* Restated

StateMeNtS oF otHer coMpreHeNS IVe INcoMeSUMMar ISeD aNNUaL F INaNcIaL StateMeNtS

54

StateMeNtS oF F INaNcIaL poS I t IoN

Group Company

2012 2011* 2010* 2012 2011

Notes R'000 R'000 R'000 R'000 R'000

Assets

Non-current assets 13 854 788 12 879 841 14 984 202 4 159 968 2 610 537

Property, plant and equipment 1 2 932 761 2 769 835 9 660 977 - -

Investment properties 2 557 886 564 685 218 585 - -

Goodwill 3 157 796 144 205 1 544 195 - -

Intangible assets 4 609 254 488 646 565 506 - -

Intangible assets mining 5 92 094 88 572 78 896 - -

Investments in associates 6 8 846 255 8 428 816 2 278 435 7 171 8 745

Investments in joint ventures 7 388 924 7 630 126 719 - -

Other financial assets 8 105 869 116 230 62 827 - -

Subsidiary companies 9 - - - 3 952 574 2 436 367

Deferred taxation 10 67 928 189 203 246 508 - -

Operating lease equalisation asset 11 8 258 2 658 962 - -

Finance lease receivables 12 43 402 36 581 38 626 - -

Non-current receivables 13 44 361 42 780 161 966 200 223 165 425

Current assets 3 285 616 2 948 801 3 790 747 9 385 76 198

Inventories 14 701 024 684 755 743 803 - -

Programme rights 15 198 340 262 477 268 631 - -

Other financial assets 8 76 111 32 759 32 896 - -

Trade and other receivables 16 1 573 228 1 377 609 1 444 695 3 951 43

Taxation 15 463 11 069 9 137 - -

Cash and cash equivalents 38.5 721 450 580 132 1 291 585 5 434 76 155

Non-current assets/disposal group assets held for sale

18 15 288 35 218 110 886 - -

Total assets 17 155 692 15 863 860 18 885 835 4 169 353 2 686 735

* Restated

A S AT 31 M A RC H 2012

SUMMar ISeD aNNUaL F INaNcIaL StateMeNtS


StateMeNtS oF F INaNcIaL poS I t IoNA S AT 31 M A RC H 2012

Group Company

2012 2011* 2010* 2012 2011

Notes R'000 R'000 R'000 R'000 R'000

Equity and liabilities

Capital and reserves 12 836 030 11 226 344 8 348 984 3 977 536 2 500 940

Ordinary share capital 19 31 550 31 522 31 361 32 994 32 850

Share premium 19 704 477 698 351 683 917 978 341 937 299

Other reserves 20 157 463 10 793 82 394 -

Accumulated profits 10 884 213 9 759 743 3 835 571 2 966 201 1 530 791

Equity attributable to equity holders of the parent

11 777 703 10 500 409 4 633 243 3 977 536 2 500 940

Minority interest 1 058 327 725 935 3 715 741 - -

Non-current liabilities 1 592 601 2 350 869 5 941 904 - -

Financial liabilities 21 - - 18 836 - -

Operating lease equalisation liability 11 1 808 4 447 287 429 - -

Borrowings 22 1 275 373 2 056 658 4 657 471 - -

Finance lease liabilities - - 57 736 - -

Post retirement medical benefit liabilities 23 133 544 115 353 135 474 - -

Long term incentive plan - - 15 964 - -

Long term provisions 24 83 978 60 273 107 447 - -

Deferred revenue 25 - - 17 480 - -

Deferred taxation 10 97 898 114 138 644 067 - -

Current liabilities 2 721 263 2 270 279 4 574 694 191 817 185 795

Trade and other payables 26 1 112 977 1 228 716 1 634 071 81 217 76 660

Financial liabilities 21 14 383 2 492 58 762 - -

Amounts owing to subsidiary companies 9 - - - 70 143 67 560

Current portion of borrowings 22 886 362 547 691 2 160 130 - -

Current portion of finance lease liabilities - - 4 710 - -

Taxation 94 494 75 917 110 346 40 457 41 575

Provisions 24 144 738 137 137 250 164 - -

Current portion of long term incentive plan - - 24 322 - -

Bank overdrafts 27 468 309 278 326 332 189 - -

Non-current liabilities/disposal group liabilities held for sale 18 5 798 16 368 20 253 - -

Total equity and liabilities 17 155 692 15 863 860 18 885 835 4 169 353 2 686 735

* Restated


56

StateMeNtS oF cHaNGeS IN eQUItYFoR THE Y E A R EnDED 31 M A RC H 2012

Sharecapital

Share premium

OtherReserves

Accumulatedprofits

Minority interest Total

Notes R'000 R'000 R'000 R'000 R'000 R'000

GROUP

Balances as restated at 31 March 2010 31 361 683 917 82 394 3 835 571 3 715 741 8 348 984

Balance as previously stated 31 361 683 917 82 394 3 850 276 3 741 023 8 388 971

Prior period restatement 48 - - - (14 705) (25 282) (39 987)

Share capital and premium

Treasury shares released 19 161 14 434 - - - 14 595

Current operations

Total comprehensive income - - (35 606) 6 429 982 585 316 6 979 692

Equity settled share-based payments - - 13 673 2 137 - 15 810

Transfers - - (49 668) 49 668 - -

Minority interest on acquisition of subsidiaries - - - - (2 592) (2 592)

Effects of changes in holding - - - 12 556 (27 148) (14 592)

Capital reductions and dividends - - - (96 924) (88 918) (185 842)

Disposal and dilution of interest in subsidiaries - - - - (2 729 711) (2 729 711)

Share buy-back in subsidiary - - - (473 247) (726 753) (1 200 000)

Balances as restated at 31 March 2011 31 522 698 351 10 793 9 759 743 725 935 11 226 344

Balance as previously stated 31 522 698 351 10 793 9 765 248 725 935 11 231 849

Prior period restatement 48 - - - (5 505) - (5 505)


Treasury shares released 19 28 6 126 - - - 6 154

Current operations

Total comprehensive income - - 131 730 1 217 978 226 328 1 576 036

Equity settled share-based payments - - 14 940 - - 14 940

Minority interest on acquisition of subsidiaries - - - - 160 350 160 350

Effects of changes in holding - - - 8 270 2 595 10 865

Capital reductions and dividends - - - (101 778) (56 384) (158 162)

Disposal of interest in subsidiaries - - - - (497) (497)

Balance at 31 March 2012 31 550 704 477 157 463 10 884 213 1 058 327 12 836 030




Sharecapital

Share premium

Accumulatedprofits Total

Notes R'000 R'000 R'000 R'000

COMPANY

Balances at 31 March 2010 32 850 937 299 1 199 458 2 169 607

Current operations

Total comprehensive income - - 429 628 429 628

Dividends - - (98 295) (98 295)



Shares issued 19 144 41 042 - 41 186

Current operations

Total comprehensive income - - 1 538 651 1 538 651

Dividends - - (103 241) (103 241)


StateMeNtS oF cHaNGeS IN eQUItYSUMMar ISeD aNNUaL F INaNcIaL StateMeNtS

58

caSH F LoW StateMeNtS

Group Company

2012 2011 2012 2011

Notes R'000 R'000 R'000 R'000

Cash flows from operating activities 687 563 1 968 597 88 923 453 619

Cash generated/(utilised) by operations 38.1 1 515 904 3 220 105 ( 7 604) 12 745

Investment income 55 178 99 912 200 308 453 769

Changes in working capital 38.2 ( 223 751) ( 10 247) 650 95 560

Cash generated by operating activities 1 347 331 3 309 770 193 354 562 074

Finance costs ( 185 073) ( 559 639) - ( 9 097)

Taxation paid 38.3 ( 321 164) ( 595 692) ( 1 190) ( 1 063)

Dividends paid ( 153 531) ( 185 842) (103 241) ( 98 295)

Cash flows from investing activities ( 430 244) (2 059 505) ( 200 830) ( 475 383)

Business combinations 38.4 ( 200 531) ( 312 005) - -

Investment in:

- Subsidiary companies ( 10) (1 213 809) ( 202 404) ( 480 394)

- Associated companies and joint ventures ( 43 774) ( 325 088) - -

- Other - ( 13 057) - -

Dividends received 328 984 64 338 - -

Short term loans repaid - 14 399 - -

Decrease/(increase) in long term receivables 7 380 ( 113 595) - -

Proceeds on disposal of investments 252 758 591 721 1 574 5 011

Intangible assets acquired ( 124 076) ( 117 423) - -

Additions to investment properties ( 125 580) ( 60 683) - -

Property, plant and equipment:

- Additions (expansion) ( 420 147) ( 689 785) - -

- Additions (maintenance) ( 132 602) - - -

- Disposals 27 354 115 482 - -

Cash flows from financing activities ( 345 337) ( 558 794) 41 186 -

Ordinary shares issued and treasury shares sold 6 154 14 595 41 186 -

Change in minority shareholders 1 288 ( 4 071) - -

Long term funding repaid ( 352 779) ( 569 318) - -

Cash and cash equivalents

Movements ( 88 018) ( 649 702) ( 70 721) ( 21 764)

At beginning of year 308 241 959 539 76 155 97 919

Foreign exchange difference 32 918 ( 1 596) - -

At end of year 38.5 253 141 308 241 5 434 76 155




60

recoNcI L Iat IoN oF HeaDL INe earNINGS

2012 2011

R’000 R’000

EARNINGS AND DIVIDENDS PER SHARE

Earnings per share as presented on the income statement is based on the weighted average number of 127 149 389 ordinary shares in issue (2011 : 126 134 684).

Diluted earnings per share is based on the weighted average number of 131 299 894 ordinary shares in issue (2011: 130 420 048).

Reconciliation of weighted average number of shares:

Used in calculation of earnings per share 127 149 389 126 134 684

Options outstanding in employee share scheme 4 150 505 4 285 364

Used in calculation of diluted earnings per share 131 299 894 130 420 048

Headline earnings per share (cents) 802.34 572.88

- Continuing operations 813.68 285.26

- Discontinued operations (11.34) 287.62

Diluted headline earnings per share (cents) 776.97 554.06

- Continuing operations 787.96 275.89

- Discontinued operations (10.99) 278.17

Reconciliation of headline earnings:

2012 2011

Gross Net Gross Net

R'000 R'000 R'000 R'000

Earnings attributable to equity holders of the parent 1 217 978 6 427 527

IAS 16 gains on disposal of property ( 75 336) ( 53 463) - -

IAS 16 gains on disposal of plant and equipment ( 9 878) ( 8 875) ( 6 479) ( 1 980)

IAS 16 impairment of plant and equipment 53 542 47 488 4 000 3 420

IAS 38 impairment of intangible assets 7 609 7 575 - -

IAS 36 impairment of goodwill 27 712 24 704 37 195 33 475

IFRS 3 gain or bargain purchase ( 107 659) ( 85 655) - -

IAS 28 gain on disposal of associates - - ( 401) ( 404)

IAS 36 impairment of assets - - 370 133 209 809

IAS 36 reversal of impairments ( 20 365) ( 15 903) ( 46 986) ( 35 460)

IAS 27 profit from disposal of subsidiary ( 86 867) ( 74 706) (5 807 523) (5 754 925)

IAS 40 fair value adjustment to investment property 47 736 38 122 ( 105 878) ( 82 955)

IAS 39 profit on disposal of available for sale asset - - ( 33 398) ( 33 223)

Re- measurements included in equity-accounted earnings of associates ( 77 429) ( 77 100) ( 42 685) ( 42 685)

Headline earnings attributable to equity holders of the parent 1 020 165 722 599



2012 2011 2012 2011

R’000 R’000 R’000 R’000

SeGMeNtaL INForMat IoNSUMMar ISeD aNNUaL F INaNcIaL StateMeNtS

The following are the summarised results for the various reportable operating segments:

Revenue Net gaming win

Continuing operations

Media and broadcasting 1 915 134 1 620 397 - -

Limited payout gaming 6 982 6 527 417 982 327 979

Information technology 326 348 256 051 - -

Transport 1 021 412 963 619 - -

Vehicle component manufacture 455 578 440 757 - -

Mining 513 012 363 166 - -

Natural gas 257 022 214 871 - -

Clothing and textiles 2 506 794 2 358 986 - -

Exhibition and properties 78 289 66 843 - -

Other 11 706 28 573 101 414 75 313

7 092 277 6 319 790 519 396 403 292

Discontinued operations

Media and broadcasting - 232 137 - -

Conferencing and exhibition - 92 946 - -


Clothing and textile 49 897 170 519 - -

Casino gaming and hotels - 2 421 816 - 3 321 889

58 279 2 921 162 - 3 321 889

Segment Result (profit before tax)

Continuing operations

Media and broadcasting 639 181 555 687

Limited payout gaming 85 950 56 288

Casino gaming and hotels 708 895 36 678

Information technology 47 288 46 277

Transport 129 988 159 062

Vehicle component manufacture ( 19 210) ( 42 506)

Food and beverage ( 6 883) -

Exhibition and properties 66 922 146 421

Mining 42 469 17 720

Natural gas ( 74 165) ( 44 445)

Clothing and textile 149 327 96 351

Other 154 928 ( 85 691)

1 924 690 941 842

62

Segment Result (profit after tax)

Discontinued operations

Media and broadcasting - 50 856

Conferencing and exhibition - 11 603

Vehicle component manufacture 986 ( 5 195)

Clothing and textile ( 21 442) ( 95 440)

Natural gas 179 676

Casino gaming and hotels - 6 366 924

( 20 277) 6 329 424

Assets Liabilities

Media and broadcasting 1 819 168 1 482 529 509 137 550 793


Casino gaming and hotels 8 422 498 8 021 225 - -

Information technology 183 069 229 428 69 318 123 317

Transport 985 452 903 104 577 144 505 646

Vehicle component manufacture 193 615 268 387 166 237 221 842

Mining 584 734 540 403 96 211 64 967

Natural gas 731 380 900 355 267 672 257 321

Exhibition and properties 296 255 484 527 49 606 61 828

Clothing and textile 2 363 923 2 086 436 982 641 856 818

Beverages 279 869 283 578 - -

Other 1 002 053 426 458 1 361 419 1 971 467

17 155 692 15 863 860 4 319 662 4 637 516

Fixed asset additions Depreciation and amortisation

Media and broadcasting 109 117 121 224 92 356 73 717


Casino gaming and hotels - 205 099 - 412 317

Information technology 13 763 13 612 15 858 14 544

Transport 149 357 103 330 58 085 51 105

Vehicle component manufacture 7 026 9 679 10 976 11 481

Natural gas 74 762 44 471 76 029 63 298

Exhibition and properties 232 1 757 2 323 3 204

Mining 50 652 29 507 35 577 13 831

Clothing and textile 49 699 63 884 42 130 38 727

Other 28 231 1 629 6 690 5 121

562 820 634 532 387 732 729 158

2012 2011 2012 2011

R’000 R’000 R’000 R’000

SeGMeNtaL INForMat IoNSUMMar ISeD aNNUaL F INaNcIaL StateMeNtS


2012 2011

R’000 R’000 R’000 R’000

Amounts applicable to associates and joint ventures included above :

Equity accounted

earnings

Investment in associates and joint ventures

Equity accounted

earnings

Investment in associates and

joint ventures

Media and broadcasting (27 198) 97 664 (9 441) 83 077

Casino gaming and hotels 708 895 8 422 498 36 678 8 021 225

Information technology 1 932 16 366 963 14 434

Transport 8 488 12 641 8 162 15 549

Food and beverage (6 883) 279 869 - 283 578

Other 11 893 406 141 41 345 18 583

697 127 9 235 179 77 707 8 436 446

Impairments Reversal of impairments

2012 2011 2012 2011

R'000 R'000 R'000 R'000

Media and Broadcasting 10 884 - - -

Limited payout gaming 361 1 000 - -

Casino gaming and hotels - 299 085 - -

Information technology - - - 581


Natural gas 44 489 - - -

Exhibition and properties - 40 488 12 498 649

Clothing and textile 9 117 30 560 7 867 41 295

Other - - - 4 461

88 864 411 327 20 365 46 986

The natural gas segment operates in the United States of America.

Group revenue is attributable to the following geographical areas:

2012 2011

R'000 R'000

South Africa 6 776 988 6 061 196

United States of America 257 022 214 871

Other 58 267 43 723

7 092 277 6 319 790

Non-current assets* of the Group are held in the following geographical areas:

South Africa 12 457 521 11 882 200

United States of America 649 890 621 543

Australia 376 852 42

United Kingdom 142 395 16 022

Other 9 972 11 821

13 636 630 12 531 628

* Excludes financial instruments, deferred tax assets and post-employment benefit assets.

SUMMar ISeD aNNUaL F INaNcIaL StateMeNtSSeGMeNtaL INForMat IoN

64

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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 2012

NOTICE IS HEREBY GIVEN that the annual general meeting of Hosken Consolidated Investments Limited (“the company”) will be held on Monday, 29 October 2012 at 11:00 at the offices of the company, Block B, Longkloof Studios, Darters Road, Gardens, Cape Town, 8001.

This document is available in English only. The proceedings at the meeting will be conducted in English

General instructions and information

On the date that the new Companies Act, 71 of 2008, as amended (“Companies Act”) came into effect, the memorandum of association and articles of association of the company automatically converted into the company’s memorandum of incorporation (“MOI”). Accordingly, the term “MOI” is used throughout this notice of annual general meeting to refer to the company’s memorandum of incorporation which previously comprised the company’s memorandum of association and its articles of association.

Participants at the annual general meeting will be required to provide proof of identification to the reasonable satisfaction of the chairman of the annual general meeting and must accordingly provide a copy of their identity document, passport or driver’s licence at the annual general meeting for verification.

The Board of directors of the company determined that the record date for the purpose of determining which shareholders of the company were entitled to receive notice of the annual general meeting was 14 September 2012 and the record date for purposes of determining which shareholders of the company are entitled to participate in and vote at the annual general meeting is 19 October 2012. Accordingly, only shareholders who are registered in the register of shareholders of the company on 19 October 2012 will be entitled to participate in and vote at the annual general meeting.

All shareholders are entitled to attend, speak and vote at the annual general meeting. If you hold certificated shares (i.e. have not dematerialised your shares in the company) or are registered as an “own name” dematerialised shareholder (i.e. have specifically instructed your Central Securities Depository Participant (“CSDP”) to hold your shares in your own name on the company’s sub-register), then:

• youmayattendandvoteattheannualgeneralmeeting;alternatively• youmayappointoneormoreproxies(whoneednotbeshareholders

of the company) to represent you at the annual general meeting by completing the attached form of proxy and returning it to the office of the transfer secretaries, to be received by no later than 24 (twenty-four) hours prior to the time appointed for the holding of the meeting.

Please note that the company intends to make provision for shareholders of the company, or their proxies, to participate in the annual general meeting by way of video conference in Johannesburg. Should you wish to participate in the annual general meeting by way of video conference as aforesaid, you are required to give notice of such proposed participation to the company at its registered office or at the office of the transfer secretaries by no later than 12h00 on Friday, 26 October 2012. In order for the notice to be valid, it must be accompanied by the following:

• if the shareholder is an individual, a certified copy of his identitydocumentand/orpassport;

• iftheshareholderisnotanindividual,acertifiedcopyoftheresolutionadopted by the relevant entity authorising the representative to represent the shareholder at the annual general meeting and a certified copy of the authorised representative’s identity document and/orpassport;

• avalide-mailaddressand/or facsimilenumber for thepurposeofreceiving details of the video conference facility that will be made available.

Upon receipt of the aforesaid notice and documents, the company shall notify you of the relevant details of the video-conference facilities available in Johannesburg at which you can participate in the annual general meeting by way of electronic communication.

Please note that if you own dematerialised shares (i.e. have replaced the paper share certificates representing the shares with electronic records of ownership under the JSE Limited’s (“JSE”) electronic settlement system held through a CSDP or broker (or their nominee) and are not registered as an “own name” dematerialised shareholder you are not a registered shareholder of the company. Accordingly, in these circumstances, subject to the mandate between yourself and your CSDP or broker, as the case may be:

• ifyouwishtoattendtheannualgeneralmeeting,youmustcontactyour CSDP or broker, as the case may be, and obtain the relevant letterofrepresentationfromit;alternatively

• ifyouareunabletoattendtheannualgeneralmeetingbutwishtoberepresented at the meeting, you must contact your CSDP or broker, as the case may be, and furnish it with your voting instructions in respect of the annual general meeting and / or request it to appoint a proxy. You must not complete the attached form of proxy.

The instructions must be provided in accordance with the mandate between yourself and your CSDP or broker, as the case may be, within the time period required by your CSDP or broker, as the case may be. CSDPs, brokers or their nominees, as the case may be, recorded in the company’s sub-register as holders of dematerialised shares held on behalf of an investor/beneficial owner should, when authorised in terms of their mandate or instructed to do so by the person on behalf of whom they hold dematerialised shares, vote by either appointing a duly authorised representative to attend and vote at the annual general meeting or by completing the attached form of proxy in accordance with the instructions thereon and returning it to the office of the company’s transfer secretaries to be received by not less than 24 (twenty-four) hours prior to the time appointed for the holding of the meeting (excluding Saturdays, Sundays and public holidays).


Not Ice to MeMBerS

On a poll, shareholders are entitled to 1 vote per ordinary share.

Unless otherwise specifically provided below, for any of the ordinary resolutions to be adopted, more than 50% of the voting rights exercised on each such ordinary resolution must be exercised in favour thereof. For any special resolutions to be adopted, more than 75% of the voting rights exercised on each special resolution must be exercised in favour thereof.

The annual report to which this notice of annual general meeting is attached provides details of:

• thedirectorsandmanagementofthecompany,includingbriefCVsofthedirectorsnominatedforre-election,onpages10and11;

• themajorshareholdersofthecompanyonpage29;• thedirectors’interestsinsecuritiesonpage38;and• the share capital of the company in note 19 and an analysis of

shareholders on page 28.

There are no material changes to the Group’s financial or trading position (other than as disclosed in the accompanying annual report), nor are there any legal or arbitration proceedings that may materially affect the financial position of the Group between 31 March 2012 and the reporting date.

The directors, accept full responsibility for the accuracy of the information given 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 the annual report and this notice provide all information required by law and the Listings Requirements of the JSE (“JSE Listings Requirements

PURPOSE

The purpose of the annual general meeting is for the following business to be transacted and the following resolutions to be proposed, all of them as ordinary resolutions unless the contrary appears:

AGENDA:

1. The Companies Act requires the company to present the audit committee report and the directors’ report at the annual general meeting of the company. The directors’ report is set out on pages 49 to 52, and the audit committee report is set out on pages 32 and 33, of the integrated annual report to which this notice of annual general meeting is attached.

2. To receive and adopt the audited financial statements – ordinary resolution number 1

“Resolved that the audited financial statements and Group audited financial statements for the year ended 31 March 2012 as tabled at the meeting are hereby adopted.”

The purpose of this ordinary resolution is to approve the annual financial statements of the company and its subsidiaries, which summarised financial statements are set out on pages 53 to 63 of the integrated

annual report to which this notice of annual general meeting is attached and the full set of audit financial statements that is available on the company’s website www.hci.co.za. The resolution has been proposed in terms of item 2(7) of Schedule 5 of the Companies Act, read with section 286 of the Companies Act, 61 of 1973, as amended.

3. Appointment of directors – ordinary resolution numbers 2.1, 2.2, 2.3 Mr JA Copelyn, Mr TG Govender and Mr MF Magugu retire as

directors in accordance with the company’s MOI but, being eligible, each offer themselves for re-election as a director of the company. For CV details, see pages 10 and 11.

Accordingly, shareholders are requested to consider and if deemed fit, to re-elect Mr JA Copelyn, Mr TG Govender and Mr MF Magugu by way of passing the ordinary resolutions set out below:

3.1. Mr JA Copelyn – ordinary resolution number 2.1 “Resolved that Mr JA Copelyn be and is hereby elected as a director

of the company.”

3.2. Mr TG Govender – ordinary resolution number 2.2 “Resolved that Mr TG Govender be and is hereby elected as a

director of the company.”

3.3. Mr MF Magugu – ordinary resolution number 2.3 “Resolved that Mr MF Magugu be and is hereby elected as a

director of the company.”

The reason for ordinary resolution numbers 2.1 to 2.3 is to re-elect those directors of the company who retire as directors in accordance with the company’s MOI.

3.4. Ms B Hogan – ordinary resolution number 2.4 To elect as director, the following director appointed by the board

during the course of the year and who is required to retire in terms of the company’s memorandum of incorporation, at the annual general meeting, and who is eligible and has offered herself for re-election:

“Resolved that Ms B Hogan be and is hereby elected as a director of the company.”

The reason for ordinary resolution numbers 2.4 is to elect the director of the company who was appointed during the course of the year and who retires as a director in accordance with the Companies Act of 2008, as amended.

4. Reappointment of auditor – ordinary resolution number 3 The company’s audit committee has recommended that PKF (JHB)

Inc. be re-appointed as the auditors of the company, for the ensuing year and to note that the individual registered auditor who will undertake the audit during the financial year ending 31 March 2013 is Mr Schoeman. Accordingly, the directors propose that the following resolution be adopted:

“Resolved that PKF (JHB) Inc is hereby appointed as the auditor to the company for the ensuing year.”

66

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The reason for ordinary resolution number 3 is that the company, being a public listed company, must have its financial results audited and such auditor must be appointed or re-appointed each year at the annual general meeting of the company as required by the Companies Act.

5. Appointment of audit committee – ordinary resolution numbers 4.1, 4.2, 4.3

5.1. Appointment of audit committee – ordinary resolution number 4.1 “Resolved that Ms B Hogan (see CV details on page 10)

be appointed to the audit committee of the company for the ensuing year.”

5.2 Appointment of audit committee – ordinary resolution number 4.2 “Resolved that Dr LM Molefi (see CV details on page 11)


5.3 Appointment of audit committee – ordinary resolution number 4.3 “Resolution that Mr Y Shaik (see CV details on page 11)


The reason for ordinary resolution numbers 5.1 to 5.3 is that the company, being a public listed company, must appoint an audit committee and the Companies Act requires that the members of such audit committee be appointed at each annual general meeting of a company.

Under the Act, the audit committee is no longer a committee of the board but instead is a committee elected by shareholders and others entitled to exercise votes at the meeting when the election takes place.

6. Appointment of social and ethics committee – ordinary resolution numbers 5.1, 5.2, 5.3, 5.4

To elect each by way of a separate vote, the members of the social and ethics committee of the company, namely:

5.1 JA Copelyn 5.2 MJA Golding 5.3 LM Molefi 5.4 JG Ngcobo

Under the Act, the first social and ethics committee is a committee of the board but thereafter is a committee elected by shareholders and others entitled to exercise votes at the meeting when the election takes place. The board has reviewed the proposed composition of the social and ethics committee against the requirements of the Act, and has confirmed that the proposed social and ethics committee will comply with the relevant requirements, and have the necessary knowledge, skills and experience to enable the committee to perform its duties in terms of the Act. The board recommends the election of the directors listed above as the members of the social and ethics committee appointed by the holders.

7. General authority over unissued shares – ordinary resolution number 6

“Resolved that all the unissued authorised shares in the company, be and are hereby placed under the control of the directors, subject to the provisions of the Companies Act, the MOI and the JSE Listings Requirements, until the next annual general meeting.”

No issue of these shares is contemplated at the present time and no issue will be made that could effectively change the control of the company without the prior approval of shareholders in a general meeting.

8. General authority to issue shares and options for cash – ordinary resolution number 7

“Resolved that the directors of the company be and are hereby authorised by way of a general authority to issue (which shall for the purposes of the JSE Listings Requirements include the sale of treasury shares) for cash (as contemplated in the JSE Listings Requirements) all or any of the authorised but unissued shares in the capital of the company, including options, as and when they in their discretion deem fit, subject to the Companies Act, the MOI of the company and the JSE Listings Requirements as presently constituted and which may be amended from time to time, and provided that such issues for cash may not, in the aggregate, in any 1 (one) financial year, exceed 15% (fifteen percent) of the number of shares of the relevant class of shares issued prior to such issue.”

Additional requirements imposed by the JSE Listings Requirements:

It is recorded that the company may only make an issue of shares for cash under the above general authority if the following JSE Listings Requirements are met:- the shares, which are the subject of the issue for cash, must be

of a class already in issue, or where this is not the case, must be limited to such equity securities or rights that are convertible into aclassalreadyinissue;

- the general authority shall only be valid until the company’s next annual general meeting or for 15 (fifteen) months from the date of passingofthisordinaryresolution,whicheverperiodisshorter;

- a paid press announcement will be published giving full details, including the number of shares issued, the average discount to the weighted average traded price of the shares over the 30 (thirty) days prior to the date that the price of the issue was agreed in writing between the company and party/ies subscribing for such shares and the expected effect on the net asset value per share, net tangible asset value per share, earnings per share and headline earnings per share at the time of any issue representing, on a cumulative basis within 1 (one) financial year, 5% (five percent) of the number of shares in issue prior to that issue;

- that issues in the aggregate in any 1 (one) financial year may not exceed 15% (fifteen percent) of the number of the shares of the Company in issue of that class of shares before such issue, taking into account the dilution effect of convertible equity securities and optionsinaccordancewiththeJSEListingsRequirements;


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- in determining the price at which an issue of shares may be made in terms of this general authority, the maximum discount permitted will be 10% (ten percent) of the weighted average traded price on the JSE of those shares measured over the 30 (thirty) business days prior to the date that the price of the issue is agreed to between the company and the party/ies subscribing for the shares;and

- any issue will only be made to “public shareholders” as defined by the JSE Listings Requirements and not to related parties.

Although this is an ordinary resolution, the minimum percentage of voting rights that is required for this resolution to be adopted is 75% (seventy-five percent) of the voting rights to be cast on the resolution.

9. Advisory endorsement of remuneration report for the year ended 31 March 2012 – non-binding resolution number 8

“To endorse on an advisory basis, the company’s remuneration policy on page 34 of the integrated annual report, (excluding the remuneration of the non-executive directors for their services as directors and members of board committees).”

Motivation for advisory endorsement In terms of the King Code of Governance Principles for South Africa

2009, an advisory vote should be obtained from shareholders on the company’s annual remuneration policy. The vote allows shareholders to express their views on the remuneration policies adopted and their implementation, but will not be binding on the company.

10. Approval of annual fees to be paid to non-executive directors – special resolution number 1.

“To approve for the period 1 November 2012 until the date of the next annual general meeting of the company, the remuneration payable to non-executive directors of the company for their services as directors as follows”

Non-executive director Fee R’000 VM Engel 210 B Hogan 297 MF Magugu 265 VE Mphande 210 LM Molefi 305 JG Ngcobo 305 Y Shaik 297

Reason for and effect of special resolution number 1

This resolution is proposed in order to comply with the requirements of the Act. in terms of section 65(11)(h) of the Act read with sections 66(8) and 66(9) of the Act, remuneration may only be paid to directors for their services as directors in accordance with a special resolution approved by the holders within the previous 2 (two) years and, only if this is not prohibited in terms of the company’s memorandum of incorporation.

The payment of remuneration to directors for their services as directors is not prohibited by the company’s memorandum of incorporation. This special resolution applies only to non-executive directors, as executive directors are required to attend meetings as part of their terms of employment and do not receive remuneration for their services as directors in addition to salaries they receive by virtue of their employment by the company.

The proposed directors’ remuneration payable to non-executive directors is based on best practice and aimed at ensuring fair and competitive remuneration practices. It is important for the company to attract new directors and retain directors with the relevant capabilities, skills and experience required to effectively conduct the business of the board and lead the company according to its strategic priorities

11. General authority to repurchase company shares – special resolution number 2

“Resolved that the company hereby approves, as a general approval contemplated in JSE Listings Requirement 5.72, the acquisition by the company or any of its subsidiaries from time to time of the issued 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 provisions of the Companies Act and the JSE Listings Requirements as presently constituted and which may be amended from time to time, and provided that:

•acquisitions by the company and its subsidiaries of shares inthe capital of the company may not, in the aggregate, exceed in any one financial year 20% (twenty per cent) (or 10% (ten per cent) where such acquisitions relate to the acquisition by a subsidiary) of the company’s issued share capital of the class of the repurchased shares from the date of the grant of this general authority;

•anysuchacquisitionofsharesshallbeeffectedthroughtheorderbook operated by the JSE trading system and done without any prior understanding or arrangement between the company and thecounterparty(reportedtradesareprohibited);

•thecompany(oranysubsidiary)isauthorisedtodosointermsofitsMOI;

•thisgeneralauthorityshallonlybevaliduntilthecompany’snextannual general meeting, provided that it shall not extend beyond 15 (fifteen) months from the date of passing of this special resolution;

•in determining the price at which the company’s shares areacquired by the company or its subsidiaries in terms of this general authority, the maximum premium at which such shares may be acquired may not be greater than 10% (ten per cent) above the weighted average of the market price at which such shares are traded on the JSE for the 5 (five) business days immediately preceding the date the repurchase transaction is effected;

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•atanypointintime,thecompanymayonlyappointoneagenttoeffectanyrepurchase(s)onthecompany’sbehalf;

•the company or its subsidiaries may not repurchase sharesduring a prohibited period as defined in paragraph 3.67 of the Listings Requirements of the JSE unless there is a repurchase programme in place and the dates and quantities of shares to be repurchased during the prohibited period are fixed and full details thereof have been disclosed in an announcement on SENS prior tocommencementoftheprohibitedperiod;

•inthecaseofaderivative(ascontemplatedintheJSEListingsRequirements) the price of the derivative shall be subject to the limits set out in paragraph 5,84(a) of the JSE Listings Requirements;

•a paid press announcementwill be published as soon as thecompany and/or its subsidiaries has/have acquired shares constituting, on a cumulative basis 3% (three per cent) of the number of shares of the class of shares repurchased in issue at the time of granting of this general authority, and each time the company acquires a further 3% (three per cent) of such shares thereafter, which announcement shall contain full details of such acquisitions.”

Statement by the board of directors of the company

Pursuant to and in terms of the JSE Listings Requirements, the board of directors of the company hereby states that:

a. it is their intention to utilise the general authority to acquire shares in the company if at some future date the cash resources of the company are in excess of its requirements or there are good grounds for doing so. In this regard the directors will take account of, inter alia, an appropriate capitalisation structure for the company, the long-term cash needsofthecompany,andtheinterestsofthecompany;

b. in determining the method by which the company intends to acquire its shares, the maximum number of shares to be acquired and the date on which such acquisition will take place, the directors of the company will only make the acquisition if at the time of the acquisition they are of the opinion that:

- the company and its subsidiaries would, after the repurchase, be able to pay their debts as they become due in the ordinary course of business for the next 12 (twelve) months after the dateofthisnoticeoftheannualgeneralmeeting;

- the consolidated assets of the company and its subsidiaries, fairly valued in accordance with International Financial Reporting Standards and recognised and measured in accordance with the accounting policies used in the latest audited financial statements, would, after the repurchase, be in excess of the consolidated liabilities of the company and its subsidiaries for the next 12 (twelve) months after the date of thisnoticeoftheannualgeneralmeeting;

- the issued share capital and reserves of the company and its subsidiaries would, after the repurchase, be adequate for the ordinary business purposes of the company or any acquiring subsidiary for the next 12 (twelve) months after the date of approvalofthisnoticeoftheannualgeneralmeeting;

- the working capital available to the company and its subsidiaries would, after the repurchase, be adequate for the ordinary business purposes for the next 12 (twelve) months after the date of approval of this notice of the annual general meeting;

- the company and its subsidiaries pass the solvency and liquidity test and that from the time that the test is done, there are no material changes to the financial position of the companyoranyacquiringsubsidiary;

c. they will not make any repurchase until such time as the company’s sponsors have provided the JSE with a letter in relation to the working capital statement set out above (as required in terms of the JSE Listings Requirements).

The reason for special resolution number 2 is to grant the company a general authority in terms of the JSE Listings Requirements for the acquisition by the company, or any of its subsidiaries, of shares issued by the company, which authority shall be valid until the earlier of the next annual general meeting of the company.

The passing and registration of this special resolution will have the effect of authorising the company or any of its subsidiaries to acquire shares issued by the company.

12. Authorisation of directors – ordinary resolution number 9

“Resolved that each and every director of the company be and is hereby authorised to do all such things and sign all such documents as may be necessary or incidental to the implementation of the resolutions passed at this annual general meeting.”

To consider and, if approved, to pass with or without modification, the resolutions set out below, in the manner required by the Act, as read with the Listings Requirements of the exchange operated by JSE Limited (‘JSE’):

13. To transact such other business which may be transacted at an annual general meeting

By order of the Board29 August 2012Cape Town

INTEGRATED ANNUAL REPORT 2012 - HCI · integrated report and believe it addresses the material...

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