Net operating income decreased to R 11.4m from R 16.7m in the same period last year mainly as a result of sharply reduced trading levels in the Group’s finance businesses. The operating profit to June 2007 included R 5.3m of Think: Education Group Pty Ltd’s (“Think’s”) operating profit, which at that stage was still a subsidiary of the Group. Think was deconsolidated in the second half of 2008 when a part of the investment was sold for a substantial profit. This transaction was described in
detail in the 2007 Annual Report.
Included in net operating income is a realised foreign exchange gain on the repayment of a loan to the Australian subsidiary and an increased provision for bad and doubtful debts.
Net income after tax and minorities decreased to R 4.1m from R 9.1m in the corresponding period to 30 June 2007.
Earnings per share decreased to 4.8 cents from 11.2 cents in the same period last year. Headline earnings per share fell to 4.4 cents per share.
The net asset value per share decreased to 364 cents per share from 376 cents at 31 December 2007 after a special dividend of 41 cents and a normal dividend of 9 cents was paid to shareholders in March 2008. The non distributable reserves increased as a result of an increase in the foreign currency translation reserve. In calculating the net asset value, the Group’s private equity investments have been recorded at the directors’ estimate of fair value. This is in line with the “Fair Value Model” presented in the December 2007 annual report and in our opinion is the most appropriate basis of valuation.
Chester Finance
The trade finance business had a difficult first six months.
The economic downturn has had a noticeable impact on the trade finance client base. Turnover levels have decreased which has led to a decline in operating profit. This trend is likely to continue into the near future. It is however hoped that the tightening of credit markets will present good opportunities for the business to take on new clients and expand in the foreseeable future.
The incidence of bad debts is expected to rise. Our management and credit teams are carefully managing any exposures where there is perceived potential for loss.
Prevance/Bridging Finance
The bridging finance division also slowed down mainly as a result of declining sales in the residential housing market. The business continues to trade profitably and is well positioned for an upturn in the property market.
Megavision Media
The business had a difficult half year and recorded a small loss for the first six months.
Top-Met Investments (Pty) Ltd
We continue to expect a good return on this investment in the medium term.
The company is achieving budgeted levels of turnover and profitability
Chester Capital (Australia)
Developments in Australia include the following.
Think: Education Group Pty Ltd (“Think”)
Think is on track to meet its earnings forecast for the year. Its balance sheet remains strong and Think is well placed to seize acquisition opportunities arising from the current economic climate and tightening of the regulatory and compliance environment. The On-Line Learning platform is nearing completion and will be launched in February 2009.
Blink Optical Pty Ltd (“Blink”)
Blink has been consolidating the 40 stores it has opened in the past 18 months. Generally, performance at the stores has been satisfactory. Much potential remains to be realized with BUPA/MBF, Blink’s JV partner and now the largest private medical fund in Australia.
Viteknologies Pty Ltd (“Vitek”)
This company operates in the Digital Directory Service space. Vitek’s revenue remains close to forecast and management has not discerned any significant slowdown in subscriptions. Vitek has just launched its Natural Therapy Pages site in the U.K. This will prove a good testing ground for growth prospects through geographic diversification.
Smart Brands Pty Ltd (“Smart Brands”)
Smart Brands has experienced a slowdown with its mass market customers. It is, however, expecting sales to pick-up, particularly in view of its low priced value range of products.
ProToys Pty Ltd (“ProToys”)
During the year we acquired a 33.3% interest in ProToys, which operates as a toy distributor with both proprietary and third party brands. Distribution is through a number of channels including specialty stores, department stores and charities.
Performance to date is in line with projections.
Sport Outdoor Leisure Australia Pty Ltd (“SOLA”)
In November 2008 we acquired a 30% interest in SOLA through the injection of additional equity into the company. The majority of the remaining equity is owned by ANZ Bank, Investec and management. SOLA is a well known Australian distributor of outdoor recreational products. It owns the Netti brand, the largest cycling apparel brand in Australia and, in addition, it is the exclusive distributor of world renowned brands including Scott bicycles, Camelbak packs and hydration equipment, Fox cycling equipment, Fizek saddles and Dahon bicycles.
Dividend
A special dividend of 41 cents and a normal dividend of 9 cents were paid to shareholders in March 2008.
Prospects
Turnovers in our finance businesses are likely to fall further before the trend is reversed and we may suffer an increase in bad debts. Net operating profit for the year to 31 December 2008 will fall sharply.
The outlook for our finance businesses in 2009 is at this stage unclear.
Our private equity investments in Australia continue to perform in line with expectations and we will consider making further investments where we are able to identify good value.