Page 7 - Integrated Annual Report

LETTER TO SHAREHOLDERS
Effects of COVID-19 washing through our lives for the last year:
The last twelve months for HCI has been centred on a single focal point, namely avoiding long term damage to our business in a COVID-19 infested world.
We believe we have essentially achieved this to date. Admittedly we had to take several knocks on the chin, including shelving all dividends, freezing bonuses, halting new business acquisitions, cutting costs wherever we could, freezing employment in every subsidiary if not significantly downsizing them as well as restructuring several businesses.
We disposed of a few non-core assets - mainly properties and settled a major dispute to more swiftly recover as great a proportion of amounts due in the legal claim as we could.
Despite the shock and the remaining tenderness around some wounds, our sutures have stopped the bleeding and we are on the mend.
Our efforts to survive intact led us to many compromises, but we doggedly resisted two central themes raised by lenders, namely having a rights issue in HCI or anywhere within the group and allowing pressure to reduce debt to prevail over the need for financial support by three high growth, cash negative, opportunities within the group.
Equally, a year later we can see the positive effects of our success in these areas.
While our competitors in both gaming and hotels had major rights issues and solved their excess debt issues overnight, we are not that far behind them in containing our debt. Equity holders in our group, however, will recover losses in share value a lot more rapidly than in companies that succumbed to pressure to substantially increase the number of shares in issue at the worst moment of their performance. HCI and TSG have tripled in value since then, and even TSH, the hardest hit by the pandemic, has clawed its way back 50% up from its floor price.
We hope our performance will justify this trend continuing this year, culminating in the resumption of a final dividend payment to our patient stake holders.
Equally importantly, we trust this will allow us to move past many of the robust cost saving measures we were forced to introduce to avoid falling over the edge of the cliff. Without the support of Government through its TERS programme these would not have been sufficient to avoid catastrophe. Whatever other criticisms there may be, we do want first and foremost to acknowledge this key support. There are few groups more grateful for it than ours.
There is no duty that an employer owes its employees greater than providing work. The most terrible thing COVID-19 did to our group, with its curfews, social distancing, and inhibition on travel, was to collapse our
ability to continue to offer work to thousands of people in a society riddled with unemployment. Even if one was not brought up in Japan, it is the sort of anguish in respect of which one can only bow one’s head and apologize to those depending on us that we were unable to protect.
We hope this will soon be behind us and that we will again grow the numbers of people for whom we provide useful stable work.
Nevertheless, the year ahead is a year of vaccine distribution and triumph of life over sickness, despite the fierceness of the storm. It’s a year that will let us develop the green shoots we were so careful to nurture through the pandemic.
Debt Management:
We reduced debt at the centre of our holding structure from R3,1b at the beginning of the pandemic to below the R2,8b we promised our lenders.
Fortuitously as we previously reported, we were able to settle a long running dispute with Ithuba for cash during the year which considerably eased pressure on us.
At our financial year end, debt net of free cash was down to R2,56b. In short, we are well on our way to complying with our commitment to reducing debt below R2,5b by December 2021.
In the second half of this financial year, we will hold discussions with debt holders about financial objectives for financial 2023.
While we can say with certainty that we will seek to trim debt further if this is possible without damage to the long-term interests of the business, those discussions will have to consider at least three key issues:
Firstly, the progress in containing the pandemic and the confidence that there is in business returning to “normal”. Practically, for HCI, this is conditioned primarily by the answer to the question whether TSG will resume paying a final dividend in June 2022. When all is said and done this remains the life blood of HCI’s cash flow.
Secondly, we will be participating in the drilling of a key exploration well in Namibia in the fourth quarter of 2021, and if the results thereof constitute a significant discovery this will have a material influence on the future of HCI.
Thirdly our venture into Palladium mining is reaching a critical point. The feasibility of the prospect is well established; the mining right is issued despite manageable complications. The challenge now is to bring the opportunity to final investment decision (“FID”) this year. Success in this regard will take us into quite a lengthy period of construction risk, but inescapably we will have to choose whether to hold on to the significant stake we have accumulated through tough times in a generally unappreciated but very valuable, world class, highly mechanized low-cost mine with a
HOSKEN CONSOLIDATED INVESTMENTS LIMITED
INTEGRATED ANNUAL REPORT 2021 5