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ZED - Zeder Investments Limited - Audited abridged results for the year ended
28 February 2010
Zeder Investments Limited
Incorporated in the Republic of South Africa
(Registration number: 2006/019240/06)
Share code: ZED
ISIN: ZAE000088431
("Zeder" or "the company" or "the group")
Audited abridged results for the year ended 28 February 2010
Headline earnings per share down 31,3%
Recurring headline earnings up 6,2%
Recurring headline earnings per share down 26,7%
Intrinsic value per share up 23,4%
Condensed group income statement
2010 2009
Notes Rm Rm
Income
Investment income 41,2 24,9
Fair value gains and losses on 15,2 20,5
financial instruments
Other operating income 1,1 7,4
Total income 57,5 52,8
Expenses
Management fee 3 (40,7) (35,6)
Performance fee 3 (19,9)
Other (0,1) (2,4)
Total expenses (40,8) (57,9)
Results of operating activities 16,7 (5,1)
Finance costs (0,6) (3,6)
Income from associated companies 128,5 175,0
- income excluding penalties 172,4 175,0
- Pioneer Foods penalty provision (43,9)
Loss on dilution of interest in (17,5)
associated company
Profit before taxation 127,1 166,3
Taxation 4 (3,5) 2,3
Net profit for the year 123,6 168,6
Attributable to equity holders of the 123,6 168,6
company
Non-headline items 5 28,4 (15,2)
Headline earnings 152,0 153,4
Earnings per share (cents)
- attributable/diluted attributable 14,0 27,7
- headline/diluted headline 17,3 25,2
Number of shares (million)
- in issue 978,1 611,3
- weighted average 880,6 609,0
Recurring headline earnings
2010 2009
Rm Rm
Recurring earnings 229,1 220,5
Food and Agri 183,2 167,1
Beverages 45,9 53,4
Net interest and other income 23,6 11,4
Management fee (40,7) (35,6)
Taxation (3,9) (0,3)
Recurring headline earnings 208,1 196,0
Non-recurring headline earnings (after tax) (56,1) (42,6)
Investments not equity accounted (12,2) (28,7)
One-off items:
- Pioneer Foods penalty provision (43,9)
- Net underwriting income 3,6
- Performance fee (17,5)
Headline earnings 152,0 153,4
Non-headline items (28,4) 15,2
Attributable earnings 123,6 168,6
Recurring headline earnings per share (cents) 23,6 32,2
Condensed group statement of comprehensive
income
2010 2009
Rm Rm
Net profit for the year 123,6 168,6
Share of other comprehensive income of (16,9) 5,9
associated companies
Other equity movements of associated companies 1,1 0,2
Step acquisition from equity securities to
investment in associated companies
Reversal of previous fair value gains after
taxation on equity securities (0,4)
Revaluation of assets and liabilities of
associated companies 0,4
Other comprehensive income for the year, net of 107,8 174,7
tax
Attributable to equity holders of the company 107,8 174,7
Condensed group statement of financial position
2010 2009
Notes Rm Rm
Assets
Investment in associated companies 2 1 967,8 1 445,3
Financial assets
Equity securities 215,2 249,2
Loans and advances 38,7
Current income tax receivable 4 0,2 2,8
Receivables 0,7
Cash and cash equivalents 121,6 27,9
Total assets 2 304,8 1 764,6
Equity
Ordinary shareholders` funds 2 282,0 1 725,4
Total equity 2 282,0 1 725,4
Liabilities
Deferred income tax 4 1,7
Trade and other payables 21,1 39,2
Total liabilities 22,8 39,2
Total equity and liabilities 2 304,8 1 764,6
Net asset value per share (cents) 233,3 282,0
Condensed statement of changes in owners` equity
2010 2009
Rm Rm
Ordinary shareholders` equity at beginning of 1 725,4 1 566,4
period
Shares issued 491,6 14,6
Net profit for the year 123,6 168,6
Dividend paid (42,8) (30,3)
Share of other comprehensive income of associated (16,9) 5,9
companies
Other equity movements of associated companies 1,1 0,2
Step acquisition from equity securities to
investment in associated companies
- Reversal of previous fair value gains
after taxation on equity securities (0,4)
- Revaluation of assets and liabilities of
associated companies 0,4
Ordinary shareholders` equity at end of period 2 282,0 1 725,4
Condensed group statement of cash flows
2010 2009
Rm Rm
Cash generated by operating activities 20,9 16,1
Taxation refund/(paid) 1,0 (1,8)
Net cash flow from operating activities 21,9 14,3
Net cash flow from investment activities (376,9) (120,6)
Net cash flow from financing activities 448,7 (30,3)
Net increase/(decrease) in cash and cash 93,7 (136,6)
equivalents
Cash and cash equivalents at beginning of period 27,9 164,5
Cash and cash equivalents at end of period 121,6 27,9
Notes to the condensed financial statements
1. Basis of presentation and accounting policies
The condensed financial statements have been prepared in terms of IAS 34 -
Interim Financial Reporting and should be read in conjunction with the annual
financial statements for the year ended 28 February 2009, which have been
prepared in accordance with IFRS. The accounting policies applied in the
preparation of the abridged financial statements are consistent with those
used in the previous year, except for the following standards which are
effective for the financial year beginning 1 March 2009: IAS 1 (revised) -
Presentation of financial statements and IFRS 8 - Operating Segments. The
adoption of these standards has no material effect on the results, nor has it
required any restatement of the results.
2. Investment in associated companies
2010 2009
Rm Rm
Book value
Unlisted 1 967,8 1 445,3
3. Management and performance fees
The management fee is calculated at 2% p.a. (exclusive of VAT) on the net
asset value of the group (excluding cash) at the end of every month and 0,15%
p.a. (exclusive of VAT) on the daily average cash balances. The management
fee is accrued at the end of every month. The performance fee is calculated
on the last day of the financial year at 10% p.a. on the outperformance of
the group`s net asset value above the equally weighted FTSE-JSE Beverage
Total Return Index and FTSE-JSE Food Producers Total Return Index over any
financial year. The performance fee is accrued at each year end. No
performance fee was incurred at 28 February 2010 (2009: R19,9m).
4. Taxation
Taxation is provided on the net fair value adjustments to the company`s
investment portfolio using an effective capital gains tax rate of 14%. Other
income is taxed at 28%, net of the apportioned management expenses.
5. Non-headline items
2010 2009
Rm Rm
Loss on dilution of interest in associated company 17,5
Non-headline items of associated companies (after 10,9 (15,2)
tax)
28,4 (15,2)
6. Segmental Reporting
The group is organised into two reportable agricultural segments, namely:
Food and agri and Beverages. These segments represent the major associate
and equity investments of the group. Both segments operate in the Republic
of South Africa.
The chief operating decision maker (the executive committee) evaluates the
following information to assess the segments` performance.
Segmental income comprises dividends received and fair value gains/(losses)
relating to equity investments as well as income from associated companies
(including loss on dilution of investment in associated company), after tax
as per the income statement.
Recurring headline earnings are calculated on a see-through basis. Zeder`s
recurring headline earnings is the sum of its effective interest in that of
each of its underlying investees, regardless of its percentage
shareholding. The result is that equity investments which Zeder does not
equity account in terms of accounting standards, are included in the
calculation of recurring headline earnings.
Income Recurring Non- Headline Asset
recurring
headline headline earnings carrying
earnings earnings value
For the year ended R000 R000 R000 R000 R000
28 February 2010
Food and agri 124,551 190,293 (56,358) 133,935 1,396,161
Beverages 26,895 45,939 45,939 786,826
151,446 236,232 (56,358) 179,874 2,182,987
Net interest and 16,536 16,536 16,536 121,618
other income
Management fees and (44,341) (44,655) 314 (44,341) (22,593)
taxation
Total 123,641 208,113 (56,044) 152,069 2,282,012
Non-headline items (28,428)
Attributable 123,641
earnings
Income Recurring Non- Headline Asset
recurring
headline headline earnings carrying
earnings earnings value
For the year ended R000 R000 R000 R000 R000
28 February 2009
Food and agri 139,881 169,471 (30,266) 139,205 1,144,450
Beverages 67,937 53,395 53,395 550,077
207,818 222,866 (30,266) 192,600 1,694,527
Net interest and 14,047 9,027 5,020 14,047 67,217
other income
Management fees and (53,244) (35,888) (17,356) (53,244) (36,307)
taxation
Total 168,621 196,005 (42,602) 153,403 1,725,437
Non-headline items 15,218
Attributable 168,621
earnings
* Comparative figures are consistently presented
7. Commitments and contingencies
Pioneer Foods recently announced that they had made a R350 million provision
for a potential penalty(ies) which the Competition Commission wishes to
impose. However, the final amount of same still needs to be determined upon
finalisation of the ongoing negotiations and/or once official rulings have
been obtained. The final penalty may thus increase or decrease depending on
the outcome of the aforementioned.
8. Related party transaction
The management fee expense was incurred with PSG Group Limited in terms of an
existing management agreement.
Overview
Zeder invests in agri and related businesses that offer value and have strong
management teams. Its investment philosophy remains to add value to its
underlying investments, to provide them with capital where appropriate, and
to support management. However, Zeder prefers not to be involved in its
investments` operational decision making, unless it is strategically required
or the operations are not performing satisfactorily.
Rights issue
Zeder raised R495 million by means of a rights offer at R1,35 per share
during June 2009. The offer was oversubscribed by more than 40%. Zeder`s
current cash at hand of R120 million, together with a R300 million funding
facility, will provide it with the necessary reserves to pursue attractive
identified investment opportunities.
KWV
The performance of KWV Limited`s ("KWV") own operations has been
unsatisfactory in the past and its return on equity is currently less than
5%. It is an asset-rich business with significant potential. However, it
always formed part of a larger group which had the luxury of an investment in
the consistently performing Distell Group Limited ("Distell").
The restructuring of the KWV Group consequently followed in terms of which
its operational business was unbundled to shareholders. Shareholders are now
invested in two separate entities, namely:
- KWV Holdings Limited ("KWV Holdings"), the operational entity and owner of
the KWV operational business, and
- Capevin Holdings Limited ("Capevin Holdings") with its core asset an
effective interest of 14,9% in Distell.
Zeder is currently busy with an offer to KWV Holdings` minorities to increase
its stake as the company has the potential to significantly increase its
return on equity.
KAAP AGRI/PIONEER FOODS
Zeder increased its economic interest in Kaap Agri Limited ("Kaap Agri") to
41,3% during the year under review. Both Kaap Agri`s own operational business
and its investment in Pioneer Foods are delivering attractive returns. Kaap
Agri holds a 32% economic interest in Pioneer Foods.
Pioneer Foods was found to have participated in anti-competitive activities.
Pioneer Foods has made a provision for a potential administrative penalty
from the wheaten and white maize flour milling complaint referrals received
from the Competition Commission in which Pioneer Foods and other industry
participants are named as respondents.
The provision of R154 million applies a rate of 8,5% on the 2006 affected
revenue from the selling of wheaten and white maize flour of R1 821,6 million
for that year. In doing so, Pioneer Foods has followed approximately the same
approach as the Competitions Tribunal in determining the penalty in the bread
matter, although the Competition Commission still maintains that they wish to
impose a 10% administrative penalty on the 2009 turnover. The final amount
therefore still needs to be determined.
This provision is in addition to the R196 million provision already raised by
Pioneer Foods from the bread complaint referral, following the ruling of the
Competition Tribunal on 3 February 2010. The Competition Commission has taken
this ruling on appeal to the Competitions Appeal Court. Pioneer Foods has
opposed the appeal and lodged a cross-appeal as indicated before. This amount
may increase or decrease as previously indicated. The additional provision of
R154 million plus the previous provision raised bring the total provision
raised by Pioneer Foods to R350 million.
Pioneer Foods wants to resolve the milling and other matters before the
Competition Commission through co-operation with the Commission.
On 29 March 2010, five non-executive directors of Pioneer Foods resigned and
three new non-executive directors, namely KK Combi (chairman), Prof Mohammad
Karaan and Thys du Toit were appointed. The new board continues to be well
balanced with a mix of business and industry expertise. The board is
cooperating with regulators and is pursuing a settlement with the Competition
Commission. Pioneer Foods will continue to be a major player in the relevant
industries it operates in.
Intrinsic value
28-Feb-10 28-Feb-09
Company % Interest Value (Rm) % Interest Value (Rm)
Kaap Agri 41,3 812,8 34,3 437,2
KWV Ltd (Combined)* 767,1 25,7 413,7
KWV Holdings 31,3 214,6
Capevin Holdings 37,0 552,5
MGK 26,6 27,3 26,6 27,3
Capespan 14,5 54,5 12,1 49,8
Suidwes 18,4 53,4 17,1 47,1
NWK 7,4 42,1 5,9 31,9
OVK 9,2 27,3 9,0 22,5
Other agri investments 181,1 151,6
Total investments 1 965,6 1 181,1
Cash and cash equivalents 121,6 27,9
Other net liabilities (20,9) (35,7)
Total intrinsic value 2 066,3 1 173,3
Shares in issue (million) 978,1 611,3
Intrinsic value per share 2,11 1,92
(R)
* KWV unbundled its own operations in the year under review to form KWV
Holdings and changed its name to Capevin Holdings. Capevin Holdings` sole
asset is its 14,9% indirect interest in Distell.
Notes:
- The value of the investments are based on the over-the-counter traded
values of the relative companies.
- The intrinsic value per share increases to approximately R2,68 per share if
the see-through value of Distell at Capevin Holdings and Pioneer Foods at
Kaap Agri is taken into consideration respectively.
Following the rights issue (366,8 million new shares at R1,35 per share), the
intrinsic value per share for the previous year decreased to R1,71 per share
based on the full proceeds received and shares issued on 28 February 2009.
The effect being that the intrinsic value per share growth per share was in
fact 23,4%.
Results
In the spirit of consistent, clear and unambiguous communication to
stakeholders, management introduced the recurring headline earnings concept
as the predominant measure of Zeder`s financial performance a few years ago.
At the time, recurring headline earnings was defined as reportable headline
earnings in terms of accounting standards, excluding any marked-to-market
movements and one-off items.
During the past year we revisited and fine-tuned this methodology by now
measuring recurring headline earnings on a see-through basis throughout the
group. Zeder`s recurring headline earnings is the sum of its effective
interest in that of each of its underlying investees, regardless of its
percentage shareholding. The result is that investments in which Zeder holds
less than 20% and is not allowed to equity account in terms of accounting
standards, are now included in the calculation of our consolidated recurring
headline earnings. This provides management and investors with a more
realistic and simple way of evaluating Zeder`s financial performance.
- Having applied the aforesaid principles to the prior year figures,
Zeder`s recurring headline earnings per share for the year ended 28
February 2009 amounted to 32,2 cents per share as opposed to the 24,4
cents per share previously reported in terms of the old methodology.
- Recurring headline earnings increased by 6,2% to R208,1 million.
However, recurring headline earnings per share decreased by 26,7% to
23,6 cents. This was mainly attributable to the fact that Zeder invested
most of cash from the rights issue only towards the latter part of the
year; disappointing results from MGK and the impact of continued
investment in the cash and asset rich but low earnings yielding KWV own
operations.
- Reportable headline earnings per share decreased by 31,3% to 17,3 cents.
In addition to the effects stated above we have also included Zeder`s
share of the approximate R350 million provision for Pioneer Foods`
potential fine to the Competition Commission. Zeder`s share of the
provision amounted to R43,9 million. Without the penalty provision,
Zeder`s headline earnings per share would have been 22,2 cents per
share.
- Zeder`s investment portfolio increased by 29% to R2,2 billion with its
investments in Kaap Agri, Capevin Holdings and KWV Holdings representing
almost 80% of the portfolio.
- Zeder`s net asset value per share at 28 February 2010 was R2,33. The
value of a Zeder share at that date was R2,11, calculated by using
unlisted market prices. The book value of Zeder`s investment in
associated companies is tested for potential impairment at each
reporting period. The directors are satisfied that the investments are
fairly stated.
Zeder`s comprehensive results are available at www.zeder.co.za.
Prospects
Zeder will continue to invest in agriculture and related sectors at discounts
to net asset value and/or at low earnings multiples.
Audited financial statements
PricewaterhouseCoopers Inc. has audited the results for the year ended 28
February 2010 and their unqualified audit opinion is available on request at
the company`s registered office.
Subsequent events
No significant events occurred in the period between the reporting date and
the date of this announcement.
Dividend
The directors of Zeder have declared a dividend of 4 cents per share (2009: 7
cents) in accordance with its current dividend policy, i.e. to declare 100%
of free cash flow, for the year ended 28 February 2010.
The following are the salient dates for the payment of the ordinary dividend:
Last day to trade cum dividend Friday, 30 April 2010
Trading ex dividend commences Monday, 3 May 2010
Record date Friday, 7 May 2010
Date of payment Monday, 10 May 2010
Share certificates may not be dematerialised or rematerialised between
Monday, 3 May 2010, and Friday, 7 May 2010, both days inclusive.
On behalf of the board
Jannie Mouton Antonie Jacobs
Chairman Chief executive officer
Stellenbosch
12 April 2010
Directors
JF Mouton (chairman), AE Jacobs*(CEO), CA Otto, WL Greeff*(FD),
MS du Pre le Roux+,GD Eksteen+, LP Retief+
(* executive, + independent non-executive)
Secretary and registered office
PSG Corporate Services (Pty) Ltd
1st Floor, Ou Kollege,
35 Kerk Street, Stellenbosch, 7600
PO Box 7403, Stellenbosch, 7599
Transfer secretaries
Computershare Investor Services (Pty) Ltd
70 Marshall Street, Johannesburg 2001
PO Box 61051, Marshalltown 2107
Tel 011 370 7700
Fax 011 688 7716
Sponsor
PSG Capital (Pty) Ltd
Date: 12/04/2010 16:51:01 Supplied by www.sharenet.co.za
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