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("PSG or PSG Group")
Audited results for the year ended 28 February 2001
* Headline earnings per share increased by 25% to 150,3 cents
* Headline earnings increased by 22% to R200,2 million
* Distribution per share increased by 25% to 45 cents
* Net asset value increased by 16% to 899 cents per share
Group Income Statements
Restated
2001 2000 2000
R'm R'm R'm
Income
Net interest income 344,2 216,5 216,5
Investment income 133,6 136,2 136,2
Other operating income 233,9 267,2 267,2
Total income 711,7 619,9 619,9
Expenses
Operating expenses 402,7 315,5 315,5
Net income from normal
operations 309,0 304,4 304,4
Financing costs (14,7) (18,1) (18,1)
Income from associated companies 50,3 18,7 18,7
Exceptional items (14,2) 133,6
Net income before taxation 330,4 305,0 438,6
Taxation 48,7 51,2 51,2
Net income of the group 281,7 253,8 387,4
Attributable to outside shareholders 92,9 89,1 89,1
Attributable to ordinary
shareholders 188,8 164,7 298,3
Exceptional items (net of taxation
and outside shareholders) 11,4 (133,6)
Headline earnings 200,2 164,7 164,7
Earnings per share (cents)
- headline earnings 150,3 120,6 120,6
- attributable to ordinary shareholders 141,7 120,6 218,4
Distribution per share (cents)
- dividend 31,0 12,0 12,0
- capital 14,0 24,0 24,0
Total 45,0 36,0 36,0
Number of shares ('m)
- in issue 126,9 139,5 139,5
- weighted average 133,2 136,6 136,6
Group Balance Sheets
2001 2000
R'm R'm
Assets
Fixed assets 61,0 48,4
Net intangible assets 78,9
Investment in associates 157,2 12,5
Investments of long-term insurance
subsidiary 97,8 200,0
Other non-current assets 96,8 358,8
Deferred taxation 154,5
Cash and short-term funds 1 205,0 1 029,9
Other current assets 1 579,6 1 824,9
3 430,8 3 474,5
Liabilities
Policyholders' funds 87,1 199,2
Long-term liabilities 108,5 25,6
Deferred taxation 4,0 1,7
Accounts payable and other liabilities 287,7 447,9
Loans and deposits 1 139,2 849,8
Short-term borrowings 34,8 94,3
1 661,3 1 618,5
Shareholders' funds
Ordinary shareholders' funds 1 140,8 1 085,3
Outside shareholders' funds 628,7 770,7
Total shareholders' funds 1 769,5 1 856,0
3 430,8 3 474,5
Net asset value per share (cents) 899 778
Return on ordinary shareholders'
funds - ROE (%) 18,0 19,1
Group Cash Flow Statements
2001 2000
R'm R'm
Cash retained from operating activities 85,8 (194,7)
Cash utilised in investment activities 123,3 1 009,2
Cash flow attributable to investment in
short-term income earning assets (25,1) (966,2)
Cash flow from financing activities 33,8 153,3
Net increase in cash and cash
equivalents 217,8 1,6
Cash and cash equivalents at
beginning of period 289,6 288,0
Cash and cash equivalents at
end of period 507,4 289,6
Statements of changes in ordinary shareholders' funds
2001 2000
R'm R'm
Ordinary shareholders' funds
at beginning of period 1 085,3 638,4
Net proceeds of shares issued 523,9
Specific share buy back - share
incentive trust (106,4)
Goodwill on acquisition (177,5)
Movement in non-distributable reserves 7,0 2,7
Change in shareholding of subsidiary (150,8)
Adjustment to prior year's goodwill (14,4)
Net income for the period 188,8 298,3
Distribution to shareholders (19,5) (49,7)
Ordinary shareholders' funds
at end of period 1 140,8 1 085,3
Notes
1. Accounting policies
The accounting policies adopted for the purpose of this report comply in all
material respects with South African Statements of Generally Accepted
Accounting Practice as well as with applicable legislation. These accounting
policies are also consistent with those of the previous year, with the
exception of the treatment of goodwill and deferred taxation, which is treated
in accordance with the current accounting statements.
2. Comparative figures
* The comparative figures in respect of the deferred taxation have not been
restated for the change in accounting policies, these being immaterial.
* Negative goodwill which arose in the previous year was transferred to a
non-distributable reserve on the balance sheet. In terms of current accounting
practice these amounts should have been taken to the income statement, and
accordingly the prior year income statement has been restated by an amount of
R133,6 million.
* Comparatives for investments of long-term insurance subsidiary and
policyholders' funds were both reduced by an amount of R10,7 billion,
representing the value of the linked investment policies of Escher Group, now
treated as an associated company.
* In line with recommended accounting practice, the company has not recognised
the proposed dividend as a liability. Comparatives were not restated.
3. Exceptional items
2001 2000
R'm R'm
Negative goodwill 7,9 133,6
Goodwill amortisation (11,0)
Profit on sale of investments 23,5
Impairment charges (34,6)
(14,2) 133,6
- taxation 0,5
- attributable to outside
shareholders 2,3
(11,4) 133,6
Review
Financial
PSG Group delivered headline earnings of R200,2 million for the year, an
increase of 22% on the previous year. Headline earnings per share improved by
25% to 150,3 cents.
Ordinary shareholders' funds amount to R1 140,8 million, being a 16% rise in
net asset value per share to 899 cents.
The total distribution to shareholders for the past financial year amounts to
45 cents per share, an increase of 25% on the previous year.
Divisional
Investment banking
PSG Investment Bank Holdings (PSGBH) produced pleasing results in a competitive
environment, characterised by slow corporate activity and subdued financial
markets.
The company delivered headline earnings of R262,1 million up from R211,4
million in the previous year. Headline earnings per share increased by 33% to
21,5 cents, from 16,2 cents. Net asset value per share increased to 138 cents,
from 117,5 cents a year ago.
The headline earnings and NAV exclude value added to the Bank of approximately
11 cents per share which will accrue as a result of the benefits of unforeseen
tax credits accruing in TBB.
The year under review was one of refocus, restructure and preservation of
capital and liquidity in anticipation of more volatile and difficult markets.
Levels of corporate credit risk remained high throughout the year while foreign
and domestic direct investment remained under pressure. At the same time,
market liquidity, particularly for A2-rated banks, remained tight.
PSGBH's niche is structured and project finance, corporate finance and
proprietary investments, treasury, structured products and treasury outsourcing
PSGBH successfully expanded its business footprint, by inter alia, growing its
core businesses, increasing its investment in Vestacor, concluding the
investment banking transaction in Keynes Rational, the birth of PSG Trade
Finance and the expansion into Australia with PSG Afro Pacific.
The refocusing of the equity derivative-, curve trading-, treasury- and
asset-based-finance businesses has decreased PSGBH's fixed costs and risk
profile whilst narrowing its focus to a few core activities. Sophisticated risk
procedures have enabled PSGBH to effectively monitor and manage its activities.
Earnings for the next six months should reflect market conditions with
comparative outperformance resulting from selected investment banking
initiatives.Cost efficiency remains a priority, with a cost to income target of
30% (2001: 30,8%). The business of investment banking is by nature
opportunistic and we anticipate some volatility ahead.
PSGBH intends a distribution of 16,6 cents per share to shareholders in the
form of a cash dividend of 8 cents per share and the unbundling of 75% of the
investment in Velocity, in the ratio of 1.3 Velocity shares for every 100 PSGBH
shares. Velocity with cash reserves of R138 million, will become a direct
subsidiary of PSG.
Retail banking
Keynes Rational moved ahead during the financial year:
* A strong management team was appointed.
* Management established a national branch network through acquisitions. The
number of branches increased from 120 to 300 and the staff from 616 to 1 286.
* Keynes Rational's focus has narrowed from providing financial services to
low-income employees to providing face-to-face banking services.
* PSG Anchor Finance, a payroll-based term lender, was sold for R26 million.
The sale took place a few months before the government decision to restrict
access to their Persal-payroll. The reason for the sale was a desire to focus
more narrowly.
* For the same reason Keynes Rational unbundled its interest in Anchor Life
with effect from 1 September 2000. This company now forms part of Channel Group
* Keynes Rational achieved R45 million headline earnings on a capital base of
R146 million, representing a ROE of 36%.
The company will continue operating its 300 micro-lending branches. As soon as
possible these will be converted to bank branches to be able to offer
comprehensive but straightforward banking products to their clients.
Subsequent to year-end, on 1 March 2001, the organisation became a bank when
the business of Keynes Rational was sold to TBB, which was renamed Capitec
Bank, and Keynes Rational became a bank holding company.
Divisional contribution to headline earnings (R'm)
2001 2000
Investment banking 159,7 125,1
Retail banking 33,1 14,3
Private wealth 10,6 9,0
Multi management funds 8,7 7,7
Long-term insurance/employee 2,1 2,7
benefits
Corporate* (14,0) 5,9
Total 200,2 164,7
*Including financing costs of R21,8 million (2000: R3,1 million)
Private wealth
The performance of PSG Investment Services (PSGIS) is acceptable in the context
of a year in which private investors steered away from the JSE and other SA
investment vehicles in favour of taking money offshore or placing it in
lower-risk interest-related products.
PSGIS's total income increased by 23% to R 99,3 million. Although satisfactory,
this was below budget. Increased expenses in anticipation of greater growth had
to be contained mid year. As a result, headline earnings amounted to R11,2
million, an 18% improvement on last year.
The distribution arm of the business increased income by a solid 52% and has
established a strong recurring income base. Plans for the year ahead include
the consolidation of the distribution outlets, and the development of a
superior independent selection of products, which will be cross-sold to the
company's 125 000 private client base, through 105 advisers in 63 offices
nationwide.
Although the online stock broking business is now profitable, experience is
showing that the South African market is simply not deep enough to justify
online expenses on the scale of previous years. This led to the review of the
PSG Online strategy and the integration of the e-commerce arm of the business
with the mainstream business.
Funds under administration now total R 5,954 billion, up from R 4,981 billion a
year ago. Reaching critical mass remains a priority and opportunities will be
sought to achieve this.
Multi management of funds
Highlights of the year for Escher Group include:
* Listed on the JSE in June 2000, and raised R41,9 million in the process.
* Assets under management increased by 62% to R17,8 billion. The client base
now extends to more than 230 institutions.
* Headline earnings increased by 79% from R12 million to R21,5 million in line
with the prospectus forecast and a dividend of 3 cents per share was declared.
* An investment administration capability was built. All investment
transactions are received, processed and monitored electronically on a straight
through basis.
Long-term insurance and employee benefits
Channel Group offers employee benefits consulting, administration services and
now also long-term insurance products with the addition of Anchor Life.
Channel aims to deliver traditional services in a digital way and has made
satisfactory progress in this regard.
Financial performance lagged expectations and did not meet budgeted targets.
However, Channel's foundation is now stronger and we expect the company to grow
in years to come.
Anchor Life focuses on the lower income groups and had a difficult trading
year. High expense and lapse ratios put pressure on the company's profits, and
investment returns lagged expectations. During the year, Anchor Life changed
its focus to become a long-term insurer doing business with established
distribution lines on a partnership basis.
This triggered a number of strategic changes, the most notable being:
* The establishment of new distribution lines, called Life Assurance Networks.
* The conversion of its agency force to sole brokers, thereby transferring
ownership of the agents to third parties on a basis whereby they continue to
sell Anchor Life's products exclusively.
* The outsourcing of the technology infrastructure, and the co-sourcing of its
back office functions to Alfinanz, so as to enhance its operational
efficiencies and reduce costs.
* The reduction of the salaried staff numbers from 270 to 70 people.
A management consortium has bought a 16% share in the enlarged Channel, with
the option of increasing its share to 30% in future.
The future
We are a South African company and PSG's fortunes are therefore closely linked
to that of the country's. PSG Group shall continue to direct its efforts
towards improving the quality of the various businesses and sustainability of
its earnings.
Your board continues to investigate alternatives to enhance shareholder value.
A matter that is often raised is the apparent confusion between PSG Group and
PSG Investment Bank Holdings as listed entities. Alternatives will be
investigated in the next period to address the aforementioned.
Distribution to shareholders
The company's policy is to distribute approximately 30% of annual profits to
shareholders. A capital distribution of 14 cents per share was made to
shareholders at the interim stage. The directors have declared a final dividend
of 31 cents per share (giving a total distribution of 45 cents for the year) to
shareholders registered in the books of the company on 8 June 2001, payable on
15 June 2001.
Annual general meeting
This meeting will be held on Friday, 25 May 2001 at 12:00 and the board
welcomes shareholders to attend.
By order
Jannie Mouton Chris Otto
Chairman Director
Stellenbosch 10 April 2001
PSG Group Limited Registration number 1970/008484/06 Secretaries and registered
office PSG Corporate Services (Pty) Limited, 1st Floor Ou Kollege, 35 Kerk
Street, Stellenbosch, 7600
Transfer secretaries Computershare Services Limited, 41 Fox Street,
Johannesburg, 2001
Directors J F Mouton (Chairman)*, P E Burton (Alt W H Rule), L de Wit, J de V
du Toit (Alt M C Claassen), A B la Grange, M S du P le Roux, H H Oosthuizen, C
A Otto*,
L M Rouillard, C F Turner (*Executive)
These results are also available on our website: www.psg.co.za
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