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PSG Group Limited
(Incorporated in the Republic of South Africa)
("PSG Group" or "the company")
(Registration number 1970/008484/06)
JSE Share code: PSG ISIN Code: ZAE 000013017
Attributable earnings increased by 35% to 94,6 cents per share
Interim dividend increased by 21% to 17 cents per share
Net asset value increased to 933 cents per share
Strong balance sheets and cash flow enables us to seize opportunities
We remain committed to create new businesses, employment and shareholders'
wealth
Group Review
PSG is an investment holding company and our preferred performance yardstick
is the increase in net asset value per share, especially in volatile
markets. The aim remains to provide shareholders with a growing and less
volatile dividend income with the interim dividend being increased to 17
cents per share (2000: 14 cents).
During the period under review the net earnings over the comparable period
increased by 21% to R118,3 million and earnings per share by 35% to 94,6
cents (2000: 70,2 cents). The net asset value per share increased to 933
cents.
Divisional review
PSG Investment Bank Holdings Limited
PSG Investment Bank (PSGBH) has reiterated its commitment to expand its
presence in the investment banking market following good results for the six
months to 31 August 2001. Against a background of interest rate declines,
the bank increased net earnings over the comparable period by 34% to R139
million and earnings per share by 39% to 11,1 cents (2000: 8,0 cents).
The strategy remains to initiate, bridge and trade.
PSGBH's contribution by activity is primarily corporate finance and
proprietary investment income (50%), structured finance (14%) and income on
capital (31%). Annuity earnings are approximately 50% of attributable
earnings and the group is still looking to structured deals to enhance its
bottom line. PSGBH is conservatively geared and in a strong position to take
advantage of opportunities in the market.
In the period under review, total assets increased to R4,4 billion an
increase of 92% since February 2001. This was not only as a result of the
take-over of Real Africa Durolink Holdings ("RAD") and The Business Bank
("TBB"), but also due to increasing confidence by depositors.
PSGBH's acquisition of RAD for R315 million was funded by the issue of 216
million shares and a cash payment of R147 million. Real Africa Holdings,
RAD's empowerment partner, elected to take PSGBH shares. RAD's contribution
during the period was R99 million which excluded any future benefit arising
from RAD's estimated tax loss of R280 million.
Further expansion in the period comprised the acquisition of Trans Atlantic
Securities, the Doyle business in Australia and Keynes Rational, which was
acquired and merged with TBB. PSGBH has announced its intention to unbundle
Keynes Rational in the near future.
The net financial effects in this period of the RAD and TBB deals are
presented as exceptional items although these types of investment banking
transactions are core to our business. Although the TBB acquisition has been
financially beneficial to PSGBH, it is still under performing and is not as
profitable as originally anticipated.
Keynes Rational Limited
The long term strategy of Keynes Rational's subsidiary, Capitec Bank Ltd, is
to convert its micro-lending activities to become a retail bank. This
requires the appointment and training of specialized personnel, the
relocation of branches and the installation of systems.
The only current profit generator in the company is the short-term loan
business. This business is now operating as Finaid and is a division of
Capitec Bank. At the end of August 2001, Finaid had 262 branches, 932 staff
and a book of R72 million. This business made a profit of R35 million before
tax for the six months to August 2001.
During the period under review the company has opened 45 Capitec branches,
with a book of R12 million by 31 August 2001. This new concept is successful
although absorbing investments and start-up costs.
Headline earnings for Keynes Rational for the six months to August 2001
amounted to R16,3 million and attributable earnings to R11,7 million. This
is below budget. We expect an equally difficult second half year.
Keynes Rational Limited is a different company from the one operating with
the same name this time last year. Its capital structure and the composition
of its businesses have changed significantly. Profits in this period cannot
be compared to those reported last year. We plan to start operating as a
Bank on 1 March 2002, when we will start earning a return on the investments
we are now making and are confident about the success of our long term
strategy.
PSG Investment Services (Pty) Limited
PSG Investment Services has maintained and improved its positioning with a
37% increase in assets under administration since end-August 2000, despite
considerable pressures on income and profit.
The overall income for the comparable 6 months decreased by 8% to R46
million. Expenses have been curbed and are 5% lower than last year. After-
tax profit at R4,5 million is satisfactory.
The performance of the advisory and distribution side of the business
remained pleasingly consistent. The division is well placed for an
improvement in trading conditions, with the number of advisors having
increased from 105 to 120. Eight new outlets have been added to the business
since year-end and are trading profitably. We are well positioned to
leverage off our distribution network with the total offices countrywide now
at 71.
The `do-it-yourself' investment division - comprising online stock broking
and investor tools - has seen a significant improvement over the year. PSG
Investment Services is reaping the benefits of the development of PSG
Online, which is largely complete. PSG Online is now a significant brand
name, and encompasses the fast and effective delivery mechanism of PSG
Investment Services products. It has provided the platform to offer a
complete and cost-effective online investment service, and has also aided
the marketing of investor tools.
Channel Group Limited
Following the unbundling of Escher Group out of Channel Group, and the
incorporation on 1 March 2001 of PSG Anchor Life into Channel Life,
management effected the repositioning of Channel as a life assurer with
complementary subsidiaries. This has been completed satisfactorily.
Costs have been severely curtailed and critical mass achieved. The platform
has been established for substantial growth in assets and profitability.
Fedsure Life Namibia was acquired with effect from 1 September 2001, as part
of our regional strategy. We expect that the earnings will increase as a
result of this transaction.
m Cubed Holdings Limited
Escher Group Limited and m Cubed Capital Holdings Limited successfully
merged to become m Cubed Holdings Limited, on 1 August 2001.
The merger brings substantial benefits for both organisations. m Cubed
Capital enhanced critical mass in its asset management business and obtained
a listing on the JSE Securities Exchange South Africa, while Escher gained a
retail and operations business with a more diversified revenue mix. Both
groups have similar investment philosophies and complementary skills,
providing synergies and economies of scale opening up a number of
opportunities in the local and international financial services markets,
which might not have been as accessible to the individual companies. We
believe that the material effect of these synergies on bottom line will only
be reflected in the group's 2003 annual results.
The group has produced pleasing results for the 6 months ended 31 August
2001 with headline earnings per share increasing by 42% to 3,4 cents. These
results reflect Escher's results for six months and one month of m Cubed.
Currently, the merged group is on track to meet its forecast results for
2002. The combined assets under management increased to R33,4 billion and
assets under administration to R40 billion.
Distribution to shareholders
The directors have declared an interim dividend of 17 cents per share (2000:
Capital of 14 cents).
To comply with the requirements of STRATE, the following dates are
applicable:
Last day to trade cum-dividend Friday, 26 October 2001
Trading ex-dividend commences Monday, 29 October 2001
Record date Friday, 2 November 2001
Day of payment Monday, 5 November 2001
Share certificates may not be dematerialised between Monday, 22 October 2001
and Friday, 2 November 2001, both days inclusive.
The future
The board of PSG remains positive about the future and all divisions have
adopted and are implementing growth strategies. The challenge remains to
increase income and curtail costs.
Recent events have cast a pall of uncertainty over the future. We expect
future earnings of PSG Group and its major subsidiary, PSG Investment Bank
Holdings Ltd, to be volatile bearing in mind that it is an investment bank
affected by levels of investment income, the volatility in national and
international markets and the effects of new accounting conventions such as
AC133.
PSG Group has an enviable record of creating shareholders' value and wealth
and shall concentrate on doing so, also by using its healthy balance sheets
to seize investment opportunities as they arise.
By order
Jannie Mouton Chris Otto
Chairman Director
Stellenbosch
10 October 2001
Administrative information
PSG Group Limited
Registration number: 1970/008484/06
JSE Share code: PSG ISIN code: ZAE 000013017
Secretaries and registered offices
PSG Corporate Services (Pty) Limited
1st Floor, Ou Kollege, 35 Kerk Street, Stellenbosch 7600
Registrars
Ultra Registrars (Pty) Limited, 11 Diagonal Street, Johannesburg 2001
Directors
JF Mouton* (Chairman), PE Burton (alt. WH Rule), L de Wit, J de V du Toit,
AB la Grange, MS du P le Roux, HH Oosthuizen, CA Otto*, LM Rouillard, JC
Storey, CF Turner * Executive
Group income statements
31 Aug 31 Aug 28 Feb
2001 Change 2000 2001
R'm % R'm R'm
Income
Net interest income 163,6 163,2 344,2
Investment income 51,7 82,9 133,6
Other operating income 87,6 123,8 233,9
Total income 302,9 369,9 711,7
Expenses
Operating expenses 234,9 210,7 402,7
Net income from operations 68,0 159,2 309,0
Financing costs (17,6) (9,1) (14,7)
Income from associated companies 15,6 6,8 50,3
Exceptional items 140,7 16,4 (14,2)
Net income before taxation 206,7 19 173,3 330,4
Taxation 9,7 22,4 48,7
Net income of the group 197,0 31 150,9 281,7
Attributable to outside
shareholders 78,7 53,0 92,9
Attributable to ordinary
shareholders 118,3 21 97,9 188,8
Exceptional items (net of taxation
and outside shareholders)
Investment activities (83,7) (12,5) 11,4
Headline earnings 34,6 (59) 85,4 200,2
Earnings per share (cents)
- attributable 94,6 35 70,2 141,7
- headline 27,7 (55) 61,2 150,3
Distribution per share (cents)
- interim 17,0 21 14,0 14,0
- final 31,0
Total 17,0 14,0 45,0
Number of shares (million)
- in issue 125,0 139,5 126,9
- weighted average 125,0 139,5 133,2
Group balance sheets
31 Aug 31 Aug 28 Feb
2001 2000 2001
R'm R'm R'm
Assets
Fixed assets 96,5 44,6 61,0
Intangible assets 164,1 57,9 78,9
Investment in associates 197,8 130,0 157,2
Investments of long term insurance
subsidiaries 166,9 146,6 97,8
Other investments 61,2 17,8 37,3
Other assets 94,1 318,2 59,5
Deferred tax asset 121,6 5,6 154,5
Accounts receivable 153,6 187,3 170,2
Loans and advances 1 420,7 741,2 953,9
Investment and trading securities 741,5 538,5 455,5
Cash and short-term funds 1 629,8 980,9 1 205,0
4 847,8 3 168,6 3 430,8
Shareholders' funds
Ordinary shareholders' funds 1 166,0 1 188,8 1 140,8
Outside shareholders' funds 869,5 725,2 628,7
2 035,5 1 914,0 1 769,5
Liabilities
Deposits and current accounts 2 210,2 813,1 1 139,2
Policyholders' funds 103,5 161,3 87,1
Long term liabilities 100,0 25,9 108,5
Deferred tax liability 5,3 3,6 4,0
Accounts payable and other liabilities 388,1 235,9 287,7
Short-term borrowings 5,2 14,8 34,8
2 812,3 1 254,6 1 661,3
Total shareholders' funds and
liabilities 4 847,8 3 168,6 3 430,8
Net asset value per share (cents) 933 852 899
Notes
1. The accounting policies adopted for the purpose of this interim 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 financial instruments, which is
treated in accordance with the current accounting statement.
2. The group balance sheet includes investments in listed associated
companies with a carrying value of R184 million and a market value of R212
million as at 31 August 2001.
3. Attributable earnings include income from investment activities
comprising some RAD and TBB contributions less provisions.
4. No account taken of RAD estimated tax loss of R280 million.
Group cash flow statements
31 Aug 31 Aug 28 Feb
2001 2000 2001
R'm R'm R'm
Cash retained from/(utilised in)
operating activities (77,9) (12,5) 85,8
Cash retained from/(utilised in)
investment activities (194,5) (179,4) 123,3
Cash flow attributable to investment in
short-term income earning assets 321,5 282,9 (25,1)
Cash flow from financing activities (21,5) 33,8
Net increase in cash and cash equivalents 27,6 91,0 217,8
Cash and cash equivalents at
beginning of period 507,4 289,6 289,6
Cash and cash equivalents at
end of period 535,0 380,6 507,4
Statements of changes in owners' equity
31 Aug 31 Aug 28 Feb
2001 2000 2001
R'm R'm R'm
Ordinary shareholders' funds at
beginning of period 1 140,8 1 085,3 1 085,3
Share buy back (13,0) (106,4)
Movement in non-distributable reserves 5,2 14,8 7,0
Adjustment to prior year's goodwill 10,3 (14,4)
Change in shareholding of subsidiary (46,5)
Net income for period 118,3 97,9 188,8
Distribution to shareholders (38,8) (19,5) (19,5)
Ordinary shareholders' funds at
end of period 1 166,0 1 188,8 1 140,8
Divisional contribution to attributable earnings
31 Aug
2001
R'm
Investment banking 115,5
Retail banking 6,6
Private wealth 4,3
Insurance and multi management funds 4,5
Corporate* (12,6)
118,3
* Including financing cost of 12,5
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