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PSG / PGFP - PSG Group /PSG Financial Services - Interim results (unaudited)
for the six months ended 31 August 2008 and dividend declaration
PSG Group Limited
Incorporated in the Republic of South Africa
Registration number 1970/008484/06
JSE share code: PSG
ISIN: ZAE000013017
PSG Financial Services Limited
Incorporated in the Republic of South Africa
Registration number 1919/000478/06
JSE share code: PGFP
ISIN: ZAE000096079
Interim results (unaudited) for the six months ended 31 August 2008
- Recurring headline earnings increased by 33,7% to 104,4 cents per share
- Paid a special dividend of 200,0 cents per share
- Headline earnings decreased by 84% to 29,6 cents per share
Condensed group income statements
Unaudited Unaudited Audited
Restated
31 Aug 31 Aug 29 Feb
2008 Change 2007 2008
Rm % Rm Rm
Income
Sales from non-financial 836,9 1 316,8
operations
Investment income 113,6 93,8 200,1
Net fair value adjustments to
financial instruments (26,3) 316,5 373,7
Commission and other fee income 468,3 380,5 861,8
Other operating income 31,4 38,7 106,9
Total income 587,0 1 666,4 2 859,3
Expenses
Cost of sales of non-financial 751,7 1 181,6
operations
Operating expenses 448,3 408,6 894,0
Total expenses 448,3 1 160,3 2 075,6
Net income from operating
activities 138,7 (72,6) 506,1 783,7
Finance costs (33,6) (25,2) (57,8)
Share of profits of associated
companies 128,8 97,3 235,6
Net income before taxation 233,9 (59,5) 578,2 961,5
Taxation (70,4) (113,8) (151,9)
Net income of the group 163,5 (64,8) 464,4 809,6
Attributable to:
Minority interests 112,5 162,1 255,4
Equity holders of the company 51,0 (83,1) 302,3 554,2
163,5 464,4 809,6
Attributable to equity holders of
the company 51,0 302,3 554,2
Non-headline items (note 2) (1,1) (10,1) (71,7)
Headline earnings 49,9 (82,9) 292,2 482,5
Earnings per share (cents)
- attributable 30,3 (84,2) 191,8 338,9
- headline 29,6 (84,0) 185,4 295,1
- diluted attributable 30,1 (84,1) 188,9 334,4
- diluted headline 29,4 (83,9) 182,6 291,1
Dividend per share (cents)
- interim 19,0 32,5 32,5
- final 80,0
- special 200,0
219,0 32,5 112,5
Number of shares (million)
- in issue (net of treasury
shares) 168,2 169,4 169,2
- weighted average 168,5 157,6 163,5
- diluted weighted average 169,8 160,0 165,7
Condensed group balance sheets
Unaudited Unaudited Audited
Restated
31 Aug 31 Aug 29 Feb
2008 2007 2008
Rm Rm Rm
Assets
Property, plant and equipment 34,3 44,0 26,5
Intangible assets 742,6 667,9 676,3
Investments in associated companies 3 489,1 2 817,8 3 533,9
(note 3)
Clients` investments linked to
investment contracts (note 5) 9 422,6 7 535,7
Other financial assets 1 368,4 1 566,5 1 808,7
Deferred income tax 21,2 14,3 13,8
Receivables and inventories 150,6 443,2 193,7
Cash and cash equivalents 302,0 657,6 417,5
Total assets 15 530,8 6 211,3 14 206,1
Equity
Ordinary shareholders` equity 2 827,9 3 103,2 3 295,4
Minority interests 1 896,0 1 722,9 1 773,6
Total equity 4 723,9 4 826,1 5 069,0
Liabilities
Insurance liabilities 1,7 1,7
Clients` funds under investment
contracts (note 5) 9 422,6 7 535,7
Other financial liabilities 789,2 734,7 894,7
Deferred income tax 152,6 130,0 141,2
Payables and provisions 320,3 389,0 493,2
Current income tax liabilities 120,5 131,5 70,6
Total liabilities 10 806,9 1 385,2 9 137,1
Total equity and liabilities 15 530,8 6 211,3 14 206,1
Net asset value per share (cents) 1 681 1 832 1 948
Net tangible asset value per share 1 240 1 438 1 548
(cents)
Condensed group cash flow statements
Unaudited Unaudited Audited
Restated
31 Aug 31 Aug 29 Feb
2008 2007 2008
Rm Rm Rm
Cash generated by operations 100,4 148,1 252,2
Net change in financial instruments 70,1 (235,4) (311,9)
Net cash flow from operating activities 170,5 (87,3) (59,7)
Net cash flow from investment activities 86,6 (382,6) (502,0)
Net cash flow from financing activities (330,0) (190,9) (335,4)
Net decrease in cash and cash equivalents (72,9) (660,8) (897,1)
Cash and cash equivalents at beginning of (12,6) 884,5 884,5
period
Cash and cash equivalents at end of period
* (85,5) 223,7 (12,6)
* Include bank overdrafts and CFD financing 387,5 433,9 430,1
of
Condensed statements of changes in owners` equity
Unaudited Unaudited Audited
Restated
31 Aug 31 Aug 29 Feb
2008 2007 2008
Rm Rm Rm
Ordinary shareholders` equity at 3 295,4 2 373,0 2 373,0
beginning of period
Shares issued 551,2 552,0
Net movement in treasury shares (23,2) (28,5) (36,4)
Movement in other reserves (2,9) 3,8 7,6
Net income for the period 51,0 302,3 554,2
Dividends paid (492,4) (98,6) (155,0)
Ordinary shareholders` equity at end
of period 2 827,9 3 103,2 3 295,4
Minority interests 1 896,0 1 722,9 1 773,6
Beginning of period 1 773,6 1 574,5 1 574,5
Net income for the period 112,5 162,1 255,4
Dividends and capital distributions paid (36,8) (6,6) (32,1)
Capital contributions by minority 17,7 142,6
shareholders
Acquisition/disposal of subsidiaries 74,6 (105,0)
Transfer to liabilities (6,3)
Other movements 1,2 (0,1)
Preference dividend paid (29,1) (24,8) (55,4)
Total equity at end of period 4 723,9 4 826,1 5 069,0
Notes
1. Basis of presentation and accounting policies
The condensed interim financial statements have been prepared in
terms of International Financial Reporting Standards (IFRS) IAS 34
- Interim Financial Reporting and in compliance with the Listings
Requirements of the JSE Limited. The accounting policies used in
the preparation of the interim financial statements are consistent
with those used in the previous financial year.
2. Non-headline items
31 Aug 31 Aug 29 Feb
2008 2007 2008
Rm Rm Rm
After taxation and minorities
(3,6) 4,1 60,8
Net profit on sale/dilution of 0,4 46,6
investment in subsidiaries
Net (loss)/profit on sale of (3,6) 3,5 4,0
associated companies
Negative goodwill on acquisition 9,6
of subsidiaries
Other investment activities (0,4) 0,6 0,6
Non-headline items of associated 4,7 6,0 10,9
companies
1,1 10,1 71,7
3. Investments in associated
companies
Carrying value
- listed 1 296,1 1 070,8 1 260,4
- unlisted 2 193,0 1 747,0 2 273,5
3 489,1 2 817,8 3 533,9
Market and directors` valuation
- listed 1 088,3 1 162,5 1 397,9
- unlisted 2 286,3 1 915,0 2 470,4
3 374,6 3 077,5 3 868,3
4. Commitments
Operating lease commitments 69,8 141,5 17,6
5. Linked investment contracts
PSG Group is not exposed to market movements in PSG
FutureWealth`s clients` assets held under investment contracts,
as any movement in the market price of the investment is linked
to a corresponding adjustment to the liability.
6. Reclassification of 31 August 2007 figures
The prior year figures were reclassified as follows:
- Equities relating to Contracts For Differences ("CFD`s") of
R18,8 million were previously netted off against the related
overdraft facilities and are now disclosed gross, and
- Third party liabilities of R143,3 million in mutual funds
consolidated by the group, previously included in minority
interests, have been reclassified to financial liabilities.
The effect on the specific line items is reflected below:
As Reclassi- Gross up Restated
previously fication of of CFD
stated minority assets and
interest in liabilities
funds to
financial
liabilities
Rm Rm Rm Rm
Balance sheet
Assets
Other financial 1 547,7 18,8 1 566,5
assets
Equity
Minority interests 1 866,2 (143,3) 1 722,9
Liabilities
Other financial 572,6 143,3 18,8 734,7
liabilities
Income statement
Net fair value
adjustments to
financial instruments 327,0 (10,5) 316,5
Attributable to:
- minority interests 172,6 (10,5) 162,1
Statement of changes
in owners` equity
Minority interests
Beginning of period 1 692,6 (118,1) 1 574,5
Net income for the 172,6 (10,5) 162,1
period
Capital contributions 32,4 (14,7) 17,7
by minority
shareholders
Total 1 866,2 (143,3) 1 722,9
Cash flow statement
Net change in (250,1) 14,7 (235,4)
financial instruments
Net cash flow from (102,0) 14,7 (87,3)
operating activities
Net cash flow from (157,4) (14,7) (18,8) (190,9)
financing activities
Net decrease in cash (642,0) (18,8) (660,8)
and cash equivalents
Cash and cash 967,1 (82,6) 884,5
equivalents at
beginning of period
Cash and cash 325,1 (101,4) 223,7
equivalents at end of
period*
* Include bank 332,5 101,4 433,9
overdrafts and CFD
financing of
These reclassifications had no taxation impact or effect on the net
income attributable to the equity holders of the group or earnings per
share.
7. PSG Financial Services Limited
The company is a wholly owned subsidiary of PSG Group Limited,
except for the 6,08 million preference shares which are listed on
the JSE Limited. No separate interim financial statements are
presented for the company as it is the only asset of PSG Group
Limited.
8. Segment report
Primary reporting segment
The group is organised in three main business segments:
- Private equity and corporate finance
- Financial advice and fund management
- Financing and banking
The private equity and corporate finance segment consists of PSG`s
investment business and corporate finance services.
The financial advice and fund management segment consists of PSG
Konsult and PSG Fund Management which mainly provide investment
support and advice to third parties, and PSG FutureWealth, a pure
linked life insurer focusing on investment business.
The financing and banking segment consists of Capitec Bank
Holdings and Adato Capital. Capitec is a retail bank that provides
accessible and affordable banking facilities to clients. Adato is
a niche financing company. Quince Capital, also a niche financing
company, has been included until 12 June 2008, the effective date
of its unwinding.
Segment assets and liabilities include all assets and liabilities
categories as listed in the balance sheet of the group.
Total Segment Segment Segment
For the six months ended Revenue result assets liabilities
31 August 2008 Rm Rm Rm Rm
Private equity and 42,6 9,5 3 537,6 558,9
corporate finance
Financial advice and 533,2 125,0 10 621,8 10 099,6
fund management
Financing and banking (1) 11,2 4,2 1 371,4 27,9
587,0 138,7 15 530,8 10 686,4
1. This segment`s equity accounted earnings amounted to R48,7 million
for the six months ended 31 August 2008.
Total Segment Segment Segment
For the six months ended Revenue result assets liabilities
31 August 2007 Rm Rm Rm Rm
Private equity and 1 278,8 408,2 3 699,2 589,3
corporate finance
Financial advice and 387,6 97,9 1 010,7 664,4
fund management
Financing and banking (2) 1,501,4
1 666,4 506,1 6 211,3 1 253,7
2. This segment`s equity accounted earnings amounted to R38,9 million
for the six months ended 31 August 2007.
Total Segment Segment Segment
For the year ended Revenue result assets liabilities
29 February 2008 Rm Rm Rm Rm
Private equity and 1 944,8 552,5 3 418,7 305,0
corporate finance
Financial advice and 914,6 231,2 9 236,6 8 761,5
fund management
Financing and banking (3) 1,550,8
2 859,4 783,7 14 206,1 9 066,5
3. This segment`s equity accounted earnings amounted to R89.4 million
for the year ended 29 February 2008.
Contribution to headline earnings
Number
Headline earnings of Net assets
shares
31 Aug 31 Aug 29 Feb 31 Aug 31 Aug 31 Aug 29 Feb
2008 2007 2008 2008 2008 2007 2008
Rm Rm Rm m Rm Rm Rm
Recurring 176,0 123,2 303,7 2 911,3 2 489,9 3 027,2
headline
earnings (before
funding and STC)
Capitec Bank 41,3 26,8 66,8 28,6 1 230,2 1 175,6 1 208,4
PSG Konsult 34,7 29,4 63,9 536,3 252,1 224,3 247,1
PSG Fund 9,2 10,5 24,0 63,8 54,8 56,0
Management
Channel Life 6,6 2,7 1,5 166,0 126,6 146,5
Quince Capital 9,7 21,3 325,9 342,4
Adato Capital 1,2 116,6
Paladin Capital 38,3 23,7 63,1 446,5 197,6 372,3
and other
private equity
PSG FutureWealth 4,7 8,9 59,5 59,9
Zeder
Investments and
agri investments
Dividends, net 27,9 9,7 40,0 218,1 492,1 277,5 476,5
interest
and equity
accounted
earnings
Management fee 3,3 3,1 5,9
earned by PSG
after costs
PSG Corporate 84,5 107,6 118,1
Services
Dividends from 2,4 2,4 7,2
investments
BEE funding 12,6 16,3 30,8
Net operating (6,2) (11,1) (29,7)
costs
Non-recurring (36,2) 195,7 244,1 926,0 1 274,0 1 089,8
headline
earnings
Marked-to-market
profits/(losses)
Quince Capital 2,4
Paladin Capital (30,9) 27,9 20,3 162,7 241,9 242,3
(Thembeka)
Zeder 5,5 52,6 49,8 94,3 244,6 74,5
Investments and
agri investments
PSG Corporate
Services
JSE Ltd 2,3 2,3
Petmin (7,5) 65,7 134,3 51,1 192,3 125,2 199,7
Vox Telecom 28,0 18,2 30,8 57,6 69,8 60,1
Other (4,7) 16,8 1,5 369,0 542,4 463,1
investments
Other non-
recurring
Quince Capital 7,4
Channel Life (8,8)
Miscellaneous 2,8 17,7
m Cubed Holdings 218,0 50,1 50,1 50,1
Perpetual (29,3) (25,4) (51,9) (558,1) (555,6) (558,9)
preference
shares
Interest rate (4,3) 17,6 23,2 13,6 12,7 17,9
hedge
Net interest (17,2) (2,0) (17,2) (430,9) (125,4) (277,9)
after tax
(borrowings and
cash)
Secondary tax on
companies
Normal dividend (5,1) (16,9) (19,4) 7,6 (2,7)
Special (34,0) (34,0)
dividend
Total headline
earnings 49,9 292,2 482,5 2 827,9 3 103,2 3 295,4
Statistics
Recurring HEPS 104,4 78,1 185,7
(cents)
Growth in 33,7%
recurring HEPS
Commentary
Review of results
Recurring headline earnings (refer to Contribution to Headline Earnings
table) remains the board`s predominant measure of PSG Group`s financial
performance. The sustainable earnings from subsidiary and associated
companies are included in recurring headline earnings, whereas marked-to-
market profits/losses and once-off items are disclosed as non-recurring
headline earnings.
Recurring headline earnings increased by 33,7% to 104,4 cents per share for
the six-month period ended 31 August 2008.
Reportable headline earnings decreased by 84% to 29,6 cents per share,
mainly as a result of marked-to-market losses on PSG`s investment portfolio
following the general decline in global stock markets. In the past, the
board did caution that the substantial profits emanating from marked-to-
market investments were not necessarily sustainable. The fair value
accounting convention will continue to lead to volatile earnings.
Corporate action
- PSG paid a special dividend of 200 cents per share, amounting to
R379 million.
- The unwinding of Quince Capital and consequent establishment of
Adato Capital, effective 13 June 2008, for a cash consideration of
R115 million.
- Effective 1 March 2008,PSG Konsult acquired the business of
Multifund and Brosist for R50 million, of which R36,4 million
related to intangibles and R12,4 million to goodwill.
- Thembeka Capital raised R25 million in black capital through a
private placement.
- Zeder increased its interest in Kaap Agri Limited ("Kaap Agri") and
KWV Limited ("KWV") to 34,3% and 25,1% respectively.
Capitec Bank (34,5%)
Capitec increased its headline earnings per share by 22,2% and delivered a
return on equity of 22%. We are positive about Capitec`s long-term future.
Capitec`s results for the six months ended 31 August 2008 are available at
www.capitec.co.za.
PSG Konsult (73,2%)
In a challenging operating environment, headline earnings increased by 18,8%
to R47,4 million for the period under review.
Funds under management and administration decreased by 5% to R50 billion.
PSG Konsult now has 507 (Aug 2007: 452) financial planners and stockbrokers
operating from 196 (Aug 2007: 183) offices throughout Southern Africa and
the United Kingdom.
Since the establishment of the London UK office six months ago, PSG
Konsult`s international offering has increased satisfactorily. This provides
a solid platform to expand its services and consequently grow revenue.
PSG Konsult`s comprehensive results are available at www.psgkonsult.co.za.
Paladin Capital (89,5%)
Paladin is an investment company with a private equity bias. The increase in
recurring headline earnings is a result of positive earnings growth from the
investee companies and certain investments now contributing earnings for the
full six-month period as opposed to the previous period where it was only
partially included. The performance of all the investee companies in the
portfolio exceeded expectations, with exceptional performances from CIC
Holdings, Erbacon, Precrete, Lesotho Milling and Protea Gietery.
During the period under review, Paladin acquired a 25% stake in Target
Milling, a wheat mill based in Durban, acquired an additional stake in
Precrete and invested further capital in both Thembeka Capital and Mainfin.
Thembeka Capital`s earnings were negatively affected by the market movements
of its listed share portfolio, predominantly its investment in the shares of
JSE Limited. However, Thembeka Capital`s recurring earnings base improved
with a number of transactions that were concluded during the past year.
Zeder Investments (35,7%)
Zeder continued to increase its interest in key investments during the
period under review. The increase in its recurring headline earnings from
3,5 cents to 10,5 cents per share is mainly attributable to equity accounted
earnings from its investments in associated companies, which were previously
predominantly accounted for as non-recurring marked-to-market profits.
More than 75% of Zeder`s investment portfolio is currently represented by
its investments in Kaap Agri (which holds 31,9% in Pioneer Foods) and KWV.
Zeder`s comprehensive results are available at www.zeder.co.za.
PSG Wealth Cluster
- PSG Fund Management (96,5%)
PSG Fund Management`s business consists of local and offshore unit trusts,
hedge funds, offshore fund services, asset management and prime stock
broking.
Headline earnings for the six months decreased by 13% to R9,5 million
compared to 31 August 2007. Assets under management increased from
R17,1 billion at year-end to R17,2 billion at 31 August 2008.
The offshore operations based in Guernsey contributed 26% of the reported
headline earnings during the period under review. This provides some
protection against possible rand depreciation going forward.
- PSG Futurewealth (80%)
PSG FutureWealth, a registered linked investment insurance company, made a
headline profit of R5,9 million for the six months ended 31 August 2008.
Improved distribution relationships and a focus on new product development
enabled the company to achieve commendable results. The total new business
premiums received amounted
to R1,1 billion.
Existing business outflows continue to decline and have now reached a level
regarded as normal for a business of this size. The transfer of the
remaining m Cubed Life assets of approximately R2 billion has been virtually
completed, with the total linked investment policy book now at R9,4 billion.
Channel Life (34,4%)
Management`s effort to increase profitability has been prolonged by the
current negative economic climate, especially higher fuel and food inflation
that is more detrimental to the company`s target market.
The retail business performed below expectation. To this end, the outbound
call centre was closed at the end of May 2008. Single-premium policies and
group schemes have however exceeded expectations. Strict cost control
measures remain in place.
Adato Capital (60,9%)
Adato was formed as a result of the unbundling of Quince Capital. The
business was capitalised to the extent of R180 million.
Adato focuses on niche financing opportunities that are not effectively
serviced by the bigger banks, and currently offers two products: property
bridging finance and loans against share portfolios. The loan book at the
end of August was R111 million.
PSG Corporate (100%)
The decline in the listed share prices of Petmin and other strategic and non-
strategic investments accounted for the non-recurring marked-to-market
losses incurred during the period under review. These investments have in
the past contributed significantly to PSG`s headline profits and continue to
trade above PSG`s historic cost.
PSG bought protection against interest rate fluctuations two years ago when
it entered into a 10-year fixed (8,87% NACS) for variable (75% of prime)
interest rate hedge. Although we incurred a marked-to-market loss as opposed
to a profit in the corresponding period last year, this instrument continues
to provide welcome protection when paying our perpetual preference
dividends.
Prospects
The current uncertain environment necessitates a more conservative approach
to business. Management remains focused to grow PSG`s recurring headline
earnings base. We believe it to be achievable given the diversification of
the group`s operations across the broader economy. Our primary goal remains
to maximise shareholders` wealth over time.
Subsequent to 31 August 2008, PSG has incurred further marked-to-market
losses of R162 million on its investments in, inter alia, Petmin, Vox
Telecom and Thembeka Capital`s JSE shares. This relates to previously
reported marked-to-market profits of approximately
R831 million.
Appointment of director
Wynand Greeff has been appointed as financial director to the boards of PSG
Group Limited and PSG Financial Services Limited with effect from 13 October
2008.
Dividends
Ordinary shares
Having taken cognisance of the 200 cents per share special dividend paid in
August 2008, the directors of PSG Group Limited have resolved to declare a
dividend of 19 cents per share (2007: 32,5 cents) in respect of the six
months ended 31 August 2008. PSG intends to distribute dividend income from
investments, after payment of the PSG Financial Services perpetual
preference dividend, as an ordinary dividend to shareholders. One third will
be paid as an interim dividend and the balance as a final dividend at year-
end.
The following are the salient dates for the payment of the ordinary
dividend:
Last day to trade cum dividend Friday, 31 October 2008
Trading ex dividend commences Monday, 3 November 2008
Record date Friday, 7 November 2008
Day of payment Monday, 10 November 2008
Share certificates may not be dematerialised or rematerialised between
Monday, 3 November 2008, and Friday, 7 November 2008, both days inclusive.
Preference shares
The directors of PSG Financial Services Limited declared a dividend of 571,1
cents per share in respect of the cumulative, non-redeemable, non-
participating preference shares for the six months ended 31 August 2008,
which was paid on 29 September 2008.
On behalf of the board
Jannie Mouton Chris Otto
Chairman Director
Stellenbosch
13 October 2008
Directors
JF Mouton (chairman)*, L van A Bellingan^, PE Burton^, ZL Combi,
J de V du Toit, WL Greeff*, MJ Jooste^, P Malan, JJ Mouton, CA Otto*, W
Theron, J van Zyl Smit^, CH Wiese^
* Executive ^ Independent
Secretaries and registered office
PSG Corporate Services (Pty) Limited
1st Floor, Ou Kollege, 35 Kerk Street, Stellenbosch, 7600
PO Box 7403, Stellenbosch, 7599
Transfer secretaries
Link Market Services South Africa (Pty) Limited
11 Diagonal Street, Johannesburg, 2001
PO Box 4844, Johannesburg, 2000
Sponsor
PSG Capital (Pty) Limited
These results are also available at www.psggroup.co.za
Date: 13/10/2008 15:17:01 Supplied by www.sharenet.co.za
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