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PSG/ PGFP - PSG Group / PSG Financial - Reviewed results for the year ended 28
February 2011
PSG Group Limited
Incorporated in the Republic of South Africa
Registration number: 1970/008484/06
JSE share code: PSG
ISIN number: ZAE000013017
("PSG Group" or "PSG" or "the company" or "the group")
PSG Financial Services Limited
Incorporated in the Republic of South Africa
Registration number: 1919/000478/06
JSE share code: PGFP
ISIN number: ZAE000096079
Reviewed results for the year ended 28 February 2011
Sum-of-the-parts value per share up 76% to R46,81
Total dividend per share up 59,5% to 67 cents
Recurring headline earnings per share up 16,6% to 241,9 cents
Headline earnings per share up 23,1% to 306,7 cents
RECURRING HEADLINE EARNINGS
Headline earnings Net asset value
28 Feb 28 Feb Number 28 Feb 28 Feb
2011 2010 of shares 2011 2010
Rm Rm m Rm Rm
Recurring headline earnings 404,1 359,0 3 439,9 2 766,7
Capitec Bank 223,0 151,7 32,3 1 981,6 1 383,9
PSG Konsult 66,0 65,5 538,5 324,7 296,1
PSG Asset Management (incl. 27,9 26,4 15,6 156,1 149,2
PSG FutureWealth)
Paladin Capital 46,7 77,2 472,3 1 123,1 859,6
Zeder Investments 109,4 83,6 407,9 1 073,1 925,9
PSG Corporate (incl. PSG 22,9 26,9
Capital)
Management and other fee 92,4 66,6
income
Operating costs (61,9) (43,2)
Taxation (9,5) (8,1)
BEE preference share 19,9 20,6 204,5 184,8
investments
Funding
Perpetual preference share (72,4) (53,1) (1 058,1) (551,3)
funding
Net interest (36,7) (27,6) (426,1) (513,9)
Other (0,7) (0,6) 38,1 5,5
Non-recurring headline 108,3 72,4 144,9 180,3
earnings
PSG Konsult 1,2
PSG Asset Management 5,2
Paladin Capital 93,4 89,8
Zeder Investments (33,1) (23,0)
PSG Corporate (net of
taxation)
Marked-to-market profit 31,1 26,2 144,9 138,6
Deferred tax assets written (20,7)
off
Other 10,5 0,1
m Cubed Holdings 41,7
Total headline earnings 512,4 431,4 3 584,8 2 947,0
Statistics Change
Weighted average number of 167,1 173,1
shares in issue (million)
Recurring HEPS (cents) 241,9 207,4 16,6%
HEPS (cents) 306,7 249,2 23,1%
COMMENTARY
OVERVIEW
PSG is an investment company established in 1995. The group consists of 35
underlying companies with a combined market capitalisation of R71bn that
operate across industries that include financial services, banking,
agriculture, education, construction, manufacturing, mining and now also
energy saving. From an accounting perspective these investments are either
consolidated, equity accounted or marked to market.
RESULTS
PSG continues to use the recurring headline earnings method to provide
management and investors with a more realistic and transparent way of
evaluating PSG`s earnings performance. Recurring headline earnings represent
the sum of PSG`s effective interest in that of each investment, regardless of
our percentage shareholding. The result is that investments in which PSG or an
underlying company holds less than 20% and are generally not equity
accountable in terms of accounting standards, are included in the calculation
of our consolidated recurring headline earnings. Marked-to-market fluctuations
are excluded.
Recurring headline earnings per share increased by 16,6% to 241,9 cents during
the year under review. Capitec and Zeder were the best performers, whilst
Paladin`s investments in the construction and manufacturing sectors have not
escaped the aftermath of the economic recession as yet. We, however, remain
confident that these businesses will improve their performance in the near
future.
Headline earnings increased by 23,1% to 306,7 cents per share, which is 26,8%
more than the recurring headline earnings per share, and attributable earnings
by 87,8% to 424,1 cents per share. The significant increase in attributable
earnings per share was mainly as a result of the non-headline profit on
Paladin`s sale of CIC and Zeder`s sale of KWV Holdings.
SUM-OF-THE-PARTS ("SOTP")
The PSG group consists of listed (traded on either the JSE Ltd or over-the-
counter) and unlisted companies. The listed investments and PSG Financial
Services Ltd perpetual preference shares are valued using the quoted market
price, whereas unlisted investments are valued using market related multiples.
At 28 February 2011, the SOTP value per PSG share was R46,81. At 14 April
2011, the SOTP value was R47,62 per share.
28 Feb 28 Feb 28 Feb 29 Feb
2011 2010 2009 2008
Asset/Liability Rm Rm Rm Rm
Capitec Bank * 5 138 2 367 857 1 114
PSG Konsult (incl. PSG Asset 1 206 948 873 1 156
Management) **
Zeder Investments * 1 069 742 342 553
Paladin Capital * 1 242 834 413 758
Management fees/agreements 350 361 216 216
(Thembeka prefs, cash, etc.) +
Other investments (Thembeka 548 400 745 1 364
prefs, cash, etc.) +
Total assets 9 553 5 652 3 446 5 161
Perpetual pref funding * (1 028) (541) (486) (571)
Other debt + (507) (539) (350) (143)
Total SOTP value 8 018 4 572 2 610 4 447
Number of shares (million) 171,3 171,8 170,5 171,1
SOTP value per share (rand) 46,81 26,60 15,31 25,99
* Listed on the JSE Ltd ** Over-the-counter + Valuation
CORPORATE ACTION AND INVESTING
Raised R502m in cash through the issue of 5,8m PSG Financial Services Ltd
perpetual preference shares. We now have a nominal total of R1,19bn in
perpetual preference share funding. R440m has been fixed at a cost of 8,87%
per annum until 31 August 2016 and R650m at 8,6% per annum until 31 August
2020 by means of an interest rate hedge.
We invested R489,2m in our core portfolio, which has created R145,8m in value
for shareholders when measured using market prices at 28 February 2011:
- R424,1m in Capitec at an average price of R122,81 per share, of which
R367,2m related to its rights issue.
- R20,9m in Paladin at an average price of R2,31 per share.
- R21,5m in Zeder at an average price of R1,95 per share.
- R2,7m in PSG Konsult at R1,41 per share.
- Reinvested R20m in PSG Group through the repurchase of 691 257 PSG Group
shares at an average price of R28,88 per share.
The investment in m Cubed Holdings (30%) was realised during the year after
total distributions of 23,5 cents per share were returned to shareholders. All
matters with the relevant Regulators were settled and the life assurance
licence cancelled.
CAPITEC BANK (34,6%)
Capitec is a retail bank that provides innovative transacting, saving and
unsecured lending products to serve the needs of all South Africans. Capitec
has since its establishment 10 years ago became a sizeable company with a
headline profit of R640m and a market capitalisation of almost R16bn. They
have created 5 331 new jobs, of which 1 177 were in the past year alone.
Capitec again delivered impressive results with headline earnings increasing
by 44% to 757 cents per share during the year under review. Capitec granted
5,5m individual loans totalling R14bn during this period, which is 66% more
than last year. The total net value of loans outstanding at year-end amounted
to R10bn. Capitec opened a further 54 branches, growing their network to 455
branches.
Unsecured lending is a growth segment of the South African banking industry.
Although it remains risky, Capitec took preventative measures when it
tightened its lending criteria back in 2008. Despite an increase in loans
granted, the actual bad debt rate has been on a declining trend. Capitec is
risk-sensitive when granting long-term credit - the higher the risk, the
shorter the term of the loans offered. Its provisioning policy whereby all
loans which are more than three months in arrears are written off, remains
conservative. The average loan at Capitec Bank in February 2007 was R1 180
with an average outstanding term of 10 months. Today it is R2 617 and 36
months. Net transaction fee income has grown by at least 80% in each of the
last three years. This reduces Capitec`s reliance on the income from loans.
In January 2011, Capitec raised R1,1bn in new ordinary capital to fund future
growth. Capitec`s 38% capital adequacy ratio as well as its liquidity
philosophy remains conservative - at year-end it would have been possible to
repay all deposits due immediately and on average throughout the year, within
3 days. Capitec management was pleased to have doubled fixed retail savings to
R2bn.
Capitec`s comprehensive results are available at www.capitec.co.za.
PSG KONSULT (73,5%)
PSG Konsult managed to marginally increase headline earnings to R91,5m during
the year under review.
The PSG Konsult group made a number of acquisitions during the year to build
capacity for future growth. These included:
- 100% of PSG Prime from PSG Asset Management for R16,7m, resulting in all
PSG`s stock broking activities now being housed under PSG Konsult.
- Bouwer Collins for R16m. The Company is an independent short-term insurance
intermediary with an Eastern Cape client base.
- The business activities of Diagonal Insurance ("Diagonal") effective 1
September 2010 for R71,8m. Diagonal is a national short-term insurance broker
and administrator. It has 5 marketing offices and an administration platform
servicing 12 000 clients. Annual premium income amounts to R175m.
- PSG Konsult`s BEE subsidiary, PSG Konsult Corporate, concluded various small
to medium sized acquisitions specializing in healthcare brokerage.
- The merger of PSG Konsult and PSG Asset Management with effect from 1 March
2011. The combined business will promote the sharing of resources and skills
with the goal of improved service delivery.
Other highlights included the establishment of the E-Business segment
operating under PSG Online. This platform serves as a single gateway to all
PSG Konsult`s products, including share trading, short-term insurance,
investments and financial planning.
Funds under administration and management increased by 34,4% to R97,3bn, while
short-term premiums administered increased to R1,6bn per annum (2010:
R1,45bn).
At year-end, PSG Konsult had 216 offices (2010: 209) and its financial
planners, stockbrokers and short-term insurance brokers increased to 642
(2010: 548).
PSG Konsult`s comprehensive results are available at www.psgkonsult.co.za.
PSG ASSET MANAGEMENT (81,3%)
The operations of PSG Fund Management, PSG Alphen, PSG Tanzanite, PSG Absolute
Investments and PSG Future Wealth were amalgamated to form PSG Asset
Management ("PSGAM"). PSGAM, as a consolidated unit, is able to offer
investors a simple, yet comprehensive range of investment products under one
umbrella brand.
Following the merger, PSGAM will have one Chief Investment Officer. The
adoption by the team of a "house-view" will mean that investors will be able
to enjoy a greater degree of consistency across the range of the PSG unit
trusts and portfolios. The interests of all the investment managers are now
aligned being shareholders in the holding company.
PSGAM`s headline earnings increased by 46% to R40,5m, whilst recurring
headline earnings increased by 23% to R34,1m and recurring headline earnings
per share by 4,9% to R1,79. Funds under administration increased by 32% to
R30,8bn and funds under management by 8% to R12,9bn.
On 7 December 2010, the FSB awarded a category III LISP licence to PSGAM,
which enabled it to launch an integrated LISP platform on 1 March 2011.
Special mention should be made of the PSG Flexible Fund, which recently won
two Raging Bull awards being 1st in its sector over three years and best risk
adjusted fund over five years. The PSG Equity Fund is currently ranked 1st in
the general equity sector, both over one and two years, while the PSG Balanced
Fund has delivered top quartile performance over three years and is currently
ranked 1st in its sector over one year.
PSGAM`s comprehensive results are available at: www.psgam.co.za.
PALADIN CAPITAL (81,3%)
Paladin is PSG Group`s private equity investment company in sectors other than
agriculture, food and beverages. At 28 February 2011, Paladin had 12
investments across the economic spectrum.
Paladin had a year of mixed fortunes with a strong increase in its SOTP
valuation and market price, while recurring headline earnings decreased
significantly.
The 47,3% increase in Paladin`s SOTP value to R2,99 per share was supported by
the R208m profit that was realized on the sale of CIC, and the substantial
increase in the value of both Curro and Thembeka.
The 37,3% decline in Paladin`s recurring headline earnings to 12,1 cents per
share was mainly attributable to its investments in the cyclical construction
and manufacturing sectors that were negatively affected by the economic
recession. The management of Erbacon, Top Fix and GRW has however introduced
measures to improve profitability in the near future. A substantial portion of
the proceeds on the disposal of CIC was subsequently invested in Curro, which
is currently yielding returns consistent with a venture that is in a growing
phase.
Paladin sold its 50% investment in CIC to Imperial for R364m during the year
under review. Having invested R67m originally and receiving R24m in dividends,
CIC was an extraordinary investment with a compounded return of 64,8% over the
4-year period. Paladin also disposed of its investment in Lesotho Milling for
R26m.
Paladin now owns 76% in Curro having acquired an additional 26% for R52m.
Curro is expanding according to plan. Due to the substantial capital required
to fuel growth, the Curro board has decided to list the business and undertake
a major rights issue shortly thereafter. Paladin intends to follow its rights.
Paladin also increased its interest in Petmin, Erbacon and Spirit Capital
during the past year.
Subsequent to year end, Paladin acquired a 45% interest in Energy Partners, a
provider of energy saving solutions. We view this as an exciting entry into
the emerging energy sector.
We are optimistic about the prospects of Paladin`s portfolio which contains a
good mix of stable earners, businesses that have been restructured to extract
more value from the current environment and then those with the potential to
develop into something really significant.
Paladin`s comprehensive results are available at www.paladincapital.co.za.
ZEDER INVESTMENTS (41,7%)
Zeder`s current portfolio of some R2,5bn comprises agriculture, food and
beverage related investments, of which Kaap Agri (with its 31,2% interest in
Pioneer Foods) and Capevin Holdings (with its 14,8% effective interest in
Distell) represent 78%. During the year under review, Zeder invested R211,8m
to increase its interest in existing investments trading at attractive values.
Zeder disposed of its 35,3% interest in KWV Holdings during February 2011 for
R286m cash. This, combined with the current market value of the retained
interest in Capevin Holdings and dividends received over the investment
period, represent a compounded annual rate of return of 18,8%.
Recurring headline earnings increased by 27,2% to R264,7m and recurring
headline earnings per share by 14,8% to 27,1 cents for the year under review.
Headline earnings per share increased by 9,2% to 18,9 cents, and attributable
earnings per share by 89,3% to 26,5 cents. The significant increase in
attributable earnings per share was mainly as a result of the R65,6m non-
headline profit on the aforementioned disposal of KWV Holdings.
During November 2010, Pioneer Foods and the Competition Commission announced
the final penalty settlement amounting to R855m emanating from the
investigation into bread and milling price-irregularities. Zeder`s share of
the penalty for the current year amounted to R40,5m, which had a negative
impact on both headline and attributable earnings. This matter has been
resolved and Zeder remains positive about Pioneer Foods` future.
Current cash and funding resources of R456m provide Zeder with the necessary
means to continue pursuing attractive investment opportunities.
Zeder`s comprehensive results are available at www.zeder.co.za.
PSG CAPITAL (100%)
PSG Capital is the corporate finance arm of PSG Group and provides a complete
suite of corporate finance and advisory services to a broad spectrum of
clients. PSG Capital is a JSE-registered sponsor and designated advisor. They
advise on mergers and acquisitions, JSE Listings Requirements, capital
raisings and listings, private equity investments, BEE transactions and
perform valuations including fair and reasonable opinions. It currently has 32
JSE-listed and numerous unlisted clients.
PSG Capital was recently ranked third by finance journal DealMakers in its
2010 DealMakers General Corporate Finance Annual Awards in the categories
Sponsors Transaction Flow and Sponsors Deal Flow.
PSG CORPORATE (100%)
PSG Corporate acts as PSG Group treasurer, allocates capital and determines
and monitors the Group`s gearing. It is also the appointed manager to both
Zeder and Paladin. The recurring management fees earned from these two
companies during the year under review amounted to R61,3m (2010: R40,8m). PSG
Corporate`s recurring headline earnings contribution increased by 37,3% to
R21m.
Cash and facilities available for reinvestment amount to R400m.
PROSPECTS
Our focus remains to create wealth for our shareholders by increasing both
PSG`s recurring headline earnings and SOTP value per share. We remain
committed to providing superior investment returns.
DIVIDENDS
Ordinary shares
Based on its stated dividend policy to pay up to 100% of free cash flow as a
dividend, the directors of PSG have resolved to pay 100% (2010: 75%) of free
cash flow as an ordinary dividend in respect of the financial year ended 28
February 2011. The directors have consequently declared a final dividend of 47
cents (2010: 29 cents) per share, which brings the total dividend for the
financial year to 67 cents (2010: 42 cents).
The following are the salient dates for the payment of the final dividend:
Last day to trade cum dividend Friday, 6 May 2011
Trading ex dividend commences Monday, 9 May 2011
Record date Friday, 13 May 2011
Day of payment Monday, 16 May 2011
Share certificates may not be dematerialised or rematerialised between Monday,
9 May 2011, and Friday, 13 May 2011, both days inclusive.
Preference shares
The directors of PSG Financial Services Ltd have declared a dividend of 343,77
cents per share in respect of the cumulative, non-redeemable, non-
participating preference shares for the six months ended 28 February 2011,
which was paid on 28 March 2011.
On behalf of the board
Jannie Mouton Wynand Greeff
Chairman Financial Director
18 April 2011
Stellenbosch
Directors:
JF Mouton (chairman)+, L van A Bellingan, PE Burton, ZL Combi, J de V du Toit,
MM du Toit, WL Greeff*, JA Holtzhausen*, MJ Jooste+, JJ Mouton+, PJ Mouton*,
CA Otto+, W Theron+, CH Wiese+
*Executive +Non-executive Independent non-executive
Secretary:
PSG Corporate Services (Pty) Ltd
Registered office:
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
Sponsor:
PSG Capital
Auditor:
PricewaterhouseCoopers Inc.
Condensed group income statement 2011 Change 2010
R`m % R`m
Income
Investment income (note 5) 492,2 460,7
Insurance income 2,0
Net fair value gains and losses on 379,4 688,0
financial instruments (note 5)
Fair value adjustment to investment (650,2) (924,0)
contract liabilities (note 5)
Commission and other fee income 1 290,2 1 060,8
Other operating income 380,2 44,6
Total income 1 891,8 1 332,1
Expenses
Insurance claims 0,2 1,2
Operating expenses 1 162,4 981,9
Total expenses 1 162,6 983,1
Share of profits of associated companies 524,8 411,8
Results of operating activities 1 254,0 760,8
Finance costs (90,7) (93,8)
Profit before taxation 1 163,3 667,0
Taxation (131,0) (103,3)
Profit for the year 1 032,3 563,7
Attributable to:
- Owners of the parent 708,4 391,0
- Non-controlling interest 323,9 172,7
1 032,3 563,7
Headline earnings
- Attributable to owners of the parent 708,4 81,2 391,0
- Non-headline items (note 2) (196,0) 40,4
512,4 18,8 431,4
Earnings per share (cents)
- Attributable 424,1 87,8 225,8
- Headline 306,7 23,1 249,2
- Diluted attributable 420,2 87,2 224,5
- Diluted headline 303,9 22,6 247,8
Number of shares in issue (million)
- In issue (net of treasury shares) 166,3 167,0
- Weighted average 167,1 173,1
- Diluted weighted average 168,6 174,1
Condensed group statement of comprehensive income 2011 2010
R`m R`m
Profit for the year 1 032,3 563,7
Currency translation adjustments and fair value (0,9) (3,0)
gain/(losses)
Share of other comprehensive income of associated 17,0 3,3
companies
Disposal of associated company`s share of other 10,1
comprehensive income
Total comprehensive income 1 058,5 564,0
Attributable to:
- Owners of the parent 722,5 398,2
- Non-controlling interest 336,0 165,8
1 058,5 564,0
Condensed group statement of financial position 2011 2010
R`m R`m
Assets
Property, plant and equipment 410,9 38,0
Intangible assets 1 025,3 780,9
Investment in associated companies (note 3) 5 212,3 4 452,7
Financial assets linked to investment contracts (note 9 112,4 8 215,8
5)
Other financial assets 605,7 696,3
Deferred income tax 48,4 4,1
Receivables 193,7 137,6
Current income tax 5,4
Cash and cash equivalents 796,1 360,9
Total assets 17 410,2 14 686,3
Equity
Ordinary shareholders` funds 3 584,8 2 947,0
Non-controlling interest 3 025,8 2 263,5
Total equity 6 610,6 5 210,5
Liabilities
Insurance liabilities 29,9 30,3
Financial liabilities under investment contracts 9 112,4 8 215,8
(note 5)
Other financial liabilities 854,9 795,5
Deferred income tax 126,4 74,5
Payables and provisions 663,6 358,1
Current income tax 12,4 1,6
Total liabilities 10 799,6 9 475,8
Total equity and liabilities 17 410,2 14 686,3
Net asset value per share (cents) 2 156 1 765
Net tangible asset value per share (cents) 1 539 1 297
Condensed group statement of changes in owners` equity 2011 2010
R`m R`m
Ordinary shareholders` equity at beginning of year 2 947,0 2 755,4
Shares issued 119,8
Share buy-back (20,0) (140,9)
Net movement in treasury shares 9,6 (102,1)
Share based payment costs 6,1 5,3
Transactions with non-controlling interest 2,0
Total comprehensive income 722,5 398,2
Dividends paid (82,4) (88,7)
Ordinary shareholders` equity at end of year 3 584,8 2 947,0
Non-controlling interest at beginning of year 2 263,5 1 863,6
Acquisition of subsidiaries and transactions with non- 34,3 353,0
controlling interest
Total comprehensive income 336,0 165,8
Dividends and capital distributions paid (57,7) (58,0)
Preference dividend paid (51,8) (60,9)
Preference shares issued 501,5
Non-controlling interest at end of year 3 025,8 2 263,5
Total equity at end of year 6 610,6 5 210,5
Dividend per share (cents)
- Interim 20,0 13,0
- Final 47,0 29,0
67,0 42,0
Condensed group statement of cash flows 2011 2010
R`m R`m
Cash flow from operating activities 564,3 779,4
Cash flow from investment activities (249,3) (350,0)
Cash flow from financing activities 335,9 258,2
Net increase in cash and cash equivalents 650,9 687,6
Cash and cash equivalents at beginning of year 476,4 (211,2)
Cash and cash equivalents at end of year * 1 127,3 476,4
* Include the following:
Bank overdrafts and CFD financing (3,4) (61,1)
Clients` cash linked to investment contracts 334,6 176,6
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 2010, which have been
prepared in accordance with IFRS. The accounting policies used in the
preparation of the condensed financial statements are consistent with those
used in the previous financial year. The following new standards and
amendments to standards are mandatory for the first time for the financial
year beginning 1 March 2010:
Amendments to IFRS 2 - Group Cash-settled Share-based Payment Transactions
(effective January 2010)
The amendment clarifies the accounting for group cash-settled share-based
payment transactions. The entity receiving the goods or services shall measure
the share-based payment transaction as equity-settled only when the awards
granted are its own equity instruments, or the entity has no obligation to
settle the share-based payment transaction. The entity settling a share-based
payment transaction when another entity in the group receives the goods or
services recognises the transaction as equity-settled only if it is settled in
its own equity instruments. In all other cases, the transaction is accounted
for as cash-settled. The group adopted the amendment retrospectively from 1
March 2010.
IFRS 3 Revised - Business Combinations (effective July 2009)
The revised standard continues to apply the acquisition method to business
combinations but with some significant changes compared with IFRS 3. For
example, all payments to purchase a business are recorded at fair value at the
acquisition date, with contingent payments classified as debt subsequently re-
measured through the income statement. There is a choice on an acquisition-by-
acquisition basis to measure the non-controlling interest in the acquiree
either at fair value or at the non-controlling interest`s proportionate share
of the acquiree`s net assets. All acquisition-related costs should be
expensed. The group applied the revised standard prospectively from 1 March
2010.
IAS 27 Revised - Consolidated and Separate Financial Statements (effective
July 2009)
The revised standard requires the effects of all transactions with non-
controlling interests to be recorded in equity if there is no change in
control and these transactions will no longer result in goodwill or gains and
losses. The standard also specifies the accounting when control is lost. Any
remaining interest in the entity is re-measured to fair value, and a gain or
loss is recognised in profit or loss. The group applied the revised standard
prospectively to transactions with non-controlling interests from 1 March
2010. This resulted in a change in accounting policy, since the group
previously treated non-controlling interests as parties external to the group
and subsequent to the revision treated non-controlling interests as equity
holders.
These standards and interpretation had no impact on the prior years` reported
results. Results of operating activities, as presented in the condensed income
statement, include share of profits of associated companies as a significant
part of the group`s business activities is performed through associated
companies. The comparatives have been presented on a consistent basis.
2. Non-headline items
Net of taxation and non-controlling interest 2011 2010
R`m R`m
Impairment of investments in associated companies (28,8) (49,1)
Net loss on sale/dilution of investments in (7,6)
subsidiaries
Net profit/(loss) on sale/dilution of investments in 243,3 (0,5)
associated companies
Negative goodwill on acquisition of subsidiaries 18,1
Profit on sale of available-for-sale assets 0,9 5,4
Impairment of intangible assets (incl. goodwill) (1,4) (0,7)
Impairment of shareholders` loans (4,8)
Non-headline items of associated companies (18,1) (2,0)
Other investment activities 0,1 0,8
196,0 (40,4)
3. Investment in associated companies
2011 2010
R`m R`m
Carrying value
- Listed 2 105,5 1 696,8
- Unlisted 3 106,8 2 755,9
5 212,3 4 452,7
Market and directors` valuation
- Listed 5 447,7 2 870,6
- Unlisted 3 495,2 2 920,2
8 942,9 5 790,8
4. Business combinations
4.1 Curro
On 1 July 2009 the group, through Paladin Capital, acquired 50% of the share
capital of Curro (a provider of private schooling) for R50m and classified the
investment as an investment in an associated company. On 1 July 2010 the group
acquired a further 26% of the share capital for R52m cash consideration to
gain control of Curro. The carrying value and fair value of Curro immediately
preceding the acquisition of the controlling stake amounted to R52,2m and
R75m, respectively. This resulted in a R22,8m profit on the previously held
interest to fair value which was recognised in the income statement. The
acquired subsidiary contributed total income of R38,8m and net profit of R3,4m
to the group for the period from 1 July 2010 to 28 February 2011. The non-
controlling interest was calculated based on their interest in the fair value
of the net identifiable assets.
4.2 Aurora
On 1 January 2011 the group, through Paladin Capital`s investment in Curro,
acquired 100% of the share capital of Aurora (a provider of private schooling)
for R42m. The acquired subsidiary contributed no income or profit to the group
for the period from 1 January 2011 to 28 February 2011.
4.3 Diagonal
On 1 September 2010 the group, as part of PSG Konsult`s strategy to grow
through acquisitions, acquired the entire business of Diagonal (a short-term
insurance broker and administrator) for R71,8m, of which R33,2m was still
payable at the reporting date. The acquired business contributed total income
of R13m and net profit of R5,3m to the group for the period from 1 September
2010 to 28 February 2011.
4.4 Other
Other business combinations were immaterial on an individual basis. The total
purchase consideration amounted to R50,5m which included aggregate goodwill
recognised of R76,7m.
Recognised amounts of identifiable assets acquired and liabilities assumed can
be summarised as follows:
Curro Aurora Diagonal Total
Rm Rm Rm Rm
Cash and cash equivalents 2,5 2,5
Property, plant and equipment 226,1 45,5 0,6 272,2
Receivables 3,1 0,6 3,7
Intangible assets 20,5 7,5 23,6 51,6
Other financial liabilities (90,6) (0,4) (91,0)
Payables and provisions (9,2) (11,6) (20,8)
Deferred income tax (14,4) (6,6) (21,0)
Total identifiable net assets 138,0 42,0 17,2 197,2
Non-controlling interest (33,1) (33,1)
Previously held interest at fair (75,0) (75,0)
value
Goodwill 22,1 54,6 76,7
Total purchase consideration 52,0 42,0 71,8 165,8
Analysed as follows:
- Cash paid 51,0 38,6 89,6
- Deferred purchase 42,0 33,2 75,2
consideration outstanding
- Fair value of shares issued 1,0 1,0
52,0 42,0 71,8 165,8
Cash flow effect:
- Purchase consideration settled (51,0) (38,6) (89,6)
in cash
- Cash and cash equivalents 2,5 2,5
acquired
(48,5) - (38,6) (87,1)
Goodwill recognised from these business combinations can be attributed to the
employee corps of the respective businesses and synergies expected to be
obtained. Transactions costs relating to these business combinations were
immaterial and were expensed in the current year`s results.
Had Curro, Aurora and Diagonal been consolidated with effect from 1 March 2010
instead of their respective acquisition dates, the group income statement
would have shown total income of R1 930,7m and net profit of R1 039,8m.
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. The
income statement impact of the returns on investment contract policy holder
assets and liabilities was as follows:
Investment
contract
policy Equity
holders holders Total
28 February 2011 Rm Rm Rm
Investment income 365,1 127,1 492,2
Net fair value gains and losses on 296,5 82,9 379,4
financial instruments
Fair value adjustment to investment (650,2) (650,2)
contract liabilities
Net investment return before taxation 11,4 210,0 221,4
28 February 2010
Investment income 300,1 160,6 460,7
Net fair value gains and losses on 634,3 53,7 688,0
financial instruments
Fair value adjustment to investment (924,0) (924,0)
contract liabilities
Net investment return before taxation 10,4 214,3 224,7
6. Segment report
The group is organised into six reportable segments, namely: Capitec, Zeder,
Paladin, PSG Konsult, PSG Asset Management and PSG Corporate. These segments
represent the major investments of the group. The services offered by PSG
Konsult and PSG Asset Management consist of financial advice and fund
management, while the other segments offer financing, banking, private equity
and corporate finance services. All segments operate in the Republic of South
Africa.
Recurring headline earnings are calculated on a see-through basis, and
includes the proportional headline earnings of underlying investments,
excluding marked-to-market adjustments and one-off items.
Non-
Inter- Recurring recurring Net
segment headline headline Headline asset
Income income earnings earnings earnings value
28 February 2011 Rm Rm Rm Rm Rm Rm
Capitec * 22,0 223,0 223,0 1 981,6
Zeder 135,5 109,4 (33,1) 76,3 1 073,1
Paladin 333,0 46,7 93,4 140,1 1 123,1
PSG Konsult 1 083,3 (70,4) 66,0 1,2 67,2 324,7
PSG Asset Management 276,3 (5,6) 27,9 5,2 33,1 156,1
PSG Corporate 168,2 (61,2) 40,2 31,0 71,2 372,3
Net fee income ** 21,0 21,0 22,9
Unit trust, hedge fund (0,7) 31,0 30,3 144,9
and share investments
BEE investments 19,9 19,9 204,5
Funding 17,1 (6,4) (109,1) (109,1) (1
484,2)
Other taxation and STC
Other *** 10,6 10,6 38,1
Total 2 035,4 (143,6) 404,1 108,3 512,4 3 584,8
Non-headline 196,0
Attributable earnings 708,4
* Equity accounted
** Net fee income is after deduction of salaries, operating expenses and
taxation
*** Consists of the investment in Propell (formerly Baedex) and other non-
recurring fee income
Non-
Inter- Recurring recurring Net
segment headline headline Headline asset
Income income earnings earnings earnings value
28 February 2010 Rm Rm Rm Rm Rm Rm
Capitec * 151,7 151,7 1 383,9
Zeder 57,8 (0,3) 83,6 (23,0) 60,6 925,9
Paladin 34,3 77,2 89,8 167,0 859,6
PSG Konsult 876,3 (43,0) 65,5 65,5 296,1
PSG Asset Management 309,6 (6,1) 26,4 26,4 149,2
PSG Corporate 137,1 (41,9) 37,6 14,6 52,2 350,3
Net fee income ** 15,3 15,3 26,9
Unit trust, hedge fund 1,7 14,6 16,3 138,6
and share investments
BEE investments 20,6 20,6 184,8
Funding 24,2 (15,9) (80,7) (80,7) (1
065,2)
Other taxation and STC (2,0) (9,1) (11,1) (6,6)
Other *** (0,3) 0,1 (0,2) 53,8
Total 1 439,3 (107,2) 359,0 72,4 431,4 2 947,0
Non-headline (40,4)
Attributable earnings 391,0
* Equity accounted
** Net fee income is after deduction of salaries, operating expenses and
taxation
*** Consists mainly of the investments in m Cubed Holdings and Propell
(formerly Baedex)
7. Commitments and contingent liabilities
2011 2010
Rm Rm
Operating lease commitments 75,6 82,9
8. PSG Financial Services Ltd
The company is a wholly owned subsidiary of PSG Group, except for the 11 885
206 preference shares which are listed on the JSE Ltd. No separate financial
statements are presented for the company as it is the only asset of PSG Group.
9. Review by auditors
The company`s external auditors, PricewaterhouseCoopers Inc., have reviewed
the condensed financial statements. A copy of their unmodified review opinion
is available on request at the company`s registered office.
Date: 18/04/2011 14:00:04 Supplied by www.sharenet.co.za
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