Wrap Text
Unaudited Financial Results For The Six Months Ended 31 August 2014
PSG Konsult Limited
(Incorporated in the Republic of South Africa)
Registration Number: 1993/003941/06
JSE Share Code: KST
NSX Share Code: KFS
ISIN Code: ZAE000191417
("PSG Konsult" or "the group" or "the company")
UNAUDITED FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2014
SALIENT FEATURES
- JSE listing June 2014
- NSX listing July 2014
- Revenue +26%
- Recurring headline earnings +36%
- Recurring headline earnings per share +32%
- Funds under management +39%
- Funds under administration +33%
COMMENTARY
PSG Konsult Limited has delivered a credible first set of interim results after its successful listing
on the JSE Limited ('JSE') in June 2014 and on the Namibian Stock Exchange ('NSX') in July 2014. Our Asset Management
and Wealth divisions produced particularly commendable results, while results from the Insure division were slightly
lower than expected. In particular, we are pleased with the business's top line revenue growth achievement, which has
been a specific area of management focus and is up 26% from the prior comparative period.
PSG Wealth remains a key revenue driver and has maintained its upward revenue trend. It benefited from strong organic
growth and positive client inflows, as well as generally favourable market conditions, resulting in the FTSE/JSE All
Share Index increasing by 8% since 28 February 2014 and by 21% since 31 August 2013. Management fees have increased
by 39% and brokerage income by 19%. Managed assets increased by 16% to R98.6 billion (February 2014: R84.7 billion)
and total wealth assets by 12% to R239.5 billion (February 2014: R214.4 billion). In particular, we are pleased with
the R8 billion in net inflows of managed assets during the period.
PSG Asset Management remains a high-growth area. Increased brand awareness has facilitated strong client inflows
from both retail and institutional investors. PSG Asset Management attracted net inflows of R5.6 billion, including
a new R1.0 billion institutional asset management mandate. The total assets under management increased by 39% to
R21.9 billion (February 2014: R15.8 billion), while assets under administration increased by 24% to R60.6 billion
(February 2014: R49.0 billion). It is further notable that there is less reliance on performance fees, with these
fees contributing only 6% of PSG Konsult's headline earnings, compared to 9% for the six months ended 31 August 2013.
To reduce our overall exposure to operational and reputational risk, PSG Asset Management has decided to exit all
its current non-group related white label agreements. While reducing risk, we expect that this decision will have an
immaterial impact on PSG Konsult's profitability.
PSG Insure achieved 29% revenue growth compared to the six-month period ended 31 August 2013 in a fiercely competitive
market. Operating costs were well contained (increasing by only 4%) but the net claims loss ratio in Western Group
Holdings Limited ('Western') increased due to higher weather-related and commercial motor claims. Net income after
tax prior to minorities increased by 28%, but due to the corporate transaction concluded with Santam effective
19 September 2013, PSG Konsult's shareholding in Western diluted from 90% to 60%. This had a R5.6 million adverse
impact on the overall headline earnings contribution of PSG Insure.
PSG Konsult's key financial performance indicators for the six months ended 31 August 2014 are as follows:
31 Aug 14 Change 31 Aug 13
R000 % R000
Earnings attributable to ordinary shareholders 145 494 31 111 441
Non-headline items (97) (97) (2 793)
Headline earnings 145 397 34 108 648
Non-recurring items JSE listing fees 1 914
Recurring headline earnings 147 311 36 108 648
Weighted average number of shares in issue (million) 1 259.5 3 1 220.5
Earnings per share (cents)
Recurring headline (basic and diluted)* 11.7 32 8.9
Headline (basic and diluted)* 11.5 30 8.9
Attributable (basic and diluted)* 11.6 28 9.1
Dividend per share (cents) 4.0 4.0
Funds under management (R billion) 129 39 93
Funds under administration (R billion) 266 33 200
Divisional headline earnings
PSG Wealth 93 907 33 70 882
PSG Asset Management 33 758 63 20 727
PSG Insure 17 732 4 17 039
145 397 34 108 648
* Dilution is a function of the 35.8 million shares issued on 1 March 2014 for the adviser buy-back transaction.
DEBT FUNDING AND CASH FLOW MANAGEMENT
During the period under review, PSG Konsult focused on optimising its cash flow management and reducing its debt funding
position to improve overall debt funding costs. We also successfully negotiated the accelerated repayment of certain
long-term and short-term funding facility arrangements. Core business debt declined to R61.3 million (February 2014:
R110.6 million), which has improved our debt to equity ratio to 5% from 10% at year-end.
CREDIT RATING
The rating agency Global Credit Rating Company (GCR) upgraded PSG Konsult's long-term rating to BBB+ (previously BBB).
It also affirmed the short-term rating of A2, with the outlook accorded as Stable. This is as a result of PSG Konsult's
strong operational performance over the past two years, the increased financial strength, and stability built into its
business model.
Furthermore, the successful JSE listing had a positive impact in terms of raising PSG Konsult's profile and improving
its access to capital. This combined with our low debt profile, provides substantial funding flexibility allowing us
to consider acquisitions or similar transactions should the opportunities arise.
We remain confident as management demonstrates its ability to unlock long-term growth in income and operating profit
regardless of market cycles.
ACHIEVEMENTS
We are proud of the following notable milestones, achievements and industry awards:
PSG Wealth
- Runner up in the 2014 Business Day Investors Monthly 'Top Private Bank and Wealth Manager' award and also voted
the top 'Wealth Manager for Successful Entrepreneurs'.
- Consistently ranked as one of South Africa's Top 3 stockbrokers in the Business Day Investors Monthly 'Stockbroker
of the Year' award for the past four years, winning joint third place in 2014.
PSG Asset Management
- PSG Asset Management still grows assets faster than the industry and has passed the R20 billion mark for assets
under management, and R60 billion for assets under administration. During the period, the first institutional
mandate in excess of R1 billion was successfully implemented.
PSG Insure
- Awarded the 'Portfolio Administration Award for Performance Excellence' and 'National Broker Award for Performance
Excellence in Personal Lines' at the 2013 National Santam Broker Awards.
PEOPLE
At the period-end, PSG Konsult had 193 offices and 1 916 employees, of which 629 were financial planners, portfolio
managers, stockbrokers and asset managers, plus 396 professional associates (accountants and attorneys). Our advisers
increased by 11 (13 were appointed in the Wealth division while 2 left the Insure division) through a combination of
organic growth and the selective acquisition of additional adviser books of business. In addition, we concluded a
number of strategic hires that provides us with a strong operational platform from which to take the business into
the future. Key appointments in the group include a chief technology officer, head of marketing and an internal
auditor, as well as a chief executive officer for distribution at PSG Insure.
Wayne Waldeck, the current chief executive officer: PSG Wealth advised the board last year of his intention to
retire at the end of 2014. As part of our succession planning Corrie de Bruyn, the current chief executive officer:
PSG Life and PSG Online, was identified as his successor and has been working closely with Wayne. Corrie has been a
member of the PSG Konsult management and executive committees for a number of years. This, in addition to the support
of his strong management team, will ensure a smooth transition in leadership. The board would like to thank Wayne for
his valuable contribution to PSG Konsult over the years and wish Corrie all the best in his new role.
TRANSFORMATION AND SUSTAINABILITY
PSG Konsult underwent its first broad-based black economic empowerment (BBBEE) verification process during the
period. We were rated as a level 8 BBBEE contributor and approved as a value-adding supplier. This initial rating is
viewed as a benchmark and PSG Konsult is committed to improving its BBBEE score. Transformation imperatives underscore
the strategies of the three divisions and PSG Konsult as a whole.
STRATEGY
PSG Wealth's key strategy is to offer a holistic end-to-end client proposition. We achieve this by providing high-
quality advice, service excellence and products to grow and preserve our clients' wealth. Our extensive and expanding
adviser distribution network allows us to build strong client relationships. By continually innovating and investing
in our technological capabilities and reporting platforms, we maintain proper control and custody of our clients'assets.
We also provide them with high-quality financial reporting. Additional investment into our internal management
information systems has enabled us to unlock operational scale and business efficiencies.
PSG Asset Management has three core areas of strategic focus. The first is delivering excellent long-term investment
performance for our clients through our robust and consistent investment process. The second is responsibly growing
long-term assets (with a retail emphasis) at an acceptable margin through six key channels: independent advisers, PSG
Konsult advisers, platforms, multi-managers, institutional clients and direct clients. Our third core focus is
ensuring that we have robust operational processes in place to deliver operational excellence and ensure sound control
and custody of our clients' assets. In combination, and underpinned by a solid investment track record, these strategic
objectives will allow us to build on our established and respected reputation in the local market.
PSG Insure's strategy is to offer simple, cost-effective insurance solutions and quality advice. This enables us to
simplify complex product technicalities for our clients so that they can make clear, informed decisions. We focus on
our top calibre advisers to target growth particularly in our commercial client base. In addition, we remain committed
to excellence in our underwriting skills. This is both to optimise our insurance and investment risk retention levels
and to create value-adding insurance solutions that meet our clients' needs and expectations. We have also invested
in our short-term claims and administration platforms, which were centralised to unlock operational efficiencies. This
means that our advisers have more face time with their clients. We also focus on building our insurance investment
float, which we conservatively invested in short-duration financial instruments to provide additional financial
stability.
MARKETING
For 2014, emphasis is placed on the renewed drive to build the PSG brand and solidify its status as a key player in
the financial services industry. We have clarified our brand architecture, refreshed our corporate identity and
established a marketing team. Supported by sustained advertising efforts and strong media relations, this helps our
advisers to sell the PSG proposition and our clients to understand the value of our offering, ultimately translating
into business growth.
INFORMATION TECHNOLOGY
Over the past year, PSG Konsult has invested significantly in technological infrastructure to create the required
scale that will meet its growth targets. It has also generated operational efficiencies through the automation of
various processes throughout the business. We believe both of these endeavours will be value generative for
shareholders over the short to medium term.
BUSINESS COMBINATIONS
As announced previously, we concluded an asset-for-share transaction on 1 March 2014 in terms of section 42 of the
Income Tax Act, 58 of 1962. This will standardise the revenue sharing model and give our advisers the opportunity to
invest in PSG Konsult's future. The transaction was settled through the issue of 35.8 million PSG Konsult shares
and a R12.5 million cash payment. This contributed (net of a R4.4 million intangible asset amortisation charge)
R3.9 million to our headline earnings during the period under review.
CHANGES TO THE BOARD OF DIRECTORS
During the period under review, Patrick Burton and KK Combi were appointed as independent non-executive directors on
2 March 2014 and 16 April 2014, respectively.
LOOKING FORWARD
PSG Konsult's strategic focus for the year ahead is on enhancing top-line revenue growth at acceptable levels of risk.
Having successfully bedded down the repositioning of our business, this will allow us to unlock operational benefits.
We will achieve growth by:
- implementing and executing our three-year strategic plans for each of our underlying divisions;
- building the PSG brand and positioning PSG Konsult as a fully fledged financial services business through our
comprehensive range of services and products;
- optimising the synergy between business divisions to create further business development opportunities; and
- extending PSG Konsult's share in the value chain, with a particular focus on growing our asset management and
short-term insurance activities.
Although the future is always uncertain, we remain cautiously optimistic about our strategy.
DIVIDEND
Given the opportunities for growth in future years, and the capital required to fund such growth, the board
approved and declared a gross interim dividend payment of 4.0 cents per share (2013: 4.0 cents per share)
from income reserves for the six months ended 31 August 2014, which is in line with our policy as communicated
at the time of the JSE listing. No credits for secondary tax on companies (STC) were used as part of this declaration.
The dividend is subject to a local dividends tax rate of 15%, resulting in a net dividend of 3.4 cents per share,
unless the shareholder is exempt from paying dividends tax or is entitled to a reduced rate in terms of the
applicable double-tax agreement. The number of issued ordinary shares is 1 262 484 423 at the date of this
declaration. PSG Konsult's income tax reference number is 9550/644/07/5.
Salient dates for payment of the dividend:
Last day to trade (cum dividend) Friday, 24 October 2014
Trading ex dividend commences Monday, 27 October 2014
Record date Friday, 31 October 2014
Date of payment Monday, 3 November 2014
Share certificates may not be dematerialised or rematerialised between Monday, 27 October 2014, and Friday,
31 October 2014, both days inclusive.
The board would like to extend its gratitude to all our stakeholders, including clients, business partners,
management and employees for their efforts and contributions during the period.
On behalf of the board
Willem Theron Francois Gouws
Chairman Chief executive officer
Tyger Valley
8 October 2014
THE UNAUDITED FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2014 IS PRESENTED BELOW:
Consolidated interim statement of financial position
at 31 August and 28 February 2014
Restated
Unaudited Unaudited Audited
31 Aug 14 31 Aug 13 28 Feb 14
R000 R000 R000
ASSETS
Intangible assets 889 032 730 981 721 936
Property and equipment 46 202 29 856 47 590
Investment property 2 245 2 036 2 245
Investment in associated companies 39 169 39 064 39 548
Investment in joint ventures 12 511 9 000 12 057
Deferred income tax 72 993 25 986 52 101
Equity securities (note 5) 827 617 520 215 604 880
Debt securities (note 5) 1 642 197 1 740 574 2 121 432
Unit-linked investments (note 5) 11 045 876 8 850 516 10 218 629
Investment in investment contracts (note 5) 432 825 701 888 505 444
Loans and advances 97 800 123 721 109 995
Derivative financial instruments 19 075 19 880 21 190
Reinsurance assets 75 139 50 642 66 248
Deferred acquisition costs 1 658 1 211 1 025
Receivables including insurance receivables 1 856 752 1 424 263 2 129 358
Current income tax assets 22 509 16 073 12 878
Cash and cash equivalents (including money market investments)
(note 5) 469 038 430 959 709 184
Total assets 17 552 638 14 716 865 17 375 740
EQUITY
Equity attributable to owners of the parent
Stated capital/share capital and share premium 1 325 111 1 133 340 1 134 746
Treasury shares (546) (547) (546)
Other reserves (439 799) (460 119) (445 146)
Retained earnings 451 560 279 414 399 487
1 336 326 952 088 1 088 541
Non-controlling interest 95 085 24 867 86 222
Total equity 1 431 411 976 955 1 174 763
LIABILITIES
Insurance contracts 502 668 415 604 493 163
Deferred income tax 85 015 58 559 53 423
Borrowings 363 050 402 222 412 188
Derivative financial instruments 33 846 20 440 28 406
Investment contracts (note 5) 12 761 154 11 310 094 12 692 768
Third-party liabilities arising on consolidation of mutual funds 625 462 174 606 372 169
Deferred reinsurance acquisition revenue 2 757 2 328 2 842
Trade and other payables 1 723 302 1 344 101 2 129 914
Current income tax liabilities 23 973 11 956 16 104
Total liabilities 16 121 227 13 739 910 16 200 977
Total equity and liabilities 17 552 638 14 716 865 17 375 740
Net asset value per share (cents) 105.9 78.0 89.1
Consolidated interim income statement
for the six months ended 31 August and 12 months ended 28 February 2014
Restated
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 Aug 14 31 Aug 13 28 Feb 14
R000 R000 R000
Gross written premium 362 974 271 166 618 217
Less: Reinsurance written premium (98 417) (90 637) (185 881)
Net premium 264 557 180 529 432 336
Change in unearned premium
Gross 9 807 (20 779) (36 204)
Reinsurers' share (614) (1 344) 2 116
Net insurance premium revenue 273 750 158 406 398 248
Commission and other fee income 1 056 475 859 909 1 805 142
Investment income 198 911 175 127 380 034
Net fair value gains and losses on financial instruments 1 011 149 744 457 1 171 564
Fair value adjustment to investment contract liabilities (1 024 359) (751 588) (1 239 669)
Other operating income 14 075 24 168 42 117
Total income 1 530 001 1 210 479 2 557 436
Insurance claims and loss adjustment expenses (285 165) (170 143) (440 401)
Insurance claims and loss adjustment expenses recovered from
reinsurers 67 849 52 911 121 404
Net insurance benefits and claims (217 316) (117 232) (318 997)
Commission paid (474 464) (387 006) (824 757)
Depreciation and amortisation (26 339) (20 068) (40 596)
Employee benefit expenses (252 481) (220 914) (451 887)
Fair value adjustment to third-party liabilities (79 331) (44 523) (79 387)
Marketing, administration and other expenses (185 251) (167 324) (325 555)
Total expenses (1 235 182) (957 067) (2 041 179)
Share of (losses)/profits of associated companies (379) 2 623 3 118
Loss on impairment of associated companies (342)
Share of profits of joint ventures 454 318 3 375
Total profit from associated companies and joint ventures 75 2 941 6 151
Profit before finance costs and taxation 294 894 256 353 522 408
Finance costs (62 459) (95 519) (138 771)
Profit before taxation 232 435 160 834 383 637
Taxation (75 448) (43 057) (117 677)
Profit for the period 156 987 117 777 265 960
Attributable to:
Owners of the parent 145 494 111 441 249 258
Non-controlling interest 11 493 6 336 16 702
156 987 117 777 265 960
Earnings per share (cents)
- Attributable (basic and diluted) 11.6 9.1 20.4
- Headline (basic and diluted) 11.5 8.9 20.0
- Recurring (basic and diluted) 11.7 8.9 20.6
Consolidated interim statement of comprehensive income
for the six months ended 31 August and 12 months ended 28 February 2014
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 Aug 14 31 Aug 13 28 Feb 14
R000 R000 R000
Profit for the period 156 987 117 777 265 960
Other comprehensive income for the period, net of taxation (758) 619 985
To be reclassified to profit and loss:
Currency translation adjustments (758) 619 985
Total comprehensive income for the period 156 229 118 396 266 945
Attributable to:
Owners of the parent 144 736 112 060 250 243
Non-controlling interest 11 493 6 336 16 702
156 229 118 396 266 945
Earnings and headline earnings per share
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 Aug 14 31 Aug 13 28 Feb 14
R000 R000 R000
Profit attributable to ordinary shareholders 145 494 111 441 249 258
Non-headline items (net of tax and non-controlling interest)
Profit on sale of associated companies (3 384) (3 499)
Loss on remeasurement of previous equity interest 128
(Profit)/loss on sale of intangible assets (including
goodwill) (48) 1 633 1 622
Profit on sale of books of business (382)
Profit on sale of investment in subsidiaries (643) (643)
Non-headline items of associated companies (97) (314) (2 457)
Other 48 (85) 458
Headline earnings 145 397 108 648 244 485
Recurring 147 311 108 648 251 145
Non-recurring (1 914) (6 660)
Earnings per share (cents)
Attributable (basic and diluted) 11.6 9.1 20.4
Headline (basic and diluted) 11.5 8.9 20.0
Recurring headline (basic and diluted) 11.7 8.9 20.6
Number of shares (million)
in issue (net of treasury shares) 1 262.1 1 221.0 1 221.6
weighted average 1 259.5 1 220.5 1 220.5
Consolidated interim statement of changes in equity
for the six months ended 31 August and 12 months ended 28 February 2014
Attributable to equity holders of the group
Share
capital
and share
premium/ Non-
stated Treasury Other Retained controlling
capital shares reserves earnings interest Total
R000 R000 R000 R000 R000 R000
Balance at 1 March 2013 1 105 927 (620) (463 262) 276 968 34 190 953 203
Comprehensive income
Profit for the year 111 441 6 336 117 777
Other comprehensive income 619 619
Total comprehensive income 619 111 441 6 336 118 396
Transactions with owners
Issue of ordinary shares 27 413 27 413
Share-based payments costs
employees 2 524 2 524
Transactions with non-controlling
interest (19 897) (14 464) (34 361)
Dividend paid (89 098) (771) (89 869)
Other 73 (424) (351)
Balance at 31 August 2013 1 133 340 (547) (460 119) 279 414 24 867 976 955
Comprehensive income
Profit for the year 137 817 10 366 148 183
Other comprehensive income 366 366
Total comprehensive income 366 137 817 10 366 148 549
Transactions with owners
Share-based payment costs
employees 3 417 3 417
Capital contribution by non-
controlling interest 16 735 16 735
Transactions with non-controlling
interest 31 094 34 563 65 657
Deferred tax on equity-settled
share-based payments 11 190 11 190
Dividend paid (48 838) (267) (49 105)
Other 1 406 1 (42) 1 365
Balance at 28 February 2014 1 134 746 (546) (445 146) 399 487 86 222 1 174 763
Comprehensive income
Profit for the year 145 494 11 493 156 987
Other comprehensive income (758) (758)
Total comprehensive income (758) 145 494 11 493 156 229
Transactions with owners
Issue of ordinary shares 190 365 190 365
Share-based payment costs -
employees 6 105 6 105
Transactions with non-controlling
interest (1 320) (207) (1 527)
Dividend paid (92 101) (2 423) (94 524)
Balance at 31 August 2014 1 325 111 (546) (439 799) 451 560 95 085 1 431 411
Consolidated interim statement of cash flows
for the six months ended 31 August and 12 months ended 28 February 2014
Restated
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 Aug 14 31 Aug 13 28 Feb 14
R000 R000 R000
Cash flows from operating activities
Cash (utilised in)/generated by operating activities (176 759) 94 094 153 725
Interest income 169 002 125 895 299 998
Dividend income 29 727 49 234 79 651
Finance costs (20 498) (14 956) (35 728)
Taxation paid (62 986) (41 134) (124 953)
Operating cash flows before policyholder cash movement (61 514) 213 133 372 693
Policyholder cash movement (36 652) (65 096) (13 762)
Net cash flow from operating activities (98 166) 148 037 358 931
Cash flows from investing activities
Acquisition of intangible assets (22 593) (12 246) (24 756)
Purchases of property and equipment (7 828) (8 963) (20 144)
Other 2 388 5 025 22 753
Net cash flow from investing activities (28 033) (16 184) (22 147)
Cash flows from financing activities
Dividends paid (94 524) (89 869) (138 974)
Capital contributions by non-controlling interest
(ordinary shares) 16 735
Transactions with non-controlling interest (34 000) 31 295
Other (19 131) (47 646) (7 930)
Net cash flow from financing activities (113 655) (171 515) (98 874)
Net (decrease)/increase in cash and cash equivalents (239 854) (39 662) 237 910
Cash and cash equivalents at beginning of year 709 173 470 621 470 621
Exchange (losses)/gains on cash and cash equivalents (281) 642
Cash and cash equivalents at end of year* 469 038 430 959 709 173
Current, cheque and money market investments accounts 469 038 430 959 709 184
Bank overdrafts (11)
* Includes the following:
Clients' cash linked to investment contracts 14 682 149 005 51 337
Notes to the statement of cash flow:
The movement in cash utilised/generated in operating activities can vary significantly as a result of daily fluctuations
in cash linked to investment contracts and cash held by the stockbroking business. PSG Life Limited, the group’s linked
insurance company, issues linked policies to policyholders (where the value of policy benefits is directly linked to the
fair value of the supporting assets). When these policies mature, the company raises a debtor for the money receivable
from the third-party investment provider, and raises a creditor for the amount owing to the client. Timing difference
occurs at month end where the money was received from the third-party investment provider, but only paid out by the
company after month end, resulting in significant fluctuations in the working capital of the company. Similar working
capital fluctuations incur at PSG Securities Limited (previously Online Securities Limited), the group’s stockbroking
business, mainly due to the timing of the close of the JSE in terms of client settlements. The group’s investment
strategy applied at the two short-term insurance companies in the group also resulted in a significant outflow from
money market investments held to low-risk income funds (management decided to invest capital held for regulatory
purposes in portfolios generating higher yields - these funds are generally classified as debt securities or unit-
linked investments).
Refer below to the cash flow from operating activities movement analysis for salient details of the movements during the
six month period ended 31 August 2014:
R000
Profit before taxation as per income statement 232 435
Add back: Non-cashflow items (Depreciation, amortisation, etc.) 32 259
Less: Taxation paid for the period (62 986)
Cash flow generated from core operating activities (excluding working capital movements) 201 708
Less: Policyholder cash movement (36 652)
165 056
Less: working capital movements during period** (153 078)
Less: other investment activity movements*** (110 144)
Net cash flow from operating activities (98 166)
** The working capital movement was negatively impacted in the six-month period by the fluctuations in the working
capital at PSG Life Limited, with the net working capital movement for the six months being an outflow of
R82.5 million (due to policyholder payables at 28 February 2014 paid out after year-end). The group also utilised
R50 million cash during the period for the scrip lending facility at PSG Securities Limited (the scrip lending
facility is secured by the underlying ALSI 100 equity securities held by the clients utilising these facility),
earning an attractive prime interest rate on this instead of normal money market rates.
*** Other investment activity movements largely due to the transfer of cash from money market investments (classified
as 'Cash and cash equivalents' on the face of the statement of financial position), held by the two short-term
insurance companies in the group, to low-risk income funds which were classified as either debt securities or unit-
linked investments, depending on the nature of the income fund invested in.
Notes to the condensed consolidated interim financial statements for the six months ended 31 August 2014
1. Reporting entity
PSG Konsult Limited is a company domiciled in the Republic of South Africa. The condensed consolidated interim
financial statements of the company as at and for the six months ended 31 August 2014 comprise the company and its
subsidiaries (together referred to as the "group") and the group's interests in associated companies and joint
ventures.
2. Basis of presentation
The condensed consolidated interim financial statements have been prepared in accordance with the recognition and
measurement principles of International Financial Reporting Standards (IFRS), including IAS 34 Interim Financial
Reporting, the Financial Reporting Guides issued by the Accounting Practices Board of SAICA as well as section 29(e)
of the South African Companies Act, 71 of 2008, as amended and the Listings Requirements of the JSE. They do not
include all of the information required for full annual financial statements and should be read in conjunction with
the consolidated financial statements of the group as at and for the year ended 28 February 2014. Neither these
condensed consolidated interim financial statements, nor any reference to future financial performance included in
this results announcement, have been reviewed or reported on by the company's external auditor, Pricewaterhouse-
Coopers Inc. The condensed consolidated interim financial statements were prepared by Stephan van der Merwe, CA(SA),
under the supervision of the chief financial officer, Mike Smith, CA(SA).
3. Accounting policies
The accounting policies applied in the preparation of these condensed consolidated interim financial statements
conform to IFRS and are consistent with those accounting policies applied in the preparation of the consolidated
annual financial statements as at and for the year ended 28 February 2014.
The following new accounting standards and amendments to IFRSs, which were relevant to the group's operations,
were effective for the first time from 1 March 2014:
- Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities
and IAS 27 Consolidated and Separate Financial Statements Investment entities
- Amendment to IAS 32 Financial Statements Presentation Offsetting Financial Assets and Financial Liabilities
- Amendment to IAS 36 Impairment of Assets Recoverable amount disclosures for non-financial assets
- Amendment to IAS 39 Financial Instruments: Recognition and measurement Novation of derivatives and
continuation of hedge accounting
- IFRIC 21, Levies
These revisions have not resulted in material changes to the group's reported results and disclosures in these
condensed consolidated interim financial statements.
4. Use of estimates and judgements
In preparing these condensed consolidated interim financial statements, the significant judgements made by management
in applying the group's accounting policies and the key sources of estimation uncertainty were the same as those that
applied to the consolidated annual financial statements for the year ended 28 February 2014.
5. Segment information
The composition of the reportable segments represents the internal reporting structure and the monthly reporting to
the chief operating decision-maker (CODM). The CODM for the purpose of IFRS 8, Operating Segments, has been identified
as the chief executive officer, supported by the group management committee (Manco). The group's internal reporting
structure is reviewed in order to assess performance and allocated resources. The group is organised into three
reportable segments, namely:
- PSG Wealth
- PSG Asset Management
- PSG Insure
The comparative figures have been adjusted to reflect a new refined basis of apportioning central support costs that
we implemented this financial year. Corporate support costs refers to a variety of services and functions that are
performed centrally for the individual business units within each business segment, as well as housing the group's
executive office. Besides the traditional accounting and secretarial services provided to group divisions and
subsidiaries, the corporate office also provides legal, risk, information technology (IT), marketing, human resources
(HR), payroll, internal audit and corporate finance services. The strategic elements of IT, in terms of both services
and infrastructure, are also centralised in the corporate office. The corporate costs were previously apportioned to
the three reportable segments using a fixed percentage method. From 1 March 2014, in order to enhance its accuracy,
the corporate costs were apportioned taking into account specific facts and circumstances applicable to each of the
reportable segments and comparative segment figures have been restated applying this new methodology.
5.1. Description of business segments
PSG Wealth, which consists of five business units Distribution, PSG Securities, LISP Platform, Multi Management and
Employee Benefits is designed to meet the needs of individuals, families and businesses. Through our highly skilled
wealth managers, PSG Wealth offers a wide range of personalised services (including portfolio management, stockbroking,
local and offshore investments, estate planning, financial planning, local and offshore fiduciary services, multi-
managed solutions, and retirement products). Our Wealth offices are fully equipped to deliver a high-quality personal
service to our customers.
PSG Asset Management is an established investment management company with a proven investment track record. We offer
investors a simple, but comprehensive range of local and global investment products. Our products include both local
and international unit trust funds.
PSG Insure, through our registered insurance brokers and PSG's short-term insurance company Western National Insurance
Company Limited, offer a full range of tailor made short-term insurance products and services from personal (home, car
and household insurance) to commercial (business and Agri-insurance) requirements. To harness the insurance solutions
available to our customers effectively, our expert insurance specialists, through our strict due diligence process,
will simplify the selection process for the most appropriate solution for our clients. In addition to the intermediary
services we offer, PSG Short-Term Administration supports clients through the claim process, administrative issues and
general policy maintenance, including an annual reappraisal of their portfolio.
The Manco considers the performance of reportable segments based on total income as a measure of growth and headline
earnings as a measure of profitability. The segment information provided to Manco for the reportable segments for the
period ended 31 August 2014 is set out in notes 5.2 and 5.3.
5.2 Headline earnings per reportable segments
Unaudited
Asset
Wealth Management Insure Total
Headline earnings R000 R000 R000 R000
For the six months ended 31 August 2014
Headline earnings 93 907 33 758 17 732 145 397
recurring 94 749 34 179 18 383 147 311
non-recurring (842) (421) (651) (1 914)
For the six months ended 31 August 2013
Headline earnings 70 882 20 727 17 039 108 648
recurring 70 882 20 727 17 039 108 648
non-recurring
For the year ended 28 February 2014
Headline earnings 162 279 54 334 27 872 244 485
recurring 162 279 54 334 34 532 251 145
non-recurring (6 660) (6 660)
5.3 Income per reportable segment
Unaudited
Asset
Wealth Management Insure Total
Total income R000 R000 R000 R000
For the six months ended 31 August 2014
Total segment income 1 072 668 282 074 484 678 1 839 420
Intersegment income (200 477) (108 672) (270) (309 419)
Income from external customers 872 191 173 402 484 408 1 530 001
For the six months ended 31 August 2013
Total segment income 914 965 215 592 355 503 1 486 060
Intersegment income (185 858) (87 598) (2 125) (275 581)
Income from external customers 729 107 127 994 353 378 1 210 479
For the year ended 28 February 2014
Total segment income 1 793 011 475 099 789 891 3 058 001
Intersegment income (316 846) (181 300) (2 419) (500 565)
Income from external customers 1 476 165 293 799 787 472 2 557 436
Other information provided to the Manco is measured in a manner consistent with that of the financial statements.
5.4 Statement of financial position (client vs own)
In order to evaluate the consolidated financial position of the group, the Manco segregates the statement of financial
position of the group between own balances and client-related balances.
Client-related balances represent the investment contract liabilities and related linked client assets of PSG Life
Limited, the broker and clearing accounts, and the settlement control accounts of the stockbroking business, the
collective investment schemes consolidated under IFRS 10 and corresponding third-party liabilities, the short-term
claim control accounts and related bank accounts as well as the contracts for difference assets and related liabilities.
Unaudited as at 31 August 2014
Client-
Own related
Total balances balances
R000 R000 R000
ASSETS
Equity securities 827 617 3 505 824 112
Debt securities 1 642 197 106 302 1 535 895
Unit-linked investments 11 045 876 473 320 10 572 556
Investment in investment contracts 432 825 432 825
Receivables including insurance receivables 1 856 752 212 470 1 644 282
Derivative financial instruments 19 075 19 075
Cash and cash equivalents (including money
market investments) 469 038 447 124 21 914
Other assets* 1 259 258 1 259 258
Total assets 17 552 638 2 501 979 15 050 659
EQUITY
Equity attributable to owners of the parent 1 336 326 1 336 326
Non-controlling interest 95 085 95 085
Total equity 1 431 411 1 431 411
LIABILITIES
Borrowings 363 050 61 252 301 798
Investment contracts 12 761 154 12 761 154
Third-party liabilities arising on consolidation of
mutual funds 625 462 625 462
Derivative financial instruments 33 846 33 846
Trade and other payables 1 723 302 394 903 1 328 399
Other liabilities** 614 413 614 413
Total liabilities 16 121 227 1 070 568 15 050 659
Total equity and liabilities 17 552 638 2 501 979 15 050 659
Unaudited as at 31 August 2013
Client-
Own related
Total balances balances
R000 R000 R000
ASSETS
Equity securities 520 215 3 601 516 614
Debt securities 1 740 574 258 099 1 482 475
Unit-linked investments 8 850 516 218 343 8 632 173
Investment in investment contracts 701 888 701 888
Receivables including insurance receivables 1 424 263 180 968 1 243 295
Derivative financial instruments 19 880 19 880
Cash and cash equivalents (including money market
investments) 430 959 187 776 243 183
Other assets* 1 028 570 1 028 570
Total assets 14 716 865 1 877 357 12 839 508
EQUITY
Equity attributable to owners of the parent 952 088 952 088
Non-controlling interest 24 867 24 867
Total equity 976 955 976 955
LIABILITIES
Borrowings 402 222 157 242 244 980
Investment contracts 11 310 094 11 310 094
Third-party liabilities arising on consolidation of
mutual funds 174 606 174 606
Derivative financial instruments 20 440 20 440
Trade and other payables 1 344 101 254 713 1 089 388
Other liabilities** 488 447 488 447
Total liabilities 13 739 910 900 402 12 839 508
Total equity and liabilities 14 716 865 1 877 357 12 839 508
Audited as at 28 February 2014
Client-
Own related
Total balances balances
R000 R000 R000
ASSETS
Equity securities 604 880 4 630 600 250
Debt securities 2 121 432 107 297 2 014 135
Unit-linked investments 10 218 629 346 833 9 871 796
Investment in investment contracts 505 444 505 444
Receivables including insurance receivables 2 129 358 162 451 1 966 907
Derivative financial instruments 21 190 21 190
Cash and cash equivalents (including money market
investments) 709 184 663 500 45 684
Other assets* 1 065 623 1 065 623
Total assets 17 375 740 2 350 334 15 025 406
EQUITY
Equity attributable to owners of the parent 1 088 541 1 088 541
Non-controlling interest 86 222 86 222
Total equity 1 174 763 1 174 763
LIABILITIES
Borrowings 412 188 110 618 301 570
Investment contracts 12 692 768 12 692 768
Third-party liabilities arising on consolidation of
mutual funds 372 169 372 169
Derivative financial instruments 28 406 28 406
Trade and other payables 2 129 914 499 421 1 630 493
Other liabilities** 565 532 565 532
Total liabilities 16 200 977 1 175 571 15 025 406
Total equity and liabilities 17 375 740 2 350 334 15 025 406
* Other assets consist of property and equipment, investment property, intangible assets, investment in associated
companies, investment in joint ventures, current and deferred income tax assets, loans and advances, reinsurance
assets and deferred acquisition costs.
** Other liabilities consist of deferred reinsurance acquisition revenue, current and deferred income tax liabilities
and insurance contracts.
5.5 Income statement (core vs other)
In order to evaluate the consolidated income statement of the group, the Manco segregates the income statement by
eliminating the impact of the linked investment policies issued and the consolidation of the collective investment
schemes from the core operations in the group.
A subsidiary of the group, PSG Life Limited, is a linked insurance company and issues linked policies to policyholders
(where the value of policy benefits is directly linked to the fair value of the supporting assets), and as such does
not expose the business to the market risk of fair value adjustments on the financial asset as this risk is assumed by
the policyholder.
The group consolidate collective investment schemes in terms of IFRS 10 Consolidated Financial Statements over which
the group has control. The consolidation of these funds do not impact total earnings, comprehensive income, shareholders'
funds or the net asset value of the group; however, it requires the group to recognise the income statement impact as
part of that of the group.
Unaudited Six months ended
31 August 2014
Linked
investment
Core business
Total business and other
R000 R000 R000
Commission and other fee income 1 056 475 1 042 390 14 085
Investment income 198 911 57 444 141 467
Net fair value gains and losses on financial instruments 1 011 149 6 051 1 005 098
Fair value adjustment to investment contract liabilities (1 024 359) (1 024 359)
Other* 287 825 287 825
Total income 1 530 001 1 393 710 136 291
Insurance claims and loss adjustment expenses (285 165) (285 639) 474
Fair value adjustment to third-party liabilities (79 331) (79 331)
Other** (870 686) (870 686)
Total expenses (1 235 182) (1 156 325) (78 857)
Total profit from associated companies and joint ventures 75 75
Profit before finance costs and taxation 294 894 237 460 57 434
Finance costs (62 459) (20 498) (41 961)
Profit before taxation 232 435 216 962 15 473
Taxation (75 448) (59 975) (15 473)
Profit for the period 156 987 156 987
Attributable to:
Owners of the parent 145 494 145 494
Non-controlling interest 11 493 11 493
156 987 156 987
Unaudited Six months ended
31 August 2013
Linked
investment
Core business
Total business and other
R000 R000 R000
Commission and other fee income 859 909 856 819 3 090
Investment income 175 127 32 297 142 830
Net fair value gains and losses on financial instruments 744 457 4 559 739 898
Fair value adjustment to investment contract liabilities (751 588) (751 588)
Other* 182 574 182 574
Total income 1 210 479 1 076 249 134 230
Insurance claims and loss adjustment expenses (170 143) (167 154) (2 989)
Fair value adjustment to third-party liabilities (44 523) (44 523)
Other** (742 401) (742 401)
Total expenses (957 067) (909 555) (47 512)
Total profit from associated companies and joint ventures 2 941 2 941
Profit before finance costs and taxation 256 353 169 635 86 718
Finance costs (95 519) (14 955) (80 564)
Profit before taxation 160 834 154 680 6 154
Taxation (43 057) (36 903) (6 154)
Profit for the period 117 777 117 777
Attributable to:
Owners of the parent 111 441 111 441
Non-controlling interest 6 336 6 336
117 777 117 777
Unaudited Year ended
28 February 2014
Linked
investment
Core business
Total business and other
R000 R000 R000
Commission and other fee income 1 805 142 1 787 617 17 525
Investment income 380 034 116 484 263 550
Net fair value gains and losses on financial instruments 1 171 564 4 498 1 167 066
Fair value adjustment to investment contract liabilities (1 239 669) (1 239 669)
Other* 440 365 440 365
Total income 2 557 436 2 348 964 208 472
Insurance claims and loss adjustment expenses (440 401) (437 053) (3 348)
Fair value adjustment to third-party liabilities (79 387) (79 387)
Other** (1 521 391) (1 521 391)
Total expenses (2 041 179) (1 958 444) (82 735)
Total profit from associated companies and joint ventures 6 151 6 151
Profit before finance costs and taxation 522 408 396 671 125 737
Finance costs (138 771) (35 728) (103 043)
Profit before taxation 383 637 360 943 22 694
Taxation (117 677) (94 983) (22 694)
Profit for the period 265 960 265 960
Attributable to:
Owners of the parent 249 258 249 258
Non-controlling interest 16 702 16 702
265 960 265 960
* Other consists of net insurance premium revenue and other operating income.
** Other consists of insurance claims and loss adjustment expenses recovered from reinsurers, commission paid, depreciation
and amortisation, employee benefit expenses, marketing, administration and other expenses.
Investment contracts are represented by the following financial assets:
Unaudited Unaudited Audited
31 Aug 14 31 Aug 13 28 Feb 14
R000 R000 R000
Equity securities 824 112 516 614 600 249
Debt securities 940 242 1 441 325 1 676 726
Unit-linked investments 10 549 293 8 501 262 9 859 012
Investment in investment contracts 432 825 701 888 505 444
Cash and cash equivalents 14 682 149 005 51 337
12 761 154 11 310 094 12 692 768
6. Receivables including insurance receivables and trade and other payables
Included under receivables are broker and clearing accounts at our stockbroking business of which R1 629.1 million
(31 Aug 2013: R1 223.7 million; 28 Feb 2014: R1 925.9 million) represents amounts owing by the JSE for trades conducted
during the last few days before the end of the period. These balances fluctuate on a daily basis depending on the activity
in the market.
The control account for the settlement of these transactions is included under the trade and other payables, with the
settlement to the clients taking place within three days after the transaction date.
7. Transactions with non-controlling interest
For the six months ended 31 August 2014
i) Acquisition of an additional interest in PSG Namibia Proprietary Limited
With effect from 1 March 2014, PSG Konsult Limited (through its subsidiary PSG Distribution Holdings Proprietary Limited)
acquired an additional 3% interest in PSG Namibia Proprietary Limited, a company incorporated in Namibia, for a consideration
of R1.5 million. The 3% stake was bought from a minority shareholder and the consideration was paid in full on 28 February 2014.
The group now holds 54% of the issued share capital of PSG Namibia Proprietary Limited.
For the year ended 28 February 2014
i) Acquisition of an additional interest in Western Group Holdings Limited
With effect from 1 March 2013, PSG Konsult Limited acquired an additional 15% interest in Western Group Holdings Limited
for a consideration of R33.0 million. This Namibia-based holding company has two short-term insurance licences, one in
Namibia and the other in South Africa. The 15% stake was bought from SAAD Financial Holdings Proprietary Limited, an
investment holding company. This transaction was subject to regulatory approval, which was obtained in May 2013. The group
now held 90% of the issued share capital of Western Group Holdings Limited.
R000
Carrying amount of non-controlling interest acquired 14 428
Consideration paid to non-controlling interest (33 000)
Excess of consideration paid recognised in equity (18 572)
ii) Acquisition of the remaining interest in PSG Nylstroom Proprietary Limited
Effective 1 August 2013, PSG Konsult Limited (through its subsidiary PSG Optimum Proprietary Limited) acquired the
remaining 49% interest in PSG Nylstroom Proprietary Limited, a company incorporated in South Africa, for a consideration
of R1.3 million. On 1 August 2013, 80% of the purchase consideration was paid and the remaining 20% (subject to a profit
guarantee) was paid on 1 August 2014.
iii) Acquisition of a further interest in Western Group Holdings Limited
Effective 1 September 2013, PSG Konsult Limited acquired the remaining 10% interest in Western Group Holdings Limited
for a consideration of R22.0 million. The 10% stake was bought from the management group of Western Group Holdings
Limited.
The parties entered into an agreement on 3 June 2013 (following the approval by the FSB and Namfisa of the 15%
interest acquired at the end of May 2013) in which it was agreed that PSG Konsult Limited would like to increase
its stake in Western Group Holdings Limited from 90% to 100%, subject to approval by the FSB in South Africa and
Namfisa in Namibia. The transaction was approved by the regulatory authorities in the beginning of September 2013,
resulting in Western Group Holdings Limited being a wholly-owned subsidiary of PSG Konsult Limited.
R000
Carrying amount of non-controlling interest acquired 11 292
Consideration paid to non-controlling interest (22 000)
Excess of consideration paid recognised in equity (10 708)
iv) Disposal of interest held in Western Group Holding Limited
PSG Konsult Limited entered into an agreement on 2 July 2013 to dispose of 40% held by it in Western Group Holdings
Limited (following the approval by the regulatory authorities of PSG Konsult Limited's acquisition of management's
remaining 10% interest) to Swanvest 120 Proprietary Limited ('Swanvest'), a wholly-owned subsidiary of Santam Limited,
for R88.0 million. The transaction was approved by the regulatory authorities on 19 September 2013. Following the
implementation of this transaction, PSG Konsult Limited holds 60% of the issued share capital of Western Group Holdings
Limited, with the remaining 40% being held by Swanvest.
R000
Cash consideration received 88 000
Carrying amount of non-controlling interest disposed of (45 855)
Excess of consideration received recognised in equity 42 145
8. Acquisition of subsidiaries
For the year ended 28 February 2014
i) Acquisition of collective investment scheme
The group obtained control of the PSG Diversified Income Fund (previously PSG Optimal Income Fund) towards the end of
the 2014 financial year. As at 28 February 2014, the group held an interest of 34% in this fund and the fund was
consolidated in accordance with IFRS 10 Consolidated Financial Statements. The PSG Diversified Income Fund is a
collective investment scheme managed by PSG Asset Management.
Details of the net assets acquired are as follows: R000
Debt securities 243 563
Unit-linked investments 26 590
Receivables including insurance receivables 15 771
Third-party liabilities arising on consolidation of mutual funds (187 652)
Trade and other payables (1 296)
Net asset value 96 976
Fair value of equity interest held before the business combination (96 976)
Total consideration paid
9. Disposal of subsidiaries
For the year ended 28 February 2014
i) Disposal of collective investment scheme
The group deconsolidated the PSG Stable Fund during the year ended 28 February 2014 as the group lost control of this
fund due to a decrease in the direct interest in the fund.
Net assets of subsidiary sold: R000
Equity securities 16 876
Debt securities 23 422
Unit-linked investments 5 439
Receivables including insurance receivables 558
Cash and cash equivalents 2 401
Third-party liabilities arising on consolidation of mutual funds (23 667)
Trade and other payables (106)
Net asset value 24 923
Transfer to unit-linked investments (24 923)
Total cash consideration received
Cash and cash equivalents given up (2 401)
Net cash flow on disposal (2 401)
10. Other acquisitions and disposals
For the six months ended 31 August 2014
i) Standardising of revenue sharing model
Effective 1 March 2014, the group (through its subsidiary PSG Wealth Financial Planning Proprietary Limited) concluded
an asset-for-share transaction (utilising section 42 of the Income Tax Act) with a large number of its advisers.
The purpose of this transaction was to standardise the revenue sharing arrangements between the advisers and PSG Konsult.
This provided the opportunity for the advisers to become shareholders in the business and be part of our loyal
shareholder base of individuals.
The consideration was paid with the issue of PSG Konsult shares (35.8 million shares at R4.50 per share) and the
remaining R12.5 million paid in cash on the effective date. The transaction did not qualify for accounting in terms
of IFRS 3R, Business Combinations as the assets acquired (the right to an increased share in the income stream of
the adviser) did not constitute a business acquired.
This transaction contributed R3.9 million to our headline earnings during the period under review.
For the year ended 28 February 2014
i) Disposal of associated companies
The group disposed of various non-core investments in associated companies during the six months ended 31 August 2013.
The group disposed of its interest in Axon Xchange Proprietary Limited, Purple Line Plastics Proprietary Limited,
JWR Holdings Proprietary Limited and Excluwin Traders Proprietary Limited for a total consideration of R11.1 million,
resulting in total to non-headline profits (net of tax and non-controlling interest) of R3.4 million.
11. Financial risk management
The group's activities expose it to a variety of financial risks: market risk (including price risk, foreign currency
risk, cash flow risk and fair value interest rate risk), credit risk and liquidity risk. Insurance activities expose
the group to insurance risk (including pricing risk, reserving risk, underwriting risk and reinsurance risk). The group
is also exposed to operational risk and legal risk.
The capital risk management philosophy is to maximise the return on shareholders' capital within an appropriate risk
framework.
The condensed consolidated interim financial statements do not include all risk management information and disclosure
required in the annual financial statements and should be read in conjunction with the group's annual financial
statements as at 28 February 2014.
The group's financial risk management objectives and policies are consistent with those disclosed in the consolidated
annual financial statements as at and for the year ended 28 February 2014.
Market risk (price risk, foreign currency risk and interest rate risks)
Market risk is the risk of adverse financial impact due to changes in fair values or future cash flows of financial
instruments from fluctuations in interest rates, equity prices and foreign currency exchange rates.
A portion of the policyholders' and shareholders' investments are valued at fair value and are therefore susceptible
to market fluctuations.
With regard to the subsidiary, PSG Life Limited, this company only invests assets into portfolios that are exposed to
market price risk that matches linked policies to policyholders (where the value of policy benefits is directly linked
to the fair value of the supporting assets), and as such does not expose the business to the market risk of fair value
adjustments on the financial asset as this risk is assumed by the policyholder. Fees charged on this business are
determined as a percentage of the fair value of the underlying assets held in the linked funds, which are subject to
equity and interest rate risk. As a result, the management fees fluctuate, but cannot be less than nil.
Included in the equity securities of R827.6 million (31 Aug 2013: R520.2 million; 28 Feb 2014: R604.9 million) are quoted
equity securities of R826.8 million (31 Aug 2013: R519.4 million; 28 Feb 2014: R604.0 million), of which R824.1 million
(31 Aug 2013: R516.6 million; 28 Feb 2014: R600.3 million) relates to investments in linked investment contracts. The price
risk of these instruments is carried by the policyholders of the linked investment contracts.
Debt securities linked to policyholder investments amounted to R940.2 million (31 Aug 2013: R1 441.3 million; 28 Feb 2014:
R1 676.7 million) and do not expose the group to interest rate risk; cash and cash equivalents linked to policyholder
investments amounted to R14.7 million (31 Aug 2013: R149.0 million; 28 Feb 2014: R51.3 million) and do not expose the group
to interest rate risk.
Fair value estimation
The information below analyses financial instruments, carried at fair value, by level of hierarchy as required by IFRS 13.
The different levels have been defined as follows:
Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
Input other than quoted prices included within level 1 that is observable for the asset or liability, either
directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).
Input for the asset or liability that is not based on observable market data (that is, unobservable input)
(level 3).
There have been no significant transfers between level 1, 2 or 3 during the period under review.
The table below analyses financial assets and liabilities, which are carried at fair value, by valuation method. There
were no significant changes in the valuation techniques and assumptions applied since 28 February 2014.
Valuation techniques and main assumptions used in determining the fair value of financial assets and liabilities
classified within level 2 can be summarised as follows:
Instrument Valuation techniques Main assumptions
Derivative financial instruments Exit price on recognised over- Not applicable
the-counter (OTC) platforms
Debt securities Valuation model that uses the Bond interest rate curves
market input (yield of Issuer credit ratings
benchmark bonds) Liquidity spreads
Unit-linked investments Quoted put (exit) price Not applicable prices are
provided by the fund manager publicly available
Investment in investment Prices are obtained from the Not applicable prices provided
contracts insurer of the particular by registered long-term insurers
investment contract
Policyholder investment contract Current unit price of Not applicable
liabilities unit linked underlying unitised financial
asset that is linked to the
liability, multiplied by the
number of units held
Third-party financial Quoted put (exit) price Not applicable prices are
liabilities arising on the provided by the fund manager publicly available
consolidation of mutual funds
The fair value of financial assets and liabilities measured at fair value in the statement of financial position can
be summarised as follows:
Unaudited Level 1 Level 2 Level 3 Total
Financial assets R000 R000 R000 R000
At 31 August 2014
Financial assets at fair value through profit or loss
Derivative financial assets 19 075 19 075
Equity securities 826 772 826 772
Debt securities 27 178 826 546 853 724
Unit-linked investments 9 701 389 1 344 487 11 045 876
Investment in investment contracts 227 278 227 278
Available-for-sale
Equity securities 845 845
853 950 10 774 288 1 345 332 12 973 570
Financial liabilities
At 31 August 2014
Financial liabilities at fair value through profit or loss
Derivative financial liabilities 33 846 33 846
Investment contracts 10 413 034 1 344 487 11 757 521
Trade and other payables 13 659 13 659
Third-party liabilities arising on consolidation of
mutual funds 625 462 625 462
11 072 342 1 358 146 12 430 488
Unaudited Level 1 Level 2 Level 3 Total
Financial assets R000 R000 R000 R000
At 31 August 2013
Financial assets at fair value through profit or loss
Derivative financial assets 19 880 19 880
Equity securities 519 370 519 370
Debt securities 31 153 718 532 226 472 976 157
Unit-linked investments 6 385 337 2 465 179 8 850 516
Investment in investment contracts 300 201 300 201
Available-for-sale
Equity securities 845 845
550 523 7 423 950 2 692 496 10 666 969
Financial liabilities
At 31 August 2013
Financial liabilities at fair value through profit or loss
Derivative financial liabilities 20 440 20 440
Investment contracts 7 306 932 2 688 053 9 994 985
Trade and other payables 4 929 4 929
Third-party liabilities arising on consolidation of
mutual funds 174 606 174 606
7 501 978 2 692 982 10 194 960
Audited Level 1 Level 2 Level 3 Total
Financial assets R000 R000 R000 R000
At 28 February 2014
Financial assets at fair value through profit or loss
Derivative financial assets 21 190 21 190
Equity securities 604 035 604 035
Debt securities 35 897 960 015 237 347 1 233 259
Unit-linked investments 7 968 164 2 250 465 10 218 629
Investment in investment contracts 260 397 260 397
Available-for-sale
Equity securities 845 845
639 932 9 209 766 2 488 657 12 338 355
Financial liabilities
At 28 February 2014
Financial liabilities at fair value through profit or loss
Derivative financial liabilities 28 406 28 406
Investment contracts 9 056 872 2 487 811 11 544 683
Trade and other payables 10 640 10 640
Third-party liabilities arising on consolidation of
mutual funds 372 169 372 169
9 457 447 2 498 451 11 955 898
The following table presents the changes in level 3 financial instruments during the reporting periods under review:
Unaudited Unaudited Audited
31 Aug 14 31 Aug 13 28 Feb 14
Assets R000 R000 R000
Opening carrying value 2 488 657 2 270 795 2 270 795
Additions 3 106 266 259 898 1 556 279
Disposals (4 386 990) (209 595) (1 503 664)
Gains recognised in profit and loss 137 399 371 398 165 258
Other movements not through profit or loss (11)
1 345 332 2 692 496 2 488 657
Liabilities
Opening carrying value 2 498 451 2 272 810 2 272 810
Additions 3 113 635 264 264 1 562 938
Disposals (4 391 450) (215 061) (1 504 071)
Losses recognised in profit and loss 137 399 371 316 166 774
Interest and other 111 (347)
1 358 146 2 692 982 2 498 451
Level 3 significant fair value model assumptions and sensitivities
Financial assets and liabilities
Unit-linked investments and debt securities represent the largest portion of the level 3 financial assets and relate
to units and debentures held in hedge funds and are priced monthly. The prices are obtained from the asset managers of
the particular hedge funds. These are held to match investment contract liabilities, and as such any change in
measurement would result in a similar adjustment to investment contract liabilities. The group's overall profit or loss
is therefore not materially sensitive to the input of the models applied to derive fair value.
Trade and other payables classified within level 3 have significant unobservable input, as the valuation technique used
to determine the fair values takes into account the probability (at each reporting period) that the contracted party
will achieve the profit guarantee as stipulated in the business agreement.
The table below summarises the carrying amounts and fair values of financial instruments not presented on the statement
of financial position at fair value, for which their carrying values do not approximate their fair values:
Unaudited Unaudited Audited
31 Aug 14 31 Aug 13 28 Feb 14
R000 R000 R000
Debt securities held-to-maturity
Carrying value 788 473 764 417 888 173
Fair value 800 585 764 688 889 020
Investment in investment contracts
Carrying value 205 547 401 687 245 047
Fair value 214 216 434 282 255 382
Total
Carrying value 994 020 1 166 104 1 133 220
Fair value 1 014 801 1 198 970 1 144 402
The fair value of the financial assets in the table above, is categorised in terms of level 2.
12. Related-party transactions
Related-party transactions similar to those disclosed in the group's annual financial statements for the year ended
28 February 2014 took place during the period under review.
13. Capital commitments and contingencies
Unaudited Unaudited Audited
31 Aug 14 31 Aug 13 28 Feb 14
R000 R000 R000
Operating lease commitments 74 736 81 335 77 926
14.Events after the reporting date
No event, which is material to the financial affairs of the group, has occurred between the end of the reporting
period and the date of approval of the condensed consolidated interim financial statements.
15. Change in accounting policy and restatements
The following changes in accounting policies and restatements were applied to the 31 August 2013 results (to
reflect the changes in accounting policies and restatements applied to the financial results for the year ended
28 February 2014):
IFRS 10 Consolidated Financial Statements (IFRS 10)
IFRS 10 builds on existing principles by identifying the concept of control as the determining factor in whether
an entity should be included within the consolidated financial statements of the parent company. Under IFRS 10,
subsidiaries are all entities (including structured entities) over which the group has control.
Previously the group consolidated collective investment schemes where the group's holding in a fund was greater than
50%. As a result of the adoption of IFRS 10, the group no longer uses the percentage holdings referred to above as the
defining parameter of control.
The changes resulting from the above have been applied retrospectively as required by the transitional provisions of
IFRS 10. These reclassifications of mutual funds have resulted in a number of changes to items presented in both the
income statement and the statement of financial position for the six months ended 31 August 2013. However, there were no
resultant changes to the group's total earnings, comprehensive income, shareholders' funds or net asset value.
The group held an interest of 48% in the PSG Multi-Management Foreign Flexible Fund of Funds on 1 March 2013. The
comparative figures at 31 August 2013 were restated to reflect the consolidation of this fund. This fund was also
consolidated for the six months ended 31 August 2014.
Reclassification: Unexpired risk provision
The group previously disclosed the unexpired risk provision (URP), which forms part of the short-term insurance
contract liabilities, as part of the provision for claims reported and loss adjustment expenses. The group decided,
to enhance the comparability with other short-term insurance companies in Southern Africa, to reflect the URP as
part of the unearned premium provision (UPP). This reclassification, which was done retrospectively, was done within
the underlying breakdown of the insurance contracts liability and therefore had no impact on the statement of financial
position. The reclassification had no impact on the 2013 interim reported earnings, diluted earnings or headline
earnings, nor the statement of financial position, statement of changes in equity and the net cash flow for these periods.
Reclassifi-
cation
As Unexpired
previously Restatement risk
stated IFRS 10 provision Restated
R000 R000 R000 R000
31 August 2013
Consolidated statement of financial position
Unit-linked investments 8 719 605 130 911 8 850 516
Cash and cash equivalents (including money market
investments) 428 126 2 833 430 959
Third-party liabilities arising on consolidation
of mutual fund (41 150) (133 456) (174 606)
Trade and other payables (1 343 813) (288) (1 344 101)
Consolidated income statement
Net fair value gains and losses on financial
instruments 700 862 43 595 744 457
Fair value adjustment to third-party liabilities (928) (43 595) (44 523)
Change in unearned premium
Gross 2 045 (22 824) (20 779)
Insurance claims and loss adjustment expenses (192 967) 22 824 (170 143)
Consolidated statement of cash flows
Cash flows from operating activities
Cash generated by operating activities 93 874 220 94 094
Net decrease in cash and cash equivalents (39 882) 220 (39 662)
Cash and cash equivalents at beginning of year 468 008 2 613 470 621
Cash and cash equivalents at end of year 428 126 2 833 430 959
DIRECTORATE
Non-executive directors
W Theron (Chairman), JF Mouton, PJ Mouton, J de V du Toit^, PE Burton*, ZL Combi*
(* Independent; ^ Lead independent)
Executive directors
FJ Gouws (Chief executive officer), MIF Smith (Chief financial officer)
COMPANY INFORMATION
Company secretary
PSG Management Services Proprietary Limited
PSG Konsult head office and registered office
Building A, Pro Sano Park South Gate, Carl Cronje Drive, Tyger Waterfront, Tyger Valley, Bellville, 7530
PO Box 3335, Tyger Valley, Bellville, 7536
Listing
Johannesburg Stock Exchange (JSE)
Namibian Stock Exchange (NSX)
Transfer secretary
Computershare Investor Services Proprietary Limited, 70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Sponsors
JSE sponsor: PSG Capital Proprietary Limited
NSX sponsor: PSG Wealth Management (Namibia) Proprietary Limited, member of the Namibian Stock Exchange
Auditor
PricewaterhouseCoopers Inc.
Cape Town
Website: www.psg.co.za
Date: 08/10/2014 01:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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