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Unaudited Results For The Six Months Ended 31 August 2014
PSG Group Limited
Incorporated in the Republic of South Africa
Registration number: 1970/008484/06
JSE Ltd (“JSE”) share code: PSG
ISIN code: 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 code: ZAE000096079
(“PSG Financial Services”)
UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2014
• Sum-of-the-Parts value of R118,49 per share as at 10 October 2014
• Recurring headline earnings increased by 30% to 252,7 cents per share
• Headline earnings increased by 31% to 312,9 cents per share
• Interim dividend increased by 28% to 55 cents per share
COMMENTARY
OVERVIEW
PSG is an investment holding company consisting of underlying investments that operate across
a diverse range of industries which include financial services, banking, private equity, agriculture
and education. PSG’s market capitalisation (net of treasury shares) is approximately R20bn, with its
largest investment a 28,3% interest in Capitec.
The six-month period under review saw strong performance from all of PSG’s key investments.
RESULTS
The two key benchmarks which PSG believes to measure performance by are sum-of-the-parts (“SOTP”) value
and recurring headline earnings per share.
SOTP
The calculation of the SOTP value is simple and requires limited subjectivity as 81% of the value is
calculated using JSE-listed share prices, while other investments are included at market-related
valuations. At 31 August 2014, the SOTP value per PSG share was R109,52 (28 February 2014: R95,01).
At 10 October 2014, the SOTP value was R118,49 per share.
Feb Feb Feb Aug
2012 2013 2014 2014 % of
Asset/Liability Rm Rm Rm Rm total
Capitec* 5 978 6 128 5 989 6 912 29
PSG Konsult* 1 483 2 237 4 004 5 219 22
Curro* 1 118 2 607 4 660 4 795 20
Zeder* 1 067 1 412 1 698 2 435 10
PSG Private Equity+ 728 681 949 1 078 4
Thembeka Capital+ 570 899 1 243 1 415 6
PSG Corporate (including PSG Capital)++ 338 383 383 600 2
Other investments (including cash)++ 684 1 505 1 122 1 767 7
Total assets 11 966 15 852 20 048 24 221 100
Perpetual pref funding* (1 188) (1 163) (1 393) (1 447)
Other debt++ (463) (845) (615) (624)
Total SOTP value 10 315 13 844 18 040 22 150
Shares in issue (net of
treasury shares) (m) 184,5 190,5 189,9 202,3
SOTP value per share (rand) 55,92 72,67 95,01 109,52
* Listed on the JSE + SOTP value ++ Valuation
Capitec remains PSG’s largest investment and represented 29% (28 February 2014: 30%) of the SOTP value’s
total assets as at 31 August 2014. It continues to be the major contributor to PSG’s recurring headline
earnings.
RECURRING HEADLINE EARNINGS
Year
ended Six months ended
Feb-14 Aug-13 Change Aug-14
Rm Rm % Rm
Capitec 571 275 21 332
Curro 21 8 88 15
PSG Konsult 163 70 31 92
Zeder 125 38 79 68
PSG Private Equity 51 26 (38) 16
Thembeka Capital 23 8 100 16
PSG Corporate (including PSG Capital) 7 2 (50) 1
Other 38 16 25 20
Recurring headline earnings before funding 999 443 26 560
Funding (181) (87) (2) (85)
Recurring headline earnings 818 356 33 475
Non-recurring items 191 82 38 113
Headline earnings 1 009 438 34 588
Non-headline items 43 13 n/a (13)
Attributable earnings 1 052 451 27 575
Weighted average number of shares in issue
(net of treasury shares) (m) 183,0 183,1 187,9
Earnings per share (cents)
Recurring headline 446,9 194,3 30 252,7
Headline 551,3 239,0 31 312,9
Attributable/basic 574,9 246,2 24 305,8
Dividend per share (cents) 133,0 43,0 28 55,0
Recurring headline earnings for the six months ended 31 August 2014 increased by 30% to 252,7 cents per
share, following commendable per share earnings growth from Capitec (21%), PSG Konsult (32%) and
Zeder (78%). While Curro’s earnings contribution remains relatively small, it reported a 76% increase
in recurring headline earnings per share for the six months ended 30 June 2014. This investment is
expected to become a major earnings contributor to PSG in years to come. PSG Private Equity reported
a 49% decrease in recurring headline earnings per share following tough trading conditions at select
investments, such as the recent platinum mining strikes.
Headline earnings increased by 31% to 312,9 cents per share. The non-recurring headline gains achieved
during the period under review mainly comprised marked-to-market profits on Thembeka’s portfolio of
listed shares.
Attributable earnings increased by 24% to 305,8 cents per share.
CAPITAL RAISING
PSG has strengthened its capital base for further investing during the period under review. R920m was
raised through the issue of new equity by means of a bookbuild during June 2014, and a further R155m
through a private placement during August 2014.
CAPITEC (28,3%)
The recent demise of African Bank (as well as certain other players in the unsecured lending market)
was a major event in Capitec’s life - we commend the Capitec management team on the way they handled
the situation!
Capitec is an exceptional business. It is very different to and not necessarily comparable with the
majority of other players in the unsecured lending market. Key differences include the following:
- Capitec has a banking relationship with its clients, providing it with greater insight into their
financial wellbeing and naturally favours the collection of debt;
- It has a lower appetite for risk. Capitec’s credit screening models and affordability assessments
are highly advanced – it focuses relentlessly on granting loans which clients are able to repay;
- Capitec prices credit at lower rates since it does not charge credit life and retrenchment
insurance over and above the maximum interest rates allowed by the National Credit Act. It
consequently lends to lower risk clients;
- It has a diversified income stream with net transaction fees from its banking operations now
constituting 34% of total net income;
- Capitec has a diversified funding base comprising a healthy blend of wholesale fixed, retail fixed
and call deposits;
- It has a high level of liquidity with R16,6bn in cash, representing 34% of total assets;
- Capitec’s provisioning and bad debt write-off policies are the most conservative in the market.
It provides for 8% of loans that are up to date, 46% of loans behind by one instalment, 74% of
loans behind by two instalments and 87% of loans behind by three instalments. After 90 days in
arrears, Capitec considers the loan bad and writes it off in full. Provisions are almost twice the
size of loans in arrears, as demonstrated by the arrears coverage ratio of 194%;
- Capitec’s capital adequacy ratio remains prudent at 38%; and
- In our opinion, Capitec has the best management team in this industry.
Capitec’s comprehensive results for the six months ended 31 August 2014 are available
at www.capitecbank.co.za.
PSG KONSULT (62,7%)
We are proud of PSG Konsult’s listing on the JSE (and the NSX) during the period under review. It has
been a dream of ours ever since the first stockbrokers joined our group in 1996.
All of PSG Konsult’s divisions delivered a strong performance.
PSG Konsult’s comprehensive results for the six months ended 31 August 2014 are available
at www.psg.co.za.
CURRO (57,1%)
The education market offers significant investment opportunities and Curro continues to capitalise
on same. The majority of its schools are either performing to expectation, or better. We look forward
to Curro achieving (and even exceeding) its target of reaching 80 schools with 80 000 learners by 2020.
Curro’s comprehensive results for the six months ended 30 June 2014 are available at www.curro.co.za.
ZEDER (42,8%)
The Zeder/Agri Voedsel merger was a new milestone for PSG as it constituted the largest single
transaction in our history. Following implementation, Zeder will own an asset portfolio in excess
of R10bn, with its 32% direct interest in Pioneer being the major investment. PSG’s interest in Zeder
will dilute to 29,1%. Zeder’s portfolio, especially Pioneer and Capespan, reported strong earnings
growth for the period under review.
Zeder’s comprehensive results for the six months ended 31 August 2014 are available at www.zeder.co.za.
PSG PRIVATE EQUITY (100%)
PSG Private Equity serves as incubator to find the businesses of tomorrow. Management is continuously
refining the existing portfolio and is actively searching for exciting new investment opportunities.
Given its nature, this portfolio will inevitably yield volatile earnings, while providing significant
optionality.
THEMBEKA (49%)
Thembeka reported a 44% increase in recurring headline earnings per share for the period under review.
PSG has made a formal offer to acquire the 51% shareholding it does not already own in Thembeka by
issuing 1,7 PSG shares for every 1 Thembeka share held. The objective of this transaction is to provide
the 51% black-owned Thembeka shareholders with a mechanism to realise the underlying value that has been
created since establishment in 2006. The financial effect of same on PSG will be negligible.
PROSPECTS
PSG is fortunate to have a quality asset portfolio with significant investment opportunities that should
continue yielding above average returns in future.
DIVIDENDS
Ordinary shares
PSG’s policy remains to pay up to 100% of free cash flow as an ordinary dividend, of which one third is
payable as an interim and the balance as a final dividend at year-end. The directors have resolved to
declare a gross interim dividend of 55 cents (2013: 43 cents) for the six months ended 31 August 2014.
The company will be utilising secondary tax on companies credits amounting to 1 cent per ordinary share
and, as a result, the taxable interim dividend per share will amount to 54 cents per share. The dividend
amount, net of South African dividend tax of 15% equating to 8,1 cents per share, is therefore 46,9 cents
per share for those shareholders that are not exempt from dividend tax. The number of ordinary shares in
issue at the declaration date is 218 873 454, and the income tax reference number of the company
is 9950080714. The ordinary dividend will be paid from income reserves.
The salient dates of this dividend distribution are:
Last day to trade cum dividend Friday, 31 October 2014
Trading ex dividend commences Monday, 3 November 2014
Record date Friday, 7 November 2014
Payment date Monday, 10 November 2014
Share certificates may not be dematerialised or rematerialised between Monday, 3 November 2014 and
Friday, 7 November 2014, both days included.
Preference shares
The directors of PSG Financial Services Ltd have declared a dividend of 380,64 cents per share in respect
of the cumulative, non-redeemable, non-participating preference shares for the six months ended
31 August 2014, which was paid on 22 September 2014. The detailed announcement in respect hereof was
disseminated on Stock Exchange News Services (“SENS”).
On behalf of the board
Jannie Mouton Piet Mouton Wynand Greeff
Chairman Chief Executive Officer Financial Director
Stellenbosch
13 October 2014
UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2014
Unaudited Audited
Aug-14 Aug-13 Feb-14
6 months 6 months 12 months
CONDENSED GROUP INCOME STATEMENT Rm Rm Rm
Revenue from sale of goods 5 369,1 2 664,7 7 568,6
Cost of goods sold (4 436,2) (2 263,1) (6 684,6)
Gross profit from sale of goods 932,9 401,6 884,0
Income
Changes in fair value of biological assets 15,2 29,2 90,5
Investment income (note 6) 304,8 238,9 507,0
Fair value gains and losses (note 6) 1 009,8 823,0 1 453,6
Fair value adjustment to investment contract liabilities (note 6) (1 066,3) (832,2) (1 342,7)
Commission, insurance and other fee income 1 835,7 1 373,9 3 540,1
Other operating income 28,8 37,0 99,3
2 128,0 1 669,8 4 347,8
Expenses
Insurance claims and loss adjustments, net of recoveries (217,2) (140,1) (353,4)
Marketing, administration and other expenses (2 324,5) (1 506,8) (3 737,6)
(2 541,7) (1 646,9) (4 091,0)
Income from associates and joint ventures
Share of profits of associates and joint ventures 654,4 464,5 943,1
Loss on impairment of associates and joint ventures (2,7) (15,7) (24,5)
651,7 448,8 918,6
Profit before finance costs and taxation 1 170,9 873,3 2 059,4
Finance costs (165,0) (123,3) (263,3)
Profit before taxation 1 005,9 750,0 1 796,1
Taxation (156,7) (115,5) (287,9)
Profit for the period 849,2 634,5 1 508,2
Attributable to:
Owners of the parent 574,7 450,7 1 052,0
Non-controlling interests 274,5 183,8 456,2
849,2 634,5 1 508,2
Unaudited Audited
Aug-14 Aug-13 Feb-14
6 months 6 months 12 months
EARNINGS PER SHARE AND NUMBER OF SHARES IN ISSUE % Change cents cents cents
Earnings per share
- recurring headline 30,1 252,7 194,3 446,9
- headline (note 4) 30,9 312,9 239,0 551,3
- attributable/basic 24,2 305,8 246,2 574,9
- diluted headline 30,3 309,4 237,5 546,8
- diluted attributable/basic 23,6 302,4 244,6 570,2
Number of shares (m)
- in issue 218,9 207,6 207,6
- in issue (net of treasury shares) 195,3 182,9 182,9
- weighted average 187,9 183,1 183,0
- diluted weighted average 190,0 184,3 184,5
Unaudited Audited
Aug-14 Aug-13 Feb-14
6 months 6 months 12 months
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME Rm Rm Rm
Profit for the period 849,2 634,5 1 508,2
Other comprehensive income for the period, net of taxation
Items that may be subsequently reclassified to profit or loss (49,0) 116,4 151,7
Currency translation adjustments (71,1) 102,0 161,6
Cash flow hedges (6,6) (15,9)
Reclassification of cash flow hedges 23,8
Fair value gains and losses on investments and the reversal
thereof upon disposal (0,2) (0,3)
Share of other comprehensive income and equity movements of
associates 4,9 35,2 62,2
Reversal of share of associates’ other comprehensive income
and equity movements upon disposal (20,6) (55,9)
Items that will not be reclassified to profit or loss
Remeasurement of post-employment benefit obligations (4,6) 1,1
Total comprehensive income for the period 795,6 750,9 1 661,0
Attributable to:
Owners of the parent 549,3 500,8 1 115,1
Non-controlling interests 246,3 250,1 545,9
795,6 750,9 1 661,0
Unaudited Audited
Aug-14 Aug-13* Feb-14*
CONDENSED GROUP STATEMENT OF FINANCIAL POSITION Rm Rm Rm
Assets
Property, plant and equipment 3 783,4 2 581,5 3 326,8
Intangible assets 2 657,9 1 974,9 2 094,5
Biological assets 203,4 194,6 201,4
Investment in ordinary shares of associates and joint ventures 6 760,8 5 828,6 6 312,1
Investment in preference shares of/loans granted to associates
and joint ventures 387,6 336,2 321,3
Deferred income tax assets 190,2 127,1 125,9
Employee benefits 35,5 29,0 33,1
Financial assets linked to investment contracts (note 6) 12 761,2 11 310,1 12 692,8
Cash and cash equivalents 14,7 149,0 51,3
Other financial assets 12 746,5 11 161,1 12 641,5
Other financial assets 5 370,0 988,4 1 502,9
Inventory 917,4 425,4 913,7
Trade and other receivables (note 7) 3 894,5 3 150,9 3 718,8
Current income tax assets 63,7 28,5 42,9
Cash and cash equivalents 1 399,2 1 793,4 2 098,6
Non-current assets held for sale (note 9) 1,4 633,4 182,0
Total assets 38 426,2 29 402,0 33 566,8
Equity
Ordinary shareholders’ equity 8 436,0 6 294,2 6 855,2
Non-controlling interests 6 069,3 5 197,0 5 591,6
Total equity 14 505,3 11 491,2 12 446,8
Liabilities
Insurance contracts 502,7 415,6 493,2
Financial liabilities under investment contracts (note 6) 12 761,2 11 310,1 12 692,8
Borrowings and other financial liabilities 6 701,0 2 951,3 3 740,9
Employee benefits 291,8 202,7 295,5
Deferred income tax liabilities 452,1 361,0 331,6
Trade and other payables (note 7) 3 147,5 2 634,0 3 527,7
Current income tax liabilities 64,6 36,1 38,3
Total liabilities 23 920,9 17 910,8 21 120,0
Total equity and liabilities 38 426,2 29 402,0 33 566,8
Net asset value per share (cents) 4 319,5 3 440,9 3 747,6
Net tangible asset value per share (cents) 2 958,6 2 361,3 2 602,6
* Reclassified as set out in note 1.
Unaudited Audited
Aug-14 Aug-13 Feb-14
6 months 6 months 12 months
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY % Change Rm Rm Rm
Ordinary shareholders’ equity at beginning of
the period 6 855,2 5 989,7 5 989,7
Total comprehensive income 549,3 500,8 1 115,1
Issue of shares 1 072,8
Share buy-back (33,1) (33,1)
Share-based payment costs - employees 20,6 9,5 26,2
Net movement in treasury shares 38,9 (41,0) (41,0)
Transactions with non-controlling interests 64,7 11,4 20,1
Dividends paid (165,5) (143,1) (221,8)
Ordinary shareholders’ equity at end of the period 8 436,0 6 294,2 6 855,2
Non-controlling interests at beginning of the period 5 591,6 4 159,8 4 159,8
Total comprehensive income 246,3 250,1 545,9
Issue of shares 459,3 642,0 737,3
Share-based payment costs - employees 3,4 1,9 9,5
Acquisition of subsidiaries (note 5) 12,0 333,5 366,4
Transactions with non-controlling interests (104,3) (81,7) (33,3)
Dividends paid (139,0) (108,6) (194,0)
Non-controlling interests at end of the period 6 069,3 5 197,0 5 591,6
Total equity 14 505,3 11 491,2 12 446,8
Dividend per share (cents)
- interim 27,9 55,0 43,0 43,0
- final 90,0
55,0 43,0 133,0
Unaudited Audited
Aug-14 Aug-13* Feb-14*
6 months 6 months 12 months
CONDENSED GROUP STATEMENT OF CASH FLOWS Rm Rm Rm
Net cash flow from operating activities
Cash (utilised by)/generated from operations (note 8) (364,6) (95,0) 793,9
Interest income 235,8 171,2 392,2
Dividend income 289,4 227,5 363,2
Finance costs (134,8) (94,3) (266,5)
Taxation paid (141,6) (85,7) (262,4)
Net cash flow from operating activities before cash movement in
policyholder funds (115,8) 123,7 1 020,4
Cash movement in policyholder funds (36,7) 83,9 (13,8)
Net cash flow from operating activities (152,5) 207,6 1 006,6
Net cash flow from investing activities (2 311,5) (736,1) (1 235,8)
Net cash flow from business combinations (note 5) (1 613,0) (123,8) (215,7)
Acquisition of ordinary shares in associates (237,8) (244,1) (439,2)
Proceeds from disposal of ordinary shares in associates 4,7 10,5 122,5
Acquisition of equity securities (55,7) (8,6) (278,1)
Proceeds from disposal of equity securities 2,3 124,6
Proceeds from disposal of non-current assets held for sale 196,5 8,2 504,5
Acquisition of property, plant and equipment (356,4) (354,1) (1 082,1)
Other investing activities (249,8) (26,5) 27,7
Net cash flow from financing activities 1 222,5 (192,7) (164,6)
Dividends paid to group shareholders (165,5) (143,1) (221,8)
Dividends paid to non-controlling interests (139,0) (108,6) (194,0)
Capital contributions by non-controlling interests 259,4 617,7 679,4
Net (disposal to)/acquisition from non-controlling interests (29,4) (57,5) 47,7
Net borrowings drawn/(repaid) 193,1 (407,7) (395,0)
Purchase of holding company’s treasury shares (60,4) (60,4)
Proceeds from disposal of holding company’s treasury shares 31,1 12,6
Shares issued 1 072,8
Share buy-back (33,1) (33,1)
Net decrease in cash and cash equivalents (1 241,5) (721,2) (393,8)
Exchange (losses)/gains on cash and cash equivalents (0,8) 21,4 46,7
Cash and cash equivalents at beginning of the period 1 580,6 1 927,7 1 927,7
Cash and cash equivalents at end of the period 338,3 1 227,9 1 580,6
Cash and cash equivalents consists of:
Cash and cash equivalents linked to investment contracts 14,7 149,0 51,3
Cash and cash equivalents attributable to equity holders 1 399,2 1 793,4 2 098,6
Bank overdrafts attributable to equity holders
(included in borrowings) (1 075,6) (714,5) (569,3)
338,3 1 227,9 1 580,6
* Reclassified as set out in note 1.
Notes to the condensed interim group financial statements
1. Basis of presentation and accounting policies
These condensed interim group financial statements have been prepared in accordance with the recognition
and measurement principles of International Financial Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board, including IAS 34 Interim Financial Reporting; the SAICA
Financial Reporting Guides, as issued by the Accounting Practices Committee; the Financial Reporting
Pronouncements, as issued by the Financial Reporting Standards Council; the requirements of the South
African Companies Act, 71 of 2008, as amended; and the Listings Requirements of the JSE Ltd.
The accounting policies applied in the preparation of these condensed interim group financial statements
are consistent in all material respects with those used in the prior financial year, apart from the
adoption of various revisions to IFRS which are effective for the financial year ending 28 February 2015,
none of which resulted in a material impact on the group’s reported interim results or disclosures.
The statement of cash flows for the six months ended 31 August 2013 were disaggregated in order to
provide greater clarity on the group’s operating, investing and financing cash flows. Furthermore,
employee benefit assets and liabilities were disaggregated in order to present same as separate lines on
the statement of financial position. These reclassifications had no impact on previously reported amounts
of profit, cash flow, equity, assets or liabilities.
2. Preparation
These condensed interim group financial statements were compiled under the supervision of the group
financial director, Mr WL Greeff, CA (SA), and were not reviewed or audited by the company’s external
auditor, PricewaterhouseCoopers Inc.
3. PSG Financial Services Ltd
PSG Financial Services Ltd is a wholly owned subsidiary of PSG Group Ltd, except for the 17 415 770
(31 August 2013 and 28 February 2014: 17 415 770) preference shares which are listed on the JSE Ltd.
These preference shares are included in non-controlling interests in the statement of financial position.
No separate financial statements are presented in this announcement for PSG Financial Services Ltd as
it is the only asset of PSG Group Ltd.
Unaudited Audited
Aug-14 Aug-13 Feb-14
6 months 6 months 12 months
Rm Rm Rm
4. Headline earnings
Profit for the period attributable to owners of the parent 574,7 450,7 1 052,0
Non-headline items 13,3 (13,1) (43,2)
Gross amounts
Impairment of investments in associates 2,6 15,7 24,5
Net (profit)/loss on sale/dilution of investments
in associates (8,9) 5,6 (24,4)
Fair value gain on step-up from associate to subsidiary (17,3) (40,7) (79,5)
Impairment of intangible assets (including goodwill) 7,9 9,2
Non-headline items of associates 27,6 (34,5) (16,7)
Other (0,8) (1,2) 3,6
Non-controlling interests 1,4 21,3 32,9
Taxation 0,8 20,7 7,2
Headline earnings 588,0 437,6 1 008,8
5. Business combinations
The group’s most significant business combinations entered into during the period under review included:
Mpongwe Milling (2009) Ltd (“Mpongwe Milling”)
During April 2014, the group, through Zeder, acquired the entire issued share capital of Mpongwe Milling,
a maize and wheat mill operating in the Copperbelt province of Zambia, for a Zambian kwacha denominated
cash consideration equating to R307,6m. Mpongwe Milling compliments the group’s existing farming
operations in Zambia and the acquisition provides the group with an opportunity to expand its product
offering across the value chain. Goodwill arose in respect of, inter alia, synergies pertaining to the
procurement and marketing functions of the mill and farming operations. Since acquisition,
revenue of R56,6m and profit of R1,3m were included in the group’s income statement in respect of same.
Had the acqusition been effected at the beginning of the reporting period, additional revenue of R61,1m
and profit of R5m would have been recognised by the group.
Animalzone (Pty) Ltd (“Animalzone”)
During July 2014, the group, through Zeder, acquired the remaining 50% shareholding not yet held in
Animalzone (a joint venture) for a nominal cash consideration of R1. Animalzone manufactures seed-based
pet food and goodwill arose in respect of, inter alia, expected synergies and its growth potential.
Pack 'n Stack Investment Holdings (Pty) Ltd (“Pack ’n Stack”)
During June 2014, the group, through PSG Private Equity, increased its interest in Pack 'n Stack
(an associate) from 30% to 50,2% for a purchase consideration of R52m. Pack 'n Stack is involved in
the distribution of fast moving consumer goods and compliments the group's existing investments
in same. Goodwill arose in respect of, inter alia, the employee corps and expected synergies.
Non-controlling interest in Pack ’n Stack was recognised based on their proportional share of
identifiable net assets. Since acquisition, revenue of R37,3m and profit of R5,5m were included
in the group’s income statement in respect of same. Had the acquisition been effected at the beginning
of the reporting period, additional revenue of R139,8m and profit of R21,6m would have been
recognised by the group.
Mutual fund
During June 2014, the group invested excess cash in the PSG Money Market Fund (“PSGMMF”) following the
capital raising set out in note 9 below. In light of the larger interest held by the group and
PSG Konsult managing the fund, the group commenced consolidation of the PSGMMF. The PSGMMF invests
in various money market instruments with an average maturity of 90 days or less. Money market
instruments issued by ABSA, FirstRand, Nedbank, Standard Bank and the South African government
comprised 84% of funds under management at the reporting date.
Grantleigh business
During March 2014, the group, through Curro, acquired the business properties and operations of
Grantleigh, a private school in Kwazulu Natal, South Africa, for a cash consideration of R30m.
Waterstone College (Pty) Ltd (“Waterstone”)
During June 2014, the group, through Curro, acquired the entire issued share capital of Waterstone,
a private school in Gauteng, South Africa, for a cash consideration of R130,8m (of which R30m is
deferred) and Curro equity instruments of R1,4m. Goodwill arose in respect of, inter alia, the employee
corps and expected synergies.
The amounts of identifiable net assets acquired, goodwill and non-controlling interests recognised from
aforementioned business combinations can be summarised as follows:
Mpongwe Pack Mutual
Milling Animalzone 'n Stack fund Sub-total
Rm Rm Rm Rm Rm
Identifiable net assets/
(liabilities) acquired 142,5 (5,8) 30,7 3 033,7 3 201,1
Goodwill recognised 165,1 5,9 110,0 281,0
Non-controlling interests recognised (12,0) (12,0)
Third-party liabilities arising on
consolidation of mutual fund (1 544,8) (1 544,8)
307,6 0,1 128,7 1 488,9 1 925,3
Derecognition of previous
associate/joint venture investment (0,1) (76,7) (76,8)
Cash consideration 307,6 - 52,0 1 488,9 1 848,5
Cash consideration paid (307,6) (52,0) (1 488,9) (1 848,5)
Cash and cash equivalents acquired 13,6 (1,9) 22,0 314,2 347,9
Net cash outflow from subsidiaries
acquired (294,0) (1,9) (30,0) (1 174,7) (1 500,6)
Waterstone
Sub-total Grantleigh College Total
Rm Rm Rm Rm
Identifiable net assets/
(liabilities) acquired 3 201,1 30,0 73,3 3 304,4
Goodwill recognised 281,0 58,9 339,9
Non-controlling interests recognised (12,0) (12,0)
Third-party liabilities arising on
consolidation of mutual fund (1 544,8) (1 544,8)
1 925,3 30,0 132,2 2 087,5
Derecognition of previous
associate/joint venture investment (76,8) (76,8)
Equity instruments issued (1,4) (1,4)
Deferred purchase consideration (30,0) (30,0)
Cash consideration 1 848,5 30,0 100,8 1 979,3
Cash consideration paid (1 848,5) (30,0) (100,8) (1 979,3)
Cash and cash equivalents acquired 347,9 7,8 10,6 366,3
Net cash outflow from subsidiaries
acquired (1 500,6) (22,2) (90,2) (1 613,0)
Transaction costs relating to the aforementioned business combinations were insignificant and expensed in
“marketing, administration and other expenses” in the income statement. The accounting for the
aforementioned business combinations are provisional and they did not contain any contingent liabilities,
contingent consideration or indemnification asset arrangements. No goodwill is expected to be deductible
for income tax purposes. Unless otherwise stated, aforementioned business combinations did not contribute
significant amounts of revenue or profit to the group’s income statement since the respective acquisition
dates, nor would it have, had the acquisitions been effected at the beginning of the period under review.
6. Linked investment contracts
These represent PSG Life clients’ assets held under investment contracts, which are linked to a
corresponding liability. The impact on the income statement from the returns on investment contract
policy holder assets and liabilities, as well as the investment income earned by the ordinary
shareholders of the group, were as follows:
Investment
contract policy Equity
holders holders Total
Rm Rm Rm
31 August 2014
Investment income 141,5 163,3 304,8
Fair value gains and losses 925,8 84,0 1 009,8
Fair value adjustment to investment contract liabilities (1 066,3) (1 066,3)
1,0 247,3 248,3
31 August 2013
Investment income 142,8 96,1 238,9
Fair value gains and losses 695,4 127,6 823,0
Fair value adjustment to investment contract liabilities (832,2) (832,2)
6,0 223,7 229,7
28 February 2014
Investment income 263,6 243,4 507,0
Fair value gains and losses 1 087,7 365,9 1 453,6
Fair value adjustment to investment contract liabilities (1 342,7) (1 342,7)
8,6 609,3 617,9
7. Trade and other receivables and payables
Included under trade and other receivables are PSG Online broker- and clearing accounts of which R1,6bn
(31 August 2013: R1,2bn and 28 February 2014: R1,9bn) represents amounts owing by the JSE Ltd for trades
conducted during the last few days before the reporting date. These balances fluctuate on a daily basis
depending on the activity in the financial markets.
The control account for the settlement of these transactions is included under trade and other payables,
with the settlement to clients taking place within three days after the transaction date.
Unaudited Audited
Aug-14 Aug-13 Feb-14
6 months 6 months 12 months
Rm Rm Rm
8. Cash (utilised by)/generated from operations
Profit before taxation 1 005,9 750,0 1 796,1
Share of profits of associates and joint ventures (654,4) (464,5) (943,1)
Depreciation and amortisation 133,5 83,5 209,5
Investment income (304,8) (238,9) (507,0)
Finance costs 165,0 123,3 263,3
Working capital changes and other non-cash items (709,8) (348,4) (24,9)
(364,6) (95,0) 793,9
9. Corporate actions and subsequent events
Apart from the transactions set out in note 5 above, the group’s most significant corporate actions
included the following:
• The group has strengthened its capital base for further investing during the period under review.
R920m was raised through the issue of new equity by means of a bookbuild during June 2014, and a
further R155m through a private placement during August 2014.
• The group, through Zeder, disposed of its remaining Capevin Holdings Ltd shares (being classified
as non-current assets held for sale) during the period under review for cash proceeds of R193,5m.
• The group has made a formal offer to acquire the 51% shareholding it does not already own in
Thembeka Capital (RF) Ltd (“Thembeka”) by issuing 1,7 PSG shares for every 1 Thembeka share held.
The objective of this transaction is to provide the 51% black-owned Thembeka shareholders with a
mechanism to realise the underlying value that has been created since establishment in 2006. The
financial effect of same on the group will be negligible.
• On 15 September 2014, the proposed scheme of arrangement between Agri Voedsel Ltd (“AVL”) and its
shareholders was approved, in terms of which the group, through Zeder, will acquire all the shares
in AVL not already held by Zeder. AVL shareholders will receive 16,2 newly issued JSE-listed Zeder
ordinary shares for every one unlisted AVL share disposed of in terms of the aforementioned scheme.
Upon implementation of the transaction on 20 October 2014, the group, through Zeder, will hold a
direct economic interest of 31,7% in Pioneer Foods Group Ltd (“Pioneer Foods”). As a result of
aforementioned Zeder share issue, the group’s interest in Zeder will dilute to 29,1%, although the
group will continue to exercise control over Zeder through the existing management agreement.
• The board of directors of Pioneer Foods previously resolved to unbundle its 100% shareholding in
Quantum Foods Ltd (“Quantum Foods”) to Pioneer Foods’ shareholders. Quantum Foods’ ordinary shares
listed on the JSE on 6 October 2014 and the unbundling became effective since. Following the
implementation of aforementioned transactions pertaining to Pioneer Foods, the group, through Zeder,
will hold a direct economic interest of approximately 31% in Quantum Foods.
• During June 2014, Curro conducted a rights offer which was fully underwritten by the group. The group
followed its rights and the additional investment amounted to R338,6m.
10. Financial instruments
10.1 Financial risk factors
The group’s activities expose it to a variety of financial risks: market risk (including currency risk,
cash flow and fair value interest rate risk, and price risk), credit risk and liquidity risk.
These condensed interim group financial statements do not include all financial risk management
information and disclosures set out in the annual financial statements, and therefore they should be
read in conjunction with the group’s annual financial statements for the year ended 28 February 2014.
Risk management continues to be carried out by each major entity within the group under policies
approved by the respective boards of directors.
10.2 Fair value estimation
The group, through PSG Life Ltd, issues linked investment contracts (note 6) where the value of the
policy benefits (i.e. liability) is directly linked to the fair value of the supporting assets, and
as such does not expose the group to the market risk relating to fair value movements.
The information below analyses financial assets and financial liabilities, which are carried at fair
value, by level of hierarchy as required by IFRS 13. The different levels in the hierarchy are
defined below:
Level 1
The fair value of financial instruments traded in active markets is based on quoted market prices at
the reporting date. A market is regarded as active if quoted prices are readily and regularly
available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency,
and those prices represent actual and regularly occurring market transactions on an arm’s length basis.
The quoted market price used for financial assets held by the group is the current bid price.
Level 2
Financial instruments that trade in markets that are not considered to be active but are valued (using
valuation techniques) based on quoted market prices, dealer quotations or alternative pricing sources
supported by observable inputs are classified within level 2. These include over-the-counter traded
derivatives. As level 2 investments include positions that are not traded in active markets and/or
are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-
transferability, which are generally based on available market information. If all significant
inputs in determining an instrument’s fair value are observable, the instrument is included in level 2.
Level 3
If one or more of the significant inputs is not based on observable market data, the instrument is
included in level 3. Investments classified within level 3 have significant unobservable inputs,
as they trade infrequently.
The fair value of financial assets and liabilities carried at amortised cost approximates their fair
value. The fair value of financial assets and liabilities carried at fair value in the statement of
financial position can be summarised as follows:
Level 1 Level 2 Level 3 Total
Rm Rm Rm Rm
31 August 2014 (unaudited)
Assets
Derivative financial assets 40,5 40,5
Equity securities 1 136,8 106,4 47,4 1 290,6
Debt securities 24,2 662,1 686,3
Unit-linked investments 9 795,5 1 344,5 11 140,0
Investment in investment contracts 227,3 0,9 228,2
1 161,0 10 831,8 1 392,8 13 385,6
Liabilities
Derivative financial liabilities 68,6 46,7 115,3
Investment contracts 10 413,0 1 344,5 11 757,5
Trade and other payables 13,7 13,7
Third party liabilities arising on
consolidation of mutual funds 2 611,5 2 611,5
- 13 093,1 1 404,9 14 498,0
31 August 2013 (unaudited)
Assets
Derivative financial assets 24,1 24,1
Equity securities 520,4 119,6 4,3 644,3
Debt securities 31,2 718,5 226,5 976,2
Unit-linked investments 6 466,4 2 465,2 8 931,6
Investment in investment contracts 300,2 300,2
551,6 7 628,8 2 696,0 10 876,4
Liabilities
Derivative financial liabilities 38,6 45,7 84,3
Investment contracts 7 306,9 2 688,1 9 995,0
Trade and other payables 4,9 4,9
Third party liabilities arising on
consolidation of mutual funds 174,6 174,6
- 7 520,1 2 738,7 10 258,8
28 February 2014 (audited)
Assets
Derivative financial assets 1,0 29,1 30,1
Equity securities 767,8 101,3 42,6 911,7
Debt securities 32,9 804,8 237,3 1 075,0
Unit-linked investments 8 058,4 2 250,5 10 308,9
Investment in investment contracts 260,4 1,4 261,8
801,7 9 254,0 2 531,8 12 587,5
Liabilities
Derivative financial liabilities 15,2 38,6 45,7 99,5
Investment contracts 9 056,9 2 487,8 11 544,7
Trade and other payables 10,6 10,6
Third party liabilities arising on
consolidation of mutual funds 372,2 372,2
15,2 9 467,7 2 544,1 12 027,0
The following table presents changes in level 3 financial instruments during the respective periods:
Unaudited Audited
Aug-14 Aug-13 Feb-14
6 months 6 months 12 months
Rm Rm Rm
Assets
Opening carrying value 2 531,8 2 270,8 2 270,8
Additions 3 110,6 259,9 1 557,7
Disposals (4 387,0) (209,6) (1 503,7)
Transfers 41,7
Gains recognised in profit or loss 137,4 371,4 165,3
Movements recognised in other comprehensive income 3,5
Closing carrying value 1 392,8 2 696,0 2 531,8
Liabilities
Opening carrying value 2 544,1 2 318,5 2 318,5
Investment contract receipts and additions 3 113,6 264,3 1 556,2
Investment contract benefits paid and disposals (4 391,5) (215,1) (1 501,6)
Transfers 4,2
Losses recognised in profit or loss 138,6 371,3 0,2
Movements recognised in other comprehensive income 0,1 (0,3) 166,6
Closing carrying value 1 404,9 2 738,7 2 544,1
Derivative financial assets, equity securities, debt securities and unit-linked investments, to the
extent not being policyholder assets, are all included in “other financial assets” in the statement of
financial position, while derivative financial liabilities and third party liabilities arising on
consolidation of mutual funds are likewise included in “other financial liabilities”.
There have been no significant transfers between level 1, 2 or 3 during the period under review, nor
were there any significant changes to the valuation techniques and inputs used to determine fair values.
Valuation techniques and main inputs used to determine fair value for financial instruments classified as
level 2 can be summarised as follows:
Instrument Valuation technique Main inputs
Derivative financial Exit price on recognised Not applicable
assets and liabilities over-the-counter platforms
Debt securities Valuation model that uses the Bond interest rate curves
market inputs (yield of benchmark Issuer credit ratings
bonds) Liquidity spreads
Unit-linked investments Quoted put (exit) price provided by Not applicable - prices
the fund manager available publicly
Investment in investment Prices are obtained from the insurer Not applicable - prices
contracts of the particular investment provided by registered
contract long-term insurers
Investment contracts Current unit price of underlying Not applicable
unitised financial assets that is
linked to the liability, multiplied
by the number of units held
Third party liabilities Quoted put (exit) price provided by Not applicable - prices
arising on consolidation of the fund manager available publicly
mutual funds
Non-current assets held for sale included assets measured at fair value, as set out in note 9, which
was either based on the JSE-listed share price or other observable inputs.
11. Capital commitments
For the 2014 calendar year, Curro is developing a further 11 education campuses and land banking more
than 20 sites for future development. At the reporting date, Curro’s capital expenditure authorised
but not yet contracted amounts to R1,3bn.
12. Segment report
The group’s classification into seven reportable segments, namely: Capitec, Zeder, PSG Private Equity,
Thembeka Capital, Curro, PSG Konsult and PSG Corporate, remains unchanged. These segments represent
the major investments of the group. The services offered by PSG Konsult consist of financial advice,
stock broking, fund management and insurance, while Curro offers private education services. The other
segments offer financing, banking, investing and corporate finance services. All segments operate
predominantly in the Republic of South Africa.
Intersegment income represents income derived from other segments within the group which is recorded
at the fair value of the consideration received or receivable for services rendered in the ordinary
course of the group’s activities. Intersegment income mainly comprises intergroup management fees
charged in terms of the respective management agreements.
Headline earnings comprise recurring and non-recurring headline earnings. Recurring headline earnings
are calculated on a proportional basis, and include the proportional headline earnings of underlying
investments, excluding marked-to-market adjustments and one-off items. The result is that investments
in which the group holds less than 20% and which are generally not equity accountable in terms of
accounting standards, are equity accounted for the purpose of calculating the consolidated recurring
headline earnings. Non-recurring headline earnings include one-off gains and losses and
marked-to-market fluctuations, as well as the resulting taxation charge on these items.
Sum-of-the-Parts (“SOTP”) is a key valuation tool used to measure PSG’s performance. In determining
SOTP, listed assets and liabilities are valued using quoted market prices, whereas unlisted assets
and liabilities are valued using appropriate valuation methods. These values will not necessarily
correspond with the values per the statement of financial position since the latter are measured
using the relevant accounting standards which include historical cost and the equity accounting
method.
The chief operating decision-maker (the executive committee) evaluates the following information to
assess the segments’ performance:
Inter- Non- Headline
segment Recurring recurring earnings Sum-of-
Income income headline headline (segment the-parts
Six-month period ended ** ** earnings earnings profit) value^
31 August 2014 (unaudited) Rm Rm Rm Rm Rm Rm
Capitec* 331,6 331,6 6 911,5
Curro 491,3 15,4 15,4 4 795,1
PSG Konsult 1 488,0 92,4 (1,2) 91,2 5 219,4
PSG Private Equity 1 133,2 16,4 (1,6) 14,8 1 078,0
Thembeka Capital* 15,7 125,9 141,6 1 415,2
Zeder 4 359,8 68,3 14,1 82,4 2 435,2
PSG Corporate (including
PSG Capital) 62,0 (55,0) 29,9 (1,5) 28,4 2 315,3
Reconciling items
Funding 27,8 (10,0) (85,1) (22,6) (107,7) (2 071,6)
Other (9,7) (9,7) 51,4
Total 7 562,1 (65,0) 474,9 113,1 588,0 22 149,5
Non-headline items (13,3)
Earnings attributable to
non-controlling interests 274,5
Taxation 156,7
Profit before taxation 1 005,9
Six-month period ended
31 August 2013 (unaudited)
Capitec* 274,8 274,8 6 029,8
Curro 317,3 7,8 7,8 3 341,4
PSG Konsult 1 109,1 70,4 70,4 2 747,0
PSG Private Equity 875,7 25,9 3,6 29,5 700,9
Thembeka Capital* 8,3 20,8 29,1 964,2
Zeder 1 907,8 38,2 3,7 41,9 1 693,9
PSG Corporate (including
PSG Capital) 135,9 (31,9) 19,6 7,6 27,2 1 780,4
Reconciling items
Funding 25,0 (4,4) (87,5) 46,2 (41,3) (2 288,6)
Other (1,8) (1,8) 68,5
Total 4 370,8 (36,3) 355,7 81,9 437,6 15 037,5
Non-headline items 13,1
Earnings attributable to
non-controlling interests 183,8
Taxation 115,5
Profit before taxation 750,0
Year ended 28 February 2014
(audited)
Capitec* 570,7 570,7 5 989,1
Curro Holdings 662,9 20,6 20,6 4 659,7
PSG Konsult 2 488,8 162,7 (4,3) 158,4 4 003,8
PSG Private Equity 2 189,1 51,4 5,7 57,1 948,7
Thembeka Capital* 23,2 100,2 123,4 1 242,8
Zeder 6 374,3 124,5 (16,9) 107,6 1 698,1
PSG Corporate (including
PSG Capital) 301,1 (123,5) 48,4 51,9 100,3 1 370,5
Reconciling items
Funding 42,2 (18,5) (181,2) 54,2 (127,0) (2 008,3)
Other (2,3) (2,3) 135,0
Total 12 058,4 (142,0) 818,0 190,8 1 008,8 18 039,4
Non-headline items 43,2
Earnings attributable to
non-controlling interests 456,2
Taxation 287,9
Profit before taxation 1 796,1
Unaudited Audited
Aug-14 Aug-13 Feb-14
6 months 6 months 12 months
Rm Rm Rm
Reconciliation of segment revenue to IFRS revenue:
Segment revenue as stated above
Income 7 562,1 4 370,8 12 058,4
Inter-segment income (65,0) (36,3) (142,0)
Less:
Changes in fair value of biological assets (15,2) (29,2) (90,5)
Fair value gains and losses (1 009,8) (823,0) (1 453,6)
Fair value adjustment to investment contract liabilities 1 066,3 832,2 1 342,7
Other operating income and expenses (28,8) (37,0) (99,3)
IFRS revenue 7 509,6 4 277,5 11 615,7
Non-recurring headline earnings comprised the following:
Non-recurring items from investments 137,2 28,1 84,7
Net fair value (losses)/gains on liquid investment portfolio (1,5) 7,6 9,5
Other (losses)/gains (22,6) 46,2 96,6
113,1 81,9 190,8
* Equity accounted
** The total of “income” and “intersegment income” comprises the total of “revenue from sale of goods”
and “income” per the income statement.
^ SOTP is a key valuation tool used to measure the group’s performance, but does not necessarily
correspond to net asset value.
DIRECTORS:
JF Mouton (Chairman)+, PE Burton^, ZL Combi^, J de V du Toit^, MM du Toit^, FJ Gouws+, WL Greeff (FD)*,
JA Holtzhausen*, MJ Jooste^ (Alt: AB la Grange), JJ Mouton+, PJ Mouton (CEO)*, CA Otto^, W Theron+
* Executive + Non-executive ^ Independent non-executive
SECRETARY AND REGISTERED OFFICE:
PSG Corporate Services (Pty) Ltd, 1st Floor, Ou Kollege, 35 Kerk Street, Stellenbosch, 7600;
PO Box 7403, Stellenbosch, 7599
TRANSFER SECRETARY:
Computershare Investor Services (Pty) Ltd, 70 Marshall Street, Johannesburg, 2001;
PO Box 61051, Marshalltown, 2107
SPONSOR:
PSG Capital
AUDITOR:
PricewaterhouseCoopers Inc.
Date: 13/10/2014 02:50:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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