Wrap Text
Reviewed results for the year ended 28 February 2015
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”)
REVIEWED RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2015
• SOTP value increased by 72% to R163.28 per share as at 28 February 2015
• SOTP value of R195.02 per share as at 7 April 2015
• Recurring headline earnings increased by 32% to 593.6 cents per share
• Dividend for the year increased by 50% to 200 cents per share
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 R36bn.
The year under review marked the first time that PSG achieved consolidated recurring
headline earnings in excess of R1bn. This follows strong results from all of its 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 88% of
the value is calculated using JSE-listed share prices, while other investments are
included at market-related valuations. At 28 February 2015, the SOTP value per PSG share
was R163.28 (2014: R95.01). At 7 April 2015, the SOTP value was R195.02 per share.
28 Feb 28 Feb 28 Feb 7 Apr
2013 2014 2015 2015 % of
Asset/Liability Rm Rm Rm Rm total
Capitec * 6 128 5 989 14 549 19 339 46
Curro * 2 607 4 660 6 236 7 378 17
PSG Konsult * 2 237 4 004 5 710 5 812 14
Zeder * 1 412 1 698 3 712 4 059 10
PSG Private Equity ** 681 949 1 246 1 169 3
BEE investment holding company
(previously Thembeka) ** 899 1 243 603 721 2
PSG Corporate
(including PSG Capital) *** 383 383 1 398 1 398 3
Other investments (including cash) *** 1 505 1 122 2 031 2 360 5
Total assets 15 852 20 048 35 485 42 236 100
Perpetual pref funding * (1 163) (1 393) (1 411) (1 318)
Other debt *** (845) (615) (679) (1 030)
Total SOTP value 13 844 18 040 33 395 39 888
Shares in issue
(net of treasury shares) (m) 190.5 189.9 204.5 204.5
SOTP value per share (rand) 72.67 95.01 163.28 195.02
* Listed on the JSE Ltd ** SOTP value *** Valuation
Capitec is PSG’s largest investment and at 28 February 2015 comprised 41% (2014: 30%)
of the SOTP value’s total assets. Its higher contribution follows a 123% increase in
Capitec’s share price and an increase in PSG’s direct interest in Capitec as a result of
the below mentioned PSG/Thembeka scheme of arrangement during the past financial year.
Subsequent to year-end, Capitec’s share price increased by a further 33%. It continues
to be the major contributor to PSG’s recurring headline earnings.
RECURRING HEADLINE EARNINGS
Year Year Year
ended ended ended
28 Feb 28 Feb 28 Feb
2013 2014 Change 2015
Rm Rm % Rm
Capitec 500 571 729
Curro 8 21 31
PSG Konsult 119 163 214
Zeder * 107 127 152
PSG Private Equity 75 51 59
BEE investment holding company
(previously Thembeka) 28 23 45
PSG Corporate (including PSG Capital) 16 7 38
Other 30 39 51
Recurring headline earnings before funding 883 1 002 32 1 319
Funding (168) (181) (177)
Recurring headline earnings 715 821 39 1 142
Non-recurring items 160 191 432
Headline earnings 875 1 012 56 1 574
Non-headline items 265 47 (14)
Attributable earnings 1 140 1 059 47 1 560
Weighted average number of shares in
issue (net of treasury shares) (m) 182.2 183.0 5 192.3
Earnings per share (cents)
Recurring headline 392.3 448.8 32 593.6
Headline 480.2 553.2 48 818.6
Attributable/basic 625.5 578.5 40 811.3
Dividend per share (cents) 111.0 133.0 50 200.0
* 28 February 2014 comparative restated to account for Capespan’s change in accounting
policies.
Recurring headline earnings for the year ended 28 February 2015 increased by 32% to
593.6 cents per share, following commendable recurring headline earnings per share growth
from Capitec (26%), PSG Konsult (31%) and Zeder (15%). Although Curro reported a 38%
increase in recurring headline earnings per share for the year ended 31 December 2014, its
earnings contribution to the larger PSG group remains relatively small. This investment is,
however, expected to contribute significantly to PSG’s earnings in years to come.
PSG Private Equity reported a 10% decrease in recurring headline earnings per share
following challenging trading conditions at certain investments.
Headline earnings increased by 48% to 818.6 cents per share. The non-recurring headline
gains achieved during the year under review mainly comprised marked-to-market profits
achieved on listed shares held by PSG’s associated BEE investment holding company
(previously Thembeka).
Attributable earnings increased by 40% to 811.3 cents per share.
SIGNIFICANT TRANSACTIONS
The following significant transactions were undertaken during the past financial year:
• PSG raised R1.275bn in cash through the issue of ordinary shares, of which R920m was
by means of a book build and R355m through private placements.
• The PSG/Thembeka scheme of arrangement, amounting to R1.5bn, was concluded in terms
of which significant value was unlocked for Thembeka shareholders. Following the scheme
of arrangement, PSG holds a 49% interest in a new BEE investment holding company and
PSG’s interest in Capitec and Curro increased to 30.7% and 58.5%, respectively.
• Zeder increased its direct interest in Pioneer Foods to 27.3% through the issue of Zeder
shares in a transaction valued in excess of R2.5bn. This constituted the single largest
transaction in PSG’s history.
• Following the aforementioned Zeder share issue, PSG’s interest in Zeder diluted to 29.1%.
PSG subsequently increased its shareholding to 33.8% for a cash consideration of R447m.
• PSG invested R356m cash in Curro, mainly in support of its rights issue to fund further
expansion.
CAPITEC (30.7%)
Capitec continued to impress, not only by delivering yet another set of stellar financial
results, but also with the way in which it managed the challenges brought about by the demise
of African Bank, its largest competitor, as well as large strikes affecting many of its
clients during the past financial year.
While net transaction fee income from banking operations grew by 35%, Capitec’s lending
business experienced modest growth. Although the growth in net transaction fee income is
expected to slow temporarily in the next financial year, when new limits on card processing
fees between banks and merchants are applied, Capitec expects it to be offset by a continued
increase in its primary banking client numbers, as well as increased activity per client.
Unlike many other players in the unsecured lending sector, Capitec has conservative
provisioning and bad debt write-off policies. It provides 8% for loans that are up to date,
45% for loans behind by one instalment, 73% for loans behind by two instalments and 87% for
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 196% as at 28 February 2015 (2014: 167%).
In addition, Capitec improved its bad debt recoveries by 39% to R602m during the year under
review.
Capitec has a prudent capital adequacy ratio of 36%. Its diversified funding base comprises
a healthy blend of wholesale fixed, retail fixed and call deposits. Although retail deposits
grew by R6.4bn during the past financial year, confidence in the wholesale funding market was
negatively influenced by market events and the ratings downgrade of the South African banking
sector. Capitec, however, has a high level of liquidity with R19.8bn in cash and short-term
funds, representing 37% of total assets. It is fully compliant with the Basel 3 liquidity
ratios.
PSG remains a loyal supporter of Capitec and looks forward to its continued success.
Capitec’s comprehensive results for the year ended 28 February 2015 are available at
www.capitecbank.co.za.
PSG KONSULT (62.7%)
PSG Konsult recently announced its first set of financial results as a JSE (and NSX)-listed
company. Its commendable growth in recurring headline earnings per share resulted from a
strong performance by the PSG Wealth and PSG Asset Management divisions in particular.
PSG Konsult’s comprehensive results for the year ended 28 February 2015 are available at
www.psg.co.za.
CURRO (58.5%)
The education market offers significant investment opportunities and Curro continues to
capitalise on same in pursuit of its 2020 target of 80 schools with 80 000 learners. Curro
is currently in the process of a R740m capital raising by means of a rights offer to fund
its expansion plans. PSG has underwritten same.
The majority of Curro’s schools are either performing to expectation, or better. PSG remains
optimistic that Curro will achieve (and perhaps even exceed) its aforementioned target.
Curro’s comprehensive results for the year ended 31 December 2014 are available at
www.curro.co.za.
ZEDER (33.8%)
Following the conclusion of the Zeder/Agri Voedsel scheme of arrangement, Zeder now owns
an asset portfolio valued in excess of R14bn, with its 27.3% direct interest in
Pioneer Foods representing 73% of the total. Zeder’s SOTP value per share increased by 74.5%
to R9.18 during the past financial year. Pioneer Foods in particular reported strong earnings
growth for the year under review.
Zeder recently announced its firm intention to acquire the remaining 25% shares in Capespan,
held by minority shareholders other than management, by means of a scheme of arrangement.
The proposed transaction is valued in excess of R500m.
Zeder’s comprehensive results for the year ended 28 February 2015 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 actively searching for exciting new
investment opportunities. Given its nature, this portfolio is likely to yield volatile
earnings, while providing significant optionality.
BEE INVESTMENT HOLDING COMPANY (PREVIOUSLY THEMBEKA) (49%)
The new BEE investment holding company, emanating from the aforementioned PSG/Thembeka
scheme of arrangement during January 2015, is 51%-owned by the Stellenbosch BEE Education
Trust of which all beneficiaries are black individuals. PSG provided the new BEE investment
holding company with R800m in preference share funding to acquire select investments from
Thembeka, the most significant being interests of 6.6% in Curro, 4.4% in Pioneer Foods and
20% in Kaap Agri. These investments are all subject to BEE lock-in periods. The value
created will be used by the Stellenbosch BEE Education Trust to fund gifted but needy
black students’ education.
PROSPECTS
We believe PSG’s investment portfolio 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 approved and declared a final gross dividend of 145 cents (2014: 90 cents)
from income reserves, for a total dividend of 200 cents (2014: 133 cents) in respect of
the year ended 28 February 2015, representing a 50% increase.
The final dividend amount, net of South African dividend tax of 15%, is 123.25 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 220 431 722, and the income tax number of the
company is 9950080714.
The salient dates of this dividend distribution are:
Last day to trade cum dividend Thursday, 30 April 2015
Trading ex dividend commences Monday, 4 May 2015
Record date Friday, 8 May 2015
Payment date Monday, 11 May 2015
Share certificates may not be dematerialised or rematerialised between Monday, 4 May 2015
and Friday, 8 May 2015, both days inclusive.
Preference shares
The directors of PSG Financial Services have declared a gross dividend of 382.23 cents
per share in respect of the cumulative, non-redeemable, non-participating preference shares
for the six months ended 28 February 2015, which was paid on Monday, 23 March 2015. The
detailed announcement in respect hereof was disseminated on the Stock Exchange News Services
on 27 February 2015.
On behalf of the board
Jannie Mouton Piet Mouton Wynand Greeff
Chairman Chief Executive Officer Financial Director
Stellenbosch
15 April 2015
The reviewed preliminary condensed financial information of PSG Group is presented below:
Reviewed Audited
Feb-15 Feb-14
Condensed group income statement Restated
for the year ended 28 February 2015 Rm Rm
Revenue from sale of goods 10 981 7 535
Cost of goods sold (9 532) (6 755)
Gross profit from sale of goods 1 449 780
Income
Changes in fair value of biological assets 144 134
Investment income (note 7) 764 509
Fair value gains and losses (note 7) 1 400 1 454
Fair value adjustment to investment contract liabilities (note 7) (1 483) (1 343)
Commission, insurance and other fee income 4 309 3 540
Other operating income 95 107
5 229 4 401
Expenses
Insurance claims and loss adjustments, net of recoveries (424) (353)
Marketing, administration and other expenses (4 778) (3 657)
(5 202) (4 010)
Income from associates and joint ventures
Share of profits of associates and joint ventures 1 448 943
Loss on impairment of associates and joint ventures (4) (24)
1 444 919
Profit before finance costs and taxation 2 920 2 090
Finance costs (337) (263)
Profit before taxation 2 583 1 827
Taxation (392) (295)
Profit for the year 2 191 1 532
Attributable to:
Owners of the parent 1 560 1 059
Non-controlling interests 631 473
2 191 1 532
Reviewed Audited
Feb-15 Feb-14
Earnings per share and number of shares in issue Change % Restated
Earnings per share (cents)
- recurring headline 32.3 593.6 448.8
- headline (note 4) 48.0 818.6 553.2
- attributable/basic 40.2 811.3 578.5
- diluted headline 47.2 807.4 548.6
- diluted attributable/basic 39.5 800.2 573.8
Number of shares (million)
- in issue 220.4 207.6
- in issue (net of treasury shares) 202.4 182.9
- weighted average 192.3 183.0
- diluted weighted average 195.0 184.5
Reviewed Audited
Feb-15 Feb-14
Condensed group statement of comprehensive income Restated
for the year ended 28 February 2015 Rm Rm
Profit for the year 2 191 1 532
Other comprehensive (loss)/income for the year, net of taxation (79) 153
Items that may be subsequently reclassified to profit or loss
Currency translation adjustments (18) 162
Reclassification of currency translation adjustments (1)
Cash flow hedges (8) (16)
Reclassification of cash flow hedges 25
Share of other comprehensive (loss)/income and equity movements of associates (59) 62
Reclassification of share of associates’ other comprehensive income
and equity movements upon disposal (56)
Items that will not be reclassified to profit or loss
Remeasurement of post-employment benefit obligations (18) 1
Total comprehensive income for the year 2 112 1 685
Attributable to:
Owners of the parent 1 496 1 121
Non-controlling interests 616 564
2 112 1 685
Reviewed Audited
Feb-15 Feb-14
Condensed group statement of financial position Restated
as at 28 February 2015 Rm Rm
Assets
Property, plant and equipment 4 869 3 327
Intangible assets 2 647 2 095
Biological assets 274 201
Investment in ordinary shares of associates and joint ventures (note 9) 10 755 6 312
Investment in preference shares of/loans granted to associates and
joint ventures 309 321
Deferred income tax assets 179 126
Financial assets linked to investment contracts (note 7) 14 223 12 693
Cash and cash equivalents 27 51
Other financial assets 14 196 12 642
Other financial assets (note 6.2) 5 311 1 534
Inventory 1 181 1 130
Trade and other receivables (note 8) 4 085 3 637
Current income tax assets 49 43
Cash and cash equivalents 1 619 2 099
Non-current assets held for sale (note 10) 106 182
Total assets 45 607 33 700
Equity
Ordinary shareholders’ equity 9 997 6 860
Non-controlling interests 9 099 5 609
Total equity 19 096 12 469
Liabilities
Insurance contracts 574 493
Financial liabilities under investment contracts (note 7) 14 223 12 693
Borrowings 4 756 3 266
Other financial liabilities (note 6.2) 2 194 475
Deferred income tax liabilities 631 347
Trade and other payables and employee benefit liabilities (note 8) 4 078 3 919
Current income tax liabilities 55 38
Total liabilities 26 511 21 231
Total equity and liabilities 45 607 33 700
Net asset value per share (rand) 49.39 37.51
Net tangible asset value per share (rand) 36.32 26.06
Reviewed Audited
Feb-15 Feb-14
Condensed group statement of changes in equity Restated
for the year ended 28 February 2015 Change % Rm Rm
Ordinary shareholders’ equity at beginning of the year 6 860 5 990
Total comprehensive income 1 496 1 121
Issue of shares 2 881
Share buy-back (1 140) (33)
Share-based payment costs - employees 46 26
Net movement in treasury shares 138 (42)
Transactions with non-controlling interests (11) 20
Dividends paid (273) (222)
Ordinary shareholders’ equity at end of the year 9 997 6 860
Non-controlling interests at beginning of the year 5 609 4 160
Total comprehensive income 616 564
Issue of shares 2 852 737
Share-based payment costs - employees 15 9
Acquisition of subsidiaries (note 6.1) 346 366
Transactions with non-controlling interests (105) (33)
Dividends paid (234) (194)
Non-controlling interests at end of the year 9 099 5 609
Total equity 19 096 12 469
Dividend per share (cents)
- interim 55.0 43.0
- final 145.0 90.0
50.4 200.0 133.0
Reviewed Audited
Feb-15 Feb-14
Condensed group statement of cash flows Restated
for the year ended 28 February 2015 Rm Rm
Net cash flow from operating activities
Cash generated from operations (note 5) 661 794
Interest income 596 392
Dividend income 530 363
Finance costs (327) (266)
Taxation paid (384) (262)
Net cash flow from operating activities before cash movement in
policyholder funds 1 076 1 021
Cash movement in policyholder funds (24) (14)
Net cash flow from operating activities 1 052 1 007
Net cash flow from investing activities (3 502) (1 236)
Net cash flow from subsidiaries acquired (note 6.1) (584) (216)
Net cash flow from consolidation of mutual fund (note 6.2) (1 175)
Acquisition of ordinary shares in associates (350) (439)
Proceeds from disposal of ordinary shares in associates 20 123
Acquisition of property, plant and equipment (1 425) (1 082)
Other investing activities 12 378
Net cash flow from financing activities 1 669 (165)
Dividends paid to group shareholders (273) (222)
Dividends paid to non-controlling interests (234) (194)
Capital contributions by non-controlling interests 293 679
Net acquisition from non-controlling interests (508) 48
Net borrowings drawn/(repaid) 931 (395)
Proceeds from disposal of holding company’s treasury shares 64 13
Shares issued/(repurchased) 1 396 (94)
Net decrease in cash and cash equivalents (781) (394)
Exchange gains on cash and cash equivalents 26 47
Cash and cash equivalents at beginning of the year 1 581 1 928
Cash and cash equivalents at end of the year * 826 1 581
Cash and cash equivalents consists of:
Cash and cash equivalents linked to investment contracts 27 51
Cash and cash equivalents attributable to equity holders 1 619 2 099
Cash and cash equivalents attributable to equity holders and included
in non-current assets held for sale 3
Bank overdrafts attributable to equity holders (included in borrowings) (823) (569)
826 1 581
* In addition to cash and cash equivalents presented as at the latest reporting date, the group holds
R860m in highly liquid debt securities that form part of the group’s resources for meeting short-term
cash requirements.
Notes to the condensed group financial statements
1. Basis of presentation and accounting policies
These condensed 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 JSE Listings Requirements for preliminary
reports.
The accounting policies applied in the preparation of these condensed group financial statements are
consistent in all material respects with those used in the prior year’s annual financial statements,
apart from the early adoption of the amendments to IAS 16 Property, plant and equipment and IAS 41
Agriculture: Bearer plants, which were applied retrospectively. Previously, bearer plant biological
assets were measured at fair value less cost to sell with the adjustment being recognised in profit
or loss. Following the amendments, bearer plants are measured at cost, less accumulated depreciation
and impairment losses. Accordingly, bearer plants are measured similar to self-constructed items of
property, plant and equipment.
The group also adopted the various other revisions to IFRS which were effective for its financial
year ended 28 February 2015. These revisions have not resulted in material changes to the group’s
reported results and disclosures in these condensed group financial statements.
In addition to the business combinations set out below, the group’s results for the year under review
included, inter alia, those of Capespan Group Ltd (“Capespan”) and Klein Karoo Saad Bemarking
(Pty) Ltd for the full year, while same were only consolidated for 8 months and 4 months in the
prior year, respectively.
2. Preparation
These preliminary condensed group financial statements were compiled under the supervision of the
group financial director, Mr WL Greeff, CA (SA), and were reviewed by PSG Group’s external auditor,
PricewaterhouseCoopers Inc. A copy of their unmodified review opinion is available from PSG Group’s
registered office. Any reference to future financial performance included in this announcement, has
not been reviewed or reported on by the company’s auditor.
The auditor’s report does not necessarily report on all the information contained in this
announcement. Users are therefore advised that in order to get a full understanding of the nature of
the auditor’s engagement, they should obtain a copy of the auditor’s report together with the
accompanying financial information from the company’s registered office.
3. PSG Financial Services
PSG Financial Services is a wholly-owned subsidiary of PSG Group, except for the 17 415 770
(2014: 17 415 770) perpetual preference shares which are listed on the JSE. 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 as it is the
only asset of PSG Group.
Reviewed Audited
Feb-15 Feb-14
Restated
4. Headline earnings Rm Rm
Profit for the year attributable to owners of the parent 1 560 1 059
Non-headline items
Gross amounts 11 (87)
Impairment of investments in associates 4 25
Net profit on sale/dilution of investments in associates (11) (24)
Fair value gain on step-up from associate to subsidiary (45) (80)
Net loss on sale/impairment of intangible assets (including goodwill) 38 9
Non-headline items of associates 44 (17)
Reversal of impairment on property, plant and equipment (12)
Other (7)
Non-controlling interests 6 33
Taxation (3) 7
Headline earnings 1 574 1 012
5. Cash generated from operations
Profit before taxation 2 583 1 827
Share of profits of associates and joint ventures (1 448) (943)
Depreciation and amortisation 295 209
Investment income (764) (507)
Finance costs 337 263
Working capital changes and other non-cash items (342) (55)
661 794
6. Business combinations
6.1 Subsidiaries acquired
The group’s most significant business combinations entered into during the year 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 kwatcha
denominated cash consideration equating to R307m. Mpongwe Milling complements 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.
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 R130m (of which R30m is deferred)
and Curro shares to the value of R1m. Goodwill arose in respect of, inter alia, the employee corps and
expected synergies.
SMC Brands SA (Pty) Ltd (“SMC Brands”)
During September 2014, the group, through PSG Private Equity’s subsidiary, CA Sales Holdings (Pty) Ltd
(“CA Sales”), increased its interest in SMC Brands (previously an associate) from 49% to 100% for a
cash consideration of R81m. SMC Brands is involved in the distribution of fast moving consumer goods
and complements the group’s already existing investments in same. Goodwill arose in respect of, inter
alia, the employee corps and expected synergies.
Pack ’n Stack Investment Holdings (Pty) Ltd (“Pack ’n Stack”)
During June 2014, the group, through PSG Private Equity’s subsidiary, CA Sales, increased its interest
in Pack ’n Stack (previously an associate) from 30% to 50.2% for a cash consideration of R52m.
Pack ’n Stack is involved in the distribution of fast moving consumer goods and complements the group’s
already existing investments in same. Goodwill arose in respect of, inter alia, the employee corps and
expected synergies.
Ryla 21 (RF) (Pty) Ltd (“BEE investment holding company”)
During January 2015, the group acquired a 49% interest in BEE investment holding company as part of the
aforementioned Thembeka scheme of arrangement. Given the group’s shareholding and preference share
funding of R800m advanced to BEE investment holding company, the group is deemed to control and
therefore needs to consolidate this entity. The remaining 51% shareholding is held by the
Stellenbosch BEE Education Trust and all benefits derived from same will be utilised to fund gifted
but needy black students’ education.
The amounts of identifiable net assets acquired, as well as goodwill and non-controlling interests
recognised from aforementioned business combinations, can be summarised as follows:
Mpongwe Pack
Milling Waterstone SMC Brands ’n Stack Sub-total
Rm Rm Rm Rm Rm
Identifiable net assets acquired 152 72 64 39 327
Goodwill recognised 155 59 94 112 420
Non-controlling interests recognised (22) (22)
307 131 158 129 725
Derecognition of previously held
associate and joint venture interests (77) (77) (154)
Subsidiary shares issued (1) (1)
Deferred purchase consideration (30) (30)
Cash consideration 307 100 81 52 540
Cash consideration paid (307) (100) (81) (52) (540)
Cash and cash equivalents acquired 14 11 22 22 69
Net cash outflow from subsidiaries acquired (293) (89) (59) (30) (471)
BEE
investment
holding
Sub-total company Other Total
Rm Rm Rm Rm
Identifiable net assets acquired 327 575 102 1 004
Goodwill recognised 420 101 521
Non-controlling interests recognised (22) (293) (31) (346)
725 282 172 1 179
Derecognition of previously held associate and
joint venture interests (154) (60) (214)
Subsidiary and holding company shares issued (1) (282) (283)
Deferred purchase consideration (30) (30)
Cash consideration 540 - 112 652
Cash consideration paid (540) (112) (652)
Cash and cash equivalents acquired 69 (1) 68
Net cash outflow from subsidiaries acquired (471) - (113) (584)
Goodwill recognised from these business combinations can be attributed to the employee corps, expected
synergies, economies of scale and the businesses’ growth potential. Transaction costs relating to
aforementioned business combinations were insignificant and expensed in the income statement.
The aforementioned business combinations do not contain any contingent consideration or indemnification
asset arrangements.
Had the aforementioned entities been consolidated with effect from 1 March 2014 instead of their
respective acquisition dates, the consolidated income statement would have reflected additional revenue
from sale of goods and income of R1.4bn and profit after tax of R131m.
6.2 Consolidation of mutual fund
PSG Money Market Fund (“PSGMMF”)
During June 2014, the group further invested excess cash in the PSGMMF following the book build
capital raising set out in note 9 below. In light of the larger interest held by the group in PSGMMF
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 approximately 80% of funds under management at the reporting date.
The amounts of identifiable net assets acquired and third-party liabilities arising on consolidation
of the mutual fund recognised can be summarised as follows:
Mutual
fund
Rm
Identifiable net assets acquired 3 034
Third-party liabilities arising on consolidation of mutual fund (1 545)
Cash consideration 1 489
Cash consideration paid (1 489)
Cash and cash equivalents acquired 314
Net cash outflow from consolidation of mutual fund (1 175)
The increase in other financial assets and liabilities as per the statement of financial position are
mainly as a result of the consolidation of aforementioned mutual fund.
7. Linked investment contracts
These represent PSG Life Ltd, a subsidiary of PSG Konsult, clients’ assets held under investment
contracts, which are linked to a corresponding liability. Accordingly, the value of policy benefits
payable is directly linked to the fair value of the supporting assets and therefore the group is not
exposed to the financial risks associated with these assets and liabilities. 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
28 Feb 2015 - Reviewed
Investment income 302 462 764
Fair value gains and losses 1 184 216 1 400
Fair value adjustment to investment contract liabilities (1 483) (1 483)
3 678 681
28 Feb 2014 - Audited
Investment income 264 245 509
Fair value gains and losses 1 088 366 1 454
Fair value adjustment to investment contract liabilities (1 343) (1 343)
9 611 620
8. Trade and other receivables and payables
Included under trade and other receivables are PSG Online, a subsidiary of PSG Konsult, broker- and
clearing accounts of which R1.9bn (2014: R1.9bn) represents amounts owing by the JSE for trades
conducted during the last few days before year-end. These balances fluctuate on a daily basis depending
on the activity in the 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.
9. Corporate actions
Apart from the transactions set out in note 6, the group’s most significant corporate actions included
the following:
- The group raised R1.275bn in cash through the issue of ordinary shares, of which R920m was by means
of a book build and R355m through private placements.
- The group’s scheme of arrangement with Thembeka Capital (RF) Ltd (“Thembeka”), amounting to R1.5bn,
was concluded in terms of which significant value was unlocked for Thembeka shareholders. Following
the scheme of arrangement, the group holds a 49% interest in a new BEE investment holding company
and the group’s interest in Capitec and Curro increased to 30.7% and 58.5%, respectively.
- The group, through Zeder, increased its direct interest in Pioneer Food Group Ltd to 27.3% through
the issue of Zeder shares in a scheme of arrangement valued in excess of R2.5bn.
- Following the aforementioned Zeder share issue, the group’s interest in Zeder diluted to 29.1%.
The group subsequently increased its shareholding to 33.9% for a cash consideration of R447m.
- The group invested R356m cash in Curro, mainly in support of its rights issue to fund further
expansion.
The increase in investment in ordinary shares of associates and joint ventures as per the statement of
financial position are mainly as a result of the group’s aforementioned increased interest in Pioneer
Food Group Ltd and the Thembeka scheme of arrangement.
10. Non-current assets held for sale
The non-current assets and liabilities held for sale at the reporting date comprised mainly PSG Private
Equity’s interest in GRW Holdings (Pty) Ltd (an associate), and Zeder’s interest, through Capespan, in
Addo Cold Storage (Pty) Ltd (a subsidiary). The prior year non-current assets held for sale comprised
mainly JSE-listed Capevin Holdings Ltd shares, which was subsequently disposed of by Zeder.
11. Financial instruments
11.1 Financial risk factors
The group’s activities expose it to a variety of financial risks: market risk (including currency risk,
fair value interest rate risk, and price risk), credit risk and liquidity risk.
These condensed 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 2015. Risk management
continues to be carried out by each major entity within the group under policies approved by the
respective boards of directors.
11.2 Fair value estimation
The group, through PSG Life Ltd, issues linked investment contracts 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 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 carrying value of financial assets and liabilities carried at amortised cost approximates their
fair value, while those measured at fair value in the statement of financial position can be summarised
as follows:
Level 1 Level 2 Level 3 Total
28 Feb 2015 - Reviewed Rm Rm Rm Rm
Assets
Derivative financial assets 78 78
Equity securities 1 025 1 305 82 2 412
Debt securities 477 154 631
Unit-linked investments 11 333 1 117 12 450
Investment in investment contracts 226 1 227
Closing carrying value 1 502 13 096 1 200 15 798
Liabilities
Derivative financial liabilities 69 64 133
Investment contracts 12 283 1 107 13 390
Trade and other payables 13 13
Third party liabilities arising on consolidation
of mutual funds 2 057 2 057
Closing carrying value - 14 409 1 184 15 593
Level 1 Level 2 Level 3 Total
28 Feb 2014 - Audited Rm Rm Rm Rm
Assets
Derivative financial assets 1 29 30
Equity securities 768 1 43 812
Debt securities 33 805 237 1 075
Unit-linked investments 8 058 2 251 10 309
Investment in investment contracts 260 1 261
Non-current assets held for sale 177 177
Closing carrying value 979 9 153 2 532 12 664
Liabilities
Derivative financial liabilities 15 39 46 100
Investment contracts 9 057 2 488 11 545
Trade and other payables 11 11
Third party liabilities arising on consolidation
of mutual funds 372 372
Closing carrying value 15 9 468 2 545 12 028
The following table presents changes in level 3 financial instruments during the respective years:
Feb-15 Feb-14
Assets Liabilities Assets Liabilities
Rm Rm Rm Rm
Opening balance 2 532 2 545 2 271 2 319
Additions 3 337 3 304 1 602 1 563
Disposals (4 764) (4 763) (1 506) (1 504)
Fair value adjustments 95 96 165 167
Other movements 2
Closing balance 1 200 1 184 2 532 2 545
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 that 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.
Derivative financial assets, equity securities, debt securities and unit-linked investments 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 included in “other
financial liabilities”.
There have been no significant transfers between level 1, 2 or 3 during the year 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 assets Exit price on recognised Not applicable
and liabilities over-the-counter platforms
Debt securities Valuation model that uses the market Bond interest rate
inputs (yield of benchmark bonds) curves
Issuer credit ratings
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 contract provided by registered
long-term insurers
Investment contracts Current unit price of underlying unitised Not applicable
financial asset that is linked to the
liability, multiplied by the number of
units held
Third party liabilities Quoted put (exit) price provided by the Not applicable - prices
arising on consolidation of fund manager available publicly
mutual funds
12. Capital commitments and contingencies
For the 2015 calendar year, Curro plans to invest approximately R600m in the expansion of existing
campuses, develop three new Curro schools, develop a new site for the Meridian Pretoria school and
expand the Cosmo City campus, develop three new Curro Castles in the Johannesburg Area, invest R250m
in land banking of various key sites and investigate potential acquisitions. As mentioned above,
Curro is currently in the process of a R740m capital raising by means of a rights offer to fund
its expansion plans. PSG has underwritten same.
Capespan, being a subsidiary of Zeder, has approved investments of more than R500m in property, plant
and equipment, which included the subsequent to reporting date acquisition of the following operations:
- Novo Packhouse’s coldstores, packhouse and equipment for a cash consideration of R100m; and
- Theewaterskloof’s business operations (being a pome fruit farm), moveable equipment, farm land and
biological assets for a cash consideration of R140m.
Subsequent to the reporting date, Zeder announced its firm intention to acquire the remaining 25%
shareholding in Capespan, held by minority shareholders other than management, by means of a scheme of
arrangement. In terms of the scheme of arrangement, Zeder will issue 85 ordinary shares for every 100
Capespan ordinary shares acquired.
13. Restatement of prior year figures
The prior year figures of Capespan, a subsidiary of the group through Zeder, have been restated to
account for the following:
Restatement 1: Agriculture: Bearer plants
Management adopted the retrospective amendments to IAS 16 Property, plant and equipment and IAS 41
Agriculture: Bearer plants on the basis set out in note 1 above.
Restatement 2: Accounting for the sales and cost of sales of product sold
Management reassessed an existing management agreement which was accounted for as management fee
income, but concluded it to rather fall within IFRIC 4 Determining whether an Arrangement contains a
Lease and therefore applied IAS 17 Leases retrospectively. This resulted in Capespan now accounting
for this agreement and the related farming operations as principal.
Restatement 3: Reclassification of production costs
Certain production costs were reallocated from other expenses to cost of sales to correctly disclose
the nature thereof. This restatement had no impact on previously reported profit.
The effect of these restatements on the group’s results are as follows:
Previously Now
reported reported Change
Rm Rm Rm
Income statement for the year ended 28 February 2014
Revenue from sale of goods 7 569 7 535 (34)
Cost of goods sold (6 685) (6 755) (70)
Changes in fair value of biological assets 91 134 43
Investment income 507 509 2
Other operating income 99 107 8
Marketing, administration and other expenses (3 738) (3 657) 81
Taxation (289) (295) (6)
Profit for the year 24
Attributable to:
Owners of the parent 1 052 1 059 7
Non-controlling interests 456 473 17
24
Earnings per share for the year ended 28 February 2014
Recurring headline 446.9 448.8 1.9
Headline 551.3 553.2 1.9
Attributable/basic 574.9 578.5 3.6
Statement of financial position as at 28 February 2014
Other financial assets 1 536 1 534 (2)
Inventory 914 1 130 216
Trade and other receivables 3 719 3 637 (82)
Ordinary shareholders’ equity 6 855 6 860 (5)
Non-controlling interests 5 592 5 609 (17)
Deferred income tax liabilities 332 347 (15)
Trade and other payables and employee benefit liabilities 3 824 3 919 (95)
-
Capespan, to which all of the aforementioned restatements relate, only became a subsidiary of the group
during the prior year and therefore no amendments were required to the amounts reported in respect of
earlier years.
14. Segment report
The group’s classification into seven reportable segments, namely: Capitec, Curro, PSG Konsult, Zeder,
PSG Private Equity, BEE investment holding company (previously Thembeka), 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 advisory
services. All segments operate predominantly in the Republic of South Africa. However, the group has
exposure to offshore operations through Zeder’s investments in Capespan, Zaad Holdings Ltd and
Agrivision Africa, and PSG Private Equity’s investment in CA Sales.
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. 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 method of accounting.
The chief operating decision-maker (the PSG Group 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
Year ended 28 February 2015 ** ** earnings earnings profit) value ^
Reviewed Rm Rm Rm Rm Rm Rm
Capitec * 729 729 14 549
Curro 1 013 31 31 6 236
PSG Konsult 2 939 214 (1) 213 5 710
Zeder 8 993 152 (52) 100 3 712
PSG Private Equity 2 919 59 (9) 50 1 246
BEE investment holding company
(previously Thembeka) 242 45 432 477 603
PSG Corporate (including
PSG Capital) 331 (260) 90 87 177 3 190
Reconciling items
Funding 65 (32) (163) (25) (188) (2 090)
Other (15) (15) 239
Total 16 502 (292) 1 142 432 1 574 33 395
Non-headline (14)
Earnings attributable to
non-controlling interests 631
Taxation 392
Profit before taxation 2 583
Inter- Non- Headline
segment Recurring recurring earnings Sum-of-
Income income headline headline (segment the-parts
Year ended 28 February 2014 ** ** earnings earnings profit) value ^
Audited Rm Rm Rm Rm Rm Rm
Capitec * 571 571 5 989
Curro 663 21 21 4 660
PSG Konsult 2 489 163 (4) 159 4 004
Zeder ^^ 6 395 128 (17) 111 1 698
PSG Private Equity 2 189 51 6 57 949
Thembeka * 23 100 123 1 243
PSG Corporate (including
PSG Capital) 301 (124) 48 52 100 1 371
Reconciling items
Funding 42 (19) (181) 54 (127) (2 008)
Other (3) (3) 133
Total 12 079 (143) 821 191 1 012 18 039
Non-headline ^^ 47
Earnings attributable to
non-controlling interests 473
Taxation 295
Profit before taxation 1 827
Reviewed Audited
Feb-15 Feb-14
Restated
Rm Rm
Reconciliation of segment revenue to IFRS revenue:
Segment revenue as stated above:
Income 16 502 12 079
Inter-segment income (292) (143)
Less:
Changes in fair value of biological assets (144) (134)
Fair value gains and losses (1 400) (1 454)
Fair value adjustment to investment contract liabilities 1 483 1 343
Other operating income (95) (107)
IFRS revenue 16 054 11 584
Non-recurring headline earnings comprised the following:
Non-recurring items from investments 370 85
Net fair value gains on liquid investment portfolio 2 10
Other gains 60 96
432 191
* Equity method of accounting applied.
** 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.
^^ Restated as set out in note 13.
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: 15/04/2015 01:53:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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