Wrap Text
Unaudited Results For The Six Months Ended 31 August 2015
PSG Konsult Limited
(Incorporated in the Republic of South Africa)
Registration number: 1993/003941/06
JSE share code: KST
NSX share code: KFS
ISIN code: ZAE000191417
(‘PSG Konsult’ or ‘the company’ or ‘the group’)
UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2015
Recurring headline earnings per share up 26%
Dividend per share up 10%
Assets under management up 17%
Assets under administration up 21%
COMMENTARY
PSG Konsult delivered a commendable 26% growth in recurring headline earnings per share for the six months ended
31 August 2015. A key highlight includes the strong top-line revenue growth achieved by all divisions relative to industry
peers. The business continues gaining market share as a result of our continuous focus on our key strategic goals and
initiatives despite the challenging economic and market conditions during the period under review. In particular,
PSG Wealth and PSG Asset Management achieved stellar outperformance. PSG Insure's results are also gaining positive
momentum due to improved focus on optimising and balancing profitable new business growth.
The board of directors is especially pleased with this set of results, taking into account that the South African equity
market delivered a relatively weaker performance. The FTSE/JSE All Share Index recorded a negative total return of 4.53%
for the six months ended 31 August 2015, compared to a positive return of 8.68% in the comparable six-month period of 2014.
The current overall sluggish economic growth and volatile equity market conditions, coupled with a sharp devaluation in
the rand, are not conducive to growth. The group’s focus on client service excellence through the quality of its advice,
products and platforms is proving resilient in these trying times. Furthermore, the business increased its marketing and
technology spend during the period, and is on track to launch its new television marketing campaign.
PSG Wealth remains a key revenue driver for the group through its formidable financial adviser base and expanding product
and platform business offering. Strengthening our competitive position by expanding our adviser networks through both
organic and selected adviser acquisition growth has delivered continued positive client inflows.
PSG Asset Management remains a high-growth area and a key focus for the group. Its retail sales effort and marketing
campaigns are proving effective in raising awareness of the PSG Asset Management brand, leading to strong retail client
inflows. PSG Asset Management attracted net inflows of R2.6 billion during the period under review. The focus on
generating recurring earnings is to place less reliance on performance fees, with these fees contributing 7.5% of group
headline earnings, compared to 7.0% during the prior period.
PSG Insure continues making inroads in the highly competitive short-term insurance market, having achieved revenue growth
of 19% compared to the prior financial period, with a focus on the quality of new business to achieve profitable growth.
No significant catastrophe or other related events occurred during this period. Our insurance advisers, with an ongoing
focus on growing the commercial lines’ side of the business, have managed to gain market share without compromising
their overall client loss claim ratios. Against the backdrop of a particularly difficult industry environment, this is
an achievement that the group is especially pleased with.
PSG Konsult’s key financial performance indicators for the six months ended 31 August 2015 are shown below:
31 Aug 15 Change 31 Aug 14
R000 % R000
Earnings attributable to ordinary shareholders 189 752 30 145 494
Non-headline items (2 952) (97)
Headline earnings 186 800 28 145 397
Non-recurring headline earnings (100) 1 914
Recurring headline earnings 186 800 27 147 311
Weighted average number of shares in issue
(net of treasury shares) (million) 1 267.2 1 1 259.5
Earnings per share (cents)
Recurring headline 14.7 26 11.7
Headline 14.7 28 11.5
Attributable 15.0 29 11.6
Dividend per share (cents) 4.4 10 4.0
Assets under management (R billion) 151 17 129
Assets under administration (R billion) 321 21 266
Divisional headline earnings
PSG Wealth 119 882 28 93 907
PSG Asset Management 46 322 37 33 758
PSG Insure 20 596 16 17 732
186 800 28 145 397
Risk Management
In light of events in the financial services industry over recent years, risk and its mitigation have become a top
priority. It has become increasingly important to understand and manage risks to create sustainable business practices
and returns for shareholders.
With this in mind, we continue upholding and strengthening our commitment to risk management. Consequently, proactive
risk management is a key pillar of our risk strategy. Linked to this are our board-approved risk management plans, which
provide an integrated risk management framework designed to meet the challenges of the changing risk environment. These
plans also seek to ensure that business goals and objectives are properly supported by effective risk management.
Responsibility for risk management is established at all levels within the business. PSG Konsult has adopted best
practice monitoring and control of the group governance framework by implementing the three layers of defence governance
model. This means that the responsibility for governance is allocated throughout the business. This includes the various
boards, executive committees, divisional committees, legal entities, business units, managers and employees within each
business area. The model contributes to embedding a strong risk culture in PSG Konsult, making risk part of everyone’s
day-to-day activities. We believe this is of vital importance within risk management.
Solvency Assessment and Management
The Financial Services Board (FSB) classified PSG Konsult as an insurance conglomerate group, under the new Solvency
Assessment and Management (SAM) regulations. This meant that we were required to submit a mock Own Risk and Solvency
Assessment (ORSA) report to the FSB on 31 August 2015 to enable them to understand and evaluate our progress in meeting
the new SAM requirements.
The continual focus on centrally monitoring and optimising the group’s capital and cash flow management activities
ensures that careful attention is paid to maintaining sufficient liquid capital in each of the regulated entities.
At the same time, it ensures that capital is used appropriately to maximise shareholder returns. The financial soundness
of each business is closely monitored, so that the group can take advantage of opportunities when they arise.
Credit rating
Global Credit Rating Company (GCR), having upgraded PSG Konsult’s long-term rating in August 2014, affirmed the
national scale ratings assigned to PSG Konsult of BBB+(ZA) and A2(ZA), in the long term and short term respectively.
The outlook for both ratings remained stable. GCR stated: “PSG Konsult’s position is enhanced by its well-defined
strategy, within the complementary business lines of wealth management, asset management and insurance. PSG Konsult has
developed robust risk management procedures to monitor the various risks facing the business, including regulatory
compliance and counterparty risk. In addition, cash flows are monitored daily to ensure PSG Konsult can meet all its
statutory capital and liquidity requirements across the various businesses.”
Achievements
The group is proud of the following notable milestones, achievements and industry awards:
PSG Wealth
– Ranked as one of South Africa’s Top 3 stockbrokers in the Intellidex Stockbroker of the Year competition for the past
four years, obtaining third place in 2015.
– Ranked second in the Intellidex Wealth Manager of the Year competition. It was further awarded joint first place as
the top wealth manager for up-and-coming professionals and successful entrepreneurs, and was ranked as a top-three
wealth manager preferred by clients.
PSG Asset Management
– Top quartile investment returns were recorded across the entire domestic flagship range over one year, three years
and five years up to 30 June 2015, in the respective Morningstar categories.
– As at 30 June 2015, PlexCrown ranked PSG third in its management company rankings.
– Other PlexCrown ranking highlights include:
* PSG Equity Fund ranked first in its South African Equity General fund category
* PSG Balanced Fund ranked third in its subcategory
PSG Insure
– Broker of the Year for Commercial Lines 2014 in Santam’s National Broker Awards.
– Various PSG offices received Santam awards, ranging from bronze to diamond.
People
As at 31 August 2015, PSG Konsult had 201 offices and 2 046 employees, of which 667 were financial planners, portfolio
managers, stockbrokers and asset managers. A further 404 were professional associates (accountants and attorneys).
During the six months under review, 8 new advisers were appointed through a combination of organic growth and selective
adviser book acquisitions.
Transformation
PSG Konsult was rated as a level 6 BBBEE contributor. This is our second rating and is an improvement from our initial
rating as a level 8 BBBEE contributor, reflecting management’s commitment to transformation within the group.
Management implemented a number of initiatives to continue driving our transformation strategy. These initiatives
include an investment in the ASISA Enterprise Development Fund and an expansion of our existing bursary and internship
programmes. Over the six months, the group made continued progress in its employment equity profile and transformation
remains a key focus area.
Strategy
PSG Wealth’s overall strategy offers an innovative and holistic end-to-end client proposition. Despite an unpredictable
economic outlook, the division will continue investing in people and technology, believing these to be key factors with
which to grow its share of the market. The strategy to further expand and equip its adviser network will receive ongoing
attention, relying on advisers for client feedback in the development and creation of new products and services. During
the period, the division improved its offshore stockbroking offering to include additional foreign markets, and is on
track to expand its offshore product offering further to include offshore unit trusts later this financial year. The
division is also on track with the consolidation of its user interfaces. This will give clients the ability to view and
transact both local and offshore shares, exchange traded funds and an extensive range of local and offshore unit trusts
through a single log on. This improved user functionality, the group’s television marketing campaign and enhanced
investor tools (planned for launch by December 2015) should further aid the division’s direct client growth strategy.
PSG Asset Management’s strategy consists of three parts, namely investment excellence, operational efficiency, and
effective sales and marketing initiatives. Generating the best long-term, risk-adjusted returns for investors is the
division’s primary focus. To this end, it will continue prioritising the investment team’s performance, while managing
operational risks and processes. Increasing brand awareness – particularly in the retail investor market – is a key focus
area for the marketing team, allowing the division to benefit from a growing investor base.
PSG Insure provides simple and cost-effective short-term insurance solutions to chosen clients, protecting them from
unforeseen events. Vertical integration across underwriting, administration and adviser teams underpins the focus on
providing value-added products that meet and exceed clients’ expectations. The division continues to invest in its claims
and administration departments. This is to build scale and unlock operational efficiencies, while freeing up valuable
time for top-calibre advisers to focus on sales.
As each division grows, careful attention is paid to the group’s cost structure and in particular to the cost-to-income
ratio. Building a cost-efficient and scalable business is a key priority for the board. The management team is committed
to continuously investigating new ways in which to manage and reduce costs.
Marketing
Marketing initiatives are critical to the group’s goal of becoming a leader in the financial services industry. During
the period under review, our specialist marketing team focused its efforts on enhancing our website, digital platforms,
client communication and client and adviser events, to build the PSG brand within the South African market. The production
of our television advertisement will hopefully take the group’s marketing efforts to new heights as we seek to support
its network of financial advisers further and cement PSG Konsult’s product offering in the minds of target clients.
Information Technology (IT)
The integral role that technology plays in the daily operations of PSG Konsult cannot be understated. The scalability and
efficiency of business functions are dependent on the state of its IT systems. For this reason, the group continually
invests in new and innovative technologies. It also seeks to incorporate further business process automation, to reduce
operational risk and provide real-time reporting for enhanced management decision-making. The group is confident that its
IT strategy will create a solid foundation for future growth.
Risk and legal
Effectively managing the risks assumed by the business allows it to benefit from opportunities. The risk management team
is moving from strength to strength as it identifies and assists in mitigating the risks the group faces relative to
revenue contributions. The group’s risk appetite is constantly reviewed, as the level of risk taken on – particularly
in the insurance environment – can pose a threat to its capital position. Here, the cost of reinsurance and other
mechanisms are reviewed to ensure that risks remain within acceptable levels.
In line with the risk management plan and as reported in the group’s year-end results, PSG Asset Management made the
decision to terminate all of its current white-label client administration and related activities. This was to reduce
its overall operational and reputational risk exposures. This process, which has now largely been completed, will be
finalised before year-end and will have a negligible impact on future profitability.
Effective engagement with regulators is a priority for PSG Konsult. The recent and forthcoming regulatory changes are
expected to lead to significant changes in the way financial services companies in South Africa operate in general. The
group endeavours to always be at the forefront in implementation of these changes. It fully supports the regulators’
stance on improving the transparency, cost-effectiveness and conduct of the industry.
Tax matter
Although PSG Konsult is not obliged to disclose any discussions with the South African Revenue Service (SARS), in line
with the transparent disclosure approach that we have adopted, we wish to advise that we have had recent interactions
with SARS on the classification and tax treatment of certain investments held by PSG Life Limited. The classification
and treatment at the time were supported by external expert tax advice obtained prior to making these investments and
subsequently again confirmed by independent senior council. The final outcome of these discussions is uncertain at this
stage and SARS has not issued any revised assessment to date. The line of business in question was discontinued in 2011.
This potential tax matter, however, has no relevance to any clients of the firm and has no material bearing on the
company’s future projected recurring headline earnings or dividend payout policy to shareholders. Disputes of this
nature unfortunately take time to resolve. We will however keep shareholders updated once we have greater clarity on
the matter.
Looking forward
Our aim remains to service existing clients well and gain new clients for the firm. Current market circumstances are
uncertain and volatility has returned to investment markets. We are however confident that we will continue to build
our client franchise despite this market outlook. A number of initiatives are in place to ensure this happens. Focusing
on products, platforms and client service excellence through the quality of our advice is proving to be a resilient
strategy for PSG Konsult.
We advised investors, when we released our year-end results, that we planned to spend an additional incremental amount
on marketing and advertising in the 2016 financial year. The majority of this additional expense is being incurred on
our television advertisement campaign, which is currently in production phase.
Events after reporting date
We remain committed to enhance the value proposition to our existing client base. We are pleased to announce that we
recently concluded negotiations to acquire a 70% shareholding in DMH Associates (DMH), the leading independent wealth
advisory firm in Mauritius. DMH was established in 2003 as an investment advisory firm providing independent expert
advice to entrepreneurs, high-net-worth individuals and their families. DMH is licensed and regulated by the Mauritius
Financial Services Commission and also offers corporate finance, wealth management and family office services. We see
the company – as well as the individuals involved in the company – as a good fit for PSG Konsult. Vincent Desvaux de
Marigny and Philippe Hardy are the founding members. They will continue to operate and run the business going forward.
We welcome them to the PSG Konsult Group.
Dividend
The board approved and declared a gross interim dividend of 4.4 cents per share (2014: 4.0 cents per share) from income
reserves for the six months ended 31 August 2015. This is in line with our dividend payout policy (communicated at the
time of listing) of distributing between 40% and 50% of recurring headline earnings as dividends (one third as an interim
dividend and two thirds as a final dividend).
The dividend is subject to a local dividends tax rate of 15%, resulting in a net dividend of 3.74 cents per share, unless
the shareholder is exempt from paying dividends tax or is entitled to a reduced rate in terms of the applicable double-tax
agreement. The number of issued ordinary shares is 1 278 947 422 at the date of this declaration. PSG Konsult’s income tax
reference number is 9550/644/07/05.
The following are the salient dates for payment of the dividend:
Last day to trade (cum dividend) Friday, 23 October 2015
Trading ex dividend commences Monday, 26 October 2015
Record date Friday, 30 October 2015
Date of payment Monday, 2 November 2015
Share certificates may not be dematerialised or rematerialised between Monday, 26 October 2015, and Friday, 30 October 2015,
both days included.
The board would like to extend its gratitude to all our stakeholders, including clients, business partners, management and
employees, for their efforts and contributions during the past six months.
On behalf of the board
Willem Theron Francois Gouws
Chairman Chief executive officer
Tyger Valley
7 October 2015
psg.co.za
Condensed consolidated statement of financial position
as at 31 August and 28 February 2015
Unaudited Unaudited Audited
31 Aug 15 31 Aug 14 28 Feb 15
R000 R000 R000
ASSETS
Intangible assets 876 420 889 032 859 536
Property and equipment 56 827 46 202 42 273
Investment property 2 245 2 245 2 245
Investment in associated companies 40 554 39 169 39 562
Investment in joint ventures 13 453 12 511 12 971
Deferred income tax 85 913 72 993 87 674
Equity securities (note 6) 887 759 827 617 1 025 518
Debt securities (note 6) 1 666 917 1 642 197 1 605 418
Unit-linked investments (note 6) 15 566 418 11 045 876 12 345 648
Investment in investment contracts (note 6) 443 883 432 825 338 208
Loans and advances 126 110 97 800 116 393
Derivative financial instruments 13 813 19 075 23 324
Reinsurance assets 71 183 75 139 77 413
Deferred acquisition costs 2 393 1 658 1 714
Receivables including insurance receivables 2 737 279 1 856 752 2 133 136
Current income tax assets 25 081 22 509 18 954
Cash and cash equivalents (including money market investments) (note 6) 1 015 073 469 038 972 243
Non-current assets held for sale 17 751
Total assets 23 631 321 17 552 638 19 719 981
EQUITY
Equity attributable to owners of the parent
Stated capital 1 445 359 1 325 111 1 325 111
Treasury shares (16 228) (546) (546)
Other reserves (400 655) (439 799) (404 471)
Retained earnings 660 614 451 560 573 065
1 689 090 1 336 326 1 493 159
Non-controlling interest 143 406 95 085 132 491
Total equity 1 832 496 1 431 411 1 625 650
LIABILITIES
Insurance contracts 577 638 502 668 574 331
Deferred income tax 55 640 85 015 53 610
Borrowings 407 517 363 050 427 843
Derivative financial instruments 16 410 33 846 30 749
Investment contracts (note 6) 17 229 353 12 761 154 14 222 603
Third-party liabilities arising on consolidation of mutual funds 877 844 625 462 699 202
Deferred reinsurance acquisition revenue 4 029 2 757 3 563
Trade and other payables 2 618 743 1 723 302 2 068 400
Current income tax liabilities 11 651 23 973 10 618
Non-current liabilities held for sale 3 412
Total liabilities 21 798 825 16 121 227 18 094 331
Total equity and liabilities 23 631 321 17 552 638 19 719 981
Net asset value per share (cents) 132.3 105.9 118.3
Condensed consolidated income statement
for the six months ended 31 August and the 12 months ended 28 February 2015
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 Aug 15 31 Aug 14 28 Feb 15
R000 R000 R000
Gross written premium 462 590 362 974 795 237
Less: Reinsurance written premium (128 875) (98 417) (225 293)
Net premium 333 715 264 557 569 944
Change in unearned premium
Gross 4 461 9 807 (34 905)
Reinsurers' share (92) (614) 3 119
Net insurance premium revenue 338 084 273 750 538 158
Commission and other fee income 1 233 783 1 056 475 2 138 855
Investment income 301 815 198 911 499 554
Net fair value gains and losses on financial instruments 464 613 1 011 149 1 209 661
Fair value adjustment to investment contract liabilities (613 236) (1 024 359) (1 406 791)
Other operating income 15 361 14 075 35 163
Total income 1 740 420 1 530 001 3 014 600
Insurance claims and loss adjustment expenses (330 388) (285 165) (561 548)
Insurance claims and loss adjustment expenses recovered from reinsurers 69 012 67 849 137 173
Net insurance benefits and claims (261 376) (217 316) (424 375)
Commission paid (562 655) (474 464) (910 226)
Depreciation and amortisation* (27 692) (26 339) (55 422)
Employee benefit expenses (304 867) (252 481) (511 612)
Fair value adjustment to third-party liabilities (39 988) (79 331) (41 525)
Marketing, administration and other expenses (206 399) (185 251) (427 457)
Total expenses (1 402 977) (1 235 182) (2 370 617)
Share of profits/(losses) of associated companies 992 (379) 40
Share of profits of joint ventures 482 454 914
Total profit from associated companies and joint ventures 1 474 75 954
Profit before finance costs and taxation 338 917 294 894 644 937
Finance costs (48 800) (62 459) (119 905)
Profit before taxation 290 117 232 435 525 032
Taxation (86 422) (75 448) (163 234)
Profit for the period 203 695 156 987 361 798
Attributable to:
Owners of the parent 189 752 145 494 340 401
Non-controlling interest 13 943 11 493 21 397
203 695 156 987 361 798
Earnings per share (cents)
Attributable (basic) 15.0 11.6 27.0
Attributable (diluted) 14.5 11.2 26.1
Headline (basic) 14.7 11.5 26.9
Headline (diluted) 14.3 11.1 26.0
Recurring headline (basic) 14.7 11.7 27.0
Recurring headline (diluted) 14.3 11.3 26.1
* Includes amortisation cost of R18.8 million (31 Aug 2014: R17.8 million; 28 Feb 2015: R37.5 million).
Condensed consolidated statement of comprehensive income
for the six months ended 31 August and the 12 months ended 28 February 2015
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 Aug 15 31 Aug 14 28 Feb 15
R000 R000 R000
Profit for the period 203 695 156 987 361 798
Other comprehensive income for the period, net of taxation (4 103) (758) 224
To be reclassified to profit and loss:
Currency translation adjustments (4 103) (758) 224
Total comprehensive income for the period 199 592 156 229 362 022
Attributable to:
Owners of the parent 185 649 144 736 340 625
Non-controlling interest 13 943 11 493 21 397
199 592 156 229 362 022
Earnings and headline earnings per share
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 Aug 15 31 Aug 14 28 Feb 15
R000 R000 R000
Profit attributable to ordinary shareholders 189 752 145 494 340 401
Non-headline items (net of non-controlling interest and
related tax effect)
Profit on disposal of intangible assets (including goodwill) (1 220) (48) (757)
Non-headline items of associated companies (503) (97) (251)
Other (1 229) 48 (132)
Headline earnings 186 800 145 397 339 261
Recurring 186 800 147 311 341 175
Non-recurring (1 914) (1 914)
Earnings per share (cents)
Attributable (basic) 15.0 11.6 27.0
Attributable (diluted) 14.5 11.2 26.1
Headline (basic) 14.7 11.5 26.9
Headline (diluted) 14.3 11.1 26.0
Recurring headline (basic) 14.7 11.7 27.0
Recurring headline (diluted) 14.3 11.3 26.1
Number of shares (million)
in issue (net of treasury shares) 1 276.5 1 262.1 1 262.1
weighted average 1 267.2 1 259.5 1 261.4
Condensed consolidated statement of changes in equity
for the six months ended 31 August and the 12 months ended 28 February 2015
Attributable to equity holders of the group
Non-
Treasury Other Retained controlling
Stated capital shares reserves earnings interest Total
R000 R000 R000 R000 R000 R000
Balance at 1 March 2014
Audited 1 134 746 (546) (445 146) 399 487 86 222 1 174 763
Comprehensive income
Profit for the period 145 494 11 493 156 987
Other comprehensive income (758) (758)
Total comprehensive income (758) 145 494 11 493 156 229
Transactions with owners 190 365 6 105 (93 421) (2 630) 100 419
Issue of ordinary shares 190 365 190 365
Share-based payment costs 6 105 6 105
Transactions with non-
controlling interest (1 320) (207) (1 527)
Dividend paid (92 101) (2 423) (94 524)
Balance at 31 August 2014
Unaudited 1 325 111 (546) (439 799) 451 560 95 085 1 431 411
Comprehensive income
Profit for the period 194 907 9 904 204 811
Other comprehensive income 982 982
Total comprehensive income 982 194 907 9 904 205 793
Transactions with owners 34 346 (73 402) 27 502 (11 554)
Share-based payment costs 5 457 5 457
Capital contribution by non-
controlling interest 28 000 28 000
Equity-settled share-based
payments 28 889 (22 925) 5 964
Dividend paid (50 477) (498) (50 975)
Balance at 28 February 2015
Audited 1 325 111 (546) (404 471) 573 065 132 491 1 625 650
Comprehensive income
Profit for the period - 189 752 13 943 203 695
Other comprehensive income (4 103) (4 103)
Total comprehensive income (4 103) 189 752 13 943 199 592
Transactions with owners 120 248 (15 682) 7 919 (102 203) (3 028) 7 254
Issue of ordinary shares 120 248 120 248
Share-based payment cost 7 919 7 919
Treasury shares purchased (23 857) (23 857)
Treasury shares sold 8 175 8 175
Dividend paid (102 203) (3 028) (105 231)
Balance at 31 August 2015
Unaudited 1 445 359 (16 228) (400 655) 660 614 143 406 1 832 496
Condensed consolidated statement of cash flows
for the six months ended 31 August and the 12 months ended 28 February 2015
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 Aug 15 31 Aug 14 28 Feb 15
R000 R000 R000
Cash flows from operating activities
Cash (utilised in)/generated by operating activities (30 628) (176 759) 232 202
Interest income 209 636 169 002 372 278
Dividend income 91 977 29 727 126 900
Finance costs (22 922) (20 498) (44 118)
Taxation paid (84 027) (62 986) (172 853)
Operating cash flows before policyholder cash movement 164 036 (61 514) 514 409
Policyholder cash movement (4 883) (36 652) (24 380)
Net cash flow from operating activities 159 153 (98 166) 490 029
Cash flows from investing activities
Acquisition of intangible assets (37 394) (22 593) (30 473)
Purchases of property and equipment (24 372) (7 828) (13 241)
Proceeds from disposal of non-current assets held for sale 16 054
Other 6 798 2 388 4 120
Net cash flow from investing activities (38 914) (28 033) (39 594)
Cash flows from financing activities
Dividends paid (105 231) (94 524) (145 500)
Capital contributions by non-controlling interest (ordinary shares) 28 000
Transactions with non-controlling interest (1 526)
Repayment of borrowings (1 964) (26 607) (73 344)
Shares issued 40 520 7 476 7 476
Other (15 682) 209
Net cash flow from financing activities (82 357) (113 655) (184 685)
Net increase/(decrease) in cash and cash equivalents 37 882 (239 854) 265 750
Cash and cash equivalents at beginning of period 975 018 709 173 709 173
Exchange gains/(losses) on cash and cash equivalents 2 173 (281) 95
Cash and cash equivalents at end of period* 1 015 073 469 038 975 018
Current, cheque and money market investment accounts 1 015 073 469 038 972 243
Cash and cash equivalents classified as non-current assets held for sale 2 775
* Includes the following:
Clients' cash linked to investment contracts 22 071 14 682 26 954
Other client related balances 105 445 7 232 139 381
127 516 21 914 166 335
Notes to the statement of cash flow:
The movement in cash utilised/generated in operating activities can vary significantly as a result of daily fluctuations
in cash linked to investment contracts and cash held by the stockbroking business. PSG Life Limited, the group’s linked
insurance company, issues linked policies to policyholders (where the value of policy benefits is directly linked to the
fair value of the supporting assets). When these policies mature, the company raises a debtor for the money receivable
from the third-party investment provider, and raises a creditor for the amount owing to the client. A timing difference
occurs at month-end where the money was received from the third-party investment provider, but only paid out by the
company after month-end, resulting in significant fluctuations in the working capital of the company. Similar working
capital fluctuations incur at PSG Securities Limited, the group’s stockbroking business, mainly due to the timing of the
close of the JSE in terms of client settlements.
Cash flow from operating activities for the six months ended 31 August 2014 was negatively impacted by the fluctuations
in the working capital at PSG Life Limited, as well as cash utilised during the period for the scrip lending facility at
PSG Securities Limited. Cash held in money market investments (classified as ‘Cash and cash equivalents’ on the face of
the statement of financial position), held by the two short-term insurance companies in the group, was also utilised in
the period to invest in low-risk income funds which were classified as either debt securities or unit-linked investments,
depending on the nature of the income fund invested in.
Notes to the condensed consolidated interim financial statements for the six months ended 31 August 2015
1. Reporting entity
PSG Konsult Limited is a company domiciled in the Republic of South Africa. The condensed consolidated interim financial
statements of the company as at and for the six months ended 31 August 2015 comprise the company and its subsidiaries
(together referred to as `the group') and the group's interests in associated companies and joint ventures.
2. Basis of presentation
The condensed consolidated interim financial statements are prepared in accordance with the listings requirements of the
JSE Limited (JSE) and the requirements of the Companies Act No 71 of 2008, as amended applicable to condensed financial
statements. The JSE requires condensed financial statements to be prepared in accordance with the framework concepts and
the measurement and recognition requirements of International Financial Reporting Standards (IFRS), the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial
Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34 Interim Financial
Reporting. The condensed consolidated interim financial statements do not include all of the information required for
full annual financial statements and should be read in conjunction with the consolidated financial statements of the
group as at and for the year ended 28 February 2015.
3. Preparation
These condensed consolidated interim financial statements were prepared by Stephan van der Merwe, CA(SA), under the
supervision of the chief financial officer, Mike Smith, CA(SA). Neither these condensed consolidated interim financial
statements, nor any reference to future financial performance included in this results announcement, have been reviewed
or reported on by the company's external auditor, PricewaterhouseCoopers Inc.
4. Accounting policies
The accounting policies applied in the preparation of these condensed consolidated interim financial statements are in
terms of IFRS and are consistent with those accounting policies applied in the preparation of the previous consolidated
annual financial statements as at and for the year ended 28 February 2015.
The following new accounting standards and amendments to IFRSs, which were relevant to the group's operations, were
effective for the first time from 1 March 2015:
- Amendment to IAS 19 Employee benefits
- Annual Improvements 2010 12 cycle
- Annual Improvements 2011 13 cycle
These revisions have not resulted in material changes to the group's reported results and disclosures in these condensed
consolidated interim financial statements.
The following new or revised IFRSs and interpretations that are applicable to the group have effective dates applicable
to future financial years and have not been early adopted:
- IFRS 9 Financial Instruments (effective 1 January 2018)
- IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018)
The impact of the application of these revised standards and interpretations in future financial reporting periods on
the group's reported results, financial position and cash flows is still being assessed.
5. Use of estimates and judgements
In preparing these condensed consolidated interim financial statements, the significant judgements made by management
in applying the group's accounting policies and the key sources of estimation uncertainty were the same as those that
applied to the consolidated annual financial statements for the year ended 28 February 2015.
6. Segment information
The composition of the reportable segments represents the internal reporting structure and the monthly reporting to the
chief operating decision-maker (CODM). The CODM for the purpose of IFRS 8, Operating Segments, has been identified as
the chief executive officer, supported by the group management committee (Manco). The group's internal reporting structure
is reviewed in order to assess performance and allocate resources. The group is organised into three reportable segments,
namely:
- PSG Wealth
- PSG Asset Management
- PSG Insure
Corporate support costs refer to a variety of services and functions that are performed centrally for the individual
business units within each business segment, and also include the group's executive office. Besides the traditional
accounting and secretarial services provided to group divisions and subsidiaries, the corporate office also provides legal,
risk, information technology (IT), marketing, human resources (HR), payroll, internal audit and corporate finance services.
The strategic elements of IT, in terms of both services and infrastructure, are also centralised in the corporate office.
The corporate costs are allocated to the three reportable segments.
6.1 Description of business segments
PSG Wealth, which consists of five business units Distribution, PSG Securities, LISP and Life Platform, Multi-Management
and Employee Benefits is designed to meet the needs of individuals, families and businesses. Through our highly skilled
wealth managers, PSG Wealth offers a wide range of personalised services (including portfolio management, stockbroking,
local and offshore investments, estate planning, financial planning, local and offshore fiduciary services, multi-managed
solutions and retirement products). Our Wealth offices are fully equipped to deliver a high-quality personal service to
our customers.
PSG Asset Management is an established investment management company with a proven investment track record. We offer
investors a simple but comprehensive range of local and global investment products. Our products include both local and
international unit trusts.
PSG Insure, through our registered insurance brokers and PSG`s short-term insurance company Western National Insurance
Company Limited, offers a full range of tailor-made short-term insurance products and services for personal (home, car and
household insurance) and commercial (business and agri-insurance) requirements. To harness the insurance solutions available
to our customers effectively, our expert insurance specialists, through our strict due diligence process, will simplify the
selection process for the most appropriate solution for our clients. In addition to the intermediary services we offer,
PSG Short-Term Administration supports clients through the claim process, administrative issues and general policy
maintenance, including an annual reappraisal of their portfolios.
The Manco considers the performance of reportable segments based on total income as a measure of growth and headline
earnings as a measure of profitability. The segment information provided to the Manco for the reportable segments for
the period ended 31 August 2015 is set out below:
6.2 Headline earnings per reportable segments
Asset
Manage-
Wealth ment Insure Total
Headline earnings R000 R000 R000 R000
For the six months ended 31 August 2015 (Unaudited)
Headline earnings 119 882 46 322 20 596 186 800
recurring 119 882 46 322 20 596 186 800
non-recurring
For the six months ended 31 August 2014(Unaudited)
Headline earnings 93 907 33 758 17 732 145 397
recurring 94 749 34 179 18 383 147 311
non-recurring (842) (421) (651) (1 914)
For the year ended 28 February 2015 (Audited)
Headline earnings 227 478 81 915 29 868 339 261
recurring 228 320 82 336 30 519 341 175
non-recurring (842) (421) (651) (1 914)
6.3 Income per reportable segment
Asset
Manage-
Wealth ment Insure Total
Total income R000 R000 R000 R000
For the six months ended 31 August 2015 (Unaudited)
Total segment income 1 200 924 333 170 578 569 2 112 663
Intersegment income (238 724) (133 519) (372 243)
Income from external customers 962 200 199 651 578 569 1 740 420
For the six months ended 31 August 2014 (Unaudited)
Total segment income 1 072 668 282 074 484 678 1 839 420
Intersegment income (200 477) (108 672) (270) (309 419)
Income from external customers 872 191 173 402 484 408 1 530 001
For the year ended 28 February 2015 (Audited)
Total segment income 2 146 463 587 111 979 622 3 713 196
Intersegment income (461 848) (219 347) (17 401) (698 596)
Income from external customers 1 684 615 367 764 962 221 3 014 600
Other information provided to the Manco is measured in a manner consistent with that of the financial statements.
6.4 Divisional income statements
The profit or loss information follows a similar format to the consolidated income statement.
Asset
Manage-
Wealth ment Insure Total
R000 R000 R000 R000
For the six months ended 31 August 2015 (Unaudited)
Total income 962 200 199 651 578 569 1 740 420
Total expenses (727 436) (136 829) (538 712) (1 402 977)
234 764 62 822 39 857 337 443
Total profit from associated
companies and joint ventures 1 474 1 474
Profit before finance cost and taxation 234 764 62 822 41 331 338 917
Finance costs* (47 821) (212) (767) (48 800)
Profit before taxation 186 943 62 610 40 564 290 117
Taxation (62 048) (16 013) (8 361) (86 422)
Profit for the period 124 895 46 597 32 203 203 695
Attributable to:
Owners of the parent 122 069 46 597 21 086 189 752
Non-controlling interest 2 826 11 117 13 943
124 895 46 597 32 203 203 695
Headline earnings 119 882 46 322 20 596 186 800
Asset
Manage-
Wealth ment Insure Total
R000 R000 R000 R000
For the six months ended 31 August 2015 (Unaudited)
Total income 872 191 173 402 484 408 1 530 001
Total expenses (661 678) (128 400) (445 104) (1 235 182)
210 513 45 002 39 304 294 819
Total profit from associated companies and
joint ventures 75 75
Profit before finance cost and taxation 210 513 45 002 39 379 294 894
Finance costs* (59 278) (199) (2 982) (62 459)
Profit before taxation 151 235 44 803 36 397 232 435
Taxation (54 906) (11 045) (9 497) (75 448)
Profit for the period 96 329 33 758 26 900 156 987
Attributable to:
Owners of the parent 93 896 33 758 17 840 145 494
Non-controlling interest 2 433 9 060 11 493
96 329 33 758 26 900 156 987
Headline earnings 93 907 33 758 17 732 145 397
Asset
Manage-
Wealth ment Insure Total
R000 R000 R000 R000
For the year ended 28 February 2015 (Audited)
Total income 1 684 615 367 764 962 221 3 014 600
Total expenses (1 219 987) (257 541) (893 089) (2 370 617)
464 628 110 223 69 132 643 983
Total profit from associated
companies and joint ventures 954 954
Profit before finance cost and taxation 464 628 110 223 70 086 644 937
Finance costs* (115 607) (396) (3 902) (119 905)
Profit before taxation 349 021 109 827 66 184 525 032
Taxation (115 019) (27 905) (20 310) (163 234)
Profit for the period 234 002 81 922 45 874 361 798
Attributable to:
Owners of the parent 228 177 81 922 30 302 340 401
Non-controlling interest 5 825 15 572 21 397
234 002 81 922 45 874 361 798
Headline earnings 227 478 81 915 29 868 339 261
* Finance cost in the PSG Wealth division consists mainly of the finance charge on the held-to-maturity policyholder
financial assets (linked investment business). The finance cost of R47.8 million (31 Aug 2014: R59.3 million; 28 Feb
2015: R115.6 million) consists of R25.9 million (31 Aug 2014: R42.0 million; 28 Feb 2015: R75.8 million) on the client-
related linked investment business, R15.5 million (31 Aug 2014: R10.2 million; 28 Feb 2015: R25.8 million) on the loan
facilities provided to clients on their share portfolios at PSG Securities (secured by the underlying JSE Top 100 equity
securities held in excess of four times the value of the loan facilities) on which PSG Wealth receives a margin, with
the remaining portion of the finance charge on the CFD margin and the bank overdrafts.
6.5 Statement of financial position (client vs own)
In order to evaluate the consolidated financial position of the group, the Manco segregates the statement of financial
position of the group between own balances and client-related balances.
Client-related balances represent the investment contract liabilities and related linked client assets of PSG Life
Limited, the broker and clearing accounts, and the settlement control accounts of the stockbroking business, the
collective investment schemes consolidated under IFRS 10 Consolidated Financial Statements and corresponding third-party
liabilities, the short-term claim control accounts and related bank accounts as well as the contracts for difference assets
and related liabilities.
Unaudited as at 31 August 2015
Client-
Own related
Total balances balances
R000 R000 R000
ASSETS
Equity securities 887 759 6 271 881 488
Debt securities 1 666 917 96 839 570 078
Unit-linked investments 15 566 418 431 714 15 134 704
Investment in investment contracts 443 883 443 883
Receivables including insurance receivables 2 737 279 243 291 2 493 988
Derivative financial instruments 13 813 13 813
Cash and cash equivalents (including money market investments) 1 015 073 887 557 127 516
Other assets* 1 300 179 1 300 179
Total assets 23 631 321 2 965 851 20 665 470
EQUITY
Equity attributable to owners of the parent 1 689 090 1 689 090
Non-controlling interest 143 406 143 406
Total equity 1 832 496 1 832 496
LIABILITIES
Borrowings 407 517 12 382 395 135
Investment contracts 17 229 353 17 229 353
Third-party liabilities arising on consolidation of mutual funds 877 844 877 844
Derivative financial instruments 16 410 16 410
Trade and other payables 2 618 743 472 015 2 146 728
Other liabilities** 648 958 648 958
Total liabilities 21 798 825 1 133 355 20 665 470
Total equity and liabilities 23 631 321 2 965 851 20 665 470
Unaudited as at 31 August 2014
Client-
Own related
Total balances balances
R000 R000 R000
ASSETS
Equity securities 827 617 3 505 824 112
Debt securities 1 642 197 106 302 1 535 895
Unit-linked investments 11 045 876 473 320 10 572 556
Investment in investment contracts 432 825 432 825
Receivables including insurance receivables 1 856 752 212 470 1 644 282
Derivative financial instruments 19 075 19 075
Cash and cash equivalents (including money market investments) 469 038 447 124 21 914
Other assets* 1 259 258 1 259 258
Total assets 17 552 638 2 501 979 15 050 659
EQUITY
Equity attributable to owners of the parent 1 336 326 1 336 326
Non-controlling interest 95 085 95 085
Total equity 1 431 411 1 431 411
LIABILITIES
Borrowings 363 050 61 252 301 798
Investment contracts 12 761 154 12 761 154
Third-party liabilities arising on consolidation of mutual funds 625 462 625 462
Derivative financial instruments 33 846 33 846
Trade and other payables 1 723 302 394 903 1 328 399
Other liabilities** 614 413 614 413
Total liabilities 16 121 227 1 070 568 15 050 659
Total equity and liabilities 17 552 638 2 501 979 15 050 659
Audited as at 28 February 2015
Client-
Own related
Total balances balances
R000 R000 R000
ASSETS
Equity securities 1 025 518 2 259 1 023 259
Debt securities 1 605 418 99 614 1 505 804
Unit-linked investments 12 345 648 378 015 11 967 633
Investment in investment contracts 338 208 338 208
Receivables including insurance receivables 2 133 136 228 588 1 904 548
Derivative financial instruments 23 324 23 324
Cash and cash equivalents (including money market investments) 972 243 805 908 166 335
Other assets* 1 276 486 1 276 486
Total assets 19 719 981 2 790 870 16 929 111
EQUITY
Equity attributable to owners of the parent 1 493 159 1 493 159
Non-controlling interest 132 491 132 491
Total equity 1 625 650 1 625 650
LIABILITIES
Borrowings 427 843 14 273 413 570
Investment contracts 14 222 603 14 222 603
Third-party liabilities arising on consolidation of mutual funds 699 202 699 202
Derivative financial instruments 30 749 30 749
Trade and other payables 2 068 400 505 413 1 562 987
Other liabilities** 645 534 645 534
Total liabilities 18 094 331 1 165 220 16 929 111
Total equity and liabilities 19 719 981 2 790 870 16 929 111
* Other assets consist of property and equipment, investment property, intangible assets, investment in
associated companies, investment in joint ventures, current and deferred income tax assets, loans and advances,
reinsurance assets, deferred acquisition costs and non-current assets held for sale.
** Other liabilities consist of deferred reinsurance acquisition revenue, current and deferred income tax liabilities,
insurance contracts and non-current liabilities held for sale.
6.6 Income statement (client vs own)
In order to evaluate the consolidated income statement of the group, the Manco segregates the income statement by
eliminating the impact of the linked investment policies issued and the consolidation of the collective investment schemes
from the core operations in the group.
A subsidiary of the group, PSG Life Limited, is a linked insurance company and issues linked policies to policyholders
(where the value of policy benefits is directly linked to the fair value of the supporting assets), and as such does not
expose the group to the market risk of fair value adjustments on the financial asset as this risk is assumed by the
policyholder.
The group consolidates collective investment schemes in terms of IFRS 10 Consolidated Financial Statements over which
the group has control. The consolidation of these funds does not impact total earnings, comprehensive income, shareholders'
funds or the net asset value of the group; however, it requires the group to recognise the income statement impact as
part of that of the group.
Unaudited Six months ended 31 August 2015
Linked
investment
Core business
Total business and other
R000 R000 R000
Commission and other fee income 1 233 783 1 222 542 11 241
Investment income 301 815 74 589 227 226
Net fair value gains and losses on financial instruments 464 613 4 515 460 098
Fair value adjustment to investment contract liabilities (613 236) (613 236)
Other* 353 445 352 668 777
Total income 1 740 420 1 654 314 86 106
Insurance claims and loss adjustment expenses (330 388) (329 828) (560)
Fair value adjustment to third-party liabilities (39 988) (39 988)
Other** (1 032 601) (1 025 148) (7 453)
Total expenses (1 402 977) (1 354 976) (48 001)
Total profit from associated companies and joint ventures 1 474 1 474
Profit before finance cost and taxation 338 917 300 812 38 105
Finance costs*** (48 800) (22 922) (25 878)
Profit before taxation 290 117 277 890 12 227
Taxation (86 422) (74 195) (12 227)
Profit for the period 203 695 203 695
Attributable to:
Owners of the parent 189 752 189 752
Non-controlling interest 13 943 13 943
203 695 203 695
Unaudited Six months ended 31 August 2014
Linked
investment
Core business
Total business and other
R000 R000 R000
Commission and other fee income 1 056 475 1 042 390 14 085
Investment income 198 911 57 444 141 467
Net fair value gains and losses on financial instruments 1 011 149 6 051 1 005 098
Fair value adjustment to investment contract liabilities (1 024 359) (1 024 359)
Other* 287 825 287 825
Total income 1 530 001 1 393 710 136 291
Insurance claims and loss adjustment expenses (285 165) (285 639) 474
Fair value adjustment to third-party liabilities (79 331) (79 331)
Other** (870 686) (870 686)
Total expenses (1 235 182) (1 156 325) (78 857)
Total profit from associated companies and joint ventures 75 75
Profit before finance cost and taxation 294 894 237 460 57 434
Finance costs*** (62 459) (20 498) (41 961)
Profit before taxation 232 435 216 962 15 473
Taxation (75 448) (59 975) (15 473)
Profit for the period 156 987 156 987
Attributable to:
Owners of the parent 145 494 145 494
Non-controlling interest 11 493 11 493
156 987 156 987
Audited Year ended 28 February 2015
Linked
vestment
Core business
Total business and other
R000 R000 R000
Commission and other fee income 2 138 855 2 114 106 24 749
Investment income 499 554 158 201 341 353
Net fair value gains and losses on financial instruments 1 209 661 12 817 1 196 844
Fair value adjustment to investment contract liabilities (1 406 791) (1 406 791)
Other* 573 321 572 946 375
Total income 3 014 600 2 858 070 156 530
Insurance claims and loss adjustment expenses (561 548) (561 293) (255)
Fair value adjustment to third-party liabilities (41 525) (41 525)
Other** (1 767 544) (1 755 855) (11 689)
Total expenses (2 370 617) (2 317 148) (53 469)
Total profit from associated companies and joint ventures 954 954
Profit before finance cost and taxation 644 937 541 876 103 061
Finance costs*** (119 905) (44 118) (75 787)
Profit before taxation 525 032 497 758 27 274
Taxation (163 234) (135 960) (27 274)
Profit for the period 361 798 361 798
Attributable to:
Owners of the parent 340 401 340 401
Non-controlling interest 21 397 21 397
361 798 61 798
* Other consists of net insurance premium revenue and other operating income.
** Other consists of insurance claims and loss adjustment expenses recovered from reinsurers, commission paid,
depreciation and amortisation, employee benefit expenses, marketing, administration and other expenses.
*** Finance costs on core business increased from 2014 largely due to the increase in the loan facilities provided to
clients in their share portfolios at PSG Securities (secured by the underlying JSE Top 100 equity securities held
in excess of four times the value of the loan facilities). The increase was countered by the decrease in finance
cost paid to external debt (excluding the finance lease) as these were repaid in full during the 2015 financial
year.
Investment contracts are represented by the following financial assets:
Unaudited Unaudited Audited
as at as at as at
31 Aug 15 31 Aug 14 28 Feb 15
R000 R000 R000
Equity securities 816 727 824 112 955 147
Debt securities 730 721 940 242 800 198
Unit-linked investments 15 215 950 10 549 293 12 102 096
Investment in investment contracts 443 884 432 825 338 208
Cash and cash equivalents 22 071 14 682 26 954
17 229 353 12 761 154 14 222 603
7. Receivables including insurance receivables and trade and other payables
Included under receivables are broker and clearing accounts at our stockbroking business of which R2 455.5 million
(31 Aug 2014: R1 629.1 million; 28 Feb 2015: R1 871.9 million) represents amounts owing by the JSE for trades conducted
during the last few days before the end of the period. These balances fluctuate on a daily basis depending on the
activity in the market.
The control account for the settlement of these transactions is included under the trade and other payables, with the
settlement to the clients taking place within three days after the transaction date.
8. Transactions with non-controlling interest
For the year ended 28 February 2015
i) Acquisition of an additional interest in PSG Namibia Proprietary Limited
With effect from 1 March 2014, PSG Konsult Limited (through its subsidiary PSG Distribution Holdings Proprietary
Limited) acquired an additional 3% interest in PSG Namibia Proprietary Limited, a company incorporated in Namibia,
for a consideration of R1.5 million. The 3% stake was bought from a minority shareholder and the consideration was
paid in full on 28 February 2014. The group now holds 54% of the issued share capital of PSG Namibia Proprietary
Limited.
9. Non-current assets (or disposal groups) held for sale
For the six months ended 31 August 2015
PSG Konsult Limited sold 100% of its shareholding in PSG Academy Proprietary Limited, the group`s private higher
education institute, to Moonstone Information Refinery Proprietary Limited and its health insurance administration
business (through its subsidiary Nhluvuko Risk Administration Proprietary Limited) to African Unity Health Proprietary
Limited for R1.3 million and R15.0 million respectively.
The effective date for both of these transactions was 1 March 2015, subject to suspensive conditions, and was treated
as non-current assets and liabilities held for sale on 28 February 2015.
10. Other acquisitions
For the year ended 28 February 2015
i) Standardising of revenue sharing model
Effective 1 March 2014, the group (through its subsidiary PSG Wealth Financial Planning Proprietary Limited) concluded
an asset-for-share transaction (utilising Section 42 of the Income Tax Act) with a large number of its advisers. The
purpose of this transaction was to standardise the revenue sharing arrangements between the advisers and PSG Konsult.
This provided the opportunity for the advisers to become shareholders in the business and be part of our loyal
shareholder base of individuals.
The consideration was paid with the issue of PSG Konsult shares (35.8 million shares at R4.50 per share) and the
remaining R12.5 million paid in cash on the effective date. The transaction did not qualify for accounting in terms
of IFRS 3R Business Combinations as the assets acquired (the right to an increased share in the income stream of
the adviser) did not constitute a business acquired.
This transaction contributed R10.1 million to our headline earnings during the 2015 financial year.
For the six months ended 31 August 2015
i) Standardising of revenue sharing model
During the period under review, the group, through its subsidiaries PSG Wealth Financial Planning Proprietary Limited
and PSG Corporate Financial Planning Proprietary Limited, concluded further revenue-sharing arrangements (on the same
basis as in the 2015 financial year) with a number of its advisers for a cash consideration of R17.6 million.
These transactions contributed R0.5 million to our headline earnings during the six months ended 31 August 2015.
11. Financial risk management
The group's activities expose it to a variety of financial risks: market risk (including price risk, foreign currency
risk, cash flow risk and fair value interest rate risks), credit risk and liquidity risk. Insurance activities expose the
group to insurance risk (including pricing risk, reserving risk, underwriting risk and reinsurance risk). The group is
also exposed to operational risk and legal risk.
The capital risk management philosophy is to maximise the return on shareholders' capital within an appropriate risk
framework.
The condensed consolidated interim financial statements do not include all risk management information and disclosure
required in the annual financial statements and should be read in conjunction with the group's annual financial
statements as at 28 February 2015.
There have been no changes in the group's financial risk management objectives and policies since the previous financial
year-end.
Market risk (price risk, foreign currency risk and interest rate risks)
Market risk is the risk of an adverse financial impact due to changes in fair values or future cash flows of financial
instruments from fluctuations in interest rates, equity prices and foreign currency exchange rates.
A portion of the policyholders' and shareholders' investments are valued at fair value and are therefore susceptible to
market fluctuations.
With regard to the subsidiary, PSG Life Limited, this company only invests assets into portfolios that are exposed to
market price risk that matches linked policies to policyholders (where the value of policy benefits is directly linked
to the fair value of the supporting assets), and as such does not expose the business to the market risk of fair value
adjustments on the financial asset as this risk is assumed by the policyholder. Fees charged on this business are
determined as a percentage of the fair value of the underlying assets held in the linked funds, which are subject to
equity and interest rate risk. As a result, the management fees fluctuate, but cannot be less than nil.
Included in the equity securities of R887.8 million (31 Aug 2014: R827.6 million; 28 Feb 2015: R1 025.5 million) are
quoted equity securities of R886.9 million (31 Aug 2014: R826.8 million; 28 Feb 2015: R1 024.7 million), of which
R816.7 million (31 Aug 2014: R824.1 million; 28 Feb 2015: R955.1 million) relates to investments in linked investment
contracts. The price risk of these instruments is carried by the policyholders of the linked investment contracts.
Debt securities linked to policyholder investments amounted to R730.7 million (31 Aug 2014: R940.2 million; 28 Feb
2015: R800.2 million) and do not expose the group to interest rate risk. Cash and cash equivalents linked to policyholder
investments amounted to R22.1 million (31 Aug 2014: R14.7 million; 28 Feb 2015: R27.0 million) and do not expose the
group to interest rate risk.
Fair value estimation
The information below analyses financial instruments, carried at fair value, by level of hierarchy as required by IFRS 13.
The different levels have been defined as follows:
- Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
- Input other than quoted prices included within level 1 that is observable for the asset or liability, either directly
(that is, as prices) or indirectly (that is, derived from prices) (level 2).
- Input for the asset or liability that is not based on observable market data (that is, unobservable input) (level 3).
There have been no significant transfers between level 1, 2 or 3 during the period under review.
The table below analyses financial assets and liabilities, which are carried at fair value, by valuation method. There
were no significant changes in the valuation techniques and assumptions applied since 28 February 2015.
Valuation techniques and main assumptions used in determining the fair value of financial assets and liabilities
classified within level 2 can be summarised as follows:
Instrument Valuation techniques Main assumptions
Derivative financial instruments Exit price on recognised over-the- Not applicable
counter (OTC) platforms
Debt securities Valuation model that uses the market Bond interest rate curves
input (yield of benchmark bonds) Issuer credit ratings
Liquidity spreads
Unit-linked investments Quoted put (exit) price provided by Not applicable prices
the fund manager are publicly available
Investment in investment contracts Prices are obtained from the insurer of Not applicable prices
the particular investment contract provided by registered
long-term insurers
Policyholder investment contract Current unit price of underlying Not applicable
liabilities unit linked unitised financial asset that is linked to
the liability, multiplied by the number
of units held
Third-party financial liabilities arising Quoted put (exit) price provided by the Not applicable prices
on the consolidation of mutual funds fund manager are publicly available
The fair value of financial assets and liabilities measured at fair value in the statement of financial position can be
summarised as follows:
Level 1 Level 2 Level 3 Total
Unaudited R000 R000 R000 R000
Financial assets
At 31 August 2015
Financial assets at fair value through profit or loss
Derivative financial assets 13 813 13 813
Equity securities 886 914 886 914
Debt securities 466 140 530 178 90 447 1 086 765
Unit-linked investments 14 620 667 945 751 15 566 418
Investment in investment contracts 384 021 384 021
Available-for-sale
Equity securities 845 845
1 353 054 15 548 679 1 037 043 17 938 776
Financial liabilities
At 31 August 2015
Financial liabilities at fair value through profit or loss
Derivative financial liabilities 16 410 16 410
Investment contracts 15 563 141 1 026 198 16 589 339
Trade and other payables 14 988 14 988
Third-party liabilities arising on consolidation of
mutual funds 877 844 877 844
16 457 395 1 041 186 17 498 581
Level 1 Level 2 Level 3 Total
Unaudited R000 R000 R000 R000
Financial assets
At 31 August 2014
Financial assets at fair value through profit or loss
Derivative financial assets 19 075 19 075
Equity securities 826 772 826 772
Debt securities 27 178 826 546 853 724
Unit-linked investments 9 701 389 1 344 487 11 045 876
Investment in investment contracts 227 278 227 278
Available-for-sale
Equity securities 845 845
853 950 10 774 288 1 345 332 12 973 570
Financial liabilities
At 31 August 2014
Financial liabilities at fair value through profit or loss
Derivative financial liabilities 33 846 33 846
Investment contracts 10 413 034 1 344 487 11 757 521
Trade and other payables 13 659 13 659
Third-party liabilities arising on consolidation of
mutual funds 625 462 625 462
11 072 342 1 358 146 12 430 488
Level 1 Level 2 Level 3 Total
Audited R000 R000 R000 R000
Financial assets
At 28 February 2015
Financial assets at fair value through profit or loss
Derivative financial assets 23 324 23 324
Equity securities 1 024 673 1 024 673
Debt securities 476 539 373 071 849 610
Unit-linked investments 11 228 992 1 116 656 12 345 648
Investment in investment contracts 226 305 226 305
Available-for-sale
Equity securities 845 845
1 501 212 11 851 692 1 117 501 14 470 405
Financial liabilities
At 28 February 2015
Financial liabilities at fair value through profit or loss
Derivative financial liabilities 30 749 30 749
Investment contracts 12 282 705 1 106 656 13 389 361
Trade and other payables 13 453 13 453
Third-party liabilities arising on consolidation of
mutual funds 699 202 699 202
13 012 656 1 120 109 14 132 765
The following tables presents the changes in level 3 financial instruments during the reporting periods under review:
Unaudited Unaudited Audited
31 Aug 15 31 Aug 14 28 Feb 15
R000 R000 R000
ASSETS
Opening carrying value 1 117 501 2 488 657 2 488 657
Additions 1 846 823 3 106 266 3 294 440
Disposals (2 033 834) (4 386 990) (4 762 552)
Gains recognised in profit and loss 106 553 137 399 96 956
1 037 043 1 345 332 1 117 501
LIABILITIES
Opening carrying value 1 120 109 2 498 451 2 498 451
Additions 1 852 842 3 113 635 3 293 979
Disposals (2 038 341) (4 391 450) (4 769 442)
Losses recognised in profit and loss 106 553 137 399 97 121
Interest and other 23 111
1 041 186 1 358 146 1 120 109
Level 3 significant fair value model assumptions and sensitivities
Financial assets and liabilities
Unit-linked investments and debt securities represent the largest portion of the level 3 financial assets and relate to
units and debentures held in hedge funds and are priced monthly. The prices are obtained from the asset managers of the
particular hedge funds. These are held to match investment contract liabilities, and as such any change in measurement
would result in a similar adjustment to investment contract liabilities. The group's overall profit or loss is therefore
not materially sensitive to the input of the models applied to derive fair value.
Trade and other payables classified within level 3 have significant unobservable input, as the valuation technique used
to determine the fair values takes into account the probability (at each reporting period) that the contracted party will
achieve the profit guarantee as stipulated in the business agreement.
The table below summarises the carrying amounts and fair values of financial instruments not presented on the statement
of financial position at fair value, for which their carrying values do not approximate their fair values:
Unaudited Unaudited Audited
31 Aug 15 31 Aug 14 28 Feb 15
R000 R000 R000
Debt securities held-to-maturity
Carrying value 580 152 788 473 721 341
Fair value 587 107 800 585 736 883
Investment in investment contracts
Carrying value 59 862 205 547 111 904
Fair value 61 480 214 216 112 736
Total
Carrying value 640 014 994 020 833 245
Fair value 648 587 1 014 801 849 619
The fair value of the financial assets in the table above is categorised in terms of level 2.
12. Related-party transactions
Related-party transactions similar to those disclosed in the group's annual financial statements for the year ended
28 February 2015 took place during the period under review.
13. Capital commitments and contingencies
Unaudited Unaudited Audited
31 Aug 15 31 Aug 14 28 Feb 15
R000 R000 R000
Operating lease commitments 124 937 74 736 82 843
Capital commitments 16 971
14. Events after the reporting date
No event material to the understanding of these results has occurred between the end of the reporting period and the date
of approval of the condensed consolidated interim financial statements, other than the acquisition of a 70% shareholding
in DMH Associates, which is a leading independent wealth advisory firm located in Mauritius. Refer to the commentary for
more detail on this transaction.
DIRECTORATE
Non-executive directors
W Theron (Chairman), JF Mouton, PJ Mouton, J de V du Toit^, PE Burton*, ZL Combi*
(^ Lead independent; * Independent)
Executive directors
FJ Gouws (Chief executive officer), MIF Smith (Chief financial officer)
COMPANY INFORMATION
Company secretary
PSG Management Services Proprietary Limited
PSG Konsult head office and registered office
4th Floor, The Edge, 3 Howick Close, Tyger Waterfront, Tyger Valley, Bellville, 7530
PO Box 3335, Tyger Valley, Bellville, 7536
Listing
Johannesburg Stock Exchange (JSE)
Namibian Stock Exchange (NSX)
Transfer secretary
Computershare Investor Services Proprietary Limited, 70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Sponsors
JSE sponsor: PSG Capital Proprietary Limited
NSX sponsor: PSG Wealth Management (Namibia) Proprietary Limited
Auditor
PricewaterhouseCoopers Inc.
Cape Town
psg.co.za
Date: 07/10/2015 12:48:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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