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Reviewed Preliminary Consolidated Financial Results For The Year Ended 29 February 2016
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 PRELIMINARY CONSOLIDATED FINANCIAL RESULTS FOR THE YEAR ENDED 29 FEBRUARY 2016
• Recurring headline earnings increased by 33% to 788 cents per share
• SOTP value of R208 per share as at 13 April 2016
• Dividend for the year increased by 50% to 300 cents per share
• R2.9bn cash available for further investments
OVERVIEW
PSG is an investment holding company consisting of underlying investments that operate across a
diverse range of industries which include banking, education, financial services, food and related
business, and private equity. PSG’s market capitalisation (net of treasury shares) is
approximately R46bn.
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 83% of the value
is calculated using JSE-listed share prices, while other investments are included at market-related
valuations. At 29 February 2016, the SOTP value per PSG share was R186.67 (2015: R163.28).
At 13 April 2016, the SOTP value was R208.21 per share.
28 Feb 28 Feb 29 Feb 13 Apr
2014 2015 2016 2016 % of
Asset/Liability Rm Rm Rm Rm total
Capitec * 5 989 14 549 16 820 21 650 46
Curro * 4 660 6 236 9 773 8 731 18
PSG Konsult * 4 004 5 710 5 441 5 536 12
Zeder * 1 698 3 712 2 815 3 394 7
PSG Private Equity + 949 1 246 1 367 1 393 3
Dipeo (previously Thembeka) + 1 243 603 557 597 1
PSG Corporate
(incl. PSG Capital) ++ 383 1 398 1 510 1 672 4
Other assets (incl. cash and
pref investments) ^ 1 122 2 031 4 358 4 347 9
Total assets 20 048 35 485 42 641 47 320 100
Perpetual pref funding * (1 393) (1 411) (1 309) (1 317)
Other debt ^ (615) (679) (949) (959)
Total SOTP value 18 040 33 395 40 383 45 044
Shares in issue
(net of treasury shares) (m) 189.9 204.5 216.3 216.3
SOTP value per share (R) 95.01 163.28 186.67 208.21
* Listed on the JSE + SOTP value ++ Valuation ^ Book value
Note: PSG’s live SOTP is available at www.psggroup.co.za.
Capitec remains PSG’s largest investment comprising 39% (2015: 41%) of the total SOTP assets as at
29 February 2016. Capitec is also the major contributor to PSG’s recurring headline earnings.
RECURRING HEADLINE EARNINGS
PSG’s consolidated recurring headline earnings is the sum of its effective interest in that of each
of its underlying investments. The result is that investments in which PSG holds less than 20% and
are generally not equity accountable in terms of accounting standards, are included in the
calculation of consolidated recurring headline earnings, whilst once-off (i.e. non-recurring)
income and expenses are excluded. This provides management and investors with a more realistic and
transparent way of evaluating PSG’s earnings performance.
28 Feb 28 Feb 29 Feb
2014 2015 Change 2016
Rm Rm % Rm
Capitec 571 729 989
Curro 21 31 58
PSG Konsult 163 214 254
Zeder 127 152 212
PSG Private Equity 51 59 113
Dipeo (previously Thembeka) 23 45 (28)
PSG Corporate (incl. PSG Capital) 7 38 69
Other 39 51 101
Recurring headline earnings before funding 1 002 1 319 34 1 768
Funding (181) (177) (148)
Recurring headline earnings 821 1 142 42 1 620
Non-recurring items 191 432 (250)
Headline earnings 1 012 1 574 (13) 1 370
Non-headline items 47 (14) 113
Attributable earnings 1 059 1 560 (5) 1 483
Weighted average number of shares in issue
(net of treasury shares) (m) 183.0 192.3 7 205.7
Earnings per share (cents)
- Recurring headline 448.8 593.6 33 787.8
- Headline 553.2 818.6 (19) 666.2
- Attributable 578.5 811.3 (11) 721.1
Dividend per share (cents) 133.0 200.0 50 300.0
Recurring headline earnings for the year ended 29 February 2016 increased by 33% to 787.8 cents per
share following strong recurring headline earnings per share growth from PSG’s core investments.
Headline earnings decreased by 19% to 666.2 cents per share as a result of a non-recurring headline
loss emanating from PSG Konsult’s settlement of a legacy tax matter, and the incurrence of
unrealised marked-to-market losses on Dipeo’s (previously Thembeka) listed share portfolio in
contrast to significant unrealised marked-to-market profits achieved thereon in the prior year.
SIGNIFICANT TRANSACTIONS
The following significant transactions were undertaken during the past financial year:
• PSG raised R267m in cash through the issue of 1.3m ordinary shares at R198 per share by means of
a private placement in May 2015, and a further R2.2bn through the issue of 9m ordinary shares at
R245 per share by means of a book build in December 2015.
• PSG borrowed R480m by increasing an existing redeemable preference share facility from R450m to
R930m for a 5-year term at a fixed nacm-rate of 8.325% p.a.
• PSG invested R438m in cash in the Curro rights offer to fund further expansion.
• Zeder successfully concluded the Capespan scheme of arrangement valued in excess of R500m by
acquiring the remaining 25% interest held by minority shareholders other than Capespan management
through the issue of Zeder shares.
• Following the aforementioned Zeder share issue, PSG’s interest in Zeder diluted to 32%. PSG
subsequently increased its shareholding to 34.6% at an average price of R5.78 per share for a
cash consideration of R231m.
CAPITEC (30.7%)
Capitec is a South African retail bank focused on providing easy and affordable banking services
to its clients via the use of innovative technology. Everything Capitec does is based on simplicity,
affordability, accessibility and personal service.
Capitec reported stellar results with a 26% increase in headline earnings per share for the year
under review.
Capitec is listed on the JSE and its comprehensive results for the year ended 29 February 2016
are available at www.capitecbank.co.za.
PSG KONSULT (61.9%)
PSG Konsult is a leading financial services company, delivering a broad range of financial services
and products. It focuses on providing wealth management, asset management and insurance solutions
to clients.
PSG Konsult’s recurring headline earnings per share increased by 19% for the year under review.
PSG Konsult is listed on the JSE and Namibian Stock Exchange and its comprehensive results for
the year ended 29 February 2016 are available at www.psg.co.za.
CURRO (58.3%)
Curro is the largest provider of private school education in South Africa.
Curro’s headline earnings per share increased by 67% for the year under review.
Curro is listed on the JSE and its comprehensive results for the year ended 31 December 2015
are available at www.curro.co.za.
ZEDER (34.6%)
Zeder is an investor in the broad agribusiness industry, with a specific focus on the food and
beverage sectors. Its largest investment is a 27.2% interest in Pioneer Foods, which comprises
61% of Zeder’s total SOTP assets.
Zeder’s recurring headline earnings per share increased by 20% for the year under review.
Both Zeder and Pioneer Foods are listed on the JSE and their comprehensive results for the years
ended 29 February 2016 and 30 September 2015, respectively, are available at www.zeder.co.za and
www.pioneerfoods.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, while actively seeking exciting new investment
opportunities. Given its nature, this portfolio is likely to yield volatile earnings, while
providing significant optionality.
PSG Private Equity reported encouraging results for the year under review with a 75% increase
in recurring headline earnings per share, albeit from a low base following challenging trading
conditions at select investments in the prior year.
DIPEO (49%)
Dipeo, a BEE investment holding company, is 51%-owned by the Stellenbosch BEE Education Trust
of which all beneficiaries are black individuals. Dipeo’s most significant investments include
shareholdings in Curro (6%), Pioneer Foods (4.4%), Quantum Foods (4%) and Kaap Agri (20%).
These are all subject to BEE lock-in periods. The Stellenbosch BEE Education Trust will use its
share of the value created from these investments to fund gifted but needy black students’
education.
PROSPECTS
We believe PSG’s investment portfolio should continue yielding above average returns in future.
PSG currently has R2.9bn in cash available at head office for further investments.
DIVIDENDS
Ordinary shares
PSG’s policy remains to pay up to 100% of free cash flow as an ordinary dividend, of which one
third is payable as an interim and the balance as a final dividend at year-end. The directors
have resolved to declare a final gross dividend of 200 cents (2015: 145 cents) from income
reserves for a total dividend of 300 cents (2015: 200 cents) in respect of the year ended
29 February 2016, representing a 50% increase.
The final dividend amount, net of South African dividend tax of 15%, is 170 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 230 778 549, and the income tax number of the company
is 9950080714.
The salient dates of this dividend distribution are:
Last day to trade cum dividend Friday, 6 May 2016
Trading ex dividend commences Monday, 9 May 2016
Record date Friday, 13 May 2016
Payment date Monday, 16 May 2016
Share certificates may not be dematerialised or rematerialised between Monday, 9 May 2016 and
Friday, 13 May 2016, both days inclusive.
Preference shares
The directors of PSG Financial Services have declared a gross dividend of 343.58 cents per share
in respect of the cumulative, non-redeemable, non-participating preference shares for the six
months ended 29 February 2016, which was paid on Tuesday, 29 March 2016. The detailed announcement
in respect hereof was disseminated on the JSE’s Stock Exchange News Services (“SENS”).
REVIEWED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 29 FEBRUARY 2016
Reviewed Audited
Feb-16 Feb-15
Condensed consolidated income statement Rm Rm
Revenue from sale of goods 12 964 10 981
Cost of goods sold (11 215) (9 532)
Gross profit from sale of goods 1 749 1 449
Income
Changes in fair value of biological assets 244 144
Investment income (note 7) 974 764
Fair value gains and losses (note 7) 643 1 400
Fair value adjustment to investment contract liabilities (note 7) (1 439) (1 483)
Commission, net insurance and other fee income 5 155 4 309
Other operating income * 98 82
5 675 5 216
Expenses
Insurance claims and loss adjustments, net of recoveries (519) (424)
Marketing, administration and other expenses * (5 574) (4 776)
(6 093) (5 200)
Net income from associates and joint ventures
Share of profits of associates and joint ventures 1 609 1 448
Reversal of impairment/(loss on impairment) of associates
and joint ventures 8 (4)
Net profit on sale/dilution of interest in associates * 295 11
1 912 1 455
Profit before finance costs and taxation 3 243 2 920
Finance costs (456) (337)
Profit before taxation 2 787 2 583
Taxation (584) (392)
Profit for the year 2 203 2 191
Attributable to:
Owners of the parent 1 483 1 560
Non-controlling interests 720 631
2 203 2 191
* Reclassified as set out in note 13.
Change Reviewed Audited
Earnings per share and number of shares in issue % Feb-16 Feb-15
Earnings per share (cents)
- recurring headline 33 787.8 593.6
- headline (note 4) (19) 666.2 818.6
- attributable/basic (11) 721.1 811.3
- diluted headline (20) 645.6 807.4
- diluted attributable/basic (13) 698.6 800.2
Number of shares (m)
- in issue 230.8 220.4
- in issue (net of treasury shares) 214.2 202.4
- weighted average 205.7 192.3
- diluted weighted average 208.9 195.0
Reviewed Audited
Feb-16 Feb-15
Condensed consolidated statement of comprehensive income Rm Rm
Profit for the year 2 203 2 191
Other comprehensive loss for the year, net of taxation (73) (79)
Items that may be subsequently reclassified to profit or loss
Currency translation adjustments (105) (18)
Reclassification of currency translation adjustments (1)
Cash flow hedges 22 (8)
Reclassification of cash flow hedges 25
Share of other comprehensive income/(loss) and equity
movements of associates 2 (59)
Reclassification of share of other comprehensive income and
equity movements of associates on disposal (1)
Items that may not be subsequently reclassified to profit or loss
Gains/(losses) from changes in financial and demographic
assumptions of post-employment benefit obligations 9 (18)
Total comprehensive income for the year 2 130 2 112
Attributable to:
Owners of the parent 1 516 1 496
Non-controlling interests 614 616
2 130 2 112
Reviewed Audited
Feb-16 Feb-15
Condensed consolidated statement of financial position Rm Rm
Assets
Property, plant and equipment 6 233 4 869
Intangible assets 2 714 2 647
Biological assets 406 274
Investment in ordinary shares of associates and joint ventures 12 061 10 755
Investment in preference shares of/loans granted to associates
and joint ventures 105 309
Deferred income tax assets * 294 250
Financial assets linked to investment contracts (note 7) 19 836 14 223
Cash and cash equivalents 115 27
Other financial assets 19 721 14 196
Other financial assets (note 6.2) 21 448 5 311
Inventory 1 619 1 181
Trade and other receivables (note 8) 5 156 4 085
Current income tax assets 40 49
Cash and cash equivalents 1 862 1 619
Non-current assets held for sale (note 10) 76 106
Total assets 71 850 45 678
Equity
Ordinary shareholders’ equity 13 634 9 999
Non-controlling interests 10 128 9 097
Total equity 23 762 19 096
Liabilities
Insurance contracts 607 574
Financial liabilities under investment contracts (note 7) 19 836 14 223
Borrowings 5 604 4 756
Other financial liabilities 102 137
Third-party liabilities on consolidation of mutual funds (note 6.2) 15 729 2 057
Deferred income tax liabilities * 719 702
Trade and other payables and employee benefit liabilities (note 8) 5 286 4 078
Current income tax liabilities 205 55
Total liabilities 48 088 26 582
Total equity and liabilities 71 850 45 678
Net asset value per share (R) 63.64 49.39
Net tangible asset value per share (R) 50.97 36.32
* Reclassified as set out in note 13.
Reviewed Audited
Change Feb-16 Feb-15
Condensed consolidated statement of changes in equity % Rm Rm
Ordinary shareholders’ equity at beginning of the year 9 999 6 862
Total comprehensive income 1 516 1 496
Issue of shares 2 455 2 881
Share buy-back (1 140)
Share-based payment costs - employees 51 46
Net movement in treasury shares 56 138
Transactions with non-controlling interests 55 (11)
Dividends paid (498) (273)
Ordinary shareholders’ equity at end of the year 13 634 9 999
Non-controlling interests at beginning of the year 9 097 5 607
Total comprehensive income 614 616
Issue of shares 1 515 2 852
Share-based payment costs - employees 19 15
Subsidiaries acquired (note 6.1) 6 346
Transactions with non-controlling interests (820) (105)
Dividends paid (303) (234)
Non-controlling interests at end of the year 10 128 9 097
Total equity 23 762 19 096
Dividend per share (cents)
- interim 100 55
- final 200 145
50 300 200
Reviewed Audited
Feb-16 Feb-15
Condensed consolidated statement of cash flows Rm Rm
Net cash flow from operating activities
Cash generated from operations (note 5) 900 661
Interest income 861 596
Dividend income 680 530
Finance costs (464) (327)
Taxation paid (446) (384)
Net cash flow from operating activities before cash movement
in policyholder funds 1 531 1 076
Cash movement in policyholder funds 88 (24)
Net cash flow from operating activities 1 619 1 052
Net cash flow from investing activities (4 181) (3 502)
Net cash flow from subsidiaries acquired (note 6.1) (274) (584)
Net cash flow from consolidation of mutual funds (note 6.2) 96 (1 175)
Acquisition of ordinary shares in associates (62) (350)
Proceeds from disposal of ordinary shares in associates 111 20
Acquisition of property, plant and equipment (1 504) (1 425)
Other investing activities * (2 548) 12
Net cash flow from financing activities 2 754 1 669
Dividends paid to group shareholders (498) (273)
Dividends paid to non-controlling interests (303) (234)
Capital contributions by non-controlling interests 733 293
Net acquisition from non-controlling interests (229) (508)
Increase in borrowings 1 134 1 122
Borrowings repaid (632) (191)
Proceeds from disposal of holding company’s treasury shares 94 64
Shares issued 2 455 1 396
Net increase/(decrease) in cash and cash equivalents 192 (781)
Exchange (losses)/gains on cash and cash equivalents (17) 26
Cash and cash equivalents at beginning of the year 826 1 581
Cash and cash equivalents at end of the year * 1 001 826
Cash and cash equivalents consists of:
Cash and cash equivalents attributable to equity holders 1 696 1 480
Cash and cash equivalents linked to investment contracts 115 27
Other clients’ cash and cash equivalents 166 139
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) (976) (823)
1 001 826
* Available cash held at a PSG Group head office level is invested in the PSG Money Market Fund.
As a result of the group’s consolidation of the PSG Money Market Fund, the cash invested in same
is derecognised and all of the fund’s underlying highly liquid debt securities (included in “other
financial assets” on the face of the statement of financial position) are recognised. Third parties’
cash invested in the PSG Money Market Fund are recognised as a payable and included under
“third-party liabilities on consolidation of mutual funds”. Available cash held at a PSG Group
head office level and invested in the PSG Money Market Fund amounted to R2.9bn (2015: R0.3bn) at
the reporting date. The increase of R2.6bn has been included under “other investing activities”.
The increase in available cash held at a PSG Group head office level is mainly as a result of the
capital raisings set out in the commentary section of this announcement.
Notes to the condensed consolidated financial statements
1. Basis of presentation and accounting policies
These condensed consolidated financial statements have been prepared in accordance with the
recognition and measurement principles of International Financial Reporting Standards (“IFRS”) as
issued by the International Accounting Standards Board, including IAS 34 Interim Financial Reporting;
the SAICA Financial Reporting Guides, as issued by the Accounting Practices Committee; the Financial
Reporting Pronouncements, as issued by the Financial Reporting Standards Council; the requirements of
the South African Companies Act, 71 of 2008, as amended; and the Listings Requirements of the JSE for
preliminary reports.
The accounting policies applied in the preparation of these condensed consolidated financial
statements are consistent in all material respects with those used in the prior year’s consolidated
annual financial statements. The group also adopted the various other revisions to IFRS which were
effective for its financial year ended 29 February 2016. These revisions have not resulted in material
changes to the group’s reported results and disclosures in these condensed consolidated financial
statements.
2. Preparation
These condensed consolidated preliminary 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
(2015: 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-16 Feb-15
Rm Rm
4. Headline earnings
Profit for the year attributable to owners of the parent 1 483 1 560
Non-headline items
Gross amounts (277) 11
Impairment of investments in associates (8) 4
Net profit on sale/dilution of investment in associates (295) (11)
Net profit on sale of investment in subsidiaries 2
Fair value gain on step-up from associate to subsidiary (4) (45)
Net loss on sale/impairment of intangible assets (incl. goodwill) 14 38
Net profit on sale/reversal of impairment of property, plant
and equipment (18) (17)
Non-headline items of associates 35 44
Bargain purchase gain (4)
Impairment of available-for-sale financial assets 1
Reclassification of currency transalation adjustments (2)
Non-controlling interests 160 6
Taxation 4 (3)
Headline earnings 1 370 1 574
During the year, Golden Wing Mau, an associate of the group through Zeder’s investment in Capespan
Group Ltd (“Capespan”), merged as equals with Joyvio. Both Golden Wing Mau and Joyvio are leading
players in China’s fresh fruit business and the merger resulted in the group’s interest in Golden
Wing Mau diluting from 25% to 11.3%. The group continues to exercise significant influence through,
inter alia, board representation. The dilution gain of R277m consequently recognised by the group
was determined with reference to the fair value at which the merger was concluded, being above the
carrying value of the investment. The fair value was determined by the appointed appraiser using
the discounted cash flow method and price-to-sales ratios.
Reviewed Audited
Feb-16 Feb-15
Rm Rm
5. Cash generated from operations
Profit before taxation 2 787 2 583
Share of profits of associates and joint ventures (1 609) (1 448)
Depreciation and amortisation 380 295
Investment income (974) (764)
Finance costs 456 337
Working capital changes and other non-cash items (140) (342)
900 661
6. Business combinations
6.1 Subsidiaries acquired
The group’s most significant subsidiaries acquired during the year under review included:
Aspen Logistics (Pty) Ltd (“Aspen Logistics”)
During March 2015, the group, through Capespan, acquired 75% of the issued share capital of Aspen
Logistics for a cash consideration of R5m. Capespan South Africa’s fruit logistical operations were
integrated with Aspen Logistics and subsequently rebranded as Contour Logistics. Contour Logistics
is a logistical solutions service provider supporting Capespan’s operations. Goodwill arose in
respect of, inter alia, synergies pertaining to the integration of the logistical activities.
Novo Packhouse (“Novo Packhouse”)
During March 2015, the group, through Capespan, acquired the business operations of Novo
Packhouse, including its coldstores, equipment and inventory, for a cash consideration of R120m.
Novo Packhouse complements the group’s existing coldstore operations in South Africa. No goodwill
arose in respect of this business combination.
Theewaterskloof (“Theewaterskloof”)
During March 2015, the group, through Capespan, acquired the farming operations of Theewaterskloof,
a pome fruit farm, for a cash consideration of R120m. Theewaterskloof complements the group’s
existing farming operations in South Africa. No goodwill arose in respect of this business
combination.
Agriseeds Pvt Ltd (“Agriseeds”)
During October 2015, the group, through Zaad Holdings Ltd (“Zaad”), acquired 80% of the issued
share capital of Agriseeds. Agriseeds operates in the seed marketing industry and goodwill arose
in respect of, inter alia, expected synergies.
St Dominic’s Academy (“St Dominic’s”)
During March 2015, the group, through Curro, acquired the business operations and properties of
St Dominic’s, a school in Newcastle, KwaZulu-Natal Province of South Africa for a nominal cash
consideration. St Dominic’s complements the group’s existing private schooling operations in
South Africa. A bargain purchase gain arose in respect of this business combination.
Other
Other business combinations comprise various smaller acquisitions, none of which are significant
to an understanding of these condensed consolidated financial statements. Goodwill recognised
from these business combinations can be attributed to the workforce, expected synergies,
economies of scale and the businesses’ growth potential.
The amounts of identifiable net assets acquired, as well as goodwill and non-controlling
interests recognised from business combinations, can be summarised as follows:
Aspen Novo Theewaters-
Logistics Packhouse kloof Agriseeds Sub-total
Rm Rm Rm Rm Rm
Identifiable net (liabilities)/
assets acquired (7) 120 120 33 266
Goodwill recognised 10 6 16
Non-controlling interests recognised 2 (7) (5)
Cash consideration paid 5 120 120 32 277
Cash consideration paid (5) (120) (120) (32) (277)
Cash and cash equivalents acquired 1 2 3
Net cash outflow from subsidiaries
acquired (4) (120) (120) (30) (274)
Sub-total St Dominic’s Other Total
Rm Rm Rm Rm
Identifiable net assets/
(liabilities) acquired 266 4 (2) 268
Goodwill recognised 16 11 27
Bargain purchase gain (4) (4)
Non-controlling interests recognised (5) (1) (6)
277 - 8 285
Deferred purchase consideration (2) (2)
Subsidiary equity securities transferred (3) (3)
Cash consideration paid 277 - 3 280
Cash consideration paid (277) (3) (280)
Cash and cash equivalents acquired 3 2 1 6
Net cash (outflow)/inflow from
subsidiaries acquired (274) 2 (2) (274)
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. Accounting for the aforementioned business combinations have
been finalised.
Had the aforementioned entities been consolidated with effect from 1 March 2015 instead of their
respective acquisition dates, the condensed consolidated income statement would have reflected
additional revenue from sale of goods and income of R168m and profit after tax of R20m.
Receivables of R132m are included in the identifiable net assets acquired, which are all considered
to be recoverable. The fair value of these receivables approximate its carrying value.
6.2 Consolidation of mutual funds
During the second half of the year under review, the group commenced consolidation of the
PSG Wealth Enhanced Interest Fund, PSG Wealth Creator Fund of Funds and the PSG Wealth Moderate
Fund of Funds, following an increase in policyholder funds (i.e. financial assets linked to
investment contracts) invested in same. These collective investment schemes are managed by
PSG Asset Management.
The consolidation of the mutual funds resulted in R13bn of “other financial assets” and R13bn of
“third-party liabilities on consolidation of mutual funds” being recognised in the statement of
financial position. These balances relate to third parties’ funds invested in the aforementioned
mutual funds.
Cash and cash equivalents held by the mutual funds of R96m was recognised upon consolidation.
7. Linked investment contracts
These represent PSG Life Ltd 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
29 February 2016 - Reviewed
Investment income 351 623 974
Fair value gains and losses 1 088 (445) 643
Fair value adjustment to investment contract liabilities (1 439) (1 439)
- 178 178
28 February 2015 - Audited
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
8. Trade and other receivables and payables
Included under trade and other receivables are PSG Online broker- and clearing accounts of which
R2.5bn (2015: 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 6.1, the group’s most significant corporate actions
are detailed in the commentary section of this announcement.
10. Non-current assets held for sale
The non-current assets held for sale at the reporting date comprised PSG Private Equity’s interest
in African Unity Group (Pty) Ltd (an insurer) and PSG Konsult’s interest in Xinergistix Ltd
(a logistical service supplier), both being associates. The prior year non-current assets held
for sale 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 assets
held at the previous reporting date were disposed of during the year under review.
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 consolidated financial statements do not include all financial risk management
information and disclosures set out in the consolidated annual financial statements, and therefore
they should be read in conjunction with the group’s consolidated annual financial statements for
the year ended 29 February 2016. 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
29 February 2016 - Reviewed Rm Rm Rm Rm
Assets
Derivative financial assets 92 92
Equity securities 1 747 1 021 69 2 837
Debt securities 846 1 421 23 2 290
Unit-linked investments 28 407 1 311 29 718
Investment in investment contracts 74 74
Closing balance 2 593 31 015 1 403 35 011
Liabilities
Derivative financial liabilities 32 65 97
Investment contracts 18 173 1 299 19 472
Trade and other payables 5 5
Third-party liabilities arising on
consolidation of mutual funds 15 729 15 729
Closing balance - 33 934 1 369 35 303
28 February 2015 - Audited
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 balance 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 balance - 14 409 1 184 15 593
The following table presents changes in level 3 financial instruments during the respective years:
Feb-16 Feb-15
Reviewed Audited
Assets Liabilities Assets Liabilities
Rm Rm Rm Rm
Opening balance 1 200 1 184 2 532 2 545
Additions 453 406 3 337 3 304
Disposals (790) (785) (4 764) (4 763)
Fair value adjustments 540 559 95 96
Other movements 5 2
Closing balance 1 403 1 369 1 200 1 184
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 “other
financial liabilities” comprised mainly of derivative 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, contingencies, suretyships and events subsequent to the reporting date
Capital commitments
• Curro continues with its expansion and development of new campuses. At the reporting date,
authorised and contracted capital expenditure amounted to R738m, while authorised but not yet
contracted capital expenditure amounted to R1.3bn.
Contingencies and suretyships
• A 49% associate of Capespan has a R250m facility with the Land Bank. The Capespan group has
provided surety for the associate’s facility in a maximum amount of R123m. The associate uses
this facility to provide interest-bearing production loans to fruit producers. At year-end, the
outstanding balance due by the associate to the Land Bank was R124m, while the associate held
loan receivable balances of R131m against fruit producers. The associate has met all obligations
in terms of its facility with the Land Bank and the associate’s loan receivable balances are
secured by property, plant and equipment and inventory.
• The South African Revenue Service has issued audit findings in respect of value-added tax against
a subsidiary of Capespan. The amount at risk (excluding penalties and interest) is R47m. Management
has obtained tax advice that supports the subsidiary’s current tax treatment.
• Since 2013, Capitec reported that the National Credit Regulator (“NCR”) alleged that Capitec had
contravened the National Credit Act. The National Credit Tribunal dismissed the NCR’s application
and the NCR lodged an appeal. The appeal was heard in the Gauteng High Court before a bench of
three judges on 24 February 2016. On 23 March 2016 the court delivered its judgment and dismissed
the NCR’s appeal.
During February 2016, Capitec became aware of another referral made by the NCR to the National
Consumer Tribunal, which referral is being contested by Capitec.
It is, and remains, impracticable to estimate the financial effect of any possible outcome of
either of the referrals. Capitec is, and remains, of the view that the matters will be
satisfactorily resolved through due process.
Events subsequent to the reporting date
• Effective March 2016, Curro acquired the business operations and properties of Windhoek Gymnasium
for a cash consideration of R185m.
• Effective March 2016, PSG Konsult concluded asset-for-share transactions whereby 14.3m shares
were issued to advisers to further standardise the revenue-sharing model. As a result, the
group’s interest in PSG Konsult diluted to 61.3%.
• Curro plans to raise a further R1bn through a rights offer to fund future growth. The rights
offer has been fully underwritten by PSG Financial Services.
• On 10 August 2014, African Bank Ltd (“African Bank”) was placed into curatorship. Capitec is a
participant in a consortium that has underwritten the recapitalisation of African Bank. The other
members of the consortium comprise the Public Investment Corporation and five other South African
retail banks. The banks have a maximum exposure of R2.5bn of the recapitalisation. The
participation level of each of the banks is based on a formula agreed on between the banks. The
recapitalisation occurred during March 2016.
13. Reclassification of prior year figures
Curro reclassified its prior year deferred tax asset and liability balances in order to correct
an offsetting error. The net deferred tax liability remained unchanged.
Given the extent of the net profit on sale/dilution of interest in associates during the year
under review, management has decided to disclose same separately on the face of the income
statement. The prior year comparative (comprising a R13m profit and a R2m loss) has been removed
from “other income” and “marketing, administration and other expenses”, and disclosed in
“net profit on sale/dilution of interest in associates” on the face of the income statement.
The aforementioned reclassifications had no impact on previously reported profitability, equity
or cash flows.
The effect of these reclassifications on the group’s results are as follows:
Previously Now
reported reported Change
Rm Rm Rm
Condensed consolidated statement of financial position
Deferred income tax asset 179 250 71
Deferred income tax liabilities 631 702 (71)
-
Condensed consolidated income statement
Other operating income 95 82 (13)
Marketing, administration and other expenses (4 778) (4 776) 2
Net profit on sale/dilution of interest in associates 11 11
-
14. Segment report
The group’s classification into seven reportable segments, namely: Capitec, Curro, PSG Konsult,
Zeder, PSG Private Equity, Dipeo, 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, asset 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 and Agrivision Africa, and
PSG Private Equity’s investment in CA Sales Holdings (Pty) Ltd.
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 once-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 once-off gains and losses and marked-to-market fluctuations, as well as the resulting
taxation charge on these items.
Sum-of-the-parts (“SOTP”) is a key valuation tool used to measure PSG’s performance. In
determining the 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:
Recurring
Inter- headline Non-
segment earnings recurring
Income income (segment headline Headline SOTP
Year ended ** ** profit) earnings earnings value ^
29 February 2016 - Reviewed Rm Rm Rm Rm Rm Rm
Capitec * 989 989 16 820
Curro 1 415 58 58 9 773
PSG Konsult 3 452 254 (72) 182 5 441
Zeder 9 606 212 (27) 185 2 815
PSG Private Equity 4 210 113 (2) 111 1 367
Dipeo (310) (28) (170) (198) 557
PSG Corporate
(incl. PSG Capital) 308 (166) 69 21 90 1 510
Funding 136 (12) (148) (148) (2 258)
Other 101 101 4 358
Total 18 817 (178) 1 620 (250) 1 370 40 383
Non-headline items 113
Earnings attributable to
non-controlling interests 720
Taxation 584
Profit before taxation 2 787
Recurring
Inter- headline Non-
segment earnings recurring
Income income (segment headline Headline SOTP
Year ended ** ^^^ ** profit) earnings earnings value ^
28 February 2015 - Audited 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 8 989 152 (52) 100 3 712
PSG Private Equity 2 915 59 (9) 50 1 246
Dipeo and Thembeka 242 45 432 477 603
PSG Corporate
(incl. PSG Capital) ^^ 326 (260) 38 87 125 1 398
Funding ^^ 65 (32) (177) (25) (202) (2 090)
Other ^^ 51 51 2 031
Total 16 489 (292) 1 142 432 1 574 33 395
Non-headline items (14)
Earnings attributable to
non-controlling interests 631
Taxation 392
Profit before taxation 2 583
Reviewed Audited
Feb-16 Feb-15
Rm Rm
Reconciliation of segment revenue to IFRS revenue:
Segment revenue as stated above:
Income 18 817 16 489
Inter-segment income (178) (292)
Less:
Changes in fair value of biological assets (244) (144)
Fair value gains and losses (643) (1 400)
Fair value adjustment to investment contract liabilities 1 439 1 483
Other operating income (98) (82)
IFRS revenue *** 19 093 16 054
Non-recurring headline earnings comprised the following:
Non-recurring items from investments (271) 370
Net fair value gains on liquid investment portfolio 2
Other gains 21 60
(250) 432
* 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.
*** IFRS revenue comprises “revenue from sale of goods”, “investment income” and “commission,
net insurance and other fee income” as 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.
^^ Reallocations in respect of recurring headline earnings and SOTP have been made between
“PSG Corporate”, “Funding” and “Other” in order to ensure consistent presentation between the
years presented.
^^^ “Income” has been restated to reflect the reclassification from “other operating income”
to “net profit on sale/dilution of interest in associates”, as set as set out in note 13.
15. Related party transactions
Related-party transactions similar to those disclosed in the group’s consolidated annual
financial statements for the year ended 28 February 2015 took place during the year under
review.
On behalf of the board
Jannie Mouton Piet Mouton Wynand Greeff
Chairman Chief executive officer Financial director
Stellenbosch
18 April 2016
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: 18/04/2016 02:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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