Wrap Text
Unaudited Results For The Six Months Ended 31 August 2016
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 2016
SALIENT FEATURES
- Core revenue up 12%
- Recurring headline earnings per share up 13%
- Number of advisers up 11%
- Dividend per share up 16%
- Total assets under management up 18%
- Total assets under administration up 10%
COMMENTARY
PSG Konsult delivered a commendable 13% growth in recurring headline earnings per share since the previous interim period.
The board of directors is pleased with this set of results, taking into account the current challenging business environment and overall sluggish economic growth conditions in
South Africa. The group's focus on client service excellence through the quality of its advice, products and platforms is proving resilient.
PSG Wealth
PSG Wealth achieved headline earnings growth of 17%. Management fees income increased by 20% as the business continues to focus on recurring income and reduce the reliance on
transactional brokerage, which has remained flat during the period under review. The division's formidable financial adviser network grew by 14% to 505 advisers since the
prior comparable period through both organic and selective adviser acquisition growth. The experience and stature of the advisers joining the firm continues to add credibility to
the growing brand equity. Wealth managed assets of R139.1 billion are up 21% since the prior comparable period, which includes record net inflows of R8.2 billion in the past six
months. Wealth's platform assets of R37.5 billion are up by 29% since the previous interim period, as the division continues to gain market share. Multi-managed assets now surpass
R52 billion and are up 24% since the previous interim period.
PSG Asset Management
PSG Asset Management's headline earnings grew by 2%, impacted by the previously communicated decision to exit white labels to reduce operational risk and lower performance fees as
a consequence of market conditions. During the past six months, the investment team delivered sound top-quartile investment performance across its fund range, which further
augmented its excellent long-term investment track record. The division did experience a small net outflow of funds, partially due to difficult market conditions. We remain
confident and optimistic about the long-term growth prospects for this business.
PSG Insure
PSG Insure's headline earnings grew by 29%, which is an achievement that the group is especially pleased with, against the backdrop of a particularly difficult industry environment.
This division, which is in an early growth phase, continues to make inroads into the highly competitive short-term insurance market and gains further benefits from economies of
scale. It achieved revenue growth of 16% compared to the prior comparable period, and continued with its shift away from the commoditised personal lines' to the commercial lines'
side of the business, which requires specialised adviser expertise. No significant catastrophe or other related events occurred during this period which, when combined with our
continuous demanding underwriting practices, enabled us to achieve an excellent net underwriting margin of 7.8%. The insurance advisers, which now total 233, continue to gain
market share.
PSG Konsult's key financial performance indicators for the six months ended 31 August 2016 are shown below:
31 Aug 16 Change 31 Aug 15
R000 % R000
Headline and recurring headline earnings 214 430 15 186 800
Non-headline items (52) 2 952
Earnings attributable to ordinary shareholders 214 378 13 189 752
Divisional headline earnings
PSG Wealth 140 553 17 119 882
PSG Asset Management 47 405 2 46 322
PSG Insure 26 472 29 20 596
214 430 15 186 800
Weighted average number of shares in issue (net of treasury shares) (million) 1 290.2 2 1 267.2
Earnings per share (cents)
- Headline and recurring headline 16.6 13 14.7
- Attributable 16.6 11 15.0
Dividend per share (cents) 5.1 16 4.4
Strategy
PSG Wealth's overall strategy offers an innovative and holistic end-to-end client proposition. We continue investing in people (including the recruitment of experienced
specialists) and in technology with the aim of enhancing user functionality to improve our client experience and product offering. Advisers play a key role in client feedback on
the enhancement of our platform and product capabilities. Management is proud of both the accelerated growth and calibre of new advisers that have joined the business. PSG Konsult
Mauritius acquired Ramet & Associes Ltee (now PSG Securities (Mauritius)). This is an established stockbroking business that will enhance our product offering and presence in this
market.
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, the division will continue to prioritise 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. Building critical expertise 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 our top-calibre advisers to focus on
client relationships, especially on the commercial lines' side of the business.
As each division grows, careful attention is paid to the group's cost structure, 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 investing in technology as a key enabler to achieve our growth objectives.
Recognition, awards and achievements
The group is proud of the following notable milestones, achievements and industry awards:
- PSG Wealth
- Ranked second in the 2016 Intellidex Wealth Manager of the Year competition. It was further awarded first place as the top wealth manager for wealthy executives, and was ranked
as a top-three wealth manager preferred by clients.
- PSG Asset Management
- The division continues to deliver top-quartile investment returns across all funds.
- PSG Insure
- Broker of the Year for both commercial lines, and assets and crop insurance in the 2015 Santam National Broker Awards.
Credit rating
Rating agency Global Credit Rating Co. (GCR) upgraded PSG Konsult's long-term and short-term ratings during July 2016, to A-(ZA) and A1-(ZA) respectively. GCR stated the following
rationale for the rating: "PSG Konsult's upgrade reflects its conservative balance sheet fundamentals, risk profile and sound earnings capacity. The company has been successful in
executing its business plan, which has seen its business profile continue to strengthen, supported by robust growth in revenue and earnings over recent years. This has followed the
well-defined strategy to refocus on core operations, which has allowed for the capturing of additional margin in the asset management and insurance businesses, albeit still
anchored by its traditional, uniquely positioned advisory network."
Shareholders
The businesses' demonstrable track record on executing and delivering on our strategic goals has enabled us to increase our institutional shareholder base and improved the liquidity
of the PSG Konsult shares.
People
PSG Konsult had 207 offices and 2 256 employees as at 31 August 2016. Financial planners, portfolio managers, stockbrokers and asset managers totalled 738. A further 431 were
professional associates (accountants and attorneys). During the six months under review, 27 new advisers were appointed through a combination of organic growth and selective
adviser book acquisitions.
Regulatory landscape and risk management
The group seeks to manage risk exposures within acceptable levels, sustain profit margins and maintain an efficient capital structure. This is while embedding good corporate
conduct, regulatory compliance, the highest ethical behaviour and excellent client service. PSG Konsult is geared to adapt to regulatory change on a continuous basis and has
positioned itself as an early adopter. Regulation in other territories is proactively monitored. This is part of the group's risk management approach. It ensures that the board and
management are prepared for and informed about potential consequences and opportunities created by new legislation. The Retail Distribution Review (RDR), for example, is expected
to significantly change the adviser market and the way financial products are distributed in South Africa. Elsewhere, the introduction of similar legislation increased the barriers
to entry, increased the potential revenue per adviser and resulted in industry consolidation. This is an opportunity for PSG Konsult as the group has the necessary platforms,
systems and practices to take on advisers seamlessly and provide support that meets all regulatory requirements. One of the significant regulatory events for the business was
piloting its Own Risk and Solvency Assessment (ORSA) report. This enabled PSG Konsult to benchmark the extent to which ORSA principles are embedded across the group and to
identify areas of improvement in preparation for the full ORSA report to be submitted in 2017.
Marketing
Marketing initiatives are critical to the group's goal of becoming a leader in the financial services industry. During the period under review, the specialist marketing team
focused its efforts on embedding the 'Bigger Picture Thinking' advertising campaign, increasing its public relations exposure and adviser-hosted client events, and maintaining
quality client communication. This is all with the objective of building the PSG brand within our chosen target markets.
Information technology (IT)
The integral role that technology plays in the daily operations of PSG Konsult cannot be underestimated. The scalability and efficiency of business functions are dependent on the
state of its IT systems. It is for this reason that the group continues to invest in new and innovative technologies as it seeks to incorporate further business process automation,
reduce operational risk and provide real-time reporting for enhanced management decision-making. The group is confident that the IT strategy, which also includes robust disaster
recovery and business continuity plans, will create a solid foundation for future growth.
Looking forward
The group's aim remains to service existing clients well, and gain new clients. Current economic circumstances are uncertain, and volatility in investment markets remains. However,
the group is confident that it will continue to build its client franchise despite this market outlook. A number of initiatives are in place to ensure this happens. The group's
focus on products, platforms and client service excellence through the quality of its advice is proving to be a resilient strategy.
Events after reporting date
No material events have taken place since the reporting date.
Dividend
The board approved and declared a gross interim dividend of 5.1 cents per share (2015: 4.4 cents per share) from income reserves for the six months ended 31 August 2016. 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 dividend withholding tax (DWT) rate of 15% unless the shareholder is exempt from paying dividends
tax or is entitled to a reduced rate in terms of the applicable double-tax agreement. Including DWT results in a net dividend of 4.335 cents per share. The number of issued ordinary
shares is 1 321 600 545 at the date of this declaration. PSG Konsult's income tax reference number is 9550/644/07/5.
The following are the salient dates for payment of the dividend:
Last day to trade (cum dividend) Tuesday, 25 October 2016
Trading ex dividend commences Wednesday, 26 October 2016
Record date Friday, 28 October 2016
Date of payment Monday, 31 October 2016
Share certificates may not be dematerialised or rematerialised between Wednesday, 26 October 2016 and Friday, 28 October 2016, both days included.
The board would like to extend its gratitude to all of the group's stakeholders, including shareholders, advisers, 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
6 October 2016
FINANCIAL RESULTS
Condensed consolidated statement of financial position
as at 31 August and 29 February 2016
Unaudited Unaudited Audited
31 Aug 16 31 Aug 15 29 Feb 16
R000 R000 R000
ASSETS
Intangible assets 997 887 876 420 882 615
Property and equipment 54 019 56 827 54 179
Investment property 7 349 2 245 7 349
Investment in associated companies 129 40 554 129
Investment in joint ventures 16 696 13 453 16 223
Deferred income tax 77 105 85 913 90 245
Equity securities (note 6) 2 194 463 887 759 1 747 701
Debt securities (note 6) 2 688 626 1 666 917 2 588 565
Unit-linked investments (note 6) 34 063 018 15 566 418 29 695 283
Investment in investment contracts (note 6) 29 230 443 883 116 477
Loans and advances 127 587 126 110 129 114
Derivative financial instruments 14 430 13 813 17 864
Reinsurance assets 66 238 71 183 76 184
Deferred acquisition costs 4 052 2 393 3 011
Receivables including insurance receivables 1 628 033 2 737 279 2 816 578
Current income tax assets 25 116 25 081 7 249
Cash and cash equivalents (including money market investments) (note 6) 1 241 533 1 015 073 1 395 952
Non-current assets held for sale 39 931 - 38 948
Total assets 43 275 442 23 631 321 39 683 666
EQUITY
Equity attributable to owners of the parent
Stated capital 1 745 191 1 445 359 1 446 604
Treasury shares (56 802) (16 228) (13 462)
Other reserves (381 949) (400 655) (394 755)
Retained earnings 750 476 660 614 650 059
2 056 916 1 689 090 1 688 446
Non-controlling interest 173 886 143 406 157 212
Total equity 2 230 802 1 832 496 1 845 658
LIABILITIES
Insurance contracts 564 425 577 638 607 310
Deferred income tax 50 991 55 640 44 925
Borrowings 148 764 407 517 274 114
Derivative financial instruments 14 408 16 410 17 910
Investment contracts (note 6) 22 032 848 17 229 353 19 836 250
Third-party liabilities arising on consolidation of mutual funds 16 507 660 877 844 14 023 726
Deferred reinsurance acquisition revenue 4 330 4 029 4 524
Trade and other payables 1 682 919 2 618 743 2 894 051
Current income tax liabilities 38 295 11 651 135 198
Total liabilities 41 044 640 21 798 825 37 838 008
Total equity and liabilities 43 275 442 23 631 321 39 683 666
Net asset value per share (cents) 156.7 132.3 132.2
Condensed consolidated income statement
for the six months ended 31 August and the 12 months ended 29 February 2016
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 Aug 16 31 Aug 15 29 Feb 16
R000 R000 R000
Gross written premium 481 556 462 590 940 903
Less: Reinsurance written premium (116 379) (128 875) (242 720)
Net written premium 365 177 333 715 698 183
Change in unearned premium
- Gross 30 828 4 461 (20 986)
- Reinsurers' share (587) (92) 434
Net insurance premium revenue 395 418 338 084 677 631
Commission and other fee income 1 368 564 1 233 783 2 461 393
Investment income 704 311 301 815 612 988
Net fair value gains and losses on financial instruments 1 497 632 464 613 1 104 789
Fair value adjustment to investment contract liabilities (1 059 376) (613 236) (1 389 130)
Other operating income 60 832 15 361 34 005
Total income 2 967 381 1 740 420 3 501 676
Insurance claims and loss adjustment expenses (348 955) (330 388) (670 197)
Insurance claims and loss adjustment expenses recovered from reinsurers 56 582 69 012 151 335
Net insurance benefits and claims (292 373) (261 376) (518 862)
Commission paid (609 989) (562 655) (1 061 309)
Depreciation and amortisation* (34 051) (27 692) (57 308)
Employee benefit expenses (365 831) (304 867) (590 976)
Fair value adjustment to third-party liabilities (993 652) (39 988) (67 080)
Marketing, administration and other expenses (309 769) (206 399) (485 365)
Total expenses (2 605 665) (1 402 977) (2 780 900)
Share of profits of associated companies 32 992 1 496
Loss on impairment of associated companies - - (1 981)
Profit on sale of interests in associated companies 68 - -
Share of profits of joint ventures 473 482 3 252
Total profit from associated companies and joint ventures 573 1 474 2 767
Profit before finance costs and taxation 362 289 338 917 723 543
Finance costs (23 975) (48 800) (91 881)
Profit before taxation 338 314 290 117 631 662
Taxation (104 569) (86 422) (309 838)
Profit for the period 233 745 203 695 321 824
Attributable to:
Owners of the parent 214 378 189 752 292 924
Non-controlling interest 19 367 13 943 28 900
233 745 203 695 321 824
Earnings per share (cents)
Attributable (basic) 16.6 15.0 23.0
Attributable (diluted) 16.4 14.5 22.4
Headline (basic) 16.6 14.7 22.9
Headline (diluted) 16.4 14.3 22.3
Recurring headline (basic) 16.6 14.7 32.1
Recurring headline (diluted) 16.4 14.3 31.2
* Includes amortisation cost of R23.0 million (31 Aug 2015: R18.8 million; 29 Feb 2016: R38.2 million).
Condensed consolidated statement of comprehensive income
for the six months ended 31 August and 12 months ended 29 February 2016
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 Aug 16 31 Aug 15 29 Feb 16
R000 R000 R000
Profit for the period 233 745 203 695 321 824
Other comprehensive income for the period, net of taxation (1 361) (4 103) 9 647
To be reclassified to profit and loss:
Currency translation adjustments (1 361) (4 103) 8 478
Not to be reclassified to profit and loss:
Gain on revaluation of property and equipment - - 1 169
Total comprehensive income for the period 232 384 199 592 331 471
Attributable to:
Owners of the parent 213 017 185 649 302 104
Non-controlling interest 19 367 13 943 29 367
232 384 199 592 331 471
Earnings and headline earnings per share
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 Aug 16 31 Aug 15 29 Feb 16
R000 R000 R000
Headline earnings 214 430 186 800 292 302
Recurring 214 430 186 800 408 748
Non-recurring - - (116 446)
Non-headline items (net of non-controlling interest and related tax effect)
(Loss)/profit on disposal of intangible assets (including goodwill) (187) 1 220 190
Impairment of associated companies - - (1 189)
Non-headline items of associated companies and joint ventures 41 503 2 151
Other 94 1 229 (530)
Profit attributable to ordinary shareholders 214 378 189 752 292 924
Earnings per share (cents)
Attributable (basic) 16.6 15.0 23.0
Attributable (diluted) 16.4 14.5 22.4
Headline (basic) 16.6 14.7 22.9
Headline (diluted) 16.4 14.3 22.3
Recurring headline (basic) 16.6 14.7 32.1
Recurring headline (diluted) 16.4 14.3 31.2
Number of shares (million)
In issue (net of treasury shares) 1 312.9 1 276.5 1 276.8
Weighted average 1 290.2 1 267.2 1 274.2
Condensed consolidated statement of changes in equity
for the six months ended 31 August and 12 months ended 29 February 2016
Attributable to equity holders of the group
Non-
Stated Treasury Other Retained controlling
capital shares reserves earnings interest Total
R000 R000 R000 R000 R000 R000
Balance at 1 March 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 costs - - 7 919 - - 7 919
Net movement in treasury shares - (15 682) - - - (15 682)
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
Comprehensive income
Profit for the period - - - 103 172 14 957 118 129
Other comprehensive income - - 13 283 - 467 13 750
Total comprehensive income - - 13 283 103 172 15 424 131 879
Transactions with owners 1 245 2 766 (7 383) (113 727) (1 618) (118 717)
Issue of ordinary shares 1 245 - - - - 1 245
Share-based payment costs - - 8 689 - - 8 689
Transactions with non-controlling interest - - - (3 098) (360) (3 458)
Acquisition of subsidiary - - - - 921 921
Net movement in treasury shares - 7 167 - - - 7 167
Release of profits from treasury shares to retained earnings - (4 401) - 4 401 - -
Equity-settled share-based payments - - (16 072) (58 773) - (74 845)
Dividend paid - - - (56 257) (2 179) (58 436)
Balance at 29 February 2016 - Audited 1 446 604 (13 462) (394 755) 650 059 157 212 1 845 658
Comprehensive income
Profit for the period - - - 214 378 19 367 233 745
Other comprehensive income - - (1 361) - - (1 361)
Total comprehensive income - - (1 361) 214 378 19 367 232 384
Transactions with owners 298 587 (43 340) 14 167 (113 961) (2 693) 152 760
Issue of ordinary shares 298 587 - - - - 298 587
Share-based payment costs - - 14 167 - - 14 167
Capital contribution by non-controlling interest - - - - 750 750
Net movement in treasury shares - (43 340) - - - (43 340)
Dividend paid - - - (113 961) (3 443) (117 404)
Balance at 31 August 2016 - Unaudited 1 745 191 (56 802) (381 949) 750 476 173 886 2 230 802
Condensed consolidated statement of cash flows
for the six months ended 31 August and 12 months ended 29 February 2016
Unaudited Unaudited
Six months Six months Audited
ended ended Year ended
31 Aug 16 31 Aug 15 29 Feb 16
R000 R000 R000
Cash flows from operating activities
Cash (utilised in)/generated by operating activities (470 985) (30 628) 57 599
Interest income 509 644 209 636 529 692
Dividend income 194 441 91 977 82 872
Finance costs (17 554) (22 922) (41 939)
Taxation paid (197 968) (84 027) (172 284)
Operating cash flows before policyholder cash movement 17 578 164 036 455 940
Policyholder cash movement (73 396) (4 883) 87 910
Net cash flow from operating activities (55 818) 159 153 543 850
Cash flows from investing activities
Acquisition of subsidiaries (including collective investment schemes) 9 707 - 93 516
Acquisition of intangible assets (19 767) (37 394) (56 826)
Purchases of property and equipment (11 429) (24 372) (35 059)
Proceeds from disposal of non-current assets held for sale - 16 054 12 646
Other 9 240 6 798 1 864
Net cash flow from investing activities (12 249) (38 914) 16 141
Cash flows from financing activities
Dividends paid (117 404) (105 231) (163 667)
Capital contributions by non-controlling interest (ordinary shares) 750 - -
Transactions with non-controlling interest - - (3 458)
Repayment of borrowings (2 640) (1 964) (3 737)
Shares issued 81 960 40 520 36 519
Net movement in treasury shares (43 340) (15 682) (8 515)
Other - - 608
Net cash flow from financing activities (80 674) (82 357) (142 250)
Net (decrease)/increase in cash and cash equivalents (148 741) 37 882 417 741
Cash and cash equivalents at beginning of period 1 395 952 975 018 975 018
Exchange (losses)/gains on cash and cash equivalents (5 678) 2 173 3 193
Cash and cash equivalents at end of period* 1 241 533 1 015 073 1 395 952
* Includes the following:
Clients' cash linked to investment contracts 41 468 22 071 114 864
Other client-related balances 101 484 105 445 165 970
142 952 127 516 280 834
Notes to the statement of cash flow:
The movement in cash generated by/utilised in operating activities can vary significantly as a result of daily fluctuations in cash linked to investment contracts, cash held by the
stockbroking business and cash utilised for the loan facility obtained by PSG Wealth on the loan facilities provided to clients on their share portfolios at PSG Securities Limited.
PSG Life Limited, the group's linked insurance company, issues linked policies to policyholders (where the value of policy benefits is directly linked to the fair value of the
supporting assets). When these policies mature, the company raises a debtor for the money receivable from the third-party investment provider, and raises a creditor for the amount
owing to the client. Timing differences occur 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 occur 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. Refer to note 5.7 for the impact of the client-related balances on the cash flows from operating
activities.
Notes to the condensed consolidated interim financial statements
for the six months ended 31 August 2016
1. Reporting entity
PSG Konsult Limited is a public 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 2016 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 preparation
Statement of compliance
The condensed consolidated interim financial statements as at and for the six months ended 31 August 2016 have been 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 29 February 2016. Any
forecast financial information is the responsibility of the board of PSG Konsult Limited and has not been reviewed or reported on by the auditors.
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).
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 29 February 2016.
3. Independent review
The condensed consolidated interim financial statements is the responsibility of the board of directors of the company.
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 29 February 2016.
The following new accounting standards and amendments to IFRS, as issued by the International Accounting Standards Board (IASB), which were relevant to the group's operations,
were effective for the first time from 1 March 2016:
- Amendment to IFRS 10, IFRS 12 and IAS 28 - Investment Entities - Applying the consolidation exception
- Amendment to IFRS 11 - Joint Arrangements
- Amendment to IFRS 14 - Regulatory Deferral Accounts
- Amendments to IAS 1 - Presentation of Financial Statements - Disclosure initiative
- Amendments to IAS 16 - Property, Plant and Equipment
- Amendments to IAS 27 - Consolidated and Separate Financial Statements
- Amendments to IAS 38 - Intangible Assets
- Annual Improvements 2012 - 14 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)
- IFRS 16 - Leases (effective 1 January 2019)
- IAS 7 - Statement of Cash Flows (effective 1 January 2017)
- IAS 12 - Income Taxes (effective 1 January 2017)
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 are still being assessed.
5. Segment information
The composition of the reportable segments represents the internal reporting structure and the monthly reporting to the chief operating decision-maker (CODM). The CODM for the
purpose of IFRS 8 - Operating segments has been identified as the chief executive officer, supported by the group management committee (Manco). The group's internal reporting
structure is reviewed in order to assess performance and allocate resources. The group is organised into three reportable segments, namely:
- PSG Wealth - deriving income mainly from total managed assets and total platform assets
- PSG Asset Management - deriving income mainly from total assets under management and administration
- PSG Insure - deriving income mainly from written premiums and underwriting
Corporate support costs refer to a variety of services and functions that are performed centrally for the individual business units within each business segment, as well as housing
the group's executive office. Besides the traditional accounting and secretarial services provided to group divisions and subsidiaries, the corporate office also provides legal,
risk, information technology (IT), marketing, human resources (HR), payroll, internal audit and corporate finance services. The strategic elements of IT, in terms of both services
and infrastructure, are also centralised in the corporate office. The corporate costs are allocated to the three reportable segments.
5.1 Description of business segments
PSG Wealth, which consists of five business units - Distribution, Securities, LISP and Life Platform, Multi Management and Employee Benefits - is designed to meet the needs of
individuals, families and businesses. Through its 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). The
Wealth offices are fully equipped to deliver a high-quality personal service to customers.
PSG Asset Management is an established investment management company with a proven investment track record. It offers investors a simple, but comprehensive range of local and global
investment products. The division's products include both local and international unit trust funds.
PSG Insure, through its 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 from personal (home, car and household insurance) to commercial (business and agri-insurance) requirements. To harness the insurance solutions
available to customers effectively, the division's expert insurance specialists, through a strict due diligence process, will simplify the selection process for the most appropriate
solution for its clients. In addition to the intermediary services which PSG Insure offers; Short-Term Administration supports clients through the claim process, administrative
issues and general policy maintenance, including an annual reappraisal of their portfolio.
The CODM considers the performance of reportable segments based on total core income as a measure of growth and headline earnings as a measure of profitability. In order to
evaluate the core results of the group, the CODM 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 that 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.
The segment information for the periods ended August 2015 and February 2016 have been restated to exclude the impact of the linked investment policies issued and the consolidation
of the collective investment schemes on the divisional income statements (note 5.4) in order to better reflect the information used by the CODM. The new segmental divisional income
statements now reflect the core business operations, with a reconciliation to the IFRS income statement included in note 5.6. The restatement had no impact on the current or prior
year reported earnings, diluted earnings or headline earnings per share, or on the net asset value or net cash flows. The segment information provided to the CODM for the reportable
segments for the period ended 31 August 2016 is set out below:
5.2 Headline earnings per reportable segment
Asset
Wealth Management Insure Total
Headline earnings R000 R000 R000 R000
For the six months ended 31 August 2016 (Unaudited)
Headline earnings 140 553 47 405 26 472 214 430
- recurring 140 553 47 405 26 472 214 430
- non-recurring - - - -
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 year ended 29 February 2016 (Audited)
Headline earnings 169 059 82 707 40 536 292 302
- recurring 285 505 82 707 40 536 408 748
- non-recurring (116 446) - - (116 446)
5.3 Income per reportable segment
Asset
Wealth Management Insure Total
For the six months ended 31 August 2016 (Unaudited) R000 R000 R000 R000
Total IFRS reported income 2 094 943 200 528 671 910 2 967 381
Linked investment business and other income (1 112 504) - - (1 112 504)
Total core income 982 439 200 528 671 910 1 854 877
Total segment income 1 271 723 345 489 686 685 2 303 897
Intersegment income (289 284) (144 961) (14 775) (449 020)
Asset
Wealth** Management Insure Total**
For the six months ended 31 August 2015 (Unaudited) R000 R000 R000 R000
Total IFRS reported income 962 200 199 651 578 569 1 740 420
Linked investment business and other income (86 106) - - (86 106)
Total core income 876 094 199 651 578 569 1 654 314
Total segment income 1 122 002 333 170 584 991 2 040 163
Intersegment income (245 908) (133 519) (6 422) (385 849)
Asset
Wealth** Management Insure Total**
For the year ended 29 February 2016 (Unaudited) R000 R000 R000 R000
Total IFRS reported income 1 973 301 369 349 1 159 026 3 501 676
Linked investment business and other income (155 362) - - (155 362)
Total core income 1 817 939 369 349 1 159 026 3 346 314
Total segment income 2 440 332 635 148 1 195 809 4 271 289
Intersegment income (622 393) (265 799) (36 783) (924 975)
** Comparative figures have been restated to show the impact of the linked investment policies issued and the consolidation of the collective investment schemes separately.
Other information provided to the CODM is measured in a manner consistent with that of the financial statements.
5.4 Divisional income statements
The profit or loss information follows a similar format to the consolidated income statement. The divisional income statements reflect the core business operations of the group.
Asset
Wealth Management Insure Total
For the six months ended 31 August 2016 (Unaudited) R000 R000 R000 R000
Total core income 982 439 200 528 671 910 1 854 877
Total expenses (766 053) (139 489) (616 986) (1 522 528)
216 386 61 039 54 924 332 349
Total profit from associated companies and joint ventures - - 573 573
Profit before finance costs and taxation 216 386 61 039 55 497 332 922
Finance costs* (16 769) (155) (630) (17 554)
Profit before taxation 199 617 60 884 54 867 315 368
Taxation (56 322) (13 479) (11 822) (81 623)
Profit for the period 143 295 47 405 43 045 233 745
Attributable to:
Owners of the parent 139 165 47 405 27 808 214 378
Non-controlling interest 4 130 - 15 237 19 367
143 295 47 405 43 045 233 745
Headline earnings 140 553 47 405 26 472 214 430
Recurring headline earnings 140 553 47 405 26 472 214 430
Asset
Wealth** Management Insure Total**
For the six months ended 31 August 2015 (Unaudited) R000 R000 R000 R000
Total core income 876 094 199 651 578 569 1 654 314
Total expenses (679 435) (136 829) (538 712) (1 354 976)
196 659 62 822 39 857 299 338
Total profit from associated companies and joint ventures - - 1 474 1 474
Profit before finance costs and taxation 196 659 62 822 41 331 300 812
Finance costs* (21 943) (212) (767) (22 922)
Profit before taxation 174 716 62 610 40 564 277 890
Taxation (49 821) (16 013) (8 361) (74 195)
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
Recurring headline earnings 119 882 46 322 20 596 186 800
Asset
Wealth** Management Insure Total**
For the year ended 29 February 2016 (Unaudited) R000 R000 R000 R000
Total core income 1 817 939 369 349 1 159 026 3 346 314
Total expenses (1 366 205) (257 299) (1 073 578) (2 697 082)
451 734 112 050 85 448 649 232
Total profit from associated companies and joint ventures - - 2 767 2 767
Profit before finance costs and taxation 451 734 112 050 88 215 651 999
Finance costs* (38 336) (359) (3 244) (41 939)
Profit before taxation 413 398 111 691 84 971 610 060
Taxation (237 009) (29 131) (22 096) (288 236)
Profit for the year 176 389 82 560 62 875 321 824
Attributable to:
Owners of the parent 169 488 82 560 40 876 292 924
Non-controlling interest 6 901 - 21 999 28 900
176 389 82 560 62 875 321 824
Headline earnings 169 059 82 707 40 536 292 302
Recurring headline earnings 285 505 82 707 40 536 408 748
* Finance costs in the PSG Wealth division consist mainly of the finance charge 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. The finance costs of
R17.4 million (31 Aug 2015: R21.9 million; 29 Feb 2016: R38.3 million) consist of R11.9 million (31 Aug 2015: R15.5 million; 29 Feb 2016: R29.2 million) on the loan facilities,
with the remaining portion of the finance charge on the CFD margin and the bank overdrafts.
** Comparative figures have been restated to exclude the impact of the linked investment policies issued and the consolidation of the collective investment schemes.
5.5. Statement of financial position (client vs own)
In order to evaluate the consolidated financial position of the group, the CODM 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.
Total Client-
IFRS Own related
reported balances balances
As at 31 August 2016 (Unaudited) R000 R000 R000
ASSETS
Equity securities 2 194 463 9 886 2 184 577
Debt securities 2 688 626 89 150 2 599 476
Unit-linked investments 34 063 018 488 145 33 574 873
Investment in investment contracts 29 230 - 29 230
Receivables including insurance receivables 1 628 033 241 585 1 386 448
Derivative financial instruments 14 430 - 14 430
Cash and cash equivalents (including money market investments) 1 241 533 1 098 581 142 952
Other assets* 1 416 109 1 416 109 -
Total assets 43 275 442 3 343 456 39 931 986
EQUITY
Equity attributable to owners of the parent 2 056 916 2 056 916 -
Non-controlling interest 173 886 173 886 -
Total equity 2 230 802 2 230 802 -
LIABILITIES
Borrowings 148 764 7 956 140 808
Investment contracts 22 032 848 - 22 032 848
Third-party liabilities arising on consolidation of mutual funds 16 507 660 - 16 507 660
Derivative financial instruments 14 408 - 14 408
Trade and other payables 1 682 919 446 657 1 236 262
Other liabilities** 658 041 658 041 -
Total liabilities 41 044 640 1 112 654 39 931 986
Total equity and liabilities 43 275 442 3 343 456 39 931 986
Total Client-
IFRS Own related
reported balances balances
As at 31 August 2015 (Unaudited) R000 R000 R000
ASSETS
Equity securities 887 759 6 271 881 488
Debt securities 1 666 917 96 839 1 570 078
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
Total Client-
IFRS Own related
reported balances balances
As at 29 February 2016 (Audited) R000 R000 R000
ASSETS
Equity securities 1 747 701 6 023 1 741 678
Debt securities 2 588 565 100 789 2 487 776
Unit-linked investments 29 695 283 443 737 29 251 546
Investment in investment contracts 116 477 - 116 477
Receivables including insurance receivables 2 816 578 229 599 2 586 979
Derivative financial instruments 17 864 - 17 864
Cash and cash equivalents (including money market investments) 1 395 952 1 115 118 280 834
Other assets* 1 305 246 1 305 246 -
Total assets 39 683 666 3 200 512 36 483 154
EQUITY
Equity attributable to owners of the parent 1 688 446 1 688 446 -
Non-controlling interest 157 212 157 212 -
Total equity 1 845 658 1 845 658 -
LIABILITIES
Borrowings 274 114 10 674 263 440
Investment contracts 19 836 250 - 19 836 250
Third-party liabilities arising on consolidation of mutual funds 14 023 726 - 14 023 726
Derivative financial instruments 17 910 - 17 910
Trade and other payables 2 894 051 552 223 2 341 828
Other liabilities** 791 957 791 957 -
Total liabilities 37 838 008 1 354 854 36 483 154
Total equity and liabilities 39 683 666 3 200 512 36 483 154
* 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 and insurance contracts.
5.6. Income statement (client vs own)
In order to evaluate the consolidated income statement of the group, the CODM 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.
Linked
Total investment
IFRS Core business
reported business and other
For the six months ended 31 August 2016 (Unaudited) R000 R000 R000
Commission and other fee income 1 368 564 1 345 312 23 252
Investment income 704 311 83 464 620 847
Net fair value gains and losses on financial instruments 1 497 632 9 013 1 488 619
Fair value adjustment to investment contract liabilities (1 059 376) - (1 059 376)
Other* 456 250 417 088 39 162
Total income 2 967 381 1 854 877 1 112 504
Insurance claims and loss adjustment expenses (348 955) (348 469) (486)
Fair value adjustment to third-party liabilities (993 652) - (993 652)
Other** (1 263 058) (1 174 059) (88 999)
Total expenses (2 605 665) (1 522 528) (1 083 137)
Total profit from associated companies and joint ventures 573 573 -
Profit before finance costs and taxation 362 289 332 922 29 367
Finance costs (23 975) (17 554) (6 421)
Profit before taxation 338 314 315 368 22 946
Taxation (104 569) (81 623) (22 946)
Profit for the period 233 745 233 745 -
Attributable to:
Owners of the parent 214 378 214 378 -
Non-controlling interest 19 367 19 367 -
233 745 233 745 -
Linked
Total investment
IFRS Core business
reported business and other
For the six months ended 31 August 2015 (Unaudited) 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 costs 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 -
Linked
Total investment
IFRS Core business
reported business and other
For the year ended 29 February 2016 (Audited) R000 R000 R000
Commission and other fee income 2 461 393 2 438 177 23 216
Investment income 612 988 190 893 422 095
Net fair value gains and losses on financial instruments 1 104 789 12 848 1 091 941
Fair value adjustment to investment contract liabilities (1 389 130) - (1 389 130)
Other* 711 636 704 396 7 240
Total income 3 501 676 3 346 314 155 362
Insurance claims and loss adjustment expenses (670 197) (668 808) (1 389)
Fair value adjustment to third-party liabilities (67 080) - (67 080)
Other** (2 043 623) (2 028 274) (15 349)
Total expenses (2 780 900) (2 697 082) (83 818)
Total profit from associated companies and joint ventures 2 767 2 767 -
Profit before finance costs and taxation 723 543 651 999 71 544
Finance costs (91 881) (41 939) (49 942)
Profit before taxation 631 662 610 060 21 602
Taxation (309 838) (288 236) (21 602)
Profit for the period 321 824 321 824 -
Attributable to:
Owners of the parent 292 924 292 924 -
Non-controlling interest 28 900 28 900 -
321 824 321 824 -
* 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.
5.7.Statement of cash flows (client vs own)
In order to assist the CODM to evaluate the consolidated statement of cash flows of the group, the statement of cash flows is segregated between cash flows relating to own balances
and client-related balances.
Total Client-
IFRS Own related
reported balances balances
For the six months ended 31 August 2016 (Unaudited) R000 R000 R000
Cash flows from operating activities* (55 818) 93 139 (148 957)
Cash flows from investing activities (12 249) (23 325) 11 076
Cash flows from financing activities (80 674) (80 674) -
Net decrease in cash and cash equivalents (148 741) (10 860) (137 881)
Cash and cash equivalents at beginning of period 1 395 952 1 115 119 280 833
Exchange losses on cash and cash equivalents (5 678) (5 678) -
Cash and cash equivalents at end of period 1 241 533 1 098 581 142 952
* Cash flows from operating activities relating to our balances were impacted negatively by the PSG Life Limited tax dispute settlement of R115 million paid in March 2016.
Total Client-
IFRS Own related
reported balances balances
For the six months ended 31 August 2015 (Unaudited) R000 R000 R000
Cash flows from operating activities 159 153 197 972 (38 819)
Cash flows from investing activities (38 914) (38 914) -
Cash flows from financing activities (82 357) (82 357) -
Net increase/(decrease) in cash and cash equivalents 37 882 76 701 (38 819)
Cash and cash equivalents at beginning of period 975 018 808 683 166 335
Exchange gains on cash and cash equivalents 2 173 2 173 -
Cash and cash equivalents at end of period 1 015 073 887 557 127 516
Total Client-
IFRS Own related
reported balances balances
For the year ended 29 February 2016 (Unaudited) R000 R000 R000
Cash flows from operating activities 543 850 525 640 18 210
Cash flows from investing activities 16 141 (80 148) 96 289
Cash flows from financing activities (142 250) (142 250) -
Net increase in cash and cash equivalents 417 741 303 242 114 499
Cash and cash equivalents at beginning of period 975 018 808 683 166 335
Exchange gains on cash and cash equivalents 3 193 3 193 -
Cash and cash equivalents at end of period 1 395 952 1 115 118 280 834
6. Investment contracts
Investment contracts are represented by the following financial assets:
Unaudited Unaudited Audited
as at as at as at
31 Aug 16 31 Aug 15 29 Feb 16
R000 R000 R000
Equity securities 2 099 569 816 727 1 661 713
Debt securities 637 474 730 721 783 225
Unit-linked investments 19 225 107 15 215 950 17 159 971
Investments in investment contracts 29 230 443 884 116 477
Cash and cash equivalents 41 468 22 071 114 864
22 032 848 17 229 353 19 836 250
7. Receivables including insurance receivables and trade and other payables
Included under receivables are broker and clearing accounts at our stockbroking business of which R1 349.7 million (31 Aug 2015: R2 455.5 million; 29 Feb 2016: R2 513.5 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 interests
For the year ended 29 February 2016
i) Acquisition of a further interest in PSG Namibia Proprietary Limited
With effect from 1 March 2015, PSG Konsult Limited (through its subsidiary PSG Distribution Holdings Proprietary Limited) acquired an additional 4% stake from a minority shareholder.
The group now holds 58% of the issued share capital of PSG Namibia Proprietary Limited. This transaction follows the acquisition of an additional 3% interest on 1 March 2014.
9. Non-current assets (or disposal groups) held for sale
For the year ended 29 February 2016 and six months ended 31 August 2016
PSG Konsult Limited (through its subsidiary Western Group Holdings Limited) sold its 23% interest held in Xinergistix Limited on 1 November 2015 for R38.9 million. The transaction
was subject to suspensive conditions and was treated as a non-current asset held for sale on 29 February 2016.
At as 31 August 2016, the approval from the Competition Commission on the disposal of Xinergistix Limited is still pending and is expected to be obtained before 28 February 2017.
10. Acquisition of subsidiaries
For the six months ended 31 August 2016
i) Ramet & Associes Ltee
PSG Konsult Limited, through its subsidiary PSG Wealth Limited (Mauritius), acquired a 100% interest in Ramet & Associes Ltee, a registered stockbroker in Mauritius. The effective
date of the transaction was 1 July 2016 following the fulfilment of suspensive conditions. The name of the company changed to PSG Securities Limited (Mauritius) during September 2016.
ii) Acquisition of collective investment schemes
The group obtained control of the PSG Wealth Income Fund of Funds during the six months ended 31 August 2016. This fund was consolidated in accordance with IFRS 10 - Consolidated
Financial Statements and is a collective investment scheme managed by PSG Asset Management.
Fund consolidated PSG Wealth
Income Fund
of Funds
% interest in fund on 31 August 2016 30%
Date of acquisition 31 August 2016
Group
Details of the net assets acquired are as follows: R000
Unit-linked investments 1 969 562
Receivables including insurance receivables 34
Cash and cash equivalents (including money market investments) 11 076
Third-party liabilities arising on consolidation of mutual funds (1 392 596)
Trade and other payables (699)
Net asset value 587 377
Fair value of equity interest held before the business combination (587 377)
Total consideration paid -
For the year ended 29 February 2016
i) PSG Wealth Limited (Mauritius) (previously DMH Associates Limited (Mauritius))
PSG Konsult Limited, through its wholly-owned subsidiary PSG Konsult (Mauritius) Limited, acquired a 70% interest in DMH Holding Limited, a holding company incorporated in Mauritius.
DMH Holding Limited has a wholly-owned subsidiary, PSG Wealth Limited (Mauritius) (previously DMH Associates Limited (Mauritius)), a financial services provider in Mauritius. The
effective date of the transaction was 1 November 2015 following the fulfilment of suspensive conditions.
ii) Acquisition of collective investment schemes
The group obtained control of the following collective investment schemes during the second half of the 2016 financial year: PSG Wealth Enhanced Interest Fund, PSG Wealth Creator
Fund of Funds and the PSG Wealth Moderate Fund of Funds. These funds were consolidated in accordance with IFRS 10 - Consolidated Financial Statements and are collective investment
schemes managed by PSG Asset Management.
PSG Wealth PSG Wealth PSG Wealth
Enhanced Creator Moderate
Interest Fund of Fund of
Fund consolidated Fund Funds Funds
% interest in fund on 29 February 2016 31% 31% 30%
Date of acquisition 1 September 29 February 29 February
2015 2016 2016
Group Group Group
Details of the net assets acquired are as follows: R000 R000 R000
Debt securities 610 369 - -
Unit-linked investments 419 456 3 361 218 14 168 287
Receivables including insurance receivables 13 181 71 -
Cash and cash equivalents (including money market investments) 43 345 20 529 32 415
Third-party liabilities arising on consolidation of mutual funds (748 930) (2 344 629) (9 947 685)
Trade and other payables (544) - -
Net asset value 336 877 1 037 833 4 253 017
Fair value of equity interest held before the business combination (336 877) (1 037 833) (4 253 017)
Total consideration paid - - -
11. Other acquisitions
For the six months ended 31 August 2016
i) Standardising of revenue sharing model
Effective 1 March 2016 and 17 March 2016, the group (through its subsidiaries PSG Wealth Financial Planning Proprietary Limited and PSG Multi Management Proprietary Limited)
concluded asset-for-share transactions (utilising Section 42 of the Income Tax Act) as well as further revenue sharing arrangements 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.
The consideration was paid with the issue of PSG Konsult shares (1 million shares at R7.20 per share and 13.3 million shares at R6.84 per share) and a cash consideration of
R2.8 million on the effective dates. These transactions 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.
These transactions contributed R2.5 million to our headline earnings during the six months ended 31 August 2016.
For the year ended 29 February 2016
i) Standardising of revenue sharing model
During the 2016 financial year 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 R1.5 million to our headline earnings for the 2016 financial year.
12. 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 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 29 February 2016.
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 adverse financial impact due to changes in fair values or future cash flows of financial instruments from fluctuations in equity prices, foreign currency
exchange rates and interest rates.
A portion of the policyholders' and shareholders' investments is 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 R2 194.5 million (31 Aug 2015: R887.8 million; 29 Feb 2016: R1 747.7 million) are quoted equity securities of R2 194.1 million
(31 Aug 2015: R886.9 million; 29 Feb 2016: R1 747.5 million), of which R2 099.6 million (31 Aug 2015: R816.7 million; 29 Feb 2016: R1 661.7 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 R637.5 million (31 Aug 2015: R730.7 million; 29 Feb 2016: R783.2 million) and do not expose the group to interest
rate risk. Cash and cash equivalents linked to policyholder investments amounted to R41.5 million (31 Aug 2015: R22.1 million; 29 Feb 2016: R114.9 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); and
- 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 29 February 2016.
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:
Instruments Valuation techniques Main assumptions
Derivative financial instruments Exit price on recognised over-the-counter (OTC) Not applicable
platforms
Debt securities Valuation model that uses the market input (yield Bond interest rate curves
of benchmark bonds) Issuer credit ratings
Liquidity spreads
Unit-linked investments Quoted put (exit) price provided by the fund manager Not applicable - prices
are publicly available
Investment in investment contracts Prices are obtained from the insurer of the Not applicable - prices
particular investment contract provided by registered
long-term insurers
Policyholder investment contract Current unit price of underlying unitised financial Not applicable
liabilities - unit-linked asset that is linked to the liability, multiplied by
the number of units held
Third-party financial liabilities Quoted put (exit) price provided by the fund manager Not applicable - prices
arising on the consolidation of are publicly available
mutual funds
The fair value of financial assets and liabilities measured at fair value in the statement of financial position can be summarised as follows:
Unaudited Level 1 Level 2 Level 3 Total
Financial assets R000 R000 R000 R000
At 31 August 2016
Financial assets at fair value through profit or loss
Derivative financial assets - 14 430 - 14 430
Equity securities 2 194 045 41 - 2 194 086
Debt securities 888 812 1 587 430 - 2 476 242
Unit-linked investments - 32 963 548 1 099 470 34 063 018
Investment in investment contracts - 29 230 - 29 230
Available-for-sale
Equity securities - - 377 377
3 082 857 34 594 679 1 099 847 38 777 383
Financial liabilities
At 31 August 2016
Financial liabilities at fair value through profit or loss
Derivative financial liabilities - 14 408 - 14 408
Investment contracts - 20 730 994 1 089 470 21 820 464
Trade and other payables - - 27 888 27 888
Third-party liabilities arising on consolidation of mutual funds - 16 507 660 - 16 507 660
- 37 253 062 1 117 358 38 370 420
Unaudited Level 1 Level 2 Level 3 Total
Financial assets R000 R000 R000 R000
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
Audited
Financial assets
At 29 February 2016
Financial assets at fair value through profit or loss
Derivative financial assets - 17 864 - 17 864
Equity securities 1 747 453 8 - 1 747 461
Debt securities 846 266 1 420 858 - 2 267 124
Unit-linked investments - 28 386 299 1 308 984 29 695 283
Investment in investment contracts - 73 815 - 73 815
Available-for-sale
Equity securities - - 240 240
2 593 719 29 898 844 1 309 224 33 801 787
Financial liabilities
At 29 February 2016
Financial liabilities at fair value through profit or loss
Derivative financial liabilities - 17 910 - 17 910
Investment contracts - 18 173 163 1 298 984 19 472 147
Trade and other payables - - 5 297 5 297
Third-party liabilities arising on consolidation of mutual funds - 14 023 726 - 14 023 726
- 32 214 799 1 304 281 33 519 080
The following tables presents the changes in level 3 financial instruments during the reporting periods under review:
Unaudited Unaudited Audited
31 Aug 16 31 Aug 15 29 Feb 16
R000 R000 R000
ASSETS
Opening carrying value 1 309 224 1 117 501 1 117 501
Additions 84 825 1 846 823 392 791
Disposals (319 826) (2 033 834) (761 413)
Gains recognised in profit and loss 25 624 106 553 560 345
1 099 847 1 037 043 1 309 224
LIABILITIES
Opening carrying value 1 304 281 1 120 109 1 120 109
Additions 111 040 1 852 842 406 434
Disposals (323 313) (2 038 341) (784 529)
Losses recognised in profit and loss 25 624 106 553 562 267
Interest and other (274) 23 -
1 117 358 1 041 186 1 304 281
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. Therefore, the group's overall profit or loss is 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 16 31 Aug 15 29 Feb 16
R000 R000 R000
ASSETS
Debt securities - held-to-maturity
- Carrying value 212 384 580 152 321 441
- Fair value 234 490 587 107 333 175
Investment in investment contracts
- Carrying value - 59 862 42 662
- Fair value - 61 480 42 707
Total assets
- Carrying value 212 384 640 014 364 103
- Fair value 234 490 648 587 375 882
LIABILITIES
Investment contracts
- Carrying value 212 384 640 014 364 103
- Fair value 234 490 648 587 375 882
The fair value of the financial assets and liabilities in the table above is categorised in terms of level 2 (31 Aug 2016: R100.5 million, 31 Aug 2015: R558.1 million,
29 Feb 2016: R265.3 million) and level 3 (31 Aug 2016: R134.0 million, 31 Aug 2015: R90.5 million, 29 Feb 2016: R110.6 million).
13. Related-party transactions
Related-party transactions similar to those disclosed in the group's annual financial statements for the year ended 29 February 2016 took place during the period under review.
14. Capital commitments and contingencies
Unaudited Unaudited Audited
31 Aug 16 31 Aug 15 29 Feb 16
R000 R000 R000
Operating lease commitments 155 378 124 937 149 620
Capital commitments - - 1 200
15. 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.
CORPORATE INFORMATION
Directorate
Non-executive directors
W Theron (Chairman)
PJ Mouton
J de V du Toit^
PE Burton*
ZL Combi*
R Stassen*
(^ 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 secretaries
Computershare Investor Services Proprietary Limited
70 Marshall Street
Johannesburg
2001
PO Box 61051
Marshalltown
Johannesburg
2107
Sponsors
JSE sponsor: PSG Capital Proprietary Limited
NSX sponsor: PSG Wealth Management (Namibia) Proprietary Limited
Auditor
PricewaterhouseCoopers Inc.
Cape Town
Date: 06/10/2016 12:50:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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