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Reviewed Preliminary Consolidated Financial Results For The Year Ended 28 February 2017
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 28 FEBRUARY 2017
• Recurring headline earnings up 18% to R9.27 per share
• Sum-of-the-parts value of R240.53 per share as at 11 April 2017
• Dividend for the year up 25% to R3.75 per share
• Headline earnings up 50% to R10.01 per share
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 and food and
related business, as well as early-stage investments in growth sectors. PSG’s market capitalisation
(net of treasury shares) is approximately R51bn.
RESULTS
The two key benchmarks in terms of which PSG measures performance are sum-of-the-parts (“SOTP”)
value and recurring headline earnings per share as long-term growth in PSG’s SOTP value and share
price will depend on, inter alia, sustained growth in the recurring headline earnings per share of
our underlying investments.
SOTP
The calculation of PSG’s SOTP value is simple and requires limited subjectivity as 90% of the
value is calculated using JSE-listed share prices, while other investments are included at
market-related valuations. At 28 February 2017, the SOTP value per PSG share was R240.87
(2016: R186.67), representing a 29% increase. At 11 April 2017, it was R240.53 per share.
28 Feb 29 Feb 28 Feb 11 Apr
2015 2016 2017 2017 Share
Asset/Liability Rm Rm Rm Rm of total
Capitec* 14 549 16 820 25 727 26 491 49%
Curro* 6 236 9 773 11 180 10 098 18%
PSG Konsult* 5 710 5 441 6 084 6 237 11%
Zeder* 3 712 2 815 5 398 5 528 10%
PSG Alpha (previously
PSG Private Equity)+ 1 246 1 367 1 909 2 003 4%
Dipeo+ 603 557 812 807 1%
PSG Corporate (including
PSG Capital)++ 1 398 1 510
Other assets (including cash
and pref investments)^ 2 031 4 358 3 586 3 442 7%
Total assets 35 485 42 641 54 696 54 606 100%
Perpetual pref funding* (1 411) (1 309) (1 350) (1 325)
Other debt^ (679) (949) (949) (958)
Total SOTP value 33 395 40 383 52 397 52 323
Shares in issue (net of
treasury shares) (m) 204.5 216.3 217.5 217.5
SOTP value per share (R) 163.28 186.67 240.87 240.53
* 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 47% of the total SOTP assets as at
28 February 2017 (February 2016: 39%), and 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 29 Feb 28 Feb
2015 2016 Change 2017
Rm Rm % Rm
Capitec 729 989 1 164
Curro 31 58 96
PSG Konsult 214 254 300
Zeder 152 212 275
PSG Alpha (previously PSG Private Equity) 59 113 133
Dipeo 45 (28) (20)
PSG Corporate (including PSG Capital) 38 69 29
Other (mainly pref div income) 51 101 112
Recurring headline earnings before funding 1 319 1 768 18 2 089
Funding (net of interest income) (177) (148) (104)
Recurring headline earnings 1 142 1 620 23 1 985
Non-recurring items 432 (250) 160
Headline earnings 1 574 1 370 57 2 145
Non-headline items (14) 113 17
Attributable earnings 1 560 1 483 46 2 162
Weighted average number of shares in issue
(net of treasury shares) (m) 192.3 205.7 4 214.2
Earnings per share (R)
- Recurring headline 5.94 7.88 18 9.27
- Headline 8.19 6.66 50 10.01
- Attributable 8.11 7.21 40 10.09
Dividend per share (R) 2.00 3.00 25 3.75
The year under review saw resilient performance from the majority of PSG’s core investments, with
recurring headline earnings per share increasing by 18% to R9.27.
Headline earnings per share increased by 50% to R10.01. This increase was higher than that of
recurring headline earnings per share mainly due to marked-to-market profits achieved on Dipeo’s
investment portfolio, as opposed to marked-to-market losses incurred in the prior year.
Attributable earnings per share increased by a smaller margin than headline earnings per share
mainly due to the non-recurrence of non-headline dilution gains made on associates from an
accounting perspective in the prior year.
SIGNIFICANT TRANSACTIONS
PSG undertook the following significant transactions during the year under review:
• Invested R669m cash in the Curro rights offer to fund further expansion.
• Acquired 19.2m PSG Konsult shares, representing an additional 1.5% equity interest, at an
average price of R7.14 for a total cash consideration of R137m.
• Concluded the Zeder management fee internalisation, whereby PSG exchanged its rights to the
Zeder management agreement for the issue of 207.7m new Zeder shares, representing a 12% equity
interest. All conditions precedent were satisfied during September 2016 and the implementation
of the transaction finalised, with PSG’s shareholding in Zeder consequently increasing from
34.5% to 42.4%, having subsequently diluted to 42.1%.
• Invested a further R134m in PSG Alpha’s portfolio of early-stage investments.
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 an 18% increase in headline earnings per share for the year under review.
Capitec is listed on the JSE and its comprehensive results are available at www.capitecbank.co.za.
PSG KONSULT (61.7%)
PSG Konsult is a financial services company, focused on providing wealth management, asset
management and insurance solutions to clients.
PSG Konsult reported a 16% increase in recurring headline earnings per share for the year under
review.
PSG Konsult is listed on the JSE and the Namibian Stock Exchange, and its comprehensive results
are available at www.psg.co.za.
CURRO (56.1%)
Curro is the largest provider of private school education in Southern Africa.
Curro reported a 55% increase in headline earnings per share for its financial year ended
31 December 2016.
Curro is listed on the JSE and its comprehensive results are available at www.curro.co.za.
ZEDER (42.1%)
Zeder is an investor in the broad agribusiness industry. Its largest investment is a 27.1%
interest in Pioneer Foods, comprising 63% of Zeder’s total SOTP assets.
Zeder reported a 0.5% increase in recurring headline earnings per share for the year under
review following tough trading conditions experienced at select investments.
Both Zeder and Pioneer Foods are listed on the JSE and their respective comprehensive results
are available at www.zeder.co.za and www.pioneerfoods.co.za.
PSG ALPHA (PREVIOUSLY PSG PRIVATE EQUITY) (100%)
PSG Alpha is not a private equity investor as defined, serving as incubator to find the
businesses of tomorrow and having no exit strategy. To avoid any misconception, we have changed
its name from PSG Private Equity to PSG Alpha.
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 Alpha reported a 25% increase in recurring headline earnings per share for the year under
review.
DIPEO (49%)
Dipeo, a BEE investment holding company, is 51%-owned by the Dipeo BEE Education Trust of which all
beneficiaries are black individuals. Dipeo’s most significant investments include shareholdings in
Curro (5.3%), Pioneer Foods (4.3%), Quantum Foods (4%) and Kaap Agri (20%). Apart from the latter,
these investments are all subject to BEE lock-in periods. The Dipeo BEE Education Trust will use
its share of the value created from these investments to fund black students’ education.
PROSPECTS
We believe PSG’s investment portfolio should continue yielding above average returns. PSG currently
has R1.3bn cash available 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
approximately 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 250 cents (2016: 200 cents) per
share from income reserves for a total dividend of 375 cents (2016: 300 cents) per share in respect
of the year ended 28 February 2017.
The final dividend amount, net of South African dividend tax of 20%, is 200 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 231 449 404, and the income tax number of the company is 9950080714.
The salient dates for this dividend distribution are:
Last day to trade cum dividend Tuesday, 9 May 2017
Trading ex-dividend commences Wednesday, 10 May 2017
Record date Friday, 12 May 2017
Payment date Monday, 15 May 2017
Share certificates may not be dematerialised or rematerialised between Wednesday, 10 May 2017, and
Friday, 12 May 2017, both days inclusive.
Preference shares
The directors of PSG Financial Services declared a gross dividend of 433.89 cents per share in
respect of the cumulative, non-redeemable, non-participating preference shares for the six months
ended 28 February 2017, which was paid on Monday, 20 March 2017. The detailed announcement in
respect hereof was disseminated on the JSE’s Stock Exchange News Services.
REVIEWED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 2017
Reviewed Audited
Feb-17 Feb-16
Condensed consolidated income statement Rm Rm
Revenue from sale of goods 14 429 12 964
Cost of goods sold (12 416) (11 215)
Gross profit from sale of goods 2 013 1 749
Income
Changes in fair value of biological assets 224 244
Investment income (note 7) 1 896 974
Fair value gains and losses (note 7)* 1 540 778
Fair value adjustment to investment contract liabilities (note 7) (976) (1 439)
Fair value adjustment to third-party liabilities arising on
consolidation of mutual funds (note 7)* (1 239) (202)
Commission, school, net insurance and other fee income 5 718 5 155
Other operating income 158 98
7 321 5 608
Expenses
Insurance claims and loss adjustments, net of recoveries (581) (519)
Marketing, administration and other expenses* (6 224) (5 507)
(6 805) (6 026)
Net income from associates and joint ventures
Share of profits of associates and joint ventures 1 827 1 609
(Loss on impairment)/reversal of impairment of associates
and joint ventures (6) 8
Net profit on sale/dilution of interest in associates 10 295
1 831 1 912
Profit before finance costs and taxation 4 360 3 243
Finance costs (474) (456)
Profit before taxation 3 886 2 787
Taxation (537) (584)
Profit for the year 3 349 2 203
Attributable to:
Owners of the parent 2 162 1 483
Non-controlling interests 1 187 720
3 349 2 203
* Reclassified as set out in note 11.
Change Reviewed Audited
Earnings per share and number of shares in issue % Feb-17 Feb-16
Earnings per share (R)
- Recurring headline 18 9.27 7.88
- Headline (note 4) 50 10.01 6.66
- Attributable/basic 40 10.09 7.21
- Diluted headline 52 9.79 6.46
- Diluted attributable/basic 41 9.86 6.99
Number of shares (m)
- In issue 231.4 230.8
- In issue (net of treasury shares) 215.4 214.2
- Weighted average 214.2 205.7
- Diluted weighted average 216.7 208.9
Reviewed Audited
Feb-17 Feb-16
Condensed consolidated statement of comprehensive income Rm Rm
Profit for the year 3 349 2 203
Other comprehensive loss for the year, net of taxation (519) (73)
Items that may be subsequently reclassified to profit or loss
Currency translation adjustments (450) (105)
Cash flow hedges (21) 22
Share of other comprehensive income and equity movements of associates (44) 2
Recycling of share of other comprehensive income and equity movements of
associates upon disposal (1)
Items that may not be subsequently reclassified to profit or loss
(Losses)/gains from changes in financial and demographic assumptions of
post-employment benefit obligations (4) 9
Total comprehensive income for the year 2 830 2 130
Attributable to:
Owners of the parent 1 974 1 516
Non-controlling interests 856 614
2 830 2 130
Reviewed Audited
Feb-17 Feb-16
Condensed consolidated statement of financial position Rm Rm
Assets
Property, plant and equipment* 7 703 6 185
Intangible assets 3 108 2 714
Biological assets 486 406
Investment in ordinary shares of associates and joint ventures 13 212 12 061
Investment in preference shares of/loans granted to associates and
joint ventures 144 105
Deferred income tax assets 194 193
Financial assets linked to investment contracts (note 7) 22 561 19 836
Cash and cash equivalents 14 115
Other financial assets 22 547 19 721
Other financial assets (notes 6.2 and 7) 27 035 21 448
Inventory 1 667 1 618
Trade and other receivables (note 8)* 3 838 5 204
Current income tax assets 64 40
Cash and cash equivalents 2 035 1 862
Non-current assets held for sale 14 76
Total assets 82 061 71 748
Equity
Ordinary shareholders’ equity 15 900 13 634
Non-controlling interests 10 900 10 127
Total equity 26 800 23 761
Liabilities
Insurance contracts 544 607
Financial liabilities under investment contracts (note 7) 22 561 19 836
Borrowings 5 411 5 604
Other financial liabilities 156 102
Third-party liabilities arising on consolidation of mutual
funds (notes 6.2 and 7) 21 394 15 729
Deferred income tax liabilities 857 617
Trade and other payables and employee benefit liabilities (note 8) 4 281 5 287
Current income tax liabilities 57 205
Total liabilities 55 261 47 987
Total equity and liabilities 82 061 71 748
Net asset value per share (R) 73.81 63.64
Net tangible asset value per share (R) 59.38 50.97
* Reclassified as set out in note 11.
Reviewed Audited
Change Feb-17 Feb-16
Condensed consolidated statement of changes in equity % Rm Rm
Ordinary shareholders’ equity at beginning of the year 13 634 9 999
Total comprehensive income 1 974 1 516
Issue of shares 75 2 455
Share-based payment costs - employees 60 51
Net movement in treasury shares 21 56
Transactions with non-controlling interests 832 55
Dividends paid (696) (498)
Ordinary shareholders’ equity at end of the year 15 900 13 634
Non-controlling interests at beginning of the year 10 127 9 097
Total comprehensive income 856 614
Issue of shares 1 415 1 515
Share-based payment costs - employees 27 19
Subsidiaries acquired (note 6.1) 14 6
Transactions with non-controlling interests (1 188) (821)
Dividends paid (351) (303)
Non-controlling interests at end of the year 10 900 10 127
Total equity 26 800 23 761
Dividend per share (R)
- Interim 1.25 1.00
- Final 2.50 2.00
25 3.75 3.00
Reviewed Audited
Feb-17 Feb-16
Condensed consolidated statement of cash flows Rm Rm
Net cash flow from operating activities
Cash generated from operations (note 5)* 257 900
Interest income* 1 476 861
Dividend income* 1 078 680
Finance costs (433) (464)
Taxation paid (553) (446)
Net cash flow from operating activities before cash movement
in policyholder funds 1 825 1 531
Cash movement in policyholder funds* (101) 88
Net cash flow from operating activities 1 724 1 619
Net cash flow from investing activities (1 674) (4 181)
Cash flow from subsidiaries acquired (note 6.1) (491) (274)
Cash flow from consolidation of mutual funds (note 6.2) 32 96
Acquisition of ordinary shares in associates (147) (62)
Proceeds from disposal of ordinary shares in associates 13 111
Acquisition of property, plant and equipment (1 631) (1 504)
Other investing activities 550 (2 548)
Net cash flow from financing activities 76 2 754
Dividends paid to group shareholders (696) (498)
Dividends paid to non-controlling interests (351) (303)
Capital contributions by non-controlling interests 1 183 733
Acquisition from non-controlling interests (202) (229)
Borrowings drawn 495 1 134
Borrowings repaid (449) (632)
Proceeds from delivery of holding company’s
share incentive trust treasury shares 21 94
Shares issued 75 2 455
Net increase in cash and cash equivalents 126 192
Exchange losses on cash and cash equivalents (71) (17)
Cash and cash equivalents at beginning of the year 1 001 826
Cash and cash equivalents at end of the year** 1 056 1 001
Cash and cash equivalents consist of:
Cash and cash equivalents per the statement of financial position 2 035 1 862
Cash and cash equivalents attributable to equity holders 1 946 1 696
Other clients’ cash and cash equivalents 89 166
Cash and cash equivalents linked to investment contracts 14 115
Bank overdrafts attributable to equity holders (included in borrowings) (993) (976)
1 056 1 001
* These line items are impacted by linked investment contracts and consolidated mutual funds as
detailed in note 7.
** Available cash held at a PSG Group-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” in 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 arising on consolidation of mutual funds”. Available cash held at a
PSG Group-level and invested in the PSG Money Market Fund amounted to R1.5bn (2016: R2.9bn) at
the reporting date.
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 JSE Listings
Requirements.
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 28 February 2017. 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 Chief Financial Officer, 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
(2016: 17 415 770) perpetual preference shares which are listed on the JSE. These preference shares
are included in non-controlling interests in the condensed consolidated statement of financial
position. No separate financial statements are presented in this announcement for PSG Financial
Services as it is the only directly held asset of PSG Group.
Reviewed Audited
Feb-17 Feb-16
Rm Rm
4. Headline earnings
Profit for the year attributable to owners of the parent 2 162 1 483
Non-headline items
Gross amounts (8) (283)
Impairment/(reversal of impairment) of investment in associates 6 (8)
Net profit on sale/dilution of investment in associates (10) (295)
Net loss on sale of investment in subsidiaries 2
Fair value gain on step-up from associate to subsidiary (39) (4)
Net loss on sale/impairment of intangible assets (including goodwill) 5 14
Net loss/(profit) on sale/reversal of impairment of property, plant
and equipment 11 (18)
Non-headline items of associates 18 29
Bargain purchase gain (15) (4)
Impairment of available-for-sale financial assets and non-current
assets held for sale 16 1
Non-controlling interests (10) 166
Taxation 1 4
Headline earnings 2 145 1 370
Reviewed Audited
Feb-17 Feb-16
Rm Rm
5. Cash generated from operations
Profit before taxation 3 886 2 787
Share of profits of associates and joint ventures (1 827) (1 609)
Depreciation and amortisation 433 380
Investment income (1 896) (974)
Finance costs 474 456
Working capital changes and other non-cash items (813) (140)
Cash generated from operations 257 900
6. Business combinations
6.1 Subsidiaries acquired
The group’s subsidiaries acquired during the year under review included:
Windhoek Gymnasium business operations (“Windhoek Gymnasium”)
During March 2016, the group, through Curro Holdings Ltd (“Curro”), acquired the business
operations of Windhoek Gymnasium for a consideration of R181m, of which R26m has been deferred.
Windhoek Gymnasium operates a private school in Windhoek, Namibia, being complementary to Curro’s
existing operations. Goodwill of R58m arose in respect of, inter alia, the workforce, expected
synergies, economies of scale and the business’s growth potential.
De Jager Kids (Pty) Ltd and Building Blocks Prep School (Pty) Ltd (“Building Blocks”)
During July 2016, the group, through Curro, acquired 100% of the issued share capital of
Building Blocks for a cash consideration of R88m. Building Blocks operates pre-primary and
primary school campuses in Gauteng, South Africa, being complementary to Curro’s existing
operations. Goodwill of R37m arose in respect of, inter alia, the workforce, expected synergies,
economies of scale and the business’s growth potential.
St Conrads College business operations (“St Conrads”)
During July 2016, the group, through Curro, acquired the business operations of St Conrads for
a consideration of R43m, of which R8m is contingent upon learner number targets being met.
St Conrads operates a private school in Klerksdorp, South Africa, being complementary to Curro’s
existing operations. A bargain purchase gain of R15m was recognised in respect of the acquisition.
ITSI Holdings (Pty) Ltd (“ITSI”)
During September 2016, the group, through PSG Alpha, increased its shareholding in ITSI from 47%
to 61.8% for a consideration of R25m. ITSI is a provider of education solutions predominantly in
South Africa. Goodwill of R46m arose in respect of, inter alia, the workforce and the business’s
growth potential.
Dryden Combustion Company (Pty) Ltd (“Dryden”)
During January 2017, the group, through PSG Alpha, acquired 100% of the issued share capital of
Dryden for a consideration of R60m, of which R20m is contingent upon management remaining in
service for a year and certain gross profit targets being met during such period. Dryden provides
combustion products and services throughout Southern Africa, being complementary to the products
and services of NRGP Holdings (Pty) Ltd (t/a Energy Partners) (“Energy Partners”), an existing
subsidiary of PSG Alpha. Goodwill of R28m arose in respect of, inter alia, the workforce,
expected synergies, economies of scale and the business’s growth potential.
Ref NRG (Pty) Ltd (“Refsols”)
During January 2017, the group, through PSG Alpha’s investment in Energy Partners, increased its
shareholding in Refsols from 26% to 74% for a cash consideration of R45m. Refsols provides
refrigeration products and services throughout Southern Africa, being complementary to the products
and services of Energy Partners. Goodwill of R52m arose in respect of, inter alia, the workforce,
expected synergies, economies of scale and the business’s growth potential.
Groot Patrysvlei farming operations (“Groot Patrysvlei”)
During September 2016, the group, through Zeder Investments Ltd (“Zeder”), acquired the farming
operations of Groot Patrysvlei for a cash consideration of R73m. Groot Patrysvlei operates a
citrus farm, being complementary to the operations of Capespan Group Ltd (“Capespan”), an existing
subsidiary of Zeder.
Port Services (Pty) Ltd (“Port Stevedores”)
During January 2017, the group, through Zeder, acquired the entire issued share capital in
Port Stevedores for a consideration of R50m, of which R17m is contingent upon profit targets being
met during the next financial year. Port Stevedores provides logistical port services in
South Africa, being complementary to the operations of Capespan. Goodwill of R7m arose in respect
of, inter alia, the workforce, expected synergies, economies of scale and the business’s growth
potential.
The amounts of identifiable net assets of subsidiaries acquired, as well as goodwill and
non-controlling interests recognised from business combinations during the year under review, can
be summarised as follows:
Windhoek Building
Gymnasium Blocks St Conrads ITSI Dryden Sub-total
Reviewed Rm Rm Rm Rm Rm Rm
Identifiable net assets
acquired 123 51 58 7 32 271
Goodwill recognised 58 37 46 28 169
Gain on bargain purchase (15) (15)
Non-controlling interests
recognised (3) (3)
Derecognition of
investment in associates
at fair value (25) (25)
Purchase consideration 181 88 43 25 60 397
Deferred/contingent
consideration (26) (8) (20) (54)
Cash consideration paid 155 88 35 25 40 343
Cash consideration paid (155) (88) (35) (25) (40) (343)
Cash and cash equivalents
acquired 1 10 5 8 24
Cash flow from
subsidiaries acquired (154) (88) (25) (20) (32) (319)
Groot Port
Sub-total Refsols Patrysvlei Stevedores Other Total
Reviewed Rm Rm Rm Rm Rm Rm
Identifiable net assets
acquired 271 24 73 43 23 434
Goodwill recognised 169 52 7 25 253
Gain on bargain purchase (15) (15)
Non-controlling interests
recognised (3) (6) (5) (14)
Derecognition of
investment in associates
at fair value (25) (25) (8) (58)
Purchase consideration 397 45 73 50 35 600
Deferred/contingent
consideration (54) (17) (71)
Cash consideration paid 343 45 73 33 35 529
Cash consideration paid (343) (45) (73) (33) (35) (529)
Cash and cash equivalents
acquired 24 3 3 8 38
Cash flow from
subsidiaries acquired (319) (42) (73) (30) (27) (491)
Transaction costs relating to the business combinations were insignificant and expensed in the
income statement.
The aforementioned business combinations’ accounting have been finalised and do not contain any
contingent consideration or indemnification asset arrangements, unless otherwise stated.
Had the aforementioned entities been consolidated with effect from 1 March 2016 instead of their
respective acquisition dates, the condensed consolidated income statement would have reflected
additional revenue of R512m and profit for the year of R56m.
Receivables of R61m are included in the identifiable net assets acquired, which are all considered
to be recoverable. The fair value of these receivables approximates its carrying value.
6.2 Consolidation of mutual funds
During the year under review, the group commenced consolidation of the PSG Wealth Income Fund of Funds
and the PSG Wealth Global Creator Feeder Fund, following an increase in policyholder funds
(i.e. financial assets linked to investment contracts) invested in same. These mutual funds are
managed by PSG Konsult Ltd (“PSG Konsult”). The consolidation of the aforementioned mutual funds
resulted in an additional R4bn of “other financial assets” and R4bn of “third-party liabilities arising
on consolidation of mutual funds” being recognised in the condensed consolidated statement of financial
position. Cash and cash equivalents held by these mutual funds of R32m was recognised upon
consolidation.
7. Linked investment contracts and consolidated mutual funds
Linked investment contracts are represented by PSG Life Ltd (an existing subsidiary of PSG Konsult)
clients’ assets held under investment contracts, which are linked to a corresponding liability.
Accordingly, the value of policy benefits payable is directly linked to the fair value of the
supporting assets and therefore the group is not exposed to the financial risks associated with these
assets and liabilities.
As a result of the group’s consolidation of mutual funds which it controls in accordance with IFRS 10,
the group’s investments in these mutual funds have been derecognised and all the funds’ underlying
assets have been recognised. Third parties’ funds invested in the respective mutual funds are
recognised as a payable and included under “third-party liabilities arising on consolidation of mutual
funds”.
The income statement impact recognised from the assets and liabilities pertaining to the linked
investment contracts and consolidated mutual funds are split from the corresponding income statement
line items attributable to the equity holders of the group below:
Reviewed Audited
Feb-17 Feb-16
Linked Linked
investment investment
contracts contracts
and and
consolidated Equity consolidated Equity
mutual funds holders Total mutual funds holders Total
Rm Rm Rm Rm Rm Rm
Investment income 1 398 498 1 896 607 367 974
Fair value gains
and losses 957 583 1 540 1 092 (314) 778
Fair value adjustment
to investment contract
liabilities (976) (976) (1 439) (1 439)
Fair value adjustment to
third-party liabilities
arising on consolidation
of mutual funds (1 239) (1 239) (202) (202)
Various other line items (140) (140) (58) (58)
- -
The statement of cash flows impact recognised from the assets and liabilities pertaining to the
linked investment contracts and consolidated mutual funds are split from the corresponding statement
of cash flows line items attributable to the equity holders of the group below:
Reviewed Audited
Feb-17 Feb-16
Linked Linked
investment investment
contracts contracts
and and
consolidated Equity consolidated Equity
mutual funds holders Total mutual funds holders Total
Rm Rm Rm Rm Rm Rm
Cash (utilised by)/
generated from
operations (1 236) 1 493 257 (478) 1 378 900
Interest income 802 674 1 476 340 521 861
Dividend income 375 703 1 078 82 598 680
Finance costs (433) (433) (464) (464)
Taxation paid (50) (503) (553) (14) (432) (446)
Cash movement in
policyholder funds (101) (101) 88 88
Net cash flow from
operating activities (210) 1 934 1 724 18 1 601 1 619
Net cash flow from
investing activities 32 (1 706) (1 674) 96 (4 277) (4 181)
Net cash flow from
financing activities 76 76 2 754 2 754
Net (decrease)/increase
in cash and cash
equivalents (178) 304 126 114 78 192
Exchange losses on
cash and cash
equivalents (71) (71) (17) (17)
Cash and cash
equivalents at
beginning of the year 281 720 1 001 167 659 826
Cash and cash
equivalents at
end of the year 103 953 1 056 281 720 1 001
8. Trade and other receivables and payables
Included under trade and other receivables are PSG Online broker and clearing accounts of which
R1.2bn (2016: R2.5bn) represents amounts owing by the JSE for trades conducted during the last few
days before the reporting date. These balances fluctuate on a daily basis depending on the activity
in the 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.
All such balances have been settled accordingly.
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. Financial instruments
10.1 Financial risk factors
The group’s activities expose it to a variety of financial risks: market risk (including currency
risk, fair value 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 28 February 2017. Risk management continues to be carried out by each entity within the
group under policies approved by the respective boards of directors.
10.2 Fair value estimation
The group, through PSG Life Ltd, issues linked investment contracts 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 in the supporting
assets.
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
Rm Rm Rm Rm
28 February 2017 (reviewed)
Assets
Derivative financial assets 64 64
Equity securities 2 257 1 606 50 3 913
Debt securities 1 005 1 686 2 691
Unit-linked investments 36 545 1 111 37 656
Investment in investment contracts 16 16
Closing balance 3 262 39 917 1 161 44 340
Liabilities
Derivative financial liabilities 38 114 152
Investment contracts 21 317 1 099 22 416
Trade and other payables 38 38
Third-party liabilities arising on
consolidation of mutual funds 21 394 21 394
Closing balance - 42 749 1 251 44 000
29 February 2016 (audited)
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
The following table presents changes in level 3 financial instruments during the respective years:
Reviewed Audited
Feb-17 Feb-16
Assets Liabilities Assets Liabilities
Rm Rm Rm Rm
Opening balance 1 403 1 369 1 200 1 184
Additions 193 295 453 406
Disposals (454) (449) (790) (785)
Fair value adjustments 19 36 540 559
Other movements 5
Closing balance 1 161 1 251 1 403 1 369
Unit-linked investments represent the largest portion of the level 3 financial assets and relate
to units 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, unit-linked investments and
investment in investment contracts are all included in “other financial assets” in the statement
of financial position, while “other financial liabilities” comprises mainly 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 Bond interest rate curves,
market inputs (yield of issuer credit ratings and
benchmark bonds) liquidity spreads
Unit-linked investments Quoted exit price provided Not applicable - prices
by the fund manager available publicly
Investment in investment contracts Prices are obtained from the Not applicable - prices
insurer of the particular provided by registered
investment contract long-term insurers
Investment contracts Current unit price of underlying Not applicable
unitised financial asset that is
linked to the liability,
multiplied by the number of
units held
Third-party liabilities arising on Quoted exit price provided Not applicable - prices
consolidation of mutual funds by the fund manager available publicly
11. Reclassification of prior year figures
Presentation in the income statement
PSG Konsult’s consolidation of additional mutual funds has resulted in an increase in the fair
value adjustments made to the third-party liabilities arising on consolidation of mutual funds.
Accordingly, management has decided to disclose same separately on the face of the income statement
for the sake of transparency. The comparatives for the year ended 29 February 2016 have been
reclassified by removing the relevant amounts from “fair value gains and losses” and “marketing,
administration and other expenses”, and including same in “fair value adjustment to third-party
liabilities arising on consolidation of mutual funds” on the face of the income statement.
This reclassification had no impact on previously reported assets, liabilities, equity,
profitability or cash flows, and the results thereof are:
Previously Now
reported reported Change
Income statement for the year ended 29 February 2016 Rm Rm Rm
Fair value gains and losses 643 778 135
Fair value adjustment to third-party liabilities
arising on consolidation of mutual funds (202) (202)
Marketing, administration and other expenses (5 574) (5 507) 67
-
Presentation in the statement of financial position
Leasehold improvements made by Curro have been reclassified from “property, plant and equipment” to
“trade and other receivables” in respect of balances reported at 29 February 2016, since these
leasehold improvements are recoverable from the landlord.
This reclassification had no impact on previously reported liabilities, equity, profitability or
cash flows, and the results thereof are:
Previously Now
reported reported Change
Statement of financial position as at 29 February 2016 Rm Rm Rm
Property, plant and equipment 6 233 6 185 (48)
Trade and other receivables 5 156 5 204 48
-
12. Segment report
The group’s classification into seven reportable segments, namely: Capitec, Curro, PSG Konsult,
Zeder, PSG Alpha, 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 operations
outside the Republic of South Africa through, inter alia, Curro’s investment in Windhoek Gymnasium,
Zeder’s investments in Capespan, Zaad Holdings Ltd and Agrivision Africa, and PSG Alpha’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, as well as intergroup advisory fees.
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.
SOTP is a key valuation tool used to measure PSG’s performance. In determining SOTP, listed
assets and liabilities are valued using quoted market prices, whereas unlisted assets and
liabilities are valued using appropriate valuation methods. These values will not necessarily
correspond with the values per the statement of financial position since the latter are measured
using the relevant accounting standards which include historical cost and the equity method of
accounting.
The chief operating decision-maker (the PSG Group Executive Committee) evaluates the following
information to assess the segments’ performance:
Recurring
Inter- headline Non-
segment earnings recurring
Income income (segment headline Headline SOTP
Year ended 28 February 2017 ** ** profit) earnings earnings value^
(reviewed) Rm Rm Rm Rm Rm Rm
Capitec* 1 164 1 164 25 727
Curro 1 834 96 96 11 180
PSG Konsult 3 799 300 300 6 084
Zeder 10 522 275 (4) 271 5 398
PSG Alpha 4 781 133 3 136 1 909
Dipeo 594 (20) 187 167 812
PSG Corporate (including
PSG Capital) 155 (102) 29 (26) 3
Funding 193 (26) (104) (104) (2 299)
Other 112 112 3 586
Total 21 878 (128) 1 985 160 2 145 52 397
Non-headline items 17
Earnings attributable to
non-controlling interests 1 187
Taxation 537
Profit before taxation 3 886
Recurring
Inter- headline Non-
segment earnings recurring
Income income (segment headline Headline SOTP
Year ended 29 February 2016 ** ** profit) earnings earnings value^
(audited) Rm Rm Rm Rm Rm Rm
Capitec* 989 989 16 820
Curro 1 415 58 58 9 773
PSG Konsult 3 385 254 (72) 182 5 441
Zeder 9 606 212 (27) 185 2 815
PSG Alpha 4 210 113 (2) 111 1 367
Dipeo (310) (28) (170) (198) 557
PSG Corporate (including
PSG Capital) 308 (166) 69 21 90 1 510
Funding 136 (12) (148) (148) (2 258)
Other 101 101 4 358
Total 18 750 (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
Reviewed Audited
Feb-17 Feb-16
Rm Rm
Reconciliation of segment revenue to IFRS revenue:
Segment revenue as stated above:
Income^^ 21 878 18 750
Inter-segment income (128) (178)
Less:
Changes in fair value of biological assets (224) (244)
Fair value gains and losses^^ (1 540) (778)
Fair value adjustment to investment contract liabilities 976 1 439
Fair value adjustment to third-party liabilities arising
on consolidation of mutual funds^^ 1 239 202
Other operating income (158) (98)
IFRS revenue*** 22 043 19 093
Non-recurring headline earnings comprised the following:
Non-recurring items from investments 186 (271)
Other (losses)/gains (26) 21
160 (250)
* 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, school,
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.
^^ Reclassified as set out in note 11.
13. Capital commitments, contingencies and suretyships
Curro continues with its expansion and development of new campuses. At the reporting date, authorised
and contracted capital expenditure amounted to R128m, while authorised but not yet contracted capital
expenditure amounted to R1.9bn.
14. Related-party transactions
Related-party transactions similar to those disclosed in the consolidated annual financial statements
for the year ended 29 February 2016 took place during the year under review.
15. Events subsequent to the reporting date
No material event has occurred between the reporting date and the date of approval of these condensed
consolidated financial statements.
On behalf of the board
Jannie Mouton Piet Mouton Wynand Greeff
Chairman Chief Executive Officer Chief Financial Officer
Stellenbosch
19 April 2017
DIRECTORS:
JF Mouton (Chairman)+, PE Burton^^, ZL Combi^, FJ Gouws+, WL Greeff (CFO)*, JA Holtzhausen*,
MJ Jooste+ (Alt: AB la Grange), B Mathews^, JJ Mouton+, PJ Mouton (CEO)*, CA Otto^
* Executive + Non-executive ^ Independent non-executive ^^ Lead independent director
COMPANY 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, Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196;
PO Box 61051, Marshalltown, 2107
SPONSOR:
PSG Capital
AUDITOR:
PricewaterhouseCoopers Inc
Date: 19/04/2017 01:50:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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