Wrap Text
Unaudited Results For The Six Months Ended 31 August 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”)
UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2017
• SOTP value of R262.32 per share as at 6 October 2017
• Interim dividend up 10% to 138 cents per share
• Recurring headline earnings stable at 412 cents 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 R54bn.
PERFORMANCE
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 91% of the
value is calculated using JSE-listed share prices, while other investments are included at
market-related valuations. At 31 August 2017, the SOTP value per PSG share was R261.05
(28 February 2017: R240.87), representing an 8% increase. At 6 October 2017, it was R262.32 per
share. The 5-year compound annual growth rate (“CAGR”) of both PSG’s SOTP value and share price
was 31% at 31 August 2017.
29 Feb 28 Feb 31 Aug 6 Oct
2016 2017 2017 2017 Share 5-year
Asset/Liability Rm Rm Rm Rm of total CAGR#
Capitec* 16 820 25 727 31 954 31 689 53% 35%
Curro (including Stadio)* 9 773 11 180 8 877 9 653 16% 18%
PSG Konsult* 5 441 6 084 7 210 7 250 12% 34%
Zeder* 2 815 5 398 4 607 4 382 7% 17%
PSG Alpha+ 1 367 1 909 2 510 2 530 4% 23%
Dipeo+ 557 812 546 480 1%
Other assets
Cash^ 2 895 1 513 1 196 1 163 2%
Pref investments
and loans receivable^ 1 335 2 002 2 128 2 120 4%
PSG Corporate++ 1 510
Other^ 128 71 69 59 1%
Total assets 42 641 54 696 59 097 59 326 100%
Perpetual pref funding* (1 309) (1 350) (1 358) (1 304)
Other debt^ (949) (949) (950) (957)
Total SOTP value 40 383 52 397 56 789 57 065
Shares in issue (net of
treasury shares) (m) 216.3 217.5 217.5 217.5
SOTP value per share (R) 186.67 240.87 261.05 262.32 31%
Share price (R) 173.69 251.43 252.60 246.17 31%
* Listed on the JSE + SOTP value ++ Valuation ^ Carrying value
# Based on share price/SOTP value per share
Note: PSG’s live SOTP is available at www.psggroup.co.za
Capitec remains PSG’s largest investment comprising 54% of the total SOTP assets as at 31 August 2017
(28 February 2017: 47%), and the major contributor to PSG’s recurring headline earnings.
RECURRING HEADLINE EARNINGS
The six-month period under review saw satisfactory recurring headline earnings per share performance
from PSG’s core investments offset by Zeder’s weaker performance, being largely invested in the food
and related sectors that were negatively affected by particularly tough conditions. Despite Zeder’s
performance, PSG’s recurring headline earnings per share remained stable at 412 cents.
Audited
Unaudited Year
Six months ended ended
Aug-16 Change Aug-17 Feb-17
Rm % Rm Rm
Capitec 538 628 1 164
Curro 47 61 96
PSG Konsult 132 147 300
Zeder 79 27 275
PSG Alpha 49 66 133
Dipeo (3) (34) (20)
PSG Corporate 38 (18) 29
Other (mainly pref div income) 51 68 112
Recurring headline earnings before funding 931 1.5 945 2 089
Funding (net of interest income) (49) (57) (104)
Recurring headline earnings 882 0.7 888 1 985
Non-recurring items 126 (107) 160
Headline earnings 1 008 (22.5) 781 2 145
Non-headline items 16 52 17
Attributable earnings 1 024 (18.7) 833 2 162
Non-recurring items comprises:
- Unrealised fair value gains/(losses) on
Dipeo’s investment portfolio 132 (98) 187
- Other (6) (9) (27)
126 (107) 160
Weighted average number of shares in issue
(net of treasury shares) (m) 214.2 0.6 215.4 214.2
Earnings per share (cents)
- Recurring headline 411.8 0.1 412.1 926.6
- Headline 470.5 (22.9) 362.6 1 001.4
- Attributable 477.8 (19.1) 386.4 1 009.0
Dividend per share (cents) 125.0 10.4 138.0 375.0
Headline earnings per share decreased by 22.9% to 362.6 cents following Zeder’s lower contribution
and unrealised fair value losses incurred on Dipeo’s investment portfolio, as opposed to unrealised
fair value gains achieved in the comparative period last year.
Attributable earnings per share decreased by a smaller margin than headline earnings per share
mainly due to non-headline gains made on businesses sold during the period under review.
SIGNIFICANT TRANSACTIONS
During the period under review, PSG invested a further R62m in PSG Alpha’s portfolio of early-stage
investments.
During September 2017, PSG Alpha concluded an agreement (subject to regulatory approvals being
obtained) to obtain a 50% interest in Evergreen Lifestyle, one of South Africa’s leading providers
of retirement living, for R675m. This investment marks a significant new focus area for PSG and one
of its biggest initial cash investments to date.
Following its recent listing and unbundling from Curro, Stadio, the private tertiary education
provider, will undertake a rights offer of R640m later in October 2017 to fund growth, which has
been fully underwritten by PSG. Stadio will in future be reported on as part of the PSG Alpha
investment portfolio.
CAPITEC (30.7%)
Capitec is a South African retail bank focused on delivering simplified banking that is both
affordable and easy to access through personal service.
It reported a 17% increase in headline earnings per share for the period under review.
Capitec is listed on the JSE and its comprehensive results are available at www.capitecbank.co.za.
PSG KONSULT (61.4%)
PSG Konsult is a financial services company, focused on providing wealth management, asset
management and insurance solutions to clients.
It reported a 10% increase in recurring headline earnings per share for the period 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 (55.6%)
Curro is the largest provider of private school education in Southern Africa.
It reported a 22% increase in headline earnings per share for its six months ended 30 June 2017.
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% interest
in Pioneer Foods, comprising 52% of Zeder’s total SOTP assets.
It reported a 75% decrease in recurring headline earnings per share for the period under review.
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 (97.4%)
PSG Alpha serves as incubator to find the businesses of tomorrow. Given its nature, this portfolio
is likely to yield volatile earnings, while providing significant optionality.
It reported a 23% increase in recurring headline earnings per share for the period under review,
with most of the investments performing to expectation.
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 (5.2%), Pioneer Foods (4.3%), Quantum Foods (4.1%), Kaap Agri (20%) and Energy Partners
(15.7%). The latter investment totalling R150m was made during the period under review and all
investments, apart from those in Curro and Kaap Agri, remain subject to BEE lock-in periods. The
Dipeo BEE Education Trust will use its share of the value created in Dipeo to fund black students’
education.
PROSPECTS
Although Zeder in particular experienced strong head winds during the period under review, we
believe PSG’s investment portfolio should continue yielding above-average returns. PSG currently
has R1.2bn cash available for further investments.
DIVIDENDS
Ordinary shares
PSG’s policy remains to pay up to 100% of available 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 an interim gross dividend of 138 cents
(2016: 125 cents) per share from income reserves for the six months ended 31 August 2017.
The interim dividend amount, net of South African dividend tax of 20%, is 110.4 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, 31 October 2017
Trading ex dividend commences Wednesday, 1 November 2017
Record date Friday, 3 November 2017
Payment date Monday, 6 November 2017
Share certificates may not be dematerialised or rematerialised between Wednesday, 1 November 2017,
and Friday, 3 November 2017, both days inclusive.
Preference shares
The directors of PSG Financial Services declared a gross dividend of 438.68 cents per share in
respect of the cumulative, non-redeemable, non-participating preference shares for the six months
ended 31 August 2017, which was paid on Tuesday, 26 September 2017. The detailed announcement in
respect hereof was disseminated on the JSE’s Stock Exchange News Services.
UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Audited
Aug-17 Aug-16 Feb-17
6 months 6 months 12 months
Condensed consolidated income statement Rm Rm Rm
Revenue from sale of goods 7 013 7 064 14 429
Cost of goods sold (5 894) (5 978) (12 416)
Gross profit from sale of goods 1 119 1 086 2 013
Income
Changes in fair value of biological assets 39 115 224
Investment income (note 7)* 984 957 1 851
Fair value gains and losses (note 7) 1 479 1 912 1 540
Fair value adjustment to investment contract
liabilities (note 7) (1 194) (1 066) (976)
Fair value adjustment to third-party liabilities arising
on consolidation of mutual funds (note 7) (1 256) (1 089) (1 239)
Commission, school, net insurance and other fee income* 2 999 2 678 5 763
Other operating income 198 81 158
3 249 3 588 7 321
Expenses
Insurance claims and loss adjustments, net of recoveries (336) (292) (581)
Marketing, administration and other expenses (3 499) (3 198) (6 224)
(3 835) (3 490) (6 805)
Net income from associates and joint ventures
Share of profits of associates and joint ventures 901 880 1 827
Loss on impairment of associates (6)
Net (loss)/profit on sale/dilution of interest in associates (20) 11 10
881 891 1 831
Profit before finance costs and taxation 1 414 2 075 4 360
Finance costs (256) (251) (474)
Profit before taxation 1 158 1 824 3 886
Taxation (137) (255) (537)
Profit for the period 1 021 1 569 3 349
Attributable to:
Owners of the parent 833 1 024 2 162
Non-controlling interests 188 545 1 187
1 021 1 569 3 349
* Reclassified as set out in note 11.
Unaudited Audited
Change Aug-17 Aug-16 Feb-17
Earnings per share and number of shares in issue % 6 months 6 months 12 months
Earnings per share (cents)
- Recurring headline 0.1 412.1 411.8 926.6
- Headline (note 4) (22.9) 362.6 470.5 1 001.4
- Attributable (19.1) 386.4 477.8 1 009.0
- Diluted headline (22.6) 354.9 458.5 978.8
- Diluted attributable (18.9) 377.9 466.0 986.0
Number of shares (m)
- In issue 231.4 230.8 231.4
- In issue (net of treasury shares) 215.4 214.2 215.4
- Weighted average 215.4 214.2 214.2
- Diluted weighted average 218.3 217.3 216.7
Unaudited Audited
Aug-17 Aug-16 Feb-17
6 months 6 months 12 months
Condensed consolidated statement of comprehensive income Rm Rm Rm
Profit for the period 1 021 1 569 3 349
Other comprehensive loss for the period, net of taxation (24) (168) (519)
Items that may be subsequently reclassified to profit
or loss
Currency translation adjustments (13) (161) (450)
Cash flow hedges (3) (18) (21)
Share of other comprehensive income and equity movements
of associates (21) 11 (44)
Items that may not be subsequently reclassified to
profit or loss
Gains/(losses) from changes in financial and demographic
assumptions of post-employment benefit obligations 13 (4)
Total comprehensive income for the period 997 1 401 2 830
Attributable to:
Owners of the parent 795 969 1 974
Non-controlling interests 202 432 856
997 1 401 2 830
Unaudited Audited
Aug-17 Aug-16 Feb-17
Condensed consolidated statement of financial position Rm Rm Rm
Assets
Property, plant and equipment* 8 363 6 732 7 943
Intangible assets 3 274 2 912 3 108
Biological assets 468 399 486
Investment in ordinary shares of associates and
joint ventures 13 917 12 719 13 212
Investment in preference shares of/loans granted to
associates and joint ventures 247 170 144
Deferred income tax assets 220 202 194
Financial assets linked to investment contracts (note 7) 24 768 22 033 22 561
Cash and cash equivalents 55 41 14
Other financial assets 24 713 21 992 22 547
Other financial assets (note 7)* 28 246 23 925 26 795
Inventory 1 565 1 536 1 667
Trade and other receivables (note 8) 4 473 4 362 3 838
Current income tax assets 80 62 64
Cash and cash equivalents 2 182 1 614 2 035
Non-current assets held for sale 34 76 14
Total assets 87 837 76 742 82 061
Equity
Ordinary shareholders’ equity 16 392 14 328 15 900
Non-controlling interests 10 943 10 958 10 900
Total equity 27 335 25 286 26 800
Liabilities
Insurance contracts 525 564 544
Financial liabilities under investment contracts (note 7) 24 768 22 033 22 561
Borrowings 6 236 5 957 5 411
Other financial liabilities 104 93 156
Third-party liabilities arising on consolidation of
mutual funds (note 7) 23 645 17 735 21 394
Deferred income tax liabilities 823 762 857
Trade and other payables and employee benefit
liabilities (note 8) 4 336 4 212 4 281
Current income tax liabilities 65 100 57
Total liabilities 60 502 51 456 55 261
Total equity and liabilities 87 837 76 742 82 061
Net asset value per share (R) 76.09 66.88 73.81
Net tangible asset value per share (R) 60.89 53.28 59.38
* Reclassified as set out in note 11.
Unaudited Audited
Aug-17 Aug-16 Feb-17
Condensed consolidated statement of changes Change 6 months 6 months 12 months
in equity % Rm Rm Rm
Ordinary shareholders’ equity at beginning
of the period 15 900 13 634 13 634
Total comprehensive income 795 969 1 974
Issue of shares 1 75
Share-based payment costs - employees 33 31 60
Net movement in treasury shares 21
Transactions with non-controlling interests 203 122 832
Dividends paid (540) (428) (696)
Ordinary shareholders’ equity at end of the period 16 392 14 328 15 900
Non-controlling interests at beginning of the period 10 900 10 127 10 127
Total comprehensive income 202 432 856
Issue of shares 345 964 1 415
Share-based payment costs - employees 15 18 27
Subsidiaries acquired 14
Transactions with non-controlling interests (243) (355) (1 188)
Dividends paid (276) (228) (351)
Non-controlling interests at end of the period 10 943 10 958 10 900
Total equity 27 335 25 286 26 800
Dividend per share (cents)
- Interim 10.4 138.0 125.0 125.0
- Final 250.0
138.0 125.0 375.0
Unaudited Audited
Aug-17 Aug-16 Feb-17
6 months 6 months 12 months
Condensed consolidated statement of cash flows Rm Rm Rm
Net cash flow from operating activities
Cash (utilised by)/generated from operations (note 5)*^ (414) (296) 302
Interest income*^ 803 737 1 431
Dividend income* 544 520 1 078
Finance costs (208) (241) (433)
Taxation paid (197) (299) (553)
Net cash flow from operating activities before cash
movement in policyholder funds 528 421 1 825
Cash movement in policyholder funds* 41 (73) (101)
Net cash flow from operating activities 569 348 1 724
Net cash flow from investing activities (448) (1 051) (1 674)
Cash flow from businesses/subsidiaries acquired (note 6.1) (147) (165) (491)
Cash flow from consolidation of mutual funds 10 32
Cash flow from businesses sold (note 6.2) 27
Acquisition of ordinary shares in associates (171) (60) (147)
Proceeds from disposal of ordinary shares in associates 10 13
Acquisition of property, plant and equipment (621) (593) (1 631)
Other investing activities 464 (253) 550
Net cash flow from financing activities (361) 30 76
Dividends paid to group shareholders (540) (428) (696)
Dividends paid to non-controlling interests (276) (232) (351)
Capital contributions by non-controlling interests 204 756 1 183
Acquisition from non-controlling interests (118) (220) (202)
Borrowings drawn 589 371 495
Borrowings repaid (221) (218) (449)
Proceeds from delivery of holding company’s share
incentive trust treasury shares 1 1 21
Shares issued 75
Net (decrease)/increase in cash and cash equivalents (240) (673) 126
Exchange gains/(losses) on cash and cash equivalents 8 (27) (71)
Cash and cash equivalents at beginning of the period 1 056 1 001 1 001
Cash and cash equivalents at end of the period** 824 301 1 056
Cash and cash equivalents consists of:
Cash and cash equivalents per the statement of
financial position 2 182 1 614 2 035
Cash and cash equivalents attributable to equity holders 1 939 1 513 1 946
Other clients’ cash and cash equivalents 243 101 89
Cash and cash equivalents linked to investment contracts 55 41 14
Bank overdrafts attributable to equity holders (included
in borrowings) (1 413) (1 354) (993)
824 301 1 056
* 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 condensed consolidated 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 R1.2bn (31 August 2016: R1.7bn; 28 February 2017: R1.5bn) at the reporting date.
^ Reclassified as set out in note 11.
Notes to the condensed interim consolidated financial statements
1. Basis of presentation and accounting policies
These condensed interim 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 interim 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 are effective for its financial year ending 28 February 2018. These revisions have not
resulted in material changes to the group’s reported results and disclosures in these condensed
interim consolidated financial statements.
In preparing these condensed interim consolidated 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 group’s annual financial statements for the
year ended 28 February 2017.
2. Preparation
These condensed interim consolidated financial statements were compiled under the supervision of
the group chief financial officer, Mr WL Greeff, CA (SA), and were not reviewed or audited by
PSG Group’s external auditor, PricewaterhouseCoopers Inc. Any reference to future financial
performance included in this announcement, has not been reviewed or reported on by the company’s
auditor.
3. PSG Financial Services
PSG Financial Services is a wholly-owned subsidiary of PSG Group, except for the 17 415 770
(31 August 2016: 17 415 770; 28 February 2017: 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.
Unaudited Audited
Aug-17 Aug-16 Feb-17
6 months 6 months 12 months
Rm Rm Rm
4. Headline earnings
Profit for the period attributable to owners of the parent 833 1 024 2 162
Non-headline items
Gross amounts (88) (10) (8)
Loss on impairment of associates 6
Net loss/(profit) on sale/dilution of interest
in associates 20 (11) (10)
Fair value gain on step-up from associate to subsidiary (39)
Net profit on sale of businesses (note 6.2) (80)
Net loss on sale/impairment of intangible assets
(including goodwill) 7 1 5
Net loss/(profit) on sale/impairment of property, plant
and equipment 2 (4) 11
Non-headline items of associates (33) 4 18
Bargain purchase gain (4) (15)
Impairment of non-current assets held for sale 16
Non-controlling interests 36 (7) (10)
Taxation 1 1
Headline earnings 781 1 008 2 145
Unaudited Audited
Aug-17 Aug-16 Feb-17
6 months 6 months 12 months
Rm Rm Rm
5. Cash (utilised by)/generated from operations
Profit before taxation 1 158 1 824 3 886
Share of profits of associates and joint ventures (901) (880) (1 827)
Depreciation and amortisation 247 208 433
Investment income* (984) (957) (1 851)
Finance costs 256 251 474
Working capital changes and other non-cash items (190) (742) (813)
Cash (utilised by)/generated from operations* (414) (296) 302
* Reclassified as set out in note 11.
6. Businesses/subsidiaries acquired/sold
6.1 Businesses/subsidiaries acquired
Businesses/subsidiaries acquired by the group during the period under review included:
Platchro Holdings (Pty) Ltd (“Platchro”)
During May 2017, the group, through Provest Holdings (Pty) Ltd (“Provest”), being a subsidiary
of PSG Alpha Investments (Pty) Ltd (“PSG Alpha”), acquired 100% of the issued share capital of
Platchro for a cash consideration of R125m. Platchro is involved in the mining services industry,
offering complementary services to Provest’s existing operations. Goodwill of R74m 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 businesses/subsidiaries acquired, as well as goodwill
recognised from business combinations during the period under review, can be summarised as
follows:
Unaudited
Platchro Other Total
Rm Rm Rm
Identifiable net assets acquired 51 28 79
Goodwill recognised 74 28 102
Gain on bargain purchase (4) (4)
Cash consideration paid 125 52 177
Cash consideration paid (125) (52) (177)
Cash and cash equivalents acquired 27 3 30
Cash flow from businesses/subsidiaries acquired (98) (49) (147)
Transaction costs relating to the business combinations were insignificant and expensed in the
income statement.
The aforementioned business combinations have been provisionally accounted for and do not
contain any contingent consideration or indemnification asset arrangements.
Had the aforementioned businesses combinations been accounted for with effect from 1 March 2017
instead of their respective acquisition dates, the condensed consolidated income statement would
have reflected additional revenue of R111m and profit for the period of R8m.
Receivables of R29m 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 Businesses sold
During July 2017, the group, through Capespan Group Ltd, being a subsidiary of Zeder
Investments Ltd (“Zeder”), merged the fruit distribution businesses of two wholly-owned
subsidiaries, Capespan Japan Ltd (“Capespan Japan”) and Metspan Hong Kong Ltd (“Metspan”),
with that of Joy Wing Mau Asia (“JWM Asia”) in exchange for a 30% equity interest in JWM Asia.
The amounts of identifiable net assets of businesses sold, as well as the remaining interest
recognised during the period under review, can be summarised as follows:
Unaudited
Capespan
Japan Metspan Total
Rm Rm Rm
Identifiable net assets derecognised (76) (51) (127)
Recognition of investment in ordinary shares of associate 26 26
Recognition of loans granted to associate 73 49 122
Profit on sale of businesses (80) (80)
Cash consideration received (3) (56) (59)
Cash consideration received 3 56 59
Cash and cash equivalents derecognised (18) (14) (32)
Cash flow from businesses sold (15) 42 27
7. Linked investment contracts and consolidated mutual funds
Linked investment contracts are represented by PSG Life Ltd (an existing subsidiary of
PSG Konsult Ltd) clients’ assets held under investment contracts, which are linked to a
corresponding liability. Accordingly, the value of policy benefits payable is directly linked to
the fair value of the supporting assets and therefore the group is not exposed to the financial
risks associated with these assets and liabilities.
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 condensed consolidated income statement impact recognised from the assets and liabilities
pertaining to the linked investment contracts and consolidated mutual funds are split from the
corresponding condensed consolidated income statement line items attributable to the equity
holders of the group below:
Linked
investment
contracts and
consolidated Equity
mutual funds holders Total
Rm Rm Rm
Six months ended 31 August 2017 (unaudited)
Investment income 758 226 984
Fair value gains and losses 1 738 (259) 1 479
Fair value adjustment to investment
contract liabilities (1 194) (1 194)
Fair value adjustment to third-party
liabilities arising on consolidation
of mutual funds (1 256) (1 256)
Various other line items (46) (46)
-
Six months ended 31 August 2016 (unaudited)
Investment income 723 234 957
Fair value gains and losses 1 489 423 1 912
Fair value adjustment to investment
contract liabilities (1 066) (1 066)
Fair value adjustment to third-party
liabilities arising on consolidation
of mutual funds (1 089) (1 089)
Various other line items (57) (57)
-
Year ended 28 February 2017 (audited)
Investment income* 1 398 453 1 851
Fair value gains and losses 957 583 1 540
Fair value adjustment to investment
contract liabilities (976) (976)
Fair value adjustment to third-party
liabilities arising on consolidation
of mutual funds (1 239) (1 239)
Various other line items (140) (140)
-
* Reclassified as set out in note 11.
The condensed consolidated 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 condensed consolidated statement of cash flows line items attributable to
the equity holders of the group below:
Unaudited
Aug-17 Aug-16
6 months 6 months
Linked Linked
investment investment
contracts and contracts 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 (510) 96 (414) (684) 388 (296)
Interest income 496 307 803 427 310 737
Dividend income 174 370 544 194 326 520
Finance costs (208) (208) (241) (241)
Taxation paid (6) (191) (197) (12) (287) (299)
Cash movement in
policyholder
funds 41 41 (73) (73)
Net cash flow
from operating
activities 195 374 569 (148) 496 348
Net cash flow
from investing
activities (448) (448) 11 (1 062) (1 051)
Net cash flow
from financing
activities (361) (361) 30 30
Net increase/
(decrease) in cash
and cash
equivalents 195 (435) (240) (137) (536) (673)
Exchange gains/
(losses) on cash
and cash
equivalents 8 8 (27) (27)
Cash and cash
equivalents at
beginning of
the period 103 953 1 056 281 720 1 001
Cash and cash
equivalents at
end of the period 298 526 824 144 157 301
Audited
Feb-17
12 months
Linked
investment
contracts and
consolidated Equity
mutual funds holders Total
Rm Rm Rm
Cash (utilised by)/generated from operations* (1 236) 1 538 302
Interest income* 802 629 1 431
Dividend income 375 703 1 078
Finance costs (433) (433)
Taxation paid (50) (503) (553)
Cash movement in policyholder funds (101) (101)
Net cash flow from operating activities (210) 1 934 1 724
Net cash flow from investing activities 32 (1 706) (1 674)
Net cash flow from financing activities 76 76
Net (decrease)/increase in cash and cash equivalents (178) 304 126
Exchange losses on cash and cash equivalents (71) (71)
Cash and cash equivalents at beginning of the year 281 720 1 001
Cash and cash equivalents at end of the year 103 953 1 056
* Reclassified as set out in note 11.
8. Trade and other receivables and payables
Included under trade and other receivables are PSG Online broker and clearing accounts of which
R1.3bn (31 August 2016: R1.3bn; 28 February 2017: R1.2bn) 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 notes 6.1 and 6.2, 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 interim 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: quoted prices (unadjusted) in active markets for identical assets or liabilities.
- Level 2: 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 3: input for the asset or liability that is not based on observable market data (that is,
unobservable input).
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
31 August 2017 (unaudited)
Assets
Derivative financial assets 45 45
Equity securities 2 876 592 51 3 519
Debt securities 805 2 986 3 791
Unit-linked investments 39 904 947 40 851
Investment in investment contracts 16 16
Closing balance 3 681 43 543 998 48 222
Liabilities
Derivative financial liabilities 58 42 100
Investment contracts 23 680 935 24 615
Trade and other payables 43 43
Third-party liabilities arising on
consolidation of mutual funds 23 645 23 645
Closing balance - 47 383 1 020 48 403
31 August 2016 (unaudited)
Assets
Derivative financial assets 76 76
Equity securities 2 194 1 420 59 3 673
Debt securities 889 1 587 2 476
Unit-linked investments 32 964 1 101 34 065
Investment in investment contracts 29 29
Closing balance 3 083 36 076 1 160 40 319
Liabilities
Derivative financial liabilities 21 68 89
Investment contracts 20 731 1 089 21 820
Trade and other payables 28 28
Third-party liabilities arising on
consolidation of mutual funds 17 735 17 735
Closing balance - 38 487 1 185 39 672
28 February 2017 (audited)
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
The following table presents changes in level 3 financial instruments during the respective
periods:
Unaudited Audited
Aug-17 Aug-16 Feb-17
Assets Liabilities Assets Liabilities Assets Liabilities
Rm Rm Rm Rm Rm Rm
Opening balance 1 161 1 251 1 403 1 369 1 403 1 369
Additions 256 277 85 111 193 295
Disposals (441) (528) (351) (323) (454) (449)
Fair value adjustments 22 20 23 25 19 36
Other movements 3
Closing balance 998 1 020 1 160 1 185 1 161 1 251
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 condensed
consolidated 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 period 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 - daily
by the fund manager prices are publicly
available
Investment in investment Prices are obtained from the Not applicable - prices
contracts 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 by Not applicable - daily
consolidation of mutual funds the fund manager prices are publicly
available
11. Reclassification of prior year figures
Leasehold improvements
Leasehold improvements made by a subsidiary, Curro Holdings Ltd, have been reclassified from
“other financial assets” to “property, plant and equipment”, since these leasehold improvements
are not recoverable from the landlord. This reclassification had no impact on previously reported
equity, liabilities, profitability or cash flows; however, it had the following impact on the
condensed consolidated statement of financial position at 28 February 2017:
Previously Now
reported reported Change
Statement of financial position Rm Rm Rm
Property, plant and equipment 7 703 7 943 240
Other financial assets 27 035 26 795 (240)
-
Fee income
Fees earned by a subsidiary of PSG Konsult Ltd, a subsidiary, have been reclassified from
“investment income” to “commission, school, net insurance and other fee income”, in order to
reflect the nature of the fees earned more accurately. This reclassification had no impact on
previously reported assets, equity, liabilities or profitability; however, it had the following
impact on the condensed consolidated income statement and condensed consolidated statement of
cash flows for the year ended 28 February 2017:
Previously Now
reported reported Change
Income statement Rm Rm Rm
Investment income 1 896 1 851 (45)
Commission, school, net insurance and other fee income 5 718 5 763 45
-
Statement of cash flows
Net cash flow from operating activities
Cash generated from operations 257 302 45
Interest income 1 476 1 431 (45)
-
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, Zeder’s investments in Capespan
Group Ltd, 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, intergroup advisory
fees and interest income.
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 condensed consolidated 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
Six months ended Income income (segment headline Headline SOTP
31 August 2017 ** ** profit) earnings earnings value^
(unaudited) Rm Rm Rm Rm Rm Rm
Capitec* 628 628 31 954
Curro 1 113 61 61 8 877
PSG Konsult 2 098 147 147 7 210
Zeder 4 627 27 4 31 4 607
PSG Alpha 2 591 66 2 68 2 510
Dipeo (255) (34) (98) (132) 546
PSG Corporate 35 (7) (18) (18)
Funding 93 (33) (57) (15) (72) (2 308)
Other 68 68 3 393
Total 10 302 (40) 888 (107) 781 56 789
Non-headline items 52
Earnings attributable to
non-controlling interests 188
Taxation 137
Profit before taxation 1 158
Recurring
Inter- headline Non-
segment earnings recurring
Six months ended Income income (segment headline Headline SOTP
31 August 2016 ** ** profit) earnings earnings value^
(unaudited) Rm Rm Rm Rm Rm Rm
Capitec* 538 538 20 673
Curro 890 47 47 9 519
PSG Konsult 1 967 132 132 5 687
Zeder 5 073 79 (3) 76 3 591
PSG Alpha 2 172 49 5 54 1 729
Dipeo 417 (3) 132 129 689
PSG Corporate 131 (96) 38 38 1 418
Funding 98 (49) (8) (57) (2 317)
Other 51 51 3 580
Total 10 748 (96) 882 126 1 008 44 569
Non-headline items 16
Earnings attributable to
non-controlling interests 545
Taxation 255
Profit before taxation 1 824
Recurring
Inter- headline Non-
segment earnings recurring
Year ended Income income (segment headline Headline SOTP
28 February 2017 ** ** profit) earnings earnings value^
(audited) 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 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
Unaudited Audited
Aug-17 Aug-16 Feb-17
6 months 6 months 12 months
Rm Rm Rm
Reconciliation of segment revenue to IFRS revenue:
Segment revenue as stated above:
Income 10 302 10 748 21 878
Intersegment income (40) (96) (128)
Less:
Changes in fair value of biological assets (39) (115) (224)
Fair value gains and losses (1 479) (1 912) (1 540)
Fair value adjustment to investment contract liabilities 1 194 1 066 976
Fair value adjustment to third-party liabilities arising
on consolidation of mutual funds 1 256 1 089 1 239
Other operating income (198) (81) (158)
IFRS revenue*** 10 996 10 699 22 043
Non-recurring headline earnings comprises:
Non-recurring items from investments (92) 134 186
Other losses (15) (8) (26)
(107) 126 160
* 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 condensed consolidated income statement.
*** IFRS revenue comprises “revenue from sale of goods”, “investment income” and “commission,
school, net insurance and other fee income” as per the condensed consolidated income
statement.
^ SOTP is a key valuation tool used to measure the group’s performance, but does not
necessarily correspond to net asset value.
13. Capital commitments, contingencies and suretyships
The group’s most significant capital commitments are in respect of:
- Curro’s 2017 investment programme, which includes the construction of seven new campuses to
the value of R600m and the expansion of existing campuses to the value of R900m;
- Stadio’s committed business acquisitions (subject to certain conditions precedent) of R540m
and the expansion of existing campuses to the value of R130m; and
- PSG Konsult’s conclusion of an agreement during September 2017 to acquire the commercial and
industrial insurance brokerage business of Absa Insurance and Financial Advisers (Pty) Ltd,
with its business made up of 102 advisers and having in excess of 32,000 clients.
Apart from the aforementioned, contingencies and suretyships similar to those disclosed in the
group’s annual financial statements for the year ended 28 February 2017 remained in effect
during the period under review.
14. Related-party transactions
Related-party transactions similar to those disclosed in the consolidated annual financial
statements for the year ended 28 February 2017 took place during the period under review.
15. Events subsequent to the reporting date
No material event, apart from those already disclosed in the commentary section of this
announcement, occurred between the reporting date and the date of approval of these condensed
interim consolidated financial statements.
On behalf of the board
Jannie Mouton Piet Mouton Wynand Greeff
Chairman Chief Executive Officer Chief Financial Officer
Stellenbosch
11 October 2017
DIRECTORS:
JF Mouton (Chairman)+, PE Burton^^, ZL Combi^, FJ Gouws+, WL Greeff (CFO)*, JA Holtzhausen*,
MJ Jooste+ (Alt: TLR de Klerk), B Mathews^, JJ Mouton+, PJ Mouton (CEO)*, CA Otto^
* Executive + Non-executive ^ Independent non-executive ^^ Lead independent director
During October 2017, Mr TLR de Klerk was nominated to serve in Mr AB la Grange's stead as
alternate director to Mr MJ Jooste.
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: 11/10/2017 01:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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