AFRICAN PHOENIX INVESTMENTS LIMITED - Reviewed Condensed Consolidated Financial Results for the Six Month Period Ended 31 March 2018

Release Date: 27/06/2018 14:30
Code(s): AXL AXLP
 
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Reviewed Condensed Consolidated Financial Results for the Six Month Period Ended 31 March 2018

AFRICAN PHOENIX INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1946/021193/06)
(Ordinary share code: AXL) (ISIN: ZAE000221370)
(Hybrid instrument share code: AXLP) (ISIN: ZAE000221388)
(“Phoenix” or “the group” or “the company”)

REVIEWED CONDENSED CONSOLIDATED FINANCIAL RESULTS FOR THE SIX MONTH PERIOD
ENDED 31 MARCH 2018

SALIENT FEATURES

Total equity of R1.85 billion (1H17: R1.70 billion; FY17: R1.83 billion)
Total cash and cash equivalents of R1.91 billion (1H17: R1.83 billion; FY17: R1.88 billion)

Earnings per share from continuing operations: 1.4 cents (1H17: 4.8 cents; FY17: 13.7 cents)
Headline earnings per share from continuing operations: 1.4 cents (1H17: 4.8 cents ; FY17: 13.7
cents)
Earnings per share: 1.4 cents (1H17: 4.1 cents; FY17: 13.0 cents)
Headline earnings per share: 1.4 cents (1H17: 4.1 cents; FY17: 13.0 cents)

Net asset value per ordinary share: 50.2 cents (1H17: 39.9 cents; FY17: 48.8 cents)

INTRODUCTION

References to “the company” or “the group” in these reviewed condensed consolidated financial
results for the period ended 31 March 2018 relate to African Phoenix Investments Limited
(“Phoenix”).

BACKGROUND

The company owns 100% of The Standard General Insurance Company Limited (“Stangen”) which is
the company’s only trading subsidiary.

Since the previous year end, there were no changes in the status of the company’s investment in
Residual Debt Services Limited (formerly African Bank Limited) (“RDS”), which is still under
curatorship. There was also no change in the status of the company’s investment in Ellerine Holdings
Limited (“EHL”), which is in business rescue. Both of these investments were impaired in full in
previous financial periods.

Dormant subsidiaries are in the process of being deregistered.

FINANCIAL PERFORMANCE

The group reported net profit after tax of R21 million for the six-month period ended 31 March 2018
(1H17: R59 million; FY17: R186 million). The 65% decrease in headline earnings was mainly due to
the lower amount of actuarial reserves released during the period (R6.3 million release in 1H18
compared to a R39.0 million release in 1H17) as well as an increase in operating costs (predominantly
as a result of new business acquisition costs and above-the-line marketing campaigns in Stangen and
an increase in legal costs and directors’ remuneration in Phoenix). Basic and headline earnings per
share was 1.4 cents for the period ended 31 March 2018 (1H17: 4.1 cents; FY17: 13.0 cents).
Total shareholders’ equity as at 31 March 2018 amounted to R1.85 billion (31 March 2017: R1.70
billion; 30 September 2017: R1.83 billion). The group remains both solvent and liquid with cash
reserves of R1.91 billion (31 March 2017: R1.83 billion; 30 September 2017: R1.88 billion).

INVESTMENT IN DIFFERENT LIFE PROPRIETARY LIMITED

During the prior financial year, Stangen acquired a 15% equity stake in Different Life Proprietary
Limited (“Different Life”) for a cash consideration of R20 million. A further issuance of shares by
Different Life in lieu of a convertible loan, envisaged at the time of investing, would have had the
effect of diluting Stangen’s holding to 13%. The loan has not yet been converted to equity.

For accounting and disclosure purposes, the investment in Different Life is categorised as available
for sale held at fair value through other comprehensive income (level 3 in terms of the fair value
hierarchy) and except for this financial asset, there were no transfers to or from level 3 in the current
or prior year.

The fair value of the investment has been determined by inputs that are not based on observable
market data. The budgeted future expected cash flows from the underlying entity have been
discounted at the company’s expected rate of return over a three year period, taking inflationary
growth into account. Other unobservable inputs noted in the calculation relate to lead costs, average
premium rates, non-taken-up (NTU) rates, collection success rates and various cost assumptions.

DISCONTINUED OPERATIONS (PRIOR PERIOD)

Stangen concluded an agreement and financial settlement with African Bank Limited and RDS in
respect of its run-down credit life portfolio, effective 1 April 2016. The agreement passed 100% of
the risk and benefit in that credit life book to Guardrisk Life Limited (“Guardrisk”) until such time as
the run-down credit life book was transferred to Guardrisk.

The transfer of the run-down credit life portfolio to Guardrisk, arising from the settlement with the
banking parties, was approved by the FSB on 8 June 2017, with an operative date of 30 June 2017.
Stangen therefore has no credit life exposure and has resolved all the legacy matters following the
termination of relationships with RDS and African Bank Limited.

UPDATE ON FY17 CONTINGENT LIABILITY

A number of Ellerine Furnishers Proprietary Limited (“EF”) employees claimed amounts due to them
from EF and EHL (both of which companies are in business rescue). The amounts claimed by the
employees amounted to R42.6 million and they also sought to recover this amount from Phoenix.
The parties, including Phoenix, had agreed to settlement via arbitration, which process concluded in
December 2017 with the arbitrator ruling in favour of the company (i.e. Phoenix is not liable for any
of the claims made).

GOING CONCERN

In performing the going concern assessment, the directors have considered available information
about the future, the possible outcomes of events and changes in conditions and the realistically
possible responses to such events and conditions that would be available to the directors.
The directors concluded that the preparation of the financial information on a going concern basis is
appropriate.

DIVIDENDS

No ordinary or preference dividends were declared in the current period (2017: Rnil).

DIRECTORATE

The following changes were made to the board of directors of Phoenix (“Board”) during and after
the period under review.

Dr Enos Banda resigned as a non-executive director of the Board with effect from 16 January 2018
to focus on other business responsibilities.

John Evans’ appointment as financial director of Phoenix ended on 28 February 2018, from which
date he is no longer a member of the Board. Shafiek Ahmed Rawoot was appointed financial director
of Phoenix with effect from 1 July 2018.

Siyabonga Nhlumayo was appointed as a board member and chief executive officer of the company
with effect from 1 March 2018.

Daniël Vlok resigned as a non-executive director of the Board on 18 June 2018.

SUBSEQUENT EVENTS

During May 2018, Stangen invested an additional R1.4 million in shares issued by Different Life in
order to maintain its equity stake at 15%. Pursuant to the subscription, the investment in Different
Life would amount to R21.4 million.

The following dormant subsidiaries were deregistered during May 2018:
   - Theta Investments Proprietary Limited;
   - Customer Protection Insurance Company Limited; and
   - Creditsave Proprietary Limited.

The deregistration of these companies had no financial impact on the group.

STRATEGIC OUTLOOK

As a publicly listed investment holding company, Phoenix’s primary aim is to create and sustain long-
term value as measured by consistent growth in net asset value, before distributions to shareholders.

Accordingly, the Board has chosen to position Phoenix as an investment holding company, managed
primarily by black South Africans who have a proven track record of deploying capital in a manner
that generates long term economic value.

It is the Company’s intention to reach its long-term goal by owning meaningful equity interests in a
range of diverse businesses that have either a proven track record or a proven business concept.
These businesses should demonstrably generate or be able to generate cash and should earn
acceptable returns in relation to the initial capital invested.

While Phoenix is a listed company, it is able to benefit from the advantages of operating as a private
equity investor without the limitations of a typical private equity structure, which usually demands
an exit from investee companies within a defined period. Investments are selected with a long-term
view in mind and the intention is that they will be maintained for as long as they continue to meet
the Company’s investment criteria. Conversely, investments will be disposed of should they fall short
of these criteria.

The performance of deployed capital is actively assessed against the investment criteria on an
ongoing basis to make sure that Phoenix meets its long-term objective of growing the Company’s net
asset value by more than the cost of capital at portfolio level. Phoenix will continue to use its strong
balance sheet to take advantage of appropriate investment opportunities and to build shareholder
value.

At subsidiary level, Stangen will continue to strengthen its distribution network and to actively seek
out synergies that will enable it to secure its long-term sustainability.

On behalf of the Board



Morris Mthombeni                                                     Siyabonga Nhlumayo
Chairman                                                             Chief executive officer


INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 31
MARCH 2018

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS


                                                                           Consolidated results

                                                                  Reviewed          Reviewed         Audited
                                                                six months        six months       12 months
                                                                     ended             ended           ended
   R000                                                          31 Mar 18         31 Mar 17       30 Sep 17

   Insurance income                                                 32,906            31,927          63,838
   Interest received                                                76,491            70,355         139,852
   Other income                                                        900               780          47,078
   Income from operations                                          110,297           103,062         250,768
   Net insurance claims                                            (4,163)            27,114          38,241
      Claims paid to policyholders                                (10 487)          (11 945)        (23 950)
      Movement in insurance reserves                                 6 324            39 059          62 191
   Operating costs                                                (64,187)          (32,764)        (92,933)
   (Impairment) / reversal of impairment of financial
   instruments                                                     (8,290)                 -          46,115
   Interest expense                                                  (142)                 -            (96)
   Profit before taxation                                           33,515            97,412         242,095
   Direct taxation: Normal                                        (12,930)          (29,855)        (47,410)
   Profit for the period / year from continuing
   operations                                                      20,585            67,557         194,685
   Loss for the period / year from discontinuing operations             -           (8,563)         (8,563)
   Profit for the period / year                                    20,585            58,994         186,122

   Reconciliation between basic earnings and headline
   earnings
   Profit for the period / year from continuing operations         20,585            67,557         194,685
   Loss for the period / year from discontinuing operations             -           (8,563)         (8,563)
   Profit for the period / year                                    20,585            58,994         186,122

   Basic earnings attributable to ordinary
   shareholders                                                    20,585            58,994         186,122
   Headline earnings                                               20,585            58,994         186,122

   Earnings and headline earnings per share (cents)
   Basic earnings per ordinary share - continued
   operations                                                         1.4               4.8            13.7
   Basic earnings per ordinary share - discontinued
   operations                                                         0.0             (0.6)           (0.6)
   Basic earnings per ordinary share - total                          1.4               4.1            13.0

   Headline earnings per ordinary share - continued
   operations                                                         1.4               4.8            13.7
   Headline earnings per ordinary share - discontinued
   operations                                                         0.0             (0.6)           (0.6)
   Headline earnings per ordinary share - total                       1.4               4.1            13.0

   Weighted number of shares in issue (thousand)                1,427,005         1,427,005       1,427,005

   Number of shares in issue (thousand)                         1,427,005         1,427,005       1,427,005


CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME 


                                                                        Consolidated results

                                                              Reviewed           Reviewed           Audited
                                                            six months         six months         12 months
                                                                 ended              ended             ended
  R000                                                       31 Mar 18          31 Mar 17         30 Sep 17

  Profit for the period / year                                  20,585             58,994           186,122
  Other comprehensive income                                         -                  -                 -
  Total comprehensive profit for the period / year              20,585             58,994           186,122



CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION


                                                                     Consolidated results

                                                            Reviewed         Reviewed           Audited
                                                               as at            as at             as at
   R000                                                    31 Mar 18        31 Mar 17         30 Sep 17

   Assets
   Cash and cash equivalents                               1,907,683        1,833,114         1,881,333
   Other assets                                               91,765           53,612           100,856
   Financial assets                                           20,000           20,000            20,000
   Equipment                                                     997            1,355             1,147
   Intangible assets                                          11,011            8,085            12,585
   Taxation                                                      468                -             1,230
   Deferred tax asset                                            169                -             1,170
   Disposal group                                                  -          143,206                 -
   Total assets                                            2,032,093        2,059,372         2,018,321

   Liabilities and equity
   Taxation                                                    2,267            9,717             3,046
   Deferred taxation                                               -               25                 -
   Policyholder liabilities under insurance contracts        121,858          151,314           128,182
   Borrowings                                                 23,377           23,377            23,377
   Other liabilities                                          37,757           32,612            37,467
   Disposal group                                                  -          143,206                 -
   Total liabilities                                         185,259          360,251           192,072

   Ordinary shareholders' equity                             717,031          569,318           696,446
   Preference shareholders' equity                         1,129,803        1,129,803         1,129,803
   Total equity (capital and reserves)                     1,846,834        1,699,121         1,826,249
   Total liabilities and equity                            2,032,093        2,059,372         2,018,321

   Tangible net asset value per ordinary share (cents)          49.5             39.3              47.9
   Net asset value per ordinary share (cents)                   50.2             39.9              48.8
   Number of shares in issue (thousand)                    1,427,005        1,427,005         1,427,005


CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY


                                                       Consolidated results

                                        Ordinary shares       Ordinary     Preference
                                        Share                 sharehol          share
                                  capital and  Distributable      ders'   capital and
  R000                                premium       reserves    equity        premium       Total

  Balance at 30 September 2016     14,649,929    (14,139,605)   510,324     1,129,803   1,640,127

  Total comprehensive income for
  the period                                -          58,994    58,994             -      58,994
  Balance at 31 March 2017         14,649,929    (14,080,611)   569,318     1,129,803   1,699,121

  Total comprehensive income for
  the period                                -        127,128    127,128             -     127,128

  Balance at 30 September 2017     14,649,929    (13,953,483)   696,446     1,129,803   1,826,249

  Total comprehensive income for
  the period                                -          20,585    20,585             -      20,585

  Balance at 31 March 2018         14,649,929    (13,932,898)   717,031     1,129,803   1,846,834


CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS


                                                                  Consolidated results

                                                           Reviewed       Reviewed six    Audited 12
                                                         six months             months        months
                                                              ended              ended         ended
  R000                                                    31 Mar 18          31 Mar 17     30 Sep 17


  Cash generated from operations                              38,609            57,468       131,438
    Cash receipts                                            110,297           109,488       250,768
    Cash paid                                               (71,688)          (52,020)     (119,330)

  Direct taxation paid                                      (11,945)          (17,129)      (43,532)

  Cash inflow from continuing operations                     26,664            40,339        87,906

  Cash outflow from discontinuing operations                      -          (11,893)       (11,893)

  Net cash inflow from operations                            26,664            28,446        76,013

  Cash outflow from investing in continued operations          (314)          (28,257)      (27,605)

    Acquisition of property and equipment                      (115)             (185)         (240)
    Acquisition of intangible assets                           (199)           (8,072)      (13,791)
    Investment                                                    -           (20,000)      (20,000)
    Decrease in other assets                                      -                 -         6,426

  Increase in cash and cash equivalents                      26,350               189        48,408
  Cash and cash equivalents at the beginning of the
  year                                                    1,881,333         1,832,925     1,832,925
  Cash and cash equivalents at the end of the period /
  year                                                    1,907,683         1,833,114     1,881,333

NOTES TO THE FINANCIAL STATEMENTS

NET ASSET VALUE AND TANGIBLE NET ASSET VALUE PER SHARE



                                                               Reviewed       Reviewed        Audited
                                                                  as at          as at          as at
   Net asset value                                            31 Mar 18      31 Mar 17      30 Sep 17

   Total equity                                               1,846,834      1,699,121      1,826,249
   Less: Preference shareholders' equity                    (1,129,803)    (1,129,803)    (1,129,803)

   Equity attributable to ordinary shareholders'               717,031        569,318        696,446

   Total number of ordinary shares in issue (thousand)       1,427,005      1,427,005      1,427,005

   NAV per ordinary share (cents)                                 50.2           39.9           48.8

   Tangible net asset value per ordinary share

   Total equity                                               1,846,834      1,699,121      1,826,249
   Less: Intangible assets                                     (11,011)        (8,085)       (12,585)
   Less: Preference shareholders' equity                    (1,129,803)    (1,129,803)    (1,129,803)

   Tangible equity attributable to ordinary shareholders'      706,020        561,233        683,861

   Total number of shares in issue (thousand)                1,427,005      1,427,005      1,427,005

   Tangible NAV per ordinary share (cents)                        49.5           39.3           47.9


CONSOLIDATED SEGMENTAL REVENUE AND RESULTS



                                                                        Consolidated results
    31 March 2018
    R000                                                     Insurance         Corporate          Total

    Income (continuing operations)                              88,925            21,372        110,297

    EBITDA (continuing operations)                             (16,128)         (24,810)       (40,938)

    Interest received                                           55,119            21,372         76,491

    Impairment of financial instruments                              -           (8,290)        (8,290)

    Profit before taxation from continuing operations           36,954           (3,439)         33,515


    Total assets                                             1,567,506           464,587      2,032,093

    Total liabilities                                          132,680            52,579        185,259

    31 March 2017
    R000                                                     Insurance         Corporate          Total

    Income (continuing operations)                              92,393            10,669        103,062

    EBITDA (continuing operations)                              36,836           (9,214)         27,622

    EBITDA (discontinuing operations)                          (11,893)                -        (11,893)

    Interest received (continuing operations)                   59,686            10,669         70,355

    Profit before taxation from discontinuing operations       (11,893)                -        (11,893)

    Profit before taxation from continuing operations           95,956             1,456          97,412


    Total assets (including discontinued operations)         1,678,639           380,733       2,059,372

    Total liabilities (including discontinued operations)      309,766            50,485         360,251



AUDITORS' REPORT

These interim condensed consolidated financial statements for the period ended 31 March 2018
have been reviewed by the group’s external auditors, Grant Thornton (Johannesburg Partnership),
who expressed an unmodified review conclusion.

The auditors’ review report does not necessarily conclude on all of the information contained in
these financial results. Shareholders are therefore advised that in order to obtain a full
understanding of the nature of the auditors’ engagement they should obtain a copy of the auditors’
review report together with the accompanying financial information from the issuer’s registered
office.

A copy of the auditor’s review report is available for inspection at the company’s registered office
together with the financial statements identified in the auditor’s review report.
BASIS OF PREPARATION

The preparation of this financial information was supervised by J Muller Strauss CA(SA).

The condensed financial information contained herein has been prepared in accordance with the
framework concepts and the measurement and recognition requirements of the International
Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board
(IASB), Interpretations issued by the International Financial Reporting Interpretations Committee
(IFRIC) of the IASB, IAS 34: Interim Financial Reporting, the SAICA Financial Reporting Guides as issued
by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the
Financial Reporting Standards Council, the requirements of the Companies Act of South Africa (Act
71 of 2008), as amended, as well as the Listings Requirements of the JSE Limited.

All accounting policies and their application are consistent with those used for the group’s 2017
annual financial statements.

The directors take full responsibility for the preparation of these financial results and information.

Johannesburg
27 June 2018


SPONSOR

Merchantec Capital

BOARD OF DIRECTORS

Independent non-executive: M Mthombeni (Chairman); ABA Conrad; CL Le Grange;
O Mabandla; N Siyotula
Non-executive: S Sithole
Executive: S Nhlumayo (CEO)

AFRICAN PHOENIX INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1946/021193/06)
(Ordinary share code: AXL) (ISIN: ZAE000221370)
(Hybrid instrument code: AXLP) (ISIN: ZAE000221388)

REGISTERED OFFICE
52 Corlett Drive, Wanderers Office Park, Illovo, South Africa, 2196
Private Bag X31, Northlands, South Africa, 2116

COMPANY SECRETARY
Acorim Proprietary Limited

SHARE TRANSFER SECRETARIES
Link Market Services South Africa Proprietary Limited
13th Floor, Rennie House, 19 Ameshoff Street, Braamfontein
PO Box 4844, Johannesburg, 2000
Telephone: +27 11 713 0800
Telefax: +27 86 674 4381

WEBSITE
www.phoenixinvestments.co.za

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