Wrap Text
Unaudited results for the six months ended 30 September 2018
Sandown Capital Limited
(Incorporated in the Republic of South Africa)
(Registration number 2000/013674/06)
Share code: SDC ISIN: ZAE000249645
("Sandown" or "the Company" or "the Group")
UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018
HIGHIGHTS
- Proposed change in investment strategy to focus on market infrastructure and regulation technology complemented by
a liquid and transparent portfolio
- Proposed change in the Company name to Zarclear Limited to reflect the change in strategy
- Proposed termination of investment advisory agreement
- Increase in net asset value ("NAV") driven primarily by Rand weakness.
COMMENTARY
In response to shareholder activism, Sandown has proposed changes to its board of directors ("Board"), strategic direction,
management structures and company name. These proposed changes will be voted on at a shareholder meeting on
15 November 2018.
The Company has been in a process of realigning its assets to fit with the changes while simultaneously focusing on minimising
costs associated with managing its portfolio of assets. The core portfolio assets are the assets managed by
Peregrine Capital Proprietary Limited and Stenprop Limited, which while being legacy assets, serve the strategy of the Company
having access to regulatory capital for new investments.
The Company is also making investments into businesses that are focused on providing market infrastructure and regulation
technology ahead of the sweeping changes coming to South African financial markets under the Financial Sector Regulations
Bill, commonly referred to as "Twin Peaks". The Board envisions opportunities in this space and is in the process of applying
for a trade repository licence under the new framework.
Sandown is making efforts to exit and mitigate its risk to its geared investment into Capital Step Holdings Limited, which is a
hybrid finance business. Sandown is in the process of concluding its exit of Rinjani Holdings Limited ("Rinjani"), which is an
unlisted property investment and management business.
The Board is also sensitive to the discount of its share price and will take actions to narrow it.
Issued share capital
Shares in issue amount to 226 066 million (2017: 163 183 million).
Directorate
As detailed in the SENS announcement published on 6 September 2018, Lawrie Brozin, Sean Melnick, Sean Jelley,
Duncan Randall and Cindy Hess resigned from the Board with effect from 5 September 2018.
Paul Baloyi (independent non-executive Chairman), Warren Chapman (CEO), Fatima Vawda (independent non-executive)
and Mandy Smith (independent non-executive) were appointed directors with effect from 5 September 2018.
Andrew Hannington (CFO), previously a non-executive director of the Company, was appointed as an executive director with
effect from 5 September 2018.
Conclusion
Subject to shareholder approval, the Company will change its name and strategy and will focus its efforts and assets to pursue
opportunities in market infrastructure brought about by changing regulation. The Company will also take actions to narrow
the discount of its share price to its NAV.
Warren Chapman Andrew Hannington Paul Baloyi
Chief Executive Officer Chief Financial Officer Independent Non-Executive Chairman
7 November 2018
Directors: P Baloyi* (Chairman); W Chapman (CEO); A Hannington (CFO); F Vawda*; A Smith* (*Independent non-executive)
Registered office: 6A Sandown Valley Crescent, Sandown, Sandton, 2196 (PO Box 650361, Benmore, 2010),
Telephone: +27 11 722 7400
Company Secretaries: CIS Company Secretaries Proprietary Limited, Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196,
(PO Box 61051, Marshalltown, 2107)
Transfer Secretaries: Computershare Investor Services Proprietary Limited, Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196,
(PO Box 61051, Marshalltown, 2107)
Sponsor: Java Capital: 6A Sandown Valley Crescent, Sandown, Sandton, 2196 (PO Box 522606, Saxonwold, 2132)
Further detail and a print-friendly version of these results will be available on Sandown's website on http://www.sandowncapital.com
from 7 November 2018.
Condensed Consolidated Statement of Financial Position as at 30 September 2018
Unaudited as at Unaudited as at Audited as at
30 September 30 September 31 March
2018 2017 2018
R'000s R'000s R'000s
ASSETS
Non-current assets 635 413 - 632 747
Financial investments 608 260 - 588 949
Investment in associates 27 153 - 22 949
Deferred tax - - 20 849
Current assets 632 733 180 418 590 358
Financial investments 444 768 174 179 507 094
Trade and other receivables 6 223 162
Taxation 500 4 443 6 672
Cash and cash equivalents 187 459 1 573 76 430
Total assets 1 268 146 180 418 1 223 105
EQUITY AND LIABILITIES
Equity 1 262 813 172 748 1 101 687
Share capital 474 400 127 374 474 400
Currency translation reserve 6 424 - (34 961)
Accumulated profits 781 989 45 374 662 248
Non-current liabilities
Deferred taxation 4 445 5 603 -
Current liabilities 888 2 067 121 418
Loans and other payables - 1 788 120 000
Trade and other payables 888 279 1 418
Total equity and liabilities 1 268 146 180 418 1 223 105
Condensed Consolidated Statement of Comprehensive Income for the six months ended 30 September 2018
Unaudited for Unaudited for
the six months the six months Audited for
ended ended the year ended
30 September 30 September 31 March
2018 2017 2018
R'000s R'000s R'000s
Revenue: Investment income/(losses) 158 499 18 219 (44 103)
Total revenue 158 499 18 219 (44 103)
Operating expenses (12 070) (1 339) (23 932)
Profit/(loss) from operations 146 429 16 880 (68 035)
Net interest (paid)/received (1 394) 41 (5 636)
- Interest received 802 41 736
- Interest paid (2 196) - (6 372)
Profit/(loss) before taxation 145 035 16 921 (73 671)
Taxation (25 294) (5 946) 22 236
Profit/(loss) for the period 119 741 10 975 (51 435)
Other comprehensive income/(loss) for the period net of taxation
Items that can be classified subsequent to profit and loss:
Currency translation differences 41 385 - (34 961)
Total comprehensive income/(loss) for the period 161 126 10 975 (86 396)
Basic and diluted earnings per share
Earnings/(Losses) 119 741 10 975 (51 435)
Number of shares in issue at reporting date 226 065 686 161 184 841 226 065 686
Weighted average number of shares in issue 226 065 686 161 184 841 193 625 269
Basic and diluted earnings/(losses) per share (cents) 52.97 6.81 (26.56)
Headline earnings/(losses) per share
119 741 10 975 (51 435)
Earnings/(Losses)
Adjustment for headline earnings/(losses) - - -
Headline earnings/(losses) 119 741 10 975 (51 435)
Basic and headline earnings/(losses) per share (cents) 52.97 6.81 (26.56)
Dividend per share (cents) - 1.11 1.11
Net asset value per share (cents) 559 107 487
Tangible net asset value per share (cents) 559 107 487
Condensed Consolidated Statement of Changes in Equity for the six months ended 30 September 2018
Currency
translation Accumulated
R'000s Share capital reserve profits Total equity
Balance as at 31 March 2017 127 374 - 37 495 164 868
Total comprehensive income for the period - - 10 975 10 975
Transactions with owners recorded directly
in equity: - - (3 095) (3 095)
- Transfer of Peregrine treasury shares - - (595) (595)
- Dividends paid - - (2 500) (2 500)
Balance as at 30 September 2017 127 374 - 45 374 172 748
Total comprehensive loss for the period - (34 961) (62 410) (97 371)
Transaction with owners recorded directly
in equity:
- Restructure transactions 347 026 - 679 284 1 026 310
Balance as at 31 March 2018 474 400 (34 961) 662 248 1 101 687
Total comprehensive income for the period - 41 385 119 741 161 126
Balance as at 30 September 2018 474 400 6 424 781 989 1 262 813
Condensed Consolidated Statement of Cash Flows for the six months ended 30 September 2018
Unaudited for Unaudited for
the six months the six months Audited for
ended ended the year ended
30 September 30 September 31 March
2018 2017 2018
R'000s R'000s R'000s
Cash flow from operating activities 8 492 (9 166) (18 449)
- Cash utilised by operations (12 457) (6 707) (25 760)
- Interest received 802 41 736
- Interest paid (2 196) - (6 372)
- Interest received from private equity investments 1 538 - 1 507
- Dividends received from listed equity investments 14 633 - 14 440
- Taxation refund (paid) 6 172 - (500)
- Cash dividends paid - (2 500) (2 500)
Cash flow from investing activities 219 370 17 852 (37 312)
Proceeds from sale of financial investments 224 249 17 852 87 965
Acquisition of financial investments - - (102 328)
Investment in associates (4 879) - (22 949)
Cash flow from financing activities
Decrease in loans and payables (120 000) (7 556) (23 556)
Net increase/(decrease) in cash and cash equivalents 107 862 1 130 (79 317)
Net cash acquired in the restructure - - 170 567
Currency impact on foreign cash balances 3 167 - (15 263)
Cash and cash equivalents at beginning of the period 76 430 443 443
Cash and cash equivalents at the end of the period 187 459 1 573 76 430
NOTES AND COMPLIANCE
The condensed consolidated unaudited interim financial statements of the Group as at and for the six months ended
30 September 2018 comprise the Group results and the Group's interests in equity accounted investees.
Basis of preparation
The condensed consolidated unaudited interim financial statements were prepared in accordance with the JSE Listings
Requirements for interim reports and the requirements of the Companies Act of South Africa. The JSE Listings Requirements
require interim reports to be prepared on a consolidated basis in accordance with the framework concepts and the measurement
and recognition requirements of the International Financial Reporting Standards ("IFRS") and the SAICA Financial Reporting
Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial
Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34: Interim Reporting.
The accounting policies applied in the preparation of the condensed consolidated unaudited interim financial statements are
in terms of IFRS and are consistent with those applied in the previous annual financial statements as at and for the year ended
31 March 2018.
In preparing these condensed consolidated unaudited interim financial statements management made judgements, estimates
and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities. Actual
results may differ from these estimates. 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 applied to the financial statements as at and for
the year ended 31 March 2018.
The Group's results were prepared under the supervision of Andrew Hannington CA(SA), the Chief Financial Officer.
These interim financial statements and any forward-looking statements have not been reviewed or reported on by the Company's
auditors, Deloitte & Touche.
Disposals
The following disposals were made during the period under review.
Hedge Funds
The Peregrine Partners Fund (the "Fund"), an En Commandite Partnership ("ECP") which held geared investments in three
underlying hedge funds as at 31 March 2018, was unbundled with effect from 1 April 2018, from which date the Fund's
80.1% interest in the PNF Peregrine ECP (together with related gearing), its 100% interest in the Peregrine Green Oak ECP
(together with related gearing) and its units in the Peregrine Capital Flexible Opportunities Hedge Fund were transferred to
direct ownership by the Group.
The Group redeemed its entire interest in the Stenham Targeted Skills II Fund and a substantial portion of its interest in the
Peregrine Capital Flexible Opportunities Fund during the period under review. The redemption proceeds were applied to repay
the outstanding portion of the vendor loan due to Peregrine SA Holdings Proprietary Limited (31 March 2018: R120 million).
Rinjani
Following the recent sale of Sandown's largest investment, Rinjani, the unlisted international property investment entity, in
which the Group holds a 79.41% non-consolidated equity interest, completed a share buy-back on 26 September 2018. The
Group's share of approximately R94 million was received in EUR, which funds are being held offshore. The Group's residual
investment in Rinjani was valued at R57.8 million as at 30 September 2018 (31 March 2018: R123.4 million).
Firefly Investment 61 Partnership ("Firefly")
Firefly, the South African private equity fund in which the Group holds a 50% partnership interest, disposed of its last
remaining material investment. The Group's share of the net sale proceeds, including settlement of outstanding loans due to it,
amounted to R9.1 million.
Acquisitions
During the period under review, the Group subscribed for additional preference shares in its associate company, Nala A2X
Proprietary Limited ("Nala A2X"), for a consideration of R2.3 million, to enable Nala A2X to follow its rights in a capital raise
by its principal investment, A2X Proprietary Limited. In addition, an amount of R2.5 million was advanced to its associate
company, Nala Empowerment Investment Company Proprietary Limited, by way of an interest-free shareholder loan.
Analysis of Assets and Liabilities by Financial Instrument Classification
Unaudited as at 30 September 2018 Financial Non-financial
R'000s instruments at instruments
fair value and financial
through profit Loans and instruments
and loss receivables Financial beyond the Fair value
designated at at amortised liabilities scope of Total of financial
inception cost at amortised cost IFRS 7 R'000s instrument
Non-current assets 635 321 92 - - 635 413
Financial investments 608 260 - - - 608 260 608 260
Investment in associates 27 062 92 - - 27 153 27 062
Deferred tax - - - - -
Current assets 444 768 187 464 - 500 632 733
Financial investments 444 768 - - - 444 768 444 768
Trade and other receivables - 6 - - 6
Taxation - - - 500 500
Cash and cash equivalents - 187 459 - - 187 459
Total assets 1 080 090 187 556 - 500 1 268 146
Non-current liabilities -
Deferred taxation - - - 4 445 4 445
Current liabilities - - 888 - 888
Loans and payables - - - - -
Trade and other payables - - 888 - 888
Total liabilities - - 888 4 445 5 333
Analysis of Assets and Liabilities by Financial Instrument Classification
Audited as at 31 March 2018 Financial Non-financial
R'000s instruments at instruments
fair value and financial
through profit Loans and Financial instruments
and loss receivables liabilities beyond the Fair value
designated at at amortised at amortised scope of Total of financial
inception cost cost IFRS 7 R'000s instrument
Non-current assets 611 806 92 - 20 849 632 747
Financial investments 588 949 - - - 588 949 588 949
Investment in associates 22 857 92 - - 22 949 22 857
Deferred tax - - - 20 849 20 849
Current assets 507 094 76 592 - 6 672 590 358
Financial investments 507 094 - - - 507 094 507 094
Trade and other receivables - 162 - - 162
Taxation - - - 6 672 6 672
Cash and cash equivalents - 76 430 - - 76 430
Total assets 1 118 900 76 684 - 27 521 1 223 105
Non-current liabilities
Deferred taxation - - - -
Current liabilities - - 121 418 - 121 418
Loans and payables - - 120 000 - 120 000
Trade and other payables - - 1 418 - 1 418
Total liabilities - - 121 418 - 121 418
Fair value disclosures
The following table presents the Group's financial instruments which are presented at fair value as at 30 September 2018:
R'000s R'000s R'000s
Financial assets at fair value through profit or loss Level 1 Level 2 Total
Listed equities 434 740 - 434 740
Private equity investments - 173 520 173 520
Hedge fund investments - 444 768 444 768
Investment in associates - 27 062 27 062
434 740 645 350 1 080 090
The following table presents the Group's financial instruments which are presented at fair value as at 31 March 2018:
R'000s R'000s R'000s
Financial assets at fair value through profit or loss Level 1 Level 2 Total
Listed equities 358 913 - 358 913
Private equity investments - 230 036 230 036
Hedge fund investments - 507 094 507 094
Investment in associates - 22 857 22 857
358 913 759 987 1 118 900
Valuation techniques applied and inputs to recurring valuation techniques
Financial assets at
fair value through Valuation technique used Significant observable Significant unobservable
profit or loss to determine fair value inputs used in valuation inputs used in valuation
Listed equities Quoted market prices Unadjusted quoted prices N/A
in an active market of
underlying investments
Private equity Current market Market-related N/A
investments assumptions for loans, interest rate
independent valuations,
and cost for recent
transactions
Hedge fund Quoted market prices The fair value is Unobservable inputs are
Investments determined by an mostly expense accruals of
independent administrator, the hedge fund entities that
based on the quoted market are deducted from the sum
prices of the underlying of the fair values of net
investments held by the investments held by the
hedge funds hedge funds
Investment Current market Market-related N/A
in associates assumptions for loans, interest rate
independent valuations,
and cost for recent
transactions
Hedge funds
A financial asset and a financial liability are offset and the net amount presented in the statement of financial position when
the Group has a legally enforceable right to set off the recognised amounts and intends either to settle on a net basis, or to
realise the asset and settle the liability simultaneously. The unlisted hedge fund investments were presented net of loans. The
investments made are on a geared basis with permissible loan ratios of up to 100%. The loan agreements against the investment
in the hedge funds state that the loans will be settled at the same time as a redemption out of the funds. The hedge fund
investments are measured at fair value and the loans are measured at amortised cost.
Financial assets subject to offsetting
Gross amounts
of recognised Net amounts
financial liabilities of financial assets
Gross amounts offset in the presented in the
of recognised statement of statement of
R'000s financial assets financial position financial position
30 September 2018 1 062 381 (617 613) 444 768
30 March 2018 584 468 (77 374) 507 094
The increase in the gross amounts disclosed in the table above reflects the impact of the unbundling of the Peregrine Partners
Fund ECP, described elsewhere in this report. As at 31 March 2018, the Group's interest in the Fund was presented net of loans
of R520.5 million.
Related party balances and transactions
Private equity fund
The Group has a 50% interest in a partnership, Firefly, a private equity fund in the final stages of run-off. Mr S Melnick, a
director of the company during the period under review, co-invested with the Group into the fund through an entity in which
he has an indirect beneficial interest. The value of the loan receivable from Firefly as at 30 September 2018 was Nil
(31 March 2018: R695 942).
Investment manager
The Group entered into an investment advisory agreement with an external investment manager on 4 October 2017, an entity
in which S Melnick and S Jelley, executive directors of the Group during the period under review, were representative of and
have an economic interest in. For the six months ended 30 September 2018, these fees amounted to R8 million (2017: Nil).
On 17 September 2018, the investment advisory agreement was terminated by mutual consent, subject to the approval of
shareholders by way of an ordinary resolution, and in respect of which a termination fee of R63 million was agreed between
the parties.
Equity accounted investees
The Group pays certain expenses on loan account, with respect to fees incurred in the ordinary course of business, on behalf
of entities in which the Group holds an associate interest. These fees amounted to Nil for the period under review (2017: Nil).
As at 30 September 2018, Group associate companies owed the Company an aggregate amount of R91 895 (2017: Nil).
Subsidiaries
Transactions with subsidiaries are conducted in the ordinary course of business at arms' length. Dividends paid by subsidiary
companies are recognised in investment income by the holding company. Intercompany transactions and balances are
eliminated on consolidation.
Loans to subsidiary companies as at 30 September 2018 amounted to R2,6 million (2017: Nil) due by Sandown Capital
International Limited ("SCIL") to the Company. The amounts due by/to subsidiary companies are considered of a short-term
nature, unsecured and repayable on demand. Loans are interest-free unless stated otherwise.
Peregrine Holdings Limited ("Peregrine") restructure
With effect from 2 October 2017 Peregrine transferred to Sandown, a wholly-owned subsidiary of Peregrine at the time, all the
attributable surplus balance sheet investments within the Peregrine group. The effect of the restructure on the assets and
liabilities as at the reporting date is presented below.
The fair values reflected below represent their carrying values as at the restructure date (2 October 2017).
R'000s
Identifiable assets transferred in: 1 160 634
Financial investments 990 067
Hedge funds 474 558
Listed equity 383 178
Private equity 132 331
Cash and cash equivalents 170 567
Identifiable liabilities transferred in: (134 324)
Attributable net assets 1 026 310
Contingent liability
In terms of an agreement signed on 17 September 2018, between the Company, SCIL and the investment manager, whereby
the investment advisory agreement between the parties was terminated, SCIL will pay the investment advisor R63 million in
consideration thereof, by no later than the second business day after an ordinary resolution being passed by the shareholders
in general meeting approving the termination, on the terms and conditions contained in the agreement. The Company has
issued notice of a general meeting in this regard, which meeting will take place on 15 November 2018. Shareholders are
referred to the Circular issued by the Company announced on SENS on Tuesday, 16 October 2018, for more detailed
information.
Subsequent events
Other than the termination of the investment advisory agreement referred to above, the directors are not aware of any other
matters or circumstances arising since the end of the reporting period under review which significantly affect the financial
position of the Group or the results of its operations.
Date: 07/11/2018 05:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.