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AFRICAN PHOENIX INVESTMENTS LIMITED - Condensed Audited Consolidated Financial Results for the Year Ended 30 September 2018

Release Date: 29/11/2018 15:40
Code(s): AXL AXLP     PDF:  
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Condensed Audited Consolidated Financial Results for the Year Ended 30 September 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 code: AXLP) (ISIN: ZAE000221388)
("Phoenix" or "the Group" or "the Company")

CONDENSED AUDITED CONSOLIDATED FINANCIAL RESULTS FOR THE YEAR
ENDED 30 SEPTEMBER 2018

HIGHLIGHTS
Net asset value per ordinary share: 52.0 cents (FY2017: 48.8 cents)
Cash and financial assets available for investment: R1.96 billion (FY2017: R1.88 billion)
Total equity: R1.87 billion (FY2017: R1.83 billion)
Earnings per share: 3.2 cents (FY2017: 13.0 cents)
Headline earnings per share: 3.7 cents (FY2017: 13.0 cents)

The board of directors ("Board") is pleased to present the Condensed Audited Consolidated Financial Results for the year ended
30 September 2018 ("FY2018"). Whilst the financial performance in the current year is muted compared to the prior year, both the Company
and The Standard General Insurance Company ("Stangen") have taken meaningful steps towards achieving their individual strategies 
as set out below. For further detail to these condensed results, please see the Company website www.phoenixinvestments.co.za for the 
full Integrated Annual Report for FY2018.

FINANCIAL PERFORMANCE
The Group reported net asset value ("NAV") per share at
30 September 2018 of 52.0 cents (2017: 48.8 cents), an
increase of 6.6% for the year and 3.6% for the six months from
31 March 2018 (50.2 cents).

The Group has increased cash and financial assets available
for investment from R1.88 billion to R1.96 billion over
the period and therefore remains both liquid and solvent.
Profit after tax of R46 million for FY2018 is a decrease of 76%
from FY2017 of R186 million. The profit after tax for the six-
months to 31 March 2018 was R21 million. The decrease in
profit after tax for the year was mainly due to:

-  The lower Other Income (per the Statement of Profit
   or Loss), relating to the once off recoveries of fully
   impaired claims as the business rescue process
   for Ellerine Holdings Limited and Ellerine Furnishers
   Proprietary Limited which were not repeated in the current
   financial year (FY2018: R18 million, FY2017: R47 million);

-  The lower amount of actuarial reserves released by
   Stangen during the current financial year as a result of the
   increase in expense reserves that relate to new insurance
   policies (FY2018: R12 million, FY2017: R62 million);

-  The increase in operating costs (FY2018: R151 million,
   FY2017: R93 million), predominantly as a result of
   Stangen's new business acquisition costs and above-the-
   line marketing campaigns, and in Phoenix an increase
   in legal costs attributed to the business rescue matters
   at Ellerine Group and directors' remuneration due to
   increase in Board and committee meetings in support
   of the investment activity and the proposed transaction
   announced on 7 September 2018; and

-  The lower reversal of impairment as the valuation of the
   Residual Debt Services stub instruments are valued closer
   to the traded Over-The-Counter traded price compared
   to FY2017 (FY2018: R2 million, FY2017: R46 million).

Total shareholders' equity as at 30 September 2018
amounted to R1.87 billion (30 September 2017: R1.83 billion).

The Board concluded that the preparation of the financial
information on a going concern basis is appropriate.
No ordinary or preference dividends were declared in the
current year (FY2017: Rnil).

PROPOSED TRANSACTION
As announced on 7 September 2018, the Company advised
shareholders of its proposal to implement certain strategic
transactions. In summary, the proposed transaction includes: i) a
repurchase of preference shares, ii) an acquisition of a limited
partnership interest in a private equity fund to be established
and managed by a black-owned fund manager ("BFM"),
iii) amendments to the MOI to cater for i) & ii) above, and
iv) a change in the JSE classification to an investment entity
pursuant to section 15 of the JSE Listings Requirements.

Since announcing the transaction, the Company has been
engaged with and continues to engage the regulatory authorities, 
including the JSE, to obtain all the necessary approvals to proceed 
with the transaction. The Company has received the JSE dispensations 
required to implement the proposed transaction  and the Company expects 
to publish the circular to shareholders relating to the approvals required 
to implement the proposed transaction early next year. The notice to the 
next Annual General Meeting ("AGM") will be published with the circular.

OPERATIONS
In the furtherance of the Company's stated strategy of
increasing shareholder value through owning meaningful
equity interests in a range of diverse businesses, the
Company appointed myself as Chief Executive Officer and
Shafiek Rawoot as Financial Director on 1 March 2018 and
1 July 2018 respectively. The Company also employed two
investment principals in Kamogelo Mudimbu and Alupheli
Sithebe on 1 June 2018 and 1 July 2018 respectively.
This investment team has a proven track record of originating,
executing and realising investments in line with the Company's
strategy. In addition to the investment team, the BFM will
include a majority independent non-executive investment
committee to assist in vetting all proposed investment
acquisitions and disposals. Further details of the investment
committee will be included in the circular to shareholders.
The Company also moved offices from the space shared with
Stangen at the Wanderers Office Park in Illovo, to a new office
in Sturdee Avenue in Rosebank.

INVESTING ACTIVITIES
In July 2018 Stangen acquired the infrastructure and staff of
the Joshua Trust ("JT") call centre. In September 2018, Stangen acquired the
insurance and call centre operations of Different Life ("DL"). 
As part of the DL acquisition, Stangen increased its stake 
from 15% to 25% and hence changed from accounting for DL as an 
investment to associate accounting. Marius Botha (Stangen Managing
Director) was appointed as the non-executive chairman of DL.

The investment team has been able to evaluate many
investment opportunities in line with the investment strategy
of pursuing investments primarily in businesses operating in
the mid-market space that are looking for equity risk capital.
Since 1 March 2018, the executives and investment team
have reviewed thirty three (33) investment opportunities
in various sectors including food packaging, automotive
trimming, food processing and telecommunications.
From that universe of opportunities, the Company declined
an opportunity after conducting a commercial and financial
due diligence, one conditional offer was declined by sellers
after concluding a comprehensive due diligence and five
opportunities are still under consideration. The remaining
investment opportunities were abandoned by the Company
primarily on concerns over challenges in business models,
sustainability of earnings and high price expectations.

LEGACY MATTERS
The former management team of Ellerine (before it was
placed in business rescue) was incentivised in terms of a
scheme known as the PARIS scheme to stay on and build
value to enable Ellerine to be sold for a "good price". Before
the scheme term expired, the Ellerine Group was placed in
business rescue. The PARIS participants (roughly 18 of them
in number) then endeavoured to recover their incentive from
Ellerine Furnishers and Ellerine Holdings by way of arbitration.
This arbitration came to an end as Ellerine Furnishers insisted
that Phoenix (then African Bank Investments Limited) be
a party to these proceedings. Phoenix agreed to arbitrate
before a retired judge. The judgement, in favour of Phoenix,
was handed down in December 2017. Ellerine Furnishers
took that matter on appeal and the arbitrator found in favour
of Phoenix awarding the Company R1.1 million in fees.
The matter is now closed.

Phoenix submitted a deed of cession to the Ellerine Holdings
business rescue practitioner in relation to the claim for
banking facilities, which had been settled in full. The Company
lodged a claim for all distribution benefits to which the bank
would have become entitled, after April 2016, under the
session. The Ellerine Holdings business rescue practitioner
disputed the claim and the parties agreed to settle the dispute
by arbitration. In August 2018, the arbitrator ruled in favour of
Phoenix and a payment of R15.8 million was deposited in the
Phoenix account in September 2018.

OUTLOOK
As the legacy matters highlighted above draw to a close, the
proposed transaction (if the requisite approvals are obtained 
from shareholders in due course) allows the Company to simplify the
capital structure and offers shareholders a unique opportunity
to invest in a vehicle that provides empowerment credentials,
growth and replacement equity risk capital to businesses operating in
the mid-market without forgoing the liquidity offered by being
listed on a public exchange. The fund manager structure
will combine the experience of independent non-executive
investment committee members and a management team
that is aligned with Phoenix shareholders.

There is a compelling opportunity for well capitalised and
empowered investment vehicles providing patient capital.
In the period since announcing the proposed transactions, the
Company has received interest from corporate advisers and
medium sized companies looking for an equity partner with
a longer investment horizon compared to traditional private
equity and a partner that understands the needs of private
businesses. The Company is looking forward to pursuing
these opportunities in line with the investment policy, through
the proposed fund manager structure.


Siya Nhlumayo
Chief Executive Officer

CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 30 September 2018

R thousand                                                         2018           2017

Assets
Cash and cash equivalents                                     1 656 447      1 881 333
Financial assets                                                300 127         20 000
Other assets                                                     55 205        100 530
Reinsurance assets                                                  637            326
Investment in associate                                          16 462              –
Taxation                                                          1 622          1 230
Deferred tax asset                                               18 608          1 170
Equipment                                                         5 207          1 147
Intangible assets                                                16 377         12 585

Total assets                                                  2 070 692      2 018 321

Liabilities and equity
Other liabilities                                                40 391         37 395
Reinsurance creditor                                                272             72
Taxation                                                         17 186          3 046
Policyholders' liabilities under insurance contracts            117 639        128 182
Borrowings                                                       23 377         23 377

Total liabilities                                               198 865        192 072

Ordinary share capital and share premium                     14 649 929     14 649 929
Reserves                                                   (13 907 905)   (13 953 483)

Ordinary shareholders' equity                                   742 024        696 446
Preference shareholders' equity                               1 129 803      1 129 803

Total equity (capital and reserves)                           1 871 827      1 826 249

Total liabilities and equity                                  2 070 692      2 018 321

Net asset value per ordinary share (NAV) (cents)                   52.0           48.8
Tangible net asset value per ordinary share (TNAV) (cents)         50.9           47.9

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

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME for the year ended 30 September 2018

R thousand                                                         2018           2017
          
Continuing operations          
Insurance premium and reinsurance income                         66 711         63 838
Investment income                                               155 977        139 852
Other income                                                     17 598         47 078
          
Net income                                                      240 286        250 768
Net insurance claims                                            (9 424)         38 241
Operating and administration expenses                         (151 143)       (92 933)
Interest expense                                                  (308)           (96)
        
Profit before capital items and equity accounted items           79 411        195 980
Capital items                                                   (5 367)         46 115
        
   Reversal of impairment of financial instruments                1 977         46 115
   Impairment of goodwill                                       (2 555)              –
   Deemed loss on stepped acquisition of associate              (4 789)              –
          
Share of loss from associate                                      (205)              –
        
Profit before taxation                                           73 839        242 095
Direct taxation: SA normal                                     (28 261)       (47 410)
        
Profit for the year from continuing operations                   45 578        194 685
Loss for the year from discontinuing operations                      –         (8 563)
        
Profit for the year                                              45 578        186 122
Other comprehensive income                                            –              –
        
Total comprehensive income for the year                          45 578        186 122

RECONCILIATION BETWEEN BASIC EARNINGS AND HEADLINE EARNINGS

R thousand                                                         2018           2017
   
Profit for the year from continuing operations                   45 578        194 685
Loss for the year from discontinuing operations                       –        (8 563)
   
Profit for the year                                              45 578        186 122
   
Basic earnings/diluted earnings attributable to 
ordinary shareholders                                            45 578        186 122
Adjusted for:   
Impairment of goodwill                                            2 555              –
Deemed loss on stepped acquisition of associate                   4 789              –
   
Headline earnings/diluted headline earnings                      52 922        186 122
   
Weighted number of shares in issue (thousand)                 1 427 005      1 427 005
Basic earnings per ordinary share (cents)   
Basic earnings per ordinary share – continued operations            3.2           13.7
Basic loss per ordinary share – discontinued operations              –           (0.6)
   
Basic earnings/diluted earnings per ordinary share – total          3.2           13.0
   
Headline earnings per ordinary share (cents)   
Headline earnings per ordinary share – continued operations         3.7           13.7
Headline loss per ordinary share – discontinued operations            –          (0.6)
   
Headline earnings/diluted headline earnings 
per ordinary share – total                                          3.7           13.0

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 30 September 2018

                                              Ordinary                       Preference
                                         share capital      Accumulated   share capital
R thousand                                 and premium             loss     and premium         Total

Balance at 30 September 2016                14 649 929     (14 139 605)       1 129 803     1 640 127
Total comprehensive income for the year              –          186 122               –       186 122
  
Balance at 30 September 2017                14 649 929     (13 953 483)       1 129 803     1 826 249
Total comprehensive income for the year              –           45 578               –        45 578
  
Balance at 30 September 2018                14 649 929     (13 907 905)       1 129 803     1 871 827

SEGMENT REVENUE AND RESULTS

R thousand                                                           Insurance     Corporate        Total

2018
Net income                                                             176 785        63 501      240 286

EBITDA                                                                (57 997)      (19 556)     (77 553)

Interest received                                                      108 276        47 701      155 977
(Loss on deemed disposal of stepped acquisition)/ reversal of
impairment                                                             (4 789)         1 977      (2 812)
Impairment of goodwill                                                 (2 555)             –      (2 555)
Profit before taxation attributable to shareholders from continuing
operations                                                              45 759        28 080       73 839

Total assets                                                           685 632     1 385 060    2 070 692

Total liabilities                                                      146 619        52 246      198 865

R thousand                                                           Insurance     Corporate        Total

2017

Net income                                                             181 646        69 122      250 768
 
EBITDA                                                                  25 047        67 351       92 398
 
Interest received                                                      116 152        23 700      139 852
Reversal of impairment                                                       –        46 115       46 115
Profit before taxation attributable to shareholders from continuing 
operations                                                             151 044        91 051      242 095
Profit before taxation attributable to shareholders from
discontinuing operations                                              (11 893)             –     (11 893)

Total assets                                                         1 548 273       470 048    2 018 321

Total liabilities                                                      139 737        52 335      192 072

CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 30 September 2018

R thousand                                                                2018          2017
          
Cash inflow from continuing operations                                  72 414       131 534
          
Cash receipts from policyholders and investments                       240 159       250 768
Cash paid to policyholders, suppliers and employees                  (167 745)     (119 234)
          
Direct taxation paid                                                  (31 951)      (43 532)
Interest paid                                                            (308)          (96)
          
Net cash inflow from continuing operating activities                    40 155        87 906
Net cash outflow from discontinuing operating activities                     –      (11 893)
          
Net cash inflow from operating activities                               40 155        76 013
Cash flows from investing in continuing operations                   (265 041)      (27 605)
          
Acquisition of equipment                                               (3 022)         (239)
Acquisition of intangible assets                                       (7 535)      (13 791)
Acquisition of investment in Different Life                            (1 456)      (20 000)
Acquisition from business combination                                  (4 435)             –
Other investing activities                                           (300 000)             –
Proceeds from other assets                                              51 407         6 425
           
(Decrease)/increase in cash and cash equivalents                     (224 886)        48 408
Cash and cash equivalents at the beginning of the year               1 881 333     1 832 925
           
Cash and cash equivalents at the end of the year                     1 656 447     1 881 333
 
BASIS OF PREPARATION
The preparation of this financial information was supervised by
Shafiek Rawoot CA(SA).

The 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, Interpretations
issued by the International Financial Reporting Interpretations
Committee (IFRIC) of the IASB, IAS 34: Interim Financial
Reporting and Financial Reporting Pronouncements as issued by 
Financial Reporting Standards Council, the requirements of the 
Companies Act of South Africa (Act 71 of 2008) as well as the 
Listings Requirements of the JSE Limited.

All accounting policies and their application are in terms of IFRS 
and 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 confirm that the financial information has 
been correctly extracted from the underlying audited financial statements.

AUDITORS' REPORT
The accompanying financial information is extracted from
the audited financial statements but is in itself not audited.
The auditors have expressed an unqualified opinion on the
financial statements of the Group. The financial statements
have been audited by Grant Thornton, Johannesburg
Partnership. The full audit reports are available for inspection
at the company's registered office. The auditors' report does
not necessarily report 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' report together with the accompanying financial
information from the issuer's registered office.

Johannesburg
29 November 2018

SPONSOR
Merchantec Capital

BOARD OF DIRECTORS
Independent non-executives: M Mthombeni (Chairman);
A Conrad; M Kabi; O Mabandla; R Mathura; N Siyotula
Non-executive: S Sithole
Executives: S Nhlumayo (CEO); S Rawoot (FD)

Changes to the Board of Directors are detailed in the Integrated Annual Report available on the Company website. 

REGISTERED OFFICE
3rd Floor, Global House
28 Sturdee Avenue
Rosebank
South Africa, 2196

COMPANY SECRETARY
Acorim Proprietary Limited

SHARE TRANSFER SECRETARIES
Link Market Services South Africa Proprietary Limited
13th Floor, Rennie House
19 Ameshoff Street, Braamfontein, South Africa
PO Box 4844
Johannesburg
South Africa
2000
Telephone: +27 11 713 0800
Telefax: +27 86 67 4 4381

WEBSITE
www.phoenixinvestments.co.za
Date: 29/11/2018 03:40:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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