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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
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