| Wed 12 Sep 2007, 7:00 | | MKL - Makalani - Consolidated Results: Year Ended |
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MKL
MKL
MKL - Makalani - Consolidated Results: Year Ended 30 June 2007 and Declaration
of final dividend and interest
Makalani Holdings Limited
(Incorporated in the Republic of South Africa)
("Makalani" or "the Company")
(Registration number: 2005/000726/06)
Share code: MKL ISIN: ZAE000066700
CONSOLIDATED RESULTS FOR THE YEAR ENDED 30 JUNE 2007
- HEPLU increased by 27% to 1 004 cents
- Total distribution per linked unit increased by 29% to 900 cents
- Invested assets increased by R1 billion to R2.1 billion
Income statement for the year ended 30 June 2007
Audited Audited
12 months 14 months
2007 2006
Note R`000 R`000
Interest income 2 242 706 212 979
Fair value gains 13 607 2 225
Fee income 5 341 -
Operating expenses (25 220) (15 829)
Profit on repurchase of debentures 1 968 -
Indirect taxation (2 741) (2 697)
Net operating income 235 661 196 678
Debenture interest (150 776) (146 814)
Net profit before taxation 84 885 49 864
Taxation 837 1 513
Profit for the period attributable to
equity holders 85 722 51 377
Earnings per share 3 367 206
Balance sheet at 30 June 2007
Audited Audited
2007 2006
Note R`000 R`000
Assets
Cash and cash equivalents 248 722 1 007 738
Money market instruments - 464 953
Derivative financial instruments 4 13 756 4 755
Invested assets at fair value 5 2 113 057 1 094 678
Loans and advances 2 053 885 1 069 178
Other financial assets 59 172 25 500
Deferred tax assets 5 214 1 720
Total assets 2 380 749 2 573 844
EQUITY AND LIABILITIES
Share capital and premium 553 052 615 711
Accumulated profit 87 290 39 127
Share capital and reserves 640 342 654 838
Debentures 1 657 774 1 847 447
Linked unitholders` interest 2 298 116 2 502 285
Derivative financial instruments 4 2 626 5 284
Taxation 2 632 207
Other liabilities 7 71 881 66 068
Provisions 5 494 -
Total equity and liabilities 2 380 749 2 573 844
Condensed Cash flow statement
for the year ended 30 June 2007
Audited Audited
12 months 14 months
2007 2006
R`000 R`000
Cash generated from operations 219 492 202 240
Taxation paid (232) -
Interest and dividend distribution (174 788) (100 250)
Net cash inflow from operating activities 44 472 101 990
Net cash outflow from investing activities (552 853) (1 557 096)
Net cash (outflow)/inflow from
financing activities (250 635) 2 462 844
Net (decrease)/increase in cash and cash
equivalents (759 016) 1 007 738
Cash and cash equivalents at beginning
of period 1 007 738 -
Cash and cash equivalents at end of period 248 722 1 007 738
Statement of changes in equity
for the year ended 30 June 2007
Share Share Accumulated Total
R`000 capital premium profit equity
Balance in May 2005 - - - -
Issued 3 624 997 - 625 000
Issue expenses - (9 289) - (9 289)
Profit for the period - - 51 377 51 377
Dividends paid - - (12 250) (12 250)
Balance at 30 June 2006 3 615 708 39 127 654 838
Repurchase of shares (1) (62 658) - (62 659)
Profit for the period - - 85 722 85 722
Dividends paid - - (37 559) (37 559)
Balance at 30 June 2007 2 553 050 87 290 640 342
Notes to the results
1. Basis of preparation
The results have been prepared in accordance with those International Financial
Reporting Standards and International Financial Reporting Interpretations
Committee interpretations issued and effective at the time of preparing these
results. The Group`s accounting policies as set out in the annual report for the
period ended 30 June 2006 have been consistently applied, with no significant
changes in estimates. These results have consolidated the results of the
Company`s only subsidiary being a company that holds treasury linked units. The
annual financial statements from which this announcement has been extracted have
been audited by PricewaterhouseCoopers Inc. A copy of their unmodified opinion
is available for inspection at the registered office of the Company.
Comparative information
The corresponding comparative financial information, as previously published is
for a period of 14 months ended 30 June 2006, whereas these results are for the
12 months ended 30 June 2007.
2007 2006
R`000 R`000
2. Interest income
Interest on loans 82 296 12 068
Dividends on redeemable preference
shares 90 311 47 666
Interest and dividends on cash and
cash equivalents, and money market
instruments 70 099 153 245
Interest 70 099 148 516
Dividends - 4 729
242 706 212 979
3. Earnings per share and distribution
per linked unit
Total number of linked units in
issue (`000) 24 930 25 000
Treasury linked units (`000) (2 500) -
Number of linked units in issue (`000) 22 430 25 000
Weighted average number of linked
units in issue (`000) 23 359 25 000
Earnings per share (cents) 367 206
Headline earnings per share (cents) 367 206
Headline earnings reconciliation R`000 R`000
Profit for the period attributable to
equity holders 85 722 51 377
Adjustments - -
Headline earnings 85 722 51 377
The Group did not calculate diluted earnings per share as there are no instances
of a potential dilution. The disclosure of earnings and headline earnings per
share set out above, while obligatory in terms of accounting standards and the
JSE Listings Requirements, is not considered meaningful to investors as the
shares are traded as part of a linked unit and a significant part of the
earnings is distributed in the form of debenture interest. The calculation of
headline earnings per linked unit (HEPLU), distributable earnings and the
distribution per linked unit as shown below are considered more meaningful.
2007 2006
R`000 R`000
Headline earnings per linked unit (cents) 1 004 793
Headline earnings per linked unit
- reconciliation
Headline earnings 85 722 51 377
Debenture interest 150 776 146 814
Profit on repurchase of debentures (1 968) -
Headline earnings attributable to
linked unitholders 234 530 198 191
Calculation of distributable earnings
Net operating income 235 661 196 678
Profit on repurchase of debentures (1 968) -
Taxation 837 1 513
Distributable earnings 234 530 198 191
Distribution to linked unitholders
Debenture interest 150 504 146 500
Dividends 51 365 28 500
Total distribution to linked unitholders 201 869 175 000
Cents Cents
Total distribution per linked unit 900 700
Debenture interest 671 586
Dividend 229 114
Distribution for the period per linked unit 900 700
Interim distribution 446 401
Interest 351 352
Dividend 95 49
Final distribution 454 299
Interest 320 234
Dividend 134 65
4. Derivative financial instruments
Derivative financial instruments relate to interest rate swaps that the Company
has entered into to swap fixed interest rates on its assets into floating
interest rates based on the three-month Johannesburg Interbank Agreed Rate
(JIBAR). Interest rate swaps are used for the purposes of eliminating the risk
of capital losses that the Company faces due to changes in interest rates. In
all instances where the Company enters into interest rate swaps, these
transactions are solely to economically hedge the Company`s exposure to interest
rate risk.
2007 2006
R`000 R`000
5. Invested assets at fair value
Loans 742 597 524 510
Preference shares 1 341 913 570 168
Ordinary shares 28 547 -
2 113 057 1 094 678
6. Share capital and debenture capital
During the year, the Company repurchased 2 570 226 of its linked units for a
consideration of R250.7 million. Of the linked units repurchased, 70 226 linked
units have been cancelled and delisted from the JSE. The balance of the linked
units is currently held as treasury stock through a wholly-owned subsidiary,
formed for the purpose of holding the treasury linked units. At 30 June 2007 the
issued share and debenture capital (before deducting treasury linked units) of
the Company was 24 929 774 ordinary shares of R0.0001 each and 24 929 774
debentures with a nominal value of R75 per debenture.
7. Other liabilities
Other liabilities mainly comprise approximately R72 million (2006:
R59 million) in accrued debenture interest payable to linked unitholders.
8. Post-balance sheet events
Subsequent to the reporting date, Makalani has declared a dividend per share of
134 cents as outlined in the declaration of final dividend and interest.
In addition, the Company acquired debt exposure totalling R217 million as
detailed below.
The Gautrain transaction
The Company acquired debt exposure of approximately R97 million in the form of
mezzanine debt that was provided to Bombela Concession Company (Proprietary)
Limited, which is the entity that holds the concession for the Gautrain project
("Gautrain"). In addition, Makalani assumed RMB`s remaining commitment to
provide a further R38 million in mezzanine debt to Gautrain.
The Tongaat transaction
Makalani provided R101 million to two Black Economic Empowerment ("BEE")
entities as part funding for their acquisition of a shareholding in Tongaat-
Hulett Limited ("Tongaat"). The BEE entities include a substantial broad-based
component with anchor BEE partners being Ayavuna Women`s Investments and Sangena
Investments.
Following the recent unbundling and separate listing of Tongaat`s aluminium
business, Tongaat is now an agri-processing business with significant integrated
land management, agriculture and property development activities.
The Prostart transaction
Makalani provided approximately R19 million to Izingwe Holdings to enable it to
acquire a shareholding in Prostart Investments 93 (Proprietary) Limited
("Prostart"), a subsidiary of Barloworld Coatings (Proprietary) Limited ("Barlow
Coatings"). Prostart is a distributor of automotive refinish paint and Barlow
Coatings is a paint manufacturer.
Commentary on results
Makalani is a mezzanine financing company that provides funding for BEE
transactions and targeted investments, such as infrastructure and affordable
housing, as defined in the Financial Sector Charter. Makalani`s investment focus
is predominantly on mezzanine instruments, while it can also invest in senior
loans, convertible instruments and, where appropriate, common equity. Makalani
is managed by Makalani Management Company (Proprietary) Limited ("Makalani
Manco").
1. Operating environment
The operating environment during the financial year continued to be dominated by
increasing local equity prices and contracting credit spreads. The Company
managed to increase its invested assets without sacrificing margins earned on
the assets. The invested assets increased from R1.1 billion to R2.1 billion and
the annualised pre-tax yield on invested assets increased from 12.9% at 30 June
2006 to 15.2% at 30 June 2007. This performance shows that the strategy adopted
by the Company since inception of not lowering its pricing was correct. It is
the intention to continue with the same strategy.
The economy`s high growth path continued to attract foreign portfolio inflows
into the equity market, including prominent companies that were acquired by
private equity firms and delisted from the JSE. The Company was not able to
participate to a large extent in these buyouts as the most attractive parts of
the capital structure of the buyouts were funded from outside of South Africa
and the debt instruments listed in foreign jurisdictions.
In recent months, global markets have been volatile as a result of concerns
arising from the US subprime market. The Company does not have any exposure to
the US subprime market. It is management`s view that none of its invested assets
are affected by the concerns around exposure to this asset class.
2. Financial results
2.1 Financial results
The Company generated revenue of R261.7 million, an increase of 22% compared to
R215.2 million in 2006. The revenue comprises interest income on cash of R70
million, interest on invested assets of R82.3 million, dividend income on
invested assets of R90.3 million and other income of R18.9 million. The Company
generated 73% of its income from invested assets and 27% from interest on cash
in 2007, compared to 29% and 71% respectively in 2006. Other income includes
fair value gains on derivative instruments and financial assets of R13.6 million
(2006: R2.2 million) and fee income of R5.3 million (2006: Rnil). Included in
the fair value gains on financial assets is an amount of R8.2 million (2006:
Rnil) relating to the revaluation of equity participation instruments. Equity
participation instruments relate to instances where the Company is entitled to
participate in the growth in the net asset values of the special purpose
vehicles that it has funded. This is in addition to the coupon that it earns on
the funding. The equity participation instruments are in respect of the
Convergence Partners, Gold Reef and Sandown Motors transactions.
Operating expenses were R25.2 million (2006: R15.8 million) of which R22.3
million is the management fee expense relating to the management agreement
between the Company and Makalani Manco. The balance of the operating expenses of
R2.9 million relates to audit fees, directors fees and other expenses. The
management fee includes a R4.8 million provision for a performance fee payable
to Makalani Manco. The provision will only be paid when the pre-tax cash yield
on invested assets exceeds the benchmark.
Makalani generated headline earnings of R234.5 million or 1 004 cents per linked
unit (2006: R198.2 million or 793 cents per linked unit). This represents an
overall yield of 10.6% based on the closing linked unit price of R95.00 at 30
June 2007. The headline earnings yield of 10.6% is equivalent to a pre-tax
headline earnings yield of 12.1%.
The net asset value per linked unit is R105.66 at 30 June 2007 compared to
R105.27 at 31 December 2006.
2.2 Distributions
Makalani`s distribution policy is to distribute 100% of all after-tax cash
income, subject to good corporate governance, sound business principles, going
concern and future investment requirements.
The board has declared a final distribution per linked unit of 454 cents and
together with the interim distribution, Makalani`s total distribution is 900
cents per linked unit comprising 229 cents of dividend and 671 cents of
interest. The total distribution represents a yield of 9.5%, which is equivalent
to a pre-tax distribution yield of 10.5%.
The distribution per linked unit of 900 cents is less than the headline earnings
per linked unit of 1 004 cents because on certain invested assets, income is
accrued with payment thereof due on maturity.
3. Portfolio update
Makalani`s portfolio summary at 30 June 2007 is shown in the table below.
Empowerment Fair value
Asset company Sector R`000
Loans
Brait Brait Financial services 26 333
Emira Broad-based BEE
parties Real estate 117 680
Exxaro Eyesizwe and
others Mining 135 034
Fuel Various BEE Transport and
parties logistics 182 351
Life Healthcare Brimstone and
Mvelaphanda Healthcare 45 527
Mondi Newsprint Shanduka Paper and packaging 35 672
Steinhoff Mvelaphanda and
Arch Equity Household goods 200 000
Preference
shares
Aberdare Izingwe Engineering 26 017
Brait Brait Financial services 106 695
Convergence Convergence IT and
Partners Partners telecommunications 26 336
FirstRand Kagiso, MIT and
WDB Banks 165 380
Fuel Various BEE Transport and 34 407
parties logistics
Gold Fields Mvelaphanda Mining 65 613
Gold Reef Platoon and
Saddle Gaming 296 451
Inyanga Shanduka Resources
Engineering 23 063
Kredit Inform Shanduka Group Financial services 68 301
Metropolitan Kagiso Insurance 116 273
Mvelaphanda Mvelaphanda Group Services 30 625
Group
Nampak Aka Capital Paper and packaging 44 571
Sandown Motors True Class Motor retail 338 181
Ordinary shares
Fuel Various BEE Transport and
parties logistics 28 547
2 113 057
Annualised pre-tax yield of the portfolio 15.2%
Subsequent to the year-end, the Company has increased its invested assets by
R217 million to bring total invested assets to R2.3 billion as outlined in post-
balance sheet events. The analysis of the investment portfolio excludes these
assets.
The portfolio during the reporting period was reduced by R225 million, of which
R88 million was as a result of the buyout and delisting of Peermont Global
Limited from the JSE and R137 million from the settlement of a credit linked
note in respect of Imperial Holdings Limited`s BEE transaction.
The portfolio is spread across a number of assets and across different sectors.
There is no single asset or sector that constitutes more than 15% of the
Company`s total assets. The Company`s invested assets have a maturity profile as
shown in the table below.
Less than 1 year 4%
2 to 4 years 35%
4 to 5 years 20%
More than 5 years 41%
4. Corporate governance
The directors of Makalani endorse the Code of Corporate Practices and Conduct
("the King Code 2002") contained within the King Report on Corporate Governance
for South Africa 2002. The directors are satisfied that the Company has in all
material respects complied with the provisions and the spirit of the King Code
2002.
5. Outlook
The Company has fully invested its initial capital raised upon listing and
continues to evaluate a number of FSC compliant investments. New investments
will be funded using a combination of external debt and cash from an issue of
linked units. The intention is to utilise external debt before issuing any
linked units. In this regard, the board has approved that the Company raise
external debt and has set a gearing target of 25% of total assets, which
currently translates to a maximum amount of R750 million. The Company will
continue with its adopted strategy of adding quality assets to the portfolio and
balancing the risk and reward of each individual investment.
6. Declaration of final dividend and interest
Notice is hereby given of a final dividend declaration number 4 of 134 cents and
debenture interest payment number 4 of 320 cents per linked unit for the six
months ended 30 June 2007. The total amount payable to linked unitholders is 454
cents ("the final distribution") per Makalani linked unit and will be paid to
linked unitholders in accordance with the timetable set out in the table below.
Last day to trade cum final distribution Friday, 28 September 2007
Linked units commence trading ex
final distribution Monday, 1 October 2007
Record date to participate in the final
distribution Friday, 5 October 2007
Payment date of the final distribution Monday, 8 October 2007
No dematerialisation or rematerialisation of Makalani linked unit certificates
may take place between Monday, 1 October 2007 and Friday, 5 October 2007 (both
days included).
Notice of annual general meeting
Unitholders are advised that the annual financial statements for the year ended
30 June 2007 will be distributed to unitholders on or about 30 September 2007.
Notice is hereby given that the second annual general meeting of Makalani`s
unitholders will be held in the boardroom, 4th Floor, 4 Merchant Place, Corner
Fredman Drive and Rivonia Road, Sandton on Monday, 22 October 2007 at 12:00 to
transact the business as stated in the annual general meeting notice forming
part of the annual financial statements.
By AH Arnott
Company Secretary
Sandton
12 September 2007
For and on behalf of the board
VW Bartlett (Chairman) V Mahlangu (Chief Executive Officer)
Registered office: 1st Floor, 2 Merchant Place, Corner Fredman
Drive and Rivonia Road, Sandton, 2196, PO Box
781463, Sandton, 2146
Tel +27 11 282 4555 Fax +27 11 282 4559
Email enquiries@makalani.co.za Website:
www.makalani.co.za
Directors: VW Bartlett (Chairman), V Mahlangu (Chief
Executive Officer), DCM Gihwala, D Konar,
MS Moloko, SEN Sebotsa, BJ van der Ross,
L von Moltke
(alternate RJC Hamer)
Company secretary: AH Arnott, 4th Floor, 4 Merchant Place, Corner
Fredman Drive and Rivonia Road, Sandton, 2196
Transfer secretary: Link Market Services South Africa (Proprietary)
Limited, 5th Floor, 11 Diagonal Street,
Johannesburg, 2001
Sponsor: Rand Merchant Bank (A division of FirstRand
Bank Limited), 1 Merchant Place, Corner Fredman
Drive and Rivonia Road, Sandton, 2196
Auditors: PricewaterhouseCoopers Inc. 2 Eglin Road,
Sunninghill, 2157, Private Bag X36,
Sunninghill, 2157
Date: 12/09/2007 07:00:02 Produced by the JSE SENS Department.
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