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MKL
MKL
MKL - Makalani - Unaudited consolidated interim results for the six months ended
31 December 2007 and declaration of interim cash dividend and interest payment
and withdrawal of cautionary announcement
Makalani Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number: 2005/000726/06)
Share code: MKL
ISIN: ZAE000066700
("Makalani" or "the Company")
UNAUDITED CONSOLIDATED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2007
AND DECLARATION OF INTERIM CASH DIVIDEND AND INTEREST PAYMENT AND WITHDRAWAL OF
CAUTIONARY ANNOUNCEMENT
Headline earnings per linked unit increased by 32% to 684 cents
Total distribution per linked unit increased by 14% to 510 cents
Consolidated Income statement
for the six months ended 31 December 2007
Unaudited Unaudited Audited
31 Dec 31 Dec 30 June
2007 2006 2007
Note R`000 R`000 R`000
Interest income 148 722 116 903 242 706
Fair value gains 24 837 15 775 13 607
Fee income 1 750 5 341 5 341
Operating expenses (13 460) (11 881) (25
220)
Profit on repurchase
of
debentures - 1 968 1 968
Indirect taxation (1 209) (1 245) (2 741)
Net operating income 160 640 126 861 235 661
Debenture interest (60 003) (78 865) (150
776)
Net profit before 100 637 47 996 84 885
taxation
Taxation (7 248) 931 837
Profit attributable
to
equity holders 93 389 48 927 85 722
Earnings per share 2 416 202 367
(cents)
Consolidated Balance sheet
at 31 December 2007
Unaudited Unaudited Audited
31 Dec 31 Dec 30 June
2007 2006 2007
Note R`000 R`000 R`000
Assets
Cash and cash 89 980 245 984 248 722
equivalents
Money market - 350 435 -
instruments
Derivative financial
instruments 3 18 137 2 551 13 756
Invested assets at
fair value
through profit and 2 327 1 782 2 113
loss 006 763 057
Loans and advances 2 273 1 752 2 053
959 763 885
Other financial 53 047 30 000 59 172
assets
Deferred tax assets 5 966 2 651 5 214
Total assets 2 441 2 384 384 2 380
089 749
EQUITY AND
LIABILITIES
Share capital and 553 052 553 052 553 052
premium
Accumulated profit 150 623 71 804 87 290
Share capital and 703 675 624 856 640
reserves 342
Debentures 1 657 1 657 639 1 657
890 774
Linked unitholders` 2 361 2 282 2 298
interest 565 495 116
Derivative financial
instruments 3 2 620 11 194 2 626
Taxation 5 867 - 2 632
Other liabilities 6 150 9 266 106
Linked unitholders
for
debenture interest 59 887 78 729 71 775
Provisions 5 000 2 700 5 494
Total equity and 2 441 2 384 384 2 380
liabilities 089 749
Condensed Consolidated Cash Flow Statement
for the six months ended 31 December 2007
Unaudited Unaudited Audited
31 Dec 31 Dec 30 June
2007 2006 2007
R`000 R`000 R`000
Cash generated from 142 026 114 198 219
operations 492
Taxation paid (4 765) (207) (232)
Interest and dividend (101 830) (74 750) (174
distribution 788)
Net cash inflow from
operating
activities 35 431 39 241 44 472
Net cash outflow from
investing
activities (194 173) (550 360) (552
853)
Net cash outflow from
financing
activities - (250 635) (250
635)
Net decrease in cash and
cash
equivalents (158 742) (761 754) (759
016)
Cash and cash equivalents
at
beginning of period/year 248 722 1 007 1 007
738 738
Cash and cash equivalents
at
end of period/year 89 980 245 984 248
722
Consolidated Statement of Changes in Equity
for the six months ended 31 December 2007
Share Share Accumulated Total
R`000 capital premium profit equity
Balance at 30 June 2006 3 615 39 127 654
708 838
Repurchase of shares (1) (62 - (62
658) 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
Profit for the period - - 93 389 93
389
Dividends paid - - (30 056) (30
056)
Balance at
31 December 2007 2 553 150 623 703
050 675
Notes to the INTERIM results
1. Basis of preparation
The interim results have been prepared in accordance with the accounting
standard, "IAS 34: Interim Financial Reporting" and those International
Financial Reporting Standards ("IFRS") and IFRIC interpretations issued and
effective or issued and early adopted as at the time of preparing these
financial statements. The Company`s accounting policies as set out in the
audited financial statements for the year ended 30 June 2007 have been
consistently applied, with no significant changes in estimates.
Unaudited Unaudited Audited
31 Dec 31 Dec 30 June
2007 2006 2007
R`000 R`000 R`000
2. Earnings per share and
distribution per linked
unit
Number of linked units in
issue (`000)1 22 430 22 430 22 430
Weighted average number
of linked units in issue 22 430 24 270 23 359
(`000)1
Earnings per share (cents) 416 202 367
Headline earnings per
share (cents) 416 202 367
Headline earnings R`000 R`000 R`000
reconciliation
Profit attributable to
equity holders 93 389 48 927 85 722
Adjustments - - -
Headline earnings 93 389 48 927 85 722
1 Net of treasury units of 2.5 million.
The Company 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 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
calculations of headline earnings per linked unit, distributable earnings and
the distribution per linked unit as shown below are considered more meaningful.
2007 2006 2007
R`000 R`000 R`000
Headline earnings per linked
unit (cents) 684 518 1 004
Headline earnings for linked
units - reconciliation
Headline earnings 93 389 48 927 85 722
Debenture interest 60 003 78 865 150
776
Profit on repurchase of
debentures - (1 968) (1
968)
Headline earnings attributable
to
linked unitholders 153 392 125 824 234
530
Calculation of distributable
earnings
Net operating income 160 640 126 861 235
661
Taxation (7 248) 931 837
Profit on repurchase of
debentures - (1 968) (1
968)
Distributable earnings 153 392 125 824 234
530
Proposed distribution to
linked unitholders
Debenture interest 59 887 78 729 150
504
Dividends 54 504 21 308 51
365
Total distribution to linked
unitholders 114 391 100 037 201
869
Cents Cents Cents
Total distribution per linked 510 446 900
unit
Debenture interest 267 351 671
Dividends 243 95 229
3. Derivative financial instruments
Derivative 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.
4. Post-balance sheet event
Subsequent to the reporting date, Makalani has declared a dividend per share of
243 cents as outlined in the declaration of dividend and interest.
Commentary on results
1. Operating environment
The increase in the prime rate from a low of 10.5% in 2006 to the current level
of 14.5% has resulted in consumers and companies paying higher interest charges.
In the short term, the high interest rate environment is positive as the Company
earns income that is positively correlated to short term interest rates but in
the long run high interest rates could be detrimental to the long term
profitability of some of the Company`s invested assets.
The operating environment has changed drastically over the last six months, from
an environment of increasing equity prices and contraction of credit spreads to
falling equity prices and widening of credit spreads.
Uncertainty in the global financial markets has resulted in global financial
institutions writing off large amounts of loans and the widening of credit
spreads. We note again that the Company is not exposed to the US subprime market
and it is still management`s view that none of the Company`s invested assets are
affected by the subprime concerns and there is no requirement to reduce the fair
values of the invested assets.
2. Financial results
2.1 Financial results
During the past six months, the Company has increased its invested assets by
approximately R200 million (net of capital repayments) to
R2.3 billion as at 31 December 2007 compared with R2.1 billion as at
30 June 2007.
Makalani generated headline earnings for linked unitholders of
R153.4 million or 684 cents per linked unit comprising debenture interest of
R60.0 million plus attributable profit for the period of R93.4 million. This
represents an overall annualised headline earnings yield of 14.0% based on the
closing linked unit price of R98.00 at 31 December 2007. The headline earnings
per linked unit for the six-month period is 32% higher than the six-month period
ended 31 December 2006.
The Company generated revenue of R175.3 million comprising dividend income on
invested assets of R83.6 million, interest on invested assets of R59.7 million,
interest income on cash of R5.4 million, fee income of R1.8 million and fair
value gains of R24.8 million. Fair value gains relate mainly to net gains from
revaluation of financial assets and derivative instruments.
Financial assets include equity participation instruments ("EPIs"), which
entitle the Company to participate in the growth of net asset values of some
special purpose vehicles forming part of the funding structures in which the
Company participates. The fair value gain on EPIs for the period, which include
Convergence Partners, Emira, Eyesizwe, Gold Reef and Sandown Motors assets, was
R29 million, excluding fair value losses of R4.2 million which mainly relate to
the reduction in the value of the Mvelaphanda Group listed preference shares.
The Company continues to assess and participate in transactions where it earns a
hurdle rate (either interest or dividend) and equity upside.
With the Company being fully invested, the bulk of the revenue continues to come
from invested assets, which comprises 97% (June 2007: 73%) of the total revenue
for the six months to 31 December 2007.
The Company`s operating expenses were R13.5 million of which
R11.8 million is the management fee (1% of invested assets) determined in terms
of the management agreement between Makalani Manco and the Company.
2.2 Net asset value
The net asset value ("NAV") per linked unit is R107.96 as at 31 December 2007
compared to R105.66 as at 30 June 2007 which represents growth in NAV of 2.2%.
This growth does not take into account the final distribution of R4.54 per
linked unit made in October 2007.
2.3 Distributions
Makalani`s stated distribution policy is to distribute all after-tax income
realised in cash, subject to good corporate governance, sound business
principles and future investment requirements.
For the period under review, Makalani proposes a total distribution of 510 cents
per linked unit comprising 243 cents of dividend and 267 cents of interest. The
proposed total distribution represents an annualised yield of 10.4% based on a
closing linked unit price of R98.00 at 31 December 2007 compared to a yield of
9.5% at
30 June 2007.
3. Portfolio update
As at 31 December 2007, invested assets comprise 95% of the total assets of the
Company.
Makalani`s portfolio summary as at 31 December 2007 is as shown in the table
below.
Empowerment Fair value
Asset company Sector R`million
Loans
Brait Brait Financial services 26
Emira Broad-based BEE
parties Real estate 153
Exxaro Eyesizwe and Mining 143
others
Fuel Various BEE Transport and 197
parties logistics
Gautrain Bombela Construction 135
Life
Healthcare Brimstone and
Mvelaphanda Healthcare 43
Mondi
Newsprint Shanduka Paper and 33
packaging
730
Preference
shares
Aberdare Izingwe Engineering 26
Brait Brait Financial services 107
Convergence Convergence IT and
Partners Partners telecommunications 37
Eyesizwe Eyesizwe Mining 64
FirstRand Kagiso, MIT and Banks 167
WDB
Fuel Various BEE Transport and 37
parties logistics
Gold Fields Mvelaphanda Mining 69
Gold Reef Platoon and
Saddlepath Gaming 321
Inyanga Shanduka Engineering 18
Resources
Kredit Shanduka Group Financial services 65
Inform
Metropolitan Kagiso Insurance 117
Mvelaphanda
Group Mvelaphanda Services 25
Group
Nampak Aka Capital Paper and 45
packaging
Prostart Izingwe General 20
industrials
Sandown True Class Motor retail 343
Motors
Tongaat Various BEE Food and beverage 107
parties
1 568
Ordinary
shares
Fuel Various BEE Transport and 29
parties logistics
Total 2 327
The weighted forward looking pre-tax yield on invested assets is 17.4%,
determined by grossing-up dividend income by the corporate tax rate of 28% and
ignoring STC. If the fair value gains on EPIs are included in the calculation,
the pre-tax yield on invested assets will be 19.3%.
The preference shares have an average dividend rate (excluding tax gross-up) of
12.6%, and the loans have an average interest rate of 16.9%.
In the past six months, Makalani has made further investments to the value of
R328 million as follows:
* provided part of the mezzanine preference share funding to two BEE companies
of R101 million to acquire a stake in the unbundled Tongaat Hulett Limited;
* provided mezzanine funding of R135 million to the Gautrain Rapid Rail Link
project;
* provided senior preference share funding of R19 million to Izingwe to acquire
a stake in Prostart, a subsidiary of Free World Coatings (Proprietary) Limited
(formerly Barlow Coatings (Proprietary) Limited);
* provided preference share funding of R43 million to Eyesizwe Mining
(Proprietary) Limited to acquire an additional indirect interest in Exxaro
Resources Limited; and
* provided funding of R30 million to various BEE parties to acquire additional
units in Emira Property Fund.
The Company sold the Steinhoff exposure for R200 million.
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 graph below.
4. Outlook
The Company has been very selective and prudent in its approach to funding and
investing, and it will continue with the strategy of adding assets in the
portfolio that further diversify and enhance the quality of the portfolio. New
investments will be financed using external debt. The current credit market
conditions are presenting attractive opportunities for the Company, as risk is
being priced appropriately and the Company is able to compete.
The board of directors of Makalani is of the opinion that the current linked
unit price is not reflective of the underlying value of Makalani`s portfolio of
assets and will be continuing investigations into the most appropriate ways to
unlock the discount to underlying value.
5. Changes in executive management
Over the last few months, Makalani Management Company (Proprietary) Limited
("Makalani Manco"), the manager of Makalani Holdings, evaluated the strategic
direction of Makalani and the appropriate structure for Makalani Manco. The
possible structures included either increasing or decreasing Rand Merchant
Bank`s (RMB) 75% shareholding in Makalani Manco. Unfortunately agreement in
this regard could not be reached between RMB and the Chief Executive Officer and
Chief Investment Officer of Makalani Manco, Messrs Vusi Mahlangu and Sydney
Mhlarhi respectively. Messrs Mahlangu and Mhlarhi have subsequently indicated
to the board of Makalani that they wish to pursue opportunities outside of
Makalani.
Mr Mahlangu will resign from the board of Makalani with effect from 31 March
2008. Messrs Mahlangu and Mhlarhi have however agreed to consult to Makalani
Manco on the implementation of specific Makalani Holdings transactions until
June 2008 to ensure a smooth handover period.
The board would like to thank Messrs Mahlangu and Mhlarhi for their enthusiastic
efforts since the listing of Makalani and wishes them well in their future
endeavours.
The remaining senior Makalani Manco team members, who have been involved with
Makalani`s strategy and operations since inception, certain RMB employees, some
of whom will be seconded to Makalani Manco, will continue to manage Makalani
Holdings` portfolio and activities. The board is confident that the changes in
the management team will not adversely impact on the activities of Makalani
Manco or Makalani Holdings.
6. Withdrawal of cautionary
Linked unitholders are referred to the cautionary announcement dated
31 January 2008 and are advised that negotiations have been terminated and
caution is no longer required to be exercised when dealing in the Company`s
linked units.
7. 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.
8. Declaration of interim cash dividend and interest payment
Notice is hereby given of an interim dividend declaration number 5 of
243 cents and debenture interest payment number 5 of 267 cents per linked unit
for the six months ended 31 December 2007. The total amount payable to linked
unitholders is 510 cents ("the interim 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" interim Wednesday, 19 March 2008
distribution
Linked units commence trading "ex"
interim distribution Thursday, 20 March 2008
Record date to participate in the Friday, 28 March 2008
interim distribution
Payment date of the interim Monday, 31 March 2008
distribution
No dematerialisation or rematerialisation of Makalani linked unit certificates
may take place between Thursday, 20 March 2008 and Friday, 28 March 2008 (both
days included).
By AH Arnott
Company Secretary
3 March 2008
For and on behalf of the
board
VW Bartlett (Chairman) V Mahlangu (Chief Executive
Officer)
Sandton
3 March 2008
Makalani Holdings Limited (Incorporated in the Republic of South Africa),
(Registration number: 2005/000726/06), Share code: MKL, ISIN: ZAE000066700
("Makalani" or "the Company")
Registered 1st Floor, 2 Merchant Place, Corner Fredman
office: 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 AH Arnott, 4th Floor, 4 Merchant Place,
secretary: Corner Fredman Drive and Rivonia Road,
Sandton, 2196
Transfer Link Market Services South Africa
secretary: (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
www.makalani.co.za
Date: 03/03/2008 07:19:36 Produced by the JSE SENS Department.
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