| Tue 3 Mar 2009, 7:05 | | MKL - Makalani Holdings limited - Unaudited Consolidated Interim Results for |
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MKL
MKL
MKL - Makalani Holdings limited - Unaudited Consolidated Interim Results for
the Six Months Ended 31 December 2008 And Declaration of Interim Cash
Interest Payment
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
2008 AND DECLARATION OF INTERIM CASH INTEREST PAYMENT
Consolidated income statement for the six months ended 31 December 2008
Unaudited Unaudited Audited
31 Dec 31 Dec 30 June
2008 2007 2008
Note R`000 R`000 R`000
Interest income 209 948 148 722 315 924
Fair value
(losses)/gains (118 058) 24 837 (24 031)
Fee income 1 766 1 750 2 378
Operating expenses (15 009) (13 460) (30 070)
Profit on repurchase of
debentures - - 4 228
Indirect taxation (1 482) (1 209) (4 189)
Net operating profit
before interest 77 165 160 640 264 240
Interest on current
borrowings (26 128) - (10 002)
Net operating profit 51 037 160 640 254 238
Debenture interest (38 553) (60 003) (82 948)
Net profit before
taxation 12 484 100 637 171 290
Taxation 6 284 (7 248) (8 963)
Profit for the period
attributable to
equity holders 18 768 93 389 162 327
Earnings per share 2
(cents) 88 416 731
Consolidated balance sheet
at 31 December 2008
Unaudited Unaudited Audited
31 Dec 31 Dec 30 June
2008 2007 2008
Note R`000 R`000 R`000
Assets
Cash and cash
equivalents 177 656 89 980 79 740
Taxation 2 333 - -
Invested assets at 3
fair value 2 477 469 2 342 523 2 549 248
Loans and advances at
fair value 2 434 286 2 273 959 2 448 711
Other financial
assets at fair value 52 766 53 047 45 233
Net derivative
financial instruments (9 584) 15 517 55 304
Deferred tax asset 13 022 5 966 6 738
Total assets 2 670 479 2 438 469 2 635 726
EQUITY AND
LIABILITIES
Share capital and
premium 528 037 553 052 528 037
Accumulated profit 138 993 150 623 164 425
Share capital and
reserves 667 030 703 675 692 462
Debentures 1 578 660 1 657 890 1 578 542
Linked unitholders`
interest 2 245 690 2 361 565 2 271 004
Current borrowings 371 000 - 315 000
Taxation - 5 867 6 001
Other liabilities 10 354 6 150 -
Linked unitholders
for
debenture interest 38 435 59 887 36 763
Provisions 5 000 5 000 6 958
Total equity and 2 670 479 2 438 469 2 635 726
liabilities
Consolidated statement of changes in equity
for the six months ended 31 December 2008
Share Share Accumulated Total
capital premium profit equity
Balance at 30 June
2007 2 553 050 87 290 640 342
Repurchase of shares (25 015) - (25 015)
Profit for the year
attributable to
ordinary
shareholders - - 162 327 162 327
Dividends paid - - (85 192) (85 192)
Balance at 30 June
2008 2 528 035 164 425 692 462
Profit for the period
attributable to
ordinary
shareholders - - 18 768 18 768
Dividends paid - - (44 200) (44 200)
Balance at
31 December 2008 2 528 035 138 993 667 030
Condensed consolidated cash flow statement
for the six months ended 31 December 2008
Unaudited Unaudited Audited
31 Dec 31 Dec 30 June
2008 2007 2008
R`000 R`000 R`000
Cash generated from 187 529 142 026 301 045
operations
Taxation paid (8 334) (4 765) (7 118)
Interest paid on external
borrowings (26 128) - (10 002)
Interest and dividend
distributions (65 979) (101 830) (217 975)
Net cash inflow from
operating
activities 87 088 35 431 65 950
Net cash outflow from
investing
activities (45 172) (194 173) (449 753)
Net cash inflow from
financing
activities 56 000 - 214 821
Net increase/(decrease) in
cash and
cash equivalents 97 916 (158 742) (168 982)
Cash and cash equivalents at
beginning of period/year 79 740 248 722 248 722
Cash and cash equivalents at
end of period/year 177 656 89 980 79 740
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 International Financial Reporting
Interpretations Committee ("IFRIC") interpretations issued and effective or
issued and early adopted as at the time of preparing these results. The
Company`s accounting policies, as set out in the audited financial statements
for the year ended 30 June 2008, have been consistently applied, with no
significant changes in estimates. These results have consolidated the results
of the Company`s only subsidiary, a company that holds treasury linked units.
Unaudited Unaudited Audited
31 Dec 31 Dec 30 June
2008 2007 2008
R`000 R`000 R`000
2. Earnings per share and
distribution per linked unit
Number of linked units in
issue (`000) 21 353 22 430 21 353
Weighted average number
of linked units in issue (`000) 21 353 22 430 22 194
Earnings per share (cents) 88 416 731
Headline earnings per
share (cents) 88 416 731
Headline earnings
reconciliation R`000 R`000 R`000
Profit for the period
attributable
to equity holders 18 768 93 389 162 327
Adjustments - - -
Headline earnings 18 768 93 389 162 327
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. Please note that the Company has no minorities and therefore no
reconciling items.
2008 2007 2008
R`000 R`000 R`000
Headline earnings per linked
unit (cents) 268 684 1 086
Headline earnings per linked
units - reconciliation
Headline earnings 18 768 93 389 162 327
Debenture interest 38 553 60 003 82 948
Profit on repurchase of
debentures - - (4 228)
Headline earnings attributable to
linked units 57 321 153 392 241 047
Calculation of distributable
earnings
Net operating profit 51 037 160 640 264 240
Profit on repurchase of
debentures - - (4 228)
Taxation 6 284 (7 248) (8 963)
57 321 153 392 251 049
Proposed distribution to
linked unitholders
Debenture interest 38 435 59 887 82 789
Dividends - 54 504 84 560
38 435 114 391 167 349
Cents Cents Cents
Total distribution per linked unit 180 510 819
Debenture interest per linked unit 180 267 369
Dividends per linked unit - 243 450
3. Invested assets at fair value
Invested assets are consistently evaluated and measured on a fair value basis
in accordance with the Company`s investment strategy. The fair value
revaluation takes into account changes in interest rates and other financial
risks, such as listed equity prices, trading conditions and credit
migrations. To the extent, practical valuations make use of observable market
data, and where necessary, management estimates.
4. Post-balance sheet event
Makalani has successfully completed an issue of preference shares to the
value of R333 million. The proceeds of the preference share issue have been
used to settle the majority of the existing bridging loan facility of
approximately R371 million.
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. The Company`s investment
focus is predominantly on mezzanine instruments, although the current
portfolio also includes investments in senior loans, convertible instruments
and equity. The Company is managed by Makalani Management Company
(Proprietary) Limited ("Makalani Manco").
1. Operating environment
The financial crisis experienced by the global economy has persisted since
the Company`s June 2008 financial year-end. The resulting negative sentiment
has continued to put downward pressure on equity prices and widening
pressures on credit spreads.
The nature of Makalani`s business includes lending and the provision of
funding for the acquisition of shares. The security Makalani therefore
ordinarily has is the underlying shares, exposing the Company to equity
prices and volatility, particularly in relation to share cover type deals and
equity positions. During the last six months, downward movements in equity
prices have had a significant impact on the mark-to-market valuation of
Makalani`s larger equity linked exposures. These investments now form just
over a quarter of the portfolio.
Although to a lesser extent, widening credit spreads have also negatively
impacted the fair valuation of certain assets. These assets are valued at
market-related yields, taking into account negative credit migrations in
challenging market conditions.
During the last six months, the Company was negatively impacted by a R118
million fair value loss, mainly related to fair value write downs of equity
linked positions due to difficult markets, as well as credit migrations
within the portfolio. Approximately 75% of the write downs were attributable
to equity linked positions, with the remainder mainly relating to the
negative credit migrations.
The financial crisis has also prompted central banks globally to intervene,
which has included cutting lending rates. South Africa has followed suit with
the prime rate decreasing by 150 basis points between September 2008 and
February 2009. Consequently, the floating yield of the Company`s portfolio,
which has a positive correlation between its income and higher interest
rates, also decreased in line with that of the market.
South Africa, along with other developing market economies, has suffered the
knock-on effects of the economic slowdowns and recessions occurring in the
developed world. The result has been international investors triggering large
capital outflows out of South Africa, a weakening rand and a slowing of the
South African real economy, aggravating the difficult trading conditions in
which Makalani`s clients operate.
2. Financial results
2.1 Financial results
Against the backdrop of difficult trading conditions and testing markets, the
Company generated headline earnings for unitholders of R57.3 million or 268
cents headline earnings per linked unit ("HEPLU"). The HEPLU of 268 cents is
61% below the comparative December 2007 period and represents an overall
annual headline earnings yield of 7.7% based on the closing linked unit price
of R70.00 at 31 December 2008. The Company has also increased interest income
by 41%. Furthermore, no investee company defaulted on payments contractually
due.
Shareholders are reminded of the Company`s new strategy, announced on 2
December 2008. In line with this:
- the Company will not make any new investments other than those already
contractually committed to;
- assets will be allowed to mature or be realised in an orderly manner;
and
- capital will be returned to unitholders as investments are realised or
redeemed.
In light of this, during the last six months, the Company decreased its
invested assets by approximately R72 million (net of new investments) to R2
477 million as at 31 December 2008 compared with approximately R2 549 million
as at 30 June 2008. The decrease represents redemptions of investments at
their carrying values.
Headline earnings for linked unitholders of R57.3 million or 268 cents per
linked unit comprised debenture interest of R38.6 million plus attributable
profit for the period of R18.7 million.
The weighted forward looking annualised yield on invested assets as at
31 December 2008 was 13.57% (30 June 2008 - 13.99%). The forward looking
annualised yield on invested assets makes use of the current portfolio as at
31 December 2008 and assumes that the current invested assets are on the
Company`s books for a full year.
Interest income increased to R209.9 million from R148.7 million for the
comparative December 2007 period. Interest income comprised dividend income
on invested assets of R109.2 million, interest on invested assets of R84.4
million and interest income on cash and hedging positions of R16.3 million.
The Company also generated fee income of R1.8 million.
Interest on current borrowings, being the bridging facility, was charged at
the three-month JIBAR plus 185 basis points. The bridging facility has in the
main been settled via the preference share issue with the residual portion of
R38 million to be settled before 31 March 2009 from internally generated
reserves.
The Company monitors and rates all exposures individually on an ongoing
basis. Ratings for exposures are determined by reference to FirstRand Bank
Limited`s rating methodologies which have been mapped to an international
scale as used by Standard and Poor`s and Moody`s.
The Company`s industry exposure to credit risk by sector is as follows:
31 December 2008 30 June 2008
% of % of
Rating Portfolio Rating Portfolio
Financial services BB, B 5% BB, B 8%
Banks BB 8% BB 7%
Mining BB, Equity 12% BB, Equity 13%
Gaming Equity 7% BB 12%
Insurance BB 5% BB 5%
Paper and BB 3% BB 3%
packaging
Motor retail B 14% B 14%
Food and beverage B 5% B 4%
Real estate BB, B 6% BB 6%
Construction BB 5% BB 5%
Services B, Equity 8% B, Equity 8%
Transport and
logistics Equity 8% Equity 8%
Other BB, B, BB, B,
Equity 14% Equity 7%
The Company`s invested assets by exposure to various credit rating buckets.
The Company`s operating expenses were R15.0 million, of which
R13.0 million was the management fee paid and provided for by the Company in
terms of the management agreement between Makalani Manco and the Company,
based on the fair value of assets under management. In terms of this
agreement, Manco sources and manages investments on behalf of the Company.
However, in light of the proposed new strategy, the Company will be reviewing
the fee structure with Makalani Manco.
2.2 Net asset value
The net asset value ("NAV") per linked unit was R106.97 as at 31 December
2008 compared to R107.38 as at 30 June 2008 and R107.96 at 31 December 2007.
The NAV per linked unit is calculated as assets less liabilities (excluding
debenture interest payable to unitholders).
2.3 Distributions
For the period under review, Makalani proposes a total distribution of 180
cents per linked unit, comprising an interest payment.
3. Portfolio update
As at 31 December 2008, invested assets comprised 93% of the total portfolio.
Makalani`s portfolio summary as at 31 December 2008 is shown in the table
below.
Total
Empowered exposure
Asset company Sector R`000
Loans
Brait Brait Financial services 26 696
Emira Broad-based BEE
parties Real estate 159 841
Exxaro Eyesizwe and 158 428
others Mining
FirstRand WDB Banks 12 263
Fuel Various BEE 197 629
parties Transport and logistics
Gautrain Bombela Construction 135 169
Lereko Lereko Various 33 847
Life Brimstone and Healthcare 40 115
Healthcare Mvelaphanda
Mondi Shanduka Paper and packaging 26 853
Newsprint
Sasol Ufhata Oil and chemicals 8 404
Servest Safika Services 190 000
Tourvest Guma Tourism Tourism 50 560
Ufhata Ufhata Various 2 602
Preference
shares
Brait Brait Financial services 106 407
Convergence Convergence IT and
Partners Partners telecommunications 73 754
Eyesizwe and Mining 51 090
Eyesizwe others
Kagiso, MIT and 177 382
FirstRand WDB Banks
Various BEE 52 877
Fuel parties Transport and logistics
Gold Fields Mvelaphanda
Resources Mining 79 537
Shanduka 3 360
Inyanga Resources Engineering
Metropolitan Kagiso Insurance 116 802
Various BEE 116 532
Midas parties Auto parts
Mvelaphanda
Group Mvelaphanda Services 25 000
Group
Nafhold Broad-based
BEE parties Gaming 162 056
Nampak Aka Capital Paper and packaging 45 715
Prostart Izingwe Speciality chemicals 21 443
Sandown 363 451
Motors True Class Motor retail
Various BEE 113 178
Tongaat parties Food and beverage
Empowered Total
exposure
Asset company Sector R`000
Ordinary
shares
Various BEE 54 615
Fuel parties Transport and logistics
Carrying
value
Fair value (128 138)
adjustments
Hedged fair value of portfolio (including 2 477 468
derivatives)
In the past six months, Makalani made the following new investments, based on
commitments prior to the proposed changes in strategy. These included:
- mezzanine preference share funding to various BEE parties of R119
million to acquire a stake in Midas Group (Proprietary) Limited;
- mezzanine debt of R50 million to Tourism Investment Corporation Limited
who partnered with Guma Tourism Holdings; and
- mezzanine preference share funding of R158 million to the members of
Nafcoc to acquire a stake in Nafcoc Investment Holding Company Limited.
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.
4. Changes in directorship
During the period under review, RJC Hamer (previously alternate non-executive
director) and BD Hopkins were appointed to the board of the Company as non-
executive directors. GL Minnaar was appointed as financial director. L von
Moltke and MS Moloko resigned as non-executive directors.
5. Wind-down of portfolio
The rapid decline in equity markets, general investor pessimism and
illiquidity in the units provided challenging conditions for Makalani to
retain its market value at intrinsic value levels.
As has been communicated previously, the board of Makalani believed that
Makalani, as a listed investment vehicle was attracting too large a discount
given the quality assets in the portfolio.
The proposal for the winding down of Makalani was endorsed by unitholders
during December 2008.
Several options in terms of the winding down of Makalani are being
considered, including:
- disposal of all the assets in Makalani`s portfolio;
- staggered disposal of assets in Makalani`s portfolio; and
- take-over of Makalani by a third party.
The board of Makalani has committed to communicate with unitholders as and
when developments take place.
6. Outlook
In the short term, the outlook for the global economy remains challenging and
uncertain. The board of directors is of the view that the Company has made
prudent provisions for its portfolio that reflects the market conditions
prevailing at the balance sheet date.
Makalani continues to monitor its positions and actively manages all
exposures on a proactive basis. The Company has made use of significantly
less long-term debt funding than was previously anticipated, which should
allow more comfort from a gearing perspective to any further deterioration in
market conditions and asset pricing.
As has been noted in previous announcements, after careful evaluation and
consultation with unitholders, Makalani made the decision that the listed
platform may not be the most appropriate structure for the Company from a
long-term perspective.
Therefore, after extensive consideration by both Makalani Manco and the board
of Makalani, the option of running down the portfolio (as is outlined in
detail under point 5) was communicated prior to the previous annual general
meeting of the Company.
The board will, with the advice of professional advisors and in consultation
with unitholders, assess the best route to realise optimal value for
unitholders in the winding down process. In the interim the portfolio is
being actively managed to preserve value in the best interest of unitholders.
7. Declaration of interim cash interest payment
Notice is hereby given of debenture interest payment number 7 of 180 cents
per linked unit for the six months ended 31 December 2008. The total amount
("the interim distribution") will be paid to linked unitholders in accordance
with the timetable set out in the table below:
Last day to trade "cum" the interim Friday, 20 March 2009
distribution
Linked units commence trading
"ex" the interim distribution Monday, 23 March 2009
Record date to participate in the
interim distribution Friday, 27 March 2009
Payment date of the interim distribution Monday, 30 March 2009
No dematerialisation or rematerialisation of Makalani linked unit
certificates may take place between Monday, 23 March 2009 and Friday, 27
March 2009 (both days included).
By AH Arnott
Company Secretary
3 March 2009
For and on behalf of the board
VW Bartlett (Chairman),K Pillay (Chief Executive Officer)
Sandton
3 March 2009
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), K Pillay (Chief Executive Officer), GL
Minnaar (Financial Director), DCM Gihwala, BD Hopkins, SEN Sebotsa, BJ van
der Ross, D Konar, 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: 03/03/2009 07:05:02 Produced by the JSE SENS Department.
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