| Tue 25 Aug 2009, 15:19 | | MKL - Makalani Holdings - Consolidated reviewed results and declaration of final |
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MKL
MKL
MKL - Makalani Holdings - Consolidated reviewed results and declaration of final
cash dividend and interest payment for the year ended 30 June 2009
Makalani Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number: 2005/000726/06)
Share code: MKL
ISIN: ZAE000066700
(Makalani or "the Company")
Consolidated reviewed results and declaration of final cash dividend and
interest payment for the year ended 30 June 2009
Interest and dividend revenue increased by 23%
Distributions increased by 10% to 900 cents per linked unit
Headline Earnings Per Linked Unit ("HEPLU") decreased to a 6 cents loss
Consolidated Income statement
for the year ended 30 June 2009
Reviewed Audited
12 months 12 months
30 June 30 June
2009 2008
Notes R`000 R`000
Interest income 2 391 677 317 296
Fair value losses 3 (338 725) (25 403)
Fee income 5 582 2 378
Operating expenses (29 150) (30 070)
Profit on repurchase of debentures - 4 228
Indirect taxation (3 580) (4 189)
Net operating profit before interest 25 804 264 240
Interest on borrowings (44 660) (10 002)
Net operating (loss)/profit (18 856) 254 238
Debenture interest (65 168) (82 948)
Net (loss)/profit before taxation (84 024) 171 290
Taxation 17 576 (8 963)
(Loss)/profit for the year
attributable to equity holders (66 448) 162 327
Headline (loss)/earnings per linked
unit (cents) 4 (6) 1086
Consolidated Balance sheet
at 30 June 2009
Reviewed Audited
30 June 30 June
2009 2008
Notes R`000 R`000
Assets
Cash and cash equivalents 174 116 79 740
Invested assets at fair value 2 252 770 2 549 248
Loans and advances at fair value 6 2 241 104 2 448 711
Other financial assets at fair value 6 17 500 45 233
Net derivative financial instruments 5 (5 834) 55 304
Taxation 4 346 -
Deferred tax assets 22 368 6 738
Total assets 2 453 600 2 635 726
EQUITY AND LIABILITIES
Share capital and premium 528 037 528 037
Accumulated profit 11 072 164 425
Share capital and reserves 539 109 692 462
Debentures 1 578 798 1 578 542
Linked unitholders` interest 8 2 117 907 2 271 004
Preference share funding - non-
current portion 7 142 860 -
Current borrowings - 315 000
Preference share funding - current
portion 7 154 584 -
Taxation - 6 001
Linked unitholders for debenture 26 477 21 780
interest
Other liabilities 5 903 14 983
Provisions 5 869 6 958
Total equity and liabilities 2 453 600 2 635 726
Net asset value per linked unit (R) 100.43 107.38
Condensed consolidated Cash flow statement
for the year ended 30 June 2009
Reviewed Audited
12 months 12 months
30 June 30 June
2009 2008
R`000 R`000
Cash generated from operations 353 254 301 045
Taxation paid (8 401) (7 118)
Interest paid on external borrowings (44 660) (10 002)
Interest and dividend distributions (147 119) (217 975)
Net cash inflow from operating activities 153 074 65 950
Net cash outflow from investing activities (41 142) (449 753)
Net cash (outflow)/inflow from financing
activities (17 556) 214 821
Net increase/(decrease) in cash and cash
equivalents 94 376 (168 982)
Cash and cash equivalents at beginning
of year 79 740
Cash and cash equivalents at end of year 174 116 79 740
Consolidated Statement of changes in equity
for the year ended 30 June 2009
Share Share Accumulated Total
R`000 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 - - 162 327 162 327
Dividends paid - - (85 192) (85 192)
Balance at 30 June 2008 2 528 035 164 425 692 462
Loss for the year - - (66 448) (66 448)
Dividends paid - - (86 905) (86 905)
Balance at 30 June 2009 2 528 035 11 072 539 109
Notes to the results
1. Basis of preparation
The financial statements are prepared in accordance with International Financial
Reporting Standards (IFRS), including IAS 34, interpretations issued by the
International Financial Reporting Interpretation Committee (IFRIC) and the
requirements of the Companies Act, No 61 of 1973 (as amended), of South Africa.
The accounting policies are consistent with those applied in the most recent
audited financial statements. The financial statements are prepared on the going
concern principle and using the historical cost basis, except for financial
instruments designated at fair value through profit and loss and derivative
financial instruments which are measured at fair value. The financial statements
have consolidated the results of the Company`s only subsidiary, a company that
holds treasury linked units. PricewaterhouseCoopers Inc., the independent
auditor, has reviewed the financial statements contained in this preliminary
report and has expressed an unmodified opinion on the preliminary financial
statements. A copy of their unmodified opinion is available for inspection by
members at the registered office of the Company.
Comparative information
The corresponding comparative financial information, as previously published, is
for the 12 months ended 30 June 2008.
Reviewed Audited
12 months 12 months
30 June 30 June
2009 2008
R`000 R`000
2. Interest income
Interest on loans 157 767 115 254
Dividends on redeemable preference shares* 199 954 182 845
Interest on cash and cash equivalents
and money market instruments 33 956 19 197
391 677 317 296
* Items are classified as financial
liabilities under IFRS when the issuer has a
contractual obligation to deliver cash or
another financial asset to the holder of the
instrument or to issue a variable number of
own shares to settle a fixed amount,
regardless of its legal form.
Accordingly, dividends received on redeemable
preference shares are classified as interest
received.
This classification, however, does not impact
the form of dividend and interest
distributions to unitholders.
3. Fair value losses
Fair value losses consist of the aggregate
fair value movements of assets in the
portfolio, including derivative hedging
positions. These fair value movements include
mostly negative movements on equity
investments and also credit migrations on
lending positions.
4. Earnings per share and distribution per
linked unit
Total number of linked units in issue (`000) 23 593 23 593
Treasury linked units (`000) (2 240) (2 240)
Number of linked units in issue (`000) 21 353 21 353
Weighted average number of linked units in
issue (`000) 21 353 22 194
(Loss)/earnings per share (cents) (311) 731
Headline (loss)/earnings per share (cents) (311) 731
Headline (loss)/earnings reconciliation R`000 R`000
(Loss)/profit for the period attributable
to equity holders (66 448) 162 327
Adjustments - -
Headline (loss)/earnings (66 448) 162 327
The Group has not calculated 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
earnings for headline earnings per linked
unit ("HEPLU") and the distribution per
linked unit as shown below are considered
more meaningful.
Headline (loss)/earnings per linked
unit (cents) (6) 1 086
Headline (loss)/earnings per linked
Unit - reconciliation
Headline (loss)/earnings (66 448) 162 327
Debenture interest 65 168 82 948
Profit on repurchase of debentures - (4 228)
Headline (loss)/earnings attributable to
linked unitholders (1 280) 241 047
The Company`s distribution policy is to
distribute 100% of all after-tax income
realised in cash and received as interest and
dividends, subject to sound corporate
governance and business principles, going-
concern requirements and prudent provision
for expenses. The difference in earnings
attributable to unitholders and distributions
is due to differences in income on certain
invested assets accruing but in terms of
contractual arrangements, not yet payable.
Debenture interest 64 912 82 789
Dividends 86 905 85 192
Total distribution to linked unitholders 151 817 167 981
Cents Cents
Total distribution per linked unit 900 819
Debenture interest 304 369
Dividends 596 450
Distribution for the year per linked unit 900 819
Interim distribution 380 510
Interest 180 267
Dividend 200 243
Final distribution 520 309
Interest 124 102
Dividend 396 207
5. 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
effected solely to economically hedge the
Company`s exposure to interest rate risk.
Reviewed Audited
12 months 12 months
30 June 30 June
2009 2008
R`000 R`000
6. Invested assets at fair value
Loans 846 815 950 727
Preference shares and ordinary shares 1 411 789 1 543 217
2 258 604 2 493 944
It is the Company`s policy to hedge all fixed
rate assets out to floating rate assets. The
value of derivative investments should be
added to the amounts shown above to
meaningfully assess movements from the prior
year.
Reviewed Audited
12 months 12 months
30 June 30 June
2009 2008
R`000 R`000
7. Preference share funding
Issued during the year 333 000 -
Redeemed during the year (35 556) -
In issue at the end of year 297 444 -
Less: Current portion repayable
within 12 months (154 584) -
Non-current portion of the preference
share funding 142 860 -
The preference share funding is unsecured as
part of an initial amount of R333 million of
which R35.6 million has been repaid. The
preference sharefacility bears interest at
76% of the prime rate, payable semi-annually
in arrears and is fully redeemable by no
later than February 2014.
8. Share capital and debenture capital
The Company repurchased 1 337 206 linked
units during the 2008 financial year. These
linked units were subsequently cancelled and
delisted from the JSE. No repurchases took
place in the 2009 financial year.
The total number of linked units in issue
after cancellation and taking into account
treasury units is arrived at as follows:
Total number of linked units in issue (`000) 23 593 23 593
Treasury linked units (`000) (2 240) (2 240)
Number of linked units in issue (`000) 21 353 21 353
9. Post-balance sheet events
Subsequent to the reporting date, the Company
declared a dividend per share of 396 cents,
as outlined in the final dividend and
interest declaration.
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 without precluding investments
in senior loans, convertible instruments and, where appropriate, equity.
1. Operating environment
The year under review continued to see prolonged contagion of global financial
markets. The sustained downturn during 2008 and resulting recession of global
economies continued to have a negative effect on the local economy. South Africa
experienced three consecutive quarters of economic contraction for the period
between September 2008 and June 2009.
Monetary authorities in South Africa reacted strongly, with the prime lending
rate decreasing by 450 basis points between June 2008 and May 2009.
This resulted in the floating yield of the Company`s portfolio decreasing in
line with the market, as Makalani`s interest income is positively correlated to
local interest rates. Notwithstanding this monetary stimulus, Makalani`s clients
continued to experience difficult trading conditions in the real economy in the
second half of the financial year. This also flowed through to equity valuations
in the unlisted space, which saw further substantial declines.
Despite these challenging market conditions, there were no assets in the
portfolio where a counterparty failed to make a payment when contractually due.
The Rand recovered to some extent over the past few months with large foreign
inflows into local equity markets. Fundamentally local markets are also
beginning to show signs of incremental recovery, although the timing of a full
recovery remains uncertain.
2. Financial results
2.1 Financial commentary
The Company increased interest and dividend revenue by 23% to R392 million
(2008: R317 million). Revenue comprised interest income of R34 million on cash
(2008: R19 million), interest of R158 million on invested assets (2008: R115
million) and dividend income of R200 million on invested assets (2008: R183
million).
Although revenue increased, there was a significant impact on headline earnings
following write-downs in equity valuations due to market pressure. The result of
these write-downs was a headline loss attributable to unitholders of R1.3
million or six cents per linked unit (2008: profit of R241 million or 1 086
cents per linked unit).
This headline loss per linked unit is almost entirely attributable to fair value
adjustments and is not reflective of the operating cash flows of the Company for
the 2009 financial year, which remained strong at R153 million.
The net asset value per linked unit was R100.43 at 30 June 2009 compared to
R107.38 at 30 June 2008. The net asset value per linked unit is calculated as
assets less liabilities (excluding debenture interest payable to unitholders).
The Company continued to make use of positive gearing, with interest income for
the 2009 financial year up by 23% on the 2008 financial year.
As was approved by the annual general meeting in December 2008, existing
bridging facilities were converted into less expensive preference share funding
in February 2009. However, with the change of intention to a wind-down strategy,
as announced last year, the Company is degearing itself. A total of R36 million
of the preference share funding was therefore repaid in April 2009.
Operating expenses were R29 million (2008: R30 million), of which R25 million
was the management fee relating to the management agreement between the Company
and Makalani Management Company (Proprietary) Limited ("Manco"). The balance of
the operating expenses of R4 million relates mainly to directors` fees, audit
fees, listing expenses and other sundry expenses.
In light of the stated wind-down strategy of the Company it has been agreed in
principle by the board of the Company and Manco that the existing management
contract be amended to better cater for the new strategy. The amendments are
effective from the 1st of July 2009 and will provide for a lower ongoing
management fee and a performance fee to encourage the return of cash to
unitholders within a defined period. Further details will be provided once the
agreement has been finalised.
Interest on borrowings for the 2008 financial year related to the bridging
facility charged at three-month JIBAR plus 185 basis points from the date of the
first drawdown on the loan, being 28 March 2008. Interest on borrowings for the
2009 financial year relates to the preference share term funding priced at 76%
of the prime lending rate. The bridging facility was replaced by the preference
share funding of R333 million in February 2009.
The positive movement in taxation for the current 2009 financial year pertains
to deferred tax on assessed tax loss positions and STC credits, which the
Company anticipates utilising in forthcoming years.
The diagram below depicts the make-up of the yield of the Company`s portfolio:
(See press for diagram)
The above graph has been prepared on the following basis: (See press for graph)
various income and cost items are divided by average assets;
average assets are calculated as average of quarterly balances;
average assets are also based on the invested portfolio (including roll-ups),
fair valuations and cash; and
current portfolio annualised assumes all assets as at 30 June 2009 were on the
Company`s books for the full year.
2.2 Distributions
The board of directors has declared a final distribution per linked unit of 520
cents. Together with the interim distribution, the Company`s total distribution
is 900 cents per linked unit
(2008: 819 cents), comprising 596 cents of dividend and
304 cents of interest. The total distribution represents a yield of 14% based on
a closing linked unit price of R64.50 at 30 June 2009 (2008: 9.1%).
The distribution per linked unit of 900 cents is more than the headline loss per
linked unit of six cents as the loss was almost entirely attributable to fair
value adjustments and does not reflect the healthy operating cash flows of the
Company for the 2009 financial year.
3. Portfolio update
The Company`s portfolio as at 30 June 2009 is summarised in the table below.
Underlying Empowered 30 June 2009
company company Sector Amount
Loans
Brait Brait Financial services 26 436
Emira Broad-based BEE
parties Real estate 160 368
Exxaro Eyesizwe and
others Mining 163 141
FirstRand WDB Banks 13 411
Fuel Various BEE Transport and
parties logistics 212 187
Gautrain Bombela Construction 135 169
Lereko Lereko Various 35 308
Life Healthcare Brimstone and
Mvelaphanda Healthcare 36 618
Mondi Shanduka
Newsprint Shanduka Paper and packaging 23 469
Sasol Ufhata Oil and chemicals 9 417
Servest Safika Services 190 000
Tourvest Guma Tourism Various 50 319
Ufhata Ufhata Various 4 880
Preference
shares
Brait Brait Financial services 105 308
Convergence Convergence IT and
Partners Partners telecommunications 89 351
Eyesizwe Eyesizwe and
others Mining 54 788
FirstRand Kagiso, MIT and
WDB Banks 182 044
Fuel Various BEE Transport and
parties logistics 60 126
Inyanga Shanduka
Resources Engineering 3 563
Metropolitan Kagiso Insurance 116 053
Midas Various BEE
parties Auto parts 125 578
Mvelaphanda
Group Mvelaphanda Group Services 25 000
Nafhold Broad-based BEE
parties Gaming 171 822
Nampak Aka Capital Paper and packaging 45 670
Prostart Speciality
Izingwe chemicals 20 084
Sandown Motors True Class Motor retail 370 193
Tongaat Various BEE
parties Food and beverage 116 661
Ordinary shares
Fuel Various BEE Transport and
parties logistics 54 614
Carrying value 2 601 578
Aggregate fair value adjustments for prior years (11 188)
Fair value adjustments for current year
Hedged fair value of portfolio (including derivatives)
(337 620)
2 252 770
Assets are shown at accrued book value, before taking into account any fair
value adjustments.
Towards the end of the 2008 calendar year, the Company concluded the remaining
investment transactions already contractually committed to before the change to
its wind-down strategy. These investments included Nafhold, Midas and Tourvest
totalling R326 million.
Makalani`s portfolio continues to be dominated by more mezzanine and equity type
assets. These assets typically have a larger proportion of interest or dividends
rolling up, with the consequence that a relatively lower proportion of income is
received in cash during the initial periods of the investment. As previously
communicated to the market, the Company will distribute proceeds of assets as
they mature or are realised.
The two most significant redemptions for the 2009 financial year included Gold
Reef (R320 million) and Gold Fields
(R82 million), both of which were redeemed at their carrying values.
The Company`s portfolio continues to be well diversified across various
industries, as is shown in the diagram below (see press for diagram). The
largest exposure in the company`s portfolio is that of the motor retail industry
at 15%. This exposure consists of Makalani`s investment in Sandown Motors.
Although this sector, in particular motor retail outlets, has been under
pressure due to the current economic conditions, Sandown`s performance has been
assisted by its partnership with Mercedes Benz South Africa, which also owns 50%
of Sandown.
The Company`s invested assets by exposure to various credit rating buckets is
shown in the diagram below: (see press for diagram)
Ratings for exposures are determined by reference to FirstRand Bank`s rating
methodologies.
4. Strategic and operational update
As previously communicated, after careful evaluation and consultation with
unitholders, Makalani has determined that the listed platform may not be the
most appropriate structure for the Company from a long-term perspective. The
proposal for the winding down of Makalani was endorsed by unitholders in
December 2008.
Several options in terms of the winding down of Makalani continue to be
considered, including:
- disposal of all the assets in Makalani`s portfolio;
- staggered disposal of assets in Makalani`s portfolio; and
- takeover of Makalani by a third party.
The board of Makalani has committed to communicating with unitholders as and
when developments take place.
Outlook
Makalani remains focused on ensuring that it secures the best possible value for
investors in the management of its portfolio. For the Company, much of the
security for loans issued resides in underlying shares of its investments,
exposing Makalani to equity prices and general market volatility. The medium-
term outlook for the global economy remains uncertain. Consequently, the Board
is of the view that the Company has made prudent provisions for its portfolio
that reflect prevailing market conditions.
Makalani will continue to proactively manage all exposures. The Company has made
significantly less use of long-term debt funding than was previously
anticipated, which has reduced its gearing to below 15%. This has created a
buffer to further deteriorations in market conditions and asset pricing, should
they occur.
Looking forward, Makalani remains well placed to deliver value to investors as
markets across the world recover and are recalibrated according to the new
global sentiment.
The Board will, in collaboration with professional advisors and unitholders,
continue to assess the best route to realise optimal value in the winding down
process. In the interim, the portfolio is being actively managed to preserve
value in the best interests of unitholders.
5. Declaration of final dividend and interest
Notice is hereby given of a final dividend declaration number 8 of 396 cents and
debenture interest payment number 8 of 124 cents per linked unit for the six
months ended 30 June 2009. The total amount payable to unitholders is 520 cents
("the final distribution") per linked unit and will be paid to unitholders in
accordance with the timetable set out in the table below.
Last day to trade "cum" the final
distribution Friday, 25 September 2009
Linked units commence trading
"ex" the final distribution Monday, 28 September 2009
Record date to participate in the
final distribution Friday, 2 October 2009
Payment date of the final distribution Monday, 5 October 2009
No dematerialisation or rematerialisation of the Company`s linked unit
certificates may take place between Monday, 28 September 2009 and Friday, 2
October 2009 (both days included).
By AH Arnott
Company Secretary
25 August 2009
For and on behalf of the board
VW Bartlett (Chairman) Keshan Pillay (CEO)
Sandton
Sandton 25 August 2009
25 August 2009
Registered office: Tel +27 11 428 0680, Fax +27 11 447 7389
Email enquiries@makalani.co.za, Web www.makalani.co.za
PO Box 781463, Sandton 2146, 4th Floor, 4 Merchant Place, corner Fredman Drive
and Rivonia Road, Sandton, 2196
Directors: VW Bartlett (Chairman), K Pillay (CEO), DCM Gihwala, RJC Hamer, BD
Hopkins, D Konar, GL Minnaar (FD), SEN Sebotsa, BJ van der Ross
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
www.makalani.co.za
Date: 25/08/2009 15:19:02 Produced by the JSE SENS Department.
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