| Mon 22 Feb 2010, 13:48 | | 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 2009 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
2009 and declaration of interim cash interest payment
Consolidated statement of comprehensive income
for the six months ended 31 December 2009
Unaudited Unaudited Audited
31 Dec 31 Dec 30 June
2009 2008 2009
Note R`000 R`000 R`000
Interest income 134 957 209 948 391 677
Fair value losses (24 346) (118 058) (338 725)
Other income 772 1 766 5 582
Operating expenses (12 750) (15 009) (29 150)
Indirect taxation (1 621) (1 482) (3 580)
Net operating profit before interest 97 012 77 165 25 804
Interest on borrowings (11 199) (26 128) (44 660)
Net operating profit/(loss) 85 813 51 037 (18 856)
Debenture interest (41 106) (38 553) (65 168)
Net profit/(loss) before tax 44 707 12 484 (84 024)
Taxation (3 320) 6 284 17 576
Total comprehensive income/(loss) for 41 387 18 768 (66 448)
the period/year attributable to equity
holders
Earnings/(loss) per share (cents) 2 194 88 (311)
Condensed consolidated statement of financial position
as at 31 December 2009
Unaudited Unaudited Audited
31 Dec 31 Dec 30 June
2009 2008 2009
Note R`000 R`000 R`000
Assets
Cash and cash equivalents 298 236 177 656 174 116
Invested assets at fair value 3 2 048 209 2 487 053 2 258 604
Loans and advances at fair value 2 026 084 2 434 286 2 241 104
Other financial assets at fair value 22 125 52 767 17 500
Derivative financial instruments -
assets - - 204
Taxation 4 346 2 333 4 346
Deferred taxation 19 047 13 022 22 368
Total assets 2 369 838 2 680 063 2 459 638
Equity and liabilities
Share capital and premium 528 037 528 037 528 037
Accumulated (loss)/profit (32 097) 138 993 11 072
Share capital and reserves 495 940 667 030 539 109
Debentures 1 578 907 1 578 660 1 578 798
Linked unitholders` interest 2 074 847 2 245 690 2 117 907
Preference share funding 223 760 - 297 444
Current borrowings - 371 000 -
Derivative financial instruments
- liabilities 12 519 9 584 6 038
Linked unitholders for debenture 40 997 38 435 26 477
interest
Other liabilities 12 018 10 354 5 903
Provisions 5 697 5 000 5 869
Total equity and liabilities 2 369 838 2 680 063 2 459 638
Condensed consolidated statement of cash flows
for the six months ended 31 December 2009
Unaudited Unaudited Audited
31 Dec 31 Dec 30 June
2009 2008 2009
R`000 R`000 R`000
Cash generated from operations 127 820 187 529 353 254
Taxation paid - (8 334) (8 401)
Interest paid on external borrowings (11 199) (26 128) (44 660)
Interest and dividend distributions (111 038) (65 979) (147 119)
Net cash inflow from operating activities 5 583 87 088 153 074
Cash flow from investing activities
Proceeds from/(investment in) loans
and advances 192 221 (45 172) (15 075)
Investment in other financial assets - - (26 067)
Net cash inflow/(outflow) from
investing activities 192 221 (45 172) (41 142)
Cash flow from financing activities
Proceeds from/(repayment of) bridge loan - 56 000 (315 000)
Proceeds from issue of preference shares - - 333 000
Redemption of preference shares (73 684) - (35 556)
Net cash (outflow)/inflow from
financing activities (73 684) 56 000 (17 556)
Net increase in cash and cash equivalents 124 120 97 916 94 376
Cash and cash equivalents at
beginning of period/year 174 116 79 740 79 740
Cash and cash equivalents at end
of period/year 298 236 177 656 174 116
Consolidated statement of changes in equity
for the six months ended 31 December 2009
Share Share Accumulated Total
R`000 capital premium profit equity
Balance at 30 June 2008 2 528 035 164 425 692 462
Total comprehensive income 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
Total comprehensive loss for the
period attributable to
ordinary shareholders - - (85 216) (85 216)
Dividends paid - - (42 705) (42 705)
Balance at 30 June 2009 2 528 035 11 072 539 109
Total comprehensive income for the
period attributable to
ordinary shareholders - - 41 387 41 387
Dividends paid - - (84 556) (84 556)
Balance at 31 December 2009 2 528 035 (32 097) 495 940
Notes to the 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 2009, 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.
The Company makes estimates and assumptions that affect the reported amounts
of assets and liabilities. Estimates and judgements are continually evaluated
and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the
circumstances.
Unaudited Unaudited Audited
31 Dec 31 Dec 30 June
2009 2008 2009
R`000 R`000 R`000
2. Earnings per share and
distribution per linked unit
Number of units in issue (`000) 21 353 21 353 21 353
Weighted average number of
linked units in issue (`000) 21 353 21 353 21 353
Earnings/(loss) per share (cents) 194 88 (311)
Headline earnings/(loss) per
share (cents) 194 88 (311)
Headline earnings reconciliation R`000 R`000 R`000
Total comprehensive income/(loss) for the
period attributable to equity holders
41 387 18 768 (66 448)
Adjustments - - -
Headline earnings/(loss) 41 387 18 768 (66 448)
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 the Listings Requirements of the JSE Limited ("JSE"), 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.
Unaudited Unaudited Audited
31 Dec 31 Dec 30 June
2009 2008 2009
R`000 R`000 R`000
Headline earnings/(loss) per linked
unit (cents) 386 268 (6)
Headline earnings per linked unit
- reconciliation
Headline earnings/(loss) 41 387 18 768 (66 448)
Debenture interest 41 106 38 553 65 168
Headline earnings/(loss)
attributable to linked units 82 493 57 321 (1 280)
Calculation of distributable
earnings
Net operating profit 97 013 51 037 25 804
Taxation (3 320) 6 284 17 576
93 693 57 321 43 380
Proposed distribution to linked
unitholders
Debenture interest 40 997 38 435 64 912
Dividends - - 86 905
40 997 38 435 151 817
Cents Cents Cents
Total distribution per linked unit 192 180 900
Debenture interest per linked unit 192 180 304
Dividends per linked unit - - 596
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.
Commentary on results
1. Operating environment
During the period under review, the world`s larger economies continued to
emerge from the worldwide financial crisis that persisted in the previous
financial year. This recovery was in the main underpinned by developed
markets` fiscal and monetary stimulus packages, which created a platform for
the start of renewed global growth.
These interventions caused an appreciation in most equity markets and the
start of a reversal of earnings declines based on improvements in underlying
real economies. However, some doubt remains as to whether the global stimulus
programmes will sustainably improve the real economies, with the current
pricing of both local and global stock markets demanding an unprecedented
global recovery in earnings.
The underlying economy of South Africa lagged the global markets, starting to
experience the negative effects more severely during late 2008 and in
particular the early part of 2009. The start of a perceived recovery in local
markets therefore also followed that of global economies, with the local stock
market coming off
its March 2009 low after capital outflows reversed and liquidity returned to
emerging markets. Short-term gains in local capital markets were therefore
seemingly driven by global rather than local investor sentiment.
From March 2009 the JSE saw strong improvements, especially measured in US
Dollar terms, where significant Rand appreciation was aided by demand
returning to resources. Interest rates in South Africa remained fairly static
during the six-month-period ended 31 December 2009, with the Company`s
floating portfolio yield remaining low as a result of prevailing market
conditions.
The early start of the easing of the difficult market conditions during the
last six months saw a significant decrease in fair value losses within the
Company`s portfolio due to the prudent write-downs taken in the prior year.
The decision to take a conservative approach to write-downs therefore proved
to be the correct strategy. R339 million of fair value losses were recognised
in the 2009 financial year compared to R24 million for the six months ending
31 December 2009.
2. Financial results
2.1 Financial results
During the six months to 31 December 2009, the Company generated headline
earnings for unitholders of R82.5 million or
386 cents headline earnings per linked unit ("HEPLU"). This is a pleasing 44%
increase on the comparative December 2008 period and represents an overall
annual headline earnings yield of 9.5%, based on the closing linked unit price
of R81.00 at 31 December 2009. The HEPLU of R82.5 million comprised debenture
interest of R41.1 million and attributable profit for the period of R41.4
million.
During the period, the Company`s invested assets decreased by
R216 million to R2 036 million, compared to approximately
R2 252 million as at 30 June 2009. The decrease mainly resulted from the
redemption and sale of certain investments at their carrying values.
The weighted forward looking annualised yield on invested assets as at 31
December 2009 was 8.96% (30 June 2009: 9.24%). The forward looking annualised
yield on invested assets makes use of the current portfolio as at 31 December
2009 and assumes that the current invested assets are on the Company`s books
for a full year.
Interest income decreased to R135 million from R210 million mainly due to
lower prevailing interest rates for the comparative December 2008 period. The
interest income earned in the current period comprised dividend income on
invested assets of R81 million, interest on invested assets of R48 million and
interest income on cash and hedging positions of R6 million. The Company also
generated fee income of R0.8 million.
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 Dec 2009 31 Dec 2008 30 June 2009
% of % of % of
Rating Portfolio Rating Portfolio Rating Portfolio
Financial
services BB 6% BB,B 5% BB 6%
Banks BB 10% BB 8% BB 9%
Mining BB, BB, BB,
Equity 12% Equity 12% Equity 10%
Gaming BB 9% Equity 7% BB 8%
Insurance Redeemed 0% BB 5% BB 5%
Paper and
packaging BB 3% BB 3% BB, B 3%
Motor retail B,CCC 16% B 14% B 15%
Food and
beverage BB 6% B 5% B 6%
Real estate BB,B 8% BB, B 6% BB, B 7%
Construction BB 7% BB 5% BB 6%
Services B, B, B,
Equity 10% Equity 8% Equity 9%
Other BBB,
BBB,BB, BB, B, BB, B,
Equity 13% Equity 14% Equity 17%
The Company`s invested assets by exposure to various credit rating buckets are
shown in the diagrams below: (Refer to the newspaper advert).
The Company`s operating expenses were R12.7 million, of which
R10.8 million relates to the management fee paid and provided for by the
Company in terms of the amended management agreement between Makalani Manco
and the Company, based on the fair value of assets under management. In terms
of this agreement, Manco manages the portfolio of investments on behalf of the
Company.
2.2 Net asset value
The net asset value ("NAV") per linked unit was R99.09 at
31 December 2009 compared to R100.43 at 30 June 2009 and R106.97 at 31
December 2008. The current NAV reflects the lower yield in the portfolio in a
low interest rate environment and after distributing R5.20 in October 2009.
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 192
cents per linked unit, comprising an interest payment. No dividends have been
declared.
3. Portfolio
Makalani`s portfolio summary as at 31 December 2009 is shown in the table
below.
31 Dec 2009
Empowered Amount
Asset company Sector R`000
Loans
Brait Brait Financial services 26 209
Emira Broad-based BEE
parties Real estate 159 748
Exxaro Eyesizwe and others Mining 169 586
FirstRand WDB Banks 14 502
Fuel Various Transport and
BEE parties logistics -
Gautrain Bombela Construction 133 432
Life Healthcare Brimstone and
Mvelaphanda Healthcare 33 079
Mondi Shanduka
Newsprint Resources Paper and
packaging 20 028
Sasol Ufhata Oil and chemicals 10 439
Servest Safika Services 179 800
Tourvest Guma Tourism Various 48 677
Ufhata Ufhata Various 5 000
Preference shares
Brait Brait Financial services 104 443
Convergence Convergence IT and
Partners Partners telecommunications 113 163
Eyesizwe Eyesizwe and others Mining 55 642
FirstRand Kagiso, MIT and
WDB Banks 186 910
Fuel Various BEE parties Transport and
logistics -
Inyanga1 Shanduka Resources Engineering -
Lereko Lereko Various 53 288
Metropolitan1 Kagiso Insurance -
Midas1 Various BEE parties Autoparts -
Mvelaphanda Group Mvelaphanda Group Services 25 000
Nafhold Broad-based BEE
parties Gaming 180 268
Nampak Aka Capital Paper and
packaging 45 715
Prostart Izingwe Speciality
chemicals 20 915
Sandown Motors True Class Motor retail 374 416
Tongaat Various BEE parties Food and beverage 120 434
Ordinary shares
Fuel Various BEE parties Transport and -
logistics
Carrying value (excluding derivatives) 2 080 694
Fair value adjustments (45 004)
Hedged fair value of portfolio (including derivatives)2 2 035 690
1. Redeemed or sold during the period under review.
2. Value of R2 036 million is equivalent of invested assets at fair value of
R2 048 million less derivatives of R12.5 million as per condensed consolidated
statement of financial position.
In the past six months, the following redemptions and disposals occurred:
in September 2009, the Metropolitan A1 Preference Shares
were redeemed, while at the same time the A3 Preference Shares were disposed
of, thereby realising a combined carrying value of R118 million; and
in December 2009, the Midas asset was fully redeemed for
R137 million due to corporate action involving the Imperial Group.
During the 2009 financial year, the Fuel Group investments, consisting of
ordinary shares, preference shares and shareholders loans, were fully provided
for. Since the June 2009 year end, the capital of the Fuel Group was
restructured. Any recovery of Makalani`s investment is therefore unlikely and
these investments are no longer reflected in Makalani`s portfolio.
The Makalani portfolio is spread across a number of assets and across
different sectors. In line with the previously communicated policy of winding-
down the portfolio, the redemption and sale of assets within the portfolio has
started to affect the proportional representation of the different sectors in
the make-up of the portfolio. Management expect this trend to continue for the
remainder of the maturity profile of the portfolio.
The Company`s invested assets have a maturity profile, as shown in the
diagrams below. (Refer to the newspaper advert).
4. Outlook
4.1 Economic conditions
The Company believes that the economic environment will continue to remain
uncertain. Although the markets showed some improvement for the period under
review, these improvements came off a low base. It therefore remains unclear
as to whether the eventual turnaround will be gradual and sustainable.
The Company remains cautious in terms of exposures to more vulnerable sections
of the economy that rely on consumer spend. Makalani will continue to monitor
and manage its portfolio on a conservative basis to retain value for
unitholders.
4.2 Strategic changes
Shareholders are referred to the Company`s announcement released on SENS on 14
December 2009 where it outlined that it proposed delisting Makalani through
buying back units at a 13.6% premium to the 30 day volume weighted average
price of a Makalani unit calculated at 24 November 2009 and offering
unitholders who do not want to exit the option to remain invested in the
unlisted vehicle.
This decision was made after careful evaluation of several options and based
on the fact that the listed environment is not the most appropriate for
Makalani due to:
the complexity associated with determining the value of the underlying
investment portfolio and mezzanine markets;
the limited liquidity in the traded Makalani units, which has further
compromised market pricing; and
the disconnect between market valuations and the long-term maturity nature of
the investment portfolio.
Furthermore, as the winding-down process proposed last year was going to take
at least three years; it was not an acceptable timeframe to all unitholders.
The Company also did not want to place pressure on selling down the portfolio
within a specific timeframe in order to prevent a significant discount to the
book value on assets. To maximise value from the underlying investment
portfolio, the Company believes that the winding-down process should be
allowed to occur as investments mature without pressure to sell assets. The
majority of the current portfolio matures after four years.
The transaction is subject to a number of conditions, including the approval
of the transaction by the relevant authorities, a fairness opinion and
approval by unitholders in a general meeting.
As FirstRand Group is a 39.8% shareholder and Manco a 0.2% shareholder (both
net of treasury shares), they have elected not to vote on the proposal.
FirstRand and Manco have committed to remain invested for their entire
shareholding in Makalani.
As at December 2009, this proposal received in-principle support from 47.7% of
voting unitholders. The Company will be announcing the firm intention terms on
SENS on or around 23 February 2010.
5. Declaration of interim cash interest payment
Notice is hereby given of debenture interest payment number
9 of 192 cents per linked unit for the six months ended
31 December 2009. The total amount ("the interim distribution") will be paid
to linked unitholders in accordance with the timetable set out below:
Last day to trade "cum" the
interim distribution Friday, 12 March 2010
Linked units commence trading "ex" the
interim distribution Monday, 15 March 2010
Record date to participate in the
interim distribution Friday, 19 March 2010
Payment date of the interim distribution Tuesday, 23 March 2010
No dematerialisation or rematerialisation of Makalani linked unit certificates
may take place between Monday, 15 March 2010 and Friday, 19 March 2010, (both
days inclusive).
By AH Arnott
Company Secretary
22 February 2010
For and on behalf of the board
VW Bartlett (Chairman) K Pillay (Chief Executive Officer)
Sandton
22 February 2010
Registered office: Tel +27 11 428 0680, Fax +27 11 447 7389,
Email enquiries@makalani.co.za, Web www.makalani.co.za
4th floor, 4 Merchant Place, Corner Fredman Drive and Rivonia Road, Sandton,
2196, PO Box 781463, Sandton, 2146
Physical office: The Reserve, 52 - 54 Melville Road, Illovo, Gauteng
Directors: VW Bartlett (Chairman), K Pillay (Chief Executive Officer),
DCM Gihwala, RJC Hamer, BD Hopkins, D Konar,
GL Minnaar (Financial Director), SEN Sebotsa and 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
PO Box 4844, Johannesburg, 2000
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: 22/02/2010 13:48:07 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
