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PLD
PLD
PLD - Paladin Capital Limited - Unaudited interim results For the six months
ended 31 August 2010
Paladin Capital Limited
(Incorporated in the Republic of South Africa)
(Registration number 2004/003647/07)
Share code: PLD ISIN: ZAE000138970
("Paladin" or "the Company")
Unaudited interim results For the six months ended 31 August 2010
- Intrinsic value increased to R2.45 per share
- Recurring headline earnings decreased by 11.8% to 6.7 cents per share
- Headline earnings decreased by 40.3% to 17.6 cents per share
Condensed group statement of financial position
at 31 August 2010
Unaudited Audited
Notes 31 Aug 10 31 Aug 09 28 Feb 10
Rm Rm Rm
Assets
Property, plant and equipment 260.3
Intangible assets 43.2
Investment in associated companies 2 1 040.5 941.0 1 052.1
Deferred income tax 5.6 2.8
Financial assets
Loans and advances 1.8
Receivables 2.4 0.2
Cash and cash equivalents 29.5 1.5 2.3
Non-current assets held for sale 20.5
Total assets 1 402.0 944.3 1 057.4
Equity
Ordinary shareholders` equity 1 088.9 765.4 1 009.8
Minority interests 33.4
Total equity 1 122.3 765.4 1 009.8
Liabilities
Deferred income tax 17.7
Financial liabilities
Borrowings 196.4 177.8 42.2
Provision for other liabilities and 47.5
charges
Trade and other payables 17.7 1.1 5.3
Current income tax liabilities 0.4 0.1
Total liabilities 279.7 178.9 47.6
Total equity and liabilities 1 402.0 944.3 1 057.4
Net asset value per share (cents) 187.5 171.7 175.7
Condensed group income statement
for the six months ended 31 August 2010
Unaudited Audited
Notes 31 Aug 10 31 Aug 09 28 Feb 10
Rm Rm Rm
Income
Investment income 12.7 10.9 21.0
School fees 12.7
Fee income 0.4 0.7
Profit on disposal of 22.8
associated company
Other operating income 1.3 1.0
48.6 12.2 22.7
Expenses
Administration and (18.7) (3.9) (10.2)
other expenses
Performance fee (46.2)
Impairment charges (7.0)
(64.9) (3.9) (17.2)
Results of operating (16.3) 8.3 5.5
activities
Finance costs (5.1) (9.5) (13.6)
Share of profits of 91.3 81.4 168.4
associated companies
Net profit before 69.9 80.2 160.3
taxation from
continued operations
Taxation (0.5) (1.1) 1.6
Net profit from 69.4 79.1 161.9
continued operations
Net profit from 17.7 17.7
discontinued
operations
69.4 96.8 179.6
Attributable to: 69.4 96.8 179.6
- minority interest 0.3
- equity holders of 69.1 96.8 179.6
the company
Attributable to equity 69.1 96.8 179.6
holders of the company
Non-headline items 3 32.3 32.4 37.7
Headline earnings 101.4 129.2 217.3
Earnings and diluted
earnings per share
(cents)
- attributable 12.0 22.1 36.3
- headline 17.6 29.5 43.9
Number of shares
(million)
- in issue 580.6 445.9 574.6
- weighted average 575.6 437.8 495.4
Condensed group statement of comprehensive income
for the six months ended 31 August 2010
Unaudited Audited
Notes 31 Aug 10 31 Aug 09 28 Feb 10
Rm Rm Rm
Net income of the group 69.4 96.8 179.6
Share of other comprehensive (3.2) 12.3
(loss)/income of associated
companies
Total comprehensive income 66.2 96.8 191.9
Attributable to: 66.2 96.8 191.9
- minority interest 0.3
- equity holders of the company 65.9 96.8 191.9
Condensed statement of changes in equity
for the six months ended 31 August Unaudited Audited
2010
Notes 31 Aug 10 31 Aug 09 28 Feb 10
Rm Rm Rm
Ordinary shareholders` equity at 1 009.8 602.0 602.0
beginning of period
Net shares issued (net of buy backs 13.2 192.8 342.1
and share issue cost)
Total comprehensive income 65.9 96.8 191.9
Other reserves (116.3) (116.3)
Dividend paid (9.9) (9.9)
Ordinary shareholders` equity at 1 088.9 765.4 1 009.8
end of period
Minority interest 33.4
Beginning of period 1.7 1.7
Net income for period 0.3
Acquisition/(disposal) of 33.1 (1.7) (1.7)
subsidiaries
Total equity at end of period 1 122.3 765.4 1 009.8
Condensed group statement of cash flows
for the six months ended 31 August 2010
Unaudited Audited
Notes 31 Aug 10 31 Aug 09 28 Feb 10
Rm Rm Rm
Cash flows from operating
activities
Cash generated by operating 24.0 17.5 18.0
activities
Taxation paid (0.3)
Net cash flow from operating 23.7 17.5 18.0
activities
Net cash flow from investment (74.8) (47.0) (164.0)
activities
Net cash flow from financing 78.3 27.0 144.3
activities
Net increase/(decrease) in cash and 27.2 (2.5) (1.7)
cash equivalents
Cash and cash equivalents at 2.3 4.0 4.0
beginning of period
Cash and cash equivalents at end of 29.5 1.5 2.3
period
- Continued operations 29.5 1.5 2.3
Contribution to headline earnings
for the six months ended 31 August 2010
Unaudited Reviewed
Notes 31 Aug 10 31 Aug 09 28 Feb 10
Rm Rm Rm
Recurring headline earnings 22.3 29.8 80.5
Equity accounted headline earnings 29.9 33.3 87.1
from associated companies
Other expenses (7.6) (3.5) (6.6)
Recurring (see-through) headline 19.1 11.6 26.2
earnings (Thembeka)
Funding and STC
Paladin (2.6) (8.0) (11.2)
Total recurring headline earnings 38.8 33.4 95.5
Non-recurring headline earnings 62.6 95.8 121.8
Marked-to-market movement and 126.1 104.4 148.3
dividend income (Thembeka)
Less: recurring (see-through) (19.1) (11.6) (26.2)
earnings (Thembeka)
Performance fee (46.2)
Other net income/(expenses) 1.8 3.0 (0.3)
Total headline earnings 101.4 129.2 217.3
Statistics
Recurring HEPS (cents) 6.7 7.6 19.3
HEPS (cents) 17.6 29.5 43.9
Notes
for the six months ended 31 August 2010
1. Basis of presentation and accounting policies
The condensed interim consolidated financial statements have been prepared in
terms of IAS 34 - Interim Financial Reporting and should be read in conjunction
with the annual financial statements for the year ended 28 February 2010, which
have been prepared in accordance with IFRS. The accounting policies applied in
the preparation of the interim consolidated financial statements are consistent
with those used in the previous year, except for the following revised standards
which are effective for the financial year beginning 1 March 2010: IFRS 3
(revised) - Business combinations, and IAS 27 (revised) - Consolidated and
separate financial statements. The adoption of IAS 27 (revised) has no material
effect on the results and neither standard required any restatement of
previously reported results. The adoption of IFRS 3 (revised) had the following
effect on the current reported results:
The revised standard was applied to the acquisition of the controlling interest
in Curro Holdings (Pty) Limited ("Curro") on 1 July 2010 (refer note 6). This
acquisition has occurred in stages. The revised standard requires that goodwill
is determined only at the acquisition date rather than at the previous stages.
The determination of goodwill includes the previously held equity interest to be
adjusted to fair value with any gain or loss recorded in the income statement.
The group have chosen to recognise the non-controlling interest at the
proportionate share of net assets of Curro of R33.1 million.
2. Investment in associated companies
Unaudited Audited
31 Aug 10 31 Aug 09 28 Feb 10
Rm Rm Rm
Carrying value
Listed 362.1 367.1 417.3
Unlisted 678.4 573.9 634.8
1 040.5 941.0 1 052.1
Paladin has tested its investments in
associated companies for impairment and
management has subsequently impaired the
investment in Erbacon by R17.5 million at
31 August 2010. The directors are
satisfied that its carrying value is
fairly stated after this write down.
3. Non-headline items (net of tax and minorities)
Impairment of investments 17.5 54.7 60.9
Impairment of loans 6.0
Net profit on disposal/dilution of (17.7) (17.4)
investment in subsidiaries and minority
interest
Net profit on disposal/dilution of (15.8) (8.2)
investment in associated companies
Non-headline items of associated companies 30.6 (4.6) (3.6)
32.3 32.4 37.7
4. Commitments and contingencies
Capital expenditure:
Contracted 27.9
Authorised but not yet contracted 69.7
97.6
Future commitments in terms of:
Property rental agreements
Due within one year 0.2 0.4
One to five years 0.3
0.2 0.7
Operating leases
Due within one year 1.3 0.8
One to five years 4.4 0.1
5.7 0.9
5. Related party transactions
During the period under review, PSG Corporate Services ("PSGCS") charged Paladin
a management fee of R7.4 million (2009: Rnil) which was outstanding at 31 August
2010.
PSGCS is also entitled to a performance fee calculated annually, based on the
appreciation of Paladin`s share price, with the first measurement date on 28
February 2011. The appreciation in the share price is the difference between the
30-day volume weighted average price of Paladin at year-end and the initial
price of R1.535 per share (adjusted for share issues) as defined in the
management agreement entered into between the two parties. The liability for the
performance fee can either be settled in cash, or if insufficient cash is
available, can be settled by the issue of ordinary shares in Paladin. Had the
measurement date been 31 August 2010, the performance fee payable would have
amounted to R46.2 million. This was provided for at 31 August 2010. Had the
measurement date been the last practical date the performance fee payable would
have amounted to R64.2 million.
6. Acquisition of subsidiary
On 1 July 2009 Paladin acquired 50% of the share capital of Curro (a provider of
private schooling) for R50 million and classified the investment as an
investment in an associated company. On 1 July 2010 Paladin acquired a further
26% of the share capital for R52 million to gain control of Curro. The carrying
value and fair value of Curro immediately preceding the acquisition of the
controlling stake amounted to R52.2 million and R75 million, respectively. This
resulted in a R22.8 million profit which is recognised on the face of the income
statement. The acquired business contributed revenues of R12.7 million and net
profit of R1.3 million to the group for the period from 1 July 2010 to 31 August
2010.
Details of the net assets acquired, consideration paid and goodwill recognised
are as follows:
Fair value
Rm
Cash 2.5
Property, plant and equipment 226.1
Receivables 3.1
Intangibles 20.5
Borrowings (90.6)
Trade and other creditors (9.2)
Deferred tax (14.4)
138.0
Non-controlling interest (33.1)
Previously held interest at fair value (75.0)
Goodwill 22.1
Total purchase consideration 52.0
Analysed as follows: 52.0
Cash paid 51.0
Fair value of shares issued 1.0
Cash flow effects:
Purchase consideration settled in cash (51.0)
Cash and cash equivalents of subsidiary acquired 2.5
Net cash outflow on acquisition (48.5)
7. Segmental report
For the six Income Recurring Non- Headline Net asset
months ended Rm headline recurring earnings value
31 August 2010 earnings headline Rm Rm
Rm earnings
Rm
Investment 11.0 107.0 118.0 386.9
companies
Services 0.2 17.5 17.5 184.9
Mining, 10.4 15.0 2.5 17.5 392.7
construction
and related
services
Manufacturing 4.0 4.0 93.0
Education 12.7 1.5 1.5 128.0
Other 0.4 (7.6) (46.9) (54.5) (50.5)
Before funding 23.7 41.4 62.6 104.0 1 135.0
and STC
Funding and 2.1 (2.6) (2.6) (46.1)
STC
Total 25.8 38.8 62.6 101.4 1 088.9
Non-headline 22.8 (32.3)
Attributable 48.6 69.1
For the six
months ended
31 August 2009
Investment 1.7 92.8 94.5 213.2
companies
Services 14.1 14.1 171.3
Mining, 9.5 29.6 29.6 399.6
construction
and related
services
Manufacturing (1.0) (1.0) 99.3
Education 0.5 0.5 50.8
Other 1.3 (3.5) 3.0 (0.5) 7.5
Before funding 10.8 41.4 95.8 137.2 941.7
and STC
Funding and 1.4 (8.0) (8.0) (176.3)
STC
Total 12.2 33.4 95.8 129.2 765.4
Non-headline (32.4)
Attributable 12.2 96.8
For the year
ended 28
February 2010
Investment 10.3 122.1 132.4 275.7
companies
Services 0.1 37.5 37.5 203.0
Mining, 18.4 56.8 (2.5) 54.3 424.0
construction
and related
services
Manufacturing 7.3 7.3 94.5
Education 1.4 1.4 51.4
Other 1.7 (6.6) 2.2 (4.4) (1.7)
Before funding 20.2 106.7 121.8 228.5 1 046.9
and STC
Funding and 2.5 (11.2) (11.2) (37.1)
STC
Total 22.7 95.5 121.8 217.3 1 009.8
Non-headline (37.7)
Attributable 22.7 179.6
Overview
Paladin is PSG Group`s private equity investment company in sectors other than
agriculture, food and beverages. Paladin invests in businesses that are easily
understood, have strong cash flows, where management are large shareholders and
where Paladin`s share of profit after tax is greater than R10 million. Paladin
is strategically involved in its investee companies and actively partners with
the entrepreneurs and management to advance the business to the next level. At
31 August 2010, Paladin had 13 investments across the economic spectrum.
Results
It was announced on SENS on 31 March 2010 that Paladin has refined the method of
calculating recurring headline earnings. Previously recurring headline earnings
was defined as reportable headline earnings in terms of accounting standards,
excluding any marked-to-market movements and one-off items. Recurring headline
earnings is now calculated on a see-through basis and is the sum of Paladin`s
effective interest in that of each of its underlying investees, regardless of
its percentage shareholding. Paladin`s recurring headline earnings for the six
months ended 31 August 2009 accordingly amounted to 7.6 cents per share as
opposed to the 6.9 cents per share previously reported in terms of the old
methodology.
Paladin`s recurring headline earnings increased by 16.2% to R38.8 million (2009:
R33.4 million restated). The increase resulted from a strong performance from
the investment companies and services segments, amid difficult trading
conditions seen in the mining, construction and related services segment which
has been particularly hard hit by the downturn in the construction sector since
the start of the financial year.
Paladin`s reportable headline earnings increased by 14.2% to R147.6 million
(2009: R129.2 million) before providing for the performance fee of R46.2
million, but decreased by 21.5% to R101.4 million after this provision.
Recurring headline earnings per share and reportable headline earnings per share
decreased by 11.8% to 6.7 cents and 40.3% to 17.6 cents respectively.
Corporate action
- Raised R100 million by way of a five-year, fixed rate preference share with
dividend and capital payable on maturity.
- Obtained regulatory approval to purchase an additional 26% stake in Curro for
a total consideration of R52 million.
- Concluded the sale of Lesotho Milling for R26 million in cash, effective 1
September 2010.
Review of operations
Investment companies (Thembeka and Spirit)
Recurring headline earnings increased to R11 million (2009: R1.7 million). This
performance was driven by exceptional results from Thembeka on the back of
strong recurring earnings from its investment in Capitec and PSG Group.
Reportable headline earnings increased by 24.9% to R118 million due to the
inclusion of marked-to-market profits at Thembeka.
Services (CIC, IQuad and African Unity)
Recurring headline earnings increased by 24.1% to R17.5 million. African Unity
made a significant contribution to growth.
Mining, construction and related services (Precrete, Petmin, Erbacon and Top
Fix)
Recurring headline earnings were disappointing and decreased by 49.3% to R15
million. While Petmin and Precrete contributions grew, especially the latter`s,
the state of the construction industry negatively affected Erbacon`s and Top
Fix`s earnings.
Manufacturing (GRW, Lesotho Milling and Protea Foundry)
The manufacturing segment contributed recurring headline earnings of R4 million
compared to a loss of R1 million in the corresponding period.
Education (Curro)
Curro was acquired effective 1 July 2009 when a 50% stake was purchased.
Effective 1 July 2010 Paladin obtained control of Curro by acquiring a further
26% stake. Curro performed in line with our expectations for a developing high
growth company.
Paladin remains confident that this industry can provide above average,
sustainable rates of growth.
Intrinsic value
Paladin`s intrinsic value is calculated by using market values for listed
investments and market related multiples for its unlisted investments. Total
intrinsic value and intrinsic value per share increased by 21.9% to R1.422
billion and 20.7% to R2.45 per share respectively since 28 February 2010. This
was mainly attributable to increases in the intrinsic values of Thembeka and
CIC.
Intrinsic value 31 Aug 10 28 Feb 10 31 Aug 09
Company Description % Value % Value % Value
held Rm held Rm held Rm
Investment
companies
Thembeka BEE investment 49% 415 49% 272 49% 229
company
Spirit Leveraged buy- 20% 15 20% 15
outs
430 287 229
Services
CIC FMCG 50% 371* 50% 213 49% 136
IQuad Outsourcing 44% 35 43% 24 43% 29
services
African Unity Life and related 43% 30 43% 17 43% 13
insurance
436 254 178
Mining,
construction
and related
services
Precrete Mine safety and 22% 176 22% 163 22% 117
support services
Petmin Diversified 9% 126 9% 120 9% 100
miner
Erbacon Construction 18% 89 22% 100 26% 78
Top Fix Construction 28% 29 28% 48 18% 20
support services
420 431 315
Manufacturing
GRW Tanker 40% 49 40% 49 40% 39
manufacturer
Lesotho Milling Milling 25% 26 25% 38 25% 38
Protea Foundry Non-ferrous 50% 35 50% 33 50% 30
foundry
110 120 107
Education
Curro Private school 76% 152 50% 100 50% 50
education
152 100 50
Other 11
Total 1 548 1 192 890
investments
Performance fee (46)
provision
Net debt and (80) (25) (163)
other*
Total intrinsic value 1 422 1 167 727
Shares in issue (million) 581 575 446
Intrinsic value per share (cents) 245 203 163
Intrinsic value per share at last 252 N/A N/A
practical date (cents)
*CIC is valued at the Imperial offer price with the related capital gains tax
liability included in Net debt and other.
Prospects
The board is confident about the quality of the investment portfolio and the
prospects for the future. The recent announcement regarding an offer for CIC,
received from Imperial, is still subject to various regulatory approvals. If all
approvals are obtained Paladin will have a cash inflow of approximately R371
million before tax, which will be invested in opportunities that meet Paladin`s
investment criteria.
Dividend
It is Paladin`s policy not to pay any dividend given the company`s long-term
growth strategy.
On behalf of the board
Jannie Mouton Francois Swart
Chairman Chief Executive Officer
Stellenbosch
6 October 2010
Paladin Capital Limited: Incorporated in the Republic of South Africa
(Registration number: 2007/032836/06) Share code: PLD ISIN: ZAE000138970
("Paladin" or "the company" or "the group")
Directors: JF Mouton (Chairman), FW Swart (CEO)*, E de V Greyling#,
KP Harris#, JA Holtzhausen, PJ Mouton, JD Wiese# (* executive # independent non-
executive)
Secretary and registered office: PSG Corporate Services (Pty) Limited,
1st Floor, Ou Kollege, 35 Kerk Street, Stellenbosch, 7600 PO Box 7403,
Stellenbosch, 7599
Transfer secretaries: Computershare Investor Services (Pty) Limited
(Registration number 2004/003647/07) Ground Floor, 70 Marshall Street,
Johannesburg, 2001
Corporate advisor: PSG Capital (Pty) Limited
Designated advisor: Questco Sponsors (Pty) Limited
These results are available on our website at www.paladincapital.co.za
Date: 06/10/2010 17:04:01 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.
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