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PLD
PLD
PLD - Paladin Capital Limited - Reviewed results for the year ended 28 February
2011
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")
Reviewed results for the year ended 28 February 2011
Highlights
- Net asset value increased by 35.7% to R2.39 per share*
- Sum of the parts ("SOTP") valuation increased by 47.3% to R2.99 per share*
- Recurring headline earnings decreased by 37.3% to 12.1 cents per share
- Headline earnings decreased by 21.4% to 34.5 cents per share*
* After providing for a performance fee of R64.7 million as a result of
Paladin`s share price appreciation
Condensed group statement of financial position
at 28 February 2011
28 Feb 28 Feb
2011 2010
Notes Rm Rm
Assets
Property, plant and equipment 370.4
Intangible assets 50.1
Investment in associated companies 2 1 072.8 1 052.1
Deferred income tax 7.4 2.8
Financial assets
Loans and advances 0.3
Receivables 3.5 0.2
Cash and cash equivalents 307.5 2.3
Total assets 1 812.0 1 057.4
Equity
Ordinary shareholders` equity 1 384.6 1 009.8
Non-controlling interest 33.2
Total equity 1 417.8 1 009.8
Liabilities
Deferred income tax 18.5
Financial liabilities
Borrowings 224.4 42.2
Provision for other liabilities and charges 64.7
Trade and other payables 84.3 5.3
Current income tax liabilities 2.3 0.1
Total liabilities 394.2 47.6
Total equity and liabilities 1 812.0 1 057.4
Net asset value per share (cents) 238.5 175.7
Condensed group income statement
for the year ended 28 February 2011
28 Feb 28 Feb
2011 2010
Notes Rm Rm
Income
Investment income 33.8 21.0
Education income 38.8
Fee income 1.0 0.7
Other operating income 1.0
73.6 22.7
Expenses
Administration and other expenses (53.0) (17.2)
Performance fee (64.7)
(117.7) (17.2)
Share of profits of associated companies 178.9 168.4
Results of operating activities 134.8 173.9
Finance costs (12.8) (13.6)
Profit on disposal of associated companies 266.1
Net profit before taxation from
continuing operations 388.1 160.3
Taxation (33.0) 1.6
Net profit from continuing operations 355.1 161.9
Net profit from discontinued operations 17.7
355.1 179.6
Attributable to: 355.1 179.6
- non-controlling interest 0.1
- equity holders of the company 355.0 179.6
Attributable to equity holders of
the company 355.0 179.6
Non-headline items 3 (155.1) 37.7
Headline earnings 199.9 217.3
Earnings and diluted earnings per share
(cents)
- attributable 61.4 36.3
- headline 34.5 43.9
Number of shares (million)
- in issue 580.6 574.6
- weighted average 578.6 495.4
Condensed group statement of comprehensive income
for the year ended 28 February 2011
28 Feb 28 Feb
2011 2010
Rm Rm
Net income of the group 355.1 179.6
Share of other comprehensive income of
associated companies 8.5 12.3
Total comprehensive income 363.6 191.9
Attributable to: 363.6 191.9
- non-controlling interest 0.1
- equity holders of the company 363.5 191.9
Condensed group statement of changes in equity
for the year ended 28 February 2011
28 Feb 28 Feb
2011 2010
Rm Rm
Ordinary shareholders` equity at beginning
of period 1 009.8 602.0
Net shares issued (net of buy-backs and
share issue costs) 13.2 342.1
Total comprehensive income 363.5 191.9
Other reserve movements (1.9) (116.3)
Dividend paid (9.9)
Ordinary shareholders` equity at end of period 1 384.6 1 009.8
Non-controlling interest 33.2
Beginning of period 1.7
Total comprehensive income 0.1
Acquisition/(disposal) of subsidiaries 33.1 (1.7)
Total equity at end of period 1 417.8 1 009.8
Condensed group statement of cash flows
for the year ended 28 February 2011
28 Feb 28 Feb
2011 2010
Rm Rm
Cash flows from operating activities
Cash generated by operating activities 54.9 18.0
Taxation paid (31.4)
Net cash flow from operating activities 23.5 18.0
Net cash flow from investment activities 177.9 (164.0)
Net cash flow from financing activities 100.5 144.3
Net increase/(decrease) in cash and
cash equivalents 301.9 (1.7)
Cash and cash equivalents at beginning of period 2.3 4.0
Cash and cash equivalents at end of period 304.2 2.3
Analysed as follows: 304.2 2.3
Cash and cash equivalents 307.5 2.3
Bank overdraft (3.3)
Notes
for the year ended 28 February 2011
1. Basis of presentation and accounting policies
The condensed consolidated financial statements have been prepared in terms of
IAS 34 - Interim Financial Reporting. The accounting policies applied in the
preparation of the condensed 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) had 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) Ltd ("Curro") on 1 July 2010 (refer to note 6). The
revised standard requires the previously held equity interest to be adjusted to
fair value with any gain or loss recorded in the income statement.
Results of operating activities, as presented in the income statement, include
share of profits of associated companies as a significant part of Paladin`s
business activity is performed through associates. The comparatives have been
presented on a consistent basis.
2. Investment in associated companies 28 Feb 28 Feb
2011 2010
Rm Rm
Carrying value
Listed 265.0 417.3
Unlisted 807.8 634.8
1 072.8 1 052.1
Paladin has tested its investments in associated
companies for impairment at 28 February 2011. The
directors are satisfied that the carrying value of
the investment in associated companies is fairly
stated after such impairment write downs.
3. Non-headline items (net of tax and
non-controlling interest)
Impairment of investments 47.1 60.9
Impairment of loans 6.0
Net profit on sale/dilution of investment in
subsidiaries and non-controlling interest (17.4)
Net profit on disposal/dilution of investment
in associated companies (229.9) (8.2)
Non-headline items of associated companies 27.7 (3.6)
(155.1) 37.7
4. Commitments and contingencies
Capital expenditure:
Contracted 76.8
Authorised but not yet contracted 114.9
191.7 -
Future commitments in terms of:
Property rental agreements
Due within one year 0.4
One to five years 0.3
- 0.7
Operating leases
Due within one year 0.3 0.8
One to five years 0.1 0.1
0.4 0.9
5. Related party transactions
During the year under review, PSG Corporate Services (Pty) Ltd ("PSGCS") charged
Paladin a management fee of R16.7 million (2010: R5.2 million), of which R9.3
million was outstanding at year-end. The loan of R42.2 million owed to PSGCS at
28 February 2010 was repaid in March 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 2012. Management deemed it prudent to raise a provision for the
performance fee in the amount of R64.7 million (2010: Rnil) based on a price of
R2.65 per Paladin share.
During the prior year, Paladin sold its 74.9% in PSG Capital to, and bought the
investment of 9.4% in Petmin from PSG Group as part of the internal
restructuring.
6. Business combinations
On 1 July 2009 Paladin acquired 50% of the share capital of Curro, a provider of
private schooling, for R50 million and classified same as an investment in an
associated company. On 1 July 2010 Paladin acquired a further 26% interest 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
with the step up from an associate to a subsidiary accounted for in the income
statement. The acquired business contributed revenues of R38.8 million and net
profit of R3.4 million to the group for the period from 1 July 2010 to 28
February 2011.
On 1 January 2011 Curro acquired a 100% controlling interest in both Aurora
College (Pty) Ltd and Plot 100 Bush Hill (Pty) Ltd (collectively referred to as
"Aurora") for a total consideration of R42 million. Aurora is principally
involved in the private school industry.
Details of the net assets acquired, consideration Curro Aurora
paid and goodwill recognised are as follows: Rm Rm
Cash 2.5
Property, plant and equipment 226.1 45.5
Receivables 3.1 0.6
Goodwill and intangibles 20.5 7.5
Borrowings (90.6)
Trade and other creditors (9.2) (11.6)
Deferred tax (14.4)
138.0 42.0
Non-controlling interest (33.1)
Previously held interest at fair value (75.0)
Goodwill 22.1
Total purchase consideration 52.0 42.0
Analysed as follows: 52.0 42.0
Cash paid 51.0
Fair value of shares issued 1.0
Vendor financing 42.0
Cash flow effects:
Purchased 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
Non-
Recurring recurring Net
headline headline Headlin asset
e
For the year ended Income earnings earnings earning value
s
28 February 2011 Rm Rm Rm Rm Rm
Investment companies 1.8 25.4 193.8 219.2 552.9
Services 0.3 25.9 25.9 54.4
Mining, construction and
related services 21.3 31.2 1.0 32.2 393.2
Manufacturing 5.9 5.9 68.9
Education 38.8 3.6 3.6 195.9
Other 1.0 (16.7) (64.7) (81.4) (72.8)
Before funding 63.2 75.3 130.1 205.4 1 192.5
Funding 10.4 (5.5) (5.5) 192.1
Total 73.6 69.8 130.1 199.9 1 384.6
Non-headline 155.1
Attributable 73.6 355.0
Non-
Recurring recurring Net
headline headline Headlin asset
e
For the year ended Income earnings earnings earning value
s
28 February 2010 Rm Rm Rm Rm Rm
Investment companies 10.3 122.1 132.4 275.7
Services 0.1 37.5 37.5 203.0
Mining, construction
and related services 18.4 56.8 (2.5) 54.3 424.0
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
Funding 2.5 (11.2) (11.2) (37.1)
Total 22.7 95.5 121.8 217.3 1 009.8
Non-headline (37.7)
Attributable 22.7 179.6
8. Review by auditor
The company`s external auditor, PricewaterhouseCoopers Inc., has reviewed
the condensed consolidated financial statements. A copy of their
unqualified review opinion is available on request at the company`s
registered office.
Contribution to consolidated headline earnings
for the year ended 28 February 2011
28 Feb 28 Feb 28 Feb
2011 2010 2009
Rm Rm Rm
Recurring headline earnings
Investment companies 25.4 10.3 4.3
Services 25.9 37.5 27.9
Mining, construction and related
services 31.2 56.8 42.8
Manufacturing 5.9 7.3 12.9
Education 3.6 1.4
Other (16.7) (6.6) 3.3
Before funding 75.3 106.7 91.2
Funding (5.5) (11.2) (13.0)
Total recurring headline earnings* 69.8 95.5 78.2
Non-recurring headline earnings/(loss) 130.1 121.8 (96.2)
Marked-to-market movement and
one-off items 233.2 148.0 (76.2)
Less: Recurring (see-through)
earnings (Thembeka) (38.4) (26.2) (20.0)
Performance fee (64.7)
Total headline earnings/(loss) 199.9 217.3 (18.0)
Non-headline items 155.1 (37.7) (19.2)
Attributable earnings/(loss) 355.0 179.6 (37.2)
Statistics
Recurring HEPS (cents) 12.1 19.3 20.0
HEPS (cents) 34.5 43.9 (4.6)
Attributable EPS (cents) 61.4 36.3 (9.5)
* Recurring headline earnings is the sum of Paladin`s effective interest in
that of each of its underlying investments, regardless of its percentage
shareholding. The result is that investments, in which Paladin or an investee
holds less than 20% and is not allowed to equity account in terms of accounting
standards, are included in the calculation of recurring headline earnings.
SOTP valuation 28 Feb 2011 28 Feb 2010 28 Feb 2009
Company Description % Value % Value % Value
hel Rm hel Rm hel Rm
d d d
Investment companies
Thembeka BEE investment 49% 531 49% 272 49% 110
company
Spirit Leveraged buy-outs 24% 73 20% 15
604 287 110
Services
CIC FMCG 50% 213 49% 87
IQuad Outsourcing services 44% 36 43% 24 42% 24
African Life and related
Unity insurance 43% 30 43% 17 54% 9
66 254 120
Mining, construction and
related services
Precrete Mine safety and 22% 195 22% 163 22% 93
support services
Green Square Mining subcontractor 19% 5
Petmin Diversified miner 11% 191 9% 120
Erbacon Construction 27% 60 22% 100 26% 85
Top Fix Construction support 28% 23 28% 48 11% 10
services
474 431 188
Manufacturing
GRW Tank manufacturer 40% 56 40% 49 40% 38
Lesotho
Milling Milling 25% 38 25% 36
Protea Non-ferrous foundry 50% 38 50% 33 50% 39
94 120 113
Education
Curro Private school
education 76% 373 50% 100
373 100 -
Other 59
Total investments 1 611 1 192 590
Performance fee provision (65)
Net cash/(debt) 190 (25) (104)
Total SOTP valuation 1 736 1 167 486
Shares in issue (million) 581 575 396
SOTP valuation per share (cents) 299 203 123
SOTP valuation per share at last
practical date (cents) 293
Overview
Paladin is PSG Group Ltd`s private equity investment company in sectors other
than agriculture, food and beverages. At 28 February 2011, Paladin had 12
investments across the economic spectrum.
Performance
Paladin had a year of mixed fortunes with a strong increase in its SOTP
valuation and market price, whilst recurring headline earnings decreased
significantly. Paladin`s management is mindful of the fact that an increase in
the SOTP value is unattainable in the long run if the earnings performance of
its underlying investments does not improve accordingly.
* Recurring headline earnings decreased by 37.3% to 12.1 cents per share
- Erbacon experienced a challenging year characterised by adverse trading
conditions and management challenges. Paladin however believes in the new
strategic direction that Sean Flanagan has introduced. Sean, formerly an
executive director of Murray & Roberts, was appointed CEO of Erbacon in June
2010.
- GRW implemented a significant cost cutting strategy, and is entering
promising new business lines which should see it return to profitability.
- Top Fix`s earnings and, in particular that of the Scaffolding Division, were
negatively affected by the building recession. The Top Fix board has made
changes to the management team and implemented cost cutting measures to improve
the Scaffolding Division`s performance.
- A substantial portion of the proceeds on the disposal of CIC were
subsequently invested in Curro, which is yielding returns consistent with a
venture that is in a growth phase.
* SOTP valuation increased by 47.3% to R2.99 per share
- The increase in the SOTP value was supported by the profit on the sale of
CIC and the substantial increase in the value of both Curro and Thembeka.
- Much of the negative news affecting the abovementioned companies was already
discounted by the market at the end of the previous financial year. The poor
performance in the current year consequently has had a minimal effect on the
SOTP value.
Corporate action
* We realised an after-tax profit of R208 million when we sold our 50%
investment in CIC to Imperial for R364 million. Having invested R67 million and
received R24 million in dividends, CIC was an extraordinary investment with a
compounded return of 64.8% over the 4-year period.
* Sold our stake in Lesotho Milling for R26 million. We invested R21 million and
received more than R7 million in dividends from this investment.
* Paladin acquired an additional 26% stake in Curro for a total interest of 76%.
Curro is expanding according to plan and, due to the substantial capital
required to fuel growth, the Curro board has decided to list the business and do
a major rights issue shortly thereafter. Paladin intends to follow its rights
which is expected to be in the region of R243 million.
* Paladin also increased its interest in certain of its underlying investments:
- Purchased an additional 10.6 million Petmin shares for R30 million.
- Purchased an additional 17 million Erbacon shares for R23 million.
- Purchased an additional 3.8% share in Spirit Capital for R5 million, and
extended R50 million of debt funding to Spirit Capital to help fund the
acquisition of the Annique and Honey brands. Annique distributes skin care and
beauty products while Honey is a distributor of fashion accessories.
* Subsequent to year-end, Paladin acquired a 45% interest in Energy Partners, a
provider of energy saving solutions. Gerrit (Boel) Pretorius, the former Reunert
CEO, has co-invested with us and serves as the appointed non-executive chairman.
We view this as an exciting entry into the emerging energy sector.
Management changes
With the resignation of the Paladin CEO earlier this year, Piet Mouton has
assumed operational responsibility together with the Paladin management team.
Accordingly Piet Mouton`s status has changed from non-executive director to
executive director. The PSG Exco remains responsible for managing Paladin`s
assets and delivering on the Paladin strategy.
Prospects
Paladin`s investments in the construction and manufacturing sectors in
particular did not escape the aftermath of the economic recession, which had
been partially softened by the positive investment relating to the 2010 FIFA
World Cup. The Paladin board is optimistic about the prospects of the portfolio
which contains a good mix of stable earners and businesses that have been
restructured to extract more value from the current environment and those with
the potential to develop into something really significant.
On behalf of the board
Jannie Mouton Wynand Greeff
Chairman Financial Director
Stellenbosch
13 April 2011
Directors
JF Mouton (Chairman), WL Greeff *, 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: 13/04/2011 15:55:16 Produced by the JSE SENS Department.
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