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Peregrine Holdings Limited -
ended 31 March 2003
PEREGRINE HOLDINGS LIMITED
("Peregrine" or "the group")
Registration number 1994/006026/06
Share code: PGR
ISIN code: ZAE000015152
Audited Group Results for the 12 months ended 31 March 2003
Basis of accounting
The results are prepared in accordance with the South African Statements
of Generally Accepted Accounting Practice. The results are prepared on
the historical cost basis, except as modified by the first time
application of AC 133, which has been applied before its effective date.
Income statements
for the year ended 31 March 2003
2003 2002
R"000 R"000
Revenue 255 649 230 931
Operating expenses (186 255) (100 026)
Profit from operations 69 394 130 905
Net interest received 4 144 4 289
Unrealised loss on fund (151 312) -
investments
Gain on revaluation of
long-term assurance fund 151 312 -
liability
Income from associate (5 542) 1 830
companies
-attributable to normal 3 325 1 830
operations
-share of capital
impairments and (8 867) -
surpluses
Capital impairments and (14 303) -
losses
Amortisation of goodwill (23 482) (8 077)
Profit before taxation 30 211 128 947
Taxation (11 885) (24 437)
Profit after taxation 18 326 104 510
Minority interest (4 915) (4 349)
Attributable earnings 13 411 100 161
Reconciliation between
earnings and headline
earnings :
Attributable earnings 13 411 100 161
Adjustments:
Impairment of investment
in associate, goodwill 14 303 -
and capital assets
Attributable share of
associate"s capital 8 867 -
impairments and
surpluses
Amortisation of goodwill 23 482 8 077
Headline earnings 60 063 108 238
Headline earnings per 52.2
share (cents) 25.8
Earnings per share 48.3
(cents) 5.8
Diluted headline 52.2
earnings per share
(cents) 25.8
Dividend per ordinary - -
share (cents)
Number of shares in 201 357
issue (`000) 236 006
Weighted average number 232 429 207 215
of shares in issue
(`000)
Balance sheets
at 31 March 2003
2003 2002
R"000 R"000
Assets
Non-current assets 989 296 242 456
Property, plant and 9 333 10 169
equipment
Intangible assets 256 279 88 958
Investment in associate 18 679 48 222
companies
Financial investments 20 465 79 675
Long term assurance fund 649 269 -
investments
Loans receivable 18 450 12 695
Deferred taxation 16 821 2 737
Current assets 551 997 464 875
Trading securities 100 135 748
Accounts receivable 75 317 58 670
Amounts receivable in
respect of
stockbroking activities 246 623 195 150
Cash and cash 129 061 75 307
equivalents
Total assets 1 541 293 707 331
Equity and liabilities
Capital and reserves 477 861 371 543
Share capital 245 216
Share premium 87 188 9 995
Accumulated profits 338 223 329 890
Treasury shares (16 400) (34 607)
Non-distributable 37 105 42 346
reserves
Amounts due to vendors 31 500 23 703
Minority interest 5 526 11 585
Non-current liabilities 657 118 7 342
42
Long term assurance fund 649 269 -
Deferred taxation 7 849 7 342
Current liabilities 400 788 316 861
Accounts payable 90 577 119 675
Amounts payable in
respect of
stockbroking activities 252 179 185 316
Interest bearing 44 487 -
borrowings
Taxation 13 545 11 870
Total equity and 1 541 293 707 331
liabilities
Statements of changes in equity
for the year ended 31 March 2003
2003 2002
R"000 R"000
Equity at beginning of 371 543 395 953
the year
Changes in share capital 77 222 (14 200)
and share premium
Proceeds on share issue 77 222 -
- net
Redemption of preference - (14 200)
shares
Changes in accumulated 8 333 78 788
profits
Attributable earnings 13 411 100 161
Treasury shares - (5 078) -
impairment
Transfer to capital - (6)
redemption reserve fund
Dividends paid - (21 367)
Movement in treasury 18 207 (34 607)
shares
Shares utilised / 13 129 (34 607)
(acquired) - net
Impairment 5 078 -
Changes in reserves (5 241) 34 606
Increase in non- 20 39 910
distributable reserves
Decrease in foreign (5 261) -
currency translation
reserve
Transfer to capital - 6
redemption reserve fund
Decrease in deferred - (5 310)
income reserve
Changes in amounts due 7 797 (88 997)
to vendors
Increase/(decrease) in 7 797 (88 997)
amounts due to vendors
Equity at end of the 477 861 371 543
year
Cash flow statements
for the year ended 31 March 2003
2003 2002
R"000 R"000
Cash flows from operating 80 429 99 558
activities
Cash generated from 90 004 138 118
operations
Net interest received 4 144 4 289
Dividends paid - (21 367)
Taxation paid (13 719) (21 482)
Cash flows from investing (119 372) 28 259
activities
Acquisition of property, (4 685) (4 475)
plant and equipment
Development costs (1 000) (3 569)
incurred
Acquisition of subsidiary (136 244) (2 812)
Acquisition of associate - (5 700)
company
Acquisition of (1 739) (56 342)
investments
Increase in loans to (4 136) (9 862)
associate companies
Disposal of subsidiary (3 797) -
Disposal of associate 250 -
Proceeds from sale of 193
property, plant and
equipment 803
Proceeds from sale of 27 217 76 411
investments
Distribution from 3 959 34 415
associate
Cash flows from financing 92 697 (131 421)
activities
Acquisition of treasury (4 689) (72 862)
shares
Proceeds from the issue 77 222 -
of shares
Payments to vendors and (26 582) (31 525)
minorities
Decrease/(increase) in 2 259 (21 735)
loan to employee share
incentive scheme
Increase/(decrease) in 44 487 (5 299)
interest-bearing
borrowings
Net increase/(decrease) 53 754 (3 604)
in cash and cash
equivalents
Cash and cash equivalents 75 307 78 911
at beginning of the year
Cash and cash equivalents 129 061 75 307
at end of the year
Segmental analysis
for the year ended 31 March
Revenue Profit from operations
2003 2002 2003 2002 2003 2002 2003 2002
R"000 R"000 % % R"000 R"000 % %
Wealth and 186 706 113 984 73 50 54 651 64 390 79 49
asset
management
Advisory 29 034 48 762 11 21 13 364 30 440 19 23
Investment 12 987 46 790 5 20 543 32 626 1 25
banking
Peresys 26 922 21 395 11 9 836 3 449 1 3
255 649 230 931 100 100 69 394 130 905 100 100
Introduction
Notwithstanding a substantial decline in earnings, the year under review
can be characterised as one in which the group made good progress in
furthering its strategic aim of becoming a leading player in the areas
of wealth management and non-traditional investment management.
In this regard, private wealth manager Citadel became a wholly owned
subsidiary during the year and a hedge fund incubator and financial
solutions marketing division were initiated in the latter half of the
year. In addition, several non-core businesses were disposed of during
the course of the year and Peregrine Finance has been sold subsequent to
year-end.
Results
As indicated in the group"s interim results, a dilution of the group"s
earnings in the short term was anticipated principally as a result of
the non-recurrence of substantial investment banking profits from
disposals during the course of the previous year. In addition, the
acquisition of Citadel and the greater focus on managing third party
assets, has led to a strategic decision to lower the group"s exposure to
certain activities previously undertaken within the advisory division,
resulting in a substantially reduced contribution from this division in
the year under review.
The group"s profit from operations declined 47% from R130,9 million to
R69,4 million, largely as a result of a decline in investment banking
profit from R32,6 million to R0,5 million, and in the profit from
advisory activities which fell from R30,4 million to R13,4 million over
the comparable period.
Reflecting difficult market conditions and including Citadel as a
subsidiary for only a seven-month period, the profit from wealth and
asset management services declined by 15% from R64,4 million to R54,7
million. If Citadel"s earnings were brought to account for a full year,
this division"s earnings would have reflected R72,7 million on a pro-
forma basis, an increase of 13% over the previous year. Losses in the
start-up hedge-fund incubator and financial solutions operations, as
well as in PeregrineQuant, also served to dampen the earnings of this
division.
Divisional Net Operating Profit
R 000"s 1999 2000 2001 2002 2003
Wealth and asset 45,397 60,590 61,851 64,390 54,651
management
Advisory - 19,423 40,485 30,440 13,364
Investment Banking 6,060 16,721 19,941 32,626 543
Peresys 1,556 2,102 1,776 3,449 836
The table illustrates the level of profitability of the various
divisions within the group over the past five years. The contribution of
the wealth and asset management division has been, by far, the most
significant over the period. The group"s pro-active positioning in the
non-traditional asset management arena is expected, over time, to
meaningfully boost what has proved to be a relatively constant base to
date.
Reflecting a slowdown in activity within the stockbroking community in
particular, Peresys, the group"s financial software development
business, produced earnings of R0,8 million compared to the previous
year"s R3,4 million.
Income from associate companies which contributed R1,8 million the
previous year reflected a loss of R5,5 million for the year under
review. This includes Peregrine"s R10,7 million equity accounted share
of the losses within empowerment initiative, Prosperity Investment
Holdings Limited (Prosperity). A loss on the disposal of investment
banking empowerment initiative, Agio, to its management, as well as the
impairment of Peregrine"s investment in Prosperity, resulted in capital
impairments and losses for the year totaling R14,3 million.
Amortisation of goodwill of R23,5 million brought profit before taxation
down to R30,2 million, with attributable earnings of R13,4 million for
the year.
Headline earnings of R60,1 million were 45% lower than the previous
year"s R108,2 million, with headline earnings per share 51% lower at
25,8 cents from 52,2 cents.
The results for the year ended 31 March 2003 have been audited by Fisher
Hoffman PKF (Jhb) Inc and their unqualified audit report is available
for inspection at the group"s registered office.
Operations
Peregrine targets the specialised areas of wealth management and non-
traditional investment management through several well-defined,
independent businesses within the group.
Citadel, with its focus on private-client wealth management, saw its
asset base fall to R7.5 billion in the period under review. With a large
proportion of Citadel"s assets managed offshore, the dramatic
appreciation of the Rand over the period served to substantially reduce
the company"s assets under management in Rand terms. Citadel"s results
were further adversely affected by the negative equity market conditions
both locally and internationally.
Nevertheless, the business has been built on the basis of long-term
investment horizons with a primary focus on strong client relationships
and as such, continues to maintain a phenomenal client retention rate
and to attract average new inflows exceeding R100 million per month,
despite the difficult environment.
With an incentive fee in place that is linked to each client"s real
returns (after tax and costs), Citadel is highly geared to the upside in
capital markets as well as to any depreciation in the local currency.
Under the current capital market and currency conditions, however, it is
unlikely that Citadel will earn any meaningful incentive fees in the
near term.
PeregrineQuant (PQ) continues to win new mandates across its suite of
quantitatively managed funds. It is fast gaining recognition as a highly
innovative and dominant player in the burgeoning quantitative asset
management industry. Funds under management currently exceed R5 billion
and the client base now includes most of the country"s multi-managers,
several insurers and wealth managers as well as several parastatal
funds. PQ"s suite of funds now also includes a series of quantitative
absolute return funds in the form of "inflation plus" funds.
Further meaningful growth in assets under management is expected during
ensuing financial years, which should result in PQ making a steady
contribution to group profitability.
Peregrine Capital, the group"s fundamental equity absolute return fund
manager, continued to produce excellent returns on a risk-adjusted
basis. Whilst the profitability of the business was slightly diminished
as a result of greater costs incurred during the year under review, the
overall return to the group, including returns on funds invested, showed
a meaningful increase over the previous year.
The business is on the verge of achieving an unparalleled five-year
track record as a South African absolute return fund management company,
having commenced business in July 1998. In that period to date, the
original hedge fund under its management has yet to record a single
negative quarter.
Peregrine Capital, which has kept a cap on funds under management for
the past two years, and currently manages slightly in excess of R500
million, has agreed to accept inflows of approximately R250 million
during the 2004 financial year, including flows from its soon-to-be
launched offshore fund.
Peregrine Securities, which undertakes the group"s stockbroking,
derivative broking, commodity broking and structuring activities,
generated an acceptable level of profitability in an exceptionally
difficult environment, which saw some of the bigger brokers sustaining
losses and several international players selling or closing down their
local operations. Whilst the business made a meaningful contribution to
the division"s bottom line in the period under review, it failed to
match the profitability of the previous period. Taking a long-term view,
the current consolidation and fall-out in the broking industry is viewed
as positive for the market-share and profitability of this specialist
execution business.
In keeping with its aim of becoming a leading player in the provision of
alternative or non-traditional asset management services, Peregrine has
pioneered the concept of a hedge fund incubator; a new business which
was launched under the name Peregrine Incubator Management (Proprietary)
Limited (PINC) during the second half of the year. PINC is mandated to
create and provide infrastructure for the establishment of a suite of
diversified absolute return funds. Two funds are currently trading
within the incubator with several more expected to commence trading
during the course of the 2004 financial year.
Peregrine Financial Solutions was set up during the latter half of the
financial year to formalise the group"s marketing initiative with regard
to its specialised range of investment-related products and services.
The division is expected to pro-actively broaden the group"s client
base, and in so doing, augment the profitability of the group"s other
divisions as well as generate meaningful revenues for itself.
The group"s enhanced focus on investment management and particularly the
managing of third party assets, has led to a strategic decision to lower
the group"s exposure to activities previously undertaken within the
advisory division. During the year, the businesses of asset finance and
treasury solutions were sold to their respective management teams.
Subsequent to year-end, Peregrine disposed of its shareholding in
Peregrine Finance and Peregrine Specialised Finance to a wholly owned
subsidiary of Isle of Man Assurance Limited, an international
counterparty.
The bulk of the group"s investment banking assets were disposed of
during the course of the previous financial year and the proceeds
applied as a primary source of funding for the purchase of Citadel
shares. Several further disposals were made during the course of the
year under review, including the disposal of the group"s stake in SA
Home Loans.
Whilst currently sitting on a relatively small investment-banking
portfolio, it is the groups" intention to continue investing a portion
of its proprietary capital into the alternative investment asset class
of private equity. Areas such as securitisation and asset-based
structuring are envisaged to play a role in an investment banking
capacity going forward.
Peresys suffered a decline in its contribution to group profit from
operations chiefly as a result of the difficult environment experienced
by a large portion of its clientele, namely, the stockbroking community.
Nonetheless, the business continues to develop cutting edge product, to
build a strong brand and is attracting interest from several suitors
interested in acquiring a strategic stake in the business as a result of
Peresys" extensive client base and positioning in the market.
Dividend
No dividend has been declared for the year ended 31 March 2003.
Prospects
Given the current market conditions, the directors deem it imprudent to
forecast earnings for the current year. The directors are, however
confident that the group has attained a sound foundation from which to
assert itself as a leading player in the field of wealth and alternative
investment management. The financial benefits attendant with this
strategic imperative should become evident over time.
By order of the board
Louis Fourie Sean Melnick
Chairman Chief Executive Officer
Sandton
2 June 2003
Directors
L J D Fourie (Chairman)
S A Melnick (Chief Executive Officer)
A P Faure*
P Goetsch
J Hertz
L N Harris*
R Stumpf*
* Non-executive
Transfer Secretaries
Computershare Investor Services Limited
(Registration number 1958/003546/06)
70 Marshall Street
Johannesburg 2001
(PO Box 61051, Marshalltown, 2107)
Secretary and Registered Office
Peregrine Management Services (Pty) Limited
(Registration number 1994/006026/06)
6A Sandown Valley Crescent
Sandown
Sandton, 2196
(PO Box 650361, Benmore, 2010)
Website www.peregrine.co.za
Date: 02/06/2003 03:00:17 PM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
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