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Venfin - Interim Report For The Six Months Ended 31 December 2004 (unaudited)
Release Date: 07/03/2005 17:00:06 Code(s): VNF
VenFin - Interim report for the six months ended 31 December 2004 (unaudited)
VenFin Limited
Registration number 1948/031037/06
ISIN ZAE000026498
Share Code VNF
(`VenFin`)
Interim report for the six months ended 31 December 2004 (unaudited)
Highlights
Increase in net asset value per share (at valuation) compared with 30 June 2004
+34.8%
Increase in headline earnings per share
+21.7%
Abridged consolidated balance sheet
Unaudited Audited
31 December 30 June
2004 2003 2004
R million R million R million
Assets
Non-current assets
Property, plant and equipment 20 * 26
Intangible assets ** 1 084 565 556
Investments - Associated companies 2 360 5 371 1 555
- Other 1 640 542 2 497
Deferred taxation 10 - 12
5 114 6 478 4 646
Current assets 2 105 1 481 2 548
Cash and cash equivalents 2 023 1 452 2 389
Other current assets 82 29 159
Total assets 7 219 7 959 7 194
Equity and liabilities
Capital and reserves 7 901 8 450 7 669
Treasury shares (862) (518) (636)
Interest of own members 7 039 7 932 7 033
Non-current liabilities 18 - 15
Interest-bearing debt 8 - 7
Deferred taxation 10 - 8
Current liabilities 162 27 146
Total equity and liabilities 7 219 7 959 7 194
* Amount smaller than R500 000
** The increase in intangible assets is mainly due to the goodwill
created on the acquisition of the 25% interest in Alexander Forbes
Limited.
Abridged consolidated income statement
Unaudited Audited
Six months ended Year ended
31 December 30 June
2004 2003 2004
R million R million R million
Revenue 137 80 115
Net interest income 54 63 98
Depreciation (4) * *
Impairment and amortisation of goodwill (45) (71) (300)
Impairment of investments and assets (16) (4) (6)
Other expenses (16) (22) (46)
Capital surplus on the disposal of
long-term investments 23 20 20
Share of after-tax profit of associated
companies 353 146 680
- Profit from operations 391 341 700
- Impairment and amortisation of
goodwill (35) (9) (20)
- Impairment of investments and
assets (1) (185) (4)
- Capital surplus/(loss) on disposal
of long-term investments (2) (1) 4
Profit before taxation 349 132 446
Taxation (14) (11) (14)
Net profit 335 121 432
Reconciliation of headline earnings:
BASIC EARNINGS - net profit 335 121 432
Plus/(minus) - attributable to own
members:
- Impairment and amortisation of
goodwill 80 59 122
- Impairment of investments and assets 12 210 207
- Capital surplus on the disposal of
long-term investments (21) (19) (24)
- Surplus on disposal of property,
plant and equipment * 1 3
Headline earnings 406 372 740
* Amount smaller than R500 000
Earnings per share
Unaudited Audited
Six months ended Year ended
31 December 30 June
2004 2003 2004
Total Total Total
HEADLINE EARNINGS (cents) 91.3 75.0 151.4
DILUTED HEADLINE EARNINGS (cents) 90.9 74.9 151.0
BASIC EARNINGS (cents) 75.4 24.4 88.4
DILUTED BASIC EARNINGS (cents) 75.0 24.4 88.1
Weighted number of shares in issue
(million) 444.5 496.0 488.9
Diluted weighted number of shares in issue
(million) 446.4 496.7 490.1
DIVIDEND (cents) - - 32.5
Abridged consolidated statement of changes in equity
Unaudited Audited
Six months ended Year ended
31 December 30 June
2004 2003 2004
R million R million R million
Opening balance 7 033 8 205 8 205
Net profit for the period 335 121 432
Dividend paid (143) (123) (123)
Exchange rate adjustments (27) (275) (1 026)
Change in reserves of subsidiary
companies and associated companies (27) (5) 354
Net after-tax fair value adjustments
for the period (AC 133) 94 184 224
Realisation of fair value adjustments
of financial instruments - (20) (20)
Net shares in VenFin Limited acquired
by wholly-owned subsidiary and The
VenFin Share Trust (226) (155) (1 013)
Interest of own members 7 039 7 932 7 033
Interest of own members per share
(Rand) R16.04 R16.14 R15.64
Segmental analysis - headline earnings
Unaudited Audited
Six months ended Year ended
31 December 30 June
2004 2003 2004
R million R million R million
Telecommunication 335 240 491
Technology 9 13 33
Media 34 14 25
Financial and risk services 20 57 117
Corporate 8 48 74
406 372 740
Abridged consolidated cash flow statement
Unaudited Audited
Six months ended
31 December
Year ended
30 June
2004 2003 2004
R million R million R million
Operating activities
Net interest received 54 63 98
Dividends received 256 106 341
Dividend paid (143) (123) (123)
Other movements (17) (69) (126)
Taxation paid (14) (47) (55)
Net cash inflow/(outflow) from
operating activities 136 (70) 135
Cash flow from investing activities (483) 108 821
Net increase/(decrease) in cash and
cash equivalents (347) 38 956
Cash and cash equivalents at the
beginning of the period 2 370 1 414 1 414
Cash and cash equivalents at the end
of the period 2 023 1 452 2 370
Cash and cash equivalents - balance
sheet 2 023 1 452 2 389
Bank overdraft - - (19)
Additional information
31 December 30 June
2004 2003 2004
Number of shares in issue
- Ordinary shares of 1 cent
each 447 993 648 486 493 650 447 993 648
- Unlisted B ordinary shares of
10 cents each 35 506 352 35 506 352 35 506 352
Total number of shares in issue 483 500 000 522 000 002 483 500 000
- Shares held in treasury
(ordinary shares of 1 cent
each) (36 221 948) (21 565 620) (25 268 657)
- Shares held by The VenFin
Share Trust (ordinary shares of
1 cent each) (8 369 605) (9 055 817) (8 668 746)
438 908 447 491 378 565 449 562 597
Weighted number of shares in
issue 444 501 740 495 966 247 488 922 237
- In determining the headline earnings and basic earnings per share the
weighted number of shares in issue was taken into account.
- In determining the diluted headline earnings and basic earnings per share
the weighted number of shares in issue was adjusted for the dilutive effect
of the shares offered to participants by the VenFin share scheme. The
number of shares that was added to the weighted number of issued shares to
determine the dilutive effect was 1 927 799 (2003: 747 653).
31 December 30 June
2004 2003 2004
Net asset value per share
- At book value R16.04 R16.14 R15.64
- At market value and directors`
valuation of investments R38.81 R26.11 R28.80
R million R million R million
Listed investments
Associated
- Book value (excluding goodwill) 717 25 53
- Market value 1 303 47 108
Other
- Book value 920 472 496
- Market value 920 472 496
Unlisted investments
Associated*
- Book value (excluding goodwill) 1 643 5 346 1 502
- Directors` valuation 11 918 10 783 7 929
Other*
- Book value 720 70 2 001
- Directors` valuation 941 70 2 038
* These amounts are not comparable
with those of the previous interim
financial period due to the effect of
the consolidation of R&V from 30 June
2004.
Capital commitments 56 8 39
(Including amounts authorised, but
not yet contracted)
Six months ended Year ended
31 December 30 June
2004 2003 2004
R million R million R million
Net interest income
Interest received - unlisted
investments and deposits 60 63 98
Interest paid (6) (*) (*)
54 63 98
Dividends received
Dividends included in profit 11 10 12
Dividends from associated companies 245 98 329
Capital surplus on disposal of long-
term investments
Subsidiary companies:
Capital surplus on the disposal of
- Richemont A units - 20 20
- Other long-term investments 23 - *
Total per income statement 23 20 20
Associated companies after taxation (2) (1) 4
Total - attributable to own members 21 19 24
* Amount smaller than R500 000
Annexure A
Composition of headline earnings
VenFin`s share
Effective % R million
interest at Six months Year
31 December 31 December 30 June
2004 2004 2003 2004
Vodacom 15.0 330 233 480
Psitek 28.2 5 8 12
Dimension Data Bond (1) 100.0 12 12 27
Tracker 32.1 11 6 16
GenuOne 36.8 (4) (3) (6)
Intervid (2) 100.0 (11) - -
Other technology 1 (2) (4)
Sabido (e.tv) 33.0 31 13 22
SAIL (3) 88.0 3 1 2
Alexander Forbes (1)(4) 25.5 20 57 117
Corporate and other (1) 8 47 74
Headline earnings 406 372 740
(1) R&V Holdings Limited (R&V) became a subsidiary on 30 June 2004. The
headline earnings attributable to the underlying investments in R&V have
been regrouped for the comparative periods to achieve comparability with
the current period.
(2) Intervid became a subsidiary on 30 June 2004. Its earnings for the
financial year ended 30 June 2004 was accounted for as an associated
company.
(3) The effective interest in SAIL is a temporary situation. Refer to
commentary on changes to investments.
(4) Alexander Forbes became an associated company during the current period,
whereas previously it was accounted for as an investment in an exchangeable
bond by R&V. Refer to commentary on changes to investments.
Annexure B
Composition of net asset value (R million)
31 December 2004 31 December 2003 30 June 2004
Book Book Book
value Valuations value Valuations value Valuations
Listed (1) 2 255 2 223 511 519 678 624
Alexander
Forbes 1 253 1 235 - - - -
Richemont
Depositary
Receipts/A
units 476 476 405 405 411 411
Dimension
Data 286 286 - - - -
FrontRange 133 133 26 26 62 62
Idion 82 68 14 14 81 79
iTouch 25 25 27 27 23 23
Intervid(4) - 8 72 20
SAIL(4) 39 39 29 29
Unlisted(2) 2 802 12 831 4 171 9 063 4 029 9 999
Vodacom 1 538 10 890 1 534 5 805 1 511 6 990
Alexander
Forbes
Bonds(3) - - 1 322 1 322 1 274 1 274
Dimension
Data Bond(3) 569 790 674 846 629 666
e.tv 345 541 322 525 313 525
Tracker 28 242 17 241 20 242
Psitek 64 91 66 96 69 96
SAIL(4) 98 100
Intervid(4) 70 70
Loans and
other
investments(3 90 107 236 228 213 206
)
Cash (3) 1 982 1 982 3 250 3 250 2 326 2 326
Total 7 039 17 036 7 932 12 832 7 033 12 949
Net asset
value per
share (Rand) 16.04 38.81 16.14 26.11 15.64 28.80
Share price
(Rand) 25.10 21.10 19.88
Discount to
net asset
value 35.3% 19.2% 31.0%
(1) Market value
(2) Directors` valuation
(3) The underlying value of the investment in R&V at 31 December 2003 has been
reallocated to achieve comparability with the current financial period.
(4) SAIL and Intervid were delisted during the current interim period.
Commentary
Accounting policies
The interim results have been prepared in accordance with accounting statement
AC 127 (Interim financial reporting), the Listings Requirements of the JSE
Securities Exchange South Africa (JSE) and the South African Companies Act No.
61 of 1973, as amended.
The accounting policies used in the preparation of the interim financial
statements are consistent with those used in the annual financial statements for
the year ended 30 June 2004. As previously reported, VenFin adopted AC 140
(Business Combinations) with effect from 1 April 2004. In terms of the
provisions of this accounting statement goodwill arising from a business
combination for which the agreement date is on or after 31 March 2004, is not
amortised but carried at cost less accumulated impairment losses.
As from 1 July 2004 all goodwill that originated prior to 1 April 2004, is also
treated in accordance with AC 140.
Prior year adjustment
Consolidation of The VenFin Share Trust (the `trust`)
As recommended by the JSE, VenFin consolidated the trust on 30 June 2004.
Comparative figures for the six months ended 31 December 2003 have been restated
accordingly and the 8 369 605 (31 December 2003: 9 055 817) ordinary shares held
in the trust for participants are accounted for as if they were treasury shares
and are also deducted from the issued number of shares in determining the
weighted number of shares. The cost price of the shares has been deducted from
equity.
Restatement of comparative figures as a result of above-mentioned prior year
adjustment:
31 December 2003
Balance sheet R million
Decrease in reserves (151)
Decrease in investments - other (151)
Income statement
The effect of the prior year adjustment on the income statement is not material,
therefore the comparative income statement has not been restated.
Six months ended
Earnings per share 31 December 2003
Net profit as previously reported (R million) 121
Headline earnings as previously reported (R million) 372
Weighted number of shares in issue as previously
reported 503 714 598
Restated weighted number of shares in issue 495 966 247
Basic earnings per share as previously reported
(cents) 24.0
Headline earnings per share as previously reported
(cents) 73.9
Restated basic earnings per share (cents) 24.4
Restated headline earnings per share (cents) 75.0
Financial review
The headline earnings for the six months to 31 December 2004 increased by 9.1%
from R372 million to R406 million.
The headline earnings per share for the six months to 31 December 2004, however,
increased by 21.7% from an adjusted 75.0 cents to 91.3 cents, reflecting the
full effect of the shares repurchased during the second half of the previous
financial year.
The increase in headline earnings is largely attributable to:
* A 41.6% increase in equity accounted earnings from Vodacom, from R233
million to R330 million, due to steady growth in Vodacom`s interim earnings
on the back of a higher subscriber base.
* The increased contribution of Sabido (Pty) Limited (e.tv) to VenFin`s
headline earnings, from R13 million for the six months to 31 December 2003
to R31 million for the six months to 31 December 2004.
Alexander Forbes Limited (Alexander Forbes)
Alexander Forbes effectively became an associated company at the beginning of
September 2004 when VenFin acquired 25% of their issued shares. (Refer to
`changes to investments` below)
VenFin has accounted this investment according to the equity method for one
month, from 1 September to 30 September 2004, which date coincides with the end
of the interim period of Alexander Forbes. Alexander Forbes is a listed company,
and in order to comply with the JSE Listings Requirements on price sensitive
information, VenFin can only account for financial information disclosed by
Alexander Forbes which is also available to the general public, thus the
decision to equity account to 30 September 2004.
The attributable earnings from Alexander Forbes for the reporting period thus
consist of interest earned on the Bonds for two months to 31 August 2004 and
equity accounted earnings from 1 September to 30 September 2004. This has
negatively affected the level of increase in headline earnings for the six
months to 31 December 2004. Therefore the contribution of the investment in
Alexander Forbes to VenFin`s headline earnings per share is not comparable with
the six-month period ended 31 December 2003.
Looking forward to 30 June 2005, VenFin will account for its 25% interest in
Alexander Forbes according to the equity method from 1 September 2004 to 31
March 2005, the financial year-end of Alexander Forbes. For subsequent years
VenFin will equity account its interest in Alexander Forbes over the period 1
April to 31 March of every year. VenFin`s interim results will therefore include
the Alexander Forbes results for the period from 1 April to 30 September.
On the basis that the Alexander Forbes transaction had taken place on 1 April
2004 and not on 6 September 2004, VenFin would have equity accounted its 25%
interest in Alexander Forbes for the six months from 1 April to 30 September
2004 compared to accounting for interest on the bond for one month and equity
accounting the 25% interest for one month. This basis of accounting would be
more comparable with the results of the corresponding six months ended 31
December 2003.
On this pro forma basis, Alexander Forbes`s contribution to VenFin`s headline
earnings for the six months to 31 December 2004 would have amounted to R81
million instead of the R20 million which was actually included. Based on this
pro forma formula, VenFin`s headline earnings per share would have been 105.1
cents - an increase of 40.1% when compared with earnings for the six months
ended 31 December 2003 of 75.0 cents per share.
Net asset value
The net asset value per share, at market value of listed investments and
directors` valuation of unlisted investments, at 31 December 2004 amounted to
R38.81 compared to R28.80 per share at 30 June 2004. This represents an increase
of 34.8%.
The following factors, or a combination of them, were taken into account in
determining the directors` valuations of the unlisted investments:
* Market value and earnings yield of similar listed shares, discounted for
limited tradeability of the unlisted shares
* Growth potential and risk factors
* Underlying net asset value
* Profit history
* Cash flow projections
Impairment of investments and goodwill
Provision for impairment of investments and goodwill amounting to R61 million
has been made, of which the most significant are the following:
* An impairment provision amounting to R14 million has been made against the
goodwill created on the investment in Intervid Limited to reflect the risks
associated with this investment.
* An impairment provision amounting to R36 million has been made against the
carrying value of the investment in GenuOne Incorporated.
Exchange rate differences
Net negative exchange rate differences arising on the translation of the value
of foreign entities to SA rand at 31 December 2004 amounted to R27 million
(2003: R275 million) and were debited directly to reserves.
Changes to investments
The most significant changes to VenFin`s investment portfolio for the six months
ended 31 December 2004 were:
- GBP100 million Alexander Forbes Exchangeable Bonds (the Bonds)
- During the period under review, VenFin sold the Bonds to Alexander Forbes
Limited (Alexander Forbes) for a cash payment of R1 159.5 million and
GBP12.5 million. The R1 159.5 million was used to subscribe for 114.8
million Alexander Forbes shares.
A further 1.1 million Alexander Forbes shares were acquired in the open market
for R12 million during September 2004. At 31 December 2004, VenFin`s effective
interest in Alexander Forbes was 25.5%. The investment in Alexander Forbes is
accounted for as an associated company.
Repurchase of VenFin shares
VenFin`s wholly-owned subsidiary, VenFin Securities (Pty) Limited, acquired a
further 11.2 million VenFin ordinary shares at an average price of R21.11 per
share for R236 million. At 31 December 2004, the number of shares in treasury
was 36.2 million, or 8.1% of the issued ordinary shares of 1 cent each.
Since the repurchase programme started in the 2002 financial year, a total of
83.8 million ordinary shares (18.7% of the current issued ordinary shares of 1
cent each) were acquired at an average price of R19.23 per share.
Intervid Limited (Intervid)
VenFin acquired, through a scheme of arrangement in terms of section 311 of the
Companies Act, 1973 (Act 61 of 1973), as amended, all the Intervid shares it did
not already own for a cash consideration of R9 million and 99 458 VenFin shares.
Intervid became a wholly-owned subsidiary and was delisted on 24 August 2004.
SAIL Group Limited (SAIL)
As previously reported, VenFin, as a member of a consortium, made an offer for
the shares held by the minority shareholders of SAIL. This transaction was
subsequently approved by the competition authorities.
On 31 December 2004, this transaction was partly executed, whereby VenFin, on
behalf of the consortium, acquired 172.9 million SAIL shares for a total
consideration of R71 million. The transaction is in the process of being
finalised. Following this transaction, VenFin`s effective interest in SAIL will
be 36.5%.
FrontRange Limited (FrontRange)
VenFin invested a further R54 million in FrontRange. At 31 December 2004,
VenFin`s effective interest in FrontRange was 17.9%.
Dimension Data Holdings plc (Didata)
RFS Finance Limited, a wholly-owned offshore subsidiary of VenFin, acquired 69.8
million Didata shares for a consideration of GBP24.3 million. At 31 December
2004, these shares represented a 5.2% interest in Didata.
Milestone China Opportunities Fund I L.P. (Milestone China)
VenFin invested a further $2 million in Milestone China. The total investment to
date is $2.5 million, with a further $2.5 million committed.
Cueincident (Pty) Limited (Cueincident)
VenFin invested R12 million in Cueincident. Cueincident designs, installs,
maintains and operates electronic facilities management systems, utilising
surveillance technology. Customers include local government, state-owned
enterprises and large corporates. At 31 December 2004, VenFin`s interest in
Cueincident was 12.4%.
Inala Technology Investments (Pty) Limited (Inala)
VenFin disposed of its 33.5% interest in Inala for a consideration of R5
million. A capital surplus of R1 million was realised.
Psitek (Pty) Limited (Psitek)
VenFin sold 3.8% of its interest in Psitek to the Psitek share trust for R11
million. A capital surplus of R3 million was realised. At 31 December 2004,
VenFin`s interest in Psitek was 28.2%.
Since 31 December 2004
Didata
VenFin acquired a further 24.2 million shares in Didata for GBP9.4 million.
VenFin`s investment of 94.0 million shares represents 7.0% of Didata`s issued
shares.
Assuming the conversion of the Didata Bond into equity, VenFin`s interest in the
enlarged issued share capital of Didata would be 18.4%.
GEMS Oriental and General Fund II (GEMS)
During February 2005, VenFin invested a further $1.9 million in GEMS. The total
investment to date amounts to $9.5 million.
Dividends
In terms of VenFin`s dividend policy, which inter alia states that a dividend
will be paid on an annual basis, no dividend is declared for the six months
ended 31 December 2004.
Signed on behalf of the Board of Directors.
Johann Rupert Josua Malherbe
Chairman Chief Executive Officer
Stellenbosch
7 March 2005
Directors and administration
Change to functions of directors
Mr J Malherbe, the Chief Executive Officer of VenFin, is no longer acting as the
Deputy Chairman. With effect from 2 February 2005, Mr JE Newbury, an independent
non-executive director, fulfils this role.
Non-executive directors
Johann Rupert (Chairman), John Newbury (Deputy Chairman), Piet Beyers, Mike
Bosman, Liesbeth Botha, Jan Dreyer, GT Ferreira, Anthony Fletcher, Elias Links
Executive directors
Josua Malherbe (Chief Executive Officer), Jan Durand
Secretary
Mariza Lubbe
Listing
JSE Securities Exchange South Africa
Sector: Financial - Investment Companies
American depositary receipt (ADR) program
Cusip number 922672100 ADR to ordinary share 1:1
Depositary
The Bank of New York, 101 Barclay Street, New York NY 10286
Business address
25 Quantum Street, Techno Park, Stellenbosch 7600
PO Box 456, Stellenbosch 7599
Registered office
Carpe Diem Office Park
Techno Park, Stellenbosch 7600
Transfer secretaries
Computershare Investor Services 2004 (Proprietary) Limited, 70 Marshall Street,
Johannesburg 2001 (PO Box 61051, Marshalltown 2107)
Auditors
PricewaterhouseCoopers Inc.
Stellenbosch
Sponsor
Rand Merchant Bank (A division of FirstRand Bank Limited)
Corporate Finance
www.venfin.com
7 March 2005
