| Mon 18 Apr 2005, 15:22 | | Financial Statements For The Period 28 Feb 05 |
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Arch Equity - Abridged Audited Financial Statements For The Period Ended 28
February 2005
ARCH EQUITY LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2004/004019/06)
Share code: ACH ISIN: ZAE000061073
(`Arch Equity` or `the company`)
- BEE OWNERSHIP 53%
- CASH AVAILABLE FOR INVESTMENTS R66m
- GROWTH IN INTRINSIC VALUE OF EQUITY 107%
- INTRINSIC VALUE PER SHARE 240c
- PROPOSED DIVIDEND PER SHARE 4c
Abridged audited financial statements for the period ended 28 February 2005.
GROUP INCOME STATEMENT
for the period ended 28 February 2005 R`000
Net interest income 1,412
Investment income (note 2) 79,956
Gross profit from trading operations 2,910
Operating income 84,278
Other operating expenses (6,170)
Net income from operations 78,108
Financing costs (3,918)
Income from associated companies (note 3) 17,862
Net income before taxation 92,052
Taxation (9,348)
Net income 82,704
Attributable to outside shareholders (32)
Earnings attributable to ordinary 82,672
shareholders
Reconciliation to headline earnings:
Earnings attributable to ordinary 82,672
shareholders
Goodwill amortisation (1)
Non headline items of associated companies 5,050
Headline earnings 87,721
GROUP BALANCE SHEET
as at 28 February 2005 R`000
Fixed assets 246
Investment in associates (note 4) 245,512
Other investments 1
Deferred tax asset 46
Accounts receivable 1,929
Cash and short-term funds 66,295
Total assets 314,029
Share capital and premium 166,512
Retained earnings 82,672
Ordinary shareholders` funds 249,184
Minority interest 348
Total shareholders` funds 249,532
Non-current liabilities 59,353
Current liabilities 5,144
Total liabilities 64,497
Total liabilities and shareholders` funds 314,029
STATEMENTS OF CHANGES IN OWNERS` EQUITY
for the period ended 28 February 2005 R`000
Ordinary shareholders` funds at beginning -
of period
Issue of ordinary shares 166,512
Net income for the period 82,672
Ordinary shareholders` funds at end of 249,184
period
GROUP CASH FLOW STATEMENT
for the period ended 28 February 2005 R`000
Cash retained from operating activities 4,167
Cash utilised in investing activities (152,315)
Cash flow from financing activities 214,443
Proceeds from ordinary shares issued 166,512
Proceeds from preference shares and debt 47,931
Cash at year end 66,295
PER SHARE DATA
for the period ended 28 February 2005
Number of shares (`000):
In issue 143,629
Weighted 82,790
Diluted weighted 83,290
Net asset value per share (cents) 173
Intrinsic value per share (cents) 240
Year end share price (cents) 225
Earnings per share (cents) 100
Headline earnings per share (cents) 106
Proposed dividend per share (cents) 4
RATIO ANALYSIS
for the period ended 28 February 2005 %
Growth in intrinsic value of equity raised 107
Market capitalisation discount to 6
intrinsic value
Return on equity 33
Notes:
for the period ended 28 February 2005 R`000
1. Accounting policies
The accounting policies adopted for the purpose of this
report comply with South African Statements of General
Accepted Accounting Practice.
Arch Equity only started business on 17 May 2004 and
have no comparable figures.
The unqualified audit reports from
PricewaterhouseCoopers Inc. on the annual financial
statements for the period ended 28 February 2005 and the
abridged audited financial statements contained herein
are available for inspection at the registered offices
of the company.
2. Investment income R`000
Fair value gains - PSG Group Ltd 36,729
Fair value gains - Capitec Bank Holdings 39,431
Ltd
Dividends received 3,746
Other 50
79,956
3. Income from associated companies
PSG Group Ltd 8,442
Capitec Bank Holdings Ltd 3,757
Channel Life Ltd 2,206
Clidet (Unitrans Ltd) 3,187
Flamingo Moon Trading (Big Box Containers) 270
17,862
4. Investment in associated companies
PSG Group Ltd 112,954
Capitec Bank Holdings Ltd 110,034
Channel Life Ltd 18,157
Clidet (Unitrans Ltd) 3,195
Flamingo Moon Trading (Big Box Containers) 1,172
245,512
UNAUDITED INTRINSIC VALUE
Interest
as at 28 February 2005 % R`000 Methodology
Total investments 427,900
PSG Group 22.6 170,625 24.4m shares @ R7.00
Capitec Bank Holdings 15.6 167,412 11.2m shares @ R14.90
Unitrans 4.5 3,195 Cost + share of earnings
Channel Life 13.3 18,157 Cost + share of earnings
Big Box Containers 30.0 1,172 Cost + share of earnings
Compress 75.0 1,044 Share of NAV
Cash and short-term funds 66,295 As per balance sheet
Total liabilities 83,058
Long-term liabilities 51,524 As per balance sheet
Derivative financial 2,523 As per balance sheet
instruments
Deferred capital gains 29,011 15% provided on market
tax liability gains
Intrinsic value of Arch 344,842
Equity Group
The foundation is now in place, creating the opportunities for sustainable
growth.
THE KEY TO FUTURE WEALTH CREATION
Arch Equity has made tremendous progress in its inaugural financial year in
laying the foundations for a sustainable and profitable BEE investment
management company.
-The Company was officially launched on 17 May 2004 with a private placement
that attracted R86 million.
-A second private placement aimed exclusively at Black investors attracted an
additional R32 million and a specific issue to PSG Group yielded a further R13
million.
-On 10 December 2004 Arch Equity listed on the JSE`s AltX and managed to raise
R36 million in a third round private placement prior to the listing.
Performance
In total the company raised R167 million as primary equity, and incurred loans
and preference share financing of R48 million. At year end the company had R66
million in cash available to make additional investments. The Intrinsic Value of
Arch Equity, as at 28 February 2005, was R345 million or 240c per share. This
represents an increase of 107% based on the initial value of equity invested by
shareholders during the year.
Arch Equity achieved headline earnings of 106 cents per share. Of these earnings
80% is attributable to fair value gains made on our investments in PSG Group and
Capitec. The latter earnings will be difficult to sustain in future. Arch Equity
is now in a position to equity account these investments (from the relevant
dates at which we gained significant influence in these companies) and we will
continue to do so in years to come.
We remain very positive about our current portfolio of investments. The outlook
on the prevailing economic conditions in South Africa remains positive and the
companies we invested in should continue to do well in the next financial year.
Opportunities
Although we are not sector specific, our bias is towards investing in the
service sector. These businesses are less capital intensive and less volatile
than the resources and manufacturing sectors. We are currently in an advanced
stage of concluding three additional investments and we have, since year end,
also increased our interest in Capitec to 16.6%.
Arch Equity`s BEE credentials, management`s ability for deal sourcing, coupled
with our healthy Balance Sheet, has already introduced a wealth of investment
opportunities. Management is positive that these factors will continue to
enhance Arch Equity`s ability to attract opportunities in the market.
Black Economic Empowerment
The process of BEE continues to offer opportunities. The JSE is currently
trading at high levels and the greatest danger under these conditions is to get
carried away by the current market`s exuberance and to pay too much for shares.
The history of BEE thus far is fraught with examples of unrealistic expectations
on the performance and growth of such investments.
Arch Equity has identified a number of opportunities in unlisted companies that
offer much better value under current market conditions. Very few BEE companies
have the means to make capital contributions in BEE transactions. Arch Equity is
uniquely positioned with a strong balance sheet to negotiate favourable deals.
Black Economic Empowerment is still a work in progress. The draft Codes of Good
Practice and the various sector Charters are currently the subject of much
speculation and debate. One of the critical questions that remains unanswered is
how black people will acquire an unencumbered 25 - 30% of the productive assets
in SA, with an estimated less than 1% of the capital, within the stipulated time
frames to 2014.For the astute BEE company that is capable of using capital
wisely, the years ahead promise significant opportunities for wealth creation.
Conclusion
In conclusion, we wish to caution shareholders to be patient. It takes time to
build a sustainable and robust business. Arch Equity`s management has invested
significant amounts of their own capital in the company, and we remain extremely
prudent in conducting the company`s affairs. Through the continued balance of
prudent investment strategies and unwavering commitment to value creation for
our shareholders, Arch Equity will use its resources to the optimal advantage of
its shareholders.
UNDERLYING INVESTMENTS
PSG Group Limited (22.6%)
At 28 February 2005 PSG Group looks back at an exceptional year during which it
increased base headline earnings by 85% and ROE to 31%. PSG has managed to
improve its rating from trading at a 30-40% discount to NAV to trading at a
premium of 60-80%.Furthermore it managed to raise R200 million through the
placement of perpetual preference shares at favourable rates. All our businesses
are profitable and staffed by dedicated and creative individuals.
Based on sound investment principles and creative thinking, management expects
another profitable year ahead.
JANNIE MOUTON
EXECUTIVE CHAIRMAN
Capitec Bank Limited (15.6%)
Capitec is fomenting a revolution. A revolution is needed to make banking
accessible to all South Africans. Our revolution is based on modern, low-cost
technology, which enables us to offer our clients dramatically lower fees and a
unique service.
The bank has acquired in excess of 350 000 clients to date - no client is ever
required to fill in a form. All processes are low cost, easy, secure and fast.
We offer the lowest bank fees in South Africa and we pay 10% interest per annum
on the daily balances of savings accounts.
Turnover growth of 19% to R2,3 billion in 2005 and an increase in profit margin
to 3% (2,4% in 2004) were the key reasons for attributable earnings growth of
50% to R68m for the year. Headline earnings increased by 46% to R70m and
proposed dividends increased by 50% to 30 cents per share.
RIAAN STASSEN
CEO
Unitrans Limited (4.5% indirect via Clidet No 518 (Pty) Ltd)
Unitrans` financial results for the six months ended 31 December 2004 showed a
growth in revenue of 19%, which resulted in the group reflecting an increase in
headline earnings of 10% to R150 million.Net profit for the period rose by 11%.
This period also brought a change of control by the introduction of Steinhoff as
controlling shareholder. Another exciting development for Unitrans during this
period was the completion of a BEE transaction, whereby Unitrans issued 11.6
million ordinary shares to Clidet for cash at R25.04 per share. Clidet is owned
by Arch Equity Limited (34.9%); Mvelaphanda Capital (Pty) Ltd (34.9%) and an
employee trust for the benefit of Unitrans` employees, at least 80% of whom are
previously disadvantaged individuals.
JO GROVE
CEO
Channel Life Limited (13.3% via Channel Holdco and 17% indirect via PSG Group)
Channel Life is a niche insurance company.28 February 2005 marks the end of yet
another successful year for Channel Life. Headline earnings increased from R19.8
million to R38.9 million for the year. This includes a deferred tax credit of
R9.8 million. Without the deferred tax credit, the earnings grew by 47%.Gross
premium income grew from R822 million in the previous financial year to R1 151
million, an overall increase of 40%.The asset base reached R2.1 billion for the
year - growth of 64%.
Channel Life leads the life industry with its BEE credentials and is the ideal
choice for businesses seeking to build their BEE scorecard. Strongly committed
to South Africa, management believes that Channel Life is well on its way
towards listing in 2007.
RENE OTTO
CEO
Big Box Containers (Pty) Ltd (30%)
Big Box specialises in the sale and leasing of cargo containers in the domestic
market. Pro Forma figures for the year ended February 2005 saw gross profit up
26% and profit before tax up by 28%.Big Box`s lease fleet has grown over the
last year by 22% and its average utilisation of the lease fleet remained
constant at 77%.
Management anticipates a positive growth year with the potential to further
improve Big Box`s market position.
JASPER COETZEE
CEO
Compress Publications Management (Pty) Ltd (75%)
Compress is a publications management company offering a full range of
publishing services.The 2004/5 financial year has been another successful year
for Compress as borne out by year-on-year net profit before tax growth of
273%.The outlook is positive with the company now well-positioned to sustain
projected growth without being distracted from core business activities.
FRANCOIS VAN SCHALKWYK
CEO
PROPOSED DIVIDEND
The directors propose a dividend of 4 cents per share, subject to approval by
shareholders at Arch Equity`s first Annual General Meeting.
To comply with the requirements of STRATE, the following dates are applicable:
Last day to trade cum dividend Friday , 1 July 2005
Trading ex dividend commences Monday, 4 July 2005
Record date Friday, 8 July 2005
Date of payment Monday, 11 July 2005
Share certificates may not be dematerialised or rematerialised between Monday 4
July 2005 and Friday 8 July 2005, both days inclusive.
On behalf of the board
Nomazizi Mtshotshisa Desmond Lockey
Chairperson Chief Executive officer
Directors
Nomazizi Mtshotshisa (Chairperson), Desmond Lockey (CEO)*, Piet Mouton*, Japie
Moropa*, Jannie Mouton (*Executive)
Company Secretary
Tonie Fuchs
Registered Office
Inanda, 6 Dorp Street, Stellenbosch, 7600
PO Box 2292, Stellenbosch, 7601
Transfer Secretaries
Ultra Registrars (Pty) Ltd
Registration Number 2000/007239/07
5th Floor, 11 Diagonal Street, Johannesburg, 2001
Designated advisor
PSG Capital Limited
(Registration number: 2002/017362/06)
