| Wed 1 Jun 2005, 16:37 | | Results For The Year Ended 31 March 2005 |
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Peregrine - Audited Group Results For The Year Ended 31 March 2005
PEREGRINE HOLDINGS LIMITED
(Registration number 1994/006026/06)
Share code: PGR ISIN code: ZAE000015152
(`Peregrine` or `the company`)
AUDITED GROUP RESULTS FOR THE YEAR ENDED 31 MARCH 2005
HIGHLIGHTS
* Group assets under management R17,99 billion at year end
* Profit from wealth and asset management up 73% to R110,7 million
* Earnings per share up 138% to 49,1 cents
* Headline earnings per share up 45% to 48,2 cents
* Dividend increased by 140% to 12,0 cents per share
INCOME STATEMENT
% change 2005 2004
R`000 R`000
Revenue 7 372,255 347,496
Operating expenses (3) (234,935) (241,841)
Profit from operations 30 137,320 105,655
Net interest received/(paid) 13,938 (1,629)
Interest received 28,020 18,996
Interest paid (14,082) (20,625)
Realised and unrealised net changes in fair
value of long term assurance fund liability 113,045 76,218
Transfer to long term assurance
fund liability (113,045) (76,218)
Income from associate companies 2,375 3,474
Amortisation of goodwill (1) - (25,305)
Profit from ordinary activities 87 153,633 82,195
Capital surplus on sale of subsidiary/
business of subsidiary 5,030 3,096
Capital impairments (3,300) (3,750)
Profit before taxation 91 155,363 81,541
Taxation (46,447) (29,219)
Profit after taxation 108 108,916 52,322
Minority interest (13,291) (9,821)
Attributable earnings 125 95,625 42,501
Reconciliation between earnings and headline earnings:
Attributable earnings 95,625 42,501
Adjustments:
Capital impairment 3,300 3,750
Amortisation of goodwill - 25,305
Capital surplus on sale of subsidiary/
business of subsidiary (5,030) (3,096)
Headline earnings 37 93,895 68,460
Reconciliation of weighted average issued ordinary
shares and diluted weighted average issued
shares:
Weighted average issued ordinary shares 194,903 206,307
Dilutive effect of shares vesting at a price below
the average share price for the period, as required 7,629 3,340
by AC104
202,532 209,647
Headline earnings per share (cents) 45 48.2 33.2
Earnings per share (cents) 138 49.1 20.6
Diluted headline earnings per share (cents) 42 46.4 32.7
Diluted earnings per share (cents) 133 47.2 20.3
Dividend paid per ordinary share (cents) 5.0 -
Dividend per ordinary share declared 12.0 5.0
after 31 March
Number of ordinary shares in issue (`000) 229,985 245,116
Treasury shares held (`000) 39,259 42,023
Weighted average number of ordinary
shares in issue (`000) 194,903 206,307
Diluted weighted average number of ordinary
shares in issue (`000) 202,532 209,647
1 - Refer to note on change in accounting policy
BALANCE SHEET
2005 2004
R`000 R`000
Assets
Non-current assets 1,619,444 1,252,336
Property, plant and equipment 84,332 5,859
Intangible assets 186,915 187,562
Investment in associate companies 17,117 17,265
Financial investments 28,662 38,025
Long term assurance fund investments 1,259,121 975,222
Loans and receivables 29,122 6,069
Deferred taxation 14,175 22,334
Current assets 1,359,686 645,129
Trading securities 190,062 104,879
Trade and other receivables 53,292 53,568
Amounts receivable in respect of
stockbroking activities 933,392 365,397
Cash and cash equivalents 182,940 121,285
Total assets 2,979,130 1,897,465
Equity and liabilities
Capital and reserves 504,506 416,586
Share capital 230 245
Share premium 52,437 87,188
Treasury shares (83,693) (90,476)
Accumulated profits 467,471 385,221
Non-distributable reserves 32,914 34,408
Obligation to issue shares 35,147 -
Minority interest 6,573 4,849
Non - current liabilities 1,349,043 991,335
Interest bearing borrowings 73,061 -
Long term assurance fund 1,259,121 975,222
Deferred taxation 16,861 16,113
Current liabilities 1,119,008 484,695
Trade and other payables 91,806 84,039
Amounts payable in respect of stockbroking activities 997,293 387,221
Current portion of long term borrowing 982 -
Taxation payable 28,927 13,435
Total equity and liabilities 2,979,130 1,897,465
Net asset value per share(cents) 264.5 205.1
CASH FLOW STATEMENTS
2005 2004
R`000 R`000
Cash flow from operating activities 90,799 105,958
Cash generated from operating activities 128,711 112,851
Working capital changes (19,300) 22,592
Net interest received/(paid) 12,809 (1,629)
Dividends paid (9,804) -
Taxation paid (21,617) (27,856)
Cash flow from investing activities 9,615 (9,158)
Acquisition of property, plant and equipment (4,246) (3,935)
Acquisition of associate companies - (64)
Acquisition of investments (5,555) (15,044)
Net decrease in loans to associate companies 1,370 4,113
Disposal of subsidiary/business of subsidiary
and of subsidiaries 5,030 4,200
Proceeds from sale of property, plant and equipment 135 433
Proceeds from sale of financial investments 8,254 300
Repayment of loans included as part
of financial investments 4,627 -
Distribution from associate - 839
Cash flow from financing activities (38,759) (104,808)
Acquisition of treasury shares - (20,796)
Share repurchases (32,541) -
Proceeds on vesting of shares held by staff share trust 987 27
Share incentive scheme payments received 4,246 -
Payments to minorities /and vendors (11,567) (39,552)
Decrease in loan receivable 200 -
Decrease in interest bearing borrowings (84) (44,487)
Net increase/(decrease) in cash and cash equivalents 61,655 (8,008)
Cash and cash equivalents at beginning of the year 121,285 129,293
Cash and cash equivalents at end of the year 182,940 121,285
STATEMENTS OF CHANGES IN EQUITY
Share Non-
capital and Accu- distri-
share mulated Treasury butable
premium profits shares reserves
2005 R`000 R`000 R`000 R`000
Balance at 31 March 2004 87,433 385,221 (90,476) 34,408
Share repurchases (32,541)
Treasury shares cancelled (2,225) 292 1,933
Write-down in value of
treasury shares on vesting (3,863) 4,850
Currency translation differences (925)
Revaluation of available
for sale assets (569)
Obligation to issue shares
Attributable earnings 95,625
Dividends paid (9,804)
Balance as at 31 March 2005 52,667 467,471 (83,693) 32,914
Total
Amounts Obligation capital
due to to issue and
vendors shares reserves
2005 R`000 R`000 R`000
Balance at 31 March 2004 - - 416,586
Share repurchases (32,541)
Treasury shares cancelled -
Write-down in value of treasury
shares on vesting 987
Currency translation differences (925)
Revaluation of available for sale assets (569)
Obligation to issue shares 35,147 35,147
Attributable earnings 95,625
Dividends paid (9,804)
Balance as at 31 March 2005 - 35,147 504,506
Share Non-
capital and Accum- distri-
share ulated Treasury butable
premium profits shares reserves
2004 R`000 R`000 R`000 R`000
Balance as at 31 March 2003 87,433 344,780 (69,921) 37,105
Treasury shares acquired (24,356)
Write-down in value of
treasury shares on vesting (3,774) 3,801
Currency translation differences (6,738)
Revaluation of available
for sale assets 6,471
Attributable earnings 42,501
Release from non-distributable
reserve on disposal of business
of subsidiary 1,714 (1,714)
Reversal of non-distributable
reserve raised in respect of
trademark sold during the year (716)
Vendor liabilities settled
Balance as at 31 March 2004 87,433 385,221 (90,476) 34,408
Total
Amounts Obligation capital
due to to issue and
vendors shares reserves
2004 R`000 R`000 R`000
Balance as at 31 March 2003 31,500 430,897
Treasury shares acquired (24,356)
Write-down in value of treasury
shares on vesting 27
Currency translation differences (6,738)
Revaluation of available for sale assets 6,471
Attributable earnings 42,501
Release from non distributable
reserve on disposal of
business of subsidiary -
Reversal of non distributable
reserve raised in respect
of trademark sold during the year (716)
Vendor liabilities settled (31,500) (31,500)
Balance as at 31 March 2004 - - 416,586
SEGMENTAL ANALYSIS
Revenue
2005 2004
R`000 R`000 % change
Wealth and asset management 257,760 197,797 30
Wealth management 143,026 128,974 11
Asset management 114,734 68,823 67
Structuring, broking and distribution 67,779 71,367 (5)
Group investments (net of group costs) 46,716 66,465 (30)
Peresys - 11,867 -
372,255 347,496 7
Goodwill amortisation - -
372,255 347,496
Profit from ordinary activities
2005 2004
R`000 R`000 % change
Wealth and asset management 110,725 64,179 73
Wealth management 42,415 31,258 36
Asset management 68,310 32,921 107
Structuring, broking and distribution 24,790 25,189 (2)
Group investments (net of group costs) 18,118 17,980 1
Peresys - 152 -
153,633 107,500 43
Goodwill amortisation - (25,305)
153,633 82,195
Notes
1. Accounting policies
The results are prepared in accordance with South African Statements of
Generally Accepted Accounting Practice and the Companies Act in South Africa.
The accounting policies applied in the preparation of the results are consistent
with those of the previous financial year, except as noted below.
2. Change in accounting policy
With effect from 1 April 2004, the group changed its accounting policy with
respect to the treatment of goodwill in order to comply with AC140- Business
Combinations. Goodwill is no longer amortised, but is carried at cost less
cumulative impairment charges. Goodwill is reviewed for impairment at least
annually in terms of AC128 - Impairment of Assets.
AUDIT REPORT: The results for the year ended 31 March 2005 have been audited by
PKF (Jhb) Inc. and their unqualified audit report is available for inspection at
the group`s registered office.
INTRODUCTION
The Peregrine group has enjoyed an outstanding year in terms of a strong
increase in earnings as well as the continued establishment of the group`s
positioning and reputation in the South African wealth and asset management
industry. Profit from ordinary activities exceeded R150 million for the first
time in the group`s history whilst profit from the core wealth and asset
management businesses exceeded R100 million for the first time.
RESULTS
Revenue of R372,3 million was 7,1% higher than the previous year or 12,2% higher
if compared to turnover levels of the businesses remaining in the group.
Operating expenses decreased by 2,9% to R234,9 million, largely a result of an
active focus on cost control. The net result was a 30% increase in profit from
operations to R137,3 million.
Strong cash generation resulted in net interest earned of R13,9 million for the
year, compared to interest paid of R1,6 million the previous year. The positive
swing to interest received, together with no amortisation of goodwill as a
result of a required change in accounting policy, helped boost profit from
ordinary activities by 86,9% to R153,6 million. Without the goodwill benefit,
earnings from ordinary activities would have increased by 42,9%.
Notwithstanding a full rate of taxation and an increase in minority interest,
attributable earnings increased by 125% to R95,6 million. With a lower number of
shares in issue due to on-going share re-purchases, earnings per share increased
by 138,2% to 49,1 cents per share. Headline earnings increased by 37,2% to R93,9
million, with headline earnings per share up 45,1% to 48,2 cents per share.
OPERATING HIGHLIGHTS
The businesses within the wealth and asset management division delivered
markedly improved performances across the board, resulting in a 73% increase in
the division`s profit from ordinary activities to R110,7 million. Comparisons
with the previous year have been made at the profit from ordinary activities
level which includes interest earned by each division and income from
associates.
The group`s wealth management arm, Citadel, produced profit from ordinary
activities of R42,4 million, a 36% increase on the previous year. With only a
minor contribution from performance fees,this profit effectively represents an
annuity level of earnings off Citadel`s average asset base of R8,5 billion for
the year. Assets under management were R9,1 billion by year end. Whilst
performance of the underlying individual asset classes was satisfactory for the
year under review, the strength of the rand continued to put a drag on
investment performance. Through its performance fee formula, Citadel maintains a
strong gearing towards investment performance and to any weakening of the local
currency.
The business also retains a high level of operational gearing and has the
ability to substantially increase its assets under management without incurring
meaningful additional costs. In this regard, average new inflows exceeded R100
million per month for the year and the client retention remained highly
satisfactorily. Cambium, a joint-venture with Sanlam Life, was launched in
January. Assets have started migrating into the joint venture with significant
inflows expected over time.
The asset management businesses collectively increased profit from ordinary
activities by 107% to R68,3 million. This excludes any proprietary return on
group capital, which is included in the return from group investments.
PeregrineQuant (PQ) increased assets under management by 37% to R7,1 billion
during the course of the year and has now reached the critical mass required to
attain ongoing profitability. The maiden profit achieved is a pleasing
turnaround from the losses sustained over the same period last year, resulting
in a swing of almost R10 million to group profitability.
PQ recently announced the sale of a 20% equity stake to an empowerment
consortium comprising Vunani Capital and Ilitye Investments. The input of the
new shareholders, together with PQ`s growing reputation as one of the country`s
leading quantitative asset management firms, is expected to continue fuelling
the business` steady growth in assets under management.
Peregrine Capital, the group`s fundamental equity hedge-fund manager, increased
profit from ordinary activities by more than 50% for the year under review.
Assets under management grew to R1,6 billion from R965 million at the beginning
of the financial year. Returns were consistently good across the suite of funds
with substantial performance fees being earned. The funds remain closed to new
business.
During the latter half of the financial year, management`s share of the
profitability of the business was increased, effectively creating a partnership
between management and Peregrine. The board believes that this restructuring has
significantly enhanced the sustainability of the single strategy hedge-fund
business model within the Peregrine group. Effective 1 January 2005, a
modification was made to the fee formula applicable to the local funds, with the
hurdle rate being reduced to zero, thus bringing the hurdle rate on all funds
into line with the international fund managed by Peregrine Capital. This
modification is expected to have an ongoing positive effect on earnings.
Pacific Dunes, which won the award for the best performing South African fixed-
income fund over the past year in the Old Mutual Symmetry Multi-manager Hedge
Fund Awards, reached profitability during the second half of the year. Several
other single strategy funds are in the process of being rolled out. The group
continues to see this as a highly viable growth area.
With the group`s reputation as a pioneering leader in the South African hedge
fund arena, its wealth of experience in single strategy hedge funds and five
years of experience in international hedge fund-of-funds (through Citadel),
various opportunities in the local fund-of-hedge-fund market are now being
explored.
The structuring, broking and distribution activities housed within Peregrine
Securities generated R24,8 million profit from ordinary activities, compared to
R25,2 million in the previous year. The second half performance was particularly
pleasing with earnings of R16,4 million for the six months.
The division has substantially increased the scope of its activities and
offerings over the past eighteen months. Peregrine Equities has become a
substantial player in the hedge fund market though the positioning of its prime-
broking and CFD (contract for difference) products. This area, in particular, is
being targeted to show strong growth as a major contributor to the division`s
profitability.
The division`s recent focus on bolstering its derivative and quantitative
research capability was vindicated post year end by the Financial Mail Analysts
Survey, where the division`s top rated analyst won both the derivative and
quantitative research categories and Peregrine Securities was rated the number
one derivative research house in the country for the first time in its history.
Group investments (net of group costs) returned R18,1 million for the year, with
a reduction in group costs offset by a lower return on group capital.
Contribution to profit from ordinary activities was virtually unchanged from the
R18,0 million net return on group investments in the previous year.
PROSPECTS
The Peregrine group`s focus on wealth management through Citadel and its strong
positioning at several levels in the South African asset management arena,
particularly in the area of hedge funds, are expected to be significant drivers
of future profitability.
Peregrine`s R18 billion asset base and its broking related businesses now
provide the group with a relatively predictable level of ongoing annuity cash
flow. In addition to this, a substantial portion of the assets under management
are subject to performance fee participations. As such, Peregrine`s financial
performance, on an annual basis, will continue to be closely linked to the
investment performance of its underlying businesses.
The directors are confident that the business model of continuing to invest in
businesses which build Peregrine`s annuity level of earnings whilst retaining
significant upside gearing to positive investment performance, will yield
substantial value to shareholders over the medium to longer term.
DIVIDEND
Given the group`s strong cash flow generation and notwithstanding share
repurchases totalling R32,5 million during the course of the year, the directors
have resolved to declare a dividend of 12,0 cents per share, an increase of 140%
on the previous year.
In compliance with the requirements of STRATE, the following dates are
applicable to the dividend payment:
Last date to trade cum dividend Friday, 15 July 2005
Trading ex dividend commences Monday, 18 July 2005
Record date Friday, 22 July 2005
Payment date Monday, 25 July 2005
Shares may not be dematerialised or rematerialised between Monday, 18 July 2005
and Friday, 22 July 2005, both dates inclusive.
Future dividend cover is anticipated to be a maximum of four times and possibly
lower, depending on the level of share repurchase activity.
By order of the board
Louis Fourie Sean Melnick
Chairman Chief Executive Officer
Sandton
1 June 2005
www.peregrine.co.za
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