| Mon 10 Oct 2005, 14:00 | | Arch Equity - Interim Results For The Six Months E |
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Arch Equity - Interim Results For The Six Months Ended 31 August 2005 And
Cautionary Announcement
Arch Equity Limited
Incorporated in the Republic of South Africa
Registration number 2004/004019/06
JSE share code: ACH ISIN: ZAE000061073
("Arch Equity")
Intrinsic value up 126% Adjusted headline eps up 56%
Unaudited interim results for the six months ended 31 August 2005 and cautionary
announcement
GROUP INCOME STATEMENT
31 Aug 31 Aug 28 Feb
2005 2004 2005
R"000 R"000 R"000
Net interest income 1 137 59 1 412
Management fees 30 - -
Investment income (note 2) 1 036 33 727 79 956
Gross profit from trading operations 827 1 067 2 910
Operating income 3 030 34 853 84 278
Expenses (4 734) (1 465) (6 294)
Net income from operations (1 704) 33 388 77 984
Financing costs (3 350) (1 189) (3 918)
Income from associated companies 30 113 613 17 206
(note 3)
Net income before taxation 25 059 32 812 91 272
Taxation (801) (3 407) (9 348)
Net income of the group 24 258 29 405 81 924
Attributable to:
Ordinary shareholders (note 5) 24 482 29 377 81 892
Outside shareholders (224) 28 32
24 258 29 405 81 924
Headline earnings reconciliation:
Attributable to ordinary shareholders 24 482 29 377 81 892
Non-headline items 4 124 - (44)
Headline earnings 28 606 29 377 81 848
Adjusted headline earnings:
Headline earnings 28 606 29 377 81 848
Fair value gains a - (29 037) (66 236)
Equity accounted earnings b - 7 252 13 571
Dividends received c - (1 308) (3 746)
Adjusted headline earnings 28 606 6 284 25 437
Notes:
a) Fair value gains on PSG and Capitec.
b) Equity accounted earnings of PSG and Capitec for the period in which Arch
Equity fair value accounted these investments.
c) Dividends received from PSG and Capitec.
GROUP BALANCE SHEET
31 Aug 31 Aug 28 Feb
2005 2004 2005
R"000 R"000 R"000
Fixed assets 272 200 246
Investment in associates (note 4) 292 486 17 790 244 856
Other investments 1 409 139 505 1
Deferred tax asset - - 46
Accounts receivable 90 1 921 1 929
Cash and short-term funds 57 813 691 66 295
Total assets 352 070 160 107 313 373
Share capital and premium 166 311 85 107 166 512
Retained earnings 100 633 29 377 81 892
Ordinary shareholders" funds 266 944 114 484 248 404
Outside shareholders" funds 124 343 348
Total shareholders" funds 267 068 114 827 248 752
Long term liabilities 63 947 38 151 50 147
Deferred tax liability 9 553 3 219 9 206
Current liabilities 8 867 1 494 2 745
Derivative financial instrument 2 635 2 416 2 523
Total liabilities 85 002 45 280 64 621
Total liabilities and shareholders" 352 070 160 107 313 373
funds
GROUP CASH FLOW STATEMENT
31 Aug 31 Aug 28 Feb
2005 2004 2005
R"000 R"000 R"000
Cash retained from operating 6 289 3 007 4 167
activities
Cash utilised in investing activities (32 104) (125 037) (152 315)
Cash flow from financing activities 17 333 122 721 214 443
Ordinary shares (226) 85 107 166 512
(repurchased)/issued
Preference shares issued and debt 17 559 37 614 47 931
raised
Cash utilised during period (8 482) 691 66 295
Cash at beginning of period 66 295 - -
Cash at end of period 57 813 691 66 295
STATEMENT OF CHANGES IN SHAREHOLDERS" FUNDS
31 Aug 31 Aug 28 Feb
2005 2004 2005
R"000 R"000 R"000
Ordinary shareholders" funds at
beginning of period 248 404 - -
Shares issued and costs 25 85 107 166 512
Repurchase of shares (226) - -
Dividends to shareholders (5 741) - -
Attributable earnings for the period 24 482 29 377 81 892
Ordinary shareholders" funds at end
of period 266 944 114 484 248 404
PER SHARE DATA
31 Aug 31 Aug 28 Feb
2005 2004 2005
Number of shares ("000)
In issue 143 534 85 940 143 629
Weighted 143 573 49 114 82 790
Net asset value per share (cents) 186 133 173
Intrinsic value per share (cents)
(note 6) 301 133 240
Period end share price (cents) 395 n/a 225
Earnings per share (cents) 17 60 99
Headline earnings per share (cents) 20 60 99
Adjusted headline earnings per share
(cents) 20 13 31
Notes
1. Basis for preparation
The results for the period 28 February 2005 have been restated for IFRS.
These restated results have not been audited.
The consolidated financial statements have been prepared in accordance with IAS
34 Interim Financial Reporting and IFRS. Accounting policies have been
consistently applied except for the changes required as the result of the IFRS
implementation. The effect on equity is set out in note 5.
31 Aug 31 Aug 28 Feb
2005 2004 2005
R"000 R"000 R"000
2. Investment income
Fair value gains - PSG Group - 15 847 36 729
Fair value gains - Capitec Bank
Holdings - 16 549 39 431
Dividends received - 1 308 3 746
Other 1 036 23 50
1 036 33 727 79 956
3. Income from associated companies
PSG Group 20 770 - 9 935
Capitec Bank Holdings 6 814 - 3 707
Channel Life 1 163 444 107
Big Box Containers 153 169 270
Fundiswa Investments (387) - 3 187
Grainco 627 - -
Indevco Holdings 973 - -
30 113 613 17 206
4. Investment in associated companies
PSG Group 128 887 - 114 447
Capitec Bank Holdings 126 180 - 109 984
Channel Life 15 200 16 396 16 058
Big Box Containers 1 142 1 394 1 172
Fundiswa Investments 2 807 - 3 195
Grainco 3 947 - -
Indevco Holdings 10 816 - -
Curamelior 3 507 - -
292 486 17 790 244 856
5. Reconciliation of previous SA GAAP
to IFRS
Attributable earnings for the period
- SA GAAP 82 672
Adjustments:
Operating leases (10)
Share-based payments (114)
Impact of IFRS on equity accounted
earnings (656)
Attributable earnings for the period
- IFRS 81 892
6. Intrinsic value
as at 31 August 2005 R"000 Methodology
Total investments 534 830
PSG Group 228 669 24,4m @ market value (R9,25)
Capitec 213 667 12,2m @ market value (R17,57)
Fundiswa 2 807 @ market value (UTR @ R34,10)
BKB 1 407 @ market value (R8,65)
Channel Life 11 848 Post Sanlam transaction,
financing and CGT
Big Box 1 142 Equity carry value
Compress 372 Equity carry value
Grainco 3 947 Equity carry value
Indevco 10 816 Equity carry value
Curamelior 3 507 Equity carry value
Cash at core 56 648
Total liabilities (102 775)
Long-term liabilities (52 330) "A" preference shares + other
financing
Deferred CGT liability (40 974) 14,5% provided on unrealised
gains
Vendor financing (8 040) Various interest rates
Other liabilities (1 431) Net current liabilities
Intrinsic value 432 055
Notes to intrinsic value:
* The unlisted investments are prudently valued at their equity carry value.
* The deferred capital gains tax liability on the unrealised market gains will
only materialise were we to sell the investments.
REVIEW OF RESULTS
General
Arch Equity is an investment holding company. The board of directors is
satisfied with the performance of Arch Equity"s underlying investments for the
period under review.
Shareholders are reminded that, as previously advised in Arch Equity"s Annual
Report, Arch Equity obtained significant influence in PSG Group and Capitec
during the course of the 2005 financial year and therefore started to equity
account these investments. The impact of this change is shown in the adjusted
headline earnings table above.
PSG Group Limited (24,0%)
View PSG"s results in the press or on SENS.
Capitec Bank Holdings Limited (17,3%)
View Capitec"s results at www.capitecbank.co.za.
Unitrans Limited (4,5% indirect via Fundiswa Investments)
View Unitrans"s results at www.unitrans.co.za.
BKB Limited (5%)
Arch Equity acquired a 5% stake in BKB for R1,3m in June 2005 as part of a
broader empowerment initiative by the company. BKB had an exceptional year to
June 2005 with earnings of R17,7m.
Channel Life Limited (12,6% indirect via Channel Life Holdings)
On 11 August 2005 Arch Equity announced its decision to sell its stake in
Channel Life as part of a larger transaction whereby Sanlam will acquire a 51%
stake in Channel Life, subject to the approval of the Competition Commission.
Arch Equity has in the last year and a half substantially increased its
shareholding in PSG Group, thereby further increasing its indirect exposure to
Channel Life. With Sanlam Life"s involvement, Arch Equity"s influence in Channel
Life would have been drastically diminished. Arch Equity accordingly resolved to
sell its stake to PSG Group, so as to allow PSG Group to continue, following
this transaction, to exert meaningful influence in Channel Life.
Arch Equity will apply the proceeds to repay the financing specifically
associated with the purchase of its stake in Channel Holdings. Surplus proceeds
will be used to make new investments.
Big Box Containers (Pty) Ltd (30%)
Big Box had a satisfactory first six months with earnings of R0,5m. The company
continues to be cash positive. It invested R0,8m to increase its lease fleet by
a further 94 containers to 953 and it repaid R1,1m of debt.
Compress Publications Management (Pty) Ltd (75%)
Compress had a disappointing first six months resulting in losses of R0,9m. The
company is in the process of expanding its operational capacity, which should
result in a better performance during the second half of the year.
Grainco (Pty) Ltd (25,1%)
Grainco has performed well since Arch Equity acquired its stake on 1 March 2005,
generating earnings of R2,5m for the period since acquisition.
Indevco Holdings (Pty) Ltd (29,4%)
The Group posted lower-than-expected results in the first six months to 31
August 2005, with earnings of R3,3m (previous year R2,2m). The results were
negatively influenced by the delays experienced at the DTI in the processing of
the various incentive scheme payments. The outlook for the remainder of the year
is positive due to prevailing market conditions and the increased business
activity in the second half of the year.
Curamelior Health Risk Management (Pty) Ltd (30%)
Curamelior is a managed care organisation, providing capitation products as well
as internet- based healthcare transaction services. The company could make
significant inroads into the health insurance sector.
Arch Equity acquired a 30% stake in the business in July 2005 for R3m payable in
August 2006 subject to profit warranties. We have also extended a loan of R750
000 to the company to assist with short-term working capital requirements.
Investments since 31 August 2005
Arch Equity acquired a 30% stake in Orion Telecom Investment Holdings (Pty) Ltd
on 1 September 2005.
Orion provides a wide range of services in the telecoms industry. It is
primarily involved in providing least cost routing services. At 28 February 2005
Orion had a net asset value of R7,6m and generated headline earnings of R50,0m
for the financial year then ended.
Dividends
Arch Equity"s stated dividend policy is to declare and pay dividends annually.
Accordingly, Arch Equity will not declare an interim dividend.
Resignation: Nomazizi Mtshotshisa
In order to avoid a potential conflict of interest following Arch Equity"s
acquisition in Orion Telecom Investment Holdings (Pty) Ltd, Arch Equity"s non-
executive chairman, Nomazizi Mtshotshisa, because of her position as the
chairman of Telkom SA Limited, has resigned from Arch Equity"s board of
directors with effect from 7 October 2005. The board of directors thanks
Nomazizi for her contributions since Arch Equity"s inception and wishes her all
the best in her future endeavours.Shareholders will be advised of any
appointment to the position of chairman.
Prospects
The board anticipates that the earnings for the second half of the year will be
similar to that of the first six months. This statement has not been reported on
by our auditors.
Cautionary announcement (restructuring)
Shareholders are advised that Arch Equity is in the process of initiating a
substantial restructuring which, if successfully concluded, may have an effect
on its share price. Shareholders are accordingly advised to exercise caution
when dealing in Arch Equity shares until a further announcement is published in
this regard.
Nomazizi Mtshotshisa
Chairman
Desmond Lockey
CEO
Secretary and registered office
Tonie Fuchs, 1st Floor, Inanda, 6 Dorp Street, Stellenbosch, 7600.
PO Box 2292, Stellenbosch 7601.
Registrars
Ultra Registrars (Pty) Ltd, 11 Diagonal Street, Johannesburg, 2001.
PO Box 4844, Johannesburg 2000.
Designated advisor
PSG Capital Limited (Registration number: 2002/017362/06)
Directors
Nomazizi Mtshotshisa (chairman - resigned 7 October 2005), Desmond Lockey*,
Japie Moropa*, Jannie Mouton, Piet Mouton* (*Executive)
Unaudited interim results available at www.archequity.co.za
Warning: The listing of ordinary shares in the company is on ALTx. Investors
are advised of the risks of investing in a company listed on ALTx. Investors are
advised that the JSE does not guarantee the viability or the success of a
company listed on ALTx. In terms of the Listings Requirements, the company is
obliged to appoint and retain a Designated Adviser, which is required to, inter
alia, attend all board meetings held by the company to ensure that all the
Listings Requirements and applicable regulations are complied with, approve the
Financial Director of the company and guide the company in a competent,
professional and impartial manner. If the company fails to retain a Designated
Adviser, it must make arrangements to appoint a new Designated Adviser within 10
business days, failing which the company faces suspension of trading of its
securities. If a Designated Adviser is not appointed within 30 days of its
suspension, the company faces the termination of its listing without the
prospect of an appropriate offer to minority shareholders.
Date: 10/10/2005 02:00:17 PM Produced by the JSE SENS Department
