| Wed 22 Feb 2006, 7:30 | | Makalani Holdings Limited - Reviewed Interim Resul |
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MKL
MKL
Makalani Holdings Limited - Reviewed Interim Results And Distribution For The
Eight Months Ended 31 December 2005
Makalani Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number: 2005/000726/06)
Share code: MKL
ISIN: ZAE000066700
("Makalani")
REVIEWED INTERIM RESULTS AND DISTRIBUTION FOR THE EIGHT MONTHS ENDED
31 DECEMBER 2005
KEY RATIOS
* Net asset value per linked unit of R103.03
* Headline earnings per linked unit of 721 cents
* Total distribution per linked unit of 401 cents
* Weighted average pre-tax yield on invested assets of 13.8%
INCOME STATEMENT
Reviewed
31 December 2005
Notes R"000
Revenue 2 119 825
Expenses 8 741
Net operating income before interest and tax 111 084
Debenture interest 88 025
Net profit before tax 23 059
Taxation 3 1 526
Attributable income 24 585
Basic earnings per share (cents) 4 157
BALANCE SHEET
Reviewed
31 December 2005
Notes R"000
ASSETS
Loans and advances at fair value 5 525 603
Other financial assets at fair value 26 312
Deferred tax asset 3 1 526
Other receivables 4 836
Money market instruments 6 475 042
Cash and cash equivalents 1 563 285
Total assets 2 596 604
EQUITY AND LIABILITIES
Linked unitholders" interest 2 487 661
Ordinary shareholders" fund 640 307
Share capital and premium 7 615 722
Accumulated profit 24 585
- to be declared as a dividend 12 244
- to be retained 12 341
Non-current liabilities - debentures 8 1 847 354
Current liabilities 108 943
Derivative liabilities 9 13 665
Linked unitholders for debenture interest 88 025
Payables 7 253
Total equity and liabilities 2 596 604
CASH FLOW STATEMENT
Reviewed
31 December 2005
R"000
Cash generated by operations 113 126
Cash flow from investing activities (1 012 917)
Cash flow from financing activities 2 463 076
Net increase in cash and cash equivalents 1 563 285
Cash and cash equivalents at beginning of period -
Cash and cash equivalents at end of period 1 563 285
STATEMENT OF CHANGES IN LINKED UNITHOLDERS" INTEREST
for the period ended 31 December 2005
Accum-
Share Share ulated
R"000 capital premium profit
Opening balance - - -
Issued 3 624 997 -
Issue expenses - (9 278) -
Attributable income - - 24 585
At 31 December 2005 3 615 719 24 585
Total
linked
Total unitholders"
R"000 equity Debentures interest
Opening balance - - -
Issued 625 000 1 875 000 2 500 000
Issue expenses (9 278) (27 646) (36 924)
Attributable income 24 585 - 24 585
At 31 December 2005 640 307 1 847 354 2 487 661
NOTES TO THE INTERIM RESULTS
1. ABRIDGED ACCOUNTING POLICIES
The following is an abridged version of the accounting policies adopted by
Makalani in preparing its interim results. A full set of accounting policies
is available, during office hours, at the registered office of Makalani for
inspection.
1.1 Basis of presentation
Makalani did not publish financial statements for previous periods and
these interim results are the first for the Company.
The Company prepares its financial statements on a going concern basis
using the historical cost basis, except for certain financial assets
and liabilities where it adopts the fair value basis of accounting.
The interim results have been prepared in accordance with the accounting
standard, "IAS 34: Interim Financial Reporting" and those International
Financial Reporting Standards (IFRS) and IFRIC interpretations issued and
effective or issued and early adopted at the time of preparing these interim
results.
1.2 Interest income and expense
The Company recognises interest income and expense in the income statement for
all instruments measured at amortised cost using the effective interest method.
Instruments with characteristics of debt, such as redeemable preference shares,
are included in loans and advances or long-term liabilities. Dividends received
or paid on these instruments are included and accrued in interest income and
expense.
1.3 Trading income
Makalani includes profits, losses and fair value adjustments on trading
financial instruments (including derivative instruments which do not qualify
for hedge accounting in terms of IAS 39) as well as financial instruments
designated at fair value in trading income as it is earned.
1.4 Fee income
The Company generally recognises fee income on an accrual basis when the
service is rendered. Certain fees and transaction costs that form an integral
part of the yield of available-for-sale and amortised cost financial
instruments are capitalised and recognised as part of the effective yield of
the financial instrument over the expected life of the financial instruments.
1.5 Dividends
The Company recognises dividends when the Company"s right to receive payment is
established. This is on the "last day to trade" for listed shares and on the
"date of declaration" for unlisted shares. Dividend income includes scrip
dividends, irrespective of whether there is an option to receive cash instead
of shares.
1.6 Taxation
The provision for current tax is based on the results for the year as adjusted
for items which are non-taxable or disallowed. It is calculated using taxation
rates that have been enacted or substantively enacted by the balance sheet
date.
1.7 Recognition of assets
The Company recognises assets when it obtains control of a resource as a result
of past events and from which future economic benefits are expected to flow to
the Company.
1.8 Cash and cash equivalents
In the cash flow statement and balance sheet cash and cash equivalents comprise
money at call, instruments issued by banks and balances with banks that have a
maturity date of less than three months.
1.9 Financial instruments
1.9.1 Financial assets
The Company classifies its financial assets in the following categories:
- financial assets at fair value through profit or loss;
- loans and advances;
- held-to-maturity assets; and
- available-for-sale financial assets.
The classification depends on the purpose for which the assets were acquired.
The Company determines the classification of its assets at initial recognition
and re-evaluates this designation at every reporting date.
Financial assets are initially recognised at fair value (plus transaction costs
for all financial assets not carried at fair value through profit or loss).
The Company recognises purchases and sales of financial instruments that
require delivery within the time frame established by regulation or market
convention (regular way purchases and sales) at settlement date, which is the
date the asset, is delivered to or by it. Otherwise such transactions are
treated as derivatives until settlement.
1.9.1.1 Financial assets at fair value through profit or loss
This category has two sub-categories: financial assets held for trading and
those designated at fair value through profit or loss at inception.
A financial asset is classified as a trading instrument if acquired principally
for the purpose of selling in the short term or if so designated by management.
Derivatives are also categorised as held for trading unless they are designated
as hedges and meet the hedging criteria contained in IAS 39.
The Company recognises fair value adjustments on financial assets classified as
at fair value through profit and loss in trading income. Interest income on
these assets is included in the fair value adjustments.
1.9.1.2 Loans and advances
Loans and advances are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market.
Instruments with characteristics of debt, such as redeemable preference shares,
are included in loans and advances or long-term liabilities.
1.9.2 Derivative financial instruments
Makalani"s policy is to hedge all its fixed interest rate assets into floating
interest rates. In all instances where Makalani enters into derivative
transactions, these transactions are solely to economically hedge Makalani"s
exposure to interest rates. The Company initially recognises derivative
financial instruments (including interest rate swaps) at fair value and
subsequently re-measures these instruments at their fair value.
1.9.2.1 Embedded derivatives
The Company treats derivatives embedded in other financial instruments, such as
the conversion option in a convertible bond, as separate derivatives when:
# their risks and characteristics are not closely related to those of the host
contract; and
# the host contract is not carried at fair value, with gains and losses
reported in income.
1.10 Impairments of financial assets
A financial asset is impaired if its carrying amount is greater than its
estimated recoverable amount. The Company assesses at each balance sheet date
whether there is objective evidence that a financial asset or group of
financial assets is impaired. If there is objective evidence that an impairment
loss on loans and advances, the amount of the loss is measured as the
difference between the asset"s carrying amount and the present value of
estimated future cash flows (excluding future credit losses that have not been
incurred) discounted at the financial asset"s original effective interest rate.
The carrying amount of the asset is reduced and the amount of the loss is
recognised in the income statement. When a loan is uncollectible, it is
written-off against the related provision for loan impairment. Subsequent
recoveries of amounts previously written-off decrease the amount of the
provision for loan impairment in the income statement. If, in a subsequent
period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognised,
the previously recognised impairment loss is reversed by adjusting the
allowance account through the income statement.
1.11 Deferred taxation
The Company calculates deferred taxation on the comprehensive basis using the
liability method on a balance sheet based approach. It calculates deferred tax
liabilities or assets by applying corporate tax rates to the temporary
differences existing at each balance sheet date between the tax values of
assets and liabilities and their carrying amount, where such temporary
differences are expected to result in taxable or deductible amounts in
determining taxable income for future periods when the carrying amount of the
assets or liabilities are recovered or settled.
The Company recognises deferred tax assets if the Company considers it probable
that future taxable income will be available, against which the unused tax
losses can be utilised. The Company also recognises deferred tax assets arising
from unused credits on Secondary Tax on Companies ("STC") if the directors of
the Company consider it probable that the Company will declare dividends
against which the unused STC credits can be utilised.
1.12 Debentures
The Company initially recognises debentures at the fair value of the
consideration received. Debentures are subsequently measured at amortised cost.
Discounts or premiums on debentures issued are amortised on a basis that
reflects the effective yield on the debentures over their life span. Debenture
issue costs are initially set-off against the debentures and thereafter
amortised over the period of the debentures.
1.13 Share capital
1.13.1 Share issue costs
Costs directly related to the issue of new shares or options are shown as a
deduction from equity.
1.13.2 Dividends
Dividends on ordinary shares are recognised against equity in the period in
which they are approved by the Company"s board of directors. Dividends declared
after the balance sheet date are not recognised but disclosed as a post balance
sheet event.
1.14 Trading statements
Unitholders are advised that Makalani will be adopting headline earnings per
linked unit (HEPLU) as the criteria for trading statements purposes as per
section 3.4(b)(v) of the JSE Limited ("JSE") Listings Requirements.
2. REVENUE
Revenue largely comprises interest income (including dividends of R24 million
from redeemable preference shares classified as interest income in
terms of the accounting policies) and R375 000 of net unrealised profit on
investments.
3. TAXATION
The Company has a deferred tax asset arising from calculated tax losses and
STC credits.
4. EARNINGS PER SHARE AND DISTRIBUTION PER LINKED UNIT
Number of linked units in issue ("000) 25 000
Weighted number of linked units in issue ("000) 15 616
Basic earnings per share (cents) 157
Headline earnings per share (cents) 157
Headline earnings reconciliation R"000
Attributable income 24 585
Adjustments -
Headline earnings 24 585
The disclosure of basic earnings and headline earnings per share set out above,
while obligatory in terms of accounting standards, is not meaningful to
investors as the shares are traded as part of a linked unit and practically a
significant part of the earnings is distributed in the form of debenture
interest. In addition, headline earnings include fair value adjustments for
financial assets and financial liabilities. The calculation of headline
earnings per linked unit, distributable earnings and the distribution per
linked unit as shown below are more meaningful.
Headline earnings per linked unit (cents) 721
Headline earnings for linked units reconciliation R"000
Headline earnings 24 585
Add: Debenture interest 88 025
112 610
Headline earnings for linked units
Calculation of distributable earnings
Net operating income 111 084
Taxation 1 526
112 610
Distributable earnings
Proposed distribution to linked unitholders
Debenture interest 88 025
Dividends 12 244
100 269
Total distribution to linked unitholders 401
Total distribution per linked unit (cents)
Debenture interest per linked unit 352
Dividend per linked unit 49
5. LOANS AND ADVANCES R"000
Loans and advances at nominal amount 496 870
Revaluation at fair value 12,728
Interest receivable 16 005
Total 525 603
Makalani has not, after a review, made any impairment provisions against any
asset.
6. MONEY MARKET INSTRUMENTS
Money market instruments comprise instruments issued by banks that have not
been classified as cash and cash equivalents.
7. ORDINARY SHARE CAPITAL
R"000
Authorised: 5 000 000 000 ordinary share of 0.0001 each 500
Issued: 25 000 000 ordinary shares of R0.0001 each 3
Share premium 615 719
Total equity 615 722
In issue at the beginning of the period -
Issued during the period ("000) 25 000
In issue at the end of period ("000) 25 000
8. DEBENTURES
R"000
Issued: 25 000 000 debentures of R75 each 1 875 000
Debenture issue costs (27 646)
Total debentures 1 847 354
In issue at the beginning of the period -
Issued during the period ("000) 25 000
In issue at the end of period ("000) 25 000
Each debenture is irrevocably linked to each share and trades as a linked unit
on the JSE. The separate transfer of a share or a debenture is not permitted.
The debentures are unsecured and carry a variable interest as determined by the
directors from time to time. The debentures are repayable on the 99th
anniversary of the date of issue, except if a special resolution by the linked
unitholders determines otherwise or in the event of the Company being wound up.
9. DERIVATIVE LIABILITIES
Derivative liabilities relate to interest rate swaps that the Company has
entered into to swap fixed interest rates on its assets into floating interest
rates based on the three-month Johannesburg Interbank Agreed Rate (JIBAR). In
all instances where Makalani enters into derivative transactions, these
transactions are solely to economically hedge Makalani"s exposure to interest
rate risk.
10. POST BALANCE SHEET EVENTS
Subsequent to the reporting date Makalani has declared a dividend per share of
49 cents as outlined in the declaration of interim dividend and interest. There
are no other post balance sheet events.
COMMENTARY ON RESULTS
1. COMPANY PROFILE
Makalani listed on the JSE on 18 May 2005 with a market capitalisation of
R2.5 billion and is pleased to report its maiden interim results for the
period ended 31 December 2005.
Makalani is a mezzanine financing company that provides funding for Black
Economic Empowerment ("BEE") transactions and targeted investments, such as
infrastructure and affordable housing, as defined in the Financial Sector
Charter.
Makalani"s investment focus is predominantly on mezzanine instruments, and
it can also invest in senior loans, convertible instruments and where
appropriate, common equity.
Makalani is managed by Makalani Management Company (Proprietary) Limited,
which is 75% owned by Rand Merchant Bank ("RMB"), a division of FirstRand
Bank Limited and 25% owned by three BEE companies.
2. CORPORATE GOVERNANCE
Makalani embraces the recommendations of the King II report on Corporate
Governance and is committed to the highest standards of Corporate Governance
and reporting.
Makalani is governed by an independent board and it is chaired by an
independent non-executive chairman. The roles of the chairman and chief
executive officer are separate.
3. FINANCIAL RESULTS
The interim balance sheet, income statement, cash flow statements and
statement of changes in linked unitholders" interest were reviewed by the
auditors of the Company, PricewaterhouseCoopers Inc, in accordance with
international auditing standards applicable on review engagements and a copy
of their unmodified review report is available, during office hours, for
inspection at the registered office of the Company.
The financial results of the Company are not compared with the previous
corresponding period as the Company only commenced trading in May 2005 and
the profit forecast per the Company"s pre-listing statement was for the year
ending 30 June 2006.
Makalani"s distribution per linked unit for the interim period is 401 cents
comprising of an interest distribution per linked unit of 352 cents and a
dividend per linked unit of 49 cents.
The annualised distribution per linked unit is 642 cents, equivalent to a
yield of 6.3%, using a linked unit price of 10 125 cents, being the closing
linked unit price at 31 December 2005.
The annualised headline earnings per linked unit is 721 cents, representing
a yield of 7.1%, using a linked unit price of 10 125 cents, being the
closing linked unit price at 31 December 2005.
The distributable earnings per linked unit is 450 cents and the distribution
per linked unit is 401 cents. The difference between the distributable
earnings and distribution is because of the distribution policy of the
Company whereby only income received in cash is distributed to linked
unitholders and the deferred tax asset created as a result of calculated
tax losses and STC credits.
The weighted average pre-tax yield on invested assets is 13.8% determined by
grossing up the dividend income by the corporate tax of 29% but excluding
STC.
Makalani"s net asset value per linked unit before the payment of the
distribution is approximately R103.03 at 31 December 2005.
4. DISTRIBUTION POLICY
Makalani"s distribution policy is to distribute 100% of all after-tax income
realised in cash, subject to good corporate governance, sound business
principles and future investment requirements. Distributions will
therefore not be made to the extent that interest or dividends on
investments are accrued but not paid.
The board of directors will determine and declare distributions to linked
unitholders on a semi-annual basis.
5. QUARTERLY PORTFOLIO UPDATE
In terms section 15.4(f) of the JSE Listings Requirements, Makalani is
required to disclose its portfolio to linked unitholders on a quarterly
basis until such time that at least 50% of the portfolio has been
established in investments, other than cash or short dated securities.
Makalani"s portfolio summary at 31 December 2005 is shown in the table below.
Funding Nominal
instrument value
Asset BEE company Sector used (R"million)
Metropolitan Kagiso Trust Insurance Preference shares 135
Investments
Mvelaphanda Mvelaphanda Services Preference shares 25
Group Group
Nampak Aka Capital Paper and Preference shares 44
Packaging
Life Healthcare Brimstone and Healthcare Loan 49
Mvelaphanda
Gold Fields Mvelaphanda Mining Preference shares 50
Resources
Aberdare Izingwe Engineering Preference shares 25
Mondi Newsprint Shanduka Paper Loan 43
FirstRand Kagiso Trust, MIT Banks Preference shares 150
and WDB
Total 521
5.1 Metropolitan
Makalani, in two separate transactions, firstly acquired from RMB, R77
million of preference shares and secondly subscribed alongside other
financiers for R59 million of preference shares in Metropolitan Holdings
Limited"s ("Metropolitan") second BEE transaction. The preference shares
were issued by a special purpose vehicle owned by Kagiso Trust
Investments (Proprietary) Limited and a trust representing the members
of Metropolitan management to acquire shares in Metropolitan.
Metropolitan, listed on the JSE, provides need-specific financial
services in the middle to lower income market. The Metropolitan group
comprises four independent operating businesses, each with clearly
defined areas of focus, performance and profit objectives: retail,
corporate, health and international.
5.2 Mvelaphanda Group
Makalani subscribed on 4 November 2005 for R25 million of convertible,
perpetual, cumulative preference shares issued by Mvelaphanda Group
Limited ("Mvelaphanda Group").
Mvelaphanda Group, listed on the JSE, is a 53% black owned and managed
diversified company, which has interests in a range of companies in the
financial services, property, healthcare and general industrial
sectors.
5.3 Nampak
Makalani subscribed alongside other financiers for R44 million of
subordinated preference shares in Red Coral (Proprietary) Limited ("Red
Coral") to enable Red Coral to partly fund its acquisition of a
5% shareholding in Nampak Limited ("Nampak"). Red Coral"s acquisition
was part of a larger BEE transaction involving an acquisition of 10% of
Nampak"s shares. Red Coral is a special purpose vehicle owned by a
consortium of broad-based BEE shareholders led by Aka Capital
(Proprietary) Limited.
Nampak, listed on JSE, is Africa"s largest, most diversified packaging
manufacturer and has operations in several countries in Europe.
5.4 Life Healthcare
Makalani acquired from RMB a total of R50 million senior and mezzanine
loans provided to Life Healthcare Group (Proprietary) Limited ("Life
Healthcare"). Life Healthcare (previously Afrox Healthcare Limited) was
acquired and delisted from the JSE by a company jointly controlled by
Brimstone Investment Corporation Limited and Mvelaphanda Strategic
Investments (Proprietary) Limited in March 2005.
Life Healthcare is one of the largest private hospital operations
outside the United States. Life Healthcare"s business is acute hospital
care and comprises one of the most geographic spreads of acute care
hospitals and same day surgical centres in South Africa.
5.5 FirstRand
Makalani participated alongside other financiers in the FirstRand
Limited"s ("FirstRand") BEE transaction for R150 million to fund Kagiso
Trust, WDB Trust ("WDB") and Mine Workers Investment Trust ("MIT") to
acquire a 10% interest in FirstRand.
FirstRand is a multi-branded financial services group. Its various
companies and divisions are involved in financial services activities,
such as retail, corporate, investment and merchant banking, short-term
insurance, life insurance, employee benefits, health insurance and asset
management. Some of the brands within FirstRand include RMB, First
National Bank (FNB), Discovery, Momentum and WesBank.
5.6 Gold Fields
Makalani acquired from RMB approximately R50 million of the subordinated
preference shares issued by a special purpose company that is owned by
Mvelaphanda Resources (Proprietary) Limited to purchase 15% of Gold
Fields SA Limited ("Gold Fields").
Gold Fields is one of the world"s largest unhedged producers of gold,
providing investors with maximum leverage to the gold price. The company
was formed in 1998 with the amalgamation of the gold assets of Gold
Fields of South Africa Limited and Gencor Limited.
5.7 Aberdare
Makalani acquired from RMB approximately R25 million of preference
shares which had been utilised by a consortium led by Izingwe Capital
(Proprietary) Limited to acquire a stake in Aberdare Cables
(Proprietary) Limited ("Aberdare").
Aberdare is Africa"s leading manufacturer of power, telecommunication,
control and optical fibre cables and a subsidiary of Allied Electronics
Corporation Limited.
5.8 Mondi Newsprint
Makalani acquired from RMB approximately R50 million of senior loan
funding raised by Shanduka Resources (Proprietary) Limited ("Shanduka")
to acquire an interest in Mondi Shanduka Newsprint (Proprietary) Limited
("Mondi Newsprint").
Mondi Newsprint is a leading supplier of newsprint and telephone
directory paper in South Africa and selected export markets. Mondi
Newsprint was formed in 2004 following Shanduka"s acquisition of a 42%
interest in Mondi South Africa Limited"s integrated South African
newsprint business.
6. PROSPECTS
Makalani"s first eight months of operation were slower than anticipated due
to a competitive lending environment that puts pressure on margins. The
Company has a healthy pipeline of Financial Sector Charter-compliant
transactions and expects to conclude a number of these transactions before
the end the financial year.
7. DECLARATION OF INTERIM DIVIDEND AND INTEREST PAYMENT
Notice is hereby given of interim dividend declaration number 1 of 49 cents
and debenture interest payment number 1 of 352 cents per linked unit for the
income distribution period from 18 May 2005 to 31 December 2005. The total
amount payable to linked unitholders is 401 cents ("the interim
distribution") per Makalani linked unit and will be paid to linked
unitholders in accordance with the timetable set out below.
Last day to trade "cum" the interim distribution Friday, 10 March 2006
Linked units commence trading "ex" the interim
distribution Monday, 13 March 2006
Record date to participate in the interim
distribution Friday, 17 March 2006
Payment date of the interim distribution Monday, 20 March 2006
No dematerialisation or rematerialisation of Makalani linked unit certificates
may take place between Monday, 13 March 2006 and Friday, 17 March 2006 (both
days included).
By AH Arnott
Company Secretary
22 February 2006
For and on behalf of the board
VW Bartlett V Mahlangu
(Chairman) (Chief Executive Officer)
Sandton
22 February 2006
ADMINISTRATION
Registered office:
P O Box 781463, Sandton, 2146
1st Floor
2 Merchant Place
corner Fredman Drive and Rivonia Road
Sandton, 2196
Tel +27 11 282 4555 Fax +27 11 282 4559
Email enquiries@makalani.co.za
Web www.makalani.co.za
Directors:
VW Bartlett (Chairman), V Mahlangu (CEO), D Gihwala, S Moloko, DN Prout-Jones,
S Sebotsa, BJ van der Ross, L Konar, MG Field (alternate to DN Prout-Jones)
Company secretary:
AH Arnott, 4th Floor
4 Merchant Place
corner Fredman Drive and Rivonia Road
Sandton, 2196
Transfer secretary:
Ultra Registrars (Proprietary) Limited,
5th Floor, 11 Diagonal Street, Johannesburg, 2001
Sponsor:
Rand Merchant Bank (A division of FirstRand Bank Limited)
Corporate Finance
1 Merchant Place
Corner Fredman Drive and Rivonia Road
Sandton, 2196
Auditors:
PricewaterhouseCoopers Inc.
2 Eglin Road
Sunninghill, 2157
Private Bag X 36
Sunninghill 2157
For more information visit www.makalani.co.za
Date: 22/02/2006 07:30:18 AM Produced by the JSE SENS Department
