| Tue 18 Apr 2006, 15:59 | | PSG Group Limited - Reviewed results for the year |
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PSG PGFP
PSG
PSG Group Limited - Reviewed results for the year ended 28 February 2006
PSG Group Limited
Registration number 1970/008484/06 JSE share code: PSG
ISIN code: ZAE000013017
and
PSG Financial Services Limited
Registration number 1919/000478/06 JSE share code: PGFP
ISIN code: ZAE000060166
Reviewed results for the year ended 28 February 2006
Headline earnings per share increased by 290,9% to 351,8 cents per share
Dividend increased by 50% to 67,5 cents per share
Condensed group income statements
28 Feb 28 Feb
2006 Change 2005
Rm % Rm
Income
Net insurance income 272,8 234,9
Investment income 51,3 63,2
Fair value gains and losses on
financial instruments 904,3 259,0
Commission and other fee income 494,0 279,4
Operating income 140,8 75,6
Total income 1 863,2 104,3 912,1
Expenses
Net insurance claims 152,3 147,4
Fair value adjustments to investment
contract liabilities 499,7 252,6
Operating expenses 700,6 465,3
Total expenses 1 352,6 56,3 865,3
Net income from operating activities 510,6 991,0 46,8
Finance costs (11,0) (2,4)
Share of profits of associated companies 57,5 40,2
Net income before taxation 557,1 558,5 84,6
Taxation (87,6) 30,9
Net income of the group 469,5 306,5 115,5
Attributable to:
Minority interests 60,4 12,4
Equity holders of the company 409,1 296,8 103,1
469,5 115,5
Attributable to equity holders of the company 409,1 103,1
Non-headline items (note 2) (50,7) (6,4)
Headline earnings 358,4 270,6 96,7
Earnings per share (cents)
- attributable 401,5 318,7 95,9
- headline 351,8 290,9 90,0
- diluted attributable 388,9 308,1 95,3
- diluted headline 340,7 281,1 89,4
Dividend per share (cents)
- interim 20,0 10,0
- final 47,5 35,0
67,5 50,0 45,0
Number of shares (million)
- in issue 102,2 101,6
- weighted average 101,9 107,5
- diluted weighted average 105,2 108,2
Condensed group balance sheets
28 Feb 28 Feb
2006 2005
Rm Rm
Assets
Property, plant and equipment 18,6 22,4
Intangible assets 116,9 28,8
Investments in associated companies (note 3) 323,2 168,4
Financial assets 1 035,3 2 112,3
Deferred income tax 89,6
Receivables and inventories 117,1 112,6
Cash and cash equivalents 222,2 259,7
Total assets 1 833,3 2 793,8
Equity
Ordinary shareholders" equity 719,3 361,6
Minority interests 548,7 246,6
Total equity 1 268,0 608,2
Liabilities
Insurance liabilities 4,4 140,1
Financial liabilities 328,5 1 842,2
Deferred income tax 19,5 1,9
Payables and provisions 182,8 186,6
Current income tax liabilities 30,1 14,8
Total liabilities 565,3 2 185,6
Total equity and liabilities 1 833,3 2 793,8
Net asset value per share (cents) 704 356
Net tangible asset value per share (cents) 589 328
Reconciliation of previous SA GAAP to IFRS
28 Feb 1 Mar
2005 2004
Rm Rm
Balance sheet
Equity
Ordinary shareholders" equity as previously
reported - SA GAAP 404,4 335,7
Consolidation of the Share Incentive Trust (21,2)
Restatements for IFRS (21,6) (23,7)
Revaluation of property, plant and equipment 2,5 2,8
Revenue recognition in respect of investment
contracts (44,2) (27,8)
Reversal of amortisation of goodwill 21,5
Other (1,4) 1,3
361,6 312,0
Minority interests 246,6 26,1
Previously reported outside of equity 58,5 29,5
Share in restatements for IFRS (8,7) (3,4)
Preference shares of a subsidiary previously
reported as long-term liabilities 196,8
Restated equity - IFRS 608,2 338,1
Income statement
Attributable to ordinary shareholders
Net income as previously reported - SA GAAP 101,6
Restatements for IFRS 1,5
Amortisation of intangibles (2,3)
Reversal of goodwill amortisation 21,5
Revenue recognition in respect of investment
contracts (16,4)
Other (1,3)
Restated net income attributable to ordinary
shareholders - IFRS 103,1
Condensed group cash flow statements
28 Feb 28 Feb
2006 2005
Rm Rm
Cash generated by operations 304.8 128.8
Net change in financial instruments (601.8) (60.2)
Net cash flow from operating activities (297,0) 68,6
Net cash flow from investment activities (222,4) (68,0)
Net cash flow from financing activities 184,9 51,3
Net increase/(decrease) in cash and cash equivalents (334,5) 51,9
Cash and cash equivalents at beginning of period 252,9 201,0
Cash and cash equivalents at end of period* (81,6) 252,9
* Include bank overdrafts and CFD financing
facilities of 303,8 6,8
Condensed statements of changes in equity
28 Feb 28 Feb
2006 2005
Rm Rm
Ordinary shareholders" equity at beginning of period 361,6 312,0
Shares issued 19,7
Repurchase of shares (15,5)
Net movement in treasury shares 1,3 (44,2)
Movement in non-distributable reserves 3,3 (6,7)
Net income for period 409,1 103,1
Dividends paid (56,0) (10,0)
Profit on sale of treasury shares 3,2
Ordinary shareholders" equity at end of period 719,3 361,6
Minority interests 548,7 246,6
Beginning of period 246,6 26,1
Net income for period 60,4 12,4
Dividends paid (17,7) (5,7)
Other movements 14,7 17,0
Preference shares of a subsidiary previously
reported as long-term liabilities 244,7 196,8
Total equity at end of period 1 268,0 608,2
NOTES
1. Basis of presentation and accounting policies
The condensed financial statements have been prepared in terms of
International Financial Reporting Standards (IFRS) IAS 34 - Interim
Financial Reporting and in compliance with the Listing Requirements
of the JSE Ltd.
The disclosures required by IFRS 1 (First-time Adoption of
International Financial Reporting Standards) concerning the
transition from South African Statements of General Accepted
Accounting Practice (SA GAAP) to IFRS and the required changes in
accounting policies are presented under the heading "Reconciliation
of previous SA GAAP to IFRS".
The PSG Group"s transition date is 1 March 2004. At transition date
IFRS 1 allows a number of exemptions to the retrospective
application principle on adoption of IFRS.
The Group has taken advantage of the following optional exemptions
from full retrospective application:
Designation of previously recognised financial instruments. The
Group reclassified various available for sale investments as
financial assets at fair value through profit and loss. This had no
effect on net profit for the current or prior periods.
Property, plant and equipment. The Group has elected to measure
individual items of property, plant and equipment at fair value at
the date of transition to IFRS, hence fair value is deemed to be
cost at that date.
Share-based payments. The Group has elected not to apply the
provisions of IFRS 2 (Share-based payments) to shares granted
before 7 November 2002 as well as those shares granted after that
date which had vested before 1 January 2005.
Business combinations. The Group has elected not to apply IFRS 3
(Business combinations) to business combinations that occurred
before 1 March 2004.
The following new accounting policies were applied for IFRS
reporting:
Goodwill is tested annually for impairment and carried at cost less
accumulated impairment losses.
Equity settled share-based payments are recognised as an expense in
the income statement with a corresponding credit to a share-based
payment reserve.
Expenses incurred relating to investment products are recognised
upfront and not recognised over the period the services are
provided.
Changes to the format of the balance sheet and significant
reclassifications include the following:
The balance sheet is presented in order of liquidity. Previously
the "Non-current/Current" classification was used in presenting the
balance sheet.
Cumulative, non-redeemable, non-participating preference shares
issued to external parties by a subsidiary company are reclassified
as minority interests. These preference shares were previously
reported as long-term liabilities.
Assets relating to assurance subsidiaries are disclosed in the
relevant balance sheet line items. These assets were previously
reported in a separate asset line item.
Linked product investments and the related liabilities were
derecognised as the requirements for derecognition were met.
2. Non-headline items
28 Feb 28 Feb
2006 2005
Rm Rm
49,0 (20,6)
Impairment of investments (12,6) (2,3)
Profit/(Loss) on sale of subsidiaries 59,8 (21,8)
Other impairment charges (2,3)
Investment activities 1,8 5,8
Non-headline items of associated companies 4,6 23,5
Profit before taxation 53,6 2,9
Taxation (1,5) (0,5)
Profit after taxation 52,1 2,4
Attributable to minorities (1,4) 4,0
50,7 6,4
3. Investments in associated companies
Carrying value
- listed 204,2 148,1
- unlisted 119,0 20,3
323,2 168,4
Market and directors" valuation
- listed 372,8 137,2
- unlisted 184,0 20,3
556,8 157,5
4. Commitments
Contingent liability in respect of risk sharing 20,0 20,0
Operating lease commitments 54,1 68,7
Capital 227,0
5. PSG Financial Services Limited
The company is a wholly-owned subsidiary of PSG Group Limited,
except for the 458,9m preference shares which are listed on the JSE
Limited (2005: 200m). No consolidated annual financial statements
are presented for the company as the relevant information for the
company and PSG Group Limited is identical, the company being the
only asset of PSG Group Limited.
6. Review by auditors
The company"s external auditors, PricewaterhouseCoopers Inc., have
reviewed the condensed financial statements. A copy of their
unqualified opinion is available on request at the company"s
registered office.
Contribution to headline earnings
2006 2005
Year-end 28 February Rm Rm
Investments
Arch Equity and BEE financing 60,6 16,9
Channel Life 16,6 15,7
Corporate Finance 6,6 2,4
JSE Limited 118,0
Agri companies 43,5 (0,8)
Pioneer 54,6
Petmin 24,8 0,2
m Cubed 10,4
Other private equity investments 6,3 11,3
Wealth Management 34,3 23,3
PSG Konsult 13,3 9,1
PSG Fund Management 10,6 6,5
PSG Online 7,1 5,2
Other 3,3 2,5
PSG corporate office 14,9 21,9
Perpetual preference dividends (21,8) (4,6)
Total headline earnings 358,4 96,7
Commentary
Review of results
On a comparable basis, headline earnings per share for the year ended
28 February 2006 increased by 290,9% from 90 cents per share to 351,8 cents per
share.
The economic environment continued to be favourable for the Group"s operations
and the strong performance of the local equity markets had a positive impact on
the Group"s results. A substantial portion of the headline earnings for the year
emanated from investments. These profits may not necessarily be of a recurring
nature. The majority of the operating subsidiaries performed in line with
expectations or better.
PSG Financial Services Limited successfully raised R190m through its perpetual
preference share rights issue, as well as an additional R103,7m through a
private placement.
The proposed merger between PSG Group Limited and Arch Equity Limited was
announced in the press on 14 February 2006, with a further joint cautionary
announcement made on 30 March 2006. Progress has been made in this regard and a
detailed separate announcement will be made to both PSG Group and Arch Equity
shareholders in the near future.
Review of operations
Investments
Arch Equity Limited - 23%
BEE investments and private equity
In December 2005 Arch Equity restructured its investment portfolio whereby it
sold all of its unlisted investments, as well as a 3,1% stake in PSG Group, to a
wholly owned subsidiary, Arch Equity Investment Holdings (Pty) Ltd
("AE Investment Holdings"). As part of the restructuring, Arch Equity sold 50,1%
of the ordinary shares of AE Investment Holdings to black individuals and broad-
based black groups. AE Investment Holdings is a black company as defined in the
revised Codes of Good Practice, published by the Department of Trade and
Industry on 1 November 2005.
Arch Equity has investments in the following companies: PSG Group (21,1%);
Capitec Bank Holdings (21,2%) and AE Investment Holdings (49,9%).
On an operational level headline earnings increased by 69% to R137,9 million due
to the strong performance from the underlying investments. This, combined with
the issue of 13,8 million new shares at R5,14 (listing price R1,80), increased
Arch Equity"s net asset value per share by 75% to R3,02 per share.
Channel Life Limited - 36%
* Embedded value increased by 71,4% from R161m to R276m
* Embedded value per share increased by 32% from 91 cents to 120 cents
* Gross assets increased by 105% from R2 096m to R4 298m
* Gross premium income up by 18,3% from R1 038m to R1 228m
* ROE increased to 26%
A successful campaign to increase new recurring business and an emphasis on
embedded value growth have been the main drivers for Channel Life in the last
financial year.
Due to the establishment of a diversified multi-channel distribution strategy,
the recurring premium book increased by 44%. Other highlights include
acquisitions such as buying the Rentmeester funeral book, which added 350 000
lives to the business, obtaining a 55% stake in Safrican at a fair discount to
embedded value, and acquiring m Cubed Investment Life.
During the year, Channel shares started trading over the counter via PSG Online,
and Global Credit Ratings improved the company"s credit rating from BBB+ to A-.
The Group sold a controlling interest in Channel Life to Sanlam with effect from
28 February 2006. As from this date the investment is accounted for as an
associated company. After the rights issue by Channel Life, the Group retained a
36% interest in this company.
Corporate Finance - 50% JV
The PSG Capital Corporate Finance teams in Stellenbosch and Johannesburg showed
good positive growth in 2006. They have received Dealmakers Top10 ratings as
both investment advisors and sponsors, as well as in terms of general corporate
finance. The team plays an important role in the investment strategy of PSG
Group.
JSE Limited - 15%
We believe in the future of JSE Limited and have consequently increased our
shareholding to 15%. PSG is the single largest shareholder in JSE Limited. The
current year profit of R118m represents the after-tax fair value adjustment to
this investment. It is PSG"s intention to equity account this investment once
the accounting criteria have been met.
Agri companies
PSG holds strategic stakes in a number of companies in the agricultural sector,
as well as in Pioneer Food Group Limited, a large unlisted South African food
company. Our investment strategy is based upon our long-term positive view of
these companies.
Other private equity investments (consolidated/equity accounted profits)
The Private Equity division also includes interests in a number of other
performing companies:
PSG Treasury Outsourcing (50%) continued to perform profitably with
a 62,6% increase in headline earnings.
The Group acquired a 60% stake in Indevco Holdings (Pty) Ltd, which
manages Government import/export incentives on behalf of clients.
This company performed positively and we are implementing a merger
with PSG Treasury Outsourcing, with a proposed listing of the new
combined entity on the JSE in due course.
Algoa Insurance Company (54%) (absenteeism and funeral insurance)
had a profitable 2006 with a 158% increase in headline earnings.
Axon Xchange (36%) (scrip lending joint venture with SocGen)
increased its profits by 29% to R2,8m.
The Group has acquired a 30% interest in ZS Rational Finance (Pty)
Ltd, a money lender focused mainly on property bridging finance.
PSG now owns 30% in PSG Capital Quantitative after having sold 50%
in the company to management during the year under review. This
company had a profitable year with a 432% increase in headline
earnings.
m Cubed Holdings Limited - 30%
In order to unlock maximum value for shareholders, PSG played a strategic role
in initiating and successfully concluding a number of corporate transactions
during the year under review. A total amount of R230m has been received, with
transactions to the value of R152m awaiting final regulatory approvals. The
finalisation of these transactions will increase the tangible net asset value
per m Cubed share by 62,1% from 33,8 cents as reported last financial year to
54,8 cents as detailed in the m Cubed circular to shareholders dated 24 February
2006.
The board of PSG Group has decided not to include any of the operational results
of m Cubed in its current year results as m Cubed is still trading under
cautionary as significant uncertainty exists as to the final outcome of the
prolonged dispute resolution negotiations the company is having with a
Regulator, coupled with the fact that the majority of m Cubed"s operating
businesses have been disposed of.
Wealth management
PSG Konsult Ltd - 79%
The company"s turnover increased by 51,2% to R242,3m, and headline earnings by
52,4%. These figures were mainly due to organic growth, strong financial markets
and the acquisition of Vleissentraal short-term broking division during the
year.
Welsh Magodla has been appointed as Manager: Emerging markets and has already
firmly established this division. The company"s success in this division will be
important in the long run.
To ensure quality of advice and furthermore look after the well-being of our
clients, training is a priority. As a result, the PSG Konsult Academy has been
established in association with the Business School of the University of
Stellenbosch. Courses have started on 1 January 2006, not only for our own
advisors but also for the industry at large.
The national short-term broking firm, Multinet, was acquired for R180m and we
are awaiting the go-ahead from the Competition Commission (expected by 30 April
2006). The rationale behind this acquisition was:
* Professional client base - 25 000 clients
* Own strong management team
* Modern effective IT system and computer network
* No other financial services currently marketed to its clients
At the end of March 2006, PSG Konsult had a successful rights issue raising R86m
in cash, the proceeds of which will be utilised to pay for the Multinet
transaction.
At year end PSG Konsult had 122 offices with 274 financial planners,
stockbrokers and short-term insurance brokers. Our professional associates
(accountants and attorneys) increased to 286.
PSG Fund Management Holdings (Pty) Ltd - 98%
The strong performance in the local equity markets enabled the PSG Fund
Management Group to deliver satisfactory results during the year under review
with headline earnings increasing by 66% to R10,8m.
Total assets under management increased from R5,0bn to R8,1bn (62% increase)
from the previous year, and assets under administration increased to R10,8bn, up
from R5,8bn, an 84% increase. Apart from the strong equity markets, new inflows
into unit trust funds were R1,6bn backed by excellent performance by Alphen
Asset Management and PSG Tanzanite Division.
Other highlights of this past financial year include:
The launch of a new hedge fund, the South Easter Fixed Interest
Fund, by PSG Absolute Investments
The PSG Alphen Growth Fund having won both the Personal Finance
Raging Bull and Financial Mail Standard and Poors awards for the
best general equity fund in South Africa over a three-year period
PSG Online Holdings (Pty) Ltd - 93%
PSG Online, the online brokerage and investor education arm of the PSG Group,
delivered satisfactory results during the year under review with headline
earnings increasing by 49,6%. PSG Online concluded 197 620 transactions this
financial year which is 65% higher than last year and increased assets under
administration by 59% to R20,4bn and at year end had 24 649 BDA accounts with
cash and/or scrip.
The Contracts for Differences (CFDs) product, as well as the first Make a
Million online share investment game, was successfully launched. PSG Online has
plans for growth and is committed to applying its IT expertise and creativity to
secure and elevate its position as a trusted leader in empowering its clients"
wealth creation journey.
Prospects
PSG Group is still pursuing its Project Growth with an emphasis on increasing
the recurring income base. The performance of the investment division is
dependent on market conditions. It is however unlikely that the past year"s
exceptional performance will be repeated.
Dividends
Ordinary shares
The directors of PSG Group Limited have resolved on a 50% increase in the annual
dividend and have consequently declared a final dividend of 47,5 cents per share
(giving a total dividend of 67,5 cents per share) in respect of the year ended
28 February 2006.
The following are the salient dates for the payment of the ordinary dividend:
Last day to trade cum dividend Friday, 7 July 2006
Trading ex dividend commences Monday, 10 July 2006
Record date Friday, 14 July 2006
Day of payment Monday, 17 July 2006
Share certificates may not be dematerialised between Monday 10 July 2006 and
Friday 14 July 2006, both days inclusive.
Preference shares
The directors of PSG Financial Services Limited declared a dividend of 3,905
cents per share in respect of the cumulative, non-redeemable, non-participating
preference shares for the six months ended 28 February 2006, which was paid on
27 March 2006.
On behalf of the board
Jannie Mouton Jaap du Toit Chris Otto
Chairman Director Director
Stellenbosch
18 April 2006
Directors: JF Mouton (chairman)*, L van A Bellingan, PE Burton, J de V du Toit*,
MJ Jooste, D Lockey, JJ Mouton, CA Otto* (Alternate: P Malan), BE Steinhoff
(German), W Theron, Dr J van Zyl Smit * Executive
Secretaries and registered office: PSG Corporate Services (Pty) Limited
1st Floor, Ou Kollege, 35 Kerk Street, Stellenbosch, 7600
PO Box 7403, Stellenbosch, 7599
Transfer secretaries: Ultra Registrars (Pty) Limited
11 Diagonal Street, Johannesburg, 2001
PO Box 4844, Johannesburg, 2000
Sponsor: PSG Capital Limited
These results will also be available on our website at www.psggroup.co.za
Date: 18/04/2006 03:59:42 PM Produced by the JSE SENS Department
