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PGR
PGR
Peregrine Holdings Limited - Audited Results for the year ended 31 March 2006
Peregrine Holdings Limited
(Registration number 1994/006026/06)
JSE code: PGR & ISIN code: ZAE000015152
Audited Results for the year ended 31 March 2006
HIGHLIGHTS
Profit before tax up 106% to R356,0 million
Attributable earnings up 135% to R251,8 million
Headline earnings per share up 106% to 111,7 cents
Dividend increased by 150% to 30 cents per share
Group assets under management currently exceed R 26 billion
Return on average equity of 40,2%
INCOME STATEMENT
As previously
Audited IFRS restated reported
% change Year ended Year ended Year ended
2005 to 2006 31 March 31 March 31 March
2006 2005 2005
R"000 R"000 R"000
Operating revenue 67 538,017 322,007 322,007
Investment income 89 90,463 47,790 50,248
Investment contract benefits 360,020 133,666 113,045
Investment contract expenses (360,020) (133,666) (113,045)
Operating expenses 76 (379,838) (215,310) (234,935)
Profit from operations 61 248,642 154,487 137,320
Net interest received 68,395 13,938 13,938
Interest received 117,088 28,020 28,020
Interest paid (48,693) (14,082) (14,082)
Income from associate
companies 2,947 2,263 2,375
Profit from ordinary
activities 87 319,984 170,688 153,633
Capital surplus on sale of
subsidiaries 36,016 5,030 5,030
Capital impairment - (3,300) (3,300)
Profit before taxation 106 356,000 172,418 155,363
Taxation (80,432) (51,904) (46,447)
Profit for the year 129 275,568 120,514 108,916
Attributable to :
Equity holders of the company 135 251,811 107,223 95,625
Minority interest 23,757 13,291 13,291
275,568 120,514 108,916
Determination of headline
earnings
Profit attributable to equity
holders of the company 251,811 107,223 95,625
Adjustments:
Impairment of loan receivable - 3,300 3,300
Capital surplus on sale of
subsidiaries (36,016) (5,030) (5,030)
Headline earnings 105 215,795 105,493 93,895
Headline earnings per share
(cents) 106 111.7 54.1 48.2
Basic earnings per share
(cents) 137 130.4 55.0 49.1
Diluted headline earnings per
share (cents) 100 104.3 52.1 46.4
Diluted basic earnings per
share (cents) 130 121.8 52.9 47.2
Dividend paid per ordinary
share - in respect of the
previous year (cents) 140 12.0 5.0 5.0
Dividend per ordinary share
declared subsequent to 31
March (cents) 150 30.0 12.0 12.0
Number of ordinary shares in
issue ("000) 229,971 229,985 229,985
Treasury shares held ("000) 37,300 39,259 39,259
Weighted average number of
ordinary shares in issue
("000) 193,128 194,903 194,903
Diluted weighted average
number of ordinary shares in
issue ("000) 206,801 202,532 202,532
BALANCE SHEET
As previously
Audited IFRS restated reported
As at As at As at
31 March 31 March 31 March
2006 2005 2005
R"000 R"000 R"000
ASSETS
Non - current assets 2,493,659 1,808,474 1,619,444
Property, plant and equipment 85,301 84,332 84,332
Intangible assets 245,591 186,915 186,915
Investment in associate companies 1,449 7,546 17,117
Investments linked to policyholder
investment contracts 2,055,472 1,461,177 1,259,121
Financial investments 77,567 28,662 28,662
Loans and receivables 17,608 29,971 29,122
Deferred taxation 10,671 9,871 14,175
Current assets 3,909,728 1,369,088 1,359,686
Financial investments 332,614 199,464 190,062
Trade and other receivables 118,463 53,292 53,292
Amounts receivable in respect of
stockbroking activities 3,037,915 954,632 933,392
Taxation 988 - -
Cash and cash equivalents 419,748 161,700 182,940
Total assets 6,403,387 3,177,562 2,979,130
EQUITY AND LIABILITIES
Equity 759,592 510,979 511,079
Share capital, retained earnings and
reserves 834,206 588,099 588,199
Treasury shares (86,220) (83,693) (83,693)
Minority interest 11,606 6,573 6,573
Non - current liabilities 2,181,803 1,547,575 1,349,043
Interest bearing borrowings 78,836 73,061 73,061
Policyholder investment contract
liabilities 2,055,472 1,461,177 1,259,121
Loans and payables 22,705 752 -
Deferred taxation 24,790 12,585 16,861
Current liabilities 3,461,992 1,119,008 1,119,008
Trade and other payables 174,851 91,806 91,806
Amounts payable in respect of
stockbroking activities 3,248,724 997,293 997,293
Current portion of interest bearing
borrowings 2,708 982 982
Taxation 35,709 28,927 28,927
Total equity and liabilities 6,403,387 3,177,562 2,979,130
Net asset value per share (cents) 388.2 264.5 264.5
STATEMENT OF CHANGES IN EQUITY
Share
capital and Non-
share Treasury Accumulated distributable
premium shares profits reserves
2006 R"000 R"000 R"000 R"000
Balance at 31 March 2005
IFRS restated 52,667 (83,693) 461,378 38,907
Write-down in value of
treasury shares on vesting - 14,378 (5,437) -
Currency translation
differences - - - (2,510)
Revaluation of available for
sale assets - - - 29,648
Deferred tax on revaluation
of available for sale assets - - - (3,915)
Net gains and losses not
recognised in the income
statement 52,667 (69,315) 455,941 62,130
Profit for the year - - 251,811 -
Dividends paid - - (23,431) -
Share repurchases - (16,905) - -
Treasury shares cancelled (59) - - -
Balance at 31 March 2006 52,608 (86,220) 684,321 62,130
2005
Balance at 31 March 2004 as
previously reported 87,433 (90,476) 385,221 34,408
IFRS adjustments - - (17,691) 3,965
Balance at 31 March 2004
restated 87,433 (90,476) 367,530 38,373
Write-down in value of
treasury shares on vesting - 4,850 (3,863) -
Currency translation
differences - - - (925)
Revaluation of available for
sale assets - - - 1,459
Net gains and losses not
recognised in the income
statement 87,433 (85,626) 363,667 38,907
Profit for the year - - 107,223 -
Dividends paid - - (9,804) -
Share repurchases (32,541) - - -
Treasury shares cancelled (2,225) 1,933 292 -
Obligation to issue shares - - - -
Balance at 31 March 2005 52,667 (83,693) 461,378 38,907
Obligation to Total capital Minority
issue shares and reserves interest Total equity
2006 R"000 R"000 R"000 R"000
Balance at 31 March 2005 IFRS
restated 35,147 504,406 6,573 510,979
Write-down in value of
treasury shares on vesting - 8,941 - 8,941
Currency translation
differences - (2,510) - (2,510)
Revaluation of available for
sale assets - 29,648 - 29,648
Deferred tax on revaluation
of available for sale assets (3,915) - (3,915)
Net gains and losses not
recognised in the income
statement 35,147 536,570 6,573 543,143
Profit for the year - 251,811 23,757 275,568
Dividends paid - (23,431) (18,724) (42,155)
Share repurchases - (16,905) - (16,905)
Treasury shares cancelled - (59) - (59)
Balance at 31 March 2006 35,147 747,986 11,606 759,592
2005
Balance at 31 March 2004 as
previously reported - 416,586 4,849 421,435
IFRS adjustments - (13,726) - (13,726)
Balance at 31 March 2004
restated - 402,860 4,849 407,709
Write-down in value of
treasury shares on vesting - 987 - 987
Currency translation
differences - (925) - (925)
Revaluation of available for
sale assets - 1,459 - 1,459
Net gains and losses not
recognised in the income
statement - 404,381 4,849 409,230
Profit for the year - 107,223 13,291 120,514
Dividends paid - (9,804) (11,567) (21,371)
Share repurchases - (32,541) - (32,541)
Treasury shares cancelled - - - -
Obligation to issue shares 35,147 35,147 - 35,147
- -
Balance at 31 March 2005 35,147 504,406 6,573 510,979
CASH FLOW STATEMENT
As
previously
IFRS restated reported
Audited Year Year Year ended
ended ended ended
31 March 31 March 31 March
2006 2005 2005
R"000 R"000 R"000
Cash flow from operating activities 270,090 75,162 90,799
Cash generated from operating activities 221,988 128,711 128,711
Working capital changes 73,078 (34,937) (19,300)
Net interest received 66,726 12,809 12,809
Dividends paid (23,431) (9,804) (9,804)
Taxation paid (68,271) (21,617) (21,617)
Cash flow from investing activities (14,204) 9,615 9,615
Cash flow from financing activities 2,162 (38,759) (38,759)
Share repurchases (16,964) (32,541) (32,541)
Proceeds on vesting of shares held by
staff share trust 8,941 987 987
Share incentive scheme payments received 16,905 4,246 4,246
Dividends paid to minorities (18,724) (11,567) (11,567)
Loan from minorities 12,986 - -
Decrease in loan receivable - 200 200
Decrease in interest bearing borrowings (982) (84) (84)
Net increase in cash and cash equivalents 258,048 46,018 61,655
Cash and cash equivalents at beginning
of the year 161,700 115,682 121,285
Cash and cash equivalents at end of the
year 419,748 161,700 182,940
SEGMENTAL ANALYSIS
Audited Year ended 31 March 2006
Interest and Profit from
associate ordinary
Revenue income activities
R"000 R"000 R"000
Wealth and asset management 412,828 6,040 182,813
Wealth management 221,461 5,200 73,441
Asset management 191,367 840 109,372
Structuring, broking and distribution 121,671 74,963 82,326
Group investments (net of group costs) 93,981 (9,661) 54,845
628,480 71,342 319,984
IFRS restated Year ended 31 March 2005
Interest and Profit from
associate ordinary
Revenue income activities
R"000 R"000 R"000
Wealth and asset management 257,760 4,181 110,393
Wealth management 143,025 3,478 42,082
Asset management 114,735 703 68,311
Structuring, broking and distribution 67,779 11,994 24,790
Group investments (net of group costs) 44,258 26 35,505
369,797 16,201 170,688
% change in % of profit
profit from from
ordinary ordinary
activities activities
2005 to
2006 2006 2005
Wealth and asset management 66 57 65
Wealth management 75 23 25
Asset management 60 34 40
Structuring, broking and distribution 232 26 14
Group investments (net of group costs) 54 17 21
87 100 100
CONTINGENT LIABILITIES
During the course of the year, the group has entered into transactions giving
rise to the following contingent liabilities:
- guarantees in the amount of R13,45 million in respect of private equity
investments, and
- a potential additional purchase consideration in the amount of R25,66
million in respect of the acquisition of Deloitte Private Clients (Pty) Ltd
(DPC) to the extent that all warranties are met.
ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS AND IAS 17
Basis of preparation
The group has adopted International Financial Reporting Standards (IFRS) for the
year ending 31 March 2006. IFRS1 - First time adoption of International
Financial Reporting Standards has applied in preparation of the results.
An explanation of how the transition from SA GAAP to IFRS has affected the
group"s financial position, financial performance and cash flows is set out in
the following reconciliations and accompanying notes.
The results for the year ended 31 March 2006 have been audited by PKF (Jhb) Inc.
and their unqualified audit report is available for inspection at the group"s
registered office
RECONCILIATION OF ASSETS, LIABILITIES AND EQUITY
Assets Liabilities
31 March 2005 31 March 2004 31 March 2005 31 March 2004
R"000 R"000 R"000 R"000
As previously
reported /restated 2,979,130 1,897,465 2,468,051 1,476,030
IAS17 - Leases 1,067 6,424 998 20,093
IFRS adjustments: 197,365 (10,185) 197,534 (10,128)
IAS27/SIC12 -
Consolidation of
investment trusts 202,056 - 202,056 -
Adjustments affecting
income from
associates as a
result of IFRS
adoption by associates (169) (57) - -
IAS 12 -
Reclassification of
deferred tax assets
and liabilities (4,522) (10,128) (4,522) (10,128)
Restated 3,177,562 1,893,704 2,666,583 1,485,995
The movement in
equity comprises:
Adjustments affecting
accumulated profits
IAS17 - Leases
IAS 28/IAS39 -
Reclassification of
available for sale
assets
IAS 21- Foreign
currency translation
reserve
Adjustments affecting
income from
associates as a
result of IFRS
adoption by associates
Adjustments affecting
non-distributable
reserves
IAS 28/IAS39 -
Reclassification of
available for sale
assets
IAS 21- Foreign
currency translation
reserve
Equity
31 March 2005 31 March 2004
R"000 R"000
As previously reported /restated 511,079 421,435
IAS17 - Leases 69 (13,669)
IFRS adjustments: (169) (57)
IAS27/SIC12 - Consolidation of investment
trusts - -
Adjustments affecting income from
associates as a result of IFRS
adoption by associates (169) (57)
IAS 12 - Reclassification of deferred tax
assets and liabilities - -
Restated 510,979 407,709
The movement in equity comprises:
Adjustments affecting accumulated profits (6,093) (17,691)
IAS17 - Leases 69 (13,669)
IAS 28/IAS39 - Reclassification of
available for sale assets 6,007 8,035
IAS 21- Foreign currency translation reserve (12,000) (12,000)
Adjustments affecting income from
associates as a result of IFRS
adoption by associates (169) (57)
Adjustments affecting non-distributable
reserves 5,993 3,965
IAS 28/IAS39 - Reclassification of
available for sale assets (6,007) (8,035)
IAS 21- Foreign currency translation reserve 12,000 12,000
(100) (13,726)
PROFIT RECONCILIATION
For the year ended 31 March 2005
Adjustment for
IAS17 and
As previously effect
reported of IFRS Restated
R"000 R"000 R"000
Operating revenue and investment income 372,255 (2,458) 369,797
Investment contract benefits 113,045 20,621 133,666
Investment contract expenses (113,045) (20,621) (133,666)
Operating expenses (234,935) 19,625 (215,310)
Profit from operations 137,320 17,167 154,487
Net interest received 13,938 - 13,938
Interest received 28,020 - 28,020
Interest paid (14,082) - (14,082)
Income from associate companies 2,375 (112) 2,263
Profit from ordinary activities 153,633 17,055 170,688
Net capital profits/impairments 1,730 - 1,730
Profit before taxation 155,363 17,055 172,418
Taxation (46,447) (5,457) (51,904)
Profit for the year 108,916 11,598 120,514
Attributable to:
Equity holders of the company 95,625 11,598 107,223
Minority interest 13,291 - 13,291
108,916 11,598 120,514
IMPACT ON CASH FLOW
Cash balances as at 31 March 2004 and 31 March 2005 have decreased in the
amounts of R5,603 million and R21,240 million respectively as a result of the
reclassification of margin deposits. There is a corresponding increase in cash
utilised in working capital in the amount of R15,637 million, being the movement
in the margin deposit balance.
IFRS 1 elections
In applying IFRS, the group has made the following notable elections:
1. Business combinations: not to retrospectively apply the requirements of IFRS
3 for business combinations that occurred prior to 1 April 2004. As a result
the carrying amount of goodwill is the amortised amount on 31 March 2004 and
previously amortised goodwill is not re-instated;
2. Cumulative foreign currency translation adjustment: to deem the cumulative
translation differences in respect of foreign operations to be zero at 31
March 2004, thus reclassifying the foreign currency translations reserves at
that date as retained earnings;
3. Share-based payments: not to apply the provisions of IFRS 2 - Share based
payments to equity settled awards granted on or before 7 November 2002, but
to account retrospectively for all share based payment transactions where
the scheme allows the option holder a choice as to cash settlement.
Significant changes
IFRS 3 - Goodwill
The group changed its accounting policy with respect to goodwill for the year
ended 31 March 2005, as detailed in the 2005 annual report.
IFRS 2 -Share based payments
There is no change under IFRS to the accounting treatment of either the
Peregrine (deferred purchase scheme) or Citadel (options granted prior to 7
November 2002) share incentive schemes.
Deloitte Private Clients has made the election to apply IFRS 2 retrospectively
to all share based payment transactions occurring before its transition date,
as the scheme allows the option holder a choice of cash settlement. A liability
has been raised and the corresponding cost of the options is amortised as an
expense over the vesting period of the options.
IAS 27 - Consolidation of investment funds
IAS 27 requires the consolidation of certain investment trusts established and
managed by Citadel Life to facilitate investments on behalf of clients. Whilst
the consolidation of the funds has a material effect on gross assets and
liabilities, there is no effect on net income and net equity.
The group does not consolidate the investment trusts which house various of the
funds managed by Peregrine Capital and Peregrine Investment Managers as these
trusts are controlled by independent trustees and the benefits accrue directly
to investors as beneficiaries of the trusts.
IAS 17 - Leases
The issuance of circular 7/2005 by SAICA on 2 August 2005, clarified the
interpretation of IAS 17.
As detailed in the 2005 annual report, the lease of the group"s Sandton
premises was capitalised as a finance lease in terms of AC105. To the date of
capitalisation the lease was accounted for as an operating lease.
The application of IAS 17 results in the recognition of higher lease costs in
previous periods with a reduction in the 2004 opening equity and in
attributable earnings for the six months to September 2004. On capitalisation
of the lease, the full deferred lease liability raised to date of
capitalisation under IAS 17, is required to be reversed to earnings in the
period that the lease is capitalised. As this took place during the second half
of 2005, attributable earnings for that six month period will increase by R15.2
million after tax. The distortion in earnings is created as a result of the
timing of the accumulation and subsequent reversal of the deferred lease
liability.
IAS 28 - Reclassification of available for sale financial assets
The group has historically classified its private equity investments as
available for sale assets, with changes in fair value recognised in equity.
Certain of these investments qualify as associates under IAS28. IAS
28 and 31 exclude investments in associates held by venture capitalists and
similar entities, provided that the investments are classified as held for
trading and measured at fair value through the income statement. As it would
not be appropriate to equity account the results of the group"s private equity
investments, the group has extended this treatment to its full private equity
portfolio. Previous revaluations through equity (AC133 revaluation reserve)
have been transferred to income.
IFRS 4 - Disclosure of investment contracts
In previous years, AC121 permitted insurers to reflect movements on insurance
contracts in the assurance fund and not through the income statement. The
contracts issued by Citadel Life do not qualify as insurance contracts as
defined in IFRS 4 and as IFRS does not include a suitable replacement for
AC121, these contracts need to be accounted for in terms of IAS 32 and IAS 39
on financial instruments. The income statement, which previously reflected only
fair value movements in policyholder investments and funds has been restated to
reflect all policyholder movements, including the expenses borne by
policyholders and the tax withheld on policyholder funds. There is no net effect
on group equity.
IAS 27 - Removal of exemption from consolidation of subsidiaries acquired and
held exclusively with a view to disposal in the short-term
During March 2005 Peregrine acquired a controlling interest in Prosperity
Investment Holdings (Pty) Ltd and it subsidiaries ("Prosperity"). The results
of Prosperity were not consolidated into the group results as, subsequent to
year-end, Prosperity disposed of its only remaining asset, a 14.5% interest in
NBC Holdings (Pty) Ltd ("NBC"). IFRS does not allow exemption from
consolidation of subsidiaries intended for sale in the short-term. In applying
IFRS, the Prosperity group has been consolidated. The effect of consolidation
is that Prosperity is no longer reflected as part of investment in associates,
but the net carrying value of the investment in Prosperity, represented by its
investment in NBC, is included as part of financial investments at fair value
through profit or loss as part of current assets. The NBC investment was
disposed of during the current year. The change in treatment has no effect
on net equity.
IAS 7 - Disclosure and classification of cash and cash equivalents
The group previously included margin deposits as part of cash & cash
equivalents. This practice has been reconsidered in light of IAS 7 which
defines cash and cash equivalents as "cash balances and call deposits".
Margin deposits have been reclassified appropriately.
IAS 12 - Reclassification of deferred tax assets and liabilities
The group has offset deferred tax assets and liabilities previously disclosed
on a gross basis in accordance with the offset criteria of IAS 12.
HIGHLIGHTS
Profit before tax up 106% to R356,0 million
Attributable earnings up 135% to R251,8 million
Headline earnings per share up 106% to 111,7 cents
Dividend increased by 150% to 30 cents per share
Group assets under management currently exceed R 26 billion
Return on average equity of 40,2%
COMMENTARY
The Peregrine group has produced an excellent set of results for the year under
review with attributable earnings increasing by 135% to R251,8 million. This
resulted in a return on average equity exceeding 40% for the year.
Features for the year include:
- strong organic growth within the group"s core hedge fund and related prime
broking operations, enhancing Peregrine"s dominant position in the South
African hedge fund industry;
- highly satisfactory investment performances, both within Peregrine"s suite
of hedge fund offerings and within the group"s private wealth management
arm, Citadel, resulting in substantial performance fees being earned for
the year;
- remarkably strong cash generation by the group resulting in the annual
dividend being increased by 150% to 30 cents per share.
Results
Total revenue, comprising operating revenue and investment income, increased by
70% to R628,5 million from R369,8 million, as a result of good investment
performances on an appreciably larger asset base for the year. Investment income
amounted to 14% of total revenue, compared to 13% in the previous year.
Stripping out the effects of direct staff profit participation in the increased
profitability of each of the underlying businesses, as well as the first-time
consolidation effects of Deloitte Private Clients (DPC) into Citadel, core
operating expenses of the group increased by 18%. The major contributor to this
was Peregrine Securities, with an increase in costs of 74% (excluding bonuses).
This increase must, however, be seen in the context of a burgeoning business
which, though incurring substantial additional marginal cost, produced an
overall profit increase of 232%.
The substantial growth in the group"s hedge-fund related prime-broking
operations and continued strong cash generation within the group resulted in net
interest earned for the year of R68,4 million from R13,9 million previously.
A capital profit of R36,0 million was earned principally from the receipt of
proceeds during the year arising from the disposal of a non-core group
subsidiary during the group"s re-focussing exercise in 2003. This helped
increase profit before taxation to R356,0 million for the year, an increase of
106%.
With a reduced rate of taxation as a result of the utilisation of previously
assessed losses, and a lower number of shares in issue, basic earnings per share
increased by 137% to 130,4 cents per share and headline earnings per share
increased by 106% to 111,7 cents per share.
Operating highlights
Private-client wealth manager, Citadel, produced a 75% increase in profit from
ordinary activities to R73,4 million, contributing 23% to group profitability.
Effective from 1 June 2005, Citadel acquired 64% of DPC, making it a wholly
owned subsidiary. DPC was thus consolidated for 10 months of the year and a
seamless integration of the DPC business into the Citadel group was completed
during the year. Following disappointing inflows from inception, Citadel"s
fledgling joint-venture with Sanlam Life was terminated during the second half
of the year.
Continued gross inflows of approximately R100 million per month, together with
positive investment performance for the year, saw Citadel"s asset base rise
comfortably above R10 billion, with the business starting to accrue performance
fees in the last nine months of the year under review. Citadel, whose annuity
earnings base now exceeds R50 million per annum before performance fees,
currently has more than half its client base in performance fee territory, with
a substantial portion on the threshold of paying performance fees. A year ago,
the number of clients paying performance fees was negligible.
Following the spectacular rise in local equity markets and prior to the recent
bout of market weakness, Citadel, on behalf of its client base, implemented a
structure which gives comprehensive protection against a sharp fall in the local
equity market whilst still preserving the long-term upside linkage to the market
in the local component of its portfolios. In addition, the business still
retains a strong positive correlation to any depreciation in the local currency
over time.
The businesses within the asset management division collectively increased their
contribution to group profitability by 60% to R109,4 million, or 34% of group
profitability. The group"s hedge fund management operations, comprising both
Peregrine Capital and Peregrine Investment Managers (PIM) contributed R101,2
million (93%) of this amount and PeregrineQuant (PQ), whose assets under
management now exceed R12 billion, contributed R8,1 million (7%) for the year.
Peregrine is currently South Africa"s largest single strategy hedge fund
manager, managing in excess of R3 billion of single strategy hedge funds. The
group"s hedge-fund flagship, Peregrine Capital, which has an outstanding (and
the country"s longest hedge fund) track record, currently manages R2,3 billion.
The business is currently expanding its staff complement with a view to
increasing its capacity in due course.
The group"s newer range of hedge funds, housed within PIM, currently manage an
additional R1 billion. During the period, PIM"s assets under management were
augmented by the acquisition from Decillion of 50% of Big Rock, the fund with
the second longest track record in the country.
Hedge fund returns were consistently good across the group"s suite of hedge
funds with substantial performance fees being earned. It is worth noting that
the group"s hedge fund assets under management have almost doubled in the past
year alone and tripled over the past two years. With this level of growth, a
lower level of return is required in the current year to generate the same level
of performance fees achieved in the year under review.
Whilst it is difficult to predict returns in any single year, we envisage that
the growth in the hedge fund industry (and concomitantly our funds) will
continue at a significant pace and that Peregrine"s returns will continue to be
attractive on a risk-adjusted basis over the medium to long-term.
In November last year, Peregrine entered the local fund-of-hedge-fund market
with the announcement of the formation of Caveo Fund Solutions, a joint venture
with Investment Solutions, the country"s largest multimanager. The formation of
this business is an integral part of the group"s focus on attaining a strong
vertically integrated position within the local hedge fund industry. The deal
only became unconditional following FSB approval in April 2006 and as a result,
Caveo, which will be associate-accounted, was not included in the results under
review. It is anticipated that inflows into the business will be substantial
over time. Assets under management, which were approximately R340 million at
inception of the business have grown to R750 million in a short space of time.
The structuring, broking and distribution activities housed within Peregrine
Securities produced a 232% increase in profitability to R82,3 million,
contributing 26% to group profit from ordinary activities.
A substantial portion of the profits in the division emanated from interest
earned from activities within the prime-broking division. Building a prime-
broking capacity within Peregrine Equities has been a further initiative in
establishing a vertically integrated platform within the hedge fund industry.
The benefits of this strategy became patently evident over the past twelve
months with the group applying substantial additional resource and capital to
the business during the year. The business now has a "book" of hedge fund and
similar clients of approximately R4 billion which is expected to grow as the
hedge fund industry expands, which growth will be carefully managed.
Buoyant market conditions substantially boosted the profitability of the other
broking businesses within the division. Similar levels of divisional
profitability going forward are possible if the size of the prime broking "book"
can be preserved and if market volatility remains high.
Return on group investments (net of group costs) increased by 54% to R54,8
million from R35,5 million, contributing 17% to group profitability. Investments
were made into several new hedge funds during the year and no withdrawals of
group capital were made from any of the group"s existing hedge fund investments.
Sound returns were achieved across this increased hedge fund base. Similar good
returns were achieved within the group"s private equity portfolio, which
comprises 10% of the group"s proprietary investments.
The disposal of all non-core operations in the two years previous to this one,
the autonomous nature of the underlying subsidiaries in the group and the
ongoing improvement in efficiencies within the group, have allowed the staff
complement at a Holdings level to be reduced over the past two years. The head
office staff complement is now smaller than at any time in the past five years.
Notwithstanding an increase in Holdings" staff bonuses commensurate with the
increase in the group"s profitability, head office costs were only 4,5% higher
than the previous year (after stripping out the accounting effect of the
reversal of the deferred lease obligation on the group"s head office).
Prospects
We have just completed a year in which the group"s return on equity exceeded 40%
and the basic earnings per share of 130,4 cents exceeded the low of the
Peregrine share price just three years previous.
We are quietly confident of what can be achieved by continuing to build on the
group"s well-established positions in the local private wealth management and
hedge fund arenas.
We remain, however, fully cognisant that Peregrine"s financial performance will
continue to be closely linked to the investment performance of its underlying
businesses and, as such, any short term forecasts would be imprudent.
BEE transaction
Shareholders are referred to the announcement published on SENS on 8 December
2005, which set out the material terms of the proposed BEE transaction.
A delay in obtaining approval for the circular and accordingly holding the
scheme meeting and implementing the BEE transaction has been occasioned by,
inter alia, complications arising from the potential related party implications
of the envisaged funding structure.
The draft circular has been submitted to the JSE Limited ("the JSE") for
informal approval. Once formal approval has been obtained, an announcement
setting out the salient dates, as well as the pro forma financial effects based
on the published financial results set out above, will be made. Completion of
the BEE transaction, including receipt by shareholders of amounts arising out of
or in terms of the BEE transaction, should, subject to fulfilment of all
conditions precedent, be implemented within two months of receipt of the formal
approval from the JSE which, it is hoped, will be received by the end of June
2006.
Dividend
The directors have resolved to declare a dividend of 30,0 cents per share for
the year, an increase of 150% 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, 18 August 2006
Trading ex dividend commences Monday, 21 August 2006
Record date Friday, 25 August 2006
Payment date Monday, 28 August 2006
Shares may not be dematerialised or rematerialised between Monday, 21 August
2006 and Friday, 25 August 2006, both dates inclusive.
By order of the board
Louis Fourie Sean Melnick
Chairman Chief Executive Officer
Sandton
30 May 2006
Date: 30/05/2006 02:22:40 PM Produced by the JSE SENS Department
