| Wed 13 Sep 2006, 8:01 | | Makalani - Audited results for the fourteen months |
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MKL
MKL
Makalani - Audited results for the fourteen months ended 30 June 2006 and
declaration of final dividend and interest
Makalani Holdings Limited
("Makalani" or "the Company")
(Incorporated in the Republic of South Africa)
(Registration number: 2005/000726/06)
Share code: MKL
ISIN: ZAE000066700
Audited results for the fourteen months ended 30 June 2006 and declaration
of final dividend and interest
Key ratios
- Net asset value per linked unit of R102.43
- Headline earnings per linked unit of 793 cents
- Total distribution per linked unit of 700 cents
- Weighted average pre-tax yield on invested assets of 12.9%
Income statement
for the fourteen months ended 30 June 2006
30 June 2006
Audited
Note R"000
Interest income 2 212 979
Fair value gains 3 2 225
Operating expenses 4 15 829
Indirect taxation 5 2 697
Net operating income before
debenture interest 196 678
Debenture interest 6 146 814
Net profit before taxation 49 864
Taxation 7 1 513
Profit for the period attributable to
equity holders 51 377
Earnings per share (cents) 8 206
Balance sheet
at 30 June 2006
30 June 2006
Audited
Note R"000
ASSETS
Cash and cash equivalents 9 1 007 738
Money market instruments 464 953
Derivative financial instruments 10 4 755
Invested assets at fair value through
profit and loss 11 1 094 678
Deferred tax 7 1 720
Total assets 2 573 844
EQUITY AND LIABILITIES
Share capital and premium 12 615 711
Accumulated profit 39 127
Share capital and reserves 654 838
Debentures 12 1 847 447
Linked unitholders" interest 2 502 285
Derivative financial instruments 11 5 284
Taxation 207
Other liabilities 13 66 068
Total equity and liabilities 2 573 844
Cash flow statement
for the fourteen months ended 30 June 2006
30 June 2006
Audited
R"000
Cash generated from operations 202 240
Interim interest and dividend distribution (100 250)
Net cash inflow from operating activities 101 990
Net cash outflow from investing activities (1 557 096)
Net cash inflow from financing activities 2 462 844
Net increase in cash and cash equivalents 1 007 738
Cash and cash equivalents at beginning
of period -
Cash and cash equivalents at end of period 1 007 738
Statement of changes in equity
for the fourteen months ended 30 June 2006
Share Share Accumulated Total
R"000 capital premium profit equity
Opening balance - - - -
Issued 3 624 997 - 625 000
Issue expenses - (9 289) - (9 289)
Attributable profit - - 51 377 51 377
Dividends paid - - (12 250) (12 250)
At 30 June 2006 3 615 708 39 127 654 838
Notes to the results
This being the first period of operations, there are no comparatives.
1. Accounting policies
The principal accounting policies are consistent in all
material respects with those adopted in the interim period.
The results have been prepared in accordance with those
International Financial Reporting Standards and International
Financial Reporting Interpretations Committee interpretations
issued and effective at the time of preparing these results.
The annual financial statements from which this results
announcement has been extracted have been audited by
PricewaterhouseCoopers Inc. A copy of their unmodified
opinion is available for inspection at the registered office
of the Company.
R"000
2. Interest income
Interest on loans 12 068
Dividends on redeemable preference shares 47 666
Interest and dividends on cash and cash
equivalents, and money market instruments
Interest 148 516
Dividends 4 729
153 245
212 979
Dividends received on instruments with characteristics of
debt such as redeemable preference shares are included in
interest income.
3. Fair value gains
Fair value gains on invested assets at fair value
through profit and loss 1 800
Fair value gains on derivative instruments 206
Dividends recognised as fair value gains 219
2 225
4. Operating expenses
Auditors" remuneration 245
- Audit fees 224
- Fees for technical services 21
Business advertising 464
Directors" fees 1 136
JSE fees 166
Makalani Manco management fees 13 110
Professional fees 535
Other 173
15 829
5. Indirect taxation
Value added tax 2 052
Stamp duties 639
Skills development levy 6
2 697
6. Debenture interest
Distribution to linked unitholders 146 500
Amortisation of debenture issue expenses 314
146 814
7. Taxation
The Company has a deferred tax asset arising from Secondary
Tax on Companies credits.
8. Earnings per share and distribution per linked
unit
Number of linked units in issue ("000) 25 000
Earnings per share (cents) 206
Headline earnings per share (cents) 206
Headline earnings reconciliation
Profit for the period attributable to equity 51 377
holders
Adjustments -
Headline earnings 51 377
The Company did not calculate diluted earnings per share as
there are no instances of a potential dilution. The
disclosure of earnings and headline earnings per share set
out above, while obligatory in terms of accounting standards
and JSE Listings Requirements, is not considered meaningful
to investors as the shares are traded as part of a linked
unit and a significant part of the earnings is distributed in
the form of debenture interest. The calculation of headline
earnings per linked unit, distributable earnings and the
distribution per linked unit as shown below is more
meaningful.
R"000
Headline earnings per linked unit (cents) 793
Headline earnings - reconciliation
Headline earnings 51 377
Add: Debenture interest 146 814
Headline earnings attributable to linked units 198 191
Calculation of distributable earnings
Net operating income 196 678
Taxation 1 513
Distributable earnings 198 191
Distribution to linked unitholders
Debenture interest 146 500
Dividends 28 500
Total distribution to linked unitholders 175 000
Cents
Total distribution per linked unit 700
Debenture interest per linked unit 586
Dividend per linked unit 114
Distribution for the period per linked unit 700
Interim distribution paid for period ended
31 December 2005 401
Interest 352
Dividend 49
Final distribution declared for the six months
ended 30 June 2006 299
Interest 234
Dividend 65
9. Cash and cash equivalents
Cash on call 366 643
Short-term bank deposits and other instruments 641 095
1 007 738
10. Derivative financial instruments
Derivative instruments 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). Interest rate
swaps are used for the purposes of eliminating the risk of
capital losses that the Company faces due to changes in
interest rates. In all instances where the Company enters
into interest rate swaps, these transactions are solely to
economically hedge the Company"s exposure to interest rate
risk.
11. Invested assets at fair value
Unlisted
Loans and advances 1 069 178
Listed
Other financial assets 25 000
1 094 678
Makalani has designated all of its invested assets as held at
fair value through profit and loss. The invested assets are
evaluated and measured on a fair value basis in accordance
with the investment strategy, which is the basis on which
information about the assets is provided internally. The
fair value takes into account changes in interest rates and
other financial risks.
12. Ordinary share and debenture capital
Upon listing on 18 May 2005, the Company issued 25 million
linked units comprising of 25 million ordinary shares of
R0.0001 each issued at a premium of R24.9999 each and 25
million debentures of R75 each to raise R2.5 billion of
capital.
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.
13. Other liabilities
Payables 7 568
Linked unitholders for debenture interest 58 500
66 068
14. Post-balance sheet events
Subsequent to the reporting date, Makalani has declared a
dividend per share of 65 cents as outlined in the declaration
of final dividend and interest. In addition, the Company
provided funding of approximately R100 million to Micawber
410 (Proprietary) Limited to acquire an interest in Emira
Property Fund.
Commentary on results
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, while it can also invest in senior loans, convertible
instruments and, where appropriate, ordinary shares. Makalani is managed by
Makalani Management Company (Proprietary) Limited ("Makalani Manco").
1. Operating environment
The economy"s good performance continued during the last fourteen months,
against a backdrop of relatively stable inflation and interest rates. These
favourable conditions allowed corporate profitability and private sector
fixed investment to increase significantly.
The robust performance of the economy resulted in tax revenues exceeding
expectations, causing a significant narrowing of the budget deficit. This
reduced the supply of government paper in the domestic bond market, driving
yields to record low levels midway through the reporting period. Upgrades
by all three major credit rating agencies in 2005 helped ensure that the
sovereign spread of government"s latest Eurobond issue was the lowest ever
achieved. Following declines in the previous two years, interest rates rose
modestly, with official lending rates rising by 50 basis points towards the
end of the reporting period. Although interest rates are expected to
increase further in this financial year, the magnitude of the rate cycle
should be moderate due to structurally lower inflation.
2. Financial results
2.1 Financial results
The Company generated revenues of R215.2 million, comprising interest
income on cash of R153.2 million, interest on invested assets of R12.1
million, dividend income on invested assets of R47.7 million and other
income of R2.2 million. The bulk of the revenue was generated from the cash
as most of the investments were only concluded towards the end of the
reporting period. Other income includes revaluation gains on derivative
instruments and financial assets.
The Company"s operating expenses were R15.8 million of which R13.1 million
is the management fee paid by the Company to Makalani Manco in terms of the
management agreement between the two companies. The management fee was
calculated as follows: 1% on invested assets and 0.3% on cash. The Company
has reached agreement with Makalani Manco to reduce the fee charged on cash
from 0.3% to 0.15% with effect from 1 July 2006. Had the yield on invested
assets exceeded the benchmark of Jibar plus 350 basis points after taking
into account the fee payable on invested assets and cash, the Company would
have paid a performance fee of 20% above benchmark to Makalani Manco. There
was no performance fee paid to Makalani Manco during the reporting period.
Makalani generated headline earnings for linked unitholders of R198.2
million or 793 cents per linked unit comprising debenture interest of
R146.8 million plus attributable profit for the period of R51.4 million.
This represents an overall headline earnings yield of 8.2% based on the
closing linked unit price of R96.45 at 30 June 2006. The forward looking
pre-tax yield on invested assets is 12.9%, but the substantial cash holding
during the period has diluted the overall yield achieved by the Company.
The pre-tax yield is determined by grossing-up dividend income by the
corporate tax rate of 29% and excluding Secondary Tax on Companies.
2.2 Comparison of the results with the prelisting statement
Makalani"s listing prospectus, published in April 2005, included a profit
forecast for the year ended 30 June 2006 ("prelisting statement"). The
prelisting statement has been compared in the table below to the unaudited
results for the twelve months period ended 30 June 2006.
Unaudited* Prelisting Variance
statement
12 months 12 months
30 June 30 June
2006 2006
R"000 R"000 %
Interest and non-interest
income 192 960 288 271 (33)
Expenses 16 607 22 216 (25)
Net operating income before
debenture interest 176 353 266 055 (34)
Debenture interest 142 037 137 100 4
Net profit before taxation 34 316 128 955 (73)
Taxation 939 18 900
Profit for the period 35 255 110 055
Headline earnings for
linked unitholders 177 292 247 155 (28)
Headline earnings per
linked unit (cents) 709 989 (28)
Total distribution per
linked unit (cents) 673 691 (3)
* The unaudited twelve months results are an extract from the fourteen
months audited results.
The challenging lending and investing conditions for the period resulted in
Makalani investing R1.1 billion of its initial R2.5 billion of capital
raised on listing. This resulted in headline earnings per linked unit being
28% lower than that forecasted in the prelisting statement of 989 cents.
The primary reason for the difference is the slower than anticipated rate
of converting the cash raised into quality long-term assets as a result of:
- the lending and investment environment that has seen increased
competition, with the resultant contraction in credit spreads;
- equity prices that have increased, which in certain instances are not
supported by the underlying cash flows; and
- a higher appetite for quality assets in the market and pressure from
other institutions to gain market share and acquire Financial Sector
Charter compliant investments in order to meet their respective targets.
Notwithstanding this, the total distribution to unitholders at
30 June 2006 is only marginally below that projected in the prelisting
statement as a result of a change in the distribution policy after the
publication of the prelisting statement.
The distribution policy was changed from distributing at least 50% of after
tax income to 100% of after tax income, subject to good corporate
governance, sound business principles, going concern and future investment
requirements.
2.3 Repurchase of linked units
In an effort to improve the overall yield of the Company, the Company is
proposing to obtain general authority to repurchase up to 20% of its linked
units in issue at the forthcoming annual general meeting. The repurchase of
units may have the effect of improving the minor discount to net asset
value at which the linked units currently trade.
2.4 Distributions
For the period under review, Makalani"s total distribution per linked unit
is 700 cents, comprising 114 cents of dividend and 586 cents of interest.
The total distribution represents a yield of 7.3% based on a closing linked
unit price of R96.45 at 30 June 2006.
3. Quarterly portfolio update
In terms section 15.4(f) of the JSE"s Listings Requirements, Makalani is
required to disclose its portfolio to linked unitholders on a quarterly
basis until such time as at least 50% of the portfolio (including cash) has
been established in investments other than cash or short-dated securities.
Makalani"s portfolio summary as at 30 June 2006 is as shown in the table
below.
Empowered Fair
Asset company Sector value
R"000
Loans
Financial
Brait Brait services 25 008
Transport and
Imperial Lereko Mobility logistics 140 038
Kredit Inform Financial
Shanduka Group services 69 255
Life Brimstone and
Healthcare Mvelaphanda Healthcare 48 857
Mondi Paper and
Newsprint Shanduka packaging 41 297
Unitrans Mvelaphanda and
Arch Equity Household goods 200 055
Preference
shares
Aberdare Izingwe Engineering 24 150
Brait Brait Financial
services 105 064
FirstRand Kagiso, MIT and WDB Banks 165 310
Gold Fields Mvelephanda Mining 56 192
Inyanga Shanduka Resources Engineering 26 947
Metropolitan Kagiso Insurance 119 753
Mvelaphanda Mvelaphanda
Group Group Services 25 500
Nampak Aka Capital Paper and
packaging 47 252
1 094 678
The portfolio is spread across a number of assets and across different
sectors. There is no asset or sector that constitutes more than 15% of the
Company"s total assets. The Company"s invested assets have a maturity
profile as shown below.
Over 5 years 21%
4 - 5 years 60%
2 - 4 years 16%
Less than 1 year 3%
4. Corporate governance
The directors of Makalani endorse the Code on Corporate Practices and
Conduct (the "King Code 2002") contained within the King Report on
Corporate Governance for South Africa 2002. The directors are satisfied
that the Company has in all material respects complied with the provisions
and the spirit of the King Code 2002.
5. Outlook
Makalani"s first fourteen months of operation were slower than anticipated
due to a competitive lending environment that put pressure on margins. The
Company, with R1.1 billion of invested assets at 30 June 2006, has reached
critical mass which will enable it to continue to select high quality
transactions that enhance the overall yield of the Company. The Company has
a healthy pipeline of Financial Sector Charter compliant transactions and
expects to conclude a number of these transactions over the next few
months.
6. Declaration of final dividend and interest, and notice of annual general
meeting
Notice is hereby given of a final dividend declaration number 2 of 65 cents
and debenture interest payment number 2 of 234 cents per linked unit for
the six months ended 30 June 2006. The total amount payable to linked
unitholders is 299 cents ("the final distribution") per Makalani linked
unit and will be paid to linked unitholders in accordance with the
timetable set out in the table below:
Last day to trade "cum" the final
distribution Friday, 29 September 2006
Linked units commence trading "ex" the
final distribution Monday, 2 October 2006
Record date to participate in the final
distribution Friday, 6 October 2006
Payment date of the final distribution Monday, 9 October 2006
No dematerialisation or rematerialisation of Makalani linked unit
certificates may take place between Monday, 2 October 2006 and Friday, 6
October 2006 (both days included).
Notice of annual general meeting
With regard to the audited results for the fourteen months ended 30 June
2006, unitholders are advised that the annual financial statements will be
distributed to unitholders on or about 30 September 2006.
Notice is hereby given that the first annual general meeting of Makalani
unitholders will be held in the Boardroom, 4th Floor, 4 Merchant Place,
corner Fredman Drive and Rivonia Road, Sandton on Monday, 23 October 2006
at 09:30 to transact the business as stated in the annual general meeting
notice forming part of the annual financial statements.
By AH Arnott
Company Secretary
13 September 2006
For and on behalf of the board
VW Bartlett (Chairman) V Mahlangu (Chief Executive Officer)
Sandton
13 September 2006
Registered office: 1st Floor, 2 Merchant Place, corner Fredman Drive and
Rivonia Road, Sandton, 2196, PO Box 781463, Sandton, 2146
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), DCM Gihwala, MS
Moloko, DN Prout-Jones, SEN Sebotsa, BJ van der Ross, L Konar, MG Field
(alternate to DN Prout-Jones)
Secretary: AH Arnott, 4th Floor, 4 Merchant Place, corner Fredman Drive
and Rivonia Road, Sandton, 2196
Transfer secretary: Link Market Services South Africa (Proprietary)
Limited (formerly Ultra Registrars (Proprietary) Limited), 5th Floor, 11
Diagonal Street, Johannesburg, 2001
Sponsor: Rand Merchant Bank (A division of FirstRand Bank Limited), 1
Merchant Place, corner Fredman Drive and Rivonia Road, Sandton, 2196
Auditors: PricewaterhouseCoopers Inc., 2 Eglin Road, Sunninghill, 2157,
Private Bag X36, Sunninghill, 2157
www.makalani.co.za
Date: 13/09/2006 08:02:14 AM Produced by the JSE SENS Department
