| Tue 20 Feb 2007, 7:02 | | MKL - Makalani - Unaudited interim results for the |
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MKL
MKL
MKL - Makalani - Unaudited interim results for the six months ended 31
December 2006 and declaration of interim dividend and
interest
Makalani Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number: 2005/000726/06)
Share code: MKL
ISIN: ZAE000066700
("Makalani" or "the Company")
Unaudited interim results for the six months ended 31 December 2006 and
declaration of interim dividend and interest
Headline earnings per linked unit of 518 cents up 15.1%
- Yield 10.9%
Invested assets of R1.8 billion up 3.3 times
Distribution per linked unit of 446 cents up 11.2%
- Yield 9.4%
Income statement
Unaudited Reviewed Audited
6 months 8 months 14 months
R`000 Note 31 Dec 2006 31 Dec 2005 30 Jun
2006
Interest income 116 903 119 450 212 979
Fair value gains 15 775 375 2 225
Fee income 5 341 - -
Operating expenses 11 881 8 741 15 829
Profit on repurchase of
debentures 1 968 - -
Indirect taxation 1 245 - 2 697
Net operating income 126 861 111 084 196 678
Debenture interest 78 865 88 025 146 814
Net profit before taxation 47 996 23 059 49 864
Taxation 931 1 526 1 513
Profit for the period
attributable
to equity holders 48 927 24 585 51 377
Earnings per share (cents) 2 202 98 206
Balance sheet
Unaudited Reviewed Audited
6 months 8 months 14 months
R`000 Note 31 Dec 2006 31 Dec 2005 30 Jun
2006
ASSETS
Cash and cash equivalents 245 984 1 563 285 1 007 738
Money market instruments 350 435 475 042 464 953
Derivative financial 3
instruments 2 551 4 836 4 755
Invested assets at fair
value through profit and
loss 1 782 763 551 915 1 094 678
Loans and advances at fair
value 1 752 763 525 603 1 069 178
Other financial assets at
fair value 30 000 26 312 25 500
Deferred tax asset 2 651 1 526 1 720
Total assets 2 384 384 2 596 604 2 573 844
EQUITY AND LIABILITIES
Share capital and premium 553 052 615 722 615 711
Accumulated profit 71 804 24 585 39 127
Share capital and reserves 4 624 856 640 307 654 838
Debentures 4 1 657 639 1 847 354 1 847 447
Linked unitholders`
interest 2 282 495 2 487 661 2 502 285
Derivative financial 3
instruments 11 194 13 665 5 284
Taxation - - 207
Other liabilities 87 995 95 278 66 068
Provisions 2 700 - -
Total equity and
liabilities 2 384 384 2 596 604 2 573 844
Condensed Cash flow statement
Unaudited Reviewed Audited
6 months 8 months 14 months
R`000 31 Dec 2006 31 Dec 30 Jun
2005 2006
Cash generated from operations 114 198 113 126 202 240
Taxation paid (207) - -
Interest and dividends paid to
unitholders (74 750) - (100 250)
Net cash inflow from operating
activities 39 241 113 126 101 990
Net cash outflow from investing
activities (550 360) (1 012 917) (1 557 096)
Net cash (outflow)/inflow from
financing activities (250 635) 2 463 076 2 462 844
Net (decrease)/increase in cash
and cash equivalents (761 754) 1 563 285 1 007 738
Cash and cash equivalents at
beginning of period 1 007 738 - -
Cash and cash equivalents at end
of period 245 984 1 563 285 1 007 738
Statement of Changes in equity
Share Share Accumulated Total
R`000 capital premium profit equity
Opening balance in May 2005 - - - -
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
Repurchase of linked units - (62 659) - (62 659)
Attributable profit - - 48 927 48 927
Dividends paid - - (16 250) (16 250)
At 31 December 2006 3 553 049 71 804 624 856
NOTES TO THE INTERIM RESULTS
1. Basis of preparation
The interim results have been prepared in accordance with the accounting
standard, "IAS 34: Interim Financial Reporting" and those International
Financial Reporting Standards and IFRIC interpretations issued and effective
or issued and early adopted as at the time of preparing these financial
statements. The Company`s accounting policies as set out in the audited
financial statements for the period ended 30 June 2006 have been
consistently applied, with no significant changes in estimates. These
interim results have consolidated the results of the Company`s only
subsidiary being the company that holds Makalani`s treasury linked units.
The Company`s consolidation accounting policy in this regard is outlined
below.
Basis of consolidation
The consolidated financial statements include the assets, liabilities and
results of the operations of the holding company and any subsidiaries.
Subsidiaries are companies in which the Company, directly or indirectly, has
the power to exercise control over the operations for its own benefit. The
Company considers the existence and effect of potential voting rights that
are presently exercisable or convertible in determining control.
Subsidiaries are consolidated from the date on which the Company acquires
effective control. Consolidation is discontinued from the effective date of
disposal or date where the Company no longer exercises control.
Inter-company transactions, balances and unrealised gains on transactions
between group companies are eliminated. Unrealised losses are also
eliminated unless the transaction provides evidence of impairment of the
asset transferred. Accounting policies of subsidiaries are consistent with
those of the Company.
Comparative information
The corresponding comparative financial information, as previously published
is for the period of eight months ended 31 December 2005 and 14 months ended
30 June 2006, whereas these interim results are for the six months period
ended 31 December 2006.
Segmental reporting
The Company does not produce a segment report as the Company`s operations
are considered to be a single business segment at this stage, being the
provision of funding to BEE transactions and targeted investments, and are
all within South Africa.
2. Earnings per share and distribution per linked unit
Unaudited Reviewed Audited
6 months 8 months 14 months
31 Dec 2006 31 Dec 2005 30 Jun 2006
Number of linked units in issue
(`000) 22 430 25 000 25 000
Weighted average number of
linked units in issue (`000) 24 270 25 000 25 000
Earnings per share (cents) 202 98 206
Headline earnings per share
(cents) 202 98 206
Headline earnings R`000 R`000 R`000
reconciliation
Profit for the period
attributable
to equity holders 48 927 24 585 51 377
Adjustments - - -
Headline earnings 48 927 24 585 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
are considered more meaningful.
Unaudited Reviewed Audited
6 months 8 months 14 months
31 Dec 2006 31 Dec 2005 30 Jun 2006
Headline earnings per linked
unit (cents) 518 450 793
Headline earnings per linked
unit - reconciliation R`000 R`000 R`000
Headline earnings 48 927 24 585 51 377
Add: Debenture interest 78 865 88 025 146 814
Profit on repurchase of
debentures (1 968) - -
Headline earnings attributable
to linked units 125 824 112 610 198 191
Calculation of distributable
earnings
Net operating income 126 861 111 084 196 678
Taxation 931 1 526 1 513
Profit on repurchase of
debentures (1 968) - -
Distributable earnings 125 824 112 610 198 191
Distribution to linked
unitholders
Debenture interest 78 729 88 000 146 500
Dividends 21 308 12 250 28 500
Total distribution to linked
unitholders 100 037 100 250 175 000
cents cents cents
Total distribution per linked
unit 446 401 700
Debenture interest per linked
unit 351 352 586
Dividend per linked unit 95 49 114
Distribution for the period per
linked unit 446 401 700
Interim distribution 446 401 401
Interest 351 352 352
Dividend 95 49 49
Final distribution - - 299
Interest - - 234
Dividend - - 65
The earnings and headline earnings per share, and headline earnings per
linked unit are, respectively, calculated based on the weighted average
number of shares and linked units in issue for the period. The distribution
per linked unit is calculated based on the actual number of linked units in
issue at 31 December 2006 excluding linked units held as treasury stock.
3. 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.
4. Ordinary share and debenture capital
The Company`s authorised share capital is 5 billion ordinary shares of
R0.0001 each. Each share is irrevocably linked to each debenture, and trades
as a linked unit on the JSE Limited ("JSE"). The separate transfer of a
share or a debenture is not permitted. The debentures are unsecured and earn
a variable interest return 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.
During the past six months Makalani repurchased 2 570 226 of its issued
linked units for a total consideration of R250.6 million. The repurchased
units represented 10.28% of the then issued share and debenture capital. Of
the linked units that have been repurchased, 70 226 linked units have been
cancelled and de-listed from the JSE. The balance of the linked units is
currently held as treasury stock through a wholly-owned subsidiary, which
has been consolidated in accordance with the basis of consolidation note
above.
In calculating the allocation of the consideration paid and transaction
costs to the separate equity and debenture components of the linked units,
the methodology applied is consistent with that used in the original
allocation of the separate components of the proceeds received by the
Company when the linked units were first issued.
The consideration paid for the equity component of the treasury and
cancelled linked units was deducted from share capital and premium. The
debenture portion of the repurchase was derecognised from the balance sheet
and the difference between the carrying value of the debentures and the
consideration included in the income statement.
5. Post-balance sheet event
Subsequent to the reporting date, Makalani has declared a dividend per share
of 95 cents as outlined in the declaration of interim dividend and interest.
Commentary
Makalani is a mezzanine financing company that provides funding for 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, common equity.
Makalani is managed by Makalani Management Company (Proprietary) Limited
("Makalani Manco").
1. Operating environment
The economy and private fixed investment outlook remained positive. However,
despite the positive outlook, private fixed investment expenditure for the
next six months is unlikely to match the performance of the previous twelve
months, given higher interest rates and slower household demand and softer
global demand.
Following sharp declines in the previous two years, the official lending
rates rose by 200 basis points in just over six months. The current levels
of interest rates are expected to remain steady for the foreseeable future.
Equity prices on the JSE continued to increase during the reporting period,
despite the 200 basis points increase in interest rates. As a result, asset
prices are generally still high and credit spreads remain narrow. In this
environment, the Company continues with its strategy of selecting high
quality assets and ensuring that the risk is appropriately matched by the
return on the investment.
2. Financial results
2.1 Financial review
During the past six months, the Company has increased its invested assets by
approximately R700 million to approximately R1 800 million as at 31 December
2006 compared with R552 million as at 31 December 2005.
Makalani generated headline earnings for linked unitholders of R125.8
million or 518 cents per linked unit comprising debenture interest of R78.9
million plus attributable profit for the period of R48.9 million. This
represents an overall headline earnings yield of 10.9% based on the closing
linked unit price of R94.25 at 31 December 2006. The headline earnings per
linked unit ("HEPLU") for the period is 15.2% higher than the eight months
period ended 31 December 2005. The HEPLU is 43% higher if the previously
published 31 December 2005 figure is adjusted to six months.
The forward looking pre-tax yield on invested assets is approximately 14.8%.
The pre-tax yield is determined by grossing-up dividend income by the
corporate tax rate of 29% and not recognising Secondary Tax on Companies.
The Company generated revenue of R138 million comprising interest income on
cash of R45.9 million, interest on invested assets of R36.9 million,
dividend income on invested assets of R34.1 million, fee income of R5.3
million and other income of R15.8 million. Other income relates mainly to
net gains from revaluation of financial assets and derivative instruments.
The bulk of the revenue has shifted from interest on cash to income related
to invested assets, which comprise 67% (June 2006: 29%) of the total revenue
for the six months to 31 December 2006.
The Company`s operating expenses were R11.8 million of which R10.7 million
is the management fee paid and provided for by the Company in terms of the
management agreement between Makalani Manco and the Company. The management
fee includes a R2.7 million provision for a performance management fee
payable to Makalani Manco. The provision will only be paid when the pre-tax
cash yield on invested assets exceeds the benchmark.
The management fee is calculated as follows: a base fee of 1% on invested
assets and 0.15% on cash. In addition, Makalani Manco is entitled to be paid
a performance management fee of 20% of the excess of the pre-tax cash yield
on invested assets above the benchmark of JIBAR plus 3.5% after taking into
account the base fee.
2.2 Net asset value
The net asset value ("NAV") per linked unit is R105.27 as at 31 December
2006 compared to R102.43 as at 30 June 2006, which represents growth in NAV
of 2.2%. This growth does not take into account the final distribution
payment of R2.99 per linked unit made in October 2006.
2.3 Distributions
For the period under review, Makalani proposes a total distribution of 446
cents per linked unit comprising 95 cents of dividend and 351 cents of
interest. The proposed total distribution represents an annualised yield of
9.4% based on a closing linked unit price of R94.25 at 31 December 2006
compared to a yield of 7.3% at 30 June 2006. If the dividend component of
total distribution is grossed-up at the corporate tax rate of 29%, the
implied annualised distribution yield would be 10.3%.
2.4 Repurchase of linked units
The Company obtained, at its annual general meeting, a general authority to
repurchase up to 20% of its linked units in issue. To date, the Company has
repurchased 2 570 226 linked units representing 10.28% of the issued share
and debenture capital of Makalani as at 30 June 2006. Of the linked units
that have been repurchased, 70 226 linked units have been cancelled and de-
listed from the JSE. The balance of the linked units is currently held as
treasury stock. The difference of R2.0 million between the carrying value of
the debentures and the consideration paid has been included in the income
statement.
3. Portfolio update
In terms section 15.4(f) of the JSE Listings Requirements, Makalani was
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 has exceeded this 50% threshold and the invested assets now
comprise approximately 75% of the total portfolio after taking into account
the recent repurchase of linked units. Instead of the quarterly portfolio
update Makalani will regularly update its investors as and when significant
transactions are concluded and distribute information to unitholders through
the Stock Exchange News Services (SENS), the print media and its website
(www.makalani.co.za) and meet with investors as and when appropriate.
Makalani`s portfolio summary as at 31 December 2006 is as shown in the table
below.
Empowerment Fair
value
Asset company Sector R`000
Loans
Brait Brait Financial services 26 210
Imperial Lereko Mobility Transport and 140 015
logistics
Kredit Inform Shanduka Group Financial services 71 248
Life Healthcare Brimstone and Healthcare 47 312
Mvelaphanda
Mondi Newsprint Shanduka Paper and 38 426
packaging
Unitrans Mvelaphanda Household goods 200 158
Emira BEE parties Real estate 121 649
Peermont Global MIC Leisure 86 200
Exxaro Eyesizwe and others Mining 126 288
Preference shares
Aberdare Izingwe Engineering 26 902
Brait Brait Financial services 107 376
FirstRand Kagiso, MIT and WDB Banks 173 082
Gold Fields Mvelaphanda Mining 66 632
Inyanga Shanduka Resources Engineering 27 188
Metropolitan Kagiso Insurance 116 440
Mvelaphanda Group Mvelaphanda Group Services 30 000
Nampak Aka Capital Paper and 49 292
packaging
Sandown Motors True Class Motor retail 328 345
Total 1 782 763
The portfolio is spread across a number of assets and across different
sectors. There is no single 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 in the graph below (refer to newspaper version of
announcement).
4. Outlook
The Company, with R1 800 million of invested assets as at 31 December 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.
Interest rates rose by 200 basis points in just over a period of six months.
Interest rates remained unchanged at the recent MPC meeting and are expected
to remain steady for the foreseeable future. The current levels of interest
rates are not expected to impact negatively on the credit quality of the
investment portfolio.
5. Corporate governance
The directors of Makalani endorse the Code of 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 and the requirements of the JSE Limited.
6. Directorate changes
During the reporting period Mr Derek Prout-Jones (and his alternate Mr Mike
Field) resigned from the board of the Company. Mr Herman Bosman (and his
alternate Mr Rob Hamer) was appointed as a non-executive director, but
subsequently resigned. Mr Leon von Moltke has been appointed with effect
from 17 November 2006 as a non-executive director and Mr Rob Hamer as his
alternate.
7. Distribution policy
Makalani`s stated distribution policy is to distribute at least 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 determines and
declares distributions to linked unit holders on a semi-annual basis.
8. Declaration of interim dividend and interest
Notice is hereby given of an interim dividend declaration number 3 of 95
cents and debenture interest payment number 3 of 351 cents per linked unit
for the six months ended 31 December 2006. The total amount payable to
linked unitholders is 446 cents ("the interim 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 interim
distribution Friday, 9 March 2007
Linked units commence trading "ex" the
interim distribution Monday, 12 March 2007
Record date to participate in the interim
distribution Friday, 16 March 2007
Payment date of the interim distribution Monday, 19 March 2007
No dematerialisation or rematerialisation of Makalani linked unit
certificates may take place between Monday, 12 March 2007 and Friday, 16
March 2007 (both days included).
By AH Arnott
Company Secretary
20 February 2007
For and on behalf of the board
VW Bartlett (Chairman) V Mahlangu (Chief Executive Officer)
Sandton
20 February 2007
Makalani Holdings Limited
(Incorporated in the Republic of South Africa), (Registration number:
2005/000726/06), Share code: MKL, ISIN: ZAE000066700
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,
L von Moltke (alternate RJC Hamer), SEN Sebotsa, BJ van der Ross, L Konar
Company 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
For more information visit www.makalani.co.za
Date: 20/02/2007 07:02:01 Produced by the JSE SENS Department.
