PSG Group increases recurring headline earnings by 25%

Liquidity and access to funding is currently the most important challenge facing companies. Over the past year PSG has spent a considerable amount of time and effort to proactively ensure that PSG’s funding is in place, said executive chairman of PSG Group, Jannie Mouton, today with the release of its financial results for the year ended 28 February 2009.

Despite the deteriorating market conditions PSG increased its recurring headline earnings per share by 25% from 185,7 cents to 232,6 cents. Recurring headline earnings eliminates the marked-to-market movements to assess PSG’s sustainable earnings.

Headline earnings per share were down by 78% to 65,3 cents. The decrease in headline earnings of more than R300 million was mainly as a result of marked-to-market losses. However, in the previous financial years PSG made more than R800 million in headline earnings profits through marked-to-market movements.

PSG declared a final dividend of 38 cents per share which together with the 200 cents per share special dividend meant shareholders received total dividends of 257cents over the past year.

Mouton said PSG’s funding resources were strengthened by the sale of Channel Life to Sanlam, the imminent issue of 4-year preference shares to the value of R200 million and R43 million through the placement of PSG ordinary shares. Apart from the cash and facilities at the underlying group companies, PSG has currently more than R550 million in cash and funding facilities.

The largest contribution to headline earnings was from Capitec Bank which increased its earnings by more than 40% to R302 million. Mouton said this is a notable achievement when considering the depressed state of global banks and the fact that other South African banks’ earnings also recently came under pressure. In respect of liquidity Capitec has been conservatively managed with its risk weighted capital at 43%. PSG has a 34,5% interest in Capitec.

PSG Konsult managed an 11% increase in its earnings to R96,8 million. PSG Konsult CEO, Willem Theron, said the results were achieved due to the company’s diversified income base, consisting of financial planning, stockbroking and short- and long-term insurance. Funds under administration decreased on a year-on-year basis by 17% to R43,6 billion compared to a fall of 39,8% in the JSE all share index, whilst collection of short-term insurance premiums increased to R1,4 billion on an annualised basis from R970 million. “In the current year the company will seek to expand on its existing client base and to effectively incorporate recent acquisitions into the company’s structure and operations so as to harness synergies that exist between these entities” Theron said.

The PSG Wealth Cluster managed mixed results. PSG Fund Management’s earnings declined by 26% to R17,9 million as a result of the lower equity markets. PSG FutureWealth, a linked investment insurance company, increased recurring earnings by 23% to R17,3 million. PSG FutureWealth was well positioned to take advantage of the demand for fixed income products in the volatile times said the CEO, Rene Miles.

The majority of Paladin Capital’s 13 underlying investment companies grew their earnings over the past 12 months. Earnings before Thembeka Capital’s contribution increased by 14% to R74m. Thembeka Capital, the broad based BEE investment company in which Paladin has a 49% interest, was significantly affected by market movements of its investments in the JSE Ltd, Capitec Bank and Vox Telecom. These movements resulted in Paladin making a consolidated headline loss of R18m as opposed to a profit of R75,4 million in the previous year. With the decrease in asset prices in the broader market, Mouton is confident that good investments at reasonable prices are available that will stand Paladin and PSG in good stead in future years. Since year end, Thembeka has already recovered a substantial amount of the marked-to-market losses.

Zeder, in which PSG has a 38% interest, increased its recurring headline earnings per share from 15,6 cents to 24,4 cents per share as a result of equity accounted earnings from its investments in associated companies, which were predominantly accounted for as marked-to-market profits in the previous year. Zeder’s investment portfolio increased by 24% to R1 694,5m as at 28 February 2009. Zeder’s net profit after tax and headline earnings for the reporting period amounted to R168,6 million (2008: R207,6 million) and R153,4 million (2008: R206,5 million) respectively. More than 75% of Zeder’s investment portfolio is represented by its 34% stake in Kaap Agri and 25% stake in KWV. Antonie Jacobs, CEO of Zeder, said that they would continue to acquire quality assets in the agricultural and related sectors at a discount to its intrinsic value and, in so doing, will grow Zeder’s recurring headline earnings and intrinsic value.

On prospects Mouton said times remain challenging and the outlook is uncertain for the broader economy. This will however not be indefinite and better times will be with us again. PSG is well positioned to weather the storms and take advantage of opportunities. We remain confident that our recurring headline earnings will grow in the year ahead.