Unaudited Results For The Six Months Ended 31 August 2016
 
 
PSG Group Limited
 
Incorporated in the Republic of South Africa
 
Registration number: 1970/008484/06
 
JSE Ltd (“JSE”) share code: PSG
 
ISIN code: ZAE000013017
 
(“PSG Group” or “PSG” or “the company” or “the group”)
 
 
PSG Financial Services Limited
 
Incorporated in the Republic of South Africa
 
Registration number: 1919/000478/06
 
JSE share code: PGFP
 
ISIN code: ZAE000096079
 
(“PSG Financial Services”)
 
 
UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2016
 
 
• Recurring headline earnings increased by 16% to 411.8 cents per share
 
• Sum-of-the-parts value of R228.32 per share as at 7 October 2016
 
• Interim dividend increased by 25% to 125 cents per share
 
• R1.7bn cash available for further investments
 
 
OVERVIEW
 
 
PSG is an investment holding company consisting of underlying investments that operate across a
 
diverse range of industries, which include banking, education, financial services, food and related
 
business, and private equity. PSG’s market capitalisation (net of treasury shares) is
 
approximately R46bn.
 
 
RESULTS
 
 
The two key benchmarks which PSG believes to measure performance by are sum-of-the-parts (“SOTP”)
 
value and recurring headline earnings per share.
 
 
SOTP
 
 
The calculation of the SOTP value is simple and requires limited subjectivity as 90% of the value is
 
calculated using JSE-listed share prices, while other investments are included at market-related
 
valuations. At 31 August 2016, the SOTP value per PSG share was R206.01 (29 February 2016: R186.67).
 
At 7 October 2016, the SOTP value was R228.32 per share.
 
 
28 Feb 29 Feb 31 Aug 7 Oct
 
2015 2016 2016 2016 % of
 
Asset/Liability Rm Rm Rm Rm total
 
 
Capitec* 14 549 16 820 20 673 24 183 47
 
Curro* 6 236 9 773 9 519 10 749 21
 
PSG Konsult* 5 710 5 441 5 687 5 516 11
 
Zeder* 3 712 2 815 3 591 5 244 10
 
PSG Private Equity+ 1 246 1 367 1 729 1 766 3
 
Dipeo+ 603 557 689 741 1
 
PSG Corporate (incl. PSG Capital)++ 1 398 1 510 1 418
 
Other assets (incl. cash and
 
pref investments)^ 2 031 4 358 3 580 3 497 7
 
Total assets 35 485 42 641 46 886 51 696 100
 
Perpetual pref funding* (1 411) (1 309) (1 367) (1 341)
 
Other debt^ (679) (949) (950) (958)
 
Total SOTP value 33 395 40 383 44 569 49 397
 
 
Shares in issue
 
(net of treasury shares) (m) 204.5 216.3 216.3 216.3
 
 
SOTP value per share (R) 163.28 186.67 206.01 228.32
 
 
* Listed on the JSE + SOTP value ++ Valuation ^ Book value
 
 
Note: PSG’s live SOTP is available at www.psggroup.co.za.
 
 
Capitec remains PSG’s largest investment comprising 44% (29 February 2016: 39%) of the total SOTP
 
assets as at 31 August 2016. Capitec is also the major contributor to PSG’s recurring headline
 
earnings.
 
 
RECURRING HEADLINE EARNINGS
 
 
PSG’s consolidated recurring headline earnings is the sum of its effective interest in that of each
 
of its underlying investments. The result is that investments in which PSG holds less than 20% and
 
are generally not equity accountable in terms of accounting standards, are included in the calculation
 
of consolidated recurring headline earnings, whilst once-off (i.e. non-recurring) income and expenses
 
are excluded. This provides management and investors with a more realistic and transparent way of
 
evaluating PSG’s earnings performance.
 
 
Audited
 
Unaudited Year
 
Six months ended ended
 
Aug-15 Change Aug-16 Feb-16
 
Rm % Rm Rm
 
 
Capitec 451 538 989
 
Curro 29 47 58
 
PSG Konsult 116 132 254
 
Zeder 75 79 212
 
PSG Private Equity 47 49 113
 
Dipeo (3) (28)
 
PSG Corporate (incl. PSG Capital) 41 38 69
 
Other (mainly pref div income) 46 51 101
 
Recurring headline earnings before funding 805 16 931 1 768
 
Funding (net of interest income) (84) (49) (148)
 
Recurring headline earnings 721 22 882 1 620
 
Non-recurring items 139 126 (250)
 
Headline earnings 860 17 1 008 1 370
 
Non-headline items 2 16 113
 
Attributable earnings 862 19 1 024 1 483
 
 
Weighted average number of shares in issue
 
(net of treasury shares) (m) 203.4 5 214.2 205.7
 
 
Earnings per share (cents)
 
- Recurring headline 354.5 16 411.8 787.8
 
- Headline 422.8 11 470.5 666.2
 
- Attributable 423.7 13 477.8 721.1
 
 
Dividend per share (cents) 100.0 25 125.0 300.0
 
 
Recurring headline earnings for the six months ended 31 August 2016 increased by 16% to 411.8 cents
 
per share following satisfactory recurring headline earnings per share growth from the majority of
 
PSG’s core investments.
 
 
Headline earnings increased by 11% to 470.5 cents per share. This increase was lower than that of
 
recurring headline earnings per share mainly due to no Zeder performance fee income accrued during
 
the period under review.
 
 
SIGNIFICANT TRANSACTIONS
 
 
PSG undertook the following significant transactions during the period under review:
 
• Invested R669m cash in the Curro rights offer to fund further expansion.
 
• Acquired 19.2m PSG Konsult shares, representing a 1.5% interest, at an average price of R7.14 for
 
a total cash consideration of R137m.
 
• Successfully concluded the Zeder management fee internalisation, whereby PSG exchanged its rights
 
to the Zeder management agreement for the issue of 207.7m new Zeder shares, representing a 12%
 
equity interest. All conditions precedent were satisfied during September 2016 and the
 
implementation of the transaction finalised, with PSG’s shareholding in Zeder consequently
 
increasing from 34.5% to 42.4%.
 
 
CAPITEC (30.7%)
 
 
Capitec is a South African retail bank focused on providing easy and affordable banking services to
 
its clients via the use of innovative technology. Everything Capitec does is based on simplicity,
 
affordability, accessibility and personal service.
 
 
Capitec reported strong results with a 19% increase in headline earnings per share for the period
 
under review.
 
 
Capitec is listed on the JSE and its comprehensive results are available at www.capitecbank.co.za.
 
 
PSG KONSULT (61.7%)
 
 
PSG Konsult is a leading financial services company, focusing on providing wealth management, asset
 
management and insurance solutions to clients.
 
 
PSG Konsult reported a commendable 13% increase in recurring headline earnings per share for the
 
period under review.
 
 
PSG Konsult is listed on the JSE and Namibian Stock Exchange and its comprehensive results are
 
available at www.psg.co.za.
 
 
CURRO (57.7%)
 
 
Curro is the largest provider of private school education in Southern Africa.
 
 
Curro reported a 51% increase in headline earnings per share for its six months ended 30 June 2016.
 
 
Curro is listed on the JSE and its comprehensive results are available at www.curro.co.za.
 
 
ZEDER (34.5%)
 
 
Zeder is an investor in the broad agribusiness industry. Its largest investment is a 27.2% interest
 
in Pioneer Foods, which comprises 66% of Zeder’s total SOTP assets.
 
 
Zeder reported a 3% decrease in recurring headline earnings per share for the period under review.
 
 
Both Zeder and Pioneer Foods are listed on the JSE and their comprehensive results are available at
 
www.zeder.co.za and www.pioneerfoods.co.za, respectively.
 
 
PSG PRIVATE EQUITY (100%)
 
 
PSG Private Equity serves as incubator to find the businesses of tomorrow. Management is
 
continuously refining the existing portfolio, while actively seeking exciting new investment
 
opportunities. Given its nature, this portfolio is likely to yield volatile earnings, while
 
providing significant optionality.
 
 
PSG Private Equity reported encouraging results for the period under review with a 13% increase in
 
recurring headline earnings per share.
 
 
DIPEO (49%)
 
 
Dipeo, a BEE investment holding company, is 51%-owned by the Stellenbosch BEE Education Trust of
 
which all beneficiaries are black individuals. Dipeo’s most significant investments include
 
shareholdings in Curro (5.4%), Pioneer Foods (4.3%), Quantum Foods (4%) and Kaap Agri (20%). These
 
are all subject to BEE lock-in periods. The Stellenbosch BEE Education Trust will use its share of
 
the value created from these investments to fund black students’ education.
 
 
PROSPECTS
 
 
We believe PSG’s investment portfolio should continue yielding above average returns. PSG currently
 
has R1.7bn cash available for further investments.
 
 
DIVIDENDS
 
 
Ordinary shares
 
 
PSG’s policy remains to pay up to 100% of free cash flow as an ordinary dividend, of which one
 
third is payable as an interim and the balance as a final dividend at year-end. The directors have
 
resolved to declare an interim gross dividend of 125 cents (2015: 100 cents) from income reserves
 
for the six months ended 31 August 2016, representing a 25% increase.
 
 
The interim dividend amount, net of South African dividend tax of 15%, is 106.25 cents per share
 
for those shareholders that are not exempt from dividend tax. The number of ordinary shares in
 
issue at the declaration date is 230 778 549, and the income tax number of the company is 9950080714.
 
 
The salient dates of this dividend distribution are:
 
 
Last day to trade cum dividend Tuesday, 1 November 2016
 
Trading ex dividend commences Wednesday, 2 November 2016
 
Record date Friday, 4 November 2016
 
Payment date Monday, 7 November 2016
 
 
Share certificates may not be dematerialised or rematerialised between Wednesday, 2 November 2016
 
and Friday, 4 November 2016, both days inclusive.
 
 
Preference shares
 
 
The directors of PSG Financial Services have declared a gross dividend of 440.11 cents per share in
 
respect of the cumulative, non-redeemable, non-participating preference shares for the six months
 
ended 31 August 2016, which was paid on Monday, 26 September 2016. The detailed announcement in
 
respect hereof was disseminated on the JSE’s Stock Exchange News Services.
 
 
UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 
 
Unaudited Audited
 
Aug-16 Aug-15 Feb-16
 
6 months 6 months 12 months
 
Condensed consolidated income statement Rm Rm Rm
 
 
Revenue from sale of goods 7 064 6 677 12 964
 
Cost of goods sold (5 978) (5 709) (11 215)
 
Gross profit from sale of goods 1 086 968 1 749
 
 
Income
 
Changes in fair value of biological assets 115 61 244
 
Investment income (note 7) 957 464 974
 
Fair value gains and losses (note 7)* 1 912 807 778
 
Fair value adjustment to investment contract
 
liabilities (note 7) (1 066) (639) (1 439)
 
Fair value adjustment to third-party liabilities arising
 
on consolidation of mutual funds (note 7)* (1 089) (107) (202)
 
Commission, net insurance and other fee income 2 678 2 320 5 155
 
Other operating income* 81 32 98
 
3 588 2 938 5 608
 
 
Expenses
 
Insurance claims and loss adjustments, net of recoveries (292) (261) (519)
 
Marketing, administration and other expenses* (3 198) (2 672) (5 507)
 
(3 490) (2 933) (6 026)
 
 
Net income from associates and joint ventures
 
Share of profits of associates and joint ventures 880 720 1 609
 
(Loss on impairment)/reversal of impairment of
 
associates and joint ventures (2) 8
 
Net profit on sale/dilution of interest in associates* 11 20 295
 
891 738 1 912
 
 
Profit before finance costs and taxation 2 075 1 711 3 243
 
Finance costs (251) (230) (456)
 
Profit before taxation 1 824 1 481 2 787
 
Taxation (255) (274) (584)
 
Profit for the period 1 569 1 207 2 203
 
 
Attributable to:
 
Owners of the parent 1 024 862 1 483
 
Non-controlling interests 545 345 720
 
1 569 1 207 2 203
 
 
* Reclassified as set out in note 11.
 
 
Unaudited Audited
 
Change Aug-16 Aug-15 Feb-16
 
Earnings per share and number of shares in issue % 6 months 6 months 12 months
 
 
Earnings per share (cents)
 
- recurring headline 16 411.8 354.5 787.8
 
- headline (note 4) 11 470.5 422.8 666.2
 
- attributable/basic 13 477.8 423.7 721.1
 
- diluted headline 12 458.5 409.7 645.6
 
- diluted attributable/basic 14 466.0 410.5 698.6
 
 
Number of shares (m)
 
- in issue 230.8 221.8 230.8
 
- in issue (net of treasury shares) 214.2 203.9 214.2
 
- weighted average 214.2 203.4 205.7
 
- diluted weighted average 217.3 207.4 208.9
 
 
Unaudited Audited
 
Aug-16 Aug-15 Feb-16
 
6 months 6 months 12 months
 
Condensed consolidated statement of comprehensive income Rm Rm Rm
 
 
Profit for the period 1 569 1 207 2 203
 
Other comprehensive loss for the period, net of taxation (168) (97) (73)
 
Items that may be subsequently reclassified to profit or loss
 
Currency translation adjustments (161) (105) (105)
 
Cash flow hedges (18) 2 22
 
Recycling of cash flow hedges 1
 
Share of other comprehensive income and equity
 
movements of associates 11 6 2
 
Recycling of share of other comprehensive income and
 
equity movements of associates upon disposal (1)
 
Items that may not be subsequently reclassified to profit or loss
 
(Losses)/gains from changes in financial and demographic
 
assumptions of post-employment benefit obligations (1) 9
 
Total comprehensive income for the period 1 401 1 110 2 130
 
 
Attributable to:
 
Owners of the parent 969 859 1 516
 
Non-controlling interests 432 251 614
 
1 401 1 110 2 130
 
 
Unaudited Audited
 
Aug-16 Aug-15 Feb-16
 
Condensed consolidated statement of financial position Rm Rm Rm
 
 
Assets
 
Property, plant and equipment* 6 732 5 299 6 193
 
Intangible assets 2 912 2 681 2 714
 
Biological assets 399 340 406
 
Investment in ordinary shares of associates and joint ventures 12 719 11 266 12 061
 
Investment in preference shares of/loans granted
 
to associates and joint ventures 170 312 105
 
Deferred income tax assets 202 208 193
 
Financial assets linked to investment contracts (note 7) 22 033 17 229 19 836
 
Cash and cash equivalents 41 22 115
 
Other financial assets 21 992 17 207 19 721
 
Other financial assets (note 6.2) 23 925 6 506 21 448
 
Inventory* 1 536 1 334 1 619
 
Trade and other receivables (note 8)* 4 362 5 174 5 196
 
Current income tax assets 62 55 40
 
Cash and cash equivalents 1 614 2 336 1 862
 
Non-current assets held for sale 76 76
 
Total assets 76 742 52 740 71 749
 
 
Equity
 
Ordinary shareholders’ equity 14 328 10 952 13 634
 
Non-controlling interests 10 958 9 919 10 128
 
Total equity 25 286 20 871 23 762
 
 
Liabilities
 
Insurance contracts 564 578 607
 
Financial liabilities under investment contracts (note 7) 22 033 17 229 19 836
 
Borrowings 5 957 5 809 5 604
 
Other financial liabilities 93 101 102
 
Third-party liabilities arising on consolidation of
 
mutual funds (note 6.2) 17 735 2 447 15 729
 
Deferred income tax liabilities 762 701 618
 
Trade and other payables and employee benefit
 
liabilities (note 8)* 4 212 4 920 5 286
 
Current income tax liabilities 100 84 205
 
Total liabilities 51 456 31 869 47 987
 
 
Total equity and liabilities 76 742 52 740 71 749
 
 
Net asset value per share (R) 66.88 53.71 63.64
 
Net tangible asset value per share (R) 53.28 40.56 50.97
 
 
* Reclassified as set out in note 11.
 
 
Unaudited Audited
 
Aug-16 Aug-15 Feb-16
 
Condensed consolidated statement Change 6 months 6 months 12 months
 
of changes in equity % Rm Rm Rm
 
 
Ordinary shareholders’ equity at beginning
 
of the period 13 634 9 999 9 999
 
Total comprehensive income 969 859 1 516
 
Issue of shares 264 2 455
 
Share-based payment costs - employees 31 26 51
 
Net movement in treasury shares 5 56
 
Transactions with non-controlling interests 122 93 55
 
Dividends paid (428) (294) (498)
 
Ordinary shareholders’ equity at end of the period 14 328 10 952 13 634
 
 
Non-controlling interests at beginning
 
of the period 10 128 9 097 9 097
 
Total comprehensive income 432 251 614
 
Issue of shares 964 773 1 515
 
Share-based payment costs - employees 18 8 19
 
Subsidiaries acquired (2) 6
 
Transactions with non-controlling interests (356) (18) (820)
 
Dividends paid (228) (190) (303)
 
Non-controlling interests at end of the period 10 958 9 919 10 128
 
 
Total equity 25 286 20 871 23 762
 
 
Dividend per share (cents)
 
- interim 25 125.0 100.0 100.0
 
- final 200.0
 
125.0 100.0 300.0
 
 
Unaudited Audited
 
Aug-16 Aug-15 Feb-16
 
6 months 6 months 12 months
 
Condensed consolidated statement of cash flows Rm Rm Rm
 
 
Net cash flow from operating activities
 
Cash (utilised by)/generated from operations (note 5) (296) 65 900
 
Interest income 737 296 861
 
Dividend income 520 371 680
 
Finance costs (241) (205) (464)
 
Taxation paid (299) (201) (446)
 
Net cash flow from operating activities before
 
cash movement in policyholder funds 421 326 1 531
 
Cash movement in policyholder funds (73) (5) 88
 
Net cash flow from operating activities 348 321 1 619
 
 
Net cash flow from investing activities (1 051) (1 031) (4 181)
 
Net cash flow from subsidiaries acquired (note 6.1) (165) (242) (274)
 
Net cash flow from consolidation of mutual funds (note 6.2) 10 96
 
Acquisition of ordinary shares in associates (60) (68) (62)
 
Proceeds from disposal of ordinary shares in associates 10 80 111
 
Acquisition of property, plant and equipment (593) (447) (1 504)
 
Other investing activities (253) (354) (2 548)
 
 
Net cash flow from financing activities 30 1 275 2 754
 
Dividends paid to group shareholders (428) (294) (498)
 
Dividends paid to non-controlling interests (232) (187) (303)
 
Capital contributions by non-controlling interests 756 725 733
 
Net acquisition (from)/by non-controlling interests (220) 18 (229)
 
Borrowings drawn 371 997 1 134
 
Borrowings repaid (218) (251) (632)
 
Proceeds from disposal of holding company’s treasury shares 1 3 94
 
Shares issued 264 2 455
 
 
Net (decrease)/increase in cash and cash equivalents (673) 565 192
 
Exchange losses on cash and cash equivalents (27) (7) (17)
 
Cash and cash equivalents at beginning of the period 1 001 826 826
 
Cash and cash equivalents at end of the period* 301 1 384 1 001
 
 
Cash and cash equivalents consists of:
 
Cash and cash equivalents per the statement of
 
financial position 1 614 2 336 1 862
 
Cash and cash equivalents attributable to equity holders 1 513 2 231 1 696
 
Other clients’ cash and cash equivalents 101 105 166
 
Cash and cash equivalents linked to investment contracts 41 22 115
 
Bank overdrafts attributable to equity holders
 
(included in borrowings) (1 354) (974) (976)
 
301 1 384 1 001
 
 
* Available cash held at a PSG Group head office level is invested in the PSG Money Market Fund. As a
 
result of the group’s consolidation of the PSG Money Market Fund, the cash invested in same is
 
derecognised and all of the fund’s underlying highly liquid debt securities (included in “other
 
financial assets” on the face of the balance sheet) are recognised. Third parties’ cash invested in
 
the PSG Money Market Fund are recognised as a payable and included under “third-party liabilities
 
arising on consolidation of mutual funds”. Available cash held at a PSG Group head office level and
 
invested in the PSG Money Market Fund amounted to R1.7bn (31 August 2015: R0.8bn; 29 February 2016:
 
R2.9bn) at the reporting date.
 
 
Notes to the condensed interim consolidated financial statements
 
 
1. Basis of presentation and accounting policies
 
 
These condensed interim consolidated financial statements have been prepared in accordance with the
 
recognition and measurement principles of International Financial Reporting Standards (“IFRS”) as
 
issued by the International Accounting Standards Board, including IAS 34 Interim Financial Reporting;
 
the SAICA Financial Reporting Guides, as issued by the Accounting Practices Committee; the Financial
 
Reporting Pronouncements, as issued by the Financial Reporting Standards Council; the requirements of
 
the South African Companies Act, 71 of 2008, as amended; and the JSE Listings Requirements.
 
 
The accounting policies applied in the preparation of these condensed interim consolidated financial
 
statements are consistent in all material respects with those used in the prior year’s consolidated
 
annual financial statements. The group also adopted the various other revisions to IFRS which are
 
effective for its financial year ending 28 February 2017. These revisions have not resulted in
 
material changes to the group’s reported results and disclosures in these condensed interim
 
consolidated financial statements.
 
 
In preparing these condensed interim consolidated financial statements, the significant judgements
 
made by management in applying the group’s accounting policies and the key sources of estimation
 
uncertainty were the same as those that applied to the group’s consolidated annual financial
 
statements for the year ended 29 February 2016.
 
 
2. Preparation
 
 
These condensed interim consolidated financial statements were compiled under the supervision of
 
the group financial director, Mr WL Greeff, CA (SA), and were not reviewed or audited by PSG Group’s
 
external auditor, PricewaterhouseCoopers Inc. Any reference to future financial performance included
 
in this announcement, has not been reviewed or reported on by PSG Group’s auditor.
 
 
3. PSG Financial Services
 
 
PSG Financial Services is a wholly-owned subsidiary of PSG Group, except for the 17 415 770
 
(31 August 2015: 17 415 770; 29 February 2016: 17 415 770) perpetual preference shares which are
 
listed on the JSE. These preference shares are included in non-controlling interests in the statement
 
of financial position. No separate financial statements are presented in this announcement for
 
PSG Financial Services as it is the only asset of PSG Group.
 
 
Unaudited Audited
 
Aug-16 Aug-15 Feb-16
 
6 months 6 months 12 months
 
Rm Rm Rm
 
 
4. Headline earnings
 
 
Profit for the period attributable to owners of the parent 1 024 862 1 483
 
Non-headline items
 
Gross amounts (10) 8 (283)
 
Impairment/(reversal of impairment) of investment
 
in associates 2 (8)
 
Net profit on sale/dilution of investment in associates (11) (20) (295)
 
Net loss on sale of investment in subsidiaries 2
 
Fair value gain on step-up from associate to subsidiary (4)
 
Net loss/(profit) on sale/impairment of
 
intangible assets (incl. goodwill) 1 (3) 14
 
Net profit on sale/reversal of impairment of property, plant
 
and equipment (4) (4) (18)
 
Non-headline items of associates 4 33 29
 
Bargain purchase gain (4)
 
Impairment of available-for-sale financial assets 1
 
Non-controlling interests (7) (15) 166
 
Taxation 1 5 4
 
Headline earnings 1 008 860 1 370
 
 
5. Cash (utilised by)/generated from operations
 
 
Profit before taxation 1 824 1 481 2 787
 
Share of profits of associates and joint ventures (880) (720) (1 609)
 
Depreciation and amortisation 208 176 380
 
Investment income (957) (464) (974)
 
Finance costs 251 230 456
 
Working capital changes and other non-cash items (742) (638) (140)
 
Cash (utilised by)/generated from operations (296) 65 900
 
 
6. Business combinations
 
 
6.1 Subsidiaries acquired
 
 
The group’s subsidiaries acquired during the period under review included:
 
 
Windhoek Gymnasium Private School (Pty) Ltd (“Windhoek Gymnasium”)
 
During March 2016, the group, through Curro, acquired 100% of the issued share capital of Windhoek
 
Gymnasium for a cash consideration of R181m, of which R26m has been deferred. Windhoek Gymnasium
 
operates a private school in Windhoek, Namibia, being complementary to Curro’s existing operations.
 
Goodwill of R64m arose in respect of, inter alia, the workforce, expected synergies, economies of
 
scale and the business’ growth potential.
 
 
The amounts of identifiable net assets of subsidiaries acquired, as well as goodwill and
 
non-controlling interests recognised from business combinations during the period under review, can
 
be summarised as follows:
 
 
Windhoek
 
Gymnasium Other Total
 
Unaudited Rm Rm Rm
 
 
Identifiable net assets acquired 117 3 120
 
Goodwill recognised 64 10 74
 
Purchase consideration 181 13 194
 
Deferred purchase consideration (26) (26)
 
Cash consideration paid 155 13 168
 
 
Cash consideration paid (155) (13) (168)
 
Cash and cash equivalents acquired 1 2 3
 
Net cash flow from subsidiaries acquired (154) (11) (165)
 
 
Transaction costs relating to the business combinations were insignificant and expensed in the income
 
statement.
 
 
The aforementioned business combinations have been provisionally accounted for and do not contain any
 
contingent consideration or indemnification asset arrangements.
 
 
6.2 Consolidation of mutual funds
 
 
During the period under review, the group commenced consolidation of the PSG Wealth Income Fund of
 
Funds, being managed by PSG Asset Management. The consolidation of the aforementioned mutual fund
 
resulted in an additional R1.4bn of “other financial assets” and R1.4bn of “third-party liabilities
 
arising on consolidation of mutual funds” being recognised in the statement of financial position.
 
Cash and cash equivalents held by the mutual fund of R10m was recognised upon consolidation.
 
 
During the second half of the previous financial year, the group commenced consolidation of the
 
PSG Wealth Enhanced Interest Fund, PSG Wealth Creator Fund of Funds and the PSG Wealth Moderate Fund
 
of Funds, following an increase in policyholder funds (i.e. financial assets linked to investment
 
contracts) invested in same. The consolidation of these mutual funds resulted in R13bn of “other
 
financial assets” and R13bn of “third-party liabilities arising on consolidation of mutual funds”
 
being recognised in the statement of financial position. The aforementioned balances relate to third
 
parties’ funds invested in the respective mutual funds. Cash and cash equivalents held by the mutual
 
funds of R96m was recognised upon consolidation.
 
 
7. Linked investment contracts and consolidated mutual funds
 
 
Linked investment contracts are represented by PSG Life Ltd clients’ assets held under investment
 
contracts, which are linked to a corresponding liability. Accordingly, the value of policy benefits
 
payable is directly linked to the fair value of the supporting assets and therefore the group is not
 
exposed to the financial risks associated with these assets and liabilities.
 
 
As a result of the group’s consolidation of mutual funds which it controls in accordance with IFRS 10,
 
the group’s investments in these mutual funds have been derecognised and all the funds’ underlying
 
assets are recognised. Third parties’ funds invested in the respective mutual funds are recognised as
 
a payable and included under “third-party liabilities arising on consolidation of mutual funds”.
 
 
The income statement impact recognised from the assets and liabilities pertaining to the investment
 
contract policy holders and consolidated mutual funds are split from the corresponding income
 
statement line items attributable to the equity holders of the group below:
 
 
Linked
 
investment
 
contracts and
 
consolidated Equity
 
mutual funds holders Total
 
Rm Rm Rm
 
 
Six months ended 31 August 2016 (unaudited)
 
 
Investment income 723 234 957
 
Fair value gains and losses 1 489 423 1 912
 
Fair value adjustment to investment contract liabilities (1 066) (1 066)
 
Fair value adjustment to third-party liabilities arising
 
on consolidation of mutual funds (1 089) (1 089)
 
Other (57) (57)
 
-
 
 
Six months ended 31 August 2015 (unaudited)
 
 
Investment income 320 144 464
 
Fair value gains and losses 460 347 807
 
Fair value adjustment to investment contract liabilities (639) (639)
 
Fair value adjustment to third-party liabilities arising
 
on consolidation of mutual funds (107) (107)
 
Other (34) (34)
 
-
 
 
Year ended 29 February 2016 (audited)
 
 
Investment income 607 367 974
 
Fair value gains and losses 1 092 (314) 778
 
Fair value adjustment to investment contract liabilities (1 439) (1 439)
 
Fair value adjustment to third-party liabilities arising
 
on consolidation of mutual funds (202) (202)
 
Other (58) (58)
 
-
 
 
8. Trade and other receivables and payables
 
 
Included under trade and other receivables are PSG Online broker and clearing accounts of which R1.3bn
 
(31 August 2015: R2.5bn; 29 February 2016: R2.5bn) represents amounts owing by the JSE for trades
 
conducted during the last few days before the reporting date. These balances fluctuate on a daily basis
 
depending on the activity in the markets.
 
 
The control account for the settlement of these transactions is included under trade and other
 
payables, with the settlement to clients taking place within three days after the transaction date.
 
 
9. Corporate actions
 
 
Apart from the transactions set out in note 6.1, the group’s most significant corporate actions are
 
detailed in the commentary section of this announcement.
 
 
10. Financial instruments
 
 
10.1 Financial risk factors
 
 
The group’s activities expose it to a variety of financial risks: market risk (including currency
 
risk, fair value risk, fair value interest rate risk, and price risk), credit risk and liquidity risk.
 
 
These condensed interim consolidated financial statements do not include all financial risk management
 
information and disclosures set out in the consolidated annual financial statements, and therefore they
 
should be read in conjunction with the group’s annual consolidated financial statements for the year
 
ended 29 February 2016. Risk management continues to be carried out by each major entity within the
 
group under policies approved by the respective boards of directors.
 
 
10.2 Fair value estimation
 
 
The group, through PSG Life Ltd, issues linked investment contracts where the value of the policy
 
benefits (i.e. liability) is directly linked to the fair value of the supporting assets, and as such
 
does not expose the group to the market risk relating to fair value movements.
 
 
The information below analyses financial assets and liabilities, which are carried at fair value, by
 
level of hierarchy as required by IFRS 13. The different levels in the hierarchy are defined below:
 
 
Level 1
 
The fair value of financial instruments traded in active markets is based on quoted market prices at
 
the reporting date. A market is regarded as active if quoted prices are readily and regularly available
 
from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those
 
prices represent actual and regularly occurring market transactions on an arm’s length basis. The
 
quoted market price used for financial assets held by the group is the current bid price.
 
 
Level 2
 
Financial instruments that trade in markets that are not considered to be active but are valued
 
(using valuation techniques) based on quoted market prices, dealer quotations or alternative pricing
 
sources supported by observable inputs are classified within level 2. These include over-the-counter
 
traded derivatives. As level 2 investments include positions that are not traded in active markets
 
and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or
 
non-transferability, which are generally based on available market information. If all significant
 
inputs in determining an instrument’s fair value are observable, the instrument is included in
 
level 2.
 
 
Level 3
 
If one or more of the significant inputs is not based on observable market data, the instrument is
 
included in level 3. Investments classified within level 3 have significant unobservable inputs, as
 
they trade infrequently.
 
 
The carrying value of financial assets and liabilities carried at amortised cost approximates their
 
fair value, while those measured at fair value in the statement of financial position can be
 
summarised as follows:
 
 
Level 1 Level 2 Level 3 Total
 
Rm Rm Rm Rm
 
 
31 August 2016 (unaudited)
 
 
Assets
 
Derivative financial assets 76 76
 
Equity securities 2 194 1 420 59 3 673
 
Debt securities 889 1 587 2 476
 
Unit-linked investments 32 964 1 101 34 065
 
Investment in investment contracts 29 29
 
Closing balance 3 083 36 076 1 160 40 319
 
 
Liabilities
 
Derivative financial liabilities 21 68 89
 
Investment contracts 20 731 1 089 21 820
 
Trade and other payables 28 28
 
Third-party liabilities arising on consolidation
 
of mutual funds 17 735 17 735
 
Closing balance - 38 487 1 185 39 672
 
 
31 August 2015 (unaudited)
 
 
Assets
 
Derivative financial assets 88 88
 
Equity securities 887 1 630 79 2 596
 
Debt securities 466 427 90 983
 
Unit-linked investments 14 642 946 15 588
 
Investment in investment contracts 384 384
 
Closing balance 1 353 17 171 1 115 19 639
 
 
Liabilities
 
Derivative financial liabilities 31 66 97
 
Investment contracts 15 563 1 026 16 589
 
Trade and other payables 15 15
 
Third-party liabilities arising on consolidation
 
of mutual funds 2 447 2 447
 
Closing balance - 18 041 1 107 19 148
 
 
29 February 2016 (audited)
 
 
Assets
 
Derivative financial assets 92 92
 
Equity securities 1 747 1 021 69 2 837
 
Debt securities 846 1 421 23 2 290
 
Unit-linked investments 28 407 1 311 29 718
 
Investment in investment contracts 74 74
 
Closing balance 2 593 31 015 1 403 35 011
 
 
Liabilities
 
Derivative financial liabilities 32 65 97
 
Investment contracts 18 173 1 299 19 472
 
Trade and other payables 5 5
 
Third-party liabilities arising on consolidation
 
of mutual funds 15 729 15 729
 
Closing balance - 33 934 1 369 35 303
 
 
The following table presents changes in level 3 financial instruments during the respective periods:
 
 
Unaudited Audited
 
Aug-16 Aug-15 Feb-16
 
Assets Liabilities Assets Liabilities Assets Liabilities
 
Rm Rm Rm Rm Rm Rm
 
 
Opening balance 1 403 1 369 1 200 1 184 1 200 1 184
 
Additions 85 111 1 850 1 852 453 406
 
Disposals (351) (323) (2 034) (2 038) (790) (785)
 
Fair value adjustments 23 25 99 106 540 559
 
Other movements 3 3 5
 
Closing balance 1 160 1 185 1 115 1 107 1 403 1 369
 
 
Unit-linked investments and debt securities represent the largest portion of the level 3 financial
 
assets and relate to units and debentures held in hedge funds that are priced monthly. The prices are
 
obtained from the asset managers of the particular hedge funds. These are held to match investment
 
contract liabilities, and as such any change in measurement would result in a similar adjustment to
 
investment contract liabilities.
 
 
Derivative financial assets, equity securities, debt securities and unit-linked investments are all
 
included in “other financial assets” in the statement of financial position, while “other financial
 
liabilities” comprises mainly derivative financial liabilities.
 
 
There have been no significant transfers between level 1, 2 or 3 during the period under review, nor
 
were there any significant changes to the valuation techniques and inputs used to determine fair
 
values. Valuation techniques and main inputs used to determine fair value for financial instruments
 
classified as level 2 can be summarised as follows:
 
 
Instrument Valuation technique Main inputs
 
Derivative financial assets Exit price on recognised Not applicable
 
and liabilities over-the-counter platforms
 
Debt securities Valuation model that uses the Bond interest rate curves
 
market inputs (yield of Issuer credit ratings
 
benchmark bonds) Liquidity spreads
 
Unit-linked investments Quoted put (exit) price provided Not applicable - prices
 
by the fund manager available publicly
 
Investment in investment contracts Prices are obtained from the Not applicable - prices
 
insurer or the particular provided by registered
 
investment contract long-term insurers
 
Investment contracts Current unit price of underlying Not applicable
 
unitised financial asset that is
 
linked to the liability,
 
multiplied by the number of
 
units held
 
Third-party liabilities arising on Quoted put (exit) price provided Not applicable - prices
 
consolidation of mutual funds by the fund manager available publicly
 
 
11. Reclassification of prior period figures
 
 
11.1 Presentation in the income statement
 
 
Given the extent of the “net profit on sale/dilution of interest in associates” for the year ended
 
29 February 2016, management decided to disclose same separately on the face of the income statement.
 
The results for the year ended 29 February 2016 were previously presented on this basis, while the
 
comparatives for the six months ended 31 August 2015 have now been reclassified accordingly by
 
removing the R20m profit on sale/dilution of interest in associates from “other income” and
 
including same in “net profit on sale/dilution of interest in associates” on the face of the income
 
statement.
 
 
PSG Konsult’s consolidation of additional mutual funds has resulted in an increase in the fair
 
value adjustments made to the third-party liabilities arising on consolidation of mutual funds.
 
Accordingly, management has decided to disclose same separately on the face of the income statement
 
for the sake of transparency. The comparatives for the six months ended 31 August 2015 and for the
 
year ended 29 February 2016 have been reclassified by removing the relevant amounts from “fair value
 
gains and losses” and “marketing, administration and other expenses”, and including same in “fair
 
value adjustment to third-party liabilities arising on consolidation of mutual funds” on the face
 
of the income statement.
 
 
These reclassifications had no impact on previously reported assets, liabilities, equity,
 
profitability or cash flows, and the results thereof are:
 
 
Previously Now
 
reported reported Change
 
Rm Rm Rm
 
 
Income statement for the six months ended 31 August 2015
 
 
Fair value gains and losses 740 807 67
 
Fair value adjustment to third-party liabilities arising
 
on consolidation of mutual funds (107) (107)
 
Other operating income 52 32 (20)
 
Marketing, administration and other expenses (2 712) (2 672) 40
 
Net profit on sale/dilution of interest in associates 20 20
 
-
 
 
Income statement for the year ended 29 February 2016
 
 
Fair value gains and losses 643 778 135
 
Fair value adjustment to third-party liabilities arising
 
on consolidation of mutual funds (202) (202)
 
Marketing, administration and other expenses (5 574) (5 507) 67
 
-
 
 
11.2 Presentation in the statement of financial position
 
 
Leasehold improvements made by a subsidiary, Curro, have been reclassified from “property, plant and
 
equipment” to “trade and other receivables” in respect of balances reported at 29 February 2016,
 
since these leasehold improvements are recoverable from the landlord.
 
 
Capespan Group Ltd, a subsidiary, has revised the classification of fruit stock on hand in respect of
 
balances reported at 31 August 2015.
 
 
These reclassifications had no impact on previously reported equity, profitability or cash flows, and
 
the results thereof are:
 
 
Previously Now
 
reported reported Change
 
Rm Rm Rm
 
 
Statement of financial position as at 31 August 2015
 
 
Inventory 1 141 1 334 193
 
Trade and other receivables 5 331 5 174 (157)
 
Trade and other payables and employee benefit liabilities 4 884 4 920 (36)
 
-
 
 
Statement of financial position as at 29 February 2016
 
 
Property, plant and equipment 6 233 6 193 (40)
 
Trade and other receivables 5 156 5 196 40
 
-
 
 
12. Segment report
 
 
The group’s classification into seven reportable segments, namely: Capitec, Curro, PSG Konsult,
 
Zeder, PSG Private Equity, Dipeo and PSG Corporate, remains unchanged. These segments represent the
 
major investments of the group. The services offered by PSG Konsult consist of financial advice,
 
stock broking, asset management and insurance, while Curro offers private education services. The
 
other segments offer financing, banking, investing and advisory services. All segments operate
 
predominantly in the Republic of South Africa. However, the group has exposure to offshore operations
 
through, inter alia, Zeder’s investments in Capespan Group Ltd, Zaad Holdings Ltd and Agrivision
 
Africa, and PSG Private Equity’s investment in CA Sales Holdings (Pty) Ltd.
 
 
Intersegment income represents income derived from other segments within the group which is recorded
 
at the fair value of the consideration received or receivable for services rendered in the ordinary
 
course of the group’s activities. Intersegment income mainly comprises intergroup management fees
 
charged in terms of the respective management agreements.
 
 
Headline earnings comprise recurring and non-recurring headline earnings. Recurring headline
 
earnings are calculated on a proportional basis, and include the proportional headline earnings of
 
underlying investments, excluding marked-to-market adjustments and once-off items. The result is
 
that investments in which the group holds less than 20% and which are generally not equity
 
accountable in terms of accounting standards, are equity accounted for the purpose of calculating
 
the consolidated recurring headline earnings. Non-recurring headline earnings include once-off gains
 
and losses and marked-to-market fluctuations, as well as the resulting taxation charge on these
 
items. SOTP is a key valuation tool used to measure PSG’s performance. In determining SOTP, listed
 
assets and liabilities are valued using quoted market prices, whereas unlisted assets and liabilities
 
are valued using appropriate valuation methods. These values will not necessarily correspond with the
 
values per the statement of financial position since the latter are measured using the relevant
 
accounting standards which include historical cost and the equity method of accounting.
 
 
The chief operating decision-maker (the PSG Group Executive Committee) evaluates the following
 
information to assess the segments’ performance:
 
 
Recurring
 
Inter- headline Non-
 
segment earnings recurring
 
Income income (segment headline Headline SOTP
 
Six months ended 31 August 2016 ** ^^ ** profit) earnings earnings value^
 
(unaudited) Rm Rm Rm Rm Rm Rm
 
 
Capitec* 538 538 20 673
 
Curro 890 47 47 9 519
 
PSG Konsult 1 967 132 132 5 687
 
Zeder 5 073 79 (3) 76 3 591
 
PSG Private Equity 2 172 49 5 54 1 729
 
Dipeo 417 (3) 132 129 689
 
PSG Corporate
 
(incl. PSG Capital) 131 (96) 38 38 1 418
 
Funding 98 (49) (8) (57) (2 317)
 
Other 51 51 3 580
 
Total 10 748 (96) 882 126 1 008 44 569
 
Non-headline items 16
 
Earnings attributable to
 
non-controlling interests 545
 
Taxation 255
 
Profit before taxation 1 824
 
 
Six months ended 31 August 2015
 
(unaudited)
 
 
Capitec* 451 451 17 134
 
Curro 716 29 29 7 515
 
PSG Konsult 1 668 116 116 6 635
 
Zeder 4 878 75 (46) 29 3 797
 
PSG Private Equity 1 892 47 47 1 394
 
Dipeo 343 112 112 789
 
PSG Corporate
 
(incl. PSG Capital) 243 (178) 41 57 98 3 312
 
Funding 63 (10) (84) 16 (68) (2 416)
 
Other 46 46 2 392
 
Total 9 803 (188) 721 139 860 40 552
 
Non-headline items 2
 
Earnings attributable to
 
non-controlling interests 345
 
Taxation 274
 
Profit before taxation 1 481
 
 
Year ended 29 February 2016
 
(audited)
 
 
Capitec* 989 989 16 820
 
Curro 1 415 58 58 9 773
 
PSG Konsult 3 385 254 (72) 182 5 441
 
Zeder 9 606 212 (27) 185 2 815
 
PSG Private Equity 4 210 113 (2) 111 1 367
 
Dipeo (310) (28) (170) (198) 557
 
PSG Corporate
 
(incl. PSG Capital) 308 (166) 69 21 90 1 510
 
Funding 136 (12) (148) (148) (2 258)
 
Other 101 101 4 358
 
Total 18 750 (178) 1 620 (250) 1 370 40 383
 
Non-headline items 113
 
Earnings attributable to
 
non-controlling interests 720
 
Taxation 584
 
Profit before taxation 2 787
 
 
Unaudited Audited
 
Aug-16 Aug-15 Feb-16
 
6 months 6 months 12 months
 
Rm Rm Rm
 
 
Reconciliation of segment revenue to IFRS revenue:
 
Segment revenue as stated above:
 
Income^^ 10 748 9 803 18 750
 
Inter-segment income (96) (188) (178)
 
Less:
 
Changes in fair value of biological assets (115) (61) (244)
 
Fair value gains and losses^^ (1 912) (807) (778)
 
Fair value adjustment to investment contract liabilities 1 066 639 1 439
 
Fair value adjustment to third-party liabilities arising
 
on consolidation of mutual funds^^ 1 089 107 202
 
Other operating income^^ (81) (32) (98)
 
IFRS revenue*** 10 699 9 461 19 093
 
 
Non-recurring headline earnings comprised the following:
 
Non-recurring items from investments 134 66 (271)
 
Other (losses)/gains (8) 73 21
 
126 139 (250)
 
 
* Equity method of accounting applied.
 
** The total of “income” and “intersegment income” comprises the total of “revenue from sale of
 
goods” and “income” per the income statement.
 
*** IFRS revenue comprises “revenue from sale of goods”, “investment income” and “commission, net
 
insurance and other fee income” as per the income statement.
 
^ SOTP is a key valuation tool used to measure the group’s performance, but does not necessarily
 
correspond to net asset value.
 
^^ Reclassified as set out in note 11.
 
 
13. Capital commitments, contingencies and suretyships
 
 
The group’s most significant capital commitments continues to be in respect of Curro’s expansion and
 
development plans. Its 2016 investment programme includes construction of nine new campuses to the
 
value of R950m, expansion of existing campuses to the value of R500m and actual land banking of R60m,
 
with another R300m in land banking planned for the next six to 12 months.
 
 
During February 2016, the National Credit Regulator (“NCR”) alleged that Capitec had contravened the
 
National Credit Act and referred the matter to the National Consumer Tribunal. The referral was
 
withdrawn by the NCR on 21 September 2016. There are no more referrals pending between Capitec and
 
the NCR.
 
 
Apart from the aforementioned NCR matter being resolved, contingencies and suretyships similar to
 
those disclosed in the group’s consolidated annual financial statements for the year ended
 
29 February 2016 remained in effect during the period under review.
 
 
14. Related-party transactions
 
 
Related-party transactions similar to those disclosed in the consolidated annual financial
 
statements for the year ended 29 February 2016 took place during the period under review.
 
 
15. Events subsequent to the reporting date
 
 
No material event, other than the Zeder management fee internalisation detailed in the commentary
 
section of this announcement, occurred between the reporting date and the date of approval of
 
these condensed interim consolidated financial statements.
 
 
On behalf of the board
 
 
Jannie Mouton Piet Mouton Wynand Greeff
 
Chairman Chief executive officer Financial director
 
 
Stellenbosch
 
12 October 2016
 
 
DIRECTORS:
 
JF Mouton (Chairman)+, PE Burton^^, ZL Combi^, FJ Gouws+, WL Greeff (FD)*, JA Holtzhausen*,
 
MJ Jooste+ (Alt: AB la Grange), B Mathews^, JJ Mouton+, PJ Mouton (CEO)*, CA Otto^
 
* Executive + Non-executive ^ Independent non-executive ^^ Lead independent director
 
 
The following changes to the PSG Group board and its sub-committees occurred during the period
 
under review:
 
- Ms B Mathews was appointed as an independent non-executive director and member of the
 
PSG Group Audit and Risk Committee with effect from 3 May 2016;
 
- Messrs J de V du Toit, MM du Toit and W Theron retired as directors at the annual general
 
meeting held on 24 June 2016 and did not make themselves available for re-election;
 
- Mr PE Burton replaced Mr J de V du Toit as lead independent director and chairman of the
 
PSG Group Audit and Risk Committee with effect from 11 July 2016; and
 
- Mr ZL Combi was appointed as a member of the PSG Group Nomination Committee with effect
 
from 11 July 2016.
 
 
COMPANY SECRETARY AND REGISTERED OFFICE:
 
PSG Corporate Services (Pty) Ltd, 1st Floor Ou Kollege, 35 Kerk Street, Stellenbosch, 7600;
 
PO Box 7403, Stellenbosch, 7599
 
 
TRANSFER SECRETARY:
 
Computershare Investor Services (Pty) Ltd, 70 Marshall Street, Johannesburg, 2001;
 
PO Box 61051, Marshalltown, 2107
 
 
SPONSOR:
 
PSG Capital
 
 
AUDITOR:
 
PricewaterhouseCoopers Inc.
 
Date: 12/10/2016 02:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
 
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