Reviewed Preliminary Consolidated Financial Results For The Year Ended 28 February 2017
 
 
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”)
 
 
REVIEWED PRELIMINARY CONSOLIDATED FINANCIAL RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2017
 
 
• Recurring headline earnings up 18% to R9.27 per share
 
• Sum-of-the-parts value of R240.53 per share as at 11 April 2017
 
• Dividend for the year up 25% to R3.75 per share
 
• Headline earnings up 50% to R10.01 per share
 
 
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 and food and
 
related business, as well as early-stage investments in growth sectors. PSG’s market capitalisation
 
(net of treasury shares) is approximately R51bn.
 
 
RESULTS
 
 
The two key benchmarks in terms of which PSG measures performance are sum-of-the-parts (“SOTP”)
 
value and recurring headline earnings per share as long-term growth in PSG’s SOTP value and share
 
price will depend on, inter alia, sustained growth in the recurring headline earnings per share of
 
our underlying investments.
 
 
SOTP
 
 
The calculation of PSG’s 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 28 February 2017, the SOTP value per PSG share was R240.87
 
(2016: R186.67), representing a 29% increase. At 11 April 2017, it was R240.53 per share.
 
 
28 Feb 29 Feb 28 Feb 11 Apr
 
2015 2016 2017 2017 Share
 
Asset/Liability Rm Rm Rm Rm of total
 
 
Capitec* 14 549 16 820 25 727 26 491 49%
 
Curro* 6 236 9 773 11 180 10 098 18%
 
PSG Konsult* 5 710 5 441 6 084 6 237 11%
 
Zeder* 3 712 2 815 5 398 5 528 10%
 
PSG Alpha (previously
 
PSG Private Equity)+ 1 246 1 367 1 909 2 003 4%
 
Dipeo+ 603 557 812 807 1%
 
PSG Corporate (including
 
PSG Capital)++ 1 398 1 510
 
Other assets (including cash
 
and pref investments)^ 2 031 4 358 3 586 3 442 7%
 
Total assets 35 485 42 641 54 696 54 606 100%
 
Perpetual pref funding* (1 411) (1 309) (1 350) (1 325)
 
Other debt^ (679) (949) (949) (958)
 
Total SOTP value 33 395 40 383 52 397 52 323
 
 
Shares in issue (net of
 
treasury shares) (m) 204.5 216.3 217.5 217.5
 
 
SOTP value per share (R) 163.28 186.67 240.87 240.53
 
 
* 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 47% of the total SOTP assets as at
 
28 February 2017 (February 2016: 39%), and 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.
 
 
28 Feb 29 Feb 28 Feb
 
2015 2016 Change 2017
 
Rm Rm % Rm
 
 
Capitec 729 989 1 164
 
Curro 31 58 96
 
PSG Konsult 214 254 300
 
Zeder 152 212 275
 
PSG Alpha (previously PSG Private Equity) 59 113 133
 
Dipeo 45 (28) (20)
 
PSG Corporate (including PSG Capital) 38 69 29
 
Other (mainly pref div income) 51 101 112
 
Recurring headline earnings before funding 1 319 1 768 18 2 089
 
Funding (net of interest income) (177) (148) (104)
 
Recurring headline earnings 1 142 1 620 23 1 985
 
Non-recurring items 432 (250) 160
 
Headline earnings 1 574 1 370 57 2 145
 
Non-headline items (14) 113 17
 
Attributable earnings 1 560 1 483 46 2 162
 
 
Weighted average number of shares in issue
 
(net of treasury shares) (m) 192.3 205.7 4 214.2
 
 
Earnings per share (R)
 
- Recurring headline 5.94 7.88 18 9.27
 
- Headline 8.19 6.66 50 10.01
 
- Attributable 8.11 7.21 40 10.09
 
 
Dividend per share (R) 2.00 3.00 25 3.75
 
 
The year under review saw resilient performance from the majority of PSG’s core investments, with
 
recurring headline earnings per share increasing by 18% to R9.27.
 
 
Headline earnings per share increased by 50% to R10.01. This increase was higher than that of
 
recurring headline earnings per share mainly due to marked-to-market profits achieved on Dipeo’s
 
investment portfolio, as opposed to marked-to-market losses incurred in the prior year.
 
 
Attributable earnings per share increased by a smaller margin than headline earnings per share
 
mainly due to the non-recurrence of non-headline dilution gains made on associates from an
 
accounting perspective in the prior year.
 
 
SIGNIFICANT TRANSACTIONS
 
 
PSG undertook the following significant transactions during the year under review:
 
 
• Invested R669m cash in the Curro rights offer to fund further expansion.
 
• Acquired 19.2m PSG Konsult shares, representing an additional 1.5% equity interest, at an
 
average price of R7.14 for a total cash consideration of R137m.
 
• 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%, having subsequently diluted to 42.1%.
 
• Invested a further R134m in PSG Alpha’s portfolio of early-stage investments.
 
 
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 an 18% increase in headline earnings per share for the year 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 financial services company, focused on providing wealth management, asset
 
management and insurance solutions to clients.
 
 
PSG Konsult reported a 16% increase in recurring headline earnings per share for the year under
 
review.
 
 
PSG Konsult is listed on the JSE and the Namibian Stock Exchange, and its comprehensive results
 
are available at www.psg.co.za.
 
 
CURRO (56.1%)
 
 
Curro is the largest provider of private school education in Southern Africa.
 
 
Curro reported a 55% increase in headline earnings per share for its financial year ended
 
31 December 2016.
 
 
Curro is listed on the JSE and its comprehensive results are available at www.curro.co.za.
 
 
ZEDER (42.1%)
 
 
Zeder is an investor in the broad agribusiness industry. Its largest investment is a 27.1%
 
interest in Pioneer Foods, comprising 63% of Zeder’s total SOTP assets.
 
 
Zeder reported a 0.5% increase in recurring headline earnings per share for the year under
 
review following tough trading conditions experienced at select investments.
 
 
Both Zeder and Pioneer Foods are listed on the JSE and their respective comprehensive results
 
are available at www.zeder.co.za and www.pioneerfoods.co.za.
 
 
PSG ALPHA (PREVIOUSLY PSG PRIVATE EQUITY) (100%)
 
 
PSG Alpha is not a private equity investor as defined, serving as incubator to find the
 
businesses of tomorrow and having no exit strategy. To avoid any misconception, we have changed
 
its name from PSG Private Equity to PSG Alpha.
 
 
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 Alpha reported a 25% increase in recurring headline earnings per share for the year under
 
review.
 
 
DIPEO (49%)
 
 
Dipeo, a BEE investment holding company, is 51%-owned by the Dipeo BEE Education Trust of which all
 
beneficiaries are black individuals. Dipeo’s most significant investments include shareholdings in
 
Curro (5.3%), Pioneer Foods (4.3%), Quantum Foods (4%) and Kaap Agri (20%). Apart from the latter,
 
these investments are all subject to BEE lock-in periods. The Dipeo 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 R1.3bn 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
 
approximately one third is payable as an interim and the balance as a final dividend at year-end.
 
The directors have resolved to declare a final gross dividend of 250 cents (2016: 200 cents) per
 
share from income reserves for a total dividend of 375 cents (2016: 300 cents) per share in respect
 
of the year ended 28 February 2017.
 
 
The final dividend amount, net of South African dividend tax of 20%, is 200 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 231 449 404, and the income tax number of the company is 9950080714.
 
 
The salient dates for this dividend distribution are:
 
 
Last day to trade cum dividend Tuesday, 9 May 2017
 
Trading ex-dividend commences Wednesday, 10 May 2017
 
Record date Friday, 12 May 2017
 
Payment date Monday, 15 May 2017
 
 
Share certificates may not be dematerialised or rematerialised between Wednesday, 10 May 2017, and
 
Friday, 12 May 2017, both days inclusive.
 
 
Preference shares
 
 
The directors of PSG Financial Services declared a gross dividend of 433.89 cents per share in
 
respect of the cumulative, non-redeemable, non-participating preference shares for the six months
 
ended 28 February 2017, which was paid on Monday, 20 March 2017. The detailed announcement in
 
respect hereof was disseminated on the JSE’s Stock Exchange News Services.
 
 
REVIEWED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 2017
 
 
Reviewed Audited
 
Feb-17 Feb-16
 
Condensed consolidated income statement Rm Rm
 
 
Revenue from sale of goods 14 429 12 964
 
Cost of goods sold (12 416) (11 215)
 
Gross profit from sale of goods 2 013 1 749
 
 
Income
 
Changes in fair value of biological assets 224 244
 
Investment income (note 7) 1 896 974
 
Fair value gains and losses (note 7)* 1 540 778
 
Fair value adjustment to investment contract liabilities (note 7) (976) (1 439)
 
Fair value adjustment to third-party liabilities arising on
 
consolidation of mutual funds (note 7)* (1 239) (202)
 
Commission, school, net insurance and other fee income 5 718 5 155
 
Other operating income 158 98
 
7 321 5 608
 
 
Expenses
 
Insurance claims and loss adjustments, net of recoveries (581) (519)
 
Marketing, administration and other expenses* (6 224) (5 507)
 
(6 805) (6 026)
 
 
Net income from associates and joint ventures
 
Share of profits of associates and joint ventures 1 827 1 609
 
(Loss on impairment)/reversal of impairment of associates
 
and joint ventures (6) 8
 
Net profit on sale/dilution of interest in associates 10 295
 
1 831 1 912
 
 
Profit before finance costs and taxation 4 360 3 243
 
Finance costs (474) (456)
 
Profit before taxation 3 886 2 787
 
Taxation (537) (584)
 
Profit for the year 3 349 2 203
 
 
Attributable to:
 
Owners of the parent 2 162 1 483
 
Non-controlling interests 1 187 720
 
3 349 2 203
 
 
* Reclassified as set out in note 11.
 
 
Change Reviewed Audited
 
Earnings per share and number of shares in issue % Feb-17 Feb-16
 
 
Earnings per share (R)
 
- Recurring headline 18 9.27 7.88
 
- Headline (note 4) 50 10.01 6.66
 
- Attributable/basic 40 10.09 7.21
 
- Diluted headline 52 9.79 6.46
 
- Diluted attributable/basic 41 9.86 6.99
 
 
Number of shares (m)
 
- In issue 231.4 230.8
 
- In issue (net of treasury shares) 215.4 214.2
 
- Weighted average 214.2 205.7
 
- Diluted weighted average 216.7 208.9
 
 
Reviewed Audited
 
Feb-17 Feb-16
 
Condensed consolidated statement of comprehensive income Rm Rm
 
 
Profit for the year 3 349 2 203
 
Other comprehensive loss for the year, net of taxation (519) (73)
 
Items that may be subsequently reclassified to profit or loss
 
Currency translation adjustments (450) (105)
 
Cash flow hedges (21) 22
 
Share of other comprehensive income and equity movements of associates (44) 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 (4) 9
 
Total comprehensive income for the year 2 830 2 130
 
 
Attributable to:
 
Owners of the parent 1 974 1 516
 
Non-controlling interests 856 614
 
2 830 2 130
 
 
Reviewed Audited
 
Feb-17 Feb-16
 
Condensed consolidated statement of financial position Rm Rm
 
 
Assets
 
Property, plant and equipment* 7 703 6 185
 
Intangible assets 3 108 2 714
 
Biological assets 486 406
 
Investment in ordinary shares of associates and joint ventures 13 212 12 061
 
Investment in preference shares of/loans granted to associates and
 
joint ventures 144 105
 
Deferred income tax assets 194 193
 
Financial assets linked to investment contracts (note 7) 22 561 19 836
 
Cash and cash equivalents 14 115
 
Other financial assets 22 547 19 721
 
Other financial assets (notes 6.2 and 7) 27 035 21 448
 
Inventory 1 667 1 618
 
Trade and other receivables (note 8)* 3 838 5 204
 
Current income tax assets 64 40
 
Cash and cash equivalents 2 035 1 862
 
Non-current assets held for sale 14 76
 
Total assets 82 061 71 748
 
 
Equity
 
Ordinary shareholders’ equity 15 900 13 634
 
Non-controlling interests 10 900 10 127
 
Total equity 26 800 23 761
 
 
Liabilities
 
Insurance contracts 544 607
 
Financial liabilities under investment contracts (note 7) 22 561 19 836
 
Borrowings 5 411 5 604
 
Other financial liabilities 156 102
 
Third-party liabilities arising on consolidation of mutual
 
funds (notes 6.2 and 7) 21 394 15 729
 
Deferred income tax liabilities 857 617
 
Trade and other payables and employee benefit liabilities (note 8) 4 281 5 287
 
Current income tax liabilities 57 205
 
Total liabilities 55 261 47 987
 
 
Total equity and liabilities 82 061 71 748
 
 
Net asset value per share (R) 73.81 63.64
 
Net tangible asset value per share (R) 59.38 50.97
 
 
* Reclassified as set out in note 11.
 
 
Reviewed Audited
 
Change Feb-17 Feb-16
 
Condensed consolidated statement of changes in equity % Rm Rm
 
 
Ordinary shareholders’ equity at beginning of the year 13 634 9 999
 
Total comprehensive income 1 974 1 516
 
Issue of shares 75 2 455
 
Share-based payment costs - employees 60 51
 
Net movement in treasury shares 21 56
 
Transactions with non-controlling interests 832 55
 
Dividends paid (696) (498)
 
Ordinary shareholders’ equity at end of the year 15 900 13 634
 
 
Non-controlling interests at beginning of the year 10 127 9 097
 
Total comprehensive income 856 614
 
Issue of shares 1 415 1 515
 
Share-based payment costs - employees 27 19
 
Subsidiaries acquired (note 6.1) 14 6
 
Transactions with non-controlling interests (1 188) (821)
 
Dividends paid (351) (303)
 
Non-controlling interests at end of the year 10 900 10 127
 
 
Total equity 26 800 23 761
 
 
Dividend per share (R)
 
- Interim 1.25 1.00
 
- Final 2.50 2.00
 
25 3.75 3.00
 
 
Reviewed Audited
 
Feb-17 Feb-16
 
Condensed consolidated statement of cash flows Rm Rm
 
 
Net cash flow from operating activities
 
Cash generated from operations (note 5)* 257 900
 
Interest income* 1 476 861
 
Dividend income* 1 078 680
 
Finance costs (433) (464)
 
Taxation paid (553) (446)
 
Net cash flow from operating activities before cash movement
 
in policyholder funds 1 825 1 531
 
Cash movement in policyholder funds* (101) 88
 
Net cash flow from operating activities 1 724 1 619
 
 
Net cash flow from investing activities (1 674) (4 181)
 
Cash flow from subsidiaries acquired (note 6.1) (491) (274)
 
Cash flow from consolidation of mutual funds (note 6.2) 32 96
 
Acquisition of ordinary shares in associates (147) (62)
 
Proceeds from disposal of ordinary shares in associates 13 111
 
Acquisition of property, plant and equipment (1 631) (1 504)
 
Other investing activities 550 (2 548)
 
 
Net cash flow from financing activities 76 2 754
 
Dividends paid to group shareholders (696) (498)
 
Dividends paid to non-controlling interests (351) (303)
 
Capital contributions by non-controlling interests 1 183 733
 
Acquisition from non-controlling interests (202) (229)
 
Borrowings drawn 495 1 134
 
Borrowings repaid (449) (632)
 
Proceeds from delivery of holding company’s
 
share incentive trust treasury shares 21 94
 
Shares issued 75 2 455
 
 
Net increase in cash and cash equivalents 126 192
 
Exchange losses on cash and cash equivalents (71) (17)
 
Cash and cash equivalents at beginning of the year 1 001 826
 
Cash and cash equivalents at end of the year** 1 056 1 001
 
 
Cash and cash equivalents consist of:
 
Cash and cash equivalents per the statement of financial position 2 035 1 862
 
Cash and cash equivalents attributable to equity holders 1 946 1 696
 
Other clients’ cash and cash equivalents 89 166
 
Cash and cash equivalents linked to investment contracts 14 115
 
Bank overdrafts attributable to equity holders (included in borrowings) (993) (976)
 
1 056 1 001
 
 
* These line items are impacted by linked investment contracts and consolidated mutual funds as
 
detailed in note 7.
 
 
** Available cash held at a PSG Group-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” in the statement of financial position) 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-level and invested in the PSG Money Market Fund amounted to R1.5bn (2016: R2.9bn) at
 
the reporting date.
 
 
Notes to the condensed consolidated financial statements
 
 
1. Basis of presentation and accounting policies
 
 
These condensed 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 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 were
 
effective for its financial year ended 28 February 2017. These revisions have not resulted in
 
material changes to the group’s reported results and disclosures in these condensed consolidated
 
financial statements.
 
 
2. Preparation
 
 
These condensed consolidated preliminary financial statements were compiled under the supervision of
 
the group Chief Financial Officer, Mr WL Greeff, CA(SA), and were reviewed by PSG Group’s external
 
auditor, PricewaterhouseCoopers Inc. A copy of their unmodified review opinion is available from
 
PSG Group’s registered office. Any reference to future financial performance included in this
 
announcement, has not been reviewed or reported on by the company’s auditor.
 
 
The auditor’s report does not necessarily report on all the information contained in this
 
announcement. Users are therefore advised that in order to get a full understanding of the nature
 
of the auditor’s engagement, they should obtain a copy of the auditor’s report together with the
 
accompanying financial information from the company’s registered office.
 
 
3. PSG Financial Services
 
 
PSG Financial Services is a wholly-owned subsidiary of PSG Group, except for the 17 415 770
 
(2016: 17 415 770) perpetual preference shares which are listed on the JSE. These preference shares
 
are included in non-controlling interests in the condensed consolidated statement of financial
 
position. No separate financial statements are presented in this announcement for PSG Financial
 
Services as it is the only directly held asset of PSG Group.
 
 
Reviewed Audited
 
Feb-17 Feb-16
 
Rm Rm
 
 
4. Headline earnings
 
 
Profit for the year attributable to owners of the parent 2 162 1 483
 
Non-headline items
 
Gross amounts (8) (283)
 
Impairment/(reversal of impairment) of investment in associates 6 (8)
 
Net profit on sale/dilution of investment in associates (10) (295)
 
Net loss on sale of investment in subsidiaries 2
 
Fair value gain on step-up from associate to subsidiary (39) (4)
 
Net loss on sale/impairment of intangible assets (including goodwill) 5 14
 
Net loss/(profit) on sale/reversal of impairment of property, plant
 
and equipment 11 (18)
 
Non-headline items of associates 18 29
 
Bargain purchase gain (15) (4)
 
Impairment of available-for-sale financial assets and non-current
 
assets held for sale 16 1
 
Non-controlling interests (10) 166
 
Taxation 1 4
 
Headline earnings 2 145 1 370
 
 
Reviewed Audited
 
Feb-17 Feb-16
 
Rm Rm
 
 
5. Cash generated from operations
 
 
Profit before taxation 3 886 2 787
 
Share of profits of associates and joint ventures (1 827) (1 609)
 
Depreciation and amortisation 433 380
 
Investment income (1 896) (974)
 
Finance costs 474 456
 
Working capital changes and other non-cash items (813) (140)
 
Cash generated from operations 257 900
 
 
6. Business combinations
 
 
6.1 Subsidiaries acquired
 
 
The group’s subsidiaries acquired during the year under review included:
 
 
Windhoek Gymnasium business operations (“Windhoek Gymnasium”)
 
 
During March 2016, the group, through Curro Holdings Ltd (“Curro”), acquired the business
 
operations of Windhoek Gymnasium for a 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 R58m arose in respect of, inter alia, the workforce, expected
 
synergies, economies of scale and the business’s growth potential.
 
 
De Jager Kids (Pty) Ltd and Building Blocks Prep School (Pty) Ltd (“Building Blocks”)
 
 
During July 2016, the group, through Curro, acquired 100% of the issued share capital of
 
Building Blocks for a cash consideration of R88m. Building Blocks operates pre-primary and
 
primary school campuses in Gauteng, South Africa, being complementary to Curro’s existing
 
operations. Goodwill of R37m arose in respect of, inter alia, the workforce, expected synergies,
 
economies of scale and the business’s growth potential.
 
 
St Conrads College business operations (“St Conrads”)
 
 
During July 2016, the group, through Curro, acquired the business operations of St Conrads for
 
a consideration of R43m, of which R8m is contingent upon learner number targets being met.
 
St Conrads operates a private school in Klerksdorp, South Africa, being complementary to Curro’s
 
existing operations. A bargain purchase gain of R15m was recognised in respect of the acquisition.
 
 
ITSI Holdings (Pty) Ltd (“ITSI”)
 
 
During September 2016, the group, through PSG Alpha, increased its shareholding in ITSI from 47%
 
to 61.8% for a consideration of R25m. ITSI is a provider of education solutions predominantly in
 
South Africa. Goodwill of R46m arose in respect of, inter alia, the workforce and the business’s
 
growth potential.
 
 
Dryden Combustion Company (Pty) Ltd (“Dryden”)
 
 
During January 2017, the group, through PSG Alpha, acquired 100% of the issued share capital of
 
Dryden for a consideration of R60m, of which R20m is contingent upon management remaining in
 
service for a year and certain gross profit targets being met during such period. Dryden provides
 
combustion products and services throughout Southern Africa, being complementary to the products
 
and services of NRGP Holdings (Pty) Ltd (t/a Energy Partners) (“Energy Partners”), an existing
 
subsidiary of PSG Alpha. Goodwill of R28m arose in respect of, inter alia, the workforce,
 
expected synergies, economies of scale and the business’s growth potential.
 
 
Ref NRG (Pty) Ltd (“Refsols”)
 
 
During January 2017, the group, through PSG Alpha’s investment in Energy Partners, increased its
 
shareholding in Refsols from 26% to 74% for a cash consideration of R45m. Refsols provides
 
refrigeration products and services throughout Southern Africa, being complementary to the products
 
and services of Energy Partners. Goodwill of R52m arose in respect of, inter alia, the workforce,
 
expected synergies, economies of scale and the business’s growth potential.
 
 
Groot Patrysvlei farming operations (“Groot Patrysvlei”)
 
 
During September 2016, the group, through Zeder Investments Ltd (“Zeder”), acquired the farming
 
operations of Groot Patrysvlei for a cash consideration of R73m. Groot Patrysvlei operates a
 
citrus farm, being complementary to the operations of Capespan Group Ltd (“Capespan”), an existing
 
subsidiary of Zeder.
 
 
Port Services (Pty) Ltd (“Port Stevedores”)
 
 
During January 2017, the group, through Zeder, acquired the entire issued share capital in
 
Port Stevedores for a consideration of R50m, of which R17m is contingent upon profit targets being
 
met during the next financial year. Port Stevedores provides logistical port services in
 
South Africa, being complementary to the operations of Capespan. Goodwill of R7m arose in respect
 
of, inter alia, the workforce, expected synergies, economies of scale and the business’s 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 year under review, can
 
be summarised as follows:
 
 
Windhoek Building
 
Gymnasium Blocks St Conrads ITSI Dryden Sub-total
 
Reviewed Rm Rm Rm Rm Rm Rm
 
 
Identifiable net assets
 
acquired 123 51 58 7 32 271
 
Goodwill recognised 58 37 46 28 169
 
Gain on bargain purchase (15) (15)
 
Non-controlling interests
 
recognised (3) (3)
 
Derecognition of
 
investment in associates
 
at fair value (25) (25)
 
Purchase consideration 181 88 43 25 60 397
 
Deferred/contingent
 
consideration (26) (8) (20) (54)
 
Cash consideration paid 155 88 35 25 40 343
 
 
Cash consideration paid (155) (88) (35) (25) (40) (343)
 
Cash and cash equivalents
 
acquired 1 10 5 8 24
 
Cash flow from
 
subsidiaries acquired (154) (88) (25) (20) (32) (319)
 
 
Groot Port
 
Sub-total Refsols Patrysvlei Stevedores Other Total
 
Reviewed Rm Rm Rm Rm Rm Rm
 
 
Identifiable net assets
 
acquired 271 24 73 43 23 434
 
Goodwill recognised 169 52 7 25 253
 
Gain on bargain purchase (15) (15)
 
Non-controlling interests
 
recognised (3) (6) (5) (14)
 
Derecognition of
 
investment in associates
 
at fair value (25) (25) (8) (58)
 
Purchase consideration 397 45 73 50 35 600
 
Deferred/contingent
 
consideration (54) (17) (71)
 
Cash consideration paid 343 45 73 33 35 529
 
 
Cash consideration paid (343) (45) (73) (33) (35) (529)
 
Cash and cash equivalents
 
acquired 24 3 3 8 38
 
Cash flow from
 
subsidiaries acquired (319) (42) (73) (30) (27) (491)
 
 
Transaction costs relating to the business combinations were insignificant and expensed in the
 
income statement.
 
 
The aforementioned business combinations’ accounting have been finalised and do not contain any
 
contingent consideration or indemnification asset arrangements, unless otherwise stated.
 
 
Had the aforementioned entities been consolidated with effect from 1 March 2016 instead of their
 
respective acquisition dates, the condensed consolidated income statement would have reflected
 
additional revenue of R512m and profit for the year of R56m.
 
 
Receivables of R61m are included in the identifiable net assets acquired, which are all considered
 
to be recoverable. The fair value of these receivables approximates its carrying value.
 
 
6.2 Consolidation of mutual funds
 
 
During the year under review, the group commenced consolidation of the PSG Wealth Income Fund of Funds
 
and the PSG Wealth Global Creator Feeder Fund, following an increase in policyholder funds
 
(i.e. financial assets linked to investment contracts) invested in same. These mutual funds are
 
managed by PSG Konsult Ltd (“PSG Konsult”). The consolidation of the aforementioned mutual funds
 
resulted in an additional R4bn of “other financial assets” and R4bn of “third-party liabilities arising
 
on consolidation of mutual funds” being recognised in the condensed consolidated statement of financial
 
position. Cash and cash equivalents held by these mutual funds of R32m was recognised upon
 
consolidation.
 
 
7. Linked investment contracts and consolidated mutual funds
 
 
Linked investment contracts are represented by PSG Life Ltd (an existing subsidiary of PSG Konsult)
 
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 have been 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 linked
 
investment contracts and consolidated mutual funds are split from the corresponding income statement
 
line items attributable to the equity holders of the group below:
 
 
Reviewed Audited
 
Feb-17 Feb-16
 
Linked Linked
 
investment investment
 
contracts contracts
 
and and
 
consolidated Equity consolidated Equity
 
mutual funds holders Total mutual funds holders Total
 
Rm Rm Rm Rm Rm Rm
 
 
Investment income 1 398 498 1 896 607 367 974
 
Fair value gains
 
and losses 957 583 1 540 1 092 (314) 778
 
Fair value adjustment
 
to investment contract
 
liabilities (976) (976) (1 439) (1 439)
 
Fair value adjustment to
 
third-party liabilities
 
arising on consolidation
 
of mutual funds (1 239) (1 239) (202) (202)
 
Various other line items (140) (140) (58) (58)
 
- -
 
 
The statement of cash flows impact recognised from the assets and liabilities pertaining to the
 
linked investment contracts and consolidated mutual funds are split from the corresponding statement
 
of cash flows line items attributable to the equity holders of the group below:
 
 
Reviewed Audited
 
Feb-17 Feb-16
 
Linked Linked
 
investment investment
 
contracts contracts
 
and and
 
consolidated Equity consolidated Equity
 
mutual funds holders Total mutual funds holders Total
 
Rm Rm Rm Rm Rm Rm
 
 
Cash (utilised by)/
 
generated from
 
operations (1 236) 1 493 257 (478) 1 378 900
 
Interest income 802 674 1 476 340 521 861
 
Dividend income 375 703 1 078 82 598 680
 
Finance costs (433) (433) (464) (464)
 
Taxation paid (50) (503) (553) (14) (432) (446)
 
Cash movement in
 
policyholder funds (101) (101) 88 88
 
Net cash flow from
 
operating activities (210) 1 934 1 724 18 1 601 1 619
 
Net cash flow from
 
investing activities 32 (1 706) (1 674) 96 (4 277) (4 181)
 
Net cash flow from
 
financing activities 76 76 2 754 2 754
 
Net (decrease)/increase
 
in cash and cash
 
equivalents (178) 304 126 114 78 192
 
Exchange losses on
 
cash and cash
 
equivalents (71) (71) (17) (17)
 
Cash and cash
 
equivalents at
 
beginning of the year 281 720 1 001 167 659 826
 
Cash and cash
 
equivalents at
 
end of the year 103 953 1 056 281 720 1 001
 
 
8. Trade and other receivables and payables
 
 
Included under trade and other receivables are PSG Online broker and clearing accounts of which
 
R1.2bn (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.
 
All such balances have been settled accordingly.
 
 
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 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 consolidated annual financial statements for the
 
year ended 28 February 2017. Risk management continues to be carried out by each 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 in the supporting
 
assets.
 
 
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
 
 
28 February 2017 (reviewed)
 
Assets
 
Derivative financial assets 64 64
 
Equity securities 2 257 1 606 50 3 913
 
Debt securities 1 005 1 686 2 691
 
Unit-linked investments 36 545 1 111 37 656
 
Investment in investment contracts 16 16
 
Closing balance 3 262 39 917 1 161 44 340
 
 
Liabilities
 
Derivative financial liabilities 38 114 152
 
Investment contracts 21 317 1 099 22 416
 
Trade and other payables 38 38
 
Third-party liabilities arising on
 
consolidation of mutual funds 21 394 21 394
 
Closing balance - 42 749 1 251 44 000
 
 
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 years:
 
 
Reviewed Audited
 
Feb-17 Feb-16
 
Assets Liabilities Assets Liabilities
 
Rm Rm Rm Rm
 
 
Opening balance 1 403 1 369 1 200 1 184
 
Additions 193 295 453 406
 
Disposals (454) (449) (790) (785)
 
Fair value adjustments 19 36 540 559
 
Other movements 5
 
Closing balance 1 161 1 251 1 403 1 369
 
 
Unit-linked investments represent the largest portion of the level 3 financial assets and relate
 
to units 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, unit-linked investments and
 
investment in investment contracts 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 year 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 and
 
benchmark bonds) liquidity spreads
 
Unit-linked investments Quoted 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 of 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 exit price provided Not applicable - prices
 
consolidation of mutual funds by the fund manager available publicly
 
 
11. Reclassification of prior year figures
 
 
Presentation in 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 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.
 
 
This reclassification had no impact on previously reported assets, liabilities, equity,
 
profitability or cash flows, and the results thereof are:
 
 
Previously Now
 
reported reported Change
 
Income statement for the year ended 29 February 2016 Rm Rm Rm
 
 
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
 
-
 
 
Presentation in the statement of financial position
 
 
Leasehold improvements made by 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.
 
 
This reclassification had no impact on previously reported liabilities, equity, profitability or
 
cash flows, and the results thereof are:
 
 
Previously Now
 
reported reported Change
 
Statement of financial position as at 29 February 2016 Rm Rm Rm
 
 
Property, plant and equipment 6 233 6 185 (48)
 
Trade and other receivables 5 156 5 204 48
 
-
 
 
12. Segment report
 
 
The group’s classification into seven reportable segments, namely: Capitec, Curro, PSG Konsult,
 
Zeder, PSG Alpha, 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 operations
 
outside the Republic of South Africa through, inter alia, Curro’s investment in Windhoek Gymnasium,
 
Zeder’s investments in Capespan, Zaad Holdings Ltd and Agrivision Africa, and PSG Alpha’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, as well as intergroup advisory fees.
 
 
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
 
Year ended 28 February 2017 ** ** profit) earnings earnings value^
 
(reviewed) Rm Rm Rm Rm Rm Rm
 
 
Capitec* 1 164 1 164 25 727
 
Curro 1 834 96 96 11 180
 
PSG Konsult 3 799 300 300 6 084
 
Zeder 10 522 275 (4) 271 5 398
 
PSG Alpha 4 781 133 3 136 1 909
 
Dipeo 594 (20) 187 167 812
 
PSG Corporate (including
 
PSG Capital) 155 (102) 29 (26) 3
 
Funding 193 (26) (104) (104) (2 299)
 
Other 112 112 3 586
 
Total 21 878 (128) 1 985 160 2 145 52 397
 
Non-headline items 17
 
Earnings attributable to
 
non-controlling interests 1 187
 
Taxation 537
 
Profit before taxation 3 886
 
 
Recurring
 
Inter- headline Non-
 
segment earnings recurring
 
Income income (segment headline Headline SOTP
 
Year ended 29 February 2016 ** ** profit) earnings earnings value^
 
(audited) Rm Rm Rm Rm Rm Rm
 
 
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 Alpha 4 210 113 (2) 111 1 367
 
Dipeo (310) (28) (170) (198) 557
 
PSG Corporate (including
 
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
 
 
Reviewed Audited
 
Feb-17 Feb-16
 
Rm Rm
 
 
Reconciliation of segment revenue to IFRS revenue:
 
Segment revenue as stated above:
 
Income^^ 21 878 18 750
 
Inter-segment income (128) (178)
 
Less:
 
Changes in fair value of biological assets (224) (244)
 
Fair value gains and losses^^ (1 540) (778)
 
Fair value adjustment to investment contract liabilities 976 1 439
 
Fair value adjustment to third-party liabilities arising
 
on consolidation of mutual funds^^ 1 239 202
 
Other operating income (158) (98)
 
IFRS revenue*** 22 043 19 093
 
 
Non-recurring headline earnings comprised the following:
 
Non-recurring items from investments 186 (271)
 
Other (losses)/gains (26) 21
 
160 (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, school,
 
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
 
 
Curro continues with its expansion and development of new campuses. At the reporting date, authorised
 
and contracted capital expenditure amounted to R128m, while authorised but not yet contracted capital
 
expenditure amounted to R1.9bn.
 
 
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 year under review.
 
 
15. Events subsequent to the reporting date
 
 
No material event has occurred between the reporting date and the date of approval of these condensed
 
consolidated financial statements.
 
 
On behalf of the board
 
 
Jannie Mouton Piet Mouton Wynand Greeff
 
Chairman Chief Executive Officer Chief Financial Officer
 
 
Stellenbosch
 
19 April 2017
 
 
DIRECTORS:
 
JF Mouton (Chairman)+, PE Burton^^, ZL Combi^, FJ Gouws+, WL Greeff (CFO)*, 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
 
 
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, Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196;
 
PO Box 61051, Marshalltown, 2107
 
 
SPONSOR:
 
PSG Capital
 
 
AUDITOR:
 
PricewaterhouseCoopers Inc
 
Date: 19/04/2017 01:50:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
 
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