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SANDOWN CAPITAL LIMITED - Unaudited results for the six months ended 30 September 2018

Release Date: 07/11/2018 17:30
Code(s): SDC     PDF:  
 
Wrap Text
Unaudited results for the six months ended 30 September 2018

Sandown Capital Limited  
(Incorporated in the Republic of South Africa)
(Registration number 2000/013674/06)
Share code: SDC ISIN: ZAE000249645
("Sandown" or "the Company" or "the Group")

UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2018

HIGHIGHTS

- Proposed change in investment strategy to focus on market infrastructure and regulation technology complemented by
  a liquid and transparent portfolio
- Proposed change in the Company name to Zarclear Limited to reflect the change in strategy
- Proposed termination of investment advisory agreement
- Increase in net asset value ("NAV") driven primarily by Rand weakness.

COMMENTARY

In response to shareholder activism, Sandown has proposed changes to its board of directors ("Board"), strategic direction,
management structures and company name. These proposed changes will be voted on at a shareholder meeting on
15 November 2018.

The Company has been in a process of realigning its assets to fit with the changes while simultaneously focusing on minimising
costs associated with managing its portfolio of assets. The core portfolio assets are the assets managed by 
Peregrine Capital Proprietary Limited and Stenprop Limited, which while being legacy assets, serve the strategy of the Company 
having access to regulatory capital for new investments.

The Company is also making investments into businesses that are focused on providing market infrastructure and regulation
technology ahead of the sweeping changes coming to South African financial markets under the Financial Sector Regulations
Bill, commonly referred to as "Twin Peaks". The Board envisions opportunities in this space and is in the process of applying
for a trade repository licence under the new framework.

Sandown is making efforts to exit and mitigate its risk to its geared investment into Capital Step Holdings Limited, which is a
hybrid finance business. Sandown is in the process of concluding its exit of Rinjani Holdings Limited ("Rinjani"), which is an
unlisted property investment and management business.

The Board is also sensitive to the discount of its share price and will take actions to narrow it.

Issued share capital

Shares in issue amount to 226 066 million (2017: 163 183 million).

Directorate

As detailed in the SENS announcement published on 6 September 2018, Lawrie Brozin, Sean Melnick, Sean Jelley,
Duncan Randall and Cindy Hess resigned from the Board with effect from 5 September 2018.

Paul Baloyi (independent non-executive Chairman), Warren Chapman (CEO), Fatima Vawda (independent non-executive)
and Mandy Smith (independent non-executive) were appointed directors with effect from 5 September 2018.
Andrew Hannington (CFO), previously a non-executive director of the Company, was appointed as an executive director with
effect from 5 September 2018.

Conclusion

Subject to shareholder approval, the Company will change its name and strategy and will focus its efforts and assets to pursue
opportunities in market infrastructure brought about by changing regulation. The Company will also take actions to narrow
the discount of its share price to its NAV.

Warren Chapman                             Andrew Hannington                           Paul Baloyi
Chief Executive Officer                    Chief Financial Officer                     Independent Non-Executive Chairman

7 November 2018

Directors: P Baloyi* (Chairman); W Chapman (CEO); A Hannington (CFO); F Vawda*; A Smith* (*Independent non-executive)

Registered office: 6A Sandown Valley Crescent, Sandown, Sandton, 2196 (PO Box 650361, Benmore, 2010),
Telephone: +27 11 722 7400

Company Secretaries: CIS Company Secretaries Proprietary Limited, Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196,
(PO Box 61051, Marshalltown, 2107)

Transfer Secretaries: Computershare Investor Services Proprietary Limited, Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196,
(PO Box 61051, Marshalltown, 2107)

Sponsor: Java Capital: 6A Sandown Valley Crescent, Sandown, Sandton, 2196 (PO Box 522606, Saxonwold, 2132)

Further detail and a print-friendly version of these results will be available on Sandown's website on http://www.sandowncapital.com
from 7 November 2018.

Condensed Consolidated Statement of Financial Position as at 30 September 2018

                                                                  Unaudited as at   Unaudited as at      Audited as at
                                                                     30 September      30 September           31 March
                                                                             2018              2017               2018
                                                                           R'000s            R'000s             R'000s
ASSETS
Non-current assets                                                        635 413                 -            632 747
Financial investments                                                     608 260                 -            588 949
Investment in associates                                                   27 153                 -             22 949
Deferred tax                                                                    -                 -             20 849
Current assets                                                            632 733           180 418            590 358
Financial investments                                                     444 768           174 179            507 094
Trade and other receivables                                                     6               223                162
Taxation                                                                      500             4 443              6 672
Cash and cash equivalents                                                 187 459             1 573             76 430

Total assets                                                            1 268 146           180 418          1 223 105
EQUITY AND LIABILITIES
Equity                                                                  1 262 813           172 748          1 101 687
Share capital                                                             474 400           127 374            474 400
Currency translation reserve                                                6 424                 -           (34 961)
Accumulated profits                                                       781 989            45 374            662 248
Non-current liabilities
Deferred taxation                                                           4 445             5 603                  -
Current liabilities                                                           888             2 067            121 418
Loans and other payables                                                        -             1 788            120 000
Trade and other payables                                                      888               279              1 418

Total equity and liabilities                                            1 268 146           180 418          1 223 105

Condensed Consolidated Statement of Comprehensive Income for the six months ended 30 September 2018

                                                                    Unaudited for     Unaudited for
                                                                   the six months    the six months        Audited for
                                                                            ended             ended     the year ended
                                                                     30 September      30 September           31 March
                                                                             2018              2017               2018
                                                                           R'000s            R'000s             R'000s
Revenue: Investment income/(losses)                                       158 499            18 219           (44 103)
Total revenue                                                             158 499            18 219           (44 103)
Operating expenses                                                       (12 070)           (1 339)           (23 932)
Profit/(loss) from operations                                             146 429            16 880           (68 035)
Net interest (paid)/received                                              (1 394)                41            (5 636)
- Interest received                                                           802                41                736
- Interest paid                                                           (2 196)                 -            (6 372)

Profit/(loss) before taxation                                             145 035            16 921           (73 671)
Taxation                                                                 (25 294)           (5 946)             22 236
Profit/(loss) for the period                                              119 741            10 975           (51 435)
Other comprehensive income/(loss) for the period net of taxation
Items that can be classified subsequent to profit and loss:
Currency translation differences                                           41 385                 -           (34 961)
Total comprehensive income/(loss) for the period                          161 126            10 975           (86 396)
Basic and diluted earnings per share
Earnings/(Losses)                                                         119 741            10 975           (51 435)
Number of shares in issue at reporting date                           226 065 686       161 184 841        226 065 686
Weighted average number of shares in issue                            226 065 686       161 184 841        193 625 269
Basic and diluted earnings/(losses) per share (cents)                       52.97              6.81            (26.56)
Headline earnings/(losses) per share
                                                                          119 741            10 975           (51 435)
Earnings/(Losses)
Adjustment for headline earnings/(losses)                                       -                 -                  -
Headline earnings/(losses)                                                119 741            10 975           (51 435)
Basic and headline earnings/(losses) per share (cents)                      52.97              6.81            (26.56)
Dividend per share (cents)                                                      -              1.11               1.11
Net asset value per share (cents)                                             559               107                487
Tangible net asset value per share (cents)                                    559               107                487

Condensed Consolidated Statement of Changes in Equity for the six months ended 30 September 2018

                                                                               Currency
                                                                            translation    Accumulated
R'000s                                                     Share capital        reserve        profits    Total equity
Balance as at 31 March 2017                                      127 374              -         37 495         164 868
Total comprehensive income for the period                              -              -         10 975          10 975
Transactions with owners recorded directly
in equity:                                                             -              -        (3 095)         (3 095)
- Transfer of Peregrine treasury shares                                -              -          (595)           (595)
- Dividends paid                                                       -              -        (2 500)         (2 500)

Balance as at 30 September 2017                                  127 374              -         45 374         172 748
Total comprehensive loss for the period                                -       (34 961)       (62 410)        (97 371)
Transaction with owners recorded directly
in equity:
- Restructure transactions                                       347 026              -        679 284       1 026 310
Balance as at 31 March 2018                                      474 400       (34 961)        662 248       1 101 687
Total comprehensive income for the period                              -         41 385        119 741         161 126
Balance as at 30 September 2018                                  474 400          6 424        781 989       1 262 813

Condensed Consolidated Statement of Cash Flows for the six months ended 30 September 2018

                                                                       Unaudited for    Unaudited for
                                                                      the six months   the six months      Audited for
                                                                               ended            ended   the year ended
                                                                        30 September     30 September         31 March
                                                                                2018             2017             2018
                                                                              R'000s           R'000s           R'000s
Cash flow from operating activities                                            8 492          (9 166)         (18 449)
- Cash utilised by operations                                               (12 457)          (6 707)         (25 760)
- Interest received                                                              802               41              736
- Interest paid                                                              (2 196)                -          (6 372)
- Interest received from private equity investments                            1 538                -            1 507
- Dividends received from listed equity investments                           14 633                -           14 440
- Taxation refund (paid)                                                       6 172                -            (500)
- Cash dividends paid                                                              -          (2 500)          (2 500)
Cash flow from investing activities                                          219 370           17 852         (37 312)
Proceeds from sale of financial investments                                  224 249           17 852           87 965
Acquisition of financial investments                                               -                -        (102 328)
Investment in associates                                                     (4 879)                -         (22 949)
Cash flow from financing activities 
Decrease in loans and payables                                             (120 000)          (7 556)         (23 556)
Net increase/(decrease) in cash and cash equivalents                         107 862            1 130         (79 317)
Net cash acquired in the restructure                                               -                -          170 567
Currency impact on foreign cash balances                                       3 167                -         (15 263)
Cash and cash equivalents at beginning of the period                          76 430              443              443
Cash and cash equivalents at the end of the period                           187 459            1 573           76 430

NOTES AND COMPLIANCE

The condensed consolidated unaudited interim financial statements of the Group as at and for the six months ended
30 September 2018 comprise the Group results and the Group's interests in equity accounted investees.

Basis of preparation

The condensed consolidated unaudited interim financial statements were prepared in accordance with the JSE Listings
Requirements for interim reports and the requirements of the Companies Act of South Africa. The JSE Listings Requirements
require interim reports to be prepared on a consolidated basis in accordance with the framework concepts and the measurement
and recognition requirements of the International Financial Reporting Standards ("IFRS") and the SAICA Financial Reporting
Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial
Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34: Interim Reporting.

The accounting policies applied in the preparation of the condensed consolidated unaudited interim financial statements are
in terms of IFRS and are consistent with those applied in the previous annual financial statements as at and for the year ended
31 March 2018.

In preparing these condensed consolidated unaudited interim financial statements management made judgements, estimates
and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities. Actual
results may differ from these estimates. 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 applied to the financial statements as at and for
the year ended 31 March 2018.

The Group's results were prepared under the supervision of Andrew Hannington CA(SA), the Chief Financial Officer.

These interim financial statements and any forward-looking statements have not been reviewed or reported on by the Company's
auditors, Deloitte & Touche.

Disposals

The following disposals were made during the period under review.

Hedge Funds

The Peregrine Partners Fund (the "Fund"), an En Commandite Partnership ("ECP") which held geared investments in three
underlying hedge funds as at 31 March 2018, was unbundled with effect from 1 April 2018, from which date the Fund's
80.1% interest in the PNF Peregrine ECP (together with related gearing), its 100% interest in the Peregrine Green Oak ECP
(together with related gearing) and its units in the Peregrine Capital Flexible Opportunities Hedge Fund were transferred to
direct ownership by the Group.

The Group redeemed its entire interest in the Stenham Targeted Skills II Fund and a substantial portion of its interest in the
Peregrine Capital Flexible Opportunities Fund during the period under review. The redemption proceeds were applied to repay
the outstanding portion of the vendor loan due to Peregrine SA Holdings Proprietary Limited (31 March 2018: R120 million).

Rinjani

Following the recent sale of Sandown's largest investment, Rinjani, the unlisted international property investment entity, in
which the Group holds a 79.41% non-consolidated equity interest, completed a share buy-back on 26 September 2018. The
Group's share of approximately R94 million was received in EUR, which funds are being held offshore. The Group's residual
investment in Rinjani was valued at R57.8 million as at 30 September 2018 (31 March 2018: R123.4 million).

Firefly Investment 61 Partnership ("Firefly")

Firefly, the South African private equity fund in which the Group holds a 50% partnership interest, disposed of its last
remaining material investment. The Group's share of the net sale proceeds, including settlement of outstanding loans due to it,
amounted to R9.1 million.

Acquisitions

During the period under review, the Group subscribed for additional preference shares in its associate company, Nala A2X
Proprietary Limited ("Nala A2X"), for a consideration of R2.3 million, to enable Nala A2X to follow its rights in a capital raise
by its principal investment, A2X Proprietary Limited. In addition, an amount of R2.5 million was advanced to its associate
company, Nala Empowerment Investment Company Proprietary Limited, by way of an interest-free shareholder loan.

Analysis of Assets and Liabilities by Financial Instrument Classification

Unaudited as at 30 September 2018          Financial                                    Non-financial
R'000s                                instruments at                                      instruments
                                          fair value                                    and financial
                                      through profit     Loans and                        instruments
                                            and loss   receivables           Financial     beyond the                  Fair value
                                       designated at  at amortised         liabilities       scope of       Total    of financial
                                           inception          cost   at amortised cost         IFRS 7      R'000s      instrument
Non-current assets                           635 321            92                   -              -     635 413
Financial investments                        608 260             -                   -              -     608 260         608 260
Investment in associates                      27 062            92                   -              -      27 153          27 062
Deferred tax                                       -             -                   -              -           -
Current assets                               444 768       187 464                   -            500     632 733
Financial investments                        444 768             -                   -              -     444 768         444 768
Trade and other receivables                        -             6                   -              -           6
Taxation                                           -             -                   -            500         500
Cash and cash equivalents                          -       187 459                   -              -     187 459

Total assets                               1 080 090       187 556                   -            500   1 268 146
Non-current liabilities                                                                                         -
Deferred taxation                                  -             -                   -          4 445       4 445
Current liabilities                                -             -                 888              -         888
Loans and payables                                 -             -                   -              -           -
Trade and other payables                           -             -                 888              -         888

Total liabilities                                  -             -                 888          4 445       5 333

Analysis of Assets and Liabilities by Financial Instrument Classification

Audited as at 31 March 2018                Financial                                    Non-financial
R'000s                                instruments at                                      instruments
                                          fair value                                    and financial
                                      through profit     Loans and           Financial    instruments
                                            and loss   receivables         liabilities     beyond the                  Fair value
                                       designated at  at amortised        at amortised       scope of       Total    of financial
                                           inception          cost                cost         IFRS 7      R'000s      instrument
Non-current assets                           611 806            92                   -         20 849     632 747
Financial investments                        588 949             -                   -              -     588 949         588 949
Investment in associates                      22 857            92                   -              -      22 949          22 857
Deferred tax                                       -             -                   -         20 849      20 849
Current assets                               507 094        76 592                   -          6 672     590 358
Financial investments                        507 094             -                   -              -     507 094         507 094
Trade and other receivables                        -           162                   -              -         162
Taxation                                           -             -                   -          6 672       6 672
Cash and cash equivalents                          -        76 430                   -              -      76 430

Total assets                               1 118 900        76 684                   -         27 521   1 223 105
Non-current liabilities
Deferred taxation                                  -             -                   -                          -
Current liabilities                                -             -             121 418              -     121 418
Loans and payables                                 -             -             120 000              -     120 000
Trade and other payables                           -             -               1 418              -       1 418

Total liabilities                                  -             -             121 418              -     121 418

Fair value disclosures

The following table presents the Group's financial instruments which are presented at fair value as at 30 September 2018:

                                                                                                     R'000s    R'000s      R'000s
Financial assets at fair value through profit or loss                                               Level 1   Level 2       Total
Listed equities                                                                                     434 740         -     434 740
Private equity investments                                                                                -   173 520     173 520
Hedge fund investments                                                                                    -   444 768     444 768
Investment in associates                                                                                  -    27 062      27 062
                                                                                                    434 740   645 350   1 080 090

The following table presents the Group's financial instruments which are presented at fair value as at 31 March 2018:

                                                                                                     R'000s    R'000s      R'000s
Financial assets at fair value through profit or loss                                               Level 1   Level 2       Total
Listed equities                                                                                     358 913         -     358 913
Private equity investments                                                                                -   230 036     230 036
Hedge fund investments                                                                                    -   507 094     507 094
Investment in associates                                                                                  -    22 857      22 857
                                                                                                    358 913   759 987   1 118 900
Valuation techniques applied and inputs to recurring valuation techniques

     Financial assets at
     fair value through        Valuation technique used      Significant observable     Significant unobservable
        profit or loss          to determine fair value     inputs used in valuation    inputs used in valuation

       Listed equities           Quoted market prices       Unadjusted quoted prices               N/A
                                                              in an active market of
                                                             underlying investments
        Private equity              Current market               Market-related                    N/A
         investments             assumptions for loans,           interest rate
                                independent valuations,
                                   and cost for recent
                                      transactions
        Hedge fund               Quoted market prices            The fair value is        Unobservable inputs are
        Investments                                             determined by an         mostly expense accruals of
                                                           independent administrator,   the hedge fund entities that
                                                           based on the quoted market   are deducted from the sum
                                                             prices of the underlying      of the fair values of net
                                                             investments held by the      investments held by the
                                                                   hedge funds                   hedge funds
         Investment                 Current market               Market-related                     N/A
        in associates            assumptions for loans,           interest rate
                                independent valuations,
                                   and cost for recent
                                      transactions
Hedge funds

A financial asset and a financial liability are offset and the net amount presented in the statement of financial position when
the Group has a legally enforceable right to set off the recognised amounts and intends either to settle on a net basis, or to
realise the asset and settle the liability simultaneously. The unlisted hedge fund investments were presented net of loans. The
investments made are on a geared basis with permissible loan ratios of up to 100%. The loan agreements against the investment
in the hedge funds state that the loans will be settled at the same time as a redemption out of the funds. The hedge fund
investments are measured at fair value and the loans are measured at amortised cost.

Financial assets subject to offsetting
                                                                                          Gross amounts
                                                                                          of recognised            Net amounts
                                                                                  financial liabilities    of financial assets
                                                                 Gross amounts            offset in the       presented in the
                                                                 of recognised             statement of           statement of
R'000s                                                        financial assets       financial position     financial position
30 September 2018                                                    1 062 381                (617 613)                444 768
30 March 2018                                                          584 468                 (77 374)                507 094

The increase in the gross amounts disclosed in the table above reflects the impact of the unbundling of the Peregrine Partners
Fund ECP, described elsewhere in this report. As at 31 March 2018, the Group's interest in the Fund was presented net of loans
of R520.5 million.

Related party balances and transactions

Private equity fund

The Group has a 50% interest in a partnership, Firefly, a private equity fund in the final stages of run-off. Mr S Melnick, a
director of the company during the period under review, co-invested with the Group into the fund through an entity in which
he has an indirect beneficial interest. The value of the loan receivable from Firefly as at 30  September 2018 was Nil
(31 March 2018: R695 942).

Investment manager

The Group entered into an investment advisory agreement with an external investment manager on 4 October 2017, an entity
in which S Melnick and S Jelley, executive directors of the Group during the period under review, were representative of and
have an economic interest in. For the six months ended 30 September 2018, these fees amounted to R8 million (2017: Nil).
On 17 September 2018, the investment advisory agreement was terminated by mutual consent, subject to the approval of
shareholders by way of an ordinary resolution, and in respect of which a termination fee of R63 million was agreed between
the parties.

Equity accounted investees

The Group pays certain expenses on loan account, with respect to fees incurred in the ordinary course of business, on behalf
of entities in which the Group holds an associate interest. These fees amounted to Nil for the period under review (2017: Nil).

As at 30 September 2018, Group associate companies owed the Company an aggregate amount of R91 895 (2017: Nil).

Subsidiaries

Transactions with subsidiaries are conducted in the ordinary course of business at arms' length. Dividends paid by subsidiary
companies are recognised in investment income by the holding company. Intercompany transactions and balances are
eliminated on consolidation.

Loans to subsidiary companies as at 30 September 2018 amounted to R2,6 million (2017: Nil) due by Sandown Capital
International Limited ("SCIL") to the Company. The amounts due by/to subsidiary companies are considered of a short-term
nature, unsecured and repayable on demand. Loans are interest-free unless stated otherwise.

Peregrine Holdings Limited ("Peregrine") restructure

With effect from 2 October 2017 Peregrine transferred to Sandown, a wholly-owned subsidiary of Peregrine at the time, all the
attributable surplus balance sheet investments within the Peregrine group. The effect of the restructure on the assets and
liabilities as at the reporting date is presented below.

The fair values reflected below represent their carrying values as at the restructure date (2 October 2017).

                                                                                                             R'000s
Identifiable assets transferred in:                                                                       1 160 634
Financial investments                                                                                       990 067
  Hedge funds                                                                                               474 558
  Listed equity                                                                                             383 178
  Private equity                                                                                            132 331
Cash and cash equivalents                                                                                   170 567
Identifiable liabilities transferred in:                                                                  (134 324)
Attributable net assets                                                                                   1 026 310
       
Contingent liability

In terms of an agreement signed on 17 September 2018, between the Company, SCIL and the investment manager, whereby
the investment advisory agreement between the parties was terminated, SCIL will pay the investment advisor R63 million in
consideration thereof, by no later than the second business day after an ordinary resolution being passed by the shareholders
in general meeting approving the termination, on the terms and conditions contained in the agreement. The Company has
issued notice of a general meeting in this regard, which meeting will take place on 15 November 2018. Shareholders are
referred to the Circular issued by the Company announced on SENS on Tuesday, 16 October 2018, for more detailed
information.

Subsequent events

Other than the termination of the investment advisory agreement referred to above, the directors are not aware of any other
matters or circumstances arising since the end of the reporting period under review which significantly affect the financial
position of the Group or the results of its operations.
Date: 07/11/2018 05:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

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