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Provisional summarised audited consolidated results for the year ended 31 March 2019
ZARCLEAR HOLDINGS LIMITED
(formerly Sandown Capital Limited)
(Incorporated in the Republic of South Africa)
(Registration number 2000/013674/06)
Share code: ZCL
ISIN: ZAE000249645
("Zarclear" or "the Group" or "the Company")
PROVISIONAL SUMMARISED AUDITED CONSOLIDATED RESULTS FOR THE YEAR ENDED 31 MARCH 2019
- NAV per share increased by 10.3% over the year to 537 cents per share
- Operating profit of R51.3 million against operating loss of R68 million in 2018
- Board and balance sheet restructured and revised investment strategy adopted
- Investment advisory management agreement terminated
COMMENTARY
These results, for the year to 31 March 2019, are the second since the Group's shares were listed on the JSE Limited and A2X on 29 November 2017. In the year reported, the
Company underwent considerable restructuring and corporate action, including a change in name, from Sandown Capital Limited to Zarclear Holdings Limited.
As was communicated on SENS on 19 September 2018, the board of directors of the company ("the board") asked shareholders to approve the name change, a revised investment
strategy and the termination of an investment advisory agreement between the Company and Sandown Capital International Limited ("SCIL") and its advisors, Sandown
Management Limited. On 15 November 2018 shareholders approved these changes. At the same meeting, shareholders endorsed a reconstitution of the board of directors
("the board").
At 537 cents per share ("cps") at 31 March 2019, net asset value (NAV) reflected an increase of 10.3% over the 487 cps as at 31 March 2018. The discount to NAV at which
the Company's shares traded narrowed during the year, from 35% to 28% at year-end, there being no change in the Company's share capital during the year. Closing the
discount further remains a priority of the board.
A significant portion of operating profits of R51 million (2018: R68 million losses) related to realised fair value adjustments on financial investments (in particular, with respect
to unlisted private equity investments and hedge funds).
Headline and basic profits attributable to ordinary shareholders were R27 million (2018: R51 million loss).
On 31 March 2019, cash accounted for some 46% of NAV. At R558 million, the closing balance of cash and cash equivalents represented a considerable increase over that of
the previous year (2018: R76 million). This increase derived mostly from a restructuring of the balance sheet and included a reduction in the value of financial investments. The
cash balances support the Company's hedge-fund investments and are encumbered in part. The board has every confidence that the Company's revised investment strategy will
utilise excess cash resources, to the benefit of shareholders.
INVESTMENT STRATEGY
In November 2018 shareholders approved a new investment policy for Zarclear.
This new strategy was premised on the understanding that the Company's portfolio carried with it the inherent likelihood of a persisting discount to NAV, which discount would
be difficult to overcome without a clearly articulated, compelling investment case.
The revised policy's focus is on financial-market infrastructure investments and managing a liquid and flexible capital base that generates market-related returns, in South Africa
and elsewhere. The Company's listed-governance structures, its broad shareholder base and sector expertise as well as access to networks offered by the Company's management
and its liquid and flexible capital support this strategy.
To this end, the Company exited its full investments in Capital Step Limited, a UK-based specialist finance group, and began exiting its investments in Rinjani Holdings Limited,
a property management group which consisted of listed and unlisted property portfolios. Stenprop Limited, albeit a legacy asset, remains a core part of the portfolio.
The Group also reduced its gearing and restructured its hedge-fund assets. The board believes that the flexibility and liquidity of this capital and the returns offered by the funds'
managers serve the broader strategy of the business. The Company's revised investment strategy entails management actively and closely deploying financial and other resources
to a few high conviction financial-market infrastructure investments offering exceptional returns in which the Company will be able to actively engage with management while
adding strategic, governance and other value.
Targeted investments are in regulated exchanges, trade repositories, clearing houses, securities depositories and investment and technology platforms within the financial
markets sector in general and South Africa in particular. The Company has three investments in this area: a 28% holding in Nala A2X Proprietary Limited; 100% of Zarclear
Proprietary Limited ("Zarclear Proprietary"), providing infrastructure and regulation technology services to financial services companies, and 60% of Zarclear Securities
Lending Proprietary Limited. All of these businesses have required relatively low initial investments, rely heavily on new technologies and look to exploit the changing regulatory
landscape by fulfilling market needs brought about by new legislation. All have high-growth prospects.
The Company did not declare nor pay any dividends (2018: R2.5 million) in respect of the current financial year. The board does not expect to declare dividends for the foreseeable
future, the intention being to reinvest income derived from investments into new investment opportunities.
CONCLUSION
In the year the Group exited certain investments which were considered either an inappropriate fit with the revised strategy or because the board wished to lock in profit and
realise cash to enable the revised strategy. The performances of the hedge funds, both in South Africa and offshore, were positive overall in terms of underlying net asset value
while benefiting from rand weakness. Disposals enabled the Group to fully settle a vendor loan, fund the acquisition of subsidiaries operating in the market infrastructure and
regulation technology fields and to take advantage of new opportunities envisaged in the revised strategy.
This abridged report is extracted from audited information but is not itself audited. The board of directors of Zarclear take full responsibility for the preparation of this
abridged report.
Paul Baloyi
Non-Executive Chairman
Warren Chapman
Chief Executive Officer
Andrew Hannington
Chief Financial Officer
13 June 2019
The reconstituted board of directors is: Paul Baloyi* (Chairman); Warren Chapman (CEO); Andrew Hannington (CFO); Fatima Vawda*; Amanda Munro-Smith*
(*Independent non-executive)
Registered office: 6A Sandown Valley Crescent, Sandown, Sandton, 2196 (PO Box 650361, Benmore, 2010), Telephone: +27 11 722 7400
Company Secretary: CIS Company Secretaries Proprietary Limited
Transfer Secretaries: Computershare Investor Services Proprietary Limited
Sponsor: Java Capital
The Company's Audited Financial Statements will be available on Zarclear's website on http://www.zarclear.com from 13 June 2019.
Statement of financial position
as at 31 March
2019 2018
R'000s R'000s
Assets
Non-current assets 497,577 632,747
Property, plant and equipment 435 -
Intangible assets 3,005 -
Goodwill 14,944 -
Financial investments 450,629 588,949
Investment in associates 28,517 22,949
Deferred tax 47 20,849
Current assets 777,644 590,358
Financial investments 160,732 507,094
Trade and other receivables 58,068 162
Taxation 550 6,672
Cash and cash equivalents 558,294 76,430
-
Total assets 1,275,221 1,223,105
Equity and liabilities
Equity and reserves 1,214,213 1,101,687
Share capital 474,400 474,400
Foreign currency translation reserve 50,240 -34,961
Accumulated profit 689,178 662,248
Total attributable to equity holders of the company 1,213,818 1,101,687
Non-controlling interests 395 -
Non-current liabilities
Deferred taxation 3,512 -
Current liabilities 57,496 121,418
Loans and other payables - 120,000
Taxation payable 168 -
Trade and other payables 57,328 1,418
Total equity and liabilities 1,275,221 1,223,105
Statement of comprehensive income
for the year ended 31 March
2019 2018
R'000s R'000s
Income (losses) from portfolio investments 133,926 (44,103)
Fee income 8,153 -
Total income 142,079 (44,103)
Operating expenses (90,794) (23,932)
Profit/(loss) from operations 51,285 (68,035)
Net interest received/(paid) 755 (5,636)
Interest received 3,304 736
Interest paid (2,549) (6,372)
Profit/(loss) before taxation 52,041 (73,671)
Taxation (24,886) 22,236
Profit/(loss) for the year 27,155 (51,435)
Items that can be subsequently classified to profit and loss
Currency translation differences 85,201 (34,961)
Total comprehensive income/(loss) for the year 112,356 (86,396)
Profit (loss) for the year attributable to:
Equity holders of the Company 26,930 (51,435)
Non-controlling interests 225 -
27,155 (51,435)
Total comprehensive income (loss) for the
year attributable to:
Equity holders of the Company 112,131 (86,396)
Non-controlling interests 225 -
112,356 (86,396)
Headline earnings /(loss) per share 26,930 (51,435)
Basic and diluted earnings /(losses) per share (cents) 11.91 (26.56)
Statement of changes in equity
for the year ended 31 March
Attributable to
Share Foreign currency equity holders Non-controlling Total
capital translation reserve of the Company interests equity
R'000 R'000 R'000 R'000
Balance at 31 March 2017 127,374 - 37,494 - 164,868
Total comprehensive loss for the year - (34,961) (51,435) (86,396)
Transactions with owners recorded directly in equity:
- Restructure transactions 347,026 - 679,284 - 1,026,310
- Disposal of Peregrine treasury shares for no consideration - - (595) - (595)
- Dividends paid - - (2,500) - (2,500)
Balance at 31 March 2018 474,400 (34,961) 662,248 - 1,101,687
Total comprehensive income for the year - 85,201 26,930 225 112,356
Transactions with owners recorded directly in equity:
- Non-controlling interest in subsidiary acquired - - - 170 170
Balance at 31 March 2019 474,400 50,240 689,178 395 1,214,213
Statement of cash flows for the year ended 31 March 2019
2019 2018
R'000s R'000s
Cash flows from operating activities (55,456) (15,949)
Cash utilised by operations (76,631) (25,760)
Interest received 3,304 736
Interest paid (2,549) (6,372)
Interest received from private equity investments 15 1,507
Dividend received from private equity investment 14,633 14,440
Taxation refund received / (paid) 5,772 (500)
Cash flows from investing activities 649,692 (37,312)
Proceeds from sale of financial investments 305,981 87,965
Acquisition of property, plant, equipment and intangible assets (3,464) -
Investment in financial investments - (102,328)
Proceeds from loans and receivables settled 98,622 -
Investments in subsidiaries (15,173)
Investment in associates (4,933) (22,949)
Cash classified in directly managed hedge fund 268,659 -
Cash flows from financing activities (120,000) (26,056)
Cash Dividends paid (2,500)
Decrease in loans and other payables (120,000) (23,556)
Net increase/(decrease) in cash and cash equivalents 474,236 (79,317)
Net cash acquired in the restructure - 170,567
Effects of exchange rate changes on cash and cash equivalents 7,628 (15,263)
Cash and cash equivalents at beginning of year 76,430 443
Cash and cash equivalents at end of year 558,294 76,430
Segmental information
During the 2019 financial year, with a change in management of the Group came an expansion of the investment and capital allocation philosophy. From having a purely portfolio investment
strategy, Zarclear's strategy changed to include market infrastructure and regulation technology investments - as evidenced by the acquisition of interests in Zarclear Proprietary (100%)
and Zarclear Securities Lending (60%) and the previous investment in Nala A2X, which houses the Group's investment in A2X.
Segments that are regularly reviewed by the board being the chief operating decision-makers in order to allocate resources to segments and to assess their performance are:
I. Market infrastructure and regulation technology investments (earnings focused)
II. a. Zarclear Proprietary
b. Zarclear Securities Lending
c. Nala A2X
III. Portfolio Investments (NAV focused)
a. Stenprop
b. Peregrine Capital hedge funds
i. Managed account
ii. Flexible Yield Fund
iii. SA Alpha Fund
c. Rinjani
d. Cash
Segmental Information
Market
infrastructure and
regulation technology Portfolio
Statement of Comprehensive Income investments investments Total
2019 R'000s R'000s R'000s
Investment income from portfolio activities 3,282 130,644 133,926
Fee income 8,153 8,153
Total income 11,436 130,644 142,079
Operating expenses (6,291) (84,479) (90,770)
Depreciation and amortisation (24) - (24)
Profit from operations 5,120 46,165 51,285
Net interest received 49 706 755
Interest received 402 2,902 3,304
Interest paid (353) (2,196) (2,549)
Profit before taxation 5,169 46,871 52,041
Taxation (526) (24,360) (24,866
Profit for the year 4,643 22,511 27,155
Profit for the year attributable to:
Equity holders of the Company 4,419 22,511 26,930
Non-controlling interests 225 - 225
4,644 22,511 27,155
Segmental information
Market
infrastructure and
regulation technology Portfolio
Statement of Comprehensive Income investments investments Total
2019 R'000s R'000s R'000s
Segment assets
Non-current assets 46,948 450,629 497,577
Property, plant and equipment 435 - 435
Intangible assets 3,005 - 3,005
Goodwill 14,944 - 14,944
Financial investments - 450,629 450,629
Investment in associates 28,517 - 28,517
Deferred tax 47 - 47
Current assets 63,260 714,384 777,644
Financial investments - 160,732 160,732
Trade and other receivables 48,465 9,603 58,068
Taxation 50 500 550
Cash and cash equivalents 14,745 543,549 558,294
Total assets 110,208 1,165,013 1,275,221
Segment liabilities
Non-current liabilities - 3,512 3,512
Deferred taxation - 3,512 3,512
Current liabilities 49,959 7,537 57,496
Inter-segment balances (134) 134 -
Taxation payable 168 - 168
Trade and other payables 49,925 7,403 57,328
Total liabilities 49,959 11,048 61,007
2018 comparatives have not been presented as, effectively, the Group was managed as a portfolio investment business in that year and there was then no differentiated focus between segments.
EARNINGS AND HEADLINE (LOSS)/EARNINGS PER SHARE
2019 2018
R'000 R'000
Basic and diluted earnings/(loss) per share
Earnings/(losses) 26,930 (51,435)
Number of shares in issue at reporting date 226,065,696 226,065,696
Weighted average number of shares in issue* 226,065,696 193,625,269
Basic and diluted (loss)/earnings per share (cents) 11.91 (26.56)
Headline earnings/(loss) per share
Earnings/(losses) 26,930 (51,435)
Adjustment for headline earnings - -
Headline earnings/(loss) per share 26,930 (51,435)
Basic and headline earnings/(loss) per share (cents) 11.91 (26.56)
*(As the Peregrine restructure and subsequent unbundling of ordinary shares included the issue of a number of shares for no
consideration, the guidance of IAS33 Earnings per share, has been followed. As such, the number of ordinary shares outstanding
before the restructure has been adjusted to reflect the number of ordinary shares in issue as if the issue had occurred at the
beginning of the earliest period reported.)
Basis of preparation
The provisional summarised audited consolidated financial statements are prepared in accordance with the provisions of the JSE Limited Listings
Requirements for provisional reports, and the requirements of the Companies Act. The JSE Listings Requirements require provisional reports to be prepared on a
consolidated basis in accordance with the framework concepts applicable to summarised financial statements 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 Financial Reporting Standards Council, and to also, as a minimum contain the information required by IAS 34
Interim Financial Reporting.
The accounting policies applied in the preparation of the provisional summarised audited consolidated financial statements are in terms of IFRS and are consistent
with those applied in the previous consolidated financial statements as at and for the year ended 31 March 2018, other than the changed policies set out in this report.
The items are presented using the historical cost basis with the exception of financial assets designated as at fair value through profit and loss, which is measured at
fair value.
The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise
judgement in the process of applying the Group's accounting policies. The areas involving a high degree of judgement or areas where assumptions and estimates are
significant to the financial statements are disclosed in the financial statements.
The Group has adopted the following amendments to standards that were effective for the first time for the financial period commencing 1 April 2018:
- IFRS 15 - Revenue from contracts with customers (no material impact on the Group).
- IFRS 9 - Financial instruments (no material impact on the Group).
- IAS 7 - Statement of cash flows (appropriate disclosures have been updated).
- IAS 12 - Taxation (appropriate disclosures have been updated).
These financial statements have been prepared by under the supervision of Andrew Hannington CA (SA), Chief Financial Officer.
Goodwill
Goodwill represents the future economic benefits arising from a business combination which are not individually identified and separately recognised. Goodwill is carried at
cost less accumulated impairment losses.
Goodwill is tested annually for impairment and whenever there is an indicator of impairment.
Income
Group income comprises two high-level categories.
a. Investment income from portfolio activities:
The fair value of the consideration received or receivable as a result of investment activities performed in the ordinary course of the Group's activities.
Principal sources of income comprise:
- gain on sale of financial investments.
- changes in the fair value of assets classified as at fair value through profit or loss.
- interest earned on loans made as part of the Group's investing activities.
- interest paid on hedge-fund gearing, and
- dividend income.
Interest income is recognised on a basis that reflects the effective yield on the underlying instruments. Dividends are brought into account as at the last date of registration in respect
of listed shares and when declared in respect of unlisted shares.
The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or, when appropriate, a shorter
period to the net carrying amount of the financial asset. When calculating the effective interest rate, the Group estimates the cash flows considering all contractual terms of the
financial asset and does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the
effective interest rate, transaction costs, and all other premiums or discounts. When it is not possible to estimate reliably the cash flows or the expected life of a financial asset, the
Group uses the contractual cash flows over the full contractual term of the financial asset.
b. Fee income:
Fee income arising in the course of the segment entity's ordinary activities related to market infrastructure and regulation technology investments which principally earn revenue
from fees charged for technology services provided as well as securities lending.
A contract with a customer is recognised when all of the following criteria are met:
- The contract has been approved and all parties to the contract are committed to performing their respective obligations.
- Each party's rights regarding the goods or services to be transferred are identifiable.
- Payment terms for the goods or services to be transferred are identifiable.
- The contract has commercial substance, and
- It is probable that the consideration in exchange for the goods or services that will be transferred will be collected.
Revenue is recognised when or as the performance obligation is satisfied by transferring a promised good or service to a customer.
Measurement
When a performance obligation is satisfied, revenue is recognised as the amount of the transaction price that is allocated to the performance obligation but
excluding estimates of variable consideration that are constrained and any amounts collected on behalf of third parties. The transaction price may include fixed
amounts, variable amounts, or both. The Company allocates the transaction price to each performance obligation (or distinct good or service) in an amount that
depicts the amount of consideration to which the Company expects to be entitled in exchange for transferring the promised goods or services to the customer.
Management has made an assessment of the impact of IFRS 15, determining this as minimal given the nature of the business and the fact that the fee-earning segments of the Group
were acquired and accounted for in 2019.
Financial assets - Impairment
Financial assets, other than those designated as at fair value through profit and loss, are reviewed at each financial year-end to determine whether there is objective evidence of
impairment. If any such indication exists, the recoverable amount is estimated and the carrying value is reduced to the estimated recoverable amount and the impairment loss is
recognised in profit or loss.
Impairment provisions for current and non-current loans and trade receivables are recognised based on the general approach within IFRS 9. Under the general approach an entity
calculates expected credit losses for long-term loans and receivables at initial recognition by considering the consequences and probabilities of possible defaults only for the next
12 months, rather than the life of the asset. It continues to apply this method until a significant increase in credit risk has occurred, at which point the loss allowance is measured based
on lifetime expected credit losses. A significant increase in credit risk is defined as when the debt is past due or when other objective evidence was received that a specific counterparty
will default.
Audit Report
These provisional summarised consolidated financial statements have been extracted from the audited consolidated financial statements for the year ended 31 March 2019, on which
the auditors of the Company, BDO South Africa Inc., have expressed an unmodified audit opinion. The directors take full responsibility for the preparation of the
provisional summarised report and for ensuring that the financial information has been correctly extracted from the underlying audited financial statements. A copy of the auditor's
report on the annual financial statements is available for inspection at the Company's registered office together with the financial statements identified in the auditor's reports.
The auditor's report does not necessarily report on all of the information contained in the announcement. Shareholders are therefore advised that in order to obtain a full understanding
of the nature of the auditor's audit engagement, they should obtain a copy of the auditor's report, together with the accompanying financial information from the Company's registered
office.
Any prospects detailed in the announcement have not been reviewed or reported on by the auditors.
Analysis of assets and liabilities by financial instrument classification
Financial
instruments at fair Non-financial
value through profit Financial Financial instruments and
or loss - designated assets at liabilities beyond the scope Fair value of
Group at inception amortised cost at amortised cost of IFRS 7 Total financial instruments
2019 R'000 R'000 R'000 R'000 R'000
Non-current assets 475,771 3,375 - 18,431 497,577
Property, plant and equipment 435 435
Intangible assets and Goodwill 17,949 17,949
Financial investments 450,629 - - - 450,629 450,629
Investment in associates 25,142 3,375 - - 28,517 25,142
Deferred tax - - - 47 47
Current assets 160,732 616,362 - 550 777,644
Financial investments 160,732 - - - 160,732 160,732
Trade and other receivables - 58,068 - - 58,068
Taxation - - - 550 550
Cash and cash equivalents - 558,294 - - 558,294
Total assets 636,503 619,737 - 18,981 1,275,221
Non-current liabilities
Deferred taxation - - - 3,512 3,512
Current liabilities - - 57,259 236 57,495
Loans and payables - - - - -
Taxation - - - 168 168
Trade and other payables - - 57,259 68 57,327
Total liabilities - - 57,259 3,748 61,007
Fair value hierarchy
The fair value of a financial instrument is the price that would be received for the sale of an asset or paid for the transfer of a liability in an orderly transaction between market participants at the measurement
date. Underlying the definition of fair value is a presumption that an entity is a going concern without any intention or need to liquidate, to curtail materially the scale of its operations or to undertake a
transaction on adverse terms. Fair value is not, therefore, the amount that an entity would receive or pay in a forced transaction, involuntary liquidation or distressed sale.
The fair value of financial instruments traded in active markets is based on unadjusted quoted market prices at reporting date. A market is regarded as active if quoted prices for identical assets or liabilities
are readily 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 mid-price. These instruments are included in level 1.
The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. These valuation techniques maximise the use of observable data where it is available
and rely as little as possible on entity-specific estimates. If all significant inputs required to determine the fair value of the instrument are observable, the instruments are included in level 2.
If one or more significant inputs are not based on observable market data, the instrument is included in level 3.
The following table presents the Group's assets that are measured at fair value as at 31 March:
Level 1 Level 2 Level 3 Total
Financial assets at fair value though profit or loss
Designated at inception:
Listed equities 431,384 - 431,384
Listed equities, fixed income and other instruments 65,905 65,905
Private equity investments - 19,244 19,244
Hedge-fund investments - 94,827 94,827
Investment in associates (preference shares) - - 25,142 25,142
Total financial assets carried at fair value 497,289 114,071 25,142 636,502
Group 2018
Level 1 Level 2 Level 3 Total
Financial assets at fair value though profit or loss
Designated at inception:
Listed equities 358,913 - 358,913
Private equity investments - 230,036 230,036
Hedge-fund investments - 507,094 507,094
Investment in Associates (preference shares) - 22,857 22,857
Total financial assets carried at fair value 358,913 737,130 22,857 1,118,900
Analysis of movement in fair value of Level 3 category assets:
Group
2019 2018
R'000 R'000
Opening value of level 3 category assets 22,857 -
Share subscription - Nala A2X 2,285 22,857
Closing value of level 3 category assets 25,142 22,857
The assets categorised in level 3 are effectively valued at cost, representing the investment in Nala A2X which has equity investments in A2X Proprietary Limited. Due to the relative immaturity
of this investment and the fact that the underlying asset is in the development and investment stage, valuations are based on available shareholder financial information and management
interactions and reports from the investee.
Valuation techniques applied and inputs to valuation techniques:
Financial assets at fair value Valuation technique used to Description of significant Description of significant Value of significant unobservable Recurring or non-
though profit or loss determine fair value observable inputs used in unobservable inputs used in valuation inputs used in valuation technique recurring fair value
valuation technique technique (not applicable for level 1) (not applicable for level 1) measurement
Private equity investments - Quoted market prices Unadjusted quoted prices in N/A N/A Recurring
Listed equities, fixed income an active market of
and other instruments underlying investments
Private equity investments - Technique used includes Market-related interest rate Unobservable inputs are mostly R25,143 million Recurring
unlisted / Investments in amortised cost of loans directors valuations based on
associates receivable and independent shareholder financial information
valuations and cost available and interactions with
management of the investee.
Hedge-fund investments - Quoted market prices The fair value is determined Unobservable inputs are mostly R664 thousand Recurring
unlisted by an independent expense accruals of the hedge-fund
administrator, based on the entities that are deducted from the
quoted market prices of the sum of the fair values of net
underlying investments held investments held by the hedge funds
by the hedge funds
Offsetting financial assets and financial liabilities
At year ended 31 March 2019 there were no loans/gearing against the unlisted hedge-fund investments and therefore no offsetting took place.
At year ended 31 March 2018 the unlisted hedge-fund investments were presented net of loans. The investments made were on a geared basis with permissible loan ratios of up to 100%. The loan
agreement against the investment in the PNF Peregrine Fund stated that the loan will be settled at the same time as a redemption out of the fund. The hedge-fund investments are measured at fair value
and the loans are measured at amortised cost.
Related-party information
Related-party balances and transactions
Transactions with Peregrine Group companies
Zarclear was separately listed out of Peregrine Holdings Limited in November 2017 and all the issued shares in the Company were unbundled to the shareholders of Peregrine Holdings Limited.
The Group continues to have relationships and dealings/transactions with Peregrine Group companies on a regular and ongoing basis but the latter is not considered a related party for the purposes of this
disclosure as all transactions are conducted on an arm's length basis and no parties or persons within the Peregrine Group have control or joint control of the reporting entity, or significant influence over the
reporting entity or is a member of the key management personnel of the reporting entity or of a parent of the reporting entity.
Until the reconstitution of the Company's board on 5 September 2018, Sean Melnick, who acted in the position of CEO of the Company was also non-executive chairman of Peregrine Holdings Limited.
The Group is invested in hedge funds managed by Peregrine Capital. There were loans outstanding against the funds managed by Peregrine Capital due to Peregrine Group entities but by the end of the
current financial year these loans had all been repaid or settled. During the tenure of these loans they bore interest at the JSE Trustee rate as published monthly by JSE Trustees Proprietary Limited, less
57 basis points. Interest paid on the hedge-fund gearing loans amounted to R31.6 million (2018: R6.9 million), Whilst the vendor loan from Peregrine SA Holdings, created as part of the Peregrine
restructure, stood at R120 million at year-end 31 March 2018, this was fully repaid by year-end 31 March 2019 and incurred interest of R2. 2 million (2018: R6.2 million).
Java Capital, a part of the Peregrine Group, acts as the Company's sponsor and advisor on certain transactions and was paid a total of R0.7 million by the Company with respect to sponsor, advisory and
related fees.
Private equity fund
The Group has a 50% interest in a partnership, Firefly Investments 61, an investment fund that invests in private equity opportunities. Sean Melnick and Sean Jelley, directors of the Group during part of
the year ended 31 March 2019, have co-invested with the Group into the fund, either directly or through an entity in which they have an indirect beneficial interest. Sean Jelley exited his investment in the
fund during the current financial year. The loan receivable from Firefly Investments 61 (as at 31 March 2018 R695,942) was fully repaid during the year and as at 31 March 2019 a loan payable balance
of R38,129 is owed by the Company to the partnership. The loan payable bears no interest and is repayable on demand.
Transactions with Legae Peresec Proprietary Limited (Legae Peresec)
The current CEO of the Company Mr Warren Chapman is a director of Legae Peresec, a financial services firm which provides a range of trading, custodial and prime broking services. The Group utilises
the services of Legae Peresec in relation to its ongoing investment portfolio operations and is also a client/service provider to Legae Peresec as part of its market infrastructure and regulatory technology
services.
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 expenses
amounted to R40,250 for the year (2018: R91,895). Loan balances outstanding as at 31 March 2019 were R91,895 (2018: R91,895) while the loan of the R40,250 incurred in the current year has been fully
impaired as it related to Nala Empowerment Investment Company Proprietary Limited.
Investment manager
The Group terminated its contract with the external investment manager in November 2018 after the final condition precedent to the termination agreement was met by ordinary shareholder resolution at
the special general meeting held on 15 November 2018. Prior to their resignation on 5 September 2018, the executive directors of the Group were representatives and had an economic interest in the
investment management entity.
The advisory fees paid to the investment manager by the Group for the period up to the termination of the agreement amounted to R12 million (2018: R8 million) for ongoing investment management
services. In addition, an amount of R63 million was paid to the investment manager in terms of the termination agreement reached.
Capital commitments and guarantees
The Group had no capital commitments as at 31 March 2019 other than as recorded below. The prior-year capital commitment relating to the investment in Capital Step was no longer in force following
the exit of the Capital Step investment.
The following guarantees are currently in place to Zarclear Securities Lending from:
Envisionit Capital Solutions R50,000,000
Legae Peresec Capital Proprietary Limited R125,000,000
Envisionit Capital Solutions has given the required three months' notice for the withdrawal of guarantees to the lenders of Zarclear Securities Lending. (These guarantees therefore expired on
21 May 2019.) The Group has indemnified Envisionit Capital Solutions from any liabilities during this three-month period. It has agreed to become a guarantor for obligations under collateralised
securities lending arrangements entered into under global master security lending agreements.
Events subsequent to reporting date
There were no significant events subsequent to year-end that would require adjustment to the financial results as currently reported.
Date: 13/06/2019 03:40:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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