Wrap Text
Results announcement for the year ended 31 August 2019 and capital distribution declaration
TREMATON CAPITAL INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1997/008691/06)
JSE code: TMT
ISIN: ZAE000013991
("Trematon" or "the company")
PRELIMINARY CONDENSED CONSOLIDATED RESULTS
for the year ended 31 August 2019 and capital distribution
SALIENT FEATURES
August August Percentage
2019 2018 change
R'000 R'000 %
Revenue 386 279 832 317 575 672 22
Operating profit 143 521 452 136 304 445 5
Profit after tax 35 061 645 50 351 220 (30)
Headline earnings 4 296 232 6 139 922 (29)
Earnings per share (cents) 10.2 16.5 (38)
Headline earnings per share (cents) 2.0 2.8 (29)
Net asset value per share (cents) 411 407 1
Intrinsic net asset value per share (cents) 521 468 11
Capital distribution 12 043 381 11 349 880 6
On 8 November 2019, subsequent to year-end, the board of directors declared a capital distribution
of 5.50 cents per share (2018: 5.25 cents) as a return of contributed tax capital to shareholders
recorded in the share register of the company at the close of business on Friday, 13 December 2019.
The amount payable to shareholders is R12 million, being 5.50 cents per share based on
218 970 557 ordinary shares in issue at the declaration date.
The income tax reference number of Trematon Capital Investments Limited is 9340/323/84/0.
The salient dates relating to the distribution are as follows:
Last date to trade: Tuesday, 10 December 2019
Ex-date: Wednesday, 11 December 2019
Record date: Friday, 13 December 2019
Payment date: Tuesday, 17 December 2019
Share certificates may not be dematerialized or rematerialized between Wednesday, 11 December 2019
and Friday, 13 December 2019, both days inclusive.
DIRECTORS' STATEMENT
The directors, who take responsibility for the contents of this short-form announcement, present the
provisional condensed consolidated results of Trematon Capital Investments Limited for the year
ended 31 August 2019.
The annual results were prepared under the supervision of the chief financial officer,
Mr AL Winkler CA(SA).
The information in this announcement has been extracted from the condensed consolidated financial
statements which have been independently reviewed by the Trematon Group's auditors. This announcement
itself has not been reviewed or audited.
The financial information is only a summary and does not contain full details of the annual
financial results. Any investment decisions by investors and/or shareholders should be based on
information contained in the full announcement, which is available on the company's website at:
https://www.trematon.co.za/download/2323/
The announcement will also be available on the JSE website at the following address:
https://senspdf.jse.co.za/documents/2019/jse/isse/tmt/fy2019.pdf
Copies of the announcement may also be requested at the company's registered office by phoning the
company during office hours on +27 21 421 5550.
CHAIRMAN'S REPORT
I am excited to present my first report as chairman of Trematon Capital Investments Limited,
in respect of the year ended 31 August 2019, following my appointment to the board in December 2018
and the retirement of Monty Kaplan as chairman in February 2019.
The uncertain socio-political environment, stagnant economy and low business confidence in
South Africa at present have inevitably placed considerable pressure on the trading prices of
listed companies across the market, but especially on those counters like Trematon in the small
cap sector.
As with most listed investment holding companies, which the market invariably values at less than
the sum-of-the-parts values of their underlying portfolios, Trematon continues to trade at a
significant discount to its intrinsic net asset value ("INAV"), which is the measure the board uses
to assess the group's performance, growth and value-add for shareholders over time.
Where Trematon differs from other investment companies is that it is not so much a passive holding
company but rather a hub of highly entrepreneurial and largely autonomous businesses that are
provided with strategic guidance, operational support and seed funding from the Trematon executive
team, head office infrastructure and balance sheet at group level.
While the board is conscious of this discount to INAV and is committed to unlocking value for
shareholders over the long term, in the current economic climate we have deemed it more prudent
and appropriate to focus our attention primarily on value protection for the short to medium term.
The collective of operating businesses that comprise the bulk of the group - Club Mykonos Langebaan
("CML"), Resi Investment Group ("Resi"), Generation Education ("GenEd"), Aria Property Group
("Aria") and ASK Partners ("ASK") - have all performed solidly and added value over the 2019
financial year, despite the challenging circumstances.
In our established property businesses of CML, Resi and Aria, the respective management teams have
concentrated on de-risking and de-gearing the property portfolios, through the selective and
opportunistic disposal of mature and non-core assets, and the application of the resultant proceeds
towards the reduction of bank debt and further investment into the development of school properties
within GenEd.
This does not, of course, mean that the management teams in these businesses are not fully alert
to the opportunities of making smart property acquisitions at deeply discounted prices in the
current stressed market conditions or the need to continue planning and pre-development activities
over this lull period to ready their respective property portfolios for the upturn in the property
cycle.
Our partly-owned offshore property funding business, ASK in the UK, has continued to show
impressive growth off a moderate capital base and has a strong deal pipeline in place to underpin
further growth in its niche market.
We have deployed significant new capital over the past financial year into our growing private
education business, GenEd, where the new Imhoff school campus was opened at the start of the 2019
school year and where we have invested in the construction of Imhoff phase 2 and a high school
close to our Sunningdale campus that will be completed for the 2020 school intake.
This business offers substantial growth potential in the burgeoning private education sector in
South Africa, in terms not only of the pipeline of further new campus developments and of
acquisition and rebranding of existing schools, but also of the remote learning and online
educational offerings that can be built and spun off the physical base, brand and intellectual
capital of GenEd's schools.
The board is committed to ongoing investment of capital and resources into GenEd on a prudent and
considered basis, taking into account the group's overall portfolio, capital constraints and
operational capacity.
In the current climate of limited investor appetite and deal activity in the market, the board
does not foresee any imminent exit or realisation opportunities in our mature property businesses,
although management continues to explore avenues to unlock or release capital from these businesses
to reinvest into GenEd or into new business ventures under consideration or still to be identified.
The board believes that, in the current climate, shareholders' interests are best served and
promoted by proactive asset management of the group's existing investment portfolio, prudent
allocation of our capital resources and debt facilities, and patient planning for long-term
realisation of our investments in more favourable market conditions, rather than trying to force
shorter-term outcomes.
Where Trematon has an advantage is that its executive team has a proven track record of making
astute and timeous investments in start-up or early-stage businesses and in underperforming or
distressed assets, in conjunction with substantial capital partners and talented entrepreneurs,
of adding value to those businesses and assets, and of exiting them at substantial premiums for
shareholders.
As chairman I am fortunate to enjoy the expertise and guidance of a board of experienced
professionals and practitioners who come from varied backgrounds, and as a board we are fortunate
also to enjoy the support of a body of long-standing and committed shareholders who have shared
the journey over nearly 15 years since the current executive team took over management control
of Trematon.
I would like to thank the directors, executives, staff and partners of Trematon for their
contributions to the progress achieved by the group over the past financial year towards its
long-term goal of creating and unlocking value for shareholders, and to pay tribute to my
predecessor, Monty Kaplan, for his significant role in laying the foundations for the group's
long-term success.
Robin Lockhart-Ross
Independent Non-executive Chairman
CHIEF EXECUTIVE OFFICER'S AND CHIEF FINANCIAL OFFICER'S JOINT REPORT
INTRODUCTION
At Trematon we are very focused on our local assets which are mostly based in the Western Cape and
we make most of our investment decisions based on bottom-up fundamental analysis. We don't spend
a lot of time forecasting broad economic trends but tend to rely on real-world evidence and
experience. That said, this year we would like to provide some background and historical context
to where we find ourselves:
While the group's underlying businesses have performed very well over more than a decade, the share
price has not reflected this, with the result that investors have not seen the financial gains that
would normally arise from solid economic performance.
The past seven years have been difficult for small and micro-cap companies listed on the JSE Limited
("JSE"). The most basic reason for a listing is the ability to raise capital in the financial
markets but circumstances have conspired to make this virtually impossible.
In theory, good management should be rewarded for good performance by a premium share price enabling
a virtuous cycle of capital raising, growth in market capitalisation, and returns to shareholders.
In South Africa, several high-profile corporate failures, sometimes accompanied by outright fraud,
have dashed investor confidence in "South Africa Inc." and small cap funds, which are the lifeblood
of the small cap sector, have shrunk consistently for the past seven years. In addition,
conventional fund managers have disinvested from small caps, leaving the sector moribund. Good
companies have been punished along with the bad and there is very little research or interest in
companies with market capitalisations of less than R5 billion. Fund managers have a "long-term"
investment horizon philosophically, but the decision is often taken out of their hands by outflows
from open-ended unit trusts and unitised institutional small cap funds which forces the sale of
shares at a time when there is no natural demand.
To add impetus to this trend, the dramatic decline in the number of small cap listings over the
past decade and the increasingly turgid regulatory environment have led many of the best
transactions to be undertaken by private equity investors. With far less companies to oversee,
oversight by the JSE, although doubtless well intentioned, has become very officious and has become
increasingly difficult to deal with for entrepreneurial companies. This has led many of the best
entrepreneurs to look elsewhere for funding and has prevented some groups from engaging in
attractive transactions.
The JSE, in common with all equity markets, should be a vibrant market which enables capital
raising and risk-taking by well-informed investors and should be a source of risk capital for
entrepreneurs. Large and small companies can succeed or fail, and it is the job of the markets to
punish and reward them accordingly. Oversight is necessary but the listing regulator should be a
facilitator of growth rather than a brake on entrepreneurial activity, otherwise the small cap
market of the JSE will become unattractive as a source of capital and a vital cog of corporate
growth may be lost.
The combination of these factors leaves every investment company trading at a discount to intrinsic
net asset value because the outflow of funds from the sector is not matched by an inflow from any
group save for a few diehard individual investors who are prepared to take a long and patient view.
The regulatory environment adds costs and friction, which makes it difficult for small caps to act
quickly and flexibly.
The small cap sector and the investment holding company sector have not disappeared from the global
stage but seem to be on life support in South Africa. They are virtually ignored by the analyst
community and are not even on the radar of the larger asset managers. This is probably a good
indication that it is an excellent time to invest in the sector.
There is no doubt that small companies have a valid place in the investment universe and that some
of them will deliver excellent returns from this very low point in their collective history.
RESULTS
Trematon's earnings patterns are lumpy due to the nature of the group's business which can have
large acquisitions and disposals in any year. The focus of the management team is to grow the
intrinsic value of the group. Ultimately, if each business was allowed to mature then the group
could be valued on an earnings multiple or dividend yield but the group's assets are regularly
recycled to optimise returns. So for the time being, INAV therefore remains the best measure of
Trematon's performance as it gives shareholders a realistic valuation of the underlying assets of
the group. This is calculated and explained in detail in a separate INAV report which can be found
in the preliminary condensed consolidated results which is available on our website.
Since the current management took over in April 2005 the INAV per share has grown from 57 cents to
521 cents per share which represents a compound annual growth rate of 17%. This is below the board's
stated target of 20% but as the economy is at a low point in the valuation cycle so it is a good
performance in the circumstances and the target remains achievable. It is worth highlighting that
Trematon's INAV is calculated taking into account applicable taxes and reflects the realisable
value of the company based on an efficient disposal of the assets.
The group has grown its annuity income operations substantially over the past few years, but
investment disposals, acquisitions and fair value adjustments continue to create once-off swings
in earnings. This growth in annuity income is likely to continue over the next few years. Over the
past year the group has made several realisations and revaluations which have resulted in a 12.7%
increase in INAV. There have also been some movements in the percentage contribution of the various
businesses to INAV, most notably GenEd which has increased to 30% (2018: 22%) of the group's value.
Resi has decreased its contribution to 15% (2018: 20%) due to sales of properties during the last
12 months. The majority of the cash from these disposals has been recycled into GenEd. To date
GenEd has been funded by group cash on hand, however it is likely that bank funding will be
utilised in the near future as the expansion of GenEd continues. The balance of the group's
contribution to INAV has remained similar to the prior year.
The group continues to increase its distributions to shareholders with an increase of 5% over the
prior year. The distribution for 2019 is 5.5 cents (2018: 5.25 cents) per share. The group has
paid a steadily increasing annual distribution since distributions commenced in 2011.
Group revenue (excluding sales of property and land) has grown materially over the past 10 years
and this year achieved an increase of 23% over the prior year. This illustrates the increased
annuity income component of our operating businesses. Rental income in Aria increased due to the
letting-up of the final vacant space at Pier Place as well as annual rental escalations. School
income in GenEd increased by 78% as a result of the opening of new schools and an increase in
student numbers at current schools that were not at full capacity.
Net profit before tax increased by 19% to R61 million (2018: R51.1 million). This is after an
impairment and subsequent write-off of a loan relating to the disappointing investment in
Mazor Group Limited to the value of R10.2 million. The investment was fully disposed of during
the year.
Earnings and headline earnings per share were 10.2 cents (2018: 16.5 cents) and 2.0 cents
(2018: 2.8 cents) respectively. This decrease in earnings and headline earnings was mainly due
to an increase in tax in the current year as a result of property sales and increased taxable
income within group companies where their assessed losses were fully utilised in the prior year.
Book net asset value ("NAV") per share has increased by 1% to 411 cents (2018: 407 cents) while
INAV per share, which provides investors with a realistic and transparent evaluation of Trematon's
performance and value, increased by 11.2% to 521 cents (2018: 468 cents). Book NAV
reflects the book values of the various investments in terms of IFRS, but does not take into
account the market value of certain investments such as inventory, and investments in joint
ventures and associates that are equity accounted in terms of the required accounting standards.
The INAV shows these assets at their realisable market values.
Club Mykonos Langebaan
CML's INAV increased slightly in the current year due to increases in property values as a result
of continued rental income growth in both the boatyard and marina as well as new commercial tenants.
The Club Mykonos resort has been incrementally improved over the past eight years with the most
recent improvement being the main public areas on the waterfront which needed a facelift to bring
it up to standard with the rest of the property. A strategic decision to install a major franchise
on the waterfront led to engagement with various national franchises and we are pleased to announce
that the Cape Town Fish Market at Club Mykonos is now operational along with a newer franchise
called Kapstadt Brauhaus. These new leases required significant capital expenditure with the results
appearing to be very pleasing and early indications are that the Club Mykonos Waterfront will
become a major leisure attraction in the area.
CML's contribution to group profit grew by 22.4% to R13.1 million (2018: R10.7 million).
The Club Mykonos Marina and Boatyard continue to show strong growth even in the current difficult
economic conditions. They are both integral parts of the Club Mykonos resort and remain fully let with
a substantial waiting list.
CML continues to explore potential development of the remaining zoned land which will unlock
further value and add to the already positive annuity income contribution CML provides to the group.
Resi Investment Group
We have continued to dispose of some units where we feel we have achieved our targeted return in
terms of value growth. This resulted in disposals of 77 units with the proceeds being R53.7 million
as against the cost of R36 million, representing a 49% return over the past five to seven years.
Resi's contribution to INAV decreased by 5% due to the proceeds from these sales being used to
reduce debt and increase investment in school properties in GenEd. Resi earned a profit before tax
of R4.4 million for the year (2018: loss of R1.1 million).
During the year Trematon entered into a new venture called Balwin Rentals with an effective 22.5%
interest, together with Buffet Investments (Pty) Limited, KLT Holdings (Pty) Limited and
Balwin Properties Limited ("Balwin") to acquire residential units specifically built by Balwin for
the rental market. The investment has a guaranteed initial net rental yield of 10.5% with annual
escalations of 3% per annum. To date 252 units to the value of R155.6 million has been purchased
by Balwin Rentals.
Resi has, in a joint venture with another shareholder, acquired significant development stock in a
precinct in Woodstock which has very good potential for mixed-use development but the realisation
of value may be delayed until the property market in Cape Town improves.
Generation Education
GenEd continues to expand with the opening of Imhoff pre-primary and primary school in January 2019.
The construction of the Imhoff middle and high school is under way and will open in January 2020.
The expansion of GenEd's footprint in Sunningdale is growing with the construction of the Sandown
middle and high school campus which is scheduled to open in early 2020. This will increase GenEd's
operating schools to seven with over 1 500 students enrolled. We are still waiting for zoning
approval for our site in Noordhoek in the Western Cape as well as the approval to expand an existing
school site purchased in Hout Bay.
Revenue continued to grow to R71.8 million (2018: R40.4 million) which is a 78% increase on the
prior year. EBITDA increased to R4.7 million from R2.0 million in the prior year, while GenEd
contributed R0.8 million (2018: R1 million) to group profits. This profit was achieved after initial
once-off costs associated with opening new schools and despite teacher-to-student ratios not yet
being optimised in the newly opened schools. Initial targets have been exceeded, taking into
account that expenses are expected to be higher in the development phases. GenEd's contribution to
INAV increased by 8% to 30% of the group's value, mainly due to R92 million additional investment
in new school buildings and organic growth within the schools.
GenEd is a groundbreaking educational model which is unique both locally and globally. Our continued
exposure to the latest trends in education has reinforced our belief that GenEd's brand will be a
major force in modern education from pre-school to tertiary and beyond. The business' founder and
CEO, Jevron Epstein, who is also a major shareholder of GenEd, has been invited to serve on the
Cambridge International Advisory Board and GenEd's innovative approach, coupled with the deep and
broad resources of Cambridge, will enable the distribution of high-quality education around the
globe. For now, the focus of GenEd is on the seven bricks and mortar schools that we own and
operate, but future growth will not be limited by physical building capacity.
The expansion of GenEd has been funded by the Trematon balance sheet and the group also provides
strategic and financial guidance.
Aria Property Group
Aria produced more than satisfactory results for the year which was characterised by very tough
trading conditions. Aria made several strategic disposals, the most notable being its 50% beneficial
interest in Northgate Park, Cape Town which was sold significantly above cost. The proceeds from the
sales were used to deleverage the balance sheet through repayment of shareholder loans and
reduction of bank debt.
Aria's value increased slightly over the prior year with its overall contribution to INAV remaining
similar to the previous financial year. Aria contributed R32.8 million (2018: R36 million) to group
profits for the year.
Management continues to embark on value-add opportunities through both acquisitions and the
redevelopment of properties in its portfolio. Notable upgrades to York Street Boulevard in George
and Maynard Mall in Wynberg, Cape Town were well advanced at the end of the financial year.
The company has focused strongly on producing increased free cash flow through optimising alternative
revenue streams, expense rationalisation and the renegotiation of more favourable debt agreements.
Aria is therefore well placed to take advantage of interesting opportunities brought about through
the current market conditions.
ASK Partners
Trematon's investment in ASK continues to add value to INAV as well as contribute to the group's
profits. ASK increased its contribution to INAV to 10% (2018: 8%) and added R13.9 million
(2018: R8.3 million) to group profits. The business continues to provide innovative structured
financing to property developers in the United Kingdom and has grown its investor base consistently
since the company began operations. By the end of August 2019 ASK had written loans in excess of
GBP150 million (approximately R2.8 billion).
The investment continues to exceed initial budgets and projections, both in terms of loans written
and syndications concluded, and is on track to achieve our return objectives.
CHANGES TO THE BOARD AND COMPANY SECRETARY
Trematon has appointed two new non-executive directors to the board, Robin Lockhart-Ross and
Keith Getz. Robin serves as chairman of the board. Jac Vos was appointed as company secretary
after the resignation of Shiree Litten. We welcome them all to the board and look forward to the
benefit of their valuable knowledge, experience and guidance.
CONCLUSION
Trematon has achieved consistent INAV growth since current management took over in 2005 and has
increased distributions every year since they commenced in 2011.
The group has made a full transformation from its initial activities as a passive investment
company trading in illiquid listed and unlisted securities, to an entrepreneurial hub of commercial
talent which offers support services and risk capital to capable and visionary management.
Without making predictions about the macroeconomic and political environment we are confident that
each of our businesses has the fundamental strengths of a desirable core product, organic growth
and competent, engaged management.
We invest our capital with long time horizons and we invite like-minded investors to share in
our journey.
Domicile and registered office: 3rd Floor, Aria North Wharf
42 Hans Strijdom Avenue, Foreshore, Cape Town, 8001
PO Box 15176, Vlaeberg, 8018
Transfer secretaries: Link Market Services South Africa (Pty) Limited
19 Ameshoff Street, Braamfontein, 2001
Directors: R Lockhart-Ross (Chairman)*#, AJ Shapiro (Chief Executive Officer),
AL Winkler (Chief Financial Officer), JP Fisher*#, K Getz*, A Groll, AM Louw*#, R Stumpf*
* Non-executive # Independent
Secretary: JJ Vos
Sponsor: Sasfin Capital, a member of the Sasfin Group
Auditor: Mazars, engagement partner - Y Ferreira
Date published: 15 November 2019
Prepared by: The group financial results have been prepared under the supervision
of Mr AL Winkler Chief Financial Officer CA (SA).
Contact details: Tel: 021 421 5550
Website: www.trematon.co.za
The preliminary condensed consolidated results have been independently reviewed in
compliance with the requirements of the Companies Act of South Africa.
Date: 15/11/2019 01:00:00
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