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CAE
CAE
CAE - Cape Empowerment Trust Limited - Reviewed provisional financial
results for the year ended 31
December 2006
Cape Empowerment Trust Limited
(Incorporated in the Republic of South Africa)
(Registration number 1998/014606/06)
Share code CAE & ISIN ZAE000016952
("Cape Empowerment Trust" or "the group")
REVIEWED PROVISIONAL FINANCIAL RESULTS
FOR THE YEAR ENDED 31 DECEMBER 2006
Headline earnings jump 325%
CONDENSED CONSOLIDATED INCOME STATEMENT
Reviewed Restated
Year ended Year ended
31 December 31 December
2006 2005
R`000 R`000
Sales 174 568 106 512
Cost of sales (114 317) (73 616)
Gross profit 60 251 32 896
Operating income 9 448 1 503
Operating expenses (55 744) (28 030)
Operating profit 13 955 6 369
Investment revenue 419 169
Fair value adjustments 13 374 -
Income from equity accounted 82 190 14 130
investments
Negative goodwill 6 3 164
Finance costs (2 965) (1 638)
Profit before taxation 106 979 22 194
Taxation (14 653) (3 056)
Profit for the period 92 326 19 138
Attributable to:
Equity holders of the parent 85 187 15 163
Minority interest 7 139 3 975
Earnings per share for profit
attributable to the equity
holders of the Group during the
period (expressed as cents per
share)
Basic EPS (cents) 44,63 10,78
Diluted EPS (cents) 42,55 9,86
Weighted number of shares in 190 869 140 618
issue during year (`000)
CONDENSED CONSOLIDATED BALANCE SHEET
Reviewed Restated
Year ended Year ended
31 December 31 December
2006 2005
R`000 R`000
ASSETS
Non-current assets
Property, plant and equipment 17 894 8 795
Goodwill 23 508 20 456
Intangible assets 9 235 9 235
Investments in associates 131 048 22 000
Other financial assets 50 779 6 325
Deferred tax - 5 044
232 464 71 855
Current assets
Inventories 19 313 8 942
Loans to associates 1 165 -
Other financial assets 7 320 6 977
Current tax receivable - 12
Trade and other receivables 28 611 22 665
Cash and cash equivalents 17 653 21 475
74 062 60 071
Total assets 306 526 131 926
EQUITY
Equity attributable to equity
holders of parent
Share capital 49 624 6 488
Retained earnings 151 648 66 461
Minority interest 25 131 11 913
Total equity 226 403 84 862
LIABILITIES
Non-current liabilities
Other financial liabilities 4 185 -
Finance lease obligation 3 835 1 587
Deferred tax 4 225 -
12 245 1 587
Current liabilities
Loans from shareholders 11 908 15 469
Other financial liabilities 91 -
Current tax payable 16 120 11 542
Finance lease obligation 1 366 614
Operating lease liability 433 433
Trade and other payables 33 149 17 419
Bank overdraft 4 811 -
67 878 45 477
Total liabilities 80 123 47 064
Total equity and liabilities 306 526 131 926
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
Reviewed Restated
Year ended Year ended
31 December 31 December
2006 2005
R`000 R`000
Cash flow from operating
activities
Cash generated from operations 91 039 7 404
Interest income 419 169
Finance costs (2 965) (1 637)
Tax paid (2 357) 8 159
Net cash from operating 86 136 14 095
activities
Cash flow from investing
activities
Purchase of property, plant and (12 961) (5 499)
equipment
Sale of property, plant and 981 3 390
equipment
Acquisition of subsidiary (3 255) (23 448)
Associated company investment (109 050) 9 167
Loans to group companies repaid - -
Loans advanced to associates (1 165) -
Sale/(purchase) of financial (22 394) 126
assets
Sale of associate 6 483 -
Net cash from investing (141 361) (16 264)
activities
Cash flow from financing
activities
Proceeds on share issue 43 137 6 371
Proceeds from borrowings 4 276 -
Proceeds from shareholders` loan - 15 511
Repayment of shareholders` loan (3 821) -
Finance lease payments 3 000 1 459
Net cash from financing 46 592 23 341
activities
Total cash movement for the year (8 633) 21 172
Cash at the beginning of the year 21 475 305
Total cash at end of the year 12 842 21 477
SEGMENTAL INFORMATION
Headline
earnings
Operating including
Revenue profit minorities Assets Liabilities
R`000 R`000 R`000 R`000 R`000
Property - - 53 183 90 -
183
Security 14 239 562 2 946 14 5 629
083
Gaming (652) 33 363 74 3 018
739
Technology 160 17 244 9 805 101 52 340
329 697
Financial - - 4 432 18 -
Services 331
Corporate - (2 996) (12 880) 7 493 19 132
Eliminations - (200) (200) - -
174 13 957 90 649 306 80 120
568 526
Business segments
The company has diversified investments across six main categories, namely
Property, Security, Gaming, Technology, Financial Services and Corporate.
It is on this basis that the Group presents its primary segments. These are
managed independently to a large degree.
STATEMENT OF CHANGES IN EQUITY
Total
Share Share share
capital premium capital
R`000 R`000 R`000
Group
Balance at 01 January 116 - 116
2005
Changes
Profit for the year
Issue of shares 60 6 312 6 372
Business combinations
Total changes 60 6 312 6 372
Opening balance as 176 21 047 21 223
previously reported
Adjustments
Fundamental errors (14 (14
affecting equity 735) 735)
Balance at 01 January 176 6 312 6 488
2006 as restated
Changes
Profit for the year
Issue of shares 55 43 081 43 136
Business combinations -
Total changes 55 43 081 43 136
Balance at 31 231 49 393 49 624
December 2006
Total
attri-
butable
to equity
holders
Retained of the Minority
income group interest Total
R`000 R`000 R`000 R`000
Group
Balance at 01 January 51 298 51 414 3 51 417
2005
Changes
Profit for the year 15 163 15 163 3 975 19 138
Issue of shares 6 372 6 372
Business combinations 7 935 7 935
Total changes 15 163 21 535 11 910 33 445
Opening balance as 66 521 87 744 11 967 99 711
previously reported
Adjustments
Fundamental errors (60) (14 795) (54) (14
affecting equity 849)
Balance at 01 January 66 461 72 949 11 913 84 862
2006 as restated
Changes
Profit for the year 85 187 85 187 7 139 92 326
Issue of shares 43 136 43 136
Business combinations 6 079 6 079
Total changes 85 187 128 323 13 218 141
541
Balance at 31 151 648 201 272 25 131 226
December 2006 403
SUPPLEMENTARY INFORMATION
Reviewed Restated
Year ended Year ended
31 31 December
December
2006 2005
R`000 R`000
Shares in issue (000`s) 231 072 175 768
Shares in issue - weighted (000`s) 190 869 140 618
Diluted number of shares - 200 193 153 794
weighted (000`s)
Profit attributable to ordinary 85 188 15 164
shareholders (R`000)
Earnings per share (cents) 44,6 10,8
Fully diluted earnings per share 42,6 9,9
(cents)
Headline earnings per share 43,8 10,3
(cents)
Fully diluted headline earnings 41,7 9,4
per share (cents)
Reconciliation of headline
earnings
Profit for the year 85 188 15 164
Negative goodwill (6) (1 266)
Goodwill amortisation - 546
Profit on sale of shares (1 803) -
Tax effect 131 -
83 510 14 444
Reconciliation of diluted number
of shares
Number of shares in issue (`000) 190 869 140 618
Sancino Transaction (`000) - 13 176
Shares owed to share pool (`000) 9 324 -
Diluted number of shares (`000) 200 193 153 794
ACCOUNTING POLICIES
This abridged report complies with International Accounting Standard 34 -
Interim Financial Reporting, as well as with Schedule 4 of the South
African Companies Act and the disclosure requirements of the JSE Limited`s
Listing Requirements.
The abridged report has been prepared using accounting policies that comply
with International Financial Reporting Standards. The accounting policies
are consistent with those applied in the financial statements for the year
ended 31 December 2005.
CONSOLIDATION
Associates are those entities over which the Group is able to exert
significant influence but which are neither subsidiaries nor interests in a
joint venture. Investments in associates are initially recognised at cost
and subsequently accounted for using the equity method.
Subsidiaries are fully consolidated from the date on which control is
transferred to the Group. They are de-consolidated from the date control
ceases.
The purchase method of accounting is used to account for the acquisition of
subsidiaries by the Group.
The excess of the cost of acquisition over the fair value of the Group`s
share of the identifiable net assets is recorded as goodwill. If the cost
of acquisition is less than the fair value of the Group`s share of the net
assets of the subsidiary acquired, the difference is recognised directly in
the income statement as negative goodwill.
Goodwill is tested annually for impairment and carried at cost less
accumulated impairment losses.
DIVIDENDS
No dividends have been declared or paid at year end date.
SEGMENTAL REPORTING
The company has diversified investments across six main categories, namely
Technology, Property, Gaming, Financial Services, Corporate and Security.
The condensed segment report deals with these six categories.
SUBSEQUENT EVENTS
Subsequent to year end, the company has made the following significant
acquisitions:
Holding %
1. Sancino Litho (Pty) Limited 100
(A subsidiary of Sancino Projects)
2. Rowmoor Investments 490 (Pty) Limited 25
3. African Independent Horizons (Pty) Limited 33
4. Summit Fund Solutions (Pty) Limited 33
Except for the above acquisitions, there have been no other material events
subsequent to year end.
RELATED PARTY TRANSACTIONS
Related party transactions between subsidiaries of the Group and between
the company and the Group have been eliminated in full on consolidation.
These transactions are no less favourable than those arranged with third
parties.
BUSINESS COMBINATION
During the period the company acquired control and significant influence
over the following companies and where appropriate has been consolidated or
equity accounted for the following Investments in terms of IFRS 3 and IAS
28. (See consolidation above).
Investment Holding Date
% acquired
BLRT Investments Limited R7 461 55 3 April
700 2006
Business Ventures R6 566 40 7 March
Investments No. 1070 (Pty) 100 2006
Limited
The carrying amount presented on the balance sheet includes goodwill
recognised on the initial acquisition of the associate companies.
PRIOR PERIOD ERROR
1. In the prior period Investments in the following entities were
incorrectly disclosed as Other Financial Assets at fair value through
profit and loss in terms of IAS 32 - Financial Instruments: Disclosure and
presentation. Due to the significant influence of the Group`s holding in
these underlying investments more appropriate disclosure is in terms of IAS
28 - Investment in associates. (See consolidation above).
Effect of the change in policy on the prior period net profits and taxation
is R nil.
Reclassified investments Holding
%
African Alliance Properties (Pty) Limited 20
Sancino Projects Limited 23
2. In the prior period the company incorrectly accounted for the profit in
its subsidiary (Dynamic Cables RSA Limited) on consolidation by R114 791.
3.In the prior period the company incorrectly classified its shareholders`
loans as Equity. As a result a financial liability of R14 735 060 has been
reclassified out of equity to current liabilities. The effect of the
resulting reclassification on the prior period net profits and taxation is
R Nil.
AUDITORS` REVIEW OPINION
The results have been reviewed by Grant Thornton whose unmodified review
report is available for inspection at the company`s registered office.
These condensed results comply with IAS 34 Interim Financial Reporting. The
accounting policies used in the preparation of this report are consistent
with those used in the annual financial statements for the year ended 31
December 2005, which comply with International Financial Reporting
Standards.
COMMENTS
CEO REVIEW OF OPERATIONS
I am pleased to report that Cape Empowerment Trust Limited has had its best
year since inception. Headline earnings per share grew from 10,3 cents to
43,8 cents per share which is a growth of 325%. The rate of growth has
surpassed our operational budgets significantly. What is even more
encouraging is that we enter the 2007 financial year with great confidence
and the expectation of growing our earnings significantly ahead of the
market.
Below is a brief summary of our performance and plans for each of the major
segments in which we operate.
GAMING
We are currently significant shareholders in Grand Parade Investments
Limited. Shareholders are referred to the various announcements made by the
company on 2 November 2006 further cautionaries which deal with our
intentions for this asset. To date we have not been successful in obtaining
JSE approval for the reverse listing of our Grand Parade Investments assets
into Dynamic Cables RSA Limited. We are currently working with the Dynamic
Cables board to make significant enhancements to the Dynamic proposal which
we hope will ultimately find favour with the JSE. In the meantime, the
value of the asset continues to grow and Cape Empowerment Trust
shareholders will continue to enjoy the upside.
The Group is currently exploring the possibilities of acquiring further
gaming assets. Announcements to shareholders will be made when it is
appropriate to do so.
PROPERTY
Cape Empowerment Trust Limited has increased its percentage of the African
Alliance Partnership from 20% to 25% of the portfolio which now consists of
five commercial properties with a gross value of between R700 million and
R800 million. The nav of this portfolio is between R400 million and R500
million. African Alliance is in the process of growing this portfolio with
the view to maximising value.
SECURITY
Cape Empowerment Trust Limited owns 51% of Alexandra Security (Pty) Limited
and 13% of Command Security Limited. It is our intention to increase our
shareholding in Command to 30%. In addition to the above we are in
negotiations to acquire majority shareholdings in two other security
companies. Our intention is to rationalise costs within our security
interests and unlock significant value. To this end we have identified and
are in the process of finalising negotiations with an experienced executive
who will be responsible for executing the Group`s strategy. We believe that
the security business will constitute a significant portion of Cape
Empowerment Trust`s cashflows in the future.
TECHNOLOGY
Our technology strategy is to grow the Dynamic Cables business which is
well known within the telecom industry and is strategically positioned to
take advantage of the various parastatal and private sector roll-outs.
Dynamic Cables has had its best year ever and has grown its headline
earnings after tax by 62% for the year under review. We have little doubt
that Dynamic will continue to perform admirably and we are satisfied that
the management team led by Dr. Theo Rai is well experienced and able to
cope with the challenges which growth presents.
FINANCIAL SERVICES
Cape Empowerment Trust Limited has long held the aspiration to enter into
the financial services arena. We have decided initially to make two
investments which have resulted in us acquiring access to great expertise
and opportunities. One of the investments is in Purple Capital Limited led
by Mark Barnes which is listed on the JSE. The other investment is in
African Independent Horizons (Pty) Limited led by Ian Brown and Gavin
Rogaly. African Independent Horizons is involved in asset finance as well
as in Summit Consulting, an investment consulting company which consults to
R12 billion of assets under management. With the correct partnerships
having been established, we believe that we are now in a position to
acquire growing interests in the financial services arena.
OTHER HIGHLIGHTS
During the year Cape Empowerment Trust Limited has received many accolades
and good press. The most significant of which has been the market reaction
to the work which we are doing. We are delighted with the share performance
growth of the company which has grown from 66 cents at the end of December
2005 to 148 cents at the end of December 2006, a growth rate of 124%. We
are also pleased that the market continues to re-rate our share.
The other very heartening highlight has been the improvement in the
market`s acceptance of our share which is demonstrated by the growth in
liquidity. We are delighted to inform shareholders that some 93 million
shares traded during the last financial year which represents approximately
45% of our market capital for the year under review. We have also been
gratified by the interest and demand for our shares shown by high net worth
families, large financial institutions and hedge funds alike.
APPRECIATION
We acknowledge with gratitude the role played by our professional advisors,
directorship, management and staff employed within the Group and pay
special tribute to them for their hard work in making the year ended 31
December 2006 the great success that it was.
For and behalf of the board
SL Rai Chief Executive R McGregor Company Secretary
Cape Town
29 March 2007
Date: 29/03/2007 13:03:04 Produced by the JSE SENS Department.
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