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CND
CND
CND - Conduit Capital - Reviewed Interim Results For The 12-Month Period
Ended 28 February 2007
CONDUIT CAPITAL LIMITED
Incorporated in the Republic of South Africa
(Registration number: 1998/017351/06)
Share code: CND & ISIN: ZAE000073128
("Conduit Capital" or "the Conduit group")
HIGHLIGHTS
- Gross revenue up to R752,96 million (2006: R6,55 million)
- Attributable profit up to R10,13 million (2006: R22,08 million loss)
- Headline earnings up to R10,13 million (2006: R0,14 million)
- Net asset value after minorities up to R166,23 million (2006: R20,09
million)
- Tangible net asset value after minorities up to R112,99 million (2006:
R9,29 million)
REVIEWED INTERIM RESULTS FOR THE 12-MONTH PERIOD ENDED 28 FEBRUARY 2007
CONSOLIDATED INCOME STATEMENT
Reviewed 12-month Audited year Unaudited 6-
period ended 28 ended 28 Feb month period
Feb 2007 R`000 2006 R`000 ended 28 Feb
2007 R`000
Gross revenue 752 964 6 545 739 439
Net insurance 183 861 - 183 861
revenue
Other operating 31 356 6 545 17 831
revenue
Net revenue 215 217 6 545 201 692
Operating expenses
- Administration (28 794) (5 872) (23 144)
and other expenses
- Direct expenses - (143 890) - (143 890)
Insurance
- Depreciation (1 488) (307) (913)
- Employee costs (31 576) (4 380) (25 018)
Operating profit 9 469 (4 014) 8 727
(loss)
Income from 618 (152) 631
associates
Investment income 17 020 2 447 14 653
Finance charges (1 243) (82) (1 199)
Impairment of - (22 219) -
goodwill
Profit (loss) 25 864 (24 020) 22 812
before taxation
Taxation (8 483) 2 072 (7 043)
Profit (loss) for 17 381 (21 948) 15 769
the period
Attributable to:
Equity holders of 10 130 (22 083) 9 687
the parent
Minority interest 7 251 135 6 082
Profit (loss) for 17 381 (21 948) 15 769
the period
Earnings (loss) per share 7,05 (25,71)
(cents)
Headline earnings per share 7,04 0,17
(cents)
Fully diluted earnings (loss) 5,79 (25,71)
per share (cents)
Fully diluted headline 5,79 0,12
earnings per share (cents)
SEGMENTAL ANALYSIS
Head Conduit Conduit Conduit Cond- Consoli-
office & Speciali- Direct Private uit dated
treasury sed Risk R`000 Equity Fina- R`000
R`000 (1) R`000 R`000 ncial
Serv-
ices
(2)
R`000
Reviewed -
12-month
period ended
28 February
2007
Gross 687 724 768 24 819 2 690 - 752 964
revenue
Net revenue 687 187 021 24 819 2 690 - 215 217
Profit (5 598) 24 550 5 659 1 253 - 25 864
(loss)
before
taxation
Depreciation (94) (808) (503) (83) - (1 488)
Total assets 61 162 1 054 909 21 345 1 236 - 1 138 652
Total (38 101) (920 252) (3 942) (1 113) - (963 408)
liabilities
Capital 57 604 1 771 - - 2 432
expenditure
Audited -
Year ended
28 February
2006
Gross 3 121 - 1 614 1 810 - 6 545
revenue
Net revenue 3 121 - 1 614 1 810 - 6 545
Loss before (20 584) - (3 146) (290) - (24 020)
taxation
Depreciation (165) - (30) (112) - (307)
Total assets 11 270 - 16 740 1 621 - 29 631
Total (3 500) - (3 415) (911) - (7 826)
liabilities
Capital 119 - 49 3 - 171
expenditure
Unaudited -
6-month
period ended
28 February
2007
Gross 386 724 768 13 109 1 176 - 739 439
revenue
Net revenue 386 187 021 13 109 1 176 - 201 692
Profit (5 092) 24 550 2 821 533 - 22 812
(loss)
before
taxation
Depreciation (39) (808) (28) (38) - (913)
Total assets 61 162 1 054 909 21 345 1 236 - 1 138 652
Total (38 101) (920 252) (3 942) (1 113) - (963 408)
liabilities
Capital 16 604 1 075 - - 1 695
expenditure
(1) 4 1/2 months of earnings.
(2) The entities comprising Conduit Financial Services were acquired after
the balance sheet date and have therefore not been accounted for in the
segmental information presented.
CONSOLIDATED BALANCE SHEET
Reviewed 28 Audited 28 Feb
Feb 2007 R`000 2006 R`000
ASSETS
Non-current assets 163 984 16 703
- Property, vehicles and 20 913 1 315
equipment
- Intangible assets 53 236 10 800
- Loans receivable 3 489 -
- Deferred taxation 561 569
- Investments in associates 2 673 181
- Investments held at fair 83 112 3 838
value
Current assets 974 668 12 928
- Technical assets (Insurance) 676 836 -
- Investments held at fair 4 232 1 194
value
- Trade and other receivables 133 856 6 468
- Taxation 666 -
- Funds at call, bank balances 159 078 5 266
and cash
Total assets 1 138 652 29 631
EQUITY AND LIABILITIES
Shareholders` equity and 175 244 21 805
reserves
- Ordinary share capital 2 188 948
- Share premium 148 011 9 182
- Accumulated losses (18 592) (20 517)
- Contingency reserve 8 205 -
- Share based payment reserve 3 -
- Vendors for equity 26 411 30 479
166 226 20 092
- Minority shareholders` 9 018 1 713
interest
Non-current liabilities 58 392 1 767
- Policyholder liabilities 21 682 -
under insurance contracts
- Interest bearing borrowings 32 156 -
- Deferred taxation 4 554 -
- Other non-current liabilities - 1 767
Current liabilities 905 016 6 059
- Technical liabilities 804 835 -
(Insurance)
- Vendors for cash 3 767 -
- Trade and other payables 86 311 4 624
- Current portion of interest 3 810 500
bearing borrowings
- Taxation 6 063 910
- Bank overdraft 230 25
Total equity and liabilities 1 138 652 29 631
Net asset value per share 75,81 21,20
(cents)
Tangible net asset value per 51,53 9,80
share (cents)
ABRIDGED CONSOLIDATED CASH FLOW STATEMENT
Reviewed 12- Audited year Unaudited
month period ended 6-month
ended 28 Feb 2006 period
28 Feb 2007 R`000 ended
R`000 28 Feb
2007 R`000
Net cash flows from (16 697) (2 706) (19 140)
operating activities
Net cash flows from (106 733) (893) (104 687)
investing activities
Net cash flows from 107 508 5 782 81 563
financing activities
Total cash movement for the (15 922) 2 183 (42 264)
period
Cash at the beginning of 5 241 1 737 31 583
the period
Cash acquired 169 529 1 321 169 529
Total cash at the end of 158 848 5 241 158 848
the period
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Share Contin-Accumu- Share Shares Minor Total
capita premium gency lated based to be ity R`000
l R`000 reserv losses pay- issued inter
R`000 e R`000 ment to est
R`000 reserve vendors R`000
R`000 R`000
Balance 819 3 529 - 1 566 - - - 5 914
at 1
March
2005
Proceed 129 5 713 - - - - - 5 842
s from
issue
of
shares
Costs - (60) - - - - - (60)
of
issue
of
shares
Acquisi - - - - 30 479 1 578 32 057
tion of
interes
t in
subsidi
aries -
Loss - - - (22 083) - - 135 (21 948)
for the
year
Balance 948 9 182 - (20 517) - 30 479 1 713 21 805
at 1
March
2006
Issue 58 4 599 - - - (4 657) - -
of
shares
to
vendors
Proceed 761 84 219 - - - - - 84 980
s from
issue
of
shares
Acquisi 435 52 461 - - - 589 195 53 680
tion of
interes
t in
subsidi
aries
Costs - (102) - - - - - (102)
of
issue
of
shares
Acquisi (14) (2 348) - - - - - (2 362)
tion of
treasur
y
shares
Profit - - - 10 130 - - 7 251 17 381
for the
period
Equity - - - - 3 - - 3
options
issued
to
executi
ves
Conting - - 8 205 (8 205) - - - -
ency
reserve
transfe
r
Dividen - - - - - - (141) (141)
ds paid
Balance 2 188 148 011 8 205 (18 592) 3 26 411 9 018 175 244
at 28
Februar
y 2007
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. Change of year-end
As previously disclosed, Conduit Capital`s board of directors passed a
resolution on 1 November 2006, changing its year-end from the last day
of February to 31 August to bring it in line with the year end of CICL,
the Conduit group`s largest subsidiary. Accordingly, these reviewed
interim financial statements are presented for the 12-month period ended
28 February 2007. Audited financial statements will be published for the
eighteen-month period ending 31 August 2007 and results for the year
ended 31 August 2008 will reflect the first full year of results for
Conduit Capital in its current format.
2. Basis of preparation
These summarised interim financial statements have been prepared using
accounting policies compliant with International Financial Reporting
Standards ("IFRS") and in accordance with IAS 34: Interim Financial
Reporting. The accounting policies used are consistent with those used
for the 2006 annual financial statements.
3. Changes in share capital
During the period under review, Conduit Capital`s authorised share
capital was increased from 200 million ordinary shares with a par value
of one cent each, to 500 million ordinary shares with a par value of one
cent each in order to allow for shares to be issued in payment for
acquisitions.
The issued share capital was increased as follows during the period
under review:
3.1 5,867 million shares were issued on 1 March 2006 at a premium of
78,39 cents per share for a total consideration of R4,657 million
in order to settle a portion of an acquisition`s purchase
consideration made in the previous year;
3.2 65 million shares were issued on 16 October 2006 at a premium of 99
cents per share for a total consideration of R65 million in order
to increase working capital and to fund acquisitions;
3.3. 38,276 million shares were issued on 16 October 2006 at a premium
of 120 cents per share for a total consideration of R46,314 million
in order to settle a portion of an acquisition`s purchase
consideration;
3.4. 5,182 million shares were issued on 31 October 2006 at a premium of
126 cents per share for a total consideration of R6,581 million in
order to settle a portion of an acquisition`s purchase
consideration; and
3.5 11,1 million shares were issued on 1 December 2006 at a premium of
179 cents per share for a total consideration of R19,98 million in
order to increase working capital.
Treasury shares was increased by 1,415 million ordinary shares on 28
February 2007 when an associate company of Conduit Capital declared a
dividend in specie by way of a distribution of ordinary shares that it
held in Conduit Capital Limited. The total value of the dividend in
specie so received was R2,362 million.
Shares in issue, weighted average shares in issue and fully diluted
weighted average shares in issue, all net of treasury shares, were as
follows:
28 Feb 2007 28 Feb 2006
`000 `000
Shares in issue, net of 219 279 94 782
treasury shares
- Shares in issue 225 382 99 470
- Shares held as (6 103) (4 688)
treasury shares
Weighted average 143 762 85 901
- Shares in issue 148 455 90 589
- Shares held as (4 693) (4 688)
treasury shares
Fully diluted weighted 175 040 122 840
average
- Shares in issue 179 733 127 528
- Shares held as (4 693) (4 688)
treasury shares
4. Reconciliation of headline earnings
Reviewed 12- Audited Unaudited 6-
month period year ended month period
ended 28 Feb 28 Feb 2006 ended 28 Feb
2007 R`000 R`000 2007 R`000
Equity holders of the 10 130 (22 083) 9 687
parent`s share
(Profit) loss on (2) 6 (2)
disposal of vehicles
and equipment
Impairment of goodwill - 22 219 -
Headline earnings 10 128 142 9 685
5. Business combinations
Conduit Capital made the following material acquisitions during the
period under review:
During the Post balance
period sheet
CICL (5.1) GCL (5.2)
Date of acquisition Note 5.1 1 Mar `07
Percentage acquired 100,00 50,05
Cost (R`million) 118,331 14,000
- Conduit Capital 53,485 6,750
ordinary shares
- Interest bearing debt 7,750 -
- Cash 56,215 7,250
- Other 0,881 -
Intangible assets 30,005 14,000
recognised on
acquisition (R`million)
5.1 The 100% investment in CICL Investment Holdings (Proprietary) Limited,
the holding company of a diversified insurer and risk services group,
was acquired through a series of transactions during the year with the
initial 72,5% interest being acquired with effect from 16 October 2006.
5.2 Gateway Capital Limited, a company that provides short-term commercial
bridging finance, offering specialised commercial, asset and property
finance.
6. Contingent liabilities
6.1 As previously reported, a dormant subsidiary of the Conduit group
received an assessment from the South African Revenue Services
("SARS"), reflecting an amount payable of R3,63 million relating to
the alleged late payment of 1999 income tax. The Conduit group
continues to seek information regarding the outstanding amount from
SARS and Conduit Capital`s previous management. Records currently
in the Conduit group`s possession do not reflect any amounts
payable to SARS.
6.2 In the matter of Uthingo Management (Proprietary) Limited
("Uthingo") and the National Lotteries Board ("the NLB") on one
hand and On Line Lottery Services (Proprietary) Limited
("Lottofun") on the other, in relation to the business of Lottofun
and the use of the word "Lotto", judgement has been given in favour
of Uthingo and the NLB. Whilst Lottofun has applied for leave to
appeal, neither the appeal nor its outcome will have a material
impact on the Conduit group`s earnings going forward.
7. Commitments
The estimated future commitments of the Conduit group under non-
cancellable operating leases for office premises and equipment are as
follows:
28 Feb 2007 28 Feb 2006
R`000 R`000
- Within one year 5 689 997
- In second to fifth year 7 722 1 732
inclusive
- Later than five years 1 498 -
14 909 2 729
8. Post balance sheet events
8.1 Creation of Conduit Financial Services and Conduit Private Equity
The commentary section of this announcement gives a detailed
description of the Conduit Financial Services and the Conduit
Private Equity divisions that were established after the balance
sheet date.
8.2 Acquisition of 50,05% of Gateway Capital Limited
Subsequent to the formation of Conduit Financial Services and with
effect from 1 March 2007 50,05% of Gateway Capital Limited, a
company that provides short-term commercial bridging finance,
offering specialised commercial, asset and property finance, was
acquired.
9. Review opinion
Grant Thornton has reviewed the financial information set out in these
interim results. Their review report is available for inspection at the
Conduit group`s registered office.
COMMENTARY
GROUP OPERATIONAL REVIEW
Conduit group organogram
Conduit Capital has been structured into the following divisions:
- Head Office and Treasury
- Conduit Specialised Risk
- Conduit Direct
- Conduit Private Equity
- Conduit Financial Services
CONDUIT SPECIALISED RISK
In October of 2006 Conduit Capital acquired a significant controlling
interest in CICL Investment Holdings (Proprietary) Limited ("CICL" or "the
CICL group") the holding company of a diversified insurance and risk services
group. We are now pleased to advise that Conduit Capital has increased its
shareholding in CICL to 100%. It should be noted that the results being
reported on only include the earnings of the CICL group for a 4,5-month
period and the full impact of CICL`s earnings will only reflect in the
financial results for the 6-month period ending 31 August 2007.
CICL Investment Holdings (Proprietary) Limited (a 100% held subsidiary)
CICL`s insurance and risk services activities are categorised into three
areas of focus: insurance, investments and risk services - each of which
plays an important role in overall group return. Historically the CICL group
has positioned itself as the "quiet insurer", growing its capital and premium
income base through prudent underwriting and somewhat conservative investment
philosophies. The CICL group has now come of age with premium volume for the
6 months to February 2007 at R904,7 million (R721,6 million for the 4,5
months to 28 February 2007) and profitability for the same period almost on
par with profitability for the entire year to August 2006.
Insurance
CICL operates through four short-term insurance licenses active in niche
classes of business. Constantia Insurance Company Limited, the CICL group`s
most profitable license, ranks as the 8th largest short-term insurer by
premium volume in South Africa (Source: Quest Guide Dec 2006) and was
recently given an A- credit rating by Global Credit. Operating exclusively
through underwriting managers (in which CICL retains meaningful equity
stakes), profitability in the past 6 months was driven largely by the Health
and Accident, Heavy Commercial Vehicle and the Customer Protection Insurance
portfolios. The motor book was not immune to general market pressure over the
past year and underperformed other portfolios. Underwriting profit for the 6
months to 28 February 2007 comprised 71,4% of total CICL group net revenue
and investment income - a reflection of the CICL group`s sound insurance and
underwriting practices. It is our objective to see CICL emerge as the pre-
eminent, focused short-term insurance company in South Africa.
Investments
For the 4,5-month period in respect of which the CICL group`s earnings were
included in the results, investment returns were solid but underperformed
what was a particularly buoyant equity market. This is largely due to the
fact that CICL has historically adopted a highly conservative investment
approach, retaining the majority of its assets in cash. The CICL group will
now establish a more flexible investment mandate which, while still prudent
and within Financial Services Board asset spread guidelines, will ensure a
greater spread of investments. This should position the CICL group for much
improved investment returns going forward.
Risk Services
CICL`s consultancy, reinsurance, guarantee and general risk services
subsidiaries produced pleasing results. Whilst continued investment in
specialised underwriting managers and related businesses is ongoing, priority
will be given to terminating non-profitable business and expanding and
marketing existing entities within the CICL group.
CONDUIT DIRECT
Anthony Richards & Associates (Proprietary) Limited ("ARA") (a 40% held
subsidiary. Option to acquire further 10%)
ARA`s results for the period under review are commendable. Having obtained
its Financial Advisory and Intermediary Services approval in 2006, ARA`s call
centre expertise in the credit recovery and tracing arena has been put to
work in the establishment of ARA Direct, a dedicated "Outbound Sales" call
centre operation, selling products ranging from legal expenses insurance to
cellular airtime. Particular attention is being given to utilising Conduit
Direct as a channel for the sale of the Conduit group`s insurance products.
Management has balanced profit objectives with a 100% growth in staff and
considerable further investment in state of the art call centre technology.
ARA`s results outperformed budget and exceeded the 2-year profit warranty
relating to the acquisition in January 2006. The full value of the investment
in technology, people and training is still to be realised and bodes well for
ARA and the Conduit group.
Transqua Administrative Services (Proprietary) Limited ("Transqua") (a 100%
held subsidiary of CICL)
Transqua (housed within the CICL group) provides inbound call centre capacity
and administration services in relation to insurance policies sold by or on
behalf of blue chip retail clients. Transqua`s services extend to the
management of regulatory requirements and administration of claims. Transqua
will extend its services to the Conduit group and the general market,
providing inbound administration and call centre facilities.
CONDUIT FINANCIAL SERVICES
Gateway Capital Limited ("Gateway") (a 50.05% held subsidiary)
On 26 April 2007 Conduit Capital announced the acquisition of a controlling
interest in Gateway with effect from 1 March 2007. Gateway is an innovator in
the short-term commercial bridging finance industry, offering specialised
commercial, asset and property finance. In the short time since acquiring the
interest in Gateway, funds under management are fast approaching the R100
million mark. As previously announced, Gateway has secured a R200 million
funding line for its activities. The funding will be utilised to fund the
joint venture between Gateway and a leading structured finance company. Under
a highly competent management team, the prospects for Gateway are extremely
positive.
Conduit Fund Managers (Proprietary) Limited ("CFM") (a 100% held subsidiary)
CFM has been established as a wholly owned subsidiary of the Conduit group.
The primary focus of CFM is the establishment and management of a range of
mainstream and alternative funds. CFM has and will continue to attract highly
skilled investment managers capable of delivering above average returns. CFM
has been allocated R30 million of the Conduit group`s capital, which has been
deployed in various portfolios and is presently producing exceptional
returns. Once certain regulatory processes are complete and approvals
obtained, it is CFM`s intention to attract third party funds.
CONDUIT PRIVATE EQUITY
The private equity arm will initially focus on investments in small to medium
sized industrial, telecommunications and e-commerce enterprises capable of
becoming meaningful profit centres for the Conduit group. It is paramount to
Conduit Capital that, apart from the obvious financial requirements, all
private equity investment decisions centre on the strength, expertise and
depth of management in the target company. The private equity divisions
mandate is not venture capital in nature and seeks to invest in established
businesses with proven track records and where there is opportunity to unlock
value through organic and acquisitive means.
CONCLUSION
The period ended 28 February 2007 marks a pronounced turnaround in Conduit
Capital`s fortunes. In two years the company`s share price has increased from
12 cents on 28 February 2005 to 167 cents on 28 February 2007; the market
capitalisation during the same period has increased from R9,8 million to
R366,2 million and basic earnings per share has increased from 0,03 cents to
7,05 cents (with only 4,5 months of CICL`s earnings included in the results
for 28 February 2007). With the organization of operations into focused silos
and the Conduit group`s acquisitions now successfully integrated, we are well
positioned for future organic and acquisitive growth. The achievements to
date only represent a start; we have ambitious goals and are confident that
with continued favourable economic conditions and the expertise and
experience of our management and people we will continue to deliver on
expectation.
For and on behalf of the Board
Jason D Druian Lourens E Louw
Chief Executive Officer Financial Director
Johannesburg
28 May 2007
Directors:
Executive directors: Jason D Druian (CEO), Paul Diamond, Lourens E Louw,
Stanley D Shane, Robert L Shaw
Non-executive directors: Reginald S Berkowitz (Chairman), Scott M
Campbell, Megan Kruger, Gunter Z Steffens OBE
Company secretaries:
Gruzzet Secretarial and Trust Company (Proprietary) Limited
2nd Floor, 3 Sturdee Avenue
Rosebank, 2196
Registered address:
1st Floor, 3 Melrose Square
Melrose Arch, 2076
PO Box 97, Melrose Arch, 2076
Telephone: (011) 684-1055/6/7
Facsimile: (011) 684-1058
Transfer secretaries:
Computershare Investor Services 2004 (Proprietary) Limited
(Registration number: 2004/003647/07)
Ground Floor, 70 Marshall Street
Johannesburg, 2001
Auditors:
Grant Thornton
Chartered Accountants (SA)
Sponsor:
Merchant Sponsors (Proprietary) Limited
Date: 29/05/2007 08:00:12 Produced by the JSE SENS Department.
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