| Tue 29 May 2007, 13:35 | | ERM - Enterprise Risk Management - Consolidated au |
|
ERM
ERM
ERM - Enterprise Risk Management - Consolidated audited results; and
Further cautionary
Enterprise Risk Management Limited
(Incorporated in the Republic of South Africa)
(Registration number 1995/001603/06)
Share code: ERM & ISIN: ZAE000037701
("the company" or "the group")
Consolidated audited results for the twelve months ended 28 February 2007
Further Cautionary Announcement
Income statement
Audited Audited
Twelve Twelve
months months
to 28 to 28
February February
2007 2006
(R`000) (R`000)
Turnover - -
Operating loss (5 830) (2 518)
Realised capital gains on sale of 21 282 16 031
investments
Net investment income 10 654 4 836
Share of profits from associates 150 -
Profit before tax 26 256 18 349
Income tax expense (4 325) (1 874)
Profit for the year 21 931 16 475
Weighted average number of shares 54 562 53 576
(000`s)
Earnings per share (cents) 40,2 30,8
Diluted earnings per share (cents) 40,1 30,3
Reconciliation of headline earnings:
Earnings attributable to shareholders 21 931 16 475
Realised capital gains on sale of (18 196) (13 709)
investments (net of tax)
Headline earnings 3 735 2 766
Headline earnings per share (cents) 6,8 5,2
Diluted headline earnings per share 6,8 5,1
(cents)
Balance sheet
Audited Audited
28 28
February February
2007 2006
(R`000) (R`000)
Assets
Non-current assets 36 094 54 165
Financial assets 19 748 50 217
Deferred taxation - 3 948
Investment in associate 16 346 -
Current assets 81 203 44 638
Accounts receivable 220 666
Financial assets 5 886 -
Loan receivable - 11 287
Current tax receivable 12 728 -
Cash and cash equivalents 62 369 32 685
Total assets 117 297 98 803
Equity and liabilities
Equity attributable to equity holders 109 024 98 394
Stated capital 59 250 59 001
Retained earnings 46 128 24 197
Fair value and other reserves 3 646 15 196
Non-current liabilities 404 -
Deferred tax 404 -
Current liabilities 7 869 409
Accounts payable 167 225
Financial liabilities - 25
Current tax payable 7 543 -
Shareholders for dividend 159 159
Total equity and liabilities 117 297 98 803
Number of shares in issue (`000) 54 471 53 576
Net asset value per share (cents) 200,2 183,7
Cash flow statement
Audited Audited
Twelve Twelve
months months
to 28 to 28
February February
2007 2006
(R`000) (R`000)
Cash tilized in operations (3 958) (3 086)
Cash generated from movements in 9 627 339
working capital
Decrease in accounts receivable 9 685 369
Decrease in accounts payable (58) (30)
Cash generated from/(tilized in) 5 669 (2 747)
operating activities
Net investment income 5 473 1 539
Dividend income 1 360 2 205
Taxation refunded - 380
Net cash flows from operating 12 502 1 377
activities
Net cash flows from investing 16 933 29 827
activities
Net cash flows from financing 249 -
activities
Net increase in cash and cash 29 684 31 204
equivalents
Cash and cash equivalents at the 32 685 1 481
beginning of the year
Cash and cash equivalents at the end 62 369 32 685
of the year
Statement of changes in equity
Audited Audited
Twelve Twelve
months months
to 28 to 28
February February
2007 2006
(R`000) (R`000)
Stated capital
Opening balance 59 001 59 001
- Share options exercised 1 722 -
- Treasury shares bought back (at (1 473) -
cost)
Closing balance 59 250 59 001
Distributable reserves
Opening retained earnings as 24 197 16 686
previously reported
Prior year adjustment
- Deferred tax - (1 163)
- Change in accounting policy as a - (158)
result of IFRS
Restated balance 24 197 15 365
Transfer to fair value reserves as a - (7 643)
result of IFRS conversion
Net profit for the year 21 931 16 475
Closing balance 46 128 24 197
Fair value reserves
Opening balance 14 522 -
Transfer from distributable reserves - 7 643
as a result of IFRS conversion
Fair value gains net of tax 6 550 20 547
Transfer to income statement on (18 196) (13 668)
disposal net of tax
Closing balance 2 876 14 522
Other reserves
Opening balance as previously reported 674 -
Change in accounting policy as a - 158
result of IFRS
Restated balance 674 158
Value of services provided 96 516
Closing balance 770 674
Fair value and other reserves 3 646 15 196
Notes to the financial statements
1. Accounting policies
1.1 Basis of preparation
The annual financial statements of the group for the twelve months ended 28
February 2007 have been prepared in accordance with the group`s accounting
policies, which comply with International Financial Reporting Standards and are
consistent with those of the previous year. They have been prepared on a going
concern basis.
1.2 Financial Instruments
Financial instruments carried on the balance sheet include loans, investments,
cash and cash equivalents, derivatives, accounts receivable and accounts
payable. All financial instruments are initially measured at fair value. In
the case of financial instruments not classified as at fair value through
profit and loss, transaction costs that are directly attributable to the
acquisition or issue of the financial instrument are added to the fair value.
Share and loan investments are classified as available-for-sale financial
assets and are subsequently measured at fair value. The fair values of quoted
investments are based on current bid prices. These investments are included in
non-current assets unless management intends to dispose of the investment
within 12 months of the balance sheet date. In terms of IAS 39, fair value
adjustments for the period on available-for-sale assets are recognised directly
in equity, through the statement of changes in equity.
A deferred tax asset and/or liability is recognised through equity on the
potential unrealised capital gains and/or losses from available-for-sale
financial assets.
Derivative instruments are measured at fair value by reference to the quoted
market prices for similar instruments. Realised and unrealised gains and losses
are recognised through the income statement.
Financial assets and financial liabilities are offset and the net amount
reported in the balance sheet when the Company has legal right to set off the
recognised amounts and intends to either settle on a net basis or to realise
the asset and the liability simultaneously.
1.3 Investment in subsidiaries
The group annual financial statements include those of the holding company and
its subsidiaries. The results of the subsidiaries are included from the
effective date of acquisition.
On acquisition the group recognises the subsidiary`s assets, liabilities and
contingent liabilities at fair value, except for assets classified as held-for-
sale, which are recognised at fair value less costs to sell.
1.4 Investment in associates
An investment in an associate is accounted for using the equity method, except
when the asset is classified as held-for-sale. Under the equity method, the
investment is initially recognised at cost and the carrying amount is increased
or decreased to recognise the group`s share of the profits or losses of the
associate after acquisition date. The use of the equity method is discontinued
from the date the company ceases to have significant influence over an
associate.
Any impairment losses are deducted from the carrying amount of the investment
in associate.
Distributions received from the associate reduce the carrying amount of the
investment.
2. Financial assets
As at 28 February 2007 the Company`s long term investment portfolio comprised
the following:
At 28 February 2007 At 28 February 2006
Name of Market Market Market Market
investment Quantity price value Quantity price value
(`000) (cents) (R`000) (`000 ) (cents) (R`000)
Apex Hi Properties
"A" units - - - 1 000 1 441 14 410
Anglo American PLC
ordinary shares - - - 30 22 820 6 846
Sable Holdings
Limited
ordinary shares 344,8 3 750 12 931 - - -
Bidvest Limited
ordinary shares - - - 160 10 400 16 640
Sasol Limited
ordinary shares 12,5 23 300 2 913 15,5 21 100 3 271
Highveld Steel &
Vanadium Limited
ordinary shares 47,9 8 150 3 904 100 9 050 9 050
TOTAL 19 748 50 217
3. Accounts receivable
IAS 39 requires that financial assets be initially measured at the fair value
of the consideration receivable. On 10 August 2006, the Company received
payment in an amount of R8,0 million relating to the deferred payment of R12,0
million due from First South Risk Solutions (Proprietary) Limited ("FSRS"). The
balance of the loan in an amount of R2,0 million was paid on 29 December 2006.
The difference between the present value and future value is recognised on the
effective interest rate basis over the life of the financial asset. The amount
so recognised in this period is R0,6 million (2006: R1,1 million).
4. Auditors report
Grant Thornton has issued an unqualified audit report, which is available for
inspection at the Company`s registered office.
Commentary on the results
Earnings of 40,2 (2006: 30,8) cents and diluted earnings of 40,1 (2006: 30,3)
cents per share and headline earnings of 6,8 (2006: 5,2) cents and diluted
headline earnings of 6,8 (2006: 5,1) cents per share and a net asset value of
200,2 (2006: 183,7) cents per share were reported. The increase in the net
asset value of the Company resulted mainly from income from investments as well
as realised and unrealised capital gains on the sale of listed investments.
During the year under review the share traded between a high of 200,0 (2006:
175,0) cents per share and a low of 140,0 (2006: 89,0) cents per share. The
volume of shares traded during the period was 61 470 (2006: 58 290) million
shares at an average price of 164,0 (2006: 119,0) cents per share.
As previously reported, arising from the arbitrated reduction in income of
prior years, the company believed an amount of R9,3 million was refundable by
SARS. SARS ruled that the amount gave rise to an assessed loss, not a refund.
The company appealed against this ruling and the case was heard before the
Income Tax Court on 23 February 2007. On 3 April 2007 judgement was given and
the appeal was upheld. A current tax asset has been recognised in the balance
sheet for an amount of R9,3 million. The company accrued interest receivable on
the tax asset in the amount of R3,5 million in profit and loss. As a result of
these entries the company now has a deferred tax liability in an amount of R0,4
million relating mainly to capital gains tax on unrealised capital gains.
Furthermore the Company raised a tax liability of R2,7 million payable on
taxable profits made in relation to the 2005 and 2006 tax years, the taxable
income of which had previously been offset against the assessed loss brought
forward from the 2001 tax year. Interest of R0,3 million payable on the latter
amount was provided for in profit and loss. A tax liability of R4,6 million was
raised in relation to tax payable on current taxable income.
In August 2006 the Company and FSRS entered into discussions regarding the loan
owed to it by FSRS, relating to the sale of a business in August 2003.
Settlement was reached on 11 August 2006. The amount so settled was R10 million
of which R8 million was received on 17 August 2006. The balance of R2 million
was received on 29 December 2006. As a result of the settlement an impairment
loss of R1,9 million was recognised in profit and loss for the period.
On 23 October 2006 after numerous discussions and careful consideration the
Company reached settlement with three former executive employees in relation to
their service agreements with the Company. The directors believe that this
settlement was necessary to avoid unnecessary time-consuming litigation and
legal costs in relation thereto.
Stated Capital
During the period under review, two former directors exercised their share
options, resulting in the Company issuing 1,8 million shares, bringing the
total number of shares in issue to 54 471 million shares net of 0,9 million
treasury shares.
Share buy back
At the Company`s last annual general meeting held on 18 May 2006, shareholders
voted to renew the general authority granted to the Company to purchase its own
shares. From this date the Company has bought back 904,415 shares at an average
price of 162,9 cents per share. These shares are housed as treasury shares in a
wholly owned subsidiary of the Company, Risk Outsourcing (Proprietary) Limited.
Dividend
The board has resolved not to declare any dividend to shareholders for the
period under review.
Future direction
ERM has seen major changes to its shareholding and board of directors in the
last eight months. By virtue of this the Company is embarking on a strategic
direction in the area of real estate acquisition and development.
Acquisition of a property portfolio
In November 2006 ERM and SABLE Holdings Limited ("SABLE") (a company listed in
the real estate sector of the JSE with experience in the property industry in
excess of 40 years including interests in commercial, retail, industrial and
residential property developments in South Africa) formed a new entity, Amrich
58 Properties (Proprietary) Limited ("Amrich"), which will focus on income
producing properties and property development. At 28 February 2007 ERM and
SABLE each held 50% of the issued capital of Amrich ("joint venture").
On 1 December 2006 agreement was reached with one of the vendors of Rotaflex
Investments (Proprietary) Limited ("Rotaflex"), being Saprop Investments
(Proprietary) Limited, in terms of which Amrich acquired 34% of the issued
share capital of Rotaflex. Rotaflex is a company with a diversified portfolio
of retail, commercial, industrial and residential properties.
On 31 January 2007, subsequent to the acquisition by Amrich of 34% of the
issued share capital of Rotaflex, agreement was reached with Telematic
Frontiers International Corporation, in terms of which Amrich acquired the
remaining balance of the issued share capital of Rotaflex, thereby resulting in
Amrich owning 100% of the issued capital of Rotaflex. The effective date of the
transaction is 31 March 2007.
Simultaneous to the conclusion of the Rotaflex acquisition ERM agreed to sell
its 50% shareholding in Amrich to SABLE ("the sale of shares agreement"). The
purchase consideration will be discharged by the issue of 1 187 500 SABLE
shares to ERM at a price of R40 per share. SABLE will as part of this
transaction, and in terms of a subscription agreement between ERM and SABLE
("the subscription agreement"), issue a further 392 500 ordinary shares at a
price of R40 per share to ERM, for cash, thereby increasing ERM`s shareholding
in SABLE from its current holding of 4,97% to 21,49%.
ERM`s objective with this sale of shares to SABLE is to increase its
shareholding in SABLE, thereby exposing itself to a much stronger and more
diversified property holding. ERM and SABLE have identified a synergistic
association, through which both companies wish to grow, expand and diversify
their property activities.
The transactions above are all subject to specified conditions precedent as
contained in each of the agreements, most importantly written confirmation by
the ERM board of directors that the SABLE share is fairly valued at R40 per
share.
Option agreement with SABLE
Isdale Holdings BV ("Isdale") is currently the controlling shareholder of Sable
holding 5 873 643 shares being 65,57% of the total issued share capital of
Sable excluding treasury shares. In terms of an option agreement signed on 14
May 2007 ("the option agreement"), Sable has granted an option to ERM to
subscribe for 3 948 822 new shares in Sable, at a price of R40,00 per share, or
so many newly issued shares in Sable as will bring the total holding of ERM
equal to the total number of shares held by Isdale. The shares so issued will
rank pari passu in all respects with the shares held by Isdale and will
increase ERM`s holding in SABLE to 45,1% prior to any offer to minorities.
The option may be exercised at any time prior to 16:00 on 30 November 2007. In
the event that the option is exercised, ERM will make an offer to minority
shareholders and Isdale has undertaken to take up so many of the shares on
offer by the minority shareholders as will maintain parity in the shareholdings
between ERM and Isdale.
In the event that the option lapses, ERM and Sable have agreed that the sale of
shares agreement and the subscription agreement referred to above shall be
terminated and the parties shall take such steps as may be required to return
them to the joint venture existing prior to the signature of the two
agreements.
The Company is aggressively pursuing possible further transactions with a view
to enhancing shareholders` value through expanding its interests in property
and introducing Black Economic Empowerment to ERM.
Further cautionary
Further to the above, shareholders are advised that they should continue to
exercise caution when dealing in the company`s securities until a further
announcement is made which will include the financial effects relating to the
sale of shares agreement, the subscription agreement and the option agreement.
By order of the board
C de Beer CA (SA)
Company secretary
Randburg
29 May 2007
Directors
BL Gruzd (Chairman)*, MA Stein (CEO), E Gerber*,
BC Esterhuyzen* *non-executive
Sponsor
Sasfin Capital - a Division of Sasfin Bank Limited
Transfer secretaries
Computershare Investor Services 2004 (Proprietary) Limited
Registered office
Fairway Office Park
First floor - Sable Place
52 Grosvenor Road, Bryanston, 2021
Email
enquiries.erm@mweb.co.za
Date: 29/05/2007 12:46:09 Produced by the JSE SENS Department.
