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CND
CND
CND - Conduit Capital Limited - Reviewed results for the 18 months ended 31
August 2007 consolidated income statement
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 R1 566,51 million (2006: R6,55 million)
* Profit before tax R48,14 million (2006: R24,02 million loss)
* Attributable profit R21,32 million (2006: R22,08 million loss)
* Headline earnings R18,37 million (2006: R0,14 million)
* NAV after minorities R190,32 million (2006: R20,09 million)
REVIEWED RESULTS FOR THE 18 MONTHS ENDED 31 AUGUST 2007
CONSOLIDATED INCOME STATEMENT
Reviewed 18 Audited year
months ended ended 28 Feb
31 Aug 2007 2006 R`000
R`000
Gross revenue 1 566 513 6 545
Net insurance revenue 241 137 -
Other operating revenue 87 288 6 545
Net revenue 328 425 6 545
Operating expenses
- Administration and other (31 810) (5 872)
expenses
- Direct expenses - Insurance (210 545) -
- Depreciation (2 606) (307)
- Employee costs (65 636) (4 380)
Operating profit (loss) 17 828 (4 014)
Income (loss) from associates 918 (152)
Investment income 37 675 2 447
Other income 362 -
Finance charges (8 625) (82)
Impairment of goodwill (17) (22 219)
Profit (loss) before taxation 48 141 (24 020)
Taxation (16 060) 2 072
Profit (loss) for the period 32 081 (21 948)
Attributable to:
Equity holders of the parent 21 324 (22 083)
Minority interest 10 757 135
Profit (loss) for the period 32 081 (21 948)
Earnings (loss) per share 13,54 (25,71)
(cents)
Headline earnings per share 11,67 0,17
(cents)
Fully diluted earnings (loss) 11,70 (25,71)
per share (cents)
Fully diluted headline 10,08 0,12
earnings per share (cents)
SEGMENTAL ANALYSIS
Head Consoli-
office & Conduit Conduit Conduit Conduit dated
treasury Special Direct Private Financi R`000
R`000 i-sed R`000 Equity al
Risk R`000 Service
(1) s (2)
R`000 R`000
Reviewed - 18
months ended 31
August 2007
Gross revenue 513 1 508 42 283 2 889 12 173 1 566
655 513
Net revenue 513 270 567 42 283 2 889 12 173 328 425
Profit (loss) (10 714) 43 194 10 038 1 637 3 986 48 141
before taxation
Depreciation 133 1 664 654 120 35 2 606
Total assets 22 561 1 047 24 397 941 93 620 1 189
965 484
Total liabilities (3 064) (907 (10 (741) (77 (999
702) 359) 303) 169)
Capital expenditure 149 13 235 4 052 179 568 18 183
Audited - Year
ended 28 February
2006
Gross revenue 3 121 - 1 614 1 810 - 6 545
Net revenue 3 121 - 1 614 1 810 - 6 545
Loss before (20 - (3 (290) - (24
taxation 584) 146) 020)
Depreciation 165 - 30 112 - 307
Total assets 11 270 - 16 740 1 621 - 29 631
Total liabilities (3 500) - (3 (911) - (7 826)
415)
Capital expenditure 119 - 49 3 - 171
(1) 10,5 months of earnings included.
(2) Six months of earnings included.
CONSOLIDATED BALANCE SHEET
Reviewed 31 Audited 28
Aug 2007 Feb 2006
R`000 R`000
ASSETS
Non-current assets 193 858 16 703
- Property, vehicles and 38 083 1 315
equipment
- Intangible assets 78 118 10 800
- Loans receivable 739 -
- Deferred taxation 4 534 569
- Investments in associates 3 478 181
- Investments held at fair 68 906 3 838
value
Current assets 995 626 12 928
- Technical assets (Insurance) 652 791 -
- Investments held at fair 4 925 1 194
value
- Trade and other receivables 151 234 6 468
- Taxation 7 117 -
- Funds at call, bank balances 179 559 5 266
and cash
Total assets 1 189 484 29 631
EQUITY AND LIABILITIES
Shareholders` equity and 216 992 21 805
reserves
- Ordinary share capital and 170 315 10 130
share premium
- Retained income (Accumulated 807 (20 517)
losses)
- Share based payment reserve 288 -
- Vendors for equity 18 905 30 479
190 315 20 092
- Minority shareholders` 26 677 1 713
interest
Non-current liabilities 118 627 1 767
- Policyholder liabilities 22 587 -
under insurance contracts
- Interest bearing borrowings 86 778 -
- Deferred taxation 6 545 -
- Other non-current 2 717 1 767
liabilities
Current liabilities 853 865 6 059
- Technical liabilities 726 664 -
(Insurance)
- Vendors for cash 4 825 -
- Trade and other payables 115 393 4 624
- Current portion of interest 4 445 500
bearing borrowings
- Taxation 2 370 910
- Bank overdraft 168 25
Total equity and liabilities 1 189 484 29 631
Net asset value per share 85,81 21,20
(cents)
Tangible net asset value per 50,59 9,80
share (cents)
ABRIDGED CONSOLIDATED CASH FLOW STATEMENT
Reviewed 18 Audited
months ended year ended
31 Aug 2007 28 Feb 2006
R`000 R`000
Net cash flows from operating activities (45 158) (2 706)
Net cash flows from investing activities (134 265) (893)
Net cash flows from financing activities 182 735 5 782
Total cash movement for the period 3 312 2 183
Cash at the beginning of the period 5 241 1 737
Cash acquired 170 838 1 321
Total cash at the end of the period 179 391 5 241
ABRIDGED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Retained Other Minority Total
capital income reserves interest R`000
and share R`000 R`000 R`000
premium
R`000
Balance at 1 March 4 348 1 566 - - 5 914
2005
Proceeds from issue 5 782 - - - 5 782
of shares
Acquisition of - - 30 479 1 578 32 057
interest in
subsidiaries
Loss for the year - (22 083) - 135 (21 948)
Balance at 1 March 10 130 (20 517) 30 479 1 713 21 805
2006
Net proceeds from 128 841 - (11 574) - 117 267
issue of shares
Acquisition of 31 344 - - 16 302 47 646
interest in
subsidiaries
Profit for the - 21 324 - 10 757 32 081
period
Equity options - - 288 - 288
issued to executives
Dividends paid - - - (2 095) (2 095)
Balance at 31 August 170 315 807 19 193 26 677 216 992
2007
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 Change of year-end
As previously disclosed, Conduit Capital`s board of directors passed a
resolution on 1 November 2006 in terms whereof it changed its year-end from
the last day of February to 31 August to bring it in line with the year-end
of Conduit Risk and Insurance Holdings (Proprietary) Limited (previously
CICL Investment Holdings (Proprietary) Limited) ("CRIH"), the Conduit
group`s largest subsidiary, which was acquired with effect from 16 October
2006. Accordingly, these reviewed financial statements are presented for
the 18 months ended 31 August 2007 and care should be taken when comparing
these results with the results for prior years, as the periods under
comparison will differ. The first full year of results for Conduit Capital
in its current format will be for the year ended 31 August 2008.
2 Basis of preparation and report of the independent auditors
These summarised consolidated reviewed results have been prepared using
accounting policies compliant with IAS 34: Interim Financial Reporting and
International Financial Reporting Standards ("IFRS"). The accounting
policies used are consistent with those of the prior period.
Grant Thornton, the Conduit group`s independent auditors, have reviewed
these results and their review opinion is available for inspection at
Conduit Capital`s registered office.
3 Changes in share capital
During the period under review:
3.1 the authorised share capital was increased to 500 million ordinary shares
with a par value of one cent each;
3.2 a total of R160,185 million in additional share capital and premium were
raised: R119,628 million by way of the issue of 91,544 million shares for
cash and R40,557 million by way of the issue of 36,865 million shares in
part payment of acquisitions that were made;
3.3 the number of treasury shares held by the Conduit group increased by 1,415
million.
3.4 Details of shares in issue as at 31 August 2007 are as follows:
31 Aug 2007 28 Feb 2006
`000 `000
Number of shares in issue 221 777 94 782
- Shares in issue 227 880 99 470
- Shares held as treasury shares (6 103) (4 688)
Weighted average number of shares 157 463 85 901
- Shares in issue 162 628 90 589
- Shares held as treasury shares (5 165) (4 688)
Fully diluted weighted average 182 294 122 840
number of shares
- Shares in issue 187 459 127 528
- Shares held as treasury shares (5 165) (4 688)
4 Reconciliation of headline earnings
Reviewed 18 Audited year
months ended ended 28 Feb 2006
31 Aug 2007 R`000
R`000
Attributable profit (loss) for the 21 324 (22 083)
period
Loss on disposal of vehicles and 13 6
equipment (net of tax)
Profit on acquisition of subsidiaries (360) -
Revaluation of investment property (2 621) -
(net of tax)
Impairment of goodwill 17 22 219
Headline earnings 18 373 142
5 Business combinations
The 100% investment in CRIH, the holding company of a diversified insurer
and risk services group, was acquired through a series of transactions
during the period under review with an initial 72,5% interest being
acquired with effect from 16 October 2006. The total consideration for the
acquisition was R122,7 million. In addition, a 50,05% interest in Gateway
Capital Limited, a company that provides short-term commercial bridging
finance, offering specialised commercial, asset and property finance was
acquired on 1 March 2007 for a consideration of R14,073 million.
The original purchase consideration for CRIH has been reduced by R27,89
million as a result of the final determination of the fair value of the
assets and liabilities of CRIH on acquisition. This adjustment has been
included in the numbers reported above.
The acquisitions were settled through the issue of 23,926 million ordinary
shares for R31,345 million, the issue of R2,75 million in redeemable
preference shares, the capitalisation of investment profits of R9,554
million and payment in cash of R93,124 million. Intangible assets,
primarily goodwill, arising from the acquisitions amount to R64,082
million.
6 Commitments
The estimated future commitments of the Conduit group under non-cancellable
operating leases for office premises and equipment are as follows:
31 Aug 2007 28 Feb 2006
R`000 R`000
- Within one year 8 149 997
- In second to fifth years, 15 467 1 732
inclusive
- Later than five years - -
23 616 2 729
7 Post balance sheet events
There were no material post balance sheet events.
COMMENTARY
GROUP OPERATIONAL REVIEW
CONDUIT SPECIALISED RISK
Effective 1 October 2007 Mark Paton was appointed Chief Executive Officer of
Conduit Risk and Insurance Holdings (Proprietary) Limited (formerly CICL
Investment Holdings (Proprietary) Limited) ("CRIH" or "the group") and
Constantia Insurance Company Limited ("CICL"). Whilst CICL and the group`s other
insurance operating units have undergone positive design and brand image
transformation, the names remain unchanged.
Management is conducting a group wide restructuring exercise in order to
maximise efficiencies and eliminate duplicate and unnecessary costs. The
restructuring entails the unbundling of certain holding company structures and
the disposal of certain non-core assets.
Insurance
Whilst certain of the group`s underwriting managers produced favourable results
for the period under review, motor underwriting results in the last quarter of
the year had a severe negative impact on overall underwriting profit.
Appropriate corrective action has been taken, resulting in an extensive review,
re-rating and, in some instances, termination of non-performing books in
specific classes of business. These changes will positively impact the results
of CICL in the second half of the 2008 financial year.
Investments
The volatility of financial markets in the last six months of the reporting
period resulted in the group limiting further exposure to equity markets and
maintaining a conservative investment strategy. Enhanced treasury and investment
expertise within the group has and will continue to ensure balanced returns for
the combined investment portfolio going forward.
Risk Services
Apart from existing and any new investment in underwriting managers, the group`s
general risk services activities remain a small part of its focus. Importantly,
the well-established guarantee business did not succumb to rate pressures
brought about by new entrants to the market. History shows that heightened
activity in the guarantee market is cyclical and a consolidation of existing and
new entrants will likely follow. Patience and the disciplined rating of premiums
will be rewarded.
Improved solvency and retention of profitable business
Conduit Capital`s recent injection of capital into CICL has served to boost the
capital base of the insurer, providing it with the ability to write additional
premium and retain existing profitable premium that was previously re-insured
for solvency purposes. Solvency margins are currently well in excess of
statutory requirements.
CONDUIT DIRECT
Anthony Richards & Associates (Proprietary) Limited ("ARA") ( 40% held)
ARA continues to produce pleasing results in its credit recovery and tracing
operations, benefiting from the positive inflows arising out of heightened
pre-National Credit Act activity and credit grantors` customer volumes exceeding
their internal capacity. The continuing shift to outsourcing has proved positive
for the outbound sales division, as it is turning profitable in line with
management`s expectations.
CONDUIT FINANCIAL SERVICES
Gateway Capital Limited ("Gateway") (50.05% held)
Gateway has assumed a respected position in the specialised structured finance
sector. Joint venture relationships and associations with other leading
organisations in the alternative finance industry have proved fruitful and
trading targets have been comfortably achieved. Gateway`s finance book is
competently managed and is performing well within expected tolerances. Going
forward, Gateway`s prospects remain exceptionally positive with the planned
launch of several new and innovative niche financial products.
Conduit Fund Managers
At the time of writing, we have received confirmation from the Financial
Services Board that the application for regulatory approval was satisfactory.
Accordingly, registration of the application appears to be imminent.
CONCLUSION
The 18-month period that ended on 31 August 2007 concludes a remarkable chapter
of re-invention and transformation as a group. That complete, we enter the 2008
financial year with a strong focus on existing operations and the extraction of
maximum value in our core areas of businesses.
For and on behalf of the Board
Jason D Druian Lourens E Louw
Chief Executive Officer Financial Director
Johannesburg
29 November 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:
Probity Business Services (Proprietary) Limited
Third Floor, JHI House, 11 Cradock 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)
Registered Auditors
Member of Grant Thornton International
Sponsor:
Merchant Sponsors (Proprietary) Limited
Date: 30/11/2007 08:00:01 Produced by the JSE SENS Department.
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