| Fri 18 Jan 2008, 14:35 | | FCPD - Foord Compass - Preliminary Report For The Year Ended 31 December 2007 |
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JSE FCPD
FCPD
FCPD - Foord Compass - Preliminary Report For The Year Ended 31 December 2007
FOORD COMPASS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1987/003591/06)
JSE code: FCPD & ISIN: ZAE000054466
("the company")
PRELIMINARY REPORT FOR THE YEAR ENDED 31 DECEMBER 2007
BALANCE SHEET Notes Reviewed Audited
at 31 December 2007 2007 2006
Rm Rm
ASSETS
Non-current assets
Long-term investments 340.3 285.4
Current assets 750.5 535.0
Net trading investments 2 131.9 (56.0)
Trade receivables and unsettled sales 414.8 541.9
Cash 203.8 49.1
Total assets 1,090.8 820.4
EQUITY AND LIABILITIES
Capital and reserves 13.6 22.6
Ordinary share capital 0.1 0.1
Accumulated profits 13.5 22.5
Non-current liabilities 1,014.5 602.7
Unsecured debentures 3 998.7 584.5
Deferred taxation 15.8 18.2
Current liabilities 62.7 195.1
Accounts payable 1.9 13.5
Taxation 1.3 -
Trade payables and unsettled purchases 0.2 136.0
Debenture interest payable 59.3 45.6
Total equity and liabilities 1,090.8 820.4
Number of debentures in issue 136,245,025 75,543,777
Number of ordinary shares in issue 8,800,070 8,800,070
Cents Cents
Net asset value per debenture (cum 776.6 834.3
interest)
Net asset value per debenture (ex 733.1 773.8
interest)
Net asset value per ordinary share 152.8 255.7
INCOME STATEMENT Notes Reviewed Audited
2007 2006
Rm Rm
Investment income 71.3 36.8
Realised trading profits 33.9 61.5
Administration expenditure (8.3) (19.9)
Net distributable profit 96.9 78.4
Unrealised trading (losses) profits (84.2) 9.5
Realised profits on sale of long-term 33.4 8.0
investments
Revaluation of long-term investments (39.0) 75.1
Net portfolio income before debenture 7.1 171.0
interest
Debenture interest (87.2) (70.6)
Revaluation of debentures 3 80.1 (68.0)
Profit before taxation - 32.4
Taxation credit (expense) 4 1.1 (18.3)
Profit for the year 1.1 14.1
Weighted average number of debentures 101,912,669 72,550,149
in issue
Cents Cents
Debenture interest per debenture 85.6 93.4
Earnings per debenture 7.0 191.0
Earnings per ordinary share 12.0 160.4
STATEMENT OF CHANGES IN SHAREHOLDERS` EQUITY
Ordinary Accumulated Total
share Profits
capital
Rm Rm Rm
Balance at 31 December 2005 (audited) 0.1 14.0 14.1
Dividends - (5.6) (5.6)
Profit for the year - 14.1 14.1
Balance at 31 December 2006 (audited) 0.1 22.5 22.6
Dividends - (10.1) (10.1)
Profit for the year - 1.1 1.1
Balance at 31 December 2007 (reviewed) 0.1 13.5 13.6
ABRIDGED CASH FLOW STATEMENT Reviewed Audited
2007 2006
Rm Rm
Net cash outflow from trading (195.5) (141.6)
activities
Net cash outflow from investing (60.5) (59.1)
activities
Dividends and interest paid (83.6) (51.1)
Net cash received from issue of 494.3 247.2
debentures
Net change in cash resources 154.7 (4.6)
Cash resources at beginning of year 49.1 53.7
Cash resources at end of year 203.8 49.1
These results have been reviewed by our auditors, Deloitte & Touche, whose
unmodified review opinion is available for inspection at the registered office
of the company.
NOTES TO THE PRELIMINARY FINANCIAL STATEMENTS
1. Basis of preparation
These condensed financial statements have been prepared in accordance with
International Accounting Standard (IAS) 34 Interim Financial Reporting using
accounting policies consistent with International Financial Reporting Standards
and consistent with those used in the preparation of the prior year annual
financial statements.
2. Net trading investments Reviewed Audited
2007 2006
Rm Rm
Gross long positions 374.8 290.3
Gross short positions (242.9) (346.3)
Net trading investments 131.9 (56.0)
3. Unsecured debentures Reviewed Audited
2007 2006
Rm Rm
Unsecured debentures comprise
Debenture capital at issue price 922.1 427.8
Cumulative revaluation of debentures 76.6 156.7
Fair value of debentures 998.7 584.5
Reconciliation of balance
Balance at beginning of year 584.5 269.3
Net proceeds on issue of debentures 494.3 247.2
Revaluation - current year (80.1) 68.0
Balance at end of year 998.7 584.5
Revaluation of debentures
Net portfolio income before debenture 7.1 171.0
interest
90% allocation to debenture holders 6.4 153.9
Adjustment for proportionate share of normal 0.7 (15.3)
taxation credit (charge)
Less: interest distribution for year (87.2) (70.6)
Revaluation - current year (80.1) 68.0
4. Taxation
Taxation comprises
Secondary tax on companies - 0.1
Current taxation - current year 1.3 -
Deferred taxation (credit) charge - (2.4) 18.2
current year
Net (credit) charge to income statement (1.1) 18.3
During the year, company utilised the taxation loss of R21.7 million reported as
at 31 December 2006.
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007
The final interest distribution for the second six months of 2007 amounts to
43.5 cents per debenture. The interim interest distribution for the first six
months of 2007 was 36.0 cents per debenture (paid out in August 2007). The
effective interest distribution for the 2007 year, on a weighted average basis
due to the issue of new debentures in July 2007, is 85.6 cents per debenture
(2006: 93.4 cents per debenture).
Net distributable profit before interest and capital items for the year amounted
to R96.9 million (2006: R78.4 million) - an increase of 24%. This is a
creditable increase in income for the year but was insufficient to offset the
full increase in the number of debentures in issue. Hence, the effective
interest per debenture (on a weighted average basis) declined 8%.
The net attributable asset value per debenture, ex interest, stands at 733.1
cents (2006: 773.8 cents) - a decline of 5% for the year.
Although the portfolio underperformed in 2007, the company has still delivered
long-term returns to debenture holders which exceed its stated investment
objective, as follows:
5 years 3 years 1 year
to 31 December 2007 (% per annum)
Income 13.9% 13.3% 10.2%
Capital 8.0% 12.8% -5.6%
Total return * 21.9% 26.1% 4.6%
Objective (CPI + 10% p.a.) 15.6% 15.7% 18.4%**
* Calculated with reference to monthly net attributable asset values per
debenture
** Lagged one month
Debenture issues during the year have increased the total asset value of the
portfolio to over R1 billion. The debenture issues took the form of a cash
placement of debentures of R465 million in July 2007 and debentures issued in
lieu of the interest distributions made in February and August respectively.
At the year end, the company held cash assets in excess of R200 million.
The asset allocation of the portfolio at 31 December is as follows:
2007 2006
Equities 51% 52%
Listed property 4% 20%
Bonds (12%) (39%)
Foreign assets* 0% 4%
Cash and near cash 57% 63%
100% 100%
* Average 35% exposure in 2007
COMMENT
Given that one of the investment objectives of the company is to gradually grow
the interest distribution and NAAV for debenture holders over the longer term,
the final outcome for the 2007 year is disappointing. Debenture holders will
be aware that the 2006 distribution was boosted by once off profits, realised in
that year, on an investment that had been acquired in prior years. If the
effect of this unusual profit is eliminated, then interest distributions have
actually grown at 5% per annum since 2004, despite an effective decline of 8% in
2007.
Nevertheless, 2007 was a challenging year as the good gains made in the first
half of the year were eroded by some trading losses recorded in the second half,
as the manager sought to limit the negative capital effects of a declining stock
market in the final quarter of 2007. The rate of income growth on the
portfolio also slowed in this period.
Having been cautious on equities for most of the year, the fund incorrectly, as
it now apparent, went `long` on SA equities in October, when it seemed that the
financial world had coped admirably with the global credit crisis. This
optimism was premature and consequent capital preservation action was necessary,
which had a negative effect on both the NAAV and the distribution pool in the
final quarter of 2007.
For the year as a whole, strategic asset allocation decisions contributed
positively to the total returns while specific selection decisions detracted
from performance. Despite a negative return in quarter four, equities and SA
property were the best performing asset classes in 2007, so overweighting these
assets was beneficial. The risk diversification provided by offshore assets
was positive, although the stronger currency reduced good US dollar returns in
rand terms. Being `short` bonds and overweight cash in the fixed interest
sector had a positive impact for the year. The position in platinum shares
continued to benefit the fund in 2007, while the selection of `SA Inc` shares
was negative.
The current asset allocation reflects a cautious stance towards equities and
property with a combined allocation of 55%. After taking profits on the
foreign assets during the last quarter, the position has been re-established
early in 2008 at favourable rates. The long-term investment portfolio currently
comprises 38% of total assets.
OUTLOOK
The conservative positioning of the fund reflects the manager`s current best
view. Global investment volatility is currently at extreme levels due to
concerns about liquidity and credit at a time when certain economic fundamentals
in the developed world are deteriorating, with the possibility of the USA being
in economic recession. While we seek to preserve and grow capital in real
terms, the avoidance of capital losses remains a priority in the shorter term as
part of the total risk management programme.
It should also be noted that SA inflation is running at much higher levels than
previously expected and is likely to remain so. This adds several percentage
points to our benchmark (SA CPI + 10%), which is already high. It is a
challenging benchmark which we are committed to achieving over the longer term,
while warning investors that the risk of short-term losses remains high.
INTEREST PAYMENT AND ELECTION
Notice is hereby given that a cash debenture interest payment (number 41) of
43.517 cents per debenture in respect of the six months ended 31 December 2007
is payable to debenture holders recorded in the debenture register of the
company on the record date. Debenture holders may, however, elect to receive
new fully paid debentures in lieu of a cash interest payment. A separate notice
has been issued dealing with the election.
The last day to trade in the debentures for purposes of entitlement to the
interest payment will be Friday, 1 February 2008. The debentures will commence
trading ex the interest payment on Monday, 4 February 2008 and the record date
will be Friday, 8 February 2008. The interest will be payable on Monday, 11
February 2008. Debenture certificates may not be dematerialised or
rematerialised between Monday, 4 February 2008 and Friday, 8 February 2008, both
days inclusive.
Signed on behalf of the board
CLR HIRSCHSOHN D FOORD
18 January 2008
Directors: CLR HIRSCHSOHN (Chairman), D FOORD*, JC GREYLING, MO HODGES*,
DA MOIR
* British
Company secretary: PE CLUER
Date: 18/01/2008 14:35:25 Produced by the JSE SENS Department.
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