| Mon 25 Feb 2008, 8:00 | | CDZ - Cadiz Holdings - Reviewed Interim Results For The 12 Months |
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CDZ
CDZ
CDZ - Cadiz Holdings - Reviewed Interim Results For The 12 Months
Ended 31 December 2007
Cadiz Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1997/007258/06)
JSE share code: CDZ
ISIN: ZAE000017661
("Cadiz", "the group" or "the company")
KEY FEATURES
* Gross operating revenue up 46% to R374 million
* Securities revenue up 24% to R137 million
* Asset management revenue up 95% to R180 million
* Diluted headline EPS down 13% to 46.0 cps
* Ranked 7th most empowered listed company in SA
* Received an "A" rating from Empowerdex
* 14th in Deloitte Best Company to Work For survey
* SA`s top derivatives house for 11th consecutive year
GROUP INCOME STATEMENT Reviewed Audited
12 months 12 months
31-Dec-07 31-Dec-06
R `000 R `000
Gross operating revenue 373 575 256 343
Interest income 12 847 14 531
Net investment income 26 552 61 876
Net income from investments 23 907 40 242
Foreign exchange gains 2 645 21 634
Operating expenses (275 765) (180 184)
Operating profit 137 209 152 566
Finance costs (4 043) (2 505)
Profit before taxation 133 166 150 061
Taxation (31 783) (33 015)
Profit for the period 101 383 117 046
Reconciliation of headline earnings:
Profit for the period 101 383 117 046
Goodwill impairment 2 366 2 603
Loss on disposal of equipment - 57
Headline earnings 103 749 119 706
Issued number of shares (`000) 245 138 239 810
Consolidated number of shares (`000) 219 870 209 812
Weighted average number of shares 216 257 209 659
(`000)
Diluted weighted average number of 225 321 225 670
shares (`000)
Earnings per share (cents)
Basic 46.9 55.8
Diluted 45.0 51.9
Headline earnings per share (cents)
Basic 48.0 57.1
Diluted 46.0 53.0
GROUP BALANCE SHEET Reviewed Audited
31-Dec-07 31-Dec-06
R `000 R `000
ASSETS
Non - current assets 402 832 478 657
Plant and equipment 7 535 7 609
Intangible assets 299 613 312 451
Deferred taxation 17 158 19 851
Financial assets 74 505 134 185
Receivables and prepayments 4 021 4 561
Current assets 979 904 1 191 146
Financial assets 137 623 38 287
Receivables and prepayments 695 138 1 062 247
Taxation 193 545
Cash and cash equivalents 146 950 90 067
Total assets 1 382 736 1 669 803
EQUITY
Capital and reserves
Ordinary share capital and premium 34 679 53 438
Treasury shares (71 735) (75 908)
Share-based payment reserve 18 788 11 073
Retained earnings 527 106 444 521
Total equity 508 838 433 124
LIABILITIES
Non - current liabilities 41 206 54 729
Deferred taxation 18 019 14 787
Trade and other payables 23 187 39 942
Current liabilities 832 692 1 181 950
Trade and other payables 755 815 1 135 345
Taxation 18 958 20 469
Borrowings 39 287 26 136
Trading liabilities 18 632 -
Total liabilities 873 898 1 236 679
Total equity and liabilities 1 382 736 1 669 803
Net asset value (cents per share) 231 206
Net tangible asset value (cents per 96 55
share)
ABRIDGED GROUP CASH FLOW STATEMENT Reviewed Audited
12 months 12 months
31-Dec-07 31-Dec-06
R `000 R `000
Cash flow from operating activities 83 101 20 925
Cash generated from operations 117 125 78 142
Taxation paid (27 343) (40 257)
Dividends paid (6 681) (16 960)
Cash flow from investing activities (14 487) (5 949)
Cash flow from financing activities (26 702) (62 912)
Net change in cash and cash 41 912 (47 936)
equivalents
Effect of exchange rate adjustment 1 820 (1 306)
Cash and cash equivalents at beginning 63 931 113 173
of period
Cash and cash equivalents at end of 107 663 63 931
period
ABRIDGED GROUP STATEMENT OF CHANGES IN Reviewed Audited
EQUITY
12 months 12 months
31-Dec-07 31-Dec-06
R `000 R `000
Share capital, share premium and
treasury shares
Opening balance (22 470) 33 074
Issue of ordinary shares 22 914 -
Issued shares held as treasury shares (15 435) -
Capital reduction (37 858) (25 439)
Sale of treasury shares on exercise of
options 15 793 8 389
Purchase of treasury shares - (38 494)
(37 056) (22 470)
Reserves
Opening balance 455 594 356 168
Sale of treasury shares on exercise of (12 117) (7 368)
options
Employee share option scheme - value
of services provided 7 715 6 708
Profit for the period 101 383 117 046
Dividends paid (6 681) (16 960)
545 894 455 594
Total shareholders` funds 508 838 433 124
FINANCIAL PERFORMANCE
Cadiz produced a strong operational performance in the 12 months
ended December 2007 ("the period") as gross operating revenue
increased 46% to R373.6 million (2006: R256.3 million), driven by
pleasing growth in the securities and asset management businesses.
Revenue from securities increased by 24% to R137.2 million (2006:
R110.5 million) as the performance of the established businesses of
equity derivatives and stockbroking were well supported by the
fledgling businesses of transition management and prime broking, as
well as a refocused research offering.
The asset management business grew revenue by 95% from R92.8 million
to R180.5 million, boosted by the incorporation of the African
Harvest business for the full period compared to only two months in
the previous financial year.
The structuring business stabilised during the period. Revenue grew
by 5% to R55.9 million (2006: R53.1 million) due to increased market
penetration from the retail unit, Cadiz Wealth (formerly Investment
Products), and a consistent deal flow from Cadiz Corporate
Solutions.
Operating expenses rose by 53% or R95.6 million to R275.8 million.
The major components of the increase are:
* R57.2 million (31.8%) increase in operating costs related to the
inclusion of African Harvest in the results for 12 months compared
to two months for 2006, including a R7.0 million increase in
intangible assets amortisation;
* R9.4 million (5.2%) of variable costs for profit share payments
linked to the strong performance of the hedge funds;
* R2.4 million (1.3%) increase in direct costs related to the
strategic investment portfolio and funding facility in respect of
the African Harvest acquisition; and
* R26.6 million (14.7%) increase in ongoing operating costs,
including the investment in new businesses referred to below.
The cost-to-income ratio, after excluding R5.6 million (2006: R3.2
million) direct costs related to the group investments and funding
facility, and R10.9 million (2006: R4.1 million) intangibles
amortisation and goodwill impairment charges, increased from 67.4%
in 2006 to 69.4%. This increase shows the group`s ongoing strategy
of investing in growth opportunities, including a contracts for
difference (CFD) trading platform, hedge fund businesses and systems
for the asset management business.
Cadiz`s strong operational performance was counteracted by the
returns on group investments, comprising interest income and net
income from investments, which declined 37%. This reflects the
impact of the outflow of R296 million paid for the African Harvest
acquisition and one-off gains from group investments in 2006. These
included foreign exchange gains of R21.6 million in 2006 compared to
only R2.6 million in the current period and a profit of R18.7
million on the sale of JSE Limited shares last year which was not
repeated in 2007. This represents a year-on-year decrease of R37.7
million, before taking into account the impact of the lower capital
base after the African Harvest acquisition.
Headline earnings declined 13.3% to R103.7 million (2006: R119.7
million), with diluted headline earnings per share decreasing 13.2%
to 46.0 cents per share (2006: 53.0 cents per share).
These results are in line with the group`s voluntary trading
statement issued on 25 January 2008.
OPERATIONAL REVIEW
REVENUE Dec 2007 Dec 2006 Change
ANALYSIS
R`000 % of R`000 % of R`000 %
total total
Securities 137 182 34 110 470 34 26 712 24
Asset 180 472 44 92 753 28 87 719 95
management
Structuring 55 921 13 53 120 16 2 801 5
Gross 373 575 91 256 343 78 117 232 46
operating
revenue
Net return 32 711 8 52 268 16 (19 557) (37)
on
investments
Foreign 2 645 1 21 634 6 (18 989) (88)
exchange
gains
Net 35 356 9 73 902 22 (38 546) (52)
investment
portfolio
returns
Gross 408 931 100 330 245 100 78 686 24
revenue
SECURITIES
The 24% revenue growth in Cadiz Securities reflects the benefits of
the strategy to broaden the customer base and the product set
offered by the business.
The equity derivatives and stockbroking businesses continued to
perform well in the volatile markets, and increased market share on
the back of their research offering.
Transition management has benefited from the increasing awareness
among the investment community of the advantages of engaging experts
to manage transfers of investment portfolios. The business utilises
Cadiz`s combined strengths in risk management, quantitative research
and trading.
Cadiz Prime Broking has entrenched its position in a growing
industry and attracted several large clients onto its administrative
and portfolio management platform.
Cadiz retained its number one ranking in derivatives research and
trading for an unprecedented 11 years in the annual Financial Mail
analyst ratings. Cadiz Securities was also ranked first in Risk
Management Research and Innovative Research, as well as being highly
placed in the Quantitative Research category.
ASSET MANAGEMENT
The focus in 2007 was largely on the integration of African Harvest
Fund Managers into Cadiz Specialised Asset Management. The
integration was successfully completed and included the outsourcing
of investment administration to JP Morgan, implementation of new
performance attribution software, a review of all compliance and
risk-related systems and the development of proprietary decision
support software for the investment team.
The teams are now fully integrated with a common focus, and the
combined entity, Cadiz African Harvest Asset Management (CAHAM), is
now one of the top independent fund managers in the country with a
significantly enhanced fund offering and greater depth of resources.
The client base has responded well to the merger, with the majority
of clients showing continued commitment to the new entity. CAHAM has
also gained access to new client tenders which would not have been
possible before this transaction.
The asset management business is now the group`s largest revenue
contributor, accounting for 44% of total revenue. However, growth
slowed in the second half as the business absorbed the full impact
of the net outflows of R2.2 billion reported in the interim results
in August 2007. Total assets under management were R49.6 billion at
31 December 2007.
STRUCTURING
Consistent deal flow in Cadiz Corporate Solutions and enhanced
market penetration in the retail unit, Cadiz Wealth, has resulted in
an improved performance from the structuring business.
Increased activity in the corporate structuring market was led by
the finalisation of the DTI Codes of Good Practice on BEE which
increased transactional volumes, while the strong performance of the
local equity market created opportunities in both deal origination
and the re-financing of BEE deals. The business also benefited from
increased M & A activity from local and international private equity
players, although there was a noticeable decline in activity towards
the end of the year due to credit tightening. The relationship with
the group`s strategic empowerment partner Makana continues to
strengthen and generate mutual deal flow, as evidenced by the
Hulamin BEE transaction where Cadiz acted as advisor to the Makana
consortium.
The repositioning of retail arm Cadiz Wealth post the African
Harvest acquisition has seen inflows increase by 167% over the
previous financial year and funds under management now exceed R3
billion. The full benefit of these inflows is expected to be
realised in future reporting periods. The six unit trust funds in
the Cadiz Collective Investments stable generated net inflows of
close to R500 million for the year, driven by outstanding investment
performance. Five funds were ranked in the top quartile for the 12
months to December 2007, with the Cadiz Money Market Fund being the
top performer for the year. Cadiz Wealth has applied to the
Financial Services Board for a life licence and will shortly be
launching Cadiz Life as a vehicle to market its own retail products
which until now have been `white labeled` by other assurers.
GROUP CAPITAL
The group has continued to deploy its capital to grow the business
and at the end of the period the capital had been invested as
follows:
* R162.5 million invested in liquid assets for regulatory capital
adequacy and working capital requirements;
* R27.1 million investment net of trading liabilities held as a
hedge against the CFDs written by Cadiz Stockbroking;
* R68.2 million invested as seed capital in new asset management
products and co-invested in in-house hedge funds; and
* R82.6 million strategic investments in empowerment partner Makana.
R65.5 million (19%) of the group`s capital is invested in
conservative US dollar, Euro and Sterling investments.
EMPLOYER OF CHOICE
Cadiz was placed 14th in the Deloitte Best Company to Work For
survey in 2007 out of 131 companies nationally. Cadiz was also
ranked 2nd in the financial services category and 10th in the small
company category.
STRATEGY AND PROSPECTS
Cadiz has diversified its areas of specialisation over the past two
years and leveraged new businesses off its existing platform to
create synergies across the group. At the same time Cadiz continues
to build a robust platform for delivery and will invest for growth
in existing businesses, as well as seeking strategic acquisition
opportunities which will allow the group to increase market share.
The strategy of deploying capital to grow the business is starting
to translate into improved operational performance and should also
result in reduced earnings volatility over time. Annuity income now
accounts for some 50% of Cadiz`s top line.
2008 will present several challenges to the financial services
industry. Higher interest rates, an economic slowdown due to the
energy crisis and the political uncertainty ahead of the 2009
election will impact markets in the year ahead. However, Cadiz has
proven its resilience in the past as well as its ability to benefit
from volatile markets.
Cadiz Securities is well positioned to continue growing its market
share and broadening its customer base by cross-selling other
financial solutions to the new clients attracted to the business
through transition management and prime broking.
The benefits of the African Harvest transaction continue to be
realised and the investment in systems and processes should increase
the economies of scale as the business grows. CAHAM is well
positioned for asset distribution in the industry while new absolute
return and infrastructure funds provide encouraging prospects for
the year ahead.
Cadiz Corporate Solutions has built up a healthy deal flow pipeline.
The amendments to Section 38 of the Companies Act are expected to
provide an impetus to the volume of BEE transactions, while recent
volatility in equity markets has led to renewed interest in the use
of derivatives as a portfolio hedging tool. Cadiz Wealth will look
to entrench its presence in the retail market and plans to expand
its product range and suite of unit trust funds.
SHARE CAPITAL AND TREASURY SHARES
During the period R22.9 million of the deferred consideration
payable to African Harvest staff over three years was settled
through the issue of 5.3 million shares. In October 2007 1.7 million
of these vested and the remaining shares are held as treasury shares
until their release.
STAFF SHARE OPTIONS
During the period Cadiz awarded 14.3 million share appreciation
rights to current and newly appointed staff. The effective dates of
issue were between 1 February 2007 and 1 November 2007. These
options vest at 20% per annum from years three to seven and the
weighted average strike price is 490 cents per share, increasing by
a notional interest amount equivalent to the fringe benefits tax
interest rate less distributions per share made by the company.
CHANGE IN FINANCIAL YEAR END
As previously communicated to shareholders, Cadiz`s financial year
end has been changed from 31 December to 31 March. Audited results
for the 15 months to 31 March 2008 will be announced on or about 2
June 2008. The final distribution will be based on the 15 month
period to March 2008.
BASIS OF PRESENTATION
The abridged financial statements have been prepared in terms of
International Financial Reporting Standards and comply with IAS 34 -
`Interim Financial Reporting`. The accounting policies are
consistent with those applied in the annual financial statements for
31 December 2006. The group will apply IFRS 7 - `Financial
Instruments: Disclosures` in its financial statements for the period
ending 31 March 2008.
AUDITOR`S REPORT
The company`s external auditors, PricewaterhouseCoopers Inc., have
reviewed the condensed financial report. A copy of their unqualified
review opinion is available for inspection at the company`s
registered office.
On behalf of the board of directors
Ray Cadiz Ram Barkai
Chairman Chief Executive Officer
Cape Town
25 February 2008
Registered office
Ground Floor, Fernwood House, The Oval, 1 Oakdale Road, Newlands,
7700
P O Box 44547, Claremont, 7735
www.cadiz.co.za
Directors
R F G Cadiz (Chairman)*
R Barkai (Chief Executive Officer)
C A Hall*
B H Kent*
D M Lawrence*
N S Mjoli-Mncube*
S P Ngwenya*
S J Saunders*
N S Buthelezi* (alternate)
(* Non-executive directors)
Transfer secretaries
Computershare Investor Services 2004 (Pty) Limited, 70 Marshall
Street, Johannesburg
P O Box 61051, Marshalltown, 2107
Sponsor
Investec Bank Limited
Company secretary
F C Shaw
E-mail: fraser.shaw@cadiz.co.za
Date: 25/02/2008 08:00:00 Produced by the JSE SENS Department.
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