| Mon 31 Mar 2008, 9:00 | | CAE - Cape Empowerment Trust Limited - Reviewed financial results for the year |
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CAE
CAE
CAE - Cape Empowerment Trust Limited - Reviewed financial results for the year
ended 31 December 2007
Cape Empowerment Trust Limited
(Incorporated in the Republic of South Africa)
(Registration number 1998/014606/06)
Share code: CAE ISIN: ZAE000016952
("Cape Empowerment Trust" or "the Company" or "the group")
Reviewed Financial results
for the year ended
31 December 2007
Highlights:
67% increase in Attributable profit to R143,1 million
17% increase in Earnings per share to 52,6 cents
84% increase in Net asset value per share to 160,7 cents
293% increase in Total assets to R1,26 billion
Maiden dividend of 3 cents per share
Condensed consolidated income statement
Reviewed Restated
Year ended Year ended
31 December 31 December
2007 2006
R`000 R`000
Sales 154 155 174 568
Cost of sales (101 570) (114 317)
Gross profit 52 585 60 251
Operating income 17 260 9 448
Operating expenses (79 596) (55 744)
Operating profit (9 751) 13 955
Investment revenue 9 737 419
Fair value adjustments 206 419 109 502
Negative goodwill 13 697 6
Finance costs (10 341) (2 965)
Profit before taxation 209 761 120 917
Taxation (48 307) (28 592)
Profit for the year 161 454 92 325
Attributable to:
Equity holders of the parent 143 101 85 785
Minority Interest 18 353 6 540
161 454 92 325
Earnings per share for profit attributable to
the equity holders of the Group during the period
(expressed as cents per share)
Basic EPS (cents) 52.60 44.95
Diluted EPS (cents) 49.71 42.85
Weighted number of shares in issue during the
year (`000) 272 056 190 869
Condensed consolidated balance sheet
ASSETS
Non-current assets
Investment property 2 609 -
Property, plant and equipment 16 578 17 894
Goodwill 29 603 23 508
Intangible assets 9 235 9 235
Other financial assets 1 043 038 195 767
1 101 063 246 404
Current assets
Inventories 23 252 19 313
Other financial assets 20 895 8 485
Trade and other receivables 23 852 28 351
Cash and cash equivalents 71 013 17 653
139 012 73 802
Non-current assets held for sale 17 734 -
Total assets 1 257 809 320 206
EQUITY
Share capital and premium 234 220 49 624
Treasury shares (4 113) -
Retained earnings 295 349 152 248
Minority interest 153 528 24 532
678 984 226 404
LIABILITIES
Non-current liabilities
Other financial liabilities 348 213 4 185
Instalment sale obligations 5 487 3 835
Deferred tax 70 210 18 164
423 910 26 184
Current liabilities
Loans from shareholders 18 067 11 648
Other financial liabilities 53 389 91
Current tax payable 29 030 16 120
Instalment sale obligations 1 307 1 366
Operating lease liability - 433
Trade and other payables 53 080 33 149
Bank overdraft 42 4 811
154 915 67 618
Total liabilities 578 825 93 802
Total equity and liabilities 1 257 809 320 206
Condensed consolidated cash flow statement
Cash flow from operating activities
Cash generated from operations 26 740 8 845
Interest received 8 127 419
Dividends received 1 610
Interest paid (10 220) (2 893)
Taxation paid (4 445) (2 357)
Net cash from operating activities 21 812 4 014
Cash flow from investing activities
Purchase of property, plant and equipment (3 030) (12 959)
Sale of property plant and equipment 1 598 981
Purchase of investment property (2 609) (3 255)
Acquisition of business 117 896 -
(Purchase) of financial assets (635 259) (50 417)
Profit on sale of shares 6 741 6 483
Non-current asset held for sale (17 734) -
Loss on sale of other financial asset (16 986) -
Net cash from investing activities (549 383) (59 167)
Cash flow from financing activities
Proceeds on share issue 180 482 43 137
Proceeds from borrowings 397 326 4 276
Proceeds from shareholders loan/(repayment) 6 419 (3 821)
Proceeds (repayment) from instalment
sale obligations 1 472 2 928
Net cash from financing activities 585 699 46 520
Total cash movement for the period 58 128 (8 633)
Cash at the beginning of the period 12 842 21 475
Total cash at end of the period 70 970 12 842
Statement of changes in equity
Total
Share Share share Treasury Retained
capital premium capital shares income
R`000 R`000 R`000 R`000 R`000
Group
Balance at
1 January 2006 176 6 312 6 488 - 66 463
Changes in equity
Profit for the year
Issue of shares 55 43 082 43 137 85 785
Business
combinations
Total changes 55 43 08 2 43 137 - 85 785
Balance at
1 January 2007 231 49 394 49 625 152 248
Changes
Profit for the year
Issue of shares 96 184 499 184 595 (4 113) 143 101
Business
combinations -
Total changes 96 184 499 184 595 (4 113) 143 101
Balance at
31 December 2007 327 233 893 234 220 (4 113) 295 349
Total
attributable
to equity
holders of Minority Total
the group interest
R`000 R`000 R`000
Group
Balance at
1 January 2006 72 951 11 913 84 864
Changes in equity
Profit for the year 85 785 6 540 92 325
Issue of shares 43 137 43 137
Business
combinations 6 079 6 079
Total changes 128 922 12 619 141 541
Balance at
1 January 2007 201 873 24 532 226 405
Changes
Profit for the year 143 101 18 353 161 454
Issue of shares 180 482 180 482
Business
combinations 110 644 110 644
Total changes 323 583 128 997 452 580
Balance at
31 December 2007 525 456 153 529 678 985
Supplementary information
Reviewed Restated
Year Ended Year ended
31 December 31 December
2007 2006
R`000 R`000
Shares in issue (000`s) 327 004 231 072
Shares in issue - weighted (000`s) 272 238 190 869
Diluted number of shares - weighted (000`s) 287 847 200 193
Profit attributable to ordinary shareholders
(R`000) 143 098 85 188
Earnings per share (cents) 52.6 44.6
Fully diluted earnings per share (cents) 49.7 42.6
Headline earnings per share (cents) 45.4 43.8
Fully diluted headline earnings per share -
(cents) 42.9 41.7
Reconciliation of headline earnings
Profit for the year 143 098 85 188
Negative goodwill (13 697) (6)
Profit on sale of shares (6 741) (1 803)
Tax effect 833 131
123 493 83 510
Reconciliation of diluted number of shares
Number of shares in issue (`000) - weighted 272 056 190 869
Dilutive shares (`000) 15 791 9 324
Diluted number of shares (`000) 287 847 200 193
Segmental information
Profit
before tax Assets Liabilities
R`000 R`000 R`000
Property 60 365 539 997 32 462
Security 9 293 35 735 9 091
Gaming and Leisure 122 113 500 421 137 093
Financial Services 2 255 34 677 -
Other 15 731 146 979 80 180
Eliminations (350) -
209 757 1 257 809 578 826
1. Introduction
Cape Empowerment Trust is a diversified BEE investment group focused on buying
undervalued businesses and assets or businesses we believe have exceptional
growth prospects. The group has substantial businesses and investments in
Property, Gaming and Leisure, Security, Financial Services and Information,
Communications and Technology. The group utilises its broad-based empowerment
credentials, networks, business skills and intellectual capital to identify
value investment opportunities and to unlock significant value in these over
the short to medium term. This process typically culminates in an outright
disposal or a reversal of t he asset into a focused listed entity.
Cape Empowerment Trust and its management have established a successful track
record of achieving growth and creating value for its shareholders, as
illustrated by the following table:
5 year avg
compound
growth rate 2007 2006
Market Cap (R`000) 123% 797 889 341 986
EPS (cents) 104% 52.6 44.9
HEPS (cents) 98% 45.4 44.1
NAV per share (cents) 34% 160.7 87.4
Total assets (R`000) 95% 1 257 809 320 206
2005 2004 2003
Market Cap (R`000) 107 310 26 015 14 633
EPS (cents) 10.8 6.3 1.5
HEPS (cents) 10.3 6.3 1.5
NAV per share (cents) 41.5 44.2 37.4
Total assets (R`000) 131 929 54 368 44 356
2. Results
2007 in many ways has been a watershed year for the group. A year of frenetic
but fruitful activity has seen total assets increase by 293% to R1,26 billion,
total equity attributable to CET shareholders increase by 160% to R525,5
million, attributable profit increase by 67% to R143,1 million and net asset
value per share increase by 84% to 160,7 cents. The group did not escape the
recent extreme volatility in asset pricing and providing for these reductions
impacted negatively on the results compared to our expectations as per our
trading statements, with basic earnings per share increasing by only 17% to
52,6 cents and headline earnings per share increasing by 3% to 45,5 cents.
In the past the group has preferred to fund its growth predominantly by the
issue of additional equity. During the year under review, having satisfied
ourselves that the underlying assets are able to generate sufficient cash flow
to service an increased level of debt on a sustainable basis, it was decided to
increase the group`s level of debt in order to partly fund the growth in
assets. The year on year growth in net asset value per share of 84% amply
demonstrates the effectiveness of our funding strategies.
Approximately R320 million were borrowed to fund the investment in Ambit
Properties Ltd at 11.13% fixed for 7 years. Other financial liabilities of
R53,4 million consist mainly of funding related to certain shares acquired in
Grand Parade Investments Ltd and is being replaced with suitable long-term
funding.
3. Review of investments
Property
(i)Ambit Properties Ltd ("Ambit")
Following the successful disposal of its undivided share in five buildings
owned by African Alliance and related investment activities, Cape Empowerment
Trust owns 23% of Ambit and 22% (with the option to increase to 26% as well as
scope for further participation) of Ambit Management Services (Pty) Ltd. Ambit
was identified as being undervalued relative to its peers and hence was the
ideal vehicle into which to reverse list the African Alliance portfolio. Our
view in this regard was recently reinforced by various independent analyst
reports on Ambit, including a recent BOE report which places Ambit as the
listed property loan stock company offering the second most value in its
segment. In aggregate these investments represent 80% of the group`s
Property assets and 34% of Total assets. Whilst the distributions currently
covers the fixed servicing costs of the related funding we expect Ambit`s
distributions to grow at least in line with the expected distribution growth in
its sector, which will result in the investment becoming cash flow positive
within the current year.
Our established track record in growing Property value will complement Ambit`s
strategy of vigorous growth in distributions as well as portfolio size over the
next two years.
(ii)African Alliance Real Estate Investment Trust Ltd ("AA REIT") and African
Alliance Management Services (Pty) Ltd ("AA Manco")
The group is a 25% shareholder in AA REIT, an unlisted black-owned and
controlled property loan stock company aggressively growing its portfolio of
office, commercial and industrial properties. The group also owns 25% in AA
Manco, a black-owned and controlled property management business.
Collectively, the investments in AA Reit and AA Manco represent 9% of
Property assets and 4% of Total assets. We expect these percentages to
incease in the coming year.
(iii) Lions Hill Development Company (Pty) Ltd ("Lions Hill") Cape Empowerment
Trust acquired a 41% economic interest in Lions Hill, a planned R450 million
exclusive residential development on the slopes of Lions Head in Cape Town.
(iv) CII Hotel and Resorts Cape Town (Pty) Ltd ("CII")
Cape Empowerment Trust acquired 51% of CII, a planned R200 million five star
luxury hotel in Cape Town and the first of a chain of hotels to be established
and operated in South Africa by Dubai-based Coral International. There is scope
for further involvement during this roll-out process.
(v) Agricultural Property assets
The group acquired 20% in Rapiprop 159 (Pty) Ltd ("Rapiprop"), an agricultural
property-based farming venture with Capespan Ltd. Rapiprop has acquired a
number of farms which were in distressed circumstances. These were acquired at
below market values. Capespan has introduced modern farming practises and
strong management and consequently we expect good growth in the value of this
investment. In this regard Rapiprop has a similar investment philosophy to
Cape Empowerment Trust.
Gaming and Leisure-Grand Parade Investments Ltd ("GPI")
During the year the group continued to aggressively acquire various direct and
indirect interests in GPI. The group currently control between 19% and 20% of
GPI and has an effective economic interest of between 13% and 15%. GPI is a
black empowered gaming and leisure investment holding company with various
gaming and leisure interests, the most significant of which is an economic
interest of up to 30% in and voting control over the GrandWest casino in
Cape Town.
We note that the market valuations of various gaming counters have priced in
expected slowdowns in gaming revenue growth. Whilst GPI may well not escape
this in the short term we believe that GrandWest`s recently completed upgrades
in capacity and equipment will counter any perceived slowdown in national
gaming revenue.
Towards the end of 2007 the perception may have been created that Cape
Empowerment Trust tried to prevent GPI from listing. However, our major
concerns in fact related to the rampant dilution that existing shareholders had
to swallow and the poor dividend flow at that time. In the end, Cape
Empowerment Trust settled its disputes with GPI in return for the issue of
additional shares as announced at the time. This substantially addressed our
concerns regarding dilution of our interests. At the same time we obtained a
legally binding undertaking from GPI not to issue any further shares without our
approval and until such time as the company listed on the JSE (as thereafter it
would be governed by the Listings Requirements with regard to shareholder
dilution). We are also pleased to note that by there has been some improvement
in the flow of dividends. We remain a long term shareholder in GPI and, as the
company is well covered by various financial analysts, we do not view the
listing of GPI as particularly important to us at this point in time. However
should they overcome the significant technical difficulties we understand they
are experiencing in attempting to comply with the JSE Requirements for a
listing we will not oppose such a listing.
Security
As a result of merger and acquisition activity in the Security sector there are
very few large independent black-owned groups with a comprehensive security
offering. It is for this reason that we are in an acquisition phase and we
intend creating a large black-owned security group well positioned to service
the growing number of South African companies with a need to procure services
from black service providers. In addition to the above, this sector continues
to show strong growth as an unfortunate consequence of the high crime levels
experienced across all levels of society in South Africa.
The group has acquired a 24.4% interest in Command Holdings Ltd, a listed
security services group. We have also increased our interest in Future Guarding
and Alexandra Security to 90%.
We intend making this a focus point for the group and we anticipate that this
sector will become a significant contributor to our cash flows over the next
two years.
Financial Services
Cape Empowerment Trust has long sought a reasonably priced entry point into
financial services which had good growth prospects. In the end, Purple Capital
Ltd ("Purple Capital") and African Independent Horizons (Pty) Ltd ("African
Independent Horizons") were considered to be appropriate entry points as they
met our criteria of small well priced companies with ambitious growth plans.
As a result of our investment of 25 %, the group now has exposure to African
Independent Horizons` implemented consulting function which consults to R12
billion of assets under management.
Purple Capital is invested in the provision of asset management, treasury,
financial derivatives and micro-financing and administration. As a result of
our investment of 6% the group will have exposure over the long term to a
multi-disciplinary financial services offering.
Other
Dynamic Cables RSA Ltd ("Dynamic") is a subsidiary listed cabling and light
engineering group providing products and services to the ICT sector. During the
year in review it has performed in line with expectations. As a result of
certain share issues and a BEE transaction our interest in Dynamic has been
reduced to approximately 42%.
During the year the group also acquired 100% of Sancino Litho (Pty) Ltd. This
was a consequence of our involvement with Sancino Projects Ltd, the single
largest shareholder of GPI and now a subsidiary of Cape Empowerment Trust.
4. Basis of Accounting
Grant Thornton, the group`s independent auditor, has reviewed the provisional
financial statements contained in this provisional report and has expressed an
unmodified review report which is available for inspection at the company`s
registered office. The provisional condensed financial statements for the year
ended 31 December 2007 were prepared in accordance with IAS - Financial
Reporting and in compliance with the Listings Requirements of the JSE Limited.
The financial information has been prepared on the basis of the recognition and
measurement requirements of International Financial Reporting Standards (IFRS).
The accounting policies of the group have remained consistent with those of
2006 except for the treatment of Investment in Associates as more fully set
out below.
5. Change in Accounting Policy
During the year, the group changed its accounting policy with regards to the
treatment of investments in associate companies. Previously, the group
accounted for these investments in terms of the equity accounted basis set out
in IAS 28 - Investment in Associates. In order to accurately reflect the
group`s investment approach, philosophy and management and the nature of its
activities, and to provide more accurate, reliable and meaningful information
these investments are now accounted in terms of IAS 39 - Financial Instruments
as financial assets held at fair value through profit and loss.
The change in accounting policy has been accounted for retrospectively, and the
comparative figures for the year ended 31 December 2006 have been restated. The
restatement had no impact whatsoever on the balance sheet or income statement
except for reclassification of certain line items as follows:
Balance sheet
Increase/(Decrease) Retained earnings nil
Increase in Other financial assets 144 988 495
(Decrease) in Investment in Associates (131 049 910)
(Decrease) in Deferred tax asset (13 938 585)
Income statement
Increase in Fair value adjustment 96 128 175
(Decrease) in Income from associates (82 189 590)
(Decrease) in Deferred tax asset (13 938 585)
6. Business combination
The entities detailed below were acquired and controlled by the company during
the year. The entities have been consolidated for the first time in terms of
IFRS 3.
Investment Holding Date acquired
Kovacs Investments 753 (Pty) Ltd R18 000 000 100% 15/12/2007
Business Ventures Investments
No. 1275
(Pty) Ltd R125 100% 22/10/2007
Business Ventures Investments
No. 1232
(Pty) Ltd R100 100% 23/08/2007
7. Changes to the Board of Directors
The board is pleased to announce the appointment of Jeremy de Villiers, the
Chief Operating Officer of Cape Empowerment Trust, as Managing Director with
immediate effect. Shaun Rai has been appointed as Executive Chairman and
Theo Rai as deputy Chairman.
8. Prospects
After a sustained period of strong growth over the last few years the global
and local markets have experienced extraordinary volatility in recent times.
On the global stage, significant events such as the sub-prime mortgage meltdown
and the shockwave it has sent through financial and credit markets
worldwide resulted in investors re-pricing risk and assets on a wide and large
scale. Locally, the South African economy and market has not been immune to
these world events and is also encountering growth restraints such as the
shortage of electricity. The impact of other factors, such as volatile equity
markets, rising commodity prices and the rapidly increasing cost of energy and
transport, coupled with rising inflation is yet to be fully experienced. As a
result shareholders should not expect the same level of growth by the group in
the short term.
Despite these concerns we believe that the South African economy will continue
to grow and that our strategy of investing in undervalued assets exposed to
high-growth sectors of the economy will continue to generate wealth for our
shareholders in the medium and long term. We intend to focus on bedding down
and unlocking value and cash flows in our existing portfolio of businesses and
assets whilst still pursuing other value opportunities.
9. Dividends
In recent years the group`s focus has been on building its asset base and
aggressive growth. As a result, cash resources were continuously re-invested
and no dividends were declared to date. The board has resolved to review this
approach in line with its objective of achieving a balance between strong asset
growth and sustainable free cash flows.
It therefore gives the board great pleasure to declare Cape Empowerment
Trust`s maiden dividend to shareholders as set out below.
Notice is hereby given that a dividend of 3 cents per share has been declared
and is payable to ordinary shareholders recorded in the register of the
Company at the close of business on Friday, 16 May 2008.
The salient dates relating to the dividend are as follows:
2008
Last day to trade cum the ordinary dividend Friday,9 May
Shares commence trading ex the ordinary dividend Monday,12 May
Record date Friday,16 May
Payment of ordinary dividend Monday,19 May
Ordinary shares may not be dematerialised or rematerialised between Monday, 12
May 2008 and Friday, 16 May 2008, both days inclusive.
For and on behalf of the board
S L Rai J de Villiers
Executive Chairman Managing Director
Cape Town
31 March 2008
Board of Directors:
S L Rai (Executive Chairman), T D Rai (Deputy Chairman*)
J de Villiers (Managing Director), R McGregor,
P B Hesseling**, O Valley**, H Takolia**, F Calana**
M Barnes*
* Non-Executive ** Independent Non-Executive
Company Secretary: Rorden McGregor
Registered Office: 2nd Floor, Sunclare Building, 21 Dreyer Street,
Claremont, 7708
Transfer Secretaries: Computershare Investor Services (Pty) Limited
Sponsor: Sasfin Capital, a division of Sasfin Bank Limited
Date: 31/03/2008 09:00:08 Produced by the JSE SENS Department.
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