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CND
CND
CND - Conduit Capital - Unaudited results for the six months ended 29 February
2008 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")
UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 29 FEBRUARY 2008
CONSOLIDATED INCOME STATEMENT
Unaudited 6 Unaudited Audited
months ended Unaudited 6 months 18 months
29 Feb 2008 restated ended 31 ended 31 Aug
R`000 6 months Aug 2007 2007 R`000
ended 28 R`000
Feb 2007
R`000
Gross revenue 952 042 740 540 812 448 1 566 513
Net insurance revenue 123 804 184 959 56 178 241 137
Other operating revenue 66 245 17 834 55 929 87 288
Net revenue 190 049 202 793 112 107 328 425
Operating expenses (176 278) (196 352) (101 460) (310 595)
- Administration and other (28 970) (24 334) (18 201) (48 185)
expenses
- Direct expenses (108 466) (146 983) (46 510) (193 493)
(Insurance and Risk
Services)
- Depreciation and (1 585) (903) (1 203) (2 681)
amortisation
- Employee costs (37 257) (24 132) (35 546) (66 236)
Operating profit 13 771 6 441 10 647 17 830
Income from associates 699 314 617 918
Investment income 1 775 13 917 21 391 37 675
Other (expenses) income (10) - 360 360
Finance charges (7 606) (1 320) (7 261) (8 625)
Impairment of goodwill - - (17) (17)
Profit before taxation 8 629 19 352 25 737 48 141
Taxation (2 524) (6 164) (8 456) (16 060)
Profit for the period 6 105 13 188 17 281 32 081
Attributable to:
Equity holders of the 2 710 8 599 12 282 21 324
parent
Minority interest 3 395 4 589 4 999 10 757
Profit for the period 6 105 13 188 17 281 32 081
Earnings per share (cents) 1,20 5,07 6,07 13,54
Headline earnings per share (cents) 1,20 5,07 5,91 13,33
Fully diluted earnings per share (cents) 1,08 4,28 5,41 11,70
Fully diluted headline earnings per share (cents) 1,08 4,28 5,26 11,52
SEGMENTAL ANALYSIS
Insu-rance Financ Head Consoli-
and risk Direct ial Privat office dated
services R`000 servic e & R`000
R`000 es equity treasu
R`000 R`000 ry
R`000
Unaudited - 6 months
ended 29 February 2008
Gross revenue 922 262 17 164 11 875 696 45 952 042
Net revenue 160 269 17 164 11 875 696 45 190 049
Investment income 4 156 130 - 32 (2 1 775
(loss) 543)
Profit (loss) before 10 976 2 834 1 434 256 (6 8 629
taxation 871)
Attributable earnings 7 740 715 (7) 180 (5 2 710
(loss) 918)
Minority interest 1 457 1 073 865 - - 3 395
Total assets 1 034 204 25 865 104 1 019 19 224 1 185
772 084
Total liabilities (884 377) (11 (83 (878) (1 (981
912) 265) 346) 778)
Capital expenditure 2 397 492 219 3 45 3 156
Unaudited restated - 6
months ended 28
February 2007
Gross revenue 725 265 13 109 - 1 176 990 740 540
Net revenue 187 518 13 109 - 1 176 990 202 793
Investment income 12 477 117 - 25 1 298 13 917
Profit (loss) before 21 810 2 821 - 463 (5 19 352
taxation 742)
Attributable earnings 12 883 812 - 463 (5 8 599
(loss) 559)
Minority interest 3 370 1 219 - - - 4 589
Total assets 1 036 830 21 345 - 1 236 36 506 1 095
917
Total liabilities (910 920) (8 - (1 (39 (959
155) 138) 457) 670)
Capital expenditure 604 1 075 - - 16 1 695
Unaudited - 6 months
ended 31 August 2007
Gross revenue 783 390 17 464 12 173 199 (778) 812 448
Net revenue 83 049 17 464 12 173 199 (778) 112 107
Investment income 18 785 76 63 27 2 440 21 391
Profit (loss) before 21 384 4 379 3 986 454 (4 25 737
taxation 466)
Attributable earnings 13 592 1 257 1 373 552 (4 12 282
(loss) 492)
Minority interest 1 412 1 782 1 805 - - 4 999
Total assets 1 047 965 24 397 93 620 941 22 561 1 189
484
Total liabilities (907 702) (10 (77 (741) (3 (999
359) 303) 064) 169)
Capital expenditure 12 231 1 047 567 2 91 13 938
Audited - 18 months
ended 31 August 2007
Gross revenue 1 508 655 42 283 12 173 2 889 513 1 566
513
Net revenue 270 567 42 283 12 173 2 889 513 328 425
Investment income 31 262 218 63 72 6 060 37 675
Profit (loss) before 43 194 10 038 3 986 1 637 (10 48 141
taxation 714)
Attributable earnings 26 475 2 848 1 373 1 735 (11 21 324
(loss) 107)
Minority interest 4 782 4 170 1 805 - - 10 757
Total assets 1 047 965 24 397 93 620 941 22 561 1 189
484
Total liabilities (907 702) (10 (77 (741) (3 (999
359) 303) 064) 169)
Capital expenditure 12 835 2 818 567 2 148 16 370
CONSOLIDATED BALANCE SHEET
Audited
Unaudited Unaudited 31 Aug
29 Feb restated 2007
2008 28 Feb R`000
R`000 2007
R`000
ASSETS
Non-current assets 178 020 154 029 194 060
- Property, vehicles and equipment 27 080 14 856 26 526
- Intangible assets 79 490 42 805 78 546
- Loans receivable 2 512 3 489 739
- Deferred taxation 9 395 956 4 534
- Investment in property 17 245 6 944 11 433
- Investments in associates 3 742 2 673 3 478
- Investments held at fair value 38 556 82 306 68 804
Current assets 1 007 064 941 888 995 424
- Insurance assets 658 742 662 637 652 791
- Investments held at fair value 2 022 4 232 4 723
- Trade and other receivables 146 131 114 277 151 151
- Taxation 8 301 1 664 7 117
- Funds at call, bank balances and 191 868 159 078 179 642
cash
Total assets 1 185 084 1 095 917 1 189
484
EQUITY AND LIABILITIES
Shareholders` equity and reserves 244 542 145 265 230 509
- Ordinary share capital and share 180 315 121 898 170 315
premium
- Retained income (Accumulated losses) 2 128 (19 680) 807
- Contingency reserve 1 389 8 205 -
- Share based payment reserve 569 3 288
- Vendors for equity 18 905 25 821 18 905
203 306 136 247 190 315
- Minority shareholders` interest 41 236 9 018 40 194
Non-current liabilities 72 649 61 026 77 800
- Policyholder liabilities under 21 917 23 680 22 587
insurance contracts
- Interest bearing borrowings 42 373 27 966 45 968
- Deferred taxation 8 359 3 584 6 545
- Vendors for cash - 5 796 2 700
Current liabilities 867 893 889 626 881 175
- Insurance liabilities 728 670 783 953 726 664
- Vendors for cash 2 924 2 825 4 825
- Trade and other payables 90 968 96 782 110 283
- Current portion of interest bearing 39 814 3 810 36 865
borrowings
- Taxation 3 430 2 026 2 370
- Bank overdraft 2 087 230 168
Total equity and liabilities 1 185 084 1 095 917 1 189
484
Net asset value per share (cents) 89,85 69,73 85,81
Tangible net asset value per share 54,72 47,82 50,40
(cents)
ABRIDGED CONSOLIDATED CASH FLOW STATEMENT
Unaudited Audited
Unaudited Unaudited 6 months 18
6 months restated ended 31 months
ended 29 6 months Aug 2007 ended
Feb 2008 ended 28 R`000 31 Aug
R`000 Feb 2007 2007
R`000 R`000
Net cash flows from (10 365) (16 049) (58 073) (71
operating activities 679)
Net cash flows from 17 692 (79 886) (36 361) (118
investing activities 293)
Net cash flows from 2 980 53 671 113 751 193 367
financing activities
Total cash movement for 10 307 (42 264) 19 317 3 395
the period
Cash at the beginning of 179 474 31 583 158 848 5 241
the period
Cash acquired - 169 529 1 309 170 838
Total cash at the end of 189 781 158 848 179 474 179 474
the period
ABRIDGED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Retain Contin- Other Minori Total
capita ed gency reserv ty R`000
l and income reserv es intere
share R`000 e R`000 st
premiu R`000 R`000
m
R`000
Balance at 1 March 10 130 (20 - 30 479 1 713 21 805
2006 517)
Net proceeds from 4 603 - - (4 - (55)
issue of shares 658)
Profit for the - 443 - - 1 169 1 612
period
Balance at 31 August 14 733 (20 - 25 821 2 882 23 362
2006 074)
Net proceeds from 82 572 - - - - 82 572
issue of shares
Acquisition of 24 593 - - - 1 547 26 140
interest in
subsidiaries
Profit for the - 8 599 - - 4 589 13 188
period
Equity options - - - 3 - 3
issued to executives
Contingency reserve - (8 8 205 - - -
transfer 205)
Balance at 28 121 (19 8 205 25 824 9 018 145
February 2007 898 680) 265
Net proceeds from 41 666 - - (6 - 34 750
issue of shares 916)
Acquisition of 6 751 - - - 14 755 21 506
interest in
subsidiaries
Profit for the - 12 282 - - 4 999 17 281
period
Equity options - - - 285 - 285
issued to executives
Loans advanced - - - - 13 517 13 517
Contingency reserve - 8 205 (8 - - -
transfer 205)
Dividends paid - - - - (2 (2
095) 095)
Balance at 31 August 170 807 - 19 193 40 194 230
2007 315 509
Net proceeds from 10 000 - - - - 10 000
issue of shares
Profit for the - 2 710 - - 3 395 6 105
period
Equity options - - - 281 - 281
issued to executives
Contingency reserve - (1 1 389 - - -
transfer 389)
Dividends paid - - - - (2 (2
353) 353)
Balance at 29 180 2 128 1 389 19 474 41 236 244
February 2008 315 542
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 Basis of preparation
These summarised consolidated results have been prepared using accounting
policies compliant with IAS 34: Interim Financial Reporting, International
Financial Reporting Standards ("IFRS") and the Companies Act (Act 61 of
1973), as amended. The accounting policies used are consistent with those
of the prior period.
2 Restatement of results for the 6 months ended 28 February 2007
It was previously disclosed that the purchase consideration that was
originally negotiated for Conduit Risk and Insurance Holdings (Proprietary)
Limited ("CRIH") (previously CICL Investment Holdings (Proprietary)
Limited) was 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. The adjustment and all related entries have been included in
the audited results for the 18 months ended 31 August 2007.
In order to furnish an accurate comparison with the relevant prior periods,
the unaudited interim results for the 6 months ended 28 February 2007 have
been restated to reflect the above adjustments, as well as the
reclassification of certain asset classes and expenses. The impact of the
adjustments on the income statement can be summarised as follows:
Original Adjustment Restated
R`000 R`000 R`000
- Insurance and other revenue 201 692 1 101 202 793
- Direct insurance expenses (143 (3 093) (146
890) 983)
- Operating expenses (49 075) (294) (49 369)
- Investment income 14 653 (736) 13 917
- Finance charges (1 199) (121) (1 320)
- Income from associates 631 (317) 314
- Profit before taxation 22 812 (3 460) 19 352
- Taxation (7 043) 879 (6 164)
- Minority interest (6 082) 1 493 (4 589)
- Attributable to equity 9 687 (1 088) 8 599
holders of the parent
Balance sheet closing balances have been affected as follows:
R`000 R`000 R`000
- Decrease in Property, vehicles 20 913 (6 057) 14 856
and equipment
- Decrease in Intangible assets 53 236 (10 42 805
(including goodwill) 431)
- Increase in Investments and 87 344 6 138 93 482
investment properties
- Decrease in Current receivables 810 692 (33 776 914
778)
- Increase in Policyholder (21 (1 998) (23
liabilities 682) 680)
- Increase in Non-current (32 (1 606) (33
borrowings 156) 762)
- Decrease in Deferred taxation (3 993) 1 365 (2 628)
liability
- Decrease in Current payables (894 11 353 (883
913) 560)
- Decrease in Taxation liability (5 397) 5 035 (362)
- Effect on net asset value (29
979)
- Decrease in Net asset value per 75,81 (6,08) 69,73
share (cents)
- Decrease in Tangible net asset 51,53 (3,71) 47,82
value per share (cents)
The impact on the number of shares in issue as at the balance sheet date was as
follows:
`000 `000 `000
- Number of shares in issue 219 279 (23 195 403
876)
3 Changes in share capital
During the period under review:
3.1 a total of R10,125 million in additional share capital and premium were
raised by way of the issue of 4,5 million shares for cash at a premium of
224 cents per share; and
3.2 R0,125 million in share issue expenses were written off against share
premium.
Details of shares in issue as at the balance sheet dates are as follows:
6 6 6 18
months months months months
to 29 to 28 to 31 to 31
Feb Feb Aug Aug
2008 2007 2007 2007
`000 `000 `000 `000
Number of shares in 226 277 195 403 221 777 221 777
issue
- Shares in issue 232 380 201 506 227 880 227 880
- Shares held as (6 103) (6 103) (6 103) (6 103)
treasury shares
Weighted average 225 856 169 650 202 290 157 463
number of shares
- Shares in issue 231 959 174 346 208 393 162 628
- Shares held as (6 103) (4 696) (6 103) (5 165)
treasury shares
Fully diluted 250 954 200 927 227 121 182 294
weighted average
number of shares
- Shares in issue 257 057 205 623 233 224 187 459
- Shares held as (6 103) (4 696) (6 103) (5 165)
treasury shares
4 Reconciliation of headline earnings
Unaudit Unaudit
Unaudited Unaudited ed 6 ed
6 months restated months restate
ended 29 6 months ended d
Feb 2008 ended 28 31 Aug 18
R`000 Feb 2007 2007 months
R`000 R`000 ended
31 Aug
2007
R`000
Attributable profit for the 2 710 8 599 12 282 21 324
period
Loss (profit) on disposal of 7 (2) 15 13
vehicles and equipment
(net of tax)
Profit on acquisition of - - (360) (360)
subsidiaries
Impairment of goodwill - - 17 17
Headline earnings 2 717 8 597 11 954 20 994
Headline earnings for the 18-month period ended 31 August 2007 have been
restated to reflect the change prescribed in terms of circular 8/2007 issued by
the South African Institute of Chartered Accountants. The circular requires that
profits and losses on the revaluation of investment properties (which was
previously excluded from headline earnings) are to be included with effect from
the beginning of the current financial year. The adjustment is as follows:
Original Adjustment Restated
audited
- Headline earnings (R`000) 18 373 2 621 20 994
- Headline earnings per share 11,67 1,66 13,33
(cents)
- Fully diluted headline 10,08 1,44 11,52
earnings per share (cents)
5 Directors
As previously announced:
5.1 Mr Robert Shaw has resigned as an executive director of Conduit Capital
with effect from 29 February 2008. He however remains as a non-executive
director on the boards of CRIH, the holding company of the Conduit group`s
insurance interests, as well as numerous subsidiary and associate companies
within the CRIH group;
5.2 Mr Paul Diamond has resigned as an executive director of Conduit Capital
and all its subsidiaries with effect from 6 May 2008;
5.3 Ms Megan Kruger has resigned as a non-executive director of Conduit Capital
with effect from 6 May 2008.
6 Dividends
No dividend payment to ordinary shareholders was recommended by the
directors for the 6 months ended 29 February 2008 (Feb `07: R Nil) (Aug
`07: R Nil).
7 Post balance sheet events
There were no material post balance sheet events.
COMMENTARY
GROUP OPERATIONAL REVIEW
1 HEAD OFFICE AND TREASURY
The financial markets heavily impacted both the Head office and Insurance and
Risk Services division`s investment returns, resulting in the reduction in
overall group profitability. Although portfolios were heavily weighted towards
ALSI40 companies (and market exposure was reduced during the period), the
Conduit group nonetheless suffered considerable losses during December and
January. Consequently, the Conduit group has realigned a significant portion of
both portfolios in favour of conservative fixed income instruments.
2 CONDUIT INSURANCE AND RISK SERVICES
Underwriting
As previously announced, the Insurance and Risk Services division has undergone
a complete management restructure. Intense focus has been placed on the
protection of the insurer`s capital base through conservative investment
strategies and underwriting principles while we continue to "tidy" the insurance
book. Although impacted by the run-off in cancelled books of insurance
underwritten in the 2007 financial year, overall underwriting remains
profitable. Improved operational efficiencies with emphasis on expanded control
measures and stricter underwriting and claims management procedures have been
implemented.
Statutory funding ratio
The statutory funding ratio of Constantia Insurance Company Limited ("CICL"),
the insurance division`s main asset improved from 24,7% in August 2007 to 29% as
at 29 February 2008 (August 2006: 19%), which is significantly higher than the
15% statutory requirement. CICL`s international solvency margin also increased
from 46% in August 2007 to 47,4% as at 29 February 2008 (August 2006: 26%).
Credit rating
CICL`s positive financial condition is reflected in a recent review by Global
Credit Rating, again awarding the insurer an A- credit rating and re-affirming
its high claims paying ability.
3 CONDUIT FINANCIAL SERVICES
Gateway Capital Limited ("Gateway")
Recent interest rate increases have impaired liquidity in the property market,
which have prompted Gateway to adopt more conservative lending practices in its
property secured finance activities. Despite the slowdown in the property
market, existing books of business are deemed to be adequately secured and no
capital write-offs appear likely.
In addition to its core business offering, Gateway has extended its services to
include competitive conventional property development finance and various trade
debt solutions.
Given the new products on offer and the client pipeline in place, projections
show a marked improvement in results for the remainder of the year.
Conduit Fund Managers (Proprietary) Limited ("CFM")
In February 2008 CFM obtained approval from the Financial Services Board to
manage third party funds. Prior to obtaining the approval, CFM was only
permitted to manage some of the Conduit group`s proprietary investments and, as
a result, did not generate any income for itself.
In keeping with Conduit Capital`s realignment of its investment portfolios, CFM
has reduced the Conduit group`s holdings in equities. It continues to research
various fund management opportunities and will only consider launching
appropriate fund offerings to third parties when market volatility subsides.
4 CONDUIT DIRECT
Anthony Richards & Associates (Proprietary) Limited ("ARA")
ARA`s consistent performance in the credit recovery industry has resulted in ARA
being awarded various additional recovery contracts, giving rise to more than a
20% increase in staff during the past 7 months (up from 450 to 550). The
infrastructural costs associated with gearing up the business have now been
absorbed and results are expected to improve in the second part of the year.
5 CONDUIT PRIVATE EQUITY
In view of the increased focus on operations, the board has decided, for the
time being, not to actively pursue further private equity opportunities outside
the scope of the Conduit group`s existing operations.
CONCLUSION
Whilst the volatile financial markets and the corrective action taken in the
insurance book weighed heavily on Conduit Capital`s results for the 6 months to
February 2008, we are encouraged by positive developments within all major
operating units. With cash and near-cash resources available for investment of
approximately R110 million (in addition to working capital), we are well funded
and intend to focus on existing operations for the remainder of the financial
year.
For and on behalf of the Board
Jason D Druian Lourens E Louw
Chief Executive Officer Financial Director
Johannesburg
13 May 2008
Directors:
Executive directors: Jason D Druian (CEO), Lourens E Louw, Stanley D Shane
Non-executive directors: Reginald S Berkowitz (Chairman), Scott M Campbell,
Gunter Z Steffens OBE
Company secretaries:
Probity Business Services (Proprietary) Limited
Third Floor, JHI House, 11 Cradock Avenue
Rosebank, 2196
Registered address:
Unit 7 Tulbagh, 360 Oak Avenue
Randburg, 2194
PO Box 97, Melrose Arch, 2076
Telephone: 011 789 3342
Facsimile: 011 789 3709
Transfer secretaries:
Computershare Investor Services (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: 14/05/2008 07:30:09 Produced by the JSE SENS Department.
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