| Mon 17 Nov 2008, 16:13 | | CND - Conduit Capital Limited - Reviewed results for the year ended 31 August |
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CND
CND
CND - Conduit Capital Limited - Reviewed results for the year ended 31 August
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" or "Conduit Capital" or "the group")
REVIEWED RESULTS FOR THE YEAR ENDED 31 AUGUST 2008
CONSOLIDATED INCOME STATEMENT
Reviewed Reviewed Unaudited Unaudited
12 months restated * 6 months restated *
ended 18 months ended 6 months
31 Aug `08 ended 31 Aug ended
R`000 31 Aug `07 `08 29 Feb `08
R`000 R`000 R`000
CONTINUING OPERATIONS
Gross revenue 1 434 478 1 554 340 494 284 940 194
Net insurance revenue 237 722 241 137 113 918 123 804
Other operating revenue 91 656 75 115 37 259 54 397
Net revenue 329 378 316 252 151 177 178 201
Operating expenses (314 176) (307 790) (140 907) (173 269)
- Direct expenses: Insurance (179 782) (193 493) (71 316) (108 466)
and Risk Services
- Administration and other (56 442) (45 802) (29 672) (26 770)
expenses
- Depreciation and (3 014) (2 659) (1 531) (1 483)
amortisation
- Employee costs (74 938) (65 836) (38 388) (36 550)
Operating profit 15 202 8 462 10 270 4 932
Income from associates 1 856 918 1 157 699
Investment income 14 831 37 675 12 750 2 081
Other (expenses) income (51) 360 (41) (10)
Finance charges (5 308) (4 102) (3 471) (1 837)
Impairment of goodwill (185) (17) (185) -
Profit before taxation 26 345 43 296 20 480 5 865
Taxation (7 052) (14 829) (5 562) (1 490)
Profit for the period from 19 293 28 467 14 918 4 375
continuing operations
DISCONTINUED OPERATION
Profit for the period from 3 644 3 614 1 914 1 730
discontinued operation
Profit for the period 22 937 32 081 16 832 6 105
* Refer to note 3.1 for details
Attributable to:
Ordinary shareholders 15 182 21 324 12 472 2 710
Minority interest 7 755 10 757 4 360 3 395
- Continuing operations 5 935 8 952 3 404 2 531
- Discontinued operation 1 820 1 805 956 864
Profit for the period 22 937 32 081 16 832 6 105
Earnings per share (cents) 6.54 13.54 5.23 1.20
- Continuing operations 5.75 12.39 4.83 0.82
- Discontinued operation 0.79 1.15 0.40 0.38
Diluted earnings per share (cents) 6.51 11.70 5.21 1.08
- Continuing operations 5.73 10.71 4.81 0.73
- Discontinued operation 0.78 0.99 0.40 0.35
Headline earnings per share (cents) 6.38 13.21 5.08 1.20
- Continuing operations 5.74 12.06 4.82 0.82
- Discontinued operation 0.64 1.15 0.26 0.38
Diluted headline earnings per share (cents) 6.36 11.41 5.06 1.08
- Continuing operations 5.72 10.42 4.80 0.73
- Discontinued operation 0.64 0.99 0.26 0.35
SEGMENTAL REPORT FOR CONTINUING OPERATIONS
Head Direct
office & Insurance R`000
treasury and risk
R`000 services
R`000
Reviewed - 12 months ended 31 August 2008
Gross revenue 48 1 389 588 43 127
Net revenue 48 284 488 43 127
Investment income 3 14 507 247
Profit (loss) before taxation (8 970) 30 604 7 623
Attributable earnings (loss) (8 250) 21 933 2 118
Minority interest - 2 757 3 178
Total assets 9 267 1 059 241 30 416
Total liabilities (2 943) (880 376) (7 799)
Capital expenditure 313 4 408 1 758
Reviewed restated - 18 months ended 31
August 2007
Gross revenue 513 1 508 655 42 283
Net revenue 513 270 567 42 283
Investment income 6 060 31 262 218
Profit (loss) before taxation (7 435) 41 124 9 970
Attributable earnings (loss) (7 827) 24 405 2 780
Minority interest - 4 782 4 170
Total assets 22 561 1 047 965 24 397
Total liabilities (3 064) (903 099) (5 075)
Capital expenditure 148 14 114 2 818
Unaudited - 6 months ended 29 February
2008
Gross revenue 45 922 262 17 164
Net revenue 45 160 269 17 164
Investment income (loss) (2 543) 4 462 130
Profit (loss) before taxation (6 834) 11 282 2 834
Attributable earnings (loss) (5 882) 8 046 715
Minority interest - 1 457 1 074
Total assets 19 225 1 034 203 25 865
Total liabilities (1 346) (878 719) (6 755)
Capital expenditure 45 2 397 492
Unaudited - 6 months ended 31 August 2008
Gross revenue 3 467 326 25 963
Net revenue 3 124 219 25 963
Investment income 2 546 10 045 117
Profit (loss) before taxation (2 136) 19 322 4 789
Attributable earnings (loss) (2 368) 13 887 1 403
Minority interest - 1 300 2 104
Total assets 9 267 1 059 241 30 416
Total liabilities (2 943) (880 376) (7 799)
Capital expenditure 268 2 011 1 266
Financial Total
services Private R`000
R`000 equity
R`000
Reviewed - 12 months ended 31 August 2008
Gross revenue 31 1 684 1 434 478
Net revenue 31 1 684 329 378
Investment income - 74 14 831
Profit (loss) before taxation (3 318) 406 26 345
Attributable earnings (loss) (2 663) 220 13 358
Minority interest - - 5 935
Total assets 21 062 1 162 1 121 148
Total liabilities (8) (1 135) (892 261)
Capital expenditure 306 29 6 814
Reviewed restated - 18 months ended 31
August 2007
Gross revenue - 2 889 1 554 340
Net revenue - 2 889 316 252
Investment income 63 72 37 675
Profit (loss) before taxation (1 443) 1 080 43 296
Attributable earnings (loss) (1 021) 1 178 19 515
Minority interest - - 8 952
Total assets 93 620 941 1 189 484
Total liabilities (47 013) (724) (958 975)
Capital expenditure 567 2 17 649
Unaudited - 6 months ended 29 February
2008
Gross revenue 27 696 940 194
Net revenue 27 696 178 201
Investment income (loss) - 32 2 081
Profit (loss) before taxation (1 636) 219 5 865
Attributable earnings (loss) (1 179) 144 1 844
Minority interest - - 2 531
Total assets 104 772 1 019 1 185 084
Total liabilities (52 861) (861) (940 542)
Capital expenditure 219 3 3 156
Unaudited - 6 months ended 31 August 2008
Gross revenue 4 988 494 284
Net revenue 4 988 151 177
Investment income - 42 12 750
Profit (loss) before taxation (1 682) 187 20 480
Attributable earnings (loss) (1 484) 76 11 514
Minority interest - - 3 404
Total assets 21 062 1 162 1 121 148
Total liabilities (8) (1 135) (892 261)
Capital expenditure 87 26 3 658
CONSOLIDATED BALANCE SHEET
Reviewed Reviewed Unaudited
31 Aug 31 Aug 29 Feb
`08 `07 `08
R`000 R`000 R`000
ASSETS
Non-current assets 123 716 194 060 178 020
- Property, plant and equipment 23 952 26 526 27 080
- Intangible assets 46 646 78 546 79 490
- Loans receivable 2 293 739 2 512
- Deferred taxation 6 168 4 534 9 395
- Investment properties 15 791 11 433 17 245
- Investments in associates 4 602 3 478 3 742
- Investments held at fair value 24 264 68 804 38 556
Current assets 997 432 995 424 1 007 064
- Insurance assets 678 029 652 791 658 742
- Investments held at fair value 569 4 723 2 022
- Trade and other receivables 95 328 151 151 146 131
- Taxation 10 463 7 117 8 301
- Cash and cash equivalents 213 043 179 642 191 868
Total assets 1 121 148 1 189 484 1 185 084
EQUITY AND LIABILITIES
Shareholders` equity and reserves 228 887 230 509 244 542
- Ordinary share capital and share 199 220 170 315 180 315
premium
- Retained earnings 15 989 807 2 128
- Contingency reserve - - 1 389
- Share based payment reserve 604 288 569
- Vendors for equity - 18 905 18 905
215 813 190 315 203 306
- Minority shareholders` interest 13 074 40 194 41 236
Non-current liabilities 52 979 77 800 72 649
- Policyholder liabilities under 23 662 22 587 21 917
insurance contracts
- Interest-bearing borrowings 22 183 45 968 42 373
- Deferred taxation 7 134 6 545 8 359
- Vendors for cash - 2 700 -
Current liabilities 839 282 881 175 867 893
- Insurance liabilities 747 963 726 664 728 670
- Vendors for cash 3 049 4 825 2 924
- Trade and other payables 80 598 110 283 90 968
- Current portion of interest- 5 125 36 865 39 814
bearing borrowings
- Taxation 2 501 2 370 3 430
- Bank overdraft 46 168 2 087
Total equity and liabilities 1 121 148 1 189 484 1 185 084
Net asset value per share (cents) 86.23 85.81 89.85
Tangible net asset value per share 67.59 50.40 54.72
(cents)
ABRIDGED CONSOLIDATED CASH FLOW STATEMENT
Reviewed Unaudited Unaudited
Reviewed restated 6 months restated
12 18 ended 6 months
months months 31 Aug ended
ended ended `08 29 Feb
31 Aug 31 Aug R`000 `08
`08 `07 R`000
R`000 R`000
Net cash flows from operating 22 870 (71 679) 33 235 (10 365)
activities
- Continuing operations 19 759 (76 413) 34 459 (14 700)
- Discontinued operation 3 111 4 734 (1 224) 4 335
Net cash flows from investing 43 575 (118 25 883 17 692
activities 293)
- Continuing operations 43 874 (87 802) 25 963 17 911
- Discontinued operation (299) (30 491) (80) (219)
Net cash flows from financing (21 184) 193 367 (24 164) 2 980
activities
- Continuing operations (13 227) 162 391 (20 206) 6 979
- Discontinued operation (7 957) 30 976 (3 958) (3 999)
Total cash movement for the 45 261 3 395 34 954 10 307
period
Cash at the beginning of the 179 474 5 241 189 781 179 474
period
Cash (disposed of) acquired (11 738) 170 838 (11 738) -
Total cash at the end of the 212 997 179 474 212 997 189 781
period
ABRIDGED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Retained Other Minority Total
capital earnings reserves interest R`000
and (Accumu- R`000 R`000
share lated
premium loss)
R`000 R`000
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 period - 21 324 - 10 757 32 081
Equity options issued - - 288 - 288
to executives
Loans advanced - - - 13 517 13 517
Contingency reserve - - - - -
transfer
Dividends paid - - - (2 095) (2 095)
Balance at 31 August 170 315 807 19 193 40 194 230 509
2007
Net proceeds from 28 905 - (18 905) - 10 000
issue of shares
Disposal of interest - - - (31 361) (31 361)
in subsidiaries
Profit for the year - 15 182 - 7 755 22 937
Equity options issued - - 316 - 316
to executives
Contingency reserve - - - - -
transfer
Dividends paid - - - (3 514) (3 514)
Balance at 31 August 199 220 15 989 604 13 074 228 887
2008
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
Changes in share capital
During the year under review:
a total of R10.125 million in additional share capital and premium was raised
by way of the issue of 4.5 million shares for cash at a premium of 224 cents
per share; and
R0.125 million in share issue expenses was written off against share premium.
Details of shares in issue as at the balance sheet dates are as follows:
12 18 6 6
months months months months
to to to to
31 Aug 31 Aug 31 Aug 29 Feb
`08 `07 `08 `08
R`000 R`000 R`000 R`000
Number of shares in issue 250 277 221 777 250 277 226 277
- Shares in issue 256 380 227 880 256 380 232 380
- Shares held as treasury shares (6 103) (6 103) (6 103) (6 103)
Weighted average number of shares 232 166 157 463 238 407 225 856
- Shares in issue 238 269 162 628 244 510 231 959
- Shares held as treasury shares (6 103) (5 165) (6 103) (6 103)
Fully diluted weighted average 233 095 182 294 239 336 250 954
number of shares
- Shares in issue 239 198 187 459 245 439 257 057
- Shares held as treasury shares (6 103) (5 165) (6 103) (6 103)
Disposal of subsidiaries
Conduit Capital disposed of its 50.05% interest in Gateway Capital Limited
("Gateway") (which is active in the specialised structured finance industry
with a focus on property secured finance activities) with effect from 31 July
2008 for a total consideration of R16.4 million. The disposal proceeds are to
be received as follows:
R2.9 million on or before 10 October 2008 (received 6 October 2008);
R5 million on or before 31 December 2008 (received 12 November 2008);
R5 million on or before 28 February 2009; and
R3.5 million on or before 31 August 2009.
Outstanding balances are secured by the cession of a loan of R13.5 million in
addition to personal sureties from the purchasers and the pledge of shares in
Gateway. Outstanding balances carry interest at prime plus 2%.
The sale resulted in goodwill being reduced by a further R29.058 million. The
group`s loss on the sale amounted to R0.556 million.
As a result of the sale, Gateway is reflected as a discontinued operation in
the group`s accounts. Published results from prior periods have been restated
for comparative purposes. The discontinued operation produced the following
results during the periods under review:
Reviewed Reviewed Unaudited
12 18 6 months Unaudited
months months to 6 months
to to 31 Aug to
31 Aug 31 Aug `08 29 Feb
`08 `07 R`000 `08
R`000 R`000 R`000
Revenue 26 688 12 173 14 840 11 848
Direct expenses: Cost (15 331) (4 501) (9 565) (5 766)
of sales
Administration and (3 307) (2 383) (1 707) (1 600)
other expenses
Depreciation and (226) (22) (124) (102)
amortisation
Employee costs (2 493) (400) (1 186) (1 307)
Operating profit 5 331 4 867 2 258 3 073
Investment income 112 - 112 -
Negative goodwill on 678 - 678 -
acquisition of
subsidiaries
Finance charges (661) (22) (352) (309)
Profit before taxation 5 460 4 845 2 696 2 764
Taxation (1 816) (1 231) (782) (1 034)
Profit for the period 3 644 3 614 1 914 1 730
The disposal of a number of minor subsidiaries for a total consideration of
R5.139 million resulted in a net profit of R0.363 million and a reduction in
intangible assets to the value of R2.491 million. The bulk of the intangible
assets was represented by goodwill.
Reconciliation of headline earnings
Reviewed Unaudited
Reviewed restated 6 months Unaudited
12 18 ended restated
months months 31 Aug 6 months
ended ended `08 ended
31 Aug 31 Aug R`000 29 Feb
`08 `07 `08
R`000 R`000 R`000
Profit for the period from 19 293 28 467 14 918 4 375
continuing operations
Minority interest in (5 935) (8 952) (3 404) (2 531)
profit from continuing
operations
Earnings from continuing 13 358 19 515 11 514 1 844
operations attributable to
ordinary shareholders
Loss on disposal of 193 - 193 -
subsidiaries
Negative goodwill on - (360) - -
acquisition of subsidiary
After tax profit on (302) (186) (302) -
revaluation of investment
properties
Unclaimed shares written (125) - (125) -
back
Loss on disposal of 23 9 16 7
property, plant and
equipment (net of tax)
Impairment of goodwill 185 17 185 -
Headline earnings from 13 332 18 995 11 481 1 851
continuing operations
Headline earnings from 1 485 1 809 619 866
discontinued operation
Attributable profit for 1 824 1 809 958 866
the period from
discontinued operation
Less: Negative goodwill on (339) - (339) -
acquisition of subsidiary
Headline earnings 14 817 20 804 12 100 2 717
As previously reported, headline earnings for the 18-month period ended 31
August 2007 have been restated to reflect the change in terms of circular
8/2007 issued by the South African Institute of Chartered Accountants
requiring that profits and losses on the revaluation of investment properties
in life insurance companies (which were previously excluded from headline
earnings) are to be included in headline earnings with effect from the
beginning of the financial year. The adjustment is as follows:
As Adjustment Restated
previously
reported
- Headline earnings (R`000) 18 373 2 431 20 804
- Headline earnings per 11.67 1.54 13.21
share (cents)
- Diluted headline earnings 10.08 1.33 11.41
per share (cents)
Contingent liabilities
In the matter between the National Lottery Operator ("Gidani"), the National
Lotteries Board ("the NLB") and On Line Lottery Services (Proprietary) Limited
("Lottofun"), in relation to the business of Lottofun and the use of the word
"Lotto", judgement has been given in favour of Gidani and the NLB. Lottofun
has been granted leave to appeal and will continue to operate until the appeal
is heard. Neither the appeal nor its outcome will have a material impact on
the group`s earnings going forward.
Claims provisions include an amount of R1 751 155 in respect of claims
reported under certain "long tail" reinsurance inwards treaties. These
treaties were entered into a number of years ago and a reliable estimate of
the provision required for claims not yet reported under these treaties cannot
exactly be ascertained. Based on the available information and the quantum of
claims reported to date, the directors are however satisfied as to the
adequacy of the provisions maintained by the group in respect of claims
incurred, but not yet reported.
Contingent rent is payable in connection with parking for which no rental
agreement exists.
Directors
There were no changes to the directorate since the interim results were
published on 13 May 2008.
Dividends
The directors recommended no dividend payment to ordinary shareholders for the
12 months ended 31 August 2008 (Aug `07: Nil).
Post balance sheet events
There were no material post balance sheet events.
Review opinion
Grant Thornton has reviewed the financial information set out in this
provisional report. Their unqualified review report is available for
inspection at the group`s registered office.
COMMENTARY
GROUP OPERATIONAL REVIEW
HEAD OFFICE AND TREASURY
The global financial crisis significantly depressed investment returns,
resulting in a reduction in group profitability for the full financial year.
The bulk of this impact was reflected in the 6 months to 29 February 2008 as
our strategy to shift from equities into cash proved timely and offered
remarkable protection in the second half of the year. At year-end, our
exposure to equities (comprising unit trusts, common stock and property stock)
was limited to only 10% of our net asset value. The group`s investment
activities have now been centralised and fall under the direction of a single
investment committee mandated by the various boards within the group.
As at 31 August 2008 the group`s cash and near cash resources available for
investment increased to approximately R130 million (29 February 2008: R110
million), which resources are in addition to existing working capital utilised
within the group.
CONDUIT INSURANCE AND RISK SERVICES
Underwriting
The corrective action taken in the insurance book in the 6 months to February
2008 provided the foundation for improved underwriting profitability in the
second half of the year. The establishment of dedicated technical, actuarial,
legal, audit and claims resources at Head Office level has considerably
enhanced underwriting risk management and profitability. There however remains
much work to be done and although we have terminated the majority of the non-
performing underwriting arrangements and re-rated significant portions of the
insurance portfolio, many challenges lie ahead, all of which we believe we are
better prepared and more skilled to face.
Investments
Whilst the impact of the financial crisis dented investment returns for the
year, the brunt of the impact was taken in the 6 months to 29 February 2008.
We continued to reduce our exposure to equity markets beyond February 2008 and
indeed past year-end. Although we have retained some investment in equities,
the size of the equity portfolio relative to the entire investment portfolio
dictates that its performance is unlikely to have a material impact on overall
group results in the year ahead.
Statutory funding ratio and credit rating
The statutory funding ratio of Constantia Insurance Company Limited ("CICL"),
the insurance division`s main asset, improved from 24.7% in August 2007 to 38%
as at 31 August 2008 (Statutory requirement: 15%). CICL`s credit rating
remains unchanged at A-.
CONDUIT FINANCIAL SERVICES
Gateway
On 18 September 2008 shareholders were advised that we disposed of our 50.05%
interest in Gateway on the basis that the disposal would be beneficial to
Conduit and to Conduit`s shareholders. While Gateway`s prospects remain good,
its business is impacted by the current high interest rate environment, which
dictates that in order for it to develop and expand its business, it would
have to implement an aggressive growth strategy. Although consistent with the
industry in which Gateway operates, this would not be aligned to the group`s
more conservative risk strategy. Following lengthy discussion with Gateway`s
management, it was deemed appropriate for Conduit to exit its stake. The cash
proceeds from the disposal will be utilised within the group.
Conduit Fund Managers (Proprietary) Limited ("CFM")
Since the last report contained in the results for the 6 months to 29 February
2008, there have been no further developments with respect to CFM. The company
does not currently manage any third party funds outside of the group and
remains an internal resource. Accordingly, until there are noteworthy
developments with regard to CFM`s activities, this division will not be
individually reported on in future commentary.
CONDUIT DIRECT
Anthony Richards & Associates (Proprietary) Limited ("ARA")
Having absorbed the infrastructural costs associated with the award of various
additional credit recovery contracts in the 6 month period to 29 February
2008, the positive results for the second half of the financial year were in
line with expectations. Management has done an outstanding job in maintaining
ARA`s position at the forefront of the credit recovery industry.
CONCLUSION
Notwithstanding the improved results in the second half of the year, market
conditions remain challenging. The group will therefore continue to focus on
existing operations and will maintain a conservative investment strategy in
the year ahead. Shareholders should take comfort in the fact that despite the
existence of the financial crisis that is likely to continue into next year,
our assets are liquid, well spread and exposure to equity markets is limited.
For and on behalf of the Board
Jason D Druian Lourens E Louw
Chief Executive Officer Financial Director
Johannesburg
17 November 2008
Directors:
Executive directors: Jason D Druian (CEO), Lourens E Louw (Financial
Director), 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:
Merchantec (Proprietary) Limited
Date: 17/11/2008 16:13:01 Produced by the JSE SENS Department.
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