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CND
CND
CND - Conduit Capital - Audited Results For The Year Ended 31 August 2009
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")
AUDITED RESULTS FOR THE YEAR ENDED 31 AUGUST 2009
CONSOLIDATED INCOME STATEMENT
Audited Audited
31 Aug 31 Aug
`09 R`000 `08 R`000
CONTINUING OPERATIONS
Gross revenue 816,394 1,434,478
Net insurance revenue 216,000 237,722
Other operating revenue 98,812 91,656
Net revenue 314,812 329,378
Operating expenses (299,150) (314,176)
- Direct expenses: Insurance and risk services (168,928) (179,782)
- Administration and other expenses (52,926) (56,442)
- Depreciation and amortisation (3,019) (3,014)
- Employee costs (74,277) (74,938)
Operating profit 15,662 15,202
Income from associates 2,171 1,856
Investment income 18,607 14,831
Other income (expenses) 3,208 (51)
Finance charges (3,568) (5,308)
Impairment of goodwill - (185)
Profit before taxation 36,080 26,345
Taxation (11,454) (7,052)
Profit for the year from continuing operations 24,626 19,293
DISCONTINUED OPERATION
Profit for the year from discontinued operation - 3,644
Profit for the year 24,626 22,937
Attributable to:
Ordinary shareholders 15,740 15,182
Minority interest 8,886 7,755
- Continuing operations 8,886 5,935
- Discontinued operation - 1,820
Profit for the period 24,626 22,937
Earnings per share (cents) 6.29 6.54
- Continuing operations 6.29 5.75
- Discontinued operation - 0.79
Diluted earnings per share (cents) 6.26 6.51
- Continuing operations 6.26 5.73
- Discontinued operation - 0.78
Headline earnings per share (cents) 5.78 6.38
- Continuing operations 5.78 5.74
- Discontinued operation - 0.64
Diluted headline earnings per share (cents) 5.75 6.36
- Continuing operations 5.75 5.72
- Discontinued operation - 0.64
SEGMENTAL ANALYSIS FOR CONTINUING OPERATIONS
Head Insurance Direct
office & and risk R`000
treasury services
R`000 R`000
Audited - year ended 31
August 2009
Gross revenue
- 751,174 63,298
Net revenue
- 249,592 63,298
Investment income
1,483 16,004 705
Profit (loss) before taxation
(9,912) 26,307 19,053
Attributable earnings (loss)
(8,348) 18,549 5,189
Minority interest
- 1,040 7,784
Total assets
15,291 693,969 35,704
Total liabilities (493,587)
(2,996) (7,112)
Capital expenditure
14 4,573 1,015
Audited - year 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
Financial Private Total
services equity R`000
R`000 R`000
Audited - year ended 31
August 2009
Gross revenue
- 1,922 816,394
Net revenue
- 1,922 314,812
Investment income
330 85 18,607
Profit (loss) before taxation
47 585 36,080
Attributable earnings (loss)
47 303 15,740
Minority interest
- 62 8,886
Total assets
5,052 1,468 751,484
Total liabilities (15) (504,973)
(1,263)
Capital expenditure
- - 5,602
Audited - year 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) (892,261)
(1,135)
Capital expenditure
306 29 6,814
CONSOLIDATED BALANCE SHEET
Audited Audited
31 Aug 31 Aug
`09 `08
R`000 R`000
ASSETS
Non-current assets 91,911 123,716
- Property, plant and equipment 15,648 23,952
- Intangible assets 46,440 46,646
- Loans receivable 5,917 2,293
- Deferred taxation 6,830 6,168
- Investment properties 8,545 15,791
- Investments in associates 2,469 4,602
- Investments held at fair value 6,062 24,264
Current assets 644,673 997,432
- Insurance assets 269,744 678,029
- Investments held at fair value 858 569
- Trade and other receivables 87,209 95,328
- Taxation 12,012 10,463
- Cash and cash equivalents 274,850 213,043
Non-current assets held for sale 14,900 -
Total assets 751,484 1,121,148
EQUITY AND LIABILITIES
Shareholders` equity and reserves 246,511 228,887
- Ordinary share capital and share 199,155 199,220
premium
- Retained earnings 31,729 15,989
- Share based payment reserve 1,004 604
Equity attributable to equity holders of 231,888 215,813
the parent
Minority shareholders` interest 14,623 13,074
Non-current liabilities 52,245 52,962
- Policyholder liabilities under insurance 24,548 23,662
contracts
- Interest bearing borrowings 18,873 22,166
- Deferred taxation 8,824 7,134
Current liabilities 452,728 839,299
- Insurance liabilities 332,031 747,963
- Vendors for cash 90 3,049
- Trade and other payables 111,036 80,598
- Current portion of interest-bearing 5,566 5,142
borrowings
- Taxation 3,991 2,501
- Bank overdraft 14 46
Total equity and liabilities 751,484 1,121,148
Net asset value per share (cents) 92.65 86.23
Tangible net asset value per share (cents) 74.10 67.59
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
Audited Audited
31 Aug 31 Aug
`09 `08
R`000 R`000
Net cash flows from operating activities 54,422 22,870
- Continuing operations 54,422 19,759
- Discontinued operation - 3,111
Net cash flows from investing activities 18,885 43,575
- Continuing operations 18,885 43,874
- Discontinued operation - (299)
Net cash flows from financing activities (10,046) (21,184)
- Continuing operations (10,046) (13,227)
- Discontinued operation - (7,957)
Total cash movement for the year 63,261 45,261
Cash at the beginning of the year 212,997 179,474
Cash disposed of (1,422) (11,738)
Total cash at the end of the year 274,836 212,997
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Retained Other Minority Total R`000
capital earnings reserves interest
and share R`000 R`000 R`000
premium
R`000
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 - - 316 - 316
issued to executives
Dividends paid - - - (3,514) (3,514)
Balance at 31 August 199,220 15,989 604 13,074 228,887
2008
Net cost of issuing (65) - - - (65)
shares
Disposal of interest - - - (2,248) (2,248)
in subsidiaries
Profit for the year - 15,740 - 8,886 24,626
Equity options - - 400 - 400
issued to executives
Dividends paid - - - (5,089) (5,089)
Balance at 31 August 199,155 31,729 1,004 14,623 246,511
2009
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"), the Companies Act (Act 61 of 1973),
as amended and the Listings requirements of JSE Limited. The accounting
policies used are consistent with those of the prior year.
2. Changes in share capital
Details of shares in issue as at the balance sheet dates are as follows:
31 Aug 31 Aug
`09 `08
`000 `000
Number of shares in issue 250,277 250,277
- Shares in issue 256,380 256,380
- Shares held as treasury shares (6,103) (6,103)
Weighted average number of shares 250,277 232,166
- Shares in issue 256,380 238,269
- Shares held as treasury shares (6,103) (6,103)
Diluted weighted average number of shares 251,449 233,095
- Shares in issue 257,552 239,198
- Shares held as treasury shares (6,103) (6,103)
3. Disposal of subsidiaries
Conduit Capital disposed of a number of minor subsidiaries for a total
consideration of R4 million. This resulted in a profit on disposals of R1.7
million. There were no changes to goodwill as a result of the disposals.
4. Reconciliation of headline earnings
31 Aug 31 Aug
`09 `08
R`000 R`000
Profit for the period from continuing 24,626 19,293
operations
Minority interest in profit from continuing (8,886) (5,935)
operations
Earnings from continuing operations 15,740 13,358
attributable to ordinary shareholders
(Profit) loss on disposal of subsidiaries (2,597) 193
After tax loss (profit) on revaluation of 1,294 (302)
properties
Unclaimed shares written back - (125)
Loss on disposal of property, plant and 27 23
equipment (net of tax)
Impairment of goodwill - 185
Headline earnings from continuing operations 14,464 13,332
Headline earnings from discontinued - 1,485
operation
Attributable profit for the period from - 1,824
discontinued operation
Negative goodwill on acquisition of - (339)
subsidiary
Headline earnings 14,464 14,817
5. Contingent liabilities
5.1 Contingent rent is payable in respect of parking bays for which no
rental agreement exists.
5.2 The group`s bankers have issued the following guarantees on behalf of
the group:
5.2.1 CBS Property Portfolio Limited for office rent R221,168
South African Post Office Limited for postage R100,000
5.2.2 The guarantees are secured by corresponding cash deposits held at
the banks who have issued the guarantees.
6. Directors
Gavin Toet was appointed as an Executive Director on 8 September 2009.
There were no other changes to the directorate since the interim results
were published on 7 May 2009.
7. Dividends
The directors recommended no dividend payment to ordinary shareholders for
the year ended 31 August 2009 (2008: Nil).
8. Post balance sheet events
There were no material post balance sheet events.
9. Audit opinion
Grant Thornton has audited the financial information set out in this
audited report. Their unqualified audit report is available for inspection
at the group`s registered office.
COMMENTARY
GROUP OPERATIONAL REVIEW
1. HEAD OFFICE AND TREASURY
Shareholders will be pleased to note that group cash and near cash
resources available for investment increased to approximately R150 million
(2008: R130 million). These resources are classified separately from
operating working capital. The group`s net asset value increased to 92.65
cents per share (2008: 86.23 cents). Net tangible asset value in turn,
improved to 74.10 cents per share (2008: 67.59 cents).
By March of 2009 the listed equities portfolio had been actively managed
down to less than 1% of total net assets. While this safeguarded against
the sharp decline in equities in the first half of the year we observed the
rebound in markets from the sidelines. Notwithstanding that the future
direction of the equities markets is in our opinion still uncertain, the
sharp decline in interest rates has significantly lowered the return on
cash justifying a change to our investment strategy going forward.
Accordingly, we have allocated a reasonable percentage of capital to
alternative/equity and enhanced yield investments which include: listed
preference shares, government securities, third party commercial loan
funding, direct equity investments and various equity funds. The investment
mix has been carefully considered by the group`s investment committee and
falls well within prudential limits and the asset spread guidelines of the
subsidiaries. The funds allocated to these portfolios will be deployed over
a six month period.
2. CONDUIT INSURANCE AND RISK SERVICES
Underwriting
The Insurance and Risk Services division performed in line with expectation
and management and staff should be commended on their achievements in a
particularly challenging economic environment.
Reinsurance
The reinsurance arrangements for the 2009/2010 financial year have been
structured to better reflect the underlying risk and high solvency levels
of Constantia Insurance Company Limited ("CICL"). The cancellation of
underperforming portfolios has released valuable capital reserves that will
allow us to retain more quality premium for our own account without
compromising solvency or our valued reinsurance relationship. Although this
strategy is not likely to produce a meaningful increase in underwriting
profit in the short term, it does represent an improved allocation of
capital and overall confidence in our ability to effectively manage and
evaluate the risks we insure.
Statutory funding ratio and credit rating
The positive trend in the statutory funding ratio of CICL continued into
the second six months of the year. The local solvency measure increased
from 38% at 31 August 2008 to 67% at 31 August 2009, which amounts to more
than four times the statutory requirement. On an international basis the
solvency margin also increased from 64% to 73% year-on-year. CICL`s global
credit rating remains unchanged at an A-.
3. CONDUIT DIRECT
Anthony Richards & Associates (Proprietary) Limited ("ARA")
ARA continues to excel and have once again delivered sterling results in
spite of a generally volatile and demanding credit environment. As
evidenced by the award of additional contracts and performance statistics
provided by its clients, ARA has firmly embedded its position in the top
tier of credit recovery agencies in the country. The addition of value
added services and the remarkable dedication to improved recovery
methodologies, innovation and focus on core competence often results in ARA
being selected as the supplier of choice where existing strategies are not
proving optimally effective. Constant additions to the technological
infrastructure provide ARA with the ability to strike a balance between
collection ratios, cost efficiencies and profitability for both client and
company. ARA`s collection book is at levels that suggest persistent
performance and increased profitability in the year ahead.
4. CONDUIT PRIVATE EQUITY
On Line Lottery Services (Proprietary) Limited ("Lottofun")
The group is pleased to report that in the matter between Gidani (the
National Lotteries Operator), the National Lotteries Board and Lottofun,
the Supreme Court of Appeal ("SCA") held that the word "Lotto" is a generic
term and that the "Lotto" trademark belonging to the National Lotteries
Board should be struck off the trademark registers. The SCA further ruled
that Lottofun`s business does not contravene the National Lotteries Act and
furthermore that Lottofun is not "passing off" as being associated with
either the National Lotteries Board or the Operator. A cost award was given
to Lottofun, with the result that the appeal was successful on all counts.
CONCLUSION
In the 2008 Annual financial statements we reported that we expected the
financial crisis to continue into the next year during which time we would
maintain our conservative investment strategy while we focussed on existing
operations. Indeed, this was the case as we patiently observed the financial
crisis deepen and investment markets reel in the face of massive corporate
bankruptcies and panic. Fortunately, that very internal focus and conservatism
we spoke of assisted us in not only protecting shareholder wealth but increasing
it over this period.
For 2010 our challenge is quite different as we embark on measured product,
marketing, technology and distribution development initiatives. Accompanying
this more expansive strategy will be the ongoing investment in key individuals
critical to the success of each programme. The implementation of these
initiatives is a sound and necessary investment in the group`s future but will
require the group to incur costs and will take time to mature. Whilst the
investment in people and resource is paramount to our growth, so is our desire
to seek out opportunities to expand our activities beyond their existing scope.
We look forward to a more adventurous 2010.
For and on behalf of the Board
Jason D Druian Lourens E Louw
Chief Executive Officer Financial Director
Johannesburg
6 November 2009
Directors:
Executive directors: Jason D Druian (Chief Executive Officer), Lourens E
Louw (Financial Director), Stanley D Shane, Gavin Toet
Non-executive directors: Reginald S Berkowitz (Chairman), Scott M Campbell,
G?nter 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: 011 686 4200
Facsimile: 011 789 3709
Transfer secretaries:
Computershare Investor Services (Proprietary) Limited
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: 09/11/2009 10:54:01 Produced by the JSE SENS Department.
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