| Mon 8 Nov 2010, 8:00 | | CDZ - Cadiz - Interim results for the six months ended 30 September 2010 |
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CDZ
CDZ
CDZ - Cadiz - Interim results for the six months ended 30 September 2010
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
* Unit trust assets up 43% to R5.8 bn over 12 months
* Gross operating revenue 8.3% down
* Diluted HEPS down 29.7%
* Makana shareholding increased to 15%
* Ranked number 1 in derivatives for 14th consecutive year
CONDENSED GROUP INTERIM STATEMENT OF Unaudited Unaudited Audited
COMPREHENSIVE INCOME 6 months 6 months 12 months
(R thousands) 30-Sep-10 30-Sep-09 31-Mar-10
Gross operating revenue 152 490 166 276 390 722
Interest income 6 489 6 349 12 597
Net investment income 10 961 11 720 12 023
Net income from investments 14 079 14 277 15 092
Foreign exchange losses (3 118) (2 557) (3 069)
Income attributable to linked assets - - -
Net fair value (losses)/gains on (61 288)
linked financial instruments 1 687 85 447
Linked liability adjustment 61 288 (1 687) (85 447)
Operating expenses (135 854) (135 844) (298 058)
Operating profit 34 086 48 501 117 284
Finance costs (454) (2 079) (311)
Profit before taxation 33 632 46 422 116 973
Taxation (6 707) (10 724) (26 651)
Total comprehensive income 26 925 35 698 90 322
Reconciliation of headline earnings:
Profit attributable to equity 26 925 35 698 90 322
holders of the company
Goodwill impairment - 1 881 9 151
Headline earnings 26 925 37 579 99 473
Issued number of shares (`000) 245 138 245 138 245 138
Consolidated number of shares (`000) 228 702 218 126 217 794
Weighted average number of shares 218 390 218 126 218 155
(`000)
Diluted weighted average number of 222 893 218 403 219 471
shares (`000)
Earnings per share (cents)
Basic 12.3 16.4 41.4
Diluted 12.1 16.3 41.2
Headline earnings per share (cents)
Basic 12.3 17.2 45.6
Diluted 12.1 17.2 45.3
CONDENSED GROUP INTERIM STATEMENT OF Unaudited Unaudited Audited
FINANCIAL POSITION 30-Sep-10 30-Sep-09 31-Mar-10
(R thousands)
ASSETS
Non-current assets 1 744 347 1 425 249 1 394 592
Plant and equipment 7 279 7 870 7 667
Intangible assets 265 634 274 493 266 140
Deferred taxation 16 055 16 843 24 159
Investments backing linked funds 1 385 126 1 016 595 1 012 529
Other financial assets 64 683 106 166 81 144
Receivables and prepayments 5 570 3 282 2 953
Current assets 1 618 458 696 404 981 885
Other financial assets 209 686 232 532 200 427
Receivables and prepayments 1 224 788 365 734 617 386
Taxation 1 804 2 399 1 204
Cash and cash equivalents 182 180 95 739 162 868
Total assets 3 362 805 2 121 653 2 376 477
EQUITY
Capital and reserves
Ordinary share capital and premium 2 971 2 902 2 902
Treasury shares (37 043) (70 639) (73 544)
Share-based payment reserve 53 415 33 668 45 836
Retained earnings 644 030 607 738 664 173
Total equity 663 373 573 669 639 367
LIABILITIES
Non-current liabilities 1 398 041 1 034 397 1 030 064
Deferred taxation 5 006 9 579 7 918
Linked investment contract 1 385 126 1 016 595 1 012 529
liabilities
Trade and other payables 7 909 8 223 9 617
Current liabilities 1 301 391 513 587 707 046
Trade and other payables 1 135 883 449 493 665 459
Taxation 1 257 7 923 16 021
Trading liabilities 164 251 56 171 25 566
Total liabilities 2 699 432 1 547 984 1 737 110
Total equity and liabilities 3 362 805 2 121 653 2 376 477
Net asset value (cents per share) 305 263 294
Net tangible asset value (cents per 178 134 164
share)
CONDENSED GROUP INTERIM STATEMENT OF Unaudited Unaudited Audited
CASH FLOW 6 months 6 months 12 months
(R thousands) 30-Sep-10 30-Sep-09 31-Mar-10
Cash flow from operating activities (39 160) 22 125 82 593
Cash generated from operations 21 234 60 745 136 530
Taxation paid (16 835) (13 351) (28 668)
Dividends paid (43 559) (25 269) (25 269)
Cash flow from investing activities 25 459 (9 567) 2 976
Cash flow from financing activities 33 061 346 (5 530)
Net change in cash and cash 19 360 12 904 80 039
equivalents
Effect of exchange rate adjustment (48) (85) (91)
Cash and cash equivalents at 162 868 82 920 82 920
beginning of year
Cash and cash equivalents at end of 182 180 95 739 162 868
year
CONDENSED GROUP INTERIM STATEMENT OF Unaudited Unaudited Audited
CHANGES IN EQUITY 6 months 6 months 12 months
Share capital, share premium and
treasury shares
Opening balance (70 642) (67 770) (67 770)
Issue of shares 69 33 33
Sale of treasury shares to Makana 29 980 - -
Sale of treasury shares on exercise - - (1 760)
of options
Delivery of treasury shares on - - 4 782
settlement of deferred consideration
Transfer of deferred consideration -
shares 7 314 -
Purchase of treasury shares (793) - (5 927)
(34 072) (67 737) (70 642)
Reserves
Opening balance 710 009 627 708 627 708
Premium on issue of equity settled 340
share appreciation rights 282 313
Sale of treasury shares to Makana 2 730 - 1 784
Employee share scheme - value of 2 956 15 124
services provided 7 579
Transfer of deferred consideration (6 521) - -
shares
Total comprehensive income 26 925 35 698 90 322
Dividends paid (43 559) (25 269) (25 269)
697 445 641 406 710 009
Total shareholders` funds 663 373 573 669 639 367
CONDENSED GROUP INTERIM SEGMENT REPORT
(R thousands)
Unaudited 6 months to 30 Asset & Securities Investment Total
September 2010 Wealth & s &
managemen Structuring Capital
t
Segment revenue 88 78 13 180
471 582 107 160
Segment costs 68 57 3 129
980 144 040 164
Segment profit 19 21 10 50
491 438 067 996
Corporate costs 17
365
Profit before taxation 33
631
Gross operating revenue 68 152 490
(external) 83 871 619
(R thousands)
Unaudited 6 months to 30 Asset & Securities Investment Total
September 2009 Wealth & s &
managemen Structuring Capital
t
Segment revenue 80 94 13 188
347 086 646 079
Segment costs 60 60 2 123
000 910 551 461
Segment profit 20 33 11 64
347 176 095 618
Corporate costs 18
196
Profit before taxation 46
422
Gross operating revenue 74 92 166
(external) 111 165 276
Year on year % segment -4% -35% -9% -21%
profit
(R thousands)
Audited 12 months to 31 Asset & Securities Investment Total
March 2010 Wealth & s &
managemen Structuring Capital
t
Segment revenue 199 200 19 419
148 994 839 981
Segment costs 132 126 5 264
146 874 168 188
Segment profit 67 74 14 155
002 120 671 793
Corporate costs 38
820
Profit before taxation 116
973
Gross operating revenue 190 199 390
(external) 821 901 722
FINANCIAL PERFORMANCE
Cadiz Holdings confronted challenging market conditions across some of its
business units in the six months ended 30 September 2010 ("the period"). Gross
operating revenue was 8.3% lower at R152.5 million, with the decline
attributable to the 16% drop in revenue in the securities business. The asset
and wealth management unit increased revenue by 10.0%.
Revenue from the group`s investment capital decreased by 4% to R13.1 million.
Operating expenses were contained at the 2009 level as a result of focused cost
management and the reduction in performance incentives based on the lower
operating profits. However, owing to the lower revenue, the cost-to-income ratio
(excluding direct costs related to the group investments) increased to 86.5%
(2009: 76.5%).
Operating profit for the period declined by 29.7% to R34.1 million. Headline
earnings at R26.9 million were 28.4% lower, with diluted headline earnings per
share down 29.7% to 12.1 cents per share. The performance is consistent with the
earnings guidance provided in the group`s trading statement of 22 October 2010.
The group`s net asset value increased by 3.7% to 305 cents per share (31 March
2010: 294 cents) after the payment of a 20 cents per share dividend in July
2010.
ASSET AND WEALTH MANAGEMENT
Against the background of uncertain market conditions, the asset and wealth
management business continued to benefit from its ability to meet the investment
needs of retail and institutional clients, with a strong focus on client
relationships, service and investment excellence.
Investment performance has been strong across most portfolios during the period,
including the absolute return, fixed income and hedge fund portfolios, and in
particular the unit trust portfolios.
During the reporting period a large, long-term low yielding structured
investment mandate matured and is being withdrawn in a phased basis over the
financial year. This mandate was not part of the African Harvest acquisition.
This maturity will impact the assets under management but not the financial
performance of the asset management business. Over the past six months Cadiz has
been successful in attracting assets at higher yields to offset the impact of
the above maturity on the asset and wealth management segment. The net impact on
assets under management is a decline of R2.6 billion since the financial year
end at 31 March 2010 to R49.6 billion and an increase in revenue of 10%. Over
the same period retail funds grew by 19% to R11.6 billion which includes unit
trust assets under management of R5.8 billion.
Cadiz Unit Trusts continued to deliver strong investment performance and for the
first time were recognised in the FM Morningstar Fund awards where the Cadiz
Absolute Yield Fund was the winner in its category for 2010. In addition the
Cadiz Money Market Fund is the top performing money market unit trust fund over
two, three and four years and since inception, the Cadiz Equity Ladder Fund is
top ranked over three and four years and the Cadiz Managed Flexible Fund is a
top performer in its category over two years. Cadiz Unit Trusts remains one of
the fastest growing unit trust management companies in South Africa with assets
under management growing by 43% in the past 12 months.
Cadiz Asset Management was voted the Socially Responsible Investor of the year
for the second consecutive time at the Principal Officers` Association awards.
The wholesale and retail businesses in the asset and wealth management unit
reported a 10% increase in revenue. However increased staff costs, variable
costs paid on unit trust assets and further investments in the growing wealth
management business led to a 4% decline in profit to R19.5 million.
SECURITIES AND STRUCTURING
Trading volumes in the securities business, particularly in equity derivatives,
have been under pressure. The slowdown in global and local institutional market
trading volumes reported at year end, together with changes in the trading
environment, impacted the securities segment. SAFEX institutional market volumes
have dropped by around 18%, equity market volumes have declined by around 4%,
while bond market turnover has increased by over 50%, with the foreign market
share increasing by over 100%. There has also been a significant shift to low
margin electronic trading in the past period.
In this environment the Cadiz equity derivatives team has maintained its
position as the leading independent broker based on volumes traded on SAFEX for
the period.
Clients rated Cadiz as the country`s leading derivatives research and dealing
house for the 14th successive year in the Financial Mail ranking of analysts.
Cadiz was also ranked number one for innovative research and risk management
research and was placed second in quantitative and corporate governance
research.
Cadiz`s activity in the corporate advisory market has been focused mainly on the
resources sector. The strategic partnerships with advisory firms in China and
India are leading to increased deal flow and the pipeline of new mandates for
the balance of the year is encouraging.
Revenue declined by 16% and costs were reduced by 6% due to lower variable and
performance incentive costs resulting in profit decreasing by 35%.
INVESTMENTS AND CAPITAL
At 30 September 2010 the group`s investment and capital portfolio had increased
to R387.6 million. Profit on the portfolio declined by 9% to R10.1 million. This
was affected mainly by foreign exchange losses and the under-performance of
offshore investments. All the group`s operating businesses are profitable and
continue to generate cash.
The group continues to deploy its capital to grow the business. At the end of
the period the capital was invested as follows:
* R76.5 million invested in liquid assets for regulatory capital adequacy,
stockbroking and working capital requirements;
* R16.8 million in liquid assets for future commitments;
* R95.9 million invested as seed capital and co-investments in asset management
products. This includes R34.8 million which is invested in offshore asset
management products;
* R93.9 million investment in empowerment partner Makana, including the
additional R33.2 million following the sale of a further 5% equity stake to
Makana; and
* R104.5 million invested in liquid assets for future strategic opportunities.
The group also holds R68.9 million financial assets and R164.2 million trading
liabilities as a hedge against Cadiz Prime Broking activities. This is in line
with Cadiz`s strategy of not carrying proprietary risk on these products.
MAKANA SHAREHOLDING
Makana increased its effective shareholding in Cadiz Holdings to 15% following
the acquisition of a further 5% stake with effect from 21 September 2010. Makana
acquired a 10% strategic equity stake in the group in April 2004 and the
shareholding agreement was due to mature in May 2011.
Makana purchased the 5% shareholding from the Cadiz Employee Share Trust at a
discount of 10%. Makana has demonstrated its commitment to Cadiz by extending
the sale restriction on their original 10% shareholding until February 2017 in
line with the expiry date of its additional 5%. Makana has also effectively
reinvested the gains on its initial 10% investment as part of the acquisition.
Cadiz has funded the acquisition through the subscription of preference shares
in Makana.
The directors believe the increased shareholding by Makana will strengthen the
strategic partnership and enhance the empowerment credentials of Cadiz. The
ongoing benefit which Makana brings to Cadiz significantly outweighs any
dilution that may arise as a result of the shares being sold through this
transaction. Black ownership in Cadiz measured in terms of the DTI codes has
increased to approximately 30% through the combined holdings of Makana and the
Cadiz black employee share ownership scheme.
EXECUTIVE EQUITY SCHEME
Shareholders approved the implementation of an equity-based executive
remuneration scheme at the annual general meeting (AGM) on 31 August 2010. The
scheme replaces the existing share option scheme and is aimed at aligning the
risk and return profile of management and key staff with that of shareholders.
Management and senior employees subsequently received a portion of their annual
incentive award in the form of 4.9 million equity instruments with vesting and
trade restrictions.
Following the approval of the executive equity scheme the company plans to use
the cash retained by the group to repurchase ordinary shares in the market.
SHARE ALLOCATION TO BLACK EMPLOYEES
During the period 2 million share appreciation rights and voting A ordinary
shares were issued to participants in the black employee share ownership scheme.
These are subject to a lock-in for seven years from the issue date. This brings
the total number of rights issued to 13 million of the 24 million originally
approved by shareholders.
PROSPECTS
Following a strong recovery from the global crisis of the past two years, the
market has traded in a narrow range driven by the prevailing uncertainty. The
strength of the emerging market currencies, together with the rally on gold and
subdued global growth, is presenting a difficult trading environment.
The asset management business is focused on building a higher yielding asset
base and has been successful in attracting new mandates. The strong growth trend
in retail asset management is expected to continue and this business is making
an increasing contribution to the group`s performance.
In the securities business trading conditions are expected to remain tough,
especially in the equity derivatives area. Growth in other areas of securities
remains challenging as margins continue to be under pressure and competition
from foreign players increases.
This will continue to impact the securities performance in the short to medium
term, however, it is the nature of this market and we believe that with our
credentials and experience we will turn that corner as well.
Cadiz believes the current environment will present strategic opportunities and
continues to strengthen its cash resources to capitalise on opportunities to
expand its core businesses.
BASIS OF PRESENTATION
The condensed financial statements have been prepared in terms of International
Financial Reporting Standards and comply with IAS34 - Interim Financial
Reporting and the Listings Requirements of the JSE Limited. The accounting
policies are consistent with those applied in the annual financial statements
for the year ended 31 March 2010 except for the following new amendments to
standards effective in the 2011 financial year and relevant to the group: IFRS 3
- Business combinations (revised); IAS 27 - Consolidated and separate financial
statements (revised) and IFRS 2 - Share based payments- Group cash-settled share
based payment transactions. These amendments had no significant impact on these
results.
RECLASSIFICATION
Costs of R5.3 million previously netted off revenue in the investments and
capital segment in the Segment Report have been reclassified to investment costs
(R0.7 million) and corporate costs (R4.6 million) in the Segment Report rather
than being offset against revenue, as previously reported in the 30 September
2009 interim results, in line with the disclosure in the 31 March 2010 annual
report.
On behalf of the board of directors
Ray Cadiz Ram Barkai
Chairman Chief Executive Officer
Cape Town
8 November 2010
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*
A N Matyumza*
B J Memela-Khambula*
N S Mjoli-Mncube*
S P Ngwenya*
S J Saunders*
F C Shaw
N S Buthelezi* (alternate)
(* Non-executive directors)
Transfer secretaries
Computershare Investor Services (Pty) Limited, 70 Marshall Street, Johannesburg,
2001
P O Box 61051, Marshalltown, 2107
Sponsor
Investec Bank Limited
Company secretary
F C Shaw
Date: 08/11/2010 08:00:01 Produced by the JSE SENS Department.
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