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CND
CND
CND - Conduit Capital Limited - Condensed consolidated unaudited results for
the six months ended 28 February 2011 and cautionary announcement condensed
consolidated statements of comprehensive income
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")
CONDENSED CONSOLIDATED UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 28 FEBRUARY
2011 AND CAUTIONARY ANNOUNCEMENT
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
six months six months year ended
ended ended 31 Aug 2010
28 Feb 2011 28 Feb 2010 R`000
R`000 R`000
Gross revenue 510 925 410 355 771 207
Net insurance revenue 129 357 161 207 296 457
Other operating revenue 50 038 42 707 87 573
Net revenue 179 395 203 914 384 030
Operating expenses (166 724) (197 220) (374 304)
- Direct expenses: Insurance and risk (105 310) (135 319) (246 314)
services
- Administration and other expenses (27 034) (27 872) (54 963)
- Depreciation and amortisation (1 513) (1 418) (3 152)
- Employee costs (32 867) (32 611) (69 875)
Operating profit 12 671 6 694 9 726
Income from associates 187 121 57
Investment income 12 589 9 648 18 119
Other income 28 25 3 790
Finance charges (814) (1 156) (2 097)
Profit before taxation 24 661 15 332 29 595
Taxation (7 575) (4 164) (6 006)
Profit for the period 17 086 11 168 23 589
Other comprehensive income - - -
Total comprehensive income 17 086 11 168 23 589
Attributable to:
Ordinary shareholders 10 063 6 946 11 389
Non-controlling interest 7 023 4 222 12 200
Total comprehensive income 17 086 11 168 23 589
Earnings per share (cents)
- Basic 4.02 2.78 4.55
- Diluted 3.92 2.76 4.48
- Headline 4.02 2.36 4.55
- Diluted headline 3.92 2.35 4.48
CONDENSED SEGMENTAL ANALYSIS OF EARNINGS
Head Conduit Conduit Conduit
office Insurance Direct Financial
and and risk R`000 services
treasury services R`000
R`000 R`000
Unaudited - six months
ended 28 February 2011
Gross revenue 4 148 462 632 47 572 286
Net revenue 4 148 131 102 47 572 286
Investment income 3 359 7 060 266 26
Profit (Loss) before (149) 7 538 17 085 185
taxation
Attributable earnings 656 4 863 4 639 136
Non-controlling interest - 37 6 958 -
Total assets 192 933 759 031 49 465 1 243
Total liabilities (17 888) (689 282) (23 372) (1 712)
Capital expenditure 50 277 852 -
Conduit Consoli- Total
Private dation R`000
equity R`000
R`000
Unaudited - six months
ended 28 February 2011
(continued)
Gross revenue 721 (4 434) 510 925
Net revenue 721 (4 434) 179 395
Investment income 4 262 (2 384) 12 589
Profit (Loss) before 2 800 (2 798) 24 661
taxation
Attributable earnings 2 567 (2 798) 10 063
Non-controlling interest 28 - 7 023
Total assets 34 080 (195 316) 841 436
Total liabilities (31 875) 192 954 (571 175)
Capital expenditure - - 1 179
Head Conduit Conduit Conduit
office Insurance Direct Financial
and and risk R`000 services
treasury services R`000
R`000 R`000
Unaudited - six months
ended 28 February 2010
Gross revenue 9 405 375 234 34 210 205
Net revenue 9 405 168 793 34 210 205
Investment income 6 726 6 875 320 37
Profit before taxation 5 730 3 299 10 400 54
Attributable earnings 5 867 2 739 2 554 49
Non-controlling interest - 351 3 833 -
Total assets 178 036 655 355 33 059 5 162
Total liabilities (2 346) (590 656) (20 649) (5 868)
Capital expenditure 196 309 1 175 4
Conduit
Private Consoli-
equity dation Total
R`000 R`000 R`000
Unaudited - six months
ended 28 February 2010
(continued)
Gross revenue 911 (9 610) 410 355
Net revenue 911 (9 610) 203 914
Investment income 20 (4 330) 9 648
Profit before taxation 247 (4 398) 15 332
Attributable earnings 135 (4 398) 6 946
Non-controlling interest 38 - 4 222
Total assets 1 618 (148 056) 725 174
Total liabilities (1 996) 145 697 (475 818)
Capital expenditure 2 - 1 686
Head Conduit Conduit Conduit
office Insurance Direct Financial
and and risk R`000 services
treasury services R`000
R`000 R`000
Audited - year ended 31
August 2010
Gross revenue 12 709 696 611 72 931 458
Net revenue 12 709 309 434 72 931 458
Investment income 9 094 12 608 688 80
Profit before taxation 1 649 8 971 22 903 202
Attributable earnings 3 022 6 307 6 187 149
Non-controlling interest - 2 878 9 283 -
Total assets 176 919 642 754 42 546 5 177
Total liabilities (2 785) (575 460) (21 052) (5 783)
Capital expenditure 307 796 2 031 6
Conduit Consoli- Total
Private dation R`000
equity R`000
R`000
Audited - year ended 31
August 2010 (continued)
Gross revenue 1 655 (13 157) 771 207
Net revenue 1 655 (13 157) 384 030
Investment income 51 (4 402) 18 119
Profit before taxation 270 (4 400) 29 595
Attributable earnings 124 (4 400) 11 389
Non-controlling interest 39 - 12 200
Total assets 1 417 (151 200) 717 613
Total liabilities (1 804) 148 834 (458 050)
Capital expenditure 8 (38) 3 110
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Unaudited Unaudited Audited
as at 28 as at 28 as at
Feb 2011 Feb 2010 31 Aug 2010
R`000 R`000 R`000
ASSETS
Non-current assets 148 107 105 842 107 229
- Property, plant and equipment 14 825 16 082 14 998
- Intangible assets 46 114 46 274 46 277
- Loans receivable 7 322 4 761 6 884
- Deferred taxation 11 145 6 915 7 976
- Investment properties 3 408 3 320 3 403
- Investment in associates 911 2 245 756
- Investment in joint ventures 2 557 - -
- Investments held at fair 61 825 26 245 26 935
value
Current assets 682 529 599 207 595 334
- Insurance assets 331 740 255 143 228 542
- Investments held at fair 4 090 3 536 3 858
value
- Trade and other receivables 91 002 95 898 91 519
- Taxation 981 1 331 1 160
- Cash and cash equivalents 254 716 243 299 270 255
Non-current assets held for 10 800 20 125 15 050
sale
Total assets 841 436 725 174 717 613
EQUITY AND LIABILITIES
Capital and reserves 270 261 249 356 259 563
- Ordinary share capital and 199 155 199 155 199 155
share premium
- Retained earnings 53 798 38 675 43 626
- Share-based payment reserve 621 81 363
Equity attributable to equity 253 574 237 911 243 144
holders of the parent
Non-controlling interest 16 687 11 445 16 419
Non-current liabilities 38 568 47 610 40 054
- Policyholder liabilities 21 837 24 548 21 837
under insurance contracts
- Interest-bearing borrowings 8 339 16 183 12 661
- Deferred taxation 8 392 6 879 5 556
Current liabilities 532 607 428 208 417 996
- Insurance liabilities 411 252 345 680 307 848
- Vendors for cash 90 90 90
- Trade and other payables 112 076 73 690 102 178
- Current portion of interest- 6 870 5 566 6 235
bearing borrowings
- Taxation 2 319 3 182 1 636
- Bank overdraft - - 9
Total equity and liabilities 841 436 725 174 717 613
Net asset value per share 101.32 95.06 97.15
(cents)
Tangible net asset value per 82.89 76.57 78.66
share (cents)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited Unaudited Audited
six months six months year ended
ended ended 31 Aug 2010
28 Feb 2011 28 Feb 2010 R`000
R`000 R`000
Net cash flows from operating 19 617 (7 474) 17 339
activities
Net cash flows from investing (31 022) (22 529) (14 116)
activities
Net cash flows from financing (4 125) (1 534) (7 811)
activities
Total cash movement for the period (15 530) (31 537) (4 588)
Cash at the beginning of the period 270 246 274 836 274 836
Cash disposed of - - (2)
Total cash at the end of the period 254 716 243 299 270 246
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Share Retained Other Non- Total
capital earnings reserves controlling R`000
and R`000 R`000 interest
share R`000
premium
R`000
Balance at 1 September 199 155 31 729 1 004 14 623 246 511
2009
Total comprehensive - 6 946 - 4 222 11 168
income for the period
Equity options issued - - 81 - 81
to executives
Reversal of equity - - (1 004) - (1 004)
options
Dividends paid - - - (7 400) (7 400)
Balance at 28 February 199 155 38 675 81 11 445 249 356
2010
Transaction with - (496) - (4) (500)
owners
Total comprehensive - 5 447 - 7 978 13 425
income for the period
Equity options issued - - 282 - 282
to executives
Dividends paid - - - (3 000) (3 000)
Balance at 31 August 199 155 43 626 363 16 419 259 563
2010
Transaction with - 109 - (2 555) (2 446)
owners
Total comprehensive - 10 063 - 7 023 17 086
income for the period
Equity options issued - - 258 - 258
to executives
Dividends paid - - - (4 200) (4 200)
Balance at 28 February 199 155 53 798 621 16 687 270 261
2011
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.Basis of preparation
The accounting policies applied in the preparation of these condensed
consolidated unaudited financial statements for the six months ended 28
February 2011 ("interim results") are based on reasonable judgments and
estimates and are in accordance with International Financial Reporting
Standards ("IFRS"). These accounting policies are consistent with those
applied in the annual financial statements for the year ended 31 August 2010.
These interim results have been prepared in terms of IAS 34 - Interim
Financial Reporting, the Companies Act, 1973 (Act 61 of 1973), as amended, and
the Listings Requirements of JSE Limited.
The interim results have not been audited or reviewed by the group`s auditors.
2.Changes in share capital
Details of the shares in issue as at the reporting dates are as follows:
28 Feb 2011 28 Feb 2010 31 Aug 2010
`000 `000 `000
Number of shares in issue 250 277 250 277 250 277
- Shares in issue 256 380 256 380 256 380
- Shares held as treasury (6 103) (6 103) (6 103)
shares
Weighted average number of 250 277 250 277 250 277
shares
- Shares in issue 256 380 256 380 256 380
- Shares held as treasury (6 103) (6 103) (6 103)
shares
Diluted weighted average 256 593 251 482 254 258
number of shares
- Shares in issue 262 696 257 585 260 361
- Shares held as treasury (6 103) (6 103) (6 103)
shares
3.Reconciliation of headline earnings
Unaudited Unaudited Audited
six months six months year ended
ended ended 31 Aug 2010
28 Feb 2011 28 Feb 2010 R`000
R`000 R`000
Profit attributable to 10 063 6 946 11 389
ordinary shareholders of
Conduit
Net profit on - - (1 231)
disposal/revaluation of
subsidiaries and associates
After tax loss on - - 1 245
revaluation of investment
properties
Net profit on disposal of (11) (25) (11)
property, plant and
equipment (net of tax)
Reversal of equity options - (1 004) -
Headline earnings 10 052 5 917 11 392
4.Contingent liabilities
4.1 Contingent rent is payable in connection with parking for which no rental
agreement exists.
4.2 The group`s bankers have issued the following guarantees on behalf of the
group:
4.2.1 CBS Property Portfolio Limited for office rent
R383 318
4.2.2 South African Post Office Limited for postage
R100 000
These guarantees are secured by corresponding cash deposits held at the banks
that have issued the guarantees.
4.3 As set out in the August 2010 annual financial statements, "the group is
in the ordinary course and scope of its insurance activities engaged in
various legal disputes. Of particular relevance are certain disputes that
arose out of inward reinsurance arrangements concluded through one of the
group`s external underwriting management and administration agencies. The
matters are by nature complex and group exposure (if any) beyond legal
costs is presently unknown and will only be determined at the outcome of
the relevant legal processes.
A further matter arises against the background of a client mandate
contended to have been put in place between a subsidiary of the insurance
and risk services division and Sanlam Private Investments (Proprietary)
Limited ("SPI"). This mandate was purportedly procured by SPI during
2003, prior to the acquisition by the group of the shareholding
previously held in that entity by Hannover Re. SPI and Hannover Re have
been subjected to extensive fraud, perpetrated by a rogue investment
manager previously in the employ of Hannover Re. Whilst the group is of
the opinion that it has solid prospects of defending the action, it has
nonetheless initiated third party proceedings against Hannover Re for
purposes of procuring an indemnity in regard to any possible award
against the subsidiary."
Save as disclosed above, the group is not aware of any other current or
pending legal cases that would have a material adverse effect on the
group`s results.
5. Directors
There have been no changes to the board during the interim period.
Subsequent to the interim period, Mr Larry Prosser resigned as an
executive director on 13 April 2011 as a result of his emigration to
Australia.
6. Dividends
The board of directors of Conduit Capital has not recommended a dividend
payment to ordinary shareholders for the six months ended 28 February
2011 (February 2010: Nil).
7. Post balance sheet events
Other than as disclosed in the Directors` paragraph above, there were no
material post balance sheet events.
COMMENTARY
GROUP OPERATIONAL REVIEW
1.GENERAL
During the six months to 28 February 2011, the group delivered 4.02 cents in
headline earnings per share, representing a 70.3% improvement over the
comparative six-month period to 28 February 2010. Tangible net asset value per
share increased to 82.9 cents while the net asset value per share breached the
100-cent mark to close at 101.3 cents.
The group`s robust cash position (R254.7 million as at 28 February 2011) is
reassuring and serves as a comfortable "sleep easy" buffer that allows us to
maintain high solvency margins in the insurance operations (International
Solvency: 49.5% as at 28 February 2011) and provides us with the ability to
write additional insurance premium for net account.
2.CONDUIT INSURANCE AND RISK SERVICES
Underwriting
The 2011 reinsurance programme greatly benefited from in-depth technical
analysis of the 2010 programme and underwriting experience. These refinements
combined with disciplined cost management and solid performances in all
insurance classes, resulted in a considerable improvement in underwriting
profitability during the six months to 28 February 2011.
Investments
The group`s rich cash holdings are a mixed blessing. With interest rates at a
37-year low, the ability to deliver improved investment returns while
satisfying credit rating criteria - which places strong emphasis on cash
coverage and solvency margins - remains a constant challenge. The return on
the group`s cash holdings mirrors interest rates and for each 50 basis point
drop (as has happened twice in this reporting period) our annual profits
reduce by approximately R1.25 million.
Our attitude to the protection of shareholder wealth remains at the forefront
of our investment philosophy and while local and international markets remain
volatile, we intend to protect our insurance float (which as at 28 February
2011 exceeded R101 million) and shareholders` funds by maintaining an
appropriate investment strategy.
Statutory funding ratios
Constantia Insurance Company Limited`s international solvency ratio as at 28
February 2011 improved to 49.5% (August 2010: 48%), significantly above
management and Global Credit Rating`s target of 35% - 45%. Similarly, the
statutory solvency ratio of 41% (August 2010: 37%) is well above the statutory
minimum of 15%.
3.CONDUIT DIRECT
Anthony Richards & Associates (Proprietary) Limited ("ARA") turned in a
typically strong performance. Staff numbers continue to grow and collection
statistics reveal ARA to have maintained its competitive position in the top
ranks of the industry.
CONCLUSION AND CAUTIONARY
Having stuck to our guns and focussed on fastening and improving our
underlying operations, we have emerged from a number of difficult trading
years and produced a gratifying result for the six months to February 2011.
The numbers evidence a return to more stable and diversified profitability and
although we do have a few legacy issues to contend with, they are narrow in
their scope and wholly distinct from our ongoing operations. In the short term
the emphasis at Group level will be on considering appropriate means of
returning capital to Conduit`s shareholders. Although a delicate task,
initiatives are underway to achieve this by year-end. Shareholders are
accordingly advised to exercise caution when dealing in Conduit shares until a
further announcement is made.
For and on behalf of the Board
Jason D Druian Lourens E Louw
Chief Executive Officer Financial Director
Johannesburg
20 April 2011
Directors:
Executive directors: Jason D Druian (Chief Executive Officer), Lourens E Louw
(Financial Director), Gavin Toet
Non-executive directors: Reginald S Berkowitz (Chairman), Scott M Campbell,
Stanley D Shane, Gunter Z Steffens OBE
Company secretary:
Probity Business Services (Proprietary) Limited
Third Floor, The Mall Offices, 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: 011 886 0206
Transfer secretaries:
Computershare Investor Services (Proprietary) Limited
Ground Floor, 70 Marshall Street, Johannesburg, 2001
Sponsor:
Merchantec Capital
Date: 20/04/2011 16:11:08 Produced by the JSE SENS Department.
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