| Mon 30 May 2011, 8:00 | | CDZ - Cadiz Holdings Limited - Reviewed preliminary results for the year ended |
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CDZ
CDZ
CDZ - Cadiz Holdings Limited - Reviewed preliminary results for the year ended
31 March 2011
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
* Gross operating revenue 16.5% lower
* Diluted HEPS down 48.1%
* Dividend maintained at 20 cps
* Rated Best Specialist Fund House 2011
* Retail funds under management up 30%
* Top ranked derivatives house in SA for 15th year
CONDENSED GROUP PRELIMINARY STATEMENT Reviewed Audited
OF COMPREHENSIVE INCOME 12 months 12 months
31-Mar-11 31-Mar-10
R `000 R `000
Gross operating revenue 326 063 390 722
Interest income 12 381 12 597
Net investment income 7 287 12 023
Net income from investments 11 264 15 092
Foreign exchange losses (3 977) (3 069)
Income attributable to linked assets - -
Net fair value gains on linked 54 061 85 447
financial instruments
Linked liability adjustment (54 061) (85 447)
Operating expenses (277 004) (298 058)
Operating profit 68 727 117 284
Finance costs (706) (311)
Profit before taxation 68 021 116 973
Taxation (14 428) (26 651)
Total comprehensive income 53 593 90 322
Reconciliation of headline earnings:
Profit attributable to equity holders 53 593 90 322
of the company
Goodwill impairment - 9 151
Surplus on disposal of plant and (56) -
equipment
Taxation impact 16 -
Headline earnings 53 553 99 473
Issued number of shares (`000) 245 339 245 138
Consolidated number of shares (`000) 225 205 217 794
Weighted average number of shares 222 262 218 155
(`000)
Diluted weighted average number of 228 276 219 471
shares (`000)
Earnings per share (cents)
Basic 24.1 41.4
Diluted 23.5 41.2
Headline earnings per share (cents)
Basic 24.1 45.6
Diluted 23.5 45.3
CONDENSED GROUP PRELIMINARY STATEMENT Reviewed Audited
OF FINANCIAL POSITION 31-Mar-11 31-Mar-10
R `000 R `000
ASSETS
Non-current assets 2 608 271 1 394 592
Plant and equipment 6 906 7 667
Intangible assets 269 334 266 140
Deferred taxation 19 230 24 159
Investments backing linked funds 2 232 001 1 012 529
Financial assets 76 235 81 144
Receivables and prepayments 4 565 2 953
Current assets 580 985 981 885
Financial assets 123 511 200 427
Receivables and prepayments 223 270 617 386
Taxation 2 406 1 204
Cash and cash equivalents 231 798 162 868
Total assets 3 189 256 2 376 477
EQUITY
Capital and reserves
Ordinary share capital and premium 3 619 2 902
Treasury shares (52 411) (73 544)
Share-based payment reserve 59 888 45 836
Retained earnings 672 604 664 173
Total shareholders` equity 683 700 639 367
LIABILITIES
Non-current liabilities 2 239 941 1 030 064
Deferred taxation 2 912 7 918
Linked investment contract 2 232 001 1 012 529
liabilities
Trade and other payables 5 028 9 617
Current liabilities 265 615 707 046
Trade and other payables 230 412 665 459
Taxation 6 913 16 021
Trading liabilities 28 290 25 566
Total liabilities 2 505 556 1 737 110
Total equity and liabilities 3 189 256 2 376 477
Net asset value (cents per share) 304 294
Net tangible asset value (cents per 177 164
share)
CONDENSED GROUP PRELIMINARY STATEMENT Reviewed Audited
OF CASH FLOWS 12 months 12 months
31-Mar-11 31-Mar-10
R `000 R `000
Cash flow from operating activities (29 118) 82 593
Cash generated from operations 39 375 136 530
Taxation paid (24 934) (28 668)
Dividends paid (43 559) (25 269)
Cash flow from investing activities 78 075 2 976
Cash flow from financing activities 20 231 (5 530)
Net change in cash and cash 69 188 80 039
equivalents
Effect of exchange rate adjustment (258) (91)
Cash and cash equivalents at 162 868 82 920
beginning of year
Cash and cash equivalents at end of 231 798 162 868
year
CONDENSED GROUP PRELIMINARY STATEMENT Reviewed Audited
OF CHANGES IN EQUITY 12 months 12 months
31-Mar-11 31-Mar-10
R `000 R `000
Share capital, share premium and
treasury shares
Opening balance (70 642) (67 770)
Issue of shares 717 33
Sale of treasury shares to Makana 29 980 -
Net purchase of treasury shares on (1 775) (1 760)
exercise of options
Delivery of treasury shares on - 4 782
settlement of deferred consideration
Transfer of deferred consideration 7314 -
shares
Net repurchase of A ordinary shares (2) -
Purchase of treasury shares (14 384) (5 927)
(48 792) (70 642)
Reserves
Opening balance 710 009 627 708
Net premium on issue of equity 280 340
settled share appreciation rights
Sale of treasury shares to Makana 2 730 -
Net purchase of treasury shares on 1 908 1 784
exercise of options
Employee share option scheme - value 14 052
of services provided 15 124
Transfer of deferred consideration (6 521) -
shares
Total comprehensive income 53 593 90 322
Dividends paid (43 559) (25 269)
732 492 710 009
Total shareholders` funds 683 700 639 367
CONDENSED GROUP PRELIMINARY SEGMENT REPORT
Reviewed Asset and Securities Investmen Total
12 months to Wealth and ts and
31-March-2011 management Structuring Capital
R`000
Segment revenue 196 823 152 435 13 022 362 280
Segment costs 144 314 111 123 6 991 262 428
Segment profit 52 509 41 312 6 031 99 852
Corporate costs 31 831
Profit before 68 021
taxation
Gross operating 187 059 139 004 - 326 063
revenue
(external)
Audited Asset and Securities Investmen Total
12 months to 31- Wealth and ts and
March-2010 management Structuring Capital
R`000
Segment revenue 199 148 200 994 19 839 419 981
Segment costs 132 146 126 874 5 168 264 188
Segment profit 67 002 74 120 14 671 155 793
Corporate costs 38 820
Profit before 116 973
taxation
Gross operating 190 821 199 901 - 390 722
revenue
(external)
Year-on-year % (1%) (24%) (34%) (14%)
segment revenue
Year-on-year % 9% (12%) 35% (1%)
segment costs
Year-on-year % (22%) (44%) (59%) (36%)
segment profit
FINANCIAL PERFORMANCE
Cadiz Holdings encountered a difficult year as the challenges in the
securities business reported to shareholders at the interim stage continued to
impact the group`s performance. Gross operating revenue declined by 16.5% to
R326.1 million with the securities business 24% lower owing to tough trading
and market conditions, while revenue in asset and wealth management remained
flat. All of the group`s operating businesses are profitable and cash
generative.
Revenue from the group`s investment capital declined 34% mainly as a result of
the under-performance of the African Fund which was seeded with offshore
capital, foreign exchange losses and markdowns of the investment in Makana.
Operating expenses were well managed and declined by 7.1%, despite the
continued investment in the asset management business. The decline in expenses
was mainly attributable to focused cost management, lower variable costs in
the securities business and lower incentive payments across the group. The
prior period included a goodwill impairment of R9.2 million which was not
repeated.
The cost-to-income ratio, after excluding direct costs related to the group
investments and goodwill impairment charges, increased to 83% (2010: 73%)
owing to the lower revenue base.
Operating profit for the period declined by 41% to R68.7 million. Headline
earnings declined 46.2% to R53.6 million, with diluted headline earnings per
share decreasing 48.1% to 23.5 cents per share. This performance is in line
with the earnings guidance provided in the group`s trading statement of 5 May
2011.
The group`s net asset value increased by 10 cents to 304 cents per share
(2010: 294 cents) after payment of a dividend of 20 cents per share in July
2010.
The total distribution has been maintained at 20 cents per share. Based on
Cadiz historical dividend cover of between 2 to 3 times earnings the
distribution would have been between 8 and 12 cents. The directors believe it
prudent to maintain the distribution to shareholders despite the decline in
profits as the group has adequate capital and all of the business units are
cash generative.
ASSET AND WEALTH MANAGEMENT
The Cadiz brand continues to gain traction in the retail and wholesale asset
management markets, supported by competitive investment performance, strong
client relationships and a stable investment team.
Cadiz was rated as the Best Specialist Fund House in the 2011 Morningstar
awards. This independent award recognises the unit trust management company
with less than 10 funds that has delivered sustainable outperformance on a
risk-adjusted basis across its range of funds. Cadiz also received Morningstar
Fund Awards for the Cadiz Absolute Yield Fund (second consecutive year) and
the Cadiz Inflation Plus Fund.
Investment performance remains competitive across most portfolios,
particularly the unit trust funds. Performance highlights include:
* The Cadiz Money Market Fund is the top performing money market unit trust
fund over two, three, four and five years
* The Cadiz Absolute Yield Fund is in the top quartile of all flexible fixed
interest funds over all periods from six months, and is the top performing
flexible fixed interest fund over four and five years and since inception
* The Cadiz Managed Flexible Fund ranked third (of 57), second (of 52) and
fourth (of 50) prudential variable equity fund over one, two and three years
respectively
* The Cadiz Equity Ladder Fund ranked fifth against all general equity, growth
and value funds over three years and first over four years (source:
Morningstar)
As previously communicated to shareholders, a large, long-term, low yielding
structured investment mandate matured and the funds were withdrawn on a phased
basis during the financial year. This maturity has impacted the total assets
under management which declined by R10.2 billion over the previous year to R42
billion but had a minimal effect on the financial performance of the asset
management business. Retail funds continue their strong growth increasing by
30% to R12.8 billion, which includes unit trust funds under management of R6.6
billion.
Cadiz Asset Management was voted the Socially Responsible Investor of the Year
for the second consecutive time at the Principal Officers` Association awards.
Revenue in the asset and wealth management segment declined marginally to R197
million as performance fees were lower than the previous year. Management has
embarked on a process to integrate the retail and wholesale platforms and
create a unified approach. This has contributed to the increase in costs,
which together with increased staff costs and variable costs paid on unit
trust assets, has led to a 22% decline in profit to R52.5 million.
SECURITIES AND STRUCTURING
Securities faced challenging market conditions during the period, with low
trading volumes, increased foreign participation in the equities and
derivatives markets placing pressure on the local brokers while the changing
trading environment has seen a significant shift to lower margin electronic
trading.
In this environment the Cadiz equity derivatives team has shown its resilience
and maintained its position as the country`s leading independent broker, based
on volumes traded on SAFEX.
Cadiz has broadened its industry-leading research capability across
quantitative, portfolio strategy and economics research, and extended the
range of sectors and companies covered by the equity research team.
Cadiz was rated as the number one derivatives research house in South Africa
for the 15th consecutive year at last week`s Financial Mail analyst of the
year awards. Cadiz was also ranked top in quantitative research, risk
management research, innovative research, and second in derivative dealing.
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 potential
mandates for the new year is encouraging.
Revenue for the segment was 24% lower than the previous year, however costs
were tightly managed and reduced by 12% with profit declining by 44%.
INVESTMENTS AND CAPITAL
At year end the group`s investment and capital portfolio had increased to
R405.1 million. Returns from this portfolio declined by 59% from R14.6 million
to R6.0 million. Revenue has dropped by R6.8 million while costs have
increased by R1.8 million.
At the end of the period the capital was invested as follows:
* R76.2 million invested in liquid assets for regulatory capital
adequacy, stockbroking and working capital requirements;
* R78.3 million in liquid assets for short term commitments including
dividends, incentives and equity scheme repurchases;
* R49.8 million invested as seed capital and co-investments in asset
management products, including R27.2 million in offshore products which are in
the process of being discontinued;
* R91.4 million invested in Makana, including an additional R33.2 million
following the sale of a further 5% equity stake to Makana; and
* R109.4 million invested mainly in liquid assets for strategic
opportunities.
In line with Cadiz`s policy of not carrying proprietary risk, the group also
holds R26.5 million investments and R28.3 million trading liabilities as a
hedge against Cadiz Prime Broking activities.
EMPOWERMENT
Makana, a related party, 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.
Following this transaction black ownership in Cadiz has increased to
approximately 30% (in terms of the DTI codes) through the combined holdings of
Makana and the Cadiz black employee share ownership scheme.
Cadiz has been verified as a level three BBBEE contributor with a score of
80.94, based on the Department of Trade and Industry`s codes of good practice.
Cadiz was placed 24th overall in the 2011 Financial Mail Top Empowerment
Companies survey and 8th in the financial services sector (compared to 34th
overall and 12th in the sector in 2009 when Cadiz last participated in the
survey).
BOARD AND GOVERNANCE
Peter-Paul Ngwenya was appointed as non-executive chairman of the board in
March 2011 following the resignation of Ray Cadiz as chairman. Ray continues
to serve as a non-executive director. Peter-Paul has been a director of Cadiz
for seven years and his appointment follows a decision by the board more than
three years ago to identify and appoint a black chairperson. Sfiso Buthelezi
resigned as an alternate director in November 2010 to dedicate his time to
other responsibilities. Following the adoption of King lll the group has
reviewed governance structures. In line with the code a social, ethics and
sustainability committee has been established, the nomination committee
reconstituted and other committee membership and charters reviewed.
SHARE ALLOCATION TO BLACK EMPLOYEES
During the period 2.0 million share appreciation rights and voting A ordinary
shares were issued to participants in the black employee share ownership
scheme. The first tranche vested in February 2011 and was settled by the issue
of 0.2 million shares. These are subject to a lock-in for seven years from
the issue date. This brings the total number of rights issued to 13.1 million
of the 24 million originally approved by shareholders.
EXECUTIVE EQUITY SCHEME
Shareholders approved the implementation of an equity-based executive
remuneration scheme at the annual general meeting on 31 August 2010. The
scheme replaced 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 trading restrictions.
SHARE CAPITAL AND TREASURY SHARES
In order to offset the dilutionary impact of the scheme, the cash retained
from the incentive awards was utilised to fund the purchase by a subsidiary of
Cadiz of 4.0 million shares at an average price of 336 cents per share.
PROSPECTS
Competition in the securities market has increased significantly and in
response to this Cadiz is exploring ways of enhancing the research capacity
and gaining access to a balance sheet, offshore distribution and electronic
trading. The solid domestic platform and credentials built by the securities
business over the past 15 years will serve as a good base for this strategic
initiative.
The asset management and wealth businesses have been operating more closely in
recent years and a decision has been taken to integrate the respective
platforms to create further synergies and cost efficiencies. The group has
invested significantly in these businesses in recent years and Cadiz is being
recognised as a top rated investment house in South Africa.
At year end Cadiz had capital of approximately R159 million for potential
strategic initiatives and growth opportunities, after the payment of the
distribution to shareholders, and will continue to look for opportunities to
deploy this capital to generate sustainable risk adjusted returns for
shareholders.
BASIS OF PRESENTATION
These results have been prepared in terms of International Financial Reporting
Standards and comply with IAS 34 - Interim Financial Reporting, the Listings
Requirements of the JSE Limited and the Companies Act No. 61 of 1973. The
accounting policies are consistent with those applied in the annual financial
statements for 31 March 2010 except for the adoption of the amendment made to
IFRS2 - "Group Cash-settled Share-based Payments" and the revisions made to
IFRS3 - "Business Combinations" and IAS27 - "Consolidated and Separate
Financial Statements".
REVIEW REPORT
The condensed consolidated preliminary results for the year ended 31 March
2011 have been reviewed by PricewaterhouseCoopers Inc. The external auditors
unqualified review opinion, is available, on request, for inspection at the
company`s registered office.
DIVIDEND
Notice is hereby given of a dividend of 20 cents per ordinary share.
In compliance with the Listings Requirements of the JSE Limited, the following
dates are applicable:
Last date to trade: Friday 8 July 2011
Trading commences ex dividend: Monday 11 July 2011
Record date: Friday 15 July 2011
Payment date: Monday 18 July 2011
Share certificates may not be dematerialised or rematerialised between Monday,
11 July 2011 and Friday, 15 July 2011, both dates inclusive.
On behalf of the board of directors
Peter-Paul Ngwenya Ram Barkai
Chairman Chief Executive Officer
Cape Town
30 May 2011
Registered office
Ground Floor, Fernwood House, The Oval, 1 Oakdale Road, Newlands, 7700
P O Box 44547, Claremont, 7735
www.cadiz.co.za
Directors
S P Ngwenya (Chairman)*
R Barkai (Chief Executive Officer)
R F G Cadiz*
C A Hall*
B H Kent*
D M Lawrence*
A N Matyumza*
B J Memela-Khambula*
N S Mjoli-Mncube*
S J Saunders*
F C Shaw
(* 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: 30/05/2011 08:00:01 Produced by the JSE SENS Department.
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