| Thu 1 Mar 2001, 0:00 | | Rad - Results |
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Forward thinking investment banking
Real Africa Durolink Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1992/004888/06)
("RAD")
Group interim results for the six months ended 31 December 2000
headline earnings R19.6 million shareholders' funds R796.7 million
net asset value per share 193c
GROUP INCOME STATEMENTS
Six months ended Year ended
31 December 30 June
Unaudited Reviewed Audited
2000 1999 2000
R'000 R'000 R'000
Interest income 46 692 56 761 109 873
Interest expense 10 112 32 841 65 286
Net interest income 36 580 23 920 44 587
Provision for doubtful
advances (2 200) (2 015) (569)
Non-interest income 31 445 66 121 115 598
Equity accounted earnings/
(losses) 12 584 - (1 021)
Operating income 78 409 88 026 158 595
Operating expenditure 51 591 73 544 167 351
Other taxes and related
charges 4 719 9 473 15 054
Net income/(loss) from
operations 22 099 5 009 (23 810)
(Loss)/profit from sale of
subsidiaries (8 624) - 3 426
Net income/(loss) before
taxation 13 475 5 009 (20 384)
Taxation 805 (5 035) (14 511)
Net income/(loss) after
taxation 12 670 10 044 (5 873)
Attributable to minority
shareholders 240 (637) (2 830)
Net income/(loss) attributable
to ordinary shareholders 12 430 10 681 (3 043)
Transfer to non-distributable
reserve 4 303 3 707 7 717
Retained income/
(accumulated loss)
for the period 8 127 6 974 (10 760)
Retained income at beginning
of period 141 146 151 906 151 906
Retained income at end of
period 149 273 158 880 141 146
Group balance sheets
31 December 30 June
Unaudited Reviewed Audited
2000 1999 2000
R'000 R'000 R'000
Assets
Cash and cash equivalents 212 622 157 610 141 799
Short-term securities 134 492 168 879 107 434
Other assets 58 673 89 574 69 733
Taxation 12 117 9 846 9 216
Derivative financial
instruments 18 282 93 661 27 327
Investments and trading
assets 349 941 693 834 335 048
Loans and advances 554 110 819 816 751 126
Deferred taxation - - 1 373
Fixed assets 10 310 18 335 16 109
Intangible assets - 12 873 11 367
Total assets 1 350 547 2 064 428 1 470 532
Liabilities
Bank overdrafts 675 - 1 420
Deposits 390 884 935 446 466 229
Other liabilities 90 670 63 357 63 460
Trading liabilities 19 752 190 908 96 093
Deferred taxation 6 744 16 725 6 016
Debenture 41 629 58 656 45 897
Taxation - - 396
Total liabilities 550 354 1 265 092 679 511
Shareholders' funds
Share capital and premium 634 285 634 285 634 285
Reserves 162 392 159 730 148 555
Total shareholders' interest 796 677 794 015 782 840
Interest of minority
shareholders 3 516 5 321 8 181
800 193 799 336 791 021
Total liabilities and
shareholders' funds 1 350 547 2 064 428 1 470 532
DIVISIONAL INFORMATION
Six months ended Year ended
31 December 30 June
Unaudited Reviewed Audited
2000 1999 2000
R'000 R'000 R'000
Division
Structured Finance 20 724 2 614 11 157
Corporate Finance 4 262 (5 944) (170)
Investment Banking (18 509) 2 017 (37 039)
Treasury 6 530 23 650 28 653
Asset Management (1 025) (3 748) (8 459)
Group Operations 10 117 (13 580) (17 952)
Net income/(loss) from
operations 22 099 5 009 (23 810)
Headline earnings
31 December 30 June
Unaudited Reviewed Audited
2000 1999 2000
R'000 R'000 R'000
Reconciliation between
earnings/(loss) and headline
earnings/(loss)
Net income/(loss)
attributable to ordinary
shareholders 12 430 10 681 (3 043)
(Profit)/loss on disposal
of fixed assets (108) 11 324
Amortisation of goodwill and
intellectual property 2 673 172 1 938
NDR write-back (4 047) - -
Loss/(profit) on sale of
subsidiary 8 624 - (3 426)
Headline earnings/(loss) 19 572 10 864 (4 207)
GROUP CASH FLOW STATEMENTS
31 December 30 June
Unaudited Reviewed Audited
2000 1999 2000
R'000 R'000 R'000
Net cash inflow/(outflow)
from operating activities 57 785 (85 317) 63 671
Net cash inflow/(outflow)
from banking activities 49 541 222 980 (33 411)
Net cash outflow from
investing activities (31 443) (1 771) (3 399)
Net cash (outflow)/inflow from
financing activities (4 315) 5 161 (3 079)
Increase in cash and cash
equivalents 71 568 141 053 23 782
Cash and cash equivalents at
beginning of period 140 379 115 280 116 597
Cash and cash equivalents at
end of period 211 947 256 333 140 379
STATEMENT OF CHANGES IN EQUITY
31 December 30 June
Unaudited Reviewed Audited
2000 1999 2000
R'000 R'000 R'000
Ordinary shareholders'
equity at beginning of
period 782 840 782 014 782 014
Changes in non-distributable
reserves 5 710 5 027 11 586
Currency translation
differences 1 407 1 242 3 869
Gain arising on dilution of
interest in subsidiary - 78 -
Interest capitalised on equity
portion of compulsory
convertible debenture 4 303 3 707 7 717
Changes in retained income 8 127 6 974 (10 760)
Net income attributable to
ordinary shareholders 12 430 10 681 (3 043)
Interest capitalised on equity
portion of compulsory
convertible debenture (4 303) (3 707) (7 717)
Ordinary shareholders'
equity at end of period 796 677 794 015 782 840
REVIEW OF GROUP PERFORMANCE
General
The review period was marked by slow corporate economic activity with business
and trading conditions being unpredictable and difficult. Market liquidity,
specifically for the second tier banks, remained tight.
Profitability was restored under trying conditions, turning the R23.8 million
net loss from operations for the year ended 30 June 2000 into net income from
operations of R22.1 million for the six month period ended 31 December 2000
(1999: R5.0 million).
Restructuring Program
While the benefits of the restructuring program including the refocusing of the
various divisions within RAD are beginning to flow through to the income
statement, the full impact of this program is still not reflected in bottom
line earnings. The restructuring program included:
* Downsizing and radical cost cutting resulting in a reduction in operating
expenses, having reduced from R73.5 million in 1999 to the current level of
R51.6 million. Operating expenditure is currently below R8 million monthly,
down from a high during the previous year of some R14 million per month (i.e.
by some 43%).
* Merging of the local and offshore (RAD London) structured finance businesses
to achieve RAD's preeminence in this area and a broader base of new product
offerings arising from RAD's exposure to international markets.
* The merging of RAD's asset management business, RAD AFC Investment Management
Limited, with The Appleton Group Limited and U-Trade Limited. This merger has
resulted in a profitable, substantially larger asset management business with
funds under management of some R3 billion.
Structured Finance
Structured Finance generated net income from operations of R20.7 million for
the review period (1999: R2.6 million). Diversification of this division's
product range resulted in improved earnings and exceptional growth prospects.
The globalisation of RAD's structured finance services has enabled RAD to
provide its local clients with new value-added cross border products.
Kiwane, the corporate debt securitisation vehicle initiated by RAD's structured
finance division and Gensec Bank Limited is beginning to gather momentum with
Kiwane having invested in assets in the order of R470 million. This growth is
expected to continue so that Kiwane is likely to make a contribution to
earnings in the near term.
Other initiatives include a vehicle aimed at the securitisation and recovery of
medical claims, paid by a major medical aid fund, arising from accidents. This
initiative represents an opportunity for RAD to earn annuity income with a
relatively low risk profile.
Structured Finance has been at the forefront in developing property related
products for some years within the South African market. Recently it has been
successful in bidding to provide an integrated solution to the outsourcing of a
major corporate's property portfolio, which transaction value is in excess of
R2.5 billion.
Corporate Finance
Despite a highly competitive environment, the corporate finance division
experienced steady deal-flow during the review period. The division contributed
R4.3 million to net income from operations, compared to a loss of R5.9 million
for the six months to December 1999. With the accreditation as a JSE sponsor
and current prospects, the division is expecting to continue making a positive
contribution to earnings for the second half of the year.
Investment Banking (including private equity funds Real Equity Trust and Real
Technology Trust)
During the review period the focus was on improving the performance of the
portfolios and exiting certain investments.
Provisions were created for permanent diminution in the value of some
investments. A loss of R18.5 million after provisions of R26.4 million was
incurred for the review period (1999: profit of R2.0 million). The investment
in International Packaging and Labelling (Pty) Limited ("Ipak") required a
specific provision of R23 million as that company has been placed into
provisional liquidation following a significant downturn in its business which
is sensitive to the economic climate.
The investment in Fraser Alexander, which on a cost basis accounts for some 34%
of RAD's total private investment portfolio of R156 million, generated good
results and is showing excellent prospects.
During the period, Real Technology Trust disposed of two of its investments and
exit strategies on most of its remaining investments are being pursued.
The Real Equity Trust disposed of its investment in the Supercare Group and is
in the process of investing in new transactions that will result in the fund
being fully invested in the near term.
Treasury
Treasury performed below expectations. Income from operations for the review
period amounted to R6.5 million (1999: R23.7 million). Although the treasury
team reduced in size, the drive to link RAD's structuring capability with the
skills in the Treasury team is starting to show promise.
Asset Management
During the review period, RAD and the Appleton Group, together with the former
U-Trade Limited, joined forces to create a substantially larger asset
management business. RAD has a joint controlling interest of 28.42% in the new
Appleton Group. A loss of R1.0 million was generated from RAD's asset
management activities, which include RAD Securities (1999: R3.7 million loss).
Appleton contributed profits of R1.7 million with improved performance expected
during the next six months. In terms of RAD's accounting policy, R1.9 million
of goodwill in the Appleton investment was written off during the review period
Group Operations
Group Operations include income from shareholders' funds at market rates,
unallocated support costs, restraint of trade and retainer costs and
consolidation adjustments.
Solvency and Liquidity
RAD successfully maintained a high level of liquidity. RAD's solvency and
liquidity positions remain sound and will continue to provide a solid base for
future activities.
Dividend
RAD currently has a policy of paying an annual dividend to shareholders. The
amount of any dividend will be determined by the performance and the financial
position of RAD.
PROSPECTS
The results for the six month period ended 31 December 2000 were negatively
impacted by the provisions made of some R37 million and, in particular, the
failure of Ipak. While profits for this reporting period are not at an
acceptable level, the business is showing an encouraging trend towards improved
performance and reflect the early benefits of the radical restructuring process
undertaken by management.
Having completed the process of downsizing and cost cutting, management's
challenge is to achieve a higher, sustainable level of profitability. This
means that an intense and focused response to income generation is required. In
this regard, management will place particular emphasis on the development of
its core competence in the area of structured products.
The Appleton initiative has also opened up other potential exciting growth
prospects, both locally and internationally, for the RAD Group. Management is
exploring ways of leveraging off its banking and foreign exchange systems and
infrastructure which have been painstakingly built over the last few years at
considerable cost to the Group.
Finally, RAD will aggressively explore acquisition and merger opportunities
with complimentary businesses. In this regard, RAD's capital base of R800
million positions it well to take advantage of such opportunities.
Signed on behalf of the board of directors
DMJ Ncube M Bolton
Chairman Group Chief Executive 2 March 2001
Directors: DMJ Ncube (Chairman), M Bolton (Group Chief Executive), DH
Anderson, DPW Andre, KO Fordwor, I Groenewald,
AD Gemmill, JRT Moxon, RE Sherrell, DJJ Vlok.
Company Secretary: C Herbert
Registered office: 4th Floor, 3 Merchant Place, 1 Fredman Drive, Sandton,
2196. Tel. 27-11-286 0000
Transfer Secretaries: Mercantile Registrars Limited, 13 Diagonal Street,
Johannesburg, 2001. P O Box 1053, Johannesburg, 2000
Postal Address: Private Bag X156, Rivonia, 2128
Internet Address: www.radbank.co.za
