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CDZ
CDZ
CDZ - Cadiz Holdings Limited - Interim results for the six months ended 30
September 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
* Diluted HEPS 0.9 cents per share
* Formation of BNP Paribas Cadiz Securities
* Asset management business refocused
* Best derivatives house for 15th consecutive year
CONDENSED GROUP INTERIM STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
6 months 6 months 12 months
(R thousands) 30-Sep-11 30-Sep-10 31-Mar-11
Continuing operations
Gross operating revenue 95 069 103 330 225 382
Interest income 1 260 2 333
585
Net investment income 15 746 10 961 7 287
Net income from 12 337 11 264
investments 14 079
Foreign exchange 3 409 (3 977)
gains/(losses) (3 118)
Income attributable to
linked assets - - -
Net fair value 82 246 54 061
gains/(losses) on linked (61 288)
financial instruments
Linked liability (82 246) (54 061)
adjustment 61 288
Operating expenses (102 597) (99 279) (200 665)
Operating profit 9 478 15 597 34 337
Finance costs (223) (454) (706)
Profit before taxation 9 255 15 143 33 631
Taxation (1 734) (1 530) (5 272)
Total comprehensive 7 521
income from continuing 13 613 28 359
operations
Discontinued operations
(Loss)/Profit from (5 337) 25 234
discontinued operations 13 312
Total comprehensive
income 2 184 26 925 53 593
Reconciliation of
headline earnings:
Profit attributable to 2 184 26 925 53 593
equity holders of the
company
Surplus on disposal of (8) (56)
plant and equipment -
Taxation impact 2 - 16
Headline earnings 2 178 26 925 53 553
Note: All headline earning adjustments relate to continuing operations
Issued number of shares 252 944 245 138 245 339
(`000)
Consolidated number of 232 810 228 702 225 205
shares (`000)
Weighted average number 229 572 218 390 222 262
of shares (`000)
Diluted weighted average 234 106 222 893 228 276
number of shares (`000)
Earnings per share
(cents)
Basic - from continuing 3.3 6.2 12.8
operations
Basic- from discontinued (2.3)
operations 6.1 11.3
1.0 12.3 24.1
Diluted - from continuing 3.2 6.1 12.4
operations
Diluted - from (2.3)
discontinued operations 6.0 11.1
0.9 12.1 23.5
Headline earnings per
share (cents)
Basic 0.9 12.3 24.1
Diluted 0.9 12.1 23.5
CONDENSED GROUP INTERIM STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
(R thousands) 30-Sep-11 30-Sep-10 31-Mar-11
ASSETS
Non-current assets 3 333 109 1 744 347 2 608 271
Plant and equipment 6 742 7 279 6 906
Intangible assets 272 462 265 634 269 334
Deferred taxation 16 908 16 055 19 230
Investments backing 2 889 255 1 385 126 2 232 001
linked funds
Financial assets 135 135 64 683 76 235
Receivables and
prepayments 12 607 5 570 4 565
Current assets 219 837 1 618 458 580 985
Financial assets 49 132 209 686 123 511
Receivables and 36 411 1 224 788 223 270
prepayments
Taxation 7 917 1 804 2 406
Cash and cash equivalents 126 377 182 180 231 798
Assets of disposal group 328 409
classified as held for - -
sale
548 246 1 618 458 580 985
Total assets 3 881 355 3 362 805 3 189 256
EQUITY
Capital and reserves
Ordinary share capital
and premium 24 965 2 971 3 619
Treasury shares (52 411) (37 043) (52 411)
Share-based payment
reserve 38 731 53 415 59 888
Retained earnings 628 251 644 030 672 604
Total equity 639 536 663 373 683 700
LIABILITIES
Non-current liabilities 2 898 996 1 398 041 2 239 941
Deferred taxation 4 946 5 006 2 912
Linked investment 2 889 255 1 385 126 2 232 001
contract liabilities
Trade and other payables 4 795 7 909 5 028
Current liabilities 48 948 1 301 391 265 615
Trade and other payables 1 135 883
41 951 230 412
Taxation 6 997 1 257 6 913
Trading liabilities - 164 251 28 290
Liabilities of disposal
group classified as held 293 875 - -
for sale
342 823 1 301 391 265 615
Total liabilities 3 241 819 2 699 432 2 505 556
Total equity and 3 881 355 3 362 805 3 189 256
liabilities
Net asset value (cents
per share) 275 305 304
Net tangible asset value
(cents per share) 153 178 177
CONDENSED GROUP INTERIM STATEMENT OF CASH FLOW
Unaudited Unaudited Audited
6 months 6 months 12 months
(R thousands) 30-Sep-11 30-Sep-10 31-Mar-11
Cash flow from operating
activities (74 242) (39 160) (29 118)
Cash (utilised
by)/generated from (20 848) 21 234 39 375
operations
Taxation paid (6 832) (16 835) (24 934)
Dividends paid (46 562) (43 559) (43 559)
Cash flow from investing
activities 10 115 25 459 78 075
Cash flow from financing
activities 212 33 061 20 231
Net change in cash and
cash equivalents (63 915) 19 360 69 188
Effect of exchange rate
adjustment 4 (48) (258)
Cash and cash equivalents
at beginning of year 231 798 162 868 162 868
Cash and cash equivalents
at end of year 167 887 182 180 231 798
The cash flow above includes cash flow from the discontinued operations, more
detail of which is given in the commentary below.
CONDENSED GROUP INTERIM STATEMENT OF CHANGES IN EQUITY
Unaudited Unaudited Audited
6 months 6 months 12 months
(R thousands) 30-Sep-11 30-Sep-10 31-Mar-11
Share capital, share
premium and treasury
shares
Opening balance (48 792) (70 642) (70 642)
Issue of shares 21 410 69 717
Sale of treasury shares
to Makana - 29 980 29 980
Net purchases of treasury
shares on exercise of - - (1 775)
options
Transfer of deferred
consideration shares - 7 314 7 314
Repurchases of A ordinary
shares (14) - (2)
Repurchases of B
preference shares (50) - -
Purchase of treasury
shares - (793) (14 384)
(27 446) (34 072) (48 792)
Reserves
Opening balance 732 492 710 009 710 009
Net premium on issue of
equity settled share 25 282 280
appreciation rights
Sale of treasury shares
to Makana - 2 730 2 730
Net purchases of treasury
shares on exercise of - - 1 908
options
Employee scheme - value
of services provided (21 157) 7 579 14 052
Transfer of deferred
consideration shares - (6 521) (6 521)
Total comprehensive
income 2 184 26 925 53 593
Dividends paid (46 562) (43 559) (43 559)
666 982 697 445 732 492
Total shareholders`
equity 639 536 663 373 683 700
CONDENSED GROUP INTERIM SEGMENT REPORT
(R thousands) Asset Securities Investments Total
Management and and Capital
Structuring
6 months to 30
September 2011
(unaudited)
Segment revenue 77 250 43 940 16 338 137 528
Segment costs 71 587 46 027 1 051 118 665
Segment profit 5 663 (2 087) 15 287 18 863
Corporate costs (16 516)
Add back: Loss
before taxation 6 908
on discontinued
operation
Profit before 9 255
taxation
Gross operating
revenue 75 075 41 764 - 116 839
(external)
6 months to 30
September 2010
(unaudited)
Segment revenue 88 471 78 582 13 107 180 160
Segment costs 68 980 57 144 3 040 129 164
Segment profit 19 491 21 438 10 067 50 996
Corporate costs (17 365)
Less: Profit
before taxation (18 488)
on discontinued
operation
Profit before
taxation 15 143
Gross operating
revenue 83 871 68 619 - 152 490
(external)
Year- on- year (13%) (44%) 25% (24%)
% segment
revenue
Year- on- year 4% (19%) (65%) (8%)
% segment costs
Year- on- year (71%) (110%) 52% (63%)
% segment
profit
12 months to 31
March 2011
(audited)
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)
Less: Profit
before taxation (34 390)
on discontinued
operation
Profit before
taxation 33 631
Gross operating
revenue
(external) 187 059 139 004 - 326 063
Included in the Securities and Structuring segment are results from the
discontinued Securities operations and the retained Cadiz Corporate advisory
business. 60% of the discontinued Securities business has been sold to BNP
Paribas SA on 31 October 2011.
DISCONTINUED OPERATION AND DISPOSAL GROUP
During this financial period, the group announced its decision to sell 60% of
its Securities business to BNP Paribas SA. The effective date of this sale is 31
October 2011. The results of this discontinued operation are included in the
group`s interim results for the six months ended 30 September 2011. Financial
information relating to the Securities business operations for the period is set
out below. The statement of comprehensive income distinguishes between
continuing operations and the discontinued operation. Comparative figures have
been restated.
CONDENSED GROUP INTERIM STATEMENT OF COMPREHENSIVE INCOME OF DISCONTINUED
OPERATION
Unaudtied Undited Audited
6 months 6 months 12 months
(R thousands) 30-Sep-11 30-Sep-10 31-Mar-11
Gross operating 21 770 49 160 100 681
revenue
Interest income 2 732 5 904 10 048
Operating (31 410) (36 575) (76 339)
expenses
Profit before (6 908) 18 489 34 390
taxation on
discontinued
operation
Taxation 1 571 (5 177) (9 156)
(Loss)/Profit (5 337) 13 312 25 234
from discontinued
operation
CONDENSED GROUP INTERIM CASHFLOW FROM DISCONTINUED OPERATION
Unaudited Unaudited Audited
6 months 6 months 12 months
(R thousands) 30-Sep-11 30-Sep-10 31-Mar-11
Cash flow from 2 315 42 112 49 987
operating
activities
Cash flow from (31 936) (36 714) (40 108)
financing
activities
Effect on cash (29 621) 5 398 9 879
flows
DISPOSAL GROUP
The assets and liabilities related to the Securities business have been
presented in the group`s statement of financial position as held for sale
following shareholder approval of the decision to dispose of 60% of this
business. The assets and liabilities of this business therefore constitute a
disposal group. The major classes of assets and liabilities of this disposal
group are as follows:
Unaudited
30-Sep-11
Assets classified as held for sale
Deferred taxation 5 668
Financial assets 13 966
Receivables and prepayments 2 662
Amounts receivable for stockbroking 264 480
activities
Taxation 123
Cash and cash equivalents 41 510
Total assets of the disposal group
328 409
Liabilities directly associated with
assets classified as held for sale
Trade and other payables 9 688
Amounts payable for stockbroking 263 602
activities
Taxation 158
Trading liabilities 20 427
Total liabilities of the disposal group
293 875
Total net assets of the disposal group
34 534
FINANCIAL PERFORMANCE
Cadiz Holdings continued to face ongoing challenges in the securities business
while difficult market conditions and reduced performance fees impacted the
asset management business. These factors contributed to a disappointing
operational performance which resulted in a substantial decline in earnings for
the period.
Management has taken decisive action to address the performance of the group
through the introduction of French-based banking group, BNP Paribas SA ("BNPP"),
as a majority shareholder in the Cadiz securities business, and the refocusing
of the asset management business.
Gross operating revenue from continuing operations was 8% lower at R95.1
million. Revenue from the group`s investment and capital portfolio increased by
25% to R16.3 million owing to improved investment performance and Rand weakness.
Operating expenses from continuing operations were contained to growth of 3%
over the prior period. Stringent cost disciplines have been implemented,
including a 10% reduction in headcount, and the benefit of this should be
realised in the next financial year.
Operating profit from continuing operations for the period declined by 39% to
R9.5 million.
Total comprehensive income from continuing operations is R7.5 million, with
diluted earnings per share from continuing operations 48% lower at 3.2 cents per
share.
Discontinued operations reported an after tax loss for the period of R5.3
million, which included costs of R2.5 million on the disposal of the 60% stake
in the securities businesses.
Headline earnings totalled R2.2 million, with diluted headline earnings per
share 93% lower at 0.9 cents per share. This performance is in line with the
earnings guidance provided in the trading statements on 14 September and 3
November 2011.
ASSET MANAGEMENT
The Cadiz Asset Management brand continues to gain traction through a focus on
its flagship funds, supported by competitive investment performance in its unit
trust funds, strong client relationships and a stable investment team.
The integration of the wholesale and retail businesses under the Cadiz Asset
Management brand is progressing well. This is expected to reduce costs, create
economies of scale and enhanced operating efficiencies. Cadiz Asset Management
will in future become more independent with its own board and remuneration
structure. This is expected to be in place before the end of the financial year.
The Cadiz Managed Flexible Fund was named as the balanced fund of the year at
the recent Africa Fund Manager awards. Cadiz was recognised by Morningstar as
the Best Specialist Fund House in South Africa in the prior period.
Investment performance remains competitive across most portfolios, particularly
the unit trust funds. Performance highlights include:
* The Cadiz Money Market Fund is the top performing fund over 3, 4 and 5 years,
and since inception
* The Cadiz Absolute Yield Fund is in the top quartile of all flexible fixed
interest funds over all periods from 1 year, and is the top performing flexible
fixed interest fund over 5 years
* The Cadiz Managed Flexible Fund ranked 2nd of 50 prudential variable equity
funds for the 3 years ended 30 September 2011
* The Cadiz Equity Ladder Fund ranked 1st over 4 years and 5 years against all
general equity, growth and value funds.
The asset management performance has been impacted by the difficult investment
environment which resulted in a substantial reduction in performance fees. The
high fixed cost base for the current level of assets under management also
contributed to the reduction in profit. Assets under management are similar to
six months ago (30 Sep 2011: R41.0 billion compared to 31 March 2011: R42.0
billion)
Revenue for the period was 13% down at R77.3 million and together with higher
costs resulted in profit declining 71% to R5.7 million.
SECURITIES AND STRUCTURING
The performance of the securities segment continued to be impacted by low
trading volumes, increased competition and renewed market uncertainty. The BNPP
transaction has also impacted day-to-day operations and placed pressure on
management resources and reduced focus during the period.
These factors contributed to a 44% decline in revenue to R43.9 million, however,
costs decreased by 19% through tight expense management leading to a loss of
R2.1 million for the period.
Cadiz Securities received a Spire Award for the best interest rate derivative
broker and was voted as the leading derivative research house in the country for
the 15th consecutive year in the Financial Mail analyst rankings. Cadiz also
received the transition manager of the year award for the third successive year
at the 2011 Principal Officers` Association awards.
Cadiz` corporate advisory business, which does not form part of the BNPP
transaction reported a profit for the period and continues to do well in the
resources sector. Although deals are taking longer than expected to be
completed, the strategic partnerships with advisory firms in China and India are
leading to increased activity and the pipeline of potential deals remains
encouraging. The business has advised on mergers and acquisition transactions
totalling R70 billion in the past five years.
INVESTMENTS AND CAPITAL
At period end the group`s investment and capital portfolio totalled R344.4
million. Returns from this portfolio increased by 52% from R10.1 million to
R15.2 million owing to improved investment performance and lower investment
costs and Rand weakness. Revenue increased by 25% to R16.3 million and costs
declined by 65% to R1.1 million.
At the end of the period the capital was invested as follows:
* R85.9 million invested in liquid assets for regulatory capital adequacy,
and working capital requirements;
* R46.9 million in liquid assets for short term commitments including
dividends, taxation, incentives and equity scheme repurchases;
* R51.7 million invested as seed capital and co-investments in asset
management products,
* R89.2 million invested in Makana,
* R16.4 million in strategic unlisted investments, and
* R54.3 million invested mainly in liquid assets.
The group no longer has any significant offshore investments.
In line with Cadiz` policy of not carrying proprietary risk, the group also
holds investments and trading liabilities as hedges against client positions.
BNP PARIBAS CADIZ SECURITIES
The disposal of the 60% shareholding in Cadiz Securities (Pty) Ltd and Cadiz
Stock Broking (Pty) Ltd to BNPP has been completed and the effective date of the
transaction is 31 October 2011.
The initial proceeds of R118 million have been received, and the new business
has been capitalised by BNPP with R80 million. The final payment of the net
asset value ("NAV") of the businesses sold is expected to be paid within the
next two months after completion of the NAV audit. Shareholders are referred to
the circular issued on 28 September 2011 for further details of the transaction.
The new entity, branded as BNP Paribas Cadiz Securities, was launched on 1
November 2011 and is owned by BNPP (60%) and Cadiz (40%).
Cadiz and BNPP will combine their respective strengths to market and sell South
African equity products to institutional investors locally and abroad. The
business will capitalise on BNPP`s international network and expertise in cash
equities and equity derivatives and Cadiz`s leading position in equity
derivatives and research in South Africa. The product and service range includes
cash equities, equity derivatives, structured products and structuring,
transition management and research.
A service level agreement has been concluded for Cadiz to provide services to
BNP Paribas Cadiz Securities. These services will be provided to BNP Paribas
Cadiz Securities on a cost recovery basis.
EMPOWERMENT
Cadiz has again been verified as a level three broad-based black economic
empowerment (BBBEE) contributor with a score of 81.14, based on the Department
of Trade and Industry`s codes of good practice.
During the period the group extended the conversion date of the R19.6 million
convertible preference shares from April 2011 until April 2016. These preference
shares are convertible into a 24.81% shareholding in Makana. This enables Makana
to maintain its current BBBEE credentials, as conversion by Cadiz would have
diluted Makana`s almost 100% black ownership, which would have also impacted on
Cadiz` BEE credentials.
BOARD AND GOVERNANCE
The board and committee composition is currently being reviewed to ensure that
Cadiz has the appropriate governance structures in place following the changes
to the group`s structure.
SHARE ALLOCATION TO BLACK EMPLOYEES
During the period 1.1 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 14.2 million of the 24 million originally
approved by shareholders.
SHARE CAPITAL AND TREASURY SHARES
During the period the company issued 4.9 million and 2.7 million shares to
management and key staff for the 2010 and 2011 annual incentive awards. No
repurchases have been made in the current period to offset the dilutionary
impact of the 2011 award. The dilutionary impact of the 2010 issue was covered
in the prior financial year by repurchases from the cash retained from the
incentive awards. The company intends to continue to repurchase shares to offset
any dilutionary impact of the scheme.
PROSPECTS
Management`s priorities are to ensure the successful launch and integration of
BNP Paribas Cadiz Securities and to refocus the asset management business to be
sustainably profitable and competitive.
The restructuring of Cadiz Asset Management is expected to reduce costs, improve
investment performance and increase the asset base. The benefits of the
restructuring of Cadiz Asset Management and the establishment of BNP Paribas
Cadiz Securities are only expected to be realised from the 2012 financial year
onwards.
Following the completion of the BNP Paribas Cadiz Securities transaction, the
group will now be implementing a decentralised business model which will give
business units greater autonomy and accountability.
The group`s head office cost structure is being streamlined with the aim of
reducing costs by at least 20%. Group management will in future focus on
managing the group`s capital and investment portfolio, monitoring business unit
performance and providing shared services for the decentralised business units.
The directors remain committed to generating superior returns on the capital
retained in the group.
The board has undertaken to declare a special dividend at the next meeting in
early March 2012. The amount of the special dividend will be determined after
taking into account the BNPP transaction proceeds and a prudent review of the
capital requirements of the individual businesses and the group.
BASIS OF PRESENTATION
The condensed financial statements 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.
The accounting policies are consistent with those applied in the annual
financial statements for 31 March 2011, except for IAS 24 - "Related Party
Disclosures".
On behalf of the board of directors
Peter-Paul Ngwenya Ram Barkai
Chairman Chief Executive Officer
Cape Town
7 November 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
A I Brooks* (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
C Schmahl
Date: 07/11/2011 08:00:06 Produced by the JSE SENS Department.
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