| Wed 16 Nov 2011, 8:30 | | CND - Conduit Capital Limited - Condensed Consolidated Preliminary Audited |
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CND
CND - Conduit Capital Limited - Condensed Consolidated Preliminary Audited
Results for the year ended 31 August 2011 and withdrawal of 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 "the Group")
CONDENSED CONSOLIDATED PRELIMINARY AUDITED RESULTS FOR THE YEAR ENDED 31
AUGUST 2011 AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Audited Audited
31 August 31 August
2011 2010
R`000 R`000
Gross revenue 920 517 771 207
Net insurance revenue 274 764 296 457
Other operating revenue 109 110 87 573
Net revenue 383 874 384 030
Operating expenses (356 046) (374 304)
- Direct expenses: Insurance and risk services (219 375) (246 314)
- Administration and other expenses (58 720) (54 963)
- Depreciation and amortisation (3 519) (3 152)
- Employee costs (74 432) (69 875)
Operating profit 27 828 9 726
Equity accounted income 667 57
Investment income 24 923 18 119
Other income 1 190 3 790
Finance charges (1 300) (2 097)
Profit before taxation 53 308 29 595
Taxation (16 988) (6 006)
Profit for the year 36 320 23 589
Other comprehensive income - -
Total comprehensive income 36 320 23 589
Attributable to:
Equity holders of the parent 22 419 11 389
Non-controlling interest 13 901 12 200
Profit for the year 36 320 23 589
Earnings per share (cents) 8.96 4.55
Diluted earnings per share (cents) 8.74 4.48
Headline earnings per share (cents) 8.61 4.55
Diluted headline earnings per share (cents) 8.40 4.48
CONDENSED SEGMENTAL ANALYSIS OF EARNINGS
Corporate Insurance Direct Consoli- Total
and and risk R`000 dation R`000
investment services R`000
services R`000
R`000
Audited - year
ended 31 August
2011
Gross revenue 6 418 815 088 103 830 (4 819) 920 517
Net revenue 6 418 278 445 103 830 (4 819) 383 874
Investment income 17 229 13 911 583 (6 800) 24 923
Profit before 5 575 20 257 34 276 (6 800) 53 308
taxation
Attributable 4 618 15 483 9 118 (6 800) 22 419
earnings
Non-controlling 51 81 13 769 - 13 901
interest
Total assets 200 249 730 098 51 660 (164 125) 817 882
Total liabilities (22 136) (650 368) (24 279) 161 759 (535 024)
Capital expenditure 94 830 2 548 - 3 472
Audited - year
ended 31 August
2010
Gross revenue 14 000 696 611 72 931 (12 335) 771 207
Net revenue 14 000 309 434 72 931 (12 335) 384 030
Investment income 9 225 12 608 688 (4 402) 18 119
Profit before 2 121 8 971 22 903 (4 400) 29 595
taxation
Attributable 3 295 6 307 6 187 (4 400) 11 389
earnings
Non-controlling 39 2 878 9 283 - 12 200
interest
Total assets 183 513 642 754 42 546 (151 200) 717 613
Total liabilities (10 372) (575 460) (21 052) 148 834 (458 050)
Capital expenditure 321 796 2 031 (38) 3 110
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Audited Audited
31 August 31 August
2011 2010
R`000 R`000
Net cash flows from operating activities 34 166 17 339
Net cash flows from investing activities (22 866) (14 082)
Net cash flows from financing activities (11 684) (7 845)
Total cash movement for the year (384) (4 588)
Cash at the beginning of the year 270 246 274 836
Cash disposed of - (2)
Total cash at the end of the year 269 862 270 246
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Audited Audited
31 August 31 August
2011 2010
R`000 R`000
ASSETS
Non-current assets 143 629 107 229
- Property, plant and equipment 14 457 14 998
- Intangible assets 46 089 46 277
- Loans receivable 5 351 6 884
- Deferred taxation 7 190 7 976
- Investment properties 3 442 3 403
- Investment in associates 281 756
- Investment in jointly controlled entities 3 325 -
- Investments held at fair value 63 494 26 935
Current assets 669 503 595 334
- Insurance assets 316 026 228 542
- Investments held at fair value 4 592 3 858
- Trade and other receivables 78 761 91 519
- Taxation 262 1 160
- Cash and cash equivalents 269 862 270 255
Non-current assets held for sale 4 750 15 050
Total assets 817 882 717 613
EQUITY AND LIABILITIES
Capital and reserves 282 858 259 563
- Ordinary share capital and share premium 199 155 199 155
- Retained earnings 65 538 43 626
- Share based payment reserve 600 363
Equity attributable to equity holders of 265 293 243 144
the parent
Non-controlling interest 17 565 16 419
Non-current liabilities 28 629 40 054
- Policyholder liabilities under insurance 19 661 21 837
contracts
- Interest-bearing borrowings 3 796 12 661
- Deferred taxation 5 172 5 556
Current liabilities 506 395 417 996
- Insurance liabilities 379 765 307 848
- Trade and other payables 122 341 102 268
- Current portion of interest-bearing 3 175 6 235
borrowings
- Taxation 1 114 1 636
- Bank overdraft - 9
Total equity and liabilities 817 882 717 613
Net asset value per share (cents) 106.00 97.15
Tangible net asset value per share (cents) 87.58 78.66
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Retained Other Non- Total
capital earnings reserves control- R`000
and R`000 R`000 ling
share interest
premium R`000
R`000
Balance at 1 199 155 31 729 1 004 14 623 246 511
September 2009
Reversal of equity - 1 004 (1 004) - -
options
Transaction with - (496) - (4) (500)
owners
Total comprehensive - 11 389 - 12 200 23 589
income for the year
Equity options - - 363 - 363
issued to executives
Dividends paid - - - (10 400) (10 400)
Balance at 31 August 199 155 43 626 363 16 419 259 563
2010
Reversal of equity - 66 (66) - -
options
Transaction with - (573) - (2 555) (3 128)
owners
Total comprehensive - 22 419 - 13 901 36 320
income for the year
Equity options - - 303 - 303
issued to executives
Dividends paid - - - (10 200) (10 200)
Balance at 31 August 199 155 65 538 600 17 565 282 858
2011
NOTES TO THE CONDENSED CONSOLIDATED PRELIMINARY AUDITED FINANCIAL STATEMENTS
1. Basis of preparation
The accounting policies applied in the preparation of these condensed
consolidated preliminary audited financial statements for the year ended
31 August 2011 ("audited results") are based on reasonable judgements
and estimates and are in accordance with International Financial
Reporting Standards ("IFRS") and AC 500. These accounting policies are
consistent with those applied in the annual financial statements for the
year ended 31 August 2010. The audited results have been prepared in
terms of IAS 34 - Interim Financial Reporting, the Companies Act, 71 of
2008, and the Listings Requirements of JSE Limited ("the JSE").
2. Changes in share capital
Details of shares in issue as at the reporting dates are as follows:
31 August 31 August
2011 2010
`000 `000
Number of shares in issue 250 277 250 277
- Shares in issue 256 380 256 380
- Shares held as treasury shares (6 103) (6 103)
Weighted average number of shares 250 277 250 277
- Shares in issue 256 380 256 380
- Shares held as treasury shares (6 103) (6 103)
Diluted weighted average number of shares 256 531 254 258
- Shares in issue 262 634 260 361
- Shares held as treasury shares (6 103) (6 103)
3. Reconciliation of headline earnings
31 August 31 August
2011 2010
R`000 R`000
Profit attributable to ordinary equity 22 419 11 389
holders of Conduit
Net (profit) loss on revaluation of non- (300) 1 239
current assets held for sale
Net loss on revaluation of investment 1 38
properties
Net loss (profit) on disposal of property, 603 (17)
plant and equipment
Net profit on disposal/revaluation of (891) (3 300)
subsidiaries and associates
Tax on the items above (26) 435
Non-controlling interest on the items above (249) 1 608
(after taxation)
Headline earnings 21 557 11 392
4. Contingent liabilities
4.1 Contingent rent is payable in respect of parking bays 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 R432 455
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 In the 2010 annual financial statements and subsequently in the February
2011 interim statements the Group reported the existence of various
legal disputes that arose out of inwards reinsurance arrangements
concluded through one of the Group`s external underwriting managers. One
of the matters in dispute has been settled and another partially
impaired, leaving only a matter that relates to the 2006 and 2007
underwriting years in arbitration. Given the complexity of the
proceedings, financial exposure to the dispute in issue is difficult to
quantify, though dependent on certain key outcomes, may be material. Any
impact on earnings will be taken into account as and when reasonable
certainty can be obtained.
The claim brought by Sanlam Private Investments Proprietary Limited
("SPI") against a subsidiary of the risk services division has been
withdrawn and the matter was settled directly between SPI and Hannover
Re. In turn, the Group has withdrawn third party proceedings against
Hannover Re and agreed to carry its own legal costs.
An amount of R4.97 million in settlement costs and accruals relating to
the above matters was expensed in this reporting period. Legal fees and
direct expenses relevant to these matters continue to be raised as and
when incurred (this amounted to R3.33 million in the year under review).
None of the matters in dispute pertain to the 2011 financial year and
their effect on 2011 earnings should therefore be seen in that context.
Other than what is noted 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 audited results.
5. Directors
5.1 With effect from 1 September 2010, the status of Mr Stanley David
Shane has changed from that of executive director to non-executive
director. Mr Shane retains various directorships in subsidiary
companies of the Group.
5.2 Mr Larry Prosser resigned as an executive director of the Group on
13 April 2011.
There were no changes to the directorate subsequent to the publication
of the interim results on 20 April 2011.
6. Dividends
The board of directors of Conduit ("the Board") has not recommended a
dividend payment to ordinary shareholders for the 2011 financial year
(2010: Nil).
7. Post balance sheet events
There were no material post balance sheet events.
8. Audit opinion
Grant Thornton has audited the financial information set out in these
condensed consolidated preliminary results for the year ended 31 August
2011. Their unqualified audit report is available for inspection at the
Group`s registered office.
COMMENTARY
GROUP OPERATIONAL REVIEW
1. GENERAL
In the year to 31 August 2011 the Group posted the strongest set of
results since 2007. Headline earnings per share advanced to 8.61 cents
representing an 89% increase over the 4.55 cents in the comparative
period. Tangible net asset value and net asset value ("NAV") per share
improved to 87.58 and 106.0 cents respectively. Although the gap has
narrowed somewhat, the trading price of Conduit stock represents a
notable discount to NAV. The Group`s cash position at 31 August 2011
stood at a healthy R269.8 million.
The investment portfolio was largely unchanged from the first half of
the year with overall gross investment returns, including the insurance
"float", delivering a sound 12.8% during the year.
2. CONDUIT INSURANCE AND RISK SERVICES
The promising underwriting results reflected at the six months to 28
February 2011 showed consistency in the second half of the financial
year across all insurance classes. In the year under review Constantia
Insurance Company Limited ("Constantia") demonstrated the underlying
quality of its commercial and personal lines portfolios by displaying a
positive trend in premium growth and underwriting profitability. Though
gross premium income increased to R781.3 million (2010: R656.2 million),
a refined reinsurance program led to a reduction in net retention to
R245.4 million (2010: R276.6 million) and a considerable improvement in
profitability. The result can be credited to the disciplined approach to
underwriting, claims management and cost control adopted by the
Constantia team and its valued insurance partners.
Statutory funding ratio and credit rating
Constantia`s international solvency ratio as at 28 August 2011 improved
to 58.5% (August 2010: 49.5%), well in excess of management and Global
Credit Rating`s ("GCR") target range. The statutory solvency ratio
remained unchanged from February 2011 at 41.5% (August 2010: 36.8%). GCR
has reaffirmed Constantia`s credit rating at A-.
3. CONDUIT DIRECT
Anthony Richards & Associates (Proprietary) Limited ("ARA") performed
impressively in the year under review, resulting in a marked increase in
profitability over the comparative period. ARA celebrated its 10th
anniversary in September, reflecting 10 years of positive contribution
to an industry in which it has established itself as a market leader.
4. CONCLUSION
Simultaneously with the release of the February 2011 interim results on
20 April 2011, shareholders were advised that the Group was considering
appropriate means of returning capital to shareholders. Since
publication of that cautionary, we set about a process of carefully
examining and exploring options that would best serve the interests of
the Group. In doing so, we evaluated the possible disposal of certain
assets and indeed entertained discussions with a number of suitors
specific to our insurance and risk services division - a most unsettling
affair for staff as well as our valued business partners. Shortly before
the most recent cautionary renewal, the Board terminated these
discussions and sought to address the issue of returning capital to
shareholders through means other than the disposal of valuable assets.
Our focus through the years has been on consolidating and refining our
business model, while fiercely protecting our balance sheet. Though it
has been six years since acquiring our first asset, we have always been
cognisant of the fact that while capital is a precious commodity for any
growing business, returns are equally precious for investors. Managing
investor expectations and building a sustainable business model capable
of weathering the storms - of which we`ve had a few - has been rather
challenging. All the while, our NAV per share has steadily ticked up
from approximately 7 cents in February of 2005 to 106 cents at year-end.
The Group has certainly proven its resilience and, through the product
of much hard work, is pleased to reward investor patience with a healthy
capital distribution. On a practical level, the business remains wholly
intact. The revision and simplification of our corporate and reporting
structure further streamlines our business model and effectively
consolidates the interdependent Head Office & Treasury, Private Equity
and Financial Services divisions into a single Corporate and Investment
Services division.
A particularly pleasing result for 2011 leaves us not with a feeling of
complacency, but instead with one of appreciation at having revealed the
true value of owning hard working, quality assets in an economic
environment typified by low yields and extraordinary volatility. We are
indeed expectant of a productive 2012.
5. CAPITAL DISTRIBUTION AND WITHDRAWAL OF CAUTIONARY
Capital distribution
Shareholders are advised that following a resolution passed by the Board
on 9 November 2011, the Board hereby declares a distribution to
shareholders by way of a capital reduction out of the share premium
account of ten cents per share for the year ending 31 August 2012.
The salient dates in respect of the capital distribution are as follows:
2011
Last day to trade cum distribution on Friday, 2 December
Shares will trade ex-distribution from Monday, 5 December
Record date Friday, 9 December
Payment of distribution Monday, 12 December
Shareholders may not de-materialise or re-materialise their shares
between Monday, 5 December 2011 and Friday, 9 December 2011, both dates
inclusive.
Withdrawal of cautionary
Shareholders are referred to the cautionary announcements, the most
recent of which was released on 17 October 2011 and are advised that as
discussions as set out in paragraph 4 above have been terminated,
caution is no longer required to be exercised by shareholders when
dealing in Conduit`s securities.
For and on behalf of the Board
Jason D Druian Lourens E Louw
Chief Executive Officer Financial Director
Johannesburg
16 November 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: 011 789 3709
Transfer secretaries:
Computershare Investor Services (Proprietary) Limited
Ground Floor, 70 Marshall Street, Johannesburg, 2001
Sponsor:
Merchantec Capital
Auditors:
Grant Thornton
Chartered Accountants (SA)
Registered Auditors
Date: 16/11/2011 08:30:01 Produced by the JSE SENS Department.
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