| Thu 19 Jan 2012, 13:16 | | FCPD - Foord Compass Limited - Reviewed preliminary report for the year ended |
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JSE FCPD
FCPD
FCPD - Foord Compass Limited - Reviewed preliminary report for the year ended
31 December 2011 and interest payment and election
FOORD COMPASS LIMITED
JSE Code: FCPD ISIN: ZAE000054466
Registration Number: 1987/003591/06
REVIEWED PRELIMINARY REPORT FOR THE YEAR ENDED 31 DECEMBER 2011 AND INTEREST
PAYMENT AND ELECTION
CONDENSED STATEMENT OF FINANCIAL POSITION
at 31 December 2011 Reviewed Audited
Notes
2011 2010
Rm Rm
ASSETS
Current assets
Investments 3 1,480.5 1,474.5
Income receivables and unsettled sales 3.0 24.5
Taxation receivable 0.1 0.1
Cash and deposits 528.6 468.6
Total assets 2,012.2 1,967.7
EQUITY AND LIABILITIES
Capital and reserves 42.3 35.7
Ordinary share capital 0.1 0.1
Accumulated profits 42.2 35.6
Non-current liabilities 1,163.3 1,093.1
Unsecured debentures 4 1,151.9 1,081.6
Deferred taxation 11.4 11.5
Current liabilities 806.6 838.9
Accounts payable 2.9 2.7
Short investment positions 3 720.8 753.9
Unsettled purchases 6.6 2.9
Debenture interest payable 76.3 79.4
Total equity and liabilities 2,012.2 1,967.7
Number of debentures in issue 153,719,105 147,475,338
Number of ordinary shares in issue 8,800,070 8,800,070
Cents Cents
Net attributable asset value per debenture (cum 799.0 787.3
interest)
Net attributable asset value per debenture (ex 749.4 733.4
interest)
Net attributable asset value per ordinary share 480.7 405.7
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
Reviewed Audited
Notes
2011 2010
Rm Rm
Investment income 86.0 93.9
Realised trading profits 65.8 43.8
Operating expenditure (16.3) (15.5)
Net distributable profit 135.5 122.2
Capital profits on sale of investments 8.4 26.5
Revaluation of investments 19.1 15.5
Net portfolio income before debenture 163.0 164.2
interest
Debenture interest (122.0) (110.0)
Increase in carrying value of debentures 4 (24.3) (30.2)
Profit before taxation 16.7 24.0
Taxation expense 5 (4.7) (11.0)
Profit attributable to ordinary 12.0 13.0
shareholders
Weighted average number of debentures in 152,268,432 146,291,597
issue
Cents Cents
Interest per debenture (weighted) 80.1 75.2
Earnings per debenture (weighted) 96.1 95.8
Earnings per ordinary share 136.4 147.7
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS` EQUITY
Ordinary Accumulated Total
share profits
capital
Rm Rm Rm
Balance at 31 December 2009 (audited) 0.1 31.4 31.5
Dividend paid - (8.8) (8.8)
Profit for the year - 13.0 13.0
Balance at 31 December 2010 (audited) 0.1 35.6 35.7
Dividend paid - (5.4) (5.4)
Profit for the year - 12.0 12.0
Balance at 31 December 2011 (reviewed) 0.1 42.2 42.3
CONDENSED STATEMENT OF CASH FLOWS Reviewed Audited
2011 2010
Rm Rm
Net cash inflow from trading activities 149.3 1.6
Interest, dividends and taxation paid (135.3) (111.6)
Net cash inflow (outflow) from operating activities 14.0 (110.0)
Net cash received from issue of debentures 46.0 13.9
Net change in cash and deposits 60.0 (96.1)
Cash resources at beginning of year 468.6 564.7
Cash resources at end of year 528.6 468.6
AUDITOR`S REVIEW REPORT
These results have been reviewed in terms of International Standard on Review
Engagements (ISRE) 2410 by our auditors, Deloitte & Touche, whose unmodified
review report is available for inspection at the registered office of the
company.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. Basis of preparation and significant accounting policies
The condensed financial statements have been prepared in accordance with the
measurement and recognition requirements of International Financial Reporting
Standards (IFRS), the AC 500 standards as issued by the Accounting Practices
Board and the information as required by International Accounting Standards
(IAS) 34 Interim Financial Reporting and the requirements of the Companies
Act of South Africa. The condensed financial statements have been prepared
under the historical cost convention, except for the revaluation of financial
instruments.
The same accounting policies, presentation and methods of computation are
followed in these condensed financial statements as were applied in the
preparation of the company`s financial statements for the year ended 31
December 2010.
2. Operating segments
The company has one principal operating segment and accordingly additional
segmental disclosures have not been made.
3. Investments
Investments comprise both long and short positions in listed and unlisted
securities. The investment objective is to achieve a total return of 10% per
annum above the annual change in SA CPI on a rolling five-year basis. In
managing the investment portfolio, securities may be held for trading within
twelve months or may be realised over longer periods as deemed appropriate by
the investment manager.
Reviewed Audited
2011 2010
4. Unsecured debentures Rm Rm
Unsecured debentures comprise
Debenture capital at issue price 1,046.5 1,000.5
Cumulative revaluation of debentures 105.4 81.1
Fair value of debentures 1,151.9 1,081.6
Reconciliation of balance
Balance at beginning of year 1,081.6 1,037.5
Net proceeds on issue of debentures 46.0 13.9
Revaluation - current year 24.3 30.2
Balance at end of year 1,151.9 1,081.6
Increase in carrying value of debentures
Net portfolio income before debenture interest 163.0 164.2
90% allocation to debenture holders 146.7 147.8
Less: proportionate share of taxation expense (0.4) (7.6)
Less: interest distribution for year (122.0) (110.0)
Revaluation - current year 24.3 30.2
5. Taxation expense
Taxation comprises:
Current taxation charge - current year 4.8 6.7
Deferred taxation (credit) charge - current year (0.1) 4.3
Net expense per statement of comprehensive income 4.7 11.0
Deferred taxation relates to the revaluation of investments. The debenture
share of the net taxation charge, which amounts to R0.4 million (2010:R7.6
million), has been deducted from the carrying value of the debentures as set
out in note 4 above.
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2011
The results set out in the preliminary financial statements reflect a
commendable result achieved under volatile market conditions. The board of
directors has approved a final interest distribution of 49.6 cents per
debenture, bringing the full year distribution to 80.1 cents per debenture on
a weighted average basis (2010: 75.2 cents). The interest distribution
represents an income yield of 10.9% on the opening net attributable asset
value per debenture at the beginning of the year (2010: 10.5%).
Net portfolio income before debenture interest was largely unchanged at
R163.0 million (2010: R164.2 million). During the year, more trading profits
were realised than in the previous year as the portfolio manager took
advantage of higher prices in certain markets to realise gains. The level of
dividends earned in the portfolio was higher than last year, while interest
accruals were lower as a result of the gradual decline in cash exposure and
lower average cash rates since the beginning of the reporting period last
year. The net result is that distributable income was higher, lifting the
interest distribution 6.5% to 80.1 cents per debenture on weighted average
basis.
The net attributable asset value per debenture increased from 733.4 cents to
799.0 cents, cum interest. Together with the 30 cents per debenture half-
year distribution, this yielded a total return on the debentures of 13.1% for
the year on a net attributable asset value basis (2010: 13.4%). Since the
start of the Foord Compass Debenture ten years ago at the beginning of 2002,
the debentures have returned 18.5% per annum on an annualised basis. The
returns on the debentures for the major periods ended 31 December 2011 are as
follows:
1 3 5 10
year years years years
to 31 December 2011 (% per annum)
Income 10.9% 11.2% 11.3% 13.3%
Capital 2.2% 3.0% -0.7% 5.2%
Total return * 13.1% 14.2% 10.6% 18.5%
* Calculated with reference to opening net attributable asset values
per debenture
INVESTMENT RETURNS
Except for the USA, all major share markets were negative in 2011, reflecting
recessionary fears associated with Eurozone over-indebtedness and slowing
growth in China. US share markets rose on the relative attractiveness of
moderate growth in the world`s largest economy and good earnings results from
US blue chip companies. Bond yields fell further in the US and UK on safe
haven demand and persistently accommodative monetary policy. The dollar
surged against most emerging market currencies and gained against the euro,
while precious and industrial metals prices posted double digit losses with
only gold gaining over the year. In SA, the dividend yield pulled the
FTSE/JSE All Share Index into the black for a nominal return of 2.6% while
bond yields were flat with the All Bond Index returning 8.8% for the year.
The rand depreciated 18% against the US dollar.
In this environment, the Foord Compass portfolio achieved a commendable
return of 14.9% in ZAR on a gross of fees basis (2010: 16.5%). The return
underperformed the one year CPI + 10% objective return of 16.1% but was well
ahead of SA equity, bond and cash returns. Since inception from 1 January
2002, the portfolio has achieved a gross return of 22.4% per annum for ten
years. This exceeds the CPI + 10% objective of 15.9% over the same period,
while also outperforming the SA share, bond and cash market returns and world
equity market returns in rands by a substantial margin. The current and
longer period returns achieved on the portfolio are tabulated below relative
to the objective and SA and world equity markets.
1 3 5 10
year years years years
to 31 December 2011 (% per
annum)
Gross portfolio total return 14.9% 17.1% 12.5% 22.4%
CPI + 10% per annum 16.1% 15.3% 16.9% 15.9%
FTSE / JSE All Share Index 2.6% 17.3% 8.1% 15.2%
MSCI World Index in rands 15.9% 5.8% 1.1% 0.1%
COMMENT
Stakeholders will recall from previous reports that while seeking to achieve
the investment objective over longer periods, the primary objective is
protection of capital. Capital is not guaranteed but the risk of loss is
actively managed in a diversified portfolio of South African and
international assets according to Foord Asset Management`s best investment
view on an unconstrained basis.
Given the depreciation of the rand during the year, the portfolio benefitted
from the weighting to foreign assets which approximated 50% of the portfolio
on an effective exposure basis at 31 December 2011. Foreign assets
contributed 9.5% of the 14.9% total return. Stock selection within the SA
listed share portfolio once again proved to be sound. The investment in SA
listed shares returned 18.0% relative to the FTSE/JSE ALSI return of 2.6% and
contributed 5.5% of the total portfolio return. The listed property counters
included in the portfolio produced double-digit returns but given their
relatively small weighting only contributed 1.2% of the total return. The
contribution from the short SA government bond position was negative again
but the portfolio benefitted from the carry position mainly into local
corporate bonds and foreign assets, which performed well over the year.
The returns from each major asset class and their respective contributions to
the total return of the portfolio are as follows:
2011 2010
Return Contributi Return Contrib
on ution
JSE equities 18.0% 5.5% 36.0% 13.6%
JSE property 13.7% 1.2% 17.6% 1.9%
SA bonds -8.4% -3.1% -14.6% -6.1%
Foreign assets 20.4% 9.5% 8.2% 4.0%
SA cash 5.2% 1.8% 6.3% 3.1%
Total return for year 14.9% 16.5%
PORTFOLIO STRUCTURE
The macro structure of the investment portfolio continues to reflect the view
that equities are the asset class of choice and are likely to be the only
class to deliver inflation beating returns in the medium term. The effective
exposure of the portfolio to equities has decreased from 95% to 85% of
portfolio. Much of the equity exposure has been obtained via the options
market to protect the portfolio against downside volatility in the short
term. The top five equity investments by value comprise: Anglo American,
Foschini, Kenmare Resources, Steinhoff and Remgro.
During the year, the overall short government bond exposure was largely
unchanged, although a portion of the exposure was switched into a short US
Treasury position. The listed property holding was reduced on profit taking
during the year, while a gold ETF was added as an inflationary hedge to
complement the short US government bond position. Effective cash exposure
has increased to 27% of portfolio at year-end.
The effective asset structure of the investment portfolio at 31 December is
as follows:
Domestic Foreign Total
2011 2010 2011 2010 2011 2010
Equities 63% 65% 22% 30% 85% 95%
Listed property 6% 6% 0% 6% 6% 12%
Government bonds -34% -47% -11% 0% -45% -47%
Corporate debt 8% 9% 16% 13% 24% 22%
Commodities 0% 0% 3% 1% 3% 1%
Effective cash exposure 7% 14% 20% 3% 27% 17%
50% 47% 50% 53% 100% 100%
OUTLOOK
Global equities continue to offer value relative to low global interest rates
and aberrationally low bond yields but also due to robust company balance
sheets, low forward PE multiples and high profit margins. World corporate
profit growth is expected to be positive despite an impending Eurozone
recession, provided there is no disorderly break-up of the zone with
consequent bank failures in that market. We expect global interest rates to
remain low given the lack of fiscal capacity outside of China to boost demand
through reflation. The US dollar should continue its recovery against major
global currencies, reflecting relative US economic strength and
competitiveness. In South Africa, equity valuations do not appear to be
stretched and corporate earnings growth should continue. South African
government bond valuations remain excessively expensive and capital values
remain at risk of permanent loss.
The portfolio is positioned to benefit from this macro view but remains
globally diversified across economic sectors, bond markets and currencies.
Optionality within the portfolio provides additional protection and
flexibility to change exposures rapidly if required.
INTEREST PAYMENT AND ELECTION
Notice is hereby given that a debenture interest payment (number 49) of
49.606 cents per debenture in respect of the six months ended 31 December
2011 is payable to debenture holders recorded in the debenture register of
the company on the record date. In compliance with the JSE Listings
Requirements, the following dates are applicable:
Last date to trade Friday, 3 February 2012
Debentures trade ex-interest Monday, 6 February 2012
Record date Friday, 10 February 2012
Payment date Monday, 13 February 2012
IMPORTANT: ELECTION TO RECEIVE DEBENTURES IN LIEU OF A CASH INTEREST PAYMENT
As provided for in section 6.4 of the Debenture Trust Deed, the board has
resolved that debenture holders recorded in the debenture register at the
close of business on the record date may elect to receive new fully paid
Foord Compass Limited Variable Rate debentures in lieu of a cash interest
payment ("the debentures"). The motivation for this decision is to retain
cash and build capital for debenture holders. The tax implications of the
settlement of the debenture interest payment by the issue of debentures or by
the payment of cash should be the same. However, debenture holders are
encouraged to consult their professional advisors should they be in any doubt
as to the appropriate action to take.
Certificated debenture holders who wish to elect to receive debentures in
respect of all or a part of their interest entitlement, must complete the
Form of Election (mailed under separate cover) in accordance with the
instructions therein and return such election form to the company`s transfer
secretaries to be received by no later than 12:00 on the record date, being
Friday, 10 February 2012. Dematerialised debenture holders who wish to elect
to receive debentures in respect of all or a part of their interest
entitlement must, in terms of the agreement between themselves and their
Central Securities Depository Participant ("CSDP") or broker, instruct their
CSDP or broker accordingly.
If the election to receive debentures is not made by dematerialised debenture
holders by the cut-off time stipulated by their CSDP or broker, or by 12:00
on Friday, 10 February 2012 in the case of certificated debenture holders,
debenture holders will be deemed to have elected to receive a cash interest
payment. As indicated above, the last day to trade in the company`s
debentures on the JSE to ensure that a purchaser appears as an owner on the
record date will be Friday, 3 February 2012. The number of debentures to be
issued ("the ratio") will be determined with reference to the ex-interest net
attributable asset value per debenture as at 31 December 2011 of 749.4 cents.
Accordingly, the ratio is 6.619 interest debentures for each 100 debentures
held on the record date. Only rounded numbers of interest debentures will be
issued based on conventional rounding principles. No fractions will be paid.
The right to receive debentures may not be traded on the JSE.
Subject to JSE approval of the debenture election, application will be made
to the JSE Limited for a listing of the maximum number of debentures to be
issued with effect from the commencement of business on Monday, 13 February
2012. An adjustment to the number of debentures listed will be made on or
about Tuesday, 14 February 2012 in accordance with the actual number of
debentures issued having regard to the elections made.
Cheques and/or new debenture certificates will be posted to certificated
debenture holders and the accounts updated and/or credited by CSDPs or
brokers of dematerialised debenture holders on or about Monday, 13 February
2012.
This reviewed preliminary report was prepared under the supervision of PE
Cluer.
Signed on behalf of the board
JC GREYLING PE CLUER
18 January 2012
Directors: JC GREYLING (Chairman), PE CLUER, AD COWELL*, D FOORD**, JC VAN
DER HORST, JC VAN NIEKERK, DG WEST * Australian ** British
Company secretary: L GREVLER
Sponsor: One Capitalwww.foordcompass.co.za
Date: 19/01/2012 13:16:11 Produced by the JSE SENS Department.
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