| Thu 15 Mar 2001, 0:00 | | Cycad - Interim Report |
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Cycad Financial Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1998/008637/06)
("Cycad")
Interim report for the six months ended 31 December 2000
HIGHLIGHTS
- Conversion of interest in Birdie.com for stake in Sportalasia.com
- Acquired 32.5% interest in Complex-IT Vocalis, an interactive voice
technology business
Press Information
Cycad announced its results for the six months ended 31 December 2000 today (15
March) reporting a net asset value of R1,72 per share. This compares with 181
cents at 30 June 2000 and 31 December 1999.
The company, a private equity group, listed two year ago. Cycad focuses on
service sector businesses with intellectual capital such as information
technology and financial services. It avoids capital intensive businesses.
Fine says that although income figures have to be reported to meet GAAP and
regulatory requirements, they are not necessarily meaningful in the case of a
private equity group with only three of Cycad's investments being equity
accounted.
"The real issue is the NAV which is subjective because investments can only
really be valued at cost, or when they are realised. This is further
exacerbated by the uncertain international economic outlook that is bound to
impact on the investment pool in one way or another".
We try and walk a prudent and sensible line between cost and the fact that the
only time you really know what the real value is, is when the investment is
realised.
The basis of our accounting policy means that we do not revalue an investment
for two accounting periods unless it is a listed company, or if it's unlisted
and there has been a significant development. So we have tended to reflect our
NAV at much the same as it was six months ago".
Cycad's investments have been carefully selected, says Fine, but are mostly at
an early stage of development. Their respective risk profiles have been
clearly defined, and the group generally expects to deliver value in the medium
term.
Emphasis in selection criteria includes compatible chemistry with investee
managements, clear growth market and drivers, suitable management systems and
resource capacity, track record or experience in the designated business
sector, and a clear exit strategy. Most investments have internationalisation
as a central pillar.
"The outlook for technology in SA is extremely good with huge arbitrage
opportunities in the offing for local technology companies operating
internationally. It's only a question of time before these come through."
"I think there is a major paradigm shift taking place in the world which will
push growth spend in technology exponentially over the next 10 to 20 years",
says Fine.
"It could even be said that there is no distinction between the old economy and
the new economy, and that what we're seeing essentially is the introduction of
a whole new way of doing things in previously fundamental business frameworks,
which in turn, is revolutionising the way businesses do business with each
other".
He believes that technology in SA is greatly under-valued.
"On the exit process, you require a totally different set of skills. It
requires more experience and skill than deal picking and the value add,
because, among other things, there is a high negotiation component, and you
have to look at various options. It's one area that requires a lot of
financial and commercial astuteness".
Cycad is fully invested at this stage, but recently formed a strategic
relationship with Zephyr Management LP, a New York-based private equity fund
manager which manages funds with over US$500 million of committed capital in
the USA, Latin America and Africa.
Cycad's total market capitalisation at end December was R38,6 million, which
was a 68% discount to net asset value.
"We are keeping our heads down, concentrating on the business and not the
market", he says. "If we deliver value, the market will form its own opinion".
For further information contact:
Leonard Fine (CEO) : Tel. no. (011) 507 2000
Net Asset Value per share
31 December 30 June 31 December 1999
2000 2000 Unaudited
Reviewed Audited cents
cents cents
Undiluted 172 181 181
The calculation of net asset
value per share is based on
the following:
Directors' valuation of net assets'
(R'000) 120 458 126 674 126 837
Number of shares in issue ('000) 70 060 70 060 70 060
* the directors value Cycad's unlisted investments at cost for the first two
reporting periods during which they are held. Listed investments are valued at
market value.
Group Balance Sheet
31 December 30 June 31 December
2000 2000 1999
Reviewed Audited Unaudited
Notes R'000 R'000 R'000
Assets
Associate companies 2 24 602 20 646 29 443
Other investments 100 975 85 602 63 520
Cash and short-term deposits 1 552 13 935 38 862
Other assets 1 399 460 -
128 528 120 643 131 825
Capital, reserves and liabilities
Shareholders' funds 117 312 118 145 129 286
Non-current liabilities 4 615 1 722 1 012
Current liabilities 6 601 776 1 527
128 528 120 643 131 825
Statement of Changes in Equity
for the six months ended 31 December 2000
R'000 Ordinary Share Preference Non- distributable Total
share premium share distributable reserve
capital capital reserve
Balance at
1 July 2000 701 123 224 1 1 248 (7 029) 118 145
Share of
associates'
income 895 895
Net loss for
the period (1 728) (1 728)
Balance at
31 December
2000 701 123 224 1 2 143 (8 757) 117 312
Group Income Statement
Six months Year Six months
ended ended ended
31 December 30 June 31 December
2000 2000 1999
Reviewed Audited Unaudited
Notes R'000 R'000 R'000
Net operating costs (2 288) (1 893) (2 468)
Investment adjustments 1 560 (1 387) -
Loss before taxation (1 728) (3 280) (2 468)
Taxation - - -
Loss after taxation (1 728) (3 280) (2 468)
Minority interests - - 37
Share of retained income
of associate companies 2 895 948 (646)
Headline and attributable
loss (833) (2 332) (3 077)
Group Cash Flow Movements
Six months ended Year ended Six months ended
31 December 2000 30 June 2000 31 December 1999
Reviewed Audited Unaudited
R'000 R'000 R'000
Increased in long-term
borrowings 2 893 1 722 1 012
Cash generated/(Utilised)
by operations 4 140 (5 057) (7 564)
Net Cash (invested)/
generated 19 416 4 746 32 890
Proceeds on disposal of
investment - 50 000 50 000
Acquisition of investments 19 352 (44 922) (17 110)
Net acquisition of fixed
assets (64) (332) -
Balance at beginning of
period 13 935 12 524 12 524
Balance at end of period 1 552 13 935 38 862
Notes to the Financial Statements
In terms of AC112 and AC133, Cycad is required to reflect an unrealised foreign
exchange gain ralating to its effective interest in Sportalsia.com of R4,6
million. The directors' calculated net asset value per share does not reflect
this adjustment. Certain investment values have been written down by R4
million.
Out of a total of ten of Cycads' investments only three constitute associate
companies which have been accounted for under the equity method in accordance
with South African Generally Accepted Accounting Practice.
Certain prior period comparatives have been restated in order to reflect
reclassification of certain items.
Net asset value and earnings per share
The undiluted net asset value per share at 31 December 2000 was 172 cents per
share which is a decrease of 5% from 30 June 2000. Investments have been
written down by R4 million (6 cents per share) primarily to reflect the value
of Cycad's interests in the Cycad Trafalgar Turnaround Fund following the
restructuring thereof.
Of a total of ten investments so far made by Cycad, only three constitute
associate companies in terms of Generally Accepted Accounting Practice
Statement AC110. The share of retained income of associate companies reflected
in the consolidated income statement thus relates to these three investments
only, one of which incurred start-up losses during the period under review. For
this reason, EPS is not considered by Cycad's directors to be a useful measure
of performance as the equity earnings do not reflect a meaningful position.
Six months ended Year ended Six months ended
31 December 2000 30 June 2000 31 December 1999
Reviewed Audited Unaudited
Headline loss/attributable
loss per ordinary
share (cents (1) (3) (4)
The calculation of loss
per share is based on
the following:
Headline loss/attributable
loss (833) (2 332) (3 077)
Number of shares in
issue ('000) 70 060 70 060 70 060
COMMENTARY
The value of our investments is central to determining our net asset value.
Cycad's investment strategy is to invest in technology and service businesses
with global value potential. These comprise high-risk businesses in which an
investment stake is acquired at an early stage of the company's development. We
back owner-managers with sound track records with above average potential to
grow businesses at an accelerated rate.
It is generally recognised that the valuation of these businesses is difficult
with extensive debate at both a domestic and an international level on various
methodologies. While a number of theoretical models exist, the only practical
measure of value is when an investment is realised. It is for these reasons
that our accounting policy is to value investments at cost for two reporting
periods. Thereafter, we apply our best judgements in assessing a fair value for
our accounting statements. Based on the foregoing, we consider that the Net
Asset Value of 172 cents per share fairly reflects the underlying value of our
investments.
There is always a level of volatility in a business operation and we endeavour
to maintain careful tracking of each of our investments. Where adverse trends
are detected we as minority shareholders, in conjunction with our partners,
endeavour to respond rapidly to rectify these situations.
Our investments have continued to build underlying strength, not always
reflected in direct financial performance, and we have simplified and focussed
our operations. Shareholders were advised in February 2001 that Cycad'
effective 25% interest in Birdie Holdings Limited was converted into an
effective 10% stake in Sportal Asia Limited and Cycad Invested a further R6,25
million to entrench strategic minority shareholder rights. The Cycad SMC
sub-fund has been eliminated. Cycad has reached agreement with the management
of the Cycad Trafalgar Fund, after 31 December 2000, to rationalise its holding
and eliminate any further capital commitment from Cycad.
Bearing in mind the current state of the domestic and international stock
markets, there is the potential for an adverse impact on capital raising and on
the timing and realisation values of our investments. If the situation
persists, notwithstanding that the bulk of our investments are unlisted, there
may be a need to reduce balance sheet values.
In February 2001 shareholders were also advised of a strategic alliance with
Zephyr Management LP of New York
NEW INVESTMENT
In October 2000, Cycad subscribed for a 32,5% interest in a newly formed
company Complex-IT Vocalis for R4 million in cash. Vocalis Group Plc ("Vocalis"
www.vocalis.com), a 25% shareholder in Complex-IT Vocalis is listed on the
London Stock Exchange and is a UK based developer of speech recognition
platforms. Vocalis has developed two managed service offerings which are based
on interactive voice response (IVR) and speech recognition technologies which
allow users to access their e-mails through the telephone and to interact
through voice or keypad commands, or to access web page content through the
telephone.
The venture is headed by Ronald Sarkin, one of the initial directors of CCH
Limited and Michael Renzon, formally the business development director of I-Net
Bridge. The business is operating according to plan and leading businesses have
signed contracts. In addition Complex-IT Vocalis' reseller channel partners
cover approximately 85% of the South African corporate market. The investment
did not have an impact on Cycad's net asset value per share. Cycad has equity
accounted start-up losses of 0.32 cents per share during the period under
review.
CAPITAL AVAILABILITY
Arrangements have been made to provide bridging facilities to meet working
capital requirements. Steps are also being taken to realise non-core or
under-performing investments. The group has outstanding commitments to an
investment of R5,25 million on which individual draw downs are subject to the
achievement of certain performance milestones.
DIRECTORATE
With the transfer of Dr Mark Jennings to concentrate on Zephyr's activities, Mr
Ghaleb Cachalia, previously a principal in Monitor, the international
consulting group, will join the board as an executive director.
DIVIDENDS
No dividend was declared or paid during the period under review.
PROSPECTS
Our investments have been carefully selected, are mostly at an early state of
development, and their risk profile has been dearly defined. We expect them to
deliver value in the medium term.
By order of the board
A J Berhmann L H Fine
Chairman Chief Executive
Johannesburg
15 March 2001
Registered Office Transfer Secretaries
15 Girton Road Mercantile Registrars Limited
Parktown, 2193 11 Diagonal Street
Tel: (011) 507 2000 Johannesburg, 2001
Fax: (011) 507 2004 PO Box 1053 , Johannesburg, 2000
www.cycadfinhold.co.za e-mail: cycadfinhold@cycadfinhold.co.za
Directors: A J Behrmann (Chairman), L H Fine (CEO), S Cohen, A J Frost
(Executive) (Alternate: L Klaff), P G Joubert, J M Kahn, W Y N Luhabe, P H
Parker (British), L van Zyl
