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CND
CND
CND - Conduit Capital Limited - Condensed consolidated unaudited results for the
six months ended 29 February 2012
CONDUIT CAPITAL LIMITED
Incorporated in the Republic of South Africa
(Registration number: 1998/017351/06)
Share code: CND ISIN: ZAE000073128
("Conduit" or "Conduit Capital" or "the Group")
CONDENSED CONSOLIDATED UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 29 FEBRUARY
2012
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
six six year
months months ended
ended ended 31 Aug
29 Feb 28 Feb 2011
2012 2011 R`000
R`000 R`000
Gross revenue 519 289 510 925 920 517
Net insurance revenue 152 310 129 357 274 764
Other operating revenue 65 263 50 038 109 110
Net revenue 217 573 179 395 383 874
Operating expenses (195 847) (166 724) (356
046)
- Direct expenses: Insurance and risk (127 241) (105 310) (219
services 375)
- Administration and other expenses (30 104) (27 034) (58 720)
- Depreciation and amortisation (2 010) (1 513) (3 519)
- Employee costs (36 492) (32 867) (74 432)
Operating profit 21 726 12 671 27 828
Equity accounted income 318 187 667
Investment income 16 495 12 589 24 923
Other income - 28 1 190
Finance charges (281) (814) (1 300)
Profit before taxation 38 258 24 661 53 308
Taxation (9 807) (7 575) (16 988)
Profit for the period 28 451 17 086 36 320
Other comprehensive income - - -
Total comprehensive income 28 451 17 086 36 320
Attributable to:
Equity holders of the parent 19 888 10 063 22 419
Non-controlling interest 8 563 7 023 13 901
Total comprehensive income 28 451 17 086 36 320
Earnings per share (cents)
- Basic 7.8 4.0 9.0
- Diluted 7.7 3.9 8.7
- Headline 8.0 4.0 8.6
- Diluted headline 8.0 3.9 8.4
CONDENSED SEGMENTAL ANALYSIS OF EARNINGS
Corporat Insuranc Direct Consoli- Total
e and e and R`000 dation R`000
investme risk R`000
nt services
services R`000
R`000
Unaudited - six months
ended
29 February 2012
Gross revenue 3 143 456 117 62 467 (2 438) 519 289
Net revenue 3 143 154 401 62 467 (2 438) 217 573
Investment income 15 151 6 470 314 (5 440) 16 495
Profit before taxation 12 677 11 173 21 300 (6 892) 38 258
Attributable earnings 12 064 8 971 5 655 (6 802) 19 888
Non-controlling 32 50 8 481 - 8 563
interest
Total assets 183 939 788 769 55 752 (141 886 966
494)
Total liabilities (18 701) (698 (26 232) 137 130 (606
801) 604)
Capital employed 56 549 186 598 22 709 (4 363) 261 493
Capital expenditure 21 396 2 189 - 2 606
Unaudited - six months
ended
28 February 2011
Gross revenue 5 155 462 632 47 572 (4 434) 510 925
Net revenue 5 155 131 102 47 572 (4 434) 179 395
Investment income 7 647 7 060 266 (2 384) 12 589
Profit before taxation 2 836 7 538 17 085 (2 798) 24 661
Attributable earnings 3 359 4 863 4 639 (2 798) 10 063
Non-controlling 28 37 6 958 - 7 023
interest
Total assets 228 256 759 031 49 465 (195 841 436
316)
Total liabilities (51 475) (689 (23 372) 192 954 (571
282) 175)
Capital employed 46 673 187 890 21 374 (2 363) 253 574
Capital expenditure 50 277 852 - 1 179
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 taxation 5 575 20 257 34 276 (6 800) 53 308
Attributable earnings 4 618 15 483 9 118 (6 800) 22 419
Non-controlling 51 81 13 769 - 13 901
interest
Total assets 200 249 730 098 51 660 (164 817 882
125)
Total liabilities (22 136) (650 (24 279) 161 759 (535
368) 024)
Capital employed 48 911 196 894 21 851 (2 363) 265 293
Capital expenditure 94 830 2 548 - 3 472
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Unaudited Unaudited Audited
as at 29 as at 28 as at
Feb 2012 Feb 2011 31 Aug 2011
R`000 R`000 R`000
ASSETS
Non-current assets 157 935 148 107 143 629
- Property, plant and 14 680 14 825 14 457
equipment
- Intangible assets 46 459 46 114 46 089
- Loans receivable 5 379 7 322 5 351
- Deferred taxation 9 264 11 145 7 190
- Investment properties 3 444 3 408 3 442
- Investment in associates 327 911 281
- Investment in jointly 2 765 2 557 3 325
controlled entities
- Investments held at fair 75 617 61 825 63 494
value
Current assets 724 921 682 529 669 503
- Insurance assets 349 890 331 740 316 026
- Investments held at fair 4 800 4 090 4 592
value
- Trade and other 116 012 91 002 78 761
receivables
- Taxation 2 118 981 262
- Cash and cash equivalents 252 101 254 716 269 862
Non-current assets held for 4 110 10 800 4 750
sale
Total assets 886 966 841 436 817 882
EQUITY AND LIABILITIES
Capital and reserves 280 362 270 261 282 858
- Ordinary share capital and 175 917 199 155 199 155
share premium
- Contingency reserve 157 - -
- Retained earnings 85 236 53 798 65 538
- Share-based payment 183 621 600
reserve
Equity attributable to 261 493 253 574 265 293
equity holders of the parent
Non-controlling interest 18 869 16 687 17 565
Non-current liabilities 30 086 38 568 28 629
- Policyholder liabilities 18 776 21 837 19 661
under insurance contracts
- Interest-bearing 4 125 8 339 3 796
borrowings
- Deferred taxation 7 185 8 392 5 172
Current liabilities 576 518 532 607 506 395
- Insurance liabilities 428 012 411 252 379 765
- Trade and other payables 144 260 112 166 122 341
- Current portion of - 6 870 3 175
interest-bearing borrowings
- Taxation 4 246 2 319 1 114
Total equity and liabilities 886 966 841 436 817 882
Net asset value per share 102.6 101.3 106.0
(cents)
Tangible net asset value per 84.4 82.9 87.6
share (cents)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited Unaudited Audited
six six year
months months ended
ended ended 31 Aug
29 Feb 28 Feb 2011
2012 2011 R`000
R`000 R`000
Net cash flows from operating 12 787 19 617 34 166
activities
Net cash flows from investing (3 996) (31 022) (22 866)
activities
Net cash flows from financing (26 552) (4 125) (11 684)
activities
Total cash movement for the period (17 761) (15 530) (384)
Cash at the beginning of the period 269 862 270 246 270 246
Total cash at the end of the period 252 101 254 716 269 862
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Share Retaine Other Non- Total
capital d reserve control R`000
and earning s R`000 ling
share s R`000 interes
premium t R`000
R`000
Balance at 1 September 199 155 43 626 363 16 419 259 563
2010
Transaction with - 109 - (2 555) (2 446)
owners
Total comprehensive - 10 063 - 7 023 17 086
income for the period
Equity options issued - - 258 - 258
to executives
Dividends paid - - - (4 200) (4 200)
Balance at 28 February 199 155 53 798 621 16 687 270 261
2011
Transaction with - (682) - - (682)
owners
Total comprehensive - 12 356 - 6 878 19 234
income for the period
Reversal of equity - 66 (66) - -
options
Equity options issued - - 45 - 45
to executives
Dividends paid - - - (6 000) (6 000)
Balance at 31 August 199 155 65 538 600 17 565 282 858
2011
Proceeds from issue of 1 800 - - - 1 800
shares
Exercise of equity 440 - (440) - -
options
Transaction with - (33) - - (33)
owners
Total comprehensive - 19 888 - 8 563 28 451
income for the period
Equity options issued - - 23 - 23
to executives
Contingency reserve - (157) 157 - -
transfer
Distribution of (25 - - - (25
capital 478) 478)
Dividends paid - - - (7 259) (7 259)
Balance at 29 February 175 917 85 236 340 18 869 280 362
2012
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of preparation
The accounting policies applied in the preparation of these condensed
consolidated unaudited financial statements for the six months ended 29
February 2012 ("interim results") are based on reasonable judgements and
estimates and are in accordance with International Financial Reporting
Standards ("IFRS") and AC500 standards as issued by the Accounting
Practices Board. These accounting policies are consistent with those
applied in the annual financial statements for the year ended 31 August
2011. These interim 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").
These interim results were prepared under the supervision of Mr Lourens
Louw, the Financial Director and have not been audited or reviewed by the
Group`s auditors.
2. Changes in share capital
Details of the shares in issue as at the reporting dates are as follows:
29 Feb 28 Feb 31 Aug
2012 2011 2011
`000 `000 `000
Number of shares 254 777 250 277 250 277
- Shares in issue 256 380 256 380 256 380
- Shares held as treasury shares (1 603) (6 103) (6 103)
Weighted average number of shares 254 777 250 277 250 277
- Shares in issue 256 380 256 380 256 380
- Shares held as treasury shares (1 603) (6 103) (6 103)
Diluted weighted average number 256 777 256 593 256 531
of shares
- Shares in issue 258 380 262 696 262 634
- Shares held as treasury shares (1 603) (6 103) (6 103)
3. Reconciliation of headline earnings
Unaudited
six Unaudited Audited
months six year
ended months ended
29 Feb ended 31 Aug
2012 28 Feb 2011
R`000 2011 R`000
R`000
Profit attributable to ordinary 19 888 10 063 22 419
equity holders of Conduit
Net loss (profit) on revaluation 640 - (300)
of non-current assets held for
sale
Net profit on disposal/revaluation - - (891)
of subsidiaries and associates
Net loss on revaluation of - - 1
investment properties
Net (profit) loss on disposal of - (11) 603
property, plant and equipment
Tax on the items above (90) - (26)
Non-controlling interest on the - - (249)
items above (after taxation)
Headline earnings 20 438 10 052 21 557
4. Contingent liabilities
4.1 Contingent rent is payable in connection with parking 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 R477 614
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 As reported in the 2011 annual financial statements, a legal dispute
relating to 2006 and 2007 inwards reinsurance arrangements concluded
through one of the Group`s external underwriting managers remains
unresolved. Although there is the potential that a negative outcome may be
material to Group earnings, steps have been taken to reduce any financial
exposure and to mitigate such risk. The matter is expected to be finalised
by year-end.
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 results.
5. Directors
There have been no changes to the board during the interim period. On 26
March 2012, subsequent to the interim period, Mr Stanley David Shane
resigned as a non-executive director.
6. Dividends and other distributions
6.1 The board of directors of Conduit Capital has not recommended any
dividend payment to ordinary shareholders for the six months ended 29
February 2012 (February 2011: Nil).
6.2 On 12 December 2011 a distribution of ten cents per share was made to
shareholders by way of a capital reduction out of the share premium
account.
7. Post balance sheet events
Other than as disclosed in the Directors` paragraph above, there were no
material post-balance sheet events.
COMMENTARY
GROUP OPERATIONAL REVIEW
Conduit Insurance and Risk Services
With effect from 1 January 2012 the Financial Services Board introduced interim
measures in anticipation of the final and complete implementation of the
Solvency Assessment and Management ("SAM") framework in 2015. These interim
measures initiate a revised calculation of capital and solvency for insurers,
which, dependent on the class of business underwritten and ultimately retained
for net account, affect Constantia Insurance Company Limited`s ("CICL") current
and future capital requirements. For now the international solvency ratio - a
key metric in Global Credit Rating Co`s ("GCR") criteria - has in consultation
with GCR been managed down from 49.5% at 28 February 2011 to a respectable 44.0%
at 29 February 2012. Efforts are underway to optimise the capital structure of
the Group in order to meet on-going regulatory demands and to ameliorate the
impact of any capital strain resultant from new business activities.
The positive underwriting result sustained in all insurance classes is once
again encouraging to note. While delivery cost ratios remain above ideal levels,
the recent take-on of additional underwriting managers and profitable insurance
portfolios should, over time, result in improved profitability and a meaningful
reduction in the ratio to within our target range. Net profit after tax in the
Insurance and Risk Services division maintained the momentum of 2011 and showed
an 84.1% increase over the comparable period.
Conduit Direct
Gross revenue in the Direct division, which incorporates Anthony Richards &
Associates (Proprietary) Limited ("ARA"), advanced 31% producing a 21%
improvement in after-tax profits over the corresponding six-month period. ARA
now employs over 1 350 staff, managing in excess of R4.2 billion in debt.
CONCLUSION
The strong performance for the year ended 31 August 2011 continued into the
first half of 2012. Fully diluted headline earnings per share bettered the
corresponding six-month period to 28 February 2011 by 105.1%. In keeping with
the pronounced increase in earnings and net asset value ("NAV"), the disparity
between Conduit Capital`s intrinsic value and market price continues to display
a positive trend. Following the capital distribution of 10 cents per share in
December 2011 the increase in NAV shows a more modest improvement of 1.3 cents
per share when compared with 28 February 2011. Group cash balances remained
stable at R252.1 million.
We are delighted that the optimism expressed in the 2011 Annual Report is
reflected in the February 2012 results. Over the past 7 years our business has
evolved from an Investment Holding Group to what is ostensibly today an
Insurance Group with certain key strategic risk and non-risk bearing
investments. The formalisation of this transformation is underway, and while our
interest in Conduit Direct will be unaffected and the pursuits of the Corporate
and Investment Services division will persist, the capital requirements of the
Group`s insurance interests will be at the forefront of our investment
philosophy going forward. It is exciting times for our Group and, though plans
are afoot and discussions underway to give effect to the transformation, it is
indeed an extensive exercise and where appropriate may require shareholder
approval. In this regard, shareholders will be advised of any material
developments.
For and on behalf of the Board
Jason D Druian Lourens E Louw
Chief Executive Officer Financial Director
Johannesburg
24 April 2012
Date: 24/04/2012 15:54:01 Produced by the JSE SENS Department.
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