| Tue 10 Jul 2012, 15:28 | | Foord Compass Ltd Deb - UNAUDITED INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2012 |
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FCPD
UNAUDITED INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2012
FOORD COMPASS LIMITED
JSE code: FCPD * ISIN: ZAE000054466* Registration Number: 1987/003591/06
UNAUDITED INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2012
ANNUAL INTEREST YIELD OF 10.6% ON OPENING NAAV
NET ATTRIBUTABLE ASSET VALUE 817c PER DEBENTURE
CONDENSED STATEMENT OF FINANCIAL POSITION Unaudited Unaudited Audited
at 30 June 2012 30 June 2012 30 June 2011 31 Dec 2011
Notes R'm R'm R'm
ASSETS
Current assets
Investments 3 1 136.6 1 678.0 1 480.5
Income receivables and unsettled sales 3.3 1.6 3.0
Sundry debtors 0.2 - -
Taxation receivable - - 0.1
Cash and deposits 612.6 390.8 528.6
Total assets 1 752.7 2 070.4 2 012.2
EQUITY AND LIABILITIES
Capital and reserves 45.0 35.9 42.3
Ordinary share capital 0.1 0.1 0.1
Accumulated profits 44.9 35.8 42.2
Non-current liabilities 1 257.1 1 148.8 1 163.3
Unsecured debentures 4 1 255.6 1 139.2 1 151.9
Deferred taxation 1.5 9.6 11.4
Current liabilities 450.6 885.7 806.6
Accounts payable 3.2 2.7 2.9
Taxation 15.1 2.6 -
Short investment positions 313.1 780.4 720.8
Unsettled purchases 71.3 54.3 6.6
Debenture interest payable 47.9 45.7 76.3
Total equity and liabilities 1 752.7 2 070.4 2 012.2
Number of debentures in issue 159 559 186 152 387 884 153 719 105
Number of ordinary shares in issue 8 800 070 8 800 070 8 800 070
Cents Cents Cents
Net attributable asset value per debenture (cum interest) 816.9 777.6 799.0
Net attributable asset value per debenture (ex interest) 786.9 747.6 749.4
Net attributable asset value per ordinary share 511.4 408.0 480.7
CONDENSED STATEMENT OF COMPREHENSIVE INCOME Unaudited Unaudited Audited
6 months to 6 months to Year ended
30 June 2012 30 June 2011 31 Dec 2011
Notes R'm R'm R'm
Investment income 45.6 42.8 86.0
Realised trading profits 58.6 35.3 65.8
Operating expenditure (9.5) (9.3) (16.3)
Net distributable profit 94.7 68.8 135.5
Capital profits on sale of investments 100.9 8.4 8.4
Revaluation of investments (69.9) (3.5) 19.1
Net portfolio income before debenture interest 125.7 73.7 163.0
Debenture interest (47.9) (45.7) (122.0)
Increase in carrying value of debentures 4 (59.9) (21.6) (24.3)
Profit before taxation 17.9 6.4 16.7
Taxation expense 5 (8.2) (0.9) (4.7)
Profit attributable to ordinary shareholders 9.7 5.5 12.0
Weighted average number of debentures in issue 158 421 146 151 768 769 152 268 432
Cents Cents Cents
Interest per debenture (weighted) 30.0 30.0 80.1
Earnings per ordinary share 110.2 62.5 136.4
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Ordinary Accumulated
share capital profits Total
R'm R'm R'm
Balance at 1 January 2011 (audited) 0.1 35.6 35.7
Dividends - (5.4) (5.4)
Profit for the year - 12.0 12.0
Balance at 31 December 2011 (audited) 0.1 42.2 42.3
Dividends - (7.0) (7.0)
Profit for the period - 9.7 9.7
Balance at 30 June 2012 (unaudited) 0.1 44.9 45.0
Balance at 1 January 2011 (audited) 0.1 35.6 35.7
Dividends - (5.3) (5.3)
Profit for the period - 5.5 5.5
Balance at 30 June 2011 (unaudited) 0.1 35.8 35.9
CONDENSED STATEMENT OF CASH FLOWS Unaudited Unaudited Audited
6 months to 6 months to Year ended
30 June 2012 30 June 2011 31 Dec 2011
R'm R'm R'm
Net cash inflow (outflow) from operating activities 126.4 (29.0) 149.3
Interest, dividends and taxation paid (86.2) (84.8) (135.3)
Net cash received from issue of debentures 43.8 36.0 46.0
Net change in cash and deposits 84.0 (77.8) 60.0
Cash and deposits at beginning of period 528.6 468.6 468.6
Cash and deposits at end of period 612.6 390.8 528.6
NOTES TO THE CONDENSED INTERIM 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 companys financial statements for the year
ended 31 December 2011.
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.
4. Unsecured debentures
Unaudited Unaudited Audited
30 June 2012 30 June 2011 31 Dec 2011
R'm R'm R'm
Unsecured debentures comprise
Debenture capital at issue price 1 090.3 1 036.5 1 046.5
Cumulative revaluation of debentures 165.3 102.7 105.4
Fair value of debentures 1 255.6 1 139.2 1 151.9
Reconciliation of balance
Balance at beginning of period 1 151.9 1 081.6 1 081.6
Net proceeds on issue of debentures 43.8 36.0 46.0
Revaluation - current period 59.9 21.6 24.3
Balance at end of period 1 255.6 1 139.2 1 151.9
Increase in carrying value of debentures
Net portfolio income before debenture interest 125.7 73.7 163.0
90% allocation to debenture holders 113.1 66.3 146.7
Less: share of taxation (expense) credit (5.3) 1.0 (0.4)
Less: interest distribution for the period (47.9) (45.7) (122.0)
Revaluation - current period 59.9 21.6 24.3
5. Taxation expense
Taxation comprises
Current taxation charge - current period 18.1 2.8 4.8
Deferred taxation charge - current period (9.9) (1.9) (0.1)
Net expense 8.2 0.9 4.7
Deferred taxation relates to the revaluation of investments. The share of the net taxation charge
attributable to the unsecured debentures, which amounts to R5.3 million (2011: taxation credit of
R1.0 million), has been subtracted from (added to) the carrying value of the debentures as set out in note 4.
These results have not been reviewed or reported on by the company's auditors, Deloitte & Touche.
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2012
The directors hereby present the interim financial statements for the six months ended 30 June 2012. The
results reflect a creditable achievement despite volatile and uncertain markets. The board of directors has
approved an unchanged interim distribution of 30 cents per debenture. This brings the rolling 12 month
distribution to 79.6 cents per debenture, representing a 10.6% yield on the ex-interest net attributable asset
value of 747.6 cents per debenture reported at 30 June 2011.
Net portfolio income before debenture interest increased 71% to R125.7 million from R73.7 million in the
comparative period, largely as a result of the disposal of long-term assets comprising shares and listed
property early on in the period. Net distributable profit, which comprises interest, dividends and realised
trading profits, net of operating expenses, increased 38% to R94.7 million. The main reason for this increase
was the quantum of trading profits realised during the period. Net profit after taxation increased 76% to
R9.7 million from R5.5 million.
INVESTMENT AND DEBENTURE RETURNS
Persistent concerns for the future of the Eurozone and the stability of Europes banks weighed on markets in
the first six months of the year, exacerbated by slowing growth in China and the US in the second quarter.
As a result, most global share markets were volatile, but posted positive returns for the period only latterly
following a sharp rally in growth assets in late June in response to more positive EU Summit outcomes. Bond
yields fell further in most developed markets, excluding those of southern Europe. The dollar continued to
strengthen against the euro, while commodity prices (including oil) generally declined on lower demand. In
South Africa, the FTSE/JSE All Share Index rose 7.0%, while the All Bond Index climbed 7.7% as yields fell
sharply following approval for SAs inclusion in the Citigroup World Government Bond Index from October.
Capital inflows ensured that the rand remained relatively stable against the US dollar, despite intra-period
volatility and deteriorating fundamentals.
The Foord Compass portfolio did well to achieve a total return of 11.0% for the period on a gross of fees
basis (six months to 30 June 2011: 6.8%). Astute share selection and appropriate diversification resulted in the
SA equity component of the portfolio delivering a return of 28.5% and contributing more than half of the
total return achieved. Foreign assets delivered 8.9% and contributed 4.3% of the total 11.0% return. The short
bond position was once again negative for the portfolio but the portfolio effect was largely neutralised by
the opposite exposure to corporate debt and selected foreign assets.
The current and longer-term returns on the investment portfolio are tabulated below. The portfolio has
exceeded the CPI+10% objective over the period and over twelve months, but has fallen short of its target
on a rolling five year basis.
Unaudited Unaudited Annualised returns to 30 June 2012
6 months to 6 months to 1 year 5 years 10 years
30 June 2012 30 June 2011
Gross portfolio total return 11.0% 6.8% 19.4% 12.7% 23.0%
Benchmark (CPI + 10% per annum) * 7.9% 8.6% * 14.6% * 17.0% * 15.6%
FTSE / JSE All Share Index 7.0% 0.5% 24.6% 11.4% 15.5%
MSCI World Equities Index in rands ** 7.5% 7.9% 15.4% -1.2% 1.3%
* Lagged one month
** Developed markets total return index
For the six month period under review, the net attributable asset value per debenture increased from
749.4 cents to 816.9 cents, cum interest. This yielded a return on the debentures of 9.0% for the period on a
net asset value basis (six months ended 30 June 2010: 6.0%). The returns on the debentures for the six months
ended 30 June 2012 are as follows:
Unaudited Unaudited Audited
6 months to 6 months to Year to
30 June 2012 30 June 2011 31 Dec 2011
Income 4.0% 4.1% 10.9%
Capital 5.0% 1.9% 2.2%
Total return * 9.0% 6.0% 13.1%
* Calculated with reference to opening net attributable asset values per debenture
PORTFOLIO STRUCTURE AND COMMENT
The macro structure of the investment portfolio reflects a material change from that disclosed as at
31 December 2011. We had previously reported that much of the SA equity exposure amounting to 85% at
year-end had been obtained from the options market to protect the portfolio against expected downside
volatility in H1 2012. This approach provided the portfolio with upside exposure to a rise in the share market
while allowing the fund manager to hold a concentrated share portfolio of his best investment ideas. This
approach was prudent given the returns achieved on the shares, while the derivative structures collectively
matured in the money.
The expiry of the derivative positions and the sale of long-term assets referred to above has resulted in the
domestic equity exposure of the portfolio declining from 63% at year-end to 23% of portfolio at 30 June
2012. A portion of the short SA government bond position was covered during the period and the portfolios
aggregate short exposure to government bonds reduced from 45% of portfolio to 27% at the reporting date.
Profits were realised in listed property counters and the effective cash holdings were increased. The
composition of the foreign component of the portfolio was largely unchanged.
Equities remain the preferred asset class to achieve inflation beating returns on a three to five year view. The
38% effective equity exposure is tactically below target weight as we move into the seasonally slow third
quarter. The large effective 63% cash weighting provides both capital protection and importantly also the
flexibility to capitalise on opportunities that will arise in these volatile markets. Further optionality may be
utilised in future to hedge the portfolio against losses or take advantage of direction in counters and asset
classes.
The portfolios total asset allocation at effective economic exposures at 30 June 2012 is set out below:
Domestic % Foreign % Total %
June 2012 Dec 2011 June 2012 Dec 2011 June 2012 Dec 2011
Equities 23 63 15 22 38 85
Listed property 1 6 0 0 1 6
Government bonds -17 -34 -10 -11 -27 -45
Corporate debt 7 8 17 16 24 24
Commodities 0 0 1 3 1 3
Effective cash 39 7 24 20 63 27
53 50 47 50 100 100
CHAIRMANSHIP
After serving as a director for nine years, five of which as an independent director, and as Chairman since
April 2011, Chris Greyling has elected to retire from the board of directors effective 9 July 2012. Chris has
contributed enormously to the development of Foord Compass during his tenure with the company. He has
been active as a co-strategist, visionary, risk manager and devils advocate. His considered counsel and
thoughtful leadership will be sorely missed. He will remain an interested party as a Foord Compass
debenture holder. Darron West has been appointed Chairman from 9 July 2012. A separate announcement
has been issued in this regard.
INTEREST PAYMENT AND ELECTION
Notice is hereby given that a debenture interest payment (number 50) of 30.0 cents per debenture in
respect of the six months ended 30 June 2012 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, 27 July 2012
Debentures trade ex-interest Monday, 30 July 2012
Record date Friday, 3 August 2012
Payment date Monday, 6 August 2012
No debenture certificates may be dematerialised or rematerialised between Monday, 30 July 2012 and
Friday, 3 August 2012, both days inclusive.
IMPORTANT: A Notice of Interest Payment and Election detailing rights of debenture holders to elect to
receive new fully paid Foord Compass Limited variable rate debentures in lieu of a cash interest payment
has been published separately.
Signed on behalf of the board
DG WEST (Chairman) PE CLUER
9 July 2012
Directors: DG WEST (Chairman), JC GREYLING (Retiring Chairman), PE CLUER, AD COWELL*, D FOORD**,
JC VAN DER HORST, JC VAN NIEKERK,
*Australian **British
Company secretary: L GREVLER
Sponsors: One Capital
www.foordcompass.co.za
10 July 2012
Date: 10/07/2012 03:28:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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