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Cadiz Holdings Limited - Unaudited results for the six months ended 30 June 2005
CADIZ HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1997/007258/06)
JSE share code: CDZ
ISIN: ZAE000017661
(`Cadiz`, `the group` or `the company`)
UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2005
HIGHLIGHTS
* Headline earnings up 41% to R53.6 million
* Headline earnings per share up 25% to 25.6 cents
* Gross operating revenue up 20% to R123.2 million
* Top rated derivatives house for ninth successive year
* Ranked eleventh most empowered company in SA
* New chief executive and deputy chairman appointed
GROUP INCOME STATEMENT Restated Restated
Unaudited unaudited audited
6 months 6 months 12 months
30-Jun-05 30-Jun-04 31-Dec-04
R `000 R `000 R `000
Gross operating revenue 123,225 102,739 202,223
Interest income 5,828 11,656 23,721
Net investment income 12,553 6,234 17,152
Net income from 5,082 12,414 25,396
investments
Foreign exchange 7,471 (6,180) (8,244)
gains/(losses)
Operating expenses (71,000) (59,674)
(123,840)
Operating profit 70,606 60,955 119,256
Finance costs (894) (12,675) (13,735)
Profit before taxation 69,712 48,280 105,521
Taxation (17,541) (11,285) (27,831)
Profit from ordinary 52,171 36,995 77,690
activities
Reconciliation of headline
earnings:
Profit from ordinary 52,171 36,995 77,690
activities
Release of foreign - - (516)
currency translation
reserve on deregistration
of foreign subsidiary
Goodwill impairment 1,362 1,145 2,518
Loss on disposal of 65 - -
equipment
Headline earnings 53,598 38,140 79,692
Issued number of shares 239,810 239,810 239,810
(`000)
Consolidated number of 209,906 206,525 208,456
shares (`000)
Weighted average number of 209,569 187,016 197,208
shares (`000)
Diluted weighted average 228,706 203,055 213,838
number of shares (`000)
Earnings per share (cents)
Basic 24.9 19.8 39.4
Diluted 22.8 18.2 36.3
Headline earnings per
share (cents)
Basic 25.6 20.4 40.4
Diluted 23.4 18.8 37.3
GROUP BALANCE SHEET Restated Restated
Unaudited unaudited audited
30-Jun-05 30-Jun-04 31-Dec-04
R `000 R `000 R `000
ASSETS
Non - current assets 249,475 220,180 247,337
Property, plant and 5,008 6,257 5,398
equipment
Goodwill 21,964 24,633 23,327
Deferred taxation 19,844 20,499 20,077
Investments and trading 192,532 157,223 187,757
securities
Receivables and 10,127 11,568 10,778
prepayments
Current assets 271,773 292,989 280,626
Investments and trading 119,634 65,733 120,526
securities
Receivables and 91,709 84,312 116,358
prepayments
Taxation 5,477 7,742 6,741
Cash and cash equivalents 54,953 135,202 37,001
Total assets 521,248 513,169 527,963
EQUITY
Capital and reserves
attributable to the
Company`s equity holders
Ordinary share capital and 82,215 158,954 82,215
premium
Treasury shares (43,377) (52,738) (42,400)
Share-based payment 2,318 601 1,229
reserve
Foreign currency - 516 -
translation reserve
Retained earnings 311,886 260,462 298,931
Total equity 353,042 367,795 339,975
LIABILITIES
Non - current liabilities 14,799 25,331 24,614
Deferred taxation 2,546 7,928 2,591
Trade and other payables 12,253 17,403 22,023
Current liabilities 153,407 120,043 163,374
Taxation 15,987 - 15,749
Trade and other payables 127,392 110,265 143,740
Trading liabilities 10,028 9,778 3,885
Total liabilities 168,206 145,374 187,988
Total equity and 521,248 513,169 527,963
liabilities
Net asset value (cents per 168 178 163
share)
Net tangible asset value 149 160 144
(cents per share)
ABRIDGED GROUP CASH FLOW Restated Restated
STATEMENT
Unaudited unaudited audited
6 months 6 months 12 months
30-Jun-05 30-Jun-04 31-Dec-04
R `000 R `000 R `000
Cash flow from operating 4,390 17,133 86,308
activities
Cash generated from 41,316 39,870 109,046
operations
Dividends paid (36,926) (22,737) (22,738)
Cash flow from investing 16,675 (14,505) 37,754
activities
Cash flow from financing (3,267) 27,252 (192,475)
activities
Net change in cash and 17,798 29,880 (68,413)
cash equivalents
Effect of exchange rate 154 (299) (207)
adjustment
Cash and cash equivalents 37,001 105,621 105,621
at beginning of period
Cash and cash equivalents 54,953 135,202 37,001
at end of period
ABRIDGED GROUP STATEMENT Restated Restated
OF CHANGES IN EQUITY
Unaudited unaudited audited
6 months 6 months 12 months
30-Jun-05 30-Jun-04 31-Dec-04
R `000 R `000 R `000
Share capital and share
premium
Opening balance 39,815 81,445 81,445
Capital reduction - - (66,417)
Sale of treasury shares to - 38,813 38,813
Makana
Sale of treasury shares on 3,940 1,569 5,958
exercise of options
Purchase of treasury (4,917) (15,611) (19,984)
shares
38,838 106,216 39,815
Reserves
Opening balance 300,160 244,239 244,239
Sale of treasury shares to - 2,327 2,327
Makana
Sale of treasury shares on (2,290) 154 (2,071)
exercise of options
Employee share option 1,089 601 1,229
scheme - value of services
provided
Release of foreign - - (516)
currency translation
reserve on deregistration
of foreign subsidiary
Profit from ordinary 52,171 36,995 77,690
activities
Dividends paid (36,926) (22,737) (22,738)
314,204 261,579 300,160
Total shareholders` funds 353,042 367,795 339,975
FINANCIAL PERFORMANCE
Cadiz is pleased to inform
shareholders of its strong financial
performance for the six months ended
30 June 2005. This resulted from
strong contributions from the
securities and structuring
businesses as well as from foreign
exchange gains owing to the
weakening currency. The results are
in line with the Trading Statement
issued to the market on 6 July 2005.
Gross operating revenue for the six
months increased by 20% to R123.2
million (2004: R102.7 million).
Interest income halved to R5.8
million (2004: R11.7 million),
attributable to:
* the maturity of R40 million
(50%) of the group`s bond portfolio;
and
* the reduction in interest
earned on the group`s cash holding
following the payment of the special
dividend in October 2004 and the
reduction in the dividend cover. The
average cash holding reduced from
R120.5 million in the first half of
2004 to R46 million in 2005.
Net investment income increased by
101% to R12.6 million (2004: R6.2
million). This was despite a
reduction in investment income
following the sale of investments in
June 2004 to redeem the convertible
debentures and emanated mainly from
foreign exchange gains.
Operating expenses for the six month
period were R11.3 million or 19%
higher at R71.0 million (2004: R59.7
million). The main component of the
increase was a R7.1 million rise in
staff and related costs, which
includes R4.9 million for
recruitment, annual salary increases
and expensing of staff share
options, and R2.2 million for
performance incentive payments. The
latter is a variable expense. The
average number of employees during
the reporting period was 110,
compared to 100 in the corresponding
period in 2004.
Operating profit increased 16% to
R70.6 million (2004: R61.0 million).
Finance costs of R0.9 million (2004:
R 12.7 million) are 93% lower owing
to the redemption of the convertible
debentures in June 2004.
Headline earnings increased 41% to
R53.6 million (2004: R38.1 million)
while headline earnings per share
grew 25% to 25.6 cents (2004: 20.4
cents) after taking account of the
increased number of shares following
the sale of 23.5 million shares to
Makana Financial Services (Pty) Ltd
(`Makana`) in May 2004.
OPERATIONAL REVIEW
Operating activities generated 88%
(2004: 95%) of the group`s total
revenue of R140.7 million,
reflecting the improved performance
of the investment portfolio which
includes the foreign exchange gains
referred to above.
REVENUE ANALYSIS June 2005 June 2004 % change
R`000 % of R`000 % of R`000 %
total total
Securities 54,232 39% 43,957 41% 10,274 23%
Structuring 46,623 33% 37,751 35% 8,872 24%
Asset management 22,370 16% 21,031 19% 1,339 6%
Gross operating 123,225 88% 102,739 95% 20,485 20%
revenue
Net return on 10,017 7% 11,395 11% (1,378) (12%)
investments
Foreign exchange 7,471 5% (6,180) (6%) 13,651 221%
gain / (loss)
Net investment 17,488 12% 5,215 5% 12,273 235%
portfolio returns
Gross revenue 140,713 100% 107,954 100% 32,758 30%
SECURITIES
The securities businesses of equity
derivatives, fixed income,
stockbroking and research, housed
within Cadiz Financial Strategists
(`CFS`), increased revenue by 23% to
R54.2 million (2004: R44.0 million).
This represented 39% of total
revenue.
These businesses benefited from the
increased structuring activities
undertaken by the group during the
period, implementing and executing
several large-scale transactions.
Revenue was also bolstered by new
initiatives in transition
management, where CFS advises
retirement fund clients on and
facilitates the transfer and
restructuring of asset portfolios
between asset managers. The
quantitative skills and research
credentials of CFS positions the
team well to take advantage of the
new era of scientific transition
management in South Africa.
Besides its strong financial
performance, CFS once again received
top honours in the authoritative
Financial Mail analyst rankings.
Cadiz was rated as the best
Derivatives Research and Dealing
house in South Africa for an
unprecedented ninth consecutive
year, as well as being placed first
in Quantitative Analysis, Risk
Management Research and Innovative
Research. These rankings are
particularly noteworthy as they are
based on the views of our clients in
the asset management industry and we
compete against the largest global
and local financial markets players
for these honours.
STRUCTURING
Structuring activities generated
revenue of R46.6 million (2004:
R37.8 million) for the first six
months, an increase of 24% over the
previous year, and contributed 33%
of the group`s total revenue.
This increase can be attributed
mainly to two sources:
* improved deal flow from black
economic empowerment (`BEE`)
transactions, where Cadiz Corporate
Solutions advised on a number of
transactions; and
* involvement of the structuring
team in joint initiatives with CFS
on one-off investment portfolio
restructuring.
The group has regularly advised
shareholders that, the income stream
from structuring is by its very
nature more volatile and
unpredictable than other income
sources in Cadiz. However, the
division is generating a high
proportion of its revenue from
existing clients, which should
ensure a more regular income flow
into the future.
ASSET MANAGEMENT
Asset management activities
increased revenue by 6% to R22.4
million (2004: R21.0 million) and
contributes 16% of total revenue.
Total assets under management at the
end of June 2005 were R14.8 billion.
The group has invested significant
time, money and resources in
developing the infrastructure,
investment processes and
capabilities of Cadiz Specialised
Asset Management (`CSAM`). The
business recently appointed Francois
van Wyk as chief investment officer
and Dr Linda Smit as head of fixed
income investments. All of this
underlines the group`s commitment to
building CSAM into a major player in
the absolute return asset management
industry.
Nevertheless, the industry remains
competitive and margins are likely
to remain tight. CSAM will, however,
continue to focus on negotiating
performance-based fees with the
potential to offset the impact of
lower fixed fees.
The hedge fund continued to attract
strong inflows in the reporting
period, growing its assets by R267
million over the past year to R404
million at 30 June 2005.
INVESTMENTS AND CAPITAL
At 30 June 2005, Cadiz had
accumulated capital of R353 million.
The group invests its surplus funds
to achieve the highest risk-adjusted
returns for shareholders, while
taking account of the future capital
requirements of the business. In
line with the strategy of currency
diversification, foreign currency
investments represent 24.4% of group
capital.
The investment portfolio returns,
which comprise interest income and
net investment income after the
deduction of finance costs, amounted
to R17.5 million for the period.
This is R12.3 million higher than
the corresponding period last year.
This increase can be ascribed to a
R13.7 million year-on-year
difference in foreign exchange
gains, which was slightly offset by
reduced investment income owing to
the lower cash holdings following
the impact of the capital reduction
of R66.4 million and a reduction in
dividend cover.
BOARD AND MANAGEMENT CHANGES
Ray Cadiz, co-founder of the group
and chief executive for the past 12
years, has been appointed executive
deputy chairman of Cadiz. In his new
position Ray will adopt an external
focus on corporate client
relationships and strategic
marketing, while facilitating
leadership development and
advancement of the corporate culture
of Cadiz.
Ram Barkai, previously deputy chief
executive, has been promoted to
chief executive and appointed to the
board of directors. Ram will assume
all operational responsibilities
currently held by Ray.
These appointments, effective from 1
August 2005, allow the group to
retain the wisdom and skills of both
individuals in an executive role,
while at the same time bringing
change and a resultant
revitalisation of the management
team. These moves follow on from the
extensive internal movements within
senior management implemented in mid
2004 to create growth opportunities
for the younger professionals within
Cadiz.
BLACK ECONOMIC EMPOWERMENT
Cadiz`s commitment to meaningful
transformation at all levels in the
business was recognised in the
Empowerdex/Financial Mail Top
Empowerment Companies 2005 survey
where the group was ranked 11th in
South Africa out of 185 listed
companies. This is a quantum leap
from 2004 when the company was
ranked in 104th position.
PROSPECTS
Cadiz has always favoured organic
growth as a means of building a
sustainable business. As a result
the group has launched several new
businesses in recent years and it
has been encouraging how some of
these are now becoming meaningful
contributors to the group`s
performance. The group recently
initiated a move into the growing
securitisation industry.
Asset management remains our largest
potential growth area and the
investment in infrastructure,
processes and people over the past
year will help to position CSAM as a
meaningful participant in the
absolute return fund management
arena. The strategic focus on
absolute return mandates allows CSAM
to build on its current strengths in
offering funds focused on capital
preservation. The establishment and
development of CSAM`s absolute
return capacity is likely to change
the fund and mandate composition
into the future.
The senior management changes made
last year are having a positive
impact on the business and it has
been gratifying to see how the new-
look leadership team has responded
to the opportunities presented to
them. This augurs well for the
future of the business.
TREASURY SHARES
In terms of the approval granted at
the company`s annual general meeting
on 28 May 2004, a subsidiary of
Cadiz purchased 1.6 million shares
at an average price of 316.5 cents
per share between 1 April 2005 and
26 April 2005.
STAFF SHARE OPTIONS
During the period Cadiz awarded 12.8
million share options to staff. The
effective date of issue is 31 March
2005 and the options vest 20% per
year from years three to seven. The
strike price of the options is 305
cents per share, increasing by a
notional interest amount equivalent
to the fringe benefits tax interest
rate less equivalent distributions
per share made by the company.
BASIS OF PRESENTATION
The abridged financial statements
have been prepared in terms of
International Financial Reporting
Standards (`IFRS`) expected to be
applicable at 31 December 2005 and
complies with IAS 34 - Interim
Financial Reporting. These
standards are subject to ongoing
review and may change. The annual
financial statements for the year
ended 31 December 2004 were prepared
in accordance with South African
Statements of Generally Accepted
Accounting Practice (`SA GAAP`). SA
GAAP differs in some areas from
IFRS. In preparing these abridged
financial statements, certain
accounting policy changes,
reclassifications and share-based
payment valuations were applied to
comply with IFRS. The comparative
figures in respect of 2004 were
restated to reflect these
adjustments.
Reconciliations and descriptions of
the effect of the transition from SA
GAAP to IFRS on the group`s assets,
equity and its net profit are
provided below.
TRANSITIONAL ARRANGEMENTS
The group`s financial statements for
the year ending 31 December 2005
will be the first set of annual
financial statements that comply
with IFRS. The group has applied
IFRS 1 (First Time Adoption of
International Financial Reporting
Standards) in preparing these
financial statements.
Cadiz`s transition date is 1 January
2004. The group`s opening IFRS
balance sheet at that date has been
restated to reflect all existing
IFRS statements expected to be
applicable at 31 December 2005. At
transition date IFRS 1 allows a
number of exemptions to this
retrospective application principle
on adoption of IFRS.
Cadiz has taken advantage of the
following optional exemptions from
full retrospective application:
* Business combinations exemption
Cadiz has applied the business
combinations exemption in IFRS 1. It
has therefore not restated business
combinations that took place prior
to the 1 January 2004 transition
date.
* Designation of financial assets
and financial liabilities exemption
The group reclassified various
available-for-sale investments and
trading securities as financial
assets at fair value through profit
and loss. This had no effect on net
profit for the current or prior
periods.
* Share-based payment transaction
exemption
The group has elected to apply the
share-based payment exemption. IFRS
2 (Share-based Payments) requires
that equity instruments granted
under equity-settled awards, are
measured at the fair value of the
equity instruments granted. By
applying the exemption, share
options that were granted before 7
November 2002 or granted after 7
November 2002 but vested before 1
January 2005 are not subject to IFRS
2.
The following new accounting
policies were applied for IFRS
reporting:
* Goodwill
Goodwill represents the excess of
the cost of an acquisition over the
fair value of the group`s share of
the net identifiable assets of the
acquired subsidiary at the date of
acquisition. Goodwill is tested
annually for impairment and carried
at cost less accumulated impairment
losses. Goodwill is allocated to
cash-generating units for the
purpose of impairment testing.
* Impairment of assets
Assets that have an indefinite
useful life are not subject to
amortisation and are tested annually
for impairment and whenever events
or changes in circumstances indicate
that the carrying amount might not
be recoverable. An impairment loss
is recognised for the amount by
which the asset`s carrying amount
exceeds its recoverable amount. The
recoverable amount is the higher of
the asset`s fair value less costs to
sell and value in use. For the
purpose of assessing impairment,
assets are grouped at the lowest
levels for which there are
separately identifiable cash flows
(cash generating units).
* Share-based payments
Share options granted to employees
are subject to service vesting
conditions, and their fair value is
recognised as an employee benefits
expense with a corresponding
increase to share-based payment
reserve in equity over the vesting
period. The expense is adjusted at
the end of each reporting period to
reflect actual and expected levels
of vesting. The proceeds received
net of any directly attributable
transaction costs are credited to
share capital (nominal value) and
share premium when the options are
exercised.
RECONCILIATION BETWEEN IFRS AND SA
GAAP
The following reconciliations
provide a quantification of the
effect of the transition to IFRS.
Reconciliation of assets
R`000 Note 31-Dec- 30-Jun- 01-Jan-
04 04 04
As reported under SA 527,629 512,921 595,222
GAAP
Reclassifications:
Available-for-sale 1 (118,077) (79,064) (82,962)
investments and
trading securities
At fair value through 1 118,077 79,064 82,962
profit and loss
investments and
trading
Securities
Adjustments for:
Goodwill amortisation 2 2,786 1,393 -
reversal
Goodwill impairment 2 (2,452) (1,145) -
Share-based payments 3 - - -
As reported under IFRS 527,963 513,169 595,222
Reconciliation of equity
R`000 Note 31-Dec- 30-Jun- 01-Jan-
04 04 04
As reported under SA 339,641 367,547 325,684
GAAP
Reclassifications:
Available-for-sale 1 - - -
investments and
trading securities
At fair value through 1 - - -
profit and loss
investments and
trading securities
Adjustments for:
Goodwill amortisation 2 2,786 1,393 -
reversal
Goodwill impairment 2 (2,452) (1,145) -
Share-based payments 3 - - -
As reported under IFRS 339,975 367,795 325,684
There were no other changes to the
figures as disclosed in terms of SA
GAAP.
Reconciliation of profit from
ordinary activities
R`000 Note 12 months 6 months
31-Dec-04 30-Jun-04
As reported under SA 78,585 37,348
GAAP
Adjustments for:
Goodwill 2 334 248
Share-based payments 3 (1,229) (601)
As reported under 77,690 36,995
IFRS
Reclassifications of investment and
trading securities from available-
for-sale to at fair value through
profit and loss. These investment
and trading securities were already
measured at fair value under SA GAAP
with unrealised gains and losses
recognised in the income statement.
Goodwill is no longer amortised
under IFRS but a mandatory annual
impairment test now needs to be
performed. A goodwill impairment
test, performed on 1 January 2004,
indicated no impairment was
necessary. However, for the June
2004 and December 2004 reporting
periods, it was necessary to provide
for goodwill impairment.
A share-based payments expense is
recognised for share options issued
to staff after 7 November 2002 and
not vested by 1 January 2005. This
expense was not recognised under SA
GAAP. As this results in a share-
based payments reserve, there is no
impact on the group`s equity.
CHANGES IN FORMAT OF INCOME
STATEMENT AND BALANCE SHEET
Following the transition to IFRS,
the following changes were made to
the format of the income statement
and balance sheet.
Income statement
* Finance costs and interest
received were previously included in
`Net investment income`. These
amounts are now disclosed separately
on the face of the income statement.
Balance sheet
* Ordinary share capital and
premium were previously disclosed
net of treasury shares. Treasury
shares are now disclosed separately
on the face of the balance sheet.
* The `Non-current / Current`
classification was introduced for
the IFRS balance sheet. Previously
the balance sheet was presented in
order of liquidity. This change
resulted in the following items
which were previously disclosed as
one amount now being split between
non-current and current on the face
of the balance sheet:
* Investments and trading
securities
* Receivables and prepayments
* Trade and other payables
AUDIT OPINION ON THE RESTATED
FINANCIAL INFORMATION
This restatement of financial
information for the year ended 31
December 2004 has been audited by
the group`s auditors,
PricewaterhouseCoopers Inc. and
their opinion is available for
inspection at the group`s registered
office. Their report includes an
emphasis of matter that amendments
to the interpretive guidance issued
by the International Accounting
Standards Board, between the date of
this announcement and the
finalisation of the financial
statements for the year ending 31
December 2005, may result in changes
to the restatements published.
On behalf of the board of directors
Colin Hall Ray Cadiz
Chairman Executive Deputy
Chairman
Cape Town
1 August 2005
Registered office
Ground Floor
Fernwood House
The Oval
1 Oakdale Road
Newlands
7700
P O Box 44547
Claremont
7735
www.cadiz.co.za
Directors
C A Hall (Chairman)*
R F G Cadiz (Deputy Chairman)
R Barkai (CEO) (Israeli)
B H Kent*
D M Lawrence*
N S Mjoli-Mncube*
S P Ngwenya*
S J Saunders*
N S Buthelezi* (alternate)
(* Non-executive directors)
Transfer secretaries
Computershare Investor Services 2004
(Pty) Limited
70 Marshall Street
Johannesburg
P O Box 61051
Marshalltown 2107
Sponsor
Investec Bank Limited
Company secretary
F C Shaw
E-mail: fraser.shaw@cadiz.co.za
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