| Thu 12 Jan 2006, 17:38 | | Foord Compass Limited - Preliminary Report To Debe |
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JSE FCPD
FCPD
Foord Compass Limited - Preliminary Report To Debenture Holders For The Year
Ended 31 December 2005 and interest payment declaration
and election
Foord Compass Limited
(Incorporated in the Republic of South Africa)
(Registration number 1987/003591/06)
JSE code: FCPD ISIN: ZAE000054466
("the company")
PRELIMINARY REPORT TO DEBENTURE HOLDERS FOR THE YEAR ENDED 31 DECEMBER 2005
The directors hereby report on the results of the group for the year ended 31
December 2005. These results have been reviewed by our auditors, Deloitte &
Touche, whose unqualified review opinion is available for inspection at the
registered office of the company.
GROUP BALANCE SHEET
at 31 December 2005
Note Reviewed Audited
2005 2004
R"000 R"000
ASSETS
Non-current assets
Long-term investments 143 197 93 340
Current assets
Net trading investments 2 43 139 116 352
Trade receivables 77 926 2 140
Cash and cash equivalents 53 679 17 897
174 744 136 389
Total assets 317 941 229 729
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital 88 88
Accumulated profits 14 040 6 927
14 128 7 015
Long-term liabilities
Unsecured debentures 4 269 314 200 395
Current liabilities
Accounts payable 13 999 2 874
Debenture interest payable 20 500 19 445
34 499 22 319
Total equity and liabilities 317 941 229 729
Cents Cents
Net attributable asset value per 160.544 79.715
ordinary share
Net attributable asset value per 683.194 508.362
debenture (ex interest)
Net attributable asset value per 735.197 557.690
debenture (cum interest)
GROUP INCOME STATEMENT
for the year ended 31 December 2005 Notes Reviewed Audited
2005 2004
R"000 R"000
Investment income 18 686 13 545
Realised trading profits 32 883 24 475
Administration expenditure (15 652) (5 465)
Net distributable profit 35 917 32 555
Unrealised trading profits 20 894 7 554
Realised profits (losses) on sale of 4 599 (4 875)
long-term investments
Revaluation of long-term investments 51 084 8 155
Net portfolio income before debenture 112 494 43 389
interest
Debenture interest (32 326) (29 300)
Revaluation of unsecured debentures 4 (68 919) (9 750)
Profit before taxation 11 249 4 339
Taxation 3 - -
Profit after taxation 11 249 4 339
Cents Cents
Debenture interest per debenture 82.003 74.328
Earnings per debenture 256.838 99.062
Earnings per ordinary share 127.829 49.306
Headline earnings per ordinary share 127.829 49.306
GROUP STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2005 Ordinary Accumulate Total
share d profits
capital
R"000 R"000 R"000
Balance at 31 December 2003 88 4 788 4 876
Dividends - (2 200) (2 200)
Profit after taxation for year - 4 339 4 339
Balance at 31 December 2004 88 6 927 7 015
Dividends - (4 136) (4 136)
Profit after taxation for year - 11 249 11 249
Balance at 31 December 2005 88 14 040 14 128
GROUP CASH FLOW STATEMENT
for the year ended 31 December 2005 Reviewed Audited
2005 2004
R"000 R"000
Net distributable profit 35 917 32 555
Debenture interest paid (31 271) (26 425)
Dividends paid (4 136) (2 200)
Change in net trading investments 94 107 (72 038)
Change in working capital (64 661) 31 017
Net cash inflow (outflow) from 29 956 (37 091)
operating activities
Net cash inflow from investing 5 826 835
activities
Net cash inflow from financing - -
activities
Net increase (decrease) in cash 35 782 (36 256)
resources
Cash resources at beginning of year 17 897 54 153
Cash resources at end of year 53 679 17 897
NOTES TO THE PRELIMINARY REPORT
1. Accounting policies
The financial statements for the year ended 31 December 2004 were prepared in
accordance with South African Statements of Generally Accepted Accounting
Practice ("SA GAAP"). In compliance with the Listings Requirements of JSE
Limited, the company now reports in terms of International Financial Reporting
Standards ("IFRS") from 1 January 2005. The accounting policies used in the
preparation of these financial statements in terms of IFRS are consistent with
those applied for the year ended 31 December 2004 in terms of SA GAAP.
Accordingly there has been no impact on the opening financial position of the
company and there is no requirement to restate comparatives.
2. Net trading investments Reviewed Audited
2005 2004
R"000 R"000
Gross long positions 118 473 116 352
Gross short positions (75 334) -
Net trading investments 43 139 116 352
3. Taxation
The group and company have an estimated taxation loss for normal taxation
purposes of R19 957 000 at 31 December 2005 (2004: R23 284 000), which is
available to be set off against future taxable income. The estimated future
benefit at current taxation rates amounts to R5 787 530 at 31 December 2005.
The group and company have an estimated capital gains taxation loss for capital
gains taxation purposes of R3 678 000 at year-end (2004: R8 277 000), which is
available to be set off against future taxable capital gains. The estimated
future benefit at current taxation rates amounts to R533 310 at 31 December
2005.
4. Unsecured debentures Reviewed Audited
2005 2004
Number of issued debentures 39 419 774 39 419 774
Unsecured debentures comprise R"000 R"000
Debenture capital 180 561 180 561
Undistributed share of reserves 88 753 19 834
Fair value of unsecured debentures 269 314 200 395
Reconciliation of balance
Balance at beginning of year 200 395 190 645
Revaluation as per income statement 68 919 9 750
Balance at end of year 269 314 200 395
Revaluation of unsecured debentures
Net portfolio income before debenture 112 494 43 389
interest
Allocated as follows:
- 10% to ordinary shareholders 11 249 4 339
- 90% to debenture holders 101 245 39 050
Less: interest distribution for year (32 326) (29 300)
Retained debenture earnings credited to 68 919 9 750
carrying value of debentures
RESULTS FOR THE YEAR TO 31 DECEMBER 2005
Your directors are pleased to report that a final distribution of 52.003 cents
per debenture has been declared. This, together with the interim distribution
of 30 cents, brings the total interest distribution for the financial year to
82.003 cents. This is an increase of 10.3% over the 74.328 cents distribution
for 2004.
PERFORMANCE ASSESSMENT
Debentures earned the following returns for the
year:
2005 2004
Income 16.1% 15.4%
Capital 34.4% 5.1%
Total return* 50.5% 20.5%
* Calculated on opening net attributable asset values
The total return earned on the debentures for 2005 was 50.5%, which is a
significant achievement in many respects. It is well ahead of the investment
target of 20 - 30% total return on a rolling five-year basis (32% per annum
achieved over the last four years since inception). It is also substantially
ahead of the CPI + 10% investment objective and, perhaps surprisingly, it has
beaten the FTSE/JSE All Share Index.
It is pleasing that nearly 70% of the total return is attributable to growth in
the capital value of the debentures, which is retained for future growth and
stability of the income distribution. For its long-term success, the company
needs years like this one, where the capital growth exceeds the income growth.
The growth this year has been achieved principally due to correct asset
allocation decisions made throughout the year, with an especially high weighting
in property (one of the best performing sectors on the JSE) and a high exposure
to equities in general, while retaining a low to negative exposure to the bond
market. Major gains were also made by investing in the right shares at the
market dips in April and October. Specific share selection decisions also added
valuable alpha to the overall return.
The Annual Report of the company is expected to be published towards the end of
February 2006, with additional commentary on investment performance and outlook.
EFFECTIVE EXPOSURE
Effective exposure modifies the relative value of investments and cash (shown in
the balance sheet) by exposure to derivatives contracts (futures and options) in
respect of the individual asset classes expressed as a percentage of total
assets.
The effective exposure of the portfolio at 31 December 2005 was as follows:
2005 2004
Equities 44% 42%
Listed property 35% 51%
Bonds -20% 7%
Cash 41% 9%
Notional derivatives liability 0% -9%
100% 100%
CORPORATE INVESTMENT STRATEGY
Foord Compass set itself the investment objective in 2001 of achieving a total
return of 10% per annum above the SA CPI, on a rolling five year basis. In
2003, this objective was also expressed by targeting a total return on invested
capital of 20-30% per annum, on a rolling five year basis. These objectives
have not changed and remain the target for the future. So far this has been
achieved with a total return of 32.1% per annum since 1 January 2002 (before tax
and expenses; 27.3% net of expenses), while the SA CPI has been at 5.0% per
annum.
The focus is on achieving the targeted returns in the long term and on the total
return achieved, bearing in mind that debenture holders are entitled to receive
90% of the realised income as an interest distribution.
The total return achieved comprises interest payable (distributed) and capital
growth (retained) in the investment portfolio. It is important that our long
term investment strategy address both of these components of total return. We
have stated in the past (and repeat here) that interest distributions are likely
to grow more slowly than capital in future so that the capital base may be
expanded. This strategy should in the long term bring more security to the
regularity and level of the interest distributions to debenture holders.
However, investors should be aware that it is possible for the interest
distribution to decline in any given year.
The original long-term guidance on the allocation of assets between long-term
and trading portfolios was that long-term assets should comprise between 50% and
75% of the total portfolio. The portfolio manager has over the year increased
the strategic allocation of long-term assets to approximately 50% of the total
portfolio (up from 45% at 31 December 2004), while endeavouring to meet the
often-conflicting growth requirements of income and capital.
ISSUE OF DEBENTURES FOR CASH
The directors are pleased to announce that the company has, in terms of the
Debenture Trust Deed, placed debentures to the value of R240 million with
selected institutional investors ("the cash issue"). The cash issue debentures
will be issued at the audited ex-interest net attributable asset value
determined as at 31 December 2005. The cash issue debentures will not
participate in interest distribution number 37, and accordingly the distribution
to existing debenture holders will not be diluted.
The financial effects of the cash issue will be to:
- increase the carrying value of the debentures to R509.3 million; and
- increase the number of debentures in issue to 74,548,888.
The ex-interest net attributable asset value per debenture as at 31 December
2005 as adjusted for the cash issue will remain unchanged at 683.194 cents. The
cash issue is subject to the listing of the cash issue debentures by the
JSE Limited ("the JSE") and application will be made for the cash issue
debentures to be listed on the JSE on 30 January 2006.
The proceeds raised by the cash issue will be utilised within the framework of
the long-term investment strategy of the company, and may be applied to both the
long-term and trading portfolios. Additions to the long-term portfolio will
continue to be minuted and approved by the board of directors. The board
welcomes this opportunity to broaden the debenture holder spread and to improve
the liquidity in the counter.
INTEREST DECLARATION PAYMENT AND ELECTION
Notice is hereby given that a debenture interest payment (number 37) of 52.003
cents per debenture in respect of the six months ended 31 December 2005 is
payable to debenture holders recorded in the debenture register of the company
on the record date. The last day to trade in the debentures for purposes of
entitlement to the interest payment will be Friday, 27 January 2006. The
debentures will commence trading ex the interest payment on Monday, 30 January
2006 and the record date will be Friday, 3 February 2006. The interest will be
payable on Monday, 6 February 2006. Debenture certificates may not be
dematerialised or rematerialised between Monday, 30 January 2006 and Friday, 3
February 2006, both days inclusive.
IMPORTANT: ELECTION TO RECEIVE A CASH INTEREST PAYMENT
As provided for in section 6.4 of the Debenture Trust Deed, the board has
resolved that the debenture interest payment will be settled by the issue of
debentures to debenture holders recorded in the debenture register at the close
of business on the record date ("the interest debentures").
The motivation for this decision is to retain cash and build capital for
debenture holders.
Debenture holders may, however, elect to receive a cash interest payment instead
of the interest debentures ("the cash election"). The tax implications of the
settlement of the debenture interest payment by the issue of interest 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 the cash interest
payment in respect of all or a part of their debenture holding, 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, 3 February 2006. Dematerialised debenture holders who wish to elect to
receive the cash interest payment in respect of all or a part of their debenture
holding must, in terms of the agreement between themselves and their CSDP or
broker, instruct their CSDP or broker accordingly.
If the cash election is not made by dematerialised debenture holders by the cut-
off time stipulated by their CSDP or broker, or by 12:00 on Friday, 3 February
2006 in the case of certificated debenture holders, debenture holders will be
deemed to have elected to receive new fully paid Foord Compass Limited Variable
Rate debentures. As indicated above, the last day to trade in the company"s
debentures on the JSE to ensure a purchaser appears as an owner on the record
date will be Friday, 27 January 2006. The number of interest debentures to be
issued ("the ratio") will be determined with reference to the weighted average
traded price of the debentures on the JSE for the five trading days ending at
the close of business on Thursday, 19 January 2006, less the interest
distribution of 52.003 cents. Debenture holders will be notified of the ratio
on the finalisation date, being Friday, 20 January 2006. Only rounded numbers
of interest debentures will be issued based on conventional rounding principles.
No fractions will be paid. The right to receive interest debentures may not be
traded on the JSE.
Subject to JSE approval of the cash election, application will be made to the
JSE Limited for the maximum number of interest debentures to be issued with
effect from the commencement of business on Monday, 30 January 2006. An
adjustment to the number of interest debentures listed will be made on or about
Tuesday, 7 February 2006 in accordance with the actual number of interest
debentures issued having regard to the cash elections made.
Cheques and/or new debenture certificates will be posted by registered post to
certificated debenture holders and the safe custody accounts updated and/or
credited by CSDPs or brokers of dematerialised debenture holders on or about
Monday, 6 February 2006.
Signed on behalf of the board
CLR HIRSCHSOHN D FOORD
12 January 2006
Directors: CLR HIRSCHSOHN (Chairman), D FOORD*, JC GREYLING, MO HODGES*, DA
MOIR * British
Company secretary: PE CLUER
Date: 12/01/2006 05:38:36 PM Produced by the JSE SENS Department
