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CDZ
CDZ
Cadiz Holdings Limited - Audited Results For The Year Ended 31 December 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")
AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2005
HIGHLIGHTS
* Headline earnings up 19% to R94.6 million
* Headline earnings per share up 12% to 45.1 cents
* Gross operating revenue up 16% to R234.5 million
* Top rated derivatives house for ninth successive year
* A-rating from Empowerdex for black economic empowerment
GROUP INCOME STATEMENT Audited Audited
12 months 12 months
31-Dec-05 31-Dec-04
R "000 R "000
Gross operating revenue 234,543 202,223
Interest income 16,050 23,721
Net investment income 21,874 17,152
Net income from investments 21,094 25,396
Foreign exchange gains/(losses) 780 (8,244)
Operating expenses (146,059) (123,840)
Operating profit 126,408 119,256
Finance costs (1,662) (13,735)
Profit before taxation 124,746 105,521
Taxation (33,338) (27,831)
Profit for the year 91,408 77,690
Reconciliation of headline
earnings:
Profit for the year 91,408 77,690
Release of foreign currency - (516)
translation reserve on
deregistration of foreign
subsidiary
Goodwill impairment 3,050 2,452
Loss on disposal of equipment 93 -
Headline earnings 94,551 79,626
Issued number of shares ("000) 239,810 239,810
Consolidated number of shares 209,742 208,456
("000)
Weighted average number of shares 209,878 197,208
("000)
Diluted weighted average number of 228,863 213,838
shares ("000)
Earnings per share (cents)
Basic 43.6 39.4
Diluted 39.9 36.3
Headline earnings per share
(cents)
Basic 45.1 40.4
Diluted 41.3 37.2
GROUP BALANCE SHEET Audited Audited
31-Dec-05 31-Dec-04
R "000 R "000
ASSETS
Non - current assets 306,437 247,337
Plant and equipment 7,521 5,398
Goodwill 23,126 23,327
Deferred taxation 19,049 20,077
Financial assets 248,036 187,757
Receivables and prepayments 8,705 10,778
Current assets 284,672 280,626
Financial assets 118,754 120,526
Receivables and prepayments 48,173 116,358
Taxation 4,572 6,741
Cash and cash equivalents 113,173 37,001
Total assets 591,109 527,963
EQUITY
Capital and reserves
Ordinary share capital and premium 82,215 82,215
Treasury shares (49,141) (42,400)
Share-based payment reserve 4,365 1,229
Retained earnings 351,803 298,931
Total equity 389,242 339,975
LIABILITIES
Non - current liabilities 30,776 24,614
Deferred taxation 726 2,591
Trade and other payables 30,050 22,023
Current liabilities 171,091 163,374
Taxation 37,926 15,749
Trade and other payables 121,308 143,740
Trading liabilities 11,857 3,885
Total liabilities 201,867 187,988
Total equity and liabilities 591,109 527,963
Net asset value (cents per share) 186 163
Net tangible asset value (cents 166 144
per share)
ABRIDGED GROUP CASH FLOW STATEMENT Audited Audited
12 months 12 months
31-Dec-05 31-Dec-04
R "000 R "000
Cash flow from operating 116,046 86,308
activities
Cash generated from operations 152,972 109,046
Dividends paid (36,926) (22,738)
Cash flow from investing (31,641) 37,754
activities
Cash flow from financing (8,352) (192,475)
activities
Net change in cash and cash 76,053 (68,413)
equivalents
Effect of exchange rate adjustment 119 (207)
Cash and cash equivalents at 37,001 105,621
beginning of year
Cash and cash equivalents at end 113,173 37,001
of year
ABRIDGED GROUP STATEMENT OF Audited Audited
CHANGES IN EQUITY
12 months 12 months
31-Dec-05 31-Dec-04
R "000 R "000
Share capital and share premium
Opening balance 39,815 81,445
Capital reduction - (66,417)
Sale of treasury shares to Makana - 38,813
Sale of treasury shares on 3,260 5,958
exercise of options
Purchase of treasury shares (10,001) (19,984)
33,074 39,815
Reserves
Opening balance 300,160 244,239
Sale of treasury shares to Makana - 2,327
Sale of treasury shares on (1,610) (2,071)
exercise of options
Employee share option scheme - 3,136 1,229
value of services provided
Release of foreign currency - (516)
translation reserve on
deregistration of foreign
subsidiary
Profit for the year 91,408 77,690
Dividends paid (36,926) (22,738)
356,168 300,160
Total shareholders" funds 389,242 339,975
FINANCIAL PERFORMANCE
Cadiz delivered a solid financial performance
for the year ended 31 December 2005, with
strong contributions from the securities and
asset management businesses as well as a
reversal of the foreign exchange losses
incurred in 2004.
Gross operating revenue for the year increased
by 16% to R234.5 million (2004: R202.2
million).
Interest income declined to R16.1 million
(2004: R23.7 million), which is attributed 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 ratio from 3.0
to 2.0 times profit for the year.
Net investment income increased by 28% to
R21.9 million (2004: R17.2 million), mainly as
a result of the reversal of foreign exchange
losses in the previous year.
Operating expenses were R22.3 million or 18%
higher at R146.1 million (2004: R123.8
million). The major components of the increase
are:
* R10.8 million (8.7%) relating to the
investment in repositioning the asset
management business. R5.5 million of these
costs are non-recurring, while the balance
will impact the cost structure in the future;
* R3.5 million (2.8%) in respect of an
increased impairment of goodwill, expensing
of staff share options, straight-lining of
lease costs and increased corporate social
investment spend; and
* R8.0 million relating to ongoing operating
activities, which represents a 6.5% increase
on the previous year.
The average number of employees during the
year was 111, compared to 101 in 2004.
Cadiz continues to focus on actively managing
its cost base, but will carry on investing for
growth, as was the case in 2005. While there
will inevitably be a lag between the
investment and subsequent revenue growth,
management is confident that the strategy will
ensure a healthy cost-to-income ratio in the
long-term.
Operating profit increased 6% to R126.4
million (2004: R119.3 million).
Finance costs of R1.7 million (2004: R 13.7
million) are 88% lower owing to the redemption
of the convertible debentures in June 2004.
Headline earnings increased 19% to R94.6
million (2004: R79.6 million), while headline
earnings per share grew 12% to 45.1 cents
(2004: 40.4 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 87% (2004: 88%)
of the group"s total revenue of R270.8 million
(2004: R229.4 million).
REVENUE ANALYSIS December 2005 December 2004 change
R"000 % of R"000 % of R"000 %
total total
Securities 103,639 39 87,654 38 15,985 18
Structuring 70,810 26 71,214 31 (404) (1)
Asset management 60,094 22 43,355 19 16,739 39
Gross operating 234,543 87 202,223 88 32,320 16
revenue
Net return on 35,482 13 35,382 15 100 -
investments
Foreign exchange 780 - (8,244) (3) 9,024 -
gains / (losses)
Net investment 36,262 13 27,138 12 9,124 34
portfolio
returns
Gross revenue 270,805 100 229,361 100 41,444 18
SECURITIES
Cadiz Financial Strategists ("CFS"), which
incorporates the securities businesses of
equity derivatives, fixed income, stockbroking
and research, increased revenue by 18% to
R103.6 million (2004: R87.7 million). CFS
continues to be the largest contributor to
group revenue, accounting for 39% of group
revenue.
The collective quantitative skills and
research credentials of CFS has enabled the
company to be at the forefront of the emerging
transition management market in the country,
consulting to retirement funds on the transfer
and restructuring of portfolios or assets.
This new initiative has also boosted revenues.
CFS was again rated as the country"s leading
derivatives research and dealing team for the
ninth year in succession in the annual
Financial Mail analyst rankings. These ratings
are based on a survey of clients in the asset
management industry and Cadiz competes against
the largest global and local financial markets
specialists for these honours. CFS also ranked
number one in Innovative Research (fifth
year), Risk Management Research (fourth year)
and Quantitative Research (third year). There
was also an encouraging improvement in the
rankings for fixed income and equity dealing.
In response to the rapid growth in the hedge
fund market in South Africa, CFS acquired a
team of prime broking specialists in December
2005. Prime brokers function as a one-stop
service to hedge funds, providing services
from administration to execution, clearing,
settlement and custody.
STRUCTURING
Revenue from structuring activities declined
marginally to R70.8 million (2004: R71.2
million) for the period under review and
accounted for 26% of the group"s revenue.
Structuring is a multi-disciplinary business,
which combines several activities within
Cadiz. While this is a less predictable source
of revenue, there has been increasing support
from the corporate market, which has increased
the client base and may lead to a more
sustainable revenue flow. The Cadiz Corporate
Solutions team continues to establish itself
in the BEE structuring market and is gaining
considerable momentum. While the margin
pressure on the established structures could
impact revenue growth, this pressure has been
a catalyst for innovation, which in turn
underpins the long-term sustainability of the
business.
Structuring also includes Cadiz Investment
Products. The team continues to establish
itself in the highly competitive retail
investment space. Although innovation and
performance continue to thrive, the revenue
has been disappointing. Investment Products
entered the unit trust arena for the first
time during the year with the launch of the
Cadiz Equity Ladder Fund and plans to
introduce further unit trust funds designed
for capital protection. This remains a growth
area for Cadiz.
ASSET MANAGEMENT
Asset management increased revenue by 39% to
R60.1 million (2004: R43.4 million) and
contributed 22% of total revenue. Total assets
under management at year-end were R16.5
billion (2004: R14.3 billion).
Cadiz Specialised Asset Management ("CSAM")
undertook a number of initiatives during the
year with the objective of positioning the
business as a major participant in the
absolute return fund management arena in South
Africa. The capability of the investment team
was enhanced by the appointments of Francois
van Wyk as chief investment officer, Dr Linda
Smit as head of fixed income investments and
Peter Major as senior portfolio manager.
Hedge funds continue to attract increasing
interest from investors. The Cadiz Sapphire
Fund, a long/short domestic equity fund,
experienced strong inflows and grew assets
from R225 million to R443 million. The fund
was closed to new investors when assets
reached R400 million. CSAM has expanded its
hedge fund offering into further asset classes
with the launch of a fixed income hedge fund,
which had committed assets of R85 million at
year-end.
Despite the buoyant equity markets over the
past year, competition in the asset management
industry continues to intensify. This includes
several new entrants into the market as well
as further pressure on already tight margins.
CSAM has continued to negotiate performance-
based fees as a means of offsetting the impact
of lower fixed fees.
INVESTMENTS AND CAPITAL
At 31 December 2005, Cadiz had accumulated
capital of R389.2 million. Following the R66.4
million capital reduction in 2004 and the
reduction of the level of dividend cover, the
group has continued to adopt a proactive
approach to capital management.
As the group"s strategy is to focus primarily
on organic growth, R70 million of capital has
been applied to seeding growth initiatives in
the asset management area, including new hedge
funds. The group continues to explore new
opportunities for expansion locally, in Africa
and offshore.
In line with the strategy of currency
diversification, foreign currency investments
represent 23.1% of group capital.
The investment portfolio, which comprises
interest income and net investment income
after the deduction of finance costs, yielded
a pre-tax return of 9%. The directors consider
this to be satisfactory considering the low-
risk nature of the investments and the
relative strength of the Rand.
CHANGES TO BOARD OF DIRECTORS
On 1 August 2005, Ray Cadiz, co-founder of the
group and chief executive for 12 years, was
appointed executive deputy chairman of Cadiz.
Ram Barkai, who was previously deputy chief
executive, was promoted to chief executive and
appointed to the board of directors. Ram
assumed all operational responsibilities
previously held by Ray.
STRATEGY AND PROSPECTS
Following the leadership changes during the
year, management has invested considerable
time in developing the group"s long-term
strategy. This included an evaluation of the
group"s growth potential in its current market
niche.
Cadiz will continue to be positioned as a
specialised financial services company,
targeting the medium-sized space between the
large banking groups and the small,
specialised boutiques and asset management
companies. The focus will remain on long-term
growth, creation of value and sustainability
of earnings for shareholders.
While the overall group focus and business
model remains unchanged, with a continued
focus on growth the strategy has been revised
to stand on and build around four pillars:
Explore, Differentiate, Focus and Thrive.
The group plans to actively seek opportunities
to use its growing capital base more
efficiently. This will include exploring
opportunities within Africa and developing a
hard currency earnings base. The group favours
organic growth. However, acquisitions will
also be considered as a means of penetrating
new markets and accelerating the growth of
existing businesses.
At the same time, the group will continue
promoting the asset management business as a
growth area and will actively seek and pursue
opportunities to add value to the empowerment
landscape in South Africa.
Cadiz"s businesses are mostly uncorrelated to
market performance. Various businesses benefit
more from innovation and increased market
volatility and liquidity. Therefore, although
the group has not benefited from last year"s
market run to the same extent as other
financial services players, it is less likely
to be affected by declining markets.
Cadiz remains a challenging and unique place
for talented people, and promotes an
environment of equality with respect to
background, gender and culture.
BLACK ECONOMIC EMPOWERMENT
Cadiz remains committed to meaningful
transformation at all levels in the business
and has been awarded an A-rating by
Empowerdex, an independent economic
empowerment rating agency.
Cadiz"s relationship with our empowerment
partners, Makana, is strong and positive. The
co-operation between the parties extends
across all the group"s activities and Cadiz
intends to further strengthen and entrench
these relationships.
TREASURY SHARES
The share trusts purchased 2.8 million shares
between 1 April 2005 and 21 December 2005 for
an average price of 358.1 cents per share for
pre-identified participants. These are now
held as treasury shares.
STAFF SHARE OPTIONS
During the year Cadiz awarded 20.3 million
share options to current and newly-appointed
staff. The effective dates of issue were
between 31 March 2005 and 1 December 2005. The
options vest at 20% per year from years three
to seven. The strike price of the options is
between 305 and 400 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"). The group is
reporting under IFRS for the first time for
the year ended 31 December 2005. 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. A reconciliation
and description of the effect of the
transition from SA GAAP to IFRS on the group"s
assets, equity and its net profit were
disclosed on 1 August 2005 when the interim
results were released.
AUDIT REPORT
The results for the year have been audited by
the group"s auditors, PricewaterhouseCoopers
Inc. and their unqualified audit report on the
31 December 2005 annual financial statements
and the abridged financial statements
contained herein, is available for inspection
at the company"s registered office.
DIVIDEND AND DISTRIBUTION IN LIEU OF DIVIDEND
Notice is hereby given of a distribution of
20.0 cents per ordinary share comprising a
dividend of 8.0 cents per ordinary share, and
a distribution of 12.0 cents per ordinary
share payable out of share premium in lieu of
a final dividend for the year ended 31
December 2005, in terms of the resolution
approved by the shareholders at the annual
general meeting held on Thursday 26 May 2005.
Last date to trade cum distribution:
Friday, 31 March 2006
Trading commences ex distribution:
Monday, 3 April 2006
Record date:
Friday, 7 April 2006
Payment date:
Monday, 10 April 2006
Share certificates may not be dematerialised
or rematerialised between Monday, 3 April 2006
and Friday 7 April 2006, both dates inclusive.
In terms of the requirements of the Companies
Act, the directors confirm that after the
payment of the distribution, the company will
be able to pay its debts as they become due in
the ordinary course of business, and the
company and the group"s assets fairly valued
exceed its liabilities.
On behalf of the board of directors
Colin Hall Ram Barkai
Chairman Chief
Executive Officer
Cape Town
13 March 2006
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 (Chief Executive Officer) (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
Date: 13/03/2006 08:00:12 AM Produced by the JSE SENS Department
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