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JSE FCPD
FCPD
Foord - Interim report to debenture holders: six months ended 30 June 2006
FOORD COMPASS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1987/003591/06)
JSE code: FCPD & ISIN: ZAE000054466
("the company")
INTERIM REPORT TO DEBENTURE HOLDERS FOR THE SIX MONTHS ENDED 30 JUNE 2006
The directors hereby report on the unaudited results of the group for the six
months ended 30 June 2006.
GROUP BALANCE SHEET Notes Unaudited Unaudited Audited
at 30 June 2006 30 June 2006 30 June 2005 31 Dec 2005
R"000 R"000 R"000
ASSETS
Non-current assets
Long-term investments 223,514 114,431 143,197
Current assets
Net trading investments 2 285,551 103,312 43,139
Trade receivables 16,633 8,032 77,926
Cash 62,793 9,480 53,679
364,977 120,824 174,744
Total assets 588,491 235,255 317,941
EQUITY AND LIABILITIES
Capital and reserves
Ordinary share capital 88 88 88
Accumulated profits 14,147 5,918 14,040
14,235 6,006 14,128
Non-current liabilities
Unsecured debentures 3 545,051 216,714 269,314
Current liabilities
Accounts payable 4,276 709 13,999
Debenture interest 24,929 11,826 20,500
payable
29,205 12,535 34,499
Total equity and 588,491 235,255 317,941
liabilities
Number of debentures in 75,543,777 39,419,774 39,419,774
issue
Number of ordinary 8,800,070 8,800,070 8,800,070
shares in issue
Cents Cents Cents
Net attributable asset 721.504 549.760 683.194
value per debenture (ex
interest)
Net attributable asset 754.504 579.760 735.197
value per debenture (cum
interest)
Net attributable asset 161.760 68.249 160.544
value per ordinary share
GROUP INCOME STATEMENT Notes Unaudited Unaudited Audited
for the six months ended 6 months to 6 months to Year ended
30 June 2006
30 June 2006 30 June 2005 31 Dec 2005
R"000 R"000 R"000
Investment income 20,534 7,287 18,686
Realised trading profits 15,291 7,983 32,883
Administration (6,884) (2,117) (15,652)
expenditure
Net distributable profit 28,941 13,153 35,917
Unrealised trading (1,816) 1,710 20,894
(losses) profits
Realised profits on sale 6,927 - 4,599
of long-term investments
Revaluation of long-term 25,334 16,409 51,084
investments
Net portfolio income 59,386 31,272 112,494
before debenture
interest
Debenture interest (24,929) (11,826) (32,326)
Revaluation of unsecured 3 (28,518) (16,319) (68,919)
debentures
Profit before taxation 5,939 3,127 11,249
Taxation expense 4 (112) - -
Profit for the period 5,827 3,127 11,249
Cents Cents Cents
Debenture interest per 33.000 30.000 82.003
debenture
Earnings per debenture 70.750 71.398 256.838
Earnings per ordinary 66.215 35.534 127.829
share
Headline earnings per 66.215 35.534 127.829
ordinary share
Dividends per ordinary 65.000 47.000 47.000
share
GROUP STATEMENT OF CHANGES IN EQUITY
for the six months ended 30
June 2006
Ordinary share Accumulated Total
capital profits
R"000 R"000 R"000
Balance at 1 January 2005 88 6,927 7,015
Dividends - (4,136) (4,136)
Profit for the year - 11,249 11,249
Balance at 31 December 2005 88 14,040 14,128
Dividends - (5,720) (5,720)
Profit for the period - 5,827 5,827
Balance at 30 June 2006 88 14,147 14,235
Balance at 1 January 2005 88 6,927 7,015
Dividends - (4,136) (4,136)
Profit for the period - 3,127 3,127
Balance at 30 June 2005 88 5,918 6,006
GROUP CASH FLOW STATEMENT
for the six months ended 30
June 2006
Unaudited Unaudited Audited
6 months to 30 6 months to Year ended
June 2006 30 June 2005 31 Dec 2005
R"000 R"000 R"000
Net distributable profit 28,941 13,153 35,917
Debenture interest paid (20,500) (19,445) (31,271)
Dividends paid (5,720) (4,136) (4,136)
Secondary tax on companies (112) - -
paid
Net change in trading (244,228) 14,750 94,107
investments
Change in working capital 51,570 (8,057) (64,661)
Net cash (used in) from (190,049) (3,735) 29,956
operating activities
Net cash (used in) from (48,056) (4,682) 5,826
investing activities
Net cash from issue of 247,219 - -
debentures
Net increase (decrease) in 9,114 (8,417) 35,782
cash resources
Cash resources at beginning of 53,679 17,897 17,897
period
Cash resources at end of 62,793 9,480 53,679
period
NOTES TO INTERIM FINANCIAL STATEMENTS
1. Accounting policies
The financial statements are prepared in accordance with International Financial
Reporting Standards ("IFRS"). The principal 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 2005.
2. Net trading investments Unaudited Unaudited Audited
30 June 2006 30 June 2005 31 Dec 2005
R"000 R"000 R"000
Gross long positions 312,871 103,312 118,473
Gross short positions (27,320) - (75,334)
Net trading investments 285,551 103,312 43,139
3. Unsecured debentures
Unaudited Unaudited Audited
30 June 2006 30 June 2005 31 Dec 2005
Unsecured debentures comprise R"000 R"000 R"000
Debenture capital 427,780 180,561 180,561
Undistributed share of reserves 117,271 36,153 88,753
Fair value of unsecured 545,051 216,714 269,314
debentures
Reconciliation of balance
Balance at beginning of period 269,314 200,395 200,395
Net proceeds on issue of 247,219 - -
debentures
Revaluation as per income 28,518 16,319 68,919
statement
Balance at end of period 545,051 216,714 269,314
Revaluation of unsecured
debentures
Net portfolio income before 59,386 31,272 112,494
debenture interest
90% allocation to debenture 53,447 28,145 101,245
holders
Less: interest distribution (24,929) (11,826) (32,326)
Retained debenture earnings 28,518 16,319 68,919
credited to carrying value of
debentures
4. Taxation
The taxation expense relates to secondary tax on companies paid in respect of
the dividend declared in January 2006.
The group and company have an estimated taxation loss for normal taxation
purposes of R15 347 000 at 30 June 2006 (30 June 2005: R22 116 000) which is
available to be set off against future taxable income. The estimated future
benefit at current taxation rates amounts to R4 450 630 at 30 June 2006 (30 June
2005: R6 413 640). During the period, the group and company utilised the
capital gains taxation loss of R3 678 000 reported as at 31 December
2005(estimated capital gains taxation loss at 30 June 2005: R7 297 380).
RESULTS AND ASSESSMENT FOR THE SIX MONTHS TO 30 JUNE 2006
Debentures earned the following returns for the period:
Unaudited Unaudited Audited
6 months to 6 months to Year ended
30 June 2006 30 June 2005 31 Dec 2005
Total return to debenture
holders
Income 4.8% 5.9% 16.1%
Capital 5.5% 8.1% 34.4%
Total return * 10.4% 14.0% 50.5%
* Calculated on opening net attributable asset values
Despite a volatile second quarter to the year, the directors are pleased to
announce an interim interest distribution of 33.000 cents per debenture. The
10% increase in the interim distribution was achieved despite difficult market
conditions locally from mid-May as a result of emerging market concerns. The
distribution brings the income yield on the debentures to 4.8% for the half
year. As the board anticipated at the last year-end and was communicated in the
annual report, the capital growth of the debentures has exceeded the income
return for the period. The capital growth of 5.5% for the half year brings the
total return after expenses on the debentures for the six month period to 10.4%.
This return is ahead of the benchmark return of CPI + 10% per annum (lagged by
one month) of 7.4% over the same period.
Investors should be mindful of the effects the debenture issues in January of
this year had on these returns. The company received R240 million cash on 9
January 2006 ahead of the allotment and issue of 35.1 million debentures on 30
January 2006. On the election of debenture holders, a further 1 million
debentures were issued to part-settle the interest distribution liability on 6
February 2006. This cash effectively doubled the size of the portfolio and
resulted in some cash drag during a quarter when the market returned over 13%.
The portfolio manager took advantage of the June dip to accumulate additional
equities for the portfolios. New holdings were established in the long-term
portfolio, the details of which will be reported on at the financial year-end.
At the half-year, the portfolio was almost equally apportioned between long-term
and trading portfolios. The asset allocation as at 30 June is set out below.
30 June 2006 31 Dec 2005
Equities (net position) 67% 44%
Listed property 18% 35%
Fixed interest 2% -20%
Cash 13% 41%
100% 100%
The short bond positions held at the financial year end were covered and profits
taken during June after the SARB raised rates (due to excessive credit creation
and, as subsequently emerged, the consequences of the burgeoning current account
deficit). Out of the money put options on R153"s were purchased in May and had
moved deep into the money by mid-year. At 30 June, the portfolio had effective
short exposure to bonds of 49% of the combined portfolios.
The asset allocation reflects the manager"s belief that selected domestic
equities are still offering value. The economy overall should benefit from a
weaker currency, with an improved outlook for exports and manufacturing. The
government remains committed to major infrastructure projects, which should
ensure that the economy will grow in excess of 3% per annum over the medium
term. The investment manager still believes that listed property should
outperform bonds, as commercial property rentals rise in response to a
tightening in available space. On the whole, equity valuations remain
attractive, and are supported by strong expected earnings growth. Nevertheless,
foreign investor sentiment remains of paramount importance in the medium term.
Since the current absolute return investment strategy was implemented in early
2002, the company has achieved a total return after expenses of 26.9% per year
for debenture holders on an annualised basis against a benchmark return of
14.9%. The company remains on track to achieving its five year total return
objective of between 20% and 30% per annum on an annualised basis, and thereby
building significant wealth for debenture holders.
INTEREST DECLARATION
Notice is hereby given that a debenture interest payment (number 38) of 33.000
cents per debenture in respect of the six months ended 30 June 2006 is payable
to debenture holders recorded in the books 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 Thursday, 3 August 2006. The debentures will commence
trading ex the interest payment on Friday, 4 August 2006 and the record date
will be Friday, 11 August 2006. The interest will be paid on Monday, 14 August
2006. Debenture certificates may not be dematerialised or rematerialised
between Friday, 4 August 2006 and Friday, 11 August 2006, both days inclusive.
Signed on behalf of the board
CLR HIRSCHSOHN D FOORD
19 July 2006
Directors: CLR HIRSCHSOHN (Chairman), D FOORD*, JC GREYLING, MO HODGES*, DA
MOIR * British
Company secretary: PE CLUER
Date: 19/07/2006 05:26:14 PM Produced by the JSE SENS Department
