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CDZ
CDZ
Cadiz - Unaudited Interim Results For The Six Months Ended 30 June 2006
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")
HIGHLIGHTS
* Headline earnings up 18% to R63.4 million
* Diluted headline earnings per share up 19% to 27.8 cents
* Asset management revenue up 40%
* Top rated derivatives house for the tenth successive year
GROUP INCOME STATEMENT Unaudited Unaudited Audited
6 months 6 months 12 months
30-Jun-06 30-Jun-05 31-Dec-05
R "000 R "000 R "000
Gross operating revenue 125 178 123 225 234 543
Interest income 7 702 5 828 16 050
Net investment income 27 765 12 553 21 874
Net income from 9 148 5 082 21 094
investments
Foreign exchange gains 18 617 7 471 780
Operating expenses (79 041) (71 000) (146 059)
Operating profit 81 604 70 606 126 408
Finance costs (695) (894) (1 662)
Profit before taxation 80 909 69 712 124 746
Taxation (18 961) (17 541) (33 338)
Profit for the period 61 948 52 171 91 408
Reconciliation of
headline earnings:
Profit for the period 61 948 52 171 91 408
Goodwill impairment 1 493 1 362 3 050
Loss on disposal of - 65 93
equipment
Headline earnings 63 441 53 598 94 551
Issued number of shares 239 810 239 810 239 810
("000)
Consolidated number of 209 229 209 906 209 742
shares ("000)
Weighted average number 209 905 209 569 209 878
of shares ("000)
Diluted weighted 228 505 228 706 228 863
average number of
shares ("000)
Earnings per share
(cents)
Basic 29.5 24.9 43.6
Diluted 27.1 22.8 39.9
Headline earnings per
share (cents)
Basic 30.2 25.6 45.1
Diluted 27.8 23.4 41.3
GROUP BALANCE SHEET Unaudited Unaudited Audited
30-Jun-06 30-Jun-05 31-Dec-05
R "000 R "000 R "000
ASSETS
Non - current assets 227 171 249 475 306 437
Plant and equipment 6 928 5 008 7 521
Intangible assets 23 396 21 964 23 126
Deferred taxation 17 196 19 844 19 049
Financial assets 174 069 192 532 248 036
Receivables and 5 582 10 127 8 705
prepayments
Current assets 340 896 271 773 284 672
Financial assets 155 861 119 634 118 754
Receivables and 95 096 91 709 48 173
prepayments
Taxation 314 5 477 4 572
Cash and cash 89 625 54 953 113 173
equivalents
Total assets 568 067 521 248 591 109
EQUITY
Capital and reserves
Ordinary share capital 53 438 82 215 82 215
and premium
Treasury shares (77 054) (43 377) (49 141)
Share-based payment 7 128 2 318 4 365
reserve
Retained earnings 390 481 311 886 351 803
Total equity 373 993 353 042 389 242
LIABILITIES
Non - current 22 908 14 799 30 776
liabilities
Deferred taxation 5 175 2 546 726
Trade and other 17 733 12 253 30 050
payables
Current liabilities 171 166 153 407 171 091
Taxation 15 727 15 987 37 926
Trade and other 147 269 127 392 121 308
payables
Trading liabilities 8 170 10 028 11 857
Total liabilities 194 074 168 206 201 867
Total equity and 568 067 521 248 591 109
liabilities
Net asset value (cents 179 168 186
per share)
Net tangible asset 162 149 166
value (cents per share)
ABRIDGED GROUP CASH Unaudited Unaudited Audited
FLOW STATEMENT
6 months 6 months 12 months
30-Jun-06 30-Jun-05 31-Dec-05
R "000 R "000 R "000
Cash flow from (12 223) 4 390 116 046
operating activities
Cash generated from 34 961 57 575 160 880
operations
Taxation paid (30 224) (16 259) (7 908)
Dividends paid (16 960) (36 926) (36 926)
Cash flow from 51 281 16 675 (31 641)
investing activities
Cash flow from (63 000) (3 267) (8 352)
financing activities
Net change in cash and (23 942) 17 798 76 053
cash equivalents
Effect of exchange rate 394 154 119
adjustment
Cash and cash 113 173 37 001 37 001
equivalents at
beginning of period
Cash and cash 89 625 54 953 113 173
equivalents at end of
period
ABRIDGED GROUP Unaudited Unaudited Audited
STATEMENT OF CHANGES IN
EQUITY
6 months 6 months 12 months
30-Jun-06 30-Jun-05 31-Dec-05
R "000 R "000 R "000
Share capital, share
premium and treasury
shares
Opening balance 33 074 39 815 39 815
Capital reduction (25 439) - -
Sale of treasury shares 7 243 3 940 3 260
on exercise of options
Purchase of treasury (38 494) (4 917) (10 001)
shares
(23 616) 38 838 33 074
Reserves
Opening balance 356 168 300 160 300 160
Sale of treasury shares (6 310) (2 290) (1 610)
on exercise of options
Employee share option 2 763 1 089 3 136
scheme - value of
services provided
Profit for the period 61 948 52 171 91 408
Dividends paid (16 960) (36 926) (36 926)
397 609 314 204 356 168
Total shareholders" 373 993 353 042 389 242
funds
FINANCIAL PERFORMANCE
Cadiz produced another solid
financial performance for the six
months ended 30 June 2006 after
the slowdown in the second half of
2005, boosted by foreign exchange
gains and a continued strong
performance from the asset
management business.
Gross operating revenue increased
by 2% to R125.2 million (2005:
R123.2 million).
Interest income increased by 32%
to R7.7 million (2005: R5.8
million) as a result of the
increased average cash holding for
the period.
Net investment income increased by
121% to R27.8 million (2005: R12.6
million), attributable largely to:
* R18.6 million of foreign
exchange gains on the group"s
offshore investment portfolio of
R112.2 million; and
* R5.4 million mark-to-market
gains on the shares held by the
group in JSE Limited.
Operating expenses were R8.0
million or 11.3% higher at R79.0
million (2005: R71.0 million). The
major components of the increase
are:
* R6.3 million (8.9%) relating to
operating activities, including
the ongoing impact of the
repositioning of the asset
management business and the
recently established prime broking
business; and
* R1.7 million (2.4%) for the
expensing of staff options.
The average number of employees
during the period was 115, up 4.5%
compared to 110 in 2005.
Operating profit increased 15.6%
to R81.6 million (2005: R70.6
million).
Headline earnings increased 18% to
R63.4 million (2005: R53.6
million), while diluted headline
earnings per share grew 19% to
27.8 cents (2005: 23.4 cents).
OPERATIONAL REVIEW
Operating activities generated 78%
(2005: 88%) of the group"s total
revenue of R160.0 million (2005:
R140.7 million).
REVENUE June 2006 June 2005 Change
ANALYSIS
R"000 % of R"000 % of R"000 %
total total
Securities 56 605 35 54 232 39 2 373 4
Structuring 37 352 23 46 623 33 (9 (20)
271)
Asset 31 221 20 22 370 16 8 851 40
management
Gross 125 178 78 123 88 1 953 2
operating 225
revenue
Net return 16 155 10 10 017 7 6 138 61
on
investments
Foreign 18 617 12 7 471 5 11 146 149
exchange
gains
Net 34 772 22 17 488 12 17 284 99
investment
portfolio
returns
Gross 159 950 100 140 100 19 237 14
revenue 713
SECURITIES
Cadiz Securities was recently re-
branded from Cadiz Financial
Strategists to bring the business
in line with global industry
naming conventions for similar
businesses.
Cadiz Securities, which
incorporates the equity
derivatives, fixed income,
stockbroking, prime broking and
research teams, increased revenue
by 4% to R56.6 million (2005:
R54.2 million). Cadiz Securities
continues to be the largest
contributor to group revenue,
accounting for 35% of gross
revenue.
The increased volatility in the
domestic equity market resulted in
lively trading in stockbroking and
equity derivatives. However, the
financial performance was impacted
by lower than anticipated revenue
from the fixed income desk owing
to the relatively quiet interest
rate markets until late in the
reporting period when rates
increased.
The division has continued to
broaden its business and client
base. In the field of transition
management, Cadiz Securities
advises retirement fund clients
and facilitates the transfer and
restructuring of asset portfolios
between asset managers. In the
newly-established prime broking
business, Cadiz Securities offers
a proprietary platform as a one-
stop service to domestic hedge
funds, covering administration,
execution, clearing, settlement
and custody services.
Cadiz Securities was rated as the
country"s leading derivatives
research and dealing team for the
tenth consecutive year in the
authoritative Financial Mail
rankings. Based on a survey of all
major fund managers, the awards
are an endorsement from clients in
the asset management industry.
Cadiz competes against the largest
global and domestic financial
services players for these
honours. Cadiz was also ranked
first in Innovative Research for
the sixth year and Risk Management
Research for the fifth year.
STRUCTURING
Structuring is a multi-
disciplinary business. Although
revenue from structuring has
traditionally been less
predictable and more concentrated,
Cadiz has endeavoured to expand
and diversify the revenue stream
beyond the institutional market.
This strategy is reaping benefits
as we have started to see growth
in revenue from structuring in the
corporate and retail markets.
Revenue from structuring
activities declined to R37.4
million off a high base in the
comparative period in 2005 (2005:
R46.6 million). While the margin
pressure experienced last year has
impacted the results, it should be
noted that this is an increase of
R13.2 million over the second half
of 2005. Structuring accounted for
23% of the group"s revenue in the
current reporting period.
Cadiz Corporate Solutions ("CCS")
continues to establish itself as a
specialist player in the corporate
advisory market. The CCS team is
well placed to advise on the
critical factors for successful
and viable BEE transactions. The
requirement for transactions to be
innovatively funded within the
existing regulatory environment in
order to ensure sustainable and de-
risked empowerment has created
further opportunities for the team
to differentiate themselves in the
market.
Cadiz Investment Products, the
retail arm of the group,
experienced one of its most
successful six month periods in
terms of fund inflows. A concerted
marketing and sales drive over the
past few years has seen the launch
of several local and offshore
investment offerings, the
successful roll-out of the first
two unit trust funds and growing
penetration of the small to medium-
sized pension fund market. The
absolute return focus and track
record of the team is attracting
increasing interest and, as all
investments provide a strong
annuity income, Investment
Products is well-positioned for
the remainder of 2006.
ASSET MANAGEMENT
Asset management increased revenue
by 40% to R31.2 million (2005:
R22.4 million) and contributed 20%
of total revenue. Total assets
under management at 30 June 2006
were R15.6 billion (June 2005:
R14.8 billion). The strong
financial performance is largely
attributable to greater exposure
to performance fees on new and
existing assets, as well as an
increase in assets under
management over the corresponding
period.
Cadiz Specialised Asset Management
("CSAM") has not benefited
significantly from the buoyant
equity markets of the past year as
its investment style tends to be
uncorrelated with the market;
however, it is also unlikely to be
impacted to the same extent as
competitors in any major market
retractions.
During the first half of 2006,
CSAM"s absolute return fund
offering continued to gain
momentum. The Cadiz Inflation Plus
range of funds, including the
Cadiz Inflation Plus unit trust
fund, was launched in January
2006. A new hedge fund, the Cadiz
Emerald Fund, was launched at the
end of June 2006.
The protected investment team
received a number of new mandates
while the hedge fund business
continued to attract strong
inflows. CSAM now manages two
equity hedge funds as well as the
largest fixed income hedge fund in
the country. A further hedge fund
is currently in a trial phase and
has been seeded with Cadiz
capital. Hedge fund assets under
management at the end of the
period were R579 million.
INVESTMENTS AND CAPITAL
At 30 June 2006, total
shareholders" funds amounted to
R374.0 million following the
distribution to shareholders of
R25.4 million out of share premium
and a R17.0 million dividend
payment in April 2006.
Management continues to focus on
the efficient utilisation of the
group"s capital base and has
applied the capital primarily in
the following areas:
* Working capital of R108.0
million, including an amount
allocated for future dividend
payments and the regulatory
capital adequacy requirements of
the securities businesses.
Management expects this
requirement to increase with the
growth of the prime broking
business.
* Seed capital as the initial
investment in new asset management
products. At 30 June the group had
R28.0 million invested as seed
capital and a further R30.0
million earmarked for future
investment in new products.
* Strategic investments of R225.7
million, which includes R59.6
million of co-investments in in-
house hedge funds, offshore
exposure and empowerment
enterprise development funding.
* Offshore currency exposure
accounts for 30% of the group"s
capital. Foreign currency
investment remains an integral
part of Cadiz"s long-term
strategy. The group continues to
explore opportunities to convert
part of the offshore capital into
operational activities which will
generate non-Rand earnings.
The investment portfolio, which
comprises interest income and net
investment income after the
deduction of finance costs and
excluding exchange gains, yielded
an annualised pre-tax return of
10.6%.
STRATEGY AND PROSPECTS
Cadiz continues to focus on
building a sustainable earnings
base for the long-term and will
persist in investing for growth.
While there will inevitably be
some time lag between any
investment and subsequent revenue
growth, management is confident
that the group"s strategy will
result in a competitive cost-to-
income ratio in the long-term. As
part of this strategy, the group
will be significantly increasing
its investment in marketing and
brand awareness from the second
half of 2006.
The group continues to seek
expansion opportunities as a means
of maximising its capital base. As
outlined above, the group has
invested capital in several new
asset management products and
funds.
The increased market volatility
following the correction in local
and global equity markets will
benefit the securities businesses,
notably equity derivatives and
stockbroking. Further interest
rate movements will heighten
activity in the bond market and
this should stimulate fixed income
trading.
The asset management business is
growing steadily and will focus on
aggressively attracting new
business to boost its asset base.
The absolute return fund offering
of CSAM is ideally suited to the
current investment and regulatory
environment.
The structuring businesses are
more stable and sustainable, with
the flows from institutional,
corporate and retail clients
expected to continue to increase.
BLACK ECONOMIC EMPOWERMENT
Cadiz"s relationship with
strategic empowerment partner
Makana is strong and has been
further entrenched with the
appointment of chief executive Ram
Barkai to the board of Makana
Investment Corporation, with
Robbie Gonsalves (managing
director of Cadiz Corporate
Solutions) as his alternate. The
co-operation between the parties
extends across all the group"s
activities.
TREASURY SHARES
The share trusts purchased 8.7
million shares between 14 March
2006 and 21 June 2006 for an
average price of 437.8 cents per
share (425.7 cents per share ex-
distribution) for previously
identified participants. These are
now held as treasury shares.
STAFF SHARE OPTIONS
During the period Cadiz awarded
17.6 million share options and
share appreciation rights to
current and newly-appointed staff.
The effective dates of issue were
between 1 January 2006 and 2 May
2006. These options vest at 20%
per annum from years three to
seven and the strike prices range
between 421 and 430 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 and comply with IAS34 -
`Interim Financial Reporting". The
accounting policies are consistent
with those applied in the annual
financial statements for 31
December 2005 except for the
adoption of IAS 39 (Amendment) -
`The Fair Value Option" which
became effective from 1 January
2006. This had no impact on the
interim results or comparatives.
On behalf of the board of
directors
Colin Hall Ram
Barkai
Chairman
Chief Executive Officer
Cape Town
31 July 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
E-mail: fraser.shaw@cadiz.co.za
Date: 31/07/2006 08:00:31 AM Produced by the JSE SENS Department
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