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IDQ
IDQ
IDQ - Indequity - Abridged Report on the Annual Financial Statements and
Notice to Members of Annual General Meeting
Indequity Group Limited
Registration number: 1998/015883/06
Incorporated in the Republic of South Africa
"Indequity" or "the Group" or "the company"
Share code: IDQ
ISIN: ZAE000016606
ABRIDGED REPORT ON THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 30
SEPTEMBER 2006 AND NOTICE TO MEMBERS OF ANNUAL GENERAL MEETING
ABRIDGED CONSOLIDATED BALANCE SHEET
as at
30 Sep 2006 30 Sep 2005
Audited Audited
R R
ASSETS
Non-current assets 12 661 785 12 108 865
Property and equipment 329 859 403 905
Intangible assets 943 077 926 998
Investments 8 713 179 8 402 413
Long term loans receivable 306 495 -
Deferred tax asset 2 369 175 2 375 549
Current assets 5 650 244 8 803 632
Income tax receivable 3 379 674
Inventory 33 108 66 539
Trade and other receivables 529 074 500 846
Cash and cash equivalents 5 084 683 5 860 024
Total assets 18 312 029 18 536 948
EQUITY AND LIABILITIES
Share capital and premium 14 109 766 14 109 766
Contingency reserve 1 076 864 687 416
Non distributable reserves - 720 341
Accumulated loss (9 113 360) (10 136 206)
Minority interest (897 922) (1 062 990)
Ordinary shareholders` interest 5 175 348 4 318 327
Preference shareholders` interest 6 530 787 7 061 286
Total equity 11 706 135 11 379 613
Non-current liabilities 3 491 035 3 090 277
Deferred tax liability 537 938 -
Long-term loans 1 915 759 1 481 379
Preference shareholder`s interest 1 037 338 1 608 898
Current liabilities 3 114 859 4 067 058
Trade and other payables 1 093 543 722 787
Preference shareholder`s interest 550 000 1 750 000
Insurance contract provisions 1 365 834 1 594 271
Current tax liabilities 105 482 -
Total equity and liabilities 18 312 029 18 536 948
ABRIDGED CONSOLIDATED INCOME STATEMENT for the year ended
30 Sep 2006 30 Sep 2005
Audited Audited
R R
Investment income 1 110 433 479 784
Asset management income 2 238 259 1 500 380
Private equity operating income 825 478 834 009
Insurance income 10 906 580 7 196 351
Net income 15 080 750 10 010 524
Expenses attributable to cell captive - 17 258
underwriting
Underwriting expenses and claims 5 861 955 4 709 391
incurred
Employee benefit costs 4 293 200 4 212 193
Depreciation 122 968 215 899
Amortisation 10 289 4 474
Other operating expenses 3 044 342 2 713 357
Total operating expenses 13 332 754 11 872 572
Finance costs 271 006 224 690
Profit/(Loss) before taxation 1 476 990 (2 086 738)
Taxation (619 969) 342 671
Profit/(Loss) for the period 857 021 (1 744 067)
Attributable to:
Equity holders of the parent 691 953 (1 898 188)
Minority interest 165 068 154 121
Profit/ (Loss) for the period 857 021 (1 744 067)
Basic earnings per share (cents) 5,69 (15,60)
Diluted earnings per share (cents) 5,69 (15,60)
Dividends per share (cents)
- paid - -
- declared - -
ABRIDGED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 September 2006
Share Contingency Accumulated
capital and and Non- loss
premium distributable
reserves
Balance at 1 October 2004 14 109 766 832 731 (7 876 816)
Loss for the year (1 898 188)
Loss for the year as (1 948 826)
previously reported under
SA GAAP
Effect of first time
adoption of IFRS (refer 50 638
notes)
Transfer to contingency
reserve 361 202 (361 202)
Non-distributable reserve
acquired 213 824
Transfer to minority
interest due to disposal of
investment
Increase in preference
shareholders` interest
Balance at 30 September 14 109 766 1 407 757 (10 136 206)
2005
Preference shareholder`s
interest reclassified as
liabilities (2005
adjustment)
Profit for the year 691 953
Transfer to contingency
reserve 389 448 (389 448)
Reclassification of non- (720 341) 720 341
distributable reserve
Preference share capital
redeemed
Balance at 30 September 14 109 766 1 076 864 (9 113 360)
2006
ABRIDGED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 September 2006 (Continued)
Minority Preference Total
interest shareholders
Balance at 1 October 2004 (1 542 111) 3 830 520 9 354 090
Loss for the year 154 121 (1 744 067)
Loss for the year as (1 794 705)
previously reported under 154 121
SA GAAP
Effect of first time
adoption of IFRS (refer 50 638
notes)
Transfer to contingency
reserve -
Non-distributable reserve
acquired 213 824
Transfer to minority
interest due to disposal of 325 000 325 000
investment
Increase in preference
shareholders` interest 6 589 664 6 589 664
Balance at 30 September (1 062 990) 10 420 184 14 738 511
2005
Preference shareholder`s (3 358 898) (3 358 898)
interest reclassified as
liabilities (2005
adjustment)
Profit for the year 165 068 860 704 1 717 725
Transfer to contingency
reserve -
Reclassification of non-
distributable reserve -
Preference share capital
redeemed (1 391 203) (1 391 203)
Balance at 30 September (897 922) 6 530 787 11 706 135
2006
ABRIDGED CONSOLIDATED CASH FLOW STATEMENT for the year ended
30 Sep 2006 30 Sep 2005
Audited Audited
R R
Net cash from/(used in) operating 1 043 624 (787 031)
activities
Net cash from/ (used in) investing 355 209 (5 973 733)
activities
Net cash (used in)/from financing (2 174 174) 5 239 853
activities
Net decrease in cash and cash (775 341) (1 520 911)
equivalents
Cash and cash equivalents at 5 860 024 7 380 935
beginning of year
Cash and cash equivalents at end of 5 084 683
year 5 860 024
SEGMENT REPORTING - BUSINESS
SEGMENTS
30 Sep 2006 30 Sep 2005
Audited Audited
R R
NET INCOME
Investment 3 032 765 1 696 626
Investment Banking and Private 831 664 839 345
Equity
Insurance 11 216 321 7 474 553
Consolidated net income 15 080 750 10 010 524
SEGMENT RESULTS
Investments
Segment results 733 121 (70 488)
Outside shareholders` interest in
private equity income (100 619) (66 759)
Taxation (537 939) -
Profit for the year 94 563 (137 247)
Investment Banking and Private
Equity
Segment results 445 949 267 432
Outside shareholders` interest in
private equity income (64 449) (87 362)
Profit for the year 381 500 180 070
Insurance
Segment results 297 920 (2 283 682)
Taxation (82 030) 342 671
Profit for the year 215 890 (1 941 011)
Consolidated segment results
Segment results 1 476 990 (2 086 738)
Outside shareholders` interest in
private equity income (165 068) (154 121)
Taxation (619 969) 342 671
Profit for the year 691 953 (1 898 188)
SEGMENT REPORTING - BUSINESS
SEGMENTS (continued)
30 Sep 2006 30 Sep 2005
Audited Audited
R R
SEGMENT ASSETS
Investment 10 149 154 10 096 555
Investment Banking and Private 404 081 469 490
Equity
Insurance 5 199 950 5 335 113
Unallocated corporate assets 186 291 259 567
Consolidated assets 15 939 476 16 160 725
SEGMENT LIABILITIES
Investment 685 970 739 590
Investment Banking and Private 773 639 865 820
Equity
Insurance 3 969 302 5 494 423
Unallocated corporate liabilities 533 563 57 502
Consolidated liabilities 5 962 474 7 157 335
SEGMENTAL CAPITAL EXPENDITURE
Insurance 75 290 213 239
Unallocated corporate capital - 12 112
expenditure
Consolidated capital expenditure 75 290 218 095
SEGMENTAL DEPRECIATION
Investment 1 495 32 080
Investment Banking and Private 91 2 468
Equity
Insurance 121 382 181 351
Consolidated depreciation 122 968 215 899
SEGMENTAL AMORTISATION
Insurance 10 289 4 474
Consolidated amortisation 10 289 4 474
ACCOUNTING POLICIES AND BASIS OF PREPARATION
The abridged group financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") and the interpretations
issued by the International Accounting Standards Board ("IASB"), and are in
compliance with the Companies Act. The abridged consolidated financial
statements are presented in South African Rand.
The abridged consolidated financial statements have been prepared on the
historical cost basis except for financial instruments classified as at fair
value through profit or loss and available-for-sale financial assets which are
recognized at fair value.
Except as described in the note below, the accounting policies have been
applied consistently to all periods presented in these abridged consolidated
financial statements and agree with those principal policies used in the
preparation of the 30 September 2006 annual financial statements. The
accounting policies have been applied consistently by all Group entities.
Certain comparative amounts have been reclassified to conform with the current
year`s presentation.
Being a first time adopter of IFRS for the 2006 financial year, the Group`s
date of transition is 1 October 2004 and comparative information for 2005 have
been restated to comply with all IFRS`s effective as at 30 September 2006,
except for some exemptions allowed by IFRS1 - refer note below. The
transitional provisions applied by the Group in terms of IFRS 1 First-time
Adoption of International Financial Reporting Standards and the impact of the
restatements on reported earnings and equity is analysed below.
FIRST TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS
The date of transition to IFRS for the Group is 1 October 2004. In prior
periods the Group prepared its financial statements in accordance with SA GAAP,
but the opening balance sheet at 1 October 2004 has now been prepared in
accordance with all existing IFRSs applicable at 30 September 2006 which have
been applied consistently from the date of transition.
The transition to IFRS did not result in any adjustments to equity at the date
of transition.
Intangible assets - Computer software has been reclassified from property and
equipment to intangible assets.
The first time adoption of IFRS 4 - Insurance contracts, did not have any
significant impact on the recognition and measurement of assets and liabilities
in respect of insurance contracts for the period.
The first time adoption of IAS 36 - Impairment of Assets and IFRS 3 - Business
Combinations resulted in a reversal of the goodwill amortisation charge for the
year ended 30 September 2005. Goodwill which was previously carried at cost
less accumulated amortisation and accumulated impairment is now assessed only
for impairment on an annual basis. The effect on the net loss is summarised
below. For the effect on equity please refer to the "Abridged statement of
changes in equity".
Group
2005
R
Loss for the period in terms of SA GAAP (1 948 826)
Reversal of Goodwill Amortisation 50 638
Loss for the period in terms of IFRS (1 898 188)
HEADLINE EARNINGS PER SHARE AND DILUTED HEADLINE EARNINGS PER SHARE
Year ended Year ended
30 September 30 September
2006 2005
Audited Audited
Headline earnings per share 5,69 (15,60)
(cents)
Diluted headline earnings per 5,69 (15,60)
share (cents)
COMMENTS ON RESULTS
The accounting profession has made significant progress over the years in
developing accounting standards that will assist in preparing financial
statements that reflect the financial status of a company. However further
development is still needed to accurately reflect a company`s intrinsic value.
The Indequity group illustrates this point as the value built up over the past
couple of years is still not reflected by the current set of financial
statements. Nevertheless we will attempt to communicate our views on the value
that has been created during the past 4 years and our level of optimism on the
future of the group with this letter.
Insurance operations
These operations are by far the group`s largest, most exciting, but also most
challenging businesses. It is the largest contributor to the group`s gross
profit and carries most of the group`s overhead costs. Growth during the past
year has again been exceptional and we believe that it will continue in this
fashion for the foreseeable future. As an indication of the progress made and
challenges faced we provide you with some statistics:
Year Premium Underwriting Contribution Earnings Number of
income expenses and to carry from employees
claims Insurance insurance (Insurance
operations operations operations)
and group before tax
overheads
2003 1 094 125 835 197 258 928 (3 541 287) 4
2004 3 314 903 2 166 125 1 148 778 (1 565 224) 8
2005 6 961 283 4 709 391 2 251 892 (2 283 682) 10
2006 10 729 443 5 861 955 4 867 488 297 920 14
2007 14 332 600 9 154 800 5 177 800 2 000 000 12
(Budget)
At this point we would like to discuss the positive effect that the above-
mentioned progress has had on the Indequity group as a whole. Readers may
recollect that we took the strategic decision in 2002 to focus on building the
group`s annuity income at the expense of short-term profitability. From the
above it is clear that this strategy is now starting to pay dividends. We would
like to draw readers` attention to the cash flow statement and in particular
the "Cash flow relating to operating activities", where readers can get a
glimpse of the actual progress made by the group. We are pleased to report that
we have now reached the critical point where cash is no longer utilised by
operations but instead is now starting to generate surplus cash.
Year Cash generated/ (utilised by)
operating activities
2002 (3 355 381)
2003 (4 341 860)
2004 (1 603 846)
2005 (787 031)
2006 1 043 624
Investment management operations
The past year has seen the investment operations streamlining its cost
structures even further. We are now in a position where further efforts to cut
costs will only have a marginal effect on the bottom line. As a low margin
industry we first needed to reduce costs to a minimum before we attempted to
grow more aggressively.
Although our focus has not been on marketing our products, we still achieved a
meaningful growth in our assets under management and management income. This
has primarily been as a result of the excellent growth our clients enjoyed in
the value of their portfolios.
Year Assets under Investment
management management
income
2003 65 000 000 931 734
2004 100 000 000 790 325
2005 156 000 000 1 500 380
2006 243 000 000 2 238 259
Our strategy for the next couple of years is to focus on growing the assets
under management.
Alexecovet (Pty) Ltd
We have continued to manage this company (effective holding of 43,04%) in order
to maximise cash flow. Sales have however started to remain static as the
product started to mature. In an effort to counter this, our general manager,
Colleen Shimwell has put in a huge effort to re-energize the brand with new
packaging and a younger company profile. Our marketing efforts have also been
adjusted to focus more on point of sale advertising. Our efforts to expand
internationally are hampered by bureaucracy and our unwillingness to spend
large amounts of money on unproven new markets. We will however continue to
pursue these markets as best we can.
FUTURE CHALLENGES AND PROSPECTS
Our Group, its management and our loyal employees are now starting to see the
benefits of their tireless efforts to establish a solid foundation of annuity
income. Although we have now started to operate profitable, we are under no
illusion as to the magnitude of the challenges we will face going forward.
Having reached this stage in the Group`s lifecycle we are however excited and
highly motivated to take the Group to new heights.
The industries we operate in, and in particular the short term insurance
industry will force us to maintain a strong and growing capital base. Hence we
will continue to strengthen the balance sheet from internally generated funds
as well as third party capital.
AUDIT OPINION
The annual financial statements have been audited by Melanie Bosman. Their
unqualified audit opinion is available for inspection at the registered office
of Indequity.
DIVIDEND
No dividend has been declared for the year under review.
NOTICE TO MEMBERS OF ANNUAL GENERAL MEETING
Notice is hereby given that the annual general meeting of members of Indequity
Group Limited will be held at the registered office, First Floor, Cascade
House, corner 14th Avenue and Hendrik Potgieter Road, Constantia Kloof, at
15:00 on 30 January 2007.
ON BEHALF OF THE BOARD
A V van Jaarsveldt L J van Rensburg Johannesburg
Chairman Chief Executive Officer 15 December 2006
Directors: AV van Jaarsveldt* (British), LJ van Rensburg, TC Meyer, JF Zwarts*
(* non-executive)
Company secretary: S le Roux
Registered address: First Floor, Cascade House, Constantia Office Park, cnr
14th Avenue and Hendrik Potgieter Road, Constantia Kloof, 1709
Postal address: PO Box 5433, Weltevredenpark, 1715
Telephone: (+2711) 475-0816 Fax: (+2711) 475-0877
Website: www.indequity.com
Date: 15/12/2006 15:08:01 Produced by the JSE SENS Department.
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