| Fri 19 Jan 2007, 17:10 | | FCPD - Foord Compass Limited - Preliminary Report |
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JSE FCPD
FCPD
FCPD - Foord Compass Limited - Preliminary Report For The Year Ended
31 December 2006 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 FOR THE YEAR ENDED 31 DECEMBER 2006 AND INTEREST
PAYMENT DECLARATION AND ELECTION
GROUP BALANCE SHEET
at 31 December 2006 Notes Reviewed Audited
2006 2005
Rm Rm
ASSETS
Non-current assets
Long-term investments 285.4 143.2
Current assets 535.0 174.7
Net trading investments 2 (56.0) 43.1
Trade receivables and 541.9 77.9
unsettled sales
Cash 49.1 53.7
Total assets 820.4 317.9
EQUITY AND LIABILITIES
Capital and reserves 22.6 14.1
Ordinary share capital 0.1 0.1
Accumulated profits 22.5 14.0
Long-term liabilities 602.7 269.3
Unsecured debentures 3 584.5 269.3
Deferred taxation 4 18.2 -
Current liabilities 195.1 34.5
Accounts payable 13.5 14.0
Trade payables and unsettled 136.0 -
purchases
Debenture interest payable 45.6 20.5
Total equity and liabilities 820.4 317.9
Number of debentures in issue 75,543,777 39,419,774
Number of ordinary shares in 8,800,070 8,800,070
issue
Cents Cents
Net attributable asset 834.251 735.197
value per debenture (cum interest)
Net attributable asset 773.846 683.194
value per debenture (ex interest)
Net attributable asset value per 255.705 160.544
ordinary share
GROUP INCOME STATEMENT
for the year ended 31 Notes Reviewed Audited
December 2006
2006 2005
Rm Rm
Investment income 36.8 18.7
Realised trading profits 61.5 32.9
Administration expenditure (19.9) (15.7)
Net distributable profit 78.4 35.9
Unrealised trading profits 9.5 20.9
Realised profits on sale of 8.0 4.6
long-term investments
Revaluation of long-term 75.1 51.1
investments
Net portfolio income before 171.0 112.5
debenture interest
Debenture interest (70.6) (32.3)
Revaluation of debentures 3 (68.0) (68.9)
Profit before taxation 32.4 11.3
Taxation expense 4 (18.3) -
Profit for the year 14.1 11.3
Cents Cents
Debenture interest per 93.404 82.003
debenture
Earnings per debenture 191.044 256.838
Earnings per ordinary share 160.413 127.829
GROUP STATEMENT OF CHANGES IN
SHAREHOLDERS` EQUITY
for the year ended 31
December 2006
Ordinary Accumulated
share profits Total
capital
Rm Rm Rm
Balance at 31 December 2004 0.1 6.9 7.0
Dividends - (4.2) (4.2)
Profit for the year - 11.3 11.3
Balance at 31 December 2005 0.1 14.0 14.1
Dividends - (5.6) (5.6)
Profit for the year - 14.1 14.1
Balance at 31 December 2006 0.1 22.5 22.6
GROUP CASH FLOW STATEMENT
for the year ended 31 Notes Reviewed Audited
December 2006
2006 2005
Rm Rm
Net cash (outflow) inflow (192.7) 30.0
from trading activities
Net cash (outflow) inflow (59.1) 5.8
from investing activities
Net cash received from 247.2 -
issue of debentures
Net (decrease) increase in (4.6) 35.8
cash resources
Cash resources at 53.7 17.9
beginning of year
Cash resources at end of 49.1 53.7
year
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.
NOTES TO THE PRELIMINARY REPORT
1. Accounting policies
The financial statements for the year ended 31 December 2006 are prepared
in accordance with International Financial Reporting Standards ("IFRS").
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 2005.
2. Net trading investments Reviewed Audited
2006 2005
Rm Rm
Gross long positions 290.3 118.4
Gross short positions (346.3) (75.3)
Net trading investments (56.0) 43.1
At year-end the short bond and equity positions resulted in a net short
exposure to the capital markets in the trading portfolio. The short bond
position and other trading transactions that occurred before the year-end
have given rise to significant trade receivables and payables, which are
separately disclosed in the Balance Sheet.
3. Unsecured debentures Reviewed Audited
2006 2005
Rm Rm
Debentures comprise
Debenture capital 427.8 180.6
Cumulative revaluation of debentures 156.7 88.7
Fair value of debentures 584.5 269.3
Reconciliation of
balance
Balance at beginning of 269.3 200.4
year
Net proceeds on issue of 247.2 -
debentures
Revaluation - current 68.0 68.9
year
Balance at end of year 584.5 269.3
Revaluation of
debentures
Net portfolio income 171.0 112.5
before debenture
interest
90% allocation to 153.9 101.2
debenture holders
Less: proportionate (15.3) -
share of normal taxation
expense
Less: interest (70.6) (32.3)
distribution for year
Retained debenture earnings credited to 68.0 68.9
carrying value of debentures
4. Taxation
Taxation comprises:
Secondary tax on companies 0.1 -
Deferred taxation - 18.2 -
current year
18.3 -
The group and company have an estimated taxation loss for normal taxation
purposes of R21.7 million at 31 December 2006 (2005: R20.0 million),
which is available to be set off against future taxable income. The
estimated benefit, which at current taxation rates amounts to R6.3
million (2005: R5.8 million), has been utilised to reduce the deferred
taxation liability at year-end. During the period, the group and company
utilised the capital gains taxation loss of R3.7 million reported as at
31 December 2005.
COMMENT
The Foord Compass board is pleased to announce a final distribution of
60.404 cents per debenture. This, together with the interim distribution
of 33 cents, brings the total interest distribution for the financial
year to a record-high 93.404 cents per debenture (2005: 82.003 cents per
debenture).
The final distribution amount was boosted by profits realised in 2006 on
the maturity of an investment that was acquired in prior years. The
board would therefore like to caution investors against extrapolating a
gain of the same magnitude in the distribution for the year ending 31
December 2007.
In addition to the realised interest distribution, debentures earned
capital growth of 97.6 cents per debenture for the year. This brings the
total debenture earnings to 191.0 cents per debenture for the year, which
amounts to a 26.7% return for the year. The capital growth of the
debentures, while lower than the corresponding growth for 2005, accounted
for roughly 50% of total earnings. This capital growth is retained in
the company for future growth.
Debentures have earned the following annualised returns over the one,
three and five year periods ended 31 December 2006:
1 year 3 years 5 years
Income 13.7% 15.1% 15.2%
Capital 13.0% 17.0% 11.5%
Total return * 26.7% 32.1% 26.7%
* Calculated on opening net attributable asset values
The debentures have earned a total annualised return of 26.7% per annum
over the five years since the management of the portfolio commenced in
January 2002. The annualised return of the portfolio benchmark of CPI
plus 10% per annum over the same five-year period was 14.9% per annum.
The debentures have therefore achieved a return well above the
portfolio`s benchmark return.
The board had previously expressed its desire to achieve a total return
of between 20% and 30% per year on an annualised basis over rolling five
year periods. At the conclusion of the first five-year period, it is
pleasing to have achieved an annualised return for debenture holders of
26.7% after tax and expenses. It is also interesting to note that
debenture holders earned a significant premium to the general equity
market as represented by the FTSE/JSE All Share Index (22.7% per annum
for five years), with what we believe is significantly lower risk.
Initially, the income returns exceeded the capital growth attributable to
the debentures. It has been a long-standing objective of the company to
grow its capital base, which has the benefit of bringing more security to
the regularity and level of the income distributions. The company has
steadily achieved this objective and capital returns over the past three
years (17% per annum) have exceeded income distributions (15.1% per
annum). However, debenture holders are reminded that the income
distributions are subject to ad-hoc events, both positive and negative.
Investors should therefore be aware that it is possible for the income
distribution to vary positively or negatively from year to year.
Accordingly, the board encourages debenture holders to assess their
income returns over rolling three or five year periods.
The asset allocation of the portfolio at 31 December 2006 was as follows:
2006 2005
Equities 52% 44%
Listed property 20% 35%
Bonds (39%) (20%)
Foreign assets 4% 0%
Cash and near cash 63% 41%
100% 100%
Returns in the RSA capital markets for 2006 were, once again, dominated
by equities over all other asset classes. The FTSE/JSE All Share Index
returned 41.2%, while the JSE All Bond Index returned only 5.5% in an
environment where short-term interest rates started rising from mid-year.
Hence, the asset allocation decision was critical to achieving a superior
return in 2006.
The portfolio`s asset allocation was actively managed through the year
and contributed significantly to the gross return on the portfolio of
37.5% for the year.
In particular, a relatively high equity exposure was maintained while the
bond exposure was low to negative. Property exposure reduced due to the
new cash added to the portfolio at the beginning of the year. A small
position was established in foreign assets.
INTEREST PAYMENT AND ELECTION
Notice is hereby given that a debenture interest payment (number 39) of
60.404 cents per debenture in respect of the six months ended 31 December
2006 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, 2 February 2007. The debentures will commence trading ex the
interest payment on Monday, 5 February 2007 and the record date will be
Friday, 9 February 2007. The interest will be payable on Monday, 12
February 2007. Debenture certificates may not be dematerialised or
rematerialised between Monday, 5 February 2007 and Friday, 9 February
2007, 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, 9 February 2007. 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, 9 February 2007 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, 2
February 2007. 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 25 January 2007, less the interest
distribution of 60.404 cents. Debenture holders will be notified of the
ratio on the finalisation date, being Friday, 26 January 2007. 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 a listing of the maximum number of interest
debentures to be issued with effect from the commencement of business on
Monday, 5 February 2007. An adjustment to the number of interest
debentures listed will be made on or about Tuesday, 13 February 2007 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, 12 February 2007.
Signed on behalf of the board
CLR HIRSCHSOHN D FOORD
19 January 2007
Directors: CLR HIRSCHSOHN (Chairman), D FOORD*, JC GREYLING, MO HODGES*,
DA MOIR * British
Company secretary: PE CLUER
Date: 19/01/2007 17:10:01 Produced by the JSE SENS Department.
