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CDZ
CDZ
CDZ - Cadiz - Audited Results for the year ended 31 December 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")
AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006
HIGHLIGHTS
* Diluted EPS up 30.1% to 51.9 cents
* Headline earnings up 26.6% to R119.7 million
* Asset management revenue up 54.3% to R92.8 million
* Assets under management R49.8 billion after acquisition of African
Harvest
* SA`s top rated derivatives house for 10th successive year
GROUP INCOME STATEMENT Audited Audited
12 months 12 months
31-Dec-06 31-Dec-05
R `000 R `000
Gross operating revenue 234,543
256,343
Interest income 14,531 16,050
Net investment income 61,876 21,874
Net income from investments 40,242 21,094
Foreign exchange gains 21,634 780
Operating expenses (180,184) (146,059)
Operating profit 152,566 126,408
Finance costs (2,505) (1,662)
Profit before taxation 150,061 124,746
Taxation (33,015) (33,338)
Profit for the year 117,046 91,408
Reconciliation of headline
earnings:
Profit for the year 117,046 91,408
Goodwill impairment 2,603 3,050
Loss on disposal of equipment 57 93
Headline earnings 119,706 94,551
Issued number of shares (`000) 239,810 239,810
Consolidated number of shares 209,742
(`000) 209,812
Weighted average number of shares 209,878
(`000) 209,659
Diluted weighted average number
of shares (`000) 225,670 228,863
Earnings per share (cents)
Basic 55.8 43.6
Diluted 51.9 39.9
Headline earnings per share
(cents)
Basic 57.1 45.1
Diluted 53.0 41.3
GROUP BALANCE SHEET Audited Audited
31-Dec-06 31-Dec-05
R `000 R `000
ASSETS
Non - current assets 478,657 306,437
Plant and equipment 7,609 7,521
Intangible assets 312,451 23,126
Deferred taxation 19,851 19,049
Financial assets 134,185 248,036
Receivables and prepayments 4,561 8,705
Current assets 1,191,146 284,672
Financial assets 38,287 118,754
Receivables and prepayments 1,062,247 48,173
Taxation 545 4,572
Cash and cash equivalents 90,067 113,173
Total assets 1,669,803 591,109
EQUITY
Capital and reserves
Ordinary share capital and 82,215
premium 53,438
Treasury shares (75,908) (49,141)
Share-based payment reserve 11,073 4,365
Retained earnings 444,521 351,803
Total equity 433,124 389,242
LIABILITIES
Non - current liabilities 54,729 30,776
Deferred taxation 14,787 726
Trade and other payables 39,942 30,050
Current liabilities 1,181,950 171,091
Trade and other payables 1,135,345 121,308
Taxation 20,469 37,926
Borrowings 26,136 -
Trading liabilities - 11,857
Total liabilities 1,236,679 201,867
Total equity and liabilities 1,669,803 591,109
Net asset value (cents per share) 206 186
Net tangible asset value (cents 166
per share) 55
ABRIDGED GROUP CASH FLOW Audited Audited
STATEMENT
12 months 12 months
31-Dec-06 31-Dec-05
R `000 R `000
Cash flow from operating 116,046
activities 20,925
Cash generated from operations 78,142 160,880
Taxation paid (40,257) (7,908)
Dividend paid (16,960) (36,926)
Cash flow from investing (31,641)
activities (5,949)
Cash flow from financing (8,352)
activities (62,912)
Net change in cash and cash 76,053
equivalents (47,936)
Effect of exchange rate 119
adjustment (1,306)
Cash and cash equivalents at 37,001
beginning of year 113,173
Cash and cash equivalents at end 113,173
of year 63,931
ABRIDGED GROUP STATEMENT OF Audited Audited
CHANGES IN EQUITY
12 months 12 months
31-Dec-06 31-Dec-05
R `000 R `000
Share capital and share premium
and treasury shares
Opening balance 33,074 39,815
Capital reduction (25,439) -
Sale of treasury shares on 3,260
exercise of options 8,389
Purchase of treasury shares (38,494) (10,001)
(22,470) 33,074
Reserves
Opening balance 356,168 300,160
Sale of treasury shares on (1,610)
exercise of options (7,368)
Employee share option scheme - 3,136
value of services provided 6,708
Profit for the year 117,046 91,408
Dividend paid (16,960) (36,926)
455,594 356,168
Total shareholders` funds 433,124 389,242
OVERVIEW
Cadiz delivered strong earnings growth in
the year to 31 December 2006, lifted by
robust returns on the shareholders`
investment portfolio and foreign exchange
translation gains.
Asset management revenue grew strongly on
the back of rising equity markets, hedge
fund performance and the incorporation of
African Harvest Fund Managers for the last
two months of the year, while the securities
operation enjoyed another year of consistent
performance. Revenue from the structuring
business was disappointing owing to a
decline in volumes in institutional
structuring which was partially offset by
increased activity in the corporate and
retail structuring businesses.
FINANCIAL PERFORMANCE
Gross operating revenue for the year
increased by 9% to R256.3 million (2005:
R234.5 million).
Net investment income increased by 183% to
R61.9 million (2005: R21.9 million), mainly
attributable to:
* foreign exchange gains of R21.6 million
flowing from the strategy of currency
diversification;
* R18.7 million profit (2005: R7.3
million) on the sale of JSE Limited
shares; and
* R8.8 million mark to market gain on the
group`s strategic investment in
empowerment partner Makana.
Operating expenses were R34.1 million or 23%
higher at R180.2 million (2005: R146.1
million). The major components of the
increase are:
* R10.1 million (6.9%) relating to the
expenses of African Harvest for the two
months post acquisition, including the
amortisation of intangibles of R1.5
million;
* R3.6 million (2.5%) for an increased
IFRS2 staff share option expense;
* R10.6 million (7.3%) increase in
variable costs, including R4.4 million
for BEE related enterprise development
expenditure; and
* R15.3 million relating to ongoing
operating activities. This represents a
10.5% increase over 2005 after taking
into account the R5.5 million non-
recurring costs from the previous year.
Finance costs of R2.5 million (2005: R 1.7
million) are 47% higher owing mainly to the
interest payable on the deferred portion of
the African Harvest purchase price.
Headline earnings increased 27% to R119.7
million (2005: R94.6 million).
ACQUISITION OF AFRICAN HARVEST
On 1 November 2006 the group acquired the
entire share capital and claims of African
Harvest Fund Managers (Pty) Ltd and African
Harvest Collective Investments Limited
("African Harvest") for a consideration of
R296.1 million.
OPERATIONAL REVIEW
Operating activities generated 78% (2005:
87%) of the group`s total revenue of R330.2
million (2005: R270.8 million).
REVENUE ANALYSIS December 2006 December 2005 change
R`000 % of R`000 % of R`000 %
total total
Securities 110,470 34 103,639 39 6,831 7
Structuring 53,120 16 70,810 26 (17,690) (25)
Asset management 92,753 28 60,094 22 32,659 54
Gross operating 256,343 78 234,543 87 21,800 9
revenue
Net return on 52,268 16 35,482 13 16,786 47
investments
Foreign exchange 21,634 6 780 - 20,854 2674
gains
Net investment 73,902 22 36,262 13 37,640 104
portfolio
returns
Gross revenue 330,245 100 270,805 100 59,440 22
SECURITIES
Cadiz Securities increased revenue by 7% to
R110.5 million (2005: R103.6 million) and
continues to be the largest revenue
contributor, accounting for 34% of group
revenue.
The stockbroking team of Cadiz Securities
benefited from the buoyant performance of
the JSE. However, steadily rising equity
markets during the year limited the level of
activity in the equity derivatives market.
Institutions and retirement funds were
generally reluctant to hedge portfolios to
lock in returns through derivative
instruments, choosing to benefit from
further upside potential in the market.
Volatility levels were also low. Despite
these factors, the equity derivatives team
showed a pleasing increase in volumes.
The transition management team, which
combines the industry`s leading quantitative
and research capabilities within Cadiz
Securities, continued to entrench its
offering. The team advises clients and
facilitates the transfer and restructuring
of asset portfolios between fund managers.
Prime broking exceeded expectations towards
the end of its first year of operation and
attracted several large clients. The prime
broking team is establishing itself as the
premier team in South Africa`s growing hedge
fund industry.
The transition management and prime broking
businesses provide an opportunity for Cadiz
Securities to broaden its client base and to
cross-sell other financial services to these
new clients.
Cadiz Securities was rated as the country`s
leading derivatives research and dealing
team for an unsurpassed tenth consecutive
year in 2006 in the annual Financial Mail
analyst rankings.
The performance of Cadiz Securities was
negatively affected by lower than
anticipated revenue from the fixed income
desk as a result of relatively subdued
interest rate markets in the first half of
the year. Institutional asset allocation to
bonds remained low as the equity market
continued to perform.
Volumes on the fixed income trading desk
increased in the final quarter of 2006 as
interest rates started to rise and this
momentum has continued into the new year.
The current market conditions are favourable
for the equity derivatives and stockbroking
businesses.
STRUCTURING
Cadiz has in recent years diversified its
structuring business across the corporate
and retail markets. Cadiz`s performance in
corporate structuring through Cadiz
Corporate Solutions ("CCS") and in retail
through Cadiz Investment Products ("CIP")
has shown pleasing revenue growth this year.
However, structuring in the institutional
market has been disappointing owing to lower
volumes and declining market volatility.
Structuring revenue declined to R53.1
million (2005: R70.8 million) for the year
under review.
CCS, the group`s corporate advisory
specialists, continues to break new ground
in the corporate and parastatal markets with
the innovative application of derivatives as
a risk management tool. The strong
performance of the equity market in recent
years has led to the use of derivative
strategies for the transfer of economic
interests to BEE partners, while at the same
time underpinning long-term shareholder
relationships and the retention of BEE
shareholding. CCS continues to leverage on
its positioning to capitalise on the
inevitable growth in BEE transactions by
advising corporates, BEE consortia and
funders alike. During the year CCS advised
on a number of large BEE transactions.
CIP experienced its most successful year to
date based on new fund inflows. The business
is attracting increasing support from
independent financial advisers and is making
inroads into the small to medium-sized
retirement fund market. Product innovation
remains a differentiator for CIP in this
highly competitive sector of the market. CIP
acquired four unit trust funds through
African Harvest, increasing its range of
unit trust funds to six. As the absolute
return fund investment style gathers
momentum among local investors, CIP is
positioned for increased market penetration
and continued strong growth in 2007.
ASSET MANAGEMENT
Asset management increased revenue by 54% to
R92.8 million (2005: R60.1 million) and
contributed 28% of total revenue. Total
assets under management at year-end were
R49.8 billion (2005: R16.5 billion).
The acquisition of African Harvest and its
integration into Cadiz Specialised Asset
Management has created one of the largest
independent fund managers in the country.
The combined business has been renamed Cadiz
African Harvest Asset Management ("CAHAM"),
acknowledging the strengths of both
businesses and the brand equity among
wholesale clients and staff.
The integration is going according to plan
and the business is performing in line with
expectations. The limited staff overlap in
the businesses ensured that the teams were
integrated within two months and jointly
located in a new office adjacent to the
Cadiz head office in Cape Town.
CAHAM now offers its clients and the South
African market a full spectrum of asset
management solutions, covering equity, fixed
income, money market and absolute return
funds.
The immediate priority is to cement the
foundations of the new business while
building on the investment processes to
ensure sustainable long-term performance.
This will ultimately determine the success
of the merger and position Cadiz to grow and
expand its asset management business.
INVESTMENTS AND CAPITAL
The acquisition of African Harvest created
an opportunity for the group to utilise its
capital base in the expansion of the
business. A significant portion of the
group`s investment capital was applied to
the acquisition, with R240.8 million being
paid up front and a further R55.3 deferred
until the finalisation of the acquired
assets and to retain staff. R22.9 million of
the deferred consideration payable to staff
over three years is being converted to
equity with the same vesting period.
The remaining investment capital, which
totalled R272.3 million at year-end, has
been applied as follows:
* R132.4 million is set aside for
regulatory capital adequacy and working
capital requirements, including the
payment of taxation, dividends and
capital reduction;
* R48.7 million is invested as seed
capital in new asset management
products and co-invested in in-house
hedge funds;
* R58.8 million strategic investment in
empowerment partner, Makana;
* R32.4 million is set aside for the
outstanding amount payable for the
African Harvest acquisition; and
* 31% of the group`s investment capital
is invested offshore as part of the
strategy of currency diversification.
After utilising a significant portion of its
capital base for the acquisition of African
Harvest, the group has identified an ongoing
need for capital to seed new businesses and
investment products. The board has therefore
decided to make a distribution of 20 cents
per share which is covered approximately 2.5
times by earnings.
STRATEGY AND PROSPECTS
In line with the strategy of non-linear
growth, the group will continue to utilise
its capital base to invest for expansion.
This will include seeding new businesses and
investment products, possible further
strategic acquisitions and, over time,
expanding into Africa and offshore. The
acquisition of African Harvest demonstrated
the group`s strategy of seeking acquisition
opportunities to accelerate the growth of
its core businesses and applying capital
more efficiently to generate operational
earnings.
The acquisition has created one of the
largest independent fund managers in the
country. While the integration has exceeded
expectations in the short-term, we
acknowledge that the process will take 12 to
18 months to complete.
Cadiz enters 2007 a more focused business on
a sustainable growth path, and is well-
positioned for growth across its three core
areas of business. The fledgling businesses
of transition management and prime broking
continue to gain traction and complement the
established businesses.
The group plans to make a significant
investment in marketing, brand awareness and
business development in the years ahead.
BLACK ECONOMIC EMPOWERMENT
Cadiz`s relationship with broad-based
strategic empowerment partner Makana
Investment Corporation ("MIC") continues to
strengthen and goes way beyond equity
ownership. The partnership has extended the
group`s network and has increased the deal
flow for both parties. During the year Cadiz
and Makana have jointly participated in
deals, with CCS providing advisory services
to Makana on strategic transactions. In 2006
Cadiz assisted Makana and provided secured
funding to enable them to consolidate their
shareholding. Chief executive Ram Barkai was
subsequently appointed to the board of MIC,
with Robbie Gonsalves, the managing director
of CCS, as his alternate. Makana plans to
increase its holding in Cadiz in the medium-
term.
CHANGES TO BOARD OF DIRECTORS
Ray Cadiz relinquished his executive role
and was appointed non-executive chairman of
Cadiz with effect from 14 November 2006.
Colin Hall, who stood down as chairman,
continues to serve as an independent non-
executive director.
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 for pre-identified participants.
STAFF SHARE OPTIONS
During the year Cadiz awarded 23.1 million
share options and share appreciation rights
to current and newly-appointed staff. The
effective dates of issue were between 1
January 2006 and 15 December 2006. The
options vest at 20% per year from years
three to seven. The weighted average strike
price of the options is 428 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. 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 prior year figures.
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
2006 group annual financial statements and
the abridged group financial statements
contained herein, is available for
inspection at the company`s registered
office.
DIVIDEND AND CAPITAL REDUCTION
Notice is hereby given of a distribution of
20.0 cents per ordinary share comprising a
dividend of 3.0 cents per ordinary share,
and a distribution of 17.0 cents per
ordinary share payable out of share premium
for the year ended 31 December 2006, in
terms of the resolution approved by the
shareholders at the annual general meeting
held on Tuesday, 16 May 2006.
Last date to trade cum
distribution:Thursday, 29 March 2007
Trading commences ex distribution: Friday,
30 March 2007
Record date:
Thursday, 5 April 2007
Payment date: Tuesday,
10 April 2007
Share certificates may not be dematerialised
or rematerialised between Friday, 30 March
2007 and Thursday 5 April 2007, 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
Ray Cadiz Ram Barkai
Chairman Chief
Executive Officer
Cape Town
5 March 2007
Registered office
Ground Floor
Fernwood House
The Oval
1 Oakdale Road
Newlands
7700
P O Box 44547
Claremont
7735
www.cadiz.co.za
Directors
R F G Cadiz (Chairman)*
R Barkai (Chief Executive Officer) (Israeli)
C A Hall*
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: 05/03/2007 08:00:00 Produced by the JSE SENS Department.
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