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Reviewed preliminary report for the year ended
31 December 2012
FOORD COMPASS LIMITED REVIEWED PRELIMINARY REPORT FOR
JSE Code: FCPD ISIN: ZAE000054466 THE YEAR ENDED
Registration Number: 1987/003591/06 31 DECEMBER 2012
ANNUAL INTEREST DISTRIBUTION 80 CENTS
INCOME YIELD ON OPENING NET ATTRIBUTABLE ASSET VALUE 10.7%
NET ATTRIBUTABLE ASSET VALUE 860.2 CENTS PER DEBENTURE
CONDENSED STATEMENT OF FINANCIAL POSITION Notes Reviewed Audited
at 31 December 2012 2012 2011
Rm Rm
ASSETS
Current assets
Investments 3 1,292.6 1,480.5
Income receivables and unsettled sales 15.4 3.0
Sundry debtors 0.5 -
Taxation receivable - 0.1
Cash and deposits 636.5 528.6
Total assets 1,945.0 2,012.2
EQUITY AND LIABILITIES
Capital and reserves 54.7 42.3
Ordinary share capital 0.1 0.1
Accumulated profits 54.6 42.2
Non-current liabilities 1,329.4 1,163.3
Unsecured debentures 4 1,326.8 1,151.9
Deferred taxation 2.6 11.4
Current liabilities 560.9 806.6
Accounts payable 3.1 2.9
Short investment positions 3 470.9 720.8
Unsettled purchases 6.6 6.6
Taxation payable 0.2 -
Debenture interest payable 80.1 76.3
Total equity and liabilities - 1,945.0 2,012.2
Number of debentures in issue 163,551,641 153,719,105
Number of ordinary shares in issue 8,800,070 8,800,070
Cents Cents
Net attributable asset value per debenture (cum interest) 860.2 799.0
Net attributable asset value per debenture (ex interest) 811.2 749.4
Net attributable asset value per ordinary share 621.6 480.7
CONDENSED STATEMENT OF COMPREHENSIVE INCOME Notes Reviewed Audited
2012 2011
Rm Rm
Investment income 81.8 86.0
Realised trading profits 79.4 65.8
Operating expenditure (19.0) (16.3)
Net distributable profit 142.2 135.5
Capital profits on sale of investments 105.6 8.4
Revaluation of investments 10.8 19.1
Net portfolio income before debenture interest 258.6 163.0
Debenture interest (128.0) (122.0)
Increase in carrying value of debentures 4 (99.7) (24.3)
Profit before taxation 30.9 16.7
Taxation expense 5 (11.5) (4.7)
Profit attributable to ordinary shareholders 19.4 12.0
Weighted average number of debentures in issue 160,024,673 152,268,432
Cents Cents
Interest per debenture (weighted) 80.0 80.1
Earnings per ordinary share 220.5 136.4
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Ordinary Accumulated
share capital profits Total
Rm Rm Rm
Balance at 31 December 2010 (audited) 0.1 35.6 35.7
Dividends - (5.4) (5.4)
Profit attributable to ordinary shareholders - 12.0 12.0
Balance at 31 December 2011 (audited) 0.1 42.2 42.3
Dividends - (7.0) (7.0)
Profit attributable to ordinary shareholders - 19.4 19.4
Balance at 31 December 2012 (reviewed) 0.1 54.6 54.7
CONDENSED STATEMENT OF CASH FLOWS Reviewed Audited
2012 2011
Rm Rm
Net cash inflow from trading activities 184.4 149.3
Interest, dividends and taxation paid (151.7) (135.3)
Net cash received from issue of debentures 75.2 46.0
Net change in cash and deposits 107.9 60.0
Cash and deposits at beginning of year 528.6 468.6
Cash and deposits at end of year 636.5 528.6
AUDITOR'S REVIEW REPORT
These results have been reviewed in terms of ISRE2410 by the company's auditors, Deloitte & Touche, whose
unmodified review report is available for inspection at the registered office of the company. Any reference to future
financial performance included in this announcement, has not been reviewed or reported on by the company’s
auditors.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. Basis of preparation and significant accounting policies
The condensed financial statements have been prepared in accordance with the measurement and recognition
requirements of International Financial Reporting Standards (IFRS), the AC 500 standards as issued by the Accounting
Practices Board and the information as required by International Accounting Standards (IAS) 34 Interim Financial
Reporting and the requirements of the Companies Act of South Africa. The condensed financial statements have been
prepared under the historical cost convention, except for the revaluation of financial instruments.
The same accounting policies, presentation and methods of computation are followed in these condensed financial
statements as were applied in the preparation of the company’s financial statements for the year ended 31 December
2011.
2. Operating segments
The company has one principal operating segment and accordingly additional segmental disclosures have not been
made.
3. Investments
Investments comprise both long and short positions to listed and unlisted securities. The investment objective is to
achieve a total return of 10% per annum above the annual change in SA CPI on a rolling five-year basis. In managing
the investment portfolio, securities may be held for trading within twelve months or may be realised over longer
periods as deemed appropriate by the investment manager.
Reviewed Audited
2012 2011
4. Unsecured debentures Rm Rm
Unsecured debentures comprise
Debenture capital at issue price 1,121.7 1,046.5
Cumulative revaluation of debentures 205.1 105.4
Fair value of debentures 1,326.8 1,151.9
Reconciliation of balance
Balance at beginning of year 1,151.9 1,081.6
Net proceeds on issue of debentures 75.2 46.0
Revaluation - current year 99.7 24.3
Balance at end of year 1,326.8 1,151.9
Increase in carrying value of debentures
Net portfolio income before debenture interest 258.6 163.0
90% allocation to debenture holders 232.7 146.7
Less: proportionate share of taxation expense (5.0) (0.4)
Less: interest distribution for year (128.0) (122.0)
Revaluation - current year 99.7 24.3
5. Taxation expense
Taxation comprises:
Current taxation charge - current year 20.3 4.8
Deferred taxation credit - current year (8.8) (0.1)
Net expense per statement of comprehensive income 11.5 4.7
Deferred taxation relates to the revaluation of investments. The share of the net taxation charge attributable to the
unsecured debentures, which amounts to R5.0 million (2011: R0.4 million), has been deducted from the carrying value
of the debentures as set out in note 4 above.
6. Subsequent events
In early January 2013, the company privately placed debentures to the value of R1.1 billion at the ex-interest NAAV
reported in this results announcement. These new debentures will be allotted only after the 2012 final distribution
has been paid in February 2013 and as such they will not participate in that distribution. After the placement and
allotment, the company's debenture capital will amount to R2.4 billion.
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2012
The results reflect one of the better annual results for the company and its debenture holders, buoyed as they were by
healthy investment returns across various asset classes and most geographies. A final interest distribution of 49.0 cents
per debenture has been approved, bringing the full year distribution to 80.0 cents per debenture on a weighted
average basis (2011: 80.1 cents). The interest distribution represents an income yield of 10.7% on the opening net
attributable asset value per debenture at the beginning of the year (2011: 10.9%).
Net portfolio income before debenture interest increased significantly to R258.6 million (2011: R163.0 million). The
increase is mostly attributable to capital profits realised on the sale of investments before a short period of market
weakness. The tax expense was higher as a result of the capital gains tax on these sales. Dividend income was
substantially lower than in 2011, but interest accruals were somewhat higher. This was a consequence of holding much
of the equity exposure in the year via options with a resultant higher actual cash balance than indicated via the
effective exposure disclosed. The net effect of these factors was to maintain distributable income at the prior year's
levels, keeping the interest distribution stable at 80.0 cents per debenture.
The net attributable asset value per debenture increased from 749.4 cents to 860.2 cents, cum interest. The total
return on the net attributable asset value of the debentures, which includes the interim distribution of 30 cents per
debenture, amounts to a very credible 18.8% for the year (2011: 13.1%). Over the last 10 years, the debentures have
returned an annualised 17.8% per annum, comfortably exceeding the aggregate portfolio's return objective of CPI +
10% per annum. The returns on the debentures for the major periods ended 31 December 2012 are as follows:
1 year 3 years 5 years 10 years
to 31 December 2012 (% per annum)
Income 10.7% 10.7% 11.5% 12.7%
Capital 8.1% 4.4% 2.1% 5.1%
Total return * 18.8% 15.1% 13.6% 17.8%
* Calculated with reference to opening net attributable asset values per debenture
INVESTMENT RETURNS
After a generally negative 2011, most major bourses recovered to post double-digit gains in 2012 when measured in US
dollars. A cocktail of government stimulus, central bank liquidity and improving fundamentals (particularly in the USA)
drove markets higher, notwithstanding the now largely-resolved spectre of the "fiscal cliff" that loomed large during a
US presidential election year and subdued company revenue growth in that country. In Europe, markets typically
outperformed their US counterparts as they recouped their 2011 losses after some of the more distressed countries,
notably Greece, implemented additional controversial austerity measures to receive further EU/IMF relief packages.
With the exception of Brazil, all major emerging market bourses produced stellar results in the year.
UK and US bond yields remained practically unchanged year-on-year, although the first half of 2012 was particularly
fraught with volatility as market participants contended with the combined effects of continued central bank
intervention and economic fundamentals such as job creation. Much like bond rates, precious and industrial metal
prices were stable year on year, but followed a volatile pattern during 2012 as data on industrial production
(particularly in China) varied. In South Africa, the FTSE/JSE All Share Total Return Index gained 26.7% and bond yields
continued to fall despite a sovereign rating downgrade. The rand depreciated by 3.9% against the US dollar.
Against this background, the Foord Compass portfolio generated a gross return of 23.0% in ZAR (2011: 14.9%),
comfortably outperforming its CPI + 10% benchmark in the year, while keeping pace with local and global equity market
returns over the period. Over the last decade, the portfolio has returned a gross 23.4% per annum, a remarkable 8.1%
ahead of the benchmark. The current and longer period returns achieved on the portfolio are tabulated below relative
to the objective and SA and world equity markets.
1 year 3 years 5 years 10 years
to 31 December 2012 (% per annum)
Gross portfolio total return 23.0% 18.1% 16.2% 23.4%
CPI + 10% per annum (lagged 1 month) 15.6% 15.1% 16.3% 15.3%
FTSE / JSE All Share Index 26.7% 15.6% 9.4% 18.9%
MSCI World Equity Index in rands 22.3% 12.5% 3.8% 8.0%
COMMENT
Foreign assets, which comprise approximately 50% of the portfolio, returned 20% in ZAR and contributed almost half of
the aggregate portfolio return. Within foreign assets, the fund has achieved particular success in its distressed debt
exposure with gains manifesting after several years of patient anticipation. Returns from the foreign asset portfolio
were assisted by the depreciation of the rand over the year.
Most of the balance of the portfolio's return was driven by South African equity stock selection, which is made all the
more credible considering that the net exposure to South African equities was typically less than a quarter of the total
fund during the year. The investment in SA listed shares returned more than double the FTSE/JSE ALSI's return and
contributed more than half of the total portfolio return.
The listed property selection was again excellent, but given its continued relatively small (and reduced) weighting, only
contributed a small fraction of the total return. The contribution from the short SA government bond position
continued to be negative in isolation but this was mitigated by some paring of these positions during the year and the
continued benefit from the carry position into local corporate bonds and foreign assets.
The returns from each major asset class and their respective contributions to the total return of the portfolio are as
follows:
2012 2011
Return Contribution Return Contribution
SA shares 62.7% 12.7% 18.0% 5.5%
SA listed property 46.8% 0.6% 13.7% 1.2%
SA bonds -12.9% -2.6% -8.4% -3.1%
Foreign assets 20.0% 10.1% 20.4% 9.5%
SA cash 5.3% 2.2% 5.2% 1.8%
Total return for year 23.0% 14.9%
PORTFOLIO STRUCTURE
Consistent with the commentary in the 2011 preliminary report, the macro structure of the investment portfolio
continues to reflect the view that equities are the asset class of choice and are likely to be the only class to deliver
inflation beating returns in the medium term. However, given the recent rise in local and global equity markets, the
short-term risks associated with this view are being carefully managed. The effective exposure of the portfolio to
equities (local and foreign) has increased from 85% at the beginning of the year (and 59% at the half-year) to 93% of
the portfolio. As in 2011, a considerable proportion of the equity exposure has been obtained via the options market to
protect the portfolio against downside risk in the short term. The top five equity investments by value comprise: Aspen
Pharmacare, SABMiller, Steinhoff, Standard Bank and Sasol.
During the year, the overall short government bond exposure was reduced, predicated by the expected rally in local
bond prices after the announcement of the inclusion of South African government bonds in the Citigroup World
Government Bond index in the fourth quarter of 2012. The listed property holding was further reduced during the year,
and the gold ETF that was added as an inflationary hedge to complement the short US government bond position in
2011 remains in place, albeit reduced. Effective cash has reduced from 27% to 7% of the portfolio at year-end as short
bond positions were covered and equity exposure increased.
The effective asset structure of the investment portfolio at 31 December 2012 is as follows:
Domestic % Foreign % Total %
2012 2011 2012 2011 2012 2011
Equities 61 63 32 22 93 85
Listed property 2 6 0 0 2 6
Government bonds -16 -34 -9 -11 -25 -45
Corporate debt 2 8 20 16 22 24
Commodities 0 0 1 3 1 3
Effective cash -1 7 8 20 7 27
48 50 52 50 100 100
OUTLOOK
The Eurozone recession that was expected at the end of 2011 ensued and should continue through 2013. However, this
and Japanese economic weakness is expected to be offset by the Chinese economic recovery. US GDP growth is
expected to be positive, but lethargic. SA economic growth faces headwinds and should be sluggish and driven mainly
by consumption growth. As the portfolio's current positioning suggests, global equities continue to offer value relative
to other asset classes and are likely to continue their buoyant phase into Q1 2013, although particular attention must
be given to valuations given the strength of market returns in 2012. Very low interest rates are likely to persist until US
employment levels improve significantly.
The US dollar remains the currency of choice given its better growth prospects than any one of Europe, the UK or Japan
and its improving trade balance. Industrial commodities will probably benefit from increasing demand in the US and
Chinese economies, and competitive currency devaluation should continue to support the gold price. In South Africa,
the underpin to continued equity market strength is global demand for growth assets (with renewed confidence in
South Africa post-Mangaung and the discarding by the ruling ANC of nationalisation as a policy) and a relatively solid
outlook for corporate earnings. South African government bond valuations offer a perverse return-free risk, and remain
exposed to waning foreign appetite as inflation potentially rises above the target range. Although the same global
demand for growth assets might offer some support and stability to the rand, its fundamentals remain weak.
The portfolio is positioned to benefit from this macro view but remains globally diversified across economic sectors,
bond markets and currencies. Optionality within the portfolio provides additional protection and flexibility to change
exposures rapidly if required.
This reviewed preliminary report was prepared under the supervision of PE Cluer.
ANNOUNCEMENT
INTEREST PAYMENT AND ELECTION
Notice is hereby given that a debenture interest payment (number 51) of 48.991 cents per debenture in respect of the six
months ended 31 December 2012 is payable to debenture holders recorded in the debenture register of the company on the
record date. In compliance with the JSE Listings Requirements, the following dates are applicable:
Last date to trade Friday, 1 February 2013
Debentures trade ex-interest Monday, 4 February 2013
Record date Friday, 8 February 2013
Payment date Monday, 11 February 2013
IMPORTANT: ELECTION TO RECEIVE DEBENTURES IN LIEU OF A CASH INTEREST PAYMENT
As provided for in section 6.4 of the Debenture Trust Deed, the board has resolved that debenture holders recorded in the
debenture register at the close of business on the record date may elect to receive new fully paid Foord Compass Limited
Variable Rate debentures in lieu of a cash interest payment ("the debentures"). The motivation for this decision is to retain
cash and build capital for debenture holders. The tax implications of the settlement of the debenture interest payment by the
issue of 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 debentures in respect of all or a part of their interest entitlement,
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, 8
February 2013. Dematerialised debenture holders who wish to elect to receive debentures in respect of all or a part of their
interest entitlement must, in terms of the agreement between themselves and their Central Securities Depository Participant
(“CSDP”) or broker, instruct their CSDP or broker accordingly.
If the election to receive debentures is not made by dematerialised debenture holders by the cut-off time stipulated by their
CSDP or broker, or by 12:00 on Friday, 8 February 2013 in the case of certificated debenture holders, debenture holders will
be deemed to have elected to receive a cash interest payment. As indicated above, the last day to trade in the company’s
debentures on the JSE to ensure that a purchaser appears as an owner on the record date will be Friday, 1 February 2013. The
number of debentures to be issued (“the ratio”) will be determined with reference to the ex-interest net attributable asset
value per debenture as at 31 December 2012 of 811.2 cents. Accordingly, the ratio is 6.039 interest debentures for each 100
debentures held on the record date. Only rounded numbers of interest debentures will be issued based on conventional
rounding principles. No fractions will be paid. The right to receive debentures may not be traded on the JSE.
Subject to JSE approval of the debenture election, application will be made to the JSE Limited for a listing of the maximum
number of debentures to be issued with effect from the commencement of business on Monday, 4 February 2013. An
adjustment to the number of debentures listed will be made on or about Tuesday, 12 February 2013 in accordance with the
actual number of debentures issued having regard to the elections made.
Cheques and/or new debenture certificates will be posted to certificated debenture holders and the accounts updated and/or
credited by CSDPs or brokers of dematerialised debenture holders on or about Monday, 11 February 2013.
Signed on behalf of the board
DG WEST PE CLUER
17 January 2013
Directors: DG WEST (Chairman), PE CLUER, AD COWELL*, D FOORD**, JC VAN DER HORST, JC VAN NIEKERK
* Australian ** British
Company secretary: L GREVLER
www.foordcompass.co.za
Cape Town
18 January 2013
Sponsor
One Capital
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