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Conduit Capital - Reviewed Provisional Results: Year Ended 28 February 2006
CONDUIT CAPITAL LIMITED
(Formerly IMR Investments Limited)
Incorporated in the Republic of South Africa
(Registration number: 1998/017351/06)
Share code: CND & ISIN: ZAE000073128
("Conduit Capital" or "the Group")
REVIEWED PROVISIONAL RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2006
CONSOLIDATED INCOME STATEMENT
Reviewed
and
Reviewed restated
28 28
February February
2006 2005
Notes R"000 R"000
Revenue 6 545 2 359
Investment income 2 447 442
8 992 2 801
Employee costs (4 380) (2 562)
Depreciation 2.3 (307) (311)
Impairment of financial assets 2.5 (938) (1 601)
Operating leases (905) (1 028)
Interest paid (82) (1)
Other operating expenses (4 029) (3 328)
Share of associates" losses (147) (754)
(1 796) (6 784)
Impairment of goodwill 2.2 & 3.1 (22 219) (215)
Loss before taxation (24 015) (6 999)
Taxation 2 072 6 737
Loss for the year (21 943) (262)
Attributable to:
Equity holders of the parent (22 083) (262)
Minority interest 140 -
Loss for the year (21 943) (262)
Reconciliation of headline
earnings/(loss):
Equity holders of the parent"s
share (22 083) (262)
Loss on disposal of fixed assets 6 33
Impairment of goodwill 2.2 & 3.1 22 219 215
Headline earnings/(loss) 142 (14)
Number of shares in issue (net of
treasury shares) ("000) 94 782 81 882
Weighted average number of shares ("000) 85 901 81 888
Fully diluted number of shares ("000) 122 839 81 888
Loss per share (cents) (25,71) (0,32)
Headline earnings/(loss) per share (cents) 0,17 (0,02)
Fully diluted loss per share (cents) (25,71) (0,32)
Fully diluted headline
earnings/(loss) per share (cents) 0,12 (0,02)
CONSOLIDATED BALANCE SHEET
Reviewed
and
Reviewed restated
28 28
February February
2006 2005
Notes R"000 R"000
ASSETS
Non-current assets 16 703 2 891
- Property, plant and equipment 2.3 1 325 383
- Goodwill 2.2 & 3.1 10 419 -
- Other intangible assets 371 240
- Deferred tax 569 -
- Investments in associates 181 -
- Investments held at fair value 2.4 3 838 2 268
Current assets 12 928 5 257
- Investments held at fair value 2.4 1 194 1 953
- Loans receivable 703 1 292
- Trade and other receivables 5 765 272
- Short term deposits and cash 5 266 1 740
Total assets 29 631 8 148
EQUITY AND LIABILITIES
Total equity 21 805 5 914
- Share capital 948 819
- Share premium 9 182 3 529
- (Accumulated deficit)/Retained
earnings (20 517) 1 566
- Shares to be issued to vendors 3.1 30 479 -
20 092 5 914
- Minority interest 1 713 -
Non-current liabilities
- Vendors for cash 3.1 1 767 -
Current liabilities 6 059 2 234
- Trade and other payables 4 624 2 231
- Short term borrowings 500 -
- Current tax payable 910 -
- Bank overdraft 25 3
Total equity and liabilities 29 631 8 148
Net asset value per share (cents) 16,36 7,22
ABRIDGED CONSOLIDATED CASH FLOW STATEMENT
Reviewed
and
Reviewed restated
28 28
February February
2006 2005
R"000 R"000
Net cash flows from operating activities (2 706) (3 946)
Net cash flows from investing activities (893) (251)
Net cash flows from financing activities 5 782 (11)
Total cash movement for the year 2 183 (4 208)
Cash at the beginning of the year 1 737 5 945
Cash acquired 1 321 -
Total cash at the end of the year 5 241 1 737
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Retained
Non earnings/
distributa- Accumu-
Share Share ble lated
capital premium reserve deficit
R"000 R"000 R"000 R"000
Balance at 1 March 2004 as
restated 820 3 539 - 1 828
- As previously stated 820 4 966 7 165 (6 721)
- Transitional
reclassifications - (1 427) (7 165) 8 592
- Other adjustments - - - (5)
- IFRS adjustments - - - (38)
Treasury stock set-off (1) (10) - -
Net loss for the year, as
restated - - - (262)
- As previously stated - - 85 28
- Other adjustments - - (85) (249)
- IFRS adjustments - - - (41)
Balance at 28 February
2005 as restated 819 3 529 - 1 566
Proceeds from issue of
shares 129 5 713 - -
Costs of issue of shares - (60) - -
Acquisition of interest in
subsidiaries - - - -
Loss for the year - - - (22 083)
Balance at 28 February 2006 948 9 182 - (20 517)
Shares
to be
issued
to Minority
vendors interest Total
R"000 R"000 R"000
Balance at 1 March 2004 as restated - - 6 187
- As previously stated - - 6 230
- Transitional reclassifications - - -
- Other adjustments - - (5)
- IFRS adjustments - - (38)
Treasury stock set-off - - (11)
Net loss for the year, as restated - - (262)
- As previously stated - - 113
- Other adjustments - - (334)
- IFRS adjustments - - (41)
Balance at 28 February 2005 as restated - - 5 914
Proceeds from issue of shares - - 5 842
Costs of issue of shares - - (60)
Acquisition of interest in subsidiaries 30 479 1 573 32 052
Loss for the year - 140 (21 943)
Balance at 28 February 2006 30 479 1 713 21 805
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of preparation
The Group is reporting its annual financial statements, for the first time, in
accordance with International Financial Reporting Standards ("IFRS"). The date
of transition from South African statements of Generally Accepted Accounting
Practice ("GAAP") to IFRS is 1 March 2004 ("the transition date"). These
financial statements have therefore been prepared using accounting policies
compliant with IFRS.
2. Effect of first time adoption of IFRS
In terms of IFRS 1: First Time Adoption of International Financial Reporting
Standards, the Group has restated its opening consolidated balance sheet and
reserves at 1 March 2004, the consolidated balance sheet as at 28 February 2005
and the consolidated income statement for the year then ended. There has been
no adjustment to the cash flows as previously reported.
The Group has elected to utilise the following transitional provisions on the
adoption of IFRS:
* the cumulative translation differences on foreign operations have been deemed
to be zero at the transition date;
* negative goodwill arising from business combinations before the transition
date has been recognised; and
* corresponding adjustments have been made to retained earnings at the
transition date for the aforementioned changes.
Following the aforementioned changes, the portion of the treasury shares
that had previously been set off against non-distributable reserves has been
set off against share premium.
The following changes in accounting policies were made on the adoption of IFRS
and comparative figures have been adjusted accordingly:
2.1 IAS 1: Presentation of Financial Statements
Certain balance sheet and income statement classifications have been amended
after consideration of IAS 1.
2.2 IFRS 3: Business Combinations, IAS 36: Impairment of Assets and IAS 38:
Intangible Assets
Business combinations after the transition date and the related goodwill
arising on the difference between the cost of the acquisition and the Group"s
share of the identifiable assets and liabilities of the acquiree at the date of
acquisition, have been accounted for in terms of IFRS 3, IAS 36 and IAS 38. In
terms of these standards, goodwill is tested annually for impairment and is
carried at cost less accumulated impairment losses.
Goodwill arising prior to the transition date required no adjustment as it had
been fully impaired at 28 February 2005. Negative goodwill at the transition
date has been reclassified as set out above.
2.3 IAS 16: Property, plant and equipment
The useful lives and residual values of property, plant and equipment have been
reassessed in terms of IAS 16 and the related carrying values and depreciation
charges have been restated accordingly.
2.4 IAS 39: Financial Instruments - Recognition and Measurement
Investments that were previously classified as available for sale and held for
trading have been classified as held at fair value through profit and loss. As
the fair value adjustments on available for sale and held for trading
investments had previously been recognised in income, this reclassification did
not result in any adjustment to income.
2.5 Other adjustments
IAS 21: The Effects of Changes in Foreign Exchange Rates
In terms of IAS 21, foreign operations that are integral to the Group must be
measured in the functional currency of the Group and the effects of any changes
in foreign exchange rates must therefore be recognised in income. These changes
were previously charged directly to equity and the appropriate adjustments have
therefore been made to the 2005 income statement.
Impairment of financial assets
In terms of IAS 39, where there is evidence that loans or receivables should be
impaired, an amount equivalent to the difference between the asset"s carrying
amount and the net present value of the estimated future cash flows associated
with the asset must be debited against the income statement. IAS 39 was not
applied in the 2005 annual financial statements and the prior year figures have
therefore been restated to account for the impairment of certain loans and
receivables at 28 February 2004 and 28 February 2005.
Reconciliations and descriptions of the effect of the transition from GAAP to
IFRS on the Group"s assets, liabilities, equity and profitability, are provided
below:
RECONCILIATION OF ASSETS, LIABILITIES AND EQUITY AT TRANSITION DATE
Assets Liabilities Equity
R"000 R"000 R"000
1 March 2004
As previously stated 14 292 8 062 6 230
Adjusted for:
- Impairment of loans receivable (5) - (5)
14 287 8 062 6 225
IFRS restatements:
- IAS 16: Property, plant and equipment (38) - (38)
As reported under IFRS 14 249 8 062 6 187
28 February 2005
As previously stated 8 566 2 234 6 332
Adjusted for:
- Impairment of loans receivable (339) - (339)
8 227 2 234 5 993
IFRS restatements:
- IAS 16: Property, plant and equipment (79) - (79)
As reported under IFRS 8 148 2 234 5 914
IFRS IMPACT ON (LOSS)/PROFIT ATTRIBUTABLE TO SHAREHOLDERS
Reviewed
and
restated
28
February
2005
R"000
Profit attributable to equity holders of the parent
As previously reported 28
Adjusted for:
- Reclassification of changes in foreign exchange rates 85
- Impairment of loans receivable (334)
(221)
IFRS restatements:
- IAS 16: Property, plant and equipment (41)
As reported under IFRS (262)
3. Acquisitions of Marble Gold 213 (Proprietary) Limited ("MG") and Anthony
Richards and Associates (Proprietary) Limited ("ARA")
3.1 During the year, the Group acquired the entire share capital of MG and a
40% interest in the share capital of ARA. A portion of the purchase
consideration for these acquisitions is to be settled by the issue of shares
in Conduit Capital ("the consideration shares") over the next 3 years.
In terms of IFRS 3, the Group has treated the consideration shares as equity
instruments ("Shares to be issued to vendors") and has accounted for such on
the respective acquisitions" implementation dates at the estimated fair values
on the future dates of issue, discounted to a net present value. The portion of
the purchase consideration to be settled in cash has been recognised as a
liability.
As there were significant increases in the value of Conduit Capital"s shares
between the dates on which the respective agreements were signed and the
respective implementation dates, substantial additional goodwill arose for each
acquisition. In terms of IFRS, these goodwill amounts were tested for
impairment and the appropriate impairment debits of R22,22 million have been
raised through the income statement, hence the reason for the distorted income
statement loss of R21,94 million for the year ended February 2006, compared to
headline earnings of R0,14 million for the same period.
3.2 The Group has an option to acquire a further 10% interest in ARA from
ARA"s minority shareholders. The option must be exercised by 31 December 2006
and can only be exercised if, at the time of exercise of the option, Black
Economic Empowerment shareholders own at least 30% of the shares in the
Group.
4. Contingent liabilities
4.1 A dormant subsidiary of the Group has received an assessment from the
South African Revenue Services ("SARS"), reflecting an amount payable of
R3,63 million that relates to the late payment of 1999 income tax. Further
information regarding the outstanding amount is being sought from SARS and
the previous management of the Group, as records in the Group"s possession do
not reflect any amounts payable to SARS.
4.2 There is currently litigation between Uthingo Management (Proprietary)
Limited and the National Lotteries Board on the one hand and On Line
Lottery Services (Proprietary) Limited ("Lottofun"), a Group subsidiary, on
the other hand, relating to Lottofun"s business and the use of the word
"Lotto". The matter has been heard and judgement is expected in due course.
The outcome of this litigation will not have a material impact on the
Group"s earnings.
5. Commitments
At the balance sheet date, the Group had outstanding commitments under
non-cancellable operating leases, which fall due as follows:
2006 2005
R"000 R"000
- Within one year 997 939
- After more than one year 1 732 276
2 729 1 215
6. Post balance sheet events
Acquisition of a significant controlling stake in CICL Investment Holdings
(Proprietary) Limited ("CICL") ("the CICL transaction") and issue of shares for
cash.
As announced on 16 March 2006, Conduit Capital has concluded a number of
agreements to acquire a significant controlling stake (in excess of 75%) in
CICL, the holding company of a diversified insurer and risk services Group,
which derives its revenue from both risk and non-risk bearing activities.
CICL"s group premium income for the year to 31 August 2005 exceeded R1,12
billion, while net profit before taxation amounted to R34,66 million.
The CICL transaction is subject to regulatory and shareholder approval and a
circular containing further details regarding the transaction and incorporating
a notice of a general meeting of shareholders will be sent to shareholders in
due course.
In the context of and to fund the CICL transaction the Group has reached
agreement with various high net worth individuals and funds in terms whereof
such parties have agreed to subscribe for 65 million ordinary shares in Conduit
Capital at one rand per share. These agreements are subject to the CICL
transaction being implemented and all other requisite approvals being obtained.
7. Review opinion
Grant Thornton has reviewed the financial information set out in this
provisional report.
Their review report is available for inspection at the Group"s registered
office.
8. Conclusion
Conduit Capital is satisfied with the progress made in the first financial year
under new management. Operating losses were stemmed, cash resources increased,
litigation matters settled and profitable investments made. Most notably, the
ARA acquisition and the pending implementation of the CICL transaction present
significant prospects for the Group.
For and on behalf of the Board
Jason D Druian Lourens E Louw
Chief Executive Officer Financial Director
Johannesburg
2 June 2006
Directors:
Executive directors: Jason D Druian (CEO), Paul Diamond, Lourens E Louw,
Stanley D Shane
Non-executive directors: Reginald S Berkowitz, Scott M Campbell, Megan Kruger
Company secretaries:
Gruzzet Secretarial and Trust Company (Proprietary) Limited
2nd Floor, 3 Sturdee Avenue
Rosebank, 2196
Registered address:
1st Floor, 3 Melrose Square
Melrose Arch, 2076
PO Box 97, Melrose Arch, 2076
Telephone: (011) 684-1055/6/7
Facsimile: (011) 684-1058
Transfer secretaries:
Computershare Investor Services 2004 (Proprietary) Limited
(Registration number: 2004/003647/07)
Ground Floor, 70 Marshall Street
Johannesburg, 2001
Auditors:
Grant Thornton
Chartered Accountants (SA)
Member firm of Grant Thornton International
137 Daisy Street, Cnr Grayston Drive
Sandton, 2196
Telephone: (011) 322-4500
Facsimile: (011) 322-4545
Date: 02/06/2006 05:15:17 PM Supplied by www.sharenet.co.za
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