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Conduit - Unaudited interim results and general issue of shares for cash

Release Date: 27/11/2006 08:15
Code(s): CND
Wrap Text

Conduit - Unaudited interim results and general issue of shares for cash Conduit Capital Limited Incorporated in the Republic of South Africa (Registration number: 1998/017351/06) Share code: CND & ISIN: ZAE000073128 ("Conduit Capital" or "the group") Unaudited interim results for the six months ended 31 August 2006 and general issue of shares for cash CONSOLIDATED INCOME STATEMENT Notes Unaudited Unaudited Audited six months six months year ended 31 ended 31 ended 28
Aug 2006 Aug 2005 Feb 2006 R"000 R"000 R"000 Revenue 13 445 3 300 6 377 Investment income 2 367 593 2 447 Other income 80 53 168 15 892 3 946 8 992 Depreciation 3.3 (575) (146) (307) Employee costs (6 558) (1 531) (4 380) Impairment of financial 3.5 (1) (87) (938) assets Operating leases (855) (493) (905) Interest paid (44) (9) (82) Other operating expenses (4 794) (2 790) (4 029) Share of associates" losses (13) (68) (152) 3 052 (1 178) (1 801) Impairment of goodwill 3.2 - - (22 219) Profit (Loss) before 3 052 (1 178) (24 020) taxation Taxation (1 440) 1 595 2 072 Profit (Loss) for the 1 612 417 (21 948) period Attributable to: Equity holders of the 443 417 (22 083) parent Minority interest 1 169 - 135 Profit (Loss) for the 1 612 417 (21 948) period Reconciliation of headline earnings: Equity holders of the 443 417 (22 083) parent"s share Loss on disposal of fixed - 6 6 assets Impairment of goodwill 3.2 - - 22 219 Headline earnings 443 423 142 Number of shares in issue ("000) 100 649 81 882 94 782 (net of treasury shares) Weighted average number of ("000) 96 567 81 882 85 901 shares Fully diluted number of ("000) 131 721 81 882 131 721 shares Earnings (Loss) per share (cents) 0,46 0,51 (25,71) Headline earnings (loss) (cents) 0,46 0,52 0,17 per share Fully diluted earnings (cents) 0,34 0,51 (25,71) (loss) per share Fully diluted headline (cents) 0,34 0,52 0,11 earnings per share SEGMENTAL ANALYSIS OF EARNINGS Trading E- Credit Head Total and commerce recovery office R"000 invest- R"000 & call R"000
ments centre R"000 R"000 Six months ended 31 August 2006 Revenue - 1 434 11 710 301 13 445 Investment income 2 080 20 25 242 2 367 Profit (Loss) 1 598 720 2 838 (2 104) 3 052 before taxation Profit (Loss) after 1 048 720 1 948 (2 104) 1 612 taxation Profit (Loss) 1 048 720 779 (2 104) 443 attributable to ordinary shareholders Headline earnings 1 048 720 779 (2 104) 443 (loss) Six months ended 31 August 2005 Revenue - 784 - 2 516 3 300 Investment income 321 12 - 260 593 Loss before (71) (442) - (665) (1 178) taxation Profit (Loss) after (71) (442) - 930 417 taxation Profit (Loss) (71) (442) - 930 417 attributable to ordinary shareholders Headline earnings (71) (442) - 936 423 (loss) Year ended 28 February 2006 Revenue - 1 810 1 614 2 953 6 377 Investment income 2 018 24 - 405 2 447 Operating profit 1 220 (110) 320 (3 231) (1 801) (loss) Loss before (17 353) (290) (3 146) (3 231) (24 020) taxation Loss after taxation (17 071) (290) (3 241) (1 346) (21 948) Loss attributable (17 071) (290) (3 376) (1 346) (22 083) to ordinary shareholders Headline earnings 1 502 (110) 90 (1 340) 142 (loss) CONSOLIDATED BALANCE SHEET Notes Unaudited Unaudited 31 Audited 28
31 Aug 2006 Aug 2005 Feb 2006 R"000 R"000 R"000 ASSETS Non-current assets 19 517 1 888 16 703 - Property, plant and 3.3 1 493 329 1 315 equipment - Goodwill 3.2 10 523 - 10 419 - Other intangible 281 206 381 assets - Deferred tax 65 - 569 - Investments in 146 - 181 associates - Investments held at 3.4 7 009 1 353 3 838 fair value Current assets 40 019 8 448 12 928 - Investments held at 3.4 1 319 2 030 1 194 fair value - Loans receivable 595 838 404 - Trade and other 6 516 2 280 6 064 receivables - Short term deposits 31 589 3 300 5 266 and cash Total assets 59 536 10 336 29 631 EQUITY AND LIABILITIES Total equity 23 362 6 331 21 805 - Share capital 1 006 819 948 - Share premium 13 726 3 529 9 182 - (Accumulated (20 074) 1 983 (20 517) deficit) Retained earnings - Shares to be issued 25 822 - 30 479 to vendors 20 480 6 331 20 092 - Minority interest 2 882 - 1 713 Non-current liabilities - Vendors for cash 1 767 - 1 767 Current liabilities 34 407 4 005 6 059 - Trade and other 33 386 3 884 4 624 payables - Short term 500 - 500 borrowings - Current tax payable 515 - 910 - Bank overdraft 6 121 25 Total equity and 59 536 10 336 29 631 liabilities Net asset value per (cents) 15,55 7,73 15,25 share ABRIDGED CONSOLIDATED CASH FLOW STATEMENT Unaudited Unaudited Audited year six months six months ended 28 Feb ended 31 Aug ended 31 Aug 2006
2006 2005 R"000 R"000 R"000 Net cash flows from operating 2 443 752 (2 706) activities Net cash flows from investing (2 046) 690 (893) activities Net cash flows from financing 25 945 - 5 782 activities Total cash movement for the 26 342 1 442 2 183 period Cash at the beginning of the 5 241 1 737 1 737 period Cash acquired - - 1 321 Total cash at the end of the 31 583 3 179 5 241 period CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share Share Non- Retained Shares Minority Total capital premium distribu- earnings to be interest R"000 R"000 R"000 table (Accumu- issued R"000 reserves lated to
R"000 deficit) vendors R"000 R"000 Balance at 1 819 3 529 - 1 566 - - 5 914 March 2005, as restated As 819 4 956 7 250 (6 977) - - 6 048 previously stated - (1 427) (7 250) 8 677 - - - Transitional reclassify- cations IFRS - - - (134) - - (134) adjustments Net income - - - 417 - - 417 for the period, as restated As - - - 452 - - 452 previously stated IFRS - - - (35) - - (35) adjustments Balance at 31 819 3 529 - 1 983 - - 6 331 August 2005, as restated Proceeds from 129 5 713 - - - - 5 842 issue of shares Costs of - (60) - - - - (60) issue of shares Acquisition - - - - 30 479 1 578 32 057 of interest in subsidiaries Net loss for - - - (22 500) - 135 (22 the period 365) Balance at 28 948 9 182 - (20 517) 30 479 1 713 21 805 February 2006 Issue of 58 4 599 - - (4 657) - - shares to vendors Costs of - (55) - - - - (55) issue of shares Net income - - - 443 - 1 169 1 612 for the period Balance at 31 1 006 13 726 - (20 074) 25 822 2 882 23 362 August 2006 NOTES TO THE CONSOLIDATED INTERIM RESULTS 1. Basis of preparation The group reports its financial results in accordance with International Financial Reporting Standards ("IFRS"). These interim results have therefore been prepared using accounting policies that comply with IFRS and with IAS 34: Interim Reporting. 2. Review of operations 2.1 The consolidated results that precede these notes contain the group"s interim financial results for the six months to 31 August
2006. It should be noted that no earnings from CICL Investment Holdings (Proprietary) Limited ("CICL") have been consolidated into the group"s earnings during the period under review. 2.2 The period under review was distinguished by: 2.2.1 the successful conclusion of negotiations to acquire in excess of 75% of the ordinary shares in CICL ("the CICL transaction"), the holding company of a diversified insurer and risk services group;
2.2.2 in the context of the CICL transaction, raising the capital required to: 2.2.2.1 discharge the cash portion of the purchase consideration for CICL; and
2.2.2.2 refinance the stake of CICL"s Black Economic Empowerment partner, Black Ginger 92 (Proprietary) Limited, in CICL. R65 million was raised by way of the private
placement of 65 million ordinary shares in Conduit Capital at 100 cents each ("the private placement"); 2.2.3 obtaining all regulatory and shareholder approvals
(other than FSB approval, which has since been obtained) required to implement the CICL transaction and the private placement; and 2.2.4 the solid performance of Anthony Richards & Associates
(Proprietary) Limited ("ARA") and the expansion of ARA"s call centre activities into outbound sales, including the sale of insurance products on behalf of CICL.
3. Effect of 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 as at 1 March 2004 ("the transition date"), which have in turn resulted in changes to the consolidated balance sheet and reserves as at 28 February 2005. 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: 3.1 IAS 1: Presentation of Financial Statements Certain balance sheet and income statement classifications have been amended after consideration of IAS 1. 3.2 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. 3.3 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. 3.4 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. 3.5 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. 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.
Reconciliations and descriptions of the effect of the transition from GAAP to IFRS on the group"s assets, liabilities, equity and profitability for the year ended 28 February 2005 and for the six months ended 31 August 2005, are provided below:
RECONCILIATION OF ASSETS, LIABILITIES AND EQUITY Assets R"000 Liabilities Equity R"000 R"000 28 February 2005 / 1 March 2005 As previously reported 8 566 2 234 6 332 Adjusted for: - Impairment of loans (339) - (339) receivable 8 227 2 234 5 993 IFRS restatements: - IAS 16: Property, plant 55 - 55 and equipment As initially reported under 8 282 2 234 6 048 IFRS Adjusted for: Additional IFRS restatements - IAS 16: Property, plant (134) - (134) and equipment As finally reported under 8 148 2 234 5 914 IFRS 31 August 2005 As initially reported under 10 505 4 005 6 500 IFRS Adjusted for: Additional IFRS restatements: - IAS 16: Property, plant (169) - (169) and equipment As finally reported under 10 336 4 005 6 331 IFRS FINAL IFRS IMPACT ON PROFIT ATTRIBUTABLE TO SHAREHOLDERS Restated 31
Aug 2005 R"000 Profit attributable to equity holders of the parent As initially reported under 452 IFRS Adjusted for: Additional IFRS restatements: - IAS 16: Property, plant and equipment (35) As finally reported under 417 IFRS 4. Contingent liabilities 4.1 As previously reported, a dormant subsidiary of the group received an assessment from the South African Revenue Services ("SARS"), reflecting an amount payable of R3,63 million relating to the alleged late payment of 1999 income tax. The group continues to seek information regarding the outstanding amount
from SARS and the group"s previous management. Records currently in the group"s possession do not reflect any amounts payable to SARS. 4.2 In the matter of Uthingo Management (Proprietary) Limited ("Uthingo") and the National Lotteries Board ("the NLB") on one hand and On Line Lottery Services (Proprietary) Limited ("Lottofun") on the other, in relation to the business of Lottofun and the use of the word "Lotto", judgement has been
given in favour of Uthingo and the NLB. Whilst Lottofun has applied for leave to appeal, neither the appeal nor its outcome will have a material impact on the group"s earnings going forward.
5. Commitments At the balance sheet dates, the group had outstanding commitments under non-cancellable operating leases, which fall due as follows: 31 Aug 2006 31 Aug 2005 28 Feb 2006
R"000 R"000 R"000 - Within one year 736 646 997 - After more than one year 1 241 8 1 732 1 977 654 2 729
6. Post balance sheet events 6.1 The CICL transaction and the private placement of shares for cash On 10 October 2006, final regulatory approval was obtained for the acquisition by the group of a significant controlling stake
(in excess of 75%) in CICL. The CICL transaction therefore became unconditional on that date and it was duly implemented on 16 October 2006, together with the private placement of shares (see paragraph 3.2.2.1), in accordance with the terms of the various
agreements. 6.2 Change of year-end On 1 November 2006, Conduit Capital"s board of directors passed a resolution to change the group"s financial year-end from the last
day of February to 31 August of each year. This will result in the group publishing: 6.2.1 interim results for the twelve month period ending on 28 February 2007; and
6.2.2 annual financial statements for the eighteen month period ending on 31 August 2007. 6.3 General issue of shares for cash Shareholders are referred to the section below that relates to
the general issue of shares for cash. 7. Conclusion The directors and management of Conduit Capital are satisfied with the progress made to date. Having integrated ARA into the group and successfully implemented the acquisition of CICL, the group is well poised to realise its strategic objectives and deliver significant profits in the year ahead. For and on behalf of the Board Jason D Druian Lourens E Louw Chief Executive Officer Financial Director Johannesburg 27 November 2006 GENERAL ISSUE OF SHARES FOR CASH ("the issue") Under the general authority to issue shares for cash, granted to the directors at the annual general meeting held on 1 November 2006, Conduit Capital will on 27 November 2006 raise R19,98 million by issuing 11,1 million shares with a par value of 1 (one) cent each to Investec Securities (Fund Management) at a price of 180 cents per share, which is not at a discount to the 30-day weighted average share price. The table below sets out the pro forma financial effects of the issue on the historical earnings, headline earnings, net asset value and tangible net asset value per share, based on the group"s results for the six-month period ended 31 August 2006. The pro forma financial effects have been prepared for illustrative purposes only, to provide information on how the issue may have impacted on the historical results and financial position of the group. Because of their nature, the pro forma financial effects may not give a fair reflection of the group"s financial position after the issue, or the effect of the issue on the group"s future earnings. The calculation of the pro forma financial effects is the responsibility of the directors. Six months Six months Change historical pro forma after
before the after the the issue issue issue (cents) (cents) (%) Earnings per share 0,46 (1) 0,98 (2) 113,04 Headline earnings per share 0,46 (1) 0,98 (2) 113,04 Net asset value per share 15,55 (3) 28,25 (4) 81,67 Tangible net asset value per 7,35 (3) 20,68 (4) 181,36 share Notes 1 Earnings per share and headline earnings per share, as set out in the "Six months historical before the issue" column, are based on the income statement of Conduit Capital for the six months ended 31 August 2006 and a weighted average number of 96 567 394 shares in issue. 2 Earnings per share and headline earnings per share, as set out in the "Six months pro forma after the issue" column, are based on the income statement of Conduit Capital for the six months ended 31 August 2006 and a weighted average number of 107 667 394 shares in issue and assuming that: 2.1 the issue was effective on 1 March 2006; 2.2 the proceeds of the issue were invested in an interest bearing account at an after tax rate of 6,25% per annum for the six months ended 31 August 2006; and 2.3 transaction costs of R20 000 were incurred. 3 Net asset value and net tangible asset value, as set out in the "Six months historical before the issue" column, are based on the balance sheet of Conduit Capital at 31 August 2006 and 131 720 555 shares in issue. 4 Net asset value and net tangible asset value per share, as set out in the "Six months pro forma after the issue" column, are based on the balance sheet of Conduit Capital at 31 August 2006, 142 820 555 shares in issue and assuming that: 4.1 the issue became effective on 31 August 2006; and 4.2 share issue costs of R100 000 were written off against share premium. 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) Sponsor: Merchant Sponsors (Proprietary) Limited Date: 27/11/2006 08:15:31 AM Supplied by www.sharenet.co.za Produced by the JSE SENS Department

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