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CND - Conduit Capital - Audited Results For The Year Ended 31 August 2009

Release Date: 09/11/2009 10:54
Code(s): CND
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CND - Conduit Capital - Audited Results For The Year Ended 31 August 2009 CONDUIT CAPITAL LIMITED Incorporated in the Republic of South Africa (Registration number: 1998/017351/06) Share code: CND & ISIN: ZAE000073128 ("Conduit" or "Conduit Capital" or "the group") AUDITED RESULTS FOR THE YEAR ENDED 31 AUGUST 2009 CONSOLIDATED INCOME STATEMENT Audited Audited 31 Aug 31 Aug `09 R`000 `08 R`000 CONTINUING OPERATIONS Gross revenue 816,394 1,434,478 Net insurance revenue 216,000 237,722 Other operating revenue 98,812 91,656 Net revenue 314,812 329,378 Operating expenses (299,150) (314,176) - Direct expenses: Insurance and risk services (168,928) (179,782) - Administration and other expenses (52,926) (56,442) - Depreciation and amortisation (3,019) (3,014) - Employee costs (74,277) (74,938) Operating profit 15,662 15,202 Income from associates 2,171 1,856 Investment income 18,607 14,831 Other income (expenses) 3,208 (51) Finance charges (3,568) (5,308) Impairment of goodwill - (185) Profit before taxation 36,080 26,345 Taxation (11,454) (7,052) Profit for the year from continuing operations 24,626 19,293 DISCONTINUED OPERATION Profit for the year from discontinued operation - 3,644 Profit for the year 24,626 22,937 Attributable to: Ordinary shareholders 15,740 15,182 Minority interest 8,886 7,755 - Continuing operations 8,886 5,935 - Discontinued operation - 1,820 Profit for the period 24,626 22,937 Earnings per share (cents) 6.29 6.54 - Continuing operations 6.29 5.75 - Discontinued operation - 0.79 Diluted earnings per share (cents) 6.26 6.51 - Continuing operations 6.26 5.73 - Discontinued operation - 0.78 Headline earnings per share (cents) 5.78 6.38 - Continuing operations 5.78 5.74 - Discontinued operation - 0.64 Diluted headline earnings per share (cents) 5.75 6.36 - Continuing operations 5.75 5.72 - Discontinued operation - 0.64 SEGMENTAL ANALYSIS FOR CONTINUING OPERATIONS Head Insurance Direct
office & and risk R`000 treasury services R`000 R`000 Audited - year ended 31 August 2009 Gross revenue - 751,174 63,298 Net revenue - 249,592 63,298 Investment income 1,483 16,004 705 Profit (loss) before taxation (9,912) 26,307 19,053 Attributable earnings (loss) (8,348) 18,549 5,189 Minority interest - 1,040 7,784 Total assets 15,291 693,969 35,704 Total liabilities (493,587) (2,996) (7,112) Capital expenditure 14 4,573 1,015
Audited - year ended 31 August 2008 Gross revenue 48 1,389,588 43,127
Net revenue 48 284,488 43,127 Investment income 3 14,507 247
Profit (loss) before taxation (8,970) 30,604 7,623 Attributable earnings (loss) (8,250) 21,933 2,118
Minority interest - 2,757 3,178 Total assets 9,267 1,059,241 30,416
Total liabilities (2,943) (880,376) (7,799) Capital expenditure 313 4,408 1,758
Financial Private Total services equity R`000 R`000 R`000
Audited - year ended 31 August 2009 Gross revenue - 1,922 816,394
Net revenue - 1,922 314,812 Investment income 330 85 18,607
Profit (loss) before taxation 47 585 36,080 Attributable earnings (loss) 47 303 15,740
Minority interest - 62 8,886 Total assets 5,052 1,468 751,484
Total liabilities (15) (504,973) (1,263) Capital expenditure - - 5,602
Audited - year ended 31 August 2008 Gross revenue 31 1,684 1,434,478 Net revenue 31 1,684 329,378 Investment income - 74 14,831 Profit (loss) before taxation (3,318) 406 26,345 Attributable earnings (loss) (2,663) 220 13,358 Minority interest - - 5,935 Total assets 21,062 1,162 1,121,148 Total liabilities (8) (892,261) (1,135) Capital expenditure 306 29 6,814 CONSOLIDATED BALANCE SHEET Audited Audited
31 Aug 31 Aug `09 `08 R`000 R`000 ASSETS Non-current assets 91,911 123,716 - Property, plant and equipment 15,648 23,952 - Intangible assets 46,440 46,646 - Loans receivable 5,917 2,293 - Deferred taxation 6,830 6,168 - Investment properties 8,545 15,791 - Investments in associates 2,469 4,602 - Investments held at fair value 6,062 24,264 Current assets 644,673 997,432 - Insurance assets 269,744 678,029 - Investments held at fair value 858 569 - Trade and other receivables 87,209 95,328 - Taxation 12,012 10,463 - Cash and cash equivalents 274,850 213,043 Non-current assets held for sale 14,900 - Total assets 751,484 1,121,148 EQUITY AND LIABILITIES Shareholders` equity and reserves 246,511 228,887 - Ordinary share capital and share 199,155 199,220 premium - Retained earnings 31,729 15,989 - Share based payment reserve 1,004 604 Equity attributable to equity holders of 231,888 215,813 the parent Minority shareholders` interest 14,623 13,074 Non-current liabilities 52,245 52,962 - Policyholder liabilities under insurance 24,548 23,662 contracts - Interest bearing borrowings 18,873 22,166 - Deferred taxation 8,824 7,134 Current liabilities 452,728 839,299 - Insurance liabilities 332,031 747,963 - Vendors for cash 90 3,049 - Trade and other payables 111,036 80,598 - Current portion of interest-bearing 5,566 5,142 borrowings - Taxation 3,991 2,501 - Bank overdraft 14 46
Total equity and liabilities 751,484 1,121,148 Net asset value per share (cents) 92.65 86.23 Tangible net asset value per share (cents) 74.10 67.59 CONDENSED CONSOLIDATED CASH FLOW STATEMENT Audited Audited 31 Aug 31 Aug `09 `08
R`000 R`000 Net cash flows from operating activities 54,422 22,870 - Continuing operations 54,422 19,759 - Discontinued operation - 3,111 Net cash flows from investing activities 18,885 43,575 - Continuing operations 18,885 43,874 - Discontinued operation - (299) Net cash flows from financing activities (10,046) (21,184) - Continuing operations (10,046) (13,227) - Discontinued operation - (7,957) Total cash movement for the year 63,261 45,261 Cash at the beginning of the year 212,997 179,474 Cash disposed of (1,422) (11,738) Total cash at the end of the year 274,836 212,997 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share Retained Other Minority Total R`000 capital earnings reserves interest and share R`000 R`000 R`000 premium
R`000 Balance at 31 August 170,315 807 19,193 40,194 230,509 2007 Net proceeds from 28,905 - (18,905) - 10,000 issue of shares Disposal of interest - - - (31,361) (31,361) in subsidiaries Profit for the year - 15,182 - 7,755 22,937 Equity options - - 316 - 316 issued to executives Dividends paid - - - (3,514) (3,514) Balance at 31 August 199,220 15,989 604 13,074 228,887 2008 Net cost of issuing (65) - - - (65) shares Disposal of interest - - - (2,248) (2,248) in subsidiaries Profit for the year - 15,740 - 8,886 24,626 Equity options - - 400 - 400 issued to executives Dividends paid - - - (5,089) (5,089) Balance at 31 August 199,155 31,729 1,004 14,623 246,511 2009 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of preparation These summarised consolidated results have been prepared using accounting policies compliant with IAS 34: Interim Financial Reporting, International Financial Reporting Standards ("IFRS"), the Companies Act (Act 61 of 1973), as amended and the Listings requirements of JSE Limited. The accounting policies used are consistent with those of the prior year. 2. Changes in share capital Details of shares in issue as at the balance sheet dates are as follows: 31 Aug 31 Aug `09 `08
`000 `000 Number of shares in issue 250,277 250,277 - Shares in issue 256,380 256,380 - Shares held as treasury shares (6,103) (6,103) Weighted average number of shares 250,277 232,166 - Shares in issue 256,380 238,269 - Shares held as treasury shares (6,103) (6,103) Diluted weighted average number of shares 251,449 233,095 - Shares in issue 257,552 239,198 - Shares held as treasury shares (6,103) (6,103) 3. Disposal of subsidiaries Conduit Capital disposed of a number of minor subsidiaries for a total consideration of R4 million. This resulted in a profit on disposals of R1.7 million. There were no changes to goodwill as a result of the disposals. 4. Reconciliation of headline earnings 31 Aug 31 Aug `09 `08
R`000 R`000 Profit for the period from continuing 24,626 19,293 operations Minority interest in profit from continuing (8,886) (5,935) operations Earnings from continuing operations 15,740 13,358 attributable to ordinary shareholders (Profit) loss on disposal of subsidiaries (2,597) 193 After tax loss (profit) on revaluation of 1,294 (302) properties Unclaimed shares written back - (125) Loss on disposal of property, plant and 27 23 equipment (net of tax) Impairment of goodwill - 185 Headline earnings from continuing operations 14,464 13,332 Headline earnings from discontinued - 1,485 operation Attributable profit for the period from - 1,824 discontinued operation Negative goodwill on acquisition of - (339) subsidiary Headline earnings 14,464 14,817 5. Contingent liabilities 5.1 Contingent rent is payable in respect of parking bays for which no rental agreement exists. 5.2 The group`s bankers have issued the following guarantees on behalf of the group: 5.2.1 CBS Property Portfolio Limited for office rent R221,168 South African Post Office Limited for postage R100,000 5.2.2 The guarantees are secured by corresponding cash deposits held at the banks who have issued the guarantees.
6. Directors Gavin Toet was appointed as an Executive Director on 8 September 2009. There were no other changes to the directorate since the interim results were published on 7 May 2009. 7. Dividends The directors recommended no dividend payment to ordinary shareholders for the year ended 31 August 2009 (2008: Nil). 8. Post balance sheet events There were no material post balance sheet events. 9. Audit opinion Grant Thornton has audited the financial information set out in this audited report. Their unqualified audit report is available for inspection at the group`s registered office. COMMENTARY GROUP OPERATIONAL REVIEW 1. HEAD OFFICE AND TREASURY Shareholders will be pleased to note that group cash and near cash resources available for investment increased to approximately R150 million (2008: R130 million). These resources are classified separately from operating working capital. The group`s net asset value increased to 92.65 cents per share (2008: 86.23 cents). Net tangible asset value in turn, improved to 74.10 cents per share (2008: 67.59 cents). By March of 2009 the listed equities portfolio had been actively managed down to less than 1% of total net assets. While this safeguarded against the sharp decline in equities in the first half of the year we observed the rebound in markets from the sidelines. Notwithstanding that the future direction of the equities markets is in our opinion still uncertain, the sharp decline in interest rates has significantly lowered the return on cash justifying a change to our investment strategy going forward. Accordingly, we have allocated a reasonable percentage of capital to alternative/equity and enhanced yield investments which include: listed preference shares, government securities, third party commercial loan funding, direct equity investments and various equity funds. The investment mix has been carefully considered by the group`s investment committee and falls well within prudential limits and the asset spread guidelines of the subsidiaries. The funds allocated to these portfolios will be deployed over a six month period. 2. CONDUIT INSURANCE AND RISK SERVICES Underwriting The Insurance and Risk Services division performed in line with expectation and management and staff should be commended on their achievements in a particularly challenging economic environment. Reinsurance The reinsurance arrangements for the 2009/2010 financial year have been structured to better reflect the underlying risk and high solvency levels of Constantia Insurance Company Limited ("CICL"). The cancellation of underperforming portfolios has released valuable capital reserves that will allow us to retain more quality premium for our own account without compromising solvency or our valued reinsurance relationship. Although this strategy is not likely to produce a meaningful increase in underwriting profit in the short term, it does represent an improved allocation of capital and overall confidence in our ability to effectively manage and evaluate the risks we insure. Statutory funding ratio and credit rating The positive trend in the statutory funding ratio of CICL continued into the second six months of the year. The local solvency measure increased from 38% at 31 August 2008 to 67% at 31 August 2009, which amounts to more than four times the statutory requirement. On an international basis the solvency margin also increased from 64% to 73% year-on-year. CICL`s global credit rating remains unchanged at an A-. 3. CONDUIT DIRECT Anthony Richards & Associates (Proprietary) Limited ("ARA") ARA continues to excel and have once again delivered sterling results in spite of a generally volatile and demanding credit environment. As evidenced by the award of additional contracts and performance statistics provided by its clients, ARA has firmly embedded its position in the top tier of credit recovery agencies in the country. The addition of value added services and the remarkable dedication to improved recovery methodologies, innovation and focus on core competence often results in ARA being selected as the supplier of choice where existing strategies are not proving optimally effective. Constant additions to the technological infrastructure provide ARA with the ability to strike a balance between collection ratios, cost efficiencies and profitability for both client and company. ARA`s collection book is at levels that suggest persistent performance and increased profitability in the year ahead. 4. CONDUIT PRIVATE EQUITY On Line Lottery Services (Proprietary) Limited ("Lottofun") The group is pleased to report that in the matter between Gidani (the National Lotteries Operator), the National Lotteries Board and Lottofun, the Supreme Court of Appeal ("SCA") held that the word "Lotto" is a generic term and that the "Lotto" trademark belonging to the National Lotteries Board should be struck off the trademark registers. The SCA further ruled that Lottofun`s business does not contravene the National Lotteries Act and furthermore that Lottofun is not "passing off" as being associated with either the National Lotteries Board or the Operator. A cost award was given to Lottofun, with the result that the appeal was successful on all counts. CONCLUSION In the 2008 Annual financial statements we reported that we expected the financial crisis to continue into the next year during which time we would maintain our conservative investment strategy while we focussed on existing operations. Indeed, this was the case as we patiently observed the financial crisis deepen and investment markets reel in the face of massive corporate bankruptcies and panic. Fortunately, that very internal focus and conservatism we spoke of assisted us in not only protecting shareholder wealth but increasing it over this period. For 2010 our challenge is quite different as we embark on measured product, marketing, technology and distribution development initiatives. Accompanying this more expansive strategy will be the ongoing investment in key individuals critical to the success of each programme. The implementation of these initiatives is a sound and necessary investment in the group`s future but will require the group to incur costs and will take time to mature. Whilst the investment in people and resource is paramount to our growth, so is our desire to seek out opportunities to expand our activities beyond their existing scope. We look forward to a more adventurous 2010. For and on behalf of the Board Jason D Druian Lourens E Louw Chief Executive Officer Financial Director Johannesburg 6 November 2009 Directors: Executive directors: Jason D Druian (Chief Executive Officer), Lourens E Louw (Financial Director), Stanley D Shane, Gavin Toet Non-executive directors: Reginald S Berkowitz (Chairman), Scott M Campbell, G'nter Z Steffens OBE Company secretaries: Probity Business Services (Proprietary) Limited Third Floor, JHI House, 11 Cradock Avenue Rosebank, 2196 Registered address: Unit 7 Tulbagh, 360 Oak Avenue, Randburg, 2194 PO Box 97, Melrose Arch, 2076 Telephone: 011 686 4200 Facsimile: 011 789 3709 Transfer secretaries: Computershare Investor Services (Proprietary) Limited Ground Floor, 70 Marshall Street Johannesburg, 2001 Auditors: Grant Thornton Chartered Accountants (SA) Registered Auditors Member of Grant Thornton International Sponsor: Merchantec (Proprietary) Limited Date: 09/11/2009 10:54:01 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. 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