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CND - Conduit Capital Limited - Condensed consolidated preliminary audited
results for the year ended 31 August 2010
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")
CONDENSED CONSOLIDATED PRELIMINARY AUDITED RESULTS FOR THE YEAR ENDED 31 AUGUST
2010
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Audited Audited
31 August 31 August
2010 2009
R`000 R`000
Gross revenue 771 207 816 394
Net insurance revenue 296 457 216 000
Other operating revenue 87 573 98 812
Net revenue 384 030 314 812
Operating expenses (374 304) (299 150)
- Direct expenses: Insurance and risk (246 314) (168 928)
services
- Administration and other expenses (54 963) (52 926)
- Depreciation and amortisation (3 152) (3 019)
- Employee costs (69 875) (74 277)
Operating profit 9 726 15 662
Income from associates 57 2 171
Investment income 18 119 18 607
Other income 3 790 3 208
Finance charges (2 097) (3 568)
Profit before taxation 29 595 36 080
Taxation (6 006) (11 454)
Profit for the year 23 589 24 626
Other comprehensive income - -
Total comprehensive income 23 589 24 626
Attributable to:
Equity holders of the parent 11 389 15 740
Non-controlling interest 12 200 8 886
Profit for the year 23 589 24 626
Earnings per share (cents) 4.55 6.29
Diluted earnings per share (cents) 4.48 6.26
Headline earnings per share (cents) 4.55 5.78
Diluted headline earnings per share (cents) 4.48 5.75
CONDENSED SEGMENTAL ANALYSIS OF EARNINGS
Head Conduit Conduit Conduit
office Insurance Direct Financia
and and risk R`000 l
treasury services services
R`000 R`000 R`000
Audited - year ended 31
August 2010
Gross revenue 12 709 696 611 72 931 458
Net revenue 12 709 309 434 72 931 458
Investment income 9 094 12 608 688 80
Profit before taxation 1 649 8 971 22 903 202
Attributable earnings 3 022 6 307 6 187 149
Non-controlling interest - 2 878 9 283 -
Total assets 176 919 642 754 42 546 5 177
Total liabilities (2 785) (575 460) (21 052) (5 783)
Capital expenditure 307 796 2 031 6
Conduit Consoli- Total
Private dation R`000
equity R`000
R`000
Audited - year ended 31
August 2010 (continued)
Gross revenue 1 655 (13 157) 771 207
Net revenue 1 655 (13 157) 384 030
Investment income 51 (4 402) 18 119
Profit before taxation 270 (4 400) 29 595
Attributable earnings 124 (4 400) 11 389
Non-controlling interest 39 - 12 200
Total assets 1 417 (151 200) 717 613
Total liabilities (1 804) 148 834 (458
050)
Capital expenditure 8 (38) 3 110
Head Conduit Conduit Conduit
office Insurance Direct Financia
and and risk R`000 l
treasury services services
R`000 R`000 R`000
Audited - year ended 31
August 2009
Gross revenue 7 190 752 039 63 298 189
Net revenue 7 190 250 457 63 298 189
Investment income 5 429 15 140 705 49
Profit/(Loss) before (938) 20 132 19 054 47
taxation
Attributable earnings 626 12 374 5 190 47
Non-controlling interest - 1 040 7 784 -
Total assets 173 896 694 054 35 705 5 121
Total liabilities (3 147) (631 645) (18 681) (5 876)
Capital expenditure 14 4 573 1 015 -
Conduit Consoli- Total
Private dation R`000
equity R`000
R`000
Audited - year ended 31
August 2009 (continued)
Gross revenue 1 922 (8 244) 816 394
Net revenue 1 922 (8 244) 314 812
Investment income 84 (2 800) 18 607
Profit (loss) before 585 (2 800) 36 080
taxation
Attributable earnings 303 (2 800) 15 740
Non-controlling interest 62 - 8 886
Total assets 1 470 (158 762) 751 484
Total liabilities (2 020) 156 396 (504
973)
Capital expenditure - - 5 602
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Audited Audited
31 31
August August
2010 2009
R`000 R`000
ASSETS
Non-current assets 107 229 91 911
- Property, plant and equipment 14 998 15 648
- Intangible assets 46 277 46 440
- Loans receivable 6 884 5 917
- Deferred taxation 7 976 6 830
- Investment properties 3 403 8 545
- Investment in associates 756 2 469
- Investments held at fair value 26 935 6 062
Current assets 595 334 644 673
- Insurance assets 228 542 269 744
- Investments held at fair value 3 858 858
- Trade and other receivables 91 519 87 209
- Taxation 1 160 12 012
- Cash and cash equivalents 270 255 274 850
Non-current assets held for sale 15 050 14 900
Total assets 717 613 751 484
EQUITY AND LIABILITIES
Capital and reserves 259 563 246 511
- Ordinary share capital and share 199 155 199 155
premium
- Retained earnings 43 626 31 729
- Share based payment reserve 363 1 004
Equity attributable to equity holders of 243 144 231 888
the parent
Non-controlling interest 16 419 14 623
Non-current liabilities 40 054 52 245
- Policyholder liabilities under insurance 21 837 24 548
contracts
- Interest-bearing borrowings 12 661 18 873
- Deferred taxation 5 556 8 824
Current liabilities 417 996 452 728
- Insurance liabilities 307 848 332 031
- Vendors for cash 90 90
- Trade and other payables 102 178 111 036
- Current portion of interest-bearing 6 235 5 566
borrowings
- Taxation 1 636 3 991
- Bank overdraft 9 14
Total equity and liabilities 717 613 751 484
Net asset value per share (cents) 97.15 92.65
Tangible net asset value per share (cents) 78.66 74.10
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Audited Audited
31 31
August August
2010 2009
R`000 R`000
Net cash flows from operating activities 17 339 54 422
Net cash flows from investing activities (14 116) 18 885
Net cash flows from financing activities (7 811) (10 046)
Total cash movement for the year (4 588) 63 261
Cash at the beginning of the year 274 836 212 997
Cash disposed of (2) (1 422)
Total cash at the end of the year 270 246 274 836
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Retaine Other Non- Total
capital d reserve control- R`000
and earning s R`000 ling
share s R`000 interes
premium t R`000
R`000
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
Total comprehensive - 15 740 - 8 886 24 626
income for the year
Equity options issued - - 400 - 400
to executives
Dividends paid - - - (5 089) (5 089)
Balance at 31 August 199 155 31 729 1 004 14 623 246 511
2009
Reversal of equity - 1 004 (1 004) - -
options
Transaction with - (496) - (4) (500)
owners
Total comprehensive - 11 389 - 12 200 23 589
income for the year
Equity options issued - - 363 - 363
to executives
Dividends paid - - - (10 (10
400) 400)
Balance at 31 August 199 155 43 626 363 16 419 259 563
2010
NOTES TO THE CONDENSED CONSOLIDATED PRELIMINARY AUDITED FINANCIAL STATEMENTS
1. Basis of preparation
The accounting policies applied in the preparation of these condensed
consolidated preliminary audited financial statements for the year ended 31
August 2010 ("audited results") are based on reasonable judgements and
estimates and are in accordance with International Financial Reporting
Standards ("IFRS").These accounting policies are consistent with those
applied in the annual financial statements for the year ended 31 August
2009, save for the adoption of new accounting standards detailed in
paragraph 2 below. The audited results have been prepared in terms of IAS
34 - Interim Financial Reporting, the Companies Act, 1973 (Act 61 of 1973),
as amended, and the Listings Requirements of JSE Limited ("the JSE").
2. Adoption of new accounting standards
During the period under review, the group adopted the amendments to IAS 1:
Presentation of Financial Statements, IAS 27: Consolidated and Separate
Financial Statements, IFRS 3: Business Combinations and IFRS 8: Operating
Segments. It also early adopted IFRS 9: Financial Instruments (First
phase). As a result, comparative numbers in the condensed segmental report
have been restated. The restatements had no impact on the group`s financial
results.
3. Changes in share capital
Details of shares in issue as at the reporting dates are as follows:
31 31
August August
2010 2009
`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 250 277 250 277
- Shares in issue 256 380 256 380
- Shares held as treasury shares (6 103) (6 103)
Diluted weighted average number of shares 254 258 251 449
- Shares in issue 260 361 257 552
- Shares held as treasury shares (6 103) (6 103)
4. Disposal of subsidiaries
Conduit Capital disposed of the business of Truck and General Insurance
Company Limited, a 60% held subsidiary, for a total consideration of R6.75
million. This resulted in a profit on disposal of R4.67 million. There were
no changes to goodwill as a result of the disposal.
5. Reconciliation of headline earnings
31 31
August August
2010 2009
R`000 R`000
Profit attributable to ordinary equity 11 389 15 740
holders of Conduit
Net profit on disposal of subsidiaries and (1 231) (2 597)
associates
After tax loss on revaluation of investment 1 245 1 294
properties
(Profit)/Loss on disposal of property, plant (11) 27
and equipment (net of tax)
Headline earnings 11 392 14 464
6. Contingent liabilities
6.1 Contingent rent is payable in respect of parking bays for which no
rental agreement exists.
6.2 The group`s bankers have issued the following guarantees on behalf of
the group:
6.2.1 CBS Property Portfolio Limited for office rent R305 772
6.2.2 South African Post Office Limited for postage R100 000
These guarantees are secured by corresponding cash deposits held at
the banks that have issued the guarantees.
6.3 The group is in the course and scope of its insurance activities
engaged in various legal disputes. Further particulars pertaining to
these disputes are contained in the annual report. Group exposure (if
any) beyond legal costs is presently unknown and will only be
determined at the outcome of the relevant legal processes. Legal
expenses and accruals amounting to R4.2 million relating to a dispute
over reinsurance arrangements entered into by one of the group`s
external underwriting managers in 2006 and 2007 had a material impact
on attributable earnings during the year under review.
7. Directors
7.1 Messrs Gavin Toet and Harold Larry Prosser were appointed as Executive
Directors on 8 September 2009 and 2 March 2010, respectively.
7.2 With effect from 1 September 2010, the status of Mr Stanley David
Shane has changed from that of executive director to non-executive
director. Mr Shane retains various directorships in subsidiary
companies of the group.
There were no other changes to the directorate subsequent to the
publication of the interim results on 5 May 2010.
8. Dividends
The board of directors ("Board") has not recommended a dividend payment to
ordinary shareholders for the 2010 financial year (2009: Nil).
9. Post balance sheet events
Save for the acquisition of a 20.5% interest in Amalgamated Electronics
Corporation ("Amecor") as detailed in note 4 of the commentary section
below, there were no material post balance sheet events.
10. 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. GENERAL
Notwithstanding the overall reduction in group profitability for the year
to 31 August 2010, all operating segments were profitable and net asset
value advanced to 97.15 cents per share (2009: 92.65 cents).
A material change to attributable earnings relates to an R8.3 million
reduction in interest earned on cash balances. Average daily cash held on
deposit in the 2010 financial year amounted to R240.5 million (2009: R245.5
million), which earned interest at an average of 6.03% compared with 9.31%
in the 2009 financial year. Maintaining appropriate levels of cash reflects
the importance that the group places on maintaining the A- credit rating in
the Insurance division.
2. CONDUIT INSURANCE AND RISK SERVICES
Underwriting
Higher retentions led to a 37.20% increase in net written premium and a
6.50% overall increase in underwriting profitability, before group
overhead. A controlled claims and underwriting management regime made a
valuable contribution to performance in the individual classes of business,
the majority of which produced positive underwriting results.
Marketing and distribution
The current growth and diversification in the portfolio is very encouraging
and will over time serve to reduce concentration risk, negate volatility
and bring to bear the benefits of scale. In this regard marketing and
distribution initiatives are proving successful and are expected to result
in further advances in premium growth, underwriting profitability and
return on capital. The appointment and acquisition of a number of
intermediaries in both the long and short-term operations will establish
pivotal distribution channels for penetration into targeted but previously
inaccessible markets.
Insurance float
The insurance "float" which comprises cash generated from technical
insurance reserves and timing differences between premium inflows and
claims outflows amounted to R101.1 million (2009: R86.8 million).
Statutory funding ratio and credit rating
The increase in net written premium had the effect of moving the local
solvency measure to a more realistic level of 37% (or 48% on an
international basis). Management anticipates sustaining this level
throughout the 2011 financial year. Constantia Insurance Company Limited`s
credit rating has been maintained at A-.
3. CONDUIT DIRECT
Anthony Richards and Associates (Proprietary) Limited (40% held) once again
produced outstanding results, increasing profitability by 20% over the
comparable period. Staff count swelled to over 900 people servicing an
admirable spread of blue chip clients across multiple sectors. Additional
organic growth spurred on by performance in existing and new portfolios has
further diversified revenue streams and bodes well for future earnings.
4. CONDUIT PRIVATE EQUITY
On 11 November 2010 it was announced that Conduit Capital had acquired a
20.5% interest in Amecor, a company listed in the "Electronic and
Electrical Equipment" sector of the main board of the JSE, for a total
purchase consideration of R21.29 million. Amecor holds a number of
businesses specialising in the design, manufacture and distribution of
electronic security solutions, radio frequency networks, alternative power
and power optimization machinery to the domestic, corporate and industrial
sectors in South Africa, neighbouring territories and the overseas market.
The acquisition signifies an important development in furthering Conduit`s
private equity interests and diversifying the group`s activities into
pertinent sectors of the economy.
CONCLUSION
The footing gained in the "... measured product, marketing, technology and
distribution development initiatives" referred to in the 2009 annual report
continues into 2011. Many of these undertakings were implemented successfully
and are expected to steadily mature and make a meaningful contribution to the
group`s overall growth and development objectives. We are confident that as
these initiatives ripen and our strategies to counter the negative interest rate
cycle and improve return on capital gain traction, Conduit will emerge poised
for aggressive expansion. From an adventurous 2010 we look forward to an
exciting 2011.
For and on behalf of the Board
Jason D Druian Lourens E Louw
Chief Executive Officer Financial Director
Johannesburg
17 November 2010
Directors:
Executive directors: Jason D Druian (Chief Executive Officer), Lourens E
Louw (Financial Director), Harold L Prosser, Gavin Toet
Non-executive directors: Reginald S Berkowitz (Chairman), Scott M Campbell,
Stanley D Shane, Gunter Z Steffens OBE
Company secretary:
Probity Business Services (Proprietary) Limited
Third Floor, The Mall Offices, 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
Sponsor
Merchantec Capital
Auditors
Grant Thornton
Chartered Accountants (SA)
Registered Auditors
Date: 17/11/2010 07:05:21 Supplied by www.sharenet.co.za
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