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FCPD - Foord Compass Limited - Preliminary report for the year ended 31 December
2010 and interest payment and election
FOORD COMPASS LIMITED
JSE Code: FCPD ISIN: ZAE000054466
Registration Number: 1987/003591/06
PRELIMINARY REPORT FOR THE YEAR ENDED 31 DECEMBER 2010 AND INTEREST PAYMENT AND
ELECTION
CONDENSED STATEMENT OF FINANCIAL Notes Reviewed Audited
POSITION
at 31 December 2010 2010 2009
Rm Rm
ASSETS
Current assets
Investments 3 1,474.5 1,200.9
Income receivables and unsettled sales 24.5 35.3
Taxation receivable 0.1 -
Cash and deposits 468.6 564.7
Total assets 1,967.7 1,800.9
EQUITY AND LIABILITIES
Capital and reserves 35.7 31.5
Ordinary share capital 0.1 0.1
Accumulated profits 35.6 31.4
Non-current liabilities 1,093.1 1,044.7
Unsecured debentures 4 1,081.6 1,037.5
Deferred taxation 11.5 7.2
Current liabilities 838.9 724.7
Accounts payable 2.7 2.3
Taxation - 1.3
Short investment positions 3 753.9 647.8
Unsettled purchases 2.9 9.2
Debenture interest payable 79.4 64.1
Total equity and liabilities 1,967.7 1,800.9
Number of debentures in issue 147,475,338 145,504,265
Number of ordinary shares in issue 8,800,070 8,800,070
Cents Cents
Net attributable asset value per debenture (cum 787.3 757.1
interest)
Net attributable asset value per debenture (ex 733.4 713.0
interest)
Net attributable asset value per ordinary share 405.7 358.0
CONDENSED STATEMENT OF COMPREHENSIVE Notes Reviewed Audited
INCOME
2010 2009
Rm Rm
Investment income 93.9 122.8
Realised trading profits 43.8 23.2
Operating expenditure (15.5) (13.5)
Net distributable profit 122.2 132.5
Capital profits on sale of investments 26.5 8.3
Revaluation of investments 15.5 43.1
Net portfolio income before debenture 164.2 183.9
interest
Debenture interest (110.0) (119.3)
Increase in carrying value of 4 (30.2) (40.8)
debentures
Profit before taxation 24.0 23.8
Taxation expense 5 (11.0) (9.9)
Profit attributable to ordinary 13.0 13.9
shareholders
Weighted average number of debentures 146,291,597 142,661,438
in issue
Cents Cents
Interest per debenture (weighted) 75.2 83.6
Earnings per debenture (weighted) 95.8 112.2
Earnings per ordinary share 147.7 158.0
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS` EQUITY
Accumulated
Ordinary
share profits Total
capital
Rm Rm Rm
Balance at 31 December 2008 (audited) 0.1 17.5 17.6
Profit for the year - 13.9 13.9
Balance at 31 December 2009 (audited) 0.1 31.4 31.5
Dividend paid - (8.8) (8.8)
Profit for the year - 13.0 13.0
Balance at 31 December 2010 (reviewed) 0.1 35.6 35.7
CONDENSED STATEMENT OF CASH FLOWS Reviewed Audited
2010 2009
Rm Rm
Net cash inflow from operating 1.6 272.2
activities
Interest, dividends and taxation paid (111.6) (142.1)
Net cash received from issue of 13.9 46.0
debentures
Net change in cash and deposits (96.1) 176.1
Cash resources at beginning of year 564.7 388.6
Cash resources at end of year 468.6 564.7
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. Basis of preparation and significant accounting policies
The condensed financial statements have been prepared using accounting policies
consistent with International Financial Reporting Standards and the AC500
Standards as issued by the Accounting Practices Board and in accordance with
International Accounting Standard (IAS) 34 Interim Financial Reporting. 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
2009.
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 in 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
2010 2009
4. Unsecured debentures Rm Rm
Unsecured debentures comprise
Debenture capital at issue price 1,000.5 986.6
Cumulative revaluation of debentures 81.1 50.9
Fair value of debentures 1,081.6 1,037.5
Reconciliation of balance
Balance at beginning of year 1,037.5 950.7
Net proceeds on issue of debentures 13.9 46.0
Revaluation - current year 30.2 40.8
Balance at end of year 1,081.6 1,037.5
Increase in carrying value of debentures
Net portfolio income before debenture interest 164.2 183.9
90% allocation to debenture holders 147.8 165.5
Less: proportionate share of taxation expense (7.6) (5.4)
Less: interest distribution for year (110.0) (119.3)
Revaluation - current year 30.2 40.8
5. Taxation expense
Taxation comprises:
Current taxation charge - current year 6.7 4.8
Deferred taxation charge - current year 4.3 5.1
Net expense per statement of 11.0 9.9
comprehensive income
Deferred taxation relates to the revaluation of investments. The debenture
share of the net taxation charge, which amounts to R7.6 million (2009:R5.4
million), has been deducted from the carrying value of the debentures as set out
in note 4 above.
AUDITOR`S REVIEW REPORT
These results have been reviewed in terms of ISRE2410 by our auditors, Deloitte
& Touche, whose unmodified review opinion is available for inspection at the
registered office of the company.
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2010
For the year ended 31 December 2010, debenture holders earned 13.4% on a net
attributable asset value basis. The dominant component of return continues to
be the income produced from the portfolio. The capital return has been subdued
by the weak performance of markets in general, but especially over the last
three years due to the financial crisis.
The investment returns earned for our debenture holders are tabulated below (in
percent per annum), after taking into account operating expenses and capital
gains taxation.
1 year 3 years 5 years
to 31 December 2010 (% per
annum)
Income 10.5% 11.8% 11.9%
Capital 2.9% 0.1% 1.3%
Total return * 13.4% 11.9% 13.2%
CPI + 10% p.a. 13.5% 16.4% 16.8%
* Calculated with reference to opening net attributable asset values per
debenture
For the year ended 31 December 2010, the investment portfolio earned a total
return of 16.5% against the investment objective of 13.5%. The second half of
2010 saw a significant improvement in performance, with the portfolio earning
14.0% for the six months to December, compared to the 2.2% earned in the first
half of 2010.
Net distributable profit for the year amounted to R122.2 million, a decline of
8% from R132.5 million in 2009. The second half saw net distributable profit
rise 33% to R88.2 million against a first half decline of 49% to R34.0 million.
Investment income declined 24% for the year due to lower dividends and interest
received. Dividend payouts were generally lower in 2010 than 2009 and interest
rates in South Africa declined more than one-fifth over the year. Realised
trading profits increased 89% to R43.8 million for the year, all of which came
from the second half as the equity markets improved, enabling the fund manager
to realise profits.
There was a significant increase in capital profits realised to R26.5 million
(2009: R8.3 million) while mark-to-market revaluation of investments was R15.5
million (2009: R43.1 million) at year end.
The net result achieved for the year is that the weighted average interest per
debenture is 75.2 cents (2009: 83.6 cents) and the interest distribution for the
second six months is 53.8 cents (2009: 44.0 cents), an increase of 22%.
The net attributable asset value per debenture, after the final distribution,
has increased 3% to 733.4 cents (2009: 713.0 cents).
PORTFOLIO STRUCTURE
The effective asset structure of the investment portfolio at 31
December is as follows:
Domestic Foreign Total
2010 2009 2010 2009 2010 2009
Equities 65% 53% 30% 24% 95% 77%
Listed property 6% 9% 6% 0% 12% 9%
Government bonds -47% -46% 0% 0% -47% -46%
Corporate debt 9% 12% 13% 12% 22% 24%
Commodities 0% 0% 1% 2% 1% 2%
Effective cash 14% 26% 3% 8% 17% 34%
exposure
47% 54% 53% 46% 100% 100%
The top 5 JSE listed investments by value comprise:
Anglo American, Redefine Properties, Capital Shopping Centres, Foschini Group
and Steinhoff.
There has been a further significant increase in the effective exposure to
equities to 95% from 77%, especially after June 2010 when equity exposure was
only at 62%. Both domestic and foreign equities have been increased, while the
effective cash exposure has declined to 17% of portfolio from 34%. Listed
property has been increased while the short position in government bonds
remains. Investment in corporate debt and commodities has reduced slightly.
The overall exposure to foreign assets stands at 53%, up from 46%.
The net asset value of the portfolio at year-end was R1,208 million (2009:
R1,140 million).
COMMENT
2010 certainly turned out to be a tale of two halves - especially as far as
global equity markets were concerned. All equity markets delivered negative
returns in 1H 2010 and strong positive returns in 2H 2010, resulting in mostly
positive returns for FY2010. As fears of a double dip recession receded and
interest rates remained at record low levels, equity investors pushed stock-
markets towards the peaks reached in 2007 - even after the strong recovery seen
in 2009. The FTSE/JSE All Share Index returned 19% for the year and 33% in US
dollars, as the rand appreciated 12% for the year and 16% in the second half
alone. Emerging markets continued to attract large investment flows and
outperformed developed markets with an average return of 19% versus 12%, in US
dollars. Global bond yields declined over the last twelve months, but there was
a sharp rise in yields in the final quarter, as inflation fears emerged. The SA
All Bond Index returned 15% for the year, while cash returned only 7% as
interest rates declined. SA listed property had another good year and returned
30%.
Commodities in general had another positive year, with the precious metals
complex being the lead performers.
Given the volatile return profile that prevailed during the year, the investment
portfolio benefited from its diverse asset allocation which has been dynamically
managed to cope with the ever-changing risk landscape.
For the year, the equity component contributed the major portion of the total
return to debenture holders, as shown in the table below. The foreign asset
component was well managed to produce an 8% return in rands, despite the 12%
appreciation in the rand over the year.
The actual return from each asset class and their respective contributions to
the total debenture return are as follows:
Return Contribution
Equities 36.0% 11.6%
Listed Property 15.2% 1.6%
Bonds and cash -3.9% -2.7%
Foreign 8.2% 2.8%
Other 6.3% 0.1%
Total debenture return for year 13.4%
On the income side, it was pleasing to see some SA companies resuming the
payment of dividends, but the dividends paid on the FTSE/JSE All Share Index
were still, on average, 15% lower in 2010 than in 2009. This, together with
lower interest rates on lower average cash balances, explains why the total
income received on the portfolio declined 24% in the year. This decline was
compensated for by the 89% increase in trading profits, hence limiting the
decline in the annual interest distribution to 8%, with the final distribution
rising 22%. The effective income yield on the debentures for the year was an
attractive 10.5%.
OUTLOOK
The short term outlook for equity markets appears positive as the size of the
global economy pushes ahead to record levels, supported by a nascent recovery of
the US economy. Interest rates are likely to remain low to assist those
developed countries where debt levels are excessively high and problematic.
These factors, together with strong corporate balance sheets and cash flows
should allow profits to continue growing, which should lead to higher dividends,
hence our high allocation to equities. We are mindful of the risk of loss if
interest rates start rising earlier than expected and have the capacity to
reduce equity exposure rapidly, if needed.
We believe that record budget deficits, growing government debt levels and
emerging inflation will be negative for bond markets.
The investment portfolio is well diversified across a range of economic sectors,
countries and currencies. The management of risk is key to the portfolio
manager`s success in the year ahead.
INTEREST PAYMENT AND ELECTION
Notice is hereby given that a debenture interest payment (number 47) of 53.846
cents per debenture in respect of the six months ended 31 December 2010 is
payable to debenture holders recorded in the debenture register of the company
on the record date. In compliance with the Listings Requirements, the following
dates are applicable:
Last date to trade Friday, 4 February 2011
Debentures trade ex-interest Monday, 7 February 2011
Record date Friday, 11 February 2011
Payment date Monday, 14 February 2011
Debentures may not be rematerialised or dematerialised between Monday, 7
February 2011 and Friday, 11 February 2011, both days inclusive.
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, 11 February
2011. 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, 11 February 2011 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, 4 February 2011. 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 2010 of 733.4 cents. Accordingly,
the ratio is 7.342 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, 14 February 2011. An
adjustment to the number of debentures listed will be made on or about Tuesday,
15 February 2011 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 safe custody accounts updated and/or credited by CSDPs
or brokers of dematerialised debenture holders on or about Monday, 14 February
2011.
Signed on behalf of the board
MO HODGES D FOORD
20 January 2011
Directors: MO HODGES* (Chairman), AD COWELL**, D FOORD*, JC GREYLING, JC VAN
DER HORST, JC VAN NIEKERK * British **Australian
Company secretary: PE CLUERwww.foordcompass.co.za
Sponsor
Barnard Jacobs Mellet Corporate Finance (Propriety) Limited
Date: 20/01/2011 12:53:01 Supplied by www.sharenet.co.za
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