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CDZ - Cadiz Holdings Limited - Reviewed preliminary results for the year ended

Release Date: 30/05/2011 08:00
Code(s): CDZ
Wrap Text

CDZ - Cadiz Holdings Limited - Reviewed preliminary results for the year ended 31 March 2011 CADIZ HOLDINGS LIMITED (Incorporated in the Republic of South Africa) (Registration number 1997/007258/06) JSE share code: CDZ ISIN: ZAE000017661 ("Cadiz", "the group" or "the company") KEY FEATURES * Gross operating revenue 16.5% lower * Diluted HEPS down 48.1% * Dividend maintained at 20 cps * Rated Best Specialist Fund House 2011 * Retail funds under management up 30% * Top ranked derivatives house in SA for 15th year CONDENSED GROUP PRELIMINARY STATEMENT Reviewed Audited OF COMPREHENSIVE INCOME 12 months 12 months 31-Mar-11 31-Mar-10 R `000 R `000 Gross operating revenue 326 063 390 722 Interest income 12 381 12 597 Net investment income 7 287 12 023 Net income from investments 11 264 15 092 Foreign exchange losses (3 977) (3 069) Income attributable to linked assets - - Net fair value gains on linked 54 061 85 447 financial instruments Linked liability adjustment (54 061) (85 447) Operating expenses (277 004) (298 058) Operating profit 68 727 117 284 Finance costs (706) (311) Profit before taxation 68 021 116 973 Taxation (14 428) (26 651) Total comprehensive income 53 593 90 322 Reconciliation of headline earnings: Profit attributable to equity holders 53 593 90 322 of the company Goodwill impairment - 9 151 Surplus on disposal of plant and (56) - equipment Taxation impact 16 - Headline earnings 53 553 99 473 Issued number of shares (`000) 245 339 245 138 Consolidated number of shares (`000) 225 205 217 794 Weighted average number of shares 222 262 218 155 (`000) Diluted weighted average number of 228 276 219 471 shares (`000) Earnings per share (cents) Basic 24.1 41.4 Diluted 23.5 41.2 Headline earnings per share (cents) Basic 24.1 45.6 Diluted 23.5 45.3 CONDENSED GROUP PRELIMINARY STATEMENT Reviewed Audited OF FINANCIAL POSITION 31-Mar-11 31-Mar-10 R `000 R `000 ASSETS Non-current assets 2 608 271 1 394 592 Plant and equipment 6 906 7 667 Intangible assets 269 334 266 140 Deferred taxation 19 230 24 159 Investments backing linked funds 2 232 001 1 012 529 Financial assets 76 235 81 144 Receivables and prepayments 4 565 2 953 Current assets 580 985 981 885 Financial assets 123 511 200 427 Receivables and prepayments 223 270 617 386 Taxation 2 406 1 204 Cash and cash equivalents 231 798 162 868 Total assets 3 189 256 2 376 477 EQUITY Capital and reserves Ordinary share capital and premium 3 619 2 902 Treasury shares (52 411) (73 544) Share-based payment reserve 59 888 45 836 Retained earnings 672 604 664 173 Total shareholders` equity 683 700 639 367 LIABILITIES Non-current liabilities 2 239 941 1 030 064 Deferred taxation 2 912 7 918 Linked investment contract 2 232 001 1 012 529 liabilities Trade and other payables 5 028 9 617 Current liabilities 265 615 707 046 Trade and other payables 230 412 665 459 Taxation 6 913 16 021 Trading liabilities 28 290 25 566
Total liabilities 2 505 556 1 737 110 Total equity and liabilities 3 189 256 2 376 477 Net asset value (cents per share) 304 294 Net tangible asset value (cents per 177 164 share) CONDENSED GROUP PRELIMINARY STATEMENT Reviewed Audited OF CASH FLOWS 12 months 12 months 31-Mar-11 31-Mar-10 R `000 R `000 Cash flow from operating activities (29 118) 82 593 Cash generated from operations 39 375 136 530 Taxation paid (24 934) (28 668) Dividends paid (43 559) (25 269) Cash flow from investing activities 78 075 2 976 Cash flow from financing activities 20 231 (5 530) Net change in cash and cash 69 188 80 039 equivalents Effect of exchange rate adjustment (258) (91) Cash and cash equivalents at 162 868 82 920 beginning of year Cash and cash equivalents at end of 231 798 162 868 year
CONDENSED GROUP PRELIMINARY STATEMENT Reviewed Audited OF CHANGES IN EQUITY 12 months 12 months 31-Mar-11 31-Mar-10 R `000 R `000
Share capital, share premium and treasury shares Opening balance (70 642) (67 770) Issue of shares 717 33 Sale of treasury shares to Makana 29 980 - Net purchase of treasury shares on (1 775) (1 760) exercise of options Delivery of treasury shares on - 4 782 settlement of deferred consideration Transfer of deferred consideration 7314 - shares Net repurchase of A ordinary shares (2) - Purchase of treasury shares (14 384) (5 927) (48 792) (70 642) Reserves Opening balance 710 009 627 708 Net premium on issue of equity 280 340 settled share appreciation rights Sale of treasury shares to Makana 2 730 - Net purchase of treasury shares on 1 908 1 784 exercise of options Employee share option scheme - value 14 052 of services provided 15 124 Transfer of deferred consideration (6 521) - shares Total comprehensive income 53 593 90 322 Dividends paid (43 559) (25 269) 732 492 710 009
Total shareholders` funds 683 700 639 367 CONDENSED GROUP PRELIMINARY SEGMENT REPORT Reviewed Asset and Securities Investmen Total 12 months to Wealth and ts and 31-March-2011 management Structuring Capital R`000 Segment revenue 196 823 152 435 13 022 362 280 Segment costs 144 314 111 123 6 991 262 428 Segment profit 52 509 41 312 6 031 99 852 Corporate costs 31 831 Profit before 68 021 taxation Gross operating 187 059 139 004 - 326 063 revenue (external)
Audited Asset and Securities Investmen Total 12 months to 31- Wealth and ts and March-2010 management Structuring Capital R`000 Segment revenue 199 148 200 994 19 839 419 981 Segment costs 132 146 126 874 5 168 264 188 Segment profit 67 002 74 120 14 671 155 793 Corporate costs 38 820 Profit before 116 973 taxation Gross operating 190 821 199 901 - 390 722 revenue (external) Year-on-year % (1%) (24%) (34%) (14%) segment revenue Year-on-year % 9% (12%) 35% (1%) segment costs Year-on-year % (22%) (44%) (59%) (36%) segment profit FINANCIAL PERFORMANCE Cadiz Holdings encountered a difficult year as the challenges in the securities business reported to shareholders at the interim stage continued to impact the group`s performance. Gross operating revenue declined by 16.5% to R326.1 million with the securities business 24% lower owing to tough trading and market conditions, while revenue in asset and wealth management remained flat. All of the group`s operating businesses are profitable and cash generative. Revenue from the group`s investment capital declined 34% mainly as a result of the under-performance of the African Fund which was seeded with offshore capital, foreign exchange losses and markdowns of the investment in Makana. Operating expenses were well managed and declined by 7.1%, despite the continued investment in the asset management business. The decline in expenses was mainly attributable to focused cost management, lower variable costs in the securities business and lower incentive payments across the group. The prior period included a goodwill impairment of R9.2 million which was not repeated. The cost-to-income ratio, after excluding direct costs related to the group investments and goodwill impairment charges, increased to 83% (2010: 73%) owing to the lower revenue base. Operating profit for the period declined by 41% to R68.7 million. Headline earnings declined 46.2% to R53.6 million, with diluted headline earnings per share decreasing 48.1% to 23.5 cents per share. This performance is in line with the earnings guidance provided in the group`s trading statement of 5 May 2011. The group`s net asset value increased by 10 cents to 304 cents per share (2010: 294 cents) after payment of a dividend of 20 cents per share in July 2010. The total distribution has been maintained at 20 cents per share. Based on Cadiz historical dividend cover of between 2 to 3 times earnings the distribution would have been between 8 and 12 cents. The directors believe it prudent to maintain the distribution to shareholders despite the decline in profits as the group has adequate capital and all of the business units are cash generative. ASSET AND WEALTH MANAGEMENT The Cadiz brand continues to gain traction in the retail and wholesale asset management markets, supported by competitive investment performance, strong client relationships and a stable investment team. Cadiz was rated as the Best Specialist Fund House in the 2011 Morningstar awards. This independent award recognises the unit trust management company with less than 10 funds that has delivered sustainable outperformance on a risk-adjusted basis across its range of funds. Cadiz also received Morningstar Fund Awards for the Cadiz Absolute Yield Fund (second consecutive year) and the Cadiz Inflation Plus Fund. Investment performance remains competitive across most portfolios, particularly the unit trust funds. Performance highlights include: * The Cadiz Money Market Fund is the top performing money market unit trust fund over two, three, four and five years * The Cadiz Absolute Yield Fund is in the top quartile of all flexible fixed interest funds over all periods from six months, and is the top performing flexible fixed interest fund over four and five years and since inception * The Cadiz Managed Flexible Fund ranked third (of 57), second (of 52) and fourth (of 50) prudential variable equity fund over one, two and three years respectively * The Cadiz Equity Ladder Fund ranked fifth against all general equity, growth and value funds over three years and first over four years (source: Morningstar) As previously communicated to shareholders, a large, long-term, low yielding structured investment mandate matured and the funds were withdrawn on a phased basis during the financial year. This maturity has impacted the total assets under management which declined by R10.2 billion over the previous year to R42 billion but had a minimal effect on the financial performance of the asset management business. Retail funds continue their strong growth increasing by 30% to R12.8 billion, which includes unit trust funds under management of R6.6 billion. Cadiz Asset Management was voted the Socially Responsible Investor of the Year for the second consecutive time at the Principal Officers` Association awards. Revenue in the asset and wealth management segment declined marginally to R197 million as performance fees were lower than the previous year. Management has embarked on a process to integrate the retail and wholesale platforms and create a unified approach. This has contributed to the increase in costs, which together with increased staff costs and variable costs paid on unit trust assets, has led to a 22% decline in profit to R52.5 million. SECURITIES AND STRUCTURING Securities faced challenging market conditions during the period, with low trading volumes, increased foreign participation in the equities and derivatives markets placing pressure on the local brokers while the changing trading environment has seen a significant shift to lower margin electronic trading. In this environment the Cadiz equity derivatives team has shown its resilience and maintained its position as the country`s leading independent broker, based on volumes traded on SAFEX. Cadiz has broadened its industry-leading research capability across quantitative, portfolio strategy and economics research, and extended the range of sectors and companies covered by the equity research team. Cadiz was rated as the number one derivatives research house in South Africa for the 15th consecutive year at last week`s Financial Mail analyst of the year awards. Cadiz was also ranked top in quantitative research, risk management research, innovative research, and second in derivative dealing. Cadiz`s activity in the corporate advisory market has been focused mainly on the resources sector. The strategic partnerships with advisory firms in China and India are leading to increased deal flow and the pipeline of potential mandates for the new year is encouraging. Revenue for the segment was 24% lower than the previous year, however costs were tightly managed and reduced by 12% with profit declining by 44%. INVESTMENTS AND CAPITAL At year end the group`s investment and capital portfolio had increased to R405.1 million. Returns from this portfolio declined by 59% from R14.6 million to R6.0 million. Revenue has dropped by R6.8 million while costs have increased by R1.8 million. At the end of the period the capital was invested as follows: * R76.2 million invested in liquid assets for regulatory capital adequacy, stockbroking and working capital requirements; * R78.3 million in liquid assets for short term commitments including dividends, incentives and equity scheme repurchases; * R49.8 million invested as seed capital and co-investments in asset management products, including R27.2 million in offshore products which are in the process of being discontinued; * R91.4 million invested in Makana, including an additional R33.2 million following the sale of a further 5% equity stake to Makana; and * R109.4 million invested mainly in liquid assets for strategic opportunities. In line with Cadiz`s policy of not carrying proprietary risk, the group also holds R26.5 million investments and R28.3 million trading liabilities as a hedge against Cadiz Prime Broking activities. EMPOWERMENT Makana, a related party, increased its effective shareholding in Cadiz Holdings to 15% following the acquisition of a further 5% stake with effect from 21 September 2010. Makana acquired a 10% strategic equity stake in the group in April 2004 and the shareholding agreement was due to mature in May 2011. Following this transaction black ownership in Cadiz has increased to approximately 30% (in terms of the DTI codes) through the combined holdings of Makana and the Cadiz black employee share ownership scheme. Cadiz has been verified as a level three BBBEE contributor with a score of 80.94, based on the Department of Trade and Industry`s codes of good practice. Cadiz was placed 24th overall in the 2011 Financial Mail Top Empowerment Companies survey and 8th in the financial services sector (compared to 34th overall and 12th in the sector in 2009 when Cadiz last participated in the survey). BOARD AND GOVERNANCE Peter-Paul Ngwenya was appointed as non-executive chairman of the board in March 2011 following the resignation of Ray Cadiz as chairman. Ray continues to serve as a non-executive director. Peter-Paul has been a director of Cadiz for seven years and his appointment follows a decision by the board more than three years ago to identify and appoint a black chairperson. Sfiso Buthelezi resigned as an alternate director in November 2010 to dedicate his time to other responsibilities. Following the adoption of King lll the group has reviewed governance structures. In line with the code a social, ethics and sustainability committee has been established, the nomination committee reconstituted and other committee membership and charters reviewed. SHARE ALLOCATION TO BLACK EMPLOYEES During the period 2.0 million share appreciation rights and voting A ordinary shares were issued to participants in the black employee share ownership scheme. The first tranche vested in February 2011 and was settled by the issue of 0.2 million shares. These are subject to a lock-in for seven years from the issue date. This brings the total number of rights issued to 13.1 million of the 24 million originally approved by shareholders. EXECUTIVE EQUITY SCHEME Shareholders approved the implementation of an equity-based executive remuneration scheme at the annual general meeting on 31 August 2010. The scheme replaced the existing share option scheme and is aimed at aligning the risk and return profile of management and key staff with that of shareholders. Management and senior employees subsequently received a portion of their annual incentive award in the form of 4.9 million equity instruments with vesting and trading restrictions. SHARE CAPITAL AND TREASURY SHARES In order to offset the dilutionary impact of the scheme, the cash retained from the incentive awards was utilised to fund the purchase by a subsidiary of Cadiz of 4.0 million shares at an average price of 336 cents per share. PROSPECTS Competition in the securities market has increased significantly and in response to this Cadiz is exploring ways of enhancing the research capacity and gaining access to a balance sheet, offshore distribution and electronic trading. The solid domestic platform and credentials built by the securities business over the past 15 years will serve as a good base for this strategic initiative. The asset management and wealth businesses have been operating more closely in recent years and a decision has been taken to integrate the respective platforms to create further synergies and cost efficiencies. The group has invested significantly in these businesses in recent years and Cadiz is being recognised as a top rated investment house in South Africa. At year end Cadiz had capital of approximately R159 million for potential strategic initiatives and growth opportunities, after the payment of the distribution to shareholders, and will continue to look for opportunities to deploy this capital to generate sustainable risk adjusted returns for shareholders. BASIS OF PRESENTATION These results have been prepared in terms of International Financial Reporting Standards and comply with IAS 34 - Interim Financial Reporting, the Listings Requirements of the JSE Limited and the Companies Act No. 61 of 1973. The accounting policies are consistent with those applied in the annual financial statements for 31 March 2010 except for the adoption of the amendment made to IFRS2 - "Group Cash-settled Share-based Payments" and the revisions made to IFRS3 - "Business Combinations" and IAS27 - "Consolidated and Separate Financial Statements". REVIEW REPORT The condensed consolidated preliminary results for the year ended 31 March 2011 have been reviewed by PricewaterhouseCoopers Inc. The external auditors unqualified review opinion, is available, on request, for inspection at the company`s registered office. DIVIDEND Notice is hereby given of a dividend of 20 cents per ordinary share. In compliance with the Listings Requirements of the JSE Limited, the following dates are applicable: Last date to trade: Friday 8 July 2011 Trading commences ex dividend: Monday 11 July 2011 Record date: Friday 15 July 2011 Payment date: Monday 18 July 2011 Share certificates may not be dematerialised or rematerialised between Monday, 11 July 2011 and Friday, 15 July 2011, both dates inclusive. On behalf of the board of directors Peter-Paul Ngwenya Ram Barkai Chairman Chief Executive Officer Cape Town 30 May 2011 Registered office Ground Floor, Fernwood House, The Oval, 1 Oakdale Road, Newlands, 7700 P O Box 44547, Claremont, 7735 www.cadiz.co.za Directors S P Ngwenya (Chairman)* R Barkai (Chief Executive Officer) R F G Cadiz* C A Hall* B H Kent* D M Lawrence* A N Matyumza* B J Memela-Khambula* N S Mjoli-Mncube* S J Saunders* F C Shaw (* Non-executive directors) Transfer secretaries Computershare Investor Services (Pty) Limited, 70 Marshall Street, Johannesburg 2001 P O Box 61051, Marshalltown, 2107 Sponsor Investec Bank Limited Company secretary F C Shaw Date: 30/05/2011 08:00:01 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). 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