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FCPD - Foord Compass Limited - Unaudited interim report for the six months ended
30 June 2011 and interest payment and election
FOORD COMPASS LIMITED
Registration Number: 1987/003591/06
ISIN: ZAE000054466
JSE code: FCPD
UNAUDITED INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2011
AND INTEREST PAYMENT AND ELECTION
INTERIM INTEREST DISTRIBUTION UP 43% TO 30 CENTS PER DEBENTURE
ANNUAL INTEREST YIELD OF 11.9% ON OPENING NAAV
NET ATTRIBUTABLE ASSET VALUE 778c PER DEBENTURE
CONDENSED STATEMENT OF FINANCIAL Audited
POSITION Unaudite Unaudite
d d
at 30 June 2011 30 June 30 June 31 Dec
2011 2010 2010
Note R`m R`m R`m
s
ASSETS
Current assets
Investments 3 1 678.0 1 340.0 1 474.5
Income receivables and unsettled 1.6 21.8 24.5
sales
Taxation receivable - - 0.1
Cash and deposits 390.8 462.2 468.6
Total assets 2 070.4 1 824.0 1 967.7
EQUITY AND LIABILITIES
Capital and reserves 35.9 24.2 35.7
Ordinary share capital 0.1 0.1 0.1
Accumulated profits 35.8 24.1 35.6
Non-current liabilities 1 148.8 1 029.7 1 093.1
Unsecured debentures 4 1 139.2 1 022.9 1 081.6
Deferred taxation 9.6 6.8 11.5
Current liabilities 885.7 770.1 838.9
Accounts payable 2.7 2.2 2.7
Taxation 2.6 1.6 -
Short investment positions 780.4 711.1 753.9
Unsettled purchases 54.3 24.6 2.9
Debenture interest payable 45.7 30.6 79.4
Total equity and liabilities 2 070.4 1 824.0 1 967.7
Number of debentures in issue 152 387 145 599 147 475
884 536 338
Number of ordinary shares in issue 8 800 8 800 8 800
070 070 070
Cents Cents Cents
Net attributable asset value per 777.6 723.5 787.3
debenture (cum interest)
Net attributable asset value per 747.6 702.5 733.4
debenture (ex interest)
Net attributable asset value per 408.0 275.0 405.7
ordinary share
CONDENSED STATEMENT OF COMPREHENSIVE Audited
INCOME Unaudite Unaudite
d d
6 6 Year
months months ended
to to
30 June 30 June 31 Dec
2011 2010 2010
Note R`m R`m R`m
s
Investment income 42.8 46.7 93.9
Realised trading profits (losses) 35.3 (5.3) 43.8
Operating expenditure (9.3) (7.4) (15.5)
Net distributable profit 68.8 34.0 122.2
Capital profits on sale of 8.4 10.1 26.5
investments
Revaluation of investments (3.5) (25.8) 15.5
Net portfolio income before 73.7 18.3 164.2
debenture interest
Debenture interest (45.7) (30.6) (110.0)
(Increase) decrease in carrying 4 (21.6) 15.3 (30.2)
value of debentures
Profit before taxation 6.4 3.0 24.0
Taxation expense 5 (0.9) (1.5) (11.0)
Profit attributable to ordinary 5.5 1.5 13.0
shareholders
Weighted average number of 151 768 145 587 146 291
debentures in issue 769 529 597
Cents Cents Cents
Interest per debenture (weighted) 30.0 21.0 75.2
Earnings per debenture (weighted) 44.3 10.5 95.8
Earnings per ordinary share 62.5 17.0 147.7
CONDENSED STATEMENT OF CHANGES IN Accumula Total
SHAREHOLDERS` EQUITY Ordinary ted
share profits
capital
R`m R`m R`m
Balance at 1 January 2010 (audited) 0.1 31.4 31.5
Dividends - (8.8) (8.8)
Profit for the year - 13.0 13.0
Balance at 31 December 2010 0.1 35.6 35.7
(audited)
Dividends - (5.3) (5.3)
Profit for the period - 5.5 5.5
Balance at 30 June 2011 (unaudited) 0.1 35.8 35.9
Balance at 1 January 2010 (audited) 0.1 31.4 31.5
Dividends - (8.8) (8.8)
Profit for the period - 1.5 1.5
Balance at 30 June 2010 (unaudited) 0.1 24.1 24.2
CONDENSED STATEMENT OF CASH FLOWS Audited
Unaudite Unaudite
d d
6 6 Year
months months ended
to to
30 June 30 June 31 Dec
2011 2010 2010
R`m R`m R`m
Net cash (outflow) inflow from (29.0) (28.7) 1.6
operating activities
Interest, dividends and taxation (84.8) (74.5) (111.6)
paid
Net cash received from issue of 36.0 0.7 13.9
debentures
Net change in cash and deposits (77.8) (102.5) (96.1)
Cash and deposits at beginning of 468.6 564.7 564.7
period
Cash and deposits at end of period 390.8 462.2 468.6
NOTES TO INTERIM 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, the AC 500
standards as issued by the Accounting Practices Board or its successor 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
2010.
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.
4. Unsecured debentures
Audited
Unaudite Unaudite
d d
30 June 30 June 31 Dec
2011 2010 2010
R`m R`m R`m
Unsecured debentures comprise
Debenture capital at issue price 1 036.5 987.3 1 000.5
Cumulative revaluation of debentures 102.7 35.6 81.1
Fair value of debentures 1 139.2 1 022.9 1 081.6
Reconciliation of balance
Balance at beginning of period 1 081.6 1 037.5 1 037.5
Net proceeds on issue of debentures 36.0 0.7 13.9
Revaluation - current period 21.6 (15.3) 30.2
Balance at end of period 1 139.2 1 022.9 1 081.6
Increase (decrease) in carrying value of
debentures
Net portfolio income before debenture 73.7 18.3 164.2
interest
90% allocation to debenture holders 66.3 16.5 147.8
Less: proportionate share of taxation 1.0 (1.2) (7.6)
credit (expense)
Less: interest distribution for the (45.7) (30.6) (110.0)
period
Revaluation - current period 21.6 (15.3) 30.2
5. Taxation expense
Taxation comprises
Current taxation charge - current period 2.8 1.9 6.7
Deferred taxation (credit) charge - (1.9) (0.4) 4.3
current period
Net expense per statement of 0.9 1.5 11.0
comprehensive income
Deferred taxation relates to the revaluation of investments. The share of the
net taxation credit attributable to the unsecured debentures, which amounts to
R1.0 million (2010: charge of R7.6 million), has been added to (2010: deducted
from) the carrying value of the debentures as set out in note 4.
These results have not been reviewed or reported on by the company`s auditors,
Deloitte & Touche.
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2011
The results set out in the accompanying financial statements for the six months
ended 30 June 2011 reflect a substantial improvement over the results presented
for the comparative period in 2010. As a result of the higher level of net
distributable profits, the board has decided to increase the interim
distribution to 30 cents per debenture from the 21 cents declared for the six
months to 30 June 2010. This brings the rolling 12 month distribution to 83.8
cents per debenture, representing an 11.9% yield on the ex-interest net
attributable asset value of 702.5 cents per debenture reported at 30 June 2010.
Net portfolio income before interest increased 303% to R73.7 million from R18.3
million in the comparative period. Net distributable profit, which comprises
interest, dividends and realised trading profits, net of operating expenses,
increased 102% to R68.8 million. The main reason for this increase was the
quantum of trading profits realised during the period. The flexibility of the
investment mandate allows the fund manager to capitalise on extreme market
volatility, buying into securities cheaply and selling them when they are fairly
valued. The portfolio manager took advantage of higher prices in foreign credit
markets to realise some profits on corporate debt instruments acquired in prior
years. Certain foreign short equity positions were also closed out at a
substantial profit. Operating expenses increased 26% mainly due to investment
management fees as a result of higher average assets under management. Net
profit after taxation increased 267% to R5.5 million from R1.5 million.
For the six month period under review, the net attributable asset value per
debenture increased from 733.4 cents to 777.6 cents, cum interest. This yielded
a return on the debentures of 6.0% for the period on a net asset value basis
(six months ended 30 June 2010: 1.5%). The returns on the debentures for the
six months ended 30 June 2011 are as follows:
Unaudite Audited
Unaudite d
d
6 months 6 months Year to
to to
30 June 30 June 31 Dec
2011 2010 2010
Income 4.1% 3.0% 10.5%
Capital 1.9% -1.5% 2.9%
Total return * 6.0% 1.5% 13.4%
* Calculated with reference to net attributable asset values per
debenture
COMMENT
Global securities markets have experienced significant volatility in the first
six months of the year. The optimism engendered by the QE2 stimulus measures in
2010 and strong growth of China has abated this year. Markets were dominated by
the effects of the devastating Japanese earthquake, on-going monetary tightening
in China (which finally appears to be slowing the growth in that economy), and
the resurgence of sovereign debt default fears in the peripheral Eurozone
countries, particularly Greece. Compounding investor concerns, the Federal
Reserve has given no indication of a QE3 and there are clear signs that the US
economy is slowing. In Europe, despite very accommodative monetary policy by
the ECB, only Germany and France have experienced strong growth. Japan remains
mired in recession.
Japan`s Nikkei excluded, global developed equity market indices were mostly
positive in the first half of the year, albeit delivering returns substantially
below those of H2 2010. Emerging equity market indices were however mostly
negative, reflecting heightened investor risk aversion. Industrial metals
generally declined, although gold gained as inflation fears escalated, while oil
rose strongly on north-African and middle-Eastern unrest and Libyan supply loss.
The rand depreciated by 2% against the dollar over the period on general global
risk aversion and lower commodity prices, despite continued foreign inflows into
the high-yielding domestic bond market.
While shares continue to be the asset class of choice for the foreseeable
future, the portfolio benefitted from a tactical reduction in SA equity exposure
during a period when the returns from the SA share market were weak. The
position in listed property was beneficial but the total contribution was muted
given the relatively small exposure.
The majority of the return achieved for the period under review was delivered by
the foreign asset component, assisted by the depreciation in the rand. The
decision taken some time ago to diversify the offshore portfolio away from the
Foord International Trust has proven successful. It has allowed the fund
manager to take advantage of opportunities in volatile markets which are not
available to the Foord International Trust, a conservatively managed, long-only
fund. During the period, some profits were realised on both short and long
positions. This segment of the total portfolio delivered returns in excess of
20% in rands for the six month period, contributing 5.9% of the 6.8% total
return achieved.
In aggregate, the portfolio returned 6.8% for the six months ended 30 June 2011,
bringing the rolling one-year return to 21.6% compared to the benchmark CPI +
10% return of 14.6%. On an annualised basis over five years, the portfolio is
below its benchmark but has handsomely outperformed the benchmark on a since-
inception basis. As shown in the table below, the portfolio has also
outperformed both the SA and world equity markets over the longer-term.
Unaudited Unaudited Annualised returns to 30
June 2011
6 months 6 months 1 year 5 years From
to to
30 June 30 June 1 Jan
2011 2010 2002
Gross portfolio total 6.8% 2.3% 21.6% 15.6% 22.9%
return
Benchmark (CPI + 10% per * 8.4% 7.1% * 14.6% * 17.0% * 16.6%
annum)
FTSE / JSE All Share 0.5% -4.1% 24.6% 11.4% 15.8%
Index
MSCI World Equities Index 7.9% -7.7% 15.0% -0.6% -2.8%
in rands
* Lagged one month
The portfolio`s total asset allocation at effective economic exposures at 30
June 2011 is set out below:
Domestic % Foreign % Total %
June Dec June Dec June Dec
2011 2010 2011 2010 2011 2010
Equities 39 65 20 30 59 95
Listed property 6 6 2 6 8 12
Government bonds -40 -47 -8 0 -48 -47
Corporate debt 8 9 14 13 22 22
Commodities 0 0 1 1 1 1
Effective cash 36 14 22 3 58 17
exposure
49 47 51 53 100 100
Domestic equity exposure has been substantially reduced compared to six months
ago. This was achieved by implementing short futures positions on the FTSE/JSE
All Share Index, which resulted in a corresponding increase in the effective SA
cash exposure. Foreign share exposures were also reduced, especially in the
Foord International Trust where the equity allocation declined from 70% six
months ago to 62.5% at the end of June 2011.
The short SA government bond position was reduced to 40% of portfolio compared
to 47% at 31 December 2010. However, a short position in US Treasuries was
established and the overall short government bond exposure was little changed
from 31 December 2010.
The net result of the lower effective equity exposure is an increase in
effective cash exposure from 17% at the financial year-end to 58% at the
reporting date. Actual SA cash holdings were 27% of portfolio with total actual
cash holdings being 49% of portfolio at period end.
The overall portfolio is more conservatively positioned and less geared to
rising equity markets than was the case at the financial year-end. Share
valuations are still attractive and we expect earnings growth to remain strong -
at least for the foreseeable future. However, continued investor nervousness
sparked by the Eurozone sovereign debt crisis and slowing growth in the world`s
two largest economies presents a short-term risk to growth assets such as
equities, commodities and emerging market bond and currency markets.
A future of low returns with high volatility is one possible scenario in which
the investment manager will aim to capitalise on volatility by taking both long
and short exposures to specific securities. An asset allocation strategy which
is still equity biased but more tactical and diversified in nature will be
implemented with a view to protecting the capital and income of debenture
holders in a market that may be range bound for some time. Further optionality
may be utilised in due course to benefit the fund from improving market
direction.
We look forward to reporting to all stakeholders on our full year results in
January 2012.
DIRECTORATE
The following changes to the company`s board of directors have occurred since
the company`s financial year-end on 31 December 2010:
MO Hodges (Chairman) - resigned 19 April 2011
JC Greyling (Independent, Non-executive) - appointed as Chairman 19 April 2011
AD Cowell (Independent, Non-executive) - appointed 19 January 2011
DG West (Independent, Non-executive) - appointed 19 April 2011
PE Cluer (Non-executive) - appointed 19 April 2011
INTEREST PAYMENT AND ELECTION
Notice is hereby given that a debenture interest payment (number 48) of 30.0
cents per debenture in respect of the six months ended 30 June 2011 is payable
to debenture holders recorded in the debenture register of the company on the
record date. In compliance with the JSE Listings Requirements, the following
dates are applicable:
Last date to trade Thursday, 4 August 2011
Debentures trade ex-interest Friday, 5 August 2011
Record date Friday, 12 August 2011
Payment date Monday, 15 August 2011
No debenture certificates may be dematerialised or rematerialised between
Friday, 5 August 2011 and Friday, 12 August 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, 12 August
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, 12 August 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 Thursday,
4 August 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 30 June 2011 of 747.6 cents. Accordingly, the ratio is 4.013
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, 8 August 2011. An
adjustment to the number of debentures listed will be made on or about Tuesday,
15 August 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 by registered post to
certificated debenture holders and the accounts updated and/or credited by CSDPs
or brokers of dematerialised debenture holders on or about Monday, 15 August
2011.
Signed on behalf of the board
JC GREYLING D FOORD
19 July 2011
Directors: JC GREYLING (Chairman), PE CLUER, AD COWELL**, D FOORD*, JC VAN DER
HORST, JC VAN NIEKERK, DG WEST
*British **Australian
Company secretary: L GREVLER
www.foordcompass.co.za
Sponsor: One Capital
Cape Town
20 July 2011
Date: 20/07/2011 09:30:01 Supplied by www.sharenet.co.za
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