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CND - Conduit Capital Limited - Condensed Consolidated Preliminary Audited

Release Date: 16/11/2011 08:30
Code(s): CND
Wrap Text

CND - Conduit Capital Limited - Condensed Consolidated Preliminary Audited Results for the year ended 31 August 2011 and withdrawal of cautionary announcement condensed consolidated statements of comprehensive income CONDUIT CAPITAL LIMITED Incorporated in the Republic of South Africa (Registration number: 1998/017351/06) Share code: CND ISIN: ZAE000073128 ("Conduit" or "the Group") CONDENSED CONSOLIDATED PRELIMINARY AUDITED RESULTS FOR THE YEAR ENDED 31 AUGUST 2011 AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Audited Audited
31 August 31 August 2011 2010 R`000 R`000 Gross revenue 920 517 771 207 Net insurance revenue 274 764 296 457 Other operating revenue 109 110 87 573 Net revenue 383 874 384 030 Operating expenses (356 046) (374 304) - Direct expenses: Insurance and risk services (219 375) (246 314) - Administration and other expenses (58 720) (54 963) - Depreciation and amortisation (3 519) (3 152) - Employee costs (74 432) (69 875) Operating profit 27 828 9 726 Equity accounted income 667 57 Investment income 24 923 18 119 Other income 1 190 3 790 Finance charges (1 300) (2 097) Profit before taxation 53 308 29 595 Taxation (16 988) (6 006) Profit for the year 36 320 23 589 Other comprehensive income - - Total comprehensive income 36 320 23 589 Attributable to: Equity holders of the parent 22 419 11 389 Non-controlling interest 13 901 12 200 Profit for the year 36 320 23 589 Earnings per share (cents) 8.96 4.55 Diluted earnings per share (cents) 8.74 4.48 Headline earnings per share (cents) 8.61 4.55 Diluted headline earnings per share (cents) 8.40 4.48 CONDENSED SEGMENTAL ANALYSIS OF EARNINGS Corporate Insurance Direct Consoli- Total and and risk R`000 dation R`000 investment services R`000 services R`000
R`000 Audited - year ended 31 August 2011 Gross revenue 6 418 815 088 103 830 (4 819) 920 517 Net revenue 6 418 278 445 103 830 (4 819) 383 874 Investment income 17 229 13 911 583 (6 800) 24 923 Profit before 5 575 20 257 34 276 (6 800) 53 308 taxation Attributable 4 618 15 483 9 118 (6 800) 22 419 earnings Non-controlling 51 81 13 769 - 13 901 interest Total assets 200 249 730 098 51 660 (164 125) 817 882 Total liabilities (22 136) (650 368) (24 279) 161 759 (535 024) Capital expenditure 94 830 2 548 - 3 472 Audited - year ended 31 August 2010 Gross revenue 14 000 696 611 72 931 (12 335) 771 207 Net revenue 14 000 309 434 72 931 (12 335) 384 030 Investment income 9 225 12 608 688 (4 402) 18 119 Profit before 2 121 8 971 22 903 (4 400) 29 595 taxation Attributable 3 295 6 307 6 187 (4 400) 11 389 earnings Non-controlling 39 2 878 9 283 - 12 200 interest Total assets 183 513 642 754 42 546 (151 200) 717 613 Total liabilities (10 372) (575 460) (21 052) 148 834 (458 050) Capital expenditure 321 796 2 031 (38) 3 110 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Audited Audited 31 August 31 August 2011 2010 R`000 R`000
Net cash flows from operating activities 34 166 17 339 Net cash flows from investing activities (22 866) (14 082) Net cash flows from financing activities (11 684) (7 845) Total cash movement for the year (384) (4 588) Cash at the beginning of the year 270 246 274 836 Cash disposed of - (2) Total cash at the end of the year 269 862 270 246 CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION Audited Audited 31 August 31 August 2011 2010 R`000 R`000
ASSETS Non-current assets 143 629 107 229 - Property, plant and equipment 14 457 14 998 - Intangible assets 46 089 46 277 - Loans receivable 5 351 6 884 - Deferred taxation 7 190 7 976 - Investment properties 3 442 3 403 - Investment in associates 281 756 - Investment in jointly controlled entities 3 325 - - Investments held at fair value 63 494 26 935 Current assets 669 503 595 334 - Insurance assets 316 026 228 542 - Investments held at fair value 4 592 3 858 - Trade and other receivables 78 761 91 519 - Taxation 262 1 160 - Cash and cash equivalents 269 862 270 255 Non-current assets held for sale 4 750 15 050 Total assets 817 882 717 613 EQUITY AND LIABILITIES Capital and reserves 282 858 259 563 - Ordinary share capital and share premium 199 155 199 155 - Retained earnings 65 538 43 626 - Share based payment reserve 600 363 Equity attributable to equity holders of 265 293 243 144 the parent Non-controlling interest 17 565 16 419 Non-current liabilities 28 629 40 054 - Policyholder liabilities under insurance 19 661 21 837 contracts - Interest-bearing borrowings 3 796 12 661 - Deferred taxation 5 172 5 556 Current liabilities 506 395 417 996 - Insurance liabilities 379 765 307 848 - Trade and other payables 122 341 102 268 - Current portion of interest-bearing 3 175 6 235 borrowings - Taxation 1 114 1 636 - Bank overdraft - 9
Total equity and liabilities 817 882 717 613 Net asset value per share (cents) 106.00 97.15 Tangible net asset value per share (cents) 87.58 78.66 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share Retained Other Non- Total capital earnings reserves control- R`000 and R`000 R`000 ling
share interest premium R`000 R`000 Balance at 1 199 155 31 729 1 004 14 623 246 511 September 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 - - 363 - 363 issued to executives Dividends paid - - - (10 400) (10 400) Balance at 31 August 199 155 43 626 363 16 419 259 563 2010 Reversal of equity - 66 (66) - - options Transaction with - (573) - (2 555) (3 128) owners Total comprehensive - 22 419 - 13 901 36 320 income for the year Equity options - - 303 - 303 issued to executives Dividends paid - - - (10 200) (10 200) Balance at 31 August 199 155 65 538 600 17 565 282 858 2011 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 2011 ("audited results") are based on reasonable judgements and estimates and are in accordance with International Financial Reporting Standards ("IFRS") and AC 500. These accounting policies are consistent with those applied in the annual financial statements for the year ended 31 August 2010. The audited results have been prepared in terms of IAS 34 - Interim Financial Reporting, the Companies Act, 71 of 2008, and the Listings Requirements of JSE Limited ("the JSE"). 2. Changes in share capital Details of shares in issue as at the reporting dates are as follows: 31 August 31 August 2011 2010
`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 256 531 254 258 - Shares in issue 262 634 260 361 - Shares held as treasury shares (6 103) (6 103) 3. Reconciliation of headline earnings 31 August 31 August
2011 2010 R`000 R`000 Profit attributable to ordinary equity 22 419 11 389 holders of Conduit Net (profit) loss on revaluation of non- (300) 1 239 current assets held for sale Net loss on revaluation of investment 1 38 properties Net loss (profit) on disposal of property, 603 (17) plant and equipment Net profit on disposal/revaluation of (891) (3 300) subsidiaries and associates Tax on the items above (26) 435 Non-controlling interest on the items above (249) 1 608 (after taxation)
Headline earnings 21 557 11 392 4. Contingent liabilities 4.1 Contingent rent is payable in respect of parking bays for which no rental agreement exists. 4.2 The Group`s bankers have issued the following guarantees on behalf of the Group: 4.2.1 CBS Property Portfolio Limited for office rent R432 455 4.2.2 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. 4.3 In the 2010 annual financial statements and subsequently in the February 2011 interim statements the Group reported the existence of various legal disputes that arose out of inwards reinsurance arrangements concluded through one of the Group`s external underwriting managers. One of the matters in dispute has been settled and another partially impaired, leaving only a matter that relates to the 2006 and 2007 underwriting years in arbitration. Given the complexity of the proceedings, financial exposure to the dispute in issue is difficult to quantify, though dependent on certain key outcomes, may be material. Any impact on earnings will be taken into account as and when reasonable certainty can be obtained. The claim brought by Sanlam Private Investments Proprietary Limited ("SPI") against a subsidiary of the risk services division has been withdrawn and the matter was settled directly between SPI and Hannover Re. In turn, the Group has withdrawn third party proceedings against Hannover Re and agreed to carry its own legal costs. An amount of R4.97 million in settlement costs and accruals relating to the above matters was expensed in this reporting period. Legal fees and direct expenses relevant to these matters continue to be raised as and when incurred (this amounted to R3.33 million in the year under review). None of the matters in dispute pertain to the 2011 financial year and their effect on 2011 earnings should therefore be seen in that context. Other than what is noted above, the Group is not aware of any other current or pending legal cases that would have a material adverse effect on the Group`s audited results. 5. Directors 5.1 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. 5.2 Mr Larry Prosser resigned as an executive director of the Group on 13 April 2011. There were no changes to the directorate subsequent to the publication of the interim results on 20 April 2011. 6. Dividends The board of directors of Conduit ("the Board") has not recommended a dividend payment to ordinary shareholders for the 2011 financial year (2010: Nil). 7. Post balance sheet events There were no material post balance sheet events. 8. Audit opinion Grant Thornton has audited the financial information set out in these condensed consolidated preliminary results for the year ended 31 August 2011. Their unqualified audit report is available for inspection at the Group`s registered office. COMMENTARY GROUP OPERATIONAL REVIEW 1. GENERAL In the year to 31 August 2011 the Group posted the strongest set of results since 2007. Headline earnings per share advanced to 8.61 cents representing an 89% increase over the 4.55 cents in the comparative period. Tangible net asset value and net asset value ("NAV") per share improved to 87.58 and 106.0 cents respectively. Although the gap has narrowed somewhat, the trading price of Conduit stock represents a notable discount to NAV. The Group`s cash position at 31 August 2011 stood at a healthy R269.8 million. The investment portfolio was largely unchanged from the first half of the year with overall gross investment returns, including the insurance "float", delivering a sound 12.8% during the year. 2. CONDUIT INSURANCE AND RISK SERVICES The promising underwriting results reflected at the six months to 28 February 2011 showed consistency in the second half of the financial year across all insurance classes. In the year under review Constantia Insurance Company Limited ("Constantia") demonstrated the underlying quality of its commercial and personal lines portfolios by displaying a positive trend in premium growth and underwriting profitability. Though gross premium income increased to R781.3 million (2010: R656.2 million), a refined reinsurance program led to a reduction in net retention to R245.4 million (2010: R276.6 million) and a considerable improvement in profitability. The result can be credited to the disciplined approach to underwriting, claims management and cost control adopted by the Constantia team and its valued insurance partners. Statutory funding ratio and credit rating Constantia`s international solvency ratio as at 28 August 2011 improved to 58.5% (August 2010: 49.5%), well in excess of management and Global Credit Rating`s ("GCR") target range. The statutory solvency ratio remained unchanged from February 2011 at 41.5% (August 2010: 36.8%). GCR has reaffirmed Constantia`s credit rating at A-. 3. CONDUIT DIRECT Anthony Richards & Associates (Proprietary) Limited ("ARA") performed impressively in the year under review, resulting in a marked increase in profitability over the comparative period. ARA celebrated its 10th anniversary in September, reflecting 10 years of positive contribution to an industry in which it has established itself as a market leader. 4. CONCLUSION Simultaneously with the release of the February 2011 interim results on 20 April 2011, shareholders were advised that the Group was considering appropriate means of returning capital to shareholders. Since publication of that cautionary, we set about a process of carefully examining and exploring options that would best serve the interests of the Group. In doing so, we evaluated the possible disposal of certain assets and indeed entertained discussions with a number of suitors specific to our insurance and risk services division - a most unsettling affair for staff as well as our valued business partners. Shortly before the most recent cautionary renewal, the Board terminated these discussions and sought to address the issue of returning capital to shareholders through means other than the disposal of valuable assets. Our focus through the years has been on consolidating and refining our business model, while fiercely protecting our balance sheet. Though it has been six years since acquiring our first asset, we have always been cognisant of the fact that while capital is a precious commodity for any growing business, returns are equally precious for investors. Managing investor expectations and building a sustainable business model capable of weathering the storms - of which we`ve had a few - has been rather challenging. All the while, our NAV per share has steadily ticked up from approximately 7 cents in February of 2005 to 106 cents at year-end. The Group has certainly proven its resilience and, through the product of much hard work, is pleased to reward investor patience with a healthy capital distribution. On a practical level, the business remains wholly intact. The revision and simplification of our corporate and reporting structure further streamlines our business model and effectively consolidates the interdependent Head Office & Treasury, Private Equity and Financial Services divisions into a single Corporate and Investment Services division. A particularly pleasing result for 2011 leaves us not with a feeling of complacency, but instead with one of appreciation at having revealed the true value of owning hard working, quality assets in an economic environment typified by low yields and extraordinary volatility. We are indeed expectant of a productive 2012. 5. CAPITAL DISTRIBUTION AND WITHDRAWAL OF CAUTIONARY Capital distribution Shareholders are advised that following a resolution passed by the Board on 9 November 2011, the Board hereby declares a distribution to shareholders by way of a capital reduction out of the share premium account of ten cents per share for the year ending 31 August 2012. The salient dates in respect of the capital distribution are as follows: 2011 Last day to trade cum distribution on Friday, 2 December Shares will trade ex-distribution from Monday, 5 December Record date Friday, 9 December Payment of distribution Monday, 12 December Shareholders may not de-materialise or re-materialise their shares between Monday, 5 December 2011 and Friday, 9 December 2011, both dates inclusive. Withdrawal of cautionary Shareholders are referred to the cautionary announcements, the most recent of which was released on 17 October 2011 and are advised that as discussions as set out in paragraph 4 above have been terminated, caution is no longer required to be exercised by shareholders when dealing in Conduit`s securities. For and on behalf of the Board Jason D Druian Lourens E Louw Chief Executive Officer Financial Director Johannesburg 16 November 2011 Directors: Executive directors: Jason D Druian (Chief Executive Officer), Lourens E Louw (Financial Director), 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: 16/11/2011 08:30:01 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. 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