Wrap Text
Condensed consolidated unaudited results for the six months ended 28 February 2013
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 UNAUDITED RESULTS FOR THE SIX MONTHS ENDED
28 FEBRUARY 2013
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited Unaudited
six months six months Audited
ended 28 ended 29 year ended
Feb 2013 Feb 2012 Variance 31 Aug 2012
R’000 R’000 % R'000
Gross revenue 648 529 519 289 24.9 1 071 936
Net insurance revenue 142 778 152 310 (6.3) 290 784
Other operating revenue 67 906 65 263 4.0 143 817
Net revenue 210 684 217 573 (3.2) 434 601
Operating expenses (183 663) (195 847) 6.2 (369 870)
- Direct expenses: Insurance and risk
services (112 832) (127 241) (215 333)
- Administration and other expenses (28 851) (30 104) (67 116)
- Depreciation and amortisation (1 605) (2 010) (3 514)
- Employee costs (40 375) (36 492) (83 907)
Operating profit 27 021 21 726 24.4 64 731
Equity accounted income 184 318 723
Investment income 15 452 16 495 14 116
Other (expenses) income (45) - 528
Finance charges (198) (281) (427)
Profit before taxation 42 414 38 258 10.9 79 671
Taxation (7 140) (9 807) (30 418)
Profit for the period 35 274 28 451 24.0 49 253
Other comprehensive income - - -
Total comprehensive income 35 274 28 451 24.0 49 253
Attributable to:
Equity holders of the parent 24 951 19 888 25.5 32 156
Non-controlling interest 10 323 8 563 20.6 17 097
Total comprehensive income 35 274 28 451 24.0 49 253
Headline earnings 24 991 20 438 22.3 32 163
Earnings per share (cents)
- Basic 9.7 7.8 24.4 12.7
- Diluted 9.7 7.7 26.0 12.6
- Headline 9.8 8.0 22.5 12.7
- Diluted headline 9.8 8.0 22.5 12.6
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME PER SEGMENT
CORPORATE AND INVESTMENT SERVICES
Unaudited Unaudited
six months six months Audited
ended 28 ended 29 year ended
Feb 2013 Feb 2012 Variance 31 Aug 2012
R’000 R’000 % R'000
Gross revenue 5 258 3 143 67.3 6 184
Net insurance revenue - - 0.0 -
Other operating revenue 5 258 3 143 67.3 6 184
Net revenue 5 258 3 143 67.3 6 184
Operating expenses (7 561) (5 614) (34.7) (19 090)
- Direct expenses: Insurance and risk
services - - -
- Administration and other expenses (1 860) (1 690) (5 294)
- Depreciation and amortisation (65) (84) (131)
- Employee costs (5 636) (3 840) (13 665)
Operating loss (2 303) (2 471) 6.8 (12 906)
Equity accounted income - - -
Investment income 7 038 15 151 17 831
Other (expenses) income (26) - (34)
Finance charges (2) (3) (11)
Profit before taxation 4 707 12 677 (62.9) 4 880
Taxation 158 (581) 35
Profit for the period 4 865 12 096 (59.8) 4 915
Other comprehensive income - - -
Total comprehensive income 4 865 12 096 (59.8) 4 915
Attributable to:
Equity holders of the parent 4 856 12 064 (59.7) 4 904
Non-controlling interest 9 32 (71.9) 11
Total comprehensive income 4 865 12 096 (59.8) 4 915
Headline earnings 4 883 12 064 (59.5) 4 928
Earnings per share (cents)
- Basic 1.9 4.7 (59.6) 1.9
- Diluted 1.9 4.7 (59.6) 1.9
- Headline 1.9 4.7 (59.6) 1.9
- Diluted headline 1.9 4.7 (59.6) 1.9
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME PER SEGMENT
(continued)
INSURANCE AND RISK SERVICES
Unaudited Unaudited
six months six months Audited
ended 28 ended 29 year ended
Feb 2013 Feb 2012 Variance 31 Aug 2012
R’000 R’000 % R'000
Gross revenue 583 656 456 117 28.0 938 062
Net insurance revenue 142 778 152 310 (6.3) 290 784
Other operating revenue 3 033 2 091 45.1 9 943
Net revenue 145 811 154 401 (5.6) 300 727
Operating expenses (140 079) (149 738) 6.5 (266 905)
- Direct expenses: Insurance and risk
services (112 832) (127 941) (215 333)
- Administration and other expenses (15 992) (11 268) (29 548)
- Depreciation and amortisation (647) (610) (1 204)
- Employee costs (10 608) (9 919) (20 820)
Operating profit 5 732 4 663 22.9 33 822
Equity accounted income 184 318 723
Investment income 8 140 6 470 12 569
Other (expenses) income (20) - 312
Finance charges (196) (278) (416)
Profit before taxation 13 842 11 173 23.9 47 010
Taxation (598) (2 152) (14 066)
Profit for the period 13 244 9 021 46.8 32 944
Other comprehensive income - - -
Total comprehensive income 13 244 9 021 46.8 32 944
Attributable to:
Equity holders of the parent 13 230 8 971 47.5 32 774
Non-controlling interest 14 50 (68.0) 170
Total comprehensive income 13 244 9 021 46.8 32 944
Headline earnings 13 243 9 521 39.1 32 741
Earnings per share (cents)
- Basic 5.2 3.5 48.6 12.9
- Diluted 5.2 3.5 48.6 12.8
- Headline 5.2 3.7 40.5 12.9
- Diluted headline 5.2 3.7 40.5 12.8
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME PER SEGMENT
(continued)
DIRECT
Unaudited Unaudited
six months six months Audited
ended 28 ended 29 year ended
Feb 2013 Feb 2012 Variance 31 Aug 2012
R’000 R’000 % R'000
Gross revenue 64 759 62 467 3.7 132 838
Net insurance revenue - - 0.0 -
Other operating revenue 64 759 62 467 3.7 132 838
Net revenue 64 759 62 467 3.7 132 838
Operating expenses (41 168) (41 481) 0.8 (89 023)
- Direct expenses: Insurance and risk
services - - -
- Administration and other expenses (16 144) (17 433) (37 422)
- Depreciation and amortisation (893) (1 316) (2 179)
- Employee costs (24 131) (22 732) (49 422)
Operating profit 23 591 20 986 12.4 43 815
Equity accounted income - - -
Investment income 274 314 516
Other (expenses) income - - 250
Finance charges - - -
Profit before taxation 23 865 21 300 12.0 44 581
Taxation (6 700) (7 164) (16 387)
Profit for the period 17 165 14 136 21.4 28 194
Other comprehensive income - - -
Total comprehensive income 17 165 14 136 21.4 28 194
Attributable to:
Equity holders of the parent 6 865 5 655 21.4 11 278
Non-controlling interest 10 300 8 481 21.4 16 916
Total comprehensive income 17 165 14 136 21.4 28 194
Headline earnings 6 865 5 655 21.4 11 294
Earnings per share (cents)
- Basic 2.7 2.2 22.7 4.4
- Diluted 2.7 2.2 22.7 4.4
- Headline 2.7 2.2 22.7 4.4
- Diluted headline 2.7 2.2 22.7 4.4
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Audited
Unaudited Unaudited 31 Aug
28 Feb 2013 29 Feb 2012 Variance 2012
R’000 R’000 % R’000
ASSETS
Non-current assets 160 964 157 935 149 345
- Property, plant and equipment 14 452 14 680 14 601
- Intangible assets 47 058 46 459 46 457
- Loans receivable 3 789 5 379 4 073
- Deferred taxation 13 701 9 264 9 965
- Investment properties 3 850 3 444 3 851
- Investment in associates 395 327 311
- Investment in jointly controlled entities 3 665 2 765 3 756
- Investments held at fair value 74 054 75 617 (2.1) 66 331
Current assets 866 406 724 921 752 472
- Insurance assets 435 877 349 890 357 402
- Investments held at fair value - 4 800 (100.0) -
- Loans receivable 10 158 - 11 172
- Trade and other receivables 157 613 116 012 113 513
- Taxation 2 527 2 118 413
- Cash and cash equivalents 260 231 252 101 3.2 269 972
Non-current assets held for sale - 4 110 -
Total assets 1 027 370 886 966 901 817
EQUITY AND LIABILITIES
Capital and reserves 319 096 280 362 13.8 288 297
- Ordinary share capital and share
premium 176 703 175 917 175 917
- Inter-group funding - - -
- Contingency reserve - 157 -
- Retained earnings 122 681 85 236 97 694
- Share-based payment reserve - 183 182
Equity attributable to equity holders of
the parent 299 384 261 493 14.5 273 793
Non-controlling interest 19 712 18 869 4.5 14 504
Non-current liabilities 31 158 30 086 30 840
- Policyholder liabilities under insurance
contracts 19 051 18 776 19 052
- Interest-bearing borrowings 2 675 4 125 3 753
- Deferred taxation 9 432 7 185 8 035
Current liabilities 677 116 576 518 582 680
- Insurance liabilities 505 136 428 012 422 561
- Trade and other payables 168 776 144 260 152 626
- Taxation 3 204 4 246 7 493
Total equity and liabilities 1 027 370 886 966 901 817
Capital expenditure 2 056 2 606 4 128
Net asset value per share (cents) 116.8 102.6 13.8 107.5
Tangible net asset value per share
(cents) 98.4 84.4 16.6 89.2
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION PER SEGMENT
CORPORATE AND INVESTMENT SERVICES
Audited
Unaudited Unaudited 31 Aug
28 Feb 2013 29 Feb 2012 Variance 2012
R’000 R’000 % R’000
ASSETS
Non-current assets 39 782 52 830 33 538
- Property, plant and equipment 156 292 256
- Intangible assets 29 58 29
- Loans receivable - - -
- Deferred taxation 5 115 4 882 5 193
- Investment properties - - -
- Investment in associates - - -
- Investment in jointly controlled entities 597 973 787
- Investments held at fair value 33 885 46 625 (27.3) 27 273
Current assets 5 719 7 620 5 794
- Insurance assets - - -
- Investments held at fair value - 4 800 (100.0) -
- Loans receivable - - -
- Trade and other receivables 1 551 456 471
- Taxation 97 63 104
- Cash and cash equivalents 4 071 2 301 76.9 5 219
Non-current assets held for sale - - -
Total assets 45 501 60 450 39 332
EQUITY AND LIABILITIES
Capital and reserves 42 466 56 749 (25.2) 32 071
- Ordinary share capital and share
premium 176 703 175 917 175 917
- Inter-group funding (122 394) (108 489) (127 302)
- Contingency reserve - - -
- Retained earnings (Accumulated loss) (12 014) (11 062) (16 906)
- Share-based payment reserve - 183 182
Equity attributable to equity holders of
the parent 42 295 56 549 (25.2) 31 891
Non-controlling interest 171 200 (14.5) 180
Non-current liabilities - 487 322
- Policyholder liabilities under insurance
contracts - - -
- Interest-bearing borrowings - 353 42
- Deferred taxation - 134 280
Current liabilities 3 035 3 214 6 939
- Insurance liabilities - - -
- Trade and other payables 2 955 3 159 6 884
- Taxation 80 55 55
Total equity and liabilities 45 501 60 450 39 332
Capital expenditure - 21 37
Net asset value per share (cents) 16.5 22.2 (25.7) 12.5
Tangible net asset value per share
(cents) 16.5 22.2 (25.7) 12.5
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION PER SEGMENT (continued)
INSURANCE AND RISK SERVICES
Audited
Unaudited Unaudited 31 Aug
28 Feb 2013 29 Feb 2012 Variance 2012
R’000 R’000 % R’000
ASSETS
Non-current assets 107 609 92 303 112 970
- Property, plant and equipment 10 308 9 394 10 013
- Intangible assets 37 665 37 619 37 458
- Loans receivable 3 789 5 379 15 245
- Deferred taxation 8 365 4 382 4 065
- Investment properties 3 850 3 444 3 850
- Investment in associates 395 327 311
- Investment in jointly controlled entities 3 068 2 765 2 969
- Investments held at fair value 40 169 28 993 38.5 39 059
Current assets 822 521 676 717 704 338
- Insurance assets 435 877 349 890 357 402
- Investments held at fair value - - 0.0 -
- Loans receivable 10 158 - -
- Trade and other receivables 140 283 99 253 94 786
- Taxation 2 430 2 055 310
- Cash and cash equivalents 233 773 225 519 3.7 251 840
Non-current assets held for sale - 4 750 -
Total assets 930 130 773 770 817 308
EQUITY AND LIABILITIES
Capital and reserves 236 685 186 889 26.6 224 949
- Ordinary share capital and share
premium - - -
- Inter-group funding 110 826 96 920 112 334
- Contingency reserve - 157 -
- Retained earnings (Accumulated loss) 125 432 89 521 112 202
- Share-based payment reserve - - -
Equity attributable to equity holders of
the parent 236 258 186 598 26.6 224 536
Non-controlling interest 427 291 46.7 413
Non-current liabilities 31 158 29 676 30 030
- Policyholder liabilities under insurance
contracts 19 051 18 776 19 051
- Interest-bearing borrowings 2 675 3 771 3 711
- Deferred taxation 9 432 7 129 7 268
Current liabilities 662 287 557 205 562 329
- Insurance liabilities 505 136 428 012 422 561
- Trade and other payables 154 423 127 233 132 987
- Taxation 2 728 1 960 6 781
Total equity and liabilities 930 130 773 770 817 308
Capital expenditure 1 111 396 1 459
Net asset value per share (cents) 92.2 73.2 26.0 88.1
Tangible net asset value per share
(cents) 77.5 58.5 32.5 73.4
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION PER SEGMENT (continued)
DIRECT
Audited
Unaudited Unaudited 31 Aug
28 Feb 2013 29 Feb 2012 Variance 2012
R’000 R’000 % R’000
ASSETS
Non-current assets 15 937 16 139 15 885
- Property, plant and equipment 3 989 4 994 4 332
- Intangible assets 11 727 11 145 11 332
- Loans receivable - - -
- Deferred taxation 221 - 221
- Investment properties - - -
- Investment in associates - - -
- Investment in jointly controlled entities - - -
- Investments held at fair value - - 0.0 -
Current assets 38 639 39 613 31 660
- Insurance assets - - -
- Investments held at fair value - - 0.0 -
- Loans receivable - - -
- Trade and other receivables 16 251 15 332 18 748
- Taxation - - -
- Cash and cash equivalents 22 388 24 281 (7.8) 12 912
Non-current assets held for sale - - -
Total assets 54 576 55 752 47 545
EQUITY AND LIABILITIES
Capital and reserves 42 308 41 088 3.0 33 643
- Ordinary share capital and share
premium - - -
- Inter-group funding 11 568 11 568 14 968
- Contingency reserve - - -
- Retained earnings 11 626 11 141 4 761
- Share-based payment reserve - - -
Equity attributable to equity holders of
the parent 23 194 22 709 2.1 19 729
Non-controlling interest 19 114 18 379 4.0 13 914
Non-current liabilities - 13 -
- Policyholder liabilities under insurance
contracts - - -
- Interest-bearing borrowings - - -
- Deferred taxation - 13 -
Current liabilities 12 268 14 651 13 902
- Insurance liabilities - - -
- Trade and other payables 11 872 12 420 13 245
- Taxation 396 2 231 657
Total equity and liabilities 54 576 55 752 47 545
Capital expenditure 945 2 189 2 632
Net asset value per share (cents) 9.0 8.9 1.1 7.7
Tangible net asset value per share
(cents) 4.5 4.5 0.0 3.3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited Unaudited
six months six months Audited
ended ended year ended
28 Feb 2013 29 Feb 2012 31 Aug 2012
R’000 R’000 R'000
Net cash flows from operating activities (6 207) 12 787 30 629
Net cash flows from investing activities 706 (3 996) 2 372
Net cash flows from financing activities (4 240) (26 552) (32 891)
Total cash movement for the period (9 741) (17 761) 110
Cash at the beginning of the period 269 972 269 862 269 862
Total cash at the end of the period 260 231 252 101 269 972
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Share
capital Non-
and share Retained Other controlling
premium earnings reserves interest Total
R'000 R'000 R'000 R'000 R'000
Balance at 1 September 2011 199 155 65 538 600 17 565 282 858
Total comprehensive income for the
period - 19 888 - 8 563 28 451
Equity options issued to executives - - 23 - 23
Equity options exercised 2 240 - (440) - 1 800
Transaction with owners - (33) - - (33)
Contingency reserve transfer - (157) 157 - -
Capital distribution (25 478) - - - (25 478)
Dividends paid - - - (7 259) (7 259)
Balance at 29 February 2012 175 917 85 236 340 18 869 280 362
Total comprehensive income for the
period - 12 268 - 8 534 20 802
Equity options issued to executives - - (1) - (1)
Transaction with owners - 33 - - 33
Loans advanced by non-controlling
shareholders - - - 5 101 5 101
Contingency reserve transfer - 157 (157) - -
Dividends paid - - - (18 000) (18 000)
Balance at 31 August 2012 175 917 97 694 182 14 504 288 297
Total comprehensive income for the
period - 24 951 - 10 323 35 274
Reversal of equity options - 36 (36) - -
Equity options exercised 786 - (146) - 640
Loans repaid to non-controlling
shareholders - - - (5 100) (5 100)
Dividends paid - - - (15) (15)
Balance at 28 February 2013 176 703 122 681 - 19 712 319 096
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of preparation
The accounting policies applied in the preparation of these condensed consolidated unaudited financial
statements for the six months ended 28 February 2013 (“interim results”) are based on reasonable
judgements and estimates and are in accordance with International Financial Reporting Standards
(“IFRS”) and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and
Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council. These
accounting policies are consistent with those applied in the annual financial statements for the year ended
31 August 2012. The interim results have been prepared in terms of IAS 34 – Interim Financial Reporting,
the Companies Act, 71 of 2008 as amended, and the Listings Requirements of JSE Limited (“the JSE”)
under the supervision of Mr Lourens Louw, the Financial Director and have not been audited or reviewed
by the Group’s auditors.
2. Changes in share capital
Details of the shares in issue as at the reporting dates are as follows:
28 Feb 2013 29 Feb 2012 31 Aug 2012
’000 ’000 ’000
Number of shares 256 377 254 777 254 777
- Shares in issue 256 380 256 380 256 380
- Shares held as treasury shares (3) (1 603) (1 603)
Weighted average number of shares 255 982 254 777 254 181
- Shares in issue 256 380 256 380 256 380
- Shares held as treasury shares (398) (1 603) (2 199)
Diluted weighted average number of shares 255 982 256 777 256 181
- Shares in issue 256 380 258 380 258 380
- Shares held as treasury shares (398) (1 603) (2 199)
3. Reconciliation of headline earnings
Unaudited Unaudited
six months six months Audited
ended ended year ended
28 Feb 2013 29 Feb 2012 31 Aug 2012
R’000 R’000 R'000
Profit attributable to ordinary equity holders of Conduit 24 951 19 888 32 156
Net loss on revaluation of non-current assets held for
sale - 640 -
Net profit on revaluation of investment properties - - (41)
Net loss on disposal of property, plant and equipment 45 - 89
Tax on the items above (5) (90) (17)
Non-controlling interest on the items above (after
taxation) - - (24)
Headline earnings 24 991 20 438 32 163
4. Contingent liabilities
4.1. The Group's bankers have issued the following guarantees on behalf of the Group:
4.1.1. Government Employees Pension Fund for office rent R540 724
4.1.2. 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.
4.2. The outcome of the arbitration relating to inward re-insurance arrangements concluded in 2006
and 2007 has been determined and accounted for in the results.
The Group is not aware of any current or pending legal cases that would have a material adverse effect
on the Group's results.
5. Directors
Mr Richard Bruyns was appointed as an independent non-executive director on 4 October 2012.
6. Dividends and other distributions
Only once the compulsory Quantitative Impact Study III (“QIS III”) has been completed by insurers in
2014 will the Financial Services Board finally determine the capital requirements for insurers under the
new Solvency Assessment and Management (“SAM”) regulatory framework. Accordingly, we expect to
maintain a margin of safety and utilise our capital effectively. The growth prospects in the Insurance and
Risk Services division support this strategy. The board of directors of Conduit Capital has therefore not
recommended any dividend payment to ordinary shareholders for the six months ended 28 February 2013
(2012: Nil).
7. Post balance sheet events
There were no material post-balance sheet events.
COMMENTARY
REVIEW OF OPERATIONS
Corporate and Investment Services (Head Office and ancillary investments)
In the first half of the 2012 financial year we accounted for R8.8 million (3.5 cents per share) in mark-to-
market “profits” relating to our 26% interest in Amalgamated Electronics Corporation Limited (“Amecor”).
Unfortunately, by year-end this had reversed itself (and more), only to be partially revived by the reliable
annual dividend. This year a more modest 40 cents increase in the Amecor share price translated into
R7.6 million (3 cents per share). Whilst Amecor continues to produce solid earnings and a dependable
dividend, prevailing accounting rules do require that we take our six monthly dose of volatility with a smile.
The decline in profit in the Corporate and Investment Services segment is therefore not particularly
meaningful.
Conduit Insurance and Risk Services (Risk and non-risk bearing businesses)
In the wake of one corporate financial crisis after another (albeit largely abroad), it is not surprising that
regulators have sharpened their gaze on the financial sector, and more particularly the banking and insurance
industries. Severe as the new and impending regulations may seem, their objective is hard to fault and
effectively calls for improved risk management, discerning capital allocation and disciplined underwriting. It
may please investors to know that at present Constantia Insurance Company Limited’s (“Constantia”) Capital
Adequacy Ratio (“CAR”) - the Financial Services Board’s primary measure of balance sheet strength -
improved to 1.49 from 1.43 at the last reporting date, which is well above the current statutory requirement
of 1. Constantia’s international solvency margin also advanced to 52.5%, the highest level seen since August
2011 (pre-capital distribution).
Apart from the comfort of a more robust balance sheet, during the natural perils weather losses experienced
at the end of last year, our reinsurance program stood up well in ensuring that we were not exposed to more
than 1% of our capital base (any single event). Though not entirely unscathed, we did manage to quite
literally weather the storm without sustaining too much damage. Overall the division produced R13.2 million
in headline earnings, a considerable advancement on the comparative period (February 2012: R9.5 million).
Conduit Direct (Credit recovery and debt management)
There is little doubt that credit granters have tightened lending criteria, with the result that inflows and quality
of outstanding debt have deteriorated. The small amount of disposable income that consumers have at hand
is widely spread and their ability to repay debt is hampered by the need to service multiple accounts.
Against this backdrop, the business fared well and the year is off to a steady start with our 40% share in
Anthony Richards and Associates Proprietary Limited contributing R6.9 million to headline earnings. The
apparent mismatch between the 12% pre and 21.4% post-tax profit increase over the corresponding period
arises purely out of a lower tax rate, precipitated by the recent change in the dividend tax structure.
Embedded value update (our conservative valuation of the Group)
Investors will recall a shift in the tenor of commentary contained in the 2012 Integrated Annual Report. In
that review we set about dismantling the parts, only to piece them back together for the purposes of
establishing a realistic and what we considered then to be a “conservative total embedded value of
R372.8 million”. For ease of reference we have utilised the same part-by-part analysis as then, only this time
we have refined our approach (which we will continue to do) and supplemented the valuation with a table
that delves deeper into the embedded value calculation. It is important to note that where we have used
discounted cash flow models the risk free rate does adjust with market movements and will impact valuations
from time to time.
Insurance and Risk activities
The RISK portion of our Insurance and Risk segment includes the short and long-term insurance licences and
accounts for 3 of the 4 components of our Insurance and Risk Services valuation.
Part 1 - Cash and investments is comprised of assets invested in equities, bonds and investment funds
taken at market value and added to the face value of cash in excess of our insurance float and working
capital requirements. At 28 February 2013 this totalled R149.9 million (August 2012: R117.8 million).
Part 2 - A basic calculation of the net present value of R88.3 million in technical reserves or Insurance float
invested to deliver an after-tax return of 6.1% strongly supports the revised valuation of R53.2 million
(August 2012: R28.2 million).
Part 3 - Here we combine 30 months (at year-end we’ll use 36) of stable underwriting performance data with
modest growth assumptions in order to arrive at the value of our Insurance book. Though it is a particularly
subjective area of our valuation, we consider it to be fair and reasonable. We place a balanced R112.7 million
in value on the underwriting portfolio (August 2012: R90.6 million).
Part 4 - In the August 2012 review our valuation of NON-RISK activities was somewhat over-simplistic, in that
we based our value solely on our share of the cash surplus to working capital in these entities. This time
around we do the same, but also recognise some worth in the equity, bringing the realistic value up to
R22.9 million (August 2012: R18.8 million).
Direct activities
Part 5 - Re-applying the discounted cash flow model utilised in August 2012, we attribute a present value of
R108.8 million to our 40% interest in the underlying business (August 2012: R99.3 million).
Other
Part 6 - We know investors are not particularly fond of categorising items under Other without some genuine
insight into the underlying assets. Our version of Other is rather easy to explain and simply comprises
investments in fixed property residing in the Insurance and Risk segment, together with 16.53 million Amecor
shares held in the Corporate and Investment Services segment. As the valuation methodology has its
positives, so it has its downside. Unallocated Group operating costs of R3.1 million negatively impact the
value by a whopping R20.9 million. Though these costs cannot be reasonably attributed to a particular
segment, they equally have no place in a “break-up” (no we are not) calculation and perhaps unfairly
suppress the ultimate value of R25.9 million (August 2012: R18.1 million) for this segment.
Table 1
February 2013 August 2012
Corporate &
Investment Insurance &
Services Risk services Direct Total Total
Part R'000 R'000 R'000 R'000 R'000
1 RISK: Cash and investments - 149 870 - 149 870 117 790
- Surplus cash - 109 701 - 109 701 78 731
- Investments held at fair value - 40 169 - 40 169 39 059
2 RISK: Insurance float - 53 226 - 53 226 28 211
3 RISK: Insurance operations - 112 709 - 112 709 90 553
4 NON-RISK - 22 898 - 22 898 18 843
- Investment in associates - 1 160 - 1 160 -
- Investment in joint ventures - 2 579 - 2 579 -
- Operations - (284) - (284) -
- Surplus cash - 19 443 - 19 443 18 843
5 DIRECT - - 108 820 108 820 99 278
6 OTHER 12 986 12 908 - 25 894 18 128
- Investments held at fair value 33 885 - - 33 885 27 273
- Operations (20 899) - - (20 899) (22 054)
- Properties - 12 908 - 12 908 12 908
TOTAL 12 986 351 611 108 820 473 416 372 802
Number of shares in issue, net of
treasury shares ('000) 256 377 256 377 256 377 256 377 254 777
Embedded value per share (cents) 5.1 137.1 42.4 184.7 146.3
Conclusion
Of course we realise that any embedded valuation calculation is subjective. In as much as we strip away the
unintelligible lingo and replace it with plain, comprehensible language, we leave it to you to use the tools and
information provided in determining an investment course suited to your risk profile and personal perception
of true embedded value. Our own conservative answer is R473.4 million or 184.7 cents per share.
Over and above the marked improvement in performance, perhaps the 27% increase in the number of
Conduit shareholders over the last year also suggests a better overall understanding and appreciation of our
business and its prospects. This report further entrenches our renovated approach and indeed our absolute
commitment to delivering the Group’s financial news without puffery and obfuscation1.
1. ob-fus-ca-tion (noun) 1. make something obscure 2. the hiding of intended meaning in communication, making communication
confusing, willfully ambiguous, and harder to interpret (Wikipedia) – we hope the tongue in cheek definition attests to our point.
For and on behalf of the Board
Jason D Druian Lourens E Louw
Chief Executive Officer Financial Director
Johannesburg
22 April 2013
Directors:
Executive directors: Jason D Druian (Chief Executive Officer), Lourens E Louw (Financial Director),
Robert L Shaw, Gavin Toet
Non-executive directors: Reginald S Berkowitz (Chairman)*, Richard Bruyns*, Scott M Campbell*, Günter
Z Steffens OBE*
* Independent
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: 011 886 0206
Transfer secretaries:
Computershare Investor Services (Proprietary) Limited
Ground Floor, 70 Marshall Street, Johannesburg, 2001
Sponsor:
Merchantec Capital
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