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Unaudited interim report for the six months ended 30 June 2013 and interest payment and election
FOORD COMPASS LIMITED
JSE Code: FCPD ISIN: ZAE000054466
Registration Number: 1987/003591/06
("the company")
* INTERIM DISTRIBUTION OF 30c PER DEBENTURE
* NET ATTRIBUTABLE ASSET VALUE OF 900.2c PER DEBENTURE
* GROSS INVESTMENT RETURN OF 24.1% PER ANNUM FOR 10 YEARS
UNAUDITED INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2013 AND INTEREST PAYMENT AND ELECTION
CONDENSED STATEMENT OF FINANCIAL POSITION Unaudited Unaudited Audited
at 30 June 2013 30 June 2013 30 June 2012 31 Dec 2012
Notes R'm R'm R'm
ASSETS
Current assets
Investments 3 2,653.4 1,136.6 1,292.6
Income receivables and unsettled sales 51.2 3.3 15.4
Sundry debtors 0.8 0.2 0.5
Cash and deposits 873.0 612.6 636.5
Total assets 3,578.4 1,752.7 1,945.0
EQUITY AND LIABILITIES
Capital and reserves 71.9 45.0 54.7
Ordinary share capital 0.1 0.1 0.1
Accumulated profits 71.8 44.9 54.6
Non-current liabilities 2,615.4 1,257.1 1,329.4
Unsecured debentures 4 2,605.9 1,255.6 1,326.8
Deferred taxation 9.5 1.5 2.6
Current liabilities 891.1 450.6 560.9
Accounts payable 5.6 3.2 3.1
Taxation 0.8 15.1 0.2
Short investment positions 771.3 313.1 470.9
Unsettled purchases 23.6 71.3 6.6
Debenture interest payable 89.8 47.9 80.1
Total equity and liabilities 3,578.4 1,752.7 1,945.0
Number of debentures in issue 299,445,486 159,559,186 163,551,641
Number of ordinary shares in issue 8,800,070 8,800,070 8,800,070
Cents Cents Cents
NAAV per debenture (cum interest) 900.2 816.9 860.2
NAAV per debenture (ex interest) 870.2 786.9 811.2
NAAV value per ordinary share 817.0 511.4 621.6
NAAV = Net attributable asset value
CONDENSED STATEMENT OF COMPREHENSIVE INCOME Unaudited Unaudited Audited
6 months to 6 months to Year ended
30 June 2013 30 June 2012 31 Dec 2012
Notes R'm R'm R'm
Investment income 49.1 45.6 81.8
Realised trading profits 70.9 58.6 79.4
Operating expenditure (14.2) (9.5) (19.0)
Net distributable profit 105.8 94.7 142.2
Capital profits on sale of investments 47.3 100.9 105.6
Revaluation of investments 154.7 (69.9) 10.8
Net portfolio income before debenture interest 307.8 125.7 258.6
Debenture interest (89.8) (47.9) (128.0)
Increase in carrying value of debentures 4 (176.6) (59.9) (99.7)
Profit before taxation 41.4 17.9 30.9
Taxation expense 5 (17.2) (8.2) (11.5)
Profit attributable to ordinary shareholders 24.2 9.7 19.4
Weighted average number of debentures in issue 282,679,324 158,421,146 160,024,673
Cents Cents Cents
Interest per debenture 30.0 30.0 80.0
Earnings per ordinary share 275.0 110.2 220.5
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Ordinary Accumulated
share capital profits Total
R'm R'm R'm
Balance at 1 January 2012 (audited) 0.1 42.2 42.3
Dividends - (7.0) (7.0)
Profit for the year - 19.4 19.4
Balance at 31 December 2012 (audited) 0.1 54.6 54.7
Dividends - (7.0) (7.0)
Profit for the period - 24.2 24.2
Balance at 30 June 2013 (unaudited) 0.1 71.8 71.9
Balance at 1 January 2012 (audited) 0.1 42.2 42.3
Dividends - (7.0) (7.0)
Profit for the period - 9.7 9.7
Balance at 30 June 2012 (unaudited) 0.1 44.9 45.0
CONDENSED STATEMENT OF CASH FLOWS Unaudited Unaudited Audited
6 months to 6 months to Year ended
30 June 2013 30 June 2012 31 Dec 2012
R'm R'm R'm
Net cash (outflow) inflow from investing activities (769.2) 126.4 184.4
Interest, dividends and taxation paid (96.8) (86.2) (151.7)
Net cash received from issue of debentures 1,102.5 43.8 75.2
Net change in cash and deposits 236.5 84.0 107.9
Cash and deposits at beginning of period 636.5 528.6 528.6
Cash and deposits at end of period 873.0 612.6 636.5
NOTES TO THE INTERIM FINANCIAL STATEMENTS
1. Basis of preparation and significant accounting policies
The condensed financial statements have been prepared in accordance with the measurement and recognition requirements of
International Financial Reporting Standards (IFRS), the SAICA Financial Reporting Guides as issued by the Accounting Practices
Committee and Financial Reporting Pronouncements as issued by Financial Reporting Standards Council and the information as required
by International Accounting Standards (IAS) 34 Interim Financial Reporting and the requirements of the Companies Act of South
Africa. 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 2012.
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 Unaudited Unaudited Audited
30 June 2013 30 June 2012 31 Dec 2012
R'm R'm R'm
Unsecured debentures comprise
Debenture capital at issue price 2,224.2 1,090.3 1,121.7
Cumulative revaluation of debentures 381.7 165.3 205.1
Fair value of debentures 2,605.9 1,255.6 1,326.8
Reconciliation of balance
Balance at beginning of period 1,326.8 1,151.9 1,151.9
Net proceeds on issue of debentures 1,102.5 43.8 75.2
Revaluation - current period 176.6 59.9 99.7
Balance at end of period 2,605.9 1,255.6 1,326.8
Increase in carrying value of debentures
Net portfolio income before debenture interest 307.8 125.7 258.6
90% allocation to debenture holders 277.0 113.1 232.7
Less: proportionate share of taxation expense (10.6) (5.3) (5.0)
Less: interest distribution for the period (89.8) (47.9) (128.0)
Revaluation - current period 176.6 59.9 99.7
5. Taxation expense
Taxation comprises
Current taxation charge - current period 10.3 18.1 20.3
Deferred taxation charge (credit) - current period 6.9 (9.9) (8.8)
Net expense per statement of comprehensive income 17.2 8.2 11.5
Deferred taxation relates to the revaluation of investments. The share of the net taxation charge attributable to the unsecured
debentures, which amounts to R10.6 million (2012: R5.3 million), has been removed from the carrying value of the debentures
as set out in note 4.
These results have not been reviewed by the company's auditors, Deloitte & Touche.
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2013
The directors hereby present the results of the company for the six months ended 30 June 2013. The board of directors has
approved an unchanged interim distribution of 30 cents per debenture. Consequently, the rolling 12 month distribution is
similarly unchanged at 80 cents per debenture which results in a 10.2% yield on the ex-interest NAAV of 786.9 cents as at
30 June 2012. For the six months under review, the net attributable asset value ("NAAV"), per debenture increased from 811.2
cents ex-interest to 900.2 cents per debenture on a cum-interest basis. This amounts to an appreciation of 11.0% for the half
year.
The returns earned on the debentures for the six months ended 30 June 2013 are as follows:
Unaudited Unaudited Audited
6 months to 6 months to Year to
30 June 2013 30 June 2012 31 Dec 2012
Income 3.7% 4.0% 10.7%
Capital 7.3% 5.0% 8.1%
Total return * 11.0% 9.0% 18.8%
* Calculated with reference to opening net attributable asset values per debenture
Net portfolio income before debenture interest amounted to R307.8 million, a substantial increase over the R125.7 million in
the comparative period as a result of the significantly higher asset base following the private placement of debentures earlier in
the year. Net distributable income (being interest, dividends and realised trading profits net of operating expenses) has
increased 11.7% year-on-year to R105.8 million. The increase in operating expenses is directly correlated to the larger
investment portfolio during the period.
INVESTMENT RETURNS
Against a backdrop of continued market volatility, the investment portfolio has generated an aggregate return of 14.1% over the
last six months, comfortably exceeding the absolute return benchmark of CPI + 10% and the local equity market as set out in the
table below.
Unaudited Unaudited Annualised returns to 30 June 2013
6 months to 6 months to 1 year 5 years 10 years Since inception
30 June 2013 30 June 2012 (1 Jan 2002)
Gross portfolio total return 14.1% 11.0% 25.9% 17.8% 24.1% 22.8%
Benchmark (CPI + 10% per annum) 7.8%* 8.0% 15.5%* 15.5%* 15.4%* 15.9%*
FTSE / JSE All Share Index 2.3% 7.0% 21.0% 8.6% 20.2% 15.6%
MSCI World Index in rands ** 28.3% 7.5% 45.6% 8.5% 11.0% 4.1%
* Lagged one month
** Developed markets total return index
Notwithstanding some positive economic indicators from the US, weaker Chinese economic data and an increase in global
benchmark yields resulted in global equity markets in June retracing much of the gains made in the first five months of the year.
Anemic South African GDP growth, widening trade and budget deficits and continued violent labour unrest resulted in a
significant depreciation of the rand againt major international currencies. In spite of the rand's depreciation, expected reduction in Chinese commodity
consumption forced the local resources sector lower. With inflation close to the upper end of the South African Reserve Bank's
target range, there seems little impetus to a future decrease in interest rates.
Portfolio returns were driven by the exposure to foreign assets, with almost 65% of the portfolio's total return attributable to
that asset class. Also, some tactical conservatism with equities meant that the aggregate portfolio was considerably
desensitised to the global equity market weakness that prevailed in June.
The returns earned by and the contribution to total return of the various major asset classes is tabulated below:
Six months to June 2013 Six months to June 2012
Return Contribution Return Contribution
SA shares 14.3% 2.5% 28.5% 7.2%
SA listed property 37.6% 0.7% 18.5% 0.3%
SA bonds 0.0% 0.0% -7.0% -1.9%
Foreign assets 22.0% 9.8% 8.9% 4.1%
Commodities -4.5% -0.2% - -
SA cash 2.5% 1.3% 2.5% 1.3%
Total 14.1% 11.0%
PORTFOLIO STRUCTURE AND COMMENT
Continued market volatility has resulted in particular attention being paid to the tactical positioning of the portfolio. Of significance is
the reallocation of assets from South African equities into cash during the reporting period. This reflects the reduction after the
March close in the net long derivatives contracts held at the financial year end and realisation of local equity counters before
the June sell-off. Put options against the FTSE/JSE All Share Index provide added protection against further market retracement,
while the higher cash balance allows for opportunistic acquisitions.
Other material changes to the portfolio include a reduction in the short government bond position in both SA and global bonds.
The portfolio manager also took advantage of higher prices in the offshore corporate debt market during the period to realise
substantial gains in "distressed" debt instruments originally purchased in 2008/2009. As a result, the exposure to this asset class
has reduced substantially from 22% at the beginning of the period to 9% at the reporting date. The commodity exposures (to
gold and platinum group metals) in the portfolio were increased on metal price weakness. As a result of these changes, the cash
holdings of the portfolio have increased from an effective 7% at the financial year-end to 44%.
The effective asset structure of the investment portfolio at 30 June 2013 is as follows:
Domestic Foreign Total
30 June 2013 31 Dec 2012 30 June 2013 31 Dec 2012 30 June 2013 31 Dec 2012
Equities 22% 61% 34% 32% 56% 93%
Listed property 1% 2% 0% 0% 1% 2%
Government bonds -10% -16% -5% -9% -15% -25%
Corporate debt 1% 2% 8% 20% 9% 22%
Commodities 4% 0% 1% 1% 5% 1%
Effective cash 36% -1% 8% 8% 44% 7%
54% 48% 46% 52% 100% 100%
Notwithstanding the recent weakness, foreign equities remain attractive, especially as investors rotate out of bonds as yields
rise. However, the portfolio's current conservative structure renders it especially immune to short-term downside risk. The
potential for participation in upside growth will be enhanced by the astute deployment of the cash balances, the use of carefully
selected derivative instruments and the continued selection of a concentrated portfolio of equity counters with high intrinsic
value.
GOVERNANCE
As was announced during the period under review, the board reluctantly accepted Jan van Niekerk's resignation as director in
March 2013. Peter Judge was appointed to the board as an independent non-executive director and member of the audit
committee in the same month.
INTEREST PAYMENT AND ELECTION
Notice is hereby given that a debenture interest payment (number 52) of 30.0 cents per debenture in respect of the six months
ended 30 June 2013 is payable to debenture holders recorded in the debenture register of the company on the record date. In
compliance with the JSE Limited Listings Requirements, the following dates are applicable:
Last date to trade Friday, 26 July 2013
Debentures trade ex-interest Monday, 29 July 2013
Record date Friday, 2 August 2013
Payment date Monday, 5 August 2013
No debenture certificates may be dematerialised or rematerialised between Monday, 29 July 2013 and Friday, 2 August 2013,
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,
2 August 2013. 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, 2 August 2013 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, 26 July 2013. 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 2013 of 870.2 cents. Accordingly, the ratio is 3.44748 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, 29 July 2013. An adjustment to
the number of debentures listed will be made on or about Tuesday, 6 August 2013 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 accounts updated and/or
credited by CSDPs or brokers of dematerialised debenture holders on or about Monday, 5 August 2013.
Signed on behalf of the board
DG WEST PE CLUER
8 July 2013
Directors: DG WEST (Chairman), PE CLUER, AD COWELL**, D FOORD*, PW JUDGE, JC VAN DER HORST * British ** Australian
Company secretary: L GREVLER
Sponsor: One Capital
www.foordcompass.co.za
9 July 2013
Date: 09/07/2013 10:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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