Wrap Text
Condensed Consolidated Unaudited Results for the Six Months Ended 31 December 2015
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 31 DECEMBER 2015
GENERAL COMMENTARY
Conduit Capital is a holding company owning subsidiaries involved in the insurance industry in South Africa.
Conduit’s ambition is to develop a high quality, diversified insurance group complemented by a non-insurance
value-oriented investment programme. We aim to create an environment where exceptional people can thrive
in the building of a quality business over the long term.
The six months to 31 December 2015 is the first complete reporting period under present management.
During the six months, we took steps toward building the intrinsic value of Conduit. Our stated intention is to
pursue organic and inorganic insurance related opportunities and this process is ongoing. The insurance
subsidiaries showed excellent progress in this respect having entered into various new business opportunities,
some of which will be launched in the second half of the fiscal year.
FINANCIAL RESULTS
The JSE Listings Requirements require that we compare these results to the previously reported comparative
results for 28 February 2015 and 30 June 2015. However, as management assessed the performance of the
business against the six-month period ended 31 December 2014, we have also included the condensed
consolidated unaudited results for the six months ended 31 December 2014 for comparative purposes. Unless
specifically stated otherwise, comparative numbers in this commentary relate to the six months ended
31 December 2014.
Gross written premium decreased 4.2% to R481.3 million, but net premium income increased 34.3% to
R228.5 million. Over time, our intention is to increase net premium income (as opposed to gross written
premium, where we do not necessarily retain all of the risk) at suitable underwriting profitability levels.
Increased retention allows us to build our capital base, which in turn allows us to write more premium for
own account. Higher retention also decreases insurance assets, which understandably were down to R316
million.
The combined ratio for the six-month period was 98.6%. The combined ratio is a measure of an insurance
company’s ability to generate profits from underwriting activities. Generally, the lower the ratio the better, as
it means our insurance book is profitable. If we can grow our insurance book at a below 100% combined
ratio, we will generate investable assets. The cost to us of this increased capital base is measured by the
combined ratio (we were effectively paid 1.4% to hold this capital). Investable assets in the Insurance and
Risk segment increased 22.7% during the six months under review, despite an expected contraction in our
levels of technical float (insurance liabilities less insurance assets).
Net asset value per share increased 9.1% to 184.9 cents, based on 331.4 million fully diluted shares in issue
(net of treasury shares). The fully diluted share count increased 29.3% due to the successful rights offer
which took place in December 2015 and raised R150 million. The capital that was raised has been earmarked
for a number of insurance opportunities.
During the previous 12 months cash and cash equivalents increased significantly due to a move out of bonds
and into cash, as well as from the issue of shares in the rights offer. The Group’s annualised return on equity
for the six months under review dropped to 4.0%. However, during the same period, the insurance
businesses produced a respectable annualised pre-tax return on capital employed of 23.1%.
Profit before tax decreased 41.3% to R17.7 million against the comparable period, but was up 5% on the
second half of the fiscal 2015 year. Our insurance operations increased pre-tax profits by 62.5% to R22.8
million (before head office costs). The decline of profit before tax at Group level was driven primarily by a
decrease in investment income due to lower returns from the Group’s investments. Profit after tax was also
negatively affected by the normalisation of the Group’s tax rate, which is expected to remain at this level for
the full year.
It is our view that changes in net asset value per share offer a better proxy for changes in underlying intrinsic
value as opposed to changes in the level of earnings at Group level.
It should be expected that investment income will be lumpy over short time periods. Our strategy of investing
in quality companies at attractive prices is likely to generate acceptable investment returns over longer time
periods. The paradox of investing is that the best time to put money to work is usually when things seem like
they are never going to improve.
REGULATORY ENVIRONMENT
The Financial Sector Regulation Bill was made available to the insurance industry in mid-December. The Bill
focuses on the future function of the South African Reserve Bank (“the Reserve Bank”) in respect of financial
stability and the prudential control functions of the Reserve Bank in respect of insurance companies. It also
sets out the basis for the establishment of the Prudential Authority under the Reserve Bank and the Financial
Sector Conduct Authority (effectively the Compliance and FAIS activities of the Financial Services Board). Over
the past few years we have expended significant resources to ensure the Group complies with new legislation.
Furthermore, we have been operating under Solvency Assessment and Management Interim Measures (a
precursor to Solvency Assessment and Management, or SAM) and our view is that the manner in which we
conduct our business meets all legislative requirements.
PROSPECTS
Instability and uncertainty in financial markets creates attractive opportunities for capital deployment. The
threat of a ratings downgrade of the sovereign and global stock market volatility play very nicely into our
hands. Our insurance businesses are launching new ventures and expanding existing relationships, as well as
exploring opportunities to improve and grow their businesses. Investment income will always be unpredictable
in the short term so our concern is for the performance of the portfolio over rolling three year periods. While
we cannot predict how the fiscal year will transpire, we have laid down the early building blocks for sustained
growth in intrinsic value over the long term.
Sean Riskowitz
Chief Executive Officer
Johannesburg
22 February 2016
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Restated 1) Restated 1) Restated 1)
Unaudited six unaudited six unaudited six audited ten
months ended months ended months ended months ended
31 Dec 2015 31 Dec 2014 28 Feb 2015 30 Jun 2015
R’000 R’000 R’000 R'000
Gross written premium 481 326 502 244 467 155 788 517
Reinsurance premium (258 283) (331 378) (311 751) (474 544)
Net written premium 223 043 170 866 155 404 313 973
Net change in provision for unearned premium 5 424 (694) 707 (1 190)
Net premium income 228 467 170 172 156 111 312 783
Reinsurance commission received 157 776 263 593 244 295 362 663
Income from insurance operations 386 243 433 765 400 406 675 446
Net claims and movement in claims reserves (134 188) (76 762) (70 563) (129 273)
Insurance contract acquisition costs (103 404) (112 968) (105 260) (167 106)
Agency fees (120 317) (214 322) (197 965) (332 531)
Gross underwriting surplus 28 334 29 712 26 618 46 536
Administration costs (14 927) (17 140) (15 289) (24 702)
Net underwriting surplus 13 407 12 572 11 329 21 834
Non-insurance revenue 2 205 3 073 2 481 3 948
Other expenses (18 828) (17 474) (16 167) (41 180)
Operating loss (3 216) (1 829) (2 357) (15 398)
Equity accounted income 8 710 11 775 9 368 14 015
Investment income 3 843 18 023 21 117 45 576
Net other income 8 529 2 174 2 343 2 935
Finance charges (204) (31) (53) (212)
Profit before taxation 17 662 30 112 30 418 46 916
Taxation (6 903) (3 436) (4 916) (9 247)
Profit for the period 10 759 26 676 25 502 37 669
Other comprehensive income - - - -
Total comprehensive income 10 759 26 676 25 502 37 669
Attributable to:
Equity holders of the parent 10 845 26 632 25 443 37 626
Non-controlling interest (86) 44 59 43
Total comprehensive income 10 759 26 676 25 502 37 669
Headline earnings 10 845 26 555 25 449 38 179
Earnings per share (cents)
- Basic 3.8 9.4 8.9 13.2
- Diluted 3.8 9.4 8.9 13.2
- Headline 3.8 9.3 8.9 13.4
- Diluted headline 3.8 9.3 8.9 13.4
1) Earnings per share for the prior periods have been restated due to the rights offer on 14 December 2015, as required by IAS 33:
Earnings per share. Refer to notes 2 and 3.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Unaudited Unaudited Unaudited Audited
31 Dec 2015 31 Dec 2014 28 Feb 2015 30 Jun 2015
R’000 R’000 R’000 R’000
ASSETS
Non-current assets 368 493 450 049 459 148 304 563
- Property, plant and equipment 9 065 9 724 9 705 9 067
- Intangible assets 35 079 35 203 35 147 35 246
- Loans receivable 7 963 17 561 15 730 16 004
- Deferred taxation 16 045 15 369 15 237 9 334
- Investment properties 5 928 4 189 4 189 5 928
- Investment in associates 125 872 125 746 120 967 124 411
- Investment in joint ventures 666 476 217 225
- Investments held at fair value 167 875 241 781 257 956 104 348
Current assets 941 888 654 738 623 737 781 817
- Insurance assets 316 086 381 879 360 150 326 833
- Loans receivable 1 180 376 1 629 1 180
- Investments held at fair value - 23 556 23 970 -
- Trade and other receivables 222 116 139 383 125 666 130 723
- Taxation 12 657 4 380 6 880 10 149
- Cash and cash equivalents 389 849 105 164 105 442 312 932
Total assets 1 310 381 1 104 787 1 082 885 1086 380
EQUITY AND LIABILITIES
Capital and reserves 613 047 434 959 443 658 455 825
- Ordinary share capital and share premium 323 167 176 704 176 704 176 704
- Retained earnings 289 389 257 679 266 361 278 544
Equity attributable to equity holders of the parent 612 556 434 383 443 065 455 248
Non-controlling interest 491 576 593 577
Non-current liabilities 68 209 57 050 56 944 61 281
- Policyholder liabilities under insurance contracts 32 606 20 522 20 522 32 606
- Interest-bearing borrowings - 310 - -
- Deferred taxation 35 603 36 218 36 422 28 675
Current liabilities 629 125 612 778 582 283 569 274
- Insurance liabilities 359 395 421 273 405 604 369 104
- Trade and other payables 255 180 189 160 173 819 191 970
- Taxation 14 550 2 345 2 860 8 200
Total equity and liabilities 1 310 381 1 104 787 1 082 885 1 086 380
Net asset value per share (cents) 184.9 169.4 172.8 177.6
Tangible net asset value per share (cents) 148.3 155.7 125.5 130.3
SEGMENTAL REPORT
The report has been reformatted to more accurately reflect the performance of the different segments under
the Group's new strategy, as well as the capital utilised by each segment. The prior period segmental report
has been presented in a manner similar to that of the current period in order to simplify comparative analysis.
For clarity, the Insurance and Risk segment shows the profit and capital employed in insurance and risk
activities only (excluding discretionary investments of the insurers). The Investments segment shows the
profit and capital employed in the discretionary investment activities of the Group (including the insurers).
SEGMENTAL REPORT FOR THE SIX MONTHS ENDED 31 DECEMBER 2015
Insurance
and Risk Investments Total
R'000 R'000 R'000
Net underwriting surplus 13 407 - 13 407
Non-insurance revenue and other expenses (10 272) (692) (10 964)
Operating profit (loss) 3 135 (692) 2 443
Equity accounted income 124 8 586 8 710
Investment income (loss) 6 217 (2 859) 3 358
Other 13 328 (5 000) 8 328
Profit before taxation 22 804 35 22 839
Unallocated net head office expenses (5 177)
Taxation (6 903)
Profit for the period 10 759
Capital utilised
Capital employed at end of period 161 583 274 198 613 046
Capital utilised at end of period 161 583 198 644 537 493
Average capital utilised during the period 197 673 142 220 399 674
SEGMENTAL REPORT FOR THE SIX MONTHS ENDED 31 DECEMBER 2014
Insurance
and Risk Investments Total
R'000 R'000 R'000
Net underwriting surplus 12 572 - 12 572
Non-insurance revenue and other expenses (8 531) (1 724) (10 255)
Operating profit (loss) 4 041 (1 724) 2 317
Equity accounted income 2 446 9 329 11 775
Investment income 5 455 11 411 16 866
Other 2 094 - 2 094
Profit before taxation 14 036 19 016 33 052
Unallocated net head office expenses (2 940)
Taxation (3 436)
Profit for the period 26 676
Capital utilised
Capital employed at end of period 185 277 194 181 434 957
Capital utilised at end of period 185 277 118 628 359 403
Average capital utilised during the period 180 555 99 788 356 271
SEGMENTAL REPORT FOR THE SIX MONTHS ENDED 28 FEBRUARY 2015
Insurance
and Risk Investments Total
R'000 R'000 R'000
Net underwriting surplus 11 329 - 11 329
Non-insurance revenue and other expenses (7 230) (1 761) (8 991)
Operating profit (loss) 4 099 (1 761) 2 338
Equity accounted income 750 8 618 9 368
Investment income 6 603 13 906 20 509
Other 2 282 - 2 282
Profit before taxation 13 734 20 763 34 497
Unallocated net head office expenses (4 079)
Taxation (4 916)
Profit for the period 25 502
Capital utilised
Capital employed at end of period 184 723 194 002 443 659
Capital utilised at end of period 184 723 118 448 368 105
Average capital utilised during the period 184 871 109 435 361 390
SEGMENTAL REPORT FOR THE 10 MONTHS ENDED 30 JUNE 2015
Insurance
and Risk Investments Total
R'000 R'000 R'000
Net underwriting surplus 21,834 - 21,834
Non-insurance revenue and other expenses (15,877) (2,411) (18,288)
Operating profit (loss) 5,957 (2,411) 3,546
Equity accounted income (loss) (256) 14,271 14,015
Investment income 11,745 32,998 44,743
Other 2,724 - 2,724
Profit before taxation 20,170 44,858 65,028
Unallocated net head office expenses (18,112)
Taxation (9,247)
Profit for the period 37,669
Capital utilised
Capital employed at end of period 204,806 197,312 455,825
Capital utilised at end of period 204,806 121,759 380,271
Average capital utilised during the period 190,952 111,502 365,002
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited Unaudited Audited
six months six months 10 months
ended ended ended
31 Dec 2015 28 Feb 2015 30 Jun 2015
R’000 R’000 R'000
Net cash flows from operating activities (16 172) 24 726 50 522
Net cash flows from investing activities (61 415) (9 294) 185 418
Net cash flows from financing activities 154 504 1 048 (11 970)
Total cash movement for the period 76 917 16 480 223 970
Cash at the beginning of the period 312 932 88 962 88 962
Total cash at the end of the period 389 849 105 442 312 932
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Share capital
and share Retained Non-controlling
premium earnings interest Total
R'000 R'000 R'000 R'000
Balance at 31 August 2014 176 704 253 737 612 431 053
Total comprehensive income for the period - 25 443 59 25 502
Dividends paid - (12 819) (78) (12 897)
Balance at 28 February 2015 176 704 266 361 593 443 658
Total comprehensive income (loss) for the period - 12 183 (16) 12 167
Balance at 30 June 2015 176 704 278 544 577 455 825
Total comprehensive income (loss) for the period - 10 845 (86) 10 759
Issue of share capital 150 000 - - 150 000
Share issue costs (3 537) - - (3 537)
Balance at 31 December 2015 323 167 289 389 491 613 047
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 31 December 2015 (“interim results”) 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 10 months ended 30 June 2015. The interim results have been
prepared making use of reasonable judgements and estimates and reporting is done in terms of IAS 34 –
Interim Financial Reporting, the Companies Act, 2008 (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.
The interim results have not been audited or reviewed by the Group’s auditors.
2. Restatement of comparative numbers
The weighted average number of shares in issue and the earnings per share measures have been
restated by a factor of 1.1097 to reflect the bonus element of the rights offer in terms of IAS 33: Earnings
per share (also refer to note 3).
3. Changes in share capital
75 000 000 (2015: Nil) ordinary shares totalling R150.0 million were issued by way of a rights offer on
14 December 2015. Share issue costs of R3.5 million have been charged to the Share Premium account.
Details of the shares in issue as at the reporting dates are as follows:
31 Dec 2015 31 Dec 2014 28 Feb 2015 30 Jun 2015
’000 ’000 ’000 ’000
Number of shares 331 377 256 377 256 377 256 377
- Shares in issue 331 380 256 380 256 380 256 380
- Shares held as treasury shares (3) (3) (3) (3)
Weighted average number of shares on
which earnings and diluted earnings per
share calculations are based 289 076 284 490 284 490 284 490
- Shares in issue 263 717 256 380 256 380 256 380
- Bonus issue for rights offer 1) 25 362 28 113 28 113 28 113
- Shares held as treasury shares (3) (3) (3) (3)
1)The weighted average number of shares has been restated by the Bonus issue amount due to the rights offer that took place on
14 December 2015, as required by IAS 33: Earnings per share.
4. Financial instruments
Fair value estimation
The financial assets valued at fair value through profit and loss in the statement of financial position are
grouped into the fair value hierarchy as follows:
Level 1 Level 2 Level 3 Total
Financial assets R’000 R’000 R’000 R'000
Listed investments 167 875 - - 167 875
Investment properties - 5 928 - 5 928
167 875 5 928 - 173 803
There have been no transfers between levels 1, 2 and 3 during the reporting period.
The methods and valuation techniques used for the purpose of measuring fair value are unchanged compared to the
previous reporting period:
- Financial assets classified in Level 1 have been valued with reference to quoted prices and market rates
(unadjusted) in active markets for identical assets or liabilities; and
- Financial assets classified in Level 2 have been valued by an independent third party according to a formula
(using the fair market values of the underlying assets in the investment) in terms of which the investment could
have been liquidated as at the reporting date.
5. Reconciliation of headline earnings
Unaudited Unaudited Audited
six months six months Unaudited six 10 months
ended ended months ended ended
31 Dec 2015 31 Dec 2014 28 Feb 2015 30 Jun 2015
R’000 R’000 R’000 R'000
Profit attributable to ordinary equity holders of
Conduit 10 845 26 632 25 443 37 626
Net profit on revaluation of investment
properties - - - (657)
(Profit) loss on disposal of intangibles,
property, plant and equipment - (64) 8 (7)
Impairment of associates and joint ventures - (25) - 1 071
Tax on the items above - 12 (2) 146
Headline earnings 10 845 26 555 25 449 38 179
6. Contingent liabilities
The Group is not aware of any current or pending legal cases that would have a material adverse effect
on its results.
7. Directors
Following the retirement and resignation of Dr CH Kühn from the insurance subsidiary companies of
Conduit Capital (comprising Constantia Insurance Company Limited, Constantia Life Limited and
Constantia Life and Health Assurance Company Limited) (hereinafter collectively referred to as
“Constantia Insurance Group”) and in order to ensure continuity and maintain independence of the
Constantia Insurance Group Boards, Mr Richard Bruyns has resigned as an independent non-executive
director of Conduit Capital’s board of directors (“the Board”) with effect from 3 August 2015 and has
simultaneously been appointed as Chairman of the Constantia Insurance Group.
8. Dividends and other distributions
The Board has not recommended any dividend payment to ordinary shareholders for the six months
ended 31 December 2015 (2015: Nil).
9. Events after reporting period
There were no events that resulted in a material impact on the Group between the reporting date and the
date of publication of this report.
Directors:
Executive directors: Sean Riskowitz (Chief Executive Officer), Lourens Louw (Financial Director),
Robert Shaw, Gavin Toet
Non-executive directors: Ronald Napier (Chairman)*, David Harpur*, Jabulani Mahlangu*, Tyrone
Moodley, Barry Scott*, Rosetta Xaba*
* Independent
Company secretary:
CIS Company Secretaries Proprietary Limited
70 Marshall Street
Johannesburg, 2001
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
Date: 22/02/2016 05:15:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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