Wrap Text
Condensed Consolidated Audited Results for the Year Ended 30 June 2016
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” or “the Company”)
CONDENSED CONSOLIDATED AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2016
LETTER FROM THE CEO TO THE SHAREHOLDERS OF CONDUIT CAPITAL:
To the Shareholders of Conduit Capital
Our Vision
Conduit Capital is a South African holding company that owns subsidiaries involved in the insurance industry.
Conduit’s long-term ambition is to develop a high quality, diversified insurance group supported by a value-
oriented, non-insurance investment portfolio. The aim is to continue to build a Group where talented people
can thrive in the evolution of a quality business.
Our primary objective is to increase the per share intrinsic value 1 of the Company over the long term at an
absolute rate in excess of the market in general. We intend to achieve this by pursuing profitable insurance
opportunities that deliver sustainable underwriting profits and generate capital that can be invested in non-
insurance opportunities. The increase in the value of this capital delivers a significant earnings stream for the
Group, which in turn develops a larger capital base from which further insurance business can be written. Our
goal is to accelerate this cycle, the ultimate effect of which should be a long-term sustainable increase in the
value of the Company.
Measuring Performance
Conduit’s performance is most appropriately measured by the growth in our intrinsic value per share. We use
the percentage change (not the absolute level) in net asset value (“NAV”) per share to estimate the Group’s
performance. This measure is more appropriate than a standard price to earnings ratio because of the nature
of the Group’s assets: insurers are generally valued in terms of a multiple of NAV. The investment portfolio
should similarly be assessed in terms of its fair market value (rather than its realised or unrealised gains or
losses that flow through the income statement).
The underlying nature of our businesses will result in inconsistent (but by no means undesirable) volatility in
earnings in any year on year comparison (take this year, for example). We measure our progress not by the
price to earnings multiple or growth in earnings, but rather the rate of growth in NAV per share. It is
important to remember, however, that although growth in NAV per share is not a perfect proxy for growth in
intrinsic value, it should over time offer a suitable correlation.
To accomplish our goal we will:
- invest in and sustainably develop our insurance businesses;
- pursue non-insurance investment opportunities; and
- grow our investable assets at no cost by achieving combined ratios2 well below 100%.
1 Intrinsic value refers to the actual value of a company or share determined through fundamental analysis without reference to its
market value. Intrinsic value can vary significantly from market value.
2 The combined ratio is calculated as net claims plus expenses divided by net earned premium.
More on combined ratios and their importance later.
For the year to 30 June 2016, NAV per share decreased by 1.8% primarily due to:
- new business reserving strain3 brought about by substantial growth in the accident and health book in our
insurance subsidiaries;
- a decrease in the value of our equity portfolio; and
- an impairment to our associate investment in ARA (discussed in more detail below).
On a normalised basis4, the Group showed a loss attributable to equity holders of R3.9 million, compared to
prior reported period normalised earnings of R47.7 million for the ten months to 30 June 2015. The decrease
in earnings was due to the factors stated above.
Insurance Operations
Our insurance group, Constantia, comprises Constantia Insurance Company Limited, Constantia Life Limited
and Constantia Life & Health Assurance Company Limited. Constantia, under the leadership of CEO, Robert
Shaw, is managed in a highly decentralised fashion. It operates within profitable niche segments of the
insurance market, complemented by personal lines and commercial lines offerings. Products are distributed by
various divisions and by independent Underwriting Management Agencies (“UMAs”). UMAs are generally
incentivised on a cost recovery basis (calculated as a percentage of premium) and profit share arrangements
(to ensure sufficient underwriting quality).
Constantia is an opportunistic and entrepreneurial group led by a strong management team. It built on its
niche during the year by partnering with the Automobile Association of South Africa in a new targeted direct
insurance offering for AA clients. This group of clients presents significantly lower loss ratios than other motor
clients in general. Constantia also took on large new books of accident and health business and continues
investing in improved systems and additional personnel for future growth.
Constantia increased gross premiums by 6.6% to over R1 billion. Net premium income increased to R376
million, but the underlying mix has changed substantially from the prior year. We make use of solvency relief
reinsurance contracts which have the effect of decreasing net premium income but increasing the insurer’s
return on invested capital. These solvency relief contracts relieve the group from onerous capital requirements
by ceding marginally profitable (on a return on capital basis) gross premium in exchange for significantly
lower capital requirements. Had we not entered into these agreements, net premium income would have
been 80% higher at R676 million. However, we would have required an additional R105.8 million in capital
which would have produced only R2.1 million in additional after-tax returns. Our intention is to retain more
business on a net basis over time, but we will do so only when the return on capital compensates us for the
risk and opportunity cost.
3 New business reserving strain occurs during the first year of the introduction of new insurance business when an IBNR reserve (for
claims Incurred But Not Reported) needs to be established for the new business. After the first year, the reserve only has to be
maintained, which has a less pronounced impact on earnings. Although this IBNR reserve reduces income, it increases the insurer’s
“float” by the same amount, which means that Conduit Capital still gets to use the cash for investment purposes, exactly the same as if it
was earned through retained earnings.
4 Normalised earnings exclude certain fair value adjustments. It however includes the impact of the new business reserving strain and the
mark-to-market of our equity portfolio. Normalised earnings is not an IFRS measure.
Constantia produced a 102.3% combined ratio, up from 97.2% last year5. Adjusted for new insurance venture
losses (i.e. taking out costs associated with new initiatives that are not yet at scale) and new business
reserving strain, the combined ratio was 94.9%. Constantia’s targeted combined ratio is 95% (or lower). The
combined ratio measures the sum of the net loss ratio and the expense ratio relative to net earned premium
and is critical as it determines whether or not the company is profitably writing insurance (simply put, it is no
good to double premium if claims are going to quadruple). The ratio is a measure of the “cost” of the
investable assets our insurance business produces that are available for investment. A ratio below 100%
means our investable assets cost us nothing to generate (compared to a bank loan at prime plus 1% to
generate the same level of investable assets). The lower the ratio the better, as it means we are creating
investable assets at no cost. We consider out target of 95% to be sustainable and scalable.
Constantia’s gross loss ratio6 increased to 50.2% from 31.4%. In addition to the impact of the new business
reserving strain (3.1%) the underwriting performance was tempered by higher claims in the accident and
health portfolio during the last half of the year. Decisive corrective action has been taken within the relevant
UMAs and books of business. Constantia increased investable assets (a broader definition of “float”) by 11.1%
to R159 million.
It is clear to us that Constantia’s earnings power is significantly higher this year than it was in the previous
year, even though the accounting result came in below expectations. Constantia is on a mission to invest in
capacity to position the itself optimally for its sustainable growth plans. This journey included a thorough
review of systems, people and processes, including all existing UMA and divisional arrangements. While on
paper the results appears somewhat disappointing, I am pleased at how the earnings power of Constantia has
and will continue to materially increase.
On 13 April 2016 Conduit announced the appointment of Volker von Widdern as its Deputy Chief Executive
Officer of Constantia. Volker was previously the Managing Director of Marsh South Africa. He is earmarked to
succeed Robert Shaw after a two year period when Robert retires. We welcome Volker to the team.
Public equity investments
Our equity portfolio comprises a concentrated selection of high quality businesses acquired for prices that we
believe will ensure an attractive rate of return over the long term. When we consider buying shares in a
company, we view the transaction as if we were buying the whole company. We are shareholder partners of
these companies. Investing in non-insurance businesses is a stated objective of the Group which bolsters our
capital base and, through earnings diversification, allows the insurance operations to focus on profitable
growth.
The equity investment portfolio comprised approximately 20% of our assets, or about
R245 million, spread between a subsidiary of Conduit and the insurance companies in Constantia. Constantia’s
investments are subject to Solvency Assessment and Management (SAM) regulatory constraints, while those
held outside of Constantia are not. We have a blend of appropriate conservativeness and flexibility in order to
pursue our investment objectives. The portfolio comprised eight investments at year end.
On a mark-to-market basis, the equity portfolio delivered a negative 8.3% return for the year. This compares
to the 38.7% return achieved for the prior period. The mark-to-market losses do not, in our opinion, reflect
5 Prior period comparisons are for the ten months to 30 June 2015.
6 Gross claims incurred as a percentage of gross premium, as net claims ratios would be skewed by the impact of solvency reinsurance
contracts entered into as highlighted above.
the growth in the underlying intrinsic value of the companies in which we are invested and in any event is too
short a time period to measure the performance of the investment strategy. Conduit’s net income after tax
will be lumpy for the reason that stock prices are inherently uncertain and volatile. As explained above,
growth in per share net asset value is a better proxy for the performance of Conduit’s underlying business
value.
Look-through Earnings
A measure of the success of the investment portfolio is “Look-through Earnings”: Conduit’s pre-tax pro rata
share of income7 produced by its investments in other companies. The metric is useful because all profits,
whether paid out or not, are valuable to shareholders. The metric can show trends not otherwise observable
by share price movements. Only share price movements and dividends are accounted for under accounting
standards but there is real value to shareholders of retained earnings. In contrast to the share prices of our
investments which decreased by 8.3%, Conduit’s “Look-through Earnings” generated by the investment
portfolio increased 273% year on year from R6.1 million to R23.1 million.
Other Investments
1. Conduit owns 40% of Anthony Richards & Associates (“ARA”), a leading credit recovery specialist. ARA
produces a steady stream of income tied to the performance of consumer credit markets. The company
generates an approximate 50% return on capital employed. Although we received R13.6 million in
dividends from the company (R13.2 million in 2015) at a dividend yield of 11.1%, we have elected to
impair the value of this investment by R13.075 million to R110 million in order to reflect the more difficult
trading conditions experienced in consumer credit markets. The impairment negatively affected Conduit’s
earnings, but is excluded from the calculation of headline and normalised earnings.
2. Conduit agreed to participate as an investor and management company shareholder of Africa Special
Opportunities Capital Proprietary Limited (“ASOC”). ASOC is building the pre-eminent special situations
investment management company in South Africa, which is the “first-to-market” of its kind. Recently
enacted Business Rescue legislation has created uncertainty in the market, creating an opportunity for an
opportunistic distressed investment firm on which to capitalise. With little formal competition, ASOC is
ideally placed to generate equity-like returns whilst assuming credit-like downside protections. We like to
call it “shooting fish in a barrel”.
ASOC is led by the three musketeers of Shaun Collyer, Paul Birkett and Richard Ferguson. The trio has
more than 55 years of experience in distressed business turnaround and private equity. They represent
the values we hold dear at Conduit: integrity, intelligence and passion. If your business is in distress and
you are looking for fast, efficient assistance, they might have a solution for you. Visit them at
www.asocapital.com.
Remuneration
With effect from 1 July 2015, the Conduit Remuneration Committee introduced a new remuneration
programme for Conduit Executives and CEOs of wholly owned subsidiaries. Each Executive and subsidiary
CEO is now incentivised on areas over which he or she has influence, as well as overall group performance.
7 Calculated as the audited headline earnings of each investee company at its most recent fiscal year-end multiplied by Conduit’s
ownership percentage of the company.
In our view incentive systems should be clear but demanding and in the best interests of all stakeholders
(including Executives).
Each Executive or subsidiary CEO is paid a fixed salary. Performance bonuses take the form of a short term
cash bonus (earned annually) and a long-term bonus comprising 50% cash and 50% shares. Performance in
terms of the long-term bonus is measured over three years and shares due (if any) are acquired by the
Company on the open market (no shares are issued so there is no dilutive effect). The magnitude of the short
and long term bonuses is determined by a multiple of the employee’s base salary in accordance with a
weighted formula, and is capped.
The key performance metrics (with the relevant weightings in brackets) that determine performance
remuneration are illustrated in the table below:
Short Term (1 year) Long Term (3 year
average)
Conduit CEO Growth in per share NAV Growth in per share NAV
(50%), Return on Capital (50%), Return on Capital
Employed (25%), Return on Employed (20%), Return on
Equity Investments (25%) Equity Investments (30%).
Other Conduit Executives Return on Capital Employed Return on Capital Employed
(50%), Growth in per share (25%), Growth in per share
NAV (50%) NAV (75%)
Constantia CEO Combined Ratio (50%), Combined Ratio (40%),
Investable Asset Growth Investable Asset Growth
(25%), Insurance Return on (20%), Insurance Return on
Capital Employed (25%) Capital Employed (20%),
Growth in NAV per share
(20%)
The base levels at which performance bonuses begin are:
Growth in per share NAV 10%
Return on Capital Employed 15%
Return on Investments 10%
Combined Ratio 95%
Investable Asset Growth >0%
Insurance Return on Capital Employed 15%
Further detail on the Group’s remuneration policy is contained in the Remuneration Report. Shareholders will
be asked to approve in a non-binding vote the Group’s remuneration policy at the forthcoming Annual General
Meeting.
Dividend
Conduit has a range of opportunities in which to deploy capital at attractive rates and therefore no dividend
has been declared. For as long as we can identify opportunities that meet our return requirements, it is
unlikely Conduit will pay a dividend.
Midbrook Lane Proprietary Limited (“Midbrook”) and Snowball Wealth Proprietary Limited
(“Snowball”) transactions
Subsequent to year-end Conduit announced the acquisitions of Midbrook and Snowball, two private
investment companies with similar portfolios and investment frameworks as Conduit. The deals are in the best
interests of Conduit shareholders because they increase the per share net asset value of the Company, create
a larger capital base from which we can write increased levels of insurance, give Conduit the opportunity to
materially benefit from the growth in value of the underlying investments, and amalgamate two related party
entities into the Conduit Capital business, thereby better aligning interests with those of Conduit shareholders.
A circular containing further detail on the acquisitions was distributed to all Conduit shareholders on
29 September 2016. I am pleased to report, as disclosed in the circular that the directors and major
shareholders of the Company will be voting in favour of the acquisitions.
Appreciation
Insurance and investment businesses are reliant on their people and partners as their most valuable assets. I
express my sincere appreciation to all Conduit and Constantia staff for their remarkable efforts during the
year – we would not be going anywhere without your valuable contribution. I thank our Board of Directors
who support our efforts to create long-term value for shareholders. While it was a difficult year on all fronts, I
believe the right decisions have and will be made to position the Group for sustainable long-term growth in
earnings power. I thank all people involved in this Group for their unwavering commitment and conviction as
we continue to build Conduit for the long-term.
Sean Riskowitz
Chief Executive Officer
Johannesburg
30 September 2016
CONDENSED CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
We have provided two additional Normalised (but unaudited) columns which compare the two periods as if they were accounted for on
a like-for-like basis, i.e. after:
1. reversing certain once-off costs associated with management changes during 2015; and
2. excluding fair value adjustments of associates, joint ventures and other capital items.
Restated 1) Normalised Normalised
Audited audited unaudited unaudited
year 10 months year 10 months
ended ended ended ended
30 Jun 2016 30 Jun 2015 30 Jun 2016 30 Jun 2015
R’000 R’000 R'000 R'000
Gross written premium 1 005 586 790 494 1 005 586 790 494
Reinsurance premium (629 530) (474 544) (629 530) (474 544)
Net written premium 376 056 315 950 376 056 315 950
Net change in provision for unearned premium (348) (1 190) (348) (1 190)
Net premium income 375 708 314 760 375 708 314 760
Reinsurance commission received 298 973 362 663 298 973 362 663
Income from insurance operations 674 681 677 423 674 681 677 423
Net claims and movement in claims reserves (187 318) (158 656) (187 318) (158 656)
Insurance contract acquisition costs (180 064) (167 335) (180 064) (167 335)
Agency fees (266 930) (304 896) (266 930) (304 896)
Gross underwriting surplus 40 369 46 536 40 369 46 536
Administration costs (36 213) (24 702) (36 213) (24 702)
Net underwriting surplus 4 156 21 834 4 156 21 834
Non-insurance revenue 18 231 3 948 18 231 3 948
Other expenses (48 429) (41 180) (43 429) (32 188)
Operating loss (26 042) (15 398) (21 042) (6 406)
Equity accounted income 13 153 14 015 13 153 14 015
Investment income 4 513 45 576 4 513 45 576
Other (12 109) 2 935 (512) 4 006
Finance charges (924) (212) (924) (212)
(Loss) profit before taxation (21 409) 46 916 (4 812) 56 979
Taxation (2 639) (9 247) 652 (9 247)
(Loss) profit for the year (24 048) 37 669 (4 160) 47 732
Other comprehensive income - - - -
Total comprehensive (loss) income (24 048) 37 669 (4 160) 47 732
Attributable to:
Equity holders of the parent (23 817) 37 626 (3 929) 47 689
Non-controlling interest (231) 43 (231) 43
Total comprehensive (loss) income (24 048) 37 669 (4 160) 47 732
Headline (loss) earnings (8 703) 38 179 (3 703) 47 171
(Loss) earnings per share (cents)
- Basic (7.7) 13.2 (1.3) 16.8
- Diluted (7.7) 13.2 (1.3) 16.8
- Headline (2.8) 13.4 (1.2) 16.6
- Diluted headline (2.8) 13.4 (1.2) 16.6
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. Certain individual line items have been restated in order to correct prior period errors, but there has been no impact
on prior period earnings or equity. Refer to notes 2 and 3.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
GROUP
Audited Audited
30 Jun 2016 30 Jun 2015
R’000 R’000
ASSETS
Non-current assets 324 653 304 563
- Property, plant and equipment 10 787 9 067
- Intangible assets 37 226 35 246
- Loans receivable 16 783 16 004
- Deferred taxation 8 098 9 334
- Investment properties 4 351 5 928
- Investment in associates 133 124 411
- Investment in joint ventures - 225
- Investments held at fair value 247 275 104 348
Current assets 759 670 776 448
- Insurance assets 267 108 302 672
- Loans receivable 2 365 1 180
- Trade and other receivables 203 878 149 515
- Taxation 13 846 10 149
- Cash and cash equivalents 272 473 312 932
Assets held for sale 110 000 -
Total assets 1 194 323 1 081 011
EQUITY AND LIABILITIES
Capital and reserves 578 268 455 825
- Ordinary share capital and share premium 323 195 176 704
- Retained earnings 254 727 278 544
Equity attributable to equity holders of the parent 577 922 455 248
Non-controlling interest 346 577
Non-current liabilities 52 883 61 281
- Policyholder liabilities under insurance contracts 25 987 32 606
- Deferred taxation 26 896 28 675
Current liabilities 563 172 563 905
- Insurance liabilities 305 398 363 735
- Trade and other payables 251 744 191 970
- Taxation 6 030 8 200
Total equity and liabilities 1 194 323 1 081 011
Capital expenditure 3 896 1 254
Net asset value per share (cents) 174.4 177.6
SEGMENTAL REPORT
SEGMENTAL REPORT FOR THE YEAR ENDED 30 JUNE 2016
Insurance
and Risk Investments Total
R'000 R'000 R'000
Net underwriting surplus 4 156 - 4 156
Non-insurance revenue and other expenses (12 773) (1 405) (14 178)
Operating loss (8 617) (1 405) (10 022)
Equity accounted income (loss) (676) 13 829 13 153
Investment income (loss) 14 793 (12 105) 2 688
Other (1 553) (5 000) (6 553)
(Loss) profit before head office expenses and taxation 3 947 (4 681) (734)
Unallocated net head office expenses (20 675)
Taxation (2 639)
Loss for the year (24 048)
Capital utilised
Capital employed at end of year 124 826 338 967 578 268
Capital utilised at end of year 124 826 263 414 502 713
Average capital utilised during the year 175 837 191 587 466 622
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 head office expenses and 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
SEGMENTAL REPORT (CONTINUED)
SEGMENTAL REPORT FOR THE YEAR ENDED 30 JUNE 2016 (UNAUDITED NORMALISED)
Insurance
and Risk Investments Total
R'000 R'000 R'000
Net underwriting surplus 4 156 - 4 156
Non-insurance revenue and other expenses (12 773) (1 405) (14 178)
Operating loss (8 617) (1 405) (10 022)
Equity accounted income (loss) (676) 13 829 13 153
Investment income 13 315 (12 105) 1 210
Other (1 553) - (1 553)
Profit before head office expenses and taxation 2 469 319 2 788
Unallocated net head office expenses (7 600)
Taxation 652
Loss for the year (4 160)
Capital utilised
Capital employed at end of year 124 826 338 967 578 268
Capital utilised at end of year 124 826 263 414 502 713
Average capital utilised during the year 175 837 191 587 466 622
SEGMENTAL REPORT FOR THE 10 MONTHS ENDED 30 JUNE 2015 (UNAUDITED NORMALISED)
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 3 795 - 3 795
Profit before head office expenses and taxation 21 241 44 858 66 099
Unallocated net head office expenses (9 120)
Taxation (9 247)
Profit for the period 47 732
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
Audited Audited
year 10 months
ended ended
30 Jun 2016 30 Jun 2015
R’000 R’000
Net cash flows from operating activities (39 253) 50 522
Net cash flows from investing activities (145 413) 185 418
Net cash flows from financing activities 144 207 (11 970)
Total cash movement for the year (40 459) 223 970
Cash at the beginning of the year 312 932 88 962
Total cash at the end of the year 272 473 312 932
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Share
capital and Non-
share Retained controlling
premium earnings interest Total
R'000 R'000 R'000 R'000
Balance at 1 September 2014 176 704 253 737 612 431 053
Total comprehensive income for the period - 37 626 43 37 669
Dividends paid - (12 819) (78) (12 897)
Balance at 30 June 2015 176 704 278 544 577 455 825
Total comprehensive loss for the year - (23 817) (231) (24 048)
Issue of share capital 150 000 - - 150 000
Share issue costs (3 509) - - (3 509)
Balance at 30 June 2016 323 195 254 727 346 578 268
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of preparation
The accounting policies applied in the preparation of these condensed consolidated provisional audited
financial statements for the year ended 30 June 2016 (“audited 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 audited 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.
2. Restatement of comparative numbers
2.1. 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).
2.2. Two of the Group's underwriting managers reported information relating to the prior
financial period only in the current financial year. This resulted in insurance revenue,
claims, insurance contract acquisition costs and underwriting management fees reported in
the prior period being understated, while profit commissions were overstated. The error
had no impact on prior period earnings or equity.
The error has been corrected by restating each of the affected Statement of Profit or Loss
and Other Comprehensive Income line items for the prior period as follows:
Previously
reported Restated
10 months 10 months
ended ended
30 Jun 2015 Adjustment 30 Jun 2015
R’000 R’000 R’000
Insurance revenue 788,517 1,977 790,494
Net claims and movement in claims reserves (129,273) (29,383) (158,656)
Insurance contract acquisition costs (167,106) (229) (167,335)
Underwriting management fees (132,374) (388) (132,762)
Profit commissions (200,157) 28,023 (172,134)
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:
30 Jun 2016 30 Jun 2015
’000 ’000
Number of shares 331 377 256 377
- Shares in issue 331 380 256 380
- Shares held as treasury shares (3) (3)
Weighted average number of shares on which earnings and diluted earnings
310 111 284 490
per share calculations are based
- Shares in issue 297 363 256 380
- Bonus issue for rights offer 1) 12 751 28 113
- Shares held as treasury shares (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. Impairment assessment of associates and joint ventures
4.1. In order to reflect the more difficult trading conditions experienced in consumer credit markets
Conduit Capital impaired its investment in Anthony Richards and Associates Proprietary Limited
(“ARA”) by R13.1 million to R110.0 million. Due to it not being core to Conduit’s operations, ARA
was furthermore reclassified to “Assets held for sale” at year-end.
4.2. Constantia Insurance Holdings Proprietary Limited (“CIH”), a subsidiary of the Group, sold its joint
venture holding in Riverstone Insurance Brokers Proprietary Limited at a profit of R1.48 million.
5. 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
2015
Listed investments 247 275 - - 247 275
Investment properties - 4 351 - 4 351
247 275 4 351 - 251 626
2014
Listed investments 99 133 - - 99 133
Investment properties - 5 928 - 5 928
Unlisted investments - 5 215 - 5 215
99 133 11 143 - 110 276
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.
6. Reconciliation of headline (loss) earnings
Audited Audited
year 10 months
ended ended
30 Jun 2016 30 Jun 2015
R’000 R’000
(Loss) profit attributable to ordinary equity holders of Conduit (23 817) 37 626
Net loss (profit) on revaluation of investment properties 31 (657)
Net loss (profit) on disposal of property, plant and equipment 261 (7)
Profit on disposal of joint ventures (1 478) -
Impairment of associates 13 075 1 071
Tax on the items above 3 225 146
Headline (loss) earnings (8 703) 38 179
7. Contingent liabilities
7.1. A portfolio acquisition agreement, effective 1 September 2015, exists between the Constantia
Insurance Company Limited and Dealers Indemnity Proprietary Limited ("Dealers"). Dealers receives
a monthly annuity of R45,000 for the remainder of the vendor's natural life, subject to a minimum
payment of R1,500,000 ("the Minimum Payment").
The present value of the annuity payments as at 30 June 2016 amounted to R3,081,746 per an
actuarial calculation based on published mortality tables. The Group has raised a liability to the value
of the Minimum Payment and confirms that it has a contingent liability of R1,581,746 as at the
reporting date.
7.2. The Group is not aware of any current or pending legal cases that would have a material adverse
effect on its results.
8. Directors
8.1. Mr Richard Bruyns resigned as an independent non-executive director of the Conduit Capital Board
with effect from 3 August 2015 and has simultaneously been appointed as Chairman of the
Constantia Insurance Group (“Constantia”).
8.2. In line with the Group’s decentralised operating model where subsidiaries are empowered to conduct
their own business affairs and are responsible for implementing their own strategies to contribute to
overall value creation and due to increased focus and time commitments associated with (and
required by) the various growth opportunities of Constantia, Mr Robert Shaw, Chief Executive Officer
of Constantia, stepped down as an executive director of the Conduit Capital Board with effect from 1
June 2016.
9. Dividends
In line with the Group's strategy, the details of which appear in the Letter from the CEO, the Board has
not recommended any dividend payment to ordinary shareholders (2015: R12.82 million).
10. Events after reporting period
In a series of SENS announcements published on 4 August 2016, 11 August 2016 and 15 September 2016
shareholders were informed that Conduit Capital has acquired Snowball Wealth Proprietary Limited and
Midbrook Lane Proprietary Limited for a total consideration of R632.26 million, subject to shareholders'
approval and a number of conditions precedent.
The general shareholders' meeting to approve the acquisitions has been scheduled for Friday,
28 October 2016.
11. Audit opinion
Grant Thornton has audited the Group’s annual financial statements and their unqualified audit report is
available for inspection at the Group's registered office.
The auditor’s report does not cover all of the information contained in this announcement/financial report.
Shareholders are therefore advised to obtain a copy of the audited Group annual financial information
from the registered office of the Company.
12. Directors’ responsibility
The directors take full responsibility for the preparation of the provisional report and the financial
information has been correctly extracted from the underlying Group financial statements.
The provisional report is extracted from audited information, but is not itself audited.
Directors:
Executive directors: Sean Riskowitz (Chief Executive Officer), Lourens Louw (Financial Director),
Gavin Toet (Chief Operations Officer)
Non-executive directors: Ronald Napier (Chairman)*, David Harpur*, Jabulani Mahlangu*, Tyrone
Moodley, Barry Scott*, Rosetta Xaba*
* Independent
Sponsor:
Merchantec Capital
Company secretary:
CIS Company Secretaries Proprietary Limited
70 Marshall Street
Johannesburg, 2001
Registered address:
Unit 9, 4 Homestead Avenue
Bryanston, 2191
PO Box 97, Melrose Arch, 2076
Telephone: (+27 10) 020 3460
Facsimile: (+27 86) 522 8742
Transfer secretaries:
Computershare Investor Services Proprietary Limited
Ground Floor, 70 Marshall Street, Johannesburg, 2001
Date: 30/09/2016 05:15:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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