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CND - Conduit Capital Limited - Trading Statement
CONDUIT CAPITAL LIMITED
Incorporated in the Republic of South Africa
(Registration number 1998/017351/06)
("Conduit" or "the company" or "the group")
JSE Code: CND ISIN Code: ZAE00073128
TRADING STATEMENT
In terms of the Listings Requirements of JSE Limited, shareholders are advised
that, in respect of the 6-month period ended 29 February 2008, the financial
results will differ by more than twenty percent from that of the previous
corresponding period. Attributable earnings, headline earnings, earnings per
share ("EPS"), headline earnings per share ("HEPS"), net asset value per share
("NAV") and tangible net asset value per share ("TNAV") are expected to be as
follows:
Unaudited Unaudited Audited
6 months 6 months 18 months
to to to
29 Feb `08 28 Feb `07 Change 31 Aug `07
Attributable 2 708 9 687 (6 979) 21 324
earnings (R`000)
Headline earnings 2 715 9 685 (6 970) 20 994
(R`000) (1)
EPS (cents) 1,20 5,17 (3,97) 13,54
HEPS (cents) (1) 1,20 5,17 (3,97) 13,33
NAV (cents) 89,85 75,81 14,04 85,81
TNAV (cents) 54,72 51,53 3,19 50,40
(1) Headline earnings and HEPS in the 18-month period ended 31 August 2007
have been restated to reflect the change in terms of circular 8/2007 issued by
the South African Institute of Chartered Accountants requiring that profits and
losses on the revaluation of investment properties (which was previously
excluded from headline earnings) are to be included in headline earnings with
effect from the beginning of the financial year.
Note: The information for the 6-month periods on which the above trading
statement has been provided has not yet been reviewed or reported on by the
company`s auditors.
The reduction in earnings and headline earnings per share is predominantly due
to:
1. corrective action taken in the insurance book and the impact of run-off
claims (largely motor insurance) relating to cancelled books of insurance
business written in the 2007 financial year;
2. significantly lower investment returns resulting from the recent downturn in
financial markets.
GENERAL COMMENTARY
GROUP INVESTMENTS
The financial markets heavily impacted investment returns and was the major
contributing factor to the reduction in overall group profitability. Investment
income for the 6 months to 29 February 2008 was R1,78 million, which compares to
R14,65 million for the 6 months to 28 February 2007 (6 months to 31 August 2007:
R20,66 million). Although portfolios were heavily weighted towards ALSI40
companies (and market exposure was reduced during the period) the group
nonetheless suffered considerable losses during December and January.
Consequently, the group has realigned a significant portion of the portfolio in
favour of conservative fixed income instruments.
INSURANCE
Acquisition of Ellerine Holdings Limited ("Ellerines") by African Bank
Investments Limited ("ABIL")
There has been recent market speculation surrounding the financial impact on the
group of the takeover by ABIL of Ellerines. We wish to clarify the position.
The outsized Gross Premium Income ("GPI") of the group`s Insurance and Risk
Services division has always distorted underwriting margin given that
approximately R1,05 billion of the annual GPI relates to Customer Protection
Insurance ("CPI"), which is received by the insurer as re-insurance from various
insurance companies of retail groups. This entire amount is in turn retro ceded
(re-insured out to other insurers) and the group retains only a relatively small
margin.
Ellerines has ceased to re-insure its CPI business into the group, instead
choosing to support the entire CPI business on its own balance sheet. Whilst the
insurer`s overall GPI will reduce sharply, the impact on insurance profit in the
2008 financial year will be limited. Outside of the historical re-insurance
arrangements, the group remains contracted to provide FAIS call-centre and
claims and administration services to Ellerines, which at the renegotiated fee
structure, has assisted in minimising the impact on insurance related profits.
Going forward, we are confident that the negative impact on profitability will
be off-set by additional contracts and new underwriting business in the short to
medium term.
Underwriting
As previously announced, the Insurance and Risk Services division has undergone
a complete management restructure. Intense focus has been placed on the
protection of the insurer`s capital base through conservative investment
strategies and underwriting principles while we continue to "tidy" the insurance
book. Although impacted by the run-off in cancelled books of insurance
underwritten in the 2007 financial year, overall underwriting remains
profitable. Improved operational efficiencies with emphasis on expanded control
measures and stricter underwriting and claims management procedures have been
implemented.
Statutory funding ratio
The statutory funding ratio of Constantia Insurance Company Limited ("CICL"),
the insurance division`s main asset improved from 24,7% in August 2007 to 29% as
at 29 February 2008 (August 2006: 19%), which is significantly higher than the
15% statutory requirement. CICL`s international solvency margin also increased
from 46% in August 2007 to 47.4% as at 29 February 2008 (August 2006: 26%).
Credit rating
Constantia Insurance Company`s positive financial condition is reflected in a
recent review by Global Credit Rating, again awarding the insurer an A- credit
rating and re-affirming its high claims paying ability.
CONCLUSION
Despite disappointing results for the 6 months, we are encouraged by positive
developments within all the operating units. As at 29 February 2008 cash and
near-cash resources available for investment exceeded R110 million (in addition
to working capital); the group is therefore well positioned to avail itself of
opportunities at the appropriate time. Interim results, with further commentary
on all operating units, will be published on SENS and in the press during the
second week of May.
Sponsor:
Merchant Sponsors (Proprietary) Limited
Date: 29/04/2008 13:59:01 Supplied by www.sharenet.co.za
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