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CND - Conduit Capital - Unaudited results for the six months ended 29 February

Release Date: 14/05/2008 07:30
Code(s): CND
Wrap Text

CND - Conduit Capital - Unaudited results for the six months ended 29 February 2008 consolidated income statement CONDUIT CAPITAL LIMITED Incorporated in the Republic of South Africa (Registration number: 1998/017351/06) Share code: CND ISIN: ZAE000073128 ("Conduit Capital" or "the Conduit group") UNAUDITED RESULTS FOR THE SIX MONTHS ENDED 29 FEBRUARY 2008 CONSOLIDATED INCOME STATEMENT Unaudited 6 Unaudited Audited months ended Unaudited 6 months 18 months 29 Feb 2008 restated ended 31 ended 31 Aug
R`000 6 months Aug 2007 2007 R`000 ended 28 R`000 Feb 2007 R`000
Gross revenue 952 042 740 540 812 448 1 566 513 Net insurance revenue 123 804 184 959 56 178 241 137 Other operating revenue 66 245 17 834 55 929 87 288 Net revenue 190 049 202 793 112 107 328 425 Operating expenses (176 278) (196 352) (101 460) (310 595) - Administration and other (28 970) (24 334) (18 201) (48 185) expenses - Direct expenses (108 466) (146 983) (46 510) (193 493) (Insurance and Risk Services) - Depreciation and (1 585) (903) (1 203) (2 681) amortisation - Employee costs (37 257) (24 132) (35 546) (66 236) Operating profit 13 771 6 441 10 647 17 830 Income from associates 699 314 617 918 Investment income 1 775 13 917 21 391 37 675 Other (expenses) income (10) - 360 360 Finance charges (7 606) (1 320) (7 261) (8 625) Impairment of goodwill - - (17) (17) Profit before taxation 8 629 19 352 25 737 48 141 Taxation (2 524) (6 164) (8 456) (16 060) Profit for the period 6 105 13 188 17 281 32 081
Attributable to: Equity holders of the 2 710 8 599 12 282 21 324 parent Minority interest 3 395 4 589 4 999 10 757 Profit for the period 6 105 13 188 17 281 32 081 Earnings per share (cents) 1,20 5,07 6,07 13,54 Headline earnings per share (cents) 1,20 5,07 5,91 13,33 Fully diluted earnings per share (cents) 1,08 4,28 5,41 11,70 Fully diluted headline earnings per share (cents) 1,08 4,28 5,26 11,52 SEGMENTAL ANALYSIS Insu-rance Financ Head Consoli- and risk Direct ial Privat office dated
services R`000 servic e & R`000 R`000 es equity treasu R`000 R`000 ry R`000
Unaudited - 6 months ended 29 February 2008 Gross revenue 922 262 17 164 11 875 696 45 952 042 Net revenue 160 269 17 164 11 875 696 45 190 049 Investment income 4 156 130 - 32 (2 1 775 (loss) 543) Profit (loss) before 10 976 2 834 1 434 256 (6 8 629 taxation 871) Attributable earnings 7 740 715 (7) 180 (5 2 710 (loss) 918) Minority interest 1 457 1 073 865 - - 3 395 Total assets 1 034 204 25 865 104 1 019 19 224 1 185 772 084 Total liabilities (884 377) (11 (83 (878) (1 (981 912) 265) 346) 778) Capital expenditure 2 397 492 219 3 45 3 156 Unaudited restated - 6 months ended 28 February 2007 Gross revenue 725 265 13 109 - 1 176 990 740 540 Net revenue 187 518 13 109 - 1 176 990 202 793 Investment income 12 477 117 - 25 1 298 13 917 Profit (loss) before 21 810 2 821 - 463 (5 19 352 taxation 742) Attributable earnings 12 883 812 - 463 (5 8 599 (loss) 559) Minority interest 3 370 1 219 - - - 4 589 Total assets 1 036 830 21 345 - 1 236 36 506 1 095 917 Total liabilities (910 920) (8 - (1 (39 (959 155) 138) 457) 670)
Capital expenditure 604 1 075 - - 16 1 695 Unaudited - 6 months ended 31 August 2007 Gross revenue 783 390 17 464 12 173 199 (778) 812 448 Net revenue 83 049 17 464 12 173 199 (778) 112 107 Investment income 18 785 76 63 27 2 440 21 391 Profit (loss) before 21 384 4 379 3 986 454 (4 25 737 taxation 466) Attributable earnings 13 592 1 257 1 373 552 (4 12 282 (loss) 492) Minority interest 1 412 1 782 1 805 - - 4 999 Total assets 1 047 965 24 397 93 620 941 22 561 1 189 484 Total liabilities (907 702) (10 (77 (741) (3 (999 359) 303) 064) 169)
Capital expenditure 12 231 1 047 567 2 91 13 938 Audited - 18 months ended 31 August 2007 Gross revenue 1 508 655 42 283 12 173 2 889 513 1 566 513 Net revenue 270 567 42 283 12 173 2 889 513 328 425 Investment income 31 262 218 63 72 6 060 37 675 Profit (loss) before 43 194 10 038 3 986 1 637 (10 48 141 taxation 714) Attributable earnings 26 475 2 848 1 373 1 735 (11 21 324 (loss) 107) Minority interest 4 782 4 170 1 805 - - 10 757 Total assets 1 047 965 24 397 93 620 941 22 561 1 189 484 Total liabilities (907 702) (10 (77 (741) (3 (999 359) 303) 064) 169) Capital expenditure 12 835 2 818 567 2 148 16 370 CONSOLIDATED BALANCE SHEET Audited Unaudited Unaudited 31 Aug 29 Feb restated 2007 2008 28 Feb R`000
R`000 2007 R`000 ASSETS Non-current assets 178 020 154 029 194 060 - Property, vehicles and equipment 27 080 14 856 26 526 - Intangible assets 79 490 42 805 78 546 - Loans receivable 2 512 3 489 739 - Deferred taxation 9 395 956 4 534 - Investment in property 17 245 6 944 11 433 - Investments in associates 3 742 2 673 3 478 - Investments held at fair value 38 556 82 306 68 804 Current assets 1 007 064 941 888 995 424 - Insurance assets 658 742 662 637 652 791 - Investments held at fair value 2 022 4 232 4 723 - Trade and other receivables 146 131 114 277 151 151 - Taxation 8 301 1 664 7 117 - Funds at call, bank balances and 191 868 159 078 179 642 cash Total assets 1 185 084 1 095 917 1 189 484 EQUITY AND LIABILITIES Shareholders` equity and reserves 244 542 145 265 230 509 - Ordinary share capital and share 180 315 121 898 170 315 premium - Retained income (Accumulated losses) 2 128 (19 680) 807 - Contingency reserve 1 389 8 205 - - Share based payment reserve 569 3 288 - Vendors for equity 18 905 25 821 18 905 203 306 136 247 190 315 - Minority shareholders` interest 41 236 9 018 40 194 Non-current liabilities 72 649 61 026 77 800 - Policyholder liabilities under 21 917 23 680 22 587 insurance contracts - Interest bearing borrowings 42 373 27 966 45 968 - Deferred taxation 8 359 3 584 6 545 - Vendors for cash - 5 796 2 700 Current liabilities 867 893 889 626 881 175 - Insurance liabilities 728 670 783 953 726 664 - Vendors for cash 2 924 2 825 4 825 - Trade and other payables 90 968 96 782 110 283 - Current portion of interest bearing 39 814 3 810 36 865 borrowings - Taxation 3 430 2 026 2 370 - Bank overdraft 2 087 230 168 Total equity and liabilities 1 185 084 1 095 917 1 189 484 Net asset value per share (cents) 89,85 69,73 85,81 Tangible net asset value per share 54,72 47,82 50,40 (cents) ABRIDGED CONSOLIDATED CASH FLOW STATEMENT Unaudited Audited Unaudited Unaudited 6 months 18
6 months restated ended 31 months ended 29 6 months Aug 2007 ended Feb 2008 ended 28 R`000 31 Aug R`000 Feb 2007 2007
R`000 R`000 Net cash flows from (10 365) (16 049) (58 073) (71 operating activities 679) Net cash flows from 17 692 (79 886) (36 361) (118 investing activities 293) Net cash flows from 2 980 53 671 113 751 193 367 financing activities Total cash movement for 10 307 (42 264) 19 317 3 395 the period Cash at the beginning of 179 474 31 583 158 848 5 241 the period Cash acquired - 169 529 1 309 170 838 Total cash at the end of 189 781 158 848 179 474 179 474 the period ABRIDGED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share Retain Contin- Other Minori Total
capita ed gency reserv ty R`000 l and income reserv es intere share R`000 e R`000 st premiu R`000 R`000
m R`000 Balance at 1 March 10 130 (20 - 30 479 1 713 21 805 2006 517) Net proceeds from 4 603 - - (4 - (55) issue of shares 658) Profit for the - 443 - - 1 169 1 612 period Balance at 31 August 14 733 (20 - 25 821 2 882 23 362 2006 074) Net proceeds from 82 572 - - - - 82 572 issue of shares Acquisition of 24 593 - - - 1 547 26 140 interest in subsidiaries Profit for the - 8 599 - - 4 589 13 188 period Equity options - - - 3 - 3 issued to executives Contingency reserve - (8 8 205 - - - transfer 205) Balance at 28 121 (19 8 205 25 824 9 018 145 February 2007 898 680) 265 Net proceeds from 41 666 - - (6 - 34 750 issue of shares 916) Acquisition of 6 751 - - - 14 755 21 506 interest in subsidiaries Profit for the - 12 282 - - 4 999 17 281 period Equity options - - - 285 - 285 issued to executives Loans advanced - - - - 13 517 13 517 Contingency reserve - 8 205 (8 - - - transfer 205) Dividends paid - - - - (2 (2 095) 095) Balance at 31 August 170 807 - 19 193 40 194 230 2007 315 509 Net proceeds from 10 000 - - - - 10 000 issue of shares Profit for the - 2 710 - - 3 395 6 105 period Equity options - - - 281 - 281 issued to executives Contingency reserve - (1 1 389 - - - transfer 389) Dividends paid - - - - (2 (2 353) 353) Balance at 29 180 2 128 1 389 19 474 41 236 244 February 2008 315 542 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 Basis of preparation These summarised consolidated results have been prepared using accounting policies compliant with IAS 34: Interim Financial Reporting, International Financial Reporting Standards ("IFRS") and the Companies Act (Act 61 of 1973), as amended. The accounting policies used are consistent with those of the prior period. 2 Restatement of results for the 6 months ended 28 February 2007 It was previously disclosed that the purchase consideration that was originally negotiated for Conduit Risk and Insurance Holdings (Proprietary) Limited ("CRIH") (previously CICL Investment Holdings (Proprietary) Limited) was reduced by R27,89 million as a result of the final determination of the fair value of the assets and liabilities of CRIH on acquisition. The adjustment and all related entries have been included in the audited results for the 18 months ended 31 August 2007. In order to furnish an accurate comparison with the relevant prior periods, the unaudited interim results for the 6 months ended 28 February 2007 have been restated to reflect the above adjustments, as well as the reclassification of certain asset classes and expenses. The impact of the adjustments on the income statement can be summarised as follows:
Original Adjustment Restated R`000 R`000 R`000
- Insurance and other revenue 201 692 1 101 202 793 - Direct insurance expenses (143 (3 093) (146 890) 983) - Operating expenses (49 075) (294) (49 369) - Investment income 14 653 (736) 13 917 - Finance charges (1 199) (121) (1 320) - Income from associates 631 (317) 314 - Profit before taxation 22 812 (3 460) 19 352 - Taxation (7 043) 879 (6 164) - Minority interest (6 082) 1 493 (4 589) - Attributable to equity 9 687 (1 088) 8 599 holders of the parent Balance sheet closing balances have been affected as follows: R`000 R`000 R`000
- Decrease in Property, vehicles 20 913 (6 057) 14 856 and equipment - Decrease in Intangible assets 53 236 (10 42 805 (including goodwill) 431) - Increase in Investments and 87 344 6 138 93 482 investment properties - Decrease in Current receivables 810 692 (33 776 914 778)
- Increase in Policyholder (21 (1 998) (23 liabilities 682) 680) - Increase in Non-current (32 (1 606) (33 borrowings 156) 762) - Decrease in Deferred taxation (3 993) 1 365 (2 628) liability - Decrease in Current payables (894 11 353 (883 913) 560) - Decrease in Taxation liability (5 397) 5 035 (362) - Effect on net asset value (29 979)
- Decrease in Net asset value per 75,81 (6,08) 69,73 share (cents) - Decrease in Tangible net asset 51,53 (3,71) 47,82 value per share (cents) The impact on the number of shares in issue as at the balance sheet date was as follows: `000 `000 `000
- Number of shares in issue 219 279 (23 195 403 876) 3 Changes in share capital During the period under review: 3.1 a total of R10,125 million in additional share capital and premium were raised by way of the issue of 4,5 million shares for cash at a premium of 224 cents per share; and 3.2 R0,125 million in share issue expenses were written off against share premium. Details of shares in issue as at the balance sheet dates are as follows: 6 6 6 18 months months months months
to 29 to 28 to 31 to 31 Feb Feb Aug Aug 2008 2007 2007 2007 `000 `000 `000 `000
Number of shares in 226 277 195 403 221 777 221 777 issue - Shares in issue 232 380 201 506 227 880 227 880 - Shares held as (6 103) (6 103) (6 103) (6 103) treasury shares Weighted average 225 856 169 650 202 290 157 463 number of shares - Shares in issue 231 959 174 346 208 393 162 628 - Shares held as (6 103) (4 696) (6 103) (5 165) treasury shares Fully diluted 250 954 200 927 227 121 182 294 weighted average number of shares - Shares in issue 257 057 205 623 233 224 187 459 - Shares held as (6 103) (4 696) (6 103) (5 165) treasury shares 4 Reconciliation of headline earnings Unaudit Unaudit Unaudited Unaudited ed 6 ed 6 months restated months restate ended 29 6 months ended d
Feb 2008 ended 28 31 Aug 18 R`000 Feb 2007 2007 months R`000 R`000 ended 31 Aug
2007 R`000 Attributable profit for the 2 710 8 599 12 282 21 324 period Loss (profit) on disposal of 7 (2) 15 13 vehicles and equipment (net of tax) Profit on acquisition of - - (360) (360) subsidiaries Impairment of goodwill - - 17 17 Headline earnings 2 717 8 597 11 954 20 994 Headline earnings for the 18-month period ended 31 August 2007 have been restated to reflect the change prescribed in terms of circular 8/2007 issued by the South African Institute of Chartered Accountants. The circular requires that profits and losses on the revaluation of investment properties (which was previously excluded from headline earnings) are to be included with effect from the beginning of the current financial year. The adjustment is as follows: Original Adjustment Restated audited - Headline earnings (R`000) 18 373 2 621 20 994 - Headline earnings per share 11,67 1,66 13,33 (cents) - Fully diluted headline 10,08 1,44 11,52 earnings per share (cents) 5 Directors As previously announced: 5.1 Mr Robert Shaw has resigned as an executive director of Conduit Capital with effect from 29 February 2008. He however remains as a non-executive director on the boards of CRIH, the holding company of the Conduit group`s insurance interests, as well as numerous subsidiary and associate companies within the CRIH group; 5.2 Mr Paul Diamond has resigned as an executive director of Conduit Capital and all its subsidiaries with effect from 6 May 2008; 5.3 Ms Megan Kruger has resigned as a non-executive director of Conduit Capital with effect from 6 May 2008. 6 Dividends No dividend payment to ordinary shareholders was recommended by the directors for the 6 months ended 29 February 2008 (Feb `07: R Nil) (Aug `07: R Nil). 7 Post balance sheet events There were no material post balance sheet events. COMMENTARY GROUP OPERATIONAL REVIEW 1 HEAD OFFICE AND TREASURY The financial markets heavily impacted both the Head office and Insurance and Risk Services division`s investment returns, resulting in the reduction in overall group profitability. Although portfolios were heavily weighted towards ALSI40 companies (and market exposure was reduced during the period), the Conduit group nonetheless suffered considerable losses during December and January. Consequently, the Conduit group has realigned a significant portion of both portfolios in favour of conservative fixed income instruments. 2 CONDUIT INSURANCE AND RISK SERVICES 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 CICL`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. 3 CONDUIT FINANCIAL SERVICES Gateway Capital Limited ("Gateway") Recent interest rate increases have impaired liquidity in the property market, which have prompted Gateway to adopt more conservative lending practices in its property secured finance activities. Despite the slowdown in the property market, existing books of business are deemed to be adequately secured and no capital write-offs appear likely. In addition to its core business offering, Gateway has extended its services to include competitive conventional property development finance and various trade debt solutions. Given the new products on offer and the client pipeline in place, projections show a marked improvement in results for the remainder of the year. Conduit Fund Managers (Proprietary) Limited ("CFM") In February 2008 CFM obtained approval from the Financial Services Board to manage third party funds. Prior to obtaining the approval, CFM was only permitted to manage some of the Conduit group`s proprietary investments and, as a result, did not generate any income for itself. In keeping with Conduit Capital`s realignment of its investment portfolios, CFM has reduced the Conduit group`s holdings in equities. It continues to research various fund management opportunities and will only consider launching appropriate fund offerings to third parties when market volatility subsides. 4 CONDUIT DIRECT Anthony Richards & Associates (Proprietary) Limited ("ARA") ARA`s consistent performance in the credit recovery industry has resulted in ARA being awarded various additional recovery contracts, giving rise to more than a 20% increase in staff during the past 7 months (up from 450 to 550). The infrastructural costs associated with gearing up the business have now been absorbed and results are expected to improve in the second part of the year. 5 CONDUIT PRIVATE EQUITY In view of the increased focus on operations, the board has decided, for the time being, not to actively pursue further private equity opportunities outside the scope of the Conduit group`s existing operations. CONCLUSION Whilst the volatile financial markets and the corrective action taken in the insurance book weighed heavily on Conduit Capital`s results for the 6 months to February 2008, we are encouraged by positive developments within all major operating units. With cash and near-cash resources available for investment of approximately R110 million (in addition to working capital), we are well funded and intend to focus on existing operations for the remainder of the financial year. For and on behalf of the Board Jason D Druian Lourens E Louw Chief Executive Officer Financial Director Johannesburg 13 May 2008 Directors: Executive directors: Jason D Druian (CEO), Lourens E Louw, Stanley D Shane Non-executive directors: Reginald S Berkowitz (Chairman), Scott M Campbell, Gunter Z Steffens OBE Company secretaries: Probity Business Services (Proprietary) Limited Third Floor, JHI House, 11 Cradock Avenue Rosebank, 2196 Registered address: Unit 7 Tulbagh, 360 Oak Avenue Randburg, 2194 PO Box 97, Melrose Arch, 2076 Telephone: 011 789 3342 Facsimile: 011 789 3709 Transfer secretaries: Computershare Investor Services (Proprietary) Limited (Registration number: 2004/003647/07) Ground Floor, 70 Marshall Street Johannesburg, 2001 Auditors: Grant Thornton Chartered Accountants (SA) Registered Auditors Member of Grant Thornton International Sponsor: Merchant Sponsors (Proprietary) Limited Date: 14/05/2008 07:30:09 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. 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