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CND - Conduit Capital Limited - Condensed consolidated unaudited results for the six months ended 29 February 2012 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 29 FEBRUARY 2012 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Unaudited Unaudited Audited six six year
months months ended ended ended 31 Aug 29 Feb 28 Feb 2011 2012 2011 R`000
R`000 R`000 Gross revenue 519 289 510 925 920 517 Net insurance revenue 152 310 129 357 274 764 Other operating revenue 65 263 50 038 109 110 Net revenue 217 573 179 395 383 874 Operating expenses (195 847) (166 724) (356 046) - Direct expenses: Insurance and risk (127 241) (105 310) (219 services 375) - Administration and other expenses (30 104) (27 034) (58 720) - Depreciation and amortisation (2 010) (1 513) (3 519) - Employee costs (36 492) (32 867) (74 432) Operating profit 21 726 12 671 27 828 Equity accounted income 318 187 667 Investment income 16 495 12 589 24 923 Other income - 28 1 190 Finance charges (281) (814) (1 300) Profit before taxation 38 258 24 661 53 308 Taxation (9 807) (7 575) (16 988) Profit for the period 28 451 17 086 36 320 Other comprehensive income - - - Total comprehensive income 28 451 17 086 36 320
Attributable to: Equity holders of the parent 19 888 10 063 22 419 Non-controlling interest 8 563 7 023 13 901 Total comprehensive income 28 451 17 086 36 320 Earnings per share (cents) - Basic 7.8 4.0 9.0 - Diluted 7.7 3.9 8.7 - Headline 8.0 4.0 8.6 - Diluted headline 8.0 3.9 8.4 CONDENSED SEGMENTAL ANALYSIS OF EARNINGS Corporat Insuranc Direct Consoli- Total e and e and R`000 dation R`000 investme risk R`000
nt services services R`000 R`000 Unaudited - six months ended 29 February 2012 Gross revenue 3 143 456 117 62 467 (2 438) 519 289 Net revenue 3 143 154 401 62 467 (2 438) 217 573 Investment income 15 151 6 470 314 (5 440) 16 495 Profit before taxation 12 677 11 173 21 300 (6 892) 38 258 Attributable earnings 12 064 8 971 5 655 (6 802) 19 888 Non-controlling 32 50 8 481 - 8 563 interest Total assets 183 939 788 769 55 752 (141 886 966 494) Total liabilities (18 701) (698 (26 232) 137 130 (606 801) 604) Capital employed 56 549 186 598 22 709 (4 363) 261 493 Capital expenditure 21 396 2 189 - 2 606
Unaudited - six months ended 28 February 2011 Gross revenue 5 155 462 632 47 572 (4 434) 510 925 Net revenue 5 155 131 102 47 572 (4 434) 179 395 Investment income 7 647 7 060 266 (2 384) 12 589 Profit before taxation 2 836 7 538 17 085 (2 798) 24 661 Attributable earnings 3 359 4 863 4 639 (2 798) 10 063 Non-controlling 28 37 6 958 - 7 023 interest Total assets 228 256 759 031 49 465 (195 841 436 316) Total liabilities (51 475) (689 (23 372) 192 954 (571 282) 175) Capital employed 46 673 187 890 21 374 (2 363) 253 574 Capital expenditure 50 277 852 - 1 179 Audited - year ended 31 August 2011 Gross revenue 6 418 815 088 103 830 (4 819) 920 517 Net revenue 6 418 278 445 103 830 (4 819) 383 874 Investment income 17 229 13 911 583 (6 800) 24 923 Profit before taxation 5 575 20 257 34 276 (6 800) 53 308 Attributable earnings 4 618 15 483 9 118 (6 800) 22 419 Non-controlling 51 81 13 769 - 13 901 interest Total assets 200 249 730 098 51 660 (164 817 882 125) Total liabilities (22 136) (650 (24 279) 161 759 (535 368) 024)
Capital employed 48 911 196 894 21 851 (2 363) 265 293 Capital expenditure 94 830 2 548 - 3 472
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION Unaudited Unaudited Audited as at 29 as at 28 as at Feb 2012 Feb 2011 31 Aug 2011
R`000 R`000 R`000 ASSETS Non-current assets 157 935 148 107 143 629 - Property, plant and 14 680 14 825 14 457 equipment - Intangible assets 46 459 46 114 46 089 - Loans receivable 5 379 7 322 5 351 - Deferred taxation 9 264 11 145 7 190 - Investment properties 3 444 3 408 3 442 - Investment in associates 327 911 281 - Investment in jointly 2 765 2 557 3 325 controlled entities - Investments held at fair 75 617 61 825 63 494 value Current assets 724 921 682 529 669 503 - Insurance assets 349 890 331 740 316 026 - Investments held at fair 4 800 4 090 4 592 value - Trade and other 116 012 91 002 78 761 receivables - Taxation 2 118 981 262 - Cash and cash equivalents 252 101 254 716 269 862 Non-current assets held for 4 110 10 800 4 750 sale Total assets 886 966 841 436 817 882 EQUITY AND LIABILITIES Capital and reserves 280 362 270 261 282 858 - Ordinary share capital and 175 917 199 155 199 155 share premium - Contingency reserve 157 - - - Retained earnings 85 236 53 798 65 538 - Share-based payment 183 621 600 reserve Equity attributable to 261 493 253 574 265 293 equity holders of the parent Non-controlling interest 18 869 16 687 17 565 Non-current liabilities 30 086 38 568 28 629 - Policyholder liabilities 18 776 21 837 19 661 under insurance contracts - Interest-bearing 4 125 8 339 3 796 borrowings - Deferred taxation 7 185 8 392 5 172 Current liabilities 576 518 532 607 506 395 - Insurance liabilities 428 012 411 252 379 765 - Trade and other payables 144 260 112 166 122 341 - Current portion of - 6 870 3 175 interest-bearing borrowings - Taxation 4 246 2 319 1 114 Total equity and liabilities 886 966 841 436 817 882
Net asset value per share 102.6 101.3 106.0 (cents) Tangible net asset value per 84.4 82.9 87.6 share (cents) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited Unaudited Audited six six year months months ended
ended ended 31 Aug 29 Feb 28 Feb 2011 2012 2011 R`000 R`000 R`000
Net cash flows from operating 12 787 19 617 34 166 activities Net cash flows from investing (3 996) (31 022) (22 866) activities Net cash flows from financing (26 552) (4 125) (11 684) activities Total cash movement for the period (17 761) (15 530) (384) Cash at the beginning of the period 269 862 270 246 270 246 Total cash at the end of the period 252 101 254 716 269 862 CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Share Retaine Other Non- Total
capital d reserve control R`000 and earning s R`000 ling share s R`000 interes premium t R`000
R`000 Balance at 1 September 199 155 43 626 363 16 419 259 563 2010 Transaction with - 109 - (2 555) (2 446) owners Total comprehensive - 10 063 - 7 023 17 086 income for the period Equity options issued - - 258 - 258 to executives Dividends paid - - - (4 200) (4 200) Balance at 28 February 199 155 53 798 621 16 687 270 261 2011 Transaction with - (682) - - (682) owners Total comprehensive - 12 356 - 6 878 19 234 income for the period Reversal of equity - 66 (66) - - options Equity options issued - - 45 - 45 to executives Dividends paid - - - (6 000) (6 000) Balance at 31 August 199 155 65 538 600 17 565 282 858 2011 Proceeds from issue of 1 800 - - - 1 800 shares Exercise of equity 440 - (440) - - options Transaction with - (33) - - (33) owners Total comprehensive - 19 888 - 8 563 28 451 income for the period Equity options issued - - 23 - 23 to executives Contingency reserve - (157) 157 - - transfer Distribution of (25 - - - (25 capital 478) 478) Dividends paid - - - (7 259) (7 259) Balance at 29 February 175 917 85 236 340 18 869 280 362 2012 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 29 February 2012 ("interim results") are based on reasonable judgements and estimates and are in accordance with International Financial Reporting Standards ("IFRS") and AC500 standards as issued by the Accounting Practices Board. These accounting policies are consistent with those applied in the annual financial statements for the year ended 31 August 2011. These interim results have been prepared in terms of IAS 34 - Interim Financial Reporting, the Companies Act, 71 of 2008, and the Listings Requirements of JSE Limited ("the JSE"). These interim results were prepared under the supervision of Mr Lourens Louw, the Financial Director and have not been audited or reviewed by the Group`s auditors. 2. Changes in share capital Details of the shares in issue as at the reporting dates are as follows: 29 Feb 28 Feb 31 Aug
2012 2011 2011 `000 `000 `000 Number of shares 254 777 250 277 250 277 - Shares in issue 256 380 256 380 256 380 - Shares held as treasury shares (1 603) (6 103) (6 103) Weighted average number of shares 254 777 250 277 250 277 - Shares in issue 256 380 256 380 256 380 - Shares held as treasury shares (1 603) (6 103) (6 103) Diluted weighted average number 256 777 256 593 256 531 of shares - Shares in issue 258 380 262 696 262 634 - Shares held as treasury shares (1 603) (6 103) (6 103) 3. Reconciliation of headline earnings Unaudited six Unaudited Audited months six year
ended months ended 29 Feb ended 31 Aug 2012 28 Feb 2011 R`000 2011 R`000
R`000 Profit attributable to ordinary 19 888 10 063 22 419 equity holders of Conduit Net loss (profit) on revaluation 640 - (300) of non-current assets held for sale Net profit on disposal/revaluation - - (891) of subsidiaries and associates Net loss on revaluation of - - 1 investment properties Net (profit) loss on disposal of - (11) 603 property, plant and equipment Tax on the items above (90) - (26) Non-controlling interest on the - - (249) items above (after taxation)
Headline earnings 20 438 10 052 21 557 4. Contingent liabilities 4.1 Contingent rent is payable in connection with parking for which no rental agreement exists. 4.2 The Group`s bankers have issued the following guarantees on behalf of the Group: 4.2.1 CBS Property Portfolio Limited for office rent R477 614 4.2.2 South African Post Office Limited for postage R100 000 These guarantees are secured by corresponding cash deposits held at the banks that have issued the guarantees. 4.3 As reported in the 2011 annual financial statements, a legal dispute relating to 2006 and 2007 inwards reinsurance arrangements concluded through one of the Group`s external underwriting managers remains unresolved. Although there is the potential that a negative outcome may be material to Group earnings, steps have been taken to reduce any financial exposure and to mitigate such risk. The matter is expected to be finalised by year-end. Other than what is noted above, the Group is not aware of any other current or pending legal cases that would have a material adverse effect on the Group`s results. 5. Directors There have been no changes to the board during the interim period. On 26 March 2012, subsequent to the interim period, Mr Stanley David Shane resigned as a non-executive director. 6. Dividends and other distributions 6.1 The board of directors of Conduit Capital has not recommended any dividend payment to ordinary shareholders for the six months ended 29 February 2012 (February 2011: Nil). 6.2 On 12 December 2011 a distribution of ten cents per share was made to shareholders by way of a capital reduction out of the share premium account. 7. Post balance sheet events Other than as disclosed in the Directors` paragraph above, there were no material post-balance sheet events. COMMENTARY GROUP OPERATIONAL REVIEW Conduit Insurance and Risk Services With effect from 1 January 2012 the Financial Services Board introduced interim measures in anticipation of the final and complete implementation of the Solvency Assessment and Management ("SAM") framework in 2015. These interim measures initiate a revised calculation of capital and solvency for insurers, which, dependent on the class of business underwritten and ultimately retained for net account, affect Constantia Insurance Company Limited`s ("CICL") current and future capital requirements. For now the international solvency ratio - a key metric in Global Credit Rating Co`s ("GCR") criteria - has in consultation with GCR been managed down from 49.5% at 28 February 2011 to a respectable 44.0% at 29 February 2012. Efforts are underway to optimise the capital structure of the Group in order to meet on-going regulatory demands and to ameliorate the impact of any capital strain resultant from new business activities. The positive underwriting result sustained in all insurance classes is once again encouraging to note. While delivery cost ratios remain above ideal levels, the recent take-on of additional underwriting managers and profitable insurance portfolios should, over time, result in improved profitability and a meaningful reduction in the ratio to within our target range. Net profit after tax in the Insurance and Risk Services division maintained the momentum of 2011 and showed an 84.1% increase over the comparable period. Conduit Direct Gross revenue in the Direct division, which incorporates Anthony Richards & Associates (Proprietary) Limited ("ARA"), advanced 31% producing a 21% improvement in after-tax profits over the corresponding six-month period. ARA now employs over 1 350 staff, managing in excess of R4.2 billion in debt. CONCLUSION The strong performance for the year ended 31 August 2011 continued into the first half of 2012. Fully diluted headline earnings per share bettered the corresponding six-month period to 28 February 2011 by 105.1%. In keeping with the pronounced increase in earnings and net asset value ("NAV"), the disparity between Conduit Capital`s intrinsic value and market price continues to display a positive trend. Following the capital distribution of 10 cents per share in December 2011 the increase in NAV shows a more modest improvement of 1.3 cents per share when compared with 28 February 2011. Group cash balances remained stable at R252.1 million. We are delighted that the optimism expressed in the 2011 Annual Report is reflected in the February 2012 results. Over the past 7 years our business has evolved from an Investment Holding Group to what is ostensibly today an Insurance Group with certain key strategic risk and non-risk bearing investments. The formalisation of this transformation is underway, and while our interest in Conduit Direct will be unaffected and the pursuits of the Corporate and Investment Services division will persist, the capital requirements of the Group`s insurance interests will be at the forefront of our investment philosophy going forward. It is exciting times for our Group and, though plans are afoot and discussions underway to give effect to the transformation, it is indeed an extensive exercise and where appropriate may require shareholder approval. In this regard, shareholders will be advised of any material developments. For and on behalf of the Board Jason D Druian Lourens E Louw Chief Executive Officer Financial Director Johannesburg 24 April 2012 Date: 24/04/2012 15:54:01 Supplied by www.sharenet.co.za 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.
