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CONDUIT CAPITAL LIMITED - Condensed consolidated unaudited results for the six months ended 28 February 2013

Release Date: 22/04/2013 07:30
Code(s): CND     PDF:  
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Condensed consolidated unaudited results for the six months ended 28 February 2013

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
28 FEBRUARY 2013

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                                                   Unaudited     Unaudited
                                                  six months    six months                    Audited
                                                    ended 28      ended 29                 year ended
                                                    Feb 2013      Feb 2012    Variance    31 Aug 2012
                                                       R’000         R’000          %           R'000
 Gross revenue                                      648 529       519 289        24.9       1 071 936

 Net insurance revenue                              142 778       152 310        (6.3)       290 784
 Other operating revenue                             67 906        65 263          4.0       143 817
 Net revenue                                        210 684       217 573        (3.2)        434 601
 Operating expenses                               (183 663)     (195 847)          6.2      (369 870)
 - Direct expenses: Insurance and risk
 services                                         (112   832)   (127   241)                 (215   333)
 - Administration and other expenses               (28   851)    (30   104)                  (67   116)
 - Depreciation and amortisation                    (1   605)     (2   010)                   (3   514)
 - Employee costs                                  (40   375)    (36   492)                  (83   907)

 Operating profit                                    27 021         21 726       24.4          64 731
 Equity accounted income                                184            318                        723
 Investment income                                   15 452         16 495                     14 116
 Other (expenses) income                               (45)              -                        528
 Finance charges                                      (198)          (281)                      (427)
 Profit before taxation                               42 414         38 258      10.9          79 671
 Taxation                                            (7 140)        (9 807)                  (30 418)
 Profit for the period                               35 274         28 451       24.0          49 253
 Other comprehensive income                               -              -                          -
 Total comprehensive income                          35 274         28 451       24.0          49 253



 Attributable to:
 Equity holders of the parent                        24 951         19 888       25.5          32 156
 Non-controlling interest                            10 323          8 563       20.6          17 097
 Total comprehensive income                          35 274         28 451       24.0          49 253


 Headline earnings                                   24 991         20 438       22.3          32 163

 Earnings per share (cents)
 -   Basic                                                9.7           7.8      24.4              12.7
 -   Diluted                                              9.7           7.7      26.0              12.6
 -   Headline                                             9.8           8.0      22.5              12.7
 -   Diluted headline                                     9.8           8.0      22.5              12.6

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME PER SEGMENT
                                           CORPORATE AND INVESTMENT SERVICES
                                         Unaudited     Unaudited
                                        six months    six months                   Audited
                                          ended 28      ended 29                year ended
                                          Feb 2013      Feb 2012    Variance   31 Aug 2012
                                             R’000         R’000          %          R'000
Gross revenue                               5 258         3 143        67.3          6 184

Net insurance revenue                           -             -         0.0              -
Other operating revenue                     5 258         3 143        67.3          6 184
Net revenue                                  5 258         3 143        67.3         6 184
Operating expenses                         (7 561)       (5 614)      (34.7)      (19 090)
- Direct expenses: Insurance and risk
services                                         -             -                         -
- Administration and other expenses        (1 860)       (1 690)                   (5 294)
- Depreciation and amortisation               (65)          (84)                     (131)
- Employee costs                           (5 636)       (3 840)                  (13 665)

Operating loss                             (2 303)       (2 471)         6.8      (12 906)
Equity accounted income                           -             -                        -
Investment income                            7 038        15 151                    17 831
Other (expenses) income                       (26)              -                     (34)
Finance charges                                 (2)           (3)                     (11)
Profit before taxation                      4 707        12 677       (62.9)         4 880
Taxation                                      158         (581)                         35
Profit for the period                       4 865        12 096       (59.8)         4 915
Other comprehensive income                      -             -                          -
Total comprehensive income                  4 865        12 096       (59.8)         4 915



Attributable to:
Equity holders of the parent                4 856        12 064       (59.7)         4 904
Non-controlling interest                        9            32       (71.9)            11
Total comprehensive income                  4 865        12 096       (59.8)         4 915


Headline earnings                           4 883        12 064       (59.5)         4 928

Earnings per share (cents)
-   Basic                                      1.9           4.7      (59.6)           1.9
-   Diluted                                    1.9           4.7      (59.6)           1.9
-   Headline                                   1.9           4.7      (59.6)           1.9
-   Diluted headline                           1.9           4.7      (59.6)           1.9

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME PER SEGMENT
(continued)
                                               INSURANCE AND RISK SERVICES
                                         Unaudited    Unaudited
                                        six months   six months                  Audited
                                          ended 28     ended 29               year ended
                                          Feb 2013     Feb 2012   Variance   31 Aug 2012
                                             R’000        R’000         %          R'000
Gross revenue                             583 656      456 117       28.0       938 062

Net insurance revenue                     142 778      152 310       (6.3)      290 784
Other operating revenue                     3 033        2 091        45.1        9 943
Net revenue                               145 811      154 401       (5.6)       300 727
Operating expenses                      (140 079)    (149 738)         6.5     (266 905)
- Direct expenses: Insurance and risk
services                                (112 832)    (127 941)                 (215   333)
- Administration and other expenses      (15 992)     (11 268)                  (29   548)
- Depreciation and amortisation             (647)        (610)                   (1   204)
- Employee costs                         (10 608)      (9 919)                  (20   820)

Operating profit                            5 732        4 663       22.9         33 822
Equity accounted income                       184          318                       723
Investment income                           8 140        6 470                    12 569
Other (expenses) income                      (20)            -                       312
Finance charges                             (196)        (278)                     (416)
Profit before taxation                     13 842        11 173      23.9         47 010
Taxation                                    (598)       (2 152)                 (14 066)
Profit for the period                      13 244        9 021       46.8         32 944
Other comprehensive income                      -            -                         -
Total comprehensive income                 13 244        9 021       46.8         32 944



Attributable to:
Equity holders of the parent               13 230        8 971        47.5        32 774
Non-controlling interest                       14           50      (68.0)           170
Total comprehensive income                 13 244        9 021       46.8         32 944


Headline earnings                          13 243        9 521       39.1         32 741

Earnings per share (cents)
-   Basic                                      5.2          3.5      48.6             12.9
-   Diluted                                    5.2          3.5      48.6             12.8
-   Headline                                   5.2          3.7      40.5             12.9
-   Diluted headline                           5.2          3.7      40.5             12.8

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME PER SEGMENT
(continued)
                                                            DIRECT
                                         Unaudited    Unaudited
                                        six months   six months                  Audited
                                          ended 28     ended 29               year ended
                                          Feb 2013     Feb 2012   Variance   31 Aug 2012
                                             R’000        R’000         %          R'000
Gross revenue                              64 759       62 467         3.7      132 838

Net insurance revenue                           -            -         0.0            -
Other operating revenue                    64 759       62 467         3.7      132 838
Net revenue                                64 759       62 467         3.7       132 838
Operating expenses                       (41 168)     (41 481)         0.8      (89 023)
- Direct expenses: Insurance and risk
services                                        -            -                         -
- Administration and other expenses      (16 144)     (17 433)                  (37 422)
- Depreciation and amortisation             (893)      (1 316)                   (2 179)
- Employee costs                         (24 131)     (22 732)                  (49 422)

Operating profit                           23 591       20 986       12.4         43 815
Equity accounted income                         -            -                         -
Investment income                             274          314                       516
Other (expenses) income                         -            -                       250
Finance charges                                 -            -                         -
Profit before taxation                      23 865       21 300      12.0         44 581
Taxation                                   (6 700)      (7 164)                 (16 387)
Profit for the period                      17 165       14 136       21.4         28 194
Other comprehensive income                      -            -                         -
Total comprehensive income                 17 165       14 136       21.4         28 194



Attributable to:
Equity holders of the parent                6 865        5 655       21.4         11 278
Non-controlling interest                   10 300        8 481       21.4         16 916
Total comprehensive income                 17 165       14 136       21.4         28 194


Headline earnings                           6 865        5 655       21.4         11 294

Earnings per share (cents)
-   Basic                                      2.7          2.2      22.7            4.4
-   Diluted                                    2.7          2.2      22.7            4.4
-   Headline                                   2.7          2.2      22.7            4.4
-   Diluted headline                           2.7          2.2      22.7            4.4

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
                                                                                       Audited
                                                  Unaudited     Unaudited              31 Aug
                                                28 Feb 2013   29 Feb 2012   Variance     2012
                                                      R’000         R’000         %      R’000
ASSETS
Non-current assets                                 160 964       157 935               149 345
-   Property, plant and equipment                   14 452        14 680                14 601
-   Intangible assets                               47 058        46 459                46 457
-   Loans receivable                                 3 789         5 379                 4 073
-   Deferred taxation                               13 701         9 264                 9 965
-   Investment properties                            3 850         3 444                 3 851
-   Investment in associates                           395           327                   311
-   Investment in jointly controlled entities        3 665         2 765                 3 756
-   Investments held at fair value                  74 054        75 617       (2.1)    66 331
Current assets                                     866 406       724 921               752 472
-   Insurance assets                               435 877       349 890               357 402
-   Investments held at fair value                       -         4 800     (100.0)         -
-   Loans receivable                                10 158             -                11 172
-   Trade and other receivables                    157 613       116 012               113 513
-   Taxation                                         2 527         2 118                   413
-   Cash and cash equivalents                      260 231       252 101         3.2   269 972
Non-current assets held for sale                          -        4 110                     -
Total assets                                      1 027 370      886 966               901 817

EQUITY AND LIABILITIES
Capital and reserves                               319 096       280 362       13.8    288 297
- Ordinary share capital and share
premium                                            176 703       175 917               175 917
- Inter-group funding                                    -             -                     -
- Contingency reserve                                    -           157                     -
- Retained earnings                                122 681        85 236                97 694
- Share-based payment reserve                            -           183                   182
Equity attributable to equity holders of
the parent                                         299 384       261 493       14.5    273 793
Non-controlling interest                            19 712        18 869        4.5     14 504
Non-current liabilities                             31 158        30 086                30 840
- Policyholder liabilities under insurance
contracts                                           19 051        18 776                19 052
- Interest-bearing borrowings                        2 675         4 125                 3 753
- Deferred taxation                                  9 432         7 185                 8 035
Current liabilities                                677 116       576 518               582 680
- Insurance liabilities                            505 136       428 012               422 561
- Trade and other payables                         168 776       144 260               152 626
- Taxation                                           3 204         4 246                 7 493

Total equity and liabilities                      1 027 370      886 966               901 817

Capital expenditure                                  2 056         2 606                 4 128
Net asset value per share (cents)                     116.8         102.6      13.8       107.5
Tangible net asset value per share
(cents)                                                98.4          84.4      16.6        89.2


CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION PER SEGMENT

                                                    CORPORATE AND INVESTMENT SERVICES
                                                                                         Audited
                                                  Unaudited     Unaudited                31 Aug
                                                28 Feb 2013   29 Feb 2012   Variance       2012
                                                      R’000         R’000         %        R’000
ASSETS
Non-current assets                                  39 782        52 830                 33 538
-   Property, plant and equipment                      156           292                    256
-   Intangible assets                                   29            58                     29
-   Loans receivable                                     -             -                      -
-   Deferred taxation                                5 115         4 882                  5 193
-   Investment properties                                -             -                      -
-   Investment in associates                             -             -                      -
-   Investment in jointly controlled entities          597           973                    787
-   Investments held at fair value                  33 885        46 625      (27.3)     27 273
Current assets                                       5 719         7 620                  5 794
-   Insurance assets                                     -             -                      -
-   Investments held at fair value                       -         4 800     (100.0)          -
-   Loans receivable                                     -             -                      -
-   Trade and other receivables                      1 551           456                    471
-   Taxation                                            97            63                    104
-   Cash and cash equivalents                        4 071         2 301       76.9       5 219
Non-current assets held for sale                          -             -                      -
Total assets                                        45 501        60 450                 39 332

EQUITY AND LIABILITIES
Capital and reserves                                42 466        56 749      (25.2)     32 071
- Ordinary share capital and share
premium                                             176 703       175 917                175 917
- Inter-group funding                             (122 394)     (108 489)              (127 302)
- Contingency reserve                                     -             -                      -
- Retained earnings (Accumulated loss)             (12 014)      (11 062)               (16 906)
- Share-based payment reserve                             -           183                    182
Equity attributable to equity holders of
the parent                                          42 295        56 549      (25.2)     31 891
Non-controlling interest                               171           200      (14.5)        180
Non-current liabilities                                   -          487                    322
- Policyholder liabilities under insurance
contracts                                                 -            -                      -
- Interest-bearing borrowings                             -          353                     42
- Deferred taxation                                       -          134                    280
Current liabilities                                  3 035         3 214                  6 939
- Insurance liabilities                                   -             -                     -
- Trade and other payables                           2 955           3 159                6 884
- Taxation                                              80              55                   55

Total equity and liabilities                        45 501          60 450               39 332

Capital expenditure                                      -             21                    37

Net asset value per share (cents)                     16.5            22.2     (25.7)       12.5
Tangible net asset value per share
(cents)                                               16.5            22.2     (25.7)       12.5


CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION PER SEGMENT (continued)

                                                          INSURANCE AND RISK SERVICES
                                                                                           Audited
                                                  Unaudited       Unaudited                31 Aug
                                                28 Feb 2013     29 Feb 2012     Variance     2012
                                                      R’000           R’000           %      R’000
ASSETS
Non-current assets                                 107 609          92 303                 112 970
-   Property, plant and equipment                   10 308           9 394                  10 013
-   Intangible assets                               37 665          37 619                  37 458
-   Loans receivable                                 3 789           5 379                  15 245
-   Deferred taxation                                8 365           4 382                   4 065
-   Investment properties                            3 850           3 444                   3 850
-   Investment in associates                           395             327                     311
-   Investment in jointly controlled entities        3 068           2 765                   2 969
-   Investments held at fair value                  40 169          28 993         38.5     39 059
Current assets                                     822 521         676 717                 704 338
-   Insurance assets                               435 877         349 890                 357 402
-   Investments held at fair value                       -               -           0.0         -
-   Loans receivable                                10 158               -                       -
-   Trade and other receivables                    140 283          99 253                  94 786
-   Taxation                                         2 430           2 055                     310
-   Cash and cash equivalents                      233 773         225 519           3.7   251 840
Non-current assets held for sale                            -        4 750                         -
Total assets                                       930 130         773 770                 817 308

EQUITY AND LIABILITIES
Capital and reserves                               236 685         186 889         26.6    224 949
- Ordinary share capital and share
premium                                                  -               -                       -
- Inter-group funding                              110 826          96 920                 112 334
- Contingency reserve                                    -             157                       -
- Retained earnings (Accumulated loss)             125 432          89 521                 112 202
- Share-based payment reserve                            -               -                       -
Equity attributable to equity holders of
the parent                                         236 258         186 598         26.6    224 536
Non-controlling interest                               427             291         46.7        413
Non-current liabilities                             31 158          29 676                  30 030
- Policyholder liabilities under insurance
contracts                                           19 051        18 776                    19 051
- Interest-bearing borrowings                        2 675         3 771                     3 711
- Deferred taxation                                  9 432         7 129                     7 268
Current liabilities                                662 287       557 205                   562 329
- Insurance liabilities                            505 136       428 012                   422 561
- Trade and other payables                         154 423       127 233                   132 987
- Taxation                                           2 728         1 960                     6 781

Total equity and liabilities                       930 130       773 770                   817 308

Capital expenditure                                  1 111           396                     1 459

Net asset value per share (cents)                      92.2          73.2        26.0         88.1
Tangible net asset value per share
(cents)                                                77.5          58.5        32.5         73.4



CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION PER SEGMENT (continued)

                                                                      DIRECT
                                                                                       Audited
                                                  Unaudited     Unaudited              31 Aug
                                                28 Feb 2013   29 Feb 2012   Variance     2012
                                                      R’000         R’000         %      R’000
ASSETS
Non-current assets                                  15 937        16 139                15 885
-   Property, plant and equipment                    3 989         4 994                 4 332
-   Intangible assets                               11 727        11 145                11 332
-   Loans receivable                                     -             -                     -
-   Deferred taxation                                  221             -                   221
-   Investment properties                                -             -                     -
-   Investment in associates                             -             -                     -
-   Investment in jointly controlled entities            -             -                     -
-   Investments held at fair value                       -             -         0.0         -
Current assets                                      38 639        39 613                31 660
-   Insurance assets                                     -             -                     -
-   Investments held at fair value                       -             -         0.0         -
-   Loans receivable                                     -             -                     -
-   Trade and other receivables                     16 251        15 332                18 748
-   Taxation                                             -             -                     -
-   Cash and cash equivalents                       22 388        24 281       (7.8)    12 912
Non-current assets held for sale                          -             -                    -
Total assets                                        54 576        55 752                47 545

EQUITY AND LIABILITIES
Capital and reserves                                42 308        41 088         3.0    33 643
- Ordinary share capital and share
premium                                                  -             -                     -
- Inter-group funding                               11 568        11 568                14 968
- Contingency reserve                                 -                -                     -
- Retained earnings                                 11 626         11 141                4 761
- Share-based payment reserve                         -               -                      -
Equity attributable to equity holders of
the parent                                          23 194         22 709        2.1    19 729
Non-controlling interest                            19 114         18 379        4.0    13 914
Non-current liabilities                                  -         13                        -
- Policyholder liabilities under insurance
contracts                                                -             -                     -
- Interest-bearing borrowings                            -             -                     -
- Deferred taxation                                      -            13                     -
Current liabilities                                 12 268        14 651                13 902
- Insurance liabilities                                  -           -                       -
- Trade and other payables                          11 872        12 420                13 245
- Taxation                                             396         2 231                   657

Total equity and liabilities                        54 576        55 752                47 545

Capital expenditure                                    945         2 189                 2 632

Net asset value per share (cents)                      9.0           8.9        1.1        7.7
Tangible net asset value per share
(cents)                                                4.5           4.5        0.0        3.3



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                        Unaudited      Unaudited
                                                       six months     six months        Audited
                                                            ended          ended     year ended
                                                      28 Feb 2013    29 Feb 2012    31 Aug 2012
                                                            R’000          R’000          R'000
Net cash flows from operating activities                   (6 207)         12 787         30 629
Net cash flows from investing activities                       706        (3 996)          2 372
Net cash flows from financing activities                   (4 240)       (26 552)       (32 891)

Total cash movement for the period                         (9 741)       (17 761)           110
Cash at the beginning of the period                       269 972         269 862       269 862
Total cash at the end of the period                       260 231        252 101        269 972
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
                               Share
                              capital                                                   Non-
                           and share  Retained      Other                         controlling
                            premium   earnings   reserves                            interest         Total
                               R'000     R'000      R'000                              R'000         R'000
Balance at 1 September 2011               199 155         65 538           600         17 565       282 858
Total comprehensive income for the
period                                          -         19 888              -          8 563       28 451
Equity options issued to executives             -              -             23              -           23
Equity options exercised                    2 240              -          (440)              -        1 800
Transaction with owners                         -           (33)              -              -         (33)
Contingency reserve transfer                    -          (157)            157              -            -
Capital distribution                     (25 478)              -              -              -     (25 478)
Dividends paid                                  -              -              -        (7 259)      (7 259)
Balance at 29 February 2012               175 917         85 236           340         18 869       280 362
Total comprehensive income for the
period                                           -        12 268              -         8 534        20 802
Equity options issued to executives              -             -            (1)             -            (1)
Transaction with owners                          -            33              -             -             33
Loans advanced by non-controlling
shareholders                                     -             -              -         5 101         5 101
Contingency reserve transfer                     -           157          (157)             -             -
Dividends paid                                   -             -              -      (18 000)      (18 000)
Balance at 31 August 2012                 175 917         97 694           182         14 504       288 297
Total comprehensive income for the
period                                          -         24 951              -        10 323        35 274
Reversal of equity options                      -             36           (36)             -             -
Equity options exercised                      786              -          (146)             -           640
Loans repaid to non-controlling
shareholders                                     -              -             -        (5 100)       (5 100)
Dividends paid                                   -              -             -           (15)          (15)
Balance at 28 February 2013               176 703       122 681               -        19 712       319 096



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 28 February 2013 (“interim results”) are based on reasonable
   judgements and estimates and 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 year ended
   31 August 2012. The interim results have been prepared in terms of IAS 34 – Interim Financial Reporting,
   the Companies 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 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:

                                                                28 Feb 2013     29 Feb 2012     31 Aug 2012
                                                                        ’000            ’000            ’000
    Number of shares                                                256 377          254 777         254 777
    - Shares in issue                                               256 380          256 380         256 380
    - Shares held as treasury shares                                     (3)          (1 603)         (1 603)
    Weighted average number of shares                               255 982          254 777         254 181
    - Shares in issue                                               256 380          256 380         256 380
    - Shares held as treasury shares                                  (398)           (1 603)         (2 199)
    Diluted weighted average number of shares                       255 982          256 777         256 181
    - Shares in issue                                               256 380          258 380         258 380
    - Shares held as treasury shares                                  (398)           (1 603)         (2 199)


3. Reconciliation of headline earnings

                                                                    Unaudited         Unaudited
                                                                   six months        six months         Audited
                                                                        ended             ended      year ended
                                                                  28 Feb 2013       29 Feb 2012     31 Aug 2012
                                                                        R’000             R’000            R'000
    Profit attributable to ordinary equity holders of Conduit           24 951          19 888           32 156
    Net loss on revaluation of non-current assets held for
    sale                                                                        -           640                -
    Net profit on revaluation of investment properties                          -             -             (41)
    Net loss on disposal of property, plant and equipment                      45             -               89
    Tax on the items above                                                    (5)          (90)             (17)
    Non-controlling interest on the items above (after
    taxation)                                                                   -               -           (24)
    Headline earnings                                                   24 991          20 438           32 163



4. Contingent liabilities

   4.1.    The Group's bankers have issued the following guarantees on behalf of the Group:

           4.1.1.       Government Employees Pension Fund for office rent            R540 724

           4.1.2.       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.

   4.2.    The outcome of the arbitration relating to inward re-insurance arrangements concluded in 2006
           and 2007 has been determined and accounted for in the results.
    The Group is not aware of any current or pending legal cases that would have a material adverse effect
    on the Group's results.


5. Directors

    Mr Richard Bruyns was appointed as an independent non-executive director on 4 October 2012.


6. Dividends and other distributions

    Only once the compulsory Quantitative Impact Study III (“QIS III”) has been completed by insurers in
    2014 will the Financial Services Board finally determine the capital requirements for insurers under the
    new Solvency Assessment and Management (“SAM”) regulatory framework. Accordingly, we expect to
    maintain a margin of safety and utilise our capital effectively. The growth prospects in the Insurance and
    Risk Services division support this strategy. The board of directors of Conduit Capital has therefore not
    recommended any dividend payment to ordinary shareholders for the six months ended 28 February 2013
    (2012: Nil).


7. Post balance sheet events

    There were no material post-balance sheet events.



COMMENTARY

REVIEW OF OPERATIONS


Corporate and Investment Services (Head Office and ancillary investments)

In the first half of the 2012 financial year we accounted for R8.8 million (3.5 cents per share) in mark-to-
market “profits” relating to our 26% interest in Amalgamated Electronics Corporation Limited (“Amecor”).
Unfortunately, by year-end this had reversed itself (and more), only to be partially revived by the reliable
annual dividend. This year a more modest 40 cents increase in the Amecor share price translated into
R7.6 million (3 cents per share). Whilst Amecor continues to produce solid earnings and a dependable
dividend, prevailing accounting rules do require that we take our six monthly dose of volatility with a smile.
The decline in profit in the Corporate and Investment Services segment is therefore not particularly
meaningful.

Conduit Insurance and Risk Services (Risk and non-risk bearing businesses)

In the wake of one corporate financial crisis after another (albeit largely abroad), it is not surprising that
regulators have sharpened their gaze on the financial sector, and more particularly the banking and insurance
industries. Severe as the new and impending regulations may seem, their objective is hard to fault and
effectively calls for improved risk management, discerning capital allocation and disciplined underwriting. It
may please investors to know that at present Constantia Insurance Company Limited’s (“Constantia”) Capital
Adequacy Ratio (“CAR”) - the Financial Services Board’s primary measure of balance sheet strength -
improved to 1.49 from 1.43 at the last reporting date, which is well above the current statutory requirement
of 1. Constantia’s international solvency margin also advanced to 52.5%, the highest level seen since August
2011 (pre-capital distribution).
Apart from the comfort of a more robust balance sheet, during the natural perils weather losses experienced
at the end of last year, our reinsurance program stood up well in ensuring that we were not exposed to more
than 1% of our capital base (any single event). Though not entirely unscathed, we did manage to quite
literally weather the storm without sustaining too much damage. Overall the division produced R13.2 million
in headline earnings, a considerable advancement on the comparative period (February 2012: R9.5 million).

Conduit Direct (Credit recovery and debt management)

There is little doubt that credit granters have tightened lending criteria, with the result that inflows and quality
of outstanding debt have deteriorated. The small amount of disposable income that consumers have at hand
is widely spread and their ability to repay debt is hampered by the need to service multiple accounts.

Against this backdrop, the business fared well and the year is off to a steady start with our 40% share in
Anthony Richards and Associates Proprietary Limited contributing R6.9 million to headline earnings. The
apparent mismatch between the 12% pre and 21.4% post-tax profit increase over the corresponding period
arises purely out of a lower tax rate, precipitated by the recent change in the dividend tax structure.

Embedded value update (our conservative valuation of the Group)

Investors will recall a shift in the tenor of commentary contained in the 2012 Integrated Annual Report. In
that review we set about dismantling the parts, only to piece them back together for the purposes of
establishing a realistic and what we considered then to be a “conservative total embedded value of
R372.8 million”. For ease of reference we have utilised the same part-by-part analysis as then, only this time
we have refined our approach (which we will continue to do) and supplemented the valuation with a table
that delves deeper into the embedded value calculation. It is important to note that where we have used
discounted cash flow models the risk free rate does adjust with market movements and will impact valuations
from time to time.

Insurance and Risk activities

The RISK portion of our Insurance and Risk segment includes the short and long-term insurance licences and
accounts for 3 of the 4 components of our Insurance and Risk Services valuation.

Part 1 - Cash and investments is comprised of assets invested in equities, bonds and investment funds
taken at market value and added to the face value of cash in excess of our insurance float and working
capital requirements. At 28 February 2013 this totalled R149.9 million (August 2012: R117.8 million).

Part 2 - A basic calculation of the net present value of R88.3 million in technical reserves or Insurance float
invested to deliver an after-tax return of 6.1% strongly supports the revised valuation of R53.2 million
(August 2012: R28.2 million).

Part 3 - Here we combine 30 months (at year-end we’ll use 36) of stable underwriting performance data with
modest growth assumptions in order to arrive at the value of our Insurance book. Though it is a particularly
subjective area of our valuation, we consider it to be fair and reasonable. We place a balanced R112.7 million
in value on the underwriting portfolio (August 2012: R90.6 million).

Part 4 - In the August 2012 review our valuation of NON-RISK activities was somewhat over-simplistic, in that
we based our value solely on our share of the cash surplus to working capital in these entities. This time
around we do the same, but also recognise some worth in the equity, bringing the realistic value up to
R22.9 million (August 2012: R18.8 million).

Direct activities

Part 5 - Re-applying the discounted cash flow model utilised in August 2012, we attribute a present value of
R108.8 million to our 40% interest in the underlying business (August 2012: R99.3 million).
Other

Part 6 - We know investors are not particularly fond of categorising items under Other without some genuine
insight into the underlying assets. Our version of Other is rather easy to explain and simply comprises
investments in fixed property residing in the Insurance and Risk segment, together with 16.53 million Amecor
shares held in the Corporate and Investment Services segment. As the valuation methodology has its
positives, so it has its downside. Unallocated Group operating costs of R3.1 million negatively impact the
value by a whopping R20.9 million. Though these costs cannot be reasonably attributed to a particular
segment, they equally have no place in a “break-up” (no we are not) calculation and perhaps unfairly
suppress the ultimate value of R25.9 million (August 2012: R18.1 million) for this segment.


Table 1
                                                                             February 2013                              August 2012
                                                       Corporate &
                                                        Investment    Insurance &
                                                           Services   Risk services          Direct         Total              Total
     Part                                                    R'000           R'000           R'000          R'000              R'000

      1       RISK: Cash and investments                          -       149 870                 -      149 870            117 790

              - Surplus cash                                      -       109 701                 -      109 701             78 731
              - Investments held at fair value                    -        40 169                 -       40 169             39 059

      2       RISK: Insurance float                               -        53 226                 -       53 226             28 211
      3       RISK: Insurance operations                          -       112 709                 -      112 709             90 553
      4       NON-RISK                                            -        22 898                 -       22 898             18 843

              -   Investment in associates                        -         1 160                 -         1 160                 -
              -   Investment in joint ventures                    -         2 579                 -         2 579                 -
              -   Operations                                      -         (284)                 -         (284)                 -
              -   Surplus cash                                    -        19 443                 -        19 443            18 843

      5       DIRECT                                             -              -         108 820        108 820             99 278
      6       OTHER                                         12 986         12 908               -         25 894             18 128

              - Investments held at fair value              33 885              -                 -        33 885             27 273
              - Operations                                (20 899)              -                 -      (20 899)           (22 054)
              - Properties                                       -         12 908                 -        12 908             12 908


              TOTAL                                         12 986        351 611         108 820        473 416            372 802


             Number of shares in issue, net of
             treasury shares ('000)                        256 377        256 377         256 377        256 377            254 777
             Embedded value per share (cents)                   5.1          137.1            42.4          184.7              146.3



Conclusion

Of course we realise that any embedded valuation calculation is subjective. In as much as we strip away the
unintelligible lingo and replace it with plain, comprehensible language, we leave it to you to use the tools and
information provided in determining an investment course suited to your risk profile and personal perception
of true embedded value. Our own conservative answer is R473.4 million or 184.7 cents per share.

Over and above the marked improvement in performance, perhaps the 27% increase in the number of
Conduit shareholders over the last year also suggests a better overall understanding and appreciation of our
business and its prospects. This report further entrenches our renovated approach and indeed our absolute
commitment to delivering the Group’s financial news without puffery and obfuscation1.

1.     ob-fus-ca-tion (noun) 1. make something obscure 2. the hiding of intended meaning in communication, making communication
       confusing, willfully ambiguous, and harder to interpret (Wikipedia) – we hope the tongue in cheek definition attests to our point.
For and on behalf of the Board

Jason D Druian                                                Lourens E Louw
Chief Executive Officer                                       Financial Director

Johannesburg
22 April 2013



Directors:

Executive directors:        Jason D Druian (Chief Executive Officer), Lourens E Louw (Financial Director),
                            Robert L Shaw, Gavin Toet
Non-executive directors:    Reginald S Berkowitz (Chairman)*, Richard Bruyns*, Scott M Campbell*, Günter
                            Z Steffens OBE*
* Independent


Company secretary:

Probity Business Services (Proprietary) Limited
Third Floor, The Mall Offices, 11 Cradock Avenue
Rosebank, 2196


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

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