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CONDUIT CAPITAL LIMITED - Condensed Consolidated Unaudited Results for the Six Months Ended 31 December 2016

Release Date: 22/02/2017 17:15
Code(s): CND     PDF:  
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Condensed Consolidated Unaudited Results for the Six Months Ended 31 December 2016

CONDUIT CAPITAL LIMITED
Incorporated in the Republic of South Africa
(Registration number: 1998/017351/06)
Share code: CND        ISIN: ZAE000073128
(“Conduit” or “Conduit Capital” or “the Group”)

CONDENSED CONSOLIDATED UNAUDITED RESULTS FOR THE SIX MONTHS ENDED
31 DECEMBER 2016


GENERAL COMMENTARY

Conduit Capital is a holding company owning subsidiaries primarily involved in the insurance industry in South
Africa. Conduit’s ambition is to develop a high quality, diversified insurance group complemented by a non-
insurance, value-oriented investment programme. The Group’s objective is to compound underlying business
value in excess of the market generally over the long term.

FINANCIAL RESULTS

Constantia Insurance Group (“Constantia”)

Constantia comprises a group of insurance and related companies wholly owned by Conduit. The three separate
insurance subsidiaries(1) are each governed by their own board of directors and managed centrally by the
Constantia management team. We assess the results and operations of Constantia on an “all in” basis.

Volker von Widdern was appointed as the Chief Executive Officer of Constantia on 18 November 2016. Volker
has previously worked at Guardrisk (now part of Momentum) and Marsh, a global leader in insurance broking
and risk management. We are tremendously excited at the opportunity to have Volker lead the Constantia team.
Our sincere thanks are extended to the former CEO, Robert Shaw, for his valuable contribution to Constantia
over the years.

We monitor all aspects of Constantia’s performance but pay particular attention to three key metrics: the
Combined Ratio(2), Return on Invested Capital and Growth in Investable Assets (excess capital and money that
we hold on behalf of other people, but that we can invest for our own benefit in the meantime). While underlying
growth in premium is important, what really matters is how sustainably profitable that premium actually is.

For the period under review, Constantia did not achieve any of its key performance metrics. The reasons for this
are explained below.

Constantia's gross premium increased by 7.4% to R516.96 million due to large increases in our accident and
health book, primarily through increased GAP cover policies and much larger volumes from our medical
evacuation insurance business. The mix has changed materially from a year ago. The increases were partially
offset by a R175.21 million reduction in gross premiums due to:

-   CLAH terminating an agreement with a healthcare underwriting manager (“UM” or “UMA”) (R55.94 million
    reduction); and
-   annual premium in CICL’s customer protection reinsurance business being replaced by monthly premium
    (R119.27 million reduction, as existing customers who have bought annual insurance will not need to 
    purchase new insurance for a year or longer, whereas new clients now only purchase one month’s insurance
    at a time).

1.) Constantia Insurance Company Limited (“CICL”), Constantia Life & Health Assurance Company Limited (“CLAH”) and Constantia Life
    Limited (“CLL”).

2.) The combined ratio is calculated as net claims plus expenses divided by net earned premium.

Net premium reduced by 26.6% to R163.66 million due to increased solvency reinsurance. We use solvency
reinsurance to reduce the statutory capital that we are required to hold against certain lines of business. While
this facility reduces the required amount of statutory capital, it also reduces the reported level of net premium.
Adjusting for solvency reinsurance, we would have reported net premiums of R446.95 million (up 45.4% from
the prior comparable period) and our statutory capital requirement in terms of SAM interim measures would
have been R109.99 million higher (Dec 2015: R33.60 million).

Constantia’s gross and net premium by line, and our underwriting margin for the period under review and the
comparative period, were as follows:

                                 Six months to 31 December 2016                        Six months to 31 December 2015
                                                     Net excl.      Under-                                 Net excl.     Under-
                                                      solvency     writing                                  solvency    writing
                             Gross          Net    reinsurance      result         Gross          Net    reinsurance     result
                             R’000        R’000          R’000       R’000         R’000        R’000          R’000      R’000
 
  Motor                   60   780     34   906       38   662     (7 918)      26   499     10   919       10   919    (6 735)
  Property                33   413     13   775       13   775         383      73   187     13   326       13   326      1 989
  Accident and Health    384   059     86   647      366   180    (29 748)     251   614    101   429      187   594    (2 348)
  Guarantee               12   921      6   255        6   255     (2 641)      11   739      6   854        6   854      6 200
  Miscellaneous           11   194      7   530        7   530       (202)      35   495      7   723        7   975        320
  Assistance              14   594     14   544       14   544     (1 126)      80   815     80   815       80   815      (652)
  Unallocated                    -            -              -     (1 966)            -            -              -     (1 163)

  Total                    516 961      163 657        446 946    (43 218)       479 349      221 066        307 483    (2 389)



Constantia delivered a half-year loss of R29.11 million after tax. There are three key features that contextualise
Constantia’s performance during the period:

    -   First, the premium rate charged over the period on our GAP cover book (part of our accident and health
        portfolio and our largest line by gross premium) was insufficient to offset an increased claims experience
        in this market during 2016 (as we are writing much more GAP business now than we did in the past,
        this has also increased our absolute level of claims). We were only able to increase premiums with effect
        from 1 January 2017 (this has since been amended so that premium pricing is now far more dynamic)
        and so had to bear higher claims cost against a static premium pricing factor. The GAP market has come
        under pressure from various developments in the wider healthcare industry, which has seen market wide
        increases in rates and some competitor exits. We are working closely with our UMAs in this area and are
        confident their business models are sound and that the premium rate increases will return this business
        to profitability on an underwriting level. Early indications are that progress is indeed being made. We
        have also worked closely with the UMAs in this line to better understand and interpret their data as part
        of a bigger drive to build more robust insurance systems and products, as detailed in point three below.
        The loss due to the premium pricing issue was about R17.05 million for the period (pre-tax).


    -   Second, we wrote and retained more business for our own account, mainly in the accident and health
        book. This has the effect of creating new business reserving strain: when new business is introduced to
        an insurer, or existing business increased, an increase in reserves is generally necessary by way of
        provisions for unearned premium reserves and provisions raised for claims that have been incurred, but
        not yet paid. Thereafter, reserves are usually only maintained, with less pronounced movements
        between one year and the next (year 1 reserves are settled in year 2 and a new reserve is created for                                                                                                 
        year 2, and so on). We were still effectively in year 1 during the period under review. You can think of
        this as “growing pains”. From an accounting perspective, it is correct that profits are impaired by the
        value of these reserves, as it reflects the true accounting position of the Group. From an economic
        viewpoint, however, this accounting does not reflect reality. We illustrated this with an example on page
        11 of our 2016 Integrated Annual Report. We provisioned an extra R7.00 million pre-tax because of the
        growth of this book. Adjusting for this accounting provision reduces the after-tax loss experienced by
        Constantia to R24.07 million.

    -   Third, and most importantly, Constantia is undergoing a transformation from a small insurer collecting
        marginal profits to a large, innovative and entrepreneurial insurer that aims to be the gold standard in
        the industry. To move closer to our objective and accelerate growth in the business, Constantia hired
        more excellent people and made critical investments into business infrastructure, including Information
        Technology investments. The result was that operating expenses (excluding amounts paid to UMs)
        increased by 89.3% to R50.55 million. This higher expense base is the result of a drive to increase the
        capacity of the group by way of attracting appropriately skilled people and systems and to handle much
        larger insurance business in the future. These costs and investments are being made ahead of actual
        premium growth, as we cannot achieve our ambitious growth goals without the requisite talent and
        background infrastructure. These costs negatively impacted our income statement this year (and may
        well do so for the next few years), but the increase in our earnings power because of these investments
        is exponential. We welcome the new people to the Constantia family where we hope you will all find a
        rewarding long-term home. Excluding the increase in growth driven operating expenses, Constantia’s
        after tax loss would have been approximately R22.00 million.

Our medical evacuation insurance business in partnership with OracleMed Health (one of our UMAs) provides
cover for and facilitates the evacuation, transportation or treatment of individuals experiencing medical issues
or emergencies, mostly on the African continent. The business performed well in the period despite many
challenges customary to the practice of doing business in Africa. This business falls into our accident and health
premium category.

Constantia launched South Africa’s only homegrown medical malpractice insurance offering in November 2016.
The project was many years in the making and is set to revolutionise the indemnity cover available to South
African doctors. The market has been yearning for a trusted local solution and we are delighted that Constantia
has capitalised on the opportunity with a multi-decade investment under the name of EthiQal Medical Risk
Protection. Medical malpractice insurance requires best in class risk management, underwriting and technical
skills and the capital to withstand claims many years into the future. We anticipate we will need to build sufficient
reserves for several years before realising any accounting profits on this investment – but when the profits come,
they should be worth the wait.

Our direct insurance partnership with the Automobile Association of South Africa (“AA”) (called “Insurance Driven
by the AA”) is progressing well and exceeding targets. The AA is the most trusted name in vehicle insurance.
Give them a call at 0861 001 000 or visit the website at http://www.aainsured.co.za/ to see if they cannot save
you money on your car and home insurance.

Post period end, a further R100 million was injected into Constantia. The insurer remains well capitalised and is
focused on building an environment to handle, attract and retain new business. It is well positioned for growth
and increased earnings power, notwithstanding the performance from an accounting perspective.

                                                                                                                    
Equity investments

The Group’s equity portfolio produced a pre-tax return of -1.36% over the period. The equity portfolio is split
between a subsidiary at holding company level and those equities owned by our insurance businesses. The
former is not subject to insurance regulation by way of restrictions or penalties on asset allocation, while the
latter is. The insurance regulations currently in place do not have a materially negative effect on our preferred
equity investments or their weightings in our portfolio.

The Group’s strategy is to own a concentrated portfolio of compounding type businesses permanently. We
believe in high conviction ideas where the risk of loss is limited and the upside potentially uncapped due to the
durability of the underlying company’s competitive advantage. Whilst we may not be so fortunate as to own our
best ideas forever, due to the winds of change and opportunity cost, it is certainly our intention to be ultra-long
term anchor shareholder partners in these tremendous enterprises. We do not trade share symbols or engage
in leveraged investments – we invest in high quality businesses that happen to be listed. You should view our
public investments the same way you view our 100% ownership of Constantia.

Our top five investments at 31 December 2016 represented approximately 90.0% of our equity invested capital.
In our view this reflects the interplay between our conviction and investment sizing, which has been consistent
over the years.

We have an unwavering commitment to the long-term, a singular focus on great compounders, an incredibly
high opportunity cost and a decidedly advantageous willingness for inaction. The fact that our portfolio has not
required high turnover or multiple new ideas to maintain its return momentum is evidence of the quality of our
underlying businesses and their compounding capabilities(3).

The twelve months of 2016 can best be described as a year in which our underlying businesses as a group
achieved record revenues, profits and margins, but saw little to no appreciation in their share prices. We took
advantage of the market’s inefficiency by building our stakes in our positions at values well below our view of
their intrinsic value. This is the second year we have experienced such a phenomenon. Fortunately, we pay much
attention to business performance and less attention to share price. We cannot predict when the market will
recognise the inherent value of our companies, but we firmly believe the realisation will occur. We are structured
in such a way that in a scenario like this, we have a major advantage against most of the competition – we have
patience, conviction, and a lot of time. These factors greatly increase the probability that the Group will perform
well over the long term.

Our opportunity set remains exceptionally attractive, through the valuations of several of our current portfolio
companies, as well as through high quality opportunities that have entered our price range. In addition, there
are opportunities to work with some of our existing core positions to accelerate their development and
consequently their growth in intrinsic value.


3.) Not to mention our tax efficiency


Other investments

                                                                                                                  
Conduit owns 40% of Anthony Richards and Associates (Pty) Ltd (“ARA”), a credit recovery specialist. As ARA
has been reflected as an “Asset Held for Sale” in our books since the June 2016 year-end, ARA’s results have
not been included in the results for the six months to 31 December 2016.

Africa Special Opportunities Capital (“ASOC”) is an investment firm that provides companies with flexible funding
solutions to facilitate necessary restructuring and recapitalisation. Conduit invested in ASOC’s first fund and is
also a shareholder in the ASOC management company. The ASOC team is patient enough to wait for the fat
pitch, and such a pitch arrived just after the December period-end. ASOC signed a deal to acquire a network of
professional day-care facilities, specialising in early childhood development. The company was founded in 2003
and has grown to a network of 12 schools (8 owned and 4 franchised) across Gauteng. The demand for private
education in South Africa is insatiable and ASOC has shown its ability to bed down a good deal through this first
transaction.


Prior period currency translation adjustments


We established that an incorrect formula was used to determine the Rand value of foreign premiums receivable
in Constantia during the 2015 and 2016 financial periods. This resulted in net assets being overstated by R22.39
million at 30 June 2016 and necessitated the restatement of the prior period comparative numbers. Further
details are reflected in note 2.2 to the financial results.

Midbrook Lane and Snowball Wealth

On 15 September 2016 shareholders were informed via SENS that Conduit had concluded agreements to acquire
Midbrook Lane (Pty) Ltd and Snowball Wealth (Pty) Ltd. The acquisitions were approved by the requisite majority
of shareholders in a general meeting held on 28 October 2016. Shareholders are referred to more detailed
announcements and the circular for further information on the companies acquired by Conduit. The Midbrook
Lane transaction closed on 7 February 2017 while the Snowball Wealth transaction is still subject to two
outstanding Conditions Precedent. The transactions are expected to bolster the capital and earnings power of
Conduit in line with our stated intention of compounding our underlying business value at a high rate for a long
time.

Conclusion

Conduit’s job is to:

  a. allocate capital judiciously across the Group; and
  b. create platforms via our subsidiaries and associates that attract the best and the brightest in pursuit of our
     ultimate goal – to compound the underlying value of the Group at a high rate over the very long term.

The Group is well positioned to pursue this goal by way of great people, better systems and vastly increased
(and increasing) earnings power. The ride will be bumpy. There may be some turbulence. But we have the right
people, determination and intelligent fanaticism to lead the Group to great things over time.


Sean Riskowitz
Chief Executive Officer

                                                                                                                 
Johannesburg
21 February 2017




                   
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
The Condensed Consolidated Statement of Comprehensive Income has been reformatted in order to make it less
complicated to distinguish the Group’s underwriting results from other income and expenses. The prior periods’
Condensed Consolidated Statements of Comprehensive Income have been presented in a manner similar to that
of the current period in order to simplify comparative analysis.
                                                                                                             Restated(1)        Restated(1)
                                                                                       Unaudited six       unaudited six            audited
                                                                                        months ended        months ended         year ended
                                                                                         31 Dec 2016         31 Dec 2015        30 Jun 2016
                                                                                               R’000               R’000              R'000

      Gross written premium                                                                  516 961             479 349          1 005 586
      Reinsurance premium                                                                  (353 304)           (258 283)          (629 530)

      Net written premium                                                                    163 657             221 066            376 056
      Net change in provision for unearned premium                                           (7 578)               5 424              (348)

      Net premium income                                                                     156 079             226 490            375 708
      Reinsurance commission received                                                        179 445             157 776            298 973
      Other income                                                                            15 433               2 108             18 036
      Income from insurance operations                                                       350 957             386 374            692 717
      Total insurance expenses                                                             (394 175)           (388 763)          (713 107)
      Net claims and movement in claims reserves                                            (84 889)           (104 805)        (187   318)
      Insurance contract acquisition costs                                                  (94 041)           (103 175)        (180   064)
      Administration and marketing expenses                                                (215 245)           (174 499)        (332   923)
      Other expenses                                                                               -           (6   284)         (12   802)

      Net underwriting loss                                                                 (43 218)              (2 389)          (20 390)
      Net non- insurance income (expenses)                                                     2 444              (8 269)          (13 941)
      Investment income                                                                        9 749                3 843             4 513
      Other income                                                                                38                   98               195
      Administration and marketing expenses                                                  (7 343)              (7 210)          (13 649)
      Other expenses                                                                               -              (5 000)           (5 000)

      Operating loss                                                                        (40 774)             (10 658)          (34 331)
      Finance charges                                                                          (173)                (204)             (924)
      Equity accounted (loss) income                                                           (255)                8 710            13 153
      Business combination expenses                                                          (5 035)                    -                 -
      Loss on disposal of property, plant and equipment                                         (16)                    -             (261)
      Impairment of associate                                                                      -                    -          (13 075)
      Profit on disposal of joint venture                                                          -                    -             1 478

      Loss before taxation                                                                  (46 253)              (2 152)          (33 960)
      Taxation                                                                                11 760              (1 355)               874

      Loss for the period                                                                   (34 493)              (3 507)          (33 086)
      Other comprehensive income                                                                   -                    -                 -

      Total comprehensive loss                                                              (34 493)              (3 507)          (33 086)


      Attributable to:
      Equity holders of the parent                                                          (34 381)              (3 421)          (32 855)
      Non-controlling interest                                                                 (112)                 (86)             (231)

      Total comprehensive loss                                                              (34 493)              (3 507)          (33 086)


      Headline loss                                                                         (29 335)              (3 421)          (17 741)


      Loss per share (cents)
      -   Basic                                                                               (10.4)                (1.2)            (10.6)
      -   Diluted                                                                             (10.4)                (1.2)            (10.6)
      -   Headline                                                                             (8.9)                (1.2)             (5.7)
      -   Diluted headline                                                                     (8.9)                (1.2)             (5.7)

1) Certain amounts reflected here do not correspond to the numbers as previously reported. Refer to Note 2 for further detail.



                                                                                                                                            
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
                                                                                                              Restated(1)            Restated(1)
                                                                                             Unaudited          unaudited                audited
                                                                                           31 Dec 2016        31 Dec 2015            30 Jun 2016
                                                                                                 R’000              R’000                  R’000

      ASSETS
      Non-current assets                                                                       342 661            368 493               324 653

      -   Property, plant and equipment                                                         12 863              9 065                10 787
      -   Intangible assets                                                                     38 291             35 079                37 226
      -   Loans receivable                                                                      18 297              7 963                16 783
      -   Deferred taxation                                                                     18 557             16 045                 8 098
      -   Investment properties                                                                  4 351              5 928                 4 351
      -   Investment in associates                                                               2 376            125 872                   133
      -   Investment in joint ventures                                                               -                666                     -
      -   Investments held at fair value                                                       247 926            167 875               247 275

      Current assets                                                                           850 051            900 269               738 837

      -   Insurance assets                                                                     332 869          316   086             267   108
      -   Loans receivable                                                                       2 365            1   180               2   365
      -   Trade and other receivables                                                          237 860          180   497             182   533
      -   Taxation                                                                              25 165           12   657              14   358
      -   Cash and cash equivalents                                                            251 792          389   849             272   473

      Assets held for sale                                                                     110 000                  -               110 000

      Total assets                                                                           1 302 712          1 268 762             1 173 490


      EQUITY AND LIABILITIES
      Capital and reserves                                                                     527 652            591 696               562 145
      - Ordinary share capital and share premium                                               323 195            323 167               323 195
      - Retained earnings                                                                      204 223            268 038               238 604

      Equity attributable to equity holders of the parent                                      527 418            591 205               561 799
      Non-controlling interest                                                                     234                491                   346

      Non-current liabilities                                                                   61 647             68 209                52 883
      - Policyholder liabilities under insurance contracts                                      25 987             32 606                25 987
      - Deferred taxation                                                                       35 660             35 603                26 896
      Current liabilities                                                                      713 413            608 857               558 462

      - Insurance liabilities                                                                  401 784            347 431               306 446
      - Trade and other payables                                                               311 324            255 180               251 744
      - Taxation                                                                                   305              6 246                   272

      Total equity and liabilities                                                           1 302 712          1 268 762             1 173 490


      Net asset value per share (cents)                                                          159.2               178.4                169.5
      Tangible net asset value per share (cents)                                                 126.5               141.8                137.2

1)  Certain amounts reflected here do not correspond to the numbers as previously reported. Refer to Note 2 for further detail.


                                                                                                                                               
SEGMENTAL REPORT

The report has been reformatted to more accurately align the performance of the different segments with the
new format used for the Statement of Comprehensive Income. The prior period segmental report has been
presented in a manner similar to that of the current period in order to simplify comparative analysis. For clarity,
the Insurance and Risk segment shows the profit or loss and capital employed in insurance and risk activities
only (excluding discretionary investments of the insurers). The Investments segment shows the profit or loss
and capital employed in the discretionary investment activities of the Group (including the insurers).

SEGMENTAL REPORT FOR THE SIX MONTHS ENDED 31 DECEMBER 2016
                                                                                            Insurance
                                                                                             and Risk         Investments             Total
                                                                                                R'000               R'000             R'000
      Operating loss                                                                         (43 218)               (765)          (43 983)
      Equity accounted loss                                                                         -               (255)             (255)
      Investment income (loss)                                                                  6 304               2 201             8 505
      Other                                                                                     (189)                   -             (189)

      (Loss) profit before taxation                                                          (37 103)               1 181          (35 922)
      Unallocated net head office expenses                                                                                         (10 331)
      Taxation                                                                                                                       11 760

      Loss for the period                                                                                                          (34 493)



      Capital utilised
      Capital employed at end of period                                                       126 504             336 603           527 652
      Capital utilised at end of period                                                       126 504             277 139           468 189
      Average capital utilised during the period                                              142 585             263 798           477 007




SEGMENTAL REPORT FOR THE SIX MONTHS ENDED 31 DECEMBER 2015 (RESTATED)(1)
                                                                                          Insurance
                                                                                           and Risk           Investments             Total
                                                                                              R'000                 R'000             R'000

      Operating loss                                                                          (2 389)               (692)           (3 081)
      Equity accounted income                                                                     124               8 586             8 710
      Investment income (loss)                                                                  6 217             (2 859)             3 358
      Other                                                                                     (962)             (5 000)           (5 962)

      Profit before taxation                                                                    2 990                  35             3 025
      Unallocated net head office expenses                                                                                          (5 177)
      Taxation                                                                                                                      (1 355)
      Loss for the period                                                                                                           (3 507)



      Capital utilised (Restated)
      Capital employed at end of period                                                       153 947             274 698           591 696
      Capital utilised at end of period                                                       153 947             199 144           516 141
      Average capital utilised during the period                                              197 171             142 261           385 456

1)  Certain amounts reflected here do not correspond to the numbers as previously reported. Refer to Note 2 for further detail.




                                                                                                                                          
SEGMENTAL REPORT FOR THE YEAR ENDED 30 JUNE 2015 (RESTATED) (1)
                                                                                            Insurance
                                                                                             and Risk         Investments             Total
                                                                                                R'000               R'000             R'000
      Operating loss                                                                         (20,390)             (1 405)          (21 795)
      Equity accounted income (loss)                                                            (676)              13 829            13 153
      Investment income                                                                        14 793            (12 105)             2 688
      Other                                                                                   (2 331)             (5 000)           (7 331)
      Loss before taxation                                                                    (8 604)             (4 681)          (13 285)
      Unallocated net head office expenses                                                                                         (20 675)
      Taxation                                                                                                                          874

      Loss for the period                                                                                                          (33 086)


      Capital utilised (Restated)
      Capital employed at end of period                                                       152 421             338 967           562 145
      Capital utilised at end of period                                                       152 421             263 414           486 591
      Average capital utilised during the period                                              181 826             191 587           450 145

1)  Certain amounts reflected here do not correspond to the numbers as previously reported. Refer to Note 2 for further detail.




CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                                               Unaudited        Unaudited           Audited
                                                                                              six months       six months              year
                                                                                                   ended            ended             ended
                                                                                             31 Dec 2016      31 Dec 2015       30 Jun 2016
                                                                                                   R’000            R’000             R'000

      Net cash flows from operating activities                                                   (6 433)         (16 172)          (39 253)
      Net cash flows from investing activities                                                  (12 734)         (61 415)         (145 413)
      Net cash flows from financing activities                                                   (1 514)          154 504           144 207
      Total cash movement for the period                                                        (20 681)           76 917          (40 459)
      Cash at the beginning of the period                                                        272 473          312 932           312 932

      Total cash at the end of the period                                                       251 792           389 849           272 473




                                                                                                                                          
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

                                                   Share capital
                                                      and share        Retained   Non-controlling
                                                       premium         earnings          interest           Total
                                                          R'000           R'000             R'000           R'000

 Balance at 1 July 2015 (as previously reported)        176 704         278 544               577         455 825
 Correction of prior period error                             -         (7 085)                 -         (7 085)

 Balance at 1 July 2015                                 176 704         271 459               577         448 740
 Total comprehensive loss for the period                      -         (3 421)              (86)         (3 507)

 - As previously reported                                      -         10 845              (86)          10 759
 - Correction of prior period error                            -       (14 266)                 -        (14 266)

 Issue of share capital                                 150 000               -                 -         150 000
 Share issue costs                                       (3 537)              -                 -         (3 537)

 Balance at 31 December 2015                            323 167         268 038               491         591 696
 Total comprehensive loss for the period                      -        (29 434)             (145)        (29 579)

 - As previously reported                                      -       (34 662)             (145)        (34 807)
 - Correction of prior period error                            -          5 228                 -           5 228

 Share issue costs                                           28               -                 -              28

 Balance at 30 June 2016                                323 195        238 604                346         562 145
 Total comprehensive loss for the period                      -        (34 381)             (112)        (34 493)

 Balance at 31 December 2016                            323 195         204 223               234         527 652




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 31 December 2016 (“interim results”) are in accordance with
    International Financial Reporting Standards (“IFRS”) and the SAICA Financial Reporting Guides as issued by
    the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial
    Reporting Standards Council. These accounting policies are consistent with those applied in the annual
    financial statements for the year ended 30 June 2016. The interim results have been prepared making use
    of reasonable judgements and estimates and reporting is done in terms of IAS 34 – Interim Financial
    Reporting, the Companies Act, 2008 (Act 71 of 2008), as amended, and the Listings Requirements of JSE
    Limited under the supervision of Mr Lourens Louw, the Financial Director. The interim results have not been
    audited or reviewed by the Group’s auditors.

2. Restatement of comparative numbers

    2.1. Two of the Group's underwriting managers reported information relating to the 2015 financial year only
         in the 2016 financial year. The error was only identified in the second half of the 2016 financial year,
         which resulted in insurance revenue, claims and insurance contract acquisition costs reported for the
         period to 31 December 2015 being overstated, while administration and marketing expenses were
         understated. The error had no impact on prior period earnings or equity.

         The error has been corrected by restating each of the affected Statement of Comprehensive Income
         line items for the six months to 31 December 2015 as follows:




                                                                                                                 
                                                                                 Previously
                                                                                   reported                             Restated
                                                                                six months                            six months
                                                                                     ended                                 ended
                                                                               31 Dec 2015          Adjustment       31 Dec 2015
                                                                                      R’000              R’000             R’000

         Insurance revenue                                                          481 326            (1 977)           479 349
         Net claims and movement in claims reserves                               (134 188)             29 383         (104 805)
         Insurance contract acquisition costs                                     (103 404)                229         (103 175)
         Administration and marketing expenses                                    (146 864)           (27 635)         (174 499)


   The above restatements have been taken account of in the published results for the year ended 30 June 2016

   2.2. It was established that an incorrect formula was used to determine the Rand value of foreign premiums
        receivable during the 2015 and 2016 financial periods, resulting in an overstatement of net assets
        during those periods. The error was only identified immediately prior to publication of this interim report,
        which resulted in the accounts detailed below being incorrectly reported for the prior comparative
        periods. The error had a further negative impact of R7.085 million on earnings and equity for the 10
        months ending 30 June 2015.

        The error has been corrected by restating each of the affected financial statement line items for the
        prior periods as follows:

                                                  Six months ended 31 Dec 2015                      Year ended 30 Jun 2016
                                                 Previously                                 Previously
                                                  reported    Adjustment    Restated         reported       Adjustment       Restated
         Impact on equity                            R’000         R’000       R’000            R’000            R’000          R’000

         Trade and other receivables               222 116      (41 619)     180 497          203 878         (21 345)        182 533
         Taxation receivable                        12 657             -      12 657           13 846              512         14 358
         Insurance liabilities                   (359 395)        11 964   (347 431)        (305 398)          (1 048)      (306 446)
         Taxation payable                         (14 550)         8 304     (6 246)          (6 030)            5 758          (272)

         Net reduction in equity                                (21 351)                                      (16 123)


         Impact on Statement of
         Comprehensive Income
         Currency translation (losses) profits      13 530      (19 814)     (6 284)            (251)         (12 551)       (12 802)
         Taxation                                  (6 903)         5 548     (1 355)          (2 639)            3 513            874

         Reduction in profitability                             (14 266)                                       (9 038)


3. Changes in share capital

   There were no changes to the issued share capital during the period under review. 75 000 000 ordinary
   shares totalling R150.0 million were issued by way of a rights offer on 14 December 2015. Share issue costs
   of R3.5 million have been charged to the Share Premium account.


                                                                                                                               
   Details of the shares in issue as at the reporting dates are as follows:

                                                                                             31 Dec 2016      31 Dec 2015     30 Jun 2016
                                                                                                    ’000             ’000            ’000

        Number of shares                                                                         331 377          331 377         331 377

        - Shares in issue                                                                        331 380          331 380         331 380
        - Shares held as treasury shares                                                             (3)              (3)             (3)

        Weighted average number of shares on which earnings and diluted earnings per
        share calculations are based                                                             331 377          289 076         310 111

        - Shares in issue                                                                        331 380          263 717         297 363
        - Bonus issue for rights offer 1)                                                              -           25 362          12 751
        - Shares held as treasury shares                                                             (3)              (3)             (3)

   1)  The weighted average number of shares in comparative periods has been restated by a Bonus issue amount due to the rights offer
       that took place on 14 December 2015, as required by IAS 33: Earnings per share.


4. Financial instruments

   Fair value estimation

   The financial assets valued at fair value through profit and loss in the statement of financial position are
   grouped into the fair value hierarchy as follows:

                                                                   Level 1            Level 2               Level 3            Total
        Financial assets                                             R’000              R’000                 R’000            R'000
        31 December 2016
        Listed investments                                         247 526                  -                     -          247 526
        Unlisted investments                                             -                400                     -              400
        Investment properties                                            -              4 351                     -            4 351

                                                                   247 526              4 751                     -          252 277


        31 December 2015
        Listed investments                                         167 875                  -                     -          167 875
        Investment properties                                            -              5 928                     -            5 928

                                                                   167 875              5 928                     -          173 803


        30 June 2016
        Listed investments                                         247 275                  -                     -          247 275
        Investment properties                                            -              4 351                     -            4 351

                                                                   247 275              4 351                     -          251 626


   There have been no transfers between levels 1, 2 and 3 during the reporting period.
   The methods and valuation techniques used for the purpose of measuring fair value are unchanged compared to the
   previous reporting period:
    -      Financial assets classified in Level 1 have been valued with reference to quoted prices and market rates
           (unadjusted) in active markets for identical assets or liabilities; and
    -      Financial assets classified in Level 2 have been valued by an independent third party according to a formula (using
           the fair market values of the underlying assets in the investment) in terms of which the investment could have
           been liquidated as at the reporting date.




                                                                                                                                       
5. Reconciliation of headline loss

                                                                                              Restated      Restated
                                                                              Unaudited      unaudited       audited
                                                                             six months     six months          year
                                                                                  ended          ended         ended
                                                                            31 Dec 2016    31 Dec 2015   30 Jun 2016
                                                                                  R’000          R’000         R'000

       Loss attributable to ordinary equity holders of Conduit                 (34 381)        (3 421)      (32 855)
       Net loss on revaluation of investment properties                              16              -            31
       Net loss on disposal of intangibles, property, plant and equipment             -              -           261
       Profit on disposal of joint ventures                                           -              -       (1 478)
       Impairment of associates                                                       -              -        13 075
       Business combination expenses                                              5 035              -             -
       Tax on the items above                                                       (5)              -         3 225

       Headline earnings                                                       (29 335)        (3 421)      (17 741)




6. Contingent liabilities

   6.1.   A portfolio acquisition agreement, effective 1 September 2015, exists between the Constantia
          Insurance Company Limited and Dealers Indemnity Proprietary Limited ("Dealers"). Dealers receives a
          monthly annuity of R45 000 for the remainder of the vendor's natural life, subject to a minimum
          payment of R1 500 000 ("the Minimum Payment"). The present value of the annuity payments as at
          30 June 2016 amounted to R3 081 746 per an actuarial calculation based on published mortality tables.
          The Group has raised a liability to the value of the Minimum Payment and confirms that it has a
          contingent liability of R1 581 746 as at the reporting date.

   6.2.   The Group is not aware of any current or pending legal cases that would have a material adverse effect
          on its results.

7. Directors

   -     Mr Tyrone Moodley’s status changed from “Non-executive” to “Executive” on 20 February 2017; and
   -     Mr Adrian Maizey was appointed to the Board as a Non-executive Director on 20 February 2017.
         Mr Maizey will chair the Investment Committee.

8. Dividends and other distributions

   In line with the Group's strategy, the Board has not recommended any dividend payment to ordinary
   shareholders (2015: Nil).

9. Events after reporting period

   There were no events that resulted in a material impact on the Group between the reporting date and the
   date of publication of this report.

                                                                                                                  
Directors:

Executive directors:       Sean Riskowitz (Chief Executive Officer), Lourens Louw (Financial Director), Tyrone
                           Moodley, Gavin Toet
Non-executive directors:   Ronald Napier (Chairman)*, David Harpur*, Jabulani Mahlangu*, Adrian Maizey,
                           Barry Scott*, Rosetta Xaba*
* Independent


Company secretary:

CIS Company Secretaries Proprietary Limited
Rosebank Towers, 15 Biermann Avenue
Rosebank, Johannesburg, 2196


Registered address:

Unit 9, 4 Homestead Avenue
Bryanston, Sandton, 2191
PO Box 97, Melrose Arch, 2076
Telephone: +27 (0)10 020 3460
Facsimile: +27 (0)86 522 8742


Transfer secretaries:

Computershare Investor Services Proprietary Limited
Rosebank Towers, 15 Biermann Avenue
Rosebank, Johannesburg, 2196


Sponsor:

Merchantec Capital




                                                                                                            

Date: 22/02/2017 05:15:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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