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CONDUIT CAPITAL LIMITED - Pro Forma Financial Information and Amplification of Note 11.3 Pertaining to the 2017 Annual Financial Statements

Release Date: 26/04/2019 17:28
Code(s): CND     PDF:  
 
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Pro Forma Financial Information and Amplification of Note 11.3 Pertaining to the 2017 Annual Financial Statements

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

PRO FORMA FINANCIAL INFORMATION AND AMPLIFICATION OF NOTE 11.3 PERTAINING TO THE
2017 ANNUAL FINANCIAL STATEMENTS

Following the conclusion of the JSE’s proactive monitoring process in respect of Conduit’s Annual
Financial Statements for the 2017 financial year, shareholders are advised of the following
amendments thereto as it pertains to the Tables included in the “CFO’s Letter to Shareholders” (which
is deemed to constitute pro forma financial information) as well as to “Note 11.3 - Restatement of
Comparative Numbers”. The information below replaces the information included in the Annual
Financial Statements for the 2017 financial year.

Pro forma financial information

The adjusted information in Tables 1, 2 and 3 below is the responsibility of the Group’s Board of
Directors and is presented for illustrative purposes only. Due to the nature of this information, it may
not fairly present the Group’s financial position, changes in equity and results of operations or cash
flows. The pro forma information has been compiled in terms of the JSE Listings Requirements and
the Revised Guide on Pro Forma Information by SAICA and the accounting policies of the Group as at
30 June 2017. The illustrative information has been derived from the Group’s audited financial
information and has been reported on in an independent Reporting Accountant’s assurance report
which can be found on the Group’s website at www.conduitcapital.co.za.

The pro forma information in Table 1 below is presented to demonstrate how certain contributing
items to the Group’s Statement of Changes in Equity for the 2017 financial year would have reflected
differently if:

1. the date on which the Midbrook Lane Proprietary Limited (“Midbrook”) and Snowball Wealth
   Proprietary Limited (“Snowball”) transactions became effective on 19 July 2016, i.e. the date on
   which it was agreed that the two entities would be acquired by Conduit, rather than the actual
   effective dates of 2 February 2017 and 30 March 2017, respectively; and
2. a special dividend from Anthony Richards and Associates Proprietary Limited (“ARA”) was
   accounted for on an equity accounted basis (i.e. as if the entity was reflected as an associate),
   rather than as an asset held for sale and how such change would have impacted the impairment
   of the investment in ARA.

These tables should be read in conjunction with the section a. Net asset value/shareholders’ equity on
pages 10 and 11 of the Group’s Integrated Annual Report for 2017 (“IAR”).
 
Table 1 – STATEMENT of CHANGES in EQUITY (WITH EXPANDED RETAINED INCOME SECTION)
                                                                                                                             Equity                   Total per
                                                                                                                            attribu-                    audited
                                                                                                                            table to          Non-    statement                        Our
                                                                          Stated       Share     Treasury     Retained     owners of   controlling   of changes       Adjust-   represent-
                                                                         capital     premium       shares       income    the parent      interest    in equity          ment       tation
                                                                           R'000       R'000        R'000        R'000         R'000         R'000         R'000        R’000        R’000
Balance as at 30 June 2016, per the June 2016 Integrated Report            3,314     319,881            -      254,727       577,922           346       578,268            -      578,268
Correction of prior period errors (refer note 11.1 to the Annual
Financial Statements (“AFS”))                                                  -           -            -     (16,122)      (16,122)             -      (16,122)            -     (16,122)
Revised balance as at 30 June 2016                                         3,314     319,881            -      238,605       561,800           346       562,146            -      562,146
Issue of share capital1                                                  651,319           -            -           -        651,319             -       651,319     (19,062)      632,257
Treasury stock acquired through subsidiaries2                                  -           -     (127,911)          -      (127,911)             -     (127,911)        3,424    (124,487)
Total comprehensive loss for the year3                                         -           -            -    (136,695)     (136,695)          (36)     (136,731)       15,638    (121,093)
-   Change in Midbrook and Snowball fair value since acquisition4              -           -            -       22,232        22,232             -        22,232     (25,770)      (3,538)
-   Expenses incurred in acquiring Midbrook and Snowball5                      -           -            -      (6,101)       (6,101)             -       (6,101)            -      (6,101)
-   Impairment of goodwill paid on Midbrook and Snowball acquisition6          -           -            -     (41,408)      (41,408)             -      (41,408)       41,408            -
-   ARA excess dividend received7                                              -           -            -       12,800        12,800             -        12,800     (12,800)            -


1 The “Our representation” column reflects what the value of the Midbrook and Snowball consideration would have been if all Conduit shares were issued on 19 July 2016 at
  245 cents each, rather than at 259 cents and 250 cents (the Conduit share prices as at the Midbrook and Snowball transactions’ effective dates of 2 February 2017 and
  30 March 2017, respectively).

2 The “Our representation” column reflects what the value of the treasury stock acquired with Midbrook and Snowball would have been if the effective date of the transactions
  were 19 July 2016, rather than 2 February 2017 and 30 March 2017, respectively.

3 The “Our representation” column reflects what the total comprehensive loss for the year would have been if the effective date of the Midbrook and Snowball transactions
  were 19 July 2016, rather than 2 February 2017 and 30 March 2017, respectively.

4 Changes in the fair value of Midbrook, Snowball and their subsidiaries between the effective dates of the transactions (2 February 2017 and 30 March 2017, respectively)
  and 30 June 2017, adjusted for changes in the fair value of treasury stock held by the entities during the period and tax. The “Our representation” column reflects what the
  changes in the fair value of Midbrook, Snowball and their subsidiaries would have been between 19 July 2016 and 30 June 2017, adjusted for changes in the fair value of
  treasury stock held by the entities during the period and tax.

5  Per note 36.3 to the AFS.

6 Per note 36.3 to the AFS. The “Our representation” column reflects the impact of the goodwill impairment being reversed on the basis that the adjustments in terms of
  items 1, 2 and 4 above would have resulted in no goodwill, i.e. no impairment would have been required.

7 Dividend received in addition to the normal dividend that ARA declares semi-annually. Included under “Dividend income” per note 35 to the AFS. The “Our representation”
  column reflects the result if the ARA excess dividend were accounted for on an equity accounted basis, i.e. it would have been excluded from income due to it having been
  set off directly against the investment in the balance sheet. 
                                                                                                                             Equity                   Total per
                                                                                                                           attribu-                     audited
                                                                                                                           table to          Non-     statement                      Our
                                                                          Stated       Share     Treasury    Retained     owners of   controlling    of changes     Adjust-    represent-
                                                                          capital   premium        shares      income    the parent      interest     in equity        ment        tation
                                                                           R'000       R'000        R'000       R'000         R'000         R'000         R'000       R’000         R’000
-   ARA revaluation8                                                           -           -           -     (32,800)      (32,800)             -      (32,800)      12,800      (20,000)
-   Expenses incurred to grow Constantia9                                      -           -           -     (42,154)      (42,154)             -      (42,154)           -      (42,154)
-   Other losses incurred during the year (net)10                              -           -           -     (84,472)      (84,472)          (36)      (84,508)           -      (84,508)
-   Taxes, excl. taxes i.r.o. Midbrook and Snowball11                          -           -           -       35,208        35,208             -        35,208           -        35,208
Reallocation of share premium12                                          319,881   (319,881)           -            -             -             -             -           -             -
Balance as at 30 June 201713                                             974,514           -   (127,911)      101,910       948,513           310       948,823           -       948,823




8 Per note 36.3 to the AFS. Assuming that the ARA excess dividend was set off directly against the investment in the balance sheet per item 7 above, the “Our representation”
  column reflects that the revaluation would have been reduced by the dividend amount, as the book value of the investment, before revaluation, would have been lower
  by that value.

9  Expenses identified by management as specifically incurred to foster growth initiatives in Constantia. This item will have a continuing effect.

10 Total comprehensive loss for the year less items 4 – 9 above and item 11 below.

11 Taxation per note 42 to the AFS, adjusted for Midbrook and Snowball taxation of R3.683 million included in item 2 above.

12 Due to conversion from share capital to stated capital. This item will have a continuing effect.

13 As reflected in the Annual Financial Statements for the year ending 30 June 2017.
   The pro forma information in Table 2 below is presented to provide readers of the Group’s IAR with more insight into the various components that contributed
   to the attributable loss generated during the 2017 financial year and how these numbers tie into the AFS. This table should be read in conjunction with the
   section b. Earnings on pages 11, 12 and 13 of the Group’s IAR.

Table 2
                                                                                                   Cash
                                                                                                 losses
                                                                                              generated
                                                                                  Increase       on the                              Provision                                                           Per audited
                                                                                    in the      medical      Medical                for future                                                          consolidated
                                                                     Expenses         IBNR    gap cover  Malpractice                  expenses                                                             statement
                                                                     incurred      reserve        books       under-     Write-off    where no                                                          of profit or
                                                                           to   associated       before      writing            of      future                                      Other                   loss and
                                                         Expenses     acquire     with the   corrective       result      salvages    economic                     Investment    expenses                      other
                                                 ARA     incurred    Midbrook      medical       action       before           and     benefit        Cost of          income         and                    compre-
                                      ARA   dividend      to grow         and    gap cover     taken in    operating    recoveries     will be       solvency       (equities      losses                    hensive
                   Goodwill   revaluation   (normal)   Constantia    Snowball     business      Jan '17     expenses       accrual    obtained    reinsurance           only)       (net)    Taxation         income
Gross written
premium                -             -          -            -           -             -        262,457       17,959             -           -         44,246               -     745,132           -      1,069,794
Reinsurance
premium                -             -          -            -           -             -          (217)      (8,903)             -           -       (563,078)              -   (115,692)           -      (687,890)
Net written
premium                -             -          -            -           -             -        262,240        9,056             -           -       (518,832)              -    6 29,440           -        381,904
Net change in
provision for
unearned
premium                -             -          -            -           -             -             -         (520)             -           -          5,632               -    (18,974)           -       (13,862)
Net insurance
income                 -             -          -            -           -             -       262,240         8,536             -           -       (513,200)              -     610,466           -        368,042
Reinsurance
commission
received               -             -          -            -           -             -             -             -             -           -        305,847               -      48,118           -        353,965
Other income           -             -          -            -           -             -             -             -             -           -              -               -      28,826           -         28,826
Income from
insurance
operations             -             -          -            -           -             -       262,240         8,536             -           -       (207,353)              -     687,410           -        750,833
                                                                      
                                                                                                   Cash 
                                                                                                 losses
                                                                                              generated
                                                                                  Increase       on the                              Provision                                                           Per audited
                                                                                    in the      medical      Medical                for future                                                          consolidated
                                                                     Expenses         IBNR    gap cover  Malpractice                  expenses                                                             statement
                                                                     incurred      reserve        books       under-     Write-off    where no                                                          of profit or
                                                                           to   associated       before      writing            of      future                                      Other                   loss and
                                                         Expenses     acquire     with the   corrective       result      salvages    economic                     Investment    expenses                      other
                                                 ARA     incurred    Midbrook      medical       action       before           and     benefit        Cost of          income         and                    compre-
                                      ARA   dividend      to grow         and    gap cover     taken in    operating    recoveries     will be       solvency       (equities      losses                    hensive
                   Goodwill   revaluation   (normal)   Constantia    Snowball     business      Jan '17     expenses       accrual    obtained    reinsurance           only)       (net)    Taxation         income
Total insuran- 
ce expenses            -             -          -        (42,154)        -        (12,142)    (281,512)     (13,951)      (12,130)     (6,484)        200,652              -    (717,461)           -      (885,182)
Net claims and
movement in
claims reserves        -             -          -            -           -        (12,142)    (152,325)     (13,677)      (12,130)           -        250,017              -    (289,548)           -      (229,805)
Insurance   
contract
acquisition
costs                  -             -          -            -           -             -       (57,506)        (274)             -           -       (15,486)              -    (106,541)           -      (179,807)
Administration
and marketing
expense                -             -          -        (42,154)        -             -       (71,681)           -              -     (6,484)       (33,879)              -    (314,947)           -      (469,145)
Other expenses         -             -          -            -           -             -             -            -              -           -              -              -      (6,425)           -        (6,425)
Net under-
writing loss           -             -          -        (42,154)        -       (12,142)      (19,272)      (5,415)      (12,130)     (6,484)        (6,701)              -     (30,051)           -      (134,349)
Net non-
insurance
income
(expenses)             -          12,800     11,200          -           -             -             -            -              -           -              -         26,784      (3,428)           -         47,356
Investment
income                 -          12,800     11,200          -           -             -             -            -              -           -              -         26,784       13,766           -         64,550
Other income           -            -          -             -           -             -             -            -              -           -              -              -          310           -            310
Administration 
and marketing 
expense                -            -          -             -           -             -             -            -              -           -              -              -     (17,492)           -       (17,492)
Other expenses         -            -          -             -           -             -             -            -              -           -              -              -         (12)           -           (12)
                                                                                             
                                                                                                    Cash
                                                                                                  losses
                                                                                               generated
                                                                                  Increase        on the                             Provision                                                            Per audited
                                                                                    in the       medical      Medical               for future                                                           consolidated
                                                                     Expenses         IBNR     gap cover  Malpractice                 expenses                                                              statement
                                                                     incurred      reserve         books       under-    Write-off    where no                                                           of profit or
                                                                           to   associated        before      writing           of      future                                      Other                    loss and
                                                        Expenses      acquire     with the    corrective       result     salvages    economic                     Investment    expenses                       other
                                                 ARA    incurred     Midbrook      medical        action       before          and     benefit        Cost of          income         and                     compre-
                                      ARA   dividend     to grow          and    gap cover      taken in    operating   recoveries     will be       solvency       (equities      losses                     hensive
                   Goodwill   revaluation   (normal)  Constantia     Snowball     business       Jan '17     expenses      accrual    obtained    reinsurance           only)       (net)    Taxation          income
Operating
(loss) profit          -           12,800    11,200      (42,154)         -       (12,142)      (19,272)      (5,415)     (12,130)     (6,484)        (6,701)          26,784    (33,479)           -       (86,993)
Finance
charges                -            -          -            -             -             -            -            -             -            -              -               -       (577)           -          (577)
Equity
accounted
(loss) income          -            -          -            -             -             -            -            -             -            -              -               -       (362)           -          (362)
Other expenses
and losses       (41,408)       (32,800)       -            -        (6,101)            -            -            -             -            -              -               -        (15)           -       (80,324)
(Loss) profit
before
taxation         (41,408)       (20,000)    11,200      (42,154)     (6,101)     (12,142)     (19,272)        (5,415)     (12,130)     (6,484)         (6,701)         26,784    (34,433)           -      (168,256)
Taxation                -           -          -             -           -            -            -              -             -            -              -               -           -      31,525         31,525
(Loss) profit
for the year     (41,408)       (20,000)    11,200      (42,154)     (6,101)     (12,142)     (19,272)        (5,415)     (12,130)     (6,484)         (6,701)         26,784    (34,433)      31,525      (136,731)
Non-
controlling
interest               -           -           -            -           -             -            -              -             -            -              -               -         36            -            36
Total
comprehensive
(loss) profit
per Table 2 on
p11 of the IAR   (41,408)     (20,000)     11,200      (42,154)     (6,101)     (12,142)     (19,272)        (5,415)    (12,130)      (6,484)         (6,701)        26,784      (34,397)      31,525       (136,695)

The pro forma information in Table 3 below is presented to provide readers of the Group’s IAR with more insight into the various components that resulted
in the cash flows generated during the 2017 financial year and how these numbers tie into the AFS. This table should be read in conjunction with the section
c. Cash flows on pages 13 and 14 of the Group’s IAR.

Table 3
                                                                                                  Equities
                                                                          Growth                   sold to                                                                     Per
                                                           Cash and      related                  fund the                                   Net cash     Other cash       audited
                                                               cash  acquisition               acquisition        Further                    acquired          flows      consoli-
                                                        equivalents     of fixed                  of fixed     investment     First time         with     (including      ,  dated
                                                             at the   assets and      Growth    assets and     to enhance     investment     Midbrook    funding via     statement
                                                          beginning     computer     related      computer     the equity    in unlisted          and      insurance       of cash
                                                        of the year     software    expenses      software      portfolio           fund     Snowball         float)         flows
Cash flows from operating activities                             -             -    (42,154)             -              -              -            -         36,855       (5,299)
-   Cash (utilised) generated by operations                      -             -    (42,154)             -              -              -            -        (9,507)      (51,661)
-   Interest received                                            -             -          -              -              -              -            -         13,766        13,766
-   Finance charges                                              -             -          -              -              -              -            -          (577)         (577)
-   Dividends received from investments                          -             -          -              -              -              -            -         26,621        26,621
-   Taxation received (paid)                                     -             -          -              -              -              -            -          6,552         6,552
Cash flows from investing activities                             -      (66,247)          -         62,697       (10,475)       (22,880)            -        (8,415)      (45,320)
-   (Acquisition) disposal of associates                         -             -          -              -              -              -            -            (3)           (3)
-   (Acquisition) disposal of subsidiaries                       -             -          -              -              -              -            -          (433)         (433)
-   Acquisition of property, plant and equipment                 -       (5,393)          -              -              -              -            -             -        (5,393)
-   Disposal of property, plant and equipment                    -             -          -              -              -              -            -            141           141
-   Acquisition of investment properties                         -             -          -              -              -              -            -           (80)          (80)
-   Acquisition of intangible assets                             -      (60,854)          -              -              -              -            -             -       (60,854)
-   Disposal of intangible assets                                -             -          -              -              -              -            -             -             -
-   Acquisition of financial investments                         -             -          -              -      (130,603)       (22,880)            -        (8,040)     (161,523)
-   Disposal of financial investments                            -             -          -         62,697        120,128              -            -             -        182,825
Cash flows from financing activities                             -             -          -              -              -              -     (13,179)       (16,552)      (29,731)
-   Interest bearing borrowings repaid                           -             -          -              -              -              -     (13,179)             -       (13,179)
-   Loans granted to third parties                               -             -          -              -              -              -            -          (960)         (960)
-   Loans repaid by third parties                                -             -          -              -              -              -            -          1,560         1,560
-   Loans granted to joint ventures, associates and
 assets held for sale                                            -             -          -              -              -              -            -       (15,553)       (15,553)

                                                                                                  Equities
                                                                         Growth                    sold to                                                                    Per
                                                           Cash and     related                   fund the                                   Net cash    Other cash       audited
                                                               cash acquisition                acquisition         Further                   acquired         flows      consoli-
                                                        equivalents    of fixed                   of fixed      investment   First time          with    (including         dated
                                                             at the  assets and       Growth    assets and      to enhance    investment     Midbrook   funding via     statement
                                                          beginning    computer      related      computer      the equity   in unlisted          and     insurance       of cash
                                                        of the year    software     expenses      software       portfolio          fund     Snowball        float)         flows
- Loans granted to unlisted investments                          -            -            -             -               -             -            -       (1,599)       (1,599)

Net (decrease) increase in cash and cash equivalents             -     (66,247)      (42,154)       62,697        (10,475)      (22,880)      (13,179)       11,888      (80,350)
Cash and cash equivalents at the beginning of the year     272,473            -             -            -               -             -            -             -       272,473
Cash acquired                                                    -            -             -            -               -             -       15,978             -        15,978
Cash and cash equivalents at the end of the year per
Table 3 on p13 of the IAR                                  272,473     (66,247)      (42,154)       62,697        (10,475)      (22,880)        2,799        11,888       208,101

Note 11.3 - Restatement of Comparative Numbers

In line with the Group’s new strategy, the Consolidated Statements of Profit or Loss and Other Comprehensive Income have been presented in a manner that
makes it less complicated to distinguish the Group’s insurance-related results from other non-insurance income and expenses. For consistency, the prior
period’s Consolidated Statements of Profit or Loss and Other Comprehensive Income are presented in a manner similar to that of the current period in order
to simplify comparative analysis.
Other income (Insurance) includes all rental income and fees received by Constantia, whereas Other income (Non-insurance) comprises fees received in other
Group entities. The restatement of income items has been effected as follows:
                                        Other income          Other income          Previously
                                         (Insurance)       (Non-insurance)          reported
                                           R’000                R’000                 R’000
Non-insurance revenue                      18,036                 195                18,231
Restated                                   18,036                 195                18,231

Administration and marketing expenses (Insurance) includes all operating expenses incurred by Constantia, whereas Other expenses (Insurance) include
currency translation losses and impairments associated with operational assets that can be tied directly to Constantia. Similar expense lines have been created
for other Group entities. Other expenses and losses include non-operating impairment losses on associates, assets held for sale, joint ventures and property,
plant and equipment. The restatement of expense and loss items has been effected as follows:

                                                                     Administration
                                      Administration                  and marketing        Other
                                      and marketing         Other           expense     expenses          Other
                                            expense      expenses             (Non-       (Non-    expenses and     Previously
                                        (Insurance)   (Insurance)       insurance)    insurance)         losses       reported
                                              R’000         R’000            R’000         R’000          R’000          R’000
Underwriting management fees              (200,228)                                                                  (200,228)
Profit commissions                         (66,702)                                                                   (66,702)
Administration costs                       (36,213)                                                                   (36,213)
Other expenses                             (29,371)         (409)          (13,638)      (5,011)                      (48,429)
Other                                                       (251)                                       (11,858)      (12,109)
Correction of prior period error                         (12,551)                                                     (12,551)
Restated                                  (332,514)      (13,211)          (13,638)      (5,011)        (11,858)     (376,232)

Johannesburg
26 April 2019

Sponsor
Merchantec Capital

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