| Thu 28 Jun 2007, 17:00 | | MCU - m Cubed - Reviewed financial results for the |
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MCU
MCU
MCU - m Cubed - Reviewed financial results for the year ended 28 February 2007
m Cubed Holdings Limited
Incorporated in the Republic of South Africa)
Registration number: 1998/014568/06
Share code: MCU ISIN: ZAE000033353
("m Cubed" or "the company")
Reviewed financial results for the year ended 28 February 2007
Income statement
for the year ended 28 February 2007
2007 2006
R`000 R`000
Net revenue 96 638 263 156
Cost of revenue (35 559) (137 070)
Gross profit 61 079 126 086
Operating expenditure (62 849) (113 901)
Results of operating activities (1 770) 12 185
Finance income 34 363 24 279
Share of profit in associate - 10 590
Impairment of goodwill (3 702) (56 034)
Impairment of investment 1 180 (2 417)
Profit/(Loss) before non-trading items 30 071 (11 397)
Provision for dispute with regulator - (90 420)
Disposal of businesses 498 82 793
Net profit/(loss) before taxation 30 569 (19 024)
Taxation (8 621) (27 445)
Net profit/(loss) for the year 21 948 (46 469)
Reconciliation between headline earnings/(loss)
and net profit/(loss) for the year
Net profit/(loss) for the year 21 948 (46 469)
Disposal of businesses (498) (82 793)
Capital gains tax on disposals - 6 525
Impairment of goodwill 3 702 56 034
Impairment of investment (1 180) 2 417
Headline earnings attributable to shareholders 23 972 (64 286)
Earnings/(loss)per share (cents)
Earnings/(loss) 3,0 (6,3)
Headline earnings/(loss) 3,2 (8,7)
Diluted earnings/(loss) 3,0 (6,3)
Diluted headline earnings/(loss) 3,3 (8,6)
Balance sheet
at 28 February 2007
2007 2006
R`000 R`000
Assets
Non-current assets
Property, plant and equipment 857 2 210
Investments 7 127 723 10 093 153
Insurance contracts 28 238 28 043
Investment contracts 7 099 485 10 065 110
Deferred acquisition cost 21 327 36 000
Goodwill 3 000 6 702
Loans and advances 117 177
Deferred taxation - 200
7 153 024 10 138 442
Current assets
Receivables and prepayments 36 825 183 328
Cash and cash equivalents 277 158 214 379
313 983 397 707
Total assets 7 467 007 10 536 149
Equity and liabilities
Capital and reserves
Share capital 7 382 7 363
Share premium 227 863 226 878
Foreign currency translation reserve 2 101 (1 447)
Accumulated profits 81 875 60 516
Ordinary shareholders` funds 319 221 293 310
Non-current liabilities
Policyholder liabilities 7 053 205 10 045 089
Insurance contracts 31 820 29 760
Investment contracts 7 021 385 10 015 329
Deferred revenue liability 19 380 34 001
7 072 585 10 079 090
Current liabilities
Trade and other payables 74 745 163 224
Current tax liabilities 456 525
75 201 163 749
Total equity and liabilities 7 467 007 10 536 149
Number of shares in issue (`000) 738 285 736 321
Net asset value per share (cents) 43,2 39,8
Net tangible asset value per share (cents) 42,8 38,9
Cash flow statement
for the year ended 28 February 2007
2007 2006
R`000 R`000
Operating activities (3 746 194) (621 671)
Cash utilised by operations (3 769 031) (611 268)
Finance income 34 363 24 279
Taxation paid (11 526) (23 690)
Dividends paid - (10 992)
Investing activities 3 808 738 681 906
Additions to property, plant and equipment (738) (424)
Proceeds on disposal of property, plant and
equipment 616 99
Disposal of businesses 156 885 53 168
Decrease in investments 3 652 930 627 421
(Increase)/decrease in loans receivable (955) 1 642
Financing activities 235 2 558
Sale of shares by share incentive trust 235 2 558
Net movement in cash and cash equivalents 62 779 62 793
Net cash and cash equivalents at beginning of
year 214 379 151 586
Net cash and cash equivalents at end of year 277 158 214 379
Statement of changes in equity
for the year ended 28 February 2007
Foreign
currency Accumu-
Share Share translation lated
capital premium reserve profits Total
R`000 R`000 R`000 R`000 R`000
Balance at
28 February 2006 7 363 226 878 (1 447) 60 516 293 310
Increase in foreign
currency translation
reserve - - 3 548 - 3 548
Net profit for the
year - - - 21 948 21 948
Share-based payments 181 181
Shares sold by share
incentive trust 19 985 - (770) 234
Balance at
28 February 2007 7 382 227 863 2 101 81 875 319 221
Segmental reporting
Headline Assets under
earnings management
2007 2006 2007 2006
Rm Rm Rbn Rbn
Wealth management 15 7 7 10
Asset management - 10 - -
Specialised investments, lending and
treasury 7 (81) - -
22 (64) 7 10
Net revenue
Recurring Initial
2007 2006 2007 2006
Rm Rm Rbn Rbn
Wealth management 93 130 - 3
Asset management - 3 - 83
Specialised investments, lending and
treasury 4 35 - 9
97 168 - 95
Basis of preparation
The financial statements have been prepared in accordance with International
Financial Reporting Standards ("IFRS") and in compliance with the Companies Act
of South Africa of 1973, and the Long-term Insurance Act of 1998, and the
listing requirements of the JSE Limited. The accounting policies are consistent
with those of the previous financial period.
Comparative figures
Following completion of the investigation referred to in the 2006 Annual Report
the comparative figures for policyholder liabilities as well related investments
have been restated by R44 million in respect of certain policies previously
omitted in error. The directors are of the opinion that there is no indication
of material misstatement or mismatch of policyholder liabilities and related
assets.
Auditor`s review report
The results have been reviewed by PKF (Jhb) Inc. The auditor`s reviewed report
is available for inspection at the registered office of the company.
The review report places emphasis of matter on the contingent liabilities
referred to below under the heading `Contingent Liabilities`.
Nature of business
m Cubed Holdings Limited ("m Cubed" or "the company") historically owned a
number of focused investment services businesses. On 10 November 2004, the board
decided that the best way to unlock and realise maximum value for shareholders
would be to dispose of m Cubed`s business operations, which, following the
merger of the m Cubed and Momentum multi-manager operations, lacked critical
mass. The primary objective of disposing of m Cubed`s businesses in order to
convert these assets to cash to unlock maximum value for shareholders, has
essentially been achieved.
Financial review and corporate activity update
Headline earnings was R24 million (2006: R64.3 million headline loss) and
headline earnings per share was 3,2 cents (2006: 8,7 cents loss per share) for
the year. Earnings was R22 million (2006: R46.5 million loss) and earnings per
share was 3,0 cents (2006: 6,3 cents loss).
Recurring income was R97 million (2006: R168 million), while initial income was
Rnil (2006: R95 million).
The disposal of businesses have been largely completed.
A summary of the key disposal transactions concluded since 10 November 2004 is
detailed below:
Name of m Cubed Agreement Completion Amount
entity Purchaser date date (R`000)
m Cubed Investment
Life (Pty) Ltd Channel Life Ltd 18 Feb 05 13 Apr 05 20 000
Corporate Money
Managers (Pty) Ltd Management 20 Apr 05 13 May 05 5 500
Escher UK Asset
Management Ltd Close Bros 6 Jun 05 29 Jul 05 40 000
m Cubed Unit Trust
Management Co Ltd Fidentia 2 Jun 05 6 Dec 05 16 500
Policy Exchange
(Pty) Ltd Fidentia 2 Sep 05 17 Nov 05 10 000
Automated
Outsourcing
Services Ltd Fidentia 9 Jun 05 23 Feb 06 16 000
m Cubed Employee
Benefits (Pty) Ltd Management 30 Sep 05 12 Mar 06 2 000
Advantage Asset
Managers (Pty) Ltd
50% Momentum Nov 05 29 Mar 06 140 000
m Cubed Life Ltd
(reinsurance of Alternative
policy book) Channel Ltd 21 Dec 06 1 Mar 07 30 100*
m3 Capital
Management
(Guernsey) Ltd and
AOS Fund Services
Ltd (incl. cash PSG Fund
dividend) Management 3 Apr 06 1 Mar 07 11 700*
Total value of
transactions
concluded 291 800
* Completion of certain deal conditions still outstanding.
In terms of the reinsurance agreement concluded with Alternative Channel Ltd
("Alternative Channel"), the m Cubed Life Ltd ("m Cubed Life") policy book was
reinsured for a payment by Alternative Channel to m Cubed Life of R30 million
less actuarial reserves. This effectively means that Alternative Channel has
assumed responsibility for the proper management of the policyholders` business
with effect from 1 March 2007, and ensures that the policyholders` affairs are
being managed and administered by an experienced group of people and in a
professional manner. This transaction is subject to regulatory approval as well
as the approval of shareholders. The circular containing details of the
reinsurance transaction will be posted to shareholders in due course.
Due to the corporate activity the results are not comparable to prior years, as
the prior years included businesses that have subsequently been disposed of.
Settlement of dispute with regulator
As announced by the board on 9 February 2007 the dispute with the Regulator, in
respect of which a provision was raised in m Cubed`s financial statements for
the year ended 28 February 2006, was settled during the year.
A settlement levy of R100 million was paid to the Regulator in addition to which
a security deposit of R50 million has been retained by the Regulator for due
performance in unwinding the transactions being the subject matter of the
dispute. The legal firm of Jan S de Villiers has been appointed to work closely
with the Regulators` forensic auditors to unwind these transactions.
Contingent liabilities
m Cubed is exposed to a contingent liability estimated at a maximum of R50
million in respect of the settlement with the Regulator, as mentioned above, as
well as another contingent liability in respect of tax claimed by SARS in terms
of revised tax assessments issued to m Cubed Life and m Cubed Specialised
Lending (Pty) Ltd, in relation to an intellectual property sale and leaseback
transaction concluded in 1999. This contingency has not been quantified as
objections have been lodged against these assessments and the tax specialist
that has been appointed to deal with this matter is of the opinion that both
these companies have a strong case.
m Cubed Life had an agency agreement with Ovation Global Investment Services
(Pty) Ltd ("Ovation"). With Ovation having been put under curatorship, it has
not been possible to agree the assets and linked policy liabilities with Ovation
at 28 February 2007. The directors are attending to the matter, in consultation
with the Financial Services Board.
Cautionary announcement
Shareholders are further referred to the last cautionary announcement published
on SENS on Monday 18 June 2007 and the press on Tuesday, 19 June 2007.
Prospects and dividend
Our focus remains on unlocking value for shareholders by concluding and
resolving the abovementioned matters following which available cash resources
will be distributed to shareholders. In light of this no year-end dividend was
declared.
M Smith resigned as non-executive director effective 14 March 2007.
For and on behalf of the board of directors
J de Vos du Toit
Chairman
28 June 2007
Registered office:
1st Floor PSG House, Alphen Park Constantia, Main Road, Constantia
Private Bag X3, Constantia, 7848
Telephone 021 799 8000 Facsimile 021 794 4674
Transfer offices:
Computershare Investor Services 2004 (Pty) Ltd, 70 Marshall Street, Johannesburg
2000
PO Box 61051, Marshalltown, 2107
Telephone: 011 370 5000, Facsimile: 011 370 5487.
Directors: J de V du Toit (Chairman)*, CMB Bothner*, W Roux*, J van Zyl Smit*, *
Non-executive
Auditors: PKF (JHB) Inc, Chartered Accountants (SA), Registered Auditors
Company secretary: Probity Business Services (Pty) Ltd
Bankers: The Standard Bank of South Africa Limited
Sponsors: PSG Capital(Pty)Limited
Attorneys: Jan S de Villiers Attorneys
Date: 28/06/2007 17:00:04 Produced by the JSE SENS Department.
