| Wed 22 Jul 2009, 16:30 | | MCU - m Cubed Holdings - Reviewed Provisional Consolidated Financial |
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MCU
MCU
MCU - m Cubed Holdings - Reviewed Provisional Consolidated Financial
Information for the Year Ended 29 February 2008
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" or "the group")
Reviewed provisional consolidated financial information for the year ended 29
February 2008
Part A: Condensed financial statements
1. Basis of preparation
The condensed provisional consolidated financial information has been
prepared in accordance with IAS34, "Interim Financial Reporting", the
Companies Act of South Africa, (Act 61 of 1973, as amended ("Companies
Act"), the Long-term Insurance Act of 1998, and the Listing Requirements
of the JSE Limited ("JSE"). The accounting policies are consistent with
those of the previous financial period.
2. Comparative figures
The previous financial statements were not fully compliant with
International Financial Reporting Standards ("IFRS"). The non-compliance
with IFRS was related to disclosure requirements of IFRS. The profit for
the year and the total shareholders` equity were fairly stated.
The comparative information has been reclassified in certain instances
where the information is available from the underlying accounting records
in order to make comparison to the current year information more
meaningful. A full and proper restatement is not possible as the
information required to do so is not available from the group`s
underlying financial records.
3. Provisional Consolidated Balance Sheet (condensed)
2008 2007
(restated)
R`000 R`000
Assets
Non-current assets:
Property, plant and equipment 6 857
Deferred acquisition cost 0 21 327
Goodwill 0 3 000
Financial instruments 90 127 6 922 615
90 133 6 947 799
Current assets:
Trade and other receivables 257 661 377 900
Cash and cash equivalents 55 980 277 158
Non-current assets of the disposal group 4 723 172 0
5 036 813 655 058
Total assets 5 126 946 7 602 857
Equity
Capital and reserves:
Ordinary shares 7 385 7 382
Share premium 227 990 227 863
Other reserves 10 295 2 123
Retained earnings/(loss) (2 698) 82 121
Total equity 242 972 319 489
Liabilities
Non-current liabilities:
Policyholder liabilities 0 6 988 156
- Insurance contracts 0 31 910
- Investment contracts 0 6 956 246
Deferred revenue 0 19 380
0 7 007 536
Current liabilities:
Provisions for other liabilities and 25 647 4 302
charges
Trade and other payables 122 500 270 846
Current taxation 12 655 684
Non-current liabilities of disposal 4 723 172 0
group
4 883 974 275 832
Total liabilities 4 883 974 7 283 368
Total equity and liabilities 5 126 946 7 602 857
4. Provisional Consolidated Income Statement (condensed)
2008 2007
(restated)
R`000 R`000
Continuing operations:
Fee income 111 261
Investment income 34 193 35 000
Fair value gains/(losses) on financial 2 180 (618)
assets
Other operating income 11 919 43 869
Total income 48 403 78 512
Expenses for marketing and (40 287) (40 006)
administration
Expenses for asset management services (3 891) (5 652)
Impairment of goodwill (3 000) (3 702)
Profit/(Loss) on disposal of businesses (2 298) 498
Total expenses (49 476) (48 862)
Result of operations (1 073) 29 650
Finance costs 0 (13 226)
Impairment of investments 0 1 180
Profit/(Loss) before tax (1 073) 17 604
Income tax (30 352) (4 077)
Profit/(Loss) from continuing operations (31 425) 13 527
Discontinued operations:
Profit/(Loss) from discontinued (53 289) 8 667
operations
Total Profit/(Loss) (84 714) 22 194
Attributable to equity holders of the (84 714) 22 194
company
Total attributable earnings/(loss) per (11,5) 3,0
share (cents)
Total diluted attributable (11,5) 3,0
earnings/(loss) per share (cents)
5. Provisional consolidated cash flow statement (condensed)
2008 2007
(restated)
R`000 R`000
Operating activities: (2 876 493) (3 731 675)
Continuing operations (155 765) (686 628)
Discontinued operations (2 720 728) (3 045 047)
Investing activities: 2 655 290 3 794 219
Additions to property, plant and (101) (738)
equipment
Disposal of property, plant and 20 616
equipment
Disposal of businesses 6 221 156 885
Decrease/(increase) in investments (8 275) 588 126
Increase in loans receivable (11 511) (11 000)
Discontinued operations 2 668 936 3 060 330
Financing activities: 25 235
Sale of shares by share incentive trust 25 235
Net movement in cash and cash (221 178) 62 779
equivalents
Net cash and cash equivalents beginning 277 158 214 379
of year
Net cash and cash equivalents at end of 55 980 277 158
year
6. Provisional consolidated statement of changes in equity (condensed)
6.1 For the year ended 29 February 2008:
Foreign
currency Accumu-
Share Share translation lated
capital premium reserve profits Total
R`000 R`000 R`000 R`000 R`000
Balance at 1 March 2007 7 382 227 863 2 123 82 121 319 489
Increase in translation
reserve - - 8 172 - 8 172
Net loss for the year - - - (84 714) (84 714)
Shares sold by share
incentive trust 3 127 - (105) 25
Balance at 29 February
2008 7 385 227 990 10 295 (2 698) 242 972
6.2 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 1 March 2006 7 363 226 878 (1 447) 60 516 293 310
Opening balance
adjustments to assets - - - 44 143 44 143
Decrease in life fund - - - (44 143) (44 143)
Restated balance at 1 7 363 226 878 (1 447) 60 516 293 310
March 2006
Increase in translation
reserve - - 3 570 - 3 570
Net profit for the year - - - 22 194 22 194
Share-based payments - - - 181 181
Shares sold by share
incentive trust 19 985 - (770) 234
Balance at 28 February
2007 7 382 227 863 2 123 82 121 319 489
7. Segmental results
Wealth Management
Continued operations Discontinued operations
2008 2007 2008 2007
R`000 R`000 R`000 R`000
Revenue 9 352 23 754 475 836 812 873
Operating profit/(loss) 3 996 795 (36 597) 16 457
Depreciation 318 1 009 0 41
Total assets 172 040 208 160 4 723 172 6 988 155
Total liabilities 145 548 125 947 4 723 172 6 988 155
Specialised
investments, lending
Asset management and treasury
2008 2007 2008 2007
R`000 R`000 R`000 R`000
Revenue 67 19 897 57 709 45 025
Operating profit/(loss) (167) 13 103 17 038 (14 479)
Depreciation 0 0 53 141
Total assets 4 119 17 672 268 341 279 193
Total liabilities 52 5 089 43 790 39 274
8. Discontinued operations
8.1 Background
m Cubed Life Limited ("m Cubed Life") reinsured its policyholder
business with PSG FutureWealth Limited ("PSG FutureWealth") with
effect from 1 March 2007. In terms of the reinsurance agreement,
PSG FutureWealth assumed full responsibility for the management and
daily administration of the policyholder business with effect from 1
September 2007. In order to give permanence to the reinsurance
transaction, the said policyholder business (i.e. the assets and
liabilities) was subsequently transferred to PSG FutureWealth on 8
July 2008 in terms of an order of the High Court of South Africa.
All of the above took place with the consent of the Financial
Services Board and the shareholders of m Cubed.
Due to the above, as well as the disposal of other parts of m Cubed,
the financial results at 29 February 2008 are not directly
comparable to that of prior years.
The assets and liabilities of m Cubed Life are presented herein as a
discontinued operation following the reinsurance and subsequent
disposal of its business.
8.2 Profit/(loss)
2008 2007
R`000 R`000
Net insurance premium revenue 218 250
Reinsurance rebate 20 961 0
Fee income 35 189 10 539
Investment income 519 45 411
Net fair value gains on financial assets 402 931 670 349
Other operating income 16 018 86 324
Total income 475 836 812 873
Fair value adjustment on financial liabilities
under investment contracts (383 424) (715 760)
Policyholder benefits on insurance contracts (3 346) (2 584)
Transfer to Life Fund on insurance contracts (929) (2 150)
Expenses for acquisition of investment contracts (32 483) (12 547)
Expenses for marketing and administration (87 880) (23 923)
Expenses for asset management services (2 828) (28 247)
Other expenses (1 543) (11 205)
Total expenses (512 433) (796 416)
Profit/(Loss) before tax (36 597) 16 457
Income tax (16 692) (7 790)
Profit/(Loss) from discontinued operations (53 289) (8 667)
Operating cash flows for discontinued operations (2 720 728) (3 045
047)
Investing cash flows for discontinued operations 2 668 936 3 060 330
Financing cash flows for discontinued operations 0 0
Total cash flows for discontinued operations (51 792) 15 283
8.3 Assets of disposal group classified as held-for-sale
R`000
Investment property 11 742
Mutual Funds 1 105 918
Debt instruments 13 271
Cash & Cash Equivalents 30 217
Loans and receivables including insurance receivables 191 152
Investment in investment contracts 3 370 872
Total : Financial instruments 4 723 172
8.4 Liabilities of disposal group classified as held-for-sale
R`000
Insurance contracts 32 874
Financial liabilities under investment contracts 4 690 298
Total : Policyholder liabilities 4 723 172
9. Reconciliation of headline earnings/(loss)
2008 2007
R`000 R`000
Net Profit/(Loss) for the year (84 714) 22 194
Profit/(loss) on disposal of businesses 2 298 (498)
Impairment of goodwill 3 000 3 702
Impairment of investments 0 (1 180)
Headline attributable earnings/(loss) (79 416) 24 218
10. Net asset value per share
2008 2007
Number of shares in issue (`000) 738 537 738 285
Net asset value per share (cents) 32,9 43,3
Net tangible asset value per share (cents) 32,9 42,9
11. Earnings per share
2008 2007
Number of shares in issue (`000) 738 537 738 285
Headline earnings/(loss) per share (cents) (10,8) 3,3
Diluted headline earnings/(loss) per share (cents) (10,8) 3,2
Part B: Notes and directors` comments
1. Nature of business
m Cubed historically owned a number of focused investment services
businesses. Currently, the group is busy unwinding its operations
with the primary objective of converting these assets to cash to
unlock maximum value for shareholders.
2. Review of operations
2.1 On 17 April 2009 the directors issued a trading statement and
reported that they expected the following results for m Cubed for
the year to 29 February 2008:
(a) A net attributable loss in the range between R82.9 million and
R101.4 million; and
(b) A net asset value in the range between R211.1 million and R258.1
million.
2.2 These reviewed financial statements reveal results that are within
the expected range.
2.3 The following items were the main contributors to the net loss for
the financial year, and the corresponding reduction in the group`s
net asset value at year-end:
(a) A settlement reached with SARS on a matter previously reported to
the shareholders, involving m Cubed Specialised Lending (Pty)
Limited;
(b) In the process of closing down m Cubed Life and transferring its R7
billion of policyholder assets to PSG FutureWealth subsequent to the
year-end, certain of the remaining assets had to be impaired or
written off, leaving the group in a position where its assets are
tangible and realisable;
(c) Professional fees escalated during the year in question,
particularly the legal fees that were needed to regularise the
contraventions included in the settlement agreement with the
Regulator; and
(d) Various other settlement costs and provisions involving the curators
of Ovation Global Investment Services, policyholders and other third
parties.
3. The Regulator
The annual financial statements at 28 February 2007 made reference
to a settlement agreement that had been reached with the Regulator
on 5 September 2007. As a result, R50 million is being retained by
the Regulator pending the final unwinding of those transactions
referred to in the said agreement ("the transactions"). The R50
million attracts interest at the rate applicable to The Corporation
of Public Deposits and all or a portion thereof is refundable. These
amounts have been included in trade and other receivables.
Werksmans Inc.("Werksmans"), who has been appointed to assist the
directors with all matters pertaining to the Regulator, is of the
opinion that m Cubed has used all reasonable endeavours to unwind
the bulk of the transactions.
The Regulator has since notified m Cubed that certain other
dealings, other than the transactions mentioned above, may have been
in contravention of the regulations. These dealings are currently
under investigation and will be considered in conjunction with the
transactions that are yet to be unwound.
4. Saffron Balm
The Regulator has notified m Cubed Life that an investment policy
transaction involving Saffron Balm (Pty) Ltd, a subsidiary of
Fidentia Holdings Limited, may have been in contravention of the
regulations. As a result, the Regulator ordered that an amount of
R56,3 million of m Cubed`s assets be blocked pending the outcome of
their investigations. This amount was included in trade and other
receivables.
m Cubed is endeavouring to reach agreement with the Regulator on the
matter. The shareholders will be informed of any progress made.
5. Ovation
As previously reported, a settlement had been reached with the
curators of Ovation Global Investment Services (Pty) Limited
("Ovation") regarding the transfer to m Cubed Life of the business
that was previously managed by Ovation. In terms thereof, the
curators of Ovation have retained R33 million of policyholder assets
to cover potential fees and shortfalls pending the final conclusion
of Ovation`s curatorship. As the policies in question are pure
linked investment policies, the retained amount has been reported
herein as both assets and policyholder liabilities.
Until this matter has been finalised, it is not known whether m
Cubed has a liability to any of the parties involved.
6. Foreign trust
The Trustees of a discretionary offshore trust ("the trust")
recently received from the South African Revenue Service ("SARS") a
communication by Email of a possible intention to assess the trust.
m Cubed is a potential beneficiary of the capital beneficiary of the
trust. The Trustees of the trust, supported by their legal
advisors, are of the view that the trust has no liability towards
SARS in this regard.
7. Reportable irregularities
The auditors reported a number of possible contraventions of laws
and regulations by m Cubed to the Independent Regulatory Board for
Auditors. The directors respond as follows to each of these matters:
7.1 Exchange control: refer notes 3 and 4 above;
7.2 Unregistered reinsurance by m Cubed Life (section 7 of the Long-Term
Insurance Act - "the Act"): the directors obtained legal opinion on
the matter and are satisfied that m Cubed Life did not contravene
section 7 of the Act. The said reinsurance has since been terminated
in its entirety;
7.3 Borrowing by m Cubed Life (section 34(1)(c) of the Act) : m Cubed
Life owed money to m Cubed at year-end in terms of an inter-company
loan account. The loan account has since been settled in full;
7.4 Loans to policyholders by m Cubed Life (section 54 of the Act): m
Cubed Life was permitted to make loans to its policyholders, subject
to the provisions of part 4.2 of the regulations to the Act. m
Cubed Specialised Lending (Pty) Limited granted loans to
policyholders of m Cubed Life against security offered by their
policies, which loans were not subject to and in fact did not have
to comply with the provisions of the Act. The directors obtained
legal advice on the matter and, based on the information at their
disposal, Werksmans indicated that m Cubed Life was not in
contravention of section 54 of the Act. With the transfer of m
Cubed Life`s policyholder business to PSG FutureWealth on 8 July
2008, this practice was terminated and m Cubed Life has since not
conducted any insurance business as contemplated in the Act.
Part C: Auditors` qualified review
The condensed provisional consolidated financial information has been reviewed
by the group`s auditors PricewaterhouseCoopers Inc., in terms of International
Standards on Review Engagements 2410. The scope of the review was to enable
the auditors to report whether anything came to their attention that caused
them to believe that the accompanying condensed consolidated provisional
financial information is not presented in all material respects, in accordance
with the Companies Act and section 8.57 of the Listings Requirements of the
JSE.
The auditors have qualified their review conclusion as follows:
"Basis for qualified review:
As described in notes 3 and 4 to Part B to the condensed consolidated
provisional financial information at 29 February 2008, ongoing investigations
by the Regulator are taking place involving possible contraventions of
regulations. The recoverability of the R50 million held in trust by the
Regulator, as referred to in the aforementioned notes, together with accrued
interest of R6 million, held in trust and the blocked R56.3 million referred
to in note 4 to Part B remains uncertain until such time as these matters have
been resolved with the Regulator.
We have therefore been unable to obtain sufficient appropriate evidence
regarding the recoverability of the amounts included in trade and other
receivables referred to above and whether any additional penalties will be
levied.
Furthermore, the comparative information does not contain all the disclosures
as required by IFRS. The information required to comply with these disclosure
requirements is not available from the group`s underlying accounting records.
In our opinion the inclusion of the comparative disclosure information on an
IFRS basis is necessary to obtain a proper understanding of the current
period`s financial statements.
Qualified conclusion:
Based on our review, except for the possible effect of the matters described
in the Basis for Qualified Review paragraphs, nothing has come to our
attention that causes us to believe that the accompanying provisional
financial information is not prepared, in all material respects, in accordance
with the requirements of Section 8.57 of the JSE Listings Requirements that
requires the condensed consolidated provisional financial information to be
prepared in accordance with, and to contain the information required by, the
International Financial Reporting Standard on Interim Financial Reporting and
in the manner required by the Companies Act.
Report on other legal and regulatory requirements:
In accordance with our responsibilities in terms of sections 44(2) and 44(3)
of the Auditing Profession Act, we report that we have identified certain
possible unlawful acts or omissions that may have been committed by persons
responsible for the management of m Cubed which may constitute reportable
irregularities in terms of the Auditing Profession Act, and have reported such
matters to the Independent Regulatory Board for Auditors. The matters
pertaining to the reportable irregularities have been described in note 7 to
Part B to the provisional financial information. We are of the view that none
of the reportable irregularities referred to above are continuing to take
place."
A copy of the auditors` qualified review conclusion is available on request at
the company`s registered offices.
Part D : Conclusion
1. Prospects
The release of m Cubed`s reviewed condensed consolidated financial information
at 29 February 2008 marks an important milestone in achieving the group`s
stated objective, namely to unlock value and distribute available cash
resources to shareholders as a matter of priority. Work has commenced on the
preparation of m Cubed`s annual financials at 28 February 2009, which is
expected to be less time consuming than the 2008 annual financials.
Due to the continuous uncertainty in determining the net asset value of the
group, the directors are off the opinion that it is still necessary for M
Cubed shares to be suspended on the JSE.
2. Cautionary announcement
Shareholders are further referred to the last cautionary announcement
published on SENS on 3 June 2009, and are advised to continue to exercise
caution in the trading in m Cubed shares over the counter.
3. Appointment of director
Shareholders are informed of the appointment of Mr Adriaan Murray Louw as a
director of m Cubed with effect from 16 July 2009.
22 July 2009
Directors: J de V du Toit (Chairman)*, CMB Bothner*, W Roux*, J van Zyl Smit*,
AM Louw*, CJ Masson * Non-executive
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.
Auditors: PricewaterhouseCoopers (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: Werksmans Inc.
Date: 22/07/2009 16:30:01 Produced by the JSE SENS Department.
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