| Fri 27 Feb 2004, 16:13 | | Second interim results for 12 months to 31 Dec 03 |
|
DECILLION LIMITED - SECOND INTERIM RESULTS FOR THE 12 MONTHS ENDED 31 DECEMBER
2004
DECILLION LIMITED
Company Registration: 1998/011692/06
JSE Share code: DEC
ISIN: ZAE000017612
ANNOUNCEMENT OF SECOND INTERIM RESULTS FOR THE 12 MONTHS ENDED 31 DECEMBER 2003
KEY FEATURES
* Financial year-end has been changed to end-February and these results
therefore represent the second interim results for the 12 months to
31 December 2003
* Headline profit of R20,1m is 46% down and fully diluted headline earnings
per share are down 37% from previous 12 months
* Reduction in profitability mainly as a result of difficult domestic trading
conditions in the second half of the year, and lower corporate activity in
Corporate and Institutional Finance (CIF)
* Funds under management grew by 15% in the last twelve months with a 50%
growth in operating profit
* Ongoing benefit from cost restructuring undertaken during the year
* Impairment of goodwill taken of R82m as a result of a more conservative
view adopted to amortise goodwill over a period not exceeding the remaining
life of service contracts
FINANCIAL RATIOS
Unaudited Audited
12 months 12 months
31 Dec 2003 31 Dec 2002
Income statement:
- Headline earnings Rm 20,1 37,3
- Attributable earnings Rm (79,7) 24,6
- Fully diluted headline EPS Cents 12,2 19,3
- Fully diluted EPS Cents (48,4) 12,7
Selected ratios:
- Headline return on average
shareholders funds % 9,0 14,2
- Cost to income ratio % 88,3 88,1
Capital:
- Total share capital and reserves Rm 211,3 342,5
- Tangible share capital and reserves Rm 199,0 248,9
- Fully diluted tangible NAV per share Cents 118,0 135,6
- Market capitalisation Rm 149,4 172,4
Share statistics:
- Share price cents 90 105
- Number of shares million 166,1 164,2
- Fully diluted number of shares million 168,6 183,5
- Fully diluted weighted number of shares million 164,7 193,9
- Price earnings ratio (historical) times 7,4 5,5
FINANCIAL REVIEW
* Headline earnings decreased by 46,3% to R20,1 million (2002: R37,3 million)
and fully diluted headline earnings per share by 36,8% to 12,2 cents per
share (2002: 19,3 cents per share).
* Operating results for the year were characterised by volatile and difficult
local trading conditions, especially in the second half of the year, which
impacted on the profitability of the Capital Markets division. All other
divisions performed well with RORAC (return on risk adjusted capital) in
excess of market benchmark for peer companies.
* Operating expenses are well below those of the previous year, mainly as a
result of cost cutting, the close down of offshore fund management and its
associated cost structure, and also the exchange rate impact on the
remaining cost basis.
* The interim results include the once-off transitional AC133 adjustment
through the balance sheet of R26,2 million as announced with the first
interim results in June 2003. The AC133 adjustment resulted in a 14 cents
tangible net asset value per share decrease.
* The impact of the stronger Rand through the non-distributable reserves
resulted in a 13 cents per share adjustment for the 12 months reporting
period, leaving a fully diluted net tangible NAV as at 31 December 2003 of
118,0 cents per share compared to 135,6 cents per share as at 31 December
2002.
* A more conservative treatment of goodwill was approved by the Board whereby
goodwill will be amortised over a period not exceeding the remaining life
of service contracts. This treatment has resulted in an impairment of
goodwill of R82 million taken at 31 December 2003.
SEGMENTAL ANALYSIS
Second Interim Restated 12 months (*)
31 December 2003 31 December 2002
R000s % R000s
%
Capital Markets (1 490) (5,7) (4 288) (11,3)
Funds Management 15 158 58,0 10 120 26,7
Corporate and Institutional Finance 10 220 39,1 41 372 109,2
Head Office and Investments 2 264 8,6 (9 311) (24,6)
Net income before goodwill
26 152 100,0 37 893 100,0
Onshore 16 449 62,9 29 811 78,7
Offshore 9 703 37,1 8 082 21,3
Net income before goodwill
26 152 100,0 37 893 100,0
(*) restated for new divisional structure
REVIEW OF OPERATIONS
Capital Markets
The Capital Markets division comprises all of the groups trading and securities
distribution activities in the domestic and offshore markets. The division
incurred an operating loss of R1,5 million (2002: loss of R4,3 million).
The groups fixed income proprietary trading activities were subjected to
volatile and uncertain trading conditions, especially due to the negative impact
that CPI, interest rate cuts and related market uncertainty have had on the
local capital markets.
The international broking business on the other hand, especially the swaps area
in Switzerland, performed well in the current year. Together with the divisions
research-driven corporate sales and the execution services in Johannesburg,
these were the key factors in the increase in profitability.
Proprietary trading capability is core to the divisions strategy of managing,
packaging and distributing market risk on behalf of its clients. Decillions
ability to provide alternative liquidity to a somewhat consolidated market has
continued to be welcomed by the banking community.
Funds Management
The Funds Management division has significantly increased its profitability for
the current 12 months, contributing an operating profit of R15,2 million (2002:
R10,1 million). The results have been assisted by the closure of European
offshore funds, which were unable to achieve critical mass despite reasonable
performance. The divisions related broking activities will be discontinued in
the new financial year for strategic reasons, its contribution already being
replaced by core income.
All three of the divisions long-standing funds performed positively during the
period under review.
The Big Rock Capital Fund has already established itself as one of South
Africas premier hedge funds with a good 5-year track record and achieved a
gross return of 13,6% for the 12 months to 31 December 2003, and a net return of
10,5% to investors (after performance and management fees). The two other funds
launched during the latter part of the 2002 financial year, namely the Headland
Fund (equity long/ short fund) and the Granite Fund (fixed income) performed
particularly well and realised net returns to investors (after fees) of 21,8%
and 13,7% respectively. Total funds under management have grown by 15% over the
last twelve months. The Funds Management division has attracted a number of new
clients during the period under review as investors continue to focus more on
absolute returns.
All of the funds are now well established and there are further opportunities
for new product development. Two new domestic funds (Fairtree and Kingstone)
were launched towards the end of the financial year. The division is in the
process of establishing a new fund investing in overseas markets, but with most
of its cost bases in South Africa, that will start operating towards the second
quarter of 2004.
Corporate and Institutional Finance
Corporate and Institutional Finance comprises the deal originating units of the
group, which are focused on earning fee income from the arrangement of debt and
placing of such products with institutions or investors, having tailored the
products to suit the borrowers and investors specific needs. Although the
operating profit of R10,2 million (2002: R41,4 million) realised by the division
is well below the level of the previous year, deals are opportunistic and do not
require capital.
Transactions concluded by the team during the period, comprised a wide range of
solutions including equity linked notes, capital guarantees, debt raisings,
placement of investment grade paper and derivative sales. The division has
furthermore invested in broadening its portfolio of fee earning products in
areas adjacent to the existing products.
Head Office and Investments
Head Office and Investments contributed an operating profit of R2,3 million
(2002: R9,3 million loss).
The improved results are mainly as a result of savings in central administration
costs and the disposal of Decillion Solutions (Singapore-based IT business),
which incurred a loss during the previous period. The business was sold at its
carrying value and no profit or loss was incurred with the sale.
AC 133 ADJUSTMENT
As announced with the first interim results, the introduction of AC133 resulted
in the group adopting a market quotation base of measurement on its trading
portfolios. The difference of R26,2 million between this measurement and the
previous measurement basis is adjusted against the opening balance of retained
income in accordance with the transitional provisions of AC133 and was included
in the first interim results in June 2003.
The income statement for the period includes the impact of the implementation of
AC133 on the trading portfolio since 31 December 2002.
INCOME STATEMENT
12 MONTHS ENDED 31 DECEMBER 2003
Second
Interim Audited
12 Months to 12 Months to
31 Dec 03 31 Dec 02
R000s R000s
Revenue 336 670 447 438
Operating expenses (312 153) (413 522)
Operating income 24 517 33 916
Net interest income 1 635 3 977
Net income before goodwill 26 152 37 893
Goodwill amortised (18 575) (12 777)
Goodwill impaired (81 232) -
Net (loss) / income before tax (73 655) 25 116
Taxation (5 749) (2 478)
Net (loss) / income after tax (79 404) 22 638
Attributable to outside shareholders (334) 1 928
Attributable (loss) / income (79 738) 24 566
Net weighted number of shares in issue (`000) 162 213 174 498
Basic earnings per share (cents) (49,2) 14,1
Basic headline earnings per share (cents) 12,4 21,4
Net fully diluted weighted number of shares (`000) 164 713 193 872
Fully diluted earnings per share (cents) (48,4) 12,7
Fully diluted headline earnings per share (cents) 12,2 19,3
Reconciliation of headline earnings
Attributable (loss) / income (79 738) 24 566
Goodwill impaired and amortised 99 807 12 777
Headline earnings 20 069 37 343
BALANCE SHEET
AS AT 31 DECEMBER 2003
Second
Interim Audited
31 Dec 03 31 Dec 02
R000s R000s
ASSETS
Non-current assets 168 667 313 684
Investments 147 926 212 097
Fixed assets 8 477 7 988
Intangible assets 12 264 93 599
Current Assets 1 161 530 456 487
Cash 76 066 132 075
Tradeable securities (net) 40 130 13 414
Accounts receivable 1 045 089 309 023
Taxation 245 1 975
1 330 197 770 171
LIABILITIES AND EQUITY
Non-current liabilities 98 523 96 029
Long-term liability 95 480 92 643
Deferred taxation 3 043 3 386
Current liabilities 1 019 668 331 188
Accounts payable 1 016 168 321 188
Bank overdraft 3 500 10 000
Capital and reserves
Share capital 1 657 1 642
Share premium 149 563 147 325
27/02/2004 Source: JSE NEWS SERVICE
