| Wed 15 Dec 2004, 16:43 | | RESULTS FOR THE 6 MONTHS ENDED 31 AUGUST 2004 |
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Decillion - Interim results for the 6 months ended 31 August 2004
Decillion Limited
Registration number 1998/011692/06
Share code: DEC
ISIN: ZAE000017612
INTERIM RESULTS FOR THE 6 MONTHS ENDED 31 AUGUST 2004
KEY FEATURES
* The comparative period is the six months ending 30 June 2003, due to a change
in year-end from December to February.
* Decrease in diluted headline earnings per share to a loss of 18,9 cents per
share.
* Restructuring initiatives undertaken to reposition the group and restore
profitability, include:
- the transformation of Decillion Capital, the local capital market and
investment banking arm of the group, into a black financial services company,
following the introduction of a BEE group led by Prof Wiseman Nkuhlu, which will
take up a 60% controlling stake;
- establishing business joint venture and marketing co-operation agreements
between Decillion Capital and financial institutions that will further
strengthen the company`s position in the market;
- ring-fencing of all long-dated trading positions in an SPV and a further
reduction of the risk in the proprietary trading portfolio in order to reduce
the volatility in trading revenue following the implementation of AC 133
(Financial Instruments: Recognition and Measurement).
* Progress has been made with the process of rebuilding the international
business by hiring new brokers in Switzerland and the United Kingdom and lost
revenue earners have by and large been replaced.
FINANCIAL RATIOS
Unaudited Unaudited Audited
6 months 6 months 14 months
31 Aug 04 30 Jun 03 29 Feb 04
Income statement
- Net (loss)/income R`m (33,3) 22,0 (68,7)
before taxation
- Headline R`m (31,3) 26,8 22,6
(loss)/earnings
- Attributable R`m (34,9) 17,9 (72,6)
(loss)/earnings
- Diluted headline EPS cents (18,9) 15,2 14,0
- Diluted EPS cents (21,1) 10,2 (44,9)
- Headline return on % (26,2) 12,6 11,7
average tangible
shareholders` funds
(annualised)
Capital
- Total share capital R`m 121,3 248,7 161,3
and reserves
- Tangible share capital R`m 99,4 177,5 139,4
and reserves
- Diluted tangible NAV cents 60,1 102,4 84,2
per share
- Market capitalisation R`m 72,8 143,3 140,6
Share statistics
- Share price cents 44 93 85
- Number of shares million 165,4 154,1 165,5
- Diluted number of million 165,4 173,4 165,5
shares
- Diluted weighted million 165,4 176,5 161,5
number of shares
- Price earnings ratio times (2,1) 9,1 (1,9)
(historical)
FINANCIAL REVIEW
* Headline earnings decreased from a profit of R26,8 million for the six months
ending June 2003, to a loss for the period of R31,3 million.
* The 2004/2005 financial year had a very disappointing first half with all
divisions` performance below that of the previous year. This resulted in a net
loss before disposals of R29,8 million (2003: R30,9 million profit).
* Of the loss for the group, R19,1 million was attributable to the overseas
business, which suffered a severe set- back due to the resignation of brokers in
Switzerland to join a competitor.
* Operating expenses were well below those of the previous year, mainly as a
result of cost cutting and the impact of the exchange rate.
* The continued strength of the Rand resulted in a further 3 cents per share
decrease in the tangible net asset value through the non-distributable reserves,
leaving a diluted net tangible NAV as at 31 August 2004 of 60,1 cents per share,
compared to 84,2 cents per share as at 29 February 2004.
SEGMENTAL ANALYSIS
Unaudited Unaudited Audited
6 months to 6 months to 14 months to
31 August 2004 30 June 2003 29 February 2004
R000`s % R000`s % R000`s %
Capital Markets (24 057) (80,8) 6 278 20,3 (5 293) (20,1)
Funds Management (4 300) (14,5) 11 685 37,8 14 243 54,2
Corporate and
Institutional 1 552 5,2 11 268 36,5 16 614 63,2
Finance
Head Office and (2 955) (9,9) 1 651 5,4 706 2,7
Investments
Net (loss)/income (29 760) 100,0 30 882 100,0 26 270 100,0
before disposals
Onshore (8 320) 28,0 13 177 42,7 8 529 32,5
Offshore (21 440) 72,0 17 705 57,3 17 741 67,5
Net (loss)/income (29 760) 100,0 30 882 100,0 26 270 100,0
before disposals
REVIEW OF OPERATIONS
Capital Markets
The Capital Markets division comprises all of the group`s trading and securities
distribution activities in the domestic and offshore markets. The division
incurred an operating loss of R24,1 million (2003: profit of R6,3 million).
International operations
The loss in Capital Markets is mainly attributable to the loss incurred in the
Swiss operations, which suffered a setback during the first quarter of calendar
2004 due to the resignation of a number of senior brokers. As previously
reported, the process of rebuilding the operations in Switzerland, will have a
negative impact on profitability in the medium term. Although progress has been
made in rebuilding the operations, the benefits of these actions will only bear
fruit in the next financial year.
While the broking operation in London has operated above break-even for the
interim period, the business experienced a relatively quiet six months as
trading volumes and volatility in fixed interest products have dropped off
considerably.
Local operations
Proprietary trading activities returned to profit contributing R2,25 million
(2003: loss of R7,0 million) during the period. The introduction of AC 133
impacted on the volatility of the revenue and as a result the trading style has
had to adapt to minimise the impact on the group`s results. The group has also
ring-fenced all long-dated trading positions in an SPV and has limited the risk
as far as possible in order to reduce the volatility of the trading revenue. A
further transaction is currently being negotiated to ring-fence the cross
currency trading portfolio in a similar ring-fenced vehicle. In a further
response to stabilise the revenue base, Decillion Capital has developed a
customised fixed income research platform to service the institutional market.
Broking revenues from this new income source yielded R1,4 million during the
period.
Sales comprising fixed income derivatives, agricultural products and foreign
exchange execution slowed down during the period due to corporates` reduced
appetite for hedging in the prevailing environment of stability and the strength
in the underlying economic variables (maize; USD/ZAR and Jibar). In response the
sales teams are shifting their focus to debt origination. The sales division in
particular is expected to benefit from the following initiatives:
* The transformation of Decillion Capital to a black financial services company
that will substantially broaden the company`s opportunities to provide treasury
management and debt origination services;
* The establishment of co-operation agreements with financial institutions.
Funds Management
The Funds Management division has not performed to expectations in the current
six-month period, contributing an operating loss before disposals of R4,3
million (2003: profit of R11,7 million).
All three of the division`s long-standing funds performed positively during the
period under review. The Big Rock Capital Fund achieved a gross return of 10,7%
for the 8 months to 31 August 2004, and a net return of 8,3% to investors (after
performance and management fees). The two funds launched during the latter part
of the 2002 financial year, the Headland Fund (equity long/short fund) and the
Granite Fund (fixed income) have not performed to expectation and realised net
returns to investors (after management and performance fees) of 6,6% and 3,5%
respectively in the period. Total funds under management have remained static
over this six-month period, largely as a result of the uncertainty surrounding
possible regulation of the hedge fund industry.
The division has made further progress in establishing a new international fund
that will invest in both South Africa and other international markets. A small
operational loss of R0,2 million has been incurred in these activities during
this period.
The division`s related equity broking activity, that contributed R3,1 million of
operating profit in 2003, has been discontinued in the new financial year for
strategic reasons. A loss for the period of R0,2 million has been incurred in
closure costs.
The group`s investment in the hedge funds at the end of the six-month period
amounted to R32 million.
Corporate and Institutional Finance
The division contributed an operating profit of R1,6 million (2003: R11,3
million). While the core CIF team remains focused on servicing the corporate and
the institutional sector, it is also expanding its services to the high net
worth individual sector.
Transactions concluded during the period comprised solutions including equity-
linked notes and debt placements. The division continues to broaden its
portfolio of fee-earning products in areas adjacent to existing products.
The project finance team`s main focus remains on big longer-term projects, but
it is in the process of diversifying its revenue by arranging shorter-term trade
finance as well as insurance and insurance bonds for clients.
The Corporate and Institutional Finance division forms part of Decillion Capital
and is therefore expected to benefit from both the black empowerment deal as
well as the business joint ventures with financial institutions.
Head Office and Investments
Head Office and Investments realised an operating loss of R3,0 million (2003:
R1,7 million profit).
As the group has disposed of most of its non-core investments, the loss for the
period is mainly attributable to overhead expenses that are not being recovered
from operating divisions.
PROSPECTS
Over the past two years there has been a fundamental change in the environment
in which the group operates, which has affected the business opportunities for
smaller niche players in the financial services sector. The group believes that
it will benefit in the medium to longer term from the repositioning of the
business and the strategic alliances it is establishing.
BALANCE SHEET
as at 31 August 2004
Restated
Unaudited unaudited Audited
31 Aug 04 30 Jun 03 29 Feb 04
R000`s R000`s R000`s
ASSETS
Non-current assets 195 700 227 233 195 710
Investments 165 307 149 942 164 307
Property, plant and equipment 7 551 6 022 8 477
Deferred taxation 971 - 1 002
Goodwill 11 427 69 115 9 705
Intangible assets 10 444 2 154 12 219
Current assets 908 638 1 863 689 1 606 833
Cash 82 290 105 108 86 510
Tradable securities 43 963 36 324 53 989
Accounts receivable 780 467 1 720 418 1 458 661
Taxation 1 918 1 839 7 673
1 104 338 2 090 922 1 802 543
EQUITY AND LIABILITIES
Capital and reserves
Share capital 1 655 1 537 1 655
Share premium 149 578 139 222 149 598
Non-distributable reserves (14 121) (1 413) (8 884)
Distributable reserves (15 857) 109 393 18 950
Total shareholders` funds 121 255 248 739 161 319
Outside shareholders` interest - 1 583 601
121 255 250 322 161 920
Non-current liabilities 12 076 100 176 24 153
Long-term liability 12 076 96 955 24 153
Deferred taxation - 3 221 -
Current liabilities 971 007 1 740 424 1 616 470
Accounts payable 877 295 1 669 814 1 507 666
Tradable securities 89 168 64 610 96 031
Bank overdraft - 6 000 9 000
Taxation 4 544 - 3 773
1 104 338 2 090 922 1 802 543
Net actual number of shares (`000) 165 413 154 091 165 463
Net asset value per share (cents) 73,3 161,4 97,5
Tangible net asset value per share 60,1 115,2 84,2
(cents)
Diluted number of shares in issue 165 413 173 374 165 463
(`000)
Diluted net asset value per share 73,3 143,5 97,5
(cents)
Diluted tangible net asset value per 60,1 102,4 84,2
share (cents)
INCOME STATEMENT
6 months ended 31 August 2004
Restated
Unaudited unaudited Audited
6 months to 6 months to 14 months to
31 Aug 04 30 Jun 03 29 Feb 04
R000`s R000`s R000`s
Revenue 78 743 199 952 376 067
Operating income: Proprietary 11 579 (1 975) 7 307
returns
Operating expenses (118 379) (169 016) (357 853)
Operating (loss)/income (28 057) 28 961 25 521
Net finance (expense)/income (1 703) 1 921 749
Net (loss)/income before disposals (29 760) 30 882 26 270
Disposal of subsidiary undertakings 2 131 - (3 721)
Net (loss)/income after disposals (27 629) 30 882 22 549
Goodwill amortised, impaired and (5 703) (8 901) (91 282)
change in estimate
Net (loss)/income before taxation (33 332) 21 981 (68 733)
Taxation (2 176) (3 716) (2 709)
Net (loss)/income after taxation (35 508) 18 265 (71 442)
Attributable to outside shareholders 601 (353) (1 121)
Attributable (loss)/income (34 907) 17 912 (72 563)
Headline (loss)/earnings (31 335) 26 813 22 620
Loss on disposal of property, - - (180)
plant and equipment
Goodwill amortised, impaired and (5 703) (8 901) (91 282)
change in estimate
Disposal of subsidiary 2 131 - (3 721)
undertakings
Weighted number of shares in issue 165 426 157 174 161 539
Basic (loss)/earnings per share (21,1) 11,4 (44,9)
(cents)
Headline (loss)/earnings per share (18,9) 17,1 14,0
(cents)
Diluted weighted number of shares 165 426 176 457 161 539
Diluted (loss)/earnings per share (21,1) 10,2 (44,9)
(cents)
Diluted headline (loss)/earnings per (18,9) 15,2 14,0
share (cents)
STATEMENT OF CHANGES IN EQUITY
6 months ended 31 August 2004
Restated
Unaudited unaudited Audited
6 months to 6 months to 14 months to
31 Aug 04 30 Jun 03 29 Feb 04
R000`s R000`s R000`s
Share capital
Opening balance 1 655 1 642 1 642
Treasury shares - (105) 13
Closing balance 1 655 1 537 1 655
Share premium
Opening balance 149 598 147 325 147 325
Treasury shares (20) (8 103) 2 273
Closing balance 149 578 139 222 149 598
Non-distributable reserves
Opening balance (8 884) 13 490 13 490
Transfer to distributable reserves (100) (500) (600)
Currency translation differences (5 137) (14 403) (21 774)
for the period
Closing balance (14 121) (1 413) (8 884)
Distributable reserves
Opening balance 18 950 173 381 173 381
AC 133 transitional adjustment - (77 593) (77 593)
Dividends paid - (4 807) (4 875)
Transfer from non-distributable 100 500 600
reserves
Attributable (loss)/income for the (34 907) 17 912 (72 563)
period
Closing balance (15 857) 109 393 18 950
Total equity
Opening balance 161 319 335 838 335 838
Changes in equity (40 064) (87 099) (174 519)
Closing balance 121 255 248 739 161 319
CASH FLOW STATEMENT
6 months ended 31 August 2004
Restated
Unaudited unaudited Audited
6 months to 6 months to 14 months to
31 Aug 04 30 Jun 03 29 Feb 04
R000`s R000`s R000`s
Operating (loss)/income before net (28 057) 28 961 25 521
finance (expense)/income
Elimination of non-cash items (2 596) 1 146 12 814
Decrease/(increase) in working 39 241 (98 662) (53 703)
capital
Cash flows from operating activities 8 588 (68 555) (15 368)
Net finance (expense)/income (1 703) 1 921 749
Dividends paid - (4 807) (4 875)
Taxation received/(paid) 4 350 (3 745) (8 902)
Net cash inflow/(outflow) from 11 235 (75 186) (28 396)
operating activities
Cash flows from investing activities
Additions to property, plant and (499) (227) (7 192)
equipment
Additions to goodwill (7 425) - (15 975)
Additions to intangible assets - 6 410 (11 089)
(Acquisition)/disposal of (527) 49 932 29 783
investments
Net cash inflow on disposal of 1 968 - 189
subsidiaries
Net cash (outflow)/inflow from (6 483) 56 115 (4 284)
investing activities
Cash flows from financing activities
Decrease in long-term liabilities - - (6 000)
Increase in long-term liabilities - 4 312 11 849
Issue of treasury shares - - 381
Purchase of treasury shares (20) (8 208) (8 572)
Net cash outflow from financing (20) (3 896) (2 342)
activities
Net increase/(decrease) in cash and 4 732 (22 967) (35 022)
cash equivalents
Effects of exchange rate changes 48 - (9 543)
Cash and cash equivalents at the 77 510 122 075 122 075
beginning of the period
Cash and cash equivalents at the end 82 290 99 108 77 510
of the period
ACCOUNTING POLICIES
Accounting policies adopted for purposes of this interim reporting period comply
with the South African Statement of Generally Accepted Accounting Practice
applicable to interim financial reporting, as well as with applicable
legislation and are consistent with those adopted in the prior financial year.
RESTATEMENTS
The table below provides a detailed breakdown of the effect of the restatements,
disclosed at the 2004 year-end of Decillion, on the June 2003 interim results.
Unaudited Restated
6 months to 6 months to
30 Jun 03 Restate-ment 30 Jun 03
Notes R000`s R000`s R000`s
Income statement
Revenue 1 197 977 1 975 199 952
Operating income: 1 - (1 975) (1 975)
Proprietary returns
Balance sheet
Goodwill 1, 2 - 69 115 69 115
Intangible assets 1, 2 77 884 (75 730) 2 154
Tradable securities 3 23 140 (51 426) (28 286)
Non-distributable reserves 2 (3 020) 1 607 (1 413)
Distributable reserves 2, 3 169 041 (59 648) 109 393
Net asset value per share 2, 3 199,1 (37,7) 161,4
(cents)
Diluted net asset value per 2, 3 176,9 (33,4) 143,5
share (cents)
Reallocations
In the interim results for the period ended 30 June 2003, the group disclosed
goodwill as part of intangible assets. During the current period goodwill is
disclosed separately on the balance sheet. The group also disclosed its
proprietary return income as revenue. During the current period it is disclosed
separately as other income on the income statement.
Legal costs
In the financial years ended 31 December 2001 and 31 December 2002, the group
capitalised as goodwill certain legal costs related to claims pending at the
time of the acquisition of the international broking business, which was
acquired during the financial year ended 31 December 1999. As a result of a
revision of this accounting treatment, the group concluded that these amounts
should have been expensed when incurred and have as a consequence restated prior
periods.
AC 133
The introduction of AC 133 resulted in the group adopting a market quotation
base of measurement on all its trading portfolios. As previously announced the
effect of the revised valuation methodology is a downward adjustment of R77,6
million against the opening balance of retained income, in accordance with the
transitional provisions of AC 133. The R77,6 million includes an adjustment of
R26,2 million announced in the first interim results in June 2003 and a final
R51,5 million adjustment made at year-end.
GAAP Monitoring Panel (`GMP`)
The group has recognised goodwill in respect of contingent payments on certain
acquisitions from 1999 to 2003 in its financial statements in a given financial
year only when the purchase consideration for those acquisitions was probable
and could be reliably measured at the balance sheet date. Where the amount could
be reliably measured after the balance sheet date but before the issuance of the
financial statements, the group has treated the subsequent determination of the
consideration as a non-adjusting event after the balance sheet date in terms of
AC 107.03. The post-acquisition results of the acquiring entity were recorded in
the consolidated income statement in the year to which the earnings relate. It
is the view of the GMP that the purchase price actually incurred in each
subsequent period should have been recognised in the reporting period to which
the earnings relate as the profits were known and accordingly the additional
purchase price could have been reliably estimated. The group and its auditors
are, however, of the opinion that the goodwill was appropriately
recorded/(excluded) in each period in accordance with GAAP. In light of the
GMP`s contention, the group has nevertheless performed a recalculation of the
effect on the financial statements since 2000 had the acquisitions been
accounted for in the manner prescribed by the GMP for disclosure purposes. It is
Decillion`s conclusion that the effect would not have been material. In light of
Decillion`s representations, the JSE has decided not to pursue the matter.
By order of the Board
15 December 2004
Directors:
AJN Smit (CEO), JF Marais* (Chairman), TJ Davis, Dr M Mostert, WF Spruyt*, Prof
NI Morgan*, J Molobela* (*non-executive)
Transfer secretaries:
Computershare Investor Services 2004 (Pty) Limited
70 Marshall Street
Johannesburg, 2001
Registered office:
1st Floor, ABN AMRO House
2 Exchange Square
85 Maude Street
Sandton, 2196
Company registration:
Decillion Limited 1998/011692/06
Share code: DEC ISIN: ZAE000017612
Telephone: +27 11 217 9000 Facsimile: +27 11 883 0165
Company Secretary e-mail: laurindad@decillion.net
Results on internet: www.decillion.net
Date: 15/12/2004 04:30:13 PM
Produced by the JSE SENS Department
