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Decillion Limited - Announcement of interim results for the six months ended 31
August 2005
Decillion Limited
(Incorporated in the Republic of South Africa)
(Registration number 1998/011692/06)
JSE code: DEC
ISIN: ZAE000017612
("Decillion" or "the company" or "the group")
KEY FEATURES
Diluted headline earnings for the period of 0,8 cent per share as compared
to a diluted headline loss of 18,9 cents for the comparative period.
Improved performance from the Funds Management operations and Corporate and
Institutional Finance (CIF).
Significant progress has been made in negotiations with interested parties
for the disposal of the Funds Management, Agricultural and Commodities
(Agri) and international broking businesses.
Cost restructuring in the group remains a high priority.
As recently announced in the press, the group has embarked upon a process to
convert its assets into cash, with the objective of delisting the company.
Announcement of interim results for the six months ended 31 August 2005
INCOME STATEMENT
Six months ended 31 August 2005
Unaudited Unaudited Audited
six months to six months to 12 months to
31 August 31 August 28 February
2005 2004 2005
R"000 R"000 R"000
Revenue 115 569 78 743 176 454
Operating income:
Proprietary returns 2 234 11 579 (19 319)
Operating expenses:
Fair value provisions,
impairments and
write-offs - - (74 700)
Other operating expenses (115 829) (118 379) (192 632)
Operating income/(loss) 1 974 (28 057) (110 197)
Finance income 1 826 48 785 58 151
Finance expense (1 330) (50 488) (58 364)
Net income/(loss)
before disposals 2 470 (29 760) (110 410)
Disposal of
subsidiary undertakings 1 100 2 131 2 129
Net income/(loss)
after disposals 3 570 (27 629) (108 281)
Goodwill impaired (3 460) (5 703) (11 406)
Net income/(loss)
before taxation 110 (33 332) (119 687)
Taxation (1 122) (2 176) 94
Net loss after taxation (1 012) (35 508) (119 593)
Attributable to:
Equity holders of the
company (1 012) (34 907) (118 992)
Outside shareholders - (601) (601)
(1 012) (35 508) (119 593)
Determination of
headline earnings
Loss attributable to
equity holders of the
company (1 012) (34 907) (118 992)
Loss on disposal of
property, plant
and equipment - - (1)
Goodwill impaired 3 460 5 703 11 406
Disposal of
subsidiary undertakings (1 100) (2 131) (2 129)
Headline earnings/(loss) 1 348 (31 335) (109 716)
Weighted number of
shares in issue ("000) 164 913 165 426 165 413
Basic loss per share
(cents) (0.6) (21.1) (71.9)
Headline earnings/(loss)
per share (cents) 0.8 (18.9) (66.3)
Diluted weighted number
of shares ("000) 164 913 165 426 165 413
Diluted loss
per share (cents) (0.6) (21.1) (71.9)
Diluted headline
earnings/(loss) per share
(cents) 0.8 (18.9) (66.3)
CASH FLOW STATEMENT
Six months ended 31 August 2005
Unaudited Unaudited Audited
six months to six months to 12 months to
31 August 31 August 28 February
2005 2004 2005
R"000 R"000 R"000
Cash flows from
operating activities
Operating income/(loss) 1 974 (28 057) (110 197)
Elimination of non-cash
items (1 677) (2 596) 45 501
(Increase)/Decrease
in working capital (24 607) 39 241 75 766
Cash (utilised
in)/generated
from operations (24 310) 8 588 11 070
Finance income 1 826 48 785 58 151
Finance expense (1 330) (50 488) (58 364)
Taxation (paid)/received (247) 4 350 1 857
(24 061) 11 235 12 714
Cash flows from
investing activities
Additions to property,
plant and equipment (1 405) (499) (2 064)
Proceeds on disposal
of property, plant
and equipment - - 19
Additions to goodwill (11 496) (7 425) (7 425)
Additions to intangible
assets - - (2 171)
(Acquisition)/Disposal
of investments (486) (527) 17 672
Net cash inflow on disposal
of subsidiaries 1 587 1 968 1 967
(11 800) (6 483) 7 998
Cash flows from
financing activities
Decrease in long-term
liabilities (12 077) - -
Purchase of treasury shares (66) (20) (25)
(12 143) (20) (25)
Net (decrease)/increase
in cash and cash
equivalents (48 004) 4 732 20 687
Effects of exchange rate
changes 3 214 48 (4 268)
Cash and cash equivalents
at beginning of period 93 929 77 510 77 510
Cash and cash equivalents
at end of period 49 139 82 290 93 929
BALANCE SHEET
at 31 August 2005
Unaudited Unaudited Audited
31 August 31 August 28 February
2005 2004 2005
R"000 R"000 R"000
ASSETS
Non-current assets 56 084 195 700 45 887
Investments 35 003 165 307 32 567
Property, plant and equipment 6 379 7 551 6 369
Deferred taxation 1 229 971 1 227
Goodwill 13 473 11 427 5 724
Intangible assets - 10 444 -
Current assets 224 922 908 638 917 785
Cash 49 139 82 290 93 929
Tradable securities 29 954 43 963 50 121
Accounts receivable 142 863 780 467 771 213
Taxation 2 966 1 918 2 522
281 006 1 104 338 963 672
EQUITY AND LIABILITIES
Capital and reserves 36 690 121 255 36 461
Share capital 1 649 1 655 1 655
Share premium 149 870 149 578 149 932
Non-distributable reserves (4 891) (5 137) (6 200)
Distributable reserves (109 938) (24 841) (108 926)
Non-current liabilities 75 000 12 076 72 077
Long-term liability - 12 076 12 077
Tradable securities 75 000 - 60 000
Current liabilities 169 316 971 007 855 134
Accounts payable 153 911 877 295 789 341
Tradable securities 13 419 89 168 65 126
Taxation 1 986 4 544 667
281 006 1 104 338 963 672
Net actual number of
shares ("000) 164 913 165 413 165 413
Net asset value per
share (cents) 22.2 73.3 22.0
Tangible net asset
value per share (cents) 14.1 60.1 18.6
Diluted number of
shares in issue ("000) 164 913 165 413 165 413
Diluted net asset
value per share (cents) 22.2 73.3 22.0
Diluted tangible net
asset value per share (cents) 14.1 60.1 18.6
STATEMENT OF CHANGES IN EQUITY
Six months ended 31 August 2005
Unaudited Unaudited Audited
six months to six months to 12 months to
31 August 31 August 28 February
2005 2004 2005
R"000 R"000 R"000
Share capital
Opening balance 1 655 1 655 1 655
Treasury shares (6) - -
Closing balance 1 649 1 655 1 655
Share premium
Opening balance 149 932 149 598 149 598
Treasury shares (62) (20) 334
Closing balance 149 870 149 578 149 932
Non-distributable reserves
Opening balance (6 200) (8 884) (8 884)
IFRS 1 transfer to
distributable reserves - 8 984 8 984
Restated opening balance (6 200) 100 100
Transfer to
distributable reserves - (100) (100)
Currency translation
differences for period 1 309 (5 137) (6 200)
Closing balance (4 891) (5 137) (6 200)
Distributable reserves
Opening balance (108 926) 18 950 18 950
IFRS 1 transfer
from non-distributable
reserves - (8 984) (8 984)
Restated opening balance (108 926) 9 966 9 966
Transfer from
non-distributable reserves - 100 100
Attributable
loss for period (1 012) (34 907) (118 992)
Closing balance (109 938) (24 841) (108 926)
Total equity
Opening balance 36 461 161 319 161 319
Changes in equity 229 (40 064) (124 858)
Closing balance 36 690 121 255 36 461
FINANCIAL RATIOS
Unaudited Unaudited Audited
six months six months 12 months
31 August 31 August 28 February
2005 2004 2005
Income statement:
-Net income/(loss)
before taxation R"m 0,1 (33,3) (119,7)
- Headline
earnings/(loss) R"m 1,3 (31,3) (109,7)
- Attributable loss R"m (1,0) (34,9) (119,0)
- Diluted headline
earnings/(loss) per
share cents 0,8 (18,9) (66,3)
- Diluted loss
per share cents (0,6) (21,1) (71,9)
- Headline return
on average tangible
shareholders" funds
- annualised % 5,0 (26,2) (129,0)
Capital:
- Total share
capital and reserves R"m 36,7 121,3 36,5
- Tangible share
capital and reserves R"m 23,2 99,4 30,7
- Diluted tangible
net asset value per
share cents 14,1 60,1 18,6
- Market
capitalisation R"m 33,0 72,8 66,2
Share statistics:
- Share price cents 20,0 44,0 40,0
- Number of shares million 164,9 165,4 165,4
- Diluted
number of shares million 164,9 165,4 165,4
- Diluted weighted
number of shares million 164,9 165,4 165,4
FINANCIAL REVIEW
The group recorded headline earnings for the period of R1,3 million (2004:
R31,3 million headline loss).
The first half of the 2005/2006 financial year showed an improved
performance with all divisions" performance ahead of the previous year. This
resulted in a net profit before disposals of R2,5 million (2004: R29,8
million loss).
The loss of R17,2 million attributable to the Capital Markets division was
mainly due to the costs incurred during the risk unwinding activities in the
local trading portfolio as well as the loss incurred in the bonds broking
operation in London, which has since been restructured.
The translation of the results of the offshore business resulted in a 0,8
cent per share increase in the net asset value through the non-distributable
reserves, leaving a diluted total net asset value at 31 August 2005 of 22,2
cents per share, compared to 22,0 cents per share at 28 February 2005.
SEGMENTAL ANALYSIS
Unaudited Unaudited
six months to six months to
31 August 2005 31 August 2004
R"000 % R"000 %
Capital Markets (17 183) (695,7) (24 057) 80,8
Funds Management 8 576 347,2 (4 300) 14,5
Corporate and
Institutional
Finance 11 172 452,3 1 552 (5,2)
Head Office and
Investments (95) (3,8) (2 955) 9,9
Net income/(loss)
before disposals 2 470 100,0 (29 760) 100,0
Onshore 3 934 159,3 (8 320) 28,0
Offshore (1 464) (59,3) (21 440) 72,0
Net income/(loss)
before disposals 2 470 100,0 (29 760) 100,0
Audited
12 months to
28 February 2005
R"000 %
Capital Markets (79 458) 71,9
Funds Management (3 168) 2,9
Corporate and
Institutional
Finance (639) 0,6
Head Office and
Investments (27 145) 24,6
Net income/(loss)
before disposals (110 410) 100,0
Onshore (74 658) 67,6
Offshore (35 752) 32,4
Net income/(loss)
before disposals (110 410) 100,0
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 R17,2 million (2004: R24,1 million).
International operations
The international operations contributed a loss of R9,4 million (2004: R19,2
million). The loss is mainly attributable to the bonds broking desk in London
with a loss of R6,7 million due to poor bond markets and the difficulty of the
desk to recover from the tragic loss in the Asian tsunami of one of its key
members. The substantial part of this team resigned in August. The equity
derivatives team acquired in the first half of the year made a contribution of
R1,5 million.
The Swiss broking business has shown a steady recovery in revenue following
the resignation of a number of senior brokers in 2004, as a result of steady
broker recruitment and continued business and client assessment.
Local operations
The local operations contributed a loss of R7,8 million (2004: R4,9 million).
Following the commentary in its 2005 year-end results, the group is finalising
its phased exit from all forms of proprietary trading, and the transfer of all
counter-party exposures across the two ring-fenced special purpose vehicles
that were created to address the difference in valuation between the group"s
long-dated structured finance swaps (Decab I) and the cross-currency swaps
(Decab II). These portfolios are currently managed as static portfolios
between Decillion and ABSA Corporate and Merchant Bank.
The loss for the period is largely due to costs incurred during the risk
unwinding activities in the trading portfolio. The overhead infrastructure
supporting the trading activities is in the process of being rationalised and
as a result the associated cost will decrease in the second half of the year.
Funds Management
The Funds Management division has improved its performance in the current six-
month period, contributing an operating profit of R8,6 million (2004: loss of
R4,3 million).
The half-year was characterised by positive performance from all three of the
equity hedge fund products. The improved performance can be ascribed to the
hedge fund returns generated, as well as the significant impact of the closure
and sale of the previously unprofitable funds. Assets under management for the
first six months of the year remain at previous levels.
The group"s investment in the hedge funds at the end of the six-month period
amounted to R27 million.
Corporate and Institutional Finance
The division contributed an operating profit of R11,2 million (2004: R1,6
million).
Decillion acted as advisor to Kermas in its acquisition of Samancor Chrome.
The profit contributed by this division included the fee received for these
advisory services.
Head Office and Investments
Head Office and Investments contributed an operating loss of R0,1 million
(2004: loss of R3,0 million).
The main contributors to the improvement in the results is the profit realised
on the disposal of the group"s investment in Decillion Treasury Management
Solutions (Proprietary) Limited ("DTMS") and the revaluation of the group"s
investment in JSE Limited shares. The profit is net of overhead expenses that
are not being recovered from operating divisions.
DISPOSALS
Disposals comprise the selling of a subsidiary of the group, DTMS, which
conducted the business of foreign exchange execution and outsourced treasury
management services.
BUSINESS UPDATE
AND RENEWAL OF CAUTIONARY ANNOUNCEMENT
Progress on the significant initiatives embarked upon by the group, as
announced on 29 September 2005, is as follows:
The company has received formal offers for its Agricultural and Commodity
Finance business and the Funds Management business of Decillion Fund
Management (Proprietary) Limited. The transactions are subject to the
finalisation of due diligence presently in process and the finalisation of
definitive agreements.
Tentative offers, subject to the finalisation of a due diligence, have been
received from interested parties for the group"s overseas inter-dealer
broking businesses.
Historical financing transactions facilitated by the group have been ring
fenced outside of the group in a manner which will protect and ensure the
ongoing maintenance and integrity of the transactions until the final
maturity of all these transactions.
The group is in the process of restructuring its transaction business
through the establishment of a joint venture arrangement in order to reduce
its cost basis and to complete transactions currently in the pipeline.
Overhead cost restructuring is ongoing, including the renegotiation of long-
term commitments.
In due course and where applicable, announcements will be made and/or
circulars will be sent to shareholders in respect of
the disposal of assets referred to above.
Following the conversion of its assets into cash and subject to an agreement
in principal with a majority of the company"s stakeholders, a proposal for
distribution to shareholders of all uncommitted cash resources against
cancellation of their shareholding in the company will be made
simultaneously with an application by the company to terminate its listing
on the JSE Limited.
Until such time as a detailed announcement is made
relative to the finalisation of the matters specified above, shareholders are
advised to continue to exercise caution when dealing in the company"s securities
as the company will no longer renew such cautionary announcements in the press
but will do so only via SENS.
ACCOUNTING POLICIES
The group changed its accounting policy from Generally Accepted Accounting
Practice to International Financial Reporting Standards ("IFRS") as required
by the Listings Requirements of the JSE Limited. Being a first-time adopter of
IFRS for the 2006 financial year, the group"s date of transition to IFRS is 1
March 2004. The group"s opening balance sheet on 1 March 2004 and the
comparative information for 2005 have been restated to comply with IFRS.
The following elections are made in accordance with IFRS 1:
Business combinations: The group is electing not to retrospectively apply
the requirements of IFRS 3 for business combinations that occurred prior to
the transitional date. As a result, the carrying amount of goodwill is the
depreciated amount on 29 February 2004 and previously amortised and impaired
goodwill, and goodwill eliminated against reserves, are not reinstated.
Cumulative translation differences: The group is electing to deem the
cumulative translation differences for all foreign operations to be zero at
1 March 2004. Any gain or loss on a subsequent disposal of any foreign
operation shall exclude translation differences that arose before 1 March
2004 and shall include later translation differences.
THE WAY FORWARD
The process of converting assets into cash is expected to be completed before
the financial year-end, subject to shareholders" approval. Following approval
from shareholders and consultation with its major stakeholders, a proposal for
distribution to shareholders of all uncommitted cash resources against
cancellation of their shareholding in the company will be made simultaneously
with an application by the company to terminate its listing on the JSE
Limited.
By order of the Board
17 November 2005
Directors:
JF Marais* (Chairman), AJN Smit (CEO), Dr M Mostert, Prof NI Morgan*,
J Molobela*
(*non-executive)
Transfer Secretaries:
Computershare Investor Services 2004 (Proprietary) 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
(Registration number 1998/011692/06)
(Incorporated in the Republic of South Africa)
("Decillion" or "the company" or "the group")
JSE code: DEC
ISIN: ZAE000017612
Telephone: +27 11 217 9000
Facsimile: +27 11 883 0165
Company Secretary email: corneb@decillion.net
Date: 23/11/2005 05:21:00 PM Produced by the JSE SENS Department
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