| Mon 29 Sep 2003, 15:16 | | INTERIM GROUP RESULTS FOR THE SIX MONTHS ENDED 31 |
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M CUBED HOLDINGS LIMITED - INTERIM GROUP RESULTS FOR THE SIX MONTHS ENDED 31
AUGUST 2003
m Cubed Holdings Limited
Registration number: 1998/014568/06
Share Code: MCU
ISIN: ZAE000033353
INTERIM GROUP RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2003
M CUBED GROUP INTERIM RESULTS
GROUP INCOME STATEMENT
Unaudited Unaudited Audited
six months ended six months ended year ended
31 August 31 August 28 February
2003 % 2002 2003
R"000 Change R"000 R"000
Net revenue 229 111 165 582 399 059
Cost of revenue (128 452) (75 620) (201 096)
Gross profit 100 659 12 89 962 197 963
Operating expenditure (79 558) 6 (74 874) (155 597)
Operating profit before net
finance income 21 101 40 15 088 42 366
Net finance income 5 408 (22) 6 910 10 464
Net profit before taxation 26 509 21 21 998 52 830
Taxation (8 763) 9 (8 050) (20 322)
Net profit after taxation 17 746 27 13 948 32 508
Share of profit of associates - 1 432 1 922
Minority interest (479) - (856)
Headline earnings attributable
to shareholders 17 267 12 15 380 33 574
Amortisation of goodwill (11 484) (10 336) (21 007)
Earnings attributable to
ordinary shareholders 5 783 15 5 044 12 567
Weighted number of shares in
issue ("000) 750 000 750 000 750 000
Earnings per share (cents) 0,77 0,67 1,68
Headline earnings per share
(cents) 2,30 12 2,05 4,48
Group Balance Sheet
Unaudited Unaudited Audited
31 August s31 August 28 February
2003 2002 2003
R"000 R"000 R"000
ASSETS
Non-current assets
Property, plant and equipment 26 361 32 729 31 236
Investments 25 227 835 27 056 387 23 776 945
Goodwill 173 818 182 812 183 950
Investment in associates - 15 886 -
Loans and advances 37 245 51 468 34 657
Deferred taxation 1 364 3 236 1 676
Total non-current assets 25 466 623 27 342 518 24 028 464
Receivables and prepayments 46 227 32 746 48 985
Cash and cash equivalents 66 543 47 022 67 773
Total assets 25 579 393 27 422 286 24 145 222
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders" funds 370 333 381 674 379 482
Minority interests 2 534 438 2 965
372 867 382 112 382 447
Non-current liabilities
Provision for policyholder liabilities 25 154 510 27 006 553 23 702 670
Insurance contracts 25 192 26 849 27 616
Investment contracts 25 129 318 26 979 704 23 675 054
Current liabilities
Trade and other payables 41 974 25 835 47 604
Current tax liabilities 10 042 7 786 12 501
52 016 33 621 60 105
Total equity and liabilities 25 579 393 27 422 286 24 145 222
Number of shares in issue ("000) 750 000 750 000 750 000
Net asset value per share (cents) 49,4 50,9 50,6
Net tangible asset value per share (cents) 26,2 26,5 26,1
Unaudited Statement of Changes in Owners" Equity
Non-
distri- Distri-
Share Share butable butable
capital premium reserve reserve Total
R"000 R"000 R"000 R"000 R"000
Balance at 1 March 2003 7 500 332 460 (6 124) 45 646 379 482
Loss on translation of
foreign entities - - (1 472) - (1 472)
Dividend - - - (7 500) (7 500)
Attributable earnings - - - 5 783 5 783
Adoption of AC133* - - - (5 960) (5 960)
Balance at 31 August 2003 7 500 332 460 (7 596) 37 969 370 333
*The adoption of AC133 resulted in the revaluation of financial instruments at
the beginning of the year to fair value, with a consequent restatement to
opening retained income.
GROUP CASH FLOW STATEMENT
six months six months
ended ended year ended
31 August 31 August 28 February
2003 2002 2003
R"000 R"000 R"000
Operating activities 218 838 (946 505) (2 994 984)
Life assurance business 1 486 355 (964 690) (4 327 866)
Other receipts 213 092 154 063 501 990
Cash received 1 699 447 (810 627) (3 825 876)
Cash paid (1 467 605) (113 734) 861 249
Cash generated/(utilised) from
operations 231 842 (924 361) (2 964 627)
Net finance income 5 408 6 910 10 464
Taxation paid (10 912) (14 054) (25 821)
Dividend paid (7 500) (15 000) (15 000)
Investing activities (220 068) 931 468 3 000 698
Property, plant and equipment (4 486) (4 865) (12 946)
Acquisition of businesses (485) - (7 547)
(Increase)/decrease in investments (212 509) 962 825 3 020 781
(Increase)/decrease in associates - (3 765) 6 326
(Increase) in loans and advances (2 588) (22 727) (5 916)
Net (decrease)/increase in cash and cash
equivalents (1 230) (15 037) 5 714
Cash and cash equivalents at beginning of
period 67 773 62 059 62 059
Cash and cash equivalents at end of period 66 543 47 022 67 773
SEGMENTAL REPORTING
Headline earnings
Unaudited Unaudited
six months six months Audited
ended ended year ended
31 August 31 August 28 February
2003 2002 2003
Rm Rm Rm
Asset Management 9 5 11
Wealth Management 2 4 6
Specialised Investments, Lending
and Treasury 6 6 17
17 15 34
Assets under management
Headline earnings Assets under management
Unaudited Unaudited
six months six months Audited
ended ended year ended
31 August 31 August 28 February
2003 2002 2003
Rm Rm Rm
Asset Management 28 26 25
Wealth Management 16 16 17
Specialised Investments, Lending
and Treasury 1 1 1
45 43 43
Net Revenue
Annuity
Unaudited Unaudited
six months six months Audited
ended ended year ended
31 August 31 August 28 February
2003 2002 2003
Rm Rm Rm
Asset Management 68 58 121
Wealth Management 66 72 149
Specialised Investments, Lending
and Treasury 12 8 46
146 138 316
Upfront
Unaudited Unaudited
six months six months Audited
ended ended year ended
31 August 31 August 28 February
2003 2002 2003
Rm Rm Rm
Asset Management 76* 5 51*
Wealth Management 5 16 21
Specialised Investments, Lending
and Treasury 2 6 11
83 27 83
*Policy Exchange was fully consolidated for the first time at 28 February 2003
and is responsible for R74 million of the R76 million in the upfront fees at 31
August 2003: (28 February 2003: R46 million out of R51 million in upfront fees).
These interim results have been prepared in accordance with Statements of
Generally Accepted Accounting Practice, as well as the South African Companies
Act of 1973 and the Long-term Insurance Act of 1998. Other than the adoption of
AC133, these accounting policies are consistent with those of the previous year.
A full actuarial valuation is not performed at
half-year. Where necessary, comparative figures are restated to conform to
changes in presentation in the current year.
FINANCIAL COMMENTARY
m Cubed is a premier provider of risk-targeted investment solutions for
individual and institutional investors, and South Africa"s largest independent
multi-manager.
While margins remained tight, a focus on cost control and margin management
helped to ensure that headline earnings increased by 12% to
R17,3 million (31 August 2002: R15,4 million). Assets under management grew by
R2 billion to R45 billion (31 August 2002:
R43 billion), on the back of improved market conditions. Assets under
administration grew to R61 billion (31 August 2002: R52 billion), mainly as a
result of new inflows into AOS Fund Services (Guernsey) as well as improved
market conditions. Total gross new business inflows were R2,6 billion (31 August
2002: R4,3 billion), primarily thanks to inflows into the unit trust and asset
management businesses. Note that 12% of the 27% change in net profit after
taxation is attributable to consolidation of previously equity-accounted
associates.
OPERATIONAL REVIEW
The challenging local and international investment market conditions that
impacted negatively on our prior year results followed us into the early part of
the six months to 31 August 2003, necessitating remedial action which mainly
impacted our Wealth Management and supporting businesses.
After a rigorous strategic analysis of the entire business, the focus turned to
margins and costs.
We withdrew from certain low margin business lines, and streamlined and
refocused the Wealth Management and supporting areas, cutting their staff
complement by nearly a third (approximately 15% of the group"s total staff
complement).
Costs for the group increased by 6% compared to the same period last year,
despite the consolidation of Polex and CMM into the numbers and the
restructuring costs of R1,5 million. The restructuring process will result in
cost reductions of approximately R1 million per month going forward from August
2003. The margin review of the multi-manager portion of the Asset Management
business should result in improvements.
BLACK ECONOMIC EMPOWERMENT
As disclosed previously, the m Cubed board is seeking to implement a mutually
beneficial Black Economic Empowerment ("BEE") initiative, and has mandated a sub
committee of the board to accelerate the process with a view to finding the
right partner/s to give m Cubed a strong empowerment profile.
The sub-committee has received a number of proposals with different levels of
ownership and different structures and is in the process of evaluating these
along with requests for information from other interested parties. We look
forward to providing updated progress before year-end.
PORTFOLIO PERFORMANCE
By the end of August this year, all of our multi-manager blends were
outperforming their respective benchmarks on a year-on-year basis. Our flagship
Focused 65 and Diversified 65 Funds ranked 8th and 9th respectively among the 26
Full Discretion Balanced Funds covered in the Fifth Quadrant Survey. The Matrix
60 portfolio that we manage on an identical basis on behalf of Sanlam, ranked
2nd in the same survey. Against other multi-manager solutions, performances of
our different risk-targeted blends have remained highly competitive in all
categories.
Our structured portfolios (designed to provide capital protection in all market
conditions) protected investors against the negative returns in local equities
over the period. The portfolios benefited from the positive returns in the local
bond market, resulting in a combined positive return for the period.
1. ASSET MANAGEMENT
The multi-manager business enjoyed solid performance in the first half of
2003. Much of the stable performance was underpinned by good equity performance
(particularly in the second quarter) with most of our managers outperforming
their mandates. Along with the rest of the group, management focused on cost
containment and expanding distribution relationships. While still requiring the
right BEE relationships, the multi-manager business should benefit from
improving investment market conditions and new distribution channels established
in the first half.
Escher Structured Products ("ESP") specialises in the design, implementation
and management of capital protected and other derivative based structured
investment strategies for the retirement fund, institutional and wealth
management investment markets. Year to date earnings were in line with
expectation. ESP"s diversified client base, quality offering and deal pipeline
should ensure that full year profit targets are met despite the current
challenging market conditions.
Corporate Money Managers ("CMM") focuses on the management of interest rate
portfolios and treasury support for traditional investment market and larger
corporate clients. CMM had consistently good performance returns on its cash
management and the two unit trusts under its management are performing
consistently well. Although the cash cycle is nearing its end, we are confident
of further growth in profitability and market share.
Policy Exchange ("Polex") remains a dominant participant in the South African
traded policy market. Its position in the market has been augmented by the
satisfying performance of the Traded Endowment Policy fund within m Cubed. The
strengthening of key relationships should assist Polex to maintain its position
and profitability. Polex made a positive contribution to the group in line with
the forecast for the six months ended August 2003.
It was consolidated for the first time at 28 February 2003 and is responsible
for R74 million of the R76 million in the upfront fees for the Asset Management
business, at the half year.
Escher (UK) was rated the best multi-manager in the UK this year, an
achievement that has seen a step up in business. The business has almost reached
critical mass, but still lost R2,2 million in the first six months of the year.
We have made progress with plans to sell this investment.
2. WEALTH MANAGEMENT
This division is responsible for the distribution of the group"s range of
local and international non-discretionary (life), discretionary (unit trusts,
hedge and alternative investments) and employee benefits products and services,
via carefully selected independent financial advisors and other complementary
distribution channels.
As mentioned, the bulk of restructuring occurred in Wealth Management and
supporting areas. Certain business units repriced their low margin service
offering and reduced the number of less profitable clients reported. The focus
remains on servicing clients with a significant asset base.
Market conditions as well as the process of restructuring impacted on this
division"s ability to market its products and services with gross revenues
declining for the first six months. Headline earnings remained static at
R2 million compared with the second half of last year, although down on the same
period last year (31 August 2002: R4 million).
The division has begun to recover in the months since the restructure and
its pipeline has significantly improved. Cost reductions are expected to impact
positively on the second half of the year.
The non-discretionary business consolidated its international product
offering onto a more stable and profitable platform, the Premier IPIMS. This
platform provides investors with exposure to the eight key international asset
classes through a focused selection of funds, incorporating multi-manager and
absolute return funds and alternative strategies. We have also rationalised our
local offering and have launched the first of several new products, the Enhanced
Series Endowment Plan, which is attracting significant interest in the market. m
Cubed Life Limited is currently a top -10 (out of 62) South African Life company
based on the funds under management.
The discretionary business performed in line with expectations. The unit
trusts management company, the fifth largest in the country by value of funds
under management, launched a variety of unit trusts, including our Property
Equity Fund. Following legislative changes, the discretionary business conducted
a review of its entire portfolio offering and began the process of consolidating
the life, wrap and unit trust portfolios into a single range. We plan to launch
new funds in this range later in the year.
In the June 2003 Plexus Fund Survey, four of m Cubed"s seven funds ranked in
the first two quintiles. In the same survey, our unit trust management company
was ranked 2nd overall out of 30 management companies for consistent performance
and adherence to portfolio mandate.
Our fledgling employee benefits business continued to grow steadily. At 31
August 2003,
it had more than R500 million in assets under administration, on behalf of more
than
14 000 members.
The unit trust and international outsourced administration divisions
performed in line with expectations.
3. SPECIALISED INVESTMENTS, LENDING AND TREASURY
Profits have remained stable in this division, with annuity income increasing
notably to R12 million (31 August 2002: R8 million), as a result of ongoing fees
from products sold in the second half of last year.
Specialised Investments is a niche provider of customised financial
solutions for institutions, corporate and high net worth individuals. The
division is ahead of budget and will expand to take advantage of new
opportunities in its market.
The Lending division focuses on providing bespoke investment financing
solutions to high net worth individuals and corporates who invest with us. The
division exceeded budget for the first six months and should continue to grow
for the remainder of the financial year.
The Treasury division performs a treasury and funding function for the group.
The division performed in line with expectation with earnings coming off in line
with interest rates.
PROSPECTS
The outlook for the next six months remains uncertain, although the business
should start to show the positive impact of the restructure and attendant cost
savings, and will benefit if the investment market environment continues to
enjoy improvement. We are hoping to make progress in delivering value for
shareholders and look forward to reporting developments in relation to our
empowerment initiatives.
DIVIDENDS
In line with group policy, no interim dividend has been declared.
For and on behalf of the board of directors
C M B Bothner J C Storey
Chairman Group managing director
25 September 2003
Transfer secretaries: Computershare Limited
70 Marshall Street
Johannesburg, 2001
PO Box 61051
Marshalltown, 2107.
Telephone: (011) 370-7700;
Facsimile: (011) 836-0792.
Registered office: The Cube, Investment Place
10th Road (off 2nd Avenue)
Hyde Park, 2196
PO Box 41259
Craighall, 2024
Telephone: (011) 340-2300;
Facsimile: (011) 880-8844.
Directors: C M B Bothner* (chairman), J C Storey (group managing director),
A Cabot-Alletzhauser (American), P J Croeser*, J du Toit*,
MM Dawes, J F Mouton* (Alternate), C A Otto*, W Roux*,
I H S Sinton*.
* Non-executive directors
Company secretary: J Steyn
www.mcubed.co.za
Date: 29/09/2003 02:58:12 PM Produced by the JSE SENS Department
