| Wed 28 Apr 2004, 13:47 | | Tough Year Ends On A Good Note |
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M Cubed Holdings Limited - Tough Year Ends On A Good Note
Release Date: 28/04/2004 12:43:58 Code(s): MCU
m Cubed Holdings Limited - Tough year ends on a good note
m Cubed Holdings Limited
Registration number: 1998/014568/06
Share code: MCU
ISIN: ZAE000033353
Tough year ends on a good note
Highlights
* Gross profit up 13%
* Net profit after tax up 40%
* Headline earnings per share up 22%, from 4.6c to 5.6c
Listed financial services company m Cubed, has reported a headline earnings
increase of 20% to R40.2m (2003: R33.6m), for the year ended 29 February
2004.
"This was a hard year, with a lot of hard work and difficult decisions
taken. We streamlined the business and focussed more on cash management with
operating expenditure up 7% over the previous year. Added to which the
improved market conditions helped to contribute to the headline earnings
increase," says m Cubed Group MD John Storey.
"If one looks at our costs in the last financial year they are very similar
to the costs this year. With two important differences - we paid good
bonuses this year to the businesses that exceeded expectations, something we
were very glad to do. And we made conservative provisioning for our loan
book. Without these costs, group costs would have stayed static
"This was a tough year, but it ended on a positive note," says Storey.
Assets under management grew to R47bn (2003: R43bn.) helped by a buoyant
market towards the end of 2003, and assets under administration grew to
R63bn (2003: R53bn).
"During the early part of the year, the group withdrew from certain low
margin business lines, streamlined and refocused the Wealth Management
business and supporting areas, and reduced the total staff complement by
approximately 15% (Wealth management by 30%)," explains Storey.
"The Wealth Management business reported a loss of R3.5m in the first
quarter but returned to profitability - to the tune of R7m - a swing of
R10.5m, by year end." says Storey.
Turning to the recent announcement that the proposed deal with Momentum had
been turned down by m Cubed, Storey says that for some time the board has
been seeking to implement a mutually beneficial Black Economic Empowerment
initiative, and this remains a priority for the group going forward.
"As part of this process, an offer was received during the year, from
Momentum to buy certain of the m Cubed Asset Management businesses. Final
post-implementation issues and their effect on valuation could not be agreed
on to the satisfaction of the m Cubed board, resulting in the board
declining the Momentum offer," says Storey.
On the group"s investment performance, the group"s CIO, Anne Cabot-
Alletzhauser says: "Over the past 12 months, the significant turnaround in
the equity markets meant that all of the group"s multi-manager solutions
ended the period to February 2004 by providing real returns for investors of
between 18% (for its low equity solutions) to more than 37% (for its
diversified equity solutions).
"This performance was either above or in line with each solution"s own
strategic benchmark," comments Cabot-Alletzhauser.
The group"s structured capital protected portfolios shielded investors
against capital erosion during the equity market downturns that persisted in
the early months of 2003, whilst still providing potential upside. These
portfolios also capitalised on the rally experienced in the local bond
market.
"The last financial year also saw the launch of our series of absolute
return funds and our hedge fund of funds, with performances on all of these
new additions to date being entirely satisfactory, with all four new funds
exceeding their benchmarks," says Cabot-Alletzhauser.
On the prospects for the year ahead, Storey says: "The outlook, whilst
improved at current market levels, remains challenging, and the business
environment is potentially volatile. Replacing upfront revenues will be
demanding.
"We aim to cement and enhance the benefits of the group restructure,
including a focus on the implementation of an empowerment strategy, and we
are resolved to facilitate the release of value inherent in the company,"
says Storey.
Ends/
Note to the editor:
Group MD John Storey is available for comment and interviews. Please contact
Angelo Coppola to set up a time, on 083-448-1008. Should you wish to speak
directly to John you can reach him on 083-675-2664.
Note:
Segmental reporting
1. Asset Management
Headline earnings for the division were R16 million (2003: R11 million),
with contributions to this increase from the multi-manager business, CMM and
Escher UK. Annuity revenue of R120 million was up on last year"s R106
million. The Asset Management division performed in line with expectation
for the year under review.
The Asset Management Outsourcing Services (AMOS) business unit achieved
breakeven. In order to maximise its effectiveness, the unit will be absorbed
into m Cubed Asset Management in the new financial year.
The Escher Structured Products (ESP) contribution to the group was lower
than the previous year. The business is a niche market leader specializing
in the design and management of capital-protected and absolute return
investment portfolios for retirement fund, institutional and wealth
management investors.
The company is expecting significant migration of institutional and retail
funds from traditional investments to absolute return or capital protected
strategies and, with its impressive five-year track record in a fairly new
industry, ESP is well positioned to extract value from this already apparent
shift in market sentiment.
Despite the investment cycle turning away from cash and bonds, Corporate
Money Managers (CMM) managed to grow assets under management during the
year.
Policy Exchange (Polex) is now a wholly-owned subsidiary of the group (2003:
70%). Polex, which trades in pre-owned policies, faced difficult trading
conditions during the year as a result of a shortage of tradable stock in
the market.
This situation is expected to continue until interest rates start rising
again. The attributable profit earnings were lower than the previous year
but Polex still made a positive contribution to group earnings.
Escher (UK), ranked the number one multi-manager in the UK, has continued to
make solid progress with assets under management growing to over GBP320m and
has now reached profitability.
2. Wealth Management
Headline earnings were R7 million (2003: R10 million), with the non-
discretionary business making the most significant contribution. Upfront
revenue of R10 million was down on last year"s R21 million, while annuity
revenue was down to R181 million (2003: R187 million) for the period.
The restructure in the second quarter of the year saw a R3.5 million loss in
the first quarter reversed to a profit of R7 million for the year.
This division distributes 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 independent
financial advisors and other complementary distribution channels.
The non-discretionary business consolidated its international product
offering, rationalised its local offering and launched several new products
during the year.
The discretionary business continues to show steady growth and achieved its
budget for the financial year. m Cubed Unit Trust management Company remains
the 5th largest unit trust company in South Africa with R22bn under
management.
The retail unit trusts received net inflows of R315m in the financial year
and this continues to be a consistently profitable business.
The employee benefits division saw a steady growth in assets and the number
of members. The platform has been laid to take the business to the next
level, but it has not yet broken even.
The international outsourced administration division performed in line with
expectation, while unit trust outsourced administration performed above
expectation.
3. Specialised Investments, Lending and Treasury
This division has performed well. Headline earnings grew to R17 million
(2003: R13 million). Annuity revenue was R12 million (2003: R23 million),
while upfront revenue was up at R21 million (2003: R11 million).
Specialised Investments is a niche provider of customised investment
solutions for institutions, corporates and high net worth individuals.
During the 2004 financial year, the division concluded several relatively
large transactions, resulting in the division performing ahead of
the forecast.
Although the decrease in prime lending rates over the period lead to a
slight erosion of the gross interest margins earned for the second half of
the year, the Lending division ended the financial year ahead of budget.
Conservative provisioning was made against the portfolios during the second
half of the year. The division focuses primarily on providing
bespoke lending solutions to high net worth individuals and corporates who
invest with m Cubed.
The Treasury division, which performs a treasury and funding function for
the group, performed in line with expectation.
Declaration of dividend
The board of directors has recommended that a dividend of 1.5 cents per
share be declared for the year ended 29 February 2004.
The dividend will be payable to the shareholders recorded in the register at
the close of business on 28 May 2004. The following dates are relevant to
shareholders in respect of the dividend payment:
* Last day to trade cum dividend Friday, 21 May 2004
* Commence trading ex dividend Monday, 24 May 2004
* Record date Friday, 28 May 2004
* Date of dividend payment Monday, 31 May 2004
Share certificates may not be dematerialised or rematerialised between 24
May 2004 and 28 May 2004, both dates inclusive.
