| Thu 30 Sep 2004, 18:14 | | FINANCIAL RESULTS FOR THE 6 MONTHS |
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M CUBED HOLDING LIMITED - UNAUDITED INTERIM FINANCIAL RESULTS FOR THE 6 MONTHS
ENDED 31 AUGUST 2004
M CUBED HOLDING LIMITED
(Incorporated in the Republic of South Africa)
Registration Number 1998/014568/06, ISIN: ZAE000033353, Share Code: MCU
UNAUDITED INTERIM FINANCIAL RESULTS FOR THE 6 MONTHS ENDED 31 AUGUST 2004
INCOME STATEMENT
Unaudited Unaudited Audited
6 months ended 6 months ended year ended
31 Aug 2004 31 Aug 2003 29 Feb 2004
R`000 % Change R`000 R`000
Net revenue 206 706 229 111 531 255
Cost of revenue 05 917) (128 452) (308 321)
Gross profit 100 789 100 659 222 934
Operating expenditure 72 725) 1 (71 971) 158 552)
Depreciation (6 690) (12) (7 587) 13 807)
Results of operating
Activities 21 374 1 21 101 50 575
Net finance income 8 907 65 5 408 15 707
Minority interest - (479) (1 003)
Profit before non-
trading items 30 281 16 26 030 65 279
Amortisation of goodwill (11 342) (11 484) (22 684)
Net profit before taxation 18 939 30 14 546 42 595
Taxation 11 647) 33 8 763) (25 033)
Net profit for the period 7 292 26 5 783 17 562
Reconciliation between headline earnings and net profit after taxation
Net profit after taxation 7 292 26 5 783 17 562
Amortisation of goodwill 11 342 11 484 22 684
Headline earnings attri-
butable to shareholders 18 634 8 7 267 40 246
Weighted number of shares
in issue excluding
treasury shares (`000) 720 781 720 983 720 983
Earnings per share (cents) 1.01 26 0.80 2.44
Headline earnings per
share (cents) 2.59 8 2.39 5.58
BALANCE SHEET
Unaudited Unaudited Audited
31 Aug 2004 31 Aug 2003 29 Feb 2004
R`000 R`000 R`000
ASSETS
Non-current assets
Property plant and equipment 15 278 26 361 20 310
Investments 21 202 906 25 244 050 20 883 654
Goodwill 159 787 173 818 170 700
Loans and advances 10 438 21 030 12 840
Deferred taxation 190 1 364 349
21 388 599 25 466 623 21 087 853
Current assets
Receivables and prepayments 36 414 46 227 50 760
Cash and cash equivalents 120 997 66 853 114 152
157 411 113 080 164 912
Total assets 21 546 010 25 579 703 21 252 765
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders` funds 363 925 370 643 366 964
Minority interests 447 2 534 447
364 372 373 177 367 411
Non-current liabilities
Policyholder liabilities
Insurance contracts 25 900 25 192 26 422
Investment contracts 21 094 160 25 129 318 20 792 085
21 120 060 25 154 510 20 818 507
Current liabilities
Trade and other payables 60 932 41 974 65 475
Current tax liabilities 646 10 042 1 372
61 578 52 016 66 847
Total equity and liabilities 21 546 010 25 579 703 21 252 765
Number of shares in issue excluding
treasury shares (`000) 720 781 720 983 720 983
Net asset value per share (cents) 50.5 51.4 50.9
Net tangible asset value per
share (cents) 28.3 27.3 27.2
CASH FLOW STATEMENT
Unaudited Unaudited Audited
6 months ended 6 months ended Year ended
31 Aug 2004 31 Aug 2003 29 Feb 2004
R`000 R`000 R`000
Operating activities 234 099 219 148 (4 604 198)
Life assurance business (18 854) 1 486 355 (2 836 001)
Other receipts 195 768 213 092 479 725
Cash received 176 914 1 699 447 (2 356 276)
Cash paid 71 300 (1 467 605) (2 221 604)
Cash generated from /
(utilised by) operations 248 214 231 842 (4 577 880)
Net finance income 8 907 5 408 15 707
Taxation paid 12 215) (10 912) (34 835)
Dividend paid (10 807) (7 190) (7 190)
Investing activities (227 254) (220 068) 4 650 561
Additions to property plant
and equipment (1 710) (4 486) (5 524)
Proceeds on disposal of
property plant and equipment 54 - 2 643
Acquisition of businesses (429) (485) (10 576)
(Increase)/Decrease in
investments (227 571) (212 509) 4 658 571
Decrease/(Increase) in loans
and advances 2 402 (2 588) 5 447
Net increase/(decrease) in
cash and cash equivalents 6 845 (920) 46 363
Cash and cash equivalents at
beginning of period 114 152 67 773 67 789
Cash and cash equivalents at
end of period 120 997 66 853 114 152
STATEMENT OF CHANGES IN EQUITY
Non-
Share Share distributable Accumulated
Capital premium reserves profits Total
R`000 R`000 R`000 R`000 R`000
Balance at 1 March 2004 7 210 317 796 (11 067) 53 025 366 964
Increase in non-
distributable reserve
arising on translation - 476 - 476
Dividend - - - (10 807) (10 807)
Attributable earnings - - - 7 292 7 292
Balance at 31 August 2004 7 210 317 796 (10 591) 49 510 363 925
SEGMENTAL REPORTING
Headline earnings
Unaudited Unaudited
6 months 6 months Audited
ended ended year ended
31 Aug 2004 31 Aug 2003 29 Feb 2004
Rm Rm Rm
Wealth Management 8 2 7
Asset Management 13 9 16
Specialised Investments,
Lending and Treasury (2) 6 17
19 17 40
Assets under management
Unaudited Unaudited
6 months 6 months Audited
ended ended year ended
31 Aug 2004 31 Aug 2003 29 Feb 2004
Rbn Rbn Rbn
Wealth Management 16 16 15
Asset Management 31 28 31
Specialised Investments,
Lending and Treasury 1 1 1
48 45 47
Net revenue - Annuity
Unaudited Unaudited
6 months 6 months Audited
ended ended year ended
31 Aug 2004 31 Aug 2003 29 Feb 2004
Rm Rm Rm
Wealth Management 84 66 181
Asset Management 79 68 120
Specialised Investments,
Lending and Treasury 1 12 12
164 146 313
Net revenue - Upfront
Unaudited Unaudited
6 months 6 months Audited
ended ended year ended
31 Aug 2004 31 Aug 2003 29 Feb 2004
Rm Rm Rm
Wealth Management 4 5 10
Asset Management 37 76 187
Specialised Investments,
Lending and Treasury 2 2 21
43 83 218
Accounting policies
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 Longterm Insurance Act of 1998. These accounting policies
are consistent with those of the previous year. A full actuarial valuation is
not performed at half-year.
Nature of business
m Cubed is a premier provider of risk-targeted investment solutions for
individual and institutional investors, and South Africa`s largest independent
multi-manager.
Corporate activity update
As announced on 2 September 2004, m Cubed and Momentum have agreed to merge
their domestic multi-management asset management businesses to form a new asset
management
holding company.
The merger will create a platform for an empowerment transaction within the new
asset management holding company.
After injecting their multi-manager business, the additional purchase
consideration payable in cash to m Cubed by Momentum to take their stake up to
50% will amount to
R72 million. m Cubed will have cash reserves of approximately R200 million once
the deal is completed.
The joint venture only includes the multi-manager asset management business, its
back office, Asset Management Outsourcing Services (AMOS) and Escher Structured
Products (ESP) (* Divisional Review). All other businesses remain, including m
Cubed Investment Life which was included in previous negotiations. We will
continue to offer the multi-manager solution as part of our product offering.
Financial review
The first six months have seen improved domestic investment conditions, with
markets largely dominated by the strong rand and stable interest rates. This has
aided performance in both our Asset Management and Wealth Management divisions.
Assets under management increased by R3 billion to R48 billion (31 August 2003:
R45 billion), on the back of better market conditions and new business inflows.
Assets under administration grew to R66 billion (31 August 2003: R62 billion).
Total net new business inflows were R600 million (31 August 2003: R200 million).
Headline earnings have increased by 8% to R18.6 million (31 August 2003: R17.3
million) for the period under review, while headline earnings per share grew
from 2.39 cents to
2.59 cents.
Annuity income grew to R164 million (31 August 2003: R146 million). The growth
in HEPS, EPS and annuity is despite a large transaction in our Specialised
Investments division having matured at 29 February 2004 and a higher tax charge
(largely STC). This income has been replaced with annuity income across the
business. Added to which strict cost control remains a priority.
Upfront revenue has, however, fallen to R43 million (31 August 2003: R83
million), primarily as a result of poor market conditions in the traded
endowment policy market, which lead to declining upfront revenue in our Asset
Management division.
Divisional review
1. Asset Management Division
This division provides multi-manager asset management, structured products and
other services, primarily to the institutional sector.
Headline earnings for the half year increased by 44% to R13 million (31 August
2003: R9 million), buoyed by improved market conditions. Escher UK made its
first profit, and there were substantial deals in our structured products
division. Markets have seen significant growth, with the ALSI improving by
almost 25% since 31 August 2003. Per our mandates, 40% of our assets are
invested in equities which is where the majority of the growth has been, with
the balance being spread across the lower-yielding asset classes such as cash,
bonds and international.
Annuity income increased to R79 million (31 August 2003: 68 million). Upfront
revenue fell to R37 million (31 August 2003: R76 million), mainly as a result of
the decline in upfront revenue of Polex.
The multi-manager*
The multi-manager business experienced solid growth with headline earnings of
R11 million ahead of budget and well up on the preceding financial period.
Portfolio performance
Markets staged a major reversal over the course of the last six months, ending
with positive returns in all asset classes except international, which remained
relatively flat after the effects of the rand were taken into account. As such,
all of
our risk-targeted multi-manager solutions produced inflation beating returns in
addition to their continued benchmarkbeating performance.
Our series of absolute return funds and our hedge fund of funds launched during
the year have performed well, and exceeded their benchmarks. We have developed a
viable platform for introducing hedge funds into our multi-manager solutions.
Our secured portfolios continue to provide capital protection with a balanced
exposure to the South African
equity and fixed-interest markets.
Asset Management Outsourcing Services (`AMOS`)*
Headline earnings at R1 million is up compared to a loss previously, due to
increased scrip lending, growth in assets under administration and strict cost
control. A major project is beginning to take levels of automation and straight
through processing of transactions to world-class levels, enabling us to better
deliver value to our clients.
Escher Structured Products (`ESP`)*
ESP increased net income after tax by 4% to R2 million. As experienced
throughout the industry, retail single premium investment flows have been
significantly below expectation.
Implementation of additional institutional segregated client portfolios has,
however, compensated for this shortfall. ESP expects to meet budget targets for
the full year.
Corporate Money Managers (`CMM`)
The strong swing out of the cash cycle into equities has had a negative effect
on this division`s performance. Headline earnings is marginally down, and assets
under management
have fallen slightly. CMM continues to concentrate on delivering consistent, top
quartile performance for its clients.
Policy Exchange (`Polex`)
The difficult trading conditions experienced last year as a result of the
shortage of tradable policies followed Polex into the first half of the year,
resulting in a net loss. This shortage is mainly attributable to the weak
investment performance of the major insurers` large policyholder funds over the
past few years. However, the flow of tradable stock has started to improve and
Polex is expected to make a positive contribution to group profits for the full
financial year.
Escher UK
Steady growth in new business has enabled our international multi-manager to
reach critical mass and post a small profit for the half year, compared with a
loss previously. This business continues to make solid progress, with assets
under management having grown to more than GBP385 million at the end of August.
2. Wealth Management Division
This division distributes the group`s range of investments for individuals and
employee benefits products and services, via independent financial advisors and
other complementary distribution channels.
Wealth Management performed well and is reaping the benefits of last year`s
restructuring process. Headline earnings are up 300% to R8 million (31 August
2003: R2 million), with most businesses making positive contributions.
Non-discretionary investments
This division is significantly ahead of budget. In addition to the growth
experienced in high upfront margin business, assets under management have
increased in line with investment returns and the increase in new business
flows. A key focus area is the establishment of an offshore branch, which is
essential to revitalising our offshore product offering.
Discretionary investments
m Cubed Unit Trusts grew headline earnings considerably. This growth was due to
net inflows of R2.9 billion, translating into a significant increase in assets
under management.
Annuity income is up from last year, whereas upfront income is down, in line
with the industry trend towards higher annual management fees replacing upfront
fees. The strong rand weakened interest in foreign investment and, as a result,
our international funds continued to experience net outflows. Our institutional
and white label offering continue to produce excellent results.
AOS Employee Benefits
The employee benefits business continued to grow steadily, with both assets
under management and the number of new members increasing. This division has not
yet reached critical mass.
Administration outsourcing
The unit trust outsourcing division increased earnings by 100%. This growth is
due to increases in annuity income and income from wrap funds that have
converted to funds of funds. Assets under administration grew to R14 billion
(2003: R10.7 billion).
There has been a turnaround in the wrap outsourcing division, from a large loss
last year to a profit. This turnaround is due to a restructuring process, tight
cost control and the introduction of minimum fees for certain clients.
The international outsourcing business has performed in line with expectations.
Both fund inflows and market performance have contributed to growth in assets
under administration.
3. Specialised Investments, Lending and Treasury
This division provides customised financial solutions for institutions,
corporates and high net worth individuals. It also provides a treasury function
for the group and certain clients.
The maturity of a large portion of annuity income influenced this division`s
performance for the half year. Headline earnings fell to a loss of R2 million
(31 August 2003: R6 million profit). Annuity revenue was R1 million (31 August
2003: R12 million) while upfront revenue remained static at R2 million.
Specialised Investments
During the first half of the year, the division was again successful in
concluding a few medium-sized transactions, resulting in it performing ahead of
budget.
Specialised Lending
The continuous decrease in prime lending rates over the period is still leading
to an erosion of the gross interest margins earned for the first half of the
year, resulting in the division ending the period slightly below budget.
Treasury
The Treasury division performed in line with expectations.
Prospects
The outlook, whilst improved at current market levels, remains challenging. The
successful conclusion of the multi-manager merger with Momentum will allow us to
concentrate on the release of value inherent in the rest of the company. The
board is looking at ways to utilise surplus cash.
Dividend
No interim dividend has been declared, in line with group policy.
For and on behalf of the board of directors
C M B Bothner J C Storey
Chairman Group managing director
29 September 2004
REGISTERED OFFICE: The Cube, Investment Place, 2nd Road (off 2nd Avenue), Hyde
Park 2196. PO Box 41259, Craighall 2024. Telephone: (011) 340 2300, Facsimile:
(011) 880 8844, E-mail: postmaster@mcubed.co.za.
TRANSFER OFFICES: Computershare Investor Services 2004 (Pty) Limited, 70
Marshall Street, Johannesburg 2000. PO Box 61051, Marshalltown 2107. Telephone:
(011) 370 5000, Facsimile: (011) 836 0792.
DIRECTORS: CMB Bothner (Chairman)**, JC Storey (Managing), A Cabot-
Alletzhauser*,
PJ Croeser**, MM Dawes, J de Vos du Toit**, JF Mouton ** (Alternate), W Roux**,
M Smith**.* American ** Non-Executive.
COMPANY SECRETARY: J Steyn, e-mail: jsteyn@mcubed.co.za.
AUDITORS: Fisher Hoffman PKF (JHB) Inc, Chartered Accountants (SA), Registered
Accountants and Auditors.
BANKERS: Standard Bank of South Africa.
ATTORNEYS: Smith Tabata Ramsay Webber Buchanan Boyes Attorneys
SPONSORS: PSG Capital Limited
www.mcubed.co.za.
