| Thu 28 Apr 2005, 15:23 | | Results And Dividend Declaration |
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M Cubed Holdings Limited - Audited Group Results And Dividend Declaration For
The Year Ended 28 February 2005
m Cubed Holdings Limited
Registration number: 1998/014568/06
Share Code: MCU
ISIN: ZAE000033353
R100 million returned to shareholders in 13.33c per share capital reduction
Merger of m Cubed and Momentum`s domestic multi-manager businesses to form a new
jointly owned entity
Strong results in the group`s core Wealth business
Solid earnings and cash conversion in a year of change
INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2005
2005 % 2004
R`000 Change R`000
Net revenue 411,380 531,255
Cost of revenue (208,025) (308,321)
Gross profit 203,355 ( 9) 222,934
Operating expenditure (160,716) 7 (172,359)
Results of operating activities 42,639 ( 16) 50,575
Finance income 22,166 1 21,945
Finance expense (691) 89 (6 238)
Share of profit of associates 2,727 - -
Amortisation of goodwill (24,889) ( 10) (22,684)
Profit before non-trading items 41,952 ( 4) 43,598
Disposal of businesses 60,409 - -
Net profit before taxation 102,361 135 43,598
Taxation (26,499) ( 6) (25,033)
Minority interest - - (1,003)
Net profit for the year 75,862 332 17,562
Reconciliation between headline
earnings and net profit for the
year
Net profit for the year 75,862 - 17,562
Disposal of businesses (60,409) - -
Amortisation of goodwill 24,889 - 22,684
Headline earnings attributable 40,342 - 40,246
to shareholders
Headline earnings/ diluted 5.6 - 5.6
headline earnings per share
(cents)
Earnings/ diluted earnings per 10.4 333 2.4
share (cents)
Dividends per share (cents) 1.5 - 1.5
Capital distribution per share 13.3 - -
(cents)
BALANCE SHEET AT 28 FEBRUARY 2005
ASSETS 2005 2004
R`000 R`000
Non-current assets
Property, plant and equipment 10,945 20,310
Investments 22,028,044 20,883,654
Goodwill 89,804 170,700
Investment in associates 51,817 -
Loans and advances 7,853 12,840
Deferred taxation 3,822 349
22,192,285 21,087,853
Current assets
Receivables and prepayments 20,427 50,760
Current tax asset - -
Cash and cash equivalents 151,586 114,152
172,013 164,912
Total assets 22,364,298 21,252,765
EQUITY AND LIABILITIES
Capital and reserves
Share capital 7,267 7,210
Share premium 223,744 317,796
Foreign currency translation (13,692) (11,067)
reserve
Accumulated profits 118,081 53,025
Ordinary shareholders` funds 335,400 366,964
Minority interests 447 447
335,847 367,411
Non-current liabilities
Policyholder liabilities 21,953,064 20,818,507
Insurance contracts 26,719 26,422
Investment contracts 21,910,651 20,784,474
Deferred capital gains tax on 15,694 7,611
policyholder liabilities
Current liabilities
Trade and other payables 74,962 65,475
Current tax liabilities 425 1,372
75,387 66,847
Total equity and liabilities 22,364,298 21,252,765
Number of shares in issue 726,774 720,983
excluding treasury shares (`000)
Net asset value per share (cents) 46.2 50.9
Net tangible asset value per share 33.8 27.2
(cents)
CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2005
2005 2004
R`000 R`000
Operating activities
(966,090) (4,604,198)
Cash utilised by operations
(945,840) (4,577,880)
Finance income
22,166 21,945
Finance expense
(691) (6,238)
Taxation paid
(30,919) (34,835)
Dividends paid
(10,806) (7,190)
Investing activities
1,097,519 4,650,561
Additions to property, plant and
equipment (3,422) (5,524)
Proceeds on disposal of property,
plant and equipment 89 2,643
Acquisition of businesses
- (10,576)
Disposal of businesses
181,514 -
Decrease in investments
1,026,351 4,658,571
Increase in associates
(112,000) -
Decrease in loans receivable
4,987 5,447
Financing activities
(93,995) -
Treasury shares purchased
(548) -
Capital distribution
(96,997) -
Sale of shares by share incentive
trust 3,550 -
Net movement in cash and cash
equivalents 37,434 46,363
Net cash and cash equivalents at
beginning of year 114,152 67,789
Net cash and cash equivalents at end
of year 151,586 114,152
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 28 FEBRUARY 2005
Foreign
Share currency Accumulated Total
Share premium translation profits R`000
capital R`000 reserve
R`000 R`000 R`000
Balance at 1 March 7 210 317 796 (11 067) 53 025 366
2004 964
Increase in - - (2 625) - (2
foreign currency 625)
translation
reserve
Net profit for the - - - 75 862 75 862
year
Dividend - - - (10 806) (10
806)
Treasury shares (14 ) (534) - - (548)
purchased
Distribution of - (96 - - (96
capital 997) 997)
Shares purchased 71 3 479 - - 3 550
by share incentive
trust
Balance at 7 267 223 744 (13 692) 118 081 335
28 February 2005 400
SEGMENTAL REPORTING
Headline Asset under
earnings Management
2005 2004 2005 2004
Rm Rm Rbn Rbn
Wealth Management 26 7 16 15
Asset Management 20 16 27 31
Specialised Investments, Lending and (6) 17 - 1
Treasury
40 40 43 47
Net revenue
Annuity Upfront
2005 2004 2005 2004
Rm Rm Rm Rm
Wealth Management 184 181 7 10
Asset Management 136 120 70 187
Specialised Investments, Lending and 9 12 5 21
Treasury
329 313 82 218
Accounting policies
These results have been prepared in accordance with South African Statements of
Generally Accepted Accounting Practice, as well as the South African Companies
Act of 1973 and the Long-term Insurance Act of 1998. The accounting policies are
consistent with those of the previous year. These results are audited by PKF
(Jhb) Inc. The auditors` unqualified report is available for inspection at the
registered offices of the company.
Nature of business
m Cubed Holdings Limited is a focused investment services business. It provides
a flexible range of best of breed group benefit products complemented by risk-
adjusted investment solutions, as well as customised financial solutions and
innovative lending and treasury services.
Financial review
Despite much change and corporate activity, the group delivered satisfactory
results. The following major events marked the year:
* The return of R100 million in capital to shareholders.
* The sale of 50% of m Cubed Asset Management and the earnings attributable
to this major part of the m Cubed group.
* Very little international investments could be sold as foreign investment
allowance was not available to the group during the year, while the
strengthening of the rand hurt our offshore business.
* 2004 results included a large transaction in our Specialised Investments
division which matured at 29 February 2004.
* 2005 results include a substantial provision against a liability which is
under dispute. The group expects the dispute to be settled within the existing
provisions.
In spite of this the business had a good year and performed in line with the
previous year. Annuity revenue has grown strongly across our core wealth and
group benefit businesses. Headline earnings per share was 5.6 cents (2004: 5.6
cents) while headline earnings increased marginally to R40.3 million (2004:
R40.2 million), with our Wealth business being the major contributor to
earnings. Net finance income grew by 37%, due to increased cash reserves even
post the capital reduction. Operating expenditure fell 7% as a result of cost
containment efforts. Assets under management, including Advantage assets
(previously managed by m Cubed Asset Management)of R27 billion were
approximately R43 billion (2004: R47 billion). Assets under administration were
R60 billion (2004: R63 billion) the decrease in assets is due to the asset
management merger. Cash conversion is excellent with cash on hand increasing by
33% despite the R100 million special dividend.
R100m in capital returned to shareholders
Post the sale of part of the multi-manager business, the board approved a large
capital reduction as one of the ways to improve return on equity. This was
effected in late January.
Asset Management merger
The merger of m Cubed and Momentum`s domestic multi-management businesses was
finalised to form a new asset management company, Advantage Asset Managers,
effective
1 January 2005. m Cubed and Momentum each hold a 50% stake in this new business.
The merged entity only includes the multi-manager asset management business, its
back office Asset Management Outsourcing Services (AMOS) and Escher Structured
Products (ESP).
Divisional review
1. Wealth Management
The division distributes the group`s range of local and international non-
discretionary (life), discretionary (unit trusts and mutual funds) and employee
benefits products and services, via independent financial advisors and other
complementary distribution channels.
Wealth Management had a strong year and made a significant contribution to the
group`s results. Headline earnings for the year were R26 million (2004: R7
million), significantly up on the prior year as a result of positive
contributions from all the divisions and strict cost control. Upfront revenue
of R7 million was down on last year`s R10 million, while annuity revenue was
R184 million (2004: R181 million) for the period.
Non-discretionary investments
This business performed well in a tough year where no offshore capacity was
available. Local product demand was strong, with total gross inflows amounting
to R1.028 billion. Key focus areas were building relationships with some of the
major distribution groups and the launch of AddLiP, our new product platform
offering the most attractive third party investments in the market.
Discretionary investments
m Cubed Unit Trusts remains the 5th largest unit trust company in South Africa,
with assets under management of R28.6 billion (2004: R22.8 billion). Annual fee
income is up from last year, whereas upfront income is down. Excellent
performance from the m Cubed Property Equity Fund (1st in its category over 1
year) and the m Cubed Money Market Fund (2nd in its category over 1 year) drove
retail inflows into these funds. Our white label offering continues to produce
steady annuity income.
Group benefits
This business experienced steady growth and achieved its budget for the year.
Investment into people and systems is expected to start bearing fruit in the
coming year. The group benefits business is expected to be a key growth area of
the m Cubed group going forward.
Administration outsourcing
The unit trust outsourced administration division showed good performance and
exceeded budget. New funds launched, client specific system integration and the
general growth in industry assets contributed to the division`s performance.
The wrap outsourced administration division performed as expected, given market
conditions.
2. Specialised Investments, Lending and Treasury
This division experienced a headline loss of R6 million (2004: R17 million
headline earnings). Annuity revenue was R9 million (2004: R12 million), while
upfront revenue was R5 million (2004: R21 million).
Specialised Investments
The division was again successful in concluding a few relatively medium to large
transactions, enabling it to meet budget. The maturity of a large transaction
last year has seen the contribution of the Specialised Investments division fall
relative to the prior year.
Specialised Lending
The division ended the year slightly behind budget due to less than expected new
loan advances and an erosion of the gross interest margin as a result of the
decrease in prime lending rates. Full provisioning was made against any
potential bad debts.
Treasury
The treasury division, which performs a treasury and funding function for the
group, performed in line with expectation. Provisioning was made for the
previously mentioned dispute.
3. Asset Management
This provides multi-manager asset management, structured products and other
services, primarily to the institutional sector, through its investment in
Advantage.
The multi-manager and Asset Management Outsourcing Services (`AMOS`)
Headline earnings for the m Cubed operations for the 10 months to 31 December
2004 was R21 million compared to R17 million for the full 12 months to 29
February 2004. The major contributors to this increase were improved investment
market conditions and good revenue growth from transitional management
activities.
The balance of the two months ending 28 February 2005 includes 50% of the
profits from the merged entity.
Escher Structured Products (`ESP`)
ESP showed a 13% growth in net earnings, despite difficult trading conditions
and the effect of the uncertainty surrounding the merger on new business.
Corporate Money Managers (`CMM`)
CMM increased its assets under management by 9%, despite the investment cycle
continuing to favour equity and property and the resultant outflow of clients`
funds from cash and bonds. CMM expects the trend away from cash and bonds to
continue into the next financial year.
Policy Exchange (`Polex`)
Polex experienced a 60% drop in turnover and a net loss for the year, as a
result of the difficult trading conditions caused by the continued shortage of
tradable stock. Polex managed to break even for the last quarter as stock flow
improved marginally.
Recent improved bonus declarations by the major insurers will have a positive
effect on trading and Polex is expected to return to profitability during the
2006 financial year.
Escher UK
Escher UK reached profitability and had an excellent year. Assets under
management grew to approximately
GBP450 million (2004: around GBP300 million). The position was helped by strong
world equity markets and good growth in the client base from widening the
network of consulting intermediaries.
Prospects
The completion of the multi-manager merger starts a new chapter for m Cubed and
the streamlined business as we enter the new financial year.
The anticipated growth in our group benefit and life investment product areas is
expected to make a substantial contribution to the group in the forthcoming
year.
As published, m Cubed`s second life licence was sold at 1 March 2005.
Exiting non-core businesses will continue to unlock value for m Cubed
stakeholders.
Advantage Asset Managers has a bright future ahead. Synergies from the merger,
including joint negotiating power, cost elimination and enlarged distribution
are already bearing dividends and it is expected to produce positive results in
the coming year.
The board has authorised the buy-back of shares at current market levels and
will continue to review the capital requirements of the business and make
adjustments where necessary.
With our team`s efforts refocused on our core business of providing innovative
investment, retirement and group benefit products to the market, we are
confident that our new business model will deliver value to all our
stakeholders.
Dividend
The directors have declared a dividend of 1.5 cents per share for the year ended
28 February 2005 (2004: 1.5 cents per share). The dividend will be payable to
the shareholders recorded in the register at the close of business on Friday, 27
May 2005. The following dates are relevant to shareholders in respect of the
dividend payment:
* Last day to trade cum dividend Friday, 20 May 2005
* Commence trading ex-dividend Monday, 23 May 2005
* Record date and last day to register Friday, 27 May 2005
* Date of dividend payment Monday, 30 May 2005
Share certificates may not be dematerialised or dematerialised between 23 May
2005 and 27 May 2005, both dates inclusive.
For and on behalf of the board of directors
J de Vos du Toit
Chairman
J C Storey
Group managing director
26 April 2005
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) Ltd,
70 Marshall Street, Johannesburg 2000.
PO Box 61051,
Marshalltown,
2107.
Telephone: (011)370 5000,
Facsimile: (011)370 5487.
DIRECTORS: J d/v du Toit (Chairman)*, JC Storey
(Group MD), CMB Bothner*, W Roux*, M
Smith*, * Non-executive.
COMPANY SECRETARY: J Steyn.
AUDITORS: PKF (JHB) Inc, Chartered Accountants
(SA), Registered Accountants and
Auditors.
BANKERS: Standard Bank of South Africa.
ATTORNEYS: Smith Tabata Ramsay Webber Buchanan
Boyes
Attorneys, Webber Wentzel Bowens.
SPONSORS: PSG Capital Limited.
