| Tue 29 Nov 2005, 17:00 | | mCubed-Unaudited interim financial results for the |
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mCubed-Unaudited interim financial results for the 6 months ended 31 August 2005
M CUBED HOLDINGS LIMITED
(INCORPORATED IN THE REPUBLIC OF SOUTH AFRICA)
REGISTRATION NUMBER: 1998/014568/06
SHARE CODE: MCU & ISIN: ZAE000033353
UNAUDITED INTERIM FINANCIAL RESULTS FOR THE 6 MONTHS ENDED 31 AUGUST 2005
INCOME STATEMENT
Unaudited Unaudited
6 months 6 months Audited
ended ended year ended
31 August 31 August 28 February
2005 2004 2005
Actual % Restated Restated
R"000 Change R"000 R"000
Net revenue 158 387 206 706 411 380
Cost of revenue (85 710) (105 917) (208 025)
Gross profit 72 677 100 789 203 355
Operating expenditure (56 609) 22.2 (72 725) (146 909)
Depreciation (3 340) 50.1 (6 690) (13 807)
Results of operating
activities 12 728 (40.5) 21 374 42 639
Finance income 12 681 33.2 9 517 22 166
Finance expense (491) 19.5 (610) (691)
Share of profit of associate 7 852 - 2 727
Write-off of goodwill (27 894) (86) (2 285)
Profit before
non-trading items 4 876 (83.9) 30 195 64 556
Disposal of businesses 37 685 - 57 824
Net profit before taxation 42 561 41.0 30 195 122 380
Taxation (17 469) (50.0) (11 647) (26 499)
Net profit for the period 25 092 35.3 18 548 95 881
Reconciliation between headline
earnings and net profit for
the period
Net profit after taxation 25 092 18 548 95 881
Disposal of businesses (37 685)* - (57 824)
Capital gains tax on disposal
of business 3 280 - -
Write-off of goodwill 27 894 86 2 285
Headline earnings attributable
to shareholders 18 581 (0.28) 18 634 40 342
Weighted number of shares in issue
excluding treasury
shares (`000) 735 985 720 781 726 774
Earnings per share (cents) 3.41 32.68 2.57 13.19
Headline earnings
per share (cents) 2.52 (2.7) 2.59 5.55
*Includes profits on disposal of Escher UK
(R36.4 million), m Cubed Investment Life
Limited (R0.5 million) and Corporate Money
Managers (Proprietary) Limited (R0.8 million).
BALANCE SHEET
Unaudited Unaudited Audited
31 August 31 August 28 February
2005 2004 2005
Actual Restated Restated
R"000 R"000 R"000
ASSETS
Non-current assets
Property, plant and equipment 8 864 15 278 10 945
Investments 9 607 453 21 202 906 22 028 044
Goodwill 84 157 175 045 111 240
Investment in associate 62 253 - 54 402
Loans and advances 7 334 10 438 7 853
Deferred acquisition cost 30 444 - 44 278
Deferred taxation 3 048 190 7 677
9 803 553 21 403 857 22 264 439
Current assets
Receivables and prepayments 41 490 36 414 20 427
Cash and cash equivalents 187 184 120 997 151 586
228 674 157 411 172 013
Total assets 10 032 227 21 561 268 22 436 452
EQUITY AND LIABILITIES
Capital and reserves
Ordinary shareholders" funds 365 990 379 183 349 983
Minority interests - 447 447
365 990 379 630 350 430
Non-current liabilities
Policyholder liabilities 9 548 780 21 120 060 21 960 707
Insurance contracts 27 351 25 900 26 719
Investment contracts 9 521 429 21 094 160 21 933 988
Deferred revenue liability 31 525 - 49 928
9 580 305 21 120 060 22 010 635
Current liabilities
Trade and other payables 84 420 60 932 74 962
Current tax liabilities 1 512 646 425
85 932 61 578 75 387
Total equity and liabilities 10 032 227 21 561 268 22 436 452
Number of shares in issue excluding
treasury shares (`000) 735 985 720 781 726 774
Net asset value per share (cents) 49.7 52.7 48.3
Net tangible asset value
per share (cents) 38.3 28.4 32.9
CASH FLOW STATEMENT
Unaudited Unaudited Audited
6 months ended 6 months ended year ended
31 August 31 August 28 February
2005 2004 2005
R"000 R"000 R"000
Operating activities (346 806) 234 099 (966 090)
Cash (utilised by)/generated
from operations (332 361) 248 214 (945 840)
Finance income 12 681 9 517 22 166
Finance expense (491) (610) (691)
Taxation paid (15 643) (12 215) (30 919)
Dividends paid (10 992) (10 807) (10 806)
Investing activities 379 159 (227 254) 1 097 519
Additions to property, plant
and equipment (1 384) (1 710) (3 422)
Proceeds on disposal of
property, plant
and equipment - 54 89
Acquisition of businesses - (429) -
Disposal of businesses 60 485 - 181 514
Decrease/(increase) in
investments 319 538 (227 571) 1 026 351
Investment in associates - - (112 000)
Decrease in loans receivable 520 2 402 4 987
Financing activities 3 245 - (93 995)
Treasury shares purchased - - (548)
Capital distribution - - (96 997)
Shares sold by share
incentive trust 3 245 - 3 550
Net movement in cash and
cash equivalents 35 598 6 845 37 434
Net cash and cash equivalents
at beginning of year 151 586 114 152 114 152
Net cash and cash equivalents
at end of year 187 184 120 997 151 586
STATEMENT OF CHANGES IN EQUITY
Non-
distrib-
Share Share utable Accumulated
capital premium reserves profits Total
R"000 R"000 R"000 R"000 R"000
Balance at
1 March 2005
as previously stated 7 267 223 744 (13 692) 118 081 335 400
Transitional adjustments
to retained income on
adoption of IFRS - - 14 201 382 14 583
Balance at 1 March 2005
restated 7 267 223 744 509 118 463 349 983
Decrease in foreign currency
translation reserve - - (993) - (993)
Dividend - - - (10 992) (10 992)
Attributable earnings - - - 25 092 25 092
Share based payments - - - 93 93
Shares sold by share incentive
trust 86 3 159 - (438) 2 807
Balance at 31 August 2005 7 353 226 903 (484) 132 218 365 990
Reconciliation of restated statement
of changes in shareholders" equity
as reported under IFRS
28 February 31 August 29 February
2005 2004 2004
R"000 R"000 R"000
As previously reported
under SA GAAP 335 400 363 925 366 964
Adjusted for:
Goodwill 24 021 15 258 4 002
Insurance and
investment contracts (9 438) - -
As restated under IFRS 349 983 379 183 370 966
IFRS ADOPTION
The results to 31 August 2005 have been reported in accordance with
International Financial Reporting Standards (IFRS), which were adopted with
effect from 29 February 2004. Certain accounting policies are therefore not
consistent with those applied in the annual financial statements for the year
ended 28 February 2005. The comparative results for the six months ended 31
August 2004 and the year ended 28 February 2005 have been restated in terms of
the adoption of IFRS in these interim financial statements.
Note 1: Goodwill
Previously the group recognised acquired goodwill at cost and amortised it on a
straight-line basis over its expected useful life. Goodwill was subject to
review for indications of impairment and any impairment losses were recognised
in the income statements as it arose. IFRS 3 requires that goodwill is not
amortised, but is subject to impairment reviews, both annually and when there
are indications that the carry value may not be recoverable. Negative goodwill
is no longer recognised on the balance sheet, but in the income statement as it
arises.
In line with the above, the 2005 goodwill amortisation previously recognised in
the income statement has been reversed.
Note 2: Insurance and investment contracts
Previously the group recognised upfront income and upfront costs earned on
investment contracts in the income statement in the period in which they were
received. IFRS 4 requires that upfront income and upfront costs earned on
(life/fixed term) investment products are amortised and recognised in the income
statement over the period of the investment.
In compliance with IFRS 4, the upfront earnings and costs earned in previous
years relating to policies still in force have been reallocated across the
periods in the income statement according to the terms of those policies. The
resultant deferred tax effects have been accounted for.
SEGMENTAL REPORTING
Net revenue
Recurring Initial
Unaudited Unaudited Audited Unaudited Unaudited Audited
6 months 6 months year 6 months 6 months year
ended ended ended ended ended ended
31 Aug 31 Aug 28 Feb 31 Aug 31 Aug 28 Feb
2005 2004 2005 2005 2004 2005
Rm Rm Rm Rm Rm Rm
Wealth
Management 87 84 184 2 4 7
Asset
Management - 79 136 52 37 70
Specialised
Investments,
Lending and
Treasury 9 1 9 8 2 5
96 164 329 62 43 82
Headline earnings
Unaudited Unaudited Audited
6 months ended 6 months ended year ended
31 August 2005 31 August 2004 28 February 2005
Rm Rm Rm
Wealth Management 14 8 26
Asset Management 6 13 20
Specialised
Investments,
Lending and
Treasury (1) (2) (6)
19 19 40
Accounting policies
These interim results have been prepared in accordance with International
Financial Reporting Standards (IFRS) which were adopted with effect from 29
February 2004, as well as the South African Companies Act of 1973 and the Long-
term Insurance Act of 1998. Certain accounting policies are therefore not
consistent with those applied in the annual financial statements for the year
ended 28 February 2005. The comparative results for the six months ended 31
August 2004 and the year ended 28 February 2005 have been restated in terms of
the adoption of IFRS in these interim financial statements. A full actuarial
valuation is not performed at half-year.
Nature of business
m Cubed Holdings Limited ("m Cubed" or "the company") owns a number of focused
investment services businesses, providing 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.
Corporate activity update
Disposals unlock value for shareholders
Over the last six months m Cubed has made significant progress towards its
stated strategy of unlocking value for its shareholders.
As announced on 16 May 2005, m Cubed entered into agreements to sell certain of
its operations, including the entire issued share capital in:
* m Cubed Life Limited
* Automated Outsourcing Services Limited
* m Cubed Unit Trust Management Company Limited
* m3 Capital Management (Guernsey) Limited
* Policy Exchange (Proprietary) Limited ("Polex")
* to Fidentia Holdings (Proprietary) Limited ("Fidentia"). All of these
disposals are subject to the conditions precedent, including the necessary
regulatory approvals, and will become effective when the conditions precedent
are met and the approvals are obtained. In respect of Polex all conditions
precedent have been met and regulatory approvals obtained and the disposal
became effective on 17 November 2005. The trading results of the abovementioned
companies have been included in the earnings for the six months ended 31 August
2005.
The aggregate disposal consideration for all the businesses set out above is
R234 million, payable in cash.
74.99% of the issued share capital of, and all m Cubed"s claims against Escher
UK, were disposed of to the management of Escher UK, effective 6 June 2005.
Further unlocking of value
In line with its strategy of unlocking value for shareholders, m Cubed has
subsequent to 31 August 2005 accepted an offer from Momentum International
Multi-Managers ("MIMM") to acquire, subject to shareholder approval, its
shareholding and claims in Advantage Asset Managers (Proprietary) Limited
("Advantage"). m Cubed has also disposed of its shareholding in m Cubed Employee
Benefits and will continue to exit its remaining subsidiaries in order to
realise value for shareholders.
Contingent liability
The company is still in negotiations regarding the dispute referred to in the
audited group results for the year ended 28 February 2005 and in subsequent
cautionary announcements. As the claims of and/or demands of the regulator are
disputed by m Cubed, and as the process is currently one of settlement, the
company is not in a position to determine if, when and upon what basis matters
will be settled, or the actual amount, if any, of any potential liability that
may arise.
In relation to the abovementioned dispute, m Cubed"s shares in Advantage and m
Cubed Life Limited as well as an amount of R83 million have been placed as a
deposit in trust for the benefit of m Cubed with the regulator"s attorneys. The
regulator has agreed to release these shares subject to them being replaced
substantially with cash. The board has been advised by its legal advisors that
the amount and/or value of the deposits are not necessarily an accurate
reflection of the amount, if any, that might be settled, forfeited or become the
subject matter of litigation.
Financial review
The first six months have seen continued positive domestic investment
conditions, with markets still largely dominated by the strong Rand and stable
interest rates, which has aided performance across our business units.
Due to the restructuring of the group, and the adoption of IFRS, these results
are not strictly comparable to the previous period. The restructuring includes
the sale of 50% of our asset management business in January 2005, resulting in a
50% investment in Advantage and the sale of Escher UK, Corporate Money Managers
and m Cubed Investment Life.
Headline earnings was R18.6 million (31 August 2004: R18.6 million) for the
period under review, and headline earnings per share was 2.52 cents (31 August
2004: 2.59 cents). Recurring income declined to R96 million (31 August 2004:
R164 million), and initial revenue increased to R62 million (31 August 2004: R43
million), primarily as a result of an improved performance by Polex.
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 made a significant contribution to the group"s results for the
six month period. Headline earnings was R14 million (31 August 2004: R8
million), significantly up primarily as a result of positive contributions from
m Cubed Life. Initial revenue of R2 million was down on last year"s R4 million,
while recurring revenue was R87 million (2004: R84 million) for the period.
Non-discretionary investments
This division"s profit is ahead of budget and a number of large new clients were
gained over the period under review.
Discretionary investments
m Cubed Unit Trusts remains the 5th largest unit trust company in South Africa,
with assets under management of R34 billion (31 August 2004: R28.6 billion).
Annual fee income is up from last year, with local markets performing very well,
on the back of a larger asset base. Our white label offering continues to
experience strong inflows, producing steady annuity income for the division.
Group benefits
This business has continued to grow its client and technology base, which should
continue to improve its prospects.
Administration outsourcing
The unit trust and wrap outsourced administration division continues to show
good performance, exceeding budget. New clients as well as new funds launched,
client specific system integration and the general growth in industry assets
contributed to the division"s performance.
2. Specialised Investments, Lending and Treasury
This division produced a headline loss of R1 million (31 August 2004: R2 million
headline loss). Recurring revenue was R9 million (31 August 2004: R1 million),
while initial revenue was R8 million (31 August 2004: R2 million). The bulk of
the recurring revenue was earned by businesses which are in the process of being
disposed of.
Specialised Investments
The division continued concluding medium sized transactions, enabling it to meet
budget.
Specialised Lending
The division ended the period behind budget due to declining new loan advances
and an erosion of the gross interest margin as a result of low prime lending
rates. Full provisioning has been 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.
3. Asset Management
This provides multi-manager asset management, structured products and other
services, primarily to the institutional sector.
Advantage Asset Managers
The launch of Advantage in January 2005 was well received as evidenced by new
client appointments that exceeded R700 million in assets under management for
the period under review. Despite some client losses, Advantage has ended the
period approximately 7% ahead of budgeted profits at R15.7 million after tax
benefiting from strong market movements and contributing R7.9 million to m
Cubed"s headline earnings for the six month period. The business is confident
that it should be able to repeat the first half performance, assuming no
material equity market deterioration.
Advantage has recently announced a broad-based black economic empowerment
transaction with WDB Investment Holdings and black staff. It is anticipated that
this will result in positive business prospects with retirement fund trustees.
As mentioned above, m Cubed will dispose of its shareholding in Advantage to
MIMM.
Polex
Trading conditions have improved during the last six months and Polex has
returned to profitability, reporting a modest profit for the period under
review. Continued improvements in the reported investment returns of the major
insurers are expected to have a positive influence on the trading stock position
and Polex is expected to further improve its profitability during the second
half of the financial year.
Escher UK
Escher UK was disposed of with effect from 6 June 2005.
Resignation of director
John Storey resigned as group managing director with effect from 30 September
2005.
Prospects
Our focus remains on unlocking value for shareholders by disposing of the
remaining businesses. Pending resolution and/or finalisation of the dispute with
the regulator, which may be protracted, available cash resources will be
distributed to shareholders from time to time.
The company advises shareholders to continue to exercise caution when trading in
its shares.
Dividend
No interim dividend has been declared, in line with group policy.
For and on behalf of the board of directors
J de Vos du Toit
Chairman
23 November 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)*, CMB Bothner*, W Roux*, M Smith*, * Non-
executive.
AUDITORS: PKF (JHB) Inc, Chartered Accountants (SA), Registered Accountants and
Auditors.
COMPANY SECRETARY: L Rabbie.
BANKERS: Standard Bank of South Africa. SPONSORS: PSG Capital Limited
ATTORNEYS: Smith Tabata Ramsay Webber Buchanan Boyes Attorneys, Webber Wentzel
Bowens, Jan S de Villiers Attorneys
Date: 29/11/2005 05:01:17 PM Produced by the JSE SENS Department
