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MCU
MCU
m Cubed - Group audited financial results for the year ended 28 February 2006,
Notice of AGM and Cautionary Announcement
m Cubed Holdings Limited
(Incorporated in the Republic of South Africa)
Registration Number: 1998/014568/06
Share Code: MCU & ISIN: ZAE000033353
("m Cubed" or the "Company")
Group audited financial results for the year ended 28 February 2006,
Notice of AGM and Cautionary Announcement
INCOME STATEMENT
Audited Reviewed Audited
2006 2006 2005
R"000 R"000 R"000
Net revenue 263 156 263 156 411 380
Cost of revenue (137 070) (137 070) 208 025)
Gross profit 126 086 126 086 203 355
Operating expenditure (113 901) (113 901) (160 716)
Results of operating activities 12 185 12 185 42 639
Finance income 24 279 24 279 22 166
Finance expense - - (691)
Share of profit in associate 10 590 10 590 2 727
Impairment of goodwill (56 034) (27 893) (2 285)
(Loss)/Profit before non-trading items (8 980) 19 161 64 556
Provision for dispute with regulator 90 420) - -
Disposal of businesses 80 376 80 376 57 824
Net (loss)/profit before taxation (19 024) 99 537 122 380
Taxation (27 445) (27 445) (26 499)
Net (loss)/profit for the year (46 469) 72 092 95 881
Reconciliation between headline earnings
and net profit for the year
Net (loss)/profit for the year (46 469) 72 092 95 881
Disposal of businesses (80 376) (80 376) (57 824)
Capital gains tax on disposals 6 525 6 525 -
Impairment of goodwill 56 034 27 893 2 285
Headline (loss)/earnings attributable
to shareholders (64 286) 26 134 40 342
(Loss)/Earnings per share (cents)
(Loss)/Earnings (6.3) 9.8 13.2
Headline (loss)/earnings (8.7) 3.5 5.6
Diluted (loss)/earnings (6.3) 9.7 13.2
Diluted headline (loss)/earnings (8.6) 3.5 5.6
Dividends per share (cents) - - 1.5
Capital distribution per share (cents) - - 13.3
BALANCE SHEET
Audited Reviewed Audited
2006 2006 2005
R"000 R"000 R"000
ASSETS
Non-current assets
Property, plant and equipment 2 210 2 210 10 945
Investments 10 049 010 10 049 010 2 028 044
Insurance contracts 28 043 28 043 26 220
Investment contracts 10 020 967 10 020 967 22 001 824
Deferred acquisition cost 36 000 36 000 31 352
Goodwill 6 702 34 843 111 240
Investments in associate - - 54 402
Loans and advances 177 177 7 853
Deferred taxation 200 200 7 677
10 094 299 10 122 440 2 251 513
Current assets
Receivables and prepayments 183 328 183 328 33 353
Cash and cash equivalents 214 379 214 379 151 586
397 707 397 707 184 939
Total assets 10 492 006 10 520 147 22 436 452
EQUITY AND LIABILITIES
Capital and reserves
Share capital 7 363 7 363 7 267
Share premium 226 878 226 878 223 744
Foreign currency translation reserve (1 447) (1 447) 509
Accumulated profits 60 516 179 077 118 463
Ordinary shareholders" funds 293 310 411 871 349 983
Minority interests - - 447
293 310 411 871 350 430
Non-current liabilities
Policyholder liabilities 10 000 946 10 000 946 21 960 707
Insurance contracts 29 760 29 760 26 719
Investment contracts 9 971 186 9 971 186 21 933 988
Deferred revenue liability 34 001 34 001 33 590
10 034 947 10 034 947 21 994 297
Current liabilities
Trade and other payables 163 224 72 804 91 300
Current tax liabilities 525 525 425
163 749 73 329 91 725
Total equity and liabilities 10 492 006 10 520 147 22 436 452
Number of shares in issue (`000) 736 321 736 321 726 774
Net asset value per share (cents) 39.8 55.9 48.2
Net tangible asset value per share
(cents) 38.9 51.2 32.9
CASH FLOW STATEMENT
Audited Reviewed Audited
2006 2006 2005
R"000 R"000 R"000
Operating activities (621 671) (621 671) (966 090)
Cash utilised by operations (611 268) (611 268) (945 840)
Finance income 24 279 24 279 22 166
Finance expense - - (691)
Taxation paid (23 690) (23 690) (30 919)
Dividends paid (10 992) (10 992) (10 806)
Investing activities 681 906 681 906 1 097 519
Additions to property, plant
and equipment (424) (424) (3 422)
Proceeds on disposal of property,
plant and equipment 99 99 89
Disposal of businesses 53 168 53 168 181 514
Decrease in investments 627 421 627 421 1 026 351
Increase in associate - - (112 000)
Decrease in loans receivable 1 642 1 642 4 987
Financing activities 2 558 2 558 (93 995)
Treasury shares purchased - - (548)
Capital distribution - - (96 997)
Sale of shares by share incentive
trust 2 558 2 558 3 550
Net movement in cash and
cash equivalents 62 793 62 793 37 434
Net cash and cash equivalents at
beginning of year 151 586 151 586 114 152
Net cash and cash equivalents at
end of year 214 379 214 379 151 586
STATEMENT OF CHANGES IN EQUITY
Foreign
currency
Share Share translation Accumulated
Capital premium reserve profits Total
R"000 R"000 R"000 R"000 R"000
Balance at 1 March
2005 7 267 223 744 509 118 463 349 983
Decrease in foreign
currency translation
reserve - - (1 956) - (1 956)
Net loss for the year - - - (46 469) 46 469)
Dividend - - - (10 992) (10 992)
Share based payments - - - 186 186
Shares sold by share
incentive trust 96 3 134 - (672) 2 558
Balance at 2
8 February 2006 7 363 226 878 1 447) 60 516 293 310
Reconciliation of restated statement of changes in shareholders" equity as
reported under IFRS
28 February 1 March
2005 2004
R"000 R"000
As previously reported under SA GAAP 335 400 366 964
Adjusted for:
Goodwill 24 021 4 002
Insurance and investment contracts (9 438) -
As restated under IFRS 349 983 370 966
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 carrying 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 in the income statement according to the terms of those
policies. The resultant deferred tax effects have been accounted for.
SEGMENTAL REPORTING
Headline (Loss)/ Assets Under
Earnings Management
2006 2005 2006 2005
Rm Rm Rbn Rbn
Wealth Management 7 26 10 16
Asset Management 10 20 - 27
Specialised Investments,
Lending and Treasury (81) (6) - -
(64) 40 10 43
Recurring Net Revenue
Initial
2006 2005 2006 2005
Rm Rm Rbn Rbn
Wealth Management 130 184 3 7
Asset Management 3 136 83 70
Specialised Investments,
Lending and Treasury 35 9 9 5
168 329 95 82
Financial Results
The Company published its reviewed financial results for the year ended 28
February 2006 on 12 June 2006 and will distribute its Annual Report to
shareholders on 31 August 2006.
Subsequent to the publication of the reviewed financial results for the year
ended 28 February 2006 the following changes have been made and the effects
thereof, where applicable, are reflected in the consolidated balance sheet,
consolidated income statement, consolidated cash flow and consolidated
statement of changes in equity set out below:
1. An amount of R90 419 704 has been provided in respect of the pending dispute
with the regulator.
2. As a result of the agreement for the disposal of m Cubed Life Limited having
lapsed subsequent to year end, the carrying value of m Cubed Life Limited has
been impaired to net asset value. This adjustment includes the impairment of
goodwill of R28 141 000.
Accounting policies
The accounting policies adopted by the group comply in all material respects
with International Financial Reporting Standards ("IFRS") which were adopted
with effect from 1 March 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.
Comparative figures
The comparative results for the year ended 28 February 2005 have been restated
in terms of the adoption of IFRS in these financial statements.
In addition, opening balances at 1 March 2005 for policyholder liabilities and
related investments have been restated by R184 million in respect of certain
policies previously omitted in error. Although investigations are continuing in
order to establish whether any additional adjustments are required to establish
completeness, significant progress has been made in this regard and the
directors are of the opinion that there is no indication of material
misstatement or mismatch of policyholder liabilities and related assets.
Auditors Qualified Opinion
These results have been audited by PKF (Jhb) Inc.The auditor"s qualified report
is available for inspection at the registered office of the company.
The report is qualified in respect of the provision of R90.4m in respect of the
company"s dispute with the regulator on the basis that the amount cannot be
reliably estimated. In addition emphasis of matter is placed on the uncertainty
in respect of the completeness of policyholder liabilities and related assets
referred to above under the heading "comparative figures".
Nature of business
m Cubed Holdings Limited ("m Cubed" or "the company") historically owned a
number of focused investment services businesses. The company is in the process
of unlocking value for its shareholders by disposing of these businesses and has
made significant progress in realising this strategy over the last 12 months.
Corporate activity update
The following businesses were disposed of prior to 28 February 2006:
Automated Outsourcing Services Limited, to Fidentia Holdings (Proprietary)
Limited ("Fidentia") for R16 million (Disposal date: 23 February 2006).
m Cubed Unit Trust Management Company Limited, to Fidentia for R16.5 million
(Disposal date: 6 December 2005).
Policy Exchange (Proprietary) Limited ("Polex"), to Fidentia for R10 million
(Disposal date: 17 November 2005).
Escher UK Asset Management Limited ("Escher UK"), to the management of Escher UK
and Close Brothers for R40 million (Disposal date: 29 July 2005).
Corporate Money Managers (Proprietary) Limited ("CMM"), to management and an
empowerment partner for R5.5 million (Disposal date: 1 March 2005).
m Cubed"s 50% stake in Advantage Asset Managers (Proprietary) Limited
("Advantage"), to Momentum International Multimanagers (Proprietary) Limited for
R140 million (Disposal date: 1 January 2006).
m Cubed Employee Benefits (Proprietary) Limited to management for R2 million
(Disposal date: 1 October 2005).
m Cubed Investment Life Limited, to Channel Life Limited, for R20 million
(Disposal date: 1 March 2005).
The agreement reached to dispose of m Cubed Life Limited and its associated
divisions to Fidentia for R139 million was subject to Fidentia seeking the
unconditional approval for the disposal from the Financial Services Board by 31
July 2006. This approval was not obtained on or before that date at which time
the agreement lapsed and was of no further force or effect. The board is
considering its position in relation to m Cubed Life Limited.
m3 Capital Management (Guernsey) Limited and AOS Fund Services Limited have also
been sold to Fidentia for R10 million and R2.5 million respectively. These
disposals are subject to the approval of the Guernsey Financial Services
Commission and the effects thereof have not been accounted for in these
financial statements.
m Cubed is in the process of winding down and disposing of all other group
activities.
Dispute with Regulator
The company is still in negotiations regarding the dispute referred to in the
reviewed financial results for the year ended 28 February 2006. 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 ultimately be settled, or the actual
amount, of the final liability.
In relation to the abovementioned dispute, m Cubed"s shares in m Cubed Life
Limited, as well as an amount of R196.6 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 the shares in m Cubed Life Limited, subject
to them being replaced with cash of R126 million.
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, that
might be settled, forfeited or become the subject matter of litigation.
Although as stated the ultimate outcome of the above matter cannot presently be
determined, the directors have raised a provision of R90.4 million in respect
thereof in the financial statements.
Financial review
Due to the disposal of the abovementioned businesses during the year as well as
the adoption of IFRS, these results are not strictly comparable to the previous
period.
The group"s headline loss for the year was R64.3 million (2005: R40.3 million
headline earnings) and the headline loss per share was 8.7 cents (2005: 5.6
cents headline earnings). The headline loss includes earnings of R21 million
relating to businesses disposed of during the year as well as an expense of
R90.4 million incurred by the raising of a provision in respect of the dispute
with the regulator. The net loss for the year was R46.5 million (2005: R95.9
million net profit) and the net loss per share was 6.3 cents (2005: 13.2 cents
net profit).
Recurring income declined to R168 million (2005: R329 million) while initial
income was slightly up from last year to R95 million (2005: R82 million).
Divisional review
Wealth Management
This division distributes the group"s range of local and international non-
discretionary (life) products and services through m Cubed Life Limited and a
network of independent financial advisors and other complementary distribution
channels.
This division"s results were negatively impacted by the market uncertainty
created by the failed disposal of m Cubed Life Limited to Fidentia, as well as
the significant effect of material increases in reinsurance and administration
costs and the sale of m Cubed Investment Life Limited with effect from 1 March
2005.
Headline earnings decreased to R7 million (2005: R26 million) while recurring
income was significantly lower at R130 million (2005: R184 million). Initial
income was also down at R3 million (2005: R7 million).
Assets and liabilities also decreased significantly as a result of the sale of m
Cubed Investment Life Limited at the beginning of the financial year.
Specialised Investments, Lending and Treasury
Specialised Investments which was disposed of subsequent to year end for net
asset value of R36 000, is a niche provider of customised investment solutions
for institutions, corporates and high net worth individuals.
This division"s focus for the year was primarily on assisting m Cubed Holdings
Limited in the unlocking of value for shareholders by the disposal of various
businesses.
Specialised Investments, Lending and Treasury produced a headline loss of R81
million (2005: R6 million)mainly as a result of the provision raised in respect
of the dispute with the regulator of R90.4 million. Recurring revenue was R35
million (2005: R9 million) while initial revenue was R9 million (2005: R5
million).
The Lending division focuses primarily on providing bespoke lending solutions
(generally prime-linked interest-bearing advances) to high net worth individuals
and corporates who invest with m Cubed, while Treasury performs a treasury and
funding function for the group and earns interest income on shareholder funds.
Both these divisions performed in line with expectations.
Asset Management
This business provided multi-manager asset management, structured products and
other services, primarily to the institutional sector, through our investment in
Advantage Asset Managers, which was disposed of prior to year end.
Asset Management produced headline earnings of R10 million (2005: R20 million)
due to the reduced shareholding in the Asset Management business.
Recurring income decreased significantly to R3 million (2005: R136 million)
primarily as a result of the sale of Escher UK as well as the business of m
Cubed Asset Management (Pty) Limited to Advantage.
The slight improvement in initial income to R83 million (2005: R70 million) was
due to an improved performance from Polex which, as mentioned above, was sold
during the year.
Prospects and dividend
Our focus remains on unlocking value for shareholders by disposing of and
unwinding 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. In light of this, no year end
dividend is to be declared.
Notice of annual general meeting
Notice is hereby given that the annual general meeting of the company will be
held on the 1st Floor, PSG House, Alphen Park, Constantia, Main Road,
Constantia, Cape Town, 7806, on 28 September 2006 at 11:00 am to transact the
business as stated in the notice of annual general meeting included in the
Company"s Annual Report.
Renewal of cautionary announcement
As mentioned above, negotiations in respect of the dispute with the regulator
are still in progress and the company advises shareholders to continue
exercising caution when trading in its shares.
For and on behalf of the board of directors
J d/v du Toit
Chairman
25 August 2006
Sponsor: PSG Capital
Date: 28/08/2006 07:02:08 AM Produced by the JSE SENS Department
