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Trading Statement, Related Party Terms Announcement, Acquisition of a stake in an Asset Manager, Change to Directors
ECSPONENT LIMITED
Incorporated in the Republic of South Africa
Registration number: 1998/013215/06
JSE Code: ECS - ISIN: ZAE000179594
("the Company" or "Ecsponent")
TRADING STATEMENT, RELATED PARTY TERMS ANNOUNCEMENT, ACQUISITION OF AN
INTEREST IN CLADE INVESTMENT MANAGEMENT PROPRIETARY LIMITED (“Clade”) AND
CHANGES TO THE BOARD OF DIRECTORS
Introduction
The board of directors of Ecsponent (“the Board”) is pleased to advise shareholders of the ongoing
increase in its business footprint through furtherance of its acquisitive growth strategy and the resultant
continued improvement in the Company’s results.
Trading Statement
In terms of the Listings Requirements of the JSE a company is required to publish a trading statement
as soon as the company is satisfied, with a reasonable degree of certainty, that the financial results for
the period to be reported upon next will differ by at least 20% from those of the corresponding reporting
period of the previous year ("Comparative Period").
The Board therefore advise shareholders of the following forecasts for the year ended 31
December 2015, as compared with the published results for the year ended 31 December 2014:
- Earnings per share (“EPS”) is expected to increase by a minimum of 100% from 1.190 cents for
the previously reported comparative period, resulting in a minimum EPS of 2.381 cents per share;
and
- Headline earnings per share (“HEPS”) is expected to increase by a minimum of 40% from 0.935
cents for the previously reported comparative period, resulting in a minimum HEPS of 1.309 cents
per share.
The forecasts in respect of the year ended 31 December 2015, on which the trading statement is based,
have not been reviewed, audited or reported on by the Company's auditors.
An updated trading statement will be released as soon as the Board has a greater degree of certainty
on the forecast results for the year.
Acquisitions by the Company
The Board is pleased to announce that Ecsponent has agreed the terms of various transactions in
furtherance of its business development strategy. These transactions include:
1. an agreement between Ecsponent Development Fund Proprietary Limited (“ECS Development”),
a wholly-owned subsidiary of the Company, and Ecsponent Investment Holdings Proprietary
Limited (“EIH”), a wholly owned subsidiary of Ecsponent Capital (RF) Limited (“Ecsponent
Capital”), the holding company of Ecsponent, regarding the sale of the business of EIH to ECS
Development as a going concern (“the EIH Transaction”);
2. an agreement between the Ecsponent Credit Services Proprietary Limited (“Ecsponent Credit
Services”), a subsidiary of the Company, and Ecsponent Business Finance Limited (“EBF”) to
dispose of the debtor collection books of Ecsponent Credit Services to EBF (“the EBF
Transaction”);
3. an agreement between the Company and Ecsponent Capital to acquire 51% of the shares in Return
on Innovation Proprietary Limited (“ROI”) from Ecsponent Capital (“the ROI Transaction”); and
4. the acquisition of a 51% interest in Clade , an asset management company (“the Clade
Transaction”).
Further details on each transaction are set out below:
The EIH Transaction
Description of the business of EIH
EIH operates as a financial services entity. The core business of EIH is the provision of financing to
small and medium sized enterprises (“SMEs”). EIH has developed an innovative approach to SME
funding and has built a significant financing book in a short space of time. At the transaction date the
SME loan book has a minimum of R75m in receivables.
Rationale for the EIH Transaction
The EIH business will provide high yielding financing opportunities which offer an attractive proposition
for the Company and the acquisition is in line with both Ecsponent’s expansion strategy as well as its
positioning as a provider of wholesale funding. ECS Development will focus predominantly on providing
funding and expertise in the enterprise development niche markets. ECS Development is investing in
significant infrastructure and skills in the sector and the acquisition provides improved deal flow to the
business unit.
Significant terms and conditions of the EIH Transaction
A total purchase consideration of R200 million (the “Purchase Consideration”) is payable by ECS
Development to EIH as consideration for the business of EIH as a going concern, which includes, inter
alia, its assets, intellectual property, trademarks, brands, designs, etc. and goodwill.
The Purchase Consideration will be settled in cash in accordance with a schedule agreed to between
ECS Development and EIH, the first payment being on 30 April 2016 and the last payment being on
31 May 2019. A total amount of R248 989 229 including capital and interest will be paid in terms of the
said schedule.
Any unpaid balance of the Purchase Consideration, shall accrue interest at a rate of 12.5% per annum,
compounded monthly in arrears. In the event that ECS Development is in default of its payment
obligations, the said interest rate will increase by an additional 2% per annum.
EIH has warranted the minimum return on the receivables as at the date of the transaction as well as a
minimum profit before taxation of R25m for the year ending 31 December 2016.
Financial information of EIH
EIH operated as a test bed for enterprise finance during 2014 and became fully operational in 2015.
Financial information regarding EIH for the 2014 financial year is set out below:
- Net liabilities amounted to R50 612 as at 31 December 2014, being the last reporting date for
EIH; and
- A net loss for the year ended 31 December 2014 amounted to R51 612.
EIH operated profitably during the 2015 financial year to date.
Suspensive conditions
The EIH Transaction is subject to the fulfilment of the following suspensive conditions, on or before 31
March 2016:
a) approval by the sole shareholder of EIH of the EIH Transaction in terms of sections 112 and 115
of the Companies Act;
b) approval by the board of directors of ECS Development;
c) conclusion of a due diligence investigation in respect of the business of EIH to the satisfaction
of the board of ECS Development;
and the following suspensive conditions by 31 March 2016:
a) receipt by the Company of a fairness opinion from an independent professional expert
acceptable to the JSE;
b) approval by the shareholders of the Company (excluding Ecsponent Capital and its associates)
of the EIH Transaction in terms of the JSE Listings Requirements;
c) approval by the Takeover Regulations Panel of the EIH Transaction to the extent necessary;
and
d) approval by the Competition Commission of the EIH Transaction to the extent necessary.
Effective date
The effective date of the EIH Transaction will be the day on which the last of the suspensive conditions
set out above have been met, which is expected to be on or about 31 March 2016.
Categorisation of the EIH Transaction
The EIH Transaction is a related party transaction as defined by the JSE Listings Requirements. A
circular will be posted to shareholders of the Company incorporating the requisite fairness opinion and
a notice of general meeting in due course.
The ROI Transaction
Description of the business of ROI
ROI is a high technology media intelligence business which provides its clients with state of the art
media monitoring, early phase trend detection, trend analysis, brand management, etc. The real time
tracking of media empowers clients to respond appropriately to current opportunities or threats. At the
heart of the monitoring system is ultra-high speed digitization of multimedia with specialist matching
algorithms for identification of key words. The source includes all media from TV and social media to
print media and covers an international base.
Rationale for the ROI Transaction
The Group looks to acquire private equity investments which have high gross profits, high barriers to
entry, high intellectual property and investments which have application beyond the borders of South
Africa. The ROI acquisition satisfies all these requirements.
Significant terms and conditions of the ROI Transaction
A total purchase consideration of R1.5 million is payable to Ecsponent Capital in cash for 51 ordinary
shares in ROI, comprising 51% of the issued share capital of ROI. Ownership, risks and benefits of the
shares will transfer to the Company when the purchase price has been settled in full.
All other terms and conditions are standard for a transaction of this nature.
Financial information of ROI
ROI only commenced formal operations in October 2014 and has grown significantly in 2015. Financial
information regarding ROI for the 2014 financial year is set out below:
- Net liabilities amounted to R777 956 as at 31 December 2014, being the last reporting date for
ROI; and
- A net loss for the year ended 31 December 2014 of R778 956 was reported.
ROI became profitable during the 2015 financial year.
Suspensive conditions
The ROI Transaction is subject to the fulfilment of the following suspensive conditions:
a) distribution of a circular to the Company’s shareholders;
b) receipt by the Company of a fairness opinion from an independent professional expert acceptable
to the JSE confirming that the terms of the ROI Transaction are fair in so far as shareholders of
the Company (excluding Ecsponent Capital and its associates) are concerned, failing which,
shareholder approval shall be required;
c) approval by the Board of the ROI Transaction.
Categorisation of the ROI Transaction
The ROI Transaction is a small related party transaction as defined by the JSE Listings Requirements.
Accordingly, the Company has appointed Questco (Pty) Ltd (“Questco”) as the independent expert to
provide written confirmation of the fairness of the ROI Transaction to shareholders and to the JSE. The
findings of Questco in relation to the fairness of the ROI Transaction will be announced on SENS in due
course, prior to completion of the ROI Transaction. Provided that the fairness opinion reflects that the
ROI Transaction is fair in so far as shareholders are concerned, no shareholder approval will be
required, failing which a circular will be sent to shareholders, convening a meeting for the approval of
the ROI Transaction.
Sale of collection books to EBF
Description of the transaction
The Ecsponent Group has decided to dispose of the debtor collection books to Ecsponent Business
Finance (EBF), a subsidiary of Ecsponent Capital, as part of the new aligned group focus on financial
services. The assets include debtor books acquired from third parties including Truworths, U Bank and
Getbucks, as well as aged debt from the Group’s own credit operations. EBF holds a large portfolio of
debtor books.
Rationale for the transaction
Ecsponent has, as part of its new aligned focus on financial services, decided to dispose of its collection
books. This disposal will focus the attention on the new group strategy in optimising shareholders’
return.
Significant terms and conditions of the transaction
A total purchase consideration of R9.0 million is payable in cash to Ecsponent Credit Services for the
acquired debt books. Ownership, risks and benefits of the assets will transfer to the Company when the
purchase price has been settled in full.
All other terms and conditions are standard for a transaction of this nature.
Financial information of the transaction
Financial information regarding the acquired debt is set out below:
- Net assets amounted to R3 240 630 as at 31 December 2014, being the last reporting date;
and
- Revenue for the year ended 31 December 2014 amounted to R2 169 852.
Post the 2014 year end, net asset value increased with additional receivables which were added to the
portfolio from both the Truworths asset as well as from Group derived aged debtors.
Suspensive conditions
The EBF Transaction is subject to the fulfilment of the following suspensive conditions:
a) The distribution of a circular to the Company’s shareholders;
b) receipt by the Company of a fairness opinion from an independent professional expert
acceptable to the JSE;
c) approval by the board of the Company;
Categorisation of the transaction
The EBF Transaction is a small related party transaction as defined by the JSE Listings Requirements.
Accordingly, the Company has appointed Questco as the independent expert to provide written
confirmation of the fairness of the EBF Transaction to shareholders (excluding Ecsponent Capital and
its associates) and to the JSE. The findings of Questco in relation to the fairness of the EBF Transaction
will be announced on SENS in due course, prior to completion of the EBF Transaction. Provided that
the fairness opinion reflects that the EBF Transaction is fair in so far as shareholders (excluding
Ecsponent Capital and its associates) are concerned, no shareholder approval will be required, failing
which a circular will be sent to shareholders, convening a meeting for the approval of the EBF
Transaction.
The Clade Transaction
Clade, founded in 2004, is an innovative asset manager operating out of South Africa. It has category
2 and 2A investment licences with the Financial Services Board. Clade offers a comprehensive range
of alternative, traditional long-only and hybrid investment solutions for investors in Africa and globally.
It is at the cutting edge of modern portfolio techniques, employing a dynamic beta principle in their
strategies to deliver stable, consistent returns to clients.
Clade focuses on providing high-quality, low-cost solutions, with high service levels, to knowledgeable
and demanding professional investors both in South Africa and internationally. It also provide retail
versions of their more popular products.
Clade has four retail funds, and won the Bond Exchange of South Africa Spire Award for Most
Innovative Product. The funds have all been top performers in their categories, as measured against
South African competitors, since inception.
Post the acquisition, Clade’s name will be changed to Ecsponent Asset Management.
Prospects of Clade
Clade has received a mandate to manage funds amounting to R500 million. Positive talks are in place
to access a network of more than 100 financial advisors to market products to a retail and institutional
client base.
Significant terms and conditions of the Clade Transaction
Ecsponent has acquired 51% of the ordinary share capital of Clade from the NRC Trust and Gavin Rael
Goldblatt (“the Clade Sellers”) for –
- a deferred cash consideration of R7 million, settled over a period of seven months in equal
monthly instalments of R1 million each; and
- 19 095 617 ordinary shares in Ecsponent (“the Clade Consideration Shares”) to be issued to
the Clade Sellers on fulfillment of all the suspensive conditions, which is expected to be on or
about 4 December 2015.
The Clade Sellers have an option, subject to the requisite approvals being in place, to require Ecsponent
to repurchase the Clade Consideration Shares within a seven month period if the issue price of the
Clade Consideration Shares (being R0.20 per share which is equal to the 30 VWAP at the date of the
signature of the agreement) is lower than the 30-day VWAP on the date of the repurchase. This specific
repurchase will be subject to shareholder approval and compliance with the requisite JSE and
Companies Act requirements.
Categorisation of the Clade Transaction
The Clade Transaction is not a related party or categorised transaction in terms of the JSE Listings
Requirements and accordingly the information on the Clade Transaction has been provided for
information purposes only.
Changes to the Board
The Board is pleased to advise shareholders that Eunè Engelbrecht has been appointed as the Chief
Executive Officer (“CEO”) of the Company with effect from 1 December 2015. Eunè is currently serving
as a non-executive director of the Company and is a director of Ecsponent Capital, the majority
shareholder of the Company. Eunè is a corporate finance specialist having headed up the corporate
finance divisions of numerous organisations. Eunè took control of the Ecsponent Capital group of
companies four years ago and under his guidance the business has reflected exponential growth. Eunè
was instrumental in Ecsponent Capital’s investment drive which resulted in the acquisition of the
majority holding in Ecsponent. The Board believes that Eunè will be a valuable addition to the executive
management team.
Terence Gregory resigns as CEO and will continue with the Group in the capacity of Chief Operating
Officer (“COO”) from the same date. He will continue to be responsible for the ongoing operations of
the Company. The Board is grateful to Terence for his contribution as CEO to date and looks forward
to his continued involvement as COO.
Furthermore, Bryan Shanahan has been appointed as the Financial Director with effect from
1 December 2015. Bryan is a qualified Chartered Accountant with experience across a wide range of
industries and organisations. He held an Audit Manager position at one of the big four international
auditing firms and moved on to become part of the executive management team of a large
manufacturing group operating in Africa, responsible for the group’s financial processes, reporting and
project financing reviews. Bryan currently acts as the group’s Finance Manager. Bryan’s experience
includes financial statement audits and financial reporting for a wide range of entities, governance and
control assessments, company turnaround projects, mergers and acquisitions, risk management and
exposure to corporate finance disciplines.
Dirk van der Merwe has resigned as Financial Director of the Company with effect from 1
December 2015 but will continue to provide consulting services to the Company. The Board thanks Dirk
for his valuable contribution to the Company to date and looks forward to continuing working with him
in a consulting capacity.
1 December 2015
Sponsor and independent expert to the Company
Questco (Pty) Ltd
Date: 01/12/2015 12:14:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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