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Unaudited Interim Results for the 6 month period ended 30 June 2014
ECSPONENT LIMITED
(Previously John Daniel Holdings Limited)
Incorporated in the Republic of South Africa
Registration number: 1998/013215/06
JSE Code: ECS - ISIN: ZAE000179594
("the Company" or "ECS" or "the Group")
UNAUDITED INTERIM RESULTS FOR THE 6 MONTH PERIOD ENDED 30 June
2014
OPERATIONAL REVIEW
The Group continues to focus on growing its existing
subsidiaries and on its expansion strategy prioritising
investments in financial services operations which have clear
African strategy.
The Group made the following progress during the period in
implementing the expansion plans:
- acquisition of a financial service business significantly
enhancing its client base and access to the employee credit
services market;
- acquisition of strategic growth businesses from related
parties with effect from 25 July 2014;
- announcement of a partially underwritten rights offer that
closed on 19 September 2014 and raised R63.6 million to
fund, inter alia, the expansion strategy;
- continued growth in financial services business with the
employee benefits asset increasing 216%, acquired financial
assets increasing with 153% and financial services revenue
increasing with 118% in comparison to the previous interim
reporting period;
- acquisition of a financial services provider including its
associated broker network enabling the Group to further
leverage its new financial services products;
- acquisition of the Group’s own collections business
providing direct control over the Group’s collections
activities;
- begun the roll out of the Group’s Africa strategy through
acquisitions or incorporation in three countries;
- launch of a second biotechnology brand to further entrench
the Group’s leadership in this sector; and
- disposal of the Group’s non-core loss making SO2 division in
January 2014.
Group overview
Below is an overview of the Group’s operations during the
interim period.
Financial services
The financial services operations reported a 118% increase in
revenue to R7.3 million for the 6 months ended 30 June 2014
compared to R3.4 million revenue for the comparative period.
The demand for credit remains buoyant and the financial services
operation is well positioned to leverage opportunities within
the market. The business currently provides credit for:
- Employee benefits provided to selected employers and
secured by contracts;
- Vendor finance;
- SME finance; and
- Credit products to clients of Group companies.
The feasibility of additional products and market opportunities
are investigated on an ongoing basis.
The financial results in the credit sector of the market are
currently under pressure due to high default rates within the
South African market. The Group continuously evaluates its
product policy to ensure that it is able to respond
appropriately to changes in market conditions and employer level
risks that impact on the Groups financial assets.
The financial services operations continue to seek opportunities
to acquire assets which can be profitably leveraged through the
Group’s collections infrastructure. Management has developed a
thorough process to evaluate potential assets prior to purchase,
in order to mitigate performance risk and enhance returns.
The primary costs in the financial services operations is the
cost of capital required to fund the acquisition and growth of
the targeted assets. Management continue to investigate
alternative funding options to increase the availability of
funds and to reduce the funding costs, thereby positively
impacting on profitability. In this regard the Company has
developed a range of investment products and the IPO for the
first products is scheduled for 29th September 2014.
Biotechnology
The biotechnology operations contributed 58% of the Group’s
total revenue amounting to R10 million for the interim period.
The Cryo-Save brand continues to return strong revenue
performance. Cryo-Save reported an operating profit of R653 655
for the interim period compared to operating losses for the
preceding comparative 6 month period and the 12 months ended
31 December 2013.
Salveo Swiss Biotechnology, an additional biotechnology brand was
launched during the 6 months ended 30 June 2014. The start-up
costs incurred has resulted in the combined biotechnology
businesses returning a breakeven operational performance.
Agricultural packaging
The disposal of the SO2 sheet division was effected as a going
concern for R6.3 million took effect from 31 January 2014.
PROSPECTS
Key elements of the on-going expansion strategy are the
continued growth of subsidiaries through product and market
extension, aggressive trading and cost reduction as well as the
acquisition of new subsidiaries which are profit generating and
aligned with the Group’s strategy. The abovementioned approach
is aimed at developing a robust and complementary financial
services Group which provide sustainable returns.
RESULTS
Presented below are the unaudited interim results for the 6 month
period ended 30 June 2014.
Unaudited Condensed Statement of Financial Position as at
30 June 2014
Interim Interim Audited
Unaudited Unaudited Group
Group Group
30 June 30 June 31 December
2014 2013 2013
R ‘000 R ‘000 R ‘000
ASSETS
Non-current assets
Property, plant and 5 128 6 725 4 716
equipment
Intangible assets 706 1 820 706
Other financial assets 23 817 6 524 13 666
Deferred tax 11 430 12 132 11 138
Total current assets 39 972 47 113 26 426
Assets of discontinued - - 4 046
operations
TOTAL ASSETS 81 053 74 314 60 698
EQUITY AND LIABILITIES
Equity 25 916 21 736 23 773
Non-controlling (783) (798) (1 240)
interest
Non-current liabilities
Other financial 33 986 40 547 18 798
liabilities
Deferred tax 438 1 152 768
Total current 21 496 11 677 18 599
liabilities
TOTAL EQUITY AND 81 053 74 314 60 698
LIABILIIES
Net assets value 25 916 21 736 23 773
Net tangible asset 25 210 19 916 23 067
value
Net asset value per 5.80 4.89 5.35
share (cents)
Net tangible asset 5.64 4.48 5.19
value per share (cents)
Unaudited Condensed Statement of Profit and Loss and Other
Comprehensive Income for the 6 months ended 30 June 2014
The SO2 gas sheet manufacturing division is classified as a
discontinued operation in the 30 June 2014 interim results,
consequently the comparative Consolidated Statement of Profit
and Loss and Other Comprehensive Income has been restated to
show the discontinued operation separately from the continuing
operations.
Interim Interim
Unaudited Unaudited Audited
Group Group Group
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2014 2013 2013
R ‘000 R ‘000 R ‘000
Revenue 17 359 15 125 37 317
Cost of sales (3 978) (4 244) (8 215)
GROSS PROFIT 13 381 10 881 29 102
Other income 250 467 75
Operating expenses (12 444) (9 626) (21 206)
OPERATING PROFIT 1 187 1 722 7 971
Gain on disposal of
discontinued operations 2 154 - -
Net Finance costs (205) (267) (1 818)
PROFIT BEFORE TAXATION 3 136 1 455 6 153
Taxation (844) (423) (1 725)
PROFIT FROM CONTINUING 2 292 1 032 4 428
OPERATIONS
Loss from discontinued (609) (1 617) (3 395)
operations
PROFIT / (LOSS) FOR THE 1 683 (585) 1 033
PERIOD
Loss attributable to 40 604 1 092
non-controlling interest
NET PROFIT ATTRIBUTABLE 1 723 19 2 125
TO ORDINARY SHAREHOLDERS
OF THE PARENT
BASIC AND HEADLINE
EARNINGS
Basic and diluted 1 723 19 2 125
earnings
Headline and diluted 72 46 2 335
headline earnings
Basic and diluted 0.388 0.004 0.479
earnings per share
(cents) attributable to
equity holders of the
parent
Headline earnings and 0.016 0.010 0.526
diluted headline
earnings per share
(cents) attributable to
equity holders of the
parent
Number of shares in 447 132 678 444 132 678 444 132 678
issue
Weighted average number 444 132 678 444 132 678 444 131 678
of shares
RECONCILIATION BETWEEN
BASIC PROFIT AND
HEADLINE EARNINGS
IAS 33 Basic Profit 1 723 19 2 125
IFRS 5 Gain on disposal (1 482)
of discontinued
operations
IFRS 3 Bargain purchase (166)
IAS 16 (Profit)/Loss on (3) 27 147
disposal of property,
plant and equipment
IAS 16 Impairment of - - 63
property, plant and
equipment
Headline Earnings 72 46 2 335
Unaudited Condensed Segmental Information for the 6 months ended
30 June 2014
The segments identified are based on the operational and
financial information reviewed by management for performance
assessment and resource allocation. There has been no change in
the basis of segmentation or in the basis of measurement of
segment profit or loss since the last annual financial
statements published.
Unaudited for the 6 months ended 30 June 2014
Segment Revenue Operating
profit /
(loss)
R’000 R’000
Financial Services 7 322 2 126
Biotechnology 9 993 4
Agricultural packaging – discontinued 69 (939)
Corporate head office 1 787 (345)
Eliminations (1 743) (598)
Transfer to discontinued operations (69) 939
Group total 17 359 1 187
Unaudited for the 6 months ended 30 June 2013
Segment Revenue Operating
profit /
(loss)
R’000 R’000
Financial Services 3 360 2 102
Biotechnology 10 265 (415)
Agricultural packaging – discontinued 909 (1 350)
Corporate head office 3 038 (121)
Eliminations (1 538) -
Transfer to discontinued operations (909) 1 506
Group total 15 125 1 722
Audited for the 12 months ended 31 December 2013
Segment Revenue Operating
profit /
(loss)
R’000 R’000
Financial Services 8 724 4 643
Biotechnology 20 611 (310)
Agricultural packaging – discontinued 4 138 (3 373)
operations
Corporate head office 11 350 784
Eliminations (3 368) 2 804
Transfer to discontinued operations (4 138) 3 423
Group total 37 317 7 971
Unaudited Condensed Statement of Changes in Equity for the 6
months ended 30 June 2014
Share Non Accumul- Non- Total
capital distribute- ated loss controlli equity
able ng
reserves interest
R’000 R’000 R’000 R’000 R’000
Unaudited Group 30 June 2014
Balance as at 55 226 3 842 (35 296) (1 240) 22 532
1 January
2014
Issue of 420 - - - 420
shares
Total - - 1 723 (40) 1 683
comprehensive
profit for
the 6 months
Business - - - 497 497
Combinations
Balance as at 55 646 3 842 (33 573) (783) 25 132
30 June 2014
Unaudited Group 30 June 2013
Balance as at 55 226 3 912 (37 421) (194) 21 523
1 January
2013
Total - - 19 (604) (585)
comprehensive
profit /
(loss) for
the 6 months
Balance as at 55 226 3 912 (37 402) (798) 20 938
30 June 2013
Audited Group 31 December 2013
Balance as at 36 496 7 752 (41 519) 1 118 3 847
1 October
2011
Total - - 1 993 (1 485) 508
comprehensive
profit /
(loss) for
the 15 months
Issue of 18 730 - - - 18 730
shares
Acquisition - (3 840) 2 105 173 (1 562)
of non-
controlling
interest
Balance as at 55 226 3 912 (37 421) (194) 21 523
31 December
2012
Total
comprehensive
profit
/(loss) for - - 2 125 (1 092) 1 033
the 12 months
Acquisition - (70) - 45 (25)
of non-
controlling
interest
Balance at 31
December
2013 55 226 3 842 (35 296) (1 240) 22 532
Unaudited Condensed Cash Flow Statement for the 6 months ended
30 June 2014
Interim Interim Audited
Unaudited Unaudited Group
Group Group
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2014 2013 2013
R ‘000 R ‘000 R ‘000
NET CASH (1 291) (1 001) 7 880
(OUTFLOW)/INFLOW FROM
OPERATING ACTIVITIES
NET CASH OUTFLOW FROM (669) (18 557) (7 208)
INVESTING ACTIVITIES
NET CASH (OUTFLOW) (1 526) 20 314 (23)
/INFLOW FROM FINANCING
ACTIVITIES
Movement in cash and (3 486) 756 649
cash equivalents for
the period
Cash and cash 885 236 236
equivalents at the
beginning of the period
Cash and cash (2 601) 992 885
equivalents at the end
of the period
Notes to the Unaudited Financial Statements for the 6 months
ended 30 June 2014
ACCOUNTING POLICIES AND BASIS OF PREPARATION OF RESULTS
The abridged interim results have been prepared in accordance
with IAS 34 – Interim Financial Reporting in accordance with the
accounting policies that comply with International Financial
Reporting Standards, the SAICA Financial Reporting Guides and in
the manner required by the Company’s Act and the JSE Listing
Requirements. The principle accounting policies adopted in
preparation of these financial statements are consistent with
those of the prior period.
The interim results for the 6 months ended 30 June 2014, which
were prepared under supervision of the Group’s financial
director, Mr DP van der Merwe CA(SA), were not reviewed or
audited by the auditors.
COMPARATIVE INFORMATION
The SO2 gas sheet division, disposed of with effect from 31 January 2014
is classified as a discontinued operation in the 30 June 2014 interim
results and the audited 31 December 2013 financial statements.
Consequently the comparative unaudited consolidated statement of
profit and loss and other comprehensive income for the 6 month
interim results ended 30 June 2013 has been restated to show the
discontinued operation
separately from continuing operations.
REVIEW OF RESULTS AND FINANCIAL POSITION
The 30 June 2014 consolidated interim results represents the
trading results of the corporate head office and its
subsidiaries active in the financial services, biotechnology and
agricultural packaging markets.
Group turnover increased by 14.7% to R17.4 million for the 6
months ended 30 June 2014 compared to the comparative period.
The increase is largely attributable to the 118% increase in
financial services revenue to R7.3 million. The biotechnology
revenues remained constant, with R10 million revenue generated
for the 6 months to June 2014 compared to R10.3 million for the
comparative 6 month period.
The Group’s gross profit margins increased to 77% compared to
the 72% of the comparative period as the Group’s operations
increasingly migrate to the high margin financial services and
biotechnology products.
The results further include a once off gain on disposal of the
SO2 operations of R2.2 million.
The increase in operational expenses by 29.3% to R12.4 million
compared to the R9.6 million of the comparative period was
leveraged to grow the turnover and implement other operational
efficiencies that contribute to the improvement in the Group’s
gross profits.
The Group’s basic earnings increased by 8 968% to R1 723 million
for the 6 months ended 30 June 2014.
The strategy of combining aggressive management of existing
subsidiaries and further strategic acquisitions is aimed at the
future sustainability of the Group.
ACQUISITIONS AND DISPOSALS
The board is actively investigating acquisition opportunities
aimed at improving earnings and cash generation for the Group.
There were no other acquisitions or disposals during the 6 month
period ended 30 June 2014, other than listed below.
Acquisition of Komo Finance
The Group acquired a 51% stake in Komo Finance (Pty) Ltd
(“Komo”) effective on 30 June 2014 for R350 000. Komo, a
registered credit provider, is a specialist financier providing
employee benefits which are managed by payroll facilities
through a network of select employers.
The acquisition of Komo is expected to unlock significant
synergies within the existing Ecsponent Credit Services
operations and substantially increases both the employer and
employee base. The combined R34.6m asset book allows the
operations to effectively leverage the operational resources. In
addition, the Komo management team have amassed significant
experience and knowledge within the industry which will
complement the existing operational management.
Fair value of the Komo assets acquired and liabilities assumed
at 30 June 2014 is as follows:
Assets
Other financial assets 21 862
Deferred tax 158
Property, plant and equipment 111
Other current assets 38
TOTAL ASSETS 22 169
Liabilities
Other financial liabilities 17 731
Bank 3 190
Other current liabilities 236
21 157
Total identifiable assets 1 012
Disposal of the SO2 gas sheet manufacturing business
The Group entered into an agreement on 20 December 2013 to
dispose of its SO2 gas sheet manufacturing business and related
assets as a going concern for R6.3 million. The manufacturing
operations were regarded as being non-strategic to the future
growth plans of the Group.
Vinguard shareholders approved the going concern disposal in
terms of Section 112 of the Companies Act, 2008 in a general
meeting held on 24 January 2014, with and the effective date of
the transaction determined being 31 January 2014. The purchase
consideration comprised R6.3 million for the going concern
assets.
Loss from discontinued operations which the Group will be able
to avoid in future amounted to R609 000 for the 6 months ended
30 June 2014(6 months ended 30 June 2013 – R1 617 000, 12
months ended 31 December 2013 – R3 395 000).
The SO2 gas sheet manufacturing operations have been disclosed as
discontinuing operation in the 30 June 2014 interim results.
OTHER FINANCIAL ASSETS
The other financial asset category incorporates the benefits
provided to employees against payroll facilities contracts which
increased by 216% compared to the comparative period. Below is
detail regarding the Group’s other financial assets:
Unaudited Unaudited Audited
Group Group Group
30 June 30 June 31 December
2014 2013 2013
R ‘000 R ‘000 R ‘000
At fair value through
profit and loss –
designated
Acquired debt 3 625 1 435 2 543
Loans and receivables
Employee benefit loans 34 623 10 953 12 878
Secured SME loans 15 142 28 605 6 979
Escalator Capital Global - 5 217 6 500
Limited
TOTAL OTHER FINANCIAL 53 390 46 210 28 900
ASSETS
Total included in non- 23 817 6 524 13 666
current assets
Total included in current 29 573 39 686 15 234
assets
EVENTS AFTER THE REPORTING PERIOD
The directors are not aware of any material event which occurred
after the reporting date and up to the date of this report
requiring disclosure, other than the matters listed below:
Preference share capital
Ecsponent’s business model requires funding for both the
existing business growth and to pursue further acquisitions.
Funding is deployed in the growth of financial services assets
and the acquisition of new assets which contribute to the growth
strategy. Preference Shares are considered an optimal source of
funding for these on-going business needs and accordingly the
Company has registered a Preference Share Programme
(“the Programme”) under which Ecsponent may, from time to time,
issue multiple Tranches of Preference Shares. The Programme was
approved by the JSE on 8 September 2014 and the IPO for the
first products is scheduled for 29th September 2014.
The Preference Shares to be issued under the Programme contain
conversion provisions, whereby the Conversion of Preference
Shares into Ordinary Shares is obligatory on the occurrence of
an Event of Default. Shareholders approved the requisite
authorised Preference Shares in the 2013 annual general meeting,
including the convertibility of the instrument, and again in the
2014 annual general meeting Shareholders approved changes to the
terms of the Preference Shares. In terms of the JSE Listings
Requirements, Shareholders are required to approve the issuance
of instruments convertible into Ordinary Shares, in terms of an
ordinary resolution requiring 75% approval by Shareholders
entitled to vote, and present in person or represented by proxy.
This Circular will shortly be distributed to provide
shareholders with information in order to vote on the ordinary
resolution so required.
Acquisitions
The acquisitions of growth businesses from Ecsponent Capital
(RF) Limited (“formerly Escalator Capital (RF) Limited”)
(“Escalator”) and other related parties, entered into by the
Group on 5 March 2014, was approved by shareholders in a general
meeting held on 25 July 2014.
Ecsponent Financial Services (Pty) Ltd (formerly Escalator
Financial Services) (“EFS”) is registered with the regulator as
a licensed service provider. EFS provides intermediary services
between financial services product providers and the general
public.
EFS recruits and manages qualified advisors to market financial
products in terms of the FSB regulations and has established an
accomplished broker network with a recurring client base.
An important pillar of the repositioned Group strategy is to
obtain access to key FSB regulated licenses allowing the Group
control over important elements of its channel to market.
Sanceda Collection Services (Pty) Ltd (“Sanceda”), registered
with the Council of Debt Collectors, is a collection agency
which provides specialised collection services to corporates.
Collections are call centre based and Sanceda has established
the management and infrastructure to simultaneously collect on a
large volume of current or delinquent debtor files.
Sanceda’s expertise includes tracing of defaulters, repayment
and contract agreement, debit order and related collection
management and legal pursuance of defaulters should this be
necessary.
The acquisition of Sanceda provides the Group with the skills
and infrastructure to collect against its acquired debt books as
well as defaulting debtors within its other operating
subsidiaries.
Ecsponent Limited (formerly Escalator Investment Holdings)
incorporated in Botswana (“Ecsponent Botswana”) provides secured
funding to selected financial service companies and credit to
small, medium and micro enterprises. To fund its operations
Ecsponent Botswana raises capital through the issuance of
various classes of preference shares via a prospectus offer to
qualifying members of the public and institutions.
Rights offer and convertible loan
On 5 March 2014, the Company entered into an underwriting
agreement with Escalator, its controlling shareholder. Escalator
would partially underwrite the Company’s rights offer of R100
million at an issue price of 14 cents per share to the value of
R45 million.
Escalator furthermore agreed to provide a funding facility to
the Company up to R100 million, less the proceeds of the rights
offer. The funding facility will be convertible into ordinary
shares in the Company at the rights offer price (“the
Convertible Loan”).
Shareholders approved the convertible loan up to a maximum loan
value of R55 million in a general meeting held on Friday, 25
July 2014.
The rights offer closed on Friday, 19 September 2014 and the
results of the rights offer was announced on 22 September 2014.
Shareholders, or their renounces, applied for 454 456 371 shares
at the 14 cents rights offer price amounting to total proceeds
of R63.6 million.
The Convertible Loan facility as a result was set at R36.4 million.
CONTINGENCIES
Litigation has been suspended against a former employee of
Vinguard who obtained a CCMA ruling granting a R100 000 cash
settlement and the issue of shares in Vinguard. The former
employee seems to have abandoned his claim in light of the
counter claim by Vinguard for the PAYE payable on this possible
issue of Vinguard shares.
CHANGES TO DIRECTORS
No changes in the directorate took place during the period.
APPOINTMENT OF SPONSOR
Questco (Pty) Ltd (“Questco”) was appointed as the company’s
Debt Sponsor following the restructure of the Group. The board
announced the appointment of Questco as the company’s Sponsor as
well, with effect from 1 September 2014.
SHARE CAPITAL
Shareholders approved the increase of the company’s authorised
share capital from 1 500 000 000 no par value shares to
2 000 000 000 no par value shares at the AGM held on 25 July
2014.
3 000 000 shares were issued on 30 June 2014 in terms of the
directors’ general authority to issue shares for cash.
GOING CONCERN
The directors are of the opinion that the group will continue as
a going concern for the foreseeable future due to the continued
financial support of certain parties to the group and in
particular by the Company to its subsidiaries.
DIVIDENDS
No dividends have been declared and no dividend is proposed.
AUDITORS
Shareholders resolved to re-appoint AM Smith and Company
Incorporated as the Group auditors on 25 July 2014 at the annual
general meeting.
For and on behalf of the Board
Johannesburg
25 September 2014
Directors: RJ Connellan* (Chairman), TP Gregory (Chief Executive
Officer), DP van der Merwe (Financial Director), BP Topham*, KA
Rayner*, E Engelbrecht (Non-executive).
(* Independent non-executive)
Company Secretary: Timbavati Business Consultants (Pty) Ltd
represented by HJ van der Merwe
Registered Office: Acacia House, Green Hill Village Office
Park, on Lynnwood Road, Cnr Botterklapper and Nentabos Street,
The Willows, Pretoria East.
Transfer Secretaries: Link Market Services (Pty) Ltd, 13th Floor
Rennie House, 19 Ameshoff Street, Braamfontein 2000, PO Box
4844, Johannesburg 2000
Auditors: AM Smith and Company Inc.
Sponsor: Questco(Pty) Ltd
Date: 25/09/2014 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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