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EFFICIENT GROUP LIMITED - Unaudited interim financial results for the six months ended 28 February 2015

Release Date: 14/04/2015 16:35
Code(s): EFG     PDF:  
Wrap Text
Unaudited interim financial results for the six months ended 28 February 2015

EFFICIENT GROUP LIMITED
(Incorporated in the Republic of South Africa)
(Registration Number: 2006/036947/06)
JSE share code: EFG     ISIN: ZAE 000151841
(“Efficient Group” or “the Group”)

UNAUDITED INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 28 FEBRUARY 2015
Highlights
  - Revenue growth of 651%
  - EPS growth of 152%
  - Assets under administration increased to R 51 billion
  - Assets under consulting increased to R 22 billion
  - Assets under management increased to R 15 billion
  - Assets under advice increased to R 10 billion
1. Nature of business
Efficient Group is the holding company of Efficient Advise, Verso Investment
Services, Boutique Investment Partners, Boutique Collective Investments,
Efficient Select and Naviga Solutions. The Group’s businesses operate in the
financial services sector and provide products and services relating to
financial planning, asset management, asset administration and asset consulting
to a diverse client base across southern Africa. During the reporting period the
Group operating structure was altered to better provide for the effective
implementation of our corporate governance framework, the optimisation of cross-
selling opportunities across the Group’s businesses and the expected future
growth. The new operating structure provides for 3 segments or divisions,
comprising Financial Services, Investments and Services and Solutions.
2. Business segments
Business segments are made up of the following:
2.1 Financial Services
     a. Efficient Advise
     b. Verso Investment Services (VIS)
2.2 Investments
     a. Boutique Investment Partners (BIP)
     b. Boutique Collective Investments (BCI)
     c. Efficient Select
2.3 Services and Solutions
     a. Naviga Solutions
The Financial Services division includes our businesses that provide financial
planning and financial products to our clients. VIS is currently being rebranded
as Efficient Wealth. The Investments division includes our businesses that offer
asset administration, asset management and asset consulting services to a broad
range of clients. The Services and Solutions division includes our businesses
that offer value-added financial services and solutions to both our own
Financial Services division as well as other financial services providers.
Naviga Solutions offers a range of investment solutions to financial planners
and clients with value-added services such as proposal- and report writing as
well as software solutions for financial planning.
3. Commentary
Efficient Group has delivered sound interim results. Growth across the various
divisions has been excellent with sustainable results achieved at all levels.
Confirming excellent sales performances, the growth in assets under advice,
administration, consulting and management has been particularly pleasing,
exceeding the 3.4% growth achieved by the JSE All Share Index over the reporting
period. We would like to thank our clients, business partners and staff for the
contribution they have made towards this growth.
                                        Feb-15           Aug-14        Aug-13
Assets under advice             R 10.4 billion    R 8.9 billion R 2.3 billion
Assets under administration     R 50.9 billion   R 41.0 billion R 2.3 billion
Assets under consulting         R 21.9 billion   R 20.0 billion             -
Assets under management         R 15.3 billion   R 14.1 billion R 2.5 billion
Financial Services
Assets under advice grew by 17% to R 10.4 billion over the reporting period.
This is on the back of the continued growth in the number of advisors in the
financial services businesses and the successful roll-out of our investment
value propositions to clients of the financial services businesses. The current
investment environment with low interest rates and positive equity markets also
contributed to the growth.
Investments
The investments division delivered excellent results over the reporting period.
Assets under administration grew by 24% to R 50.9 billion, assets under
consulting by 10% to R 21.9 billion, and assets under management by 9% to
R 15.3 billion. Notably, performance fees now make up less than 3% of our
revenue.
Services and Solutions
During the reporting period Verso Multi Manager was rebranded as Naviga
Solutions and the Efficient Select Fund of Funds Boutique was also incorporated
into this entity. The value proposition of the business has been significantly
enhanced and the entity is delivering good results. At the end of the reporting
period this segment had R 6.2 billion of assets under management.
4. Financial results
Operating expenses consist of:
R’000                          Unaudited      Unaudited  % Change    Audited
                              Six Months     Six Months                 Year
                                   ended          ended                ended
                               28-Feb-15      28-Feb-14            31-Aug-14
Operating expenses               330 075         44 760     >100%    226 673
- Variable expenses              245 968         15 734     >100%    123 710
- Fixed expenses                  48 499         27 485       76%     83 750
- Profit share and staff
incentives provision             29 602           (875)   (>100%)     10 572
- Non-cash flow expenses           6 006          2 416     >100%      8 641
Statement of Comprehensive Income
The Group generated a net profit after tax of R 12 million for the six months
ended 28 February 2015 (“the reporting period”), compared to an after tax profit
of R 2.7 million for the six months ended 28 February 2014 (“comparative
period”).The Group reports headline earnings of R 12.8 million for the reporting
period (R 2.5 million for the comparative period). Revenue increased from R 46
million to R 345 million. The increase can be attributed to the following
factors:
   - Organic growth of the distribution network,
   - The inclusion of the results from VIS acquired in the second half of the
      previous financial year,
   - The substantial increase in assets under administration.
Performance fees as a percentage of total revenue is 3% compared to 12% for the
comparative period. The financial performance dependency on performance fees has
decreased considerably and the Group generates cash on a sustainable basis.
Variable expenses consist mainly of commissions paid to our financial advisors
who deliver products and services to a retail and corporate client base, and the
asset and liability administration costs of BCI. The increase in these expenses
is attributable to, and in line with our expansion plans and growth in revenue.
The increase in fixed expenses relates to the inclusion of VIS and additional
costs at BCI associated with the increase in assets. The profit share provision
is linked to the financial performance of Efficient Invest. Efficient Invest
consists of BIP and BCI. Due to start-up costs, this division made a loss in the
comparative period. Following on the increase in the assets under administration
and consulting Efficient Invest is now profitable. The staff incentive provision
is based on individual and the business unit’s performance, in-line with the
Group’s Remuneration Policy. Non-cash flow expenses relate to the amortisation
of intangible assets and depreciation of equipment. Customer related intangible
assets account for the bulk of the assets assumed in the VIS acquisition and
amortisation of this intangible asset explains the increase in non-cash flow
expenses. Income from Associates is boosted by the profits from AS Sure
Investment Services (Pty) Ltd, in which we acquired a 25.1% interest in August
2014. Investment income includes interest received on cash generated through
operations, and finance cost relates to the costs associated with external
funding to provide for the increased working capital requirements.
Statement of Financial Position
The notable increase in current assets and liabilities is attributable to the
increase in business activity, predominantly as a result of the asset consulting
team joining the Group, the expansion to increase assets under administration
and the VIS acquisition. The net tangible asset value per share decreased from
104.95 cents per share for the comparative period, to 46.79 cents per share for
the reporting period. The lower net tangible asset value per share is a result
of cash utilised to acquire intangible assets and the increase in the number of
shares in issue.
Cash flow
The Group generated cash of R 21 million from operations before taking into
account the movement in working capital.
5. Business segmental results
Financial Services
The core business of this division entails the delivery of comprehensive
financial planning for the benefit of individual and corporate clients. This is
achieved through the provision of an integrated financial planning solution to
appropriately address clients’ requirements for financial planning, investment
management, risk cover, cash management, asset finance and fiduciary services.
The distribution network increased to 100 financial advisors (65 for the
comparative period) through organic growth and the acquisition of VIS.
The financial services division reported revenue growth of 155% for the period
under review. The increase is directly related to the expansion of the
distribution network. Variable costs increased in line with the growth in
revenue. The increase in fixed expenses is related to the VIS acquisition.
The profitability of the financial services division has improved from a loss of
R 1.7 million to a break-even. We expect the profitability of the financial
services division to continue to improve as a result of the economies of scale.
Investments
The core business of this division includes the administration of assets, asset
consulting and asset management. This business segment reported revenue of
R 284 million for the period under review, mainly as a result of the new
investment consulting activities and the increase in assets under
administration. Margins increased during the comparative period and are in line
with the increase in activities in this segment. The increase in expenses
relates to the increase in capacity at BCI, as a result of the growth in assets
under administration. The business segment posted a profit after tax of R 4
million for the reporting period compared to a break-even performance for the
comparative period. The growth in this division has been primarily in the high
volume, low-margin asset administration business, impacting on the overall
profitability of this division. The success and the growth of this division is
structured on the performance of the core management team. A profit share
agreement, associated with the growth of the assets under administration and
management has been implemented to compensate the team.
Services and Solutions
The core business of this division includes the provision and structuring of
investment solutions to advisors and clients. This business segment reported
revenue of R 18 million and a profit after tax of R 10 million for the period
under review.
6. Acquisition activities and Subsequent events
Effective 1 March 2015 Efficient Group acquired 71% of the shares in ARX
Investment Partners (Pty) Ltd (ARX) for a maximum consideration of R 123 million
based on the future financial performance of ARX. See Key developments below.
7. Strategy
With its expansionary and progressive strategy, as outlined in the company’s
Integrated Report for the year ended 31 August 2014, the Efficient Group remains
well positioned for future growth.
Our key focus areas remain:
   - to optimise return on capital employed,
   - to drive the organic growth of our core businesses and to enhance
     continuity across our business divisions,
   - to successfully integrate the acquisitions made during the last 12 months,
   - to successfully roll out Naviga Solutions.
8. Key developments
The acquisition of ARX effective 1 March 2015 (ARX Acquisition)
ARX is the consolidated businesses of ARX Investment Partners (Pty) Ltd, Stead
Wealth Management (Pty) Ltd, Exceed Asset Management (Pty) Ltd and Exceed
Private Client Services (Pty) Ltd. The businesses operate in our area of
expertise, being financial services and investments. The acquisition is a sound
strategic fit in the sense that the advisory businesses - Stead Wealth and
Exceed - offer comprehensive quality investment advice to retail and corporate
clients. The acquisition of the two advisory businesses further increase our
national footprint. ARX also offers multi management to the clients of Stead
Wealth, Exceed and other financial services providers. The advisory businesses
have five representatives and the necessary support teams to service their
client base. ARX generated revenue of R 53 million for the 12 months ending Feb
2015 and made a profit after tax of R 24 million. ARX has more than
R 2.35 billion in assets under management. In phase 1 of the transaction
Efficient has acquired 71% of the A shares in ARX. The A shares are made up of
all business generated by Stead Wealth, Exceed Asset Management and Exceed
Wealth. This includes the advisory as well as the asset management of these
businesses. The purchase consideration will be settled in cash in four tranches
between 1 September 2015 and 1 March 2018. Efficient will acquire the remaining
29% of the A shares in ARX on 1 March 2018, based on actual Profit After Tax of
the A Shares at that point in time. This part of the acquisition will be settled
in cash. Efficient will also acquire 100% of the B Shares, which consists of
asset management fees generated by external clients of ARX, on 1 March 2018.
This value will be calculated on the normalised sustainable profit generated for
the 12 months ending 28 February 2018. This part of the acquisition will be
settled through the issue of Efficient Group shares. The total maximum
consideration for the transaction is capped at R 123 million.
Sale of shares in Marion Technology
On 9 March 2015, Efficient Group concluded a sale of share agreement by which it
sold its shareholding in Marion Technology to Athol Trust for R 60.00 and the
settlement of our claims against Marion Technology of R 8.33 million. The claims
will be settled through the payment of R 1.75 million in cash by 31 August 2015
and Efficient obtaining immediate joint ownership of software packages known
collectively as FutureSight.
9. Dividends
Dividends are declared at the discretion of the board of directors, after taking
the financial position of the group into consideration. As a guideline, 80% of
free cash flow is paid as a dividend. Based on this guideline the directors
determined that an interim dividend of 5.88235 cents per share will be paid
based on the interim results. No dividend was declared for the comparative
period.
The salient dates for this dividend payment are as follows:
Last date to trade “cum” dividend       Thursday, 30 April 2015
Securities trade “ex” dividend          Monday, 4 May 2015
Record date                             Friday, 8 May 2015
Payment date                            Monday, 11 May 2015
Share certificates may not be dematerialised or rematerialized between Monday,
4 May 2015 and Friday, 8 May 2015, both days inclusive.
Shareholders are advised of the following additional information:
  - the dividend has been declared out of profits generated during the
     reporting period
  - the local dividend tax rate is 15%;
  - there are no secondary tax companies credits utilised against the dividend;
  - the gross local dividend amount is 5.88235 cents per share;
  - the net local dividend amount for shareholders:
        - exempt from payment of dividend tax is 5.88235 cents per share
        - liable to pay the dividends tax is 5.00000 cents per share
  - the issued share capital of the company is 90 592 973
  - shares of R0.00000277; and
  - the company’s tax reference number is 9071679170.
10. Basis of preparation
The interim results for the six months ended 28 February 2015 are presented on a
consolidated basis and are prepared in accordance with the recognition and
measurement requirements of International Financial Reporting Standards and
presentation and disclosure requirements of IAS 34 (Interim Financial
Reporting), the JSE Listings Requirements, the Companies Act of South Africa and
the SAICA Financial Reporting Guides as issued by the Accounting Practices
Board. The accounting policies applied are consistent with those applied in the
previous interim period and previous financial year-end, except where indicated
differently. No material events occurred after the interim period which requires
an adjustment to the financial information. These interim results have not been
audited or reviewed by the Group’s auditors, KPMG Inc. The condensed unaudited
interim financial results are prepared by Anton de Klerk, the Chief Financial
Officer of Efficient Group.
11. Changes to the board of directors
Mr F Liedtke and Ms M Cassim resigned as alternate directors of the Company on
1 September 2014 and 13 November 2014 respectively.
Steve Booysen Chairman
Heiko Weidhase Chief Executive Officer
Unaudited interim financial results for the six months ended 28 February 2015
Summarised statement of comprehensive income
R’000                                  Unaudited   Unaudited         %     Audited
                                      Six Months  Six Months    Change        Year
                                           ended       ended                 ended
                                       28-Feb-15   28-Feb-14             31-Aug-14
Revenue                                  344 556      45 888     >100%     233 360

Operating expenses                     (330 075)    (44 760)     >100%   (226 673)

Operating profit                          14 481       1 128     >100%       6 687
Dividends received                            24           -                     -
Finance income                             3 412         979     >100%       2 797
Finance cost                             (1 963)           -         -     (1 210)
Profit on sale of equipment                    -           -         -          24
Profit on sale of share in associate           -         527    (100%)         527
Profit on sale of Financial
Advisory Client base                           -           -         -          35
Fair value adjustment of
investment designated at fair
value through profit or loss                 250         697     (64%)         926
Other income                                 240          38     >100%         619
Impairment of intangible asset                 -           -         -     (1 070)
Impairment of investment in
associate and loan to associate                -           -         -       (194)
Share of profit/(losses) from
associates, net of taxation                  536         201     >100%       (839)
Profit before taxation                    16 980       3 570     >100%       8 302
Taxation                                 (4 947)       (904)     >100%     (3 342)
Profit for the period                     12 033       2 666     >100%       4 960

Other comprehensive income:
Items that may be reclassified
subsequently to profit or loss
Unrealised fair value adjustment
of available-for-sale financial
assets                                       362           -                   33
Total comprehensive income for the
period                                    12 395       2 666                4 993

Profit for the period attributable
to:
Equity holders of the parent              12 779       2 866                5 988
Non-controlling interest                   (746)       (200)              (1 028)
                                          12 033       2 666                4 960

Total Comprehensive income for the
period attributable to:
Equity holders of the parent              13 141       2 866                6 021
Non-controlling interest                   (746)       (200)              (1 028)
                                          12 395       2 666                4 993

Number of shares in issue ('000)          90 593      53 446               90 593
Weighted average number of shares
('000)                                    90 593      51 132               70 211
Diluted Weighted average number of
shares ('000)                             90 593      51 132               70 211

Basic and diluted earnings per
share (cents)                              14,11        5,61     >100%       8,53
Headline and diluted headline
earnings per share (cents)                 14,11        4,86     >100%       9,37

Headline and diluted headline
earnings are calculated as follows:
Attributable earnings                     12 779       2 866                5 988
Impairment of intangible asset                 -           -                1 070
Profit on sale of equipment                    -           -                 (24)
Taxation on profit on sale of
equipment                                      -           -                    7
Profit on sale of share in associate           -       (527)                (527)
Taxation on Profit on sale of share
in associate                                   -         148                   98
Profit on sale of Financial Advisor
client base                                    -           -                 (35)
Headline earnings                         12 779       2 487                6 577
Summarised statement of financial
position
R’000                                              Unaudited        Unaudited      Audited
                                                       as at            as at        as at
                                                   28-Feb-15        28-Feb-14    31-Aug-14
Assets
Non-current assets
Property and equipment                                 2 361            1 702        2 668
Goodwill                                              66 353           23 726       66 255
Intangible assets                                     97 670           15 779      102 637
Investments                                            7 877            5 228        6 761
Equity accounted investments                          17 341            6 481       16 973
Long-term receivables                                  3 204            6 134        3 889
Deferred tax                                           9 256            2 014        3 736
                                                     204 062           61 064      202 919
Current assets
Trade and other receivables                           64 084           19 271       56 507
Cash and cash equivalents                             31 316           28 816       33 552
Investments                                           22 832                -            -
Short-term portion of long-term receivables              708              725          727
Tax receivable                                           378              366        1 231
                                                     119 318           49 178       92 017
Total assets                                         323 380          110 242      294 936
 
Equity and Liability
Equity attributable to equity holders of the
parent                                               180 044           93 170      168 715
Share capital and share premium                      150 325           77 935      150 325
Treasury shares                                        (149)            (149)        (149)
Fair-value adjustment reserve                            460               65           98
Accumulated income                                    29 408           15 319       18 441
Non-controlling interest                             (1 787)            (213)      (1 041)
Total Equity                                         178 257           92 957      167 674

Non-current liability                                 44 962            3 701       51 651
Long-term liabilities                                 20 298              992       25 244
Deferred tax                                          24 664            2 709       26 407

Current liabilities                                  100 161           13 584       75 611
Trade and other payables                              86 853           11 014       64 485
Short-term portion of long-term liability              7 650              482        8 754
Tax payable                                            5 658            2 088        2 372

Total equity and liabilities                         323 380          110 242      294 936

Net asset value per share (cents)                     198,74           182,21       186,23
Net tangible asset value per share (cents)             46,79           104,95        30,84
Segmental analysis
R’000                     Asset   Financial    Services and        Other     Total
                    Management,    Services       Solutions
                 Consulting and
                 Administration
For the six
months ended 28
February 2015:
Revenue                 283 501      52 813          17 977      (9 735)   344 556
 - External             280 493      52 813          11 077          173   344 556
 - Internal               3 008           -          6 900       (9 908)         -
Profit for the
period                    4 120          41          10 318      (2 446)    12 033
Asset                   119 906      36 600          15 813      151 061   323 380
Liability                86 539      44 936           8 364        5 284   145 123

For the six months ended 28 February 2014:
Revenue                  31 971      20 720               -      (6 803)    45 888
 - External              25 045      20 550               -          293    45 888
 - Inter-
segment                   6 926         170               -      (7 096)         -
Profit for the
period                    3 893     (1 746)               -          519     2 666
Asset                    54 968      16 513               -       38 761   110 242
Liability                24 219      19 508               -     (26 442)    17 285

For the year ended 31 August 2014:
Revenue                 165 703      68 630          22 170     (23 143)   233 360
 - External             151 875      68 630          12 430          425   233 360
 - Inter-
segment                  13 828           -           9 740     (23 568)         -
Net profit for
the period                 (76)     (1 174)          10 523      (4 313)     4 960
Asset                   109 261      36 326               -      149 349   294 936
Liability                80 374      52 177               -      (5 289)   127 262
Other consists of consolidation entries, amortisation of intangible assets
Efficient Capital and Efficient Group.
Transactions between segments take place at arm’s length.
The segmental analysis was aligned to the new operating structure as described
above. The following changes were effected since the previous period that ended
31 August 2014:
   - The Asset Management Segment and the Asset Administration & Consulting
      segment was consolidated for the reporting period; and
   - The Services and Solutions segment was separated from the Financial Services
      segment.
The comparative financial information was restated reflect these changes.
Summarised statement of changes in equity
R’000             Share Treasury Fair-value Accumulated    Total         Non-    Total
                capital   shares adjustment      income           controlling   Equity
                    and             reserve                          interest
                  share
                premium
Balance at 31
August 2013      58 657    (149)         65      12 453   71 026         (13)   71 013
Issue of
shares           19 278        -          -           -   19 278            -   19 278
Total
comprehensive
income for the
period -
Profit/(loss)         -        -          -       2 866    2 866        (200)   2 666
Balance at 28
February 2014    77 935    (149)         65      15 319   93 170        (213)  92 957
Issue of
shares           72 390        -          -           -   72 390               72 390
Total
comprehensive
income for the
period
-Profit/(loss)        -        -          -       3 122    3 122        (828)   2 294
 - Other
comprehensive
income                -        -         33           -       33            -      33
Balance at 31
August 2014     150 325    (149)         98      18 441  168 715      (1 041) 167 674
Dividend paid         -        -          -     (1 812)  (1 812)            - (1 812)
Total
comprehensive
income for the
period
 -
Profit/(loss)         -        -          -      12 779   12 779         (746) 12 033
 - Other
comprehensive
income                -        -        362           -      362            -     362
Balance at 28
February 2015   150 325    (149)        460      29 408  180 044      (1 787) 178 257
Summarised
statement of
cash flows
R’000                                   Unaudited Six   Unaudited Six   Audited year
                                         Months ended    Months ended          ended
                                            28-Feb-15       28 Feb-14      31-Aug-14
Cash flows from operating activities
Cash generated by/(utilised from)
operations                                    35 518         (9 646)         13 590
Interest received                              3 412             652          2 671
Interest paid                                (1 963)               -        (1 210)
Tax paid                                     (8 210)           (845)        (7 922)
Dividends received                                24               -            216
Dividend paid                                (1 812)               -              -
Net cash inflow/(outflow) from
operating activities                          26 969         (9 839)          7 345

Cash flows from investing activities
Acquisition of business                        (281)            (42)       (34 044)
Investment in associate                            -               -        (7 751)
Long-term loan repayment
from/(advance to) associate                      168              33        (1 062)
Decrease/(Increase) in long-term
receivable                                       704         (4 099)            511
Acquisition of financial asset              (23 336)               -        (1 065)
(Decrease)/Increase in long-term
liabilities                                  (6 050)             277          (606)
Proceeds on disposal of financial
asset                                              -           4 721          4 514
Proceeds on disposal of equipment                  -               -             34
Proceeds on disposal of client base                -             298              -
Proceeds on disposal of investment in
associate                                          -             527            527
Acquisition of intangible asset                    -               -           (14)
Acquisition of equipment                       (410)         (1 598)        (2 693)
Net cash (outflow)/inflow from
investing activities                        (29 205)             117       (41 649)

Cash flows from financing activities
Issue of share capital                             -          19 278         48 924
Decrease in long-term liabilities                  -               -        (1 652)
Increase in loans from minority
shareholders of subsidiaries                       -               -          1 324
Net cash inflow from financing
activities                                         -          19 278         48 596

Movement in cash and cash equivalents
for the period                               (2 236)           9 556         14 292
Cash and cash equivalents at the
beginning of the period                       33 552          19 260         19 260
Cash and Cash equivalents at the end
of the period                                 31 316          28 816         33 552
Non-executive directors: S Booysen*, Z Cele*, L Taylor*, J Rosen*, J Mabena, A du
Preez (* Independent)
Alternate director: T du Preez
Executive directors: DD Roodt, H Weidhase, AT de Klerk, R Walton, C Burger.
Company secretary: Adv Rudi Barnard
Transfer secretaries: Link Market Services South Africa (Pty) Ltd
Sponsor: Java Capital
14 April 2015

Date: 14/04/2015 04:35:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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