To view the PDF file, sign up for a MySharenet subscription.

ECSPONENT LIMITED - Condensed Consolidated Reviewed Interim Results for the 6 months ended 30 June 2016

Release Date: 27/09/2016 07:05
Code(s): ECS     PDF:  
Wrap Text
Condensed Consolidated Reviewed Interim Results for the 6 months ended 30 June 2016

ECSPONENT LIMITED
Incorporated in the Republic of South Africa
Registration number: 1998/013215/06
JSE Code: ECS - ISIN: ZAE000179594
(“the Company” or “Ecsponent”)


Condensed Consolidated Reviewed Interim Results for the 6 months ended 30 June 2016

The Board of Directors is pleased to advise shareholders of continued exponential growth of
Ecsponent and its subsidiaries (“the Group”) as reflected in further improved, consolidated
results for the 6 months ended 30 June 2016.

Ecsponent increased its strategic focus on selected markets during the first half of the 2016 financial
year by effecting further investments in niche financial services companies. Assets which have clear
African and Global market application have received priority. The directors envisage that this expansion
strategy will be further refined in order to dominate niche sectors of the markets in which the Group
operates.

RESULTS HIGHLIGHTS

The access to capital through the issue of preference shares resulted in continued improvement in the
Group’s performance and generated increased returns for the 6 months ended 30 June 2016. Highlights
of the Group’s 2016 interim results compared to the 2015 interim results are set out below:

-    Total revenue increased by 74.7% to R116.7 million compared to R66.8 million;
-    Gross profits increased by 97.8% to R95.8 million compared to R48.4 million;
-    Operating profits increased by 166.7% to R58.4 million compared to R21.9 million;
-    Profits before tax increased by 61.5% to R28.5 million compared to R17.7 million;
-    Current assets increased by 265.3% to R652 9 million compared to R178.7 million;
-    Total assets increased by 163.6% to R777.1 million compared to R294.8 million; and
-    Resultant earnings per share (“EPS”) increased by 26.3% to 2.23 cents per share compared to1.76
     cents per share.

The EPS increase unfortunately did not flow through to headline earnings per share (“HEPS”) as a
result of IFRS categorisation. In the comparative period for 2015 the benefit on the disposal of the
financial asset was categorised under IFRS 39 and therefore included in the calculation of HEPS while
the disposal of the Swaziland retail credit business during the period under review was categorised
under IFRS 10 and is therefore excluded from the HEPS calculation.

External revenue generated by the Group’s financial services operations increased by 238.2% to
R85.9 million compared to R25.4 million, comprising 73.6% of total revenue in the 2016 interim results.
Funding for the Group’s expansion strategy continues to be facilitated through Ecsponent’s preference
share programme, enabling the Company to raise capital to fund investments on an ongoing basis.
Continued market subscriptions of preference shares have been very encouraging and the Company
has raised approximately R441 million through Preference Shares issues since implementation in
September 2014.


OPERATIONAL REVIEW

Group overview

Below is an overview of the Group’s operations during the first half of the 2016 financial year.

Financial Services SA

The period under review highlighted the Group’s successful shift in the provision of secured credit to
small medium enterprises (“SME”). The comparative period to June 2015 reflects a predominantly retail,
unsecured employee benefits credit business. The strategy to focus predominantly on enterprise
finance and the provision of credit to specific niche market SME’s has realised immediate improvement
in the Group’s results.

The Group’s financial services operations continued their exponential growth during the period. Total
assets increased by 98.1% to R706 million while revenue increased by 378% to R142.6 million, resulting
in an operating profit increase of 296.2% to R92.7 million.

The demand for credit remains buoyant particularly in the enterprise development sector. The South
African financial services operation has begun to make significant inroads in this high demand sector.
In addition, the Group’s securitisation policy provides a competitive edge in unlocking value for all
stakeholders in the chain.

The Sanceda Collections operations have expanded their footprint to include both Botswana and
Swaziland and the start-up costs of these operations have been expensed by the businesses for the
period under review. Both of the new operations have concluded agreements for third party collections
with large blue chip multinational companies. The benefits of the various contracts will begin to be
realised in the balance of the financial year and beyond.


Financial Services Africa

The roll out of the Group’s financial services offering into Africa replicates the South African model and
leverages off the infrastructure, systems, products and management expertise of the local business.
The African operations provide continuing opportunities for the growth in deposit taking and retail credit
operations. The regulatory framework of each country is fully complied with and the directors of each
company in those countries are operationally autonomous whilst the South African backbone provides
the required governance and control.

Botswana

The Botswana operations mirror the South African processes and the Group provides management
oversight and liquidity to the country’s credit operations. In addition to employee benefits Ecsponent
Botswana provides both enterprise and SME credit on a secured basis to qualifying clients.

The performance of the Botswana operations reflected a continued steady improvement compared to
the half year ended June 2015. Botswana grew revenue by 51% to R23.2 million, total assets increased
by 21.3% to R126.2 million, and operating profits increased by 164.8% to R10.9 million.

The growth in the Botswana economy, stability of the currency and demand for credit continues to drive
growth of the Ecsponent operation in the territory. The directors are confident that the growth will
continue.


Swaziland

The Swaziland operation includes capital raising opportunities which mirror the South African process
and provides ongoing liquidity to the country’s credit operations which includes consumer credit,
enterprise and SME finance.

The country has ambitious goals which are targeted to be realised by 2022 and which require significant
development in the country’s SME sector. The directors believe that the Group is perfectly positioned
to provide funding and services in support of the country’s objectives.

The period under review witnessed the initiation of the roll out of the Group’s enterprise finance model
in Swaziland. A co-operation agreement has been entered into with the Federation of the Swaziland
Business Community in order to gauge demand for enterprise development services in Swaziland. The
evaluation is well advanced and the Company will shortly be engaging the local regulator to facilitate
implementation.

Consequent to the strategy deployed in South Africa the Group has disposed of its interests in the
strategic alliance with GetBucks. The Group continues to provide SME credit to GetBucks on a secured
basis. The proceeds from the sale will be deployed in the provision of SME and enterprise credit.

The performance of the Swaziland operations reflect a steady improvement compared to the 2015
interim results. Swaziland grew revenue by 209.2% to R16.4 million whilst operating profits increased
by 1401.8% to R7.4 million. The company has a liability of R57.9 million to preference share investors
in Swaziland.

The directors have confidence that the business will continue to grow.


Zambia

The Zambian operation provides similar products and services as the rest of the Group. The country’s
demand for both retail and business credit ensures that the Group’s products are likely to be profitable
and successful.

The Group has a Tier 2 Deposit Taking Licence regulated by the Bank of Zambia and the operations
are directed from the head office situated in Lusaka.

The country has been depressed by the dramatic reduction in international commodity prices/demand
and has also suffered significant currency fluctuation depressing both investments and business
confidence. The Group has delayed its normally bold start up planning as a result of the uncertain
business climate.

Although in its infancy Ecsponent Zambia has begun providing credit to SME enterprises that qualify,
as well as enterprise finance for secured transactions. The directors are confident that the Zambian
operations will provide profitable future returns to the Group.


Private Equity

Biotechnology

The biotechnology sector is directly linked to the fluctuations in the international economy and margins
remain under pressure. During the period under review the Group has continued to protect its market
share and is bullish about prospects for the future.

The Group’s biotechnology operations have had an exciting half year which realised the development
of a new and extensive range of products to complement the existing cord blood and tissue stem cell
products. Development is now complete and commercialisation has begun. In order to reduce
overheads and align the operations with the new strategy the underlying company infrastructures have
been rationalised and the benefits from these developments will begin to be realised during the second
half of the year.

The contracts with pharmaceutical and medical aid companies concluded by both Cryo-Save and
Salveo have begun to translate into sales and this is anticipated to ramp up during the second half of
the year. Further channels to market are being negotiated by management and these are anticipated
to be realised in the near future.

As per the Group’s policy, the development costs of all the new ventures have been expensed and are
included in the operating results.



PROSPECTS

Key elements of the on-going expansion strategy are:
•     the continued investment in the credit operations of the Group;
•     the continued growth of underlying assets through product and market extension;
•     the focus on core businesses;
•     aggressive trading and cost rationalisation/reduction; and
•     increased emphasis on high yield private equity opportunities.

The abovementioned approach is aimed at the continued development of a robust and complementary
financial services Group which provides sustainable returns.


FINANCIAL RESULTS

Presented below are the reviewed condensed consolidated financial statements for the 6 months ended
30 June 2016.


Condensed Consolidated Interim Statement of Financial Position as at 30 June 2016

                                                                   Reviewed           Unaudited       Audited
                                                                    30 June            30 June    31 December
                                                                       2016               2015           2015
                                                                      Group              Group          Group
                                                                      R’000              R’000          R’000
    ASSETS
    Non-current assets
    Property, plant and equipment                                     10 567              8 200         8 475
    Intangible assets and Goodwill                                    20 131              5 909         8 557
    Investment in associates                                               -              5 097             -
    Other financial assets                                            70 980             78 553        98 066
    Deferred tax                                                      18 150             16 048        12 191
    Other non-current receivables                                      4 314              2 279         3 127
    Current assets
    Inventories                                                        2 045                918         1 819
    Other financial assets                                           509 455            136 090       278 450
    Trade and other receivables                                      100 401             31 121        40 379
    Current tax payable                                                   88                  -             -
    Cash and cash equivalents                                         40 936             10 594        15 115

    TOTAL ASSETS                                                     777 067            294 809       466 179

    EQUITY AND LIABILITIES
    Equity                                                             47 322           72 475         78 191
    Non-controlling interest                                         (26 569)           (5 215)        (4 653)

    Non-current liabilities
    Other financial liabilities                                      517 441            159 270       324 840
    Deferred revenue                                                  11 396                  -         9 552
    Deferred tax                                                       4 232              6 872         5 939
    Current liabilities
    Other financial liabilities                                      173 559             19 803        17 259
    Deferred revenue                                                   3 513                  -         4 144
    Current tax payable                                               15 358              2 107         3 142
    Trade and other payables                                          30 790             31 393        22 391
    Bank overdraft                                                        25              8 104         5 374

    TOTAL EQUITY AND LIABILITIES                                     777 067            294 809       466 179
 

 Condensed Consolidated Statement of Profit and Loss and Other Comprehensive Income for
 the interim period ending 30 June 2016

                                                               Reviewed     Unaudited          Audited

                                                                6 months     6 months        12 months
                                                                ended 30     ended 30         ended 31
                                                               June 2016     June 2015        December
                                                                   Group        Group             2015
                                                                                                 Group
                                                                  R’000         R’000
                                                                                                R’000


 Revenue                                                        116 704        66 790          159 712
 Cost of sales                                                  (20 926)      (18 374)         (27 123)
 GROSS PROFIT                                                    95 778        48 416          132 589
 Other income                                                    18 543        16 482           21 953
 Operating expenses                                             (55 915)      (42 998)        (107 161)
 OPERATING PROFIT                                                58 406        21 900           47 381
 Fair value adjustments                                               -         2 132            5 639
 Net finance costs                                              (29 867)       (7 174)         (27 195)
 Income from equity accounted investment                              -           813            1 742
 PROFIT BEFORE TAXATION                                          28 539        17 671           27 567
 Taxation                                                       (11 080)       (4 418)          (7 633)
 PROFIT FROM CONTINUING OPERATIONS                               17 459        13 253           19 934
 Profit from discontinued operations                                  -           579                -
 PROFIT FOR THE PERIOD                                           17 459        13 832           19 934
 Other comprehensive income / (loss)                                113           (77)            (301)
 TOTAL COMPREHENSIVE INCOME                                      17 572        13 755           19 633
 Loss attributable to non-controlling interest                    2 631         2 053            3 298
 TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO                      20 203        15 808           22 931
 ORDINARY SHAREHOLDERS



 Profit attributable to owners of the parent from:
 Continuing operations                                           20 090        15 446           23 359
 Discontinued operations                                             -          439                -
                                                                 20 090        15 885           23 359


 Total comprehensive income/(loss) attributable to:
 Owners of the parent                                            20 203        15 808           22 931
 Non-controlling interest                                        (2 631)       (2 053)         (3 298)
                                                                 17 572        13 755           19 633

Basic and fully diluted earnings per share (cents) from           2.226         1.713            2.591
continuing operations attributable to equity holders of the
parent

Basic and fully diluted earnings / (loss) per share (cents) from    -           0.049               -
discontinued operations attributable to equity holders of the
parent

Basic and fully diluted earnings per share (cents) attributable   2.226         1.762           2.591
to equity holders of the parent


Condensed Statement of Changes in Equity for the 6 months ended 30 June 2016

                          Share    Non-distributable        Foreign       Common       Accumulated            Non-       Total
                         capital             reserve       currency        control      profit/(loss)   controlling     equity
                                                         translation       reserve                         interest
                                                            reserve
                          R’000               R’000           R’000          R’000            R’000          R’000      R’000

 Balance at 1 January   118 071               3 842            (55)        (36 687)          (28 505)        (3 795)    52 871
 2015

 Total comprehensive           -                   -          (428)                -          23 359        (3 298)     19 633
 profit for the year
 Purchase of non               -             (3 842)               -               -           2 435         2 440       1 033
 controlling interest
 Balance at 1 January   118 071                    -          (483)        (36 687)           (2 711)       (4 653)     73 537
 2016

 Issue of shares          5 869                    -               -               -                -             -      5 869

 Business                      -                   -               -       (56 824)                        (19 400)    (76 224)
 combinations
 Total comprehensive           -                   -             62                -          20 090        (2 580)     17 572
 profit for the 6
 months
 Profit for the 6              -                   -               -               -          20 090        (2 631)     17 459
 months
 Other                         -                   -             62                -                -           51         113
 comprehensive
 income
 Purchase of non               -                                   -               -             (65)           65             -
 controlling interest
 Balance at 30 June     123 940                    -           (421)       (93 511)           17 314       (26 568)     20 754
 2016
Condensed Consolidated Cash Flow Statement for the 6 months ended 30 June 2016


                                                                    Reviewed        Unaudited         Audited

                                                                     6 months        6 months      12 months
                                                                        ended           ended          ended
                                                                      30 June         30 June         31 Dec
                                                                         2016            2015           2015
                                                                        Group           Group          Group

                                                                        R’000            R’000         R’000


 NET CASH INFLOW FROM OPERATING ACTIVITIES                             20 271          (9 085)         1 002



 NET CASH OUTFLOW FROM INVESTING ACTIVITIES                         (211 075)         (89 922)      (251 845)



 NET CASH INFLOW FROM FINANCING ACTIVITIES                            222 386         108 403        268 244



 Movement in cash and cash equivalents for the period                  31 582           9 396         17 401

 Cash and cash equivalents at the beginning of the period               9 741          (6 950)        (6 950)

 Effect of exchange rate movement on cash balances                       (413)              44          (710)

 Cash and cash equivalents at the end of the period                    40 910            2 490         9 741




Notes to the Condensed Consolidated Financial statements for the 6 months ended 30 June
2016

ACCOUNTING POLICIES, BASIS OF PREPARATION OF RESULTS AND REVIEW OPINION

The condensed consolidated interim financial statements have been prepared in accordance with
International Financial Reporting Standards (“IFRS”), (IAS) 34 Interim Financial Reporting, the SAICA
Financial Reporting Guides as issued by the Accounting Practices Committee and Financial
Pronouncements as issued by the Financial Reporting Standards Council and in the manner required
by the Companies Act of South Africa and the JSE Listings Requirements. The principle accounting
policies applied in the preparation of the condensed consolidated interim financial statements are in
terms of IFRS and are consistent with those applied in the comparative consolidated annual financial
statements.

The results of the Group, were prepared under supervision of the Group’s financial director, Mr B
Shanahan CA (SA).

These interim condensed consolidated financial statements for the period ended 30 June 2016 have
been reviewed by Nexia SAB&T, who expressed an unmodified review conclusion. A copy of the
auditor’s review report is available for inspection at the company’s registered office together with the
interim condensed consolidated financial statements identified in the auditor’s report.
REVIEW OF RESULTS AND FINANCIAL POSITION


The condensed consolidated interim financial results represent the trading results of the Company and
its subsidiaries which are active in the financial services and private equity markets. The Group showed
sustained improvement in its performance for the period under review. The expansion strategy,
substantially increased the portfolio of financial services assets. Funding for the expansion strategy was
secured through the registration of Ecsponent’s listed preference share programme enabling the
company raise capital to fund its investments on an ongoing basis. The market subscription of the
preference shares has continued to grow.


EARNINGS AND FULLY DILUTED EARNINGS PER SHARE

                                                                     Reviewed        Unaudited               Audited

                                                                       30 June          30 June          31 December
                                                                          2016             2015                 2015

 BASIC AND HEADLINE EARNINGS                                              R’000          R’ 000               R’ 000

 Basic earnings                                                          20 090          15 885               23 359

 Headline earnings                                                        8 900          16 670               22 453


 Basic and fully diluted earnings per share (cents) attributable          2.226           1.762                2.591
 to equity holders of the parent

 Headline and fully diluted headline earnings per share                   0.986           1.849                2.490
 (cents) attributable to equity holders of the parent



 Number of shares in issue                                         930 531 435         901 588 049         901 588 049

 Weighted average number of shares                                 902 676 200         901 588 049         901 588 049


 RECONCILIATION BETWEEN BASIC EARNINGS AND
 HEADLINE EARNINGS

 IAS 33 Basic earnings                                                   20 090          15 885               23 359

 IAS 16 (Profit) / Loss on disposal of property plant and                   (25)              -                   10
 equipment

 IAS 38 Impairment of intangible assets                                        -             785                 494

 IFRS 10 Gain on disposal of subsidiary                                 (11 165)              -               (1 410)

 Headline earnings                                                        8 900          16 670               22 453
ASSET VALUE PER SHARE
                                                                        30 June          30 June        31 December
                                                                           2016             2015               2015

                                                                          R’000          R’ 000              R’ 000

 Net asset value                                                         47 322          72 475              78 191

 Net tangible asset value                                                27 190          66 566              69 633

 Net asset value per share (cents)                                         5.24            8.04                8.67

 Net tangible asset value per share (cents)                                3.01            7.38                7.72



ACQUISITIONS AND DISPOSALS

The board actively investigates acquisition opportunities aimed at improving earnings and cash
generation for the Group.

Return on Innovation (Pty) Ltd (“ROi”)
ROi provides strategic management inputs across all media platforms from the rumblings on social
media, through the wide variety of print media to radio and TV – all managed through one intelligence
platform. The business provides a strategic high ground for its corporate clients. For Ecsponent, this
acquisition is in line with its growth strategy in that ROi is an opportunity that is high tech, offers high
margins, high barriers to entry and can effectively be applied in both a South African as well as in an
international context. The Group concluded an agreement to acquire 51% of the company, effective
1 March 2016. ROi reported sales amounting to R3.3 million, and a loss after tax and contributions
toward group overheads of R977 588 for the interim period ended 30 June 2016.

Fair value of the assets acquired and liabilities assumed are as follows:

                                                                                2016
                                                                                 R
 Property, plant and equipment                                                    3 221 303
 Deferred taxation                                                                1 434 674
 Trade and other receivables                                                      1 570 226
 Cash and cash equivalents                                                          282 528
 Other financial liabilities                                                     (6 059 728)
 Trade and other payables                                                        (1 714 290)
 Total identifiable net liabilities                                              (1 265 287)
 Non-controlling interest                                                           619 991
 Common control reserve                                                           2 145 296
 Purchase consideration                                                           1 500 000


Ecsponent Development Fund (Pty) Ltd (“ECS Developments”)
ECS Developments, a 74% owned subsidiary of the Company, agreed to acquire the business
conducted by Ecsponent Investment Holdings (Pty) Ltd as a going concern. The business provides high
yielding financing opportunities which offer an attractive proposition for the Company. The Group
concluded an agreement to acquire the business of the company, effective 30 June 2016.

Fair value of the assets acquired and liabilities assumed are as follows:
                                                                              2016
                                                                               R
 Property, plant and equipment                                                    368 871
 Deferred taxation                                                                446 087
 Trade and other receivables                                                   44 608 966
 Trade and other payables                                                        (357 332)
 Total identifiable net assets                                                 45 066 592
 Non-controlling interest                                                      19 211 569
 Common control reserve                                                        54 679 081
 Purchase consideration                                                       118 957 242



Clade Investment Management (Pty) Ltd (“Clade”) and its subsidiary
Ecsponent acquired 51% of the ordinary share capital of Clade, which wholly own the shares of
Exchange Trade Fund Ltd, effective 30 June 2016. It has category 2 and 2A investment licences with
the Financial Services Board.

Fair value of the assets acquired and liabilities assumed are as follows:

                                                                              2016
                                                                               R
 Property, plant and equipment                                                      8 606
 Deferred taxation                                                              3 400 896
 Trade and other receivables                                                    1 621 142
 Cash and cash equivalents                                                     11 453 166
 Other financial liabilities                                                  (11 452 166)
 Trade and other payables                                                      (1 608 171)
 Bank overdraft                                                                    (2 360)
 Total identifiable net assets                                                  3 421 113
 Non-controlling interest                                                      (1 676 345)
 Intangible assets and goodwill                                                 9 255 232
 Purchase consideration                                                        11 000 000




Start-up businesses
The Board of Directors established the following new businesses in line with the expansion strategy:

Ecsponent Asset Management (Pty) Ltd Botswana (“Ecsponent Asset Management”)
Ecsponent Asset Management was awarded a licence to operate as an Investment Company with
Variable Capital (ICVC). Ecsponent through its local holding structures has a 70% interest in this
operation. The Group is currently rolling out products in the sector.


Disposals
Disposal of 51% of Ligagu Investments (Pty) Ltd Swaziland (“Ligagu Investments”)
Ecsponent entered into an agreement to dispose of its 51% shareholding in Ligagu Investments, its
subsidiary in Swaziland providing retail credit loans to individuals. The investment was effectively sold
on 30 June 2016 for a total purchase consideration of R16 million, payable in twelve equal instalments
from 31 July 2016.

Fair value of the assets and liabilities disposed of are as follows:
                                                                               2016
                                                                                R
 Property, plant and equipment                                                    199 222
 Intangible assets                                                                275 321
 Deferred taxation                                                                759 219
 Other financial assets                                                        29 629 448
 Trade and other receivables                                                      751 854
 Cash and cash equivalents                                                      2 615 690
 Other financial liabilities                                                  (19 897 090)
 Trade and other payables                                                      (9 746 114)
 Current tax payable                                                           (1 729 620)
 Total identifiable net assets                                                  2 857 930
 Non-controlling interest                                                      (1 245 645)
 Net assets derecognised                                                        1 612 285
 Profit on disposal                                                            14 387 715
 Consideration receivable                                                      16 000 000



Disposal of acquired debt collection books
Ecsponent decided, as part of its new focus on financial services, to dispose of its collection books.
This disposal consideration of R9 million is payable in cash to Ecsponent Credit Services (Pty) Ltd for
the acquired debt books in 12 equal instalments. The collection books had a carrying value of R8.9
million on the effective date.

OTHER FINANCIAL ASSETS

The other financial asset category incorporates the benefits provided to employees against payroll
facilities contracts, business funding and purchase price repayment facilities. Total other financial
assets increased by 170% compared to the comparative period. Provided below is the detail regarding
the Group’s other financial assets:


                                                                 Reviewed         Unaudited           Audited
                                                                    Group             Group             Group
                                                                  30 June           30 June      31 December
                                                                     2016              2015             2015

                                                                     R ‘000           R ‘000           R ‘000

 At fair value through profit and loss – designated
 Acquired debt                                                             -           8 981            8 874

 Loans and receivables
 Employee benefit loans                                              80 397           54 242           77 645
 Secured SME loans                                                  112 377           43 726           73 140
 Ecsponent Capital RF Limited                                       247 082           39 407          134 917
 Ecsponent Investment Holdings (Pty) Ltd                            114 282           21 987           81 940
 Getbucks (Pty) Ltd – purchase price facility                         2 571           46 300                -
 Virtual Shared Services (Pty) Ltd – purchase price                  16 000                -                -
 facility
 Ecsponent Business Finance (Pty) Ltd – purchase price                7 726                -                -
 facility
 TOTAL OTHER FINANCIAL ASSETS                                       580 435          214 643           376 516

 Total included in non-current assets                                70 980          105 624            98 066

 Total included in current assets                                   509 455          109 019           278 450



PREFERENCE SHARE CAPITAL

Ecsponent’s business model requires funding for both 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 R5 billion
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 again on 15 December 2015. By 30 June 2016 Ecsponent Limited had received subscription
investments of R441 million.

Reconciliation of the number of preference shares in issue:
                                                      Ecsponent Limited (South Africa)
                                                            Class A             Class B         Class C
 Reported at the beginning of the period                    326 798             688 485       1 641 290
 Issue of preference shares during the year                  30 790             319 804       1 414 569
                                                            357 588           1 008 289       3 055 859

 Weighted average issue price per share                       95.33              100.00          100.00
 (Rands)

                                                      Ecsponent Limited (Swaziland)
                                                            Class A             Class E
 Reported at the beginning of the period                 18 058 000          18 174 000
 Issue of preference shares during the year               9 158 000          11 910 700
                                                         27 216 000          30 084 700

 Weighted average issue price per share                         1.00               1.00
 (converted to Rand)

                                                      Ecsponent Limited (Botswana)
                                                            Class A             Class B
 Reported at the beginning of the period                 14 764 000           2 067 000
 Repayment of preference shares during the year          (1 014 000)                  -
                                                         13 750 000           2 067 000

 Weighted average issue price per share (Pula)                 1.00                1.00
 Weighted average issue price per share (Rand)                 1.33                1.33



OTHER FINANCIAL LIABILITIES

In terms of IFRS the preference share capital is classified as debt and disclosed as other financial
liabilities in the Condensed Consolidated Statement of Financial Position as at 30 June 2016.
Consequently, the preference share dividends are classified as funding costs and disclosed as such in
the Condensed Consolidated Statement of Profit and Loss and Other Comprehensive Income for the 6
months ended 30 June 2016.

The other financial liabilities category incorporates external funding facilities with either banks,
individuals or corporate funding entities. Provided below is the detail regarding the Group’s other
financial liabilities:
                                                                 Reviewed       Unaudited         Audited
                                                                    Group           Group           Group
                                                                  30 June         30 June     31 December
                                                                     2016            2015            2015

                                                                    R ‘000          R ‘000          R ‘000


 Held at amortised cost
 Preference share liability                                        508 828         157 830         313 837
 Experite NV Group                                                   6 445           3 561           6 498
 Capital bank - Term loan facilities                                34 647               -           8 977
 Getbucks (Pty) Ltd                                                      -           9 207           4 054
 Ecsponent Capital (RF) Limited                                      1 082               -               -
 Ecsponent Projects (Pty) Ltd                                          684           5 225           4 873
 Ecsponent Investment Holdings – purchase price                    118 957               -               -
 facility
 Debentures                                                         11 452                               -
 Capital protected investments                                       2 668                               -
 Other                                                               6 237           3 250           3 860

 TOTAL OTHER FINANCIAL LIABILITIES                                 691 000         179 073         342 099

 Total included in non-current liabilities                         517 441         159 270         324 840
 Total included in current liabilities                             173 559          19 803          17 259


RELATED PARTY DISCLOSURES
The group entered related party transactions with its holding company and related subsidiaries during
the financial period. Below is a summary of the relevant balances and transactions in this regard:

                                                                  Reviewed         Unaudited          Audited
                                                                    30 June          30 June      31 December
                                                                       2016             2015             2015
                                                                       R’000           R’000            R’000
 Related party balances
 Loan accounts - Owing (to) / by related parties
    Ecsponent Capital (RF) Limited                                      247 082        39 407         134 917
    Ecsponent Capital (RF) Limited                                       (1 082)            -               -
    Ecsponent Investment Holdings (Pty) Ltd                             114 282        21 987          81 940
    Ecsponent Investment Holdings (Pty) Ltd                            (118 957)            -               -
    Ecsponent Business Finance (Pty) Ltd                                  7 726             -               -
    Ecsponent Projects (Pty) Ltd                                           (684)       (5 225)         (4 873)

 Amounts included in Trade receivable / (Trade Payable)
 regarding related parties
    Ecsponent Capital (RF) Limited                                        4 015             -              -
    Ecsponent Capital (RF) Limited                                         (113)            -              -
    Ecsponent Investment Holdings (Pty) Ltd                               1 373            579             -
    Ecsponent Investment Holdings (Pty) Ltd                                (218)            -              -
    Ecsponent Business Finance (Pty) Ltd                                     41             -              -
    Ecsponent Business Finance (Pty) Ltd                                   (549)            -              -

    Related party transactions
    Interest (received from) / paid to related parties
    Ecsponent Capital (RF) Limited                                      (26 304)        (3 008)       (14 110)
    Ecsponent Investment Holdings (Pty) Ltd                             (20 400)        (3 139)       (18 644)



 Administration fees paid to (received from) related
 parties
    Ecsponent Capital (RF) Limited                                        (630)           (995)        (5 962)
    Ecsponent Investment Holdings (Pty) Ltd                               (780)           (402)        (3 240)
    Return on Innovation (Pty) Ltd                                        (216)              -             -

    Commission paid to (received from) related parties
    Ecsponent Business Finance (Pty) Ltd                                (1 114)              -         (1 500)
    Ecsponent Investment Holdings (Pty) Ltd                               (500)              -             -


    Recoveries paid to (received from) related parties
    Ecsponent Capital (RF) Limited                                      (2 844)              -             -
    Ecsponent Business Finance (Pty) Ltd                                   (40)              -             -
    Ecsponent Investment Holdings (Pty) Ltd                                (37)              -             -
    Return on Innovation (Pty) Ltd                                         117               -             -




FINANCIAL INSTRUMENTS – FAIR VALUE AND RISK MANAGEMENT
Financial instruments measured in the statement of financial position at fair value require disclosure.
Financial instruments of the Group carried at fair value are disclosed below.

Fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs
to the fair value measurements are observable and the significance of the inputs to the fair value
measurement in its entirety, which are described as follows:

-      Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities
       that the entity can access at the measurement date;
-      Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable
       for the asset or liability, either directly or indirectly; and
-      Level 3 inputs are unobservable inputs for the asset or liability.


                                                                           Reviewed 30 June 2016
    Financial instrument carried at fair value                          Carrying value -  Fair value -
                                                                          Designated at      Level 3
                                                                             fair value        R’000
                                                                                   R’000

    Other financial assets                                                           -              -


                                                                       Unaudited 30 June 2015
    Financial instrument carried at fair value                         Carrying value -   Fair value -
                                                                       Designated at         Level 3
                                                                          fair value           R’000
                                                                               R’000

    Other financial assets                                                     8 981           8 981




                                                                      Audited 31 December 2015
    Financial instrument carried at fair value                         Carrying value -   Fair value -
                                                                      Designated at        Level 3
                                                                         fair value         R’000
                                                                              R’000

    Other financial assets                                                    8 874           8 874



    Financial instrument carried at fair value                         Reviewed         Unaudited    Audited 31
                                                                        30 June           30 June      December
                                                                           2016              2015          2015

    Fair value gains recognised in profit and loss                            -               -           5 639



    Financial instrument carried at fair value                         Reviewed         Unaudited    Audited 31
                                                                        30 June           30 June      December
                                                                           2016              2015          2015

 Opening balance at the start of the period                              8 874            3 241           3 241
 Purchases & revaluations                                                  126            5 854           5 854
 Transfer of realised gains recognised in profit and loss                    -            (114)           (221)
 Disposal of financial instrument                                       (9 000)              -               -
 Balance at the end of the period                                            -            8 981           8 874



Measurements of fair value – valuation techniques and significant unobservable inputs

The following table reflects the valuation techniques used in measuring Level 3 fair values, as well as
the significant unobservable inputs used:

 Type               Valuation technique           Significant unobservable           Inter-relationship
                                                  inputs                             between significant
                                                                                     unobservable
                                                                                     inputs and fair
                                                                                     value measurement
 
 Acquired debt        The fair value of          - The expected future cash           The estimated fair
                      acquired debt is           flows are determined with            value would
                      determined by applying     reference to the current             increase/(decrease)
                      the discounted cash flow   collection performance of the        if:
                      valuation technique,       book, benchmark information          - the forecast
                      which incorporates the     available within the debt            collections were
                      determination of           collection industry as well as       higher/(lower); or
                      discount rate containing   expected recovery rates              - the risk adjusted
                      an appropriate risk        determined by the collection         discount rate
                      premium.                   service provider. The expected       waslower/ (higher).
                                                 recovery rates are measured
                                                 against the collection service
                                                 provider’s model that takes key
                                                 considerations into account like
                                                 the quality of the contact
                                                 details of the individual debtors
                                                 contained in the book, the age
                                                 of the debt and the quality of
                                                 the original loan
                                                 - A risk adjusted discount rate
                                                 of 16.5% was applied.



FINANCIAL INSTRUMENTS
The carrying amount of all significant financial instruments approximates the fair value.

FINANCIAL RISK MANAGEMENT
The Group's financial risk management objectives and policies are consistent with those disclosed in
the consolidated annual financial statements as at and for the year ended 31 December 2015.


SUMMARISED CONSOLIDATED SEGMENTAL INFORMATION

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 operational segmentation or in the basis of measurement of segment profit or loss since the
2015 annual financial statements.

The continued expansion of the Group has resulted in the need for geographic segmentation in
addition to the operational segmentation.

Period ended 30 June 2016

 Operating Segment                      Total Assets        Revenue      Operating profit /
                                                                                   (loss)
                                              R’ 000         R’ 000                 R’000

 Financial Services                          706 336        142 567                92 661
 Private equity                               38 500         30 810                (2 746)
 Collections                                   3 992          1 873                (2 170)
 Corporate                                   565 806         37 479                43 801
 Eliminations                               (537 567)       (96 025)              (73 140)

 Group total                                 777 067         116 704               58 406
 
 Geographic Segment                    Total Assets          Revenue     Operating profit /
                                                                                   (loss)
                                             R’ 000           R’ 000               R’000

 South Africa                             1 149 233          171 884             114 518
 Botswana                                   126 209           23 243              10 918
 Swaziland                                   24 743           16 431               7 409
 Namibia                                        192              233                 135
 Zambia                                      14 257              938              (1 434)
 Eliminations                              (537 567)         (96 025)            (73 140)

 Group total                               777 067           116 704              58 406



Period ended 30 June 2015

 Operating Segment                     Total Assets           Revenue     Operating profit /
                                                                                    (loss)
                                             R’ 000            R’ 000                R’000

 Financial Services                        356 626             29 824               23 386
 Private Equity                             23 240             18 633               (2 299)
 Collections                                12 184             10 214                7 958
 Corporate                                 231 410             10 717                5 777
 Eliminations                             (328 651)            (1 025)             (12 118)
 Transfer to discontinued operations             -             (1 573)                (804)

 Group total                               294 809             66 790               21 900



 Geographic Segment                    Total Assets             Revenue    Operating profit /
                                                                                      (loss)
                                             R’ 000             R’ 000                R’000

 South Africa                               481 101             73 298               30 213
 Botswana                                   104 064             15 388                4 123
 Swaziland                                   32 346              5 313                  493
 Namibia                                        161                313                   39
 Zambia                                       5 788                  -                  (46)
 Eliminations                             (328 651)            (25 949)             (12 118)
 Transfer to discontinued operations              -             (1 573)                (804)
 Group total                               294 809              66 790               21 900



Year ended 31 December 2015

 Operating Segment                     Total Assets            Revenue     Operating profit /
                                                                                     (loss)
                                             R’ 000             R’ 000               R’000

 Financial Services                         710 672            132 833               65 193
 Private equity – Biotechnology              36 088             39 623               (5 644)
 Collections                                  8 802             16 209                (258)
 Corporate                                  355 853             57 727               30 618
 Eliminations                              (645 236)           (86 679)             (42 528)
 Group total                                466 179            159 712               47 381



 Geographic Segment                    Total Assets              Revenue     Operating profit /
                                                                                       (loss)
                                             R’ 000               R’ 000              R’000

 South Africa                               834 788              190 292              63 494
 Botswana                                   183 856               40 956              20 969
 Swaziland                                   81 321               13 438               6 362
 Namibia                                        187                  562                (157)
 Zambia                                      11 263                1 143                (759)
 Eliminations                              (645 236)             (86 679)            (42 528)
 Group total                                466 179              159 712              47 381




EVENTS AFTER THE REPORTING PERIOD

The directors are not aware of any material event, other than the matters listed below, which occurred
after the reporting date and up to the date of this report, which require disclosure.



CORPORATE ACTIONS

During the financial period ended 30 June 2016, the following corporate actions were implemented by
the Group:

Related party acquisitions
ECS Developments, a subsidiary of the Company, acquired the business conducted by Ecsponent
Investment Holdings Proprietary Limited as a going concern (“the EIH Transaction”). The EIH
Transaction was approved by the requisite number of shareholders at a general meeting held on 3 May
2016 and became effective on 30 June 2016.

Class G Preference Shares
At the annual general meeting held on 25 August 2015, shareholders approved the creation of an
additional Class G preference share, which contains provisions for conversion into ordinary shares on
certain default events. Specific approval for the issue of convertible Class G shares was obtained from
shareholders at a general meeting held on 3 May 2016, however none have been issued to date.

Issue of ordinary shares to Directors
The Company’s remuneration committee approved the partial settlement of future directors’ fees for the
non-executive directors and for the executive directors’ salaries through the issue of ordinary shares to
the directors in lieu of a cash settlement of the fees (“the Directors’ Issue”).

Odd lot offer and specific repurchase
The Company undertook an odd-lot offer and a specific repurchase of ordinary shares at 20.55 cents
per share in order to reduce the ongoing administration costs associated with the Company’s large
minority ordinary shareholder base, as follows:
• an odd-lot offer to repurchase holdings equal to or less than 532 ordinary shares (“the Odd-Lot Offer”);
• a specific offer to repurchase holdings of more than 532 ordinary shares and equal to or less than
10 000 ordinary shares (“the Specific Repurchase”).
In terms of the Odd-Lot Offer and the Specific Repurchase, a total of 542 758 ordinary shares were
repurchased and subsequently cancelled.


Amendment of the Memorandum of Incorporation
The Company’s MOI was amended to specifically allow the Company to expropriate shares pursuant
to the Odd-Lot Offer.


SHARE CAPITAL

The following ordinary shares were issued during the 6 months ended 30 June 2016.

                                                            Number of          Issued share              Total
                                                              shares                 capital

                                                                   ‘000                R’000             R’000

 Opening balance 1 January 2016                                901 588               118 072           118 072
 Acquisition of Clade Investment Management                     19 096                 4 000             4 000
 Shares issued pursuant to the Directors’ Issue                 10 070                 1 869             1 869
 Closing balance 30 June 2016                                  930 753               123 941           123 941


DIVIDENDS

No ordinary dividends have been declared or proposed for the year.

The Company has issued and listed three classes of Preference Shares with the following dividend
terms:
 - Class A – 10% fixed rate monthly dividend;
 - Class B – 0% monthly dividend, but redeeming at a rate equal to 170% of the Initial Issue Price;
    and
 - Class C – prime plus 4% floating rate monthly dividend.

Preference Share dividends and interest of R23.8 million accrued to investors for the 6 months ended
30 June 2016. The dividends are classified as finance costs and included in the finance cost expense
in the Condensed Consolidated Statement of Profit and Loss and Comprehensive Income.



RESTATEMENT OF PUBLISHED INTERIM RESULTS

During the finalisation of the 31 December 2015 results it was identified that an incorrect interpretation
of the SAICA circular relating to the quantification of headline earnings was applied, resulting in the
misstatement of the 30 June 2015 headline earnings and related HEPS. The impact of the misstatement
is summarised as follows:

                                                                                    2015
                                                                                    R’000

Headline earnings reported in 30 June 2015 results                                   4 653
Adjustment - IAS 39 Profit on disposal of Financial Instruments                     12 017

Restated Headline earnings for the period ending 30 June 2015                       16 670



Headline earnings per share reported in 30 June 2015 results                         0.516
Restated Headline earnings for the period ending 30 June 2015                        1.849



CONTINGENCIES

The directors are not aware of any material contingent liability which existed at the reporting date and
up to the date of this report that requires disclosure.


DIRECTOR CHANGES

No changes to the Group’s directors took place during the 6 months ended 30 June 2016.


COMPANY SECRETARY

During the period, Mr. Dirk van der Merwe was appointed as the company secretary.


AUDITORS

Nexia SAB&T continued in office as auditors for the Group for 2016 financial interim period.

At the Annual General Meeting held on 27 May 2016, shareholders reappointed Nexia SAB&T as the
independent external auditors of the Group for the 2016 financial year.


GOING CONCERN

The directors believe that the Group has adequate financial resources to continue in operation for the
foreseeable future and accordingly the Condensed Consolidated Interim Financial Statements for the 6
months ended 30 June 2016 have been prepared on a going concern basis. The directors have satisfied
themselves that the Group is in a sound financial position and that it has access to sufficient equity and
borrowing facilities to meet its foreseeable cash requirements.

The directors are not aware of any new material changes that may adversely affect the Group. The
directors are also not aware of any material non-compliance with statutory or regulatory requirements
or of any pending changes to legislation which may affect the Group.

For and on behalf of the Board


E Engelbrecht
Pretoria
26 September 2016

Directors: RJ Connellan* (Chairman), KA Rayner*, BR Topham*. (* Independent Non-Executives), E
Engelbrecht (Chief Executive Officer), TP Gregory (Chief OperatingOfficer), B Shanahan (Financial
Director)
Company Secretary: Dirk van der Merwe
Registered Office: Acacia House, Green Hill Village Office Park, on Lynnwood, Cnr Botterklapper and
Nentabos Street, The Willows, Pretoria East, PO Box 39660, Garsfontein East 0060
Transfer Secretaries: Computershare Investor Services Proprietary Limited, (Registration number
2004/003647/07), Ground Floor, 70 Marshall Street, Johannesburg, 2001, (PO Box 61051,
Marshalltown, 2107)
Auditors: Nexia SAB&T Inc.
Sponsor: Questco (Pty) Ltd

Date: 27/09/2016 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

Share This Story