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EFFICIENT GROUP LIMITED - Unaudited condensed consolidated interim financial results for the six months ended 28 February 2014

Release Date: 09/04/2014 14:05
Code(s): EFG     PDF:  
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Unaudited condensed consolidated interim financial results for the six months ended 28 February 2014

EFICIENT GROUP LIMITED
Incorporated in the Republic of South Africa
(Registration Number: 2006/036947/06)
JSE share code: EFG
ISIN: ZAE000151841
(“Efficient Group” or “the Group”)

UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED
28 FEBRUARY 2014

Highlights
- 63% Increase in base fees
- EPS of 5.61 cents compared to a LPS of 0.57 cents
- HEPS of 4.86 cents

1.   Nature of business

Efficient Group is the holding company of Efficient Advise, Efficient Select, Efficient
Invest and Efficient Capital. The Group’s divisions operate in the financial services
sector and provide products and services relating to financial planning, asset
management, asset consulting and asset finance to a diverse client base across southern
Africa.

2.   Business segments

The Group consists of the following business segments:
a.   Investments
i.   Efficient Select for Asset Management,
ii.  Efficient Invest consisting of Boutique Investment Partners (“BIP”)for Investment
Consulting and Multi Management, and Boutique Collective Investments (“BCI”) for
Collective Investment Management,
b.   Efficient Advise for Financial Advisory Services, and
c.   Efficient Asset Finance for Asset Finance intermediary services.

3.   Key developments

The appointment of Robert Walton and the establishment of Efficient Invest.
Efficient Group appointed Robert Walton on 12 August 2013 as an Executive Director of
Efficient Group and Chief Executive Officer of our new business unit, Efficient Invest,
which business is intended to significantly strengthen our collective investment,
investment consulting and multi-management capabilities.

Efficient Invest includes BCI (previously known as Efficient Collective Investments)
and BIP. The vision of BCI is to become the partner of first choice for all independent
South African boutique fund of fund managers by providing collective investment
products, administration, retail distribution and support services.

The acquisition of Verso Investment Services (Pty) Ltd (“VIS”) (“VIS Acquisition”).

Efficient Group acquired all the shares in VIS. The transaction was effective 1
December 2013 and the purchase price was settled in cash of R 45.7 million and the
balance by way of allotment and issue of 16.4 million Efficient Group shares. The
transaction only became unconditional on 7 March 2014 (“implementation date”),
therefore VIS was not consolidated at the end of February 2014.

VIS is a financial advisory business with 19 financial planners servicing more than
5 000 clients through offices in Cape Town, Port Elizabeth and Gauteng. VIS has R 4.5
billion in assets under advice. Verso Multi Managers (“VMM”), a subsidiary of VIS, is a
multi-manager managing R 5.3 billion in assets in eight unit trust portfolios. VIS will
be integrated within the financial services division and VMM within the asset
management and asset administration divisions.

The Efficient Group client base now exceeds 12 000 clients across southern Africa,
serviced by a large team of professional financial planners who receive support
services such as economics, administration, technology and compliance through a group
shared service structure.

4.   Financial results

Statement of Comprehensive Income

The Group generated a net profit after tax of R 2.7 million for the six months ended 28
February 2014 (“the reporting period”), compared to an after tax loss of R 0.25 million
for the six months ended 28 February 2013 (“comparative period”).

Base fees were enhanced by the newly established BIP and the synergies from the VIS
acquisition.

The implementation of best market practices at Efficient Select resulted in the
restructuring of the fee structures of a number of investment portfolios. The change in
fee structures resulted in lower performance fees but supports more sustainable base
fees when the portfolios perform at benchmark.

The Group reports headline earnings of R 2.5 million for the reporting period (R 2.3
million for the comparative period).

Revenue increased by 24% to R46 million during the six months ended 28 February 2014.
The increase in revenue is a result of the growth in the distribution network (46%
increase relative to the comparative period), the revenue generated by BIP and as a
result of synergies that were unlocked in the asset management and administration
divisions following the VIS acquisition.

As expected, performance fees decreased by 45% primarily as a result of the changes in
the asset management fee structures.

Operating expenses consist of:
                                  Unaudited        Unaudited                  Audited
                                 Six months       Six months                     Year
                                      ended            ended        %           ended
                                  28-Feb-14        28-Feb-13     Change     31-Aug-13
                                      R'000            R'000                    R'000
Operating expenses                 (44 760)         (34 837)        28%       (76 772)
- Variable expenses                (15 734)         (10 942)        44%       (23 766)
- Fixed expenses                   (26 610)         (21 723)        22%       (48 697)
- Non-cash flow expenses            (2 416)          (2 172)        11%        (4 309)

Variable expenses consist mainly of commissions paid to our financial advisors, who
deliver products and services to a retail and corporate client base, and asset and
liability administration costs of BCI. The increase in these expenses is attributable
to, and in line with our expansion plans.

The increase in fixed expenses relates to the newly established BIP and BCI.

Non-cash flow expenses relate to the amortisation of intangible assets and depreciation
of equipment.

The Group’s strategic investment in an Information Technology business was profitable
and the Group’s share of comprehensive income from associates amounted to R 0.2 million
for the reporting period.

Statement of Financial Position

The notable increase in working capital is attributable to the increase in business
activity, predominantly as a result of the asset consulting team joining the Group and
the expansion to increase assets under administration.

The net tangible asset value per share increased from 62.07 cents per share for the
comparative period, to 104.95 cents per share for the reporting period, primarily as
a result of the subscription for 10 689 299 ordinary shares at a price of R1.53 per
share in Efficient Group by Robert Walton. In addition to this share issue, 1 997 661
shares were issued to senior employees at a price of R 1.53 per share, as part of the
share incentive scheme. The company funded 75% of the subscription price. The
outstanding balance bears interest at the official interest rate and is included in
long–term receivables.

Cash flow

The Group generated cash of R 3.5 million from operations as a result of profits
generated before taking into account the movement in working capital.

5.    Business segmental results

Investments

This business segment reported revenue of R 32 million for the period under review, an
increase of 13%, mainly as a result of the new investment consulting activities and
synergies from the VIS acquisition. Margins increased during the comparative period and
are in-line with the increase in activities in this segment. The increase in fixed
expenses relates to the cost of the BIP team and the incremental cost to increase
assets under administration. Although some benefits of the increase in fixed expenses
are included in the profit for the period under review, the full effect is expected to
follow only in the next 6 to 12 months.

This business segment posted a profit after tax of R 3.9 million for the reporting
period compared to a profit of R 4.3 million for the comparative period.

Efficient Select
The focus of the asset management division is to deliver consistent returns in line
with specified investment objectives through a defined Quality Investment Philosophy
and disciplined investment process. Assets are managed in a streamlined and competitive
product range consisting of unit trust investments (local and international) and
private client share portfolios.

The contribution from the asset management division is dependent on the amount of
assets under management and fund performance relative to fund benchmarks.

Efficient Select had R 2.7 billion (2013: R 2.5 billion) under management.

Efficient Invest

BCI administers assets totalling R 2.2 billion (2013: R2.2 billion).

BIP has R 17.7 billion of assets under management (2013: Nil).

Financial Advisory Services

The core business of Efficient Financial Services trading as Efficient Advise entails
the delivery of comprehensive financial planning and investment management expertise
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
(including short-term insurance and medical aid), employee benefit structures, cash
management, stock broking, asset finance and fiduciary services.

Efficient Advise is focused on establishing a distribution network throughout southern
Africa. The distribution network consists of a national branch and advisory
infrastructure comprising 65 (2013: 46) registered representatives, complimented by a
highly skilled support structure.

The financial services division reported revenue growth of 46% for the period. This
increase is directly linked to the expansion of the distribution network. Variable
costs increased in line with the growth in revenue. The increase in fixed expenses is
as a result of the greater support infrastructure. This division reported a loss after
tax of R1.2 million, akin to the R 1.2 million loss reported in 2013 (excluding
stockbroking).

The Group sold its 25.1% stake in Thebe Stockbroking in September 2013 and realised a
profit of R 0.5 million.

At the end of February 2014, Efficient Advise had R 2.9 billion of assets under advice
compared to R 2.1 billion at the end of February 2013.

6.    Acquisition activities

Efficient Group acquired all the shares in VIS at a purchase price of R 72 million.
Please refer to the section titled Key Developments for full detail.

In January 2014 Efficient Invest became a 30% shareholder in Rudiarius Capital
Management (Pty) Ltd, an African equity specialist manager. Efficient Invest
contributed R30 to share capital and granted a working capital loan of R 1 million. It
is expected that this company will start operations in April 2014.

7.    Subsequent Events

In March 2014 BCI increased assets under administration from R 2.2 billion to more than
R 5 billion with the addition of 11 co-named portfolios.

If the VIS acquisition had occurred on 1 September 2013 the contribution to group
revenue would have been R 22 million and the contribution to profit after tax
R 6 million. The profit from VIS would have increased HEPS with 12.26 cents. With the
acquisition of VIS the Group for the first time introduced gearing to the statement of
financial position.

8.    Strategy

With its expansionary and progressive strategy, as outlined in the company’s previous
Integrated Report for the year ended 31 August 2013, the Efficient Group remains well
positioned for future growth.

A key focus for the group for the next 6 to 12 months will be to ensure the successful
roll out of Efficient Invest and the integration of VIS into the Efficient Group.

9.    Dividends

Considering the Group’s acquisition, investment and growth strategy, the board resolved
to not declare a dividend.

10.   Basis of preparation

The interim results 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, and 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.    Change to the board of directors

Christo Burger was appointed as executive director to the board of Efficient Group from
7 March 2014 and Fred Liedtke as his alternate. On 8 April 2014 Mariam Cassim changed
her board member status from non-executive director to alternate director for Jerry
Mabena and she has also resigned as a member of the Remuneration, Ethics and Social
Committee. Jerry Mabena was appointed as a member of the Remuneration, Ethics and
Social Committee.

Condensed consolidated statement of comprehensive income
                           Unaudited     Unaudited             Audited
                          Six months    Six months                      Year
                               ended         ended            %         ended
                           28-Feb 14     28-Feb 13       Change     31 Aug 13
                               R’000         R’000                      R’000
Revenue                       45 888        36 880          24%        79 012
Asset management fees
- Base fees                   19 277        11 832          63%        25 195
- Performance fees             5 722        10 425         (45%)       22 446
Financial Services income     20 448        14 374          42%        30 876
Other                            441           249          77%           495
Operating Expenses           (44 760)      (34 837)        (28%)      (76 772)
Operating profit/(loss)        1 128         2 043         (45%)        2 240
Dividends received                 -             -           -             88
Finance Income                   979           721          36%         1 284
Finance Cost                       -           (10)        100%           (12)
Profit on sale of
equipment                          -             -            -            60
Realised fair value 
adjustment of available-
for-sale financial assets          -             -            -            51
Unrealised fair value
adjustment of investment
designated at fair value
through profit or loss           697            786         (11%)       1 301
Remeasurment of liabilities        -            305        (100%)       2 222
Remeasurment of loan to
associate                          -              -           -           500
Other Income/(expenses)           38             90         (58%)          (3)
Impairment of investment in
associates                         -         (2 555)        100%       (2 837)
Share of profit/(losses) 
from associates                  201           (574)       >100%       (1 091)
Profit on sale of shares         527              -           -             -
Profit/(loss) before taxation  3 570            806        >100%        3 803
Taxation                        (904)        (1 054)         14%       (1 302)
Profit/(loss) for the period   2 666           (248)       >100%        2 501
Other comprehensive income:
Realised fair value
adjustment of available-
for-sale financial assets          -              -                       (51)
Unrealised fair value
adjustment of available-
for-sale financial assets          -             35                        77
Total comprehensive income/
(loss)for the period           2 666           (213)                    2 527
Profit/(loss) for the period
attributable to:
Equity holders of the parent   2 866           (234)                    2 520
Non-controlling interest        (200)           (14)                      (19)
                               2 666           (248)                    2 501
Total comprehensive income/
(loss) for the period
attributable to:
Equity holders of the parent   2 866           (199)                    2 546
Non-controlling interest        (200)           (14)                      (19)
                               2 666           (213)                    2 527
Number of shares in
issue ('000)                  53 446         40 760                    40 760
Weighted average number of
shares ('000)                 51 132         40 760                    40 760
Diluted Weighted average
number of shares ('000)       51 132         40 760                    40 760
Earnings/(loss) per
share (cents)                   5.61          (0.57)                     6.18
Diluted earnings/(loss)
per share (cents)               5.61          (1.11)                     6.18
Headline earnings per
share (cents)                   4.86           5.69                     13.04
Diluted headline earnings
per share (cents)               4.86           5.15                     13.04
Headline earnings is
calculated as follows:
Profit for the period
attributable to equity holders
of the parent                  2 866          (234)                     2 520
Impairment of investment in
associate                          -         2 555                      2 837
Profit on disposal of share
in associate                    (527)            -                          -
Taxation on profit on
disposal of share in associate   148             -                          -
Profit on disposal of 
equipment                          -             -                        (60)
Taxation on profit on disposal
of equipment                       -             -                         17
Headline earnings              2 487         2 321                      5 314

Condensed consolidated statement of financial position
                           Unaudited   Unaudited                Audited
                               as at       as at       %     year ended
                           28-Feb 14   28-Feb 13    Change    31 Aug 13
                               R’000       R’000                  R’000
Non-current assets
Equipment                      1 702         720                   658
Goodwill                      23 726      23 617                23 703
Intangible assets             15 779      19 364                17 821
Investments                    5 228       6 446                 9 252
Equity accounted
investments                    6 481       5 654                  6 313
Long-term receivable           6 134       1 871                  1 518
Deferred taxation asset        2 014         260                  1 344
                              61 064      57 932                 60 609
Current assets
Trade and other receivables   19 271       7 366                 8 565
Cash and cash equivalents     28 816      19 210                19 260
Short-term portion of
long-term receivables           725        725                   915
Taxation receivable             366        390                   302
                             49 178     27 691                29 042
Total assets                110 242     85 623                89 651
Equity
Total equity attributable to
equity holders of the parent 93 170     68 281                71 026
Share capital and share
premium                       77 935    58 657                58 657
Treasury shares                 (149)     (149)                 (149)
Fair value adjustment
reserve                           65          74                    65
Retained earnings             15 319     9   699              12   453
Non-controlling interest        (213)        (58)                  (13)
Total Equity                  92 957    68   223              71   013
Non-current liability          3 701     5   972               3   932
Long-term liabilities            992     1   994                   715
Deferred taxation liability    2 709     3   978               3   217
Current liabilities           13 584    11   428              14   706
Trade and other payables      11 014     9   092              13   460
Short-term portion of
long-term liability              482     1 250                     482
Taxation payable               2 088     1 086                     764
Total equity and
liabilities                  110 242    85 623                89 651
Net asset value per
share (cents)                 182.21    167.52                174.25
Net tangible asset value
per share (cents)             104.95     62.07                 72.38

Condensed consolidated statement of changes in equity
                          Share                       Fair
                         Capital                     Value                 Non-
                             and   Shares   Trea-   Adjust-              Control
                           Share    to be    sury     ment Retained         ling     Total
                         premium   issued   Shares reserve Earnings      interest
Equity
                          R’000    R’000   R’000    R'000     R'000       R'000      R'000
Balance at 31 Aug 2012   58 657        -    (149)      39     9 933        (44)     68 436
Total comprehensive
loss for the period           -        -       -       35     (234)        (14)       (213)
Balance at 28 Feb 2013   58 657        -    (149)      74    9 699         (58)     68 223
Non-controlling interest
share of the issue of
the share capital by
Efficient Asset Finance
(Pty) Ltd                     -        -       -        -        -          50          50
Total comprehensive
income for the period         -        -       -       (9)   2 754          (5)      2 740
Balance at 31 Aug 2013   58 657        -    (149)      65   12 453         (13)     71 013
Issue of share capital   19 278        -       -        -        -           -      19 278
Total comprehensive
income for the period         -        -       -        -    2 866        (200)      2 666
Balance at 28 Feb 2014   77 935        -    (149)      65      15 319         (213)   92 957

Condensed consolidated statement of cash flows
                             Unaudited  Unaudited                Audited
                           Six months Six months                    year
                                ended       ended        %         ended
                           28-Feb-14    28-Feb-13     Change   31-Aug-13
                                R’000       R’000                  R’000
Cash flows from
operating activities
Cash generated from
operations                     (9 646)      5 745                 11 751
Finance income                    652         536                  1 280
Finance cost                        -          (10)                  (12)
Tax paid                         (845)     (1 968)                (4 398)
Net cash flow from
operating activities           (9 839)      4 303                  8 621
Cash flows from
investing activities
Acquisition of business           (42)       (188)                  (382)
Long-term loan (repayment
from)/advance to associate         33        (526)                (1 059)
Decrease/(Increase) in
long-term receivable           (4 099)         144                      123
Acquisition of available-
for-sale financial asset            -            -                 (2 596)
(Decrease)/Increase in
long-term liabilities             277            -                 (1 250)
Proceeds on disposal
of available-for-sale
financial asset                 4 721            -                      441
Proceeds on disposal
of client base                    298            -                       63
Proceeds on disposal of
interest in associate             527            -                     -
Acquisition of equipment       (1 599)       (384)                  (612)
Net cash inflow/(outflow)
from investing activities         117        (954)                (5 272)
Cash flows from financing
activities
Issue of share capital         19 278            -                        -
Increase in subsidiary share
capital - non controlling
interest portion                   -             -                       50
Net cash inflow from
financing activities           19 278            -                       50
Movement in cash and cash
equivalents for the period      9 556       3 349                  3 399
Cash and cash
equivalents at the
beginning of the period        19 260      15 861                  15 861
Cash and cash
equivalents at the end
of the period                28 816       19 210                19 260

Segmental Analysis
                            Asset
                       Management,
                      Consultation      Finan-
                        & Adminis-        cial     Asset
                           tration    Services   Finance     Other        Total
                             R'000       R'000     R'000     R'000        R'000
For the six months
ended 28 Feb 2014
Revenue                     31 972    18 731     1 989      (6 803)      45 889
- External                  25 046    18 561     1 989         293       45 889
- Inter-segment              6 926       170         -      (7 096)           -
Profit for the
period                       3 893    (1 195)      (551)       520        2 667
Net asset value             30 749    (2 379)      (616)    60 022       87 776
For the six months
ended 28 Feb 2013
Revenue                     28 336    12 833     1 541      (5 830)      36 880
- External                  22 257    12 833     1 541         249       36 880
- Inter-segment              6 079         -         -      (6 079)           -
Loss for the
period                       4 257    (4 065)       (68)      (372)        (248)
Net Asset Value             28 051    (3 151)       (38)    43 361       68 223
For the year
ended 31 Aug 2013
Revenue                     60 912     30 000      2 848    (14 748)     79 012
- External                  47 712     28 028      2 848        424      79 012
- Inter-segment             13 200      1 972          -    (15 172)          -
Profit for the
period                        8 145   (1 815)       (96)    (3 733)       2 501
Net asset value              31 934   (1 184)       (66)    40 329       71 013

Other consists of consolidation entries, amortisaton of intangible assets of Efficient
Capital and Efficient Group.

Transactions between segments take place at arm's length.

CORPORATE INFORMATION
Non-executive directors: S Booysen, Z Cele*, L Taylor*, J Rosen*, J Mabena, A du Preez.
Alternate directors: T du Preez, F Liedtke, M Cassim.
* Independent
Executive directors: DD Roodt, H Weidhase, AT de Klerk, R Walton and C Burger.
Registered address: 81 Dely Road, Hazelwood, 0081
Business address: 81 Dely Road, Hazelwood, Pretoria, 0081
Company secretary: Adv Rudi Barnard
Transfer secretaries: Link Market Services South Africa (Pty) Ltd
Sponsor: Java Capital
9 April 2014

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