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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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