| Thu 28 May 2009, 17:30 | | EFF - Efficient Financial - Unaudited interim financial results for the six |
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EFF
EFF
EFF - Efficient Financial - Unaudited interim financial results for the six
months ended 28 February 2009
EFFICIENT FINANCIAL HOLDINGS
Incorporated in the Republic of South Africa
(Registration number: 2006/036947/06)
Share code: EFF
ISIN: ZAE000133286
UNAUDITED INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 28 FEBRUARY 2009
HIGHLIGHTS
- Assets under management: R3,1 billion
- Assets under administration: R1,1 billion
- Profit after tax: R4,3 million
- Positive cash flow generated by operations: R6,8 million
CONDENSED CONSOLIDATED INCOME STATEMENT
Unaudited Unaudited Audited
six months six months 18 months
ended ended ended
28 Feb 29 Feb % 31 Aug
2009 2008 Change 2008
R`000 R`000 R`000
Revenue 24 290 44 780 (46) 101 079
Asset management fees
- Fixed fees 6 285 6 791 (7) 14 904
- Performance fees 7 734 22 173 (65) 43 535
Asset administration fees 7 559 11 538 (34) 22 057
Financial services 2 503 4 158 (40) 20 012
Other 209 120 74 571
Investment income 1 174 2 088 (44) 4 961
- Interest received 1 174 1 598 (27) 4 085
- Profit on sale of - 490 (100) 876
investment
Total income 25 464 46 868 (46) 106 040
Operating expenses (19 710) (19 888) 1 (54 557)
- Commission, management fees (4 201) (6 206) 32 (17 932)
and rebates
- Fixed expenses (12 938) (11 035) (17) (30 749)
- Non cash flow expenses (2 571) (2 647) 3 (5 876)
Income from associates 188 52 262 104
Profit before tax 5 942 27 032 (78) 51 587
Taxation (1 651) (8 669) (16 923)
Net profit after tax 4 291 18 363 (77) 34 664
Attributable to:
Equity holders 4 232 18 173 34 156
Minority interest 59 189 508
4 291 18 362 34 664
Number of shares in issue 36 135 36 135 36 135
Weighted average number of 36 135 36 135 36 135
shares
Earnings per share (cents) 11,71 50,29 (77) 94,52
Headline earnings per share 11,71 50,29 (77) 94,52
(cents)
CONDENSED CONSOLIDATED BALANCE SHEET
Unaudited Unaudited Audited
as at as at as at
28 Feb 29 Feb % 31 Aug
2009 2008 Change 2008
R`000 R`000 R`000
Non-current assets
Property, plant and equipment 1 953 2 687 2 199
Investment in associates 9 348 52 104
Other intangible assets 27 986 31 175 29 581
Goodwill 20 259 20 259 20 259
Deferred tax asset 1 778 391 497
61 324 54 564 52 640
Current assets
Trade and other receivables 5 166 5 894 5 366
Cash and cash equivalents 4 780 23 999 14 998
9 946 29 893 20 364
Total assets 71 270 84 457 73 004
Equity
Capital and reserves 58 530 59 884 53 732
Share capital and share premium 37 880 37 880 37 880
Treasury shares (7 200) (7 200) (7 200)
Share-based payment reserve 1 984 661 1 477
Minority interest 96 189 37
Accumulated profits 25 770 28 354 21 538
Deferred tax liabilities 7 835 9 527 8 299
Current liabilities 4 905 15 046 10 973
- Trade and other payables 4 219 5 129 4 709
- Taxation payable 686 9 917 6 264
Total equity and liabilities 71 270 84 457 73 004
Net asset value per share 161,71 165,20 148,60
(cents)
Net tangible asset value per 28,20 22,86 10,67
share (cents)
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
Unaudited Unaudited Audited
six six 18 months
months months
ended ended ended
28 Feb 29 Feb % 31 Aug
2009 2008 Change 2008
R`000 R`000 R`000
Net cash inflow from operating
activities
Cash generated from operations 6 861 25 935 57 560
Finance income received 1 174 1 598 4 085
Dividends received from 69 - -
associates
Dividends paid - (6 502) (25 888)
Tax paid (8 975) (9 330) (20 759)
Net cash flow from operating (871) 11 701 14 998
activities
Acquisition of (9 124) 10 958 10 958
subsidiaries/associates
Proceeds from the sale of - 11 093 13 898
investments
Purchase of equipment (223) (1 698) (2 070)
(9 347) 20 353 22 786
Cash flow from financing - (9 563) (26 419)
activities
Cash and cash equivalents for the (10 218) 22 491 11 365
period
Cash and cash equivalents at the 14 998 1 508 3 633
beginning of the period
Cash and cash equivalents at the 4 780 23 999 14 998
end of the period
SEGMENTAL ANALYSIS
Revenue
Feb Feb
2009 2008
R`000 R`000
Asset management 14 228 29 084
Asset administration 7 559 11 538
Financial services 2 503 4 158
Unallocated corporate expenses/net assets - -
24 290 44 780
Profit before tax
Feb Feb
2009 2008
R`000 R`000
Asset management 3 818 21 602
Asset administration 1 706 5 291
Financial services 1 682 2 543
Unallocated corporate expenses/net assets (1 264) (2 404)
5 942 27 032
Net asset value
Feb Feb
2009 2008
R`000 R`000
Asset management 23 567 24 988
Asset administration 1 913 3 776
Financial services 3 795 2 279
Unallocated corporate expenses/net assets 29 255 28 841
58 530 59 884
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Fair value
adjustment
assets - Share-based
Share Treasury available-for- payment
capital shares sale reserve reserve
R`000 R`000 R`000 R`000
Opening balance - March - - 605 -
2006
Fair value gains on - - 1 809 -
financial instruments
Deferred tax on financial - - (700) -
instruments fair value
adjustments
Profit for the year - - - -
Dividends paid - - - -
Balance at 28 February 2007 - - 1 714 -
Profit for the period - - - -
Dividends paid - - - -
Balance at 31 August 2007 - - 1 714 -
Issue of share capital 37 880 - - -
Share repurchase - - - -
Amortisation of share-based - - - 661
payments
Treasury share - (7 200) - -
Transfer of fair value - - (1 714) -
adjustment reserve on sale
of asset
Profit for the period - - - -
Dividends paid - - - -
Balance at 29 February 2008 37 880 (7 200) - 661
Amortisation of share-based - - - 816
payments
Profit for the period - - - -
Dividends paid - - - -
Balance at 31 August 2008 37 880 (7 200) - 1 477
Amortisation of share-based - - - 507
payments
Profit for the period - - - -
Balance at 28 February 2009 37 880 (7 200) - 1 984
Minority Accumulated Total
interest profits equity
R`000 R`000 R`000
Opening balance - March 2006 - 12 546 13 151
Fair value gains on financial - - 1 809
instruments
Deferred tax on financial instruments - - (700)
fair value adjustments
Profit for the year 92 10 246 10 338
Dividends paid - (7 000) (7 000)
Balance at 28 February 2007 92 15 792 17 598
Profit for the period 157 10 975 11 132
Dividends paid (247) (7 000) (7 247)
Balance at 31 August 2007 2 19 767 21 483
Issue of share capital - - 37 880
Share repurchase - (4 800) (4 800)
Amortisation of share-based payments - - 661
Treasury share - - (7 200)
Transfer of fair value adjustment - 1 714 -
reserve on sale of asset
Profit for the period 189 18 173 18 362
Dividends paid (2) (6 500) (6 502)
Balance at 29 February 2008 189 28 354 59 884
Amortisation of share-based payments - - 816
Profit for the period 162 5 008 5 170
Dividends paid (314) (11 824) (12 138)
Balance at 31 August 2008 37 21 538 53 732
Amortisation of share-based payments - - 507
Profit for the period 59 4 232 4 291
Balance at 28 February 2009 96 25 770 58 530
COMMENTARY
Amid the global financial turmoil, Efficient Financial Holdings (EFH) produced
interim results which were in line with expectations.
A decline of over 33% in the JSE All Share Index (ALSI) over the six months to
28 February 2009 contributed to performance fees coming under pressure. This,
combined with a reduction in the assets under management due to the significant
fall in JSE equity values over the period, resulted in headline earnings per
share of 11,71 cents, compared to 50,29 cents for the previous period.
Despite one of the worst ever periods of decline in global equities, the Group
remains profitable and enjoyed positive cash earnings throughout the first six
months of the financial year. If ever there was a period in which the business
and business model were stress-tested, it was during this period.
1. The listing
EFH listed on the JSE on 20 April 2009 through the listing of 39,6 million
shares. R39 million was raised during the private placement showing that even in
tremulous equity market conditions, certain investors are still willing to take
a longer-term view and make new investments.
The purpose of the listing was, amongst other reasons, to exploit acquisition
prospects often evident during a strenuous economic environment.
2. Financial results
Revenue decreased from R44,8 million to R24,3 million mainly due to a decline in
performance fees and the value of assets under management which are closely
linked to the performance of the equity markets. Notwithstanding this, fixed fee
income generated by asset management was only 7% lower than the comparative six
month period.
Costs were well maintained and decreased by 1% while operations generated cash
of R6,8 million before tax. The Group maintains a cash reserve of at least three
months fixed cash expenses with no long-term debt.
3. Business segmental results
The Group constitutes three divisions namely Asset Management, Asset
Administration and Financial Services.
Asset Management:
Asset Management consists of the following subsidiaries: Efficient Group,
Efficient International Investment, Multigro Capital and Valugro Capital.
The focus of the asset management division is to deliver returns in line with
investment objectives whilst complying with investable benchmarks through the
management of unit trust funds, unit trust funds of funds and private share
portfolios, both local and international.
The revenues of this division were strained due to the decline in the value of
the equity markets.
Efficient Group`s revenue declined as a result of its main source being
performance fees. The EFH investment committee has addressed the
underperformance of key products in the company by enhancing the investment
process through implementation of investable benchmarks. Particularly, the unit
trust products have considerable earnings potential.
Efficient Group also offers economic research. Revenue generated from economic
research increased by 75%.
In response to volatile equity markets and investors` need for manager
diversification, EFH is at present finalising a new portfolio management
product, which will increase the product offering, and will be rolled out to a
broad client base in due course.
A good performance was seen from Efficient International Investment which
reported a small maiden profit. Multigro Capital saw an increase in revenue of
9% but profits were lower due to an additional cost allocation for the increase
in asset management research. Valugro Capital`s revenue, which consists of fixed
and performance fees, decreased as performance fees declined. An important
investment was made in developing the systems and processes used at Valugro in
order to improve performance and increase competitiveness.
At the end of the reporting period EFH had approximately R3,1 billion under
management.
Asset Administration:
Efficient Collective Investments is responsible for the administration of
approximately one third of the unit trusts under the Group`s management.
Administration of assets includes liability administration and asset
administration such as daily pricing of unit trust funds. Assets under
administration decreased due to market movement, resulting in lower profits.
Efficient Collective Investments will, in future, extend its asset
administration services to other group funds. It had approximately R1,1 billion
under administration on 28 February 2009.
Financial Services:
Financial services are conducted through FHS Financial Services (Cape Town) and
FHS Financial Services (EB). Financial Services includes financial planning,
investment advice and risk cover. A full range of Employee Benefits is offered
by FHS Financial Services (EB).
Currently financial services are mainly offered through a partnership with PKF
in Cape Town. The division`s strategic development plan includes rolling out
financial services to further Professional Service Providers.
The Employee Benefit segment of the Financial Services division is a relatively
new profit centre and has good growth potential. FHS Financial Services (EB)
will continue to focus its marketing effort on attracting SMME pension funds.
4. Acquisition activities
During the reporting period EFH acquired a 25,1% interest in Thebe Securities
from Thebe Investment Corporation. This transaction was financed from cash
generated by operations.
Thebe Securities is an independent full service stockbroker. The acquisition
will play an important role in the expansion of the Financial Services division.
Since the effective date of the acquisition, Thebe Securities contributed R118
427 to the after tax profit of the Group.
As part of EFH`s strategic plan to establish a BEE partnership, EFH vendors sold
25,1% shares to Thebe Investment Corporation prior to listing.
5. Prospects
As mentioned, financial services are currently mainly offered through a
partnership with PKF (Cape Town). Strategic development plans entail rolling out
financial services to other Professional Service Providers.
Supplementary to the expansion plans of the Financial Services division, EFH is
in the process of acquiring 100% of FH Financial Services (Newlands) which,
while having a negligible impact on historic pro-forma headline earnings, could
bring significant investment business income to the Group. This transaction
falls below the JSE Listings Requirements threshold for categorisation.
Subsequent to the interim period, the JSE ALSI enjoyed an increase in equity
prices. If sustained, this bodes well for the company. The "rolling period" and
"high watermark" nature of the performance fee calculations of many of the
Group`s unit trust funds will however only benefit the company in its next
financial year.
Management is confident that within the next 12 to 24 months, both global equity
market asset values and the company`s profitability will be much enhanced.
6. Strategy
The Group`s strategy will be focused on the following key areas:
- Continuous product innovation
- Development of fund management systems and procedures
- Development of the Asset Management division`s marketing and distribution
capabilities across all areas
- Joint ventures with third party asset managers particularly with regard to
marketing and distribution capabilities
- Financial Services roll-out through development of the relationship with PKF.
7. Dividends
The Group`s dividend policy is to declare dividends bi-annually at the
discretion of the board of directors, determined by the financial position of
the Group and equal to 80% of the free cash flow of the Group. Free cash flow is
calculated after making provision for a cash reserve equal to three months
operating expenses, capital expenditure and budgeted acquisitions. Listing
proceeds are excluded from free cash flow. In line with company policy no
dividend has been declared for the current period.
8. Basis of preparation
The interim results have been presented on a consolidated basis and have been
prepared in accordance with the International Financial Reporting Standards, the
requirements of IAS 34 (Interim Financial Reporting), the JSE Listings
Requirements, and the Companies Act of South Africa. The accounting policies
applied are consistent with those applied in the previous interim and financial
year end periods. These interim results have not been audited or reviewed by the
Group`s auditors, PKF (Jhb) Inc.
9. Changes to the board of directors
EFH restructured its board of directors shortly before listing in order to
ensure a composition more closely aligned with the King Commission`s
recommendations and sound corporate governance principles. The number of
executive directors was reduced from six to three with all the Group`s fund
managers stepping down to allow for the appointment of four additional non-
executive directors. This will also allow the Group fund managers to focus their
time on the future performance of funds and growth in assets.
The changes to the board are summarised below:
Appointment as non-executive directors:
- MC Khwinana - 30 January 2009
- LN Gadd - 30 January 2009
- M Cassim - 30 January 2009
- R Paterson - 17 March 2009
Resignations:
- B Bishop - 17 March 2009
- HB Hopking - 17 March 2009
- CN Snyman - 17 March 2009
Dawie Roodt Heiko Weidhase
Chairman Managing Director
28 May 2009
Non-executive directors:
EA Hern*, MJ Giles*, MC Khwinana, LN Gadd, M Cassim, R Paterson
* Independent
Executive directors:
DD Roodt, H Weidhase, AT de Klerk
Registered address:
42 Wierda Road West, Wierda Valley, 2196
Business address:
81 Dely Road, Hazelwood, Pretoria, 0181
Company secretary:
AT de Klerk CA(SA)
Transfer secretaries:
Link Market Services South Africa (Pty) Limited
Sponsor:
Java Capital (Pty) Limited
Date: 28/05/2009 17:30:01 Produced by the JSE SENS Department.
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