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EFF
EFF
EFF - Efficient Financial Holdings Ltd - Audited Consolidated Annual Financial
Statements For The Year Ended 31 August 2009
EFFICIENT FINANCIAL HOLDINGS LTD
Incorporated in the Republic of South Africa
(Registration number: 2006/036947/06)
Share code: EFF
ISIN: ZAE000133286
("EFH" or "the company")
AUDITED CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 AUGUST
2009
1. COMMENTARY
Overview
That all was not well with the world became clear in the second half of
2007 when one after the other giant financial institution imploded in the
United States. The impact of the crisis was little understood at the
time, but gradually the size and scope of developments on financial
markets became apparent as months progressed to years.
Despite one of the worst ever periods of decline in global equities, the
Group remains profitable and enjoyed positive cash earnings before
finance charges and tax paid.
Financial Results
The current financial year ended 31 August 2009 for 12 months, is
compared to the previous reporting period of 18 months for the period
ended 31 August 2008. It is important to note this difference in
reporting periods when analysing the financial results.
A decline of over 30% in the JSE All Share Index (ALSI) in the first half
of the financial year under review contributed to performance fees coming
under pressure. This was exacerbated by a reduction in assets under
management due to a significant fall in JSE equity values over the
period. A resultant drop in revenue occurred from R101.0 million for the
18 months ended in August 2008 to R 40.8 million for the current
financial year.
Due to the risks associated with performance fees, diversification of
product offerings was included in the Group`s strategic plan. The success
of this approach is evident in the revenue growth of the Financial
Services division, (as a percentage of total revenue) from 8% in the
previous financial period to 12% in the current financial year.
In the contents of declining revenue expenses were curtailed, resulting
in an after-tax profit of R 4.9 million for the year under review. As of
the end of the financial year, assets under management amounted to just
under R3 billion.
Operational headline earnings per share track the earnings performance
for the year under review. Lower revenue countered by savings in expenses
resulted in headline earnings per share of 12.82 cents, compared to 94.52
cents (calculated over 18 months) in the previous financial year.
Headline earnings per share for the comparable 12 month period were 65.34
cents.
Despite global financial turmoil and unfavourable equity market
conditions, the Group`s core operations still generated cash of R 7.9
million.
Divisional overview
Asset Management
The Asset Management division consists of the following wholly owned
subsidiaries: Efficient Group, Efficient International Investment,
Multigro Capital and Valugro.
Their focus is on the risk/return profiles and objectives of the various
investment products that are managed by the group, i.e. twelve unit
trusts and a number of segregated investment mandates. Included are
equity funds of various descriptions, both local and international, and a
money market fund. Under normal market conditions, performance fees are
an important source of revenue for Efficient Financial Holdings (EFH).
Efficient Group also offers economic research to corporate clients.
The past financial year was a challenging year, exacerbated by the
financial crisis, worldwide stock market collapses and a synchronized
recession in many parts of the world.
Over the reporting period:
- Asset management contributed 58% to EFH revenue vs. 59% in 2008.
- The profit before tax contribution was 75% vs. 68% in 2008.
- Assets under management decreased by 30% against a backdrop of a 33%
drop in the All Share Index up to March 2009. Outflows of funds
were experienced across a range of products, from both institutional
investors and private clients. More recently this trend has turned,
with investors, in general, more optimistic about equity markets.
- Efficient International contributed 7% to profit before tax of asset
management vs. 0% in 2008 which is included in the profit before tax
contribution of 75% mentioned above.
A number of programs were initiated and/or implemented in the course of
the past financial year:
- At Valugro external consultants were appointed to add value to the
portfolio management systems and process, and to help define it in
simple "industry" terms for easier marketing purposes. We anticipate
an expansion in Valugro`s client base going forward, especially with
two fully focussed experienced sales consultants now in place.
- The EFH investment committee further enhanced its reporting and
monitoring competence for all of the EFH investment products. The
introduction of investable Benchmarks for all unit trusts early in
2009 was a major milestone for the committee. Going forward this
should result in the profits of Asset Management being much more
resilient in any future equity market "crashes".
- Marketing and distribution capabilities were expanded in the last
quarter of the financial year. We expect this development to
contribute significantly to sales in the next financial year.
- Product development continues with a new portfolio management
product due for launch in the first quarter of the 2010 financial
year.
Asset Administration
Efficient Collective Investments (ECI) is tasked with the administration
of the unit trusts of the whole group. This includes liability
administration (unit administration) and asset administration (daily
pricing, etc.). Assets under administration decreased due to equity
market movements, resulting in reduced revenue.
Asset administration contributed 31% to EFH revenue vs. 33% in 2008.
The profit after tax contribution was 34% vs. 29% in 2008.
Financial Services
Financial services are conducted through Efficient Financial Services
(EFS), FH Financial Services (EB) and C&A Financial Services. Financial
services include financial planning, investment advice and risk cover. A
full range of employee benefits is offered by FHS Financial Services
(EB).
Financial Services contributed 12% to EFH revenue vs. 8% in 2008.
The profit after tax contribution was 50% vs. 10% in 2008.
EFS is focused on delivering a comprehensive financial solution in
partnership with professional service providers and independent financial
planners. The solution includes a comprehensive range of financial
planning products and services covering investments, risk, fiduciary
services and complimentary products and services. The objective is to
leverage the Efficient brand and in the process expand and diversify the
distribution of a range of products and services.
Acquisition activities
R 9.2 million was invested in expanding the Group`s Financial Services
product offering.
This investment was mainly applied to secure a 25.1% share in the BEE
stock broker Thebe Securities on 1 December 2008 for a cash amount of R
8.9 million.
As part of the strategic plan to expand our financial services offering
EFH acquired the remaining 60% share in the financial services company FH
Financial Services (Newlands)(Pty) Ltd on 1 June 2009 for a cash amount
of R 0.3 million. This company acquired contributed revenues of R 22 k
and profit after tax of R 16 k to the group from the date of effective
control to 31 August 2009. If the acquisition had occurred on 1 September
2008 the contribution to group revenue would have been R 149 k and the
contribution to profit after tax would have been R 107k. The fair value
of identifiable assets acquired and liabilities assumed were as follows:
Cash and cash equivalents 243
Trade receivables 13
Intangible assets 363
Deferred tax (84)
Interest free liabilities (126)
Tax payable (86)
Trade payables (23)
Net assets 300
Listing
EFH listed on the JSE on 20 April 2009 and raised net capital of R 14.6
million. The purpose of the listing, among other reasons, was to exploit
acquisition prospects often prevalent in a strained economic environment.
It also served to expand the Financial Services offering.
Prospects
Since March 2009, the JSE ALSI enjoyed an increase in equity prices and
this bodes well for the Group, if sustained. The `rolling period` and
`high watermark` nature of the performance fee calculation of many of the
Group`s unit trust funds, will also benefit the group in its next
financial year.
Strategy
EFH`s strategy will be focused on the following key areas:
- Focusing on the Asset Management division`s marketing and
distribution capabilities across all areas
- Continuous product development
- Increase assets under administration
- Further expanding Financial Services through the development of
relations with provisional service providers
Dividends
In line with company policy and after making provision for capital
expenditure and the cash reserves from cash generated by operations, no
dividend has been declared for the current period. The decision by the
directors not to declare a dividend is supported by a prudent approached
amidst uncertainty in financial markets.
The company`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 cash
reserves equal to three months operating expenses, capital expenditure
and budgeted acquisitions.
A dividend of R 36 thousand was distributed to the minority shareholder
by a subsidiary of the Group, not wholly owned, during the period under
review.
Basis of preparation
The audited consolidated Annual Financial Statements have been presented
on a consolidated basis and have been prepared in accordance with the
International Financial Reporting Standards, the JSE Listing
Requirements and the Companies Act of South Africa. The accounting
policies applied are consistent with those applied in previous reporting
periods. The Consolidated Annual Financial Statements have been audited
by PKF (Jhb) Inc. The 2009 unqualified audit report is available for
inspection at the registered office of the company.
The condensed audited annual financial statements are prepared in
accordance with the JSE Listing Requirements with specific reference to
IAS 34 "Interim financial Reporting".
No significant events occurred subsequent to the financial year that
requires any additional disclosure or adjustment to the annual financial
statements.
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 additional
non-executive directors.
The changes to the board are summarised below:
Appointed as non-executive directors:
- Dr S Booysen (Independent Chairman) - 1 September 2009
- MC Khwinana - 30 January 2009
- LN Gadd - 30 January 2009
- M Cassim - 30 January 2009
- R Paterson - 17 March 2009
- L Whitfield - 1 September 2009
Resignations from the board:
- B Bishop - 17 March 2009
- HB Hopking - 17 March 2009
- CN Snyman - 17 March 2009
Steve Booysen H Weidhase
Chairman Managing Director
2. CONDENSED AUDITED CONSOLIDATED BALANCE SHEET AS AT 31 AUGUST 2009
31-Aug-09 31-Aug-08
R`000 R`000
Non-current assets
Property plant and equipment 1,631 2,199
Goodwill 20,259 20,259
Other intangible assets 26,357 29,581
Equity accounted investments 9,880 104
Deferred tax 1,936 480
60,063 52,623
Current assets
Trade and other receivables 4,535 5,366
Cash and cash equivalents 18,762 14,998
Tax receivable 962 -
24,259 20,364
Total assets 84,322 72,987
Equity
Capital and reserves 72,989 53,731
Share capital and share premium 53,839 37,880
Treasury shares (7,200) (7,200)
Share base payment reserve - 1,477
Minority interest 81 36
Retained income 26,269 21,538
Non- current liabilities
Deferred tax liabilities 7,365 8,282
Current liabilities 3,968 10,974
- Trade and other payables 3,968 4,709
- Taxation payable - 6,265
Total Equity and Liabilities 84,322 72,987
Weighted-average ordinary shares in issue (000) 37 408 36 135
Net asset value per share (cents) 194.90 148.60
Net tangible asset value per share (cents) 70.280 10.67
3. CONDENSED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 AUGUST 2009
12 Months 18 Months
ended ended
31-Aug-09 31-Aug-08
R`000 R`000
Revenue 40 836 101 079
Asset management fees
- Performance fees 9 820 29 720
- Fixed fees 12 886 14 748
Asset Administration fees 12 745 22 057
Financial Services 4 861 9 414
Other 524 25 140
Operating Expenses (37 496) (54 558)
- Variable expenses (7 718) (17 932)
- Fixed expenses (29 778) (36 626)
Operating profit 3 340 46 521
Finance income 2 283 4 085
Other Income 53 877
Income from Associates 947 104
Profit before interest and tax paid 6 623 51 587
Finance cost (43) -
Profit Before Tax 6 580 51 587
Taxation (1 714) (16 923)
Net Profit After Tax 4 866 34 664
Attributable to:
Equity holders 4 785 34 156
Minority interest 81 508
4 866 34 664
Earnings per share (cents) 12.79 94.52
Headline Earnings per share (cents) 12.82 94.52
31-Aug-09 31-Aug-08
R`000 R`000
Headline earnings are calculated as
follows:
- Attributable earnings 4 785 34 156
- Add: Scrapping of PPE 13 -
- Less: Taxation on scrapping of PPE (4) -
Headline earnings 4 794 34 156
Number of ordinary shares in issue at the 39 641 36 135
end of the year
Weighted average number of ordinary 37 408 36 135
shares in issue
4. CONDENSED AUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE
YEAR ENDED 31 AUGUST 2009
Share Treasury Share Minority Retained Fair Total
Capital shares base interest income value equity
& Share payment adjustme
premium reserve nt for
avail-
able -
for-sale
- assets
reserve
R`000 R`000 R`000 R`000 R`000 R`000 R`000
Opening - - - 92 15,792 1,714 17,598
balance - 1
March 2007
Issue of 37,880 - - - - - 37,880
Share
Capital
Repurchase - - - - - - (4,800)
of shares (4,800)
Amortisatio - - 1,477 - - - 1,477
n of share
based
payments
Treasury - (7,200) - - - - (7,200)
Share
Transfer of 1,714 (1,714) -
fair value
adjustment
reserve on
sale of
assets
Profit for 508 34,156 34,664
the period
Dividends (564) (25,324) (25,888)
paid
Balance at 37,880 (7,200) 1,477 36 21,538 - 53,731
31 August
2008
Issue of 14,622 - - - - - 14,622
Share
Capital
Repurchase - - - - (62) - (62)
of shares
Amortisatio - - (140) - - - (140)
n of share
based
payments
Transfer of 1,337 - (1,337) - - - -
share based
payment
reserve
Pre - - - - 8 - 8
acquisition
reserves
acquired
Profit for - - - 81 4,785 - 4,866
the period
Dividends - - - (36) - - (36)
paid
Balance at 53,839 (7,200) - 81 26,269 - 72,989
31 August
2009
5. CONDENSED AUDITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31
AUGUST 2009
12 Months 18 Months
Ended ended
31-Aug-09 31-Aug-08
R`000 R`000
Cash generated from operations 7,858 57,519
Finance income 2,283 4,085
Interest paid (43) -
Dividends received from associates 118 -
Dividends paid (36) (25,888)
Tax paid (11,476) (20,760)
Cash inflow/(outflow) from operating activities (1,296) 14,956
Acquisition of subsidiaries (57) 10,958
Acquisition of associates (8,944) -
Proceeds from the sale of investments - 13,898
Purchase of equipment (370) (2,071)
Cash inflow/(outflow) from investing activities (9,371) 22,785
Issue of Share capital 14,622 -
Repurchase of shares (62) -
Interest free liabilities (129) (4,975)
Other loan payable - (5,688)
Loan receivable - (15,714)
Cash inflow/(outflow) from financing activities 14,431 (26,377)
Cash and cash equivalents for the year 3,764 11,364
Cash and cash equivalents at the beginning of the 14,998 3,634
year
Cash and Cash equivalents at the end of the year 18,762 14,998
6. SEGMENTAL ANALYSIS FOR THE YEAR ENDED 31 AUGUST 2009
August 2009 Asset Asset Financial Other Total
Manage- Admini- Services
ment stration
R`000 R`000 R`000 R`000 R`000
Revenue 23,605 12,834 4,861 (464) 40,836
- External 23,141 12,834 4,861 - 40,836
- Inter - segment 464 - - (464) -
Profit before tax 4,948 2,261 3,307 (3,936) 6,580
Assets 5,865 2,723 1,530 74,204 84,322
Liabilities (19,240) 1,198 1,050 28,325 11,333
Acquisition of PPE 217 8 6 139 370
Depreciation and 447 22 57 3,986 4,512
amortisation
Aggregated share of - - 947 - 947
profit from
associates
August 2008 Asset Asset Financial Other Total
Managemen Admini- Services
t stration
R`000 R`000 R`000 R`000 R`000
Revenue 59,885 33,543 8,526 (875) 101,079
- External 59,010 33,543 8,526 - 101,079
- Inter - segment 875 - - (875) -
Profit before tax 34,861 14,886 4,967 (3,127) 51,587
Assets 14,554 2,995 25,927 29,511 72,987
Liabilities (6,216) 2,305 23,285 (118) 19,256
Acquisition of PPE 466 35 73 1,496 2,070
Depreciation, 813 29 67 3,491 4,400
amortisation and
share based payments
Aggregated share of - - 104 - 104
profit from
associates
7. CORPORATE INFORMATION
Non- executive directors
Dr S Booysen (Chairman)*,E Hern*, MJ Giles*,LN Gadd, MC Khiwana, M
Cassim, R Paterson, L Whitfield.
*Independent
Executive directors
DD Roodt, H Weidhase, AT de Klerk
Registered and Business address
81 Dely Road, Hazelwood, 0181
Company secretary
Ithemba Governance and Statutory Solutions (Pty) Limited
Corporate advisor, legal advisor and sponsor
Java Capital (Proprietary) Limited
Reporting accountants and auditors
PKF (JHB) Inc.
Transfer secretaries
Link Market Services South Africa
NOTICE OF ANNUAL GENERAL MEETING
Shareholders are advised that EFH`s annual report was dispatched today and
contains a notice of Annual General Meeting for the company which will be held
in the Efficient Financial Holdings Boardroom at 81 Dely Road, Hazelwood,
Pretoria on Friday, 22 January 2010 at 10h00.
27 November 2009
Sponsor
Java Capital (Proprietary) Limited
Date: 27/11/2009 16:05:05 Produced by the JSE SENS Department.
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