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EFG
EFG
EFG - Efficient Group Limited - Condensed audited consolidated annual
financial statements for the year ended 31 August 2011
EFFICIENT GROUP LIMITED
(formerly Efficient Financial Holdings Limited)
Incorporated in the Republic of South Africa
(Registration Number: 2006/036947/06)
Share code: EFG
ISIN: ZAE000151841
("EFG")
CONDENSED AUDITED CONSOLIDATED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR
ENDED 31 AUGUST 2011
HIGHLIGHTS
- Revenue increased by 11%
- Assets under management: R 3 billion
- Dividend per share increased by 9%
- Positive cash flow generated from operating activities: R 8.7
million
- Net tangible assets increase by 3%
1. COMMENTARY
The roll-out of our diversified financial services strategy continued
unabated in 2011. Our focus remains on building and maintaining a loyal
client base, increasing our distribution network, continued excellence in
asset management and also growing the company through tactical holdings
in businesses that enable the Efficient Group to leverage products and
services to the benefit of our clients in the asset management,
administration and advisory fields.
Economic growth, for South Africa, of 4.6% was recorded in the final
quarter of 2010 followed by another 4.5% in the first quarter of 2011.
Regrettably, this momentum could not be maintained during the second
quarter of 2011 and slowed markedly to a meagre 1.3% due to various
domestic and international developments. These uncertainties and slowing
international demand from developed markets left its mark on the South
African economy as seen from the contraction in manufacturing in the
second quarter of 2011.
Notwithstanding the difficult circumstances on financial markets during
the period under review, the group managed to increase revenue, increase
cash generated by operations and post a profit after tax of R 3 million.
The reported profit includes the investment in the distribution network,
corporate governance enhancement and diversification strategy.
1.1 Financial Results
Growth in the JSE All Share Index in the first half of the financial year
impacted positively on group earnings. However, due to the worldwide
economic instability, the upwards trend in the financial market again
turned into negative growth and resulted in lower profits for the
Efficient Group. The profitability of the group is aligned to the
movement in financial markets. The All Share Index recovered the losses
incurred between February 2008 and February 2009, and ended (February
2011) slightly lower than the previous highest level. During this period
the portfolios managed by the group mirrored market trends and some of
the portfolios came in just short of their high water marks. The decline
in financial markets for the six months thereafter resulted in the
widening of the high water mark gap and therefore low performance fees
were earned, resulting in lower profits reported for the last six months
of the financial year.
A substantial share of the group`s revenue is based on the value of
assets under management, assets under administration and assets under
advice.
Assets under management are represented by amounts invested in the unit
trust funds, unit trust funds of funds and private share portfolios
managed by the asset management division. The group has R 2 965 million
(2010: R 3 040 million) under management.
Assets under administration are represented by unit trust funds and unit
trust funds of funds administrated by the group. Administration of assets
includes liability administration and asset administration such as daily
pricing of unit trust funds. The group administrates assets amounting to
R 1 566 million (2010: R 1 468 million).
Assets under advice are represented by client investments under a
discretionary mandate in favour of Efficient Financial Services. Total
investments by clients on a discretionary mandate amount to
R 582 million.
The group reported revenue for the 12 months ended 31 August 2011 of R 49
million, 11% higher than the previous financial year. Performance fees
were 5% lower than the comparative period and fixed fees earned by the
asset management division increased by 24%. This increase is the result
of the amalgamation of three additional funds into the asset
administration division at the end of the previous financial year and a
reallocation of the fee between the asset management and asset
administration divisions. The lower fees received from the asset
administration division is a combination of the re-allocation of fees as
mentioned above and the decrease in assets under administration which
earns higher administration fee.
The expansion of the distribution network during the financial year
proved to be successful, demonstrated by the 33% increase in financial
services revenue. However, profit generated was lower due to the increase
in variable expenses emanating from the growth in the Independent Adviser
model.
Fixed expenses increased by 13% and signify the investment in the
expansion of the distribution network, the increases in corporate
governance and compliance expenses and expenses related to the
diversification strategy.
Operating profit increased by 12%. The share in the loss of our non-
controlling investment in our associate stock broking company and a
higher tax charge due to STC on dividends paid from last year`s profit,
resulted in a reduced profit. The group reported profit after tax
attributable to equity holders of R 3.10 million (2010: R 4.53
million).Headline earnings per share is reported at 7.77 cents (2010:
11.40 cents).
The group`s operations generated cash of R 8.7 million (2010: R 6.9
million) and includes a cash inflow of R 0.9 million from the effective
management of working capital. Interest earned was lower than last year
and contributed R 1 million to the cash flow. A dividend of R 3.4 million
was paid. Investment activities amount to R 5.2 million and consist of:
the acquisition of intangible assets of R 1.2 million, acquisition of
available-for-sale assets of R 2.3 million, change in ownership of non-
controlling interest of R 0.9 million and acquisition of equipment of R
0.8 million.
Net tangible assets per share increased by 3% and is reported at 86.91
cents (2010: 84.40 cents), mainly due to the cash generated by the group.
Cash and cash equivalents represent 72% of the net tangible assets. The
cash is reserved for the group`s expansion and diversification strategy.
1.2 Operational overview
Efficient Advise, our financial planning business, continued to make
solid progress during the financial year, especially in the expansion of
our distribution footprint across South Africa. A number of financial
services branches were included in the distribution network and a further
eight representative financial planners joined the Financial Adviser
model. In total the number of representatives (branches plus adviser
model) has grown from 5 in 2010 to 16 in 2011.
Efficient Select, our asset management business, continued to improve on
the investment performance resulting in improved financial results,
despite very challenging and volatile financial markets. With investment
philosophy and processes embedded in the investment team`s business
operations, the strategic focus remains on expanding the product
offering, either via acquisition or development, to include both a fixed
income and alternative investment division.
Efficient Transact, our asset administration business, remains focused on
delivering administrative services of the highest quality. We are
extremely excited about the possibilities associated with the
commercialisation to a broader market segment of our client service
offering concerning value-added reporting. Resources required for the
commercialisation project have been allocated.
Our strategy for Efficient Transact provides for the acquisition or
development of further administrative financial services offerings.
Efficient Capital is our newest division. The core focus of Efficient
Capital is to identify, evaluate and consider opportunities in the
financial services industry which offer either a product, service or
client base to the Efficient Group.
Efficient Asset Finance was created during the financial year and offers
an asset finance intermediary service to the Efficient Advise
distribution channel. Similar finance related services and products,
including working capital products, are currently being evaluated for
inclusion in the Efficient Advise distribution platform.
Efficient Capital is well structured and positioned for expansion.
1.3 Acquisition Activities
The group acquired the business of FH Financial Planning Services PE
(Pty) Ltd with effect of 1 September 2010 as part of the roll out of the
distribution network. The acquisition price was R2 433 725 of which R1
164 477 was paid in cash and the balance was settled by a specific issue
of 232 895 Efficient Group Ltd shares to vendors at R 0.000002767 each .
On 28 February 2011 the group also acquired the book of an independent
financial adviser at a cost of R 32 916 which was paid in cash. The fair
value of assets acquired and liabilities assumed are set out below:
R`000
Cash and cash equivalents 4
Gross trade receivables 103
Equipment 8
Intangible assets 1 274
Trade payables ( 112)
Net assets acquired 1 277
The goodwill of R 1 472 000 arising from the acquisition is attributable
to the economic benefits expected from the expansion of the distribution
network.
As part of the group`s initiative to buy out the non-controlling
shareholders in subsidiaries, the 5% shareholding held by a director of
Efficient Collective Investment (Pty) Ltd was purchased for a cash amount
of R 0.9 million. The transaction was effective from 1 May 2011.
1.4 Cash Dividend
The company`s dividend policy is to pay a dividend equal to 80% of the
free cash flow generated by the group.
An interim dividend of 2.85 cents per share was paid on 11 April 2011 and
a final dividend of 2.60 cents per share was approved by the directors on
8 November 2011 and will be paid on 5 December 2011.
The salient dates for this dividend payment are as follows:
Last day to trade `cum` dividend Friday, 25 November 2011
Securities trade `ex` dividend Monday, 28 November 2011
Record date Friday, 2 December 2011
Payment date Monday, 5 December 2011
Shareholders may not dematerialise or rematerialise their shares between
Monday, 28 November 2011 and Friday, 2 December 2011.
1.5 Events after reporting date
On 8 November 2011 the board approved the following transactions:
- Acquisition of Independent Adviser Investment book
- The acquisition of a 20% share in a Financial Advisory client base
for R 610 000 which is payable in cash over a 24 month period. The
transaction is effective 10 October 2011. Efficient Financial
Services (Pty) Ltd appointed an Independent Financial Advisor to
service the acquired client base. The mentioned Independent
Financial Advisor is also the beneficial owner of the balance of
this client base.
- Acquisition of the non-controlling share in Efficient Financial
Services (Pty) Ltd
- The acquisition of the non-controlling share (10%) held in Efficient
Financial Services (Pty) Ltd from the managing director of that
company was approved. The total acquisition price is R 9 593 300 and
will be settled by issuing 2 085 500 Efficient Group Limited shares.
The effective date of the transaction is 1 September 2011. The
transaction forms part of the group`s initiative to incentivise
senior personnel on a group level rather than a subsidiary level.
The acquisition price will be adjusted based on the performance of
Efficient Financial Services (Pty) Ltd over the next 3 years
relative to the performance of the Group.
- Efficient Namibia (Pty) Ltd
- Efficient Group and BDO Namibia signed a shareholders` agreement
whereby the Efficient Group and BDO Namibia each hold 50% shares in
Efficient Group Namibia. As part of the transaction, Efficient
Advise (Namibia) and Efficient Select (Namibia) will be created as
wholly-owned subsidiaries of Efficient Group (Namibia). Initially
this transaction will only require working capital and forms part of
the roll-out of the distribution network and diversification
strategy. The partnership will be effective from 13 October 2011.
The business of Efficient Advise (Namibia) entails the delivery of
comprehensive financial planning and investment management expertise
for the benefit of individual and corporate clients. The business of
Efficient Select (Namibia) is the management of investments.
- BDO Namibia is one of the leaders in the accounting profession in
Namibia with seven resident partners and 73 employees. BDO Namibia
provides a wide range of services to public, private and government
sector clients across Namibia.
- Information technology expansion
Efficient Capital negotiated the acquisition of a 50% share in an
Information Technology company, in partnership with Marion IT
Solutions (Pty) Ltd, with effect from 1 September 2011. The
acquisition price is R 5.6 million and will be settled partly in
cash (R3.5 million) and the balance by transferring software
developed by Efficient Group Limited to the acquired entity. The
cash portion of the acquisition price will be utilised to expand the
IT business. This is a strategic acquisition and significant to
support our information technology needs and the commercialisation
of the Efficient Group investment reporting and information
software. At the date of this report the effective date statement of
financial position has not been completed and therefore the fair
value of the assets and liabilities assumed is not finalised.
1.6 Contingent Liabilities and capital commitments
Capital commitments for the development of computer software authorised
but not yet contracted for at the end of the financial year amounts to R
1 300 000(2010: R300 000).
The company issued a guarantee in favour of Old Mutual properties to the
amount of R 327 000 in terms of a lease agreement for the Efficient
Select (Pty) Ltd office in Cape Town.
In terms of the employment agreements with some of the Financial
Advisors, Efficient Financial Services (Pty) Ltd will acquire the income
stream generated by these advisors when certain future events occur. The
amount of this contingent liability could not be determined.
Thebe Securities (Pty) Ltd, an associate of the Group, is a co-defendant
in a matter in which the plaintiff is claiming damages of R 17,6 million
plus interest. Thebe Securities (Pty) Ltd disputes this claim and has ,
to this extent, instructed its lawyers to vigorously defend the claim. As
at the reporting date the litigation matter was yet to be resolved.
1.7 Changes to the board of directors
Lynette Taylor joined the board in March 2011 as an independent non-
executive director after the retirement of Ed Hern in February 2011.
1.8 Basis of preparation
The condensed audited consolidated annual financial statements are
prepared in accordance with the International Financial Reporting
Standards (IAS 34), the JSE Listing Requirements, the Companies Act of
South Africa and the AC 500 series of Interpretation as issued by the
APB. The accounting policies applied are consistent with those applied in
the previous reporting periods.
The financial information was audited by the group`s auditors, PKF (Jhb)
Inc, in compliance with the Companies Act. The auditors issued an
unqualified audit report. The audit report is available for inspection at
the company`s registered office.
The condensed audited consolidated annual financial statements are
prepared by Anton de Klerk, the Chief Financial Officer of Efficient
Group.
2. CONDENSED AUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS
AT 31 AUGUST 2011
Group Company
2011 2010 2011 2010
R`000 R`000 R`000 R`000
Assets
Non-Current assets
Plant and equipment 1 418 1 409 557 667
Goodwill 21 731 20 259 - -
Intangible assets 21 803 23 947 - -
Investments 3 297 1 020 141 811 134 610
Equity accounted 10 678 10 919 8 944 8 944
investments
Deferred tax 250 2 032 125 125
59 177 59 586 151 437 144 346
Current Assets
Related party loans - - 21 754 32 378
Trade and other 5 137 5 835 684 619
receivables
Cash and cash equivalents 25 070 24 363 11 916 10 335
Tax receivable - 171 - -
30 207 30 369 34 354 43 332
Total Assets 89 384 89 955 185 791 187 678
Equity and Liabilities
Equity
Ordinary shares and share 55 458 54 189 168 663 167 394
premium
Treasury shares (149) (7 200) - -
Non-controlling interest 69 672 - -
Accumulated income 22 938 30 699 15 839 19 324
Fair value adjustment (3) 19 - -
reserve
Total equity 78 313 78 379 184 502 186 718
Non-Current Liabilities
Deferred tax 5 721 6 619 - -
Current Liabilities
Trade and other payables 5 078 4 868 1 289 949
Tax payable 272 89 - 11
5 350 4 957 1 289 960
Total Liabilities 11 071 11 576 1 289 960
Total Equity and 89 384 89 955 185 791 187 678
Liabilities
Net asset value per share 195.91 195.76
(cent)
Net tangible asset value 86.91 84.40
per share (cent)
CONDENSED AUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE
YEAR ENDED 31 AUGUST 2011
Group Company
2011 2010 2011 2010
R`000 R`000 R`000 R`000
Continuing operations
Revenue 48 782 43 981 10 687 10 222
Operating expenses (45 190) (40 771) (11 461) (11 143)
Operating profit/(loss) 3 592 3 210 (774) (921)
Dividends received 110 - - 15 712
Finance income 1 451 1 622 700 978
Finance cost (165) - - (34)
Other income 48 - 34 -
Share of (losses)/profits (241) 1 039 - -
from associates
Profit/(loss) before 4 795 5 871 (40) 15 735
taxation
Taxation (1 704) (1 145) (310) 35
Profit/(loss) for the 3 091 4 726 (350) 15 770
year
Other comprehensive
income:
Fair value adjustment of (22) 20 - -
available-for-sale
financial assets
Total comprehensive 3 069 4 746 (350) 15 770
income for the year
Profit/(loss) for the
year attributable to:
Equity holders of the 3 104 4 530 (350) 15 770
parent
Non-controlling interest (13) 196 - -
3 091 4 726 (350) 15 770
Total comprehensive
income for the year
attributable to:
Equity holders of the 3 082 4 549 (350) 15 770
parent
Non-controlling interest (13) 197 - -
3 069 4 746 (350) 15 770
Earnings per share 7.77 11.41
(cents)
Headline earnings per 7.77 11.40
share (cents)
CONDENSED AUDITED CONSOLIDATED STATEMENTS OF CHANGE IN EQUITY FOR THE
YEAR ENDED 31 AUGUST 2011
Group Ordinar Treasur Non- Accumul Fair Total
y y control ated value equity
shares shares ling income adjustm
and interes ent for
share t availab
premium le-for-
sale-
assets
reserve
R`000 R`000 R`000 R`000 R`000 R`000
Balance at 31 53 839 (7 200) 81 26 269 - 72 989
August 2009
Issue of share 350 - - - - 350
capital
Increase in share - - 294 - - 294
premium of
subsidiary
Change in - - 100 (100) - -
ownership
Total - - 197 4 530 19 4 746
comprehensive
income for the
year
Balance at 31 54 189 (7 200) 672 30 699 19 78 379
August 2010
Issue of share 1 269 - - - - 1 269
capital
Share repurchase - (149) - - - (149)
by the Share
Incentive Trust
Change in - - (476) (424) - (900)
ownership
Cancellation of - 7 200 - (7 200) - -
treasury shares
Dividend paid - - (114) (3 241) - (3 355)
Total - - (13) 3 104 (22) 3 069
comprehensive
income for the
year
Balance at 31 55 458 (149) 69 22 938 (3) 78 313
August 2011
Company Ordinar Treasur Non- Accumul Fair Total
y y control ated value equity
shares shares ling income adjustm
and interes ent for
share t availab
premium le-for-
sale-
assets
reserve
R`000 R`000 R`000 R`000 R`000 R`000
Balance at 31 167 044 - - 3 554 - 170 598
August 2009
Issue of share 350 - - - - 350
capital
Total - - - 15 770 - 15 770
comprehensive
income for the
year
Balance at 31 167 394 - - 19 324 - 186 718
August 2010
Issue of share 1 269 - - - - 1 269
capital
Dividend paid - - - (3 135) - (3 135)
Total - - - (350) - (350)
comprehensive
income for the
year
Balance at 31 168 663 - - 15 839 - 184 502
August 2011
CONDENSED AUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR
ENDED 31 AUGUST 2011
Group Company
2011` 2010 2011 2010
R`000 R`000 R`000 R`000
Cash flows from operating
activities
Cash receipts from customers 49 480 42 681 10 622 10 818
Cash paid to suppliers and (40 758) (35 695) (10 10 639
employees 745)
Cash generated/(utilised) from 8 722 6 986 (123) 179
operations
Finance income 1 451 1 622 700 978
Interest paid (165) - - (34)
Dividends received 110 - - -
Dividends paid (3 355) - (3 135) -
Taxation (paid)/received (742) (1 304) (321) 19
Net cash inflow/(outflow) from 6 021 7 304 (2 879) 1 142
operating activities
Cash flows from investing
activities
Acquisition of business (1 193) (350) - -
Acquisition of available-for- (2 300) (1 000) - -
sale financial asset
Acquisition of non-controlling (900) - - -
interest
Acquisition of equipment (772) (647) (233) (199)
(5 165) (1 997) (233) (199)
Cash flows from financing
activities
Increase in share premium of non-- 294 - -
controlling interest
Share repurchase by the Share (149) - - -
Incentive Trust
Increase/(decrease) in interest - - 4 693 (5 832)
free liabilities
(149) 294 4 693 (5 832)
Total cash and cash equivalents 707 5 601 1 581 (4 889)
movement for the year
Total cash and cash equivalents 24 363 18 762 10 335 15 224
at the beginning of year
Total cash and cash equivalents 25 070 24 363 11 916 10 335
at the end of the year
SEGMENTAL ANALYSIS FOR THE YEAR ENDED 31 AUGUST 2011
2011
Asset Asset Financial Other Total
Managemen Administr Services
t ation
Revenue 30 643 15 943 8 916 (6 720) 48 782
- External 23 363 15 943 8 916 560 48 782
- Inter - segment 7 280 - - (7 280) -
Expenses 25 503 14 638 9 721 (4 672) 45 190
Profit for the year 4 063 1 141 (876) (1 237) 3 091
Assets 42 496 5 356 5 190 36 342 81 384
Liabilities 21 906 3 354 4 074 (18 263) 11 071
Acquisition of PPE 383 27 132 238 780
Depreciation and 2 479 22 294 1 394 4 189
amortisation
Share of loss from - - (241) - (241)
associates
2010
Asset Asset Financial Other Total
Managemen Administr Services
t ation
Revenue 27 333 11 011 6 698 (1 061) 43 981
- External 25 930 11 011 6 698 342 43 981
- Inter - segment 1 403 - - (1 403) -
Expenses 24 196 9 227 5 256 2 092 40 771
Profit for the year 2 592 1 569 2 170 (1 605) 4 726
Assets 43 015 7 037 2 968 36 935 89 955
Liabilities 28 604 3 924 1 193 (22 145) 11 576
Acquisition of PPE 45 3 400 199 647
Depreciation and 1 290 16 116 2 748 4 170
amortisation
Share of profit - - 1 039 - 1 039
from associates
3. NOTICE OF ANNUAL GENERAL MEETING
Shareholders are advised that the EFG integrated report will be
distributed on 25 November 2011 and will contain the notice to the Annual
General meeting for the company which will be held in the EFG boardroom
at 81 Dely road, Hazelwood, Pretoria on Friday, 23 January 2012 at 10:00.
4. CORPORATE INFORMATION
Non-executive directors
Dr S Booysen (Chairman)*, MJ Giles*, Z Cele*, L Taylor*, L Gadd, M
Cassim.
(*) Independent
Alternate directors
L Whitfield, R Mogototoane
Executive Directors
DD Roodt, H Weidhase, AT De Klerk
Registered and Business address
81 Dely Road, Hazelwood, 0081
Company Secretary
Adv Rudi Barnard
Corporate advisor, legal advisor and sponsor
Java Capital (Pty) Ltd
Reporting accountants and auditors
PKF (Jhb) Inc
Transfer secretaries
Link Market Services South Africa
9 November 2011
Sponsor
Java Capital
Date: 09/11/2011 13:10:52 Produced by the JSE SENS Department.
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