Group overview

Below is an overview of the Group’s operations during the first half of the 2016 financial year.

 

Financial Services SA

The period under review highlighted the Group’s successful shift in the provision of secured credit to small medium enterprises (“SME”). The comparative period to June 2015 reflects a predominantly retail, unsecured employee benefits credit business. The strategy to focus predominantly on enterprise finance and the provision of credit to specific niche market SME’s has realised immediate improvement in the Group’s results.

The Group’s financial services operations continued their exponential growth during the period. Total assets increased by 98.1% to R706 million while revenue increased by 378% to R142.6 million, resulting in an operating profit increase of 296.2% to R92.7 million.

The demand for credit remains buoyant particularly in the enterprise development sector. The South African financial services operation has begun to make significant inroads in this high demand sector. In addition, the Group’s securitisation policy provides a competitive edge in unlocking value for all stakeholders in the chain.

The Sanceda Collections operations have expanded their footprint to include both Botswana and Swaziland and the start-up costs of these operations have been expensed by the businesses for the period under review. Both of the new operations have concluded agreements for third party collections with large blue chip multinational companies. The benefits of the various contracts will begin to be realised in the balance of the financial year and beyond.

 

Financial Services Africa

The roll out of the Group’s financial services offering into Africa replicates the South African model and leverages off the infrastructure, systems, products and management expertise of the local business. The African operations provide continuing opportunities for the growth in deposit taking and retail credit operations. The regulatory framework of each country is fully complied with and the directors of each company in those countries are operationally autonomous whilst the South African backbone provides the required governance and control.

 

Botswana

The Botswana operations mirror the South African processes and the Group provides management oversight and liquidity to the country’s credit operations.  In addition to employee benefits Ecsponent Botswana provides both enterprise and SME credit on a secured basis to qualifying clients.

The performance of the Botswana operations reflected a continued steady improvement compared to the half year ended June 2015. Botswana grew revenue by 51% to R23.2 million, total assets increased by 21.3% to R126.2 million, and operating profits increased by 164.8% to R10.9 million.

The growth in the Botswana economy, stability of the currency and demand for credit continues to drive growth of the Ecsponent operation in the territory. The directors are confident that the growth will continue.

 

Swaziland

The Swaziland operation includes capital raising opportunities which mirror the South African process and provides ongoing liquidity to the country’s credit operations which includes consumer credit, enterprise and SME finance.

The country has ambitious goals which are targeted to be realised by 2022 and which require significant development in the country’s SME sector. The directors believe that the Group is perfectly positioned to provide funding and services in support of the country’s objectives.

The period under review witnessed the initiation of the roll-out of the Group’s enterprise finance model in Swaziland. A co-operation agreement has been entered into with the Federation of the Swaziland Business Community in order to gauge demand for enterprise development services in Swaziland. The evaluation is well advanced and the Company will shortly be engaging the local regulator to facilitate implementation.

Consequent to the strategy deployed in South Africa the Group has disposed of its interests in the strategic alliance with GetBucks. The Group continues to provide SME credit to GetBucks on a secured basis. The proceeds from the sale will be deployed in the provision of SME and enterprise credit.

The performance of the Swaziland operations reflect a steady improvement compared to the 2015 interim results. Swaziland grew revenue by 209.2% to R16.4 million whilst operating profits increased by 1401.8% to R7.4 million. The company has a liability of R57.9 million to preference share investors in Swaziland.

The directors have confidence that the business will continue to grow.

 

Zambia

The Zambian operation provides similar products and services as the rest of the Group.  The country’s demand for both retail and business credit ensures that the Group’s products are likely to be profitable and successful.

The Group has a Tier 2 Deposit Taking Licence regulated by the Bank of Zambia and the operations are directed from the head office situated in Lusaka.

The country has been depressed by the dramatic reduction in international commodity prices/demand and has also suffered significant currency fluctuation depressing both investments and business confidence. The Group has delayed its normally bold start up planning as a result of the uncertain business climate.

Although in its infancy Ecsponent Zambia has begun providing credit to SME enterprises that qualify, as well as enterprise finance for secured transactions. The directors are confident that the Zambian operations will provide profitable future returns to the Group.

 

Private Equity

Biotechnology

The biotechnology sector is directly linked to the fluctuations in the international economy and margins remain under pressure. During the period under review the Group has continued to protect its market share and is bullish about prospects for the future.

The Group’s biotechnology operations have had an exciting half year which realised the development of a new and extensive range of products to complement the existing cord blood and tissue stem cell products. Development is now complete and commercialisation has begun. In order to reduce overheads and align the operations with the new strategy the underlying company infrastructures have been rationalised and the benefits from these developments will begin to be realised during the second half of the year.

The contracts with pharmaceutical and medical aid companies concluded by both Cryo-Save and Salveo have begun to translate into sales and this is anticipated to ramp up during the second half of the year. Further channels to market are being negotiated by management and these are anticipated to be realised in the near future.

As per the Group’s policy, the development costs of all the new ventures have been expensed and are included in the operating results.

 

PROSPECTS

Key elements of the on-going expansion strategy are:

  • the continued investment in the credit operations of the Group;
  • the continued growth of underlying assets through product and market extension;
  • the focus on core businesses;
  • aggressive trading and cost rationalisation/reduction; and
  • increased emphasis on high yield private equity opportunities.

The above-mentioned approach is aimed at the continued development of a robust and complementary financial services Group which provides sustainable returns.