JSE-listed Ecsponent Limited – the small-cap private equity and financial services group which defaulted on paying out preference shareholders in March – reported an almost R2 billion operating loss for its half-year to December 31, 2019, after the market closed on Friday.
“An operating loss [before taxation] of R1.98 billion was incurred during the six-month period under review, in comparison to the operating profit [before taxation] earned of R157.55 million in the comparative period,” the Pretoria-based group said in a Sens statement on its latest results.
It noted that revenue during the period had decreased by 62% to R45.03 million, compared with R118.68 million for the corresponding half-year to December 2018. Basic and fully-diluted headline earnings per share decreased by 166.01 cents to a headline loss per share of 165.70 cents, compared with headline earnings per share of 0.31 cents in the comparative period.
“No ordinary dividends have been declared in the current or previous periods and no ordinary dividend is proposed,” Ecsponent added.
This is the group’s worst performance since it changed its name from John Daniel Holdings to Ecsponent in 2014, the same year that it registered a R5 billion preference share programme with the JSE. Its preference share scheme has been offering double-digit returns of up to 14.5%, which has since been red flagged as unsustainable by several industry analysts.
By the end of its half-year to December 2019, the group had received R2.1 billion in “subscription investments” (from preference shareholders), according to the full 36-page unaudited results statement published on its website. However, in its latest results statement on Sens, Ecsponent notes that its total preference share debt currently stands at R2.56 billion.
In early February the group issued a cautionary and trading update, first warning the market that it would not be able to pay around R188.3 million that was due to preference shareholders in March.
Ecsponent also noted at the time that it would not be able to pay its ongoing dividend obligations on its various classes of preference shares. In its trading update, it notified the market of an “expected loss” but did not reveal the extent of the loss at the time.
The group’s dismal half-year performance has largely been blamed on the troubled Luxembourg-based and Frankfurt Stock Exchange-listed MyBucks S.A fintech business, which targets clients in several Southern African countries.
Ecsponent had provided loans to the fintech group, however, after MyBucks defaulted on these loans, Ecsponent decided to convert the loans in 2019 into equity as part of a R450 million transaction. The deal was approved by the group’s shareholders on November 22 last year.
“The group’s credit operations continued to decline as a result of increased client defaults requiring the conversion of credit assets to the underlying security. The most significant of these being the conclusion of the conversion of the group’s debt held in MyBucks SA,” it notes in its latest results statement.
Ecsponent adds that its current equity portfolio “holds value”, however it says that the portfolio requires the next three-to-five-years to fully materialise.
“MyBucks’ past performance was particularly disappointing which necessitated shareholder intervention and culminated in a significant restructure of this group’s operations during 2019,” it said.
The precarious financial position that Ecsponent finds itself in, with mounting losses and defaulting on paying out its preference shareholders, has seen a number of industry analysts warn that the group’s entire preference shareholder base of largely retail investors stands to lose out.
This comes as the group also looks to covert preference shares in the company into ordinary shares, which are effectively nominal in value. Ecsponent’s ordinary shares currently trade at around 3 cents a share on the JSE, giving the group a market capitalisation of just over R32 million.
Ecsponent says its board (now chaired by Craig Lyons), implemented “value accretive interventions” after the December 31, 2019 reporting date to further enhance its solvency and liquidity.
“[This includes, among others] the announcement of a proposed restructure of the company’s listed preference shares, with the intention of matching the liquidity profile of the group’s equity investments to fund any future voluntary redemptions of the preference shares.
“The restructure, if approved, will result in Ecsponent reclassifying total preference share debt of R2.56 billion into equity,” the group added.
It also highlighted the group’s “rationalisation of operations to reduce costs”, disposals, as well as its announcement on March 20 of its intention to issue new ordinary shares in the group to settle R215.8 million in debt.
This debt-for-equity offer was led by the group’s majority shareholder George Manyere, who was executive vice chairman and acting CEO of the group at the time. A Zimbabwean businessman, Manyere became the group’s major shareholder in 2017.
Manyere told Moneyweb earlier in March that the deal would reduce Ecsponent’s balance sheet debt by around 30%. He also said he believed that the group “remained a going concern”.
Listen to Moneyweb editor Ryk van Niekerk’s March interview with Manyere: