COUNT LIMITED — Annual Report 2012

Aug 22, 2012

ASX ANNOUNCEMENT – CUP 23 August, 2012

Annual Results

Net Profit After Tax: $11.31m (up 19% excluding fair value adjustments ) Operating Profit (normalised EBITA) : $19.22m (up 7%)

The Directors of Countplus Limited (CUP) are pleased to report a solid 2011/2012 financial result of Consolidated Net Profit After Tax of $11.31 million of which $11.16 million is attributable to CUP shareholders. Whilst reported Net Profit After Tax was down 12.2% on prior year due to non-cash fair value consolidation and investments uplifts in the prior year, normalising for these adjustments, Net Profit After Tax was up 19.4%.

Consolidated cash earnings for the period was $13.64m (which excludes non-cash amortisation of intangible assets and non-cash fair value adjustments), up 17.2%. Cash earnings was assisted by a tax benefit realised on the formation of a tax consolidated group, finalised during the year.

The Company yesterday declared its first quarterly dividend for 2012/13 of 3 cents per share fully franked, payable on 15 November 2012.

Countplus, is an aggregation of 20 established professional services businesses across Australia, including 17 accounting practices, one financial planning services practice, a financial planning dealership and a property services group. The Company listed on the ASX on 22 December 2010.

A recorded presentation of the Countplus annual results will be presented by the Chairman and CEO later today and can be accessed via Board Room Radio.

1. Results for Announcement to the Market

Key Information

1. Net Revenue: $91.59 million (up 12.2%)

2. Consolidated EBITA: $19.22 million (up 7.0%)

3. Consolidated Cash Earnings: $13.64 million (up 17.2%)

4. Consolidated Net Profit After Tax: $11.31 million (up 19.4% excluding fair value adjustments)

5. Basic Earnings per Share: 10.23 cents. Diluted Earnings per Share: 10.23 cents

6. First quarterly 3 cent dividend declared for 2012/13 payable 15 November 2012 (ex-date 22/10/2012, record date: 26/10/2012).

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2. Analysis of Financial Results

2.1 Group Performance

	2012	2012	2011 (Restated)	2011 (Restated)	% Change
	$ 000	% of total Revenue	$ 000	% of total Revenue	%
Total Net Revenue (Member Firms)	90,242	100%	81,091	100%	11.28%
Salaries and Employment Expense	(51,698)	57.29%	(46,375)	57.19%	11.48%
PremisesExpense	(5,240)		(4,186)		25.18%
Depreciation Expense	(1,359)		(1,319)		3.03%
OtherOperatingExpenses	(12,431)		(10,851)		14.46%
Total Expenses	(70,728)	78.38%	(62,831)	77.48%	12.57%
Net Income Member Firms	19,514	21.62%	18,260	22.52%	6.87%
Head Office Contribution (net cost)	(297)		(300)		(1.00%)
Operating Profit (EBITA)	19,217	21.29%	17,960	22.15%	7.00%
InterestExpense	(779)		(967)		(19.44%)
**Profit before Tax **	18,438	20.43%	16,993	20.96%	8.50%
Tax	(4,800)		(5,358)		(10.41%)
Consolidated Cash Profit	13,639	15.11%	11,635	14.35%	17.22%
Amortisation Expenses (net tax)	(2,489)		(2,296)		8.41%
Net Profit after Tax (ex non-cash fair value adjustments)	11,150		9,339		19.39%
Non-cash fair value adjustments (net tax)	160		3,540		(95.48%)
Consolidated Net Profit after Tax	11,310	12.53%	12,879	15.88%	(12.18%)

2.2 Balance Sheet

	2012	2011 (Restated)	% Change
	$ 000	$ 000	%
CurrentAssets	30,244	30,388	(0.53%)
CurrentLiabilities	22,429	28,912	(22.42%)
Current Ratio	1.35	1.05
Non-CurrentAssets	64,777	58,201	11.30%
Non-CurrentLiabilities	18,989	10,977	73.00%
Net Assets	53,603	48,700	10.07%
Total Loans and Borrowings	8,742	1,818
Debt to Equity Ratio	16.3%	3.7%

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2.3 Net Profit Result

Net profit was down 12.2% due to the impact of non-cash items in the prior period. Specifically, a fair value uplift on consolidation ($3.4m in prior period), gain on deferred consideration ($0.4m net over both periods) and fair value adjustments on listed investments ($0.7m net over both periods).

2.4 Revenues

Revenues are primarily for accounting and related services but also included financial planning revenue, legal revenue, revenue from loans and equipment financing, insurance commissions and property sales commissions.

Financial planning revenue was up 11.6% over the period, and made up 19.9% (2011: 20.0%) of total net group revenue. This included a benefit from loyalty payments made by the Commonwealth Bank as a result of the takeover of Count Financial to Count franchisees. 17 Member firms are franchisees of Count Financial.

2.5 Net Income from Member Firms (Contribution Margin)

Net income from Member firms was $19.5m (up 6.9%) for the period. This equates to a margin of 22% of income.

2.6 Head Office Contribution

Head Office made a marginally negative contribution of ($0.3m) for the year. Due to additional revenue sharing arrangements and a service agreement negotiated with the Company’s former parent and now largest single shareholder, the Commonwealth Bank of Australia, it is expected that Head Office will continue to have a largely neutral financial impact on Countplus’ performance going forward.

2.7 Non-Cash Expense Items

a) Debtor and Leave Provisioning

As a result of a new conservative group provisioning policy based on debtor ageing implemented during the year, an additional $0.9m was expensed as a an additional provision against outstanding debtors during the period. An additional $0.6m was also expensed as additional employee leave provisions as a result of a new conservative group policy for calculating long service leave liabilities. Now that these policies have been applied, additional expenses for these items are not expected to be as significant in future periods.

b) Amortisation Expense

Amortisation expenses of $3.6m (2011:$3.3m) relate primarily to an accounting requirement to write down the value of intangible assets, acquired client relationships and adviser networks (non-cash), over their expected lifetime. A conservative diminishing value method is used to amortise these assets, ensuring that the proportional impact of this line item should reduce over time.

2.8 Interest Expense

Interest expense for the period arises primarily from a loan facility with Count Financial currently drawn to $7.5m (2011:nil). These funds were drawn down to fund new acquisitions and deferred consideration on acquisitions made during the period.

2.8 Tax Expense

The formation of a tax consolidated group made up of the fully owned Member Firms was finalised during the year which impacted positively on income tax expense. In future years it is expected that the effective tax rate will revert closer to the corporate tax rate.

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3. Future Acquisitions and “Tuck-ins”

Acquisitions will continue at 2 levels;

• Acquisition of minority stakes in stand-alone businesses at group level; and

• “Tuck-ins” or full acquisitions by existing subsidiaries.

Most acquisitions are expected to be largely initiated by the existing subsidiaries (Member Firms), who are regularly coming across new opportunities for their consideration. The decisions to complete “tuck-ins” and “bolt-on” acquisitions are driven by the Member Firm Principals who take responsibility for their performance, but approved by a Board acquisitions sub-committee. The equity reward scheme (see section 4.3) assists in ensuring only those acquisitions likely to be bedded down quickly and grow the acquirer’s earnings per share will be considered.

3.1 Acquisitions during 2011/12 Financial Year

• In July 2011, our North Sydney firm, Countplus MBT acquired Western Sydney based chartered accounting and financial planning practice Loughhead Roberts.

• In February 2012, our Melbourne firm, Kidmans Partners acquired Victorian based property and accounting group Pacific East Coast.

• In March 2012, our Canberra firm, Beames and Associates acquired a regional NSW accounting business.

• In April 2012, our other Canberra firm, Achieve Corporation acquired the salary packaging and payroll management assets of a Melbourne based accounting and financial planning firm business.

• Two comparatively smaller “tuck-ins” were also completed during the year.

• In July 2012, post year-end, our Melbourne firm, Kidmans Partners acquired a suburban Melbourne accounting business.

Given its strong balance sheet, Countplus expect to make further acquisitions at the group level although “tuck-ins” and “bolt-on” acquisitions are likely to prove more rewarding.

Further “tuck-ins” remain under consideration by Member Firms in consultation with Countplus.

4. Capital Management

4.1 Net Debt

Net debt as at 30 June 2012 was $2.4m compared to an $8.1m credit balance in the prior period.

Member Firms are all strong cash generating units and it is expected that future borrowings will generally only be required for acquisition purposes.

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4.2 Dividends

Dividends of 12 cents per share were declared and paid for the 2011/12 financial year. The first quarterly dividend of 3 cents per share fully franked payable on 15 November has been declared.

The dividend pay-out ratio is currently high due the provisions and large non-cash amortisation expense described in point 2.7. Dividends are not expected to increase until the pay-out ratio falls to below 70% of cash earnings. The 3 cent quarterly dividend is unlikely to change in the current year. Further guidance will be provided at the Annual General Meeting in November.

4.3 Employee Equity Rewards

Countplus rewards employee loyalty and performance through equity. As disclosed in the Prospectus, for the first 3 years post listing, the Directors will grant an annual issue of $1,000 worth of tax-free shares to all full-time employees (excluding Firm Principals) with 12 months service or more (part-time employees will receive a pro-rated entitlement).

In April 2012, under this plan, 300 employees were issued 216,551 shares.

Employees (including Firm Principals) are also able to participate in an employee rewards equity scheme. Entitlements are based on each Member Firm achieving earnings per share growth of 10% or more over the previous financial year or “high water” result including the initial acquisition, whichever is the higher. The plan will take the form of a loan funded share scheme and its first allocation will be made in late 2012.

4.4 Funding Acquisitions and “Tuck-ins”

It is expected that some Countplus scrip will be used to fund acquisitions made at the group level and smaller “tuck-ins” by subsidiaries. It is preferred that the proportion in scrip is capped at around 50% of the purchase price to maximise earnings per share growth. Using some scrip for consideration ensures that the acquiree has an interest in continuing to perform strongly over an extended period of time. Most acquisitions will have deferred consideration terms.

5. Management Comment and Profit Guidance

The Company’s results are sound given the difficult business conditions for the small businesses sector (which are targeted client base of our Member Firms) across the country. The group does benefit from its diversified portfolio of businesses, represented in every mainland capital city and a number of regional centres.

It is too early to provide formal guidance for 2012/13 but preliminary budgeting indicates good earnings per share growth in 2012/13. The first profit guidance for 2012/13 will be provided at the Annual General Meeting in November 2012.

6. Material Developments Post the Reporting Period

See item 3.1 (above). There have been no further material developments post the reporting period but we expect to announce a further acquisition by 30 September 2012.

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For further information please contact:

Barry Lambert Michael Spurr Executive Chairman Chief Executive Officer Telephone: 02 8272 0212 Telephone: 02 8272 0293 Mobile 0408 427 701 Mobile 0425 224 960 Email: barry.lambert@countplus.com.au Email: michael.spurr@countplus.com.au www.countplus.com.au www.countplus.com.au

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