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Summarised Audited Financial Results for the Year Ended 31 August 2018
EFFICIENT GROUP LIMITED
Incorporated in the Republic of South Africa
Registration number: 2006/036947/06
JSE share code: EFG
ISIN: ZAE000151841
SUMMARISED AUDITED FINANCIAL RESULTS FOR THE YEAR ENDED 31 AUGUST 2018
KEY FACTS
+ Established in 2003 and listed on JSE in 2009 (EFG)
+ Market capitalisation R367 million (31 August 2018)
+ >69 000 clients across all sectors
+ 234 financial advisors
+ 453 full-time employees
+ National footprint
+ Three-cluster structure to meet client needs and across the full financial services value chain
KEY PERFORMANCE INDICATORS
+ REVENUE: R1.1 billion (2017: R1 billion)
+ RECURRING* HEADLINE EARNINGS: R36 million (2017: R37 million)
+ RECURRING* HEADLINE EARNINGS PER SHARE: 39.85 cents (2017: 41.22 cents)
+ DIVIDEND: 9.4 cents per share (2017: 8 cents per share)
+ ASSETS UNDER ADMINISTRATION: R109.8 billion (2017: R117.3 billion)
+ ASSETS UNDER CONSULTING: R30.1 billion (2017: R26.9 billion)
+ ASSETS UNDER MANAGEMENT: R19.5 billion (2017: R19.5 billion)
+ ASSETS UNDER ADVICE: R20.1 billion (2017: R18.3 billion)
+ NUMBER OF ADVISORS: 234 (2017: 229)
+ CASH GENERATED BY OPERATIONS: R44 million (2017: R71 million)
*Excluding the once-off impact of the cancellation of profit share agreement in the Investments cluster
and other once-off adjustments
Our vision
To be a leading financial services business that creates value for our clients through a comprehensive
financial services offering.
Our mission
To be open to our stakeholders’ needs through a client-centred and intrapreneurial business model attuned
to sustainable growth and profitability.
INVESTMENT CASE
+ Market leader
+ Highly cash generative
+ Annuity-based earnings
+ Acquisitive growth strategy
+ Attractive ROE
+ Strong brand reputation
+ Well-positioned for regulatory reform
+ Intrapreneurial culture
+ Diversified/multi-disciplinary
+ Full financial services value chain
+ Liquidity in process of improving
+ Attractive dividend payout ratio and yield
“Intrapreneur” – the opportunity to act like an entrepreneur within a formal, regulated organisation.
ABOUT EFFICIENT GROUP
Introduction
The vision of Efficient Group (“the Group”) is to be a leading financial services business that creates
value for our clients through a comprehensive financial services offering.
Efficient Group was established in 1999, primarily as an asset management company. In 2009 we listed on
the JSE in order to raise capital to build an in-house retail distribution network. Today, we are a leading
diversified financial services group focused on professional advice, quality solutions and tailor-made
investment products across the full financial services value chain. Operating through three clusters —
Financial Services; Solutions; Investments — we service over 69 000 clients across South Africa and employ
453 people including 234 registered financial advisors.
The Group plans for strategic business growth in five-year cycles. Our five-year strategies are each premised
on and intertwined with our Group culture, which ensures the strategy’s potential for actualisation.
Vision 2020 was developed in 2015.
Key performance indications 2018
Revenue R1.1 billion
Recurring HEPS 39.85 cps
Number of financial advisors 234
Assets under administration (AUAdmin) R109.8 billion
Assets under consulting (AUC) R30.1 billion
Assets under management (AUM) R19.5 billion
Assets under advice (AUA) R20.1 billion
Highlights of the year include
Financial Services cluster
+ Revenue up 19% to R 227 million
+ AUA up 10% to R20.1 billion
+ Consolidated brand established — Efficient Wealth
+ Three new value-add divisions started-up
+ Industry training and development through the Para-Planner Hub
+ 234 advisors
Solutions cluster
+ Naviga Solutions increased AUM to R5.5 billion
+ Revenue up 67% and operational excellence in second year of Efficient Private Clients
+ Efficient Benefit Consulting secured new clients and continued to grow
+ Efficient Board of Executors grew deceased estates AUA to R113 million (2017: R36 million)
+ Select Manager fully integrated into Efficient Group
Investments cluster
+ Boutique Investment Partners (BIP) beat a tough economy to grow AUC, AUM and revenue
+ Boutique Collective Investments (BCI) performed strongly
+ Profit share agreement cancellation to bring the full earnings of BIP and BCI into the Group
Operational Overview
The key focus in FY18 remained on vertical integration within our three-cluster operating model, and on
further strategic and operational initiatives within each cluster to enhance efficiencies and strengthen
their respective platforms for future growth. The year’s key moves in this regard, which consumed the
majority of management time and focus, were: the consolidation of Efficient Wealth; Efficient Private
Clients’ operation excellence; the inclusion and integration of Select Manager into the business; and the
strategic decision to cancel our profit share agreement with BCI and BIP in the Investments cluster and the
successful conclusion of the related transaction (as previously announced to the market in June and July).
BCI and BIP were originally started up within the Group in August 2013 under the umbrella of Efficient Invest
and have since established themselves as industry leaders with stellar track records. Specifically, BCI has
become the leading and largest co-branded collective investment scheme provider in South Africa with AUAdmin of
over R100 billion, while BIP is today one of the largest independent national retail multi-management companies
with AUM and AUC of over R35 billion.
We also carefully monitored the progress made in the restructure and repositioning of the Financial Services
cluster which began in FY17. Further investment in this cluster included the establishment of both Efficient
Insure and Efficient Med. Both divisions will focus on cross-selling and provide intermediary services, to
the benefit of our clients.
In addition, we devoted management time and effort to addressing the liquidity of the Efficient Group share,
an issue we acknowledge is of concern to our existing and potential shareholders. The cancellation of the
profit share agreement includes a new issue of shares for cash as part of the funding structure, which will
go some way towards addressing this (see below). However, we are also actively working on building our
profile in the investor community which we believe will further assist in this regard. This will remain an
area of focus in the year ahead.
On start-up of BCI and BIP five years ago, we concluded a profit share agreement with manager and developer
Robert Walton, in terms of which he, certain employees and other business partners would derive a 66% share
in annual net profits. Our 34% stake in the net profits of the two businesses has contributed materially to
the Group’s growth over the past five years.
The right to cancel this profit share and subsume the full financial advantage of Efficient Invest (BCI and
BIP) came due in the year and we exercised thereon. The future benefits for the Group are unmistakable,
which was affirmed when our shareholders voted unanimously in favour of the transaction at the general
meeting in August.
From a financial perspective, the Group has effectively secured the full earnings to be generated by BCI and
BIP, which comprise largely of quality annuity income streams. This will have a significant positive impact
on Group earnings, headline earnings per share (HEPS), gearing, our dividends to shareholders (we are aiming
at a 3-5% yield) and liquidity in our counter. As part of the funding of the transaction and as set out in the
circular distributed to shareholders on 3 August 2018, wherein shareholders were advised that the aforementioned
funding will be repaid by way of either (i) an issue of shares for cash in the amount of R158 million, or (ii)
the Specific Issue which would boost our free float and would be aimed at improving liquidity. The stronger cash
generating ability further positions the Group to target larger acquisitions, in line with strategy, as an added
impetus to growth.
The cancellation of the profit share agreement is a tax-deductible transaction. In the year under review we
therefore expensed R430 million of the R480 million cancellation cost. Costs incurred for the transaction is
R12.7 million. This resulted in an after-tax loss of R288 million (2017: after-tax profit R47 million) and a
headline loss per share of 318.18 cents (2017: HEPS 69.01 cents). The after-tax cost of the transaction for
this financial year is therefore R318.7 million. The cancellation cost is a once-off expense.
Excluding this cost and other once-off items from the HEPS calculation, we would report HEPS of 39.85 cents.
The businesses have operated within Efficient Group since inception, sharing our growth vision, committing to
the Efficient Experience and living our core values. They are therefore already fully integrated into the Group
with management and teams who we know well and trust, and who have proven their capability to deliver. I am
pleased to report that for our clients, suppliers and business partners at Efficient Invest, it remains “business
as usual”.
Financial Results
The year under review was one of consolidation and integration to entrench Efficient Group’s platform for
growth. The following transactions impacted the financial performance of the Group:
+ Conclusion of the profit share cancellation agreement (“PSA”).
+ Conclusion of Phase 2 of the Select Manager transaction (initiated in 2016) and integration into the Solutions
and Financial Services clusters.
+ Brand consolidation in the Financial Services cluster.
+ Integration of the 2017 Vital Consult transaction into the Financial Services cluster.
+ Establishment of Efficient Benefit Consulting, Efficient Med and Efficient Insure within the Solution
cluster.
+ Acquisition of various smaller client-bases across the Group.
A substantial share of the Group’s revenue accrues from the value of AUM, AUAdmin, AUC and AUA. AUM are
represented by amounts invested in unit trust funds, unit trust funds of funds and private share portfolios
managed by the asset management division. The Group had R19.5 billion (2017: R19.5 billion) AUM at the end of
the 2018 financial year. AUAdmin are represented by unit trust funds and unit trust funds of funds administered
by the Group. Administration of assets includes liability administration and asset administration, such as
monitoring the daily pricing of unit trust funds. The Group administers assets to the value of R109.8 billion
(2017: R117.3 billion). The lower AUAdmin year-on-year is attributable to the expiry of an existing short-term
mandate. AUC are represented mainly by assets on which Boutique Investment Partners supply investment consulting
services. These consist primarily of portfolio construction, strategic and tactical asset allocation, and manager
selection services. The Group consults on assets to the value of R30.1 billion (2017: R26.9 billion). The growth
in AUC was driven mainly by the transfer of asset management mandates to asset consulting mandates. AUA are
represented by client investments made on the recommendation of, or with the guidance of, financial advisors
employed by the Financial Services division. Total AUA amount to R20.1 billion (2017: R18.3 billion).
Statement of comprehensive income
The net loss for the Group for the year is a direct result of the PSA. The cancellation fee and other related
payments (“the Cancellation Fee”) complicate the direct year-on-year comparability of the Group’s financial
performance. Therefore, for meaningful year-on-year comparison, this section will deal only with the operating
results of the Group for the year before non-operational items. The net profit for the year, excluding the
cancellation fee is R30.7 million.
2018 2017
R'000 R'000
Revenue 1 083 506 1 002 096 8%
Variable expenses (778 561) (702 054)
Gross contribution 304 945 300 042 2%
Gross contribution % 28% 30%
Operating expenses (261 828) (255 568) 2%
Share of profits from investments in equity-accounted associates 913 1 037
Operating profit 44 030 45 511 (3%)
Operating margin 4% 5%
Net finance income 1 558 1 850
Profit before non-operational items 45 588 47 361 (4%)
Recurring HEPS (cents) 39.85 41.22
Operating EBITDA 61 204 64 905 (6%)
Recurring headline earnings per share is calculated as follows:
2018 2017
R'000 R'000
Headline earnings (286 187) 62 301
Re-measurement of loans and borrowings at fair value through profit or loss (1 486) (22 558)
Gain on settlement of loans and borrowings at amortised cost (562) -
Commission-agreement cancellation expense 1 710 -
Taxation on commission-agreement cancellation expense (479) -
Bad debt expense 5 665 -
Taxation on bad debt expense (1 586) -
Gain on derecognition of loan payable to non-controlling interest - (1 577)
Taxation on gain on derecognition of loan payable to non-controlling interest - 442
Claw-back on equity-accounted investment in associate, included in other income - (1 397)
Profit-share cancellation expense 430 000 -
Transaction costs on profit-share cancellation 12 730 -
Taxation on profit-share cancellation items (123 964) -
Recurring headline earnings 35 841 37 211
Weighted average number of shares 89 946 90 272
Recurring headline earnings per share (cents) 39.85 41.22
The 8% increase in revenue was achieved mainly through organic growth, despite a recessionary economy and low
financial market growth. Almost 100% of revenue is annuity in nature, with less than 1% being success fee-based.
The Solutions clusters’ revenue was negatively impacted in the year by the ongoing fee restructuring at Naviga
Solutions. However, revenue from Efficient Private Clients grew due to the increase in AUM and Select Manager was
transferred from the Investments cluster to the Solutions cluster, thus explaining the decrease in asset
management base fees.
The growth in financial services revenue can be credited to the registered financial advisor module explaining the lower gross
contribution. The ongoing fee restructuring at Naviga Solutions resulted in the lower margin in the Solutions
cluster, while the effect of the restructuring of Efficient Select in 2017 can be seen in the lower gross
contribution. Lower fixed expenses compensate for the lower gross contribution.
While fixed expenses increased by 4% given the first full-year operations of Efficient Benefit Consulting and
Efficient Private Clients in the Solutions cluster, this was offset by the savings in fixed expenses at Efficient
Select as a result of the 2017 restructuring, which resulted in net lower than inflation increase fixed expenses
year-on-year.
Non-cash flow expenses include the amortisation of intangible assets and the depreciation of fixed assets. The
decrease of 11% to R17 174 in non-cash flow expenses during the reporting period is directly related to
acquisition activities.
The 3% decrease in operating profit is attributed to low revenue growth and a decrease in margins.
Cash flow analysis
The decrease in cash generated from operations is due to the expenses related to the PSA, reduced
working capital, bad debts written of other non-continuous income received in 2017.
Statement of financial position
Long-term liabilities increased to fund the PSA transaction. The cash flows from the PSA transaction going
forward will be adequate to cover the loan repayments.
The increase in tangible assets relates to a deferred tax asset recognised in respect of the loss created by the
PSA transaction. It is expected that the deferred tax asset will be utilised over the next four years.
The Group had R84 million (2017: R106 million) in cash and cash equivalents as at 31 August 2018. Included in this
amount was the R22 million (2017: R38 million) required to comply with financial soundness requirements prescribed
by the regulator.
Conclusion
In line with the Group’s new business strategy, the Group will continue to concentrate on growing the business
organically and by acquiring entrepreneurial, like-minded entities to expand the Group’s value chain.
Cash dividend
The Group’s dividend policy is to pay a dividend equal to 80% of free cash flow. Free cash flow is calculated
after making provision for cash reserves, planned capital expenditure, acquisitions and debt repayments.
Dividends are declared at the discretion of the Board, after taking the financial position of the Group into
consideration. The directors determined that a final dividend of 7.4 cents per share will be paid.
The salient dates for this dividend payment are as follows:
Last date to trade “cum” dividend Tuesday, 4 December 2018
Securities trade “ex” dividend Wednesday, 5 December 2018
Record date Friday, 7 December 2018
Payment date Monday, 10 December 2018
Share certificates may not be dematerialised or rematerialised between Wednesday, 5 December 2018 and Friday,
7 December 2018, both days inclusive.
Shareholders are advised of the following additional information:
+ the dividend has been declared out of the 2018 profits;
+ the local dividend tax rate is 20%;
+ the gross local dividend amount is 7.4 cents per share;
+ the net dividend amount for local shareholders:
+ exempt from payment of dividend tax, is 7.4 cent per share;
+ liable to pay dividend tax, is 5.92 cent per share;
+ the issued share capital of the company is 89 494 783 shares of R 0.00000277 each; and
+ the company’s tax reference number is 9071679170.
Basis of preparation
The summarised Group financial results for the year ended 31 August 2018 constitute a summary of the Group’s
audited financial statements, prepared in accordance with the framework concepts and the measurement and
recognition requirements of IFRS and the SAICA Financial Reporting Guides as issued by the Accounting Practices
Committee and Financial Pronouncements as issued by Financial Reporting Standards Council, and the presentation
and disclosure requirements of International Accounting Standard 34 Interim financial reporting.
The accounting policies are in terms of International Financial Reporting Standards and consistent with those of
the previous financial statements.
These summarised Group financial results do not include all of the information required for full financial
statements and should be read in conjunction with the audited consolidated financial statements of the Group for
the year ended 31 August 2018.
This summarised report is extracted from audited information but is not itself audited. The audited consolidated
financial statements and unmodified audit report, as issued by KPMG Inc., are available for inspection at the
company’s registered office. The directors take full responsibility for the presentation of the summarised report
and for ensuring that the financial information has been correctly extracted from the underlying audited
consolidated financial statements.
The summarised financial results were prepared by Yazeed Patel CA(SA), the Group Financial Manager.
Changes to the board
There was one resignation from the board during the reporting period, namely that of Mr Jerry Mabena, who
resigned as non-executive director, with effect from 20 February 2018. The board thanks Jerry Mabena for his
valued contribution to the Group.
Mr Stephen Rushton, who was initially appointed as an alternate director to Mr Jerry Mabena, was appointed as a
non-executive director in the place and stead of Mr Jerry Mabena on 20 February 2018.
SUMMARISED STATEMENT OF FINANCIAL POSITION
AS AT 31 AUGUST 2018
2018 2017
Notes R'000 R'000
ASSETS
Non-current assets
Property and equipment 1 62 596 52 198
Goodwill 2 154 981 153 056
Intangible assets 3 123 202 130 565
Investments in equity-accounted associates 4 6 422 6 638
Other investments 5 2 393 323
Loans receivable 1 448 -
Deferred tax assets 6 138 933 14 703
489 975 357 483
Current assets
Other investments 5 1 092 4 302
Short-term portion of loans receivable 1 539 1 084
Trade and other receivables 97 780 110 203
Current tax receivable 592 950
Cash and cash equivalents 82 900 106 936
183 903 223 475
Total assets 673 878 580 958
EQUITY AND LIABILITIES
Equity
Share capital and share premium 7 145 809 150 325
Treasury share reserve (532) (532)
Accumulated (losses) income (182 042) 111 487
Fair value adjustment reserve (185) 1
Revaluation reserve 6 218 1 125
Convertible equity loan 8 138 981 -
Equity attributable to equity holders of the parent 108 249 262 406
Non-controlling interests 9 2 848 5 592
Total equity 111 097 267 998
Non-current liabilities
Loans and borrowings 10 88 979 28 011
Provisions - 133
Deferred tax liabilities 6 31 438 32 707
120 417 60 851
Current liabilities
Convertible equity loan 8 19 202 -
Short-term portion of loans and borrowings 10 260 039 70 283
Provisions 114 342
Trade and other payables 161 856 171 879
Current tax payable 998 710
Cash and cash equivalents 155 8 895
442 364 252 109
Total liabilities 562 781 312 960
Total equity and liabilities 673 878 580 958
Net asset value per share (cents) 121.39 290.68
Net tangible (liability) asset value per share (cents) (152.19) 16.20
SUMMARISED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 AUGUST 2018
2018 2017
Notes R'000 R'000
Revenue 1 083 506 1 002 096
Variable expenses (778 561) (702 054)
Gross profit 304 945 300 042
Operating expenses (261 828) (255 568)
Share of profits from investments in equity-accounted associates, net of taxation 913 1 037
Operating profit 44 030 45 511
Non-operating items (445 299) 14 454
Dividend income on other investments 25 152
Profit on disposal of equipment - 134
Profit on disposal of customer contracts and customer relationships 1 342 139
Commission-agreement cancellation expense (1 710) -
Other income 2 158 4 448
Fair value adjustment of investment designated at fair value through profit or loss (97) (8)
Realised fair value adjustment on available-for-sale investments - 161
Gain on derecognition of loan payable to non-controlling interest - 1 577
Re-measurement of loans and borrowings at fair value through profit or loss 11 1 486 22 558
Gain on settlement of loans and borrowings at amortised cost 11 562 -
Bad debt expense 11 (5 665) -
Impairment of goodwill (350) (9 324)
Impairment of intangible assets - (118)
Impairment of investments in equity-accounted associates (320) (5 265)
Profit-share cancellation expense 12 (430 000) -
Transaction costs on profit-share cancellation 12 (12 730) -
(Loss) profit before net finance income (401 269) 59 965
Net finance income 1 558 1 850
Finance income 7 123 7 934
Finance costs (5 565) (6 084)
(Loss) profit before taxation (399 711) 61 815
Taxation 13 111 638 (14 924)
(Loss) profit for the year (288 073) 46 891
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
Unrealised fair value adjustments of available-for-sale investments (256) 135
Realised fair value adjustment of available-for-sale investments reclassified to
profit or loss - (161)
Related taxation 70 (31)
(186) (57)
Items that may not be reclassified subsequently to profit or loss
Revaluation of property 7 073 1 563
Related taxation (1 980) (438)
5 093 1 125
Other comprehensive income, net of taxation 4 907 1 068
Total comprehensive (loss) income for the year (283 166) 47 959
(Loss) profit for the year attributable to:
Equity holders of the parent (285 946) 47 798
Non-controlling interests (2 127) (907)
288 073 46 891
Total comprehensive (loss) income for the year attributable to:
Equity holders of the parent (281 039) 48 866
Non-controlling interests (2 127) (907)
Basic and diluted (loss) earnings per share (cents) 14 (317.91) 52.95
SUMMARISED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 AUGUST 2018
Ordinary Treasury Accumulated Fair Revaluation Convertible Total equity Non- Total
shares shares income value reserve equity attributable controlling equity
and share reserve adjustment loan to equity interest
premium reserve holders of
the parent
R'00 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000
Notes 7 8 9
Balance at
31 August 2016 150 325 (440) 72 530 58 - - 222 473 (2 443) 220 030
Total comprehensive
income (loss) for
the year - - 47 798 (57) 1 125 - 48 866 (907) 47 959
Profit (loss) for
the year - - 47 798 - - - 47 798 (907) 46 891
Other comprehensive
(loss) income for
the year - - - (57) 1 125 - 1 068 - 1 068
Transactions with
owners - (92) (8 841) - - - (8 933) 8 942 9
Treasury shares
acquired - (92) - - - - (92) - (92)
Derecognition of non-
controlling interests - - (2 431) - - - (2 431) 2 431 -
Recognition of non-
controlling interests - - - - - - - 6 511 6 511
Dividends declared - - (6 410) - - - (6 410) - (6 410)
Balance at
31 August 2017 150 325 (532) 111 487 1 1 125 - 262 406 5 592 267 998
Total comprehensive
(loss) income for
the year - - (285 946) (186) 5 093 - (281 039) (2 127) (283 166)
Loss for the year - - (285 946) - - - (285 946) (2 127) (288 073)
Other comprehensive
(loss) income for
the year - - - (186) 5 093 - 4 907 - 4 907
Transactions with
owners (4 516) - (7 583) - - 138 981 126 882 (617) 126 265
Dividends declared - - (7 583) - - - (7 583) (617) (8 200)
Repurchase of shares (4 516) - - - - - (4 516) - (4 516)
Issue of convertible
equity loan - - - - - 138 981 138 981 - 138 981
Balance at 31 August
2018 145 809 (532) (182 042) (185) 6 218 138 981 108 249 2 848 111 097
SUMMARISED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 AUGUST 2018
2018 2017
Notes R'000 R'000
Cash flows from operating activities
Cash receipts from customers 1 092 357 976 692
Cash paid to suppliers and employees (1 047 998) (905 636)
Cash generated from operations 16.1 44 359 71 056
Finance income received 7 123 7 934
Finance costs paid (5 426) (6 084)
Dividends received from investments in equity-accounted associates 809 860
Dividends received from other investments 25 152
Taxation paid (17 131) (20 337)
Net cash inflow from operating activities 29 759 53 581
Cash flows from investing activities
Acquisition of businesses, net of cash acquired 16.2 (5 804) (8 388)
Proceeds on disposal of business, net of cash disposed 16.2 2 030 4 445
Additional payment for business previously acquired (148) -
(Loans receivable advanced) proceeds from loans receivable (1 903) 6 001
Purchase and development of intangible assets (238) (136)
Proceeds on disposal of intangible assets - 6
Disposal of other investments 787 3 388
Proceeds on disposal of equipment 25 204
Purchase and development of property (3 420) (21 395)
Purchase of equipment (2 359) (3 969)
Net cash outflow from investing activities (11 030) (19 844)
Cash flows from financing activities
Repurchase of shares (4 516) -
Proceeds from long-term liabilities 36 400 22 389
Repayment of long-term liabilities (24 692) (13 596)
Repayment of forward purchase and dividend liabilities (31 069) (21 861)
Repayment of contingent consideration liabilities (2 447) (3 618)
Proceeds from (repayment of) other vendor liabilities 499 (2 718)
Dividends paid (8 200) (6 410)
Net cash outflow from financing activities (34 025) (25 814)
Cash and cash equivalents movement for the year (15 296) 7 923
Cash and cash equivalents at the beginning of the year 98 041 90 118
Cash and cash equivalents at the end of the year 82 745 98 041
Cash and cash equivalents included in current assets 82 900 106 936
Cash and cash equivalents included in current liabilities (155) (8 895)
Cash and cash equivalents at the end of the year 82 745 98 041
NOTES TO THE SUMMARISED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2018
1. PROPERTY AND EQUIPMENT
Opening Closing
balance Transfers Disposals Additions Revaluation Depreciation balance
R'000 '000 R'000 R'000 R'000 R'000 R'000
2018
Land 10 560 - - - 1 240 - 11 800
Buildings 36 255 519 - 3 420 5 833 (127) 45 900
Furniture, fixtures and office equipment 2 180 - (6) 666 - (765) 2 075
Computer equipment 2 047 - (18) 1 540 - (1 279) 2 290
Leasehold improvements 1 156 (519) (1) 153 - (258) 531
52 198 - (25) 5 779 7 073 (2 429) 62 596
2017
Land - - - 9 600 960 - 10 560
Buildings 21 096 2 888 - 11 795 603 (127) 36 255
Assets under construction 2 888 (2 888) - - - - -
Furniture, fixtures and office equipment 1 061 7 (48) 1 580 - (420) 2 180
Computer equipment 1 296 (7) (22) 1 819 - (1 039) 2 047
Leasehold improvements 1 012 - - 570 - (426) 1 156
27 353 - (70) 25 364 1 563 (2 012) 52 198
DETAILS RELATING TO LAND AND BUILDINGS
The Group owns sections 35 to 43 in the sectional title scheme known as Bella Rosa One, in Belville, the City of Cape
Town (the Catnia building) on Erf 39624. The building was acquired during the 2016 year. The building is carried
under the revaluation model and its carrying amount at the reporting date representing its revalued amount was
R28.2 million (2017: R22 million).
The Group’s Hazelwood offices (the Dely property) is situated on Erf 106, Alphenpark, Pretoria. The property was
purchased during the prior year and was acquired with the view to develop the Group’s head-office on the property. The
Group completed phase 1 (construction of the building) by 31 August 2017. Phase 2 and 3 (construction of the
parking-lot and widening of the road and walk-ways) were also in progress at 31 August 2017 but was completed during
the current year. The property is carried under the revaluation model and its carrying amount at the reporting date
representing its revalued amount was R29.50 million (2017: R24.81 million), of which R11.8 million (2017: R10.56
million) was attributable to the land and R17.7 million (2017: R14.25 million) to the building.
At the reporting date, property with a carrying amount of R57.7 million (2017: R46.81 million) was pledged as security
for bank borrowings (refer to note 10.5).
The Group’s properties were revalued on 31 August 2018 for the second time to its fair value by external, independent
valuers, having appropriate recognised professional qualifications and recent experience in the location and category
of the properties being valued. Independent valuers will provide the fair value of the Group’s properties on an annual
basis. The Catnia building and Dely property were revalued by Standard Bank of South Africa Limited, represented by
Mr Johan Terblanche and Ms Tracey Myers (Professional Valuers) respectively.
In determining the fair value of the Group’s properties, the property portfolio is considered to be categorised as a
Level 3 on the fair value hierarchy. The valuation model used to value both properties was the income approach model.
This model determines the market value based on capitalisation of the property’s first year net operating income.
The capitalisation rate is best determined by referring to market transactions of comparable properties as it is based
on information derived from market analysis.
The following represent the significant unobservable inputs for determining the fair value of the properties. The
estimated fair value would increase (decrease) if these were different:
+ Expected market rental growth on average of 5% (2017: 6.50%) for both properties;
+ Vacancy rates on average of 2.50% (2017: 2.50%) for the Catnia building and 1% (2017: 3%) for the Dely property; and
+ Risk-adjusted capitalisation rates of 9% (2017: 9%) for the Catnia building and 9% (2017: 9.25%) for the Dely
property.
The valuation model does not assume that significant rent-free periods are anticipated for the Group’s leases to
realise its net operating income.
The residual values of the Catnia building and the building on the Dely property amounted to R22.01 million (2017:
R17.62 million) and R14.45 million (2017: R12.67 million) respectively.
Had no revaluation to fair value taken place, the carrying amount of the Group’s properties would have been R22.96
million (2017: R20.98 million) for the Catnia building, R9.60 million for the land component of the Dely property and
R16.51 million (2017: R14.67 million) for the building constructed on the Dely property.
All gains and/or losses are accounted for in profit or loss, except for the revaluation of property, which is
accounted for in other comprehensive income.
2. GOODWILL
2018 2017
R'000 R'000
Recognised on acquisition of business combinations 154 981 153 056
The aggregate carrying amounts of goodwill allocated to each
cash-generating-unit are as follows:
Efficient Financial Services Proprietary Limited 36 837 12 862
Efficient Wealth Proprietary Limited - 22 148
Efficient Select Proprietary Limited 8 369 8 369
Naviga Solutions Proprietary Limited 25 404 25 118
Select Manager Proprietary Limited 66 954 66 954
Stead Wealth Management Proprietary Limited 4 575 4 127
Exceed Asset Management Proprietary Limited 6 088 6 088
W-Allen White Brokers Proprietary Limited 666 1 016
Secure Capital Investments Proprietary Limited 4 237 4 237
Efficient Private Clients Proprietary Limited 1 851 1 851
Efficient Institutional Investment Managers Proprietary Limited - 286
154 981 153 056
Reconciliation of goodwill
Balance at the beginning of the year 153 056 155 050
Acquisitions through business combinations 2 275 8 598
Disposals - (1 268)
Impairments (350) (9 324)
Balance at the end of the year 154 981 153 056
During the current year, the collective investment schemes which Efficient Institutional Investment Managers
Proprietary Limited previously managed were amalgamated into those managed by Naviga Solutions Proprietary Limited,
after which Efficient Institutional Investment Managers Proprietary Limited ceased to continue operations of an
asset-manager. The goodwill and intangible assets previously allocated to Efficient Institutional Investment Managers
Proprietary Limited were thus re-allocated to Naviga Solutions Proprietary Limited.
During the current year, Efficient Wealth Proprietary Limited disposed of its financial advisory business to Efficient
Financial Services Proprietary Limited in a common-control transaction. The goodwill and intangible assets previously
allocated to Efficient Wealth Proprietary Limited were thus re-allocated to Efficient Financial Services Proprietary
Limited.
IMPAIRMENT TESTING OF CASH-GENERATING-UNITS CONTAINING GOODWILL
For the purpose of impairment testing, goodwill is allocated to cash-generating-units which represent the lowest level
within the Group at which the goodwill is monitored for internal management purposes. The Group does not have any
goodwill which is not allocated to a cash-generating unit.
A key estimate used in the Group’s investment and cash-generating-unit (goodwill and intangible assets) impairment
testing calculations is the expected growth in future cash flows beyond the projection period (terminal growth rate).
Management considered the following factors and determined that 4.75% (2017: 4.50%) would be an appropriate growth
rate to use in these calculations:
+ The relationship between the discount rate and the terminal growth rate;
+ The forecast period;
+ Nature of the factors affecting growth;
+ Historical growth; and
+ Peer comparison and market norms.
The growth rate used does not exceed the long-term average rate for the market in which the Group operates.
The recoverable amount for all the cash-generating-units and investments was based on a value-in-use calculation as
the value-in-use exceed the fair value less costs to sell of the cash-generating units. The value-in-use calculation
uses pre-tax cash flow projections based on financial budgets approved by management covering a five-year period.
Values assigned to key assumptions in all impairment tests reflect past experience, increased for expected efficiency
improvements.
The table below summarises the pre-tax discount rates at which cash flows were discounted for the purposes of
impairment testing per cash-generating-unit for the Group:
2018 2017
% %
Efficient Financial Services Proprietary Limited 24.08% 23.66%
Efficient Wealth Proprietary Limited N/A 25.20%
Efficient Select Proprietary Limited 24.56% 25.40%
Naviga Solutions Proprietary Limited 24.64% 25.15%
Select Manager Proprietary Limited 24.45% 24.66%
Stead Wealth Management Proprietary Limited 24.01% 25.05%
Exceed Asset Management Proprietary Limited 24.39% 24.75%
W-Allen White Brokers Proprietary Limited 24.33% 24.90%
Secure Capital Investments Proprietary Limited 24.50% 24.65%
Efficient Private Clients Proprietary Limited 23.63% 23.70%
Efficient Institutional Investment Managers Proprietary Limited N/A 25.45%
The discount rates above approximated the Group’s weighted average cost of capital and was adjusted for
cash-generating-unit specific risks based on the respective entity as well as effects to determine the rate,
pre-tax.
For each of the cash-generating-units included in the Financial Services cluster, the key assumptions used in the
value-in-use calculations are the amount of assets under advise, number of independent financial advisors, the
average income per advisor as well as portfolio performance against benchmarks.
For each of the cash-generating-units included in the Investments cluster and the Solutions cluster, the key
assumptions used in the value-inuse calculations are the amount of assets under management as well as portfolio
performance against benchmarks.
The carrying amount of the cash-generating-unit relating to W-Allen White Brokers Proprietary Limited was determined
to be higher than its recoverable amount at 31 August 2018 and an impairment loss of R350 000 was recognised on this
cash-generating-unit in profit or loss. The recoverable amount at 31 August 2018 for this cash-generating-unit was
R2.73 million. The impairment loss recognised was a result of the cash-generating-unit not achieving the desired
financial performance anticipated and estimated as part of the purchase price allocation recognised during the prior
year. At 31 August 2017, the carrying amount of this cash-generating-unit was determined to be lower than its
recoverable amount and no impairment loss was recognised.
At 31 August 2017, the carrying amounts of the cash-generating units for Select Manager Proprietary Limited and Stead
Wealth Management Proprietary Limited was determined to be higher than their recoverable amounts and impairment
losses of R6.87 million and R2.45 million were recognised respectively on these cash-generating-units in profit or
loss. The recoverable amounts at 31 August 2017 for these cash-generating-units were R88.45 million and R7.40 million
respectively. At 31 August 2018, the carrying amounts of these cash-generating-units was determined to be lower than
the recoverable amounts and no impairment losses were recognised. The previous impairments recognised were not
reversed as these were initially recognised against goodwill.
Management believes that any reasonable possible change in key assumptions on which the recoverable amounts were
based would not cause the carrying amounts of the cash-generating-unit attributable to W-Allen White Brokers
Proprietary Limited to significantly exceed its recoverable amount after the impairment for the current year was
recognised.
The carrying amounts of all other cash-generating-units assessed for impairment was determined to be lower than
their recoverable amounts and no impairment losses were recognised (2017: Rnil).
Management believes that any reasonable possible change in key assumptions on which the recoverable amounts for all
other cash-generating-units tested for impairment is based, would not cause these cash-generating-units’ carrying
amounts to exceed their recoverable amounts.
3. INTANGIBLE ASSETS
Acquired
through
Opening business Closing
balance Impairments Disposals combinations Additions Amortisation balance
R'000 R'000 R'000 R'000 R'000 R'000 R’000
2018
Trade names 1 361 - - - - (106) 1 255
Customer contracts and
customer relationships 124 283 - (956) 8 108 - (12 840) 118 595
Computer software 4 921 - - - 238 (1 807) 3 352
130 565 - (956) 8 108 238 (14 753) 123 202
2017
Trade names 2 025 - - - - (664) 1 361
Customer contracts and
customer relationships 123 844 (118) (4 438) 20 008 - (15 013) 124 283
Computer software 6 496 - (6) - 136 (1 705) 4 921
132 365 (118) (4 444) 20 008 136 (17 382) 130 565
The disposal of customer contracts and customer relationships during the current year relates to a disposal of a
portion of a business of Efficient Wealth Proprietary Limited.
The remaining useful life of the trade names are between 1 and 17 years (2017: 1 and 18 years), customer contracts
and customer relationships, between 1 and 17 years (2017: 1 and 18 years) and computer software between 1 and 4 years
(2017: 2 and 5 years).
The majority of the computer software relates to the FutureSight computer software program owned by Naviga Solutions
Proprietary Limited, that is being developed in-house to service the Group’s financial service businesses.
The impairment of customer contracts and customer relationships was recognised during the prior year amounting to
R118 334 was due to Efficient Wealth Proprietary Limited not retaining a specific client to which the intangible
asset related to when it was recognised in profit or loss.
4. INVESTMENTS IN EQUITY-ACCOUNTED ASSOCIATES
The Group’s equity-accounted associates are primarily independent of the Group and are not strategic to the Group’s
activities.
The Group does not hold the majority of the voting rights for any of its equity-accounted associates nor does it
have the ability to appoint the majority of directors to the board of the respective equity-accounted associates.
None of the equity instruments held in the Group’s equity-accounted associates are traded in an active market. Equity
-accounted associates do not have any restrictions imposed on their ability to pay dividends and settle outstanding
balances with the Group. The Group has not identified any significant risks associated with its interest held in its
equity-accounted associates.
The table below details the ownership interest in equity-accounted associates and represents the legal ownership held
in the investments at the highest sub-group level within the Group at the reporting date:
Ownership interest
Principal activities Principal place of 2018 2017
business % %
Rudiarius Capital Management
Proprietary Limited Asset management Republic of South Africa 30% 30%
AS Sure Investment Services
Proprietary Limited Financial services Republic of South Africa 25.10% 25.10%
Efficient Financial Services (Namibia)
Proprietary Limited Financial services Republic of Namibia 50% 50%
2018 2017
R'000 R'000
Significant investments in equity-accounted associates
Rudiarius Capital Management Proprietary Limited 1 303 1 274
AS Sure Investment Services Proprietary Limited 5 119 5 364
6 422 6 638
Reconciliation of investments in equity-accounted associates
Balance at the beginning of the year 6 638 11 726
Share of profits, net of taxation 913 1 037
Impairments (320) (5 265)
Dividend income (809) (860)
Balance at the end of the year 6 422 6 638
Financial information of equity-accounted associates
Rudiarius Capital Management Proprietary Limited
Net assets 4 187 4 089
Profit and total comprehensive income for the year 1 957 2 405
AS Sure Investment Services Proprietary Limited
Net assets 1 176 1 575
Profit and total comprehensive income for the year 1 298 1 301
Aggregate attributable portions
Attributable portion of net assets 1 551 1 622
Attributable profit and total comprehensive income for the year 913 1 037
Equity-accounted associate AS Sure Investment Services Proprietary Limited has a February year-end. Its results are
equity-accounted using management-prepared information on a basis co-terminus to the Group’s year-end.
The aggregated financial position and financial performance of the equity-accounted associates presented above have
been extracted without adjustment from the management-prepared information of the equity-accounted associates.
IMPAIRMENT TESTING OF INVESTMENTS IN EQUITY-ACCOUNTED ASSOCIATES
The investments in both equity-accounted associates that have carrying amounts recognised on the Group’s statement of
financial position, were tested for impairment at the reporting date.
The recoverable amounts of the investments was determined as its value-in-use, which was considered to be higher than
its fair value less costs to sell. The value-in-use calculation was based on pre-tax cash flow projections from
financial budgets approved by management covering a five-year period. Pre-tax discount rates of 24.35% (2017: 26.85%)
and 26.27% (2017: 27.85%) were applied to the calculation for Rudiarius Capital Management Proprietary Limited and AS
Sure Investments Proprietary Limited respectively. A terminal value growth rate of 4.75% (2017: 4.50%) was applied to
both impairment tests.
The equity-accounted investment’s carrying amount for Rudiarius Capital Management Proprietary Limited was lower than
its recoverable amount and no impairment loss was recognised (2017: Rnil). The equity-accounted investment’s carrying
amount for AS Sure Investments Proprietary Limited was higher than its recoverable amount of R5.12 million (2017:
R5.36 million), and an impairment loss of R320 000 (2017: R5.27 million) was recognised in profit or loss.
5. OTHER INVESTMENTS
2018 2017
R'000 R'000
5.1 AVAILABLE-FOR-SALE INVESTMENTS
Linked unit investment (Fair value hierarchy: Level 1) 2481 2 625
5.2 INVESTMENTS DESIGNATED AS AT FAIR VALUE THROUGH PROFIT OR LOSS
Linked unit investment (Fair value hierarchy: Level 1) - 2 000
Inyosi enterprise development portfolio investment (Fair value hierarchy: Level 3) 1 004 -
Total investments 3 485 4 625
Non-current assets 2 393 323
Current assets 1 092 4 302
3 485 4 625
The significant unobservable inputs for determining the fair value of the Inyosi enterprise development portfolio
investment include the number of units allocated in the investment, the price per unit as derived from the reporting
date asset management valuation statement, the value of the initial investment relative to the market value of the
underlying securities which the investment comprises of as well as the composition of the underlying securities. At
the reporting date, the Group held 997 399 units in the investment at a price per unit of 100.64 cents. The fair
value of the investment would increase (decrease) with a change in any of the inputs.
6. DEFERRED TAX ASSETS (LIABILITIES)
2018 2017
R'000 R'000
Non-current assets 138 933 14 703
Non-current liabilities (31 438) (32 707)
107 495 (18 004)
The net deferred tax assets (liabilities) comprises the following temporary differences:
Accruals and provisions 13 219 10 833
Income received in advance 394 -
Fair value adjustment on investments 177 76
Profit-share cancellation liabilities 120 400 -
Calculated tax losses 11 588 7 913
Prepaid expenses (1 406) (569)
Intangible assets (34 222) (35 892)
Property and equipment (2 655) (365)
107 495 (18 004)
Reconciliation of net deferred tax asset (liability)
Balance at the beginning of the year (18 004) (18 819)
Acquisitions through business combinations (2 274) (5 602)
Disposals of businesses 268 1 400
Charge recognised in profit or loss 129 415 5 486
Charge recognised in other comprehensive income (1 910) (469)
Balance at the end of the year 107 495 (18 004)
Deferred tax assets includes an amount of R13.79 million (2017: R10.91 million), relating to temporary differences
which will reverse in the year ahead and is expected to be realised within 12 months. Deferred tax assets includes
an amount of R131.99 million (2017: R7.91 million), relating to temporary differences which will reverse as taxable
income is generated.
Deferred tax liabilities includes an amount of R1.41 million (2017: R569 365), relating to temporary differences
which will reverse in the year ahead and is expected to be settled within 12 months. Deferred tax liabilities
includes an amount of R36.88 million (2017: R36.26 million), relating to temporary differences which will reverse
after 1 year.
The utilisation of the deferred tax asset raised on calculated losses is dependent on future taxable profits in
excess of the profits arising from the reversal of existing taxable temporary differences. Management is confident
that the deferred tax assets recognised will be recovered in future years based on approved budgets and forecasts.
The significant increase in the net deferred tax asset for the Group during the current year, is a direct result of
the profit-share cancellation transaction. Utilisation of the deferred tax asset is supported by the Group’s ability
to generate significant taxable income within Boutique Collective Investments RF Proprietary Limited and Boutique
Investment Partners Proprietary Limited going forward as these subsidiaries will no longer incur the previously
recurring profit-share expenses.
7. SHARE CAPITAL AND SHARE PREMIUM
2018 2017
Number of Number of
'000 '000
Reconciliation of shares in issue
Shares in issue at the beginning of the year 90 593 90 593
Shares repurchased during the year (1 098) -
Shares in issue at the end of the year 89 495 90 593
2018 2017
R'000 R'000
Share premium on ordinary shares in issue
Balance at the beginning of the year 150 325 150 325
Cost of shares repurchased during the year (4 516) -
Balance at the end of the year 145 809 150 325
At the reporting date, the listing of 681 639 ordinary shares included in those repurchased during the current year, was
not yet withdrawn by the Johannesburg Stock Exchange (JSE). The withdrawal from listing of these shares by the JSE was
finalised during October 2018.
8. CONVERTIBLE EQUITY LOAN
2018 2017
R'000 R'000
Loan advanced during the current year by profit-share cancellation nominees 158 183 -
The convertible equity loan arose during the current year to fund the Group’s profit-share cancellation fee (Refer to
note 12).
The loan will either be settled in cash or in ordinary shares to be issued in Efficient Group Limited to the parties.
The share issue is within the control of the Group. The settlement is dependent on Efficient Group Limited raising
capital to settle this loan. Should the capital raising be successful, the loan will be settled in cash. The shortfall
of capital not raised could result in a partial settlement of shares issued. The loan will be settled or converted
to issued shares by latest, 30 August 2019.
Should the loan be settled by conversion to issued share capital, such shares will be issued at a price of 530 cents
and the maximum number of shares to be issued amounts to 29 845 849 to the nominees. Some of the nominees to whom the
equity loan is payable are related parties of the Group. Refer to note 19 for more detail thereon.
The nominees have all subordinated their claims in respect of this loan in favour of the Group’s present and future
debt to Standard Bank of South Africa Limited.
The loan bears interest at the prime interest rate plus 3% and is payable quarterly. The effective interest rate at
the reporting date was 13%.
Due to the mandatory interest which will be paid, the loan is considered to be a compound financial instrument and
has an equity and debt portion. The allocation is as follows:
2018 2017
R'000 R'000
Equity 138 981 -
Current liability 19 202 -
158 183 -
The mandatory interest payments to be made for the next year will amount to R5.2 million per quarter.
9. NON-CONTROLLING INTERESTS
The table below sets out the subsidiaries of the Group which have non-controlling interests (NCIs):
NCI Ownership
interest
Operating segment Principal place of 2018 2017
business % %
Efficient Group Swaziland Proprietary Limited Investments Swaziland 49% 49%
Efficient Select Swaziland Proprietary Limited Investments Swaziland 74% 74%
Efficient Board of Executors Proprietary Limited Solutions Republic of South Africa 49.99% 49.99%
Efficient Private Clients Proprietary Limited Solutions Republic of South Africa 49.90% 49.90%
Secure Capital Investments Proprietary Limited Financial Services Republic of South Africa 49% 49%
Efficient Group Swaziland Proprietary Limited also has a NCI of 49% and holds 51% of the voting rights and ownership
interest in Efficient Select Swaziland Proprietary Limited. Both of these companies were dormant during the current
and prior years and do not have a net asset value.
Efficient Efficient Efficient Efficient Secure Efficient
Group Central Select Board Private Capital Benefit
Services Swaziland of Executors Clients Investments Consulting
Proprietary Proprietary Proprietary Proprietary Proprietary Proprietary
Limited Limited Limited Limited Limited Limited Total
R'000 R'000 R'000 R'000 R'000 R'000 R'000
2018
Balance at
the beginning
of the year - - (23) 3 830 1 785 - 5 592
Total comprehensive
income (loss) for
the year - - 24 (380) 498 (2 269) (2 127)
Dividends declared - - - - (617) - (617)
Balance at the end
of the year - - 1 3 450 1 666 (2 269) 2 848
2017
Balance at
the beginning
of the year (383) (2 048) (12) - - - (2 443)
Derecognition of
non-controlling
interests 383 2 048 - - - - 2 431
Recognition of
non-controlling
interests - - - 4 760 1 751 - 6 511
Total comprehensive
income (loss) for
the year - - (11) (929) 34 - (906)
Balance at the end
of the year - - (23) 3 830 1 785 - 5 592
At the date of the NCIs acquiring their interest in Efficient Benefit Consulting Proprietary Limited, the net asset
value of this subsidiary in the Group was Rnil.
FINANCIAL POSITION AND FINANCIAL PERFORMANCE OF SUBSIDIARIES WITH NCIs
The following table summarises the financial information of subsidiaries with NCIs prepared in accordance with IFRS in
the accounting records of the respective subsidiaries, without considering any accounting entries recorded at
consolidation level:
Efficient Efficient Secure Efficient
Board Private Capital Benefit
of Executors Clients Investments Consulting
Proprietary Proprietary Proprietary Proprietary
Limited Limited Limited Limited
NCI - 49.99% NCI - 49.90% NCI - 49% NCI - 37.5%
R'000 R'000 R'000 R'000
2018
Revenue 1 669 14 153 3 579 489
Profit (loss) and total comprehensive income (loss)
for the year 47 (972) 1 310 (4 914)
Profit (loss) and total comprehensive income (loss)
for the year attributable to NCIs 23 (485) 642 (1 843)
Non-current assets 4 10 412 15 2 132
Current assets 59 4 604 326 455
Non-current liabilities - (4 968) - (6 057)
Current liabilities (62) (3 345) (133) (1 444)
Net assets (liabilities) 1 6 703 208 (4 914)
Net assets (liabilities) attributable to NCIs - 3 345 102 (1 843)
Cash flows from operating activities (1) 780 1 188 (5 260)
Cash flows from investing activities - (119) 217 (367)
Cash flows from finance activities - 549 (1 260) 5 534
Net (decrease) increase in cash and cash equivalents (1) 1 210 145 (93)
2017
Revenue 1 387 8 465 841 -
(Loss) profit and total comprehensive income (loss)
for the year (23) (1 862) 69 -
(Loss) profit and total comprehensive income (loss)
for the year attributable to NCIs (11) (929) 34 -
Non-current assets 17 11 292 - -
Current assets 36 3 261 564 -
Non-current liabilities - (4 460) - -
Current liabilities (100) (2 418) (110) -
Net (liabilities) assets (47) 7 675 454 -
Net (liabilities) assets attributable to NCIs (23) 3 830 222 -
Cash flows from operating activities 23 (1 152) 112 -
Cash flows from investing activities - (44) - -
Cash flows from finance activities - 2 444 - -
Net increase in cash and cash equivalents 23 1 248 112 -
There are no amounts recorded in other comprehensive income which are attributable to NCIs for any of the Group’s
subsidiaries.
During the prior year, although the Group only had a 70.48% interest in Select Manager Proprietary Limited and its
subsidiaries, it had an obligation to acquire the remaining 29.52% during the current year, for which forward purchase
liabilities were recognised, as per note 10.2. The anticipated acquisition method was used to account for the Select
Manager Proprietary Limited sub-group. As Select Manager Proprietary Limited has a 100% interest in all of its underlying
subsidiaries, except for Secure Capital Investments Proprietary Limited, the only NCI recognised is in respect of Secure
Capital Investments Proprietary Limited.
At the establishment of the Efficient Benefit Consulting Proprietary Limited business during the current year, the NCI
shareholding was 49%. However, during the latter part of the year, this decreased to 37.5%.
No additional NCIs were recognised during the current year as part of business combinations.
10. LOANS AND BORROWINGS
Sub-note 2018 2017
Reference
R'000 R'000
Vendor liabilities for book acquisitions 10.1 3 554 1 312
Forward-purchase liability 10.2 6 916 32 112
Dividend liability 10.3 - 5 375
Working capital loans 10.4 35 367 30 961
Mortgage loans 10.5 28 314 21 012
Contingent consideration liabilities 10.6 1 599 6 210
Loans from non-controlling interests 10.7 1 451 1 312
Profit-share cancellation liabilities 10.8 271 817 -
349 018 98 294
Non-current liabilities 88 979 28 011
Current liabilities 260 039 70 283
349 018 98 294
10.1 VENDOR LIABILITIES FOR BOOK ACQUISITIONS
Loans for the acquisition of customer contracts and customer relationships 3 554 1 312
Non-current liabilities 3 554 1 202
Current liabilities - 110
3 554 1 312
These loans form part of the acquisition of intangible assets. The loans are unsecured, interest-free and repayable
at various instalment dates and amounts. The last instalment is payable in 2021. The fair value of the outstanding
liabilities at the reporting date is R3.29 million (2017: R1.24 million). The fair value hierarchy is Level 3. The
valuation considers the present value of the payments set out in the agreements, discounted using a discount rate of
10% (2017: 10.25%). Any change in the discount rate applied would change the fair value of these liabilities.
10.2 FORWARD PURCHASE LIABILITY
2018 2017
R'000 R'000
Phase two liability 6 916 32 112
Non-current liabilities - -
Current liabilities 6 916 32 112
6 916 32 112
Reconciliation of forward purchase liability
Balance at the beginning of the year 32 112 69 095
Payments and settlements during the year (23 168) (15 001)
Re-measurement adjustments recognised in profit or loss (2 028) (21 982)
Balance at the end of the year 6 916 32 112
The phase two liability relates to the acquisition of Select Manager Proprietary Limited and its subsidiaries. It was
classified as at fair value through profit or loss and is repayable on 1 March 2019.
The fair value hierarchy is Level 3. The valuation considers the present value of the expected payments set out in the
contract. No discounting was applied at due to the short period in which the phase two liability will be settled after
the reporting date.
The unobservable inputs for previously calculating the fair value of the phase two liability include budgets and
forecasts, the conversion ratio of independent financial advisor book buys, profit targets and free-cash flows. The
fair value and carrying amount of the liability would increase or decrease with any reasonable change in the inputs used.
In accordance with the initial acquisition agreement, the parties agreed on the final phase two purchase price. Where
necessary for certain items under dispute which formed the bases of the purchase price; an expert determination was
obtained from a professional firm agreed to by all the parties. The purchase price determination was finalised on 14
August 2018. The carrying amount recognised on the statement of financial position represents the amount to be settled,
as agreed to by all parties.
The outstanding phase two liability will accrue interest at the FNB Call Account Rate until payment date. The effective
interest rate at the reporting date was 7.3%.
10.3 DIVIDEND LIABILITY
2018 2017
R'000 R'000
Dividend liability - 5 375
Non-current liabilities - -
Current liabilities - 5 375
- 5 375
Reconciliation of dividend liability
Balance at the beginning of the year 5 375 12 811
Payments and settlements during the year (7 901) (6 860)
Re-measurement adjustments recognised in profit or loss 2 526 (576)
Balance at the end of the year - 5 375
The liability relates to the future dividends expected to be paid to legal non-controlling shareholders of Select
Manager Proprietary Limited, until the Group acquired the remaining 20.52% from these shareholders as per the forward
purchase agreement. The liability was classified as at fair value through profit or loss. The fair value hierarchy was
Level 3. The valuation considered the present value of the expected payments set out in the dividend policy per the
shareholders’ agreement. No discounting was applied to the expected payments due at 31 August 2017, due to the short
period in which the liability will be settled after the reporting date. For determination of the fair value of this
liability, the unobservable inputs for calculating the dividend liability include budgets and forecasts, planned
independent financial advisor book buys, profit targets and free-cash flows. The fair value and carrying amount of the
liability previously recognised, would have increased or decreased with any reasonable change in the inputs used. The
liability was settled during the current year with the final payment being made to all shareholders during June 2018;
at which point, Select Manager Proprietary Limited became a wholly-owned subsidiary of Efficient Group Limited in
terms of ownership interest.
10.4 WORKING CAPITAL LOANS
2018 2017
R'000 R'000
Facility A - 5 738
Facility B - 5 573
Facility C 4 950 6 750
Facility D 7 500 12 900
Facility E 22 917 -
35 367 30 961
Non-current liabilities 25 234 4 950
Current liabilities 10 133 26 011
35 367 30 961
The loans relate to an amortising term loan from Standard Bank of South Africa Limited to assist the subsidiaries with
their respective working capital requirements, and consists of four loan facilities. The loans are guaranteed by Naviga
Solutions Proprietary Limited. Efficient Financial Services Proprietary Limited, Efficient Wealth Proprietary Limited
and Boutique Investment Partners Proprietary Limited have been released as guarantors. These loans are subject to certain
loan financial covenants, all of which have been met during the current and prior years, with the exception of breaches
which have been set aside by Standard Bank of South Africa Limited.
Facility A bore interest at JIBAR plus 3.75% per annum and was repayable in 16 equal and quarterly payments of R1.91
million plus interest accrued for the period. This facility was fully repaid on 31 May 2018. The effective interest
rate at the reporting date of the prior year was 10.83%.
Facility B bore interest at JIBAR plus 3.50% per annum and was repayable in 12 variable quarterly capital payments plus
interest accrued for the period. This facility was fully repaid on 28 February 2018. The effective interest rate at the
reporting date of the prior year was 10.58%.
Facility C bears interest at JIBAR plus 3.95% per annum and is repayable in 20 quarterly and equal capital payments of
R450 000 plus interest accrued for the period. This facility is required to be fully repaid by 27 May 2021. The effective
interest rate at the reporting date was 10.96% (2017: 11.03%).
Facility D bears interest at JIBAR plus 3.95% per annum (2017: JIBAR plus 2.95% per annum). R8.4 million of the facility
outstanding at the reporting date of the prior year was settled during the current year. The amounts due under this facility
is required to be fully repaid by 28 February 2021. The effective interest rate at the reporting date was 10.96%
(2017: 10.03%).
Facility E bears interest at JIBAR plus 3.5% per annum and was advanced during the current year. The facility is
repayable in 12 quarterly and equal capital payments of R2.08 million plus interest accrued for the period. The effective
interest rate at the reporting date was 10.51%.
The Group had R2.5 million available for utilisation under Facility D at the reporting date. In addition, the Group had an
additional Facility of R240 million available for use at the reporting date. The funds under this additional facility were
drawn during September 2018 to settle a portion of the profit-share cancellation expense (refer to note 12).
10.5 MORTGAGE LOANS
2018 2017
R'000 R'000
Catnia building loan - 11 643
Dely property loan - 9 369
Catnia and Dely property loan 28 314 -
28 314 21 012
Non-current liabilities 26 649 19 780
Current liabilities 1 665 1 232
28 314 21 012
The mortgage loans are amortising term loans payable by Efficient Capital Proprietary Limited from Standard Bank of
South Africa Limited and is secured by property with a carrying amount of R57.7 million (2017: 46.81 million). Refer
to note 1.
The two loans payable at the reporting date of the prior year were consolidated into one loan during the current year.
The previous Catnia building loan bore interest at the prime interest rate less 1%. The effective interest rate on this
loan at the reporting date of the prior year was 9.25%. The Dely property loan bore interest at the prime interest rate
less 0.75%. The effective interest rate on this loan at the reporting date of the prior year was 9.50%.
The consolidated property loan bears interest at the prime interest rate less 1%. The capital is repayable in 60
escalating monthly instalments ranging between R120 585 to R222 982 over the five-year period from consolidation. The
new consolidated loan is required to be fully repaid by 30 November 2023. The effective interest rate on this loan at
the reporting date was 9%.
10.6 CONTINGEMENT CONSIDERATION LIABILITIES
2018 2017
R'000 R'000
Wayne Allen-White 230 1 876
- Contingent consideration liability 375 -
- Loan receivable (145) -
Jacques Jacobs 1 369 4 334
1 599 6 210
Non-current liabilities 274 767
Current liabilities 1 325 5 443
1 599 6 210
Reconciliation of contingent consideration liabilities
Balance at the beginning of the year 6 210 -
Recognition of business combination - 9 828
Payments and settlements during the year (2 447) (3 618)
Re-measurement adjustments recognised in profit or loss (2 164) -
Balance at the end of the year 1 599 6 210
The above liabilities represent the balance of the purchase price payable for the acquisition of W-Allen White Brokers
Proprietary Limited and Secure Capital Investments Proprietary Limited, which were acquired during the prior year by
Select Manager Proprietary Limited. The amount payable is dependent on the value of additional assets invested by the
clients of W-Allen White Brokers Proprietary Limited and Secure Capital Investments Proprietary Limited in the Collective
Investment Schemes managed by Select Manager Proprietary Limited, up to the measurement date; as well as an earnings
multiple as stipulated in the purchase agreement.
The liability payable to Wayne Allen-White for the acquisition of W-Allen White Brokers Proprietary Limited is
contractually due to be settled on 31 May 2019. The liability will be settled net of the loan payable by Wayne Allen-White
to the Group, as agreed between both parties. The loan receivable by the Group accrues interest at the prime rate plus 2%.
The effective interest rate on this loan at the reporting date was 12%.
The liability payable to Jacques Jacobs for the acquisition of Secure Capital Investments Proprietary Limited is
contractually due to be settled in two instalments amounting to R1.1 million and R273 906 which are due on 31 May 2019
and 14 March 2022 respectively. The instalment due in 2022 will be paid inclusive of any interest accrued at an Escrow
account rate up to date of payment.
The significant unobservable inputs for determining the fair value of the contingent consideration liabilities at the
reporting date included additional assets to be invested as described above of R287.22 million (2017: R442.48 million).
The fair value and carrying amount of the liabilities would increase or decrease with any reasonable change in the
inputs used.
The liabilities are recognised at fair value and represents management’s best estimate of the amounts payable under
the acquisition agreements. The fair value hierarchy for this liability is Level 3. The valuation considers the present
value of expected payments to be made. The effect of discounting of this liability was not considered to be significant.
10.7 LOANS FROM NON-CONTROLLING INTERESTS
2018 2017
R'000 R'000
DD Roodt 721 652
AH Ernst 438 396
E Viljoen 292 264
1 451 1 312
Non-current liabilities 1 451 1 312
Current liabilities - -
1 451 1 312
These loans are payable to the non-controlling interest shareholders of Efficient Private Clients Proprietary Limited.
The loans are unsecured, bear interest at the prime rate and have no fixed repayment terms. At 31 August 2018, all the
shareholders have agreed not to recall payment on these loan at least until 30 November 2019. The effective interest
rate at the reporting date on these loans was 10% (2017: 10.25%).
The shareholders’ agreement provides for additional interest of 3% above the prime rate should the proportion of any of
the shareholders’ loans payable exceed the proportion of the shareholding interest held in Efficient Private Clients
Proprietary Limited, in relation to the total shareholders’ loans payable. The effective interest rate on the excess
shareholder loans payable at the reporting date was 13% (2017: 13.25%).
10.8 PROFIT-SHARE CANCELLATION LIABILITIES
2018 2017
R'000 R'000
Cancellation fee liabilities 208 020 -
Restraint fee liabilities 19 730 -
General employee incentive liabilities 24 500 -
Participating partner incentive liabilities 19 567 -
271 817 -
Non-current liabilities 31 817 -
Current liabilities 240 000 -
271 817 -
The above liabilities arose during the current year, as a result of the profit-share cancellation transaction. Refer
to note 12. R12.25 million of the general employee incentive liabilities as well as the participating partner incentive
liabilities are payable in full on 30 August 2021. These unpaid liabilities accrue interest at the rate of prime plus
2%. At the reporting date, the effective interest rate was 12%. The remaining liabilities became payable at the
reporting date and were settled during September 2018 from the proceeds of a working capital loan received from Standard
Bank of South Africa Limited (as per note 10.4). Some of the liabilities due are to related parties of the Group. Refer
to note 19 for detail thereof.
11. OTHER ITEMS INCLUDED IN (LOSS) PROFIT BEFORE TAXATION
The following non-recurring items are included in the (loss) profit before taxation:
+ The bad debts expense in the current year includes amounts not recovered from the previous shareholders of Efficient
Wealth Proprietary Limited and the non-controlling interest shareholders of Efficient Select Swaziland Proprietary Limited,
amounting to R847 435 and R332 712 respectively. These amounts were initially recognised in income during the prior year,
when the Group established that recoverability of these amounts were probable.
+ In addition to the above item, the Group’s bad debt expense for the current year includes a debt written off amounting
to R3.62 million in respect of the Group’s dealings with Vital Holdings Proprietary Limited and its related entities. The
debts written off were recognised in the financial records of Efficient Financial Services Proprietary Limited, Efficient
Group Central Services Proprietary Limited and Efficient IDS Proprietary Limited. The Group also recognised a bad debt
provision of R846 075 for amounts that are not likely to be recovered in the Financial Services cluster.
+ The re-measurement adjustment on loans and borrowings at fair value through profit or loss of R1.49 million gain (2017:
R22.56 million gain), relates to the fair value adjustment on the forward purchase liabilities and dividend liability
recognised for the Select Manager Proprietary Limited group as part of the forward purchase agreement as well as the
adjustments for the contingent consideration liabilities outstanding for the acquisition of the businesses of W-Allen
White Brokers Proprietary Limited and Secure Capital Investments Proprietary Limited. Refer to notes 10.2, 10.3 and 10.6
for more detail on these liabilities.
+ In addition, the current year gain of R562 123 on settlement of loans and borrowings at amortised cost, relates to an
adjusted purchase price negotiated on a vendor liability for book acquisitions settled during the current year by
Efficient Financial Services Proprietary Limited.
12. PROFIT-SHARE CANCELLATION
2018 2017
R'000 R'000
Profit-share cancellation expense 430 000 -
- Cancellation fee 366 203 -
- Initial general employee incentive 12 250 -
- Restraint fee 19 730 -
- Further general employee incentive 12 250 -
- Participating partner incentive 19 567 -
Transaction costs on profit-share cancellation(1) 12 730 -
442 730 -
The profit-share cancellation relates to the “Joint Management and Profit Incentive Agreement” (the PS agreement)
which was concluded during August 2013. Through the PS agreement, executive director, RH Walton and his nominees were
entitled to receive a profit-share amounting to 66% of the profits in subsidiaries Boutique Collective Investments (RF)
Proprietary Limited, Boutique Investment Partners Proprietary Limited and Instit Proprietary Limited. As per the PS
agreement, the Group exercised its option to cancel the profit-share arrangement, subject to payment of a fee agreed
upon. The fee agreed upon by all parties was R480 million, of which R50 million is dependent on RH Walton and his
nominees remaining in the employ of the Group until 31 August 2021 (the payment date). This deferred portion will be
recognised as an expense over the three-year period ending 31 August 2021 as an “other long-term employee benefit” in
accordance with IAS 19 (Employee Benefits). The deferred portion will be recognised proportionate to the Group’s
expectation of whether the RH Walton and his nominees will remain in employ until the payment date.
The transaction became effective on 31 August 2018 after approval by the shareholders of Efficient Group Limited, at
which point all suspensive conditions were met.
The initial and general employee incentives are payable to the employees of Boutique Collective Investments (RF)
Proprietary Limited, Boutique Investment Partners Proprietary Limited, none of whom are related parties to the Group.
The participating partner incentives are payable to the clients of Boutique Collective Investments (RF) Proprietary
Limited who previously shared in the profits of this subsidiary through a co-naming partner fee agreement. These
agreements have also been cancelled concurrently with the PS agreement.
The cancellation fee, initial general employee incentive and restraint fee became payable on 31 August 2018. The
further general employee incentive and the participating partner incentive is payable on 31 August 2021. Should the
employees no longer be in the employee of the Group or the participating partners no longer be clients of Boutique
Collective Investments (RF) Proprietary Limited, then these incentives become payable to RH Walton, regardless of
RH Walton’s employment status with the Group at 31 August 2021.
The restraint fee payable is in lieu of certain restraint of trade conditions imposed on the parties which will be
effective for a period of ten years from termination of employment with the Group, in the case of RH Walton; and a
period of five years from termination of employment with the Group, in the case of each of the other restraint nominees.
The Group will finance the total profit-share cancellation expense as follows:
Additional 2018 2017
Note Reference
R'000 R'000
Convertible equity loan 8 158 183 -
Borrowings from the Standard Bank of South Africa Limited 10.4 240 000 -
Profit-share cancellation liabilities 10.8 31 817 -
430 000 -
At the reporting date, the profit-share cancellation liabilities also includes the amount which will be financed by
the Standard Bank of South Africa Limited, as the R240 million was only received during September 2018, at which point
a portion of the profit-share cancellation liabilities amounting to R240 million was settled.
Refer to note 19 for detail of the related party portion of the profit-share cancellation expense.
(1) Included in the transaction costs for this transaction is an amount of R5.23 million relating to incentives accrued
for the executive directors of Efficient Group Limited, relating to the conclusion of this transaction.
13. TAXATION
2018 2017
R'000 R'000
Current taxation 17 777 20 410
Deferred taxation (129 415) (5 486)
(111 638) 14 924
Subsidiaries within the Group have tax losses of R1.2 million (2017: R263 375) available for set-off against future
taxable income, for which no deferred tax assets have been recognised.
TAX RATE RECONCILIATION
2018 2017
% %
Standard tax rate 28.00% 28.00%
Share of profits from investments in equity-accounted associates, net of taxation 0.06% (0.47%)
Dividend income 0.00% (0.07%)
Gain on derecognition of loan payable to non-controlling interest 0.00% (1.98%)
Other non-taxable income 0.00% (0.18%)
Impairment of goodwill (0.02%) 4.22%
Impairment of intangible assets 0.00% 0.05%
Impairment of investments in equity-accounted associates (0.02%) 2.38%
Impairment of loans and other receivables, net of impairment reversals (0.08%) 0.00%
Re-measurement of loans and borrowings at fair value through profit or loss 0.14% (10.22%)
Non-deductible finance costs (0.06%) 0.24%
Non-deductible legal and consulting expenses (0.06%) 0.23%
Non-deductible depreciation and amortisation (0.02%) 0.08%
Non-deductible donations (0.01%) 0.04%
Other non-deductible expenditure (0.15%) 0.66%
Capital gains (0.01%) 1.10%
Prior year adjustments 0.17% 0.78%
Utilisation of tax losses 0.00% (0.85%)
Unrecognised deferred tax assets (0.01%) 0.13%
Effective tax rate 27.93% 24.14%
14. (LOSS) EARNINGS PER SHARE
Basic and diluted (loss) earnings per share is calculated by dividing the (loss) profit attributable to equity holders
of the parent by the weighted average number of ordinary shares in issue during the year.
WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES
2018 2017
Number of Number of
'000 '000
Ordinary shares in issue at the beginning of the year 90 593 90 593
Effect of shares repurchased during the year (326) -
Effect of treasury shares acquired during the year - (60)
Effect of treasury shares held from the beginning of the year (321) (261)
Weighted average number of ordinary shares for basic (loss) earnings and headline (loss) earnings 89 946 90 272
Potential ordinary shares to be issued - -
Weighted average number of ordinary shares for diluted (loss) earnings and diluted
headline (loss) earnings 89 946 90 272
(LOSS) EARNINGS AND DILUTED (LOSS) EARNINGS - ATTRIBUTABLE EARNINGS 2018 2017
R'000 R'000
Net (loss) profit for the year attributable to equity holders of the parent (285 946) 47 798
HEADLINE (LOSS) EARNINGS
Attributable (loss) earnings (285 946) 47 798
Profit on disposal of equipment - (134)
Taxation on disposal of equipment - 38
Profit on disposal of customer contracts and customer relationships (1 342) (139)
Taxation on disposal of customer contracts and customer relationships 431 31
Impairment of goodwill 350 9 324
Impairment of intangible assets - 118
Impairment of investments in equity-accounted associates 320 5 265
Headline (loss) earnings (286 187) 62 301
2018 2017
Cents Cents
Basic and diluted (loss) earnings per share (317.91) 52.95
Headline and diluted headline (loss) earnings per share (318.18) 69.01
The potential ordinary shares to be issued in respect of the convertible equity loan per note 8 did not have a significant
impact on the weighted average number of ordinary shares in issue during the year, as the convertible loan became
effective during the course of the day on 31 August 2018.
Other than the shares noted, the Group does not have any potential dilutive ordinary shares to take into account in
determining the diluted (loss) earnings per share and diluted headline (loss) earnings per share for neither the current
year nor the prior year.
15. DIVIDENDS PER SHARE
Dividends of 6.41 cents (2017: 5.47 cents) per share and 2 cents (2017: 1.63 cents) per share were declared and paid
in December 2017 (2017: December 2016) and May 2018 (2017: May 2017) by Efficient Group Limited to its shareholders.
16. NOTES TO THE STATEMENTS OF CASH FLOWS
2018 2017
R'000 R'000
16.1 CASH GENERATED FROM OPERATIONS
(Loss) profit before taxation (399 711) 61 815
Adjustments for:
Depreciation on property and equipment 2 429 2 012
Amortisation on intangible assets 14 753 17 382
Dividend income (25) (152)
Profit on disposal of equipment - (134)
Profit on disposal of customer contracts and customer relationships (1 342) (139)
Re-measurement of loans and borrowings at fair value through profit or loss (1 486) (22 558)
Gain on settlement of loans and borrowings at amortised cost (562) -
Fair value adjustment of investment designated at fair value through profit or loss 97 8
Realised fair value adjustment on available-for-sale investments - (161)
Gain on derecognition of loan payable to non-controlling interest - (1 577)
Finance income (7 123) (7 934)
Finance costs 5 565 6 084
Bad debts expense 5 665 -
Impairment of goodwill 350 9 324
Impairment of intangible assets - 118
Impairment of investments in equity-accounted associates 320 5 265
Profit-share cancellation expense recognised through loans and borrowings 430 000 -
Share of profits from investments in equity-accounted associates, net of taxation (913) (1 037)
Operating profit before changes in working capital 48 017 68 316
Changes in working capital:
Trade and other receivables 6 693 (29 852)
Trade and other payables (9 990) 32 117
Provisions (361) 475
Cash generated from operations 44 359 71 056
16.2 ACQUISITION AND DISPOSAL OF BUSINESSES
Acquisition of businesses, net of cash acquired
Trade and other receivables - 675
Intangible assets 8 108 20 008
Deferred tax liabilities (2 274) (5 602)
Trade and other payables - (215)
Current tax payable - (44)
Cash and cash equivalents - 92
Net identifiable assets acquired 5 834 14 914
Goodwill 2 275 8 598
Non-controlling interests recognised at acquisition - (6 511)
Loans and borrowings recognised as part of the purchase price (2 305) (8 521)
Cash acquired - (92)
Net cash paid on acquisition of businesses 5 804 8 388
Proceeds on disposal of business, net of cash disposed
Intangible assets (956) (4 438)
Goodwill - (1 268)
Deferred tax liabilities 268 1 400
Net identifiable assets disposed (688) (4 306)
Profit on disposal of customer contracts and customer relationships (1 342) (139)
Net cash received on disposal of business (2 030) (4 445)
The business disposed of during the current year relates to a financial advisory client base which was recognised as
part of the purchase price allocation, when the Group acquired Efficient Wealth Proprietary Limited during 2014. The
disposal was to former prescribed officers of the Group, CP Burger and NE Burger and their related entities. The
disposal was effected on 31 October 2017 and no cash was disposed of during this transaction.
The business disposed of during the prior year related to a financial advisory client base in the Vredendal area. The
disposal took place within Efficient Financial Services Proprietary Limited. The cancellation was agreed to by all
parties to the original agreement and was effective from 31 July 2017.
17. DETAILS OF BUSINESS COMBINATIONS
During the current year, the Group, acquired various businesses in the Republic of South Africa, by acquiring the
financial advisory client bases (customer contracts and customer relationships). No significant acquisition costs have
been incurred by the Group during its acquisitions. Any incidental costs incurred by the Group, were expensed.
The acquisitions all contribute to the Group’s strategy to increase its local footprint in the Financial Services
industry.
Details of the assets, liabilities and consideration transferred for the Group’s acquisitions executed during the
current year are stated below:
VARIOUS FINANCIAL ADVISORY CLIENT BASES
2018
R'000
Intangible assets 8 108
Deferred tax liabilities on intangible assets (2 274)
Net identifiable assets 5 834
Goodwill acquired 2 274
Consideration transferred 8 108
The consideration transferred is made up as follows:
Cash 5 803
Vendor liabilities for book acquisitions 2 305
8 108
No net tangible assets were acquired in the acquisitions and no contingent consideration is applicable to the
acquisitions for the current year.
The consideration transferred during the acquisition of the businesses are determined as a multiple of the acquiree’s
revenue in proportion to the interest acquired in the financial advisory client base.
The above analysis of net assets represents the fair value of assets acquired. In determining the fair value of
intangible assets acquired, the multi-period excess earnings method was used, which is commonly used in the financial
services industry. This method considers the present value of net cash flows expected to be generated by intangible
assets recognised at acquisition, excluding any cash flows related to contributory assets.
The financial advisory client bases were acquired from various independent financial advisors. It is impractical to
disclose the acquisition and other details for each of them as they are homogenous. Of the 13 acquisitions concluded
during the current year, 12 were within Efficient Financial Services Proprietary Limited and one within Stead Wealth
Management Proprietary Limited.
The goodwill arising on the above acquisitions is mainly attributable to the skills and technical talent of the
key-management and independent financial advisors who come on board to the Group with the acquisitions, as well as the
synergies that are expected to be achieved from integrating the above businesses into the existing suite of businesses
of the Group. None of the goodwill recognised on the acquisition is expected to be deductible for tax purposes.
The current year business combinations contributed R8.62 million (R11.1 million annualised) to the Group’s revenue and
reduced the Group’s loss for the year by R1.26 million (R2.23 million annualised).
In addition to the above, the Group also established new subsidiaries and in certain instances revived dormant
subsidiary companies to be operating. None of the newly established companies or businesses were regarded as business
combinations. Refer to notes 10.1 and 10.6 for terms and conditions of the vendor liabilities for book acquisitions
and contingent consideration liabilities respectively, recognised as part of the consideration transferred on business
combinations recognised during the current and prior years.
The Group is satisfied based on its assessment that all the acquisitions executed as detailed above meet the
definition of a “business” as per IFRS 3 (Business Combinations).
During the prior year, the Group also acquired various financial advisory client bases as well as the businesses of
Efficient Private Clients Proprietary Limited, W-Allen White Brokers Proprietary Limited, Secure Capital Investments
Proprietary Limited and Vital Consult Wealth Management Proprietary Limited; all of which were accounted for as business combinations.
18. CONTINGENT LIABILITIES
The Group has the following outstanding guarantees in place:
+ During the prior year, a guarantee in the amount of R300 000 in terms of a lease agreement for Efficient Select Proprietary Limited’s
offices in Cape Town was in place. This lease agreement was terminated during the prior year;
+ A guarantee in the amount of R3 million in terms of a mortgage loan agreement between Efficient Capital Proprietary
Limited and Standard Bank of South Africa Limited related to the purchase of the Catnia building in Belville. Refer to
notes 1 and 10.5;
+ A guarantee in the amount of R955 000 issued to the City of Tshwane Metropolitan Municipality for performance
obligations in terms of a rezoning service agreements related to the construction of the new Dely building in
Alphenpark on behalf of Efficient Capital Proprietary Limited; and
+ Efficient Wealth Proprietary Limited had a guarantee in the amount of R38 000 in place at 31 August 2017, in terms
of an agreement for premises being leased for office space in Port Elizabeth. This guarantee was released during the
current year.
None of the above guarantees are “financial guarantees” which require recognition of financial liabilities in the
Group’s financial statements.
The Group is not engaged in any pending litigation which requires recognition of any provisions or disclosure of
additional contingent liabilities.
19. RELATED PARTY TRANSACTIONS AND BALANCES
2018 2017
R'000 R'000
19.1 BALANCES WITH RELATED PARTIES
Share-purchase scheme loans receivable from related parties
H Weidhase - 121
AT de Klerk - 162
DD Roodt 221 221
R Barnard - 162
221 666
Non-controlling interest loans payable to related parties
DD Roodt 721 652
AH Ernst 438 396
1 159 1 048
Trade receivables owing by related parties
Midnight Storm Investments 299 Proprietary Limited - 50
Rudiarius Capital Management Proprietary Limited - 64
- 114
Trade payables owing to related parties
Rudiarius Capital Management Proprietary Limited 861 964
AS Sure Investment Services Proprietary Limited 978 937
Midnight Storm Investments 299 Proprietary Limited - 4
LCZ Cele 29 -
1 868 1 905
Convertible equity loan owing to related parties
Grondputs Beleggings Proprietary Limited (26 638 301 ordinary shares)(1) 141 183 -
GFJ Abrahams (849 057 ordinary shares)(1) 4 500 -
JP de Klerk (330 189 ordinary shares)(1) 1 750 -
147 433 -
(1) The number of ordinary shares indicated above represent the ordinary shares to
be issued to the above related parties should the loan not be settled in cash but rather
converted into ordinary shares.
Profit-share cancellation liabilities owing to related parties
GFJ Abrahams 6 000 -
JP de Klerk 3 050 -
RH Walton 192 150 -
AS Sure Investment Services Proprietary Limited 765 -
201 965 -
19.2 TRANSACTIONS WITH RELATED PARTIES
Administration and support fees earned from related parties
Rudiarius Capital Management Proprietary Limited 28 -
Interest income earned on share-scheme loans payable by related parties
H Weidhase 5 7
AT de Klerk 8 10
DD Roodt 12 14
R Barnard 8 10
33 41
Interest expense charged on non-controlling interest loans payable to related parties
DD Roodt 69 29
AH Ernst 42 21
111 50
Asset consulting fees earned from related parties
AS Sure Investment Services Proprietary Limited 848 1 071
Asset management fees charged by related parties
Rudiarius Capital Management Proprietary Limited 9 807 10 169
AS Sure Investment Services Proprietary Limited 9 465 10 084
19 272 20 253
Dividend income earned from related parties
Rudiarius Capital Management Proprietary Limited 558 660
AS Sure Investment Services Proprietary Limited 251 -
809 660
Rent expense charged by related parties
Midnight Storm Investments 299 Proprietary Limited - 610
Profit-share cancellation expense incurred in respect of related parties
GFJ Abrahams (1) 10 500 -
JP de Klerk (1) 4 800 -
RH Walton (1) 333 333 -
AS Sure Investment Services Proprietary Limited (2) 765 -
349 398 -
(1) This expense is in respect of both the cancellation fee and the restraint fee included in the profit-share
cancellation expense.
(2) This expense is in respect of the participating partner incentive included in the profit-share cancellation
expense.
DD Roodt, H Weidhase and SF Booysen (directors of Efficient Group Limited) are shareholders and directors of Midnight
Storm Investments
Proprietary Limited. The Group rented its Dely Road offices in Alphenpark from Midnight Storm Investments 299
Proprietary Limited at market related tariffs and thereafter purchased the property from this related party at a market
related consideration of R9.60 million, on 13 March 2017.
AH Ernst is a shareholder and director of Uhuru Asset Management Proprietary Limited and also key management of the
Group. The Group acquired the business of Uhuru Asset Management Proprietary Limited at a
market related consideration of R6.61 million (including contributions from the previous shareholders of Uhuru Asset
Management Proprietary Limited), during the prior year.
Grondputs Beleggings Proprietary Limited is an entity in which a director of Efficient Group Limited, RH Walton had an
ownership interest in. Refer to the balance owing to this entity in the above table as well as further detail included in
note 8.
For further detail on transactions with the directors and key management (including their families), refer to the
Remuneration Report included in this Integrated Report (directors’ and prescribed officers’ emoluments). Except for
the transactions disclosed in this note above and in the Remuneration Report, there are no further transactions with
the directors and key management.
20. SEGMENT ANALYSIS
FINANCIAL SERVICES
Included in this segment are Efficient Financial Services Proprietary Limited, Efficient Wealth Proprietary Limited,
Efficient IDS Proprietary Limited, Twist Street Securities Proprietary Limited Proprietary Limited, Stead Wealth
Management Proprietary Limited, Exceed Asset Management Proprietary Limited, W-Allen White Brokers Proprietary Limited,
Secure Capital Investments Proprietary Limited and Efficient Benefit Consulting Proprietary Limited (for 2017, formerly
Efficient Infund Consult Proprietary Limited).
SOLUTIONS
Included in this segment are Naviga Solutions Proprietary Limited, Select Manager Proprietary Limited (for 2018),
Efficient Board of Executors Proprietary Limited, Efficient Private Clients Proprietary Limited and Efficient Benefit
Consulting Proprietary Limited (for 2018).
INVESTMENTS
Included in this segment are Efficient Select Proprietary Limited, Boutique Collective Investments (RF) Proprietary
Limited, Boutique Investment Partners Proprietary Limited, Instit Proprietary Limited, Efficient institutional
Investment Managers Proprietary Limited, Rudiarius Capital Management Proprietary Limited, Efficient Select Swaziland
Proprietary Limited (for 2017) and Select Manager Proprietary Limited (for 2017).
Financial Solutions Investments Other Total
Services
R'000 R'000 R'000 R'000 R’000
2018
Financial performance
Revenue 226 857 54 238 879 900 (77 489) 1 083 506
+ External 219 146 17 419 843 064 3 877 1 083 506
+ Inter-group 7 711 36 819 36 836 (81 366) -
Variable expenses (143 540) (8 285) (704 967) 78 231 (778 561)
Operating expenses, excluding depreciation
and amortisation (73 987) (33 194) (149 056) 11 592 (244 645)
Depreciation and amortisation (2 755) (2 877) (448) (11 103) (17 183)
Profit (loss) on disposal of assets 2 030 - - (688) 1 342
Fair value adjustments (27) (2 130) (147) 3 693 1 389
Bad debt expense (4 266) - - (1 399) (5 665)
Impairments, net of impairment reversals - (1 570) - 900 (670)
Profit-share cancellation expense - - (430 000) - (430 000)
Transaction costs on profit-share cancellation - - (2 103) (10 627) (12 730)
Share of profits from investments in
equity-accounted associates, net of taxation - - 587 326 913
Other non-operational income (expenses) 2 355 830 3 557 (5 707) 1 035
Finance income 1 680 817 4 492 134 7 123
Finance costs (2 413) (1 246) (1 170) (736) (5 565)
Taxation (552) (2 893) 112 196 2 887 111 638
Net profit (loss) for the year 5 382 3 690 (287 159) (9 986) (288 073)
Financial position
Assets 63 178 71 770 283 852 255 078 673 878
Liabilities (61 405) (27 721) (570 240) 96 585 (562 781)
Net asset value 1 773 44 049 (286 388) 351 663 111 097
2017
Financial performance
Revenue 190 289 34 234 854 275 (76 702) 1 002 096
+ External 182 367 10 323 807 102 2 304 1 002 096
+ Inter-group 7 922 23 911 47 173 (79 006) -
Variable expenses (110 080) (4 377) (661 611) 74 014 (702 054)
Operating expenses, excluding depreciation
and amortisation (69 924) (18 467) (157 421) 9 638 (236 174)
Depreciation and amortisation (2 140) (3 473) (1 927) (11 854) (19 394)
Profit (loss) on disposal of assets 139 - 3 034 (2 900) 273
Fair value adjustments - - 815 21 896 22 711
Impairments, net of impairment reversals 227 - - (14 934) (14 707)
Share of profits from investments in
equity-accounted associates, net of taxation - - 710 327 1 037
Other non-operational income (expenses) 5 131 1 117 7 512 (7 584) 1 037
Finance income 1 931 476 5 031 496 7 934
Finance costs (1 986) (179) (868) (3 051) (6 084)
Taxation (3 558) (2 211) (12 134) 2 979 (14 924)
Net profit (loss) for the year 10 029 7 120 37 416 (7 674) 46 891
Financial position
Assets 65 980 29 927 235 309 249 742 580 958
Liabilities (47 264) (10 735) (182 839) (72 122) (312 960)
Net asset value 18 716 19 192 52 470 177 620 267 998
The segment analysis for the prior year has been restated to provide more detail as included in the statement of
comprehensive income.
The Group’s revenue per type and segment are as follows:;
Financial Solutions Investments Other Total
Services
R'000 R'000 R'000 R'000 R’000
2018
Asset management fees - 1 429 19 217 - 20 646
Asset administration fees - - 827 933 (71 686) 756 247
Asset consulting fees - - 24 423 - 24 423
Financial services fees 226 840 - - (5 261) 221 579
Income from solutions - 52 809 - (2 214) 50 595
Interest income - - 6 063 - 6 063
Representative agreement fees - - 2 264 - 2 264
Rent and other revenue 17 - - 1 672 1 689
226 857 54 238 879 900 (77 489) 1 083 506
2017
Asset management fees - - 22 918 (467) 22 451
Asset administration fees - - 797 207 (66 084) 731 123
Asset consulting fees - - 23 042 - 23 042
Financial services fees 190 080 - - (6 558) 183 522
Income from solutions - 34 234 - (2 773) 31 461
Administration and support fees - - 1 760 (1 760) -
Interest income - - 7 342 - 7 342
Representative agreement fees - - 2 006 - 2 006
Rent and other revenue 209 - - 940 1 149
190 289 34 234 854 275 (76 702) 1 002 096
Other consists of intergroup dividends, intergroup eliminations and consolidation entries, Efficient Group Limited,
Efficient Capital Proprietary Limited, Efficient Group Central Services Proprietary Limited, Efficient Equity
Proprietary Limited, the Efficient Group Share Trust, the Efficient Ulwazi Educational Trust and AS Sure Investment
Services Proprietary Limited.
There are varying levels of integration between the various operating segments whereby revenue is earned between
entities from one operating segment from entities in other operating segments. Inter-segment pricing is determined
based on terms similar to those provided to external parties.
All operations take place in Southern Africa. None of the Group’s segments relies on concentrated or major clients.
21. SHARE APPRECIATION RIGHTS (SARs)
SARs have a vesting period of three years and are considered to be cash-settled share-based payments. The grant price
and exercise price of these rights are equal to the 20-day volume weighted average traded market price (VWAP) of the
shares preceding the date of the grant or exercise. Rights and awards are conditional on performance conditions being
met. The conditions focus on the Group’s earnings growth and share price performance.
The following SARs were outstanding at the reporting date:
Grant Vesting Grant price Granted Forfeited Exercised Balance
Grant year date date per SAR
(Cents)
2013 2012/10/31 2015/08/31 94 407 (145) (147) 115
2014 2013/10/21 2016/08/31 200 536 (228) (148) 160
2015 2015/01/15 2017/08/31 374 269 (64) (28) 177
2016 2016/06/23 2018/08/31 546 900 (150) - 750
2017 2016/11/10 2019/08/31 536 3 188 (772) - 2 416
2018 2018/06/15 2020/08/31 334 2 860 - - 2 860
2018 2018/07/05 2020/08/31 353 1 800 (100) - 1 700
9 960 (1 459) (323) 8 178
RECONCILIATION OF RIGHTS AND REWARDS
Number of Weighted Number of Weighted
SARs average SARs average
'000 price '000 exercise price
(Cents) (Cents)
Balance at the beginning of the year 3 914 498 1 556 413
Grant during the year 4 660 341 3 188 536
Vested and exercised during the year (66) 163 (82) 193
Forfeited during the year (330) 485 (748) 518
Balance at the end of the year 8 178 412 3 914 498
Fair value Fair value
per SAR per SAR
2018 2017
Cents Cents
The fair value at the reporting date of each SAR granted is as follows:
2013 310 305
2014 204 199
2015 30 25
2016 - 92
2017 70 149
2018 175 -
Average fair value of SARs 131 154
2018 2017
% %
The fair value of the SARs was determined using a Black Scholes valuation model.
The following assumptions were used in the model:
Risk-free interest rate 8,97% 8,57%
Dividend yield 2,03% 2,03%
Expected volatility 64,09% 81,30%
Expected volatility has been based on an evaluation of the historical volatility of Efficient Group Limited’s share
price, particularly over the historical period commensurate with the expected term.
2018 2017
R'000 R'000
Share-based payment expense recognised in profit of loss 1 939 462
Shared-based payment liability included in trade and other payables 4 526 2 587
Vested SARs expire three years from the date on which the vesting is communicated to employees of the Group.
22. EVENTS AFTER THE REPORTING DATE AND GOING CONCERN
The Group’s current liabilities exceed its current assets at 31 August 2018 by R258.46 million.
Subsequent to the reporting date, the Group decide to draw down on its available facilities with Standard Bank
of South Africa Limited as per note 10.4, in the amount of R240 million. The proceeds of this funding was used
to settle the current portion of the profit-share cancellation liabilities as per note 10.8. Capital payments
under the facility agreement with Standard Bank of South Africa Limited are only due from 30 November 2019. The
Group’s effective net current asset position improved after 31 August 2018 as current liabilities were replaced
with non-current liabilities. In addition, other current liabilities presented on the Group’s statement of
financial position are due within 3 to 12 months from 31 August 2018. The Group has reviewed its cash flow
forecasts and is satisfied that it will generate sufficient positive cash flows within the year ahead to settle
its liabilities as they become due. Consequently, the directors are satisfied that the Group is a going concern.
Other than the above and as elsewhere disclosed in the financial statements, no significant events, occurred
subsequent to the reporting date which requires adjustment or additional disclosure in the financial statements.
CORPORATE INFORMATION
NON-EXECUTIVE DIRECTORS
Dr SF Booysen (Chairman)*
LC Cele*
J Rosen*
B Ngonyama*
OJ Goosen
SDL Rushton
I Groenewald#
(*) Independent; (#) Alternate
EXECUTIVE DIRECTORS
H Weidhase
AT De Klerk
DD Roodt
RH Walton
LEGAL ADVISOR
Adams and Adams Attorneys
AUDITORS
KPMG Incorporated
TRANSFER SECRETARIES
Link Market Services South Africa (Pty) Ltd
SPONSOR
Merchantec Capital
EFFICIENT GROUP
81 Dely Road
Hazelwood
Pretoria
0081
South Africa
t: +27 (0)87 944 7999 | e: info@efgroup.co.za | www.efgroup.co.za
Date: 20/11/2018 04:31:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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