Wrap Text
Unaudited Interim Financial Results for the Six Months Ended 28 February 2019
Efficient Group
Incorporated in the Republic of South Africa
(Registration number 2006/036947/06)
JSE share code: EFG
ISIN: ZAE000151841
Think Efficient. Realise potential.
Unaudited interim financial results for the six months ended 28 February 2019
KEY FACTS
Established in 2003 and listed on JSE in 2009 (EFG)
Market capitalisation R407 million (28 February 2019)
>69 000 clients across all sectors
230 financial advisors
456 full-time employees
National footprint
Three-cluster structure to meet client needs, across the full financial services value chain
KEY PERFORMANCE INDICATORS
(Compared to the six months ended 28 February 2018)
Revenue:
(5%)
R524 million
2018: R549 million
Recurring* headline earnings per share:
94%
44.18 cents
2018: 22.79 cents
Assets under administration:
5%
R109.6 billion
2018: R103.9 billion
Assets under management:
(13%)
R17.0 billion
2018: R19.6 billion
Number of advisors:
(4%)
230
2018: 240
Recurring* headline earnings:
91%
R39 million
2018: R21 million
Assets under advice:
5%
R19.5 billion
2018: R18.6 billion
Assets under consulting:
3%
R28.0 billion
2018: R27.2 billion
Cash generated by operations:
(75%)
R6 million
2018: R23 million
* Excluding the impact of the cancellation of the profit share agreement
in the Investments cluster and other once-off adjustments
BUSINESS STRATEGY
The business strategy of Efficient Group is to be a diversified financial services
provider offering customised products, professional services and added value
throughout the financial services value chain. In order to be optimally positioned
to do this, the Group adopted its Vision 2020 strategy in 2015.
Since then, we have focused on implementing this strategy in order to ensure
that the business remains relevant, competitive and sustainable within a
constrained economic environment. While our focus is appropriately strategic,
we recognise the need to be responsive to changes in the operating environment,
as well as flexible in the implementation of our strategy. It was for this reason
that we initiated an extensive restructuring of the Financial Services cluster
during the course of the 2017 financial year with, amongst other objectives,
consolidating various brands and entities within this cluster. This process was
successfully concluded in the 2018 financial year.
We also continue to align our strategy, structure, solutions and services with
developing megatrends that are redefining the financial services sector
worldwide. With this in mind, we continue to emphasise the value of
entrapreneurship, being able to act like an entrepreneur within a larger
organisation, both to our clients and to our business. This approach enables
each of the three clusters to function independently and to be responsive to
client and market needs.
In a rapidly changing environment, a strong reputation and integration throughout
the value chain will remain the most important determinants of success. Our
strategy, therefore, focuses not only on consolidating the acquisitions and operational
changes we have made over the years, but also on continuing to secure the kind
of strong corporate culture on which sustainable reputations are built.
In order to achieve our goals, we will continue to focus on the core aspects of
our business: delivering client-centred and customised solutions; maintaining
a solid yet flexible operational structure; extending our national footprint;
expanding into new sectors; and growing both organically as well as through
merger and acquisition.
THE REPORTING PERIOD AT A GLANCE
Strategy
- Efficient Group's strategic objective remains to be a leading diversified
financial services provider with a national footprint.
- The Group's short- and medium-term objectives, as defined in its Vision 2020
strategy of 2015 remain applicable.
- All aspects of the strategy are being implemented on an ongoing basis.
Business Development
- The consolidation in the Financial Services cluster has been completed.
- In line with the expected outcomes of the Retail Distribution Review we have
rebranded the cluster under one primary brand, Efficient Wealth, which we
expect to be classified under the Retail Distribution Review as a Registered
Financial Advisor (RFA) model.
- In addition to Efficient Med which was launched on 1 January 2018 in the newly-
established Financial Planning Centre, Efficient Insure was launched in the
reporting period to provide services to the clients of Efficient Wealth.
- Boutique Business Development, consisting of the highly-rated and successful
sales and distribution team of Boutique Collective Investments, expanded their
services to growing distribution and sales of selected Group services to the
national network of Efficient Wealth financial planners.
Operations
- We are continuing with our Vision 2020 strategy in order to align the business's
structure with its strategic objectives and the financial services value chain.
- The Group's national distribution footprint was strengthened and expanded.
- The development of Efficient Group's proprietary software, FutureSight, is
ongoing.
Communication
- The Group has a well-established internal and external communication
programme, and has a special focus on soliciting and responding to client feedback.
- Strong focus on integrating and consolidating corporate culture to align with values.
Governance
- The Group commenced training and commissioned a gap analysis of the
King IV requirements. The gap analysis included testing the relevant policies
and statutory documents against the principles and recommended practices of
King IV.
- Treating Customers Fairly (TCF) is a natural extension to our vision of
becoming a leading financial services business through a client-centred and
entrepreneurial business model, attuned to sustainable growth and profitability.
In this regard, a roll-out plan for the implementation of TCF and reinforcement
of a TCF culture was designed and approved.
FINANCIAL COMMENTARY
Overview
Profit for the six months ended 28 February 2019 ("the reporting period") is 14%
higher compared to the six months ended 28 February 2018 ("the comparative
period") and operating profit doubled to R54 million. Group revenue reduced by
5% during the reporting period and the Group was able to achieve slightly higher
margins of 28.2% compared to 27.8% for the comparative period. Net tangible
assets per share decreased from 33.21 cents per share at 31 August 2018 to a
net tangible liability of 133.12 cents per share at the end of the reporting period.
Feb 2019 Feb 2018 Aug 2018
Assets under Advice R19.5 billion R18.6 billion R20.1 billion
Assets under Management R17.0 billion R19.6 billion R19.5 billion
Assets under Administration R109.6 billion R103.9 billion R109.8 billion
Assets under Consulting R28.0 billion R27.2 billion R30.1 billion
Total Assets R174.1 billion R169.3 billion R179.5 billion
Total assets were up 3% from February 2018 and down 6% compared to total
assets as at 31 August 2018. The retraction of the JSE All Share Index of 3%
over the comparative period and 4% since 31 August 2018, impacted the
growth in the Group's assets.
FINANCIAL RESULTS
Statement of Comprehensive Income
The Group generated a net profit after tax of R22 million for the reporting period,
compared to a net profit after tax of R19 million for the comparative period.
The Group reported headline earnings of R22 million for the reporting period
(February 2018: R19 million). Headline earnings per share was calculated at
24.90 cents per share (February 2018: 22.31 cents per share).
As explained in our 2018 integrated report, the Group exercised its right to
cancel the profit share arrangement with Efficient Invest by entering into a profit
share cancellation agreement ("PSA"). Operating profit doubled as a result of the
PSA. After adding back the cost (cancellation fee and finance cost) associated
with the PSA, the Group reported recurring headline earnings of 44.18 cents per
share (February 2018: 22.79 cents per share).
Revenue of R524 million was 5% lower than revenue reported for the
comparative period. The Financial Services cluster achieved revenue growth of
2%, while aggregated revenue from the Solutions and Investment clusters
decreased due to lower assets under management. Operating expenses
consist of:
Unaudited Unaudited Audited
six months six months year
ended ended ended
28-Feb-19 28-Feb-18 % 31-Aug-18
R'000 R'000 Change R'000
Fixed expenses 79 047 70 355 12% 149 450
Profit share 529 43 035 (99%) 76 844
Staff incentives 5 836 4 960 18% 18 352
Non-cash flow expenses 8 738 8 331 5% 17 182
Operating expenses 94 150 126 681 (26%) 261 828
Fixed expenses increased by 12% mainly due to the changes in the Financial
Services cluster, ensuring sufficient and appropriate resources after the
consolidation of the different financial services providers (FSP's).
Staff incentives are provided for based on the business unit performance
against its target and the outperformance of its targets. It is expected that
business units will achieve their year-end targets. The increase in the provision
for incentives is in line with higher profits generated by the business units.
The profit share provision in the reporting period is linked to the performance
of the registered financial advisors (RFA's) in the branch model in the Financial
Services cluster, whilst the profit share payments for Efficient Invest was
included in the comparative period.
Non-cash flow expenses consist of amortisation costs and depreciation.
Statement of Cash Flows
The Group generated cash of R62 million from operating activities during the
six months under review and paid net finance costs of R11 million and tax of
R3 million. Cash generated from operating activities was reduced by R56 million
due to the increase in working capital as a result of the payment of the final
profit share to Efficient Invest, after August 2018.
Cash of R16 million was used as follows:
- Investment activities that mainly consisted of the acquisitions of independent
financial advisor client bases, decrease of loans receivable and acquisition of
property plant and equipment.
- Financing activities that mainly consisted of share repurchases, the repayment
of long-term liabilities and payment of a dividend.
- The repayment of the profit share cancellation liabilities was partially financed
by a loan from Standard Bank.
Statement of Financial Position
Debt increased by R273 million to fund the PSA and resulted in a net tangible
liability of 133.12 cents per share at the end of the reporting period.
At 28 February 2019 current liabilities exceeded current assets by R19 million.
Included in the current liabilities is an amount related to the convertible loan
that is payable at the end of August 2019 and in the event that it is not paid, it
will convert into ordinary shares per agreement. Management also assessed
the Group's cash flow forecast and is of the opinion that the Group will be able
to settle its short-term commitments as and when they become due.
BUSINESS SEGMENTAL RESULTS
FINANCIAL SERVICES
Nature of Business
Delivers comprehensive financial planning and management solutions.
Distributes proprietary and third party financial products to identified target
markets through a national network of financial advisors.
Business Units (Majority Shareholding)
- Efficient Wealth
- W-Allen White
- Secure Capital Investments
Services
- Cash management
- Employee benefits
- Estate planning
- Financial planning
- Healthcare
- Investment management
- Life and business assurance
- Retirement planning
- Short-term insurance
- Stockbroking
- Trust and executorship
Strategy
- Consolidate existing FSP's
- Adopt a single brand ("Efficient Wealth")
- Grow retail distribution footprint
- Entrench the Efficient Experience culture
- Increase profitability
Clients
Private, institutional, SME and corporate clients
Financial Performance
The cluster managed to maintain the same level of revenue and gross
contribution compared to the six months ended 28 February 2018, despite
tough market conditions. As the cluster's focus was on the consolidation of its
various FSP's in the period thereafter, including the current reporting period,
additional costs were incurred to ensure that the cluster has sufficient and
appropriate resources. In addition to this, during the comparative period, the
cluster's performance included gains from once-off transactions, including the
sale of a financial advisory client base.
Six months Six months 12 months
ended ended % ended
Feb 2019 Feb 2018 Change Aug 2018
Number of employees 367 365 1% 364
Assets under Advice (AUA) R'000 19 464 000 18 553 000 5% 20 086 000
Revenue R'000 115 522 112 820 2% 226 857
Profit for the period R'000 446 7 215 (94%) 5 382
SOLUTIONS
Nature of Business
Delivers customised, value-added financial services and solutions to retail, corporate and institutional clients.
Business Units (Majority Shareholding)
- Naviga Solutions
- Select Manager
- Efficient Benefit Consulting
- Efficient Board of Executors
- Efficient Private Clients
- Efficient Med (Division of Efficient Wealth)
- Efficient Insure (Division of Efficient Wealth)
Services
- Model portfolios (wrap funds)
- Multi-managed funds
- Share portfolios
- Trusts and wills
- Deceased estates
- Employee benefit consulting services
Strategy
- Create and package quality value propositions for the retail market
- Market and distribute the value propositions through the Group's distribution
businesses and through independent financial advisors
- Secure vertical integration through proprietary solutions and services
- Diversify revenue streams
Clients
Financial advisors and private, institutional and corporate clients
Financial Performance
The transfer of Select Manager from the Investments cluster to the Solutions
cluster is the main contributor to the increase in this cluster's AUM, revenue and
profit for the period, compared to that for the six months ended 28 February 2018.
Six months Six months 12 months
ended ended % ended
Feb 2019 Feb 2018 Change Aug 2018
Number of employees 23 21 10% 22
Assets under Management
(AUM) R'000 8 052 000 6 650 000 21% 8 927 000
Assets under Consulting
(AUC) R'000 134 000 - > 100% 130 000
Revenue R'000 28 357 17 157 65% 54 238
Profit/(loss) for the
period R'000 3 228 (270) > 100% 3 690
INVESTMENTS
Nature of Business
Executes administration, consulting, management and distribution of co-branded
collective investments to both retail and institutional investors.
Business Units (Majority Shareholding)
- Boutique Collective Investments
- Boutique Investment Partners
- Efficient Select
Services
- Fund administration
- Fund management
- Investment consulting
- Multi-management
Clients
Financial advisors and private, institutional and corporate clients
Strategy
- Grow assets under administration, management and consulting
- Facilitate and identify consolidation opportunities in the asset management
space
Financial Performance
The cluster's AUM, revenue and profit for the period decreased compared to
28 February 2018 due to Select Manager being transferred from the Investments
cluster to the Solutions cluster, in addition to tough market conditions which
negatively impacted the performance.
Six months Six months 12 months
ended ended % ended
Feb 2019 Feb 2018 Change Aug 2018
Number of employees 36 38 (5%) 37
Assets under Management
(AUM) R'000 8 920 000 12 965 000 (31%) 10 609 000
Assets under Administration
(AUAdmin) R'000 109 610 000 103 912 000 5% 109 848 000
Assets under Consulting
(AUC) R'000 27 846 000 27 158 000 3% 29 980 000
Revenue R'000 414 762 456 877 (9%) 879 900
Profit/(loss) for
the period R'000 15 881 18 385 (14%) (287 159)
DIVIDENDS
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.
Based on this guideline, the directors determined that no interim dividend be
paid to allow the company to repay debt.
CHANGES TO THE BOARD OF DIRECTORS
Mr Stephen Rushton resigned as a non-executive director with effect from
6 December 2018, following the disposal by Thebe Investment Corporation
Proprietary Limited of its entire beneficial interest in the securities of the
Company. The Board would like to thank Mr Stephen Rushton for his valued
contribution to the Group.
The Board welcomes Mr Erol Zeki as newly appointed non-executive director
and Ms Bongiwe Momoza as alternate director to non-executive director,
Mr Erol Zeki. Both were appointed on 13 February 2019.
The unaudited interim results for the six months ended 28 February 2019 were
approved by the board of directors on 30 April 2019 and are signed on their
behalf by:
Steve Booysen
Chair
30 April 2019
Heiko Weidhase
Chief Executive Officer
30 April 2019
UNAUDITED INTERIM FINANCIAL RESULTS
For the six months ended 28 February 2019
BASIS OF PREPARATION
The interim results for the six months ended 28 February 2019 are presented
on a consolidated basis and are prepared in accordance with the recognition
and measurement requirements of International Financial Reporting Standards
and presentation and disclosure requirements of IAS 34 (Interim Financial
Reporting), the JSE Listings Requirements, the Companies Act of South Africa
and the SAICA Financial Reporting Guides as issued by the Accounting Practices
Board. The accounting policies applied are consistent with those applied in the
previous interim period and previous financial year-end, except where indicated
differently. No material events occurred after the interim period which requires an
adjustment to the financial information. These interim results have not been
audited or reviewed by the Group's auditors, KPMG Inc. The summarised
unaudited interim financial results are prepared by Yazeed Patel CA(SA),
the Group Financial Manager of Efficient Group.
SUMMARISED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
Six months Six months Year
ended ended % ended
R'000 Notes 28-Feb-19 28-Feb-18 Change 31-Aug-18
Revenue 523 776 548 512 (5%) 1 083 506
Asset management and
consultation fees 18 448 30 495 45 069
Asset administration fees 364 526 389 820 762 310
Financial services income 112 589 110 620 221 579
Income from solutions 26 307 15 965 50 595
Other revenue 1 906 1 612 3 953
Variable expenses (376 066) (395 983) (778 561)
Gross profit 147 710 152 529 (3%) 304 945
Operating expenses (94 150) (126 681) (261 828)
Fixed expenses (79 047) (70 355) (149 450)
Profit share (529) (43 035) (76 844)
Staff incentives (5 836) (4 960) (18 352)
Non-cash flow expenses (8 738) (8 331) (17 182)
Share of (losses)/profits
from investments in
equity-accounted
associates, net of
taxation (20) 540 913
Operating profit 53 540 26 388 >100% 44 030
Non-operating items (8 293) 261 (445 299)
Dividend income on other
investments 61 38 25
Profit on disposal of
equipment 21 214 -
Profit on disposal of
customer contracts and
customer relationships - 1 342 1 342
Commission-agreement
cancellation expense - - (1 710)
Realised fair value adjustments
on available-for-sale investments - (6) -
Fair value adjustments on
investments at fair value through
profit or loss (1) (190) (97)
Re-measurement of loans
and borrowings at fair value
through profit or loss - (1 471) 1 486
Gain on settlement of loans
and borrowings at amortised
cost - - 562
Bad debts expense - - (5 665)
Non-operating items
Other (expenses)/ income (6) 334 2 158
Impairment of goodwill - - (350)
Impairment of investments
in equity-accounted associates - - (320)
Profit-share cancellation expense 1 (8 333) - (430 000)
Transaction costs on profit-
share cancellation (35) - (12 730)
Profit/(loss) before net finance
income 45 247 26 649 >100% (401 269)
Net finance (costs)/income (16 185) 1 030 1 558
Finance income 3 379 2 358 7 123
Finance costs (19 564) (1 328) (5 565)
Profit/(loss) before taxation 29 062 27 679 5% (399 711)
Taxation (7 441) (8 760) 111 638
Profit/(loss) for the period 21 621 18 919 14% (288 073)
Other comprehensive income
Items that may subsequently
be reclassified to profit or loss - - (186)
Unrealised fair value adjustments
on available-for-sale investments - - (256)
Related taxation - - 70
Items that may not be subsequently
reclassified to profit or loss - - 5 093
Revaluation of property - - 7 073
Related taxation - - (1 980)
Other comprehensive income,
net of taxation for the period - - 4 907
Total comprehensive income/(loss)
for the period 21 621 18 919 (283 166)
Profit/(loss) for the period
attributable to:
Equity holders of the parent 22 131 20 097 (285 946)
Non-controlling interests (510) (1 178) (2 127)
21 621 18 919 (288 073)
Total comprehensive income/(loss)
for the period attributable to:
Equity holders of the parent 22 131 20 097 (281 039)
Non-controlling interests (510) (1 178) (2 127)
21 621 18 919 (283 166)
Basic earnings/(loss) per
share (cents) 2 24.90 22.31 12% (317.91)
Diluted earnings/(loss) per
share (cents) 2 19.47 22.31 (13%) (317.91)
Headline earnings/(loss) per
share (cents) 2 24.88 21.15 18% (318.18)
Diluted headline earnings/(loss)
per share (cents) 2 19.46 21.15 (8%) (318.18)
SUMMARISED STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
Six months Six months Year
ended ended % ended
R'000 Notes 28-Feb-19 28-Feb-18 Change 31-Aug-18
Assets
Non-current assets
Property and equipment 3 62 486 54 164 62 596
Goodwill 4 155 611 154 076 154 981
Intangible assets 5 117 841 126 105 123 202
Unit-linked and other
investments 2 380 328 2 393
Investments in equity-
accounted associates 6 402 7 177 6 422
Loans receivable 1 312 3 087 1 448
Deferred tax assets 6 132 174 24 994 138 933
478 206 369 932 29% 489 975
Current assets
Unit-linked and other
investments 2 017 1 157 1 092
Trade and other receivables 88 204 90 542 97 780
Cash and cash equivalents 59 528 90 066 82 900
Short-term portion of loans
receivable 1 009 2 030 1 539
Current tax receivable 105 318 592
150 863 184 113 183 903
Total assets 629 069 554 045 14% 673 878
Equity and liabilities
Equity
Share capital and share premium 7 144 434 148 645 145 809
Treasury share reserve (532) (532) (532)
Fair-value adjustment reserve (185) 1 (185)
Revaluation reserve 6 218 1 125 6 218
Convertible loan 8 138 981 - 138 981
Accumulated (loss)/income (166 513) 125 785 (182 042)
Equity attributable to equity
holders of the parent 122 403 275 024 108 249
Non-controlling interests 1 995 4 071 2 848
Total equity 124 398 279 095 (55%) 111 097
Non-current liabilities
Loans and borrowings 9 304 220 38 380 88 979
Provisions for onerous contracts - 19 -
Deferred tax liabilities 6 30 573 31 178 31 438
334 793 69 577 >100% 120 417
Current liabilities
Convertible loan 20 578 - 19 202
Short-term portion of loans
and borrowings 9 53 254 44 734 260 039
Provisions for onerous contracts 100 210 114
Trade and other payables 95 723 141 081 161 856
Current tax payable 115 11 217 998
Cash and cash equivalents 108 8 131 155
169 878 205 373 (17%) 442 364
Total liabilities 504 671 274 950 84% 562 781
Total equity and liabilities 629 069 554 045 14% 673 878
Net asset value per share (cents) 137.77 306.07 (55%) 121.39
Net tangible (liability)/asset
value per share (cents) (133.12) 33.21 (>100%) (152.19)
SUMMARISED STATEMENT OF CHANGES IN EQUITY
Share
capital Treasury Fair-value
and share share adjustment
premium reserve reserve
R'000 R'000 R'000
Balance at 31 August 2017 150 325 (532) 1
Transactions with owners (1 680) - -
Dividends declared - - -
Repurchase of shares (1 680) - -
Total comprehensive income/(loss)
for the period - - -
Profit/(loss) - - -
Other comprehensive income - - -
Balance at 28 February 2018 148 645 (532) 1
Transactions with owners (2 836) - -
Dividends declared - - -
Repurchase of shares (2 836) - -
Issue of convertible loan - - -
Total comprehensive (loss)/income
for the period - - (186)
Loss - - -
Other comprehensive (loss)/income - - (186)
Balance at 31 August 2018 145 809 (532) (185)
Transactions with owners (1 375) - -
Dividends declared - - -
Repurchase of shares (1 375) - -
Total comprehensive income/(loss)
for the period - - -
Profit/(loss) - - -
Other comprehensive income - - -
Balance at 28 February 2019 144 434 (532) (185)
Reva- Accumula-
luation Convertible ted income
reserve loan (loss)
R'000 R'000 R'000
Balance at 31 August 2017 1 125 - 111 487
Transactions with owners - - (5 799)
Dividends declared - - (5 799)
Repurchase of shares - - -
Total comprehensive income/(loss)
for the period - - 20 097
Profit/(loss) - - 20 097
Other comprehensive income - - -
Balance at 28 February 2018 1 125 - 125 785
Transactions with owners - 138 981 (1 784)
Dividends declared - - (1 784)
Repurchase of shares - - -
Issue of convertible loan - 138 981 -
Total comprehensive (loss)/income
for the period 5 093 - (306 043)
Loss - - (306 043)
Other comprehensive (loss)/income 5 093 - -
Balance at 31 August 2018 6 218 138 981 (182 042)
Transactions with owners - - (6 602)
Dividends declared - - (6 602)
Repurchase of shares - - -
Total comprehensive income/(loss)
for the period - - 22 131
Profit/(loss) - - 22 131
Other comprehensive income - - -
Balance at 28 February 2019 6 218 138 981 (166 513)
Total
attributable
to equity Non-
holders of controlling Total
the parent interests equity
R'000 R'000 R'000
Balance at 31 August 2017 262 406 5 592 267 998
Transactions with owners (7 479) (343) (7 822)
Dividends declared (5 799) (343) (6 142)
Repurchase of shares (1 680) - (1 680)
Total comprehensive income/(loss)
for the period 20 097 (1 178) 18 919
Profit/(loss) 20 097 (1 178) 18 919
Other comprehensive income - - -
Balance at 28 February 2018 275 024 4 071 279 095
Transactions with owners 134 361 (274) 134 087
Dividends declared (1 784) (274) (2 058)
Repurchase of shares (2 836) - (2 836)
Issue of convertible loan 138 981 - 138 981
Total comprehensive (loss)/income
for the period (301 136) (949) (302 085)
Loss (306 043) (949) (306 992)
Other comprehensive (loss)/income 4 907 - 4 907
Balance at 31 August 2018 108 249 2 848 111 097
Transactions with owners (7 977) (343) (8 320)
Dividends declared (6 602) (343) (6 945)
Repurchase of shares (1 375) - (1 375)
Total comprehensive income/(loss)
for the period 22 131 (510) 21 621
Profit/(loss) 22 131 (510) 21 621
Other comprehensive income - - -
Balance at 28 February 2019 122 403 1 995 124 398
SUMMARISED STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
Six months Six months Year
ended ended % ended
R'000 Notes 28-Feb-19 28-Feb-18 Change 31-Aug-18
Cash flows from operating
activities
Cash generated from operations 11 5 689 22 975 44 359
Finance income received 3 225 2 358 7 123
Finance costs paid (14 251) (1 328) (5 426)
Dividends received from
unit-linked and other
investments 61 38 25
Dividends received from
investments in equity-
accounted associates - - 809
Taxation paid (2 574) (10 183) (17 131)
Net cash (outflow)/inflow
from operating activities (7 850) 13 860 (157%) 29 759
Cash flows from investing
activities
Acquisition of businesses,
net of cash acquired (1 118) (3 471) (5 804)
Proceeds on disposal of
business - 1 495 2 030
Additional payment for
business previously acquired - - (148)
Proceeds from loans receivable 1 387 115 (1 903)
Loans receivable advanced (576) (3 403) -
Acquisition and development
of intangible assets (5) (137) (238)
Acquisition of unit-linked
and other investments (913) 3 329 787
Acquisition and development
of property (141) (2 085) (3 420)
Acquisition of equipment (869) (988) (2 359)
Proceeds on disposal of
equipment 21 249 25
Net cash outflow from
investing activities (2 214) (4 897) (55%) (11 030)
Cash flows from financing
activities
Repurchase of shares (1 375) (1 680) (4 516)
Proceeds from long-term
liabilities 242 500 185 36 400
Repayment of long-term
liabilities (5 863) (11 058) (24 692)
Repayment of forward purchase
and dividend liabilities (69) (4 488) (31 069)
Repayment of contingent
consideration liabilities - (572) (2 447)
Repayment of profit-share
cancellation liabilities (240 000) - -
(Repayment of)/proceeds
from other vendor finance
liabilities (1 509) (1 314) 499
Dividends paid (6 945) (6 142) (8 200)
Net cash outflow from
financing activities (13 261) (25 069) (47%) (34 025)
Cash and cash equivalents
movement for the period (23 325) (16 106) (15 296)
Cash and cash equivalents
at the beginning of the period 82 745 98 041 98 041
Cash and cash equivalents at
the end of the period 59 420 81 935 (27%) 82 745
Cash and cash equivalents
in current assets 59 528 90 066 82 900
Cash and cash equivalents
in current liabilities (108) (8 131) (155)
Cash and cash equivalents
at the end of the period 59 420 81 935 (27%) 82 745
SEGMENTAL ANALYSIS
Unaudited - for the six months ended 28 February 2019
Financial
Services Solutions Investments Other Total
R'000 R'000 R'000 R'000 R'000
Revenue 115 522 28 357 414 762 (34 865) 523 776
External 111 917 10 887 399 581 1 390 523 776
Inter-group 3 605 17 469 15 181 (36 255) -
Profit for
the period 446 3 228 15 881 2 066 21 621
Assets 62 594 40 698 246 347 279 430 629 069
Liabilities (63 044) (24 461) (515 781) 98 615 (504 671)
Unaudited - for the six months ended 28 February 2018
Financial
Services Solutions Investments Other Total
R'000 R'000 R'000 R'000 R'000
Revenue 112 820 17 157 456 877 (38 342) 548 512
External 112 478 17 157 429 335 (10 458) 548 512
Inter-group 342 - 27 542 (27 884) -
Profit/(loss) for
the period 7 215 (270) 18 385 (6 411) 18 919
Assets 63 871 31 473 214 749 244 526 554 619
Liabilities (28 040) (9 972) (139 465) (98 047) (275 524)
Audited - for the year ended 31 August 2018
Financial
Services Solutions Investments Other Total
R'000 R'000 R'000 R'000 R'000
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) -
Profit/(loss)
for the period 5 382 3 690 (287 159) (9 986) (288 073)
Assets 63 178 71 770 283 852 255 078 673 878
Liabilities (61 405) (27 721) (570 240) 96 585 (562 781)
Other consists of intergroup eliminations and consolidation entries, Efficient
Group Limited, Efficient Capital Proprietary Limited, Efficient Group Central
Services Proprietary Limited, AS Sure Investment Services Proprietary Limited,
Efficient Equity Proprietary Limited, the Efficient Group Share Trust and the
Efficient Ulwazi Educational Trust. All operations take place in Southern Africa.
None of the Group's segments relies on concentrated or major clients.
NOTES TO THE UNAUDITED INTERIM FINANCIAL RESULTS
1. Profit-share cancellation
The profit-share cancellation expense relates to the cancellation of the "Joint
Management and Profit Incentive Agreement" (the PS agreement) with the
profit-share nominees which included a related party. The cancellation became
effective on 31 August 2018. Based on the structure of the cancellation agreement,
some of the payments due for cancellation were recognised immediately on
31 August 2018, whereas others were deferred. The composition of the profit-
share cancellation in the Group's financial statements are as follows:
Unaudited at Unaudited at Audited at
28-Feb-19 28-Feb-18 31-Aug-18
R'000 R'000 R'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
Nominee incentives 8 333 - -
8 333 - 430 000
2. Earnings/(loss) per share
Unaudited at Unaudited at Audited at
28-Feb-19 28-Feb-18 31-Aug-18
R'000 R'000 R'000
Headline and diluted headline
earnings
Attributable earnings/(loss)
for equity holders of
the parent 22 131 20 097 (285 946)
Basic earnings 22 131 20 097 (285 946)
Profit on disposal of
equipment (21) (214) -
Taxation on profit on disposal
of equipment 6 60 -
Profit on disposal of customer
contracts and customer
relationships - (1 342) (1 342)
Taxation on profit on disposal
of customer
contracts and customer
relationships - 455 431
Impairment of goodwill - - 350
Impairment of investments
in equity-accounted
associates - - 320
Headline earnings/(loss) 22 116 19 056 (286 187)
Basic earnings 22 131 20 097 (285 946)
Interest on convertible loan 1 376 - -
Taxation on interest on
convertible loan (385) - -
Diluted earnings 23 122 20 097 (285 946)
Profit on disposal of
equipment (21) (214) -
Taxation on profit on
disposal of equipment 6 60 -
Profit on disposal of
customer contracts and
customer relationships - (1 342) (1 342)
Taxation on profit on
disposal of customer contracts
and customer relationships - 455 431
Impairment of goodwill - - 350
Impairment of investments
in equity-accounted associates - - 320
Diluted headline earnings/(loss) 23 107 19 056 (286 187)
Unaudited at Unaudited at Audited at
28-Feb-19 28-Feb-18 31-Aug-18
R'000 R'000 R'000
Weighted average
number of ordinary shares
Ordinary shares in issue
at the beginning of the period 89 495 90 593 90 593
Effect of shares repurchased
during the period (280) (191) (326)
Effect of treasury shares
held from the beginning
of the period (321) (321) (321)
Weighted average number of
ordinary shares for basic
earnings/(loss) and headline
earnings/(loss) 88 894 90 081 89 946
Potential ordinary shares to
be issued 29 846 - -
Weighted average number of
ordinary shares for diluted
earnings/(loss) and diluted
headline earnings/(loss) 118 740 90 081 89 946
Unaudited at Unaudited at Audited at
28-Feb-19 28-Feb-18 31-Aug-18
Cents Cents Cents
Basic earnings/(loss) per share 24.90 22.31 (317.91)
Diluted earnings/(loss) per share 19.47 22.31 (317.91)
Headline earnings/(loss) per share 24.88 21.15 (318.18)
Diluted headline earnings/(loss)
per share 19.46 21.15 (318.18)
3. Property and equipment
Buildings Furniture,
(including computers and
assets under leasehold
Land construction) improvements Total
Unaudited - for the
six months ended
28 February 2019 R'000 R'000 R'000 R'000
Opening balance 11 800 45 900 4 896 62 596
Additions - 141 869 1 010
Depreciation - - (1 120) (1 120)
Disposals - - - -
Closing balance 11 800 46 041 4 645 62 486
Buildings Furniture,
(including computers and
assets under leasehold
Land construction) improvements Total
Unaudited - for the
six months ended
28 February 2018 R'000 R'000 R'000 R'000
Opening balance 10 560 36 255 5 383 52 198
Additions - 2 085 988 3 073
Depreciation - - (1 072) (1 072)
Disposals - - (35) (35)
Closing balance 10 560 38 340 5 264 54 164
Buildings Furniture,
(including computers and
assets under leasehold
Land construction) improvements Total
Audited - for the
year ended
31 August 2018 R'000 R'000 R'000 R'000
Opening balance 10 560 36 255 5 383 52 198
Additions - 3 420 2 359 5 779
Transfers - 519 (519) -
Depreciation - (127) (2 302) (2 429)
Disposals - - (25) (25)
Revaluations 1 240 5 833 - 7 073
Closing balance 11 800 45 900 4 896 62 596
The Group's properties are revalued annually during August each year.
4. Goodwill
Unaudited at Unaudited at Audited at
28-Feb-19 28-Feb-18 31-Aug-18
R'000 R'000 R'000
Opening balance 154 981 153 056 153 056
Acquired through business
combinations 630 1 020 2 275
Disposals - - -
Impairments - - (350)
Closing balance 155 611 154 076 154 981
Goodwill is allocated to the
following cash-generating
units:
Efficient Financial Services
Proprietary Limited
trading as Efficient Wealth 48 131 13 882 36 837
Efficient Wealth Proprietary
Limited - 22 148 -
Efficient Select Proprietary
Limited 8 369 8 369 8 369
Naviga Solutions Proprietary
Limited 25 404 25 118 25 404
Select Manager Proprietary
Limited 66 954 66 954 66 954
Stead Wealth Management Proprietary
Limited - 4 127 4 575
Exceed Asset Management Proprietary
Limited - 6 088 6 088
W Allen-White Brokers Proprietary
Limited 666 1 016 666
Secure Capital Investments Proprietary
Limited 4 236 4 237 4 237
Efficient Private Clients Proprietary
Limited 1 851 1 851 1 851
Efficient Institutional Investment
Managers
Proprietary Limited - 286 -
155 611 154 076 154 981
The goodwill previously allocated to Stead Wealth Management Proprietary
Limited and Exceed Asset Management Proprietary Limited was transferred to
Efficient Financial Services Proprietary Limited on 1 September 2018, as the
businesses of these companies were consolidated into Efficient Financial
Services Proprietary Limited from this date.
The business combinations concluded by the Group for the period, related to
interests in various financial advisory client bases which were acquired.
Goodwill is tested annually for impairment at cash-generating unit level between
July and August each year.
5. Intangible assets
Customer
contracts and
Trade customer Computer
names relationships software Total
Unaudited - for the six months
ended 28 February 2019 R'000 R'000 R'000 R'000
Opening balance 1 255 118 595 3 352 123 202
Additions - - 5 5
Amortisation (53) (6 685) (880) (7 618)
Acquired through business
combinations - 2 252 - 2 252
Closing balance 1 202 114 162 2 477 117 841
Customer
contracts and
Trade customer Computer
names relationships software Total
Unaudited - for the six months
ended 28 February 2018 R'000 R'000 R'000 R'000
Opening balance 1 361 124 283 4 921 130 565
Additions - - 137 137
Amortisation (139) (6 195) (925) (7 259)
Disposals - (956) - (956)
Acquired through business
combinations - 3 618 - 3 618
Closing balance 1 222 120 750 4 133 126 105
Customer
contracts and
Trade customer Computer
names relationships software Total
Audited - for the year ended
31 August 2018 R'000 R'000 R'000 R'000
Opening balance 1 361 124 283 4 921 130 565
Additions - - 238 238
Amortisation (106) (12 840) (1 807) (14 753)
Disposals - (956) - (956)
Acquired through business
combinations - 8 108 - 8 108
Closing balance 1 255 118 595 3 352 123 202
6. Deferred tax
Unaudited Unaudited Audited
at 28-Feb-19 at 28-Feb-18 at 31-Aug-18
R'000 R'000 R'000
Deferred tax assets 132 174 24 994 138 933
Deferred tax liabilities (30 573) (31 178) (31 438)
Net deferred tax 101 601 (6 184) 107 495
Opening balance 107 495 (18 004) (18 004)
Acquired through business
combinations (630) (1 010) (2 274)
Disposal of businesses - 268 268
Charge recognised in profit
or loss (5 264) 12 562 129 415
Charge recognised in other
comprehensive income - - (1 910)
Closing balance 101 601 (6 184) 107 495
Deferred tax comprises the
following temporary differences:
Accruals and provisions 6 100 12 050 13 219
Income received in advance 511 - 394
Fair value adjustments on
investments 186 174 177
Profit-share cancellation
liabilities 9 255 - 120 400
Calculated tax losses 122 890 18 502 11 588
Prepaid expenses (1 904) (1 506) (1 406)
Intangible assets (32 782) (35 002) (34 222)
Property and equipment (2 655) (402) (2 655)
101 601 (6 184) 107 495
A significant portion of amounts due in respect of the profit-share cancellation
transaction was settled during the period, thus explaining the
increase in deferred tax attributable to calculated tax losses and the decrease
in deferred tax attributable to the profit-share cancellation liabilities.
7. Share capital and share premium
Unaudited at Unaudited at Audited at
28-Feb-19 28-Feb-18 31-Aug-18
R'000 R'000 R'000
Share capital
Authorised
361 350 000 ordinary shares of
R0.00000277 each 1 1 1
Issued
89 165 353 (28 February 2018:
90 176 422 and 31 August 2018:
89 494 783) ordinary shares
of R0.00000277 each - - -
Share premium on shares issued
Opening balance 145 809 150 325 150 325
Repurchase of shares (1 375) (1 680) (4 516)
Closing balance 144 434 148 645 145 809
Unaudited at Unaudited at Audited at
28-Feb-19 28-Feb-18 31-Aug-18
R'000 R'000 R'000
Reconciliation of number of
shares in issue
Opening balance 89 495 90 593 90 593
Repurchase of shares (329) (417) (1 098)
Closing balance 89 165 90 176 89 495
8. Convertible loan
Unaudited at Unaudited at Audited at
28-Feb-19 28-Feb-18 31-Aug-18
R'000 R'000 R'000
Equity component 138 981 - 138 981
Current liability 20 578 - 19 202
159 559 - 158 183
The loan was advanced to the Group by the profit-share cancellation nominees
on 31 August 2018 as part of the profit-share cancellation transaction. The loan
will either be settled in cash or in ordinary shares to be issued in Efficient Group
Limited to the parties. The loan will be settled or converted to issued shares by
no later than 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 will amount to 29 845 849 to the nominees.
Due to the mandatory interest being charged on the loan, the loan is considered
to be a compound financial instrument and has an equity and debt portion as
indicated above.
9. Loans and borrowings
Unaudited at Unaudited at Audited at
28-Feb-19 28-Feb-18 31-Aug-18
R'000 R'000 R'000
Forward purchase liabilities 7 352 32 113 6 916
Dividend liability - 2 359 -
Contingent consideration liabilities 1 590 5 636 1 599
Vendor liabilities for book acquisitions 3 181 325 3 554
Working capital loans 272 800 12 263 35 367
Mortgage loans 27 518 29 038 28 314
Loans from non-controlling interests 1 525 1 380 1 451
Profit-share cancellation liabilities 43 508 - 271 817
357 474 83 114 349 018
Non-current liabilities 304 220 38 380 88 979
Current liabilities 53 254 44 734 260 039
357 474 83 114 349 018
The forward purchase liabilities and dividend liability relate to the acquisition
of Select Manager Proprietary Limited and its subsidiaries, which took effect
on 1 March 2018. The liabilities are due to be settled by 4 June 2019. The
contingent consideration liabilities relate to the acquisition of W-Allen White
Brokers Proprietary Limited and Secure Capital Investments Proprietary Limited.
The working capital loans and mortgage loans are payable to Standard Bank of
South Africa Limited. Included in the working capital loans payable is an
amount of R240 million which was borrowed to finance a portion of the profit-
share cancellation expense which became payable on 31 August 2018. The
profit-share cancellation expense which was due, was settled during
September 2018.
10. Analysis of financial assets and financial liabilities
The fair values of financial assets and liabilities measured at fair value in the
statement of financial position can be summarised as follows:
Fair value hierarchy level
Level 1 Level 2 Level 3 Total
Unaudited at 28 February 2019 R'000 R'000 R'000 R'000
Financial assets
Inyosi enterprise development
portfolio investment - - 1 013 1 013
Unit-linked investments 3 384 - - 3 384
3 384 - 1 013 4 397
Financial liabilities
Business acquisition liabilities - - (1 590) (1 590)
- - (1 590) (1 590)
Fair value hierarchy level
Level 1 Level 2 Level 3 Total
Unaudited at 28 February 2018 R'000 R'000 R'000 R'000
Financial assets
Unit-linked investments 1 485 - - 1 485
1 485 - - 1 485
Financial liabilities
Business acquisition liabilities - - (40 108)(40 108)
- - (40 108)(40 108)
Fair value hierarchy level
Level 1 Level 2 Level 3 Total
Audited at 31 August 2018 R'000 R'000 R'000 R'000
Financial assets
Inyosi enterprise development portfolio
investment - - 1 004 1 004
Unit-linked investments 2 481 - - 2 481
2 481 - 1 004 3 485
Financial liabilities
Business acquisition liabilities - - (8 515) (8 515)
- - (8 515) (8 515)
There were no transfers of any financial instruments between fair value hierarchy
Levels 1, 2 and 3 during any of the reporting periods.
The carrying values of all financial instruments not presented at fair value on
the statement of financial position are reasonable approximations of their fair
values.
Business acquisition liabilities are included in the "Loans and borrowings" line
on the statement of financial position. These include forward purchase liabilities,
committed dividend liabilities to legal non-controlling interest shareholders as
well as contingent consideration liabilities.
Valuation techniques and inputs used in the fair value measurement of Level 3
financial instruments
Business acquisition liabilities
Business acquisition liabilities are valued at the present value of the expected
payments set out in the contracts. The effect of discounting these liabilities
was not considered to be material.
The unobservable inputs used for calculating the fair value of the forward
purchase liabilities, contingent consideration liabilities and dividend liabilities for
contractual dividends include budgets and forecasts with estimated annual profit
growth rates, planned independent financial advisor book buys and free cash flows.
As there is a contractual maximum purchase price that was used in calculating
the business acquisition liabilities, or the liabilities are directly linked to the
performance of the related entity, the Group's profit is not materially sensitive
to the inputs of the models applied when calculating fair value.
Inyosi enterprise development portfolio investment
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
28 Feb 2019, the Group held 1 009 206 units (31 Aug 2018: 997 399 units) in
the investment portfolio at a price per unit of 100.36 cents (31 Aug 2018:
100.64 cents). The fair value of the investment would increase (decrease) with
a change in any of the inputs.
Unaudited at Unaudited at Audited at
28-Feb-19 28-Feb-18 31-Aug-18
R'000 R'000 R'000
Opening balance (8 515) (43 697) (43 697)
Fair value adjustments
for the period
recognised in profit
or loss - (1 471) 1 666
Liabilities now measured
at amortised cost 6 916 - -
Payments and settlements
during the period - 5 060 33 516
Closing balance (1 599) (40 108) (8 515)
11. Cash generated from operations
Unaudited at Unaudited at Audited at
28-Feb-19 28-Feb-18 31-Aug-18
R'000 R'000 R'000
Profit/(loss) before taxation 29 063 27 679 (399 711)
Adjustments for:
Depreciation on property
and equipment 1 120 1 072 2 429
Amortisation on intangible
assets 7 618 7 259 14 753
Dividend income from other
investments (61) (38) (25)
Profit on disposal of
equipment (21) (214) -
Profit on disposal of
customer contracts
and customer relationships - (1 342) (1 342)
Re-measurement of loans
and borrowings at fair value
through profit or loss - 1 618 (1 486)
Gain on settlement of loans
and borrowing at amortised cost - - (562)
Fair value adjustments on
investments at fair value
through profit or loss 1 190 97
Realised fair value adjustments
on available-for- sale investments - 6 -
Finance income (3 379) (2 358) (7 123)
Finance costs 19 564 1 328 5 565
Bad debts expense - - 5 665
Impairment of goodwill - - 350
Profit-share cancellation
expense funded through
loans and borrowings 8 333 - 430 000
Impairment of investments
in equity-accounted associates - - 320
Share of losses/(profits) from
investments in equity-accounted
associates, net of taxation 20 (540) (913)
Operating profit before
changes in working capital 62 258 34 660 48 017
Changes in working capital:
Trade and other receivables 9 577 19 661 6 693
Trade and other payables (66 132) (31 100) (9 990)
Provisions (14) (246) (361)
5 689 22 975 44 359
12. Adoption of new accounting standards
The Group has adopted the following new accounting standards as issued by
the IASB, which were effective for the Group from 1 September 2018:
- IFRS 15 (Revenue from Contracts with Customers)
- IFRS 9 (Financial Instruments)
Upon adoption of IFRS 9, the Group no longer has any financial instruments that
will be measured at fair value through other comprehensive income.
The changes were applied retrospectively without restating comparative figures.
If any differences were identified they would have been taken to opening retained
earnings, however the impact of the adoption of IFRS 15 and IFRS 9 was
immaterial and no adjustments were processed in these results presented.
13. Events after the reporting period
On 1 March 2019, the Group disposed of its entire interest in Efficient IDS
Proprietary Limited.
On 1 April 2019, the Group acquired a controlling interest in Dinamika Fonds
Bestuurders Proprietary Limited.
No other events material to the understanding of these results has occurred
between the end of the reporting period and the date of approval of these results.
COMPANY INFORMATION
GROUP COMPANY SECRETARY
Acorim
t: +27 (0)11 325 6363
e: efficient@acorim.co.za
13th Floor
Illovo Point
68 Melville Road
Illovo
Sandton
2196
LEGAL ADVISOR
Adams and Adams Attorneys
4 Daventry Street
Lynnwood Manor
Pretoria
0081
AUDITORS
KPMG Incorporated
(Registration number 1999/021543/21)
KPMG Crescent
85 Empire Road
Parktown
2193
TRANSFER SECRETARIES
Link Market Services South Africa (Pty) Ltd
(Registration number 2000/007239/07)
13th Floor, Rennie House
19 Ameshoff Street
Braamfontein
(PO Box 4844, Johannesburg, 2000)
SPONSOR
Merchantec Capital
(Registration number: 2008/027362/07)
13th Floor
Illovo Point
68 Melville Road
Illovo
Sandton
2196
(PO Box 41480, Craighall, 2024)
REGISTRATION AND CONTACT DETAIL
Incorporated in the Republic of South Africa
(Registration number 2006/036947/06)
JSE share code: EFG
ISIN: ZAE000151841
Telephone: +27 (0)87 944 7999
REGISTERED OFFICE AND POSTAL ADDRESS
81 Dely Road
Hazelwood
Pretoria
0081
South Africa
t: +27 (0)87 944 7999
e: info@efgroup.co.za
http://www.efgroup.co.za
Date: 03/05/2019 04:43:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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